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

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

                    For the fiscal year ended January 3, 1997
                                       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.)

Highway 41 North, P.O. Box 390, Addison, Alabama                    35540
------------------------------------------------                    -----
(Address of principal executive offices)                          (Zip Code)

       Registrant's telephone number, including area code: (205) 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. [ ]

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 25, 1997,  was  $150,661,068.80.  The number of
shares of common stock  outstanding at that date was 15,437,801  shares,  $.0001
par value.

Documents Incorporated By Reference
-----------------------------------
                                                            Part     Item
                                                            ----     ----
1.  Southern Energy Homes, Inc. Definitive
    Proxy Statement with respect to its
    June 4, 1997 Annual Meeting of
    Stockholders                                            III      10,11,12,13





                                     PART I

                           SOUTHERN ENERGY HOMES, INC.

ITEM  1.  BUSINESS

GENERAL
         Southern  Energy  Homes,  Inc.  (the  "Company")  is  engaged  in:  the
production  and retail sale of  manufactured  homes and the retail  financing of
manufactured  homes. The Company produces  manufactured  homes sold primarily in
the  southeastern and  southcentral  United States.  The Company operates eleven
home  manufacturing  facilities  (eight in Alabama,  one in Texas,  one in North
Carolina  and one in  Pennsylvania)  to produce  homes  sold in 30  states.  The
Company's homes are currently  marketed under six brand names by 465 independent
dealers at 859  independent  dealer  locations  and eight  company-owned  retail
centers.

         The  Company  manufactures  high  quality  homes,  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 which are  transported by its
own or independent trucking companies to dealer locations.

         The Company  historically  focused on the middle to higher priced range
of the  manufactured  housing  market,  but in 1993 expanded its product line to
include lower priced homes.  The Company's homes range in size from 653 to 2,417
square  feet and  sell at  retail  prices  ranging  from  $14,900  to  $108,000,
excluding land.

         The Company  believes that its willingness to customize floor plans and
design  features to match home buyer  preferences is the principal  factor which
differentiates it from most of its competitors.

         Through its finance  subsidiary  and, more recently,  through a finance
joint venture,  the Company also provides home buyers with a source of financing
for homes sold by the Company.

MANUFACTURED HOMES

         The Company produces a variety of single- and multi-section homes under
six 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. The six divisions of the
Company at which its homes were manufactured in 1996 and certain characteristics
of the homes are as follows:

<TABLE>
<CAPTION>

                                                                         Retail
Division                   Type                      Square Feet       Price Range
---------------------------------------------------------------------------------------
<S>                        <C>                      <C>               <C>     
Southern Energy            Multi-section             1,312-2,417       $33,800-$108,000
Southern Life/style        Single- and multi-section   858-2,296         23,200- 63,000
Southern Homes             Single- and multi-section   653-1,968         14,880- 35,400
Southern Energy Homes
 of Texas                  Single- and multi-section 1,088-2,128         26,600- 54,600
Southern Energy Homes
 of North Carolina         Single- and multi-section   765-2,075         21,500- 61,200
Southern Energy Homes
 of Pennsylvania           Single- and multi-section   924-2,016         29,900- 55,000

</TABLE>

         For the fiscal year ended January 3, 1997, the net revenues contributed
by each of the  Company's  six home  manufacturing  divisions  were as  follows:
Southern Energy - $57 million; Southern Life/Style - $71 million; Southern Homes
- $90 million;  Southern  Energy Homes of Texas - $35 million;  Southern  Energy
Homes of North Carolina - $26 million; and Southern Energy Homes of Pennsylvania
- $10 million.

         The Company currently operates four component supply divisions. Classic
Panel Designs supplies laminated and other interior wall panels. Wind-Mar Supply
provides windows, doors and countertops.  Trimmasters produces wood moulding and
trim finishing.  Unique Dinettes  produces kitchen and dining  furniture.  These
divisions  sell  products  both to our  manufactured  housing  divisions  and to
third-party customers.  For the fiscal year period ended January 3, 1997, .5% of
the  Company's  net  revenues  were  attributable  to sales  of these  ancillary
products to third-parties.






         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
which 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 four  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
permits extensive  customization of floor plan designs to meet specific customer
preferences.

RETAIL FINANCING

         Home buyers normally secure financing from third-party  lenders such as
banks or independent finance companies. While the Company believes that consumer
financing  has  generally  become more  available  in the  manufactured  housing
industry in recent years, the availability and cost of financing is important to
the Company's  sales. In order to provide home buyers with an additional  source
of financing, the Company's wholly owned subsidiary, Wenco Finance, Inc. ("Wenco
Finance")  has  been   originating  and  servicing   consumer  loans  for  homes
manufactured  by the Company.  At January 3, 1997, the Company had $27.6 million
of  installment  contract  receivables  outstanding as compared with $655,000 at
December 29, 1995.  In February  1997,  the Company  formed a joint venture with
21st Century Mortgage Corporation ("21st Century"). The joint venture, Wenco 21,
will  continue to offer,  through 21st  Century,  consumer  financing  for homes
manufactured  by the Company as well as for other homes sold  through its retail
centers and independent dealers.  With marketing support and assistance from the
Company and Wenco 21, 21st Century will originate and service consumer loans and
will assign to Wenco 21 the net  collections  from those  loans after  deducting
service  fees and costs,  credit  loss  reserves,  and  principal  and  interest
payments due to third party investors or lenders.  Wenco 21 will be obligated to
indemnify  21st Century  against losses  incurred in connection  with the loans,
other than losses  incurred as a result of negligence by 21st Century.  In light
of the shift in  consumer  finance  activities  to Wenco 21,  Wenco  Finance has
suspended  its loan  origination  activities  and has  engaged  21st  Century to
service its existing loan  portfolio.  The Company expects that 21st Century and
Wenco 21, which is currently in a start-up  phase of operation,  will market the
new consumer loan program  through the Company's  retail centers and independent
dealer network. There can be no assurance that 21st Century and Wenco 21 will be
able to provide  significant  levels of financing for home buyers,  or that such
financing activities will not adversely impact the Company's profitability.

HOME MANUFACTURING OPERATIONS

         The  Company's  homes  are  currently  manufactured  by  six  operating
divisions using assembly line techniques at eleven facilities, four of which are
located  in  Addison,  Alabama,  two of which are  located  in  Double  Springs,
Alabama,  two of which are located in Lynn, Alabama,  one of which is located in
Fort Worth, Texas, one of which is located in Albemarle,  North Carolina and one
of which is located in Hegins, Pennsylvania.

         The Company's  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  485 floor sections per week with minimal labor
additions.  The  Company  plans  to  continue  to  operate,  like  most  of  its
competitors,  on a single  shift per day basis.  During  the  fiscal  year ended
January 3, 1997, the Company produced an average of 315 floor sections per week.
This represented an 18% increase in floor section  production from an average of
268 floor  sections per week in the fiscal year ended  December 29, 1995. In the
fiscal year ended  December  30,  1994,  the Company  produced an average of 222
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:


                                                  Year Ended
                           -----------------------------------------------------
                           December 30,         December 29,        January 3,
                                   1994                 1995              1997
                                   ----                 ----              ----
 
Homes                             7,571                9,079            10,940
Floor sections                   11,553               13,942            16,697
Home manufacturing
  facilities(1)                       8                   10                10

(1) Production  commenced at the Company's eleventh home manufacturing  facility
    in February 1997.

         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  incentive  compensation  system.
The Company  believes that these  compensation  systems help to focus efforts on
curtailing waste and  inefficiencies  in the production  process 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 4.2% of the Company's  purchases during each of
the past two 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 such increases in costs can not always be reflected immediately
in the Company's  prices,  the Company in the past has been able to pass along a
significant portion of cost increases in its current prices.

         Because the cost of  transporting a manufactured  home is  significant,
substantially  all of the Company's homes are sold to dealers within a 600 miles
radius of a  manufacturing  facility.  The  Company  arranges,  at the  dealer's
expense,  for the transportation of finished homes to dealer locations using its
own trucking subsidiary, MH Transport, Inc., and independent trucking companies.
The  Company  is using MH  Transport  to  transport  a  majority  of its  homes.
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,  and
the Company  does not  maintain any  significant  inventory of unsold  completed
homes.  The Company's  backlog of orders for  manufactured  homes as of March 1,
1997 was $3.0  million as compared  with $8.0  million at March 1, 1996.  Dealer
orders are subject to  cancellation  prior to  commencement  of production for a
variety of reasons,  and the Company does not  consider its order  backlog to be
firm orders.

SALES NETWORK

         At  January  3, 1997,  the  Company  sold  manufactured  homes  through
approximately 465 independent  dealers at approximately  859 independent  dealer
locations  and  through  eight   company-owned   retail  centers  in  30  states
principally in the  southeastern  and  southcentral  United States.  The Company
believes that the quality of its  independent  dealer network has been important
to the Company's performance.

         Each of the  Company's  six home  manufacturing  divisions  maintains a
separate sales force. At January 3, 1997, a total of 91 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  believes  the  close  working  relationship  between  its
division  management  and the  independent  dealers  they  service  has  been an
important factor in the Company's growth. 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
fiscal 1996, the Company's largest dealer accounted for 5.4% of net revenues and
the ten largest dealers accounted for 25.7% of net revenues.  In the fiscal year
ended December 29, 1995, the Company's  largest dealer accounted for 5.0% of net
revenues,  and the  Company's  ten largest  dealers  accounted  for 24.0% of net
revenues.  In the fiscal year ended  December 30, 1994,  the  Company's  largest
dealer  accounted for 6.0% of net revenues and the Company's ten largest dealers
accounted for 27.6% of net revenues.

         The Company  recently  acquired BR Holding Corp.  and a group of retail
companies doing business as Blue Ribbon Homes ("BR  Holding").  BR Holding sells
homes on a retail basis, primarily in the southeastern United States. At January
3, 1997, the Company had eight retail sales centers; seven in Alabama and one in
Mississippi. Each of the eight sales centers maintains a separate sales force.






         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.

         The manufactured  housing market is highly cyclical and seasonal and is
affected by the same economic  factors which impact the broader  housing market.
Historically,  most sectors of the homebuilding  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.

WARRANTY, QUALITY CONTROL AND SERVICE

         The  Company  adheres  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.
In order to respond more quickly to customer  service requests and to maintain a
high level of  customer  satisfaction  as the  Company  continues  to grow,  the
Company has increased its customer  service staff.  Enhanced  quality  assurance
systems are  expected  to  contribute  to the value and appeal of the  Company's
homes and, over the long term, to reduce 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 plus certain  administrative  and shipping  expenses.  At
January 3, 1997, the Company's contingent  repurchase liability under floor plan
financing   arrangements  through  independent  dealers  was  approximately  $91
million.  While homes that have been repurchased by the Company under floor plan
financing  arrangements  are  usually  sold to other  dealers and losses to date
under these arrangements have been insignificant, no assurance can be given that
the  Company  will  be  able to sell to  other  dealers  homes  which  it may by
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 6.0% of
the Company's  net revenues in each of the past three fiscal years.  See "-Sales
Network."  The Company  does not view any single  independent  dealer as being a
material  customer.  While  the  Company  does  not  have  access  to  financial
information  regarding  its  independent  dealers,  it is  not  aware  that  any
independent  dealer is  experiencing  financial  difficulties.  The Company also
finances   substantially   all  of  its  retail  inventory  through  floor  plan
arrangements.  Such borrowings totaled approximately $12.0 million at January 3,
1997.

COMPETITION

         The  manufactured  housing  industry is highly  competitive at both the
manufacturing  and retail levels,  with competition based upon 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.  The Company does not view any of its  competitors as being
dominant  in the  industry.  A number of these firms 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
southcentral  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 believes consumer financing has generally become
more  available  in the  manufactured  housing  industry  in recent  years,  and
although the Company has recently  formed its Wenco 21 joint  venture to provide
consumer  financing to customers through 21st Century, a contraction in consumer
credit could provide an advantage to those competitors with established internal
financing capabilities.

         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 in recent
years become more difficult to meet.

         Manufactured  homes  compete  with  new  site-built  homes,  as well as
apartments,  townhouses,  condominiums and existing  site-built and manufactured
homes.







         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  Home  Construction  and Safety Standards Act of 1974. 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  hurricances.
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  Finance,  the  Company's  finance  subsidiary,  is subject to a
number  of state and  local  licensing  requirements  which  are  applicable  to
businesses  engaged in the  origination  and  servicing  of consumer  loans.  In
addition,  both Wenco  Finance and Wenco 21, the  Company's  new  finance  joint
venture  with 21st  Century,  are also 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  Finance or
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 operation.

         MH Transport, the Company's trucking subsidiary,  is subject to federal
and state laws and regulations  which apply to motor vehicle carriers  operating
in interstate  and intrastate  commerce.  Failure by MH Transport to comply with
any of these laws and  regulations  could have a material  adverse effect on the
Company's business and results of operations.

         The  Company  believes  that it is in  compliance  with  the  foregoing
existing government regulations.

RECENT ACQUISITIONS

         On November 21, 1996, the Company  acquired BR Holding Corp., a company
which operates a group of companies  engaged in the retail sale of  manufactured
homes,  and is doing  business as Blue Ribbon Homes ("BR  Holding").  BR Holding
also  operates an  insurance  agency  which  provides  homeowner  insurance  for
manufactured  homes.  The Company  paid  $1,075,000  in cash and issued  332,814
shares of the Company's common stock  (approximate  market value on November 21,
1996 of $4,532,000). The acquisition was accounted for under the purchase method
of accounting; thus the Company's financial statements as of January 3, 1997 and
for the year then ended  reflect the  operations  of BR Holding from the date of
acquisition.  The total  purchase  price  exceeded  the fair value of net assets
acquired  by  $5,480,000,  which  amount  is  being  amortized  over 30 years as
goodwill. In addition, the Company entered into four year non-compete agreements
with the former  stockholders of BR Holding for an aggregate  amount of $50,000,
which  amount is included in the cash  purchase  price  noted  above.  The stock
purchase  agreement  requires  the  Company to make  additional  payments to the
seller contingent on future earnings  performance of BR Holding.  Any additional
payments  will be made




20% in cash  and  80% in  shares  of the  Company's  common  stock  and  will be
accounted for as goodwill and amortized  over the remaining  recovery  period of
the goodwill.

         In July, 1996, the Company acquired Unique Dinettes, Inc. ("Unique"), a
manufacturer  of ceramic  tables and  countertops.  The total  purchase price of
$434,000 was paid in cash, and exceeded the fair value of the acquired assets by
$44,000.  The Unique  acquisition was accounted for under the purchase method of
accounting.

         In   January   1996,   the   Company   acquired    Trimmasters,    Inc.
("Trimmasters"),  a manufacturer  of trim moulding.  The total purchase price of
$356,000 was paid in cash, and exceeded the fair value of the acquired assets by
$297,000.  The  Trimmasters  acquisition  was  accounted  for under the purchase
method of accounting.

EMPLOYEES

         As of January 3, 1997, the Company  employed 2,516 full-time  employees
involved in the following  functional areas:  manufacturing,  2,049;  sales, 91;
field  service,  133;   administration  and  clerical,  140;  drivers,  78;  and
management,   25.  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 54) is the  founder of the  Company and has
been the Company's  President,  Chief Executive Officer and a Director since the
Company's  incorporation  in 1982. 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 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.

         Johnny  R.  Long  (age 50) has  been a Vice  President  of the  Company
primarily  responsible  for  purchasing  and  a  Director  since  the  Company's
incorporation  in 1982.  From 1976 to 1982, Mr. Long served as Purchasing  Agent
for Shiloh  Homes,  a division of Winston  Industries.  Mr. Long was  Purchasing
Agent for Bendix Homes from 1974 to 1976, for Commodore Homes from 1972 to 1974,
and for Chevelle Homes from 1966 to 1972.

         Keith W.  Brown (age 40) has served as the  Company's  Chief  Financial
Officer since the Company's  incorporation in 1982 and as a Director since 1989.
Mr.  Brown  served as the  Company's  Secretary  from 1982 to  January  1993 and
resumed that office in September 1993. He was elected Treasurer in January 1993.
From 1980 to 1982,  Mr. Brown served as Controller  for Shiloh Homes, a division
of Winston Industries.

         Keith  O.  Holdbrooks  (age  36) was  elected  as the  Company's  Chief
Operating Officer in August 1996 by the Company's board of directors.  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,  and from 1985 to 1989  served as  salesman  for  Southern  Lifestyle,  a
division of the Company.

ITEM  2.   PROPERTIES

         The Company's  manufactured home segment currently operates eleven home
manufacturing  facilities  (eight in  Alabama,  and one in each of Texas,  North
Carolina  and  Pennsylvania)  and  four  component  supply  facilities  (all  in
Alabama).  The facilities used by the Company's manufactured home segment are as
follows:

<TABLE>
<CAPTION>


                           Building                                    Leased or
Unit                       Location                  Square Feet       Owned
----                       --------                  -----------       -----
<S>                        <C>                         <C>            <C> 
Manufacturing
  Southern Energy
  Plant #1                 Addison, AL                   72,000        Owned
  Plant #2                 Addison, AL                   55,000        Owned
Southern Life/style
  Plant #1                 Addison, AL                   62,500        Owned
  Plant #2                 Addison, AL                   54,000        Leased








Southern Homes
  Plant #1                 Double Springs, AL            60,000        Owned
  Plant #2                 Double Springs, AL            52,000        Owned
  Plant #3                 Lynn, AL                      90,700        Owned
  Plant #4                 Lynn, AL                      96,000        Owned
Southern Energy Homes
    of Texas               Fort Worth, TX                98,300        Owned
Southern Energy Homes
    of North Carolina      Albemarle, NC                 77,000        Owned
Southern Energy Homes
    of Pennsylvania        Hegins, PA                    85,000        Leased
Component Supply
     Classic Panel         Hartselle, AL                 24,000        Owned
     Wind-Mar Supply       Addison, AL                   22,000        Owned
     Trimmasters           Haleyville, AL                50,000        Leased
     Unique Dinettes       Haleyville, AL                50,000        Leased

</TABLE>

         The Company  currently  operates eight retail sales  centers,  seven of
which are in  Alabama  and one in  Mississippi.  Each of the lots are  currently
leased and such lease terms range from one to five years.

         The corporate  headquarters  is located at the Southern Energy facility
and occupies  approximately 3,000 square feet of office space. The Company plans
to construct a new facility for its corporate headquarters by the end of 1997.

         Each  of  the  Company's  manufacturing  facilities,   other  than  the
Company's  facility in Pennsylvania  and its new facility in Lynn,  Alabama,  is
operating near full capacity.  During the fiscal year ended January 3, 1997, the
Company's  Pennsylvania facility was operating at approximately 25% of its daily
capacity.  The newly constructed facility in Lynn, Alabama has been operating at
approximately  20% of its daily capacity since its start-up in February 1997. MH
Transport owns and occupies an approximate  1,800 square foot office building in
Double Springs, Alabama.

         See  "Management's  Discussion and Analysis of Financial  Condition and
Results of Operations"

ITEM 3.  LEGAL PROCEEDINGS

         The  Company is a  defendant  in a lawsuit  filed on March 27,  1996 in
Fulton County  Superior  Court,  Georgia by EurAm  International,  Inc., a sales
agent for the  Company.  On April 29, 1996 the  Company  removed the case to the
United States District Court for the Northern District of Georgia in Atlanta. In
this lawsuit,  the plaintiff  alleges that the Company has breached an agreement
relating  to the  sale of the  Company's  modular  homes in  Germany,  including
alleged misrepresentations and faulty performance,  resulting in damages alleged
to amount to $25 million.  The Company  believes the claim is without  merit and
intends to  vigourously  defend the claim,  but the  litigation  is currently in
discovery and there can be no assurances as to its likely outcome.

         In addition,  the Company has been informed by  Gesellschoft  fur Bauen
Und  Wohnen  Hannover  MbH  ("GBH"),  a German  housing  authority,  that it has
replaced  the Company with a local  company to complete a contract  that GBH had
entered into with the Company for the  purchase and erection of modular  housing
in Hannover,  Germany.  In connection  with the contract,  the Company  posted a
$660,000  letter  of credit in favor of GBH.  GBH has made a claim  against  the
Company  for  damages  of  approximately  $800,000  arising  from  the  shift in
suppliers  and has  attempted  to draw upon the  letter of credit  posted by the
Company.  The Company has obtained a temporary  restraining order preventing GBH
from drawing  upon the letter of credit and the Company is actively  negotiating
with GBH to resolve the dispute. In light of the fact that the negotiations with
GBH are ongoing,  there can be no assurances as to the likely  resolution of the
GBH claim.

         The Company is a party to various other legal proceedings incidental to
its  business.  The  majority of these legal  proceedings  relate to  employment
matters or product  warranty  liability  claims  for which  management  believes
adequate  reserves  are  maintained.   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 1996.






                                     PART II

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

RECENT SALES OF UNREGISTERED SECURITIES

         On November 21, 1996,  the  registrant  issued 332,814 shares of common
stock, $.0001 par value (the "Shares"),  to the stockholders of BR Holding Corp.
("BR Holding") in connection  with the  registrant's  acquisition of BR Holding.
The Shares  were  issued as  consideration  for the merger of BR Holding  with a
wholly-owned  subsidiary  of the  registrant.  As a result  of the  merger,  the
registrant  acquired all the issued and outstanding capital stock of BR Holding.
The aggregate merger  consideration given by the registrant was $5.6 million, of
which $1.1 million was paid in cash and $4.5 million was paid with the Shares.

         The Shares were issued in a  transaction  exempt from the  registration
requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof. The
Shares were issued to a limited number of individuals who were sophisticated (or
whose  representative was  sophisticated)  about business and financial matters.
The registrant made available to the purchasers  information  about the business
and  finances  of the  registrant,  including  reports  filed by the  registrant
pursuant to the Securities  Exchange Act of 1934. The registrant  also permitted
the  purchasers  to ask  questions of and receive  answers from its officers and
directors concerning the registrant's business and finances. The purchasers made
certain representations to the registrant as to, among other things,  investment
intent and experience and sophistication as to business and financial matters.

RECORD HOLDERS

         As of March 1, 1997, there were 74 record holders. This number does not
include those stockholders holding stock in "nominee" or "street" name.

STOCK PRICE PERFORMANCE

         The Company's Common Stock has been publicly traded on the Nasdaq Stock
Market since March 12, 1993. The original price per share was $6.93.

                                                1996              1995
                                            Price Range       Price Range
                                            High    Low       High    Low
                  First Quarter             11.75    9.00       7.07    5.60
                  Second Quarter            15.25    9.67       7.47    5.87
                  Third Quarter             16.25  10.00      11.33    8.17
                  Fourth Quarter            18.13  11.38      12.50    8.67

DIVIDENDS

         It is the Company's current policy to retain future earnings to finance
the  continuing  development  of its  business.  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 per share data)

<TABLE>
<CAPTION>


                        Year Ended          Year Ended      Year Ended          Year Ended       Nine Months Ended
                        January 3,        December 29,    December 30,        December 31,            December 30,
                              1997                1995            1994                1993                    1992

<S>                      <C>                 <C>             <C>                <C>                      <C>   
Operating Data
--------------
Net revenues              $306,844            $241,268        $188,750            $143,618                 $83,400
Gross profit                43,647              31,125          24,763              19,518                  12,213
Selling, general
and administrative          17,634              13,272          10,633               7,795                   4,744
Provision for credit
 losses                      1,177                   -                                   -                       -
                                 -
Amortization                   517                 422             322                 531                   1,307
Non-recurring 
charges(1)                       -                   -               -               1,907                       -
Operating income            24,319              17,431          13,808               9,285                   6,162
Interest expense               131                 146             237                 654                   1,512
Interest income                593                 811             392                 184                       -
Provision for income 
  taxes                      9,535               6,854           5,139               3,454                  1,735
Net income                  15,246              11,242           8,824               5,244                  2,915






Net income per share         $1.01               $0.79           $0.62               $0.40                  $0.27
Weighted average
shares outstanding      15,122,578          14,300,466      14,161,135          13,094,010             10,749,999

                        January 3,        December 29,    December 30,        December 31,           December 31,
Balance Sheet Data            1997                1995            1994                1993                   1992
------------------
Total assets               $112,658            $75,899         $54,347             $43,340                $26,735
Long-term  debt                   -                  6             596               1,502                 12,575
Stockholders' equity      $  77,377            $57,242         $38,559             $29,722               $    613

</TABLE>



(1) Upon  completion  of the  Company's  initial  public  offering,  the Company
terminated   all   non-compete   agreements   and  wrote  off  $1.9  million  in
non-recurring charges.

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

RESULTS OF OPERATIONS

Year Ended January 3, 1997 as Compared with Year Ended December 29, 1995

         Total net revenues  (gross sales less volume  discounts,  returns,  and
allowances)  and finance  revenue for the year ended January 3, 1997 were $306.8
million,  which  represented  an increase of 27.2% over the prior  fiscal  year.
During the fourth quarter of 1996 the Company  entered into the retail sector of
the industry  through the  acquisition of BR Holding Corp. and a group of retail
companies doing business as Blue Ribbon Homes.

         Net  revenues of the  manufactured  home  segment,  which  includes the
Company's retail  operations,  were $304.8 million for the year ended January 3,
1997 as compared  with $241.2  million  for the prior year  period.  Retail home
sales accounted for $4.0 million of the  manufactured  home segment revenues for
the year ended January 3, 1997. The average wholesale price per home in 1996 was
$28,000, as compared with $27,000 in 1995, an increase of 3.7%. Total homes sold
in the year ended January 3, 1997 was 10,940,  up 20.5% over the number of homes
sold in the prior year  period.  The  increase  in homes  sold was  attributable
primarily to increased capacity from a manufactured  housing facility in Alabama
which was added in the fourth quarter of 1995 and increased  production from the
Texas plant.

         Revenues from the Company's retail financing  segment were $2.0 million
for the year ended  January 3, 1997, as compared with $30,000 for the prior year
period.  This increase was attributable to the increased lending activity by the
Company's wholly owned subsidiary, Wenco Finance, Inc. ("Wenco"). Wenco has been
originating and servicing consumer loans primarily for homes manufactured by the
Company.  In February 1997, the Company formed a joint venture with 21st Century
Mortgage  Corporation  ("21st  Century").  The joint  venture,  Wenco  21,  will
continue  to  offer,   through  21st  Century,   consumer  financing  for  homes
manufactured  by the Company as well as for other homes sold  through its retail
centers  and  independent  dealers.  In light of the shift in  consumer  finance
activities to Wenco 21, Wenco has suspended its loan origination  activities and
has engaged 21st Century to service its existing loan portfolio.

         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, 1997 was $43.6  million,  or 14.2% of net  revenues,  as compared  with $31.1
million,  or 12.9% of net revenues,  in the prior year period.  This increase in
the gross profit percentage was attributable  primarily to lower material prices
which were  partially  offset by  increased  warranty  costs.  The  increase  in
warranty  expense was  attributable  primarily  to an increase in the  Company's
customer service staff and the expansion of the Company's service fleet.

         Selling  expenses  include  primarily  sales  commissions,  advertising
expenses,  salaries for support personnel,  and freight costs.  Selling expenses
were $7.0  million,  or 2.3% of net  revenues,  during the year ended January 3,
1997, as compared with $5.7 million,  or 2.4% of net revenues,  during the prior
year period. The decrease in selling expense as a percentage of net revenues was
attributable primarily to savings in shipping costs realized from an increase in
shipments through MH Transport, the Company's trucking subsidiary, which reduced
the Company's reliance upon independent trucking companies.

         General and administrative  expenses include  administrative  salaries,
executive and  management  bonuses,  insurance  costs,  and  professional  fees.
General and administrative expenses were $10.6 million, or 3.5% of net revenues,
for the year ended January 3, 1997,  as compared  with $7.6 million,  or 3.1% of
net  revenues,  for the same  period  of  1995.  The  increase  in  general  and
administrative  expenses  as a  percentage  of  net  revenues  was  attributable
primarily to salary  increases  and the addition of new employees who were hired
in order to resolve  staffing  shortages  which  have  occurred  as the  Company
continues to expand.

         The Company  provides  for  estimated  credit  losses based on industry
experience,  historical loss experience,  current repossession trends and costs,
and management's assessment of the current credit quality of the loan portfolio.
The  provision  for credit





losses for the year ended  January 3, 1997 was $1.2 million as compared  with $0
for the year ended  December 29, 1995.  The increase in the  provision  for loan
losses was due to the increase in installment contracts receivable from $655,000
in 1995 to $27.6 million in 1996.

         Interest  income for the year ended  January  3, 1997 was  $593,000  as
compared  with  $811,000 for the year ended  December 29, 1995.  The decrease in
interest income reflects lower average investment balances during the year ended
January 3, 1997.

         Income  taxes are  provided  for based on the tax effect of revenue and
expense  transactions  included in the  determination  of pre-tax  book  income.
Income tax expense for the year ended  January 3, 1997 was $9.5  million,  or an
effective tax rate of 38.5%,  compared  with $6.9  million,  or an effective tax
rate 37.9%,  for the year ended December 29, 1995. The increase in effective tax
rate is  attributable  in part to the Company's  movement into a higher  federal
income tax  bracket  and also  reflects a  proportional  shift in the  Company's
income from  Alabama to other  states  which have  higher  income tax rates than
Alabama.

Year Ended December 29, 1995 as Compared with Year Ended December 30, 1994

         Net revenues for the year ended December 29, 1995 were $241.3  million,
which represented an increase of 27.8% over the same period of 1994. The average
price per home in 1995 was $27,000 as compared with $25,000 in 1994, an increase
of 8.0%.  The total number of homes sold in the year ended December 29, 1995 was
9,079,  up 20.0% over the number of homes  sold in the prior  year  period.  The
increase in the number of homes sold was  attributable  primarily  to  increased
capacity from a manufactured  housing facility in North Carolina acquired during
the third  quarter of 1994 and increased  production  from the Texas and Alabama
plants added during 1993 that were still in a start-up phase of operation during
the first six months of 1994.

         Gross profit for the year ended December 29, 1995 was $31.1 million, or
12.9% of net revenues, as compared with $24.8 million, or 13.1% of net revenues,
in the prior year  period.  This  decrease in the gross  profit  percentage  was
attributable  primarily  to  increased  warranty  and  labor  costs  which  were
partially offset by lower material prices. The increase in warranty expense as a
percentage  of net  revenues  was  attributable  primarily to an increase in the
Company's customer service staff, the development of a regional customer service
center in Addison, Alabama, and the expansion of the Company's service fleet.

         Selling expenses were $5.7 million,  or 2.4% of net revenues,during the
year ended  December 29, 1995,  as compared  with $4.8  million,  or 2.6% of net
revenues,  during the prior year period.  The decrease in selling  expenses as a
percentage  of net  revenues was  attributable  primarily to savings in shipping
costs  realized  from  shipments  through MH Transport,  the Company's  trucking
subsidiary,  which reduced the  Company's  reliance  upon  independent  trucking
companies.

         General and administrative  expenses were $7.6 million,  or 3.1% of net
revenues,  for the year ended  December 29, 1995, as compared with $5.8 million,
or 3.1% of net  revenues,  for the same period of 1994.  The increase in general
and administrative  expenses was attributable  primarily to additional employees
who were hired in order to resolve staffing  shortages which had occurred as the
Company continued to expand.

         Interest  income for the year ended  December  29, 1995 was $811,000 as
compared  with  $392,000 for the year ended  December 30, 1994.  The increase in
interest income reflected higher investment yield and higher average  investment
balances.

         Income  tax  expense  for the year  ended  December  29,  1995 was $6.9
million,  or an effective tax rate of 37.9%,  compared with $5.1 million,  or an
effective tax rate of 36.8%,  for the year ended December 30, 1994. The increase
in effective tax rate was attributable in part to the Company's  movement into a
higher federal income tax bracket and also reflected a proportional shift in the
Company's income from Alabama to other states which have higher income tax rates
than Alabama.

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.

Cash Flows

         During the year  ended  January 3,  1997,  the  Company's  cash used by
operations  was  approximately  $9.2 million.  Cash used by operations  includes
originations of installment contracts of $27.5 million,  increased inventory and
prepayments  of $7.3 million,  and decreased  accounts  payable of $1.2 million.
These amounts were partially  offset by net income of $15.2  million,  decreased
accounts  receivable of $3.9 million,  and increased accrued liabilities of $4.5
million. In addition to cash provided by operating activities, other significant
cash flows included  capital  expenditures  of $5.5 million,  borrowings of $3.1
million, maturities of investments of $2.1 million, and purchase of subsidiaries
for $1.2 million.






         During the year ended December 29, 1995, the Company's cash provided by
operations was approximately $8.4 million.  Cash provided by operations includes
net  income  of  $11.2  million  and  increased  accounts  payable  and  accrued
liabilities of approximately  $2.7 million.  These amounts were partially offset
by an increase in  accounts  receivable  of  approximately  $5.3  million and an
increase in inventories of approximately  $1.3 million.  Each of these increases
was primarily related to sales growth. In addition to cash provided by operating
activities, other significant cash flows included net proceeds from the issuance
of  common  stock  of  $7.2  million,  capital  expenditures  of  $5.2  million,
maturities of investments  of $4.9 million,  and repayments of long-term debt of
$1.5 million.

         Subsequent  to January 3, 1997,  the  Company  formed a joint  venture,
Wenco 21, with 21st  Century,  which  through 21st Century  will  originate  and
service retail  installment  contracts.  The Company has made an initial capital
contribution  of  $500,000  to Wenco 21,  representing  a 50  percent  ownership
interest  of the joint  venture.  Under its joint  venture  agreement  with 21st
Century, the Company may be called upon to make additional capital contributions
or loans in order to meet Wenco 21's capital requirements.  The Company believes
that cash on hand,cash  generated by its  operations,  and funds available under
its existing line of credit will be adequate to fund any such commitments.

         At  January  3, 1997,  the  Company's  net  working  capital  was $17.7
million,  including $5.3 million in cash and cash equivalents,  as compared with
$34.4  million at December 29, 1995,  including  $16.8  million in cash and cash
equivalents and $2.1 million in investments. The decrease in net working capital
was a result of a decrease  in cash and cash  equivalents  of $11.5  million and
increased  notes payable and accrued  liabilities  of $16.6  million,  which was
partially  offset by increased  inventories  of $15.8  million.  The increase in
inventory and notes payable was primarily  attributable to the homes held at the
recently  acquired retail locations and the related  floor-plan  financing.  The
Company  also has a $10.0  million  unsecured  line of credit which is renewable
annually and bears interest at the London Interbank  Offered Rate ("LIBOR") plus
1.5%.  The Company's  ability to draw upon this line of credit is dependent upon
meeting certain  financial ratios and covenants.  The Company has no outstanding
borrowings under this line.

         Substantially  all of the Company's  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
agreement,  the  financial  institution  which  provides  the  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 dealer, to repurchase the homes at the Company's original invoice
price plus certain  administrative  and  shipping  expenses  less any  principal
payments  made by the  dealer.  At  January 3, 1997,  the  Company's  contingent
repurchase  liability under floorplan  financing  arrangements was approximately
$91.2  million.  While homes that have been  repurchased  by the  Company  under
floor-plan  financing  arrangements are usually sold to other dealers and losses
experienced  to date  under  these  arrangements  have  been  insignificant,  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 floorplan
financing  arrangements  or that the Company will not suffer losses with respect
to, and as a consequence of, those arrangements.

         During 1997, the Company plans to build a new corporate office facility
in Addison, Alabama at a cost of approximately $1.5 million and plans to acquire
or open more retail sales centers.  The Company believes that cash on hand, cash
generated by operations,  and funds  available under its existing line of credit
will be adequate to fund its expansion plans.

Expansion
         The Company has continued to demonstrate its ability to increase sales,
expand production capacity,  and vertically integrate its operations through the
acquisition of additional manufacturing facilities and businesses.

         In  August   1995,   the   Company   purchased   a   90,700-square-foot
manufacturing  facility in Lynn, Alabama for $150,000 and expended approximately
$800,000 for capital  improvements to prepare the facility for full  production.
Production commenced at this facility in October 1995.

         In November 1995, the Company acquired  substantially all of the assets
and assumed certain of the liabilities of a manufactured housing company located
in Hegins, Pennsylvania for approximately $942,000.

         In January 1996, the Company acquired  substantially  all of the assets
and assumed all of the liabilities of a moulding  company located in Haleyville,
Alabama for approximately $175,000.

         In April 1996,  the Company  purchased an additional  96,000square-foot
manufacturing  facility in Lynn, Alabama for approximately $425,000 and expended
approximately $2.0 million for capital  improvements to prepare the facility for
full production. Production commenced at this facility in February 1997.








         In July 1996, the Company acquired  substantially all of the assets and
assumed all of the  liabilities  of a table and  countertop  company  located in
Haleyville, Alabama for approximately $145,000.

         In October 1996,  the Company formed a joint venture with Belmont Homes
and  Cavalier  Homes  to  produce  and  supply  cabinet  doors  to  each  of the
participant's manufacturing operations. The joint venture was capitalized by the
Company with $770,000.

         In November 1996, the Company  acquired a group of retail sales centers
in Alabama and Mississippi.  The purchase price consisted of approximately  $1.1
million  in cash and $4.5  million  of  common  stock  issued.  The  Company  is
obligated to make  additional  payments to the seller if the  acquired  business
meets certain earnings targets.

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.





ITEM 8. CONSOLIDATED  FINANCIAL  STATEMENTS AND NOTES TO CONSOLIDATED  FINANCIAL
        STATEMENTS

Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                                                 January 3,    December 29,
                                                                                       1997            1995
                                                                            ---------------- ---------------
<S>                                                                             <C>           <C>
ASSETS
Current assets:
Cash and cash equivalents                                                        $5,299,000     $16,750,000
Investments                                                                               -       2,076,000
Accounts receivable, less allowance for doubtful accounts of $362,000 and
$163,000, respectively                                                           17,558,000      21,070,000
Installment contracts receivable                                                    421,000          18,000
Inventories                                                                      27,019,000      11,226,000
Deferred tax benefits                                                             1,829,000       1,269,000
Prepayments and other                                                               890,000         623,000
                                                                            ---------------- ---------------
                                                                                 53,016,000      53,032,000
                                                                            ---------------- ---------------
Property, plant, and equipment:
Property, plant, and equipment, at cost                                          23,527,000      17,521,000
Less - accumulated depreciation                                                 (5,169,000)     (3,690,000)
                                                                            ================ ===============
                                                                                 18,358,000      13,831,000
                                                                            ================ ===============
Intangibles and other non-current assets:
Installment contracts receivable, less allowance for credit losses of
$1,142,000 at January 3, 1997                                                    26,064,000         637,000
Goodwill                                                                         13,093,000       7,509,000
Non-compete agreements                                                              667,000         328,000
Organization and pre-operating costs                                                649,000         523,000
Other assets                                                                        811,000          39,000
                                                                            ---------------- ---------------
                                                                                 41,284,000       9,036,000
                                                                            ---------------- ---------------
                                                                               $112,658,000     $75,899,000
                                                                            ================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable                                                                   $12,025,000              $-
Current maturities of long-term debt                                                      -          86,000
Accounts payable                                                                  4,303,000       4,947,000
Volume incentive payable                                                          8,541,000       5,761,000
Accrued payroll-related expenses                                                  2,743,000       2,447,000
Accrued workers' compensation                                                     2,426,000       1,262,000
Accrued warranty                                                                  1,944,000       2,088,000
Accrued legal and accounting                                                      1,259,000         729,000
Accrued other                                                                     2,040,000       1,331,000
                                                                            ---------------- ---------------
                                                                                 35,281,000      18,651,000
                                                                            ---------------- ---------------
Long-term debt                                                                            -           6,000
                                                                            ---------------- ---------------
Commitments and Contingencies
                                                                            ---------------- ---------------
Stockholder's equity:
Preferred stock, $.0001 par value, 1,000,000 shares authorized, none
outstanding                                                                               -               -
Common stock, $.0001 par value, 20,000,000 shares authorized, 15,437,801
shares outstanding at January 3, 1997; 15,053,388 shares outstanding at
December 29, 1995                                                                     2,000           1,000
Capital in excess of par                                                         35,999,000      31,111,000
Retained earnings                                                                41,376,000      26,130,000
                                                                            ---------------- ---------------
                                                                                 77,377,000      57,242,000
                                                                            ---------------- ---------------
                                                                               $112,658,000     $75,899,000
                                                                            ================ ===============
</TABLE>

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





Consolidated Statements of Operations

<TABLE>
<CAPTION>

                                                                 
                                                                                              Year Ended
                                                                               January 3,      December 29,      December 30,
                                                                                     1997              1995              1994
                                                                               (53 Weeks)        (52 Weeks)        (52 Weeks)
                                                                         ----------------- ----------------- -----------------
<S>                                                                          <C>               <C>               <C>         
Net revenues                                                                 $306,844,000      $241,268,000      $188,750,000
Cost of sales                                                                 263,197,000       210,143,000       163,987,000
                                                                         ----------------- ----------------- -----------------
Gross profit                                                                   43,647,000        31,125,000        24,763,000
                                                                         ----------------- ----------------- -----------------
Operating expenses:
Selling                                                                         7,015,000         5,712,000         4,846,000
General and administrative                                                     10,619,000         7,560,000         5,787,000
Provision for credit losses                                                     1,177,000
                                                                                                          -                 -
Amortization of intangibles                                                       517,000           422,000           322,000
                                                                         ----------------- ----------------- -----------------
                                                                               19,328,000        13,694,000        10,955,000
Operating income                                                               24,319,000        17,431,000        13,808,000
                                                                         ----------------- ----------------- -----------------
Interest expense                                                                  131,000           146,000           237,000
Interest income                                                                   593,000           811,000           392,000
                                                                         ----------------- ----------------- -----------------
Income before provision for income taxes                                       24,781,000        18,096,000        13,963,000
Provision for income taxes                                                      9,535,000         6,854,000         5,139,000
Net income                                                                    $15,246,000       $11,242,000        $8,824,000
                                                                         ================= ================= =================
Net income per share                                                                $1.01            $ 0.79             $
                                                                                                                         0.62
                                                                         ================= ================= =================
Weighted average number of common and common equivalent shares                 15,122,578        14,300,466        14,161,135
                                                                         ================= ================= =================

</TABLE>


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





Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>


                                            Common Stock
                                   --------------------------------
                                                                        Capital in        Retained
                                             Shares         Amount   Excess of Par        Earnings                Total
                                   ----------------- -------------- --------------- --------------- --------------------
<S>                                     <C>                <C>        <C>              <C>                 <C>        
Balance, December 31, 1993               14,159,436         $1,000     $23,657,000      $6,064,000          $29,722,000
Exercise of stock option                      1,875              -          13,000               -               13,000
Net income                                        -              -               -       8,824,000            8,824,000
                                   ----------------- -------------- --------------- --------------- --------------------
Balance, December 30, 1994               14,161,311          1,000      23,670,000      14,888,000           38,559,000
Net proceeds from issuance of
common stock                                862,500              -       7,236,000               -            7,236,000
Exercise of stock options                    29,577              -         205,000               -              205,000
Net income                                        -              -               -      11,242,000           11,242,000
                                   ----------------- -------------- --------------- --------------- --------------------
Balance, December 29, 1995               15,053,388          1,000      31,111,000      26,130,000           57,242,000
Exercise of stock options                    51,599              -         357,000               -              357,000
Issuance of common stock in
connection with acquisition                 332,814          1,000       4,531,000               -            4,532,000
Net income                                        -              -               -      15,246,000           15,246,000
                                   ----------------- -------------- --------------- --------------- --------------------
Balance, January 3, 1997                 15,437,801         $2,000     $35,999,000     $41,376,000          $77,377,000
                                   ----------------- -------------- --------------- --------------- --------------------

</TABLE>

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





Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>


                                                                              Year Ended
                                                               January 3,   December 29,      December 30,
                                                                     1997           1995              1994
                                                               (53 Weeks)      (52 Weeks)        (52 Weeks)
                                                         ----------------- ----------------- -----------------
<S>                                                         <C>                 <C>               <C>
Operating activities:
Net income                                                    $15,246,000       $11,242,000        $8,824,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation of property,plant, and equipment                   1,168,000         1,273,000           959,000
Provision (credit) for deferred income taxes                    (560,000)         (158,000)             3,000
Gain on sale of property, plant, and equipment                     37,000            13,000             2,000
Amortization of intangibles                                       517,000           422,000           322,000
Provision for doubtful accounts                                   210,000            22,000            31,000
Accretion of discount on debt                                           -            78,000           103,000
Provision for credit losses                                     1,177,000                 -                 -
Change in assets and liabilities, net of effect from
purchase of subsidiaries:
Accounts receivable                                             3,936,000       (5,277,000)       (2,083,000)
Inventories                                                   (7,039,000)       (1,260,000)       (1,215,000)
Prepayments and other                                           (255,000)         (723,000)         (127,000)
Accounts payable                                              (1,174,000)           328,000         (529,000)
Accrued liabilities                                             4,525,000         2,418,000         1,834,000
Origination of installment contracts                         (27,497,000)                 -                 -
Principal collected on originated installment contracts           490,000                 -                 -
                                                         ----------------- ----------------- -----------------
Net cash provided by (used in) operating activities           (9,219,000)         8,378,000         8,124,000
                                                         ----------------- ----------------- -----------------
Investing activities:
Purchase of subsidiaries,net of cash acquired                 (1,217,000)         (942,000)       (5,745,000)
Capital expenditures                                          (5,501,000)       (5,161,000)       (3,066,000)
Maturities of investments                                       2,076,000         4,924,000                 -
Purchase of investments                                                 -                 -       (7,000,000)
Investment in joint venture                                     (770,000)                 -                 -
Increase in organization and pre-operating costs                (305,000)         (482,000)                 -
Proceeds from sale of property, plant, and equipment               68,000            42,000             8,000
                                                         ----------------- ----------------- -----------------
Net cash used in investing activities                         (5,649,000)       (1,619,000)      (15,803,000)
                                                         ----------------- ----------------- -----------------
Financing activities:
Net borrowings on notes payable                                 3,060,000                 -                 -
Repayments of long-term debt                                            -       (1,454,000)       (1,151,000)
Net proceeds from issuance of common stock                              -         7,236,000                 -
Proceeds from exercise of stock options                           357,000           205,000            13,000
                                                         ----------------- ----------------- -----------------
Net cash provided by (used in) financing activities             3,417,000         5,987,000       (1,138,000)
                                                         ----------------- ----------------- -----------------
Net increase (decrease) in cash and cash equivalents         (11,451,000)        12,746,000       (8,817,000)
Cash and cash equivalents at beginning of period               16,750,000         4,004,000        12,821,000
                                                         ----------------- ----------------- -----------------
Cash and cash equivalents at end of period                     $5,299,000       $16,750,000        $4,004,000
                                                         ----------------- ----------------- -----------------
Supplemental cash flow information:
Cash paid for interest                                           $131,000          $ 78,000          $141,000
                                                         ================= ================= =================
Cash paid for income taxes                                     $9,369,000        $7,568,000        $5,400,000
                                                         ================= ================= =================

</TABLE>


Supplemental disclosures of non-cash investing activities:

During fiscal 1996 the Company  purchased BR Holding Corp. for $5.6 million,  of
which $4.5  million  was paid  through  the  issuance  of 332,814  shares of the
Company's  common  stock.  See Note 3. The  accompanying  notes to  consolidated
financial statements are an integral part of these consolidated statements.





Notes to Consolidated Financial Statements

1. The Company and Basis of Presentation:

         Southern Energy Homes,  Inc. (the  "Company") is primarily  involved in
two industry segments:  the production and retail sale of manufactured homes and
the retail financing of manufactured  homes.  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.  The Company
recently  acquired  its retail  home sales  operation  through a merger  with BR
Holding  Corp.  ("BR  Holding";  see Note 3). BR Holding sells homes on a retail
basis,  primarily in the southeastern  United States.  Wenco Finance,  Inc., the
Company's wholly owned finance  subsidiary  ("Wenco"),  has been originating and
servicing  consumer loans primarily for homes  manufactured  by the Company.  In
February  1997,  the Company  formed a joint venture with 21st Century  Mortgage
Corporation  ("21st  Century").  The joint  venture,  Wenco 21, will continue to
offer,  through 21st Century,  consumer  financing for homes manufactured by the
Company  as  well as for  other  homes  sold  through  its  retail  centers  and
independent  dealers.  In light of the shift in consumer  finance  activities to
Wenco 21, Wenco has suspended its loan  origination  activities  and has engaged
21st Century to service its existing loan portfolio.

         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 1995 and 1994  fiscal  years
included 52 weeks and the 1996 fiscal year included 53 weeks.  All references to
years relate to fiscal years rather than calendar years.

         The Company's  business is seasonal and cyclical with the potential for
significant  fluctuations  in  quarterly  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 generally
accepted  accounting  principles  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. 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.  The
Company  accounts for its  investments  of 50% or less in joint  ventures on the
equity basis of  accounting.  Therefore,  the Company's  share of income/loss is
recorded as an adjustment to the original investment.

         In  December  1996,   the  Company   purchased  a  33%  interest  in  a
manufacturing  joint venture with other manufactured home builders for $770,000.
The joint venture will manufacture cabinet doors for sale to participants in the
joint  venture  as well as  thirdparty  customers.  As no  significant  activity
occurred from inception of the joint venture through year end, the investment is
carried at the cost of the original contribution by the Company.

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.

Investments
         The Company classified its investments,  which primarily represent U.S.
Treasury Notes, as available for sale.  Investments  classified as available for
sale are carried at fair value with unrealized gains and losses, net of deferred
income taxes, being reported as a separate component of stockholders' equity.

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

                                            January 3,        December 29,
                                                  1997                1995
                                           -------------------------------
Raw materials                              $11,607,000         $ 9,658,000
Work in progress                             1,108,000           1,007,000
Finished goods                              14,304,000             561,000
                                           -------------------------------
                                           $27,019,000         $11,226,000
                                           ===============================





         The increase in finished goods inventory was primarily  attributable to
the  acquisition  in November 1996 of the Company's six retail sales centers and
the inventories held at those locations.

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 (10-31 years for buildings and improvements,  3-10 years for
machinery  and  equipment,  5-7 years for  office  equipment,  and 710 years for
leasehold  improvements,  which is the lesser of the lease  term or the  asset's
useful life). Cost of property, plant, and equipment is as follows:

                                                January 3,      December 29,
                                                      1997              1995
                                             -------------------------------
Land                                         $     493,000     $     357,000
Buildings and improvements                      10,465,000         9,150,000
Machinery and equipment                          7,963,000         6,483,000
Office equipment                                   836,000           567,000
Leasehold improvements                           1,140,000           735,000
Construction in progress                         2,630,000           229,000
                                             -------------------------------
                                               $23,527,000       $17,521,000
                                             ===============================


         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.

Allowance for Credit Losses

         The allowance for credit losses is  established to provide for possible
losses related to  installment  contracts  receivable.  The allowance for credit
losses is determined  based on the Company's  historical loss  experience  after
adjusting for current economic conditions.  Management, after assessing the loss
experience  and  economic   conditions,   adjusts   reserves   through  periodic
provisions. 

Actual credit losses are charged to the allowance when incurred.

         An  analysis  of the  allowance  for  losses on  installment  contracts
receivable is as follows:

                                                       January 3,
                                                             1997
                                                    -------------
Balance, beginning of year                          $           0
Provision for credit losses                             1,177,000
Charge-offs                                              (35,000)
                                                     ------------
Balance, end of year                                   $1,142,000
                                                     ============

Intangible Assets

         The  intangible  assets  recorded  by the  Company in  connection  with
various  acquisitions  are amortized on a straight-line  basis. As of January 3,
1997 and December 29, 1995, accumulated  amortization of intangibles amounted to
$2,158,000 and $1,641,000,  respectively. The applicable intangible amortization
periods are as follows:

Goodwill                                    30 years
Non-compete agreements                      4 to 10 years
Organization and pre-operating costs        5 years

Long-Lived Assets

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

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 sales) 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 up to five  years  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 will be made as 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  $300,000  per  occurrence  (with an
annual  aggregate  stop-loss  limit of $2,000,000  for all claims),  and for all
health-care claims in excess of $55,000 per occurrence (with an annual aggregate
stoploss limit of $2,900,000 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.

Income Taxes

         The Company  utilizes the asset and liability  method of accounting for
deferred income taxes and recognizes deferred tax assets and liabilities for the
future tax  consequences  attributable  to  differences  between  the  financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their
respective tax bases.

Fair Value of Financial Instruments

         Because of the short-term nature of the Company's financial instruments
and the low interest rate volatility  associated with the installment  contracts
receivable,  the fair value of the Company's financial instruments at January 3,
1997 and December 29, 1995 approximated book value at those dates.

Revenue Recognition - Manufactured Housing

         The Company manufactures its homes pursuant to dealer orders, and sales
to independent  dealers and related transit costs are recognized upon completion
of the home.  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  when  transported  by  the  Company's  trucking
subsidiary.  Independent  trucking  companies  transporting  the Company's homes
carry  insurance to cover  damage  during  shipment.  With respect to its retail
operations,  the Company  records a retail home sale when the customer  signs an
installment  contract  for the purchase of a  manufactured  home and the Company
receives the appropriate down payment.

Revenue Recognition - Retail Financing

         Interest  income from  installment  contract  receivables is recognized
using the interest  method.  Accrual of interest income on installment  contract
receivables is suspended when a loan is contractually delinquent for ninety days
or more. Interest accruals resume when the loan becomes  contractually  current,
and past-due interest income is recognized at that time. Most of the installment
contract  receivables  are with borrowers in the southern  portion of the United
States and are collateralized by manufactured homes.

Net Income per Share

         Net income per share is computed by dividing net income by the weighted
average  number of shares of common  stock and common stock  equivalents  (whose
effects are dilutive) outstanding during the respective periods.

3. Business Combinations:

         On November 21, 1996, the Company  acquired the stock of BR Holding,  a
holding company which operated a group of retail companies  participating in the
retail sale of  manufactured  homes and was doing business as Blue Ribbon Homes.
BR Holding also operated an insurance agency which provides homeowner  insurance
for  manufactured  homes. The Company paid $1,075,000 in cash and issued 332,814
shares of the Company's common stock  (approximate  market value on November 21,
1996 of $4,532,000). The acquisition was accounted for under the purchase method
of accounting;  thus the financial  statements as of January 3, 1997 and for the
year  then  ended  reflect  the  operations  of BR  Holding  from  the  date  of
acquisition.  The total  purchase  price  exceeded  the fair value of net assets
(assets  of  $9.9  million,  less  liabilities  of  $9.8  million)  acquired  by
$5,480,000,  which  amount  is being  amortized  over 30 years as  goodwill.  In
addition,  the Company  entered into four-year  non-compete  agreements with the
former  stockholders  of BR Holding for an  aggregate  amount of $50,000,  which
amount is included in the cash purchase  price noted above.  The stock  purchase
agreement  requires  the  Company  to make  additional  payments  to the  seller
contingent on future earnings performance of BR Holding. Any additional payments
will be made 20% in cash and 80% in shares  of the  Company's  common  stock and
will be accounted  for as goodwill and 







amortized  over the remaining  recovery  period of the goodwill.  The results of
operations with respect to BR Holding were not significant and, accordingly,  no
pro forma results have been provided.

         In  July  1996,  the  Company  also  acquired  Unique  Dinettes,   Inc.
("Unique"), a manufacturer of ceramic tables and countertops. The total purchase
price of  $434,000  was paid in all cash,  and  exceeded  the fair  value of the
acquired assets by $44,000.  The Unique  acquisition was accounted for under the
purchase method of accounting.  The results of operations with respect to Unique
were not significant and pro forma results have not been provided.

         In  January  1996,   the  Company  also  acquired   Trimmasters,   Inc.
("Trimmasters"),  a manufacturer  of trim moulding.  The total purchase price of
$356,000  was paid in all cash,  and  exceeded  the fair  value of the  acquired
assets by $297,000.  The  Trimmasters  acquisition  was  accounted for under the
purchase  method of  accounting.  The  results  of  operations  with  respect to
Trimmasters were not significant and pro forma results have not been provided.

         On November 20, 1995,  the Company  acquired  substantially  all of the
assets and assumed  certain of the  liabilities of Imperial  Homes  Corporation,
Inc.  ("Imperial-PA").  This  transaction  was  accounted for under the purchase
method of accounting. The aggregate purchase price of approximately $2.5 million
was  composed  of  approximately  $950,000  in cash and the  assumption  of $1.5
million in liabilities. The financial statements as of December 29, 1995 and for
the year then ended  reflected the  operations of  Imperial-PA  from the date of
acquisition.  The total  purchase  price  exceeded  the fair value of net assets
acquired by $459,000, which amount is being amortized over 30 years as goodwill.
In addition,  the Company  entered into tenyear  noncompete  agreements with the
former  stockholders of Imperial-PA for an aggregate  amount of $150,000,  which
amount was included in the cash purchase price noted above.

4. Income Taxes:

         The provision (benefit) for income taxes for the respective periods was
as follows:

                               January 3,   December 29,      December 30,
                                     1997           1995              1994
Federal:
Current                        $9,294,000     $6,516,000        $4,646,000
Deferred                         (521,000)      (142,000)            3,000
                               -------------------------------------------
                                8,773,000      6,374,000         4,649,000
                               -------------------------------------------
State:
Current                           801,000        496,000           490,000
Deferred                          (39,000)       (16,000)                -
                               -------------------------------------------
                                  762,000        480,000           490,000
                               -------------------------------------------
Total provision                $9,535,000     $6,854,000        $5,139,000
                               ===========================================

         The  provision for income taxes  differed from the amounts  computed by
applying the federal  statutory rate of 35% in 1996 and 1995 and 34% in 1994 due
to the following:

                                       January 3,    December 29,   December 30,
                                             1997            1995           1994
Tax provision at the federal
statutory rate                         $8,671,000      $6,334,000     $4,747,000
State income taxes, net of
federal benefit                           496,000         367,000        323,000
Goodwill amortization                      58,000          57,000         55,000
Other                                     310,000          96,000         14,000
                                       -----------------------------------------
                                       $9,535,000      $6,854,000     $5,139,000
                                       =========================================






         Temporary  differences  which created deferred tax assets at January 3,
1997 and December 29, 1995 were as follows:

                                             January 3,         December 29,
                                                   1997                 1995
                                            ---------------------------------
Warranty accrual                            $    721,000       $     695,000
Workers' compensation accrual                    867,000             447,000
Legal and accounting accrual                     457,000             258,000
Other                                           (216,000)           (131,000)
                                            ---------------------------------
                                             $1,829,000           $1,269,000
                                            =================================

5. Notes Payable:

         The  Company  routinely  finances  its  inventory  of homes held by its
retail centers through  floor-plan  notes payable with a financial  institution.
The notes normally require periodic payments of principal and interest, and full
payment when the home is sold to a customer.  The maximum and average amounts of
borrowings  outstanding under the notes payable during the year ended January 3,
1997 were  $12,025,000  and  $10,137,000,  respectively.  The  weighted  average
interest rate on these borrowings during 1996 was 9.13%

         The Company has a $10 million  unsecured  bank line of credit  which is
renewable  annually  and bears  interest at the London  Interbank  Offered  Rate
("LIBOR")  plus 1.5% (5.44% at January 3, 1997).  The Company's  ability to draw
upon this line of credit is dependent upon meeting certain  financial ratios and
covenants.  The Company had no outstanding borrowings on this line at January 3,
1997 and December 29, 1995.

6. Commitments and Contingencies:

Repurchase Agreements

         It is customary  practice for  companies  in the  manufactured  housing
industry to enter into repurchase  agreements with financial  institutions which
provide  financing  to  dealers.  Generally,  the  agreements  provide  for  the
manufacturer to repurchase  manufactured homes from the financing institution in
the event of  repossession  upon a dealer's  default.  The Company's  contingent
liability under such agreements was  approximately  $91 million as of January 3,
1997 and $62 million as of December 29,  1995.  Losses  experienced  under these
agreements  have not been  significant  and, in the opinion of  management,  any
future  losses  under these  agreements  will not have a material  effect on the
financial condition of the Company.

Interest Reimbursement

         The Company has agreements  with certain  dealers to reimburse them for
their interest costs incurred in connection with floorplan  financing.  Interest
expense  related to these  agreements is classified as a selling  expense in the
accompanying consolidated statements of operations.  For the years ended January
3, 1997,  December 29, 1995, and December 30, 1994,  interest expense related to
these agreements amounted to $735,000, $634,000, and $566,000, respectively.

Employee Benefit Plans

         The Company  maintains a stock option plan which  authorizes a total of
407,814  shares of  Company  common  stock for  issuance  to key  employees  and
advisors.  The Company granted options to acquire  93,909,  138,654,  and 97,026
shares of common stock in 1996,  1995,  and 1994,  respectively,  at an exercise
price  ranging  from  $6.67  to  $6.93.   The  exercise  price  of  each  option
approximated  the fair market value of the Company's common stock at the date of
grant.

         The Company also maintains a stock option plan which authorizes a total
of 75,000 shares of Company  common stock for issuance to the Company's  outside
directors.  In 1996,  the Company  granted  options to acquire  15,000 shares of
common stock to certain outside  directors at an exercise price of $11.625.  The
exercise  price  of the  options  approximated  the  fair  market  value  of the
Company's common stock at the date of grant.

         The Company  accounts  for these plans under APB Opinion No. 25,  under
which no compensation cost has been recognized. Had compensation expense for the
Company's  stock  option  plans for  awards in 1996 and in 1995 been  determined
under Statement of Financial  Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," based on the fair market value at the grant date,
the Company's net income and income per share would have been reduced to the pro
forma amounts indicated below:






                                                      1996                1995
                                               -------------------------------
Net income - as reported                       $15,246,000         $11,242,000
Net income - pro forma                         $14,993,000         $11,166,000
Net income per share - as reported             $      1.01         $      0.79
Net income per share - pro forma               $      0.99         $      0.78

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

<TABLE>
<CAPTION>


                                    Weighted                            Weighted                           Weighted
                  January 3,        average           December 29,      average          December 30,      average
                  1997              exercise price    1995              exercise price   1994              exercise price
                  -------------------------------------------------------------------------------------------------------
<S>               <C>               <C>             <C>               <C>              <C>               <C>
Outstanding at
beginning of year 285,032           $6.91            190,391            $6.93            95,240            $6.93
Granted           108,909            7.58            138,654             6.89            97,026             6.93
Exercised         (51,599)           6.93            (29,577)            6.93            (1,875)            6.93
Forfeited          (2,579)           6.93            (14,436)            6.93                 -                -
                  -------------------------------------------------------------------------------------------------------
Outstanding at
end of year       339,763            7.45            285,032             6.91           190,391             6.93
Exercisable at
end of year       194,931            7.28            106,952             6.93            47,620             6.93
                  -------------------------------------------------------------------------------------------------------
Weighted average
estimated fair
value of options
granted                             $6.21                               $2.82                               N/A
                  -------------------------------------------------------------------------------------------------------

</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 1996 and 1995:  dividend yield of 0.0%;  expected
volatility of 0.42%; risk-free interest rate of 6.09%; expected life of 5 years;
and vesting of 100% over a two-year  period.  The weighted  average  contractual
life of the options outstanding at January 3, 1997 is 9 years.

         The Company  maintains  employment  agreements  with certain  employees
which renew  automatically for additional  one-year periods unless terminated by
either of the parties.  The  agreements  provide for minimum  base  salaries and
incentive compensation (as defined therein). In addition, the agreements provide
for payment of up to six months' salary and/or bonus under certain circumstances
(for example, termination without cause or upon death).

         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, 1997,
December 29, 1995, and December 30, 1994, the Company expensed $66,000, $63,000,
and $60,000, respectively, related to the plan.

Operating Leases

         The Company leases certain  manufacturing  facilities  under  operating
leases. Rent expense under all leases was $404,000 for the year ended January 3,
1997,  $150,000 for the year ended  December 29, 1995, and $283,000 for the year
ended  December 30, 1994.  Future  minimum lease payments at January 3, 1997 are
$693,000,  $693,000,  $677,000, $678,000, and $503,000 for each of the next five
years.

Litigation

         The  Company is a  defendant  in a lawsuit  filed on March 27,  1996 in
Fulton County  Superior  Court,  Georgia by EurAm  International,  Inc., a sales
agent for the  Company.  On April 29, 1996 the  Company  removed the case to the
United States District Court for the Northern District of Georgia in Atlanta. In
this lawsuit,  the plaintiff  alleges that the Company has breached an agreement
relating  to the  sale of the  Company's  modular  homes in  Germany,  including
alleged misrepresentations and faulty performance,  resulting in damages alleged
to amount to $25 million.  The Company  believes the claim is without  merit and
intends to  vigorously  defend the claim,  but the  litigation  is  currently in
discovery and there can be no assurances as to its likely outcome.

         In addition,  the Company has been informed by  Gesellschoft  fur Bauen
Und  Wohnen  Hannover  MbH  ("GBH"),  a German  housing  authority,  that it has
replaced  the Company with a local  company to complete a contract  that GBH had
entered into with the Company for the  purchase and erection of modular  housing
in Hannover,  Germany.  In connection  with the contract,  the Company  posted a
$660,000  letter  of  credit in favor of GBH.  In March  1997,  GBH made a claim
against the Company for damages of approximately $800,000 arising from the shift
in suppliers  and has  attempted to draw upon the letter of credit posted by the
Company.  The Company has obtained a temporary  restraining order preventing GBH
from drawing  upon the letter of credit and the Company is





actively  negotiating with GBH to resolve the dispute. In light of the fact that
the  negotiations  with GBH are ongoing,  there can be no  assurances  as to the
likely resolution of the GBH claim.

         The Company is a party to various other legal proceedings incidental to
its  business.  The  majority of these legal  proceedings  relate to  employment
matters or product  warranty  liability  claims  for which  management  believes
adequate  reserves  are  maintained.   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.

7. Related Party Transactions:

         The Company had sales to a development  company affiliated with certain
stockholders  who were also  executive  officers of the Company during the years
ended January 3, 1997,  December 29, 1995, and December 30, 1994, which amounted
to $691,000, $1.4 million, and $1.5 million, respectively. Transactions with the
development  company  have been at prices and on terms no less  favorable to the
Company than transactions with independent third parties.

8. Stock Split:

         On June 4, 1996, the Board of Directors of the Company voted to approve
a 3-for-2  stock split of the Company's  common stock,  payable in the form of a
50% stock dividend on July 3, 1996 to  stockholders  of record on June 19, 1996.
The stock split  resulted in one  additional  share of common stock being issued
for each two shares of common stock issued and  outstanding  on the record date.
The par value of the common stock remained  unchanged at $.0001 per share.  Cash
was paid in lieu of issuing  fractional  shares. All share and per share amounts
have been retroactively restated to reflect this split.

9. Summary of Unaudited Quarterly Financial Data:

       Unaudited quarterly financial information is as follows:
<TABLE>
<CAPTION>

                                             Quarter Ended                                     Year Ended
---------------------------------------------------------------------------------------------------------
                      March 29,            June 28,    September 29,        January 3,         January 3,
                           1996                1996             1996              1997               1997
                    -------------------------------------------------------------------------------------
<S>                 <C>                 <C>              <C>               <C>              <C>         
Net revenues        $71,111,000         $83,921,000      $77,414,000       $74,398,000       $306,844,000
Gross profit          9,348,000          12,603,000       10,924,000        10,772,000         43,647,000
Provision for
 income taxes         2,067,000           2,761,000        2,509,000         2,198,000          9,535,000
Net income            3,297,000           4,418,000        4,017,000         3,514,000         15,246,000
Net income
 per share               $ 0.22              $ 0.29           $ 0.27             $0.23             $ 1.01
Weighted average
 number of common
 and common
 equivalent shares   15,053,413          15,071,239       15,101,706        15,253,940         15,122,578

                                            Quarter Ended                                      Year Ended
---------------------------------------------------------------------------------------------------------
                      March 31,            June 30,    September 29,      December 29,       December 29,
                           1995                1995             1995              1995               1995
---------------------------------------------------------------------------------------------------------
Net revenues        $55,569,000         $61,215,000      $58,460,000       $66,024,000       $241,268,000
Gross profit          6,665,000           8,502,000        7,910,000         8,048,000         31,125,000
Provision for
 income taxes         1,260,000           1,934,000        1,755,000         1,905,000          6,854,000
Net income            2,233,000           3,249,000        3,064,000         2,696,000         11,242,000
Net income
 per share               $ 0.16              $ 0.23           $ 0.22            $ 0.18             $ 0.79
Weighted average
 number of common
 and common
 equivalent shares   14,161,336          14,161,336       14,161,336        14,717,860         14,300,466


</TABLE>






10. Subsequent Events:

         Wenco has been  originating and servicing  consumer loans primarily for
homes manufactured by the Company.  In February 1997, the Company formed a joint
venture,  Wenco 21, with 21st Century.  The Company has made an initial  capital
contribution of $500,000 to Wenco 21,  representing a 50% ownership  interest of
the joint  venture.  Wenco 21 will  continue  to offer,  through  21st  Century,
consumer  financing for homes  manufactured  by the Company as well as for other
homes sold through its retail centers and independent  dealers.  In light of the
shift in consumer  finance  activities to Wenco 21, Wenco has suspended its loan
origination activities and has engaged 21st Century to service its existing loan
portfolio.
         Subsequent  to January 3, 1997,  the Company  contracted to build a new
corporate  office  facility  adjacent to its  Southern  Energy plant in Addison,
Alabama at a cost of approximately $1.5 million.

11. Business Segment Information:

         The Company's operations by industry segment are presented in the table
below.

<TABLE>
<CAPTION>

                                                              Year Ended
                                    --------------------------------------------------------
                                            January 3,        December 29,      December 30,
                                                  1997                1995              1994
                                    --------------------------------------------------------
<S>                                   <C>                     <C>              <C>
Net revenues:
Manufactured housing                      $304,865,000        $241,238,000      $188,750,000
Retail financing                             1,979,000              30,000                 -
                                    --------------------------------------------------------
                                          $306,844,000        $241,268,000      $188,750,000
                                    --------------------------------------------------------
Operating income:
Manufactured housing                       $24,909,000         $17,468,000       $13,808,000
Retail financing                              (590,000)            (37,000)                -
                                    --------------------------------------------------------
                                           $24,319,000         $17,431,000       $13,808,000
                                    --------------------------------------------------------
Identifiable assets:
Manufactured housing                       $78,155,000         $54,526,000       $41,709,000
Retail financing                            27,635,000             746,000            81,000
                                    --------------------------------------------------------
                                          $105,790,000         $55,272,000       $41,790,000
                                    --------------------------------------------------------


</TABLE>








Report of Independent Public Accountants
Southern Energy Homes, Inc. and subsidiaries

To 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, 1997 and December 29, 1995 and the related consolidated statements of
operations,  stockholders'  equity,  and cash flows for each of the years  ended
January 3, 1997,  December 29, 1995,  and  December  30, 1994.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  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  consolidated  financial  position  of
Southern Energy Homes,  Inc. and Subsidiaries as of January 3, 1997 and December
29,  1995 and the results of their  operations  and their cash flows for each of
the years ended  January 3, 1997,  December 29, 1995,  and December 30, 1994, in
conformity with generally accepted accounting principles.

Birmingham, Alabama
February 20, 1997 (except with respect to the matter  discussed
in Note 6, as to which the date is March 27,
1997)






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

         The financial  statements and related  information herein were prepared
by the  Company  and were based on  generally  accepted  accounting  principles,
appropriate  in the  circumstances  to  reflect  in all  material  respects  the
consolidated  financial  position  of the  Company  as of  January  3,  1997 and
December 29, 1995, and the consolidated results of operations and cash flows for
the years ended January 3, 1997,  December 29, 1995,  and December 30, 1994. The
financial  information presented elsewhere in this report 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
that  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.

         Arthur Andersen LLP has audited the consolidated  financial  statements
in  accordance  with  generally  accepted  auditing  standards  and their report
appears herein.






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

         None.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

         Information   concerning   the  Company's   directors  and   concerning
compliance with Section 16(a) of the Securities Exchange Act of 1934 required by
this Item is  incorporated by reference to the text appearing under Part I, Item
1 -- Business under the caption  "Executive  Officers" and by reference from the
Company's  Definitive  Proxy Statement for the Annual Meeting of Stockholders to
be held June 4, 1997.

ITEM 11.  EXECUTIVE COMPENSATION

         Information required by this Item is incorporated by reference from the
Company's  Definitive  Proxy Statement for the Annual Meeting of Stockholders to
be held on June 4, 1997.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information required by this Item is incorporated by reference from the
Company's  Definitive  Proxy Statement for the Annual Meeting of Stockholders to
be held on June 4, 1997.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information required by this Item is incorporated by reference from the
Company's  Definitive  Proxy Statement for the Annual Meeting of Stockholders to
be held on June 4, 1997.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K 

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

         (1)  Financial Statements

         Consolidated Balance Sheets as of January 3, 1997 and December 29, 1995

         Consolidated  Statements  of  Operations  for each of the fiscal  years
         ended January 3, 1997, December 29, 1995 and December 30, 1994.

         Consolidated  Statements of Stockholders' Equity for each of the fiscal
         years ended January 3, 1997, December 29, 1995 and December 30, 1994.

         Consolidated  Statements  of Cash  Flows for each of the  fiscal  years
         ended January 3, 1997, December 29, 1995 and December 30, 1994.

         Notes to Consolidated Financial Statements

         Report of Independent Public Accountants

         Statement of Management's Responsibility

         (2)  Financial Statement Schedules

         No financial  statement schedules are included since the information is
         not  applicable,   not  required,  or  is  included  in  the  financial
         statements or notes thereto.

         (3)  Listing of 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.)
            3.1    Certificate  of  Incorporation  of  the  Company.  (Filed  as
                   Exhibit  3.1 to  the  Registration  Statement  on  Form  S-1,
                   Registration No. 33-57420.)
            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.)
            4.7    Southern Development Council, Inc. Promissory Note. (Filed as
                   Exhibit  4.10 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.)
            *10.2  Employment  Agreement  with Keith Brown,  dated June 8, 1989.
                   (Filed as Exhibit 10.2 to the Registration  Statement on Form
                   S-1, Registration No. 33-57420.)
            *10.3  Employment Agreement with Johnny R. Long, dated June 8, 1989.
                   (Filed as Exhibit 10.3 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.)
            *10.6  Management  Agreement,  effective as of June 8, 1989,  by and
                   between Lee Capital Holdings and Southern Energy Homes,  Inc.
                   (Filed as Exhibit 10.14 to the Registration Statement on Form
                   S-1, Registration No. 33-57420.)
            10.7   Southern Development Council, Inc. Loan Commitment Agreement.
                   (Filed as Exhibit 10.15 to the Registration Statement on Form
                   S-1, Registration No. 33-57420.)
            10.8   Lease  Agreement by and between  Hillard Brannon and Southern
                   Energy Homes,  Inc.,  dated July 30, 1992.  (Filed as Exhibit
                   10.16 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.)
            10.13  Assignment  of Lease and Rights  dated June 29, 1993  between
                   B.B.H.L.P. Partnership and Southern energy Homes, Inc. (Filed
                   as Exhibit 10.1 to the Quarterly  Report on Form 10-Q for the
                   quarter ended July 2, 1993, File No. 0-21204.)
            10.14  Lease  Agreement  dated  as  of  June  1,  1984  between  The
                   Industrial Development Board of the Town of Addison,  Alabama
                   and  B.B.H.L.P.  Partnership.  (Filed as Exhibit  10.2 to the
                   Quarterly  Report on form 10-Q for the quarter  ended July 2,
                   1993, File No. 0-21204.)
            10.15  Assignment  of Lease and Rights  dated June 19, 1993  between
                   B.B.H.L.P.  and Southern Energy Homes, Inc. (Filed as Exhibit
                   10.3 to the  Quarterly  Report on Form  10-Q for the  quarter
                   ended July 2, 1993, File No. 2-21204.)
            10.16  Lease  Agreement  dated as of  December  1, 1986  between The
                   Industrial Development Board of the Town of Addison,  Alabama
                   and  B.B.H.L.P.  Partnership.  (Filed as Exhibit  10.4 to the





                   Quarterly  Report on Form 10-Q for the quarter  ended July 2,
                   1993, File No. 0-21204.)
            10.17  Letter Agreement dated May 18, 1993 and Master Note dated May
                   19, 1993 between the Company and AmSouth Bank, N.A. (Filed as
                   Exhibit  10.27 to the  Registration  Statement  on Form  S-1,
                   Registration No. 33-68954.)
            10.18  Deed of Real  Estate  dated  August 5, 1993  relating  to the
                   Company's Plant No. 2 in Addison,  Alabama. (Filed as Exhibit
                   10.27 to the Registration Statement on Form S-1, Registration
                   No. 33-68954.)
            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 on 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 Management, Inc.,
                   an Alabama Corporation, dated November 21, 1996.
           *10.22  Amended and  Restated  Employment  Agreement  with Wendell L.
                   Batchelor, dated as of June 14, 1996.
           *10.23  Amended  and  Restated  Employment  Agreement  with  Keith W.
                   Brown, dated as of June 14, 1996.
            21     List of Subsidiaries of the Registrant.
            23     Consent of Arthur Andersen LLP.
            27     Financial Data Schedule
         -------------
         *  Management contract or compensatory plan or arrangement.

(b) The Company did not file a current report on form 8-K during the 4th Quarter
of fiscal 1996.







                                   SIGNATURES


         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/ Wendell L. Batchelor
                              ----------------------------------
                              Wendell L. Batchelor
                              Chaiman, President
                              and Chief Executive Officer


Date:  March 27, 1997

         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/ Wendell L. Batchelor                             Chairman, President,               March 27, 1997
------------------------------------
Wendell L. Batchelor                                 Chief Executive Officer
                                                     and Director


/S/ Johnny R. Long                                   Executive Vice President           March 27, 1997
------------------------------------
Johnny R. Long                                       and Director


/S/ Keith W. Brown                                   Executive Vice President,          March 27, 1997
------------------------------------                 Chief Financial Officer,
Keith W. Brown                                       Treasurer, Secretary    
                                                     and Director            
                                                     

/S/ Keith O. Holdbrooks                              Executive Vice President           March 27, 1997
------------------------------------                 and Chief Operating Officer
Keith O. Holdbrooks                                  


/S/ Paul J. Evanson                                  Director                           March 27, 1997
------------------------------------
Paul J. Evanson


/S/ Joseph J. Incandela                              Director                           March 27, 1997
------------------------------------
Joseph J. Incandela


/S/ Jonathan O. Lee                                  Director                           March 27, 1997
------------------------------------
Jonathan O. Lee

</TABLE>