<PAGE>   1


                                    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 December 31, 1999
                                       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: (256) 747-8589

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

       Title of each class             Name of each exchange on which registered
               N/A
-----------------------------------    -----------------------------------------
-----------------------------------    -----------------------------------------
        Securities to be 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 28, 2000, was $5,735,000. The number of shares
of common stock outstanding at that date was 12,132,990 shares, $.0001 par
value.

DOCUMENTS INCORPORATED BY REFERENCE
                                                           Part     Item
                                                           ----     ----
1.  Southern Energy Homes, Inc. Definitive Proxy
    Statement with respect to its
    May 23, 2000 Annual Meeting of Stockholders             III      10,11,12,13


<PAGE>   2


                                     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, the retail financing of
manufactured homes and the operation of four component supply divisions. The
Company produces manufactured homes sold primarily in the southeastern and
southcentral United States. The Company operates seven home manufacturing
facilities (six in Alabama and one in Texas) to produce homes sold in 25 states.
The Company's homes are currently marketed under four brand names by 350
independent dealers at 465 independent dealer locations and 28 company-owned
retail centers.

         The Company manufactures homes, which are designed as primary
residences ready for immediate occupancy. The homes, most of which are
customized at the Company's factories to the home buyer's specifications, are
constructed by the Company in one or more sections 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 640 to 2,432
square feet and sell at retail prices ranging from $19,000 to $74,000, 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.

         The Company entered the retail sector of the industry through an
acquisition in 1996. Retail allows the Company to enhance its growth potential
by allowing the Company to market directly to individual home buyers in
strategically targeted areas.

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

         The Company provides home buyers with a source of financing for homes
sold by the Company. This financing is provided primarily through a retail
financing joint venture. However, in limited cases, the Company finances homes
through its wholly-owned finance subsidiary.

MANUFACTURED HOMES

         The Company produces a variety of single- and multi-section homes under
four brand names. The Company's homes are manufactured in sections, which
individually are transported to their destination. The finished homes may
consist of one or more sections. Multi-section products are joined at their
destination by the dealer or its contractor. The Company initially concentrated
on the medium to higher priced segments of the manufactured housing market. Over
the past several years, the Company has broadened its product line with lower
priced homes that sell at retail for less than $25,000. The five divisions of
the Company at which its homes were manufactured in 1999 and certain
characteristics of the homes are as follows:

<TABLE>
<CAPTION>

                                                                                          Retail
         Division                   Type                          Square Feet           Price Range
         -------------------------------------------------------------------------------------------------
<S>       <C>                       <C>                           <C>               <C>
         Southern Energy            Multi-section                 1,312-2,417       $33,800 - $74,000
         Southern LifeStyle         Single- and multi-section       640-2,432        19,000 -  59,000
         Southern Homes             Single- and multi-section       672-2,432        20,000 -  50,000
         Southern Energy Homes
          of Texas                  Single- and multi-section     1,088-2,128        20,000 -  57,500
         Southern Energy Homes
          of North Carolina*        Single- and multi-section       765-2,128        19,400 -  61,700
       *The Company closed this facility in July 1999.
</TABLE>

         For the fiscal year ended December 31, 1999, the net revenues
contributed by each of the Company's four home manufacturing divisions plus the
closed North Carolina facility were as follows: Southern Energy - $38 million;
Southern Life/Style - $47 million; Southern Homes - $90 million; Southern Energy
Homes of Texas - $22 million; and Southern Energy Homes of North Carolina - $7
million.


<PAGE>   3

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

RETAIL OPERATIONS

The Company began its retail operations in November 1996 by acquiring a group of
retail companies operating in Alabama and Mississippi. In December 1997, the
Company expanded its retail operations by acquiring another Retail Company with
seven locations in South Carolina. During 1998, the Company added another 15
retail centers through acquisitions. At December 31, 1999, the Company had 28
retail sales centers; 10 in Alabama, six in South Carolina, six in Kentucky, two
in Tennessee, two in Georgia, and two in Mississippi. Each of the 28 sales
centers maintains a separate sales force. For the fiscal year ended December 31,
1999, 26% of the Company's net revenues were attributable to sales at the
Company's own retail centers.

COMPONENT SUPPLY

         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 molding and
trim finishing. Unique Dinettes is a provider of wood components and dining
furniture. These divisions sell products both to the Company's own manufactured
housing segment and to third-party customers. For the fiscal year period ended
December 31, 1999, 4% of the Company's net revenues were attributable to sales
of these ancillary products to third-parties.

CONSUMER FINANCING

         Home buyers normally secure financing from third-party lenders such as
banks or independent finance companies. The availability and cost of financing
is important to the Company's sales and during the past year, financing has
become more restrictive and some lenders have exited the market. In order to
provide home buyers with an additional source of financing, the Company's
wholly-owned subsidiary, Wenco Finance, Inc. ("Wenco Finance") originated and
serviced consumer loans for homes manufactured by the Company during the period
January 1996 through February 1997. In February 1997, the Company formed a joint
venture with 21st Century Mortgage Corporation ("21st Century"). The joint
venture, Wenco 21, offers 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 originates and services consumer loans and assigns 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 is 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 reduced its loan origination
activities and engaged 21st Century to service its existing loan portfolio. At
December 31, 1999, Wenco Finance had $11.8 million of installment contract
receivables outstanding as compared with $11.3 million at January 1, 1999. The
Company expects that 21st Century and Wenco 21 will market the 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 four operating
divisions using assembly line techniques at seven facilities, three of which are
located in Addison, Alabama, two of which are located in Double Springs,
Alabama, one of which is located in Lynn, Alabama and one of which is located in
Fort Worth, Texas.

         The Company's facilities operate on a one shift per day, five days per
week basis. The Company believes that these facilities


                                       2
<PAGE>   4

have the capacity to produce a total of approximately 290 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 December 31, 1999, the Company produced an average of 229 floor
sections per week. This represented a 13% decrease in floor section production
from an average of 262 floor sections per week in the fiscal year ended January
1, 1999. In the fiscal year ended January 2, 1998, the Company produced an
average of 275 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 31,        January 1,        January 2,
                             1999              1999             1998
                             ----              ----             ----
Homes                       7,641             8,891            9,165
Floor sections             11,914            13,621           14,288
Home manufacturing
  facilities(1)                 7                 9                9

(1) The Company closed one of its Addison, Alabama facilities in September 1999
and closed its North Carolina facility in July 1999.

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

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

         The principal materials used in the production of the Company's homes
include steel, aluminum, wood products, gypsum wallboard, fiberglass,
insulation, carpet, vinyl floor covering, fasteners and hardware items,
appliances, electrical items, windows and doors. These materials and components
are readily available and are purchased by the Company from numerous sources. No
supplier accounted for more than 5.1% of the Company's purchases during each of
the past three fiscal years. The Company believes that the size of its purchases
allows it to obtain favorable volume discounts. The Company's expenses can be
significantly affected by the availability and pricing of raw materials. Sudden
increases in demand for construction materials can greatly increase the costs of
materials. While in the past, the Company has been able to pass along a
significant portion of increased material costs, more recently the Company has
had difficulties in passing on the increased costs due to competitive
conditions.

         Because the cost of transporting a manufactured home is significant,
substantially all of the Company's homes are sold to dealers within a 600 mile
radius of a manufacturing facility. The Company arranges, at the dealer's
expense, for the transportation of finished homes to dealer locations using its
own trucking subsidiary, MH Transport, Inc., and independent trucking companies.
The Company uses 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 manufactured homes segment does not maintain any significant inventory of
unsold completed homes. The Company's backlog of orders for manufactured homes
as of March 1, 2000 was $1.0 million as compared with $1.3 million at March 1,
1999. Dealer orders are subject to cancellation prior to commencement of
production for a variety of reasons, and the Company does not consider its
backlog to be firm orders.

SALES NETWORK

         At December 31, 1999, the Company sold manufactured homes through
approximately 350 independent dealers at approximately 465 independent dealer
locations and through 28 company-owned retail centers in 25 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 four home manufacturing divisions maintains a
separate sales force. At December 31, 1999, a total of 32 salespersons
maintained personal contact with the Company's independent dealers. The Company
markets its homes through


                                       3
<PAGE>   5

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 effective distribution of the Company's products. In
order to promote dealer loyalty and to enable dealers to penetrate retail
markets, only one independent dealer within a given local market may distribute
homes manufactured by a division of the Company. The Company does not have
formal marketing agreements with its independent dealers and substantially all
of the Company's independent dealers also sell homes of other manufacturers. The
Company believes its relations with its independent dealers are good and the
Company has experienced relatively low turnover in its established independent
dealers in the past three years. In the fiscal year ended December 31, 1999, the
Company's largest dealer accounted for 2.4% of net revenues and the ten largest
dealers accounted for 19.2% of net revenues. In the fiscal year ended January 1,
1999, the Company's largest dealer accounted for 2.9% of net revenues, and the
Company's ten largest dealers accounted for 16.1% of net revenues. In the fiscal
year ended January 2, 1998, the Company's largest dealer accounted for 2.5% of
net revenues and the Company's ten largest dealers accounted for 18.0% of net
revenues.

         The Company began its retail operations in November 1996 by acquiring a
group of retail companies doing business in Alabama and Mississippi. Since then,
the Company expanded its retail operations by acquiring several other retail
companies. At December 31, 1999, the Company had 28 retail sales centers; 10 in
Alabama, six in South Carolina, six in Kentucky, two in Tennessee, two in
Georgia, and two in Mississippi. Each of the 28 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 home building industry have been affected by,
among other things, changes in general economic conditions, levels of consumer
confidence, employment and income, housing demand, availability of financing and
interest rate levels.

WARRANTY, QUALITY CONTROL AND SERVICE

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

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

         The Company has experienced quality assurance personnel at each of its
manufacturing facilities to provide on-site service to dealers and home buyers.
In order to respond more quickly to customer service requests and to maintain a
high level of customer satisfaction, 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
December 31, 1999, the Company's contingent repurchase liability under floor
plan financing arrangements through independent dealers was approximately $76
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 be
obligated to repurchase in the future under such floor plan financing
arrangements or that the Company will not suffer losses with respect to, and as
a consequence of, those arrangements. No dealer accounted for more than 2.9% 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


                                       4
<PAGE>   6

material customer. The Company also finances substantially all of its retail
inventory through floor plan arrangements and a line of credit. Such borrowings
totaled approximately $23.0 million at December 31, 1999.


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. However, 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 has 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 recently
become more difficult to meet due to the departure of financial institutions
from the market and dealers requiring principal and curtailment payments from
the manufacturers.

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

         On March 1, 1999, the Company, without admitting any liability, entered
into a settlement with HUD that requires the Company to correct construction and
safety violations in homes manufactured at its North Carolina manufacturing
facility. In addition, the settlement requires the Company to inspect 600
additional homes for possible violations. The Company has agreed to a one-year
warranty extension of certain homes. HUD claimed that the Company failed to
comply with the consumer notification and defect correction requirements of the
1974 Act. The Company has been assessed a civil penalty by HUD of up to $300,000
in connection with the settlement; however, this penalty can be reduced by HUD
depending on Company actions. As of December 31, 1999, the Company had completed
all repairs and inspections required and had paid a penalty of $150,000.

         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.


                                       5
<PAGE>   7

         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 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.

RECENT ACQUISITIONS

         During 1998, the Company completed acquisitions that resulted in the
purchase of 15 retail sales centers. All acquisitions were accounted for under
the purchase method of accounting. Aggregate consideration given for all
acquisitions during 1998 consisted of approximately $7.2 million in cash and
liabilities assumed amounted to $1.5 million.

         On December 3, 1997, the Company acquired substantially all of the
assets and liabilities of A & G, a manufactured home retailer in South Carolina.
The Company paid $1.4 million in cash and issued 94,115 shares of the Company's
common stock (approximate market value on December 3, 1997 was $869,000).

EMPLOYEES

         As of December 31, 1999, the Company employed 1,783 full-time employees
involved in the following functional areas: manufacturing, 1,264; sales, 105;
field service, 110; administration and clerical, 187; drivers, 52; and
management, 65. 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 57) is the Founder and Chairman of the
Company and has been the Company's 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.

         Keith O. Holdbrooks (age 39) was elected as the Company's President in
June 1999 by the Company's Board of Directors and has served as the Company's
Chief Operating Officer since August 1996. From 1991 to 1996, Mr. Holdbrooks
served as General Manager for Southern Homes, a division of the Company, and
from 1989 to 1991 served as Sales Manager for Southern Homes. From 1985 to 1989
Mr. Holdbrooks served as salesman for Southern Lifestyle, a division of the
Company.

                  Keith W. Brown (age 43) 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


                                       6
<PAGE>   8

Homes, a division of Winston Industries.

ITEM  2.   PROPERTIES

         The Company's manufactured home segment currently operates seven home
manufacturing facilities (six in Alabama, and one in Texas) and four component
supply facilities (all in Alabama). The facilities used by the Company's
manufactured home segment are as follows:


                           Building                                Leased or
Unit                       Location                  Square Feet       Owned
----                       --------                  -----------   ---------
Manufacturing
  Southern Energy
  Plant #1                 Addison, AL                   72,000        Owned
 Southern LifeStyle
  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 #4                 Lynn, AL                      96,000        Owned
Southern Energy Homes
    of Texas               Fort Worth, TX                98,300        Owned
Component Supply
    Classic Panel          Hartselle, AL                 24,000        Owned
    Wind-Mar Supply        Addison, AL                   22,000        Owned
    Trimmasters            Haleyville, AL                50,000       Leased
    Unique Dinettes        Haleyville, AL                50,000       Leased

         The Company currently operates 28 retail sales centers, 10 of which are
in Alabama, six of which are in South Carolina, six in Kentucky, two in
Tennessee, two in Georgia, and two in Mississippi. Each of the lots are
currently leased and such lease terms range from one to five years.

         The corporate headquarters is located in Addison, Alabama and occupies
approximately 15,400 square feet of office space. 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

On March 1, 1999 the Company, without admitting any liability, entered into a
settlement with HUD that requires the Company to correct construction and safety
violations in homes manufactured at the North Carolina manufacturing facility.
In addition, the settlement required the Company to inspect 600 additional homes
for possible violations. The Company has agreed to a one-year warranty extension
of certain homes. HUD claimed that the Company failed to comply with the
consumer notification and defect correction requirements of the 1974 Act. The
Company has been assessed a civil penalty by HUD of up to $300,000 in connection
with the settlement; however, this penalty can be reduced by HUD depending on
Company actions. As of December 31, 1999, the Company had completed all repairs
and inspections required and had paid a penalty of $150,000.

The Company has been named, along with several other manufactured housing
companies, as a defendant in a class action lawsuit filed in Kentucky in
September 1998, claiming wrongful conduct, fraudulent misrepresentation and that
manufactured housing units are unsafe and/or dangerous for residential use. The
amount of the damages has not been specified. The Company believes the claims
are without merit and plans to vigorously defend itself against these claims.
However, the outcome of the litigation can not be predicted and such outcome
could have a material adverse effect on the Company.

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
<PAGE>   9

ITEM  4.  SUBMISSION TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of the Stockholders of the Company
during the fiscal year of 1999.

                                    PART II

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


Record Holders
         As of March 28, 2000, there were 85 record holders. This number does
not include those stockholders holding stock in "nominee" or "street" name.

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

                                     1999                         1998
                                Bid Price Range             Bid Price Range
                                ---------------             ---------------
                                High       Low              High       Low
                                ----       ---              ----       ---
         First Quarter         $7.00      $4.25            $13.38     $8.00
         Second Quarter         5.63       4.25             13.00      9.13
         Third Quarter          5.31       2.00             11.25      6.38
         Fourth Quarter         3.00       1.88              7.25      5.38

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


                                       8
<PAGE>   10


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
                            ----------------------------------------------------------------------------
                            December 31,       January 1,      January 2,     January 3,    December 29,
Operating Data                      1999             1999            1998           1997            1995
--------------              ------------    -------------    ------------    -----------    ------------
<S>                             <C>              <C>             <C>            <C>             <C>
Net revenues                    $253,011         $306,964        $296,809       $306,804        $241,268
Gross profit                      41,182           55,294          46,089         43,647          31,125
Selling, general
and administrative                33,873           35,099          23,494         17,634          13,272
Provision for credit
  losses                             524              300             187          1,177              --
Amortization of intangibles          671              792             853            517             422
Start-up costs                        --              739              --             --              --
Non-recurring
charge(1) (2) (4)                  7,073              934           2,146             --              --
Operating income (loss)             (959)          17,430          19,409         24,319          17,431
Interest expense                   1,994            2,392           1,412            131             146
Interest income                      340              854             470            593             811
Income taxes (benefit)            (1,020)           6,089           7,092          9,535           6,854
Cumulative effective of
  accounting change (3)               --              507              --             --              --
Net income (loss)                 (1,593)           9,296          11,375         15,246          11,242
Net income (loss) per share:
  Basic                            $(.13)           $0.69           $0.76          $1.01           $0.79
  Diluted                          $(.13)           $0.68           $0.75          $1.00           $0.78
Weighted average
shares outstanding:
  Basic                       12,176,705       13,440,607      15,002,006     15,122,578      14,300,466
  Diluted                     12,176,705       13,647,216      15,129,530     15,260,484      14,349,197


                            December 31,       January 1,      January 2,     January 3,    December 29,
Balance Sheet Data                  1999             1999            1998           1997            1995
------------------          ------------    -------------    ------------    -----------    ------------
Total assets                    $122,014         $121,656        $123,253       $112,658         $75,899
Long-term  debt                    2,464            3,569           4,720             --               6
Stockholders' equity              68,784         $ 73,449        $ 79,767       $ 77,377         $57,242
</TABLE>


(1)  During the fourth quarter of 1999, the Company recorded a charge of
     $686,000 ($422,000 after-tax, $0.03 per share) associated with closing of
     three retail centers, one in Kentucky and two in South Carolina.

(2)  During the second quarter of 1997, the Company recorded a $2.1 million
     pre-tax non-recurring charge in connection with its decision to close its
     manufactured housing facility located in Pennsylvania ($1.3 million after
     tax, $0.09 per basic share). During the fourth quarter of 1998, the Company
     recorded an additional charge of $934,000 ($574,000 after tax, $0.04 per
     basic share) due to additional warranty, workmen's compensation, and other
     costs incurred related to the closing of our Pennsylvania facility in 1997.

(3)  During the fourth quarter of 1998, the Company recorded a charge of
     $739,000 ($454,000 after-tax, $0.03 per basic share) for the current year
     and $825,000 ($507,000 after-tax, $0.04 per basic share) for prior years
     due to the company adopting a change in accounting principle requiring the
     expensing of start-up costs in accordance with AICPA Statement of Position
     98-5, "Reporting on the Cost of Start-Up Activities."

(4)  During the third quarter of 1999, the Company recorded a charge of $6.4
     million ($3.9 million after tax, $0.32 per share) associated with closing
     of its manufacturing facility in North Carolina.


                                       9
<PAGE>   11


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

RESULTS OF OPERATIONS

Year Ended December 31, 1999 as Compared with Year Ended January 1, 1999

Net Revenues

Total net revenues (gross revenues less volume discounts, returns, and
allowances) for the year ended December 31, 1999 were $253.0 million, which
represented a decline of 17.6% over the prior fiscal year.

Net revenues of the manufactured home segment were $204.8 million (including
intersegment revenues of $28.5 million) for the year ended December 31, 1999 as
compared with $244.7 million (including intersegment revenues of $27.5 million)
for the prior year period, a decrease of $39.9 million, or 16.3%. The decline in
sales to dealers was primarily attributable to decreased demand and closure of
the North Carolina plant in July 1999. Total homes shipped in the year ended
December 31, 1999 was 7,641, down 14% from the number of homes shipped in the
prior year period. The decrease in homes sold was attributable to an overall
industry decline in the Company's core market areas and increased competition
within these market areas. The average wholesale price per home in 1999 was
$26,807, as compared with $27,522 in 1998, a decrease of 2.6%.

On February 11, 2000, an electrical fire at the Company's frame shop forced the
Company to suspend operations at two of its manufacturing plants located in
Double springs, Alabama. On February 15, 2000, the Company reopened one of the
plants. With the reopening of this plant and the shifting of some of the
production to another plant in Lynn, Alabama, production returned to 90% of
pre-fire levels. The Company has business interruption insurance and while the
temporary plant shutdown may have an impact on the Company's revenues, the
Company does not anticipate that these shutdowns will have a material impact on
the Company's financial position or results of operations.

Net revenues from the retail sales segment were $64.6 million for the year ended
December 31, 1999 as compared with $76.3 million for the prior year period, a
decrease of $11.7 million, or 15.3%. The decline in retail sales was primarily
attributable to increased competition and the Company operating five fewer
retail centers, during the fiscal year ended December 31, 1999, compared to the
prior period. Total homes (new and used) sold by the retail segment in the year
ended December 31, 1999 was 1,840 down 15.4% from the number of homes shipped in
the prior year period. The average retail price per new home in 1999 was
$45,402, as compared with $44,019 in 1998, an increase of 3%.

Net revenues from the supply segment were $46.9 million (including intersegment
revenues of $37.4 million) for the year ended December 31, 1999 as compared with
$57.3 million (including intersegment revenues of $44.9 million) for the prior
year period, a decline of $10.4 million, or 18.2%. The decline in supply sales
was primarily attributable to the decline in sales volume in the manufactured
home segment.

Revenues from the Company's retail consumer financing activities were $1.3
million for the year ended December 31, 1999, as compared with $1.1 million for
the prior year period. This increase was attributable to the increase in lending
activity by the Company's wholly owned subsidiary, Wenco Finance, Inc. ("Wenco
Finance"). Wenco Finance originated and serviced consumer loans primarily for
homes manufactured by the Company, until February 1997, at which time the
Company formed a joint venture with 21st Century Mortgage Corporation ("21st
Century"). The joint venture, Wenco 21, offers consumer financing for homes
manufactured by the Company as well as for other homes sold through its retail
centers and independent dealers. However, Wenco Finance continues to generate
certain loans to consumers for the purchase of retail homes.

Gross Profit

Gross profit consists of net revenues less the cost of sales, which includes
labor, materials, and overhead. Gross profit for the year ended December 31,
1999 was $41.1 million, or 16.3% of net revenues, as compared with $55.3
million, or 18.0% of net revenues, in the prior year period. This decline in the
gross profit percentage was attributable primarily to increased competitive
pricing at wholesale, the inability to pass on increased material prices due to
competitive pricing in the industry, labor inefficiencies in operating at lower
capacities, and increased warranty expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include primarily sales
commissions, advertising expenses, freight costs, salaries for support
personnel, administrative compensation, insurance costs, and professional fees.
Selling, general and administrative expenses were $33.9 million, or 13.4% of net
revenues, during the year ended December 31, 1999, as compared with $35.1
million, or 11.4%


                                       10
<PAGE>   12

of net revenues, for the same period of the prior year. The increase in selling,
general and administrative expenses as a percentage of sales was attributable
primarily to the higher level of fixed expenses generally associated with the
Company's retail operation, increased sales allowance and dealer interest
payments to remain competitive in market areas and increased legal fees.

Operating Income

See Footnote 12 for description of Revenues, Gross Profit and Operating Income
by segments.

Provision for Credit Losses

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 December 31, 1999 was $524,000 as
compared with $300,000 for the year ended January 1, 1999.

Non-Recurring Charge

During 1999, the Company recorded a charge of $6.4 million ($3.9 million after
tax) associated with the closing of its manufacturing facility in North
Carolina. During fiscal years ended January 1, 1999 and January 2, 1998 this
facility generated 6.1% and 5.9%, respectively, of the total revenues of the
Company. During 1999, The Company also recorded a charge of $686,000 associated
with closing of three retail centers, one in Kentucky and two in South Carolina.
Revenues generated by these three retail centers were less than 1% of total
revenues of the Company for the fiscal years ended January 1, 1999 and January
2, 1998.

Interest Expense

Interest expense for the year ended December 31, 1999 was $2.0 million as
compared with $2.4 million for the year ended January 1, 1999. The decrease in
interest expense in the current year was a result of lower interest rates
associated with the Company financing its retail inventory through the Company's
line of credit versus floor plan financing with outside lenders at higher
interest rates.

Interest Income

Interest income for the year ended December 31, 1999 was $340,000 as compared
with $854,000 for the year ended January 1, 1999. The decrease in interest
income reflects lower average cash and cash equivalent balances during the year
ended December 31, 1999.

Provision for Income Taxes

Income taxes are provided for based on the tax effect of revenue and expense
transactions included in the determination of pre-tax book income. Income tax
benefit for the year ended December 31, 1999 was $1.0 million, or an effective
tax rate of 39%, compared with income tax expense of $6.1 million, or an
effective tax rate of 38.3%, for the year ended January 1, 1999. The decline in
income tax expense is a result of the net loss in 1999.

Year Ended January 1, 1999 as Compared with Year Ended January 2, 1998

Net Revenues

Total net revenues (gross revenues less volume discounts, returns, and
allowances) for the year ended January 1, 1999 were $307.0 million, which
represented an increase of 3.4% over the prior fiscal year.

Net revenues of the manufactured home segment were $244.7 million (including
intersegment revenues of $27.5 million) for the year ended January 1, 1999 as
compared with $252.0 million (including intersegment revenues of $17.9 million)
for the prior year period, a decrease of $7.3 million, or 2.9%. Total homes
shipped in the year ended January 1, 1999 was 8,891, down 3% from the number of
homes shipped in the prior year period. The decrease in homes sold was
attributable to an overall industry decline in the Company's core market areas
and increased competition within these market areas. The average wholesale price
per home in 1998 was $27,522, as compared with $27,501 in 1997.

Net revenues from the retail sales segment were $76.3 million for the year ended
January 1, 1999 as compared with $47.5 million for the prior year period, an
increase of $28.8 million, or 60.6%. The increase in retail sales was
attributable to the expansion of retail centers from 20 in 1997 to 33 during the
fiscal year ended January 1, 1999. Total homes (new and used) sold by the retail
segment in the year ended January 1, 1999 was 2,176, up 68.4% from the number of
homes shipped in the prior year period. The average retail price per new home in
1998 was $44,019, as compared with $41,772 in 1997, an increase of 5%.


                                       11
<PAGE>   13

Net revenues from the supply segment were $57.3 million (including intersegment
revenues of $44.9 million) for the year ended January 1, 1999 as compared with
$59.0 million (including intersegment revenues of $45.9 million) for the prior
year period, a decline of $1.7 million, or 2.9%. The decline in supply sales was
attributable to the decline in sales volume in the manufactured home segment.

Revenues from the Company's retail consumer financing activities were $1.1
million for the year ended January 1, 1999, as compared with $2.2 million for
the prior year period. This decline was attributable to the decline in lending
activity by the Company's wholly owned subsidiary, Wenco Finance, Inc. ("Wenco
Finance"). Wenco Finance originated and serviced consumer loans primarily for
homes manufactured by the Company, until February 1997, at which time the
Company formed a joint venture with 21st Century Mortgage Corporation ("21st
Century"). The joint venture, Wenco 21, offers 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 Finance reduced its loan origination activities
and engaged 21st Century to service its existing loan portfolio.

Gross Profit

Gross profit consists of net revenues less the cost of sales, which includes
labor, materials, and overhead. Gross profit for the year ended January 1, 1999
was $55.3 million, or 18.0% of net revenues, as compared with $46.1 million, or
15.5% of net revenues, in the prior year period. This increase in the gross
profit percentage was attributable primarily to increased sales from the
Company's retail segment, which have a higher gross margin than sales to
independent dealers.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include primarily sales
commissions, advertising expenses, freight costs, salaries for support
personnel, administrative compensation, insurance costs, and professional fees.
Selling, general and administrative expenses were $35.1 million, or 11.4% of net
revenues, during the year ended January 1, 1999, as compared with $23.5 million,
or 7.9% of net revenues, for the same period of the prior year. The increase in
selling, general and administrative expenses as a percentage of sales was
attributable primarily to the higher level of selling expenses generally
associated with the Company's retail operation, general salary increases and the
addition of new employees who were hired in order to staff retail operations.

Operating Income

See Footnote 12 for description of Revenues, Gross Profit and Operating Income
by segments.

Provision for Credit Losses

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 1, 1999 was $300,000 as
compared with $187,000 for the year ended January 2, 1998.

Non-Recurring Charge

During 1998, the Company recorded a charge of $934,000 due to additional
warranty, workers' compensation, and other costs incurred related to the closing
of its Pennsylvania facility in 1997. During fiscal years ended January 2, 1998
and January 3, 1997, this facility generated 1.0% and 3.3%, respectively, of the
total revenues of the Company.

Interest Expense

Interest expense for the year ended January 1, 1999 was $2.4 million as compared
with $1.4 million for the year ended January 2, 1998. The increase in interest
expense in the current year was a result of increased notes payable associated
with the floor plan financing of the Company's retail inventory.

Interest Income

Interest income for the year ended January 1, 1999 was $854,000 as compared with
$470,000 for the year ended January 2, 1998. The increase in interest income
reflects higher average cash and cash equivalent balances during the year ended
January 1, 1999.


                                       12
<PAGE>   14


Provision for Income Taxes

Income taxes are provided for based on the tax effect of revenue and expense
transactions included in the determination of pre-tax book income. Income tax
expense for the year ended January 1, 1999 was $6.1 million, or an effective tax
rate of 38.3%, compared with $7.1 million, or an effective tax rate of 38.4%,
for the year ended January 2, 1998. The decline in income tax expense is a
result of lower income in 1998.

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.

During the year ended December 31, 1999, the Company's cash provided by
operations was approximately $3.3 million. Cash provided by operations included
decreased accounts receivable and inventories of $4.9 million and non-recurring
charges of $7.1 million, partially offset by a net loss of $1.6 million,
decreased accounts payable and accrued liabilities of $4.8 million and loan
originations of $1.2 million. In addition to cash provided by operating
activities, other significant cash flows included capital expenditures of $3.3
million, repurchase of common stock of $3.1 million, increased net borrowings of
$8.6 million and the repayment of long-term debt of $1.1 million.

During the year ended January 1, 1999, the Company's cash provided by operations
was approximately $11.0 million. Cash provided by operations included net income
of $9.3 million and increased accounts payable and accrued liabilities of $0.3
million, which was partially offset by increased accounts receivable and
inventories of $1.3 million and loan originations of $2.2 million. In addition
to cash provided by operating activities, other significant cash flows included
capital expenditures of $3.2 million, purchase of subsidiaries for $7.2 million,
repurchase of common stock of $16.1 million, increased net borrowings of $2.8
million and the repayment of long-term debt of $1.2 million.

At December 31, 1999, the Company's net working capital was $18.7 million,
including $9.3 million in cash and cash equivalents, as compared with $21.3
million at January 1, 1999, including $4.3 million in cash and cash equivalents.
The decrease in net working capital was primarily attributable to a decrease in
inventories of $1.4 million and an increase in notes payable of approximately
$8.6 million, partially offset by an increase in cash and cash equivalents of
$5.1 million. The increase in cash and notes payable was primarily attributable
to borrowing on the line of credit to floor plan finance retail inventory. The
Company has a $25 million unsecured line of credit which is renewable annually
and bears interest at the London Interbank Offered Rate ("LIBOR") plus 1.0%. The
Company's ability to draw upon this line of credit is dependent upon meeting
certain financial ratios and covenants. The Company had outstanding borrowings
of $25.0 million on this line at December 31, 1999 and $7.0 million outstanding
borrowings at January 1, 1999. On February 28, 2000, the Company renewed its
bank line of credit. As part of the renewal, the maximum line of credit amount
was increased to $28.5 million and the line of credit became secured by the
Company's receivables and raw material inventories. The renewed line of credit
matures on May 31, 2001 and bears interest at the London Interbank Offered Rate
("LIBOR") plus 1.5%.

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 December 31, 1999, the Company's contingent repurchase liability
under floor plan financing arrangements was approximately $76 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 floor plan financing
arrangements or that the Company will not suffer losses with respect to, and as
a consequence of, those arrangements.

Expansion

In February 1998, the Company acquired substantially all of the assets of a
manufactured housing retailer in Georgia at a purchase price of approximately
$779,000.

In April 1998, the Company acquired substantially all of the assets of a
manufactured housing retailer in Kentucky and West Virginia at a purchase price
of approximately $5.1 million. In May 1998, the Company acquired substantially
all of the assets of a


                                       13
<PAGE>   15

manufactured housing retailer in South Carolina at a purchase price of
approximately $946,000. In July 1998, the Company acquired substantially all the
assets of a manufactured housing retailer in Kentucky at a purchase price of
approximately $460,000. Also in July 1998, the Company acquired property in
Tennessee at a purchase price of $220,000. In September 1998, the Company
acquired substantially all the assets of two manufactured housing retailers, one
in Tennessee and one in Georgia, at a purchase price of approximately $1.3
million. In the foregoing acquisitions, the Company assumed liabilities of $1.5
million.

Capital Expenditures

In October 1998, the Company approved the expenditure of $3.3 million to upgrade
the Company's software programs and operating systems. To date $2.8 million has
been expended on the upgrade. The Company anticipates it will fund the remaining
$500,000 with available cash.

Stock Repurchase

In October 1998, the Company extended its stock repurchase program for an
additional twelve months and increased the number of shares eligible for
purchase from 3,000,000 to 4,000,000. From the inception of the program through
its termination in October 1999, the Company has repurchased 3,505,900 shares at
a cost of $29,354,000, or an average cost of $8.37 per share. The Company paid
for these purchases out of available cash.

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.

Year 2000

The Company uses a wide range of software and related technologies throughout
its business that were affected by the date change in the Year 2000. This date
change required modification of portions of the Company's software so that its
computer systems would probably recognize dates beyond December 31, 1999. The
Company believes that with the upgrades or modifications made to existing
software and conversion to new software, the impact of the Year 2000 issue was
mitigated. The Company has completed validating all systems that have customer
impact or financial impact on the Company and no Year 2000 problems have been
encountered. The Company does not expect any problems or issues related to Year
2000 going forward.

 "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 Forward-looking statements in this report, including without limitation,
statements relating to the adequacy of the Company's resources, are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that such forward-looking statements
involve risks and uncertainties, including without limitation: the cyclical and
seasonal nature of housing markets; the availability of financing for
prospective purchasers of the Company's homes; the amount of capital that the
Company may commit to its Wenco 21 joint venture to make available consumer
loans; the performance of the loans held by the Company's finance subsidiary;
the availability and pricing of raw materials; the concentration of the
Company's business in certain regional markets; the Company's ability to execute
and manage its expansion plans; the availability of labor to implement those
plans; the highly competitive nature of the manufactured housing industry;
Federal, state and local regulation of the Company's business; the Company's
contingent repurchase liabilities with respect to dealer financing; the
Company's reliance on independent dealers; and other risks indicated from time
to time in the Company's filings with the Securities and Exchange Commission.


                                       14
<PAGE>   16


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

Consolidated Balance Sheets
Southern Energy Homes, Inc. and subsidiaries

<TABLE>
<CAPTION>
                                                                                  December 31,       January 1,
                                                                                          1999             1999
                                                                                 -------------     ------------
<S>                                                                              <C>               <C>
Assets
Current Assets:
    Cash and cash equivalents                                                    $  9,342,000      $  4,261,000
    Accounts receivable, less allowance for doubtful
         accounts of $470,000 and $166,000, respectively                           16,897,000        21,959,000
    Inventories                                                                    35,376,000        36,790,000
    Refundable income taxes                                                         2,579,000                 0
    Deferred tax benefits                                                           4,311,000         1,919,000
    Prepayments and other                                                             924,000         1,014,000
                                                                                 ------------      ------------
                                                                                   69,429,000        65,943,000
                                                                                 ------------      ------------
Property, plant, and equipment:
    Property, plant, and equipment, at cost                                        35,598,000        32,674,000
    Less - accumulated depreciation                                               (11,967,000)       (9,354,000)
                                                                                 ------------      ------------
                                                                                   23,631,000        23,320,000
                                                                                 ------------      ------------

Intangibles and other non-current assets:
    Installment contracts receivable, less allowance
        for credit losses of $357,000 and $295,000,
        respectively                                                               11,597,000        11,130,000
    Goodwill                                                                       10,657,000        14,995,000
    Investment in joint ventures                                                    5,728,000         4,963,000
    Other assets                                                                      972,000         1,305,000
                                                                                 ------------      ------------
                                                                                   28,954,000        32,393,000
                                                                                 ------------      ------------
                                                                                 $122,014,000      $121,656,000
                                                                                 ============      ============
Liabilities and Stockholders' Equity
Current liabilities:
    Notes payable                                                                $ 29,182,000      $ 20,556,000
    Current maturities of long-term debt                                            1,101,000         1,099,000
    Accounts payable                                                                4,168,000         4,393,000
    Volume incentive payable                                                        6,428,000         7,063,000
    Accrued payroll-related expenses                                                2,793,000         3,235,000
    Accrued workers' compensation                                                   1,915,000         1,753,000
    Accrued warranty                                                                3,034,000         2,543,000
    Accrued other                                                                   2,145,000         3,996,000
                                                                                 ------------      ------------
                                                                                   50,766,000        44,638,000
                                                                                 ------------      ------------
Long-term debt                                                                      2,464,000         3,569,000
                                                                                 ------------      ------------
Commitments and contingencies (Note 8)
Stockholders' equity:
    Preferred stock, $.0001 par value, 1,000,000
       shares authorized, none outstanding                                                 --                --
    Common stock, $.0001 par value, 40,000,000 shares
      authorized, 12,132,990 and 15,638,890 shares issued and
      outstanding at December 31, 1999 and January 1, 1999, respectively                1,000             2,000
    Treasury stock, at cost,
      3,000,300 shares at January 1, 1999                                                   0       (26,282,000)
    Capital in excess of par                                                        8,329,000        37,682,000
    Retained earnings                                                              60,454,000        62,047,000
                                                                                 ------------      ------------
                                                                                   68,784,000        73,449,000
                                                                                 ------------      ------------
                                                                                 $122,014,000      $121,656,000
                                                                                 ============      ============
</TABLE>

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


                                       15
<PAGE>   17


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

<TABLE>
<CAPTION>
                                                                          Year Ended
                                                     ----------------------------------------------------
                                                     December 31,          January 1,          January 2,
                                                            1999                1999                1998
                                                     ------------        ------------        ------------
                                                       (52 Weeks)          (52 Weeks)          (52 Weeks)
                                                     ------------        ------------        ------------

<S>                                                  <C>                 <C>                 <C>
Net revenues                                         $253,011,000        $306,964,000        $296,809,000
Cost of sales                                         211,829,000         251,670,000         250,720,000
                                                     ------------        ------------        ------------
Gross profit                                           41,182,000          55,294,000          46,089,000
                                                     ------------        ------------        ------------
Operating expenses:
  Selling, general and administrative                  33,873,000          35,099,000          23,494,000
  Provision for credit losses                             524,000             300,000             187,000
  Amortization of intangibles                             671,000             792,000             853,000
  Start-up costs                                               --             739,000                  --
  Non-recurring charges                                 7,073,000             934,000           2,146,000
                                                     ------------        ------------        ------------
                                                       42,141,000          37,864,000          26,680,000
                                                     ------------        ------------        ------------
Operating income (loss)                                  (959,000)         17,430,000          19,409,000
Interest expense                                        1,994,000           2,392,000           1,412,000
Interest income                                           340,000             854,000             470,000
                                                     ------------        ------------        ------------

Income (loss) before provision for
  income taxes and cumulative effect
  of accounting change                                 (2,613,000)         15,892,000          18,467,000
Provision (credit) for income taxes                    (1,020,000)          6,089,000           7,092,000
                                                     ------------        ------------        ------------
Income (loss) before cumulative effect of
  accounting change                                    (1,593,000)          9,803,000          11,375,000

Cumulative effect of accounting change,
  net of tax of $318,000                                       --             507,000                  --
                                                     ------------        ------------        ------------
  Net income (loss)                                  $ (1,593,000)       $  9,296,000        $ 11,375,000
                                                     ============        ============        ============
Per share data:
  Income (loss) before cumulative
   effect of accounting change:
      Basic                                          $      (0.13)       $       0.73        $       0.76
                                                     ============        ============        ============
      Diluted                                        $      (0.13)       $       0.72        $       0.75
                                                     ============        ============        ============
  Cumulative effect of accounting
   change, net of tax:
      Basic                                          $       0.00        $       0.04        $       0.00
                                                     ============        ============        ============
      Diluted                                        $       0.00        $       0.04        $       0.00
                                                     ============        ============        ============
  Net income (loss) per share:
      Basic                                          $      (0.13)       $       0.69        $       0.76
                                                     ============        ============        ============
      Diluted                                        $      (0.13)       $       0.68        $       0.75
                                                     ============        ============        ============
Weighted average number of common shares:
  Basic                                                12,176,705          13,440,607          15,002,006
                                                     ============        ============        ============
  Diluted                                              12,176,705          13,647,216          15,129,530
                                                     ============        ============        ============
</TABLE>

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


                                       16
<PAGE>   18


Consolidated Statements of Stockholders' Equity
Southern Energy Homes, Inc. and subsidiaries

<TABLE>
<CAPTION>

                                        Common Stock               Treasury Stock          Capital
                                        ------------               --------------         in Excess        Retained
                                   Shares         Amount        Shares         Amount       of Par         Earnings         Totals
                                   ------         ------        ------         ------     ---------        --------         ------

<S>                              <C>              <C>               <C>         <C>      <C>              <C>            <C>
Balance, January 3, 1997         15,437,801    $   2,000              --    $       --  $35,999,000      $41,376,000    $77,377,000

  Exercise of stock options          26,154           --              --            --      181,000               --        181,000
  Issuance of common stock
     in connection with
     acquisitions                   108,371           --              --            --    1,035,000               --      1,035,000
  Treasury stock repurchases             --           --       1,122,100   (10,201,000)          --               --    (10,201,000)
  Net income                             --           --              --            --           --       11,375,000     11,375,000
                                 ----------    ---------      ----------    ----------  -----------      -----------    -----------
Balance, January 2, 1998         15,572,326        2,000       1,122,100   (10,201,000)  37,215,000       52,751,000     79,767,000

  Exercise of stock options          65,464           --              --            --      458,000               --        458,000
  Issuance of common stock            1,100           --              --            --        9,000               --          9,000
  Treasury stock repurchases             --           --       1,878,200   (16,081,000)          --               --    (16,081,000)
  Net income                             --           --              --                         --        9,296,000      9,296,000
                                 ----------    ---------      ----------    ----------  -----------      -----------    -----------
Balance, January 1, 1999         15,638,890        2,000       3,000,300   (26,282,000)  37,682,000       62,047,000     73,449,000

  Treasury stock repurchases             --           --         505,600    (3,072,000)          --               --     (3,072,000)
  Retirement of treasury stock   (3,505,900)      (1,000)      3,505,900)   29,354,000  (29,353,000)              --             --
  Net loss                               --           --              --            --           --       (1,593,000)    (1,593,000)
                                 ----------    ---------      ----------    ----------  -----------      -----------    -----------
Balance December 31, 1999        12,132,990    $   1,000               0    $        0  $ 8,329,000      $60,454,000    $68,784,000
                                 ==========    =========      ==========    ==========  ===========      ===========    ===========
</TABLE>

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


                                       17
<PAGE>   19


Consolidated Statements of Cash Flows
Southern Energy Homes, Inc. and subsidiaries

<TABLE>
<CAPTION>
                                                                                    Year Ended
                                                              ----------------------------------------------------
                                                              December 31,          January 1,          January 2,
                                                                     1999                1999                1998
                                                              ------------         -----------         -----------
                                                                (52 Weeks)          (52 Weeks)          (52 Weeks)
                                                              ------------         -----------         -----------
<S>                                                            <C>                 <C>                 <C>
Operating activities:
Net income (loss)                                              $(1,593,000)        $ 9,296,000         $11,375,000
Adjustments to reconcile net income (loss) to
 net cash provided by operating activities:
    Equity income of joint ventures                             (1,317,000)         (1,121,000)           (282,000)
    Distributions from joint ventures                              640,000                  --                  --
    Gain on sale of installment contracts                               --                  --            (775,000)
    Non-recurring charges                                        7,073,000             934,000           2,146,000
    Depreciation of property, plant, and equipment               2,743,000           2,462,000           2,244,000
    Provision (credit) for deferred income taxes                (2,392,000)            215,000              13,000
    Gain on sale of property, plant, and equipment                 (26,000)            (50,000)            (25,000)
    Loss on sale of retail centers                                   9,000                  --                  --
    Amortization of intangibles                                    671,000             792,000             853,000
    Cumulative effect of change in accounting
         principle, net                                                 --             507,000                  --
    Provision (credit) for doubtful accounts receivable            313,000              20,000             (77,000)
    Provision for credit losses on installment contracts           524,000             300,000             187,000
    Origination of installment contracts                        (1,197,000)         (2,186,000)         (1,272,000)
    Principal collected on originated
      installment contracts                                        206,000             383,000             996,000
Change in assets and liabilities, net of effect from
 purchase of subsidiaries:
    Accounts receivable                                          4,749,000             369,000          (4,850,000)
    Inventories                                                    164,000          (1,653,000)          3,194,000
    Prepayments and other                                           56,000             393,000            (250,000)
    Refundable income taxes                                     (2,579,000)                 --                  --
    Accounts payable                                              (225,000)            944,000            (854,000)
    Accrued liabilities                                         (4,544,000)           (623,000)         (1,572,000)
                                                              ------------         -----------         -----------
            Net cash provided by operating activities            3,275,000          10,982,000          11,051,000
                                                              ------------         -----------         -----------
Investing activities:
    Purchase of subsidiaries, net of cash acquired                      --          (7,171,000)         (1,410,000)
    Capital expenditures                                        (3,255,000)         (3,241,000)         (6,089,000)
    Investments in joint ventures                                  (88,000)            (78,000)         (2,712,000)
    Increase in organization and pre-operating costs                    --                  --            (499,000)
    Proceeds from sale of property, plant, and equipment           104,000              50,000             162,000
    Proceeds from sale of retail centers                           594,000                  --                  --
                                                              ------------         -----------         -----------
            Net cash used in investing activities               (2,645,000)        (10,440,000)        (10,548,000)
                                                              ------------         -----------         -----------
Financing activities:
    Repurchases of treasury stock                               (3,072,000)        (16,081,000)        (10,201,000)
    Net borrowings on notes payable                              8,626,000           2,815,000            (668,000)
    Repayments of long-term debt                                (1,103,000)         (1,158,000)           (500,000)
    Borrowings on long-term debt                                        --                  --           6,326,000
    Proceeds from exercise of stock options                             --             458,000             181,000
    Proceeds from issuance of common stock                              --               9,000                  --
    Proceeds from sale of installment contracts                         --                  --          16,736,000
                                                              ------------         -----------         -----------
            Net cash provided by (used in) financing
             activities                                          4,451,000         (13,957,000)         11,874,000
                                                              ------------         -----------         -----------
Net increase (decrease) in cash and cash equivalents             5,081,000         (13,415,000)         12,377,000
Cash and cash equivalents at beginning of period                 4,261,000          17,676,000           5,299,000
                                                              ------------         -----------         -----------
Cash and cash equivalents at end of period                     $ 9,342,000         $ 4,261,000         $17,676,000
                                                              ============         ===========         ===========
Supplemental cash flow information:
    Cash paid for interest                                     $ 2,071,000         $ 2,531,000         $ 1,290,000
    Cash paid for income taxes                                 $ 4,210,000         $ 5,091,000         $ 7,434,000
</TABLE>


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


                                       18
<PAGE>   20


Notes To Consolidated Financial Statements
Southern Energy Homes, Inc. and subsidiaries

1. The Company and Basis of Presentation:

         Southern Energy Homes, Inc. (the "Company") has four reportable
segments: manufacturing, retail, component supply and consumer financing. The
Company produces manufactured homes, primarily on a custom basis, for wholesale
to dealers located primarily in the southeastern and south central regions of
the United States. Retail operations began in fiscal 1996 with the acquisition
of a retail home sales operation and expanded through various acquisitions
during fiscal 1998 and 1997 (see Note 4). Retail sales are concentrated in the
southeastern United States. The component supply segment sells various supply
products to the Company's manufacturing segment and to third party customers.
Wenco Finance, Inc., the Company's wholly owned finance subsidiary ("Wenco Fi
nance"), until February 1997 had 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")
(see Note 4). The joint venture, Wenco 21, offers consumer financing for homes
manufactured by the Company as well as other homes sold through its retail
centers and independent dealers. In light of the shift in consumer finance
activities to Wenco 21, Wenco Finance has restricted its loan origination
activities and has engaged 21st Century to service its existing loan portfolio.
(See Note 5).

         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 1999, 1998, and 1997 fiscal
years included 52 weeks.

         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.

         Certain prior period amounts have been reclassified to conform with the
1999 presentation.

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, where it
does not have the ability to control, on the equity basis of accounting.
Therefore, the Company's share of income/loss is recorded as equity income from
the venture in the accompanying consolidated statements of operations (see Note
4).

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.

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

                                         December 31,               January 1,
                                                1999                     1999
                                         ------------              -----------
Raw materials                             $ 7,537,000              $10,938,000
Work in progress                              749,000                1,166,000
Finished goods                             27,090,000               24,686,000
                                         ------------              -----------
                                          $35,376,000              $36,790,000
                                         ============              ===========


                                       19
<PAGE>   21

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

                                       December 31,                January 1,
                                               1999                      1999
                                       ------------               -----------
Land                                    $   501,000               $   495,000
Buildings and improvements               16,826,000                16,804,000
Machinery and equipment                  10,719,000                10,315,000
Office equipment                          2,309,000                 2,200,000
Leasehold improvements                    2,337,000                 2,231,000
Construction in progress                  2,906,000                   629,000
                                       ------------               -----------
                                        $35,598,000               $32,674,000
                                       ============               ===========

         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.

Intangible Assets
         The intangible assets recorded by the Company in connection with
various acquisitions primarily consists of goodwill which is being amortized on
a straight-line basis over 30 years. As of December 31, 1999 and January 1,
1999, accumulated amortization of intangibles amounted to $3,555,000 and
$2,889,000, respectively (see Notes 4 and 11).

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 (see Note 11).

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

Allowance for Credit Losses
         The allowance for credit losses is established to provide for losses
inherent in the installment contracts receivable portfolio. 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 the allowance account 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:

                                              December 31,          January 1,
                                                     1999                1999
                                              ------------          ----------
Balance, beginning of year                        $295,000            $696,000
Provision for credit losses                        524,000             300,000
Charge-offs                                       (462,000)           (701,000)
                                              ------------          ----------
Balance, end of year                              $357,000            $295,000
                                              ============          ==========


                                       20
<PAGE>   22


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

Product Warranties
         The Company warrants its products against certain manufacturing defects
for a period of one year commencing at the time of retail sale. The estimated
cost of such warranties is accrued at the time of sale to the independent dealer
based on historical warranty costs incurred. Periodic adjustments to the accrual
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, and for all
health-care claims in excess of $75,000 per occurrence (with an annual aggregate
stop-loss limit of approximately $4,660,000 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.

Fair Value of Financial Instruments
         Because of the short-term nature of a majority of the Company's
financial instruments and the low interest rate volatility associated with the
installment contracts receivable, the fair values of the Company's financial
instruments at December 31, 1999, and January 1, 1999, approximated book values
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 90 days or
more. Interest accrual resumes 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.


                                       21
<PAGE>   23


3. Earnings Per Share

<TABLE>
<CAPTION>
                                                    Income (Loss) Before                    Income (Loss) Before
         The EPS results are as follows:                  Cumulative            Weighted          Cumulative
                                                          Effect of              Average          Effect of
                                                         Accounting              Common           Accounting
                                                           Change                Shares             Change
                                                     --------------------       --------     --------------------
<S>                                                     <C>                    <C>                 <C>
December 31, 1999
         Basic                                          $(1,593,000)           12,176,705          $(0.13)
         Dilutive effect of options issued                       --                    --              --
                                                        -----------            ----------          ------
         Diluted                                        $(1,593,000)           12,176,705          $(0.13)
                                                        -----------            ----------          ------
January 1, 1999
         Basic                                          $ 9,803,000            13,440,607          $ 0.73
         Dilutive effect of options issued                       --               206,609           (0.01)
                                                        -----------            ----------          ------
         Diluted                                        $ 9,803,000            13,647,216          $ 0.72
                                                        -----------            ----------          ------
January 2, 1998
         Basic                                          $11,375,000            15,002,006          $  .76
         Dilutive effect of options issued                       --               127,524           (0.01)
                                                        -----------            ----------          ------
         Diluted                                        $11,375,000            15,129,530          $  .75
                                                        -----------            ----------          ------
</TABLE>

Options outstanding of 604,708 for the year ended December 31, 1999 were not
included in the table above as they were antidilutive.

4. Business Combinations and Investments in Joint Ventures

During 1998, the Company completed acquisitions that resulted in the purchase of
15 retail sales centers. All acquisitions were accounted for under the purchase
method of accounting; thus, the consolidated financial statements for fiscal
1998 reflect the operations of the businesses acquired from the dates of
acquisition. Aggregate consideration given for all acquisitions during 1998
consisted of approximately $7.2 million in cash and liabilities assumed amounted
to $1.5 million. Total intangibles recorded consisted of $0.3 million in
non-compete agreements and $1.6 million in goodwill. The Company amortizes
goodwill over 30 years and agreements not to compete over the life of the
agreements which are generally 4 to 10 years. The results of operations with
respect to these acquisitions were not significant and accordingly, no pro forma
results have been provided.

         On December 3, 1997, the Company acquired substantially all of the
assets and the business of A & G, a manufactured housing retail company
headquartered in Charleston, South Carolina. The Company paid $1.4 million in
cash and issued 94,115 shares of the Company's common stock (approximate market
value on December 3, 1997 of $869,000). The acquisition was accounted for under
the purchase method of accounting; thus, the financial statements for the year
ended January 2, 1998 reflect the operations of A & G from the date of
acquisition. The total purchase price exceeded the fair value of net assets
acquired (assets of $4.9 million less liabilities of $4.6 million) by
approximately $2.0 million, which is being amortized over 30 years as goodwill.
The results of operations with respect to A & G were not significant and,
accordingly, no pro forma results have been provided.

         On July 3, 1997, the Company made an initial capital contribution of
$2.0 million to purchase a one-third interest in a manufacturing joint venture
which produces rafters used in the production of the Company's homes. In 1999,
the joint venture repurchased another investor's interest thereby increasing the
Company's ownership to 39%. The Company's share of income from the joint venture
amounted to $686,000 and $469,000 in 1999 and 1998, respectively. In 1999, the
joint venture distributed $240,000 in cash to the Company.

         In February 1997, the Company made an initial capital contribution of
$500,000 to Wenco 21, representing a 50% ownership interest in the joint
venture. The company's share of income from Wenco 21 amounted to $214,000 and
$210,000 in 1999 and 1998, respectively.

         The Company also has a 33% interest in a manufacturing joint venture
with other manufactured home builders. The joint venture manufactures cabinet
doors for sale to participants in the joint venture as well as third party
customers. The Company's share of income from this joint venture amounted to
$417,000 and $442,000 in 1999 and 1998, respectively. In 1999, the joint venture
distributed $400,000 in cash to the Company.


                                       22
<PAGE>   24



5. Sale of Installment contracts:

         In August 1997, the Company sold at par installment contracts totaling
$16.7 million, along with the related servicing. The Company retained an
interest in certain of the cash flows ascribed to such loans (the "interest only
strip"). The fair value of the interest only strip was calculated using the
expected future cash flows discounted at the current market rate and considering
prepayment and default rates on the loans. The Company also retained credit
risks on the installment contracts sold and has recorded a reserve for such
estimated credit losses over the life of the loans in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 125, Accounting for Transfer and
Servicing of Financial Assets and Extinguishment of Liabilities.
The resulting gain on the sale amounted to $.8 million.

6. Income Taxes:

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

                            December 31,      January 1,       January 2,
                                   1999            1999             1998
                            ------------     -----------      -----------
Federal:
         Current             $ 1,196,000      $5,272,000       $6,594,000
         Deferred             (2,085,000)        192,000           11,000
                             -----------      ----------       ----------
                                (889,000)      5,464,000        6,605,000
                             -----------      ----------       ----------
State:
         Current                 176,000         602,000          485,000
         Deferred               (307,000)         23,000            2,000
                             -----------      ----------       ----------
                                (131,000)        625,000          487,000
                             -----------      ----------       ----------
Total provision (benefit)    $(1,020,000)     $6,089,000       $7,092,000
                             ===========      ==========       ==========

         The provision (benefit) for income taxes differed from the amounts
computed by applying the federal statutory rate of 34% in fiscal year 1999 and
35% in fiscal years 1998 and 1997 due to the following:

<TABLE>
<CAPTION>
                                                                December 31,      January 1,      January 2,
                                                                       1999            1999            1998
                                                                ------------      ----------      ----------
<S>                                                             <C>               <C>             <C>
Tax provision (benefit) at the federal statutory rate           $   (888,000)     $5,562,000      $6,463,000
State income taxes (benefit), net of federal benefit                 (86,000)        406,000         316,000
Goodwill amortization                                                117,000         168,000         127,000
Other                                                               (163,000)        (47,000)        186,000
                                                                ------------      ----------      ----------
                                                                 $(1,020,000)     $6,089,000      $7,092,000
                                                                 ===========      ==========      ==========
</TABLE>

         Temporary differences which created net deferred tax benefits at
December 31, 1999 and January 1, 1999 are as follows:

                                                   December 31,       January 1,
                                                          1999             1999
Deferred tax benefits:                             ------------       ----------
         Warranty accrual                            $1,123,000       $  943,000
         Accrued exit costs                           1,103,000          122,000
         Workers' compensation accrual                  699,000          636,000
         Accrued expenses                               469,000          491,000
         Organization and pre-operating
            costs                                       375,000          285,000
         State operating loss carryforwards             450,000               --
         Other                                          673,000          441,000
                                                     ----------       ----------
                                                      4,892,000        2,918,000
Deferred tax liabilities:
         Depreciation                                   266,000          501,000
         Goodwill and non-compete amortization          150,000          218,000
         Other                                          165,000          280,000
                                                     ----------       ----------
                                                        581,000          999,000
                                                     ----------       ----------
Net deferred tax benefits                            $4,311,000       $1,919,000
                                                     ==========       ==========


                                       23
<PAGE>   25

7. Notes Payable and Long-Term Debt:

         The Company routinely finances inventory of homes held by its retail
centers through floor-plan notes payable with various financial institutions.
The notes normally require periodic payments of principal and interest, and full
payment when the home is sold to a customer. The weighted average interest rates
on these borrowings during 1999 and 1998 were 8.0% and 7.9%, respectively. These
notes payable at December 31, 1999 and January 1, 1999 amounted to $4,182,000
and $13,556,000, respectively. During 1998, the Company began financing a
portion of its retail inventory with its $25 million unsecured bank line of
credit which is renewable annually and bears interest at the London Interbank
Offered Rate ("LIBOR") plus 1.0% (7.1% at December 31, 1999). The Company's
ability to draw upon this line of credit is dependent upon meeting certain
financial ratios and covenants. The Company had outstanding borrowings of
$25,000,000 and $7,000,000 on this line at December 31, 1999 and January 1,
1999, respectively (see Note 15).
         The Company's long-term debt at December 31, 1999 and January 1, 1999
is as follows:

<TABLE>
<CAPTION>
                                                           December 31,       January 1,
                                                                  1999             1999
                                                           ------------       ----------
<S>                                                         <C>              <C>
Working capital loan payable, interest at 7.1%,
due in monthly installments of $83,333 through
June 11, 2002                                                $2,417,000       $3,500,000
Construction term loan payable, interest at LIBOR
plus 1.7% (8.2% at December 31, 1999), due in monthly
installments of $15,591 through March 2003,                   1,148,000        1,168,000
                                                             ----------       ----------
Total long-term debt                                          3,565,000        4,668,000
Less amounts due within one year                              1,101,000        1,099,000
                                                             ----------       ----------
                                                             $2,464,000       $3,569,000
                                                             ==========       ==========
</TABLE>

         The Company's term loans, as amended, contain various restrictive
covenants, generally common to such loan agreements, with which the Company was
in compliance at December 31, 1999.

         The Company's long-term debt contractually matures in each of the next
five fiscal years as follows: $1,101,000 in 2000, $1,119,000 in 2001, $544,000
in 2002, $136,000 in 2003, $146,000 in 2004, and $519,000 thereafter.

8. Commitments and Contingencies:

Repurchase Agreements
         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 December 31, 1999, the Company's contingent
repurchase liability under floor plan financing arrangements was approximately
$76 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 floor
plan financing arrangements or that the Company will not suffer losses with
respect to, and as a consequence of, those arrangements.

Interest Reimbursement
         The Company has agreements with certain dealers to reimburse them for
their interest costs incurred in connection with floor-plan financing. Interest
expense related to these agreements is classified as a selling expense in the
accompanying consolidated statements of operations. For the years ended December
31, 1999, January 1, 1999, and January 2, 1998, interest expense related to
these agreements amounted to $979,000, $742,000, and $841,000, respectively.

Operating Leases
         The Company leases certain manufacturing facilities and retail sales
centers under operating leases. Rent expense under all leases was $1.6 million
for the year ended December 31, 1999, $1.8 million for the year ended January 1,
1999, and $1.1 million for the year ended January 2, 1998. Future minimum lease
payments for each of the next five years at December 31, 1999, are $1.6 million,
$1.3 million, $0.6 million, $0.4 million, and $0.2 million.


                                       24
<PAGE>   26


Litigation
         On March 1, 1999, the Company, without admitting any liability, entered
into a settlement with HUD that requires the Company to correct construction and
safety violations in homes manufactured at its North Carolina manufacturing
facility. In addition, the settlement required the Company to inspect 600
additional homes for possible violations. The Company has agreed to a one-year
warranty extension of certain homes. HUD claimed that the Company failed to
comply with the consumer notification and defect correction requirements of the
1974 Act. The Company has been assessed a civil penalty by HUD of up to $300,000
in connection with the settlement; however, this penalty can be reduced by HUD
depending on Company actions. As of December 31, 1999 the Company had completed
all repairs and inspections required and had paid a penalty of $150,000.

         The Company has been named, along with several other manufactured
housing companies, as a defendant in a class action lawsuit filed in Kentucky in
September 1998, claiming wrongful conduct, fraudulent misrepresentation and that
manufactured housing units are unsafe and/or dangerous for residential use. The
amount of the damages has not been specified. The Company believes the claims
are without merit and plans to vigorously defend itself against these claims.
However, the outcome of the litigation can not be predicted and such outcome
could have a material adverse effect on the Company.

         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.

9.  Retirement of Treasury Stock

         Effective December 31, 1999, the Company retired the 3,505,900 shares
of its common stock that were held in treasury. The excess of the aggregate
purchase price of the treasury stock over par value was deducted from capital in
excess of par. The treasury stock retirement did not result in any change to
total stockholders' equity.

10. Employee Benefit Plans

         The Company maintains a stock option plan which authorizes a total of
1,500,000 shares of Company common stock for issuance to key employees and
advisors. The Company granted options to acquire 96,330, 166,100, and 192,200
shares of common stock in 1999, 1998, and 1997, respectively. Due to the decline
in the Company's stock price, and the need to retain and motivate key employees,
on December 14, 1998, the Board of Directors approved the repricing of certain
options outstanding previously granted to employees of the Company. The Company
repriced 561,464 shares at prices ranging from $6.93 to $10.13 with an aggregate
exercise price of approximately $4.3 million to an exercise price of $5.50 per
share, the fair market value on the date of repricing. The repriced options are
included in the table below as new grants in fiscal 1998 with the old options
being included as forfeitures.

         At December 31, 1999, options to purchase 495,328 shares were
exercisable. Total options outstanding were 574,708 at December 31, 1999 with a
weighted average remaining contractual life of 7.45 years and a weighted average
exercise price of $4.99 and a range of exercise prices from $2.44 to $5.50.

         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 1999, 1998 and 1997, the Company granted options to
acquire 11,250 shares of common stock each year to certain outside directors.
The exercise prices of the options approximated the fair market value of the
Company's common stock at the date of grant. At December 31, 1999, options to
purchase 30,000 shares were exercisable. Total options outstanding were 30,000
at December 31, 1999 with a weighted average remaining contractual life of 7.95
years, weighted average exercise price of $9.16 and a range of exercise prices
from $4.53 to $11.63.


                                       25
<PAGE>   27


         The Company accounts for these plans under APB Opinion No. 25, under
which no compensation cost is recognized for options that are issued with
exercise prices that approximate the fair market value of the Company's Common
Stock on the date of grant. Had compensation expense for the Company's stock
option plans for awards in 1999, 1998, and 1997 been determined under SFAS No.
123, Accounting for Stock-Based Compensation, based on the fair market value of
the options at the grant date, the Company's net income and income per share
would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                         1999               1998              1997
                                                        ------             ------            ------
<S>                                                 <C>                   <C>              <C>
Net income (loss) - as reported                     $ (1,593,000)         $9,296,000       $11,375,000
Net income (loss) - pro forma                       $ (1,707,000)         $8,656,000       $10,783,000
As reported - net income (loss) per share:
                  Basic                             $     ( 0.13)         $     0.69       $      0.76
                  Diluted                           $      (0.13)         $     0.68       $      0.75
Pro forma - net income (loss) per share:
                  Basic                             $      (0.14)         $     0.64       $      0.72
                  Diluted                           $      (0.14)         $     0.63       $      0.71
</TABLE>

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

<TABLE>
<CAPTION>
                                                         Weighted                      Weighted       Weighted
                                                          Average                       Average        Average
                                      December 31,       Exercise      January 1,      Exercise      January 2,         Exercise
                                             1999           PRICE           1999          PRICE           1998             PRICE
                                      ---------------------------      ----------     ---------       ----------        --------
<S>                                       <C>               <C>           <C>             <C>            <C>               <C>
Outstanding at beginning of year          598,964           $5.83         516,714         $7.75          339,763           $7.45
Granted                                   107,580            2.66         738,814          6.59          203,450            8.14
Exercised                                      --              --         (65,464)         6.99          (26,154)           6.93
Forfeited                                (101,836)           6.26        (591,100)         7.78             (345)           6.93
                                          -------           -----         -------         -----          -------           -----
Outstanding at end of year                604,708           $5.19         598,964         $5.83          516,714           $7.75
                                          =======           =====         =======         =====          =======           =====
Exercisable at end of year                525,328           $5.45         521,280         $5.88          399,998           $7.33
Weighted average  fair value of
 options granted                                            $1.63                         $2.40                            $4.24
</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 1999, 1998 and 1997:

                                      1999                1998            1997
                                     ------              ------          ------
Dividend yield                         0.00%               0.00%           0.00%
Expected volatility                    0.67                0.40            0.39
Risk-free interest rate        5.86 to 6.11        4.48 to 5.61            6.28
Expected life (years)                  5.00                5.00            5.00

Vesting of the 1999 grants is 56,250 options vesting immediately and the
remainder vesting equally over two years. Vesting of the 1998 repriced options
and the 11,250 options under the Directors plan grant is 500,606 options vesting
immediately, 49,075 vesting equally over 3 years, and the remainder vesting
equally over 2 years. Vesting of the 1997 grants is 131,250 options vesting
immediately and the remainder vesting equally over three 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 upon 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 December 31, 1999,
January 1, 1999, and January 2, 1998, the Company expensed $101,000, $86,000,
and $78,000, respectively, related to the plan.


                                       26
<PAGE>   28


11. Non-Recurring Charge:

         On July 26, 1999, management closed the Company's manufactured housing
facility located in North Carolina. The decision was based primarily on changes
in local market conditions and operating results of the facility. The exit plan
began when the Company discontinued production on July 26, 1999, and will
include the sale of existing inventories and ultimate sale of the facility. In
connection with the decision to close the North Carolina facility, the Company
will incur losses on the impairment of the facility's assets and accrued certain
other expenses related to the closure. The Company estimated impairment losses
consisting primarily of impairment of goodwill, and other incremental expenses
to approximate $6.4 million, before income taxes. Although this amount
represents management's best estimate of total costs to close the facility, the
actual cost could ultimately differ from this amount. The Company has recorded
the exit costs as a non-recurring charge in the accompanying fiscal 1999
statement of operations. During the fiscal years ended December 31, 1999 and
January 1, 1999, this facility generated 2.9% and 6.1%, respectively, of the
total revenue of the Company. The impact of this facility on the operating
income of the Company was a pretax loss of $8.0 million ($4.9 after-tax),
including the non-recurring charge of $6.4 million before income taxes, and a
pre-tax loss of $400,000 ($246,000 after-tax) during the fiscal years ended
December 31, 1999 and January 1, 1999, respectively.

         During 1999, the Company also recorded a charge of $686,000 associated
with closing of three retail centers, one in Kentucky and two in South Carolina.
During the fiscal years ended December 31, 1999 and January 1, 1999, these three
retail centers generated 1.1% and 1.6%, respectively, of the total revenue of
the Company. The impact of these three retail centers on the operating income of
the Company was a pretax loss of $912,000 ($561,000 after-tax) and a pre-tax
loss of $326,000 ($200,000 after-tax) during the fiscal years ended December 31,
1999 and January 1, 1999, respectively.

         During fiscal year 1997, the Company recorded a $2.1 million pre-tax
($1.3 million after-tax) charge in connection with its decision to close its
manufactured housing facility located in Pennsylvania. The decision was based
primarily on changes in local market conditions and operating results of the
facility. The charge primarily consisted of components of goodwill and estimated
closing costs. Such closing costs included estimates of warranty, lease
obligations and severance pay. During fiscal year 1998, the Company recorded an
additional charge of $934,000 ($575,000 after tax) due to the closing of the
Pennsylvania facility. The costs were related to higher than expected warranty
and workers' compensation claims than estimated in fiscal year 1997. During
fiscal years ended January 2, 1998 and January 3, 1997, this facility generated
1.0% and 3.3%, respectively, of the total revenues of the Company.

12. Segment and Related Information:

         The Company has four primary reportable segments: manufacturing, retail
operations, component supply and consumer financing. The manufacturing segment
produces manufactured homes for sale to independent and company-owned retail
centers. The retail operations segment sells homes to retail customers which
have been produced by various manufacturers including the Company's
manufacturing segment. The component supply segment sells various supply
products to the Company's manufacturing segment and to third party customers.
The consumer financing segment originated and serviced consumer loans primarily
for homes manufactured by the Company through February 1997. The consumer
financing segment has now restricted its loan origination activities and engaged
21st Century to service its existing loan portfolio.

         The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The Company evaluates
performance based on total (external and intersegment) revenues, gross profit,
and segment operating income. The Company accounts for intersegment sales and
transfers as if the sales or transfers were to third parties, at current market
prices. The Company does not allocate income taxes, interest income, interest
expense and unusual items to all segments. In addition, not all segments have
significant noncash items other than depreciation and amortization in reported
segment operating profit or loss.

         The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately because each
business requires different operating and marketing strategies.


                                       27
<PAGE>   29


         The following table presents information about segment profit or loss,
dollars in thousands:

<TABLE>
<CAPTION>
                                                       1999             1998             1997
                                                      ------           ------           ------

<S>                                                   <C>              <C>              <C>
         Revenues:
              Manufacturing                           $204,834         $244,698         $252,049
              Retail operations                         64,579           76,257           47,460
              Component supply                          46,892           57,271           59,044
              Consumer financing                         1,266            1,145            2,173
              Other operating segments                   9,072           10,014            9,711
              Eliminations                             (73,632)         (82,421)         (73,628)
                                                      --------         --------         --------
         Total revenues                               $253,011         $306,964         $296,809
                                                      ========         ========         ========


         Gross profit:
              Manufacturing                           $ 19,795         $ 29,893         $ 29,026
              Retail operations                         18,608           22,359            9,564
              Component supply                           3,858            5,080            5,189
              Consumer financing                           441              325              617
              Other operating segments                   7,424            8,680            9,895
              Eliminations                              (8,944)         (11,043)          (8,202)
                                                      --------         --------         --------
         Gross Profit                                 $ 41,182         $ 55,294         $ 46,089
                                                      ========         ========         ========

         Segment operating income (loss):
           Manufacturing                              $    (34)        $ 14,852         $ 12,999
           Retail operations                            (4,757)          (1,196)             444
           Component supply                              2,297            3,289            3,233
           Consumer financing                               37              175            1,150
           Corporate                                      (694)          (1,752)             256
           Other operating segments                        394              649              608
                                                      --------         --------         --------
         Segment operating income                       (2,757)          16,017           18,690
         Income/expenses not
           allocated to segments:
              Interest income, net                           8              308              265
              Benefit (provision) for income taxes       1,020           (5,876)          (7,092)
              Other                                        136           (1,153)            (488)
                                                      --------         --------         --------
         Net income (loss)                            $ (1,593)        $  9,296         $ 11,375
                                                      ========         ========         ========
</TABLE>

         The Company recorded joint venture income of $1,317,000, $1,121,000 and
$282,000 in 1999, 1998, and 1997 respectively. In 1999 the Company recorded
$1,023,000 in Corporate and $294,000 in the retail segment. In 1998 the Company
recorded $1,002,000 in Corporate and $119,000 in the retail segment. In 1997 the
Company recorded $282,000 in Corporate.

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


                                       28
<PAGE>   30


         During 1999, the Company made certain changes to the composition of its
internal segments. The corresponding information for 1998 and 1997 has been
restated to conform to the 1999 changes. A summary of identifiable assets,
depreciation and amortization, and capital additions for the years ended 1999,
1998, and 1997, is as follows:

<TABLE>
<CAPTION>
                                                       Identifiable       Depreciation and         Capital
                                                          Assets            Amortization          Additions
                                                       ------------       ----------------        ---------
<S>                                                    <C>                    <C>                <C>
         1999:
              Manufacturing                            $ 27,699,000           $1,522,000         $  679,000
              Retail operations                          44,686,000              763,000            812,000
              Component supply                            5,939,000              248,000             95,000
              Consumer financing                         14,225,000                   --                 --
              Corporate                                  33,385,000              874,000          1,639,000
              Other operating segments                    1,091,000                7,000                 --
              Eliminations                               (5,011,000)                  --                 --
                                                       ------------           ----------         ----------
              Consolidated                             $122,014,000           $3,414,000         $3,225,000
                                                       ============           ==========         ==========

         1998:
              Manufacturing                            $ 35,830,000           $2,164,000         $  941,000
              Retail operations                          43,993,000              278,000          1,448,000
              Component supply                            6,808,000              225,000            103,000
              Consumer financing                         13,353,000                   --                 --
              Corporate                                  26,886,000              544,000            749,000
              Other operating segments                      798,000               43,000                 --
              Eliminations                               (6,012,000)                  --                 --
                                                       ------------           ----------         ----------
              Consolidated                             $121,656,000           $3,254,000         $3,241,000
                                                       ============           ==========         ==========

         1997:
              Manufacturing                            $ 41,394,000           $2,113,000         $2,222,000
              Retail operations                          29,848,000              350,000          1,050,000
              Component supply                            6,462,000              220,000            283,000
              Consumer financing                         12,507,000                   --                 --
              Corporate                                  34,380,000              350,000          2,534,000
              Other operating segments                      947,000               64,000                 --
              Eliminations                               (2,285,000)                  --                 --
                                                       ------------           ----------         ----------
              Consolidated                             $123,253,000           $3,097,000         $6,089,000
                                                       ============           ==========         ==========
</TABLE>

         The reconciling items to adjust assets and capital additions are the
amounts incurred for the corporate headquarters building, which is not included
in segment information. None of the other adjustments are significant.

13. 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 December 31, 1999, January 1, 1999, and January 2, 1998, which amounted to
$203,000, $3,000, and $250,000, respectively. In management's opinion,
transactions with the development company have been at prices and on terms no
less favorable to the Company than with third parties.

14. Cumulative Effect of Change in Accounting:

         Effective January 3, 1998, the Company adopted Statement of Position
("SOP") No. 98-5, Reporting on the Costs of Start-up Activities and Organization
Costs. Costs of start-up activities and organization costs during the year ended
December 31, 1999 and January 1, 1999, have been expensed as incurred under the
SOP. Adoption of this statement resulted in a charge in 1998 of $825,000
($507,000 after tax), which is reflected as the cumulative effect of a change in
accounting principle.


                                       29
<PAGE>   31


15.       Subsequent Events

              On February 11, 2000, an electrical fire at the Company's frame
shop forced the Company to suspend operations at two of its manufacturing plants
located in Double springs, Alabama. On February 15, 2000, the Company reopened
one of the plants. With the reopening of this plant and the shifting of some of
the production to another plant in Lynn, Alabama, production returned to 90% of
pre-fire levels. The Company has business interruption insurance and while the
temporary plant shutdown may have an impact on the Company's revenues, the
Company does not anticipate that these shutdowns will have a material impact on
the Company's financial position or results of operations.

On February 28, 2000, the Company renewed its bank line of credit. As part of
the renewal, the maximum line of credit amount was increased to $28.5 million
and the line of credit became secured by the Company's receivables and raw
material inventories. The renewed line of credit matures on May 31, 2001 and
bears interest at the London Interbank Offered Rate ("LIBOR") plus 1.5%.

16. Summary of Unaudited Quarterly Financial Data:

         Unaudited quarterly financial information is as follows:

<TABLE>
<CAPTION>                                                    Quarter Ended                                Year Ended
                                ------------------------------------------------------------------       ------------
                                   April 2,           July 2,       October 1,        December 31,       December 31,
                                      1999              1999             1999                1999               1999
                                -----------         ---------       ----------        ------------       ------------
<S>                             <C>               <C>              <C>                 <C>               <C>
Net revenues                    $73,545,000       $69,750,000      $63,856,000         $45,860,000       $253,011,000
Gross profit                     12,828,000        11,753,000       10,287,000           6,314,000         41,182,000
Income taxes (benefit)            1,230,000         1,032,000       (1,900,000)         (1,382,000)        (1,020,000)
Net income (loss)                 2,060,000         1,649,000       (3,067,000)         (2,235,000)        (1,593,000)
Income (loss) per share:
         Basic                  $      0.17       $      0.14      $     (0.25)        $    ( 0.19)      $     ( 0.13)
         Diluted                $      0.17       $      0.14      $     (0.25)        $    ( 0.19)      $      (0.13)
Weighted average number
 of common shares:
         Basic                   12,307,852        12,132,990        12,132,990         12,132,990         12,176,705
         Diluted                 12,307,852        12,132,990        12,132,990         12,132,990         12,176,705


                                                              Quarter Ended                                Year Ended
                                ------------------------------------------------------------------       ------------
                                   April 3,           July 3,       October 2,          January 1,         January 1,
                                      1998              1998             1998                1999               1999
                                -----------         ---------       ----------        ------------       ------------
Net revenues                    $75,072,000       $74,149,000      $82,120,000         $75,623,000       $306,964,000
Gross profit                     12,395,000        15,567,000       14,369,000          12,963,000         55,294,000
Income taxes                      1,516,000         2,241,000        1,419,000             913,000          6,089,000
Income before cumulative
  effect of accounting change     2,453,000         3,889,000        2,338,000           1,123,000          9,803,000
Net income                        2,453,000         3,889,000        2,338,000             616,000          9,296,000
Income before cumulative
    effect of accounting
    change per share:
         Basic                  $      0.18       $      0.28      $      0.18         $      0.09       $       0.73
         Diluted                $      0.17       $      0.28      $      0.18         $      0.09       $       0.72
Weighted average number
 of common shares:
         Basic                   13,989,296        13,810,326       13,296,029          12,667,024         13,440,607
         Diluted                 14,093,491        13,943,830       13,341,276          12,707,274         13,647,216
</TABLE>


                                       30
<PAGE>   32



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
December 31, 1999 and January 1, 1999 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three fiscal
years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Southern Energy
Homes, Inc. and subsidiaries as of December 31, 1999 and January 1, 1999, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.

         As explained in Note 14 to the financial statements, effective January
3, 1998, the Company changed its method of accounting for the costs of start-up
activities and organization costs.


                                                ARTHUR ANDERSEN LLP

Birmingham, Alabama
February 11, 2000 (except with respect,
to the matters discussed in Note 15
as to which the date is February 28, 2000)

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

         The consolidated financial statements and related information herein
were prepared by the Company and were based on accounting principles generally
accepted in the United States, appropriate in the circumstances to reflect in
all material respects the consolidated financial position of the Company as of
December 31, 1999 and January 1, 1999, and the consolidated results of
operations and cash flows for each of the years ended December 31, 1999, January
1, 1999, and January 2, 1998. 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
those transactions are executed in accordance with management's authorizations
and recorded properly.

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

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

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

         None.


                                       31
<PAGE>   33


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

         Information concerning the Company's directors and executive officers
required by this Item is incorporated by reference to the text appearing under
Part I, Item 1 -- Business under the caption "Executive Officers". Information
regarding compliance with Section 16(a) of the securities Exchange Act of 1934
is incorporated by reference from the Company's Definitive Proxy Statement for
the Annual Meeting of Stockholders to be held May 23, 2000.

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 May 23, 2000.

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 May 23, 2000.

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 May 23, 2000.

                                    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 December 31, 1999 and January 1,
         1999.

         Consolidated Statements of Operations for each of the fiscal years
         ended December 31, 1999, January 1, 1999 and January 2, 1998.

         Consolidated Statements of Stockholders' Equity for each of the fiscal
         years ended December 31, 1999, January 1, 1999 and January 2, 1998.

         Consolidated Statements of Cash Flows for each of the fiscal years
         ended December 31, 1999, January 1, 1999 and January 2, 1998.

         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:


                                       32
<PAGE>   34

        2.1 Asset Purchase Agreement, dated as of July 31, 1994, by and among
            the Registrant, Imperial Manufactured Homes of N.C., Inc.
            ("Imperial") and the stockholders of Imperial. (Filed as Exhibit
            2.1 to the Current Report on Form 8-K dated August 14, 1994, File
            No. 0-21204.)
        2.2 Real Estate Purchase Agreement, dated as of July 31, 1994, between
            Imperial N.C. Associates and Lawyer's Title of North Carolina, Inc.
            and Assignment of such Agreement to Southern Energy Homes of North
            Carolina, Inc. (Filed as Exhibit 2.2 to the Current Report on Form
            8-K dated August 14, 1994, File No. 0-21204.)
        2.3 Asset Purchase Agreement, dated April, 1998, by and between the
            Registrant, Rainbow Homes, Inc., and the sole stockholder of Rainbow
            Homes, Inc. (filed as exhibit 2.3 to the Company's Annual Report on
            Form 10-K for the year ended January 1, 1999)
        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.)


                                       33
<PAGE>   35

      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 of
            Form 10-K for the year ended December 29, 1995).
      10.21 Agreement and Plan of Reorganization of Southern Energy Homes,
            Inc., a Delaware Corporation, and SE Management, Inc., an Alabama
            Corporation, dated November 22, 1996 (filed as Exhibit 10.21 to the
            Company's Annual Report on Form 10K for the year ended January 3,
            1997).
     *10.22 Amended and Restated Employment Agreement with Wendell L.
            Batchelor, dated as of June 14, 1996 (filed as Exhibit 10.22 to the
            Company's Annual Report on Form 10K for the year ended January 3,
            1997).
     *10.23 Amended and Restated Employment Agreement with Keith W. Brown,
            dated as of June 14, 1996 (filed as Exhibit 10.23 to the Company's
            Annual Report on Form 10K for the year ended January 3, 1997).
      10.24 Asset Purchase Agreement, dated as of December 3, 1997, by and
            among the Registrant, A&G, Inc. and the sole stockholder of A&G,
            Inc. (filed as Exhibit 10.24 to the Company's Annual Report on Form
            10K for the year ended January 2, 1998). The following Exhibits are
            filed herewith:
         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 1999.



                                       34
<PAGE>   36


                                   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
                                              Chairman, President
                                              and Chief Executive Officer

Date:  March 29, 2000

         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,                          March 29, 2000
-------------------------------------                Chief Executive Officer
Wendell L. Batchelor                                 and Director


/s/ Keith O. Holdbrooks                              President,                         March 29, 2000
-------------------------------------                Chief Operating Officer
Keith O. Holdbrooks                                  and Director


/s/ Keith W. Brown                                   Executive Vice President,          March 29, 2000
-------------------------------------                Chief Financial Officer,
Keith W. Brown                                       Treasurer, Secretary
                                                     and Director


/s/ Johnny R. Long                                   Director                           March 29, 2000
-------------------------------------
Johnny R. Long

/s/ Louis C. Henderson                               Director                           March 29, 2000
-------------------------------------
Louis C. Henderson, Jr


/s/ Joseph J. Incandela                              Director                           March 29, 2000
-------------------------------------
Joseph J. Incandela


/s/ Jonathan O. Lee                                  Director                           March 29, 2000
-------------------------------------
Jonathan O. Lee
</TABLE>

                                       35