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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 28, 2002

Commission file number 0-24210

AMERICAN HOMESTAR CORPORATION
(Exact name of registrant as specified in its charter)

TEXAS 76-0070846
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)

2450 SOUTH SHORE BOULEVARD, SUITE 300, LEAGUE CITY, TEXAS 77573
(Address of principal executive offices, including zip code)

(281) 334-9700
(Registrant's telephone number, including area code)

Securities to be Registered Pursuant to Section 12(b) of the Act: None

Securities to be Registered Pursuant to Section 12(g):

Series C Common Stock, par value $.01 per share
Series M Common Stock, par value $.01 per share
(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 [ ] No [X]

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 estimated aggregate market value of voting and non-voting common equity held
by non-affiliates of the registrant is not determinable as there have been no
sales and no quoted bid and asked prices within 60 days prior to the date of
this filing.

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

As of September 24, 2002 the registrant had 100 shares of Series M Common Stock,
par value $.01 per share, and 3,922,280 shares of Series C Common Stock, par
value $.01 per share, issued and outstanding, and 6,077,720 shares of Series C
Common Stock deemed issued, outstanding and held in constructive trust for the
benefit of shareholders to be determined in name and amount as the claims
process arising from the registrant's Third Amended and Restated Plan of
Reorganization is completed.

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TABLE OF CONTENTS

PART I

PAGE
----

Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . 9

PART II

Item 5. Market for Registrant's Common Equity and Related Shareholder Matters . . 10
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 7A. Quantitative and Qualitative Disclosures about Market Risk. . . . . . . . 25
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

PART III

Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . 27
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . 34
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . 35

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . 36

PART I

ITEM 1. BUSINESS

GENERAL

American Homestar Corporation ("American Homestar" or the "Company") is a
regional vertically integrated manufactured housing company, with operations in
manufacturing, retailing, transportation, financing and insurance. The Company
was incorporated in Texas in July 1983. The Company currently operates two new
home manufacturing facilities and sells homes through its dedicated distribution
channels, which include 40 retail sales centers, a smaller sales center in a
manufactured housing community and approximately 20 independent retail locations
in five states. A third manufacturing facility is currently used to refurbish
lender repossessions.

Starting in July 1994, the Company had undertaken a strategy of expanding
into several new regional markets (outside of its core Southwest base of
operations) by acquiring manufacturing capacity and growing its Company store
network (through acquisition and new formation) to support its expanded regional
presence. Many of the Company's competitors were growing and expanding their own
company store base in the same regional markets. By early 1999, overall demand
for manufactured housing had peaked after several years of consistent and
significant growth. At the same time, total manufacturing and retail capacity
had grown to the extent that it surpassed then current levels of end-user
demand. The result was lower per-plant and per-store volume and diminishing
profitability for the industry and the Company. Excess finished goods inventory
and excess manufacturing capacity gave rise to steadily increasing volume and
margin pressures. With mounting losses in its retail operations and diminishing
profitability in its manufacturing operations, the Company adopted a plan to
retract its operations, with the goal of discontinuing Company store operations
in all non-core markets and focusing management and resources on what it defined
as its core Southwest market (Texas and the surrounding states).

REORGANIZATION

On January 11, 2001, the Company and twenty-one (21) of its subsidiaries
filed separate voluntary petitions for reorganization under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court of the
Southern District of Texas (the "Bankruptcy Court"). On August 14, 2001, the
Bankruptcy Court confirmed the Third Amended Joint Plan of Reorganization of the
Company and its subsidiaries (the "Plan"). All conditions to the effectiveness
of the Plan were met and the Plan became effective on October 3, 2001 (the
"Effective Date").

Under the terms of the Plan, all equity interests in the Company were
cancelled as of the Effective Date, and all holders of outstanding shares of
Company stock, which had previously traded under the symbols HSTR and HSTRQ,
lost all rights to equity interests in and to the reorganized Company. Under
the Plan, the Company has the authority to issue 15 million shares of new Series
C common stock and is required to issue 10 million shares of Series C common
stock to its general unsecured creditors. Pursuant to the exemption set forth
in Section 1145 of the Bankruptcy Code, the Company issued new shares of Series
C common stock to persons holding allowed unsecured claims in the Company's
bankruptcy case and shares of Series M common stock to management under an
incentive program. The Company has issued 10 million shares of Series C common
stock and 100 shares of Series M common stock. As of June 28, 2002, 3,922,280
shares of Series C common stock had been issued to specific shareholders with
allowed claims and 6,077,720 shares were held in constructive trust for the
benefit of shareholders to be determined in name and amount as the claims
process is completed. The Company also has the authority to issue 7.5 million
shares of Series M common stock to management, 100 shares of which had been
issued as of June 28, 2002 and 4,999,900 shares underlie options authorized
under the Company's 2001 Management Incentive Program. Options for 4,949,900
shares have been approved and granted at an exercise price of $1.35 per share.
These options vest seven years from the date of grant and may vest earlier (up
to 20% per year) if certain annual performance criteria established by the Board
of Directors are met.

In connection with its reorganization, the Company adopted "Fresh-Start
Reporting" under American Institute of Certified Public Accountants ("AICPA")
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code," beginning September 29, 2001, which coincides with
the end of the Company's first fiscal quarter. The Company elected to use
September 29, 2001, its quarter end, as its Fresh-Start Reporting date versus
the Effective Date of the Plan, October 3, 2001, as interim activity was not

material to the Consolidated Fresh-Start Balance Sheet. Accordingly, all assets
and liabilities were restated to reflect their reorganization value, which
approximates the fair value of the assets and liabilities at the Effective Date
and its capital structure was recast in conformity with the Plan. The
adjustment to eliminate the accumulated deficits totaled $158 million of which
$139 million was forgiveness of debt and $19 million was from Fresh-Start
adjustments.

The results of operations and cash flows for the three months ended
September 29, 2001 include operations prior to the Company's emergence from
Chapter 11 proceedings (referred to as "Predecessor Company" for periods prior
to September 29, 2001). The results of operations and cash flows for the nine
months ended June 28, 2002 include operations subsequent to the Company's
emergence from Chapter 11 proceedings and reflect the effects of Fresh-Start
Reporting (referred to as "Successor Company" for periods subsequent to
September 29, 2001). As a result, the net income for the nine months ended June
28, 2002 is not comparable with prior periods and the net income for the fiscal
year ended June 28, 2002 is divided into Successor Company and Predecessor
Company and is also not comparable with prior periods. In addition, the Balance
Sheet as of June 28, 2002 is not comparable to prior periods for the reasons
discussed above.

The reorganization value of the Company's common equity of approximately
$30 million at September 29, 2001, was determined by an independent valuation
and financial specialist, after consideration of several factors and by using
various valuation methods including appraisals, cash flow multiples,
price/earnings ratios and other relevant industry information. The
reorganization value of the Company was allocated to various asset categories
pursuant to Fresh-Start accounting principles.

STRATEGY

In connection with its reorganization, the Company has significantly
downsized its operations and has focused on its core Southwest market where the
Company is based and where it has historically had its most favorable overall
results. The Company currently operates 40 retail sales centers and a smaller
sales center in a manufactured housing community. The Company also operates
three manufacturing plants, two of which produce new homes while the third
refurbishes lender repossessions. Additionally, the Company operates an
insurance agency, which sells homeowner's insurance, credit life insurance and
extended warranty coverage to its customers. The Company also has a 51%
ownership interest in a transport company, which specializes in the
transportation of manufactured and modular homes and offices. In addition, the
Company has a 50% interest in a finance company, which specializes in providing
chattel and land/home financing to the Company's customers. The Company recently
invested in a 50% owned mortgage brokerage business to allow it to better
control the placement of its traditional mortgage business and to realize a
portion of the net profits relating to this business. Most recently, the Company
has aligned itself with several subdivision developments to meet an emerging
market segment in its market region and to gain greater market share. Management
believes that its regional vertical integration strategy, which derives multiple
profit sources from each retail sale, will allow the Company to be more
successful, over time, than would otherwise be the case.

INDUSTRY

A manufactured home is a single-family residence that is constructed in a
controlled factory environment and transported to a home site. Total retail
sales of new manufactured homes in the United States were approximately $9.4
billion in 2001. From 1991 through 1998, the manufactured housing industry
experienced a significant increase in the number of homes sold. Factory
shipments increased from approximately 171,000 homes in 1991 to a cyclical high
of approximately 373,000 homes in 1998. In 1999, 2000, and 2001 factory
shipments declined to approximately 349,000, 251,000 and 193,000 respectively
and estimated shipments for the year 2002 are expected to decline even further.
In 2001, manufactured homes accounted for approximately 18% of all new
single-family homes completed in the United States, up slightly from
approximately 17% in 1991. Because of the lower cost of construction for
manufactured homes compared to site-built homes, manufactured housing has
historically served as one of the most affordable alternatives for the
homebuyer. The average retail price of a new manufactured home in 2001 was
$31.69 per square foot, as compared to $70.66 per square foot for a new
site-built home, excluding land costs. In recent years, demand has shifted
toward larger, multi-section homes, which accounted for approximately 75% of the
manufactured homes produced in 2001.

Manufactured homes have traditionally been an alternative for homebuyers
unable or unwilling to make larger down payments and higher monthly payments
associated with site-built homes. Changes in the sub-prime lending markets,
beginning in late 1998, led to interest rate increases for home-only ("chattel")
financing at a time when traditional site-built mortgage interest rates were
generally declining. This condition (rising chattel financing rates and
declining site-built mortgage rates) has negatively affected the relative
affordability of chattel-financed manufactured housing in the Company's core
market area where the costs of land and site-built construction are low compared
to other parts of the country. There has also been a decline in the number of
industry lenders who provide chattel financing for manufactured homes resulting
in higher credit standards being applied to prospective buyers and, therefore, a
decline in the number of prospective customers who qualify for new manufactured
home chattel financing.

In addition to the changes in the chattel lending environment described
above, new Texas legislation (HB 1869), effective January 1, 2002 requires any
land/home package to be closed and financed in the same manner as a traditional
mortgage financing for site-constructed housing. Chattel financing can be used
only in cases where the home is being sited on leased land. This has resulted in
a noticeable shift from traditional industry lenders to more conventional
mortgage loan providers at interest rates virtually the same as for
site-constructed homes. This has also resulted in a significant increase in
potential loan providers and has afforded the manufactured housing industry in
Texas with continued access to guaranteed loan programs of both the Federal
Housing Administration and the Department of Veterans Affairs as well as special
programs offered through the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation.

The Company believes that the recent significant changes in the lending
environment described above and, especially, the shift toward traditional
mortgage financing sources will enhance the relative affordability of its
products as compared to site-constructed homes.

RETAIL DISTRIBUTION

The Company currently sells its products through various retail
distribution channels, primarily Company-operated retail sales centers, but also
including independent retailers and subdivisions. Franchise operations were
discontinued as a part of the Company's reorganization. The following table sets
forth, for the periods indicated, certain data for shipments of homes
manufactured by the Company to Company-operated retail sales centers and to
independent retail sales centers, including franchisees, and the number of
Company-operated retail sales centers and the number of joint venture retail
sales centers:

YEARS ENDED THREE MONTHS NINE MONTHS
------------------ ENDED ENDED
JUNE 30, JUNE 29, SEPTEMBER 29, JUNE 28,
2000 2001 2001 2002
-------- -------- ------------- -------------
PREDECESSOR CO. SUCCESSOR CO.
--------------------------------- -------------

Manufacturing shipments to Company-operated
retail sales centers . . . . . . . . . . . . 4,569 1,824 292 1,014
Manufacturing shipments to independent retail
sales centers, (including franchisees for
Predecessor Company) . . . . . . . . . . . . 5,830 1,832 51 162
-------- -------- ------------- -------------
Total homes shipped. . . . . . . . . . . . 10,399 3,656 343 1,176
======== ======== ============= =============

Company-operated retail sales locations and
community sales centers at end of period . . 111 41 41 41
Joint venture retail sales centers . . . . . . 11 -- -- --

The Company employs a distinct merchandising and selling strategy in its
distribution channels. At each Company-operated retail sales center a broad
selection of fully furnished and professionally decorated model homes is
displayed in a landscaped setting. The Company's professional sales staff
receives continuous training on all of the Company's products and services and
is therefore able to provide customers with a positive buying experience. The
Company also provides merchandising support and uses regional print, radio and
occasional television advertising to promote customer awareness and enhance the
Company's quality image.

In fiscal 2002, 70% of the Company's new home retail sales were
multi-section homes and its average new home retail sales price was $53,584 for
Department of Housing and Urban Development ("HUD") code homes, compared to the
industry average of $48,800. The Company currently operates 40 retail centers,
of which 35 are in Texas, three are in Louisiana and two are in Oklahoma, along
with a small sales center in a Texas manufactured housing community.

The following table sets forth, for the periods indicated, certain
information relating to homes sold by Company-operated retail sales centers:

YEARS ENDED THREE MONTHS NINE MONTHS
---------------------- ENDED ENDED
JUNE 30, JUNE 29, SEPTEMBER 29, JUNE 28,
2000 2001 2001 2002
---------- ---------- --------------- ---------------
Predecessor Co. Successor Co.
--------------------------------------- ---------------

Average new home sales price - HUD code . . . $ 55,095 $ 54,823 $ 51,403 $ 53,584
Homes sold:
New homes. . . . . . . . . . . . . . . . 5,831 2,499 373 1,001
Previously-owned homes . . . . . . . . . 2,196 964 149 555
Percentage of new homes sold:
Single-section . . . . . . . . . . . . . 28% 29% 34% 28%
Multi-section. . . . . . . . . . . . . . 72% 71% 66% 72%
Percentage of new homes sold manufactured by:
Company. . . . . . . . . . . . . . . . . 89% 98% 100% 99%
Independent manufacturers. . . . . . . . 11% 2% 0% 1%

Independent Retailers. The Company currently sells to approximately twenty
independent retailers located in Colorado, Louisiana, New Mexico, Oklahoma and
Texas. The Company believes its relations with its existing independent
retailers are good. The Company has no written agreements with its independent
retailers and either party may terminate the relationship at any time. The
Company generally does not provide inventory financing arrangements for
independent retailer purchases, nor does it consign homes. In accordance with
customary business practice in the manufactured housing industry, the Company
has entered into repurchase agreements with various financial institutions and
other credit sources under which the Company has agreed, under certain
circumstances, to repurchase manufactured homes sold to independent dealers in
the event of a default by such independent dealer on their obligation to such
credit sources. Under the terms of such repurchase agreements, the Company
agrees to repurchase manufactured homes at declining prices over the periods of
the agreements (which generally range from 18 to 24 months). While repurchase
activity is very sporadic and cyclical, the Company provides for anticipated
repurchase losses. At June 28, 2002 the Company was at risk to repurchase
approximately $2.9 million of manufactured homes and has provided for estimated
net repurchase losses of approximately $0.2 million.

MANUFACTURING

The Company manufactures a broad selection of HUD code homes ranging from
traditional, lower-priced homes to distinctive, higher-priced homes. The Company
is starting to produce modular homes in its core market area. The Company's HUD
code homes retail from $16,900 to $125,400, excluding land costs. By providing
such a broad selection, the Company believes it can meet the financial and
aesthetic requirements of the full range of retail buyers. Additionally, the
Company believes it offers high quality homes that incorporate more innovative
architectural designs and features than are typically offered by its
competitors. Over the past several years, as the demand for multi-section homes
has increased, the Company has significantly increased its production of
multi-section homes to 73% of total homes manufactured in fiscal 2002, up from
50% in fiscal 1994.

The Company's manufacturing facilities generally operate on a one shift per
day, five-day per week basis. At June 28, 2002, the Company's two operating new
home production facilities had the capacity to produce approximately 20 floors
per day, and the production rate was approximately 10 floors per day (capacity
figures are estimates of management). A floor is a single section home or one
section of a multi-section home. The following table sets forth the total homes
and floors manufactured by the Company for the periods indicated:

YEARS ENDED THREE MONTHS NINE MONTHS
------------------ ENDED ENDED
JUNE 30, JUNE 29, SEPTEMBER 29, JUNE 28,
2000 2001 2001 2002
-------- -------- ------------- -------------
Predecessor Co. Successor Co.
--------------------------------- -------------

Homes manufactured:
Single-section . . . 2,225 535 111 306
Multi-section. . . . 8,174 3,121 232 870
-------- -------- ------------- -------------
Total homes manufactured. 10,399 3,656 343 1,176
======== ======== ============= =============

Total floors manufactured 19,160 6,777 575 2,046
======== ======== ============= =============

The principal materials used in the construction of the Company's homes
include lumber and lumber products, gypsum wallboard, steel, aluminum,
fiberglass, carpet, vinyl, fasteners, appliances, electrical items, windows and
doors. Generally, materials are readily available and are purchased by the
Company from numerous sources. The Company believes the materials used in the
manufacture of its homes are readily available at competitive prices from a wide
variety of suppliers. Accordingly, the Company does not believe the loss of any
single supplier would have a material adverse effect on its business. The
Company's direct or variable costs of operations can be significantly affected
by the availability and pricing of raw materials.

The Company generally builds a home only after an order has been received
and wholesale retailer financing arrangements for payment have been made. In
accordance with industry practice, dealers can cancel orders prior to the
commencement of production without penalty, and accordingly, the Company does
not consider its backlog of orders to be firm orders. Because of the
seasonality of the market for manufactured homes, the level of backlog at any
time is not necessarily indicative of the expected level of future orders. The
Company's backlog, as well as level of new orders, generally declines during the
winter months of December through February.

FINANCING

In June 2000, the Company invested $2.4 million to provide one-half of the
initial capitalization of Homestar 21, LLC ("Homestar 21"), a joint venture
owned 50% by the Company and 50% by 21st Mortgage Corporation ("21st Mortgage"),
a company not affiliated with the Company. Homestar 21 is a finance company,
specializing in providing chattel and non-conforming land/home financing to the
Company's customers. The Company accounts for its investment in Homestar 21
using the equity method.

In May 2002, the Company invested $31,500 to provide one-half of the
initial capitalization of American Homestar Mortgage, L.P. ("Homestar
Mortgage"), a joint venture owned 50% by the Company and 50% by Home Loan
Corporation ("Home Loan"), a company not affiliated with the Company. Homestar
Mortgage is a mortgage broker/loan originator for ultimate loan placement with
Home Loan and other mortgage banks. Homestar Mortgage will not bear any lending
risk on loans it originates. The Company accounts for its investment in Homestar
Mortgage using the equity method.

To ensure that the Company remains fully competitive and has access to all
retail financing products available, the Company maintains relationships with
several independent mortgage and chattel retail lenders. These relationships are
intended to spread the business more evenly among various lenders and to ensure
that financing is available from numerous sources. The Company believes that
these relationships afford it access to a broader range of competitive financing
programs which, in turn, may result in increased retail sales.

INSURANCE

Through its wholly-owned subsidiary, Western Insurance Agency, Inc.
("Western"), the Company offers to its retail customers a variety of insurance
products, including property and casualty insurance, credit life insurance and
extended service contracts. The Company acts as the agent and earns commissions
and profit-sharing bonuses, in favorable loss years, from insurance written for
purchasers of its manufactured homes.

Through its wholly-owned subsidiary, Lifestar Reinsurance Ltd. ("Lifestar")
the Company underwrote the risk as to credit life policies it sold and shared in
the profits of the property and casualty insurance it sold in years where actual
loss experience was favorable. The Company elected to cease operations in
Lifestar in May, 2002 because the life insurance underwriting activity was
producing steadily declining returns. Instead the Company will share in
favorable loss experience, if any, as to the life insurance as well as the
property and casualty insurance through new agreements between the insurers and
Western.

TRANSPORTATION

Roadmasters Transport Company, Inc. ("Roadmasters"), a 51% owned
subsidiary, provides manufactured housing transportation services, including
transportation of manufactured homes from the Company's manufacturing
facilities. Roadmasters operates through independent owner-operators, allowing
operations over a large geographic area with no investment in equipment. The
Company believes that its controlling ownership interest in Roadmasters provides
it with the ability to better control the delivery of homes to its retail sales
centers and to independent retailers, especially during peak sales and delivery
periods, as well as to profit from each home shipment.

COMPETITION

The manufactured housing industry is highly competitive and the capital
requirements for entry are relatively modest. Manufactured homes compete with
new and existing site-built homes, apartments, townhouses and condominiums.
Competition exists at both the manufacturing and retail levels and is based
primarily on price, product features, reputation for service and quality,
location, depth of field inventory, sales promotions, merchandising and terms
and availability of dealer and retail customer financing.

GOVERNMENT REGULATION

The Company's manufactured homes are subject to a number of federal, state
and local laws and codes. Construction of manufactured homes is governed by the
National Manufactured Home Construction and Safety Standards Act of 1974, as
amended (the "MHCSS Act"), and the regulations issued by the Department of
Housing and Urban Development ("HUD") thereunder, establishing comprehensive
national construction standards. These regulations cover all aspects of
manufactured home construction, including structural integrity, fire safety,
wind loads, thermal protection and ventilation. The Company's manufacturing
facilities and the plans and specifications of its manufactured homes have been
approved by a HUD-designated inspection agency. The Company's homes are
regularly checked by an independent, HUD-approved inspector for compliance
during construction. Failure to comply with applicable HUD regulations could
expose the Company to a wide variety of sanctions, including mandated closings
of Company manufacturing facilities. The Company believes its manufactured homes
meet or surpass all present HUD requirements.

The Company is subject to the Texas Industrialized Housing and Buildings
Act ("IHB"), which regulates the construction of modular buildings, both
residential and commercial, and modular components in the State of Texas. The
Company believes its modular homes meet or surpass all IHB requirements.

Manufactured, modular and site-built homes are all typically built with
particleboard, paneling and other products that contain various formaldehyde
resins. HUD regulates the allowable concentration of formaldehyde in certain
products used in manufactured homes and requires warnings to purchasers
concerning formaldehyde-associated risks. Certain components of manufactured
homes are subject to regulation by the Consumer Products 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 currently are re-evaluating the allowable standards for
formaldehyde emissions. The Company uses materials in its manufactured homes
that meet the current HUD standards for formaldehyde emissions and believes that
it otherwise complies with HUD and other applicable government regulations in
this regard.

The manufacturing operations of the Company are subject to the requirements
of the Occupational Safety and Health Act ("OSHA") and comparable state laws.
Regulations promulgated under OSHA by the Department of Labor require employers
of persons in manufacturing industries, including independent contractors, to
implement work practices, medical surveillance systems, and personnel protection
programs in order to protect employees from workplace hazards and exposure to
hazardous chemicals. Regulations such as OSHA's Process Safety Management (PSM)
standard require facility owners and their contractors to ensure that their
employees are adequately trained regarding safe work practices and informed of
known potential hazards. The Company has established comprehensive programs for
complying with health and safety regulations. While the Company believes that it
operates its manufacturing facilities safely and prudently, there can be no
assurance that accidents will not occur or that the Company will not incur
liability in connection with the operation of its business.

The Company's operations are also subject to the provisions of the Texas
Manufactured Housing Act, the Consumer Credit Act and the Truth-in-Lending Act,
as well as local zoning and housing regulations. A number of states require
manufactured home producers and retailers 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 operations of Roadmasters and
Western are subject to regulation by various federal, state and local
authorities.

A variety of laws affect the financing of manufactured homes by the
Company. The Truth-in-Lending Act and Regulation Z promulgated thereunder
require written disclosure of information relating to such financing, including
the amount of the annual percentage rate and financing charge. The Fair Credit
Act also requires certain disclosures to potential customers concerning credit
information used as a basis to deny credit. The Federal Equal Credit Opportunity
Act and Regulation B promulgated thereunder prohibit discrimination against any
credit applicant based on certain specified grounds. The Federal Trade
Commission has adopted or proposed various trade regulation rules dealing with
unfair credit and collection practices and the preservation of consumers' claims
and defenses. The Federal Trade Commission regulations also require disclosure
of a manufactured home's insulation specification. Installment sales contracts
eligible for inclusion in the Government National Mortgage Association Program
are subject to the credit underwriting requirements of the Federal Housing
Administration. The Real Estate Settlement Procedures Act and Regulation X
promulgated thereunder require certain disclosures regarding the nature and cost
of real estate settlements. Manufactured homes in Texas that are not to be
placed in a manufactured home rental community are subject to Texas House Bill
1869, which requires them to be closed and financed like traditional mortgage
loans. A variety of state laws also regulate the form of installment sales
contracts and the allowable charges pursuant to installment sales contracts. The
sale of insurance products by the Company is subject to various state insurance
laws and regulations, which govern allowable charges and other insurance
products.

The Company is also subject to the provisions of the Fair Debt Collection
Practices Act, which regulates the manner in which the Company collects payments
on installment sale contracts, and the Magnuson-Moss Warranty-Federal Trade
Commission Improvement Act, which regulates the descriptions of warranties on
products. The Company's collection activities and warranties are also subject to
state laws and regulations.

The transportation of manufactured homes on highways is subject to
regulation by various federal, state and local authorities. Such regulations may
prescribe size and road use limitations and impose lower than normal speed
limits and various other requirements.

The Company's operations are also subject to federal, state and local laws
and regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. The Company is
not aware of any pending litigation to which it is a party or claims that may
result in significant contingent liabilities related to environmental pollution
or asbestos. In addition, the Company does not believe it will be required under
existing environmental laws and enforcement policies to expend amounts that will
have a material adverse effect on its results of operations or financial
condition.

A significant portion of the Company's manufacturing labor force includes
persons who are not U.S. citizens, and the Company is subject to the regulations
of the Immigration and Naturalization Service ("INS"). The Company adheres to
the procedures required for the prevention of the hiring of illegal aliens, but,
nonetheless, the Company has from time to time experienced losses of a portion
of its labor force due to INS investigative operations, which losses have
temporarily decreased production at the affected manufacturing facilities.

In general, legislation is proposed from time to time that, if enacted,
would significantly affect the regulatory climate for manufactured and modular
homes. At present, it is not possible to predict what, if any, changes or
legislation may be adopted or the effect any such changes or legislation may
have on the Company or the manufactured housing industry as a whole.

EMPLOYEES

At June 28, 2002, the Company employed 770 persons, compared to 727 persons
at June 29, 2001. The Company does not have any collective bargaining agreements
and has not experienced any work stoppages as a result of labor disputes. The
Company considers its employee relations to be good. A significant portion of
the total compensation of management of the Company is derived from incentive
bonuses based on the operating income of the operating unit for which such
management is responsible, as well as the attainment of Company-wide performance
objectives. Many of the Company's managers are participants in the option grants
of Series M common stock under the Company's 2001 Management Incentive Program
established by the Plan.

OTHER INFORMATION ABOUT THE COMPANY

The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934. During its reorganization, the Company did not prepare or
file annual or quarterly reports with the Securities and Exchange Commission but
instead filed Monthly Operating Reports with the Bankruptcy Court, as required
by the Bankruptcy Code. The Company also filed its Monthly Operating Reports,
its confirmed Plan and its audited Fresh-Start balance sheet with the Securities
and Exchange Commission. The Company intends to file the annual and quarterly
reports for the periods during reorganization with the Securities and Exchange
Commission as soon as practicable. The public may read and copy any materials
the Company files with the SEC at the SEC's Public Reference Room at 450 Fifth
Street, NW, Washington D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains a website that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the SEC at
http://www.sec.gov. The Company's website is www.americanhomestar.com.

ITEM 2. PROPERTIES

At June 28, 2002, the Company operated two new home manufacturing
facilities and one refurbishment facility in Texas, 40 retail sales centers, one
small sales center in a manufactured housing community and an administrative
office. Twenty-eight of the retail sales centers and the administrative office
are leased under various noncancellable operating leases with varying monthly
payments and varying expiration dates through March 2007. The Company owns the
remaining retail sales centers. The Company's retail sales centers consist of
tracts of land, ranging generally from 2.5 to 7.0 acres, on which manufactured
homes are displayed, each with a sales office containing approximately 2,000
square feet of office space. The Company's retail sales centers are located in
three states as follows: Louisiana (3), Oklahoma (2), and Texas (35), along with
one small sales center in a manufacturing housing community in Texas. The
Company believes that all facilities are adequately maintained and suitable for
their present use.

The Company owns all of its manufacturing facilities (including those
classified as assets held for sale) and substantially all of its manufacturing
equipment, fixtures, furniture and office equipment. The following table sets
forth certain information with respect to the Company's manufacturing
facilities:

DATE OPENED OR BUILDING
LOCATION ACQUIRED SQUARE FEET
- ---------------------------------------------------------------------------------

Active facilities:
Fort Worth, Texas. . . . . . . . . . . . . . . . . June 1985 137,000
Lancaster, Texas . . . . . . . . . . . . . . . . . December 1992 86,600
Burleson, Texas. . . . . . . . . . . . . . . . . . May 1993 94,500

Idle facilities reported as Assets held
for sale:
Henderson, North Carolina. . . . . . . . . . . . . September 1996 70,000
Vicksburg, Mississippi . . . . . . . . . . . . . . September 1996 118,700
Brilliant, Alabama . . . . . . . . . . . . . . . . June 1997 127,500
Guin, Alabama. . . . . . . . . . . . . . . . . . . June 1997 136,400
Lynn, Alabama. . . . . . . . . . . . . . . . . . . June 1997 150,000
Pendleton, Oregon (1). . . . . . . . . . . . . . . September 1996 146,000
<FN>
(1) Currently leased to a third party

ITEM 3. LEGAL PROCEEDINGS

On the Effective Date of the Plan, most pending claims against the Company were
discharged and an injunction was issued barring any future claims arising from
events that occurred prior to October 3, 2001. In a few cases, litigation has
been reinstated solely for the purpose of determining the amount of a general
unsecured claim against the Company or a claim to be paid by the Company's
insurers. Since the Effective Date, there have been no other pending legal
proceedings, except for routine litigation incidental to the business, which
management believes is not material to its business or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

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

PRICE RANGE OF COMMON STOCK

The Company also has the authority to issue 7.5 million shares of Series M
common stock to management, 100 shares of which had been issued as of September
24, 2002. Additionally, 4,949,900 shares of Series M common stock underlie
options granted to management under the 2001 Management Incentive Program at an
exercise price of $1.35 per share. These options vest seven years from the date
of grant and may vest earlier (up to 20% per year) if certain annual performance
criteria, established by the Board of Directors, are met.

All shares of the Company's new common stock are restricted as to sale
through April 2004. There have been no sales of Series C or Series M common
stock, and no quotations for such shares have been published on any securities
market.

DIVIDEND POLICY

The Company has not paid any cash dividends on its common stock since it
became a public reporting company. The Board of Directors intends to retain any
future earnings generated by the Company to support and finance operations and
does not intend to pay cash dividends on its common stock for the foreseeable
future. The payment of cash dividends in the future will be at the discretion
of the Board and will depend upon a number of factors such as the Company's
earnings levels, capital requirements, financial condition and any other factors
deemed relevant by the Board of Directors. The terms of certain indebtedness of
the Company may or may not restrict the Company's ability to pay dividends or
make additional distributions.

SALES OF UNREGISTERED SECURITIES

The following unregistered sales of the Company's old par value $0.05 per
share common stock (the "Old Common Stock") were made in reliance upon Section
4(2) of the Securities Act of 1933 based on isolated sales by the Company in
connection with acquisitions of related businesses, all of which were made prior
to the Company's reorganization. Under the Plan, all shares of Old Common Stock
were cancelled in connection with the Company's reorganization under Chapter 11.
Pursuant to the exemption set forth in Section 1145 of the Bankruptcy Code, the
Company issued 10 million new shares of Series C common stock to persons holding
allowed unsecured claims in the Company's bankruptcy case and shares of Series M
common stock to management.

On September 30, 1999, pursuant to certain earn out provisions of the
R-Anell Custom Homes, Inc. stock purchase agreement, the Company issued 375,000
shares of the Company's Series A convertible preferred stock (the "Old Series A
Stock"). Each share of Old Series A Stock was convertible into one share of the
Company's Old Common Stock from April 2, 2001 to October 1, 2001. These shares
were cancelled upon the effective date of the Plan.

On February 8, 2000, the Company entered into a settlement agreement with
DWP Management, Inc. pursuant to which, among other things, the Company acquired
the remaining 20% interest in Pacific Northwest Homes, Inc. The original note
payable was cancelled. The Company acquired the remaining 20% interest, for cash
and 134,167 of the Company's Old Series A Stock. These shares were cancelled
upon the effective date of the Plan.

ITEM 6. SELECTED FINANCIAL DATA

The financial information set forth under Statement of Operations Data and
Balance Sheet Data for each of the fiscal years ended May 31, 1998 and 1999, the
one month ended June 30, 1999, and the fiscal year ended June 30, 2000, and as
of the reporting periods then ended was derived from the Consolidated Financial
Statements of the Company (and its subsidiaries), which financial statements
have been audited by KPMG LLP, independent certified public accountants. The
financial information set forth under Statement of Operations Data and Balance
Sheet Data for the fiscal period ended June 29, 2001, three months ended
September 29, 2001 and nine months ended June 28, 2002 have been audited by Mann
Frankfort Stein & Lipp CPAs, L.L.P, independent certified public accountants.
The Consolidated Financial Statements as of June 30, 2000, June 29, 2001, three
month period ended September 29, 2001 and nine month period ended June 28, 2002
are included elsewhere herein. The selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and related
notes thereto included in Item 8 of this Form 10-K (in thousands except per
share data).

ONE MONTH YEARS ENDED THREE MONTHS NINE MONTHS
YEARS ENDED ENDED --------------------- ENDED ENDED
MAY 31, JUNE 30, JUNE 30, JUNE 29, SEPTEMBER 29, JUNE 28,
1998 1999 1999 2000 2001 2001 2002
--------- --------- -------- --------- ---------- -------------- -------------
PREDECESSOR CO. SUCCESSOR CO.
------------------------------------------------------------------------------------

(in thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
Revenues:
Net sales. . . . . . . . . . . . . . . . . $481,947 $612,086 $49,272 $532,634 $ 217,375 $ 21,107 $ 64,234
Other revenues . . . . . . . . . . . . . . 31,992 41,957 3,493 41,402 24,399 5,137 18,584
--------- --------- -------- --------- ---------- -------------- ------------
Total revenues . . . . . . . . . . . . . 513,939 654,043 52,765 574,036 241,774 26,244 82,818
--------- --------- -------- --------- ---------- -------------- ------------

Costs and expenses:
Cost of sales. . . . . . . . . . . . . . . 381,435 477,717 40,214 446,378 174,999 16,086 52,184
Selling, general and administrative. . . . 91,772 134,682 12,487 153,769 77,948 10,290 28,703
Restructuring charges, goodwill and asset
impairments(1) . . . . . . . . . . . . . -- -- -- 22,097 139,216 -- --
Acquisition costs(2) . . . . . . . . . . . 2,425 -- -- -- -- -- --
--------- --------- -------- --------- ---------- -------------- ------------
Total costs and expenses . . . . . . . 475,632 612,399 52,701 622,244 392,163 26,376 80,887
--------- --------- -------- --------- ---------- -------------- ------------
Operating income (loss). . . . . . . . 38,307 41,644 64 (48,208) (150,389) (132) 1,931
Interest expense . . . . . . . . . . . . . . (7,382) (13,845) (1,487) (18,366) (11,231) (214) (825)
Other income (expense) . . . . . . . . . . . (50) 110 19 (566) 813 88 245
--------- --------- -------- --------- ---------- -------------- ------------
Income (loss) before items shown
below. . . . . . . . . . . . . . . . 30,875 27,909 (1,404) (67,140) (160,807) (258) 1,351
Reorganization items:
Fresh-Start adjustments. . . . . . . . . . -- -- -- -- -- 18,863 --
Reorganization costs . . . . . . . . . . . -- -- -- -- (2,796) (1,433) --
--------- --------- -------- --------- ---------- -------------- ------------
Income (loss) before items shown
below. . . . . . . . . . . . . . . . 30,875 27,909 (1,404) (67,140) (163,603) 17,172 1,351
Income tax expense (benefit) . . . . . . . . 13,546 11,472 (462) (20,141) 16,239 20 247
--------- --------- -------- --------- ---------- -------------- ------------
Income (loss) before items shown
below. . . . . . . . . . . . . . . . 17,329 16,437 (942) (46,999) (179,842) 17,152 1,104
Earnings (losses) in affiliates. . . . . . . 1,211 1,602 49 (350) 492 145 409
Minority interest in income of consolidated
subsidiaries. . . . . . . . . . . . . . (223) (98) (20) (242) 142 (50) (249)
--------- --------- -------- --------- ---------- -------------- ------------
Income (loss) before items shown
below . . . . . . . . . . . . . . . 18,317 17,941 (913) (47,591) (179,208) 17,247 1,264
Extraordinary item, net of income tax
benefit(3). . . . . . . . . . . . . . . (634) -- -- -- -- 139,130 --
--------- --------- -------- --------- ---------- -------------- ------------
Net income (loss) . . . . . . . . . . $ 17,683 $ 17,941 $ (913) $(47,591) $(179,208) $ 156,377 $ 1,264
========= ========= ======== ========= ========== ============== ============

Earnings (loss) per share before
extraordinary item - basic and diluted. $ 1.01 $ 0.96 $ (0.05) $ (2.59) $ N/A $ N/A $ 0.13
Earnings (loss) per share - basic and
diluted . . . . . . . . . . . . . . . . $ 0.98 $ 0.96 $ (0.05) $ (2.59) $ N/A $ N/A $ 0.13
Weighted average shares outstanding -
basic and diluted . . . . . . . . . . . 18,135 18,669 18,586 18,423 N/A N/A 10,000,100

BALANCE SHEET DATA (END OF FISCAL YEAR):
Working capital. . . . . . . . . . . . . . . $ 58,867 $ 60,859 $ N/A $ 39,993 $ 27,094 $ 11,797 $ 32,134
Total assets . . . . . . . . . . . . . . . . 273,696 439,316 N/A 362,233 96,352 76,606 92,749
Total debt . . . . . . . . . . . . . . . . . 107,491 216,845 N/A 208,176 24,462 21,102 21,703
Shareholders' equity . . . . . . . . . . . . $ 98,463 $135,465 $ N/A $ 92,902 $ (91,327) $ 30,179 $ 49,813
<FN>
_________________________________
(1) Restructuring charges, goodwill and asset impairments related to the closing or idling of manufacturing plants and
restructuring of the Company's retail operations in fiscal 2000. Such changes increased the diluted loss per share by
$0.81 for fiscal 2000. Restructuring changes, goodwill and asset impairments related to the closing or idling of
manufacturing plants and non-core retail operations in fiscal 2001.
(2) Acquisition costs are non-recurring transaction costs related to acquisition.
(3) Extraordinary losses on early extinguishments of debt in fiscal 1998 and extraordinary gain for forgiveness of debt in
fiscal 2002.

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

This Form 10-K contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available to
the Company's management. When used in this document, the words "anticipate,"
"believe," "estimate," "should," and "expect" and similar expressions as they
relate to the Company or management of the Company are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the risk factors described in the
Company's most recently filed registration statement. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated or expected. The Company does not intend to
update these forward-looking statements.

GENERAL

American Homestar is a regional vertically integrated manufactured housing
company with operations in manufacturing, retailing, home transportation
services, home financing and insurance. The Company has its principal operations
in Texas, although it also sells its products in neighboring states. The Company
manufactures a wide variety of manufactured homes from two of its three
manufacturing facilities. The third manufacturing facility is primarily engaged
in refurbishing manufactured homes obtained through lender repossessions.

The Company's products are sold through 40 Company-operated retail sales
centers in Texas, Louisiana and Oklahoma, one non-owned residential community in
Texas, and several independent dealers. In addition, the Company facilitates
installment financing by purchasers of manufactured homes from its retail sales
centers. The Company also offers retail customers a variety of insurance
products, including property casualty insurance, credit life insurance and
extended warranty coverage through both its Company-operated retail sales
centers and certain independent retailers. The Company also offers
transportation services to its customers.

REORGANIZATION

On January 11, 2001 (the "Petition Date"), American Homestar Corporation
(the "Company") and twenty-one (21) of its subsidiaries filed separate voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code ("Chapter 11") in the United States Bankruptcy Court for the Southern
District of Texas (the "Bankruptcy Court"). On August 14, 2001, the Bankruptcy
Court confirmed the Third Amended Joint Plan of Reorganization (the "Plan") of
the Company and its subsidiaries. On October 3, 2001, all conditions required
for the effectiveness of the Plan were met, and the Plan became effective
("Effective Date"), and the Company and its subsidiaries emerged from
bankruptcy.

SUMMARY OF PLAN

Under the Plan, the Company maintained its ongoing business operations
primarily in Texas, Louisiana and Oklahoma, and continued sales to independent
dealers in New Mexico, Arkansas and Colorado. The Company continued to use its
manufacturing facilities in North Texas and to operate approximately 40 retail
store operations. Moreover, through affiliated entities that were not subject to
the Plan, the Company continued its insurance, financial services and
transportation lines of business.

Treatment of Equity: Under the terms of the Plan, all equity interests in
the Company were cancelled as of the Effective Date, and all holders of
outstanding shares of Company stock, which had previously traded under the
symbols HSTR and HSTRQ, lost all rights to equity interests in and to the
reorganized Company. Under the Plan, the Company has the authority to issue 15
million shares of new Series C common stock and is required to issue 10 million
shares of Series C common stock to its general unsecured creditors. Pursuant to
the exemption set forth in Section 1145 of the Bankruptcy Code, the Company
issued new shares of Series C common stock to persons holding allowed unsecured
claims in the Company's bankruptcy case and shares of Series M common stock to
management under an incentive program. The Company has issued 10 million shares
of Series C common stock and 100 shares of Series M common stock. As of June
28, 2002, 3,922,280 shares of Series C common stock had been issued to specific
shareholders with allowed claims and 6,077,720 shares were held in constructive
trust for the benefit of shareholders to be determined in name and amount as the
claims process is completed. The Company also has the authority to issue 7.5

million shares of Series M common stock to management, 100 shares of which had
been issued as of June 28, 2002 and 4,999,900 shares underlie options authorized
under the Company's 2001 Management Incentive Program. Options for 4,949,900
shares have been approved and granted at an exercise price of $1.35 per share.
These options vest seven years from the date of grant and may vest earlier (up
to 20% per year) if certain annual performance criteria established by the Board
of Directors are met.

Treatment of Administrative and Priority Claims (other than tax claims):
The Bankruptcy Code sets forth various types of claims that are entitled to
priority treatment. These priority claims include, among others, the costs of
administration incurred during the bankruptcy case, certain consumer claims and
certain employee claims. The priority claims that are allowed by the Bankruptcy
Code will be paid in cash and in full.

Tax Claims: The Bankruptcy Code allows certain tax claims to be paid over a
period of up to 72 months following the date of the assessment of those taxes.
The Plan authorizes the Company and its subsidiaries to pay tax claims over a
period of up to 60 months, with interest.

Unsecured Claims: Holders of unsecured claims of $10,000 or less were given
varying options, depending upon the entity owing the unsecured claim. In
general, most holders of such claims are entitled to receive a small payment in
cash (typically 10% or 20% of the amount of their claim). Certain of the
Company's affiliates have discontinued or will discontinue doing business under
the terms of the Plan. Holders of unsecured claims against discontinued entities
could accept a pro rata distribution in three years when the liquidation value
of the subsidiary is determined. Very few creditors have elected this option.
The typical holder of an unsecured claim will receive Series C common stock in
the Company. The stock will be issued by the Company, without regard to which
subsidiary actually owing the claim.

Miscellaneous Secured Claims: The Company was given the option to return
the collateral for secured claims or to pay secured claims over an extended
period of time, with interest.

Secured Claims by Primary Lender: As part of the Plan, the Company and
several of its subsidiaries entered into a new financing arrangement with the
Company's principal secured lender. The arrangement provided for substantial
debt forgiveness by the secured lender and for the extension of a 36-month loan
revolving credit facility by the secured lender. The new loan is secured by
substantially all of the Company's inventory and real estate and by certain
other assets (including certain specified cash deposits of approximately $4.2
million at June 28, 2002, which is included in restricted cash on the balance
sheet included in the Company financial statements). The loan has a maximum
limit of $38 million, although the available amount under the loan varies based
on various covenants and other requirements. The Company estimates that the loan
has a maximum potential advancement of $23 to $24 million, of which $20.7
million was advanced as of June 28, 2002. In addition to this facility, the
secured lender issued certain other shorter-term loan accommodations to provide
for the acquisition of certain specified inventory by the Company or its
affiliates.

BASIS OF REPORTING

The reorganization value of the Company's common equity of approximately
$30 million was determined by an independent valuation and financial specialist
after consideration of several factors and by using various valuation methods,
including appraisals, cash flow multiples, price/earnings ratios and other
relevant industry information. The reorganization value of the Company has been
allocated to various asset categories pursuant to Fresh-Start accounting
principles.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND GENERAL

The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain amounts previously
reported have been reclassified to conform with the 2002 presentation. The
Company also owns a 50% interest in a joint venture (Homestar 21st, LLC), which
is accounted for under the equity method of accounting. The Company recently
formed a second 50% owned joint venture (American Homestar Mortgage), which will
also be accounted for under the equity method of accounting.

The Company's fiscal year ends on the Friday closest to June 30 and each
interim period ends on the Friday closest to the end of the respective calendar
period.

ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates.

Significant estimates were made to determine the following amounts
reflected on the Company's Balance Sheets:

- Property Plant and Equipment is reflected at its estimated fair
market value at September 29, 2001, less accumulated depreciation
for the period subsequent to September 29, 2001. The
determination of periodic depreciation expense requires an
estimate of the remaining useful lives of each asset.

- Assets Held For Sale are reflected at estimated fair market
value.

- Warranty Reserves include an estimate of all future
warranty-related service expenses that will be incurred as to all
homes previously sold, which are still within the one-year
warranty period. These estimates are based on average historical
warranty expense per home, applied to the number of homes that
are still under warranty.

- Reserve for future repurchase losses reflects management's
estimate of both repurchase frequency and severity of net losses
related to agreements with various financial institutions and
other credit sources to repurchase manufacturing homes sold to
independent dealers in the event of a default by the independent
dealer or its obligation to such credit sources. Such estimates
are based on historical experience.

- Liquidation and Plan Reserve reflects management's estimate of
all costs and expenses to be incurred in administering and
satisfying plan obligations as well as the net cost to complete
the liquidation of all non-core operations.

- Claims Reserve reflects management's estimate of the cash
required to satisfy all remaining priority, tax, administrative
and convenience class claims. This reserve does not include the
remaining initial distribution that is reflected in another
liability account, has been escrowed, and is not subject to
estimation.

REVENUE RECOGNITION

Retail sales are recognized once full cash payment is received and the home
has been delivered to the customer.

Manufacturing sales to independent dealers and subdivision developers are
recognized as revenue when the following criteria are met:

- there is a firm retail commitment from the dealer;

- there is a financial commitment (i.e. an approved floor plan source,
cash or cashiers check received in advance);
- the home is completely finished;
- the home is invoiced; and
- the home has been shipped.

The Company also maintains used manufactured home inventory owned by
outside parties and consigned to the Company, for which the Company recognizes a
sales commission when received.

Premiums from credit life insurance policies reinsured by the Company's
credit life subsidiary, Lifestar Reinsurance, Ltd. ("Lifestar"), are recognized
as revenue over the life of the policy term. Premiums are ceded to Lifestar on
an earned basis.

Agency insurance commissions are recognized when received and acknowledged
by the underwriter as due.

Transportation revenues are recognized after the service has been performed
and invoiced to the customer.

INVENTORIES

Newly manufactured homes are valued at the lower of cost or market, using
the specific identification method. Used manufactured homes are valued at
estimated wholesale prices, not in excess of net realizable value. Raw materials
are valued at the lower of cost or market, using the first-in, first-out method.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment were recorded at cost at June 29, 2001 or, as
required by Fresh-Start Reporting, were reflected at management's estimate of
fair market value at September 29, 2001, and since that date additions are
recorded at cost. Depreciation on property, plant and equipment is recorded
using the straight-line method over the estimated useful lives of the related
assets. Leasehold improvements are amortized using the straight-line method over
the useful lives of the improvements or lease periods, whichever is shorter. The
Company has six manufacturing plants and several non-core retail sales centers
that are not in operation which are classified as assets held for sale and are
reflected at management's estimate of net realizable value.

The Company evaluates the recoverability of long-lived assets not held for
sale by measuring the carrying value of the assets against the estimated
undiscounted future cash flows in accordance with SFAS No. 121. At the time such
evaluations indicate that the undiscounted future cash flows of certain
long-lived assets are not sufficient to recover the carrying value of such
assets, the carrying values of such assets are adjusted to their estimated fair
values. Estimated fair values are determined using the present value of
estimated future cash flows. In conjunction with the SFAS No. 121 analysis
performed in fiscal years 2000 and 2001, the Company recorded long-term asset
impairments of approximately $4.8 million in fiscal 2000 and approximately $38.8
million in fiscal 2001.

GOODWILL

Goodwill, which represents the excess of purchase price over the fair value
of net assets acquired, was amortized on a straight-line basis over periods
ranging from 10 to 40 years. The Company assesses the recoverability of goodwill
by determining whether the amortization of the goodwill balance over the
remaining useful life can be recovered through undiscounted future operating
cash flows of the acquired operations.

The Company evaluates the recoverability of long-lived assets not held for
sale by measuring the carrying value of the assets against the estimated
undiscounted future cash flows in accordance with SFAS No. 121. At the time such
evaluations indicate that the undiscounted future cash flows of certain
long-lived assets are not sufficient to recover the carrying value of such
assets, the assets are adjusted to their estimated fair values. Estimated fair
values are determined using the present value of estimated future cash flows.
In conjunction with the SFAS No. 121 analysis performed in fiscal years 2000 and
2001, the Company recorded goodwill write-off of approximately $14.6 million in
fiscal 2000 and approximatley $63.9 million in fiscal 2001.

INCOME TAXES

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which such temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that included the enactment date. Because of the Company's recent
reorganization, all deferred tax assets (both short term and long term) have
been fully reserved as their realization is contingent upon future taxable
income.

RESERVES FOR FUTURE LOSSES ON CREDIT SALES

The Company makes a current provision for estimated future losses on credit
retail sales where the Company retains risk in the event of customer nonpayment
of installment sales contracts. Typically, the Company's period of exposure to
loss does not exceed the first two installment payments on an individual
contract. The amounts provided for estimated future losses on credit sales are
determined based on the Company's historical loss experience after giving
consideration to current economic conditions. In assessing current loss
experience and economic conditions, management may adjust the reserve for losses
on credit sales related to prior years' installment sales contracts. All
adjustments are recognized currently.

ACCRUED WARRANTY AND SERVICE COSTS

The Company makes a current provision for future service costs associated
with homes sold and for manufacturing defects for a period of one year from the
date of retail sale of the home. The estimated cost of these items is accrued
at the time of sale and is reflected in cost of sales in the consolidated
statements of operations. For the years ended June 30, 2000, June 29, 2001, the
three months ended September 29, 2001 and the nine months ended June 28, 2002,
warranty and service costs were $27.7 million, $ 10.6 million, $0.7 million,
$2.0 million respectively.

EARNINGS PER SHARE

Basic earnings per share is based on the weighted average shares
outstanding without any dilutive effects considered. Diluted earnings per share
reflects dilution from all contingently issuable shares from outstanding
options. Options granted under the Company's 2001 Management Incentive Program
are not reflected in diluted earnings per share as there have been no sales and
no quoted bid and asked prices for the stock. Per share data for periods ended
June 29, 2001, and September 29, 2001, have been omitted as the Company was in
bankruptcy during these periods and the amounts do not reflect the current
capital structure.

FINANCIAL INSTRUMENTS

Fair value estimates are made at discrete points in time based on relevant
market information. These estimates may be subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. The Company believes that the carrying amounts of
its current assets, current liabilities and long-term debt approximate the fair
value of such items.

CASH EQUIVALENTS

Cash equivalents consist of short-term investments with an original
maturity of three months or less, money market accounts and cash in transit from
financial institutions. Cash in transit from financial institutions presents no
risk to the Company regarding collectibility and is typically received within
two business days of month end.

CONCENTRATION OF CREDIT RISK

The Company maintains cash in several bank accounts, which at times exceed
federally insured limits. The Company monitors the financial condition of the
banks where it maintains accounts and has experienced no losses associated with
these accounts.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangibles. The statement requires that goodwill not be
amortized but instead be tested at least annually for impairment and expensed
against earnings when the implied fair value of a reporting unit, including
goodwill, is less than its carrying amount. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001, and we do not expect its
adoption will have a material impact on our financial condition or results of
operations.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS 143 will be effective for financial
statements issued for fiscal years beginning after June 15, 2002, and we do not
expect its adoption will have a material impact on our financial condition or
results of operations.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of OperationsReporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," as it relates to the accounting for the disposal of a
segment of a business (as previously defined in that Opinion). The provisions of
SFAS 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001, and we do not expect its adoption will have a
material impact on our financial condition or results of operations.

RESULTS OF OPERATIONS

The results of operations and cash flows for the three months ended
September 29, 2001, include operations prior to the Company's emergence from
Chapter 11 proceedings and the effects of Fresh-Start Reporting. The results of
operations and cash flows for the nine months ended June 28, 2002 include
operations subsequent to the Company's emergence from Chapter 11 proceedings and
reflect the on-going effects of Fresh-Start Reporting. As a result, the net
income for the nine months ended June 28, 2002 is not comparable with prior
periods and the net income for the twelve months ended June 28, 2002 is divided
into Successor Company and Predecessor Company periods and is also not
comparable with prior periods. In addition, the Balance Sheet as of June 28,
2002 is not comparable to prior periods for the reasons discussed above.

In connection with its reorganization, the Company has significantly
downsized its operations and has focused on its core Southwest market, where the
Company is based and where it has historically had its most favorable overall
results. The Company currently operates 40 retail sales centers and a sales
operation in a manufactured housing community. The Company also operates three
manufacturing plants, two of which are producing new homes while the third is
used to refurbish manufactured homes obtained through lender repossessions, and
an insurance agency, which sells homeowner's insurance, credit life insurance
and extended warranty coverage to its customers. In addition, from March 1995
to May 2002 the Company operated a reinsurance company, which reinsures the
credit life and extended warranty policies sold, and allowed the Company to
participate in additional homeowner insurance profits in years where losses are
lower than expected. The Company also has a 51% ownership interest in a
transport company, which specializes in the transportation of manufactured
homes, modular homes and offices, and a 50% interest in a finance company, which
specializes in providing chattel and land/home financing to the Company's
customers. The Company also has a 50% interest in a mortgage brokerage business
which is currently in formation. Management believes that its vertical
integration strategy, deriving multiple profit sources from each retail sale,
will allow the Company to be more successful, over time, than would otherwise be
the case.

Two significant recent events have, in management's opinion, had a
dampening effect on new home sales and revenues for the six months ended June
28, 2002. The withdrawal of several retail lenders from the national market has
had the effect of tightening credit standards applied to potential new home
buyers and, at least temporarily, reduced total potential demand for new homes.
Some previously qualified new homebuyers are currently able to purchase lender
repossessions but are not currently eligible for new home financing. In

addition, new Texas legislation (HB 1869) effective January 1, 2002, now
requires any land/home package to be closed and financed in a fashion nearly
identical to traditional mortgage financing for site-constructed housing. This
legislation has led to a much longer and more complex credit approval and loan
closing cycle than existed prior to January 1, 2002. While this change will not
necessarily result in a lower overall demand for manufactured housing in Texas,
it has had the effect of increasing the sales closing and revenue recognition
process from an average of 45-60 days to an average of more than 100 days. As a
result, management believes that the Company realized less revenue during the
six months ended June 28, 2002, than would have otherwise been the case without
lender withdrawal from the industry and the Texas law change. If the lending
environment remains stable, management believes that sales and revenues will
gradually improve over current levels as its sales-in-process mature toward the
longer closing and completion cycle and as its retail sales team adjusts to
these new lender and industry dynamics. Management believes that most of the
Company's competition in its core market region is experiencing similar market
pressures and is reducing both retail and manufacturing capacity. Management
believes that the Company is postured to take advantage of these changes because
it is reorganized and no longer distracted by the same relative leverage
positions and operational challenges as its competition. While management
believes that market share gains will be gradual but steady, there is no
assurance that these gains will materialize.

The following table summarizes certain key sales statistics for the Company
for the periods indicated:

Company-manufactured new homes sold at retail. . . . 5,193 2,447 373 994
Total new homes sold at retail . . . . . . . . . . . 5,831 2,499 373 1,001
Internalization rate (1) . . . . . . . . . . . . . . 89% 98% 100% 99%
Previously-owned homes sold at retail. . . . . . . . 2,196 964 149 555
Average retail selling price - new homes (HUD
code) . . . . . . . . . . . . . . . . . . . . . $ 55,095 $ 54,823 $ 51,403 $ 53,584
Company-operated retail sales centers and community
sales centers at end of period. . . . . . . . . 111 41 41 41
Total manufacturing shipments. . . . . . . . . . . . 10,399 3,656 343 1,176
Manufacturing shipments to independent retail sales
centers, including franchisees. . . . . . . . . 5,830 1,832 51 162
<FN>
_____________________
(1) The proportion of new homes sold by Company-operated retail sales centers that are manufactured by the
Company.

The following table summarizes the Company's historical operating results,
expressed as a percentage of total revenues, for the periods indicated:

YEARS ENDED THREE MONTHS NINE MONTHS
-------------------- ENDED ENDED
JUNE 30, JUNE 29, SEPTEMBER 29, JUNE 28,
2000 2001 2001 2002
--------- --------- -------------- --------------
Predecessor Co. Successor Co.
------------------------------------ --------------

Total revenues . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Gross profit . . . . . . . . . . . . . . . . 22.2% 27.6% 38.7% 37.0%
Selling, general and administrative expenses
before acquisition costs. . . . . . . . 26.8% 32.2% 39.2% 34.7%
Restructuring costs. . . . . . . . . . . . . 3.8% 57.6% -- --
Operating income . . . . . . . . . . . . . . (8.4%) (62.2%) (0.5%) 2.3%
Income before income taxes and extraordinary
item. . . . . . . . . . . . . . . . . . (11.7%) (67.7%) 65.4% 1.6%
Income before extraordinary item . . . . . . (8.3%) (74.1%) 65.7% 1.5%
Net income . . . . . . . . . . . . . . . . . (8.3%) (74.1%) 595.9% 1.5%

Although the adoption of Fresh-Start Reporting significantly affected
comparability, certain Pre-and Post-reorganization period income and expense
items remain comparable and are addressed in the following analysis of results
of operations for the periods indicated.

NINE MONTHS ENDED JUNE 28, 2002 COMPARED TO NINE MONTHS ENDED JUNE 29, 2001

Net Sales. Net sales of manufactured homes were $64.2 million for the nine
months ended June 28, 2002, compared to $102.9 million for the nine months ended
June 29, 2001. The 38% decline in sales was attributable to the following:

Retail sales declined $14.1 million or (15% in units and 20% in dollars).
New home same store sales in the Company's core operations also declined 14%
from an average of 28 new home sales per store for the nine months ended June
29, 2001 to an average of 24 new home sales per store for the nine months ended
June 28, 2002. Management believes that the Texas law changes in financing
brought about by Texas HB 1869 and the recent exit of three retail lenders to
the industry are major factors in the decline of new home same store and average
sales in the nine months ended June 28, 2002. The remainder of the decline in
new home sales is attributable to the Company's reorganization and downsizing,
which resulted in fewer average company stores in the current period than in the
comparable period.

Manufacturing division sales to independent dealers were $6.4 million in
the nine months ended June 28, 2002, compared to $31.0 million in the nine
months ended June 29, 2001, a decline of 79%. This significant decline was the
result of two principal factors related to the Company's reorganization. One
factor was a reduction in average number of new home manufacturing facilities in
operation (two in the nine months ended June 28, 2002 compared to seven in the
nine months ended June 29, 2001). The other factor was a reduction in the
number of independent dealers purchasing products from the Company. There were
very few sales to independent dealers during the Company's reorganization (from
January 2001 through October 2001). Since the Company emerged from
reorganization in October 2001 and has re-established relationships with
industry floor plan lenders, sales to independent dealers and subdivision
developers have grown slowly. The Company believes such sales will continue to
increase gradually over time, aided by recent reductions of competitor capacity
in the Company's regional market area.

Other Revenues. Other revenues were $18.6 million for the nine months ended
June 28, 2002, compared to $18.6 million for the nine months ended June 29,
2001. Insurance-related revenues in the Company's agency and reinsurance
operations declined approximately $6.7 million (or 51%) primarily due to the

decline in retail sales and continuing lender restrictions as to the amounts of
insurance they will finance on each home sale. The decline in insurance
revenues was offset by a $6.7 million (or 123%) increase in transportation
revenues. During the nine months ended June 28, 2002, the Company's
transportation group expanded their operations to include commercial
transportation business (such as temporary classrooms and construction offices)
and ancillary services (such as on-site installation).

Cost of Sales. Cost of sales was $52.2 million (or 63% of revenues) for the
nine months ended June 28, 2002, compared to $86.2 million (or 71% of revenues)
for the nine months ended June 29, 2001. The 40% decline in dollar amount of
cost of sales is largely attributable to the 32% decline in total revenues.

Cost of sales (expressed as a percentage of revenues) in the Company's
retail division declined nearly 5% for the nine months ended June 28, 2002. The
most significant factor in the decline was the Company's exit from all non-core
markets by mid-fiscal year 2001. Margins in the non-core markets were
substantially lower than in the Company's core market area. Approximately 14% of
total retail sales during the nine months ended June 29, 2001 were from non-core
markets, while no non-core sales are reflected for the nine months ended June
28, 2002. The second factor in the decline was higher proportionate sales of
discounted inventory (both new and used) which the Company was able to purchase
on the open market as well as from its secured lender as part of the Company's
reorganization. While the number of such discounted homes in the Company's
inventory is declining, management believes that similar opportunities to
purchase discounted inventory may exist in the future.

Cost of sales (expressed as a percentage of revenues) in the Company's
manufacturing division declined nearly 8% in the nine months ended June 28,
2002. This decline was primarily attributable to greater manufacturing
efficiencies and the restoration of raw material purchase terms and discounts in
the nine months ended June 28, 2002. Terms, discounts and efficiencies were
negatively affected beginning in mid-fiscal 2001, while the Company was
undergoing reorganization.

Cost of sales (expressed as a percentage of revenues) were largely
unchanged in the Company's transportation operations in the nine months ended
June 28, 2002.

Selling, General and Administrative Expenses. Selling general and
administrative expenses were $28.7 million (or 35% of revenues) in the nine
months ended June 28, 2002, compared to $43.2 million (or 36% of revenues) in
the nine months ended June 29, 2001. These expenses declined principally as the
result of a decline in revenues. The less than proportionate decline in SG&A
expenses between the periods is due to the fact that fixed costs were not
reduced at the same short-term rate as the decline in revenues. Management
believes that the short-term maintenance of core market infrastructure and
capacity will be met with greater demand and profitability as the Company gains
market share in the current environment.

Restructuring Changes. There were no restructuring changes in the last nine
months of fiscal 2002 compared to $138.7 million in the last nine months of
fiscal 2001. These costs related to asset revaluations (goodwill write offs and
adjustment of carrying value to other assets to net realizable value) as well as
costs associated with idling and closing manufacturing facilities and non-core
retail centers.

Interest Expense. Interest expense was $0.8 million for the nine months
ended June 28, 2002, compared to $6.2 million for the nine months ended June 29,
2001. Lower interest expense in the current period was the result of
substantially lower average debt levels in the nine months ended June 28, 2002,
than in for the nine months ended June 28, 2002, due to the Company's
reorganization and attendant debt conversion to equity, as well as slightly
lower prevailing and average interest rates.

Reorganization Costs. In connection with the Company's Chapter 11 filing,
reorganization costs of $2.8 million were incurred for the nine months ended
June 29, 2001. These costs related primarily to professional fees and similar
type expenditures directly related to the Chapter 11 proceedings. No such costs
were incurred in the nine months ended June 28, 2002.

Income Taxes. Income tax expense was $0.2 million (on pretax income of $1.4
million) for the nine months ended June 28, 2002, compared to $16.0 million (on
a pretax loss of $154.8 million) for the nine months ended June 29, 2001. Tax

expense in the current period relates to taxes attributable to the Company's
transportation and reinsurance operations that file returns separate from the
Company's consolidated return. The tax expense for the nine months ended June
29, 2001 consists primarily of a valuation allowance to fully reserve the
deferred tax assets arising in prior years. The remainder of the tax expense
for the nine months ended June 29, 2001 relates to the Company's transportation
and reinsurance operations as described above.

Earnings in affiliates. The Company's 50% share in the after-tax earnings
of Homestar 21, LLC were $0.4 million for the nine months ended June 28, 2002,
compared to $0.7 million for the nine months ended June 29, 2001. The reduction
in income was primarily the result of fewer loan originations from diminished
retail volume.

Minority Interests. The Company owns 51% of its transportation operations
and therefore consolidates (or includes 100% of) the transportation company's
results in its financial statements. Because the Company only benefits by 51%
of the income, the remaining 49% is shown as a deduction on the Company's
consolidated income statement. This deduction was $0.2 million for the nine
months ended June 28, 2002, compared to a negative deduction (add-back) of $0.2
million for the nine months ended June 29, 2001. The negative deduction for the
nine months ended June 29, 2001 arose as a result of a loss in the
transportation company, which was restored to profitability in for the nine
months ended June 28, 2002.

YEAR ENDED JUNE 28, 2002 COMPARED TO JUNE 28, 2001

Net Sales. Net sales of manufactured homes were $85.3 million for the year
ended June 28, 2002, compared to $217.4 million for the year ended June 29,
2001. The 61% decline in sales was primarily attributable to the Company's
reorganization and downsizing including a significant reduction in the average
number of company sales centers and manufacturing facilities.

Retail sales declined $63.5 million (or 40% in units and 45% in dollars)
due primarily to a proportionate reduction in the average number of retail
stores operating for the year ended June 28, 2002, compared to the year ended
June 29, 2001. Same store sales of new homes in the Company's core operations
also declined 19% from an average of 42 new home sales per store in the year
ended June 29, 2001, to an average of 34 new home sales per store in the year
ended June 28, 2002. Management believes that the Texas law changes in
financing brought about by Texas HB 1869, beginning in January 2002, as well as
the recent exit of three major retail lenders to the industry, were significant
factors in the Company's same store sales decline.

Manufacturing division sales to independent dealers were $8.4 million for
the year ended June 28, 2002, compared to $76.9 million for the year ended June
29, 2001, a decline of 89%. This significant decline was the result of two
principal factors related to the Company's reorganization. One factor was the
reduction in average number of manufacturing facilities in operation (two for
the year ended June 28, 2002, compared to seven for the year ended June 29,
2001). The other factor was a reduction in the number of independent dealers
purchasing product from the Company. There were very few sales to independent
dealers during the Company's reorganization (from January 2001 through October
2001). Since the Company emerged from reorganization in October 2001 and has
re-established relationships with industry floor plan lenders, sales to
independent dealers and subdivision developers have grown slowly. The Company
believes such sales will continue to increase gradually over time, aided by
recent reductions of competitor capacity in the Company's regional market area.

Other Revenues. Other revenues were $23.7 million for the year ended June
28, 2002, compared to $24.4 million for the year ended June 29, 2001.
Insurance-related revenues in the Company's agency and reinsurance operations
declined approximately $7.3 million (or 45%) primarily due to the similar
proportionate decline in retail sales and continuing lender restrictions as to
the amounts of insurance they will finance on each home sale. The decline in
insurance revenues was largely offset by a $6.7 million (or 86%) increase in
transportation revenues. During for the year ended June 28, 2002, the Company's
transportation group expanded their operations to include commercial
transportation business (such as temporary classrooms and construction offices)
and ancillary services (such as on-site installation).

Cost of Sales. Cost of sales was $68.3 million (or 63% of revenues) for the
year ended June 28, 2002, compared to $175.0 million (or 72% of revenues) for
the year ended June 29, 2001. The 61% decline in dollar amount of cost of sales

is largely attributable to the 55% decline in total revenues. The improvement
in cost of sales (expressed as a percentage of revenues) is due to the following
factors:

Cost of sales (expressed as a percentage of revenues) in the Company's
retail division declined approximately 4% primarily as a result of the Company's
exit from all non-core markets (especially in the Carolinas) where lower margins
prevailed. This non-core business represented 14% of total retail sales for the
year ended June 29, 2001, while retail sales for the year ended June 28, 2002
were all from the Company's core market areas. Another factor was higher
proportionate sales of discounted inventory (both new and used), which the
Company was able to purchase on the open market as well as from its secured
lender as part of the Company's reorganization. While the number of such
discounted homes in the Company's inventory is declining, management believes
that similar opportunities to purchase discounted inventory may exist in the
future.

Cost of sales (expressed as a percentage of revenues) in the Company's
manufacturing division also declined more than 3%. This decline was primarily
attributable to greater manufacturing labor and material efficiencies and the
restoration of raw material purchase terms and discounts during the year ended
June 28, 2002. Terms, discounts and efficiencies were dramatically affected in
the year ended June 29, 2001, as the result of the Company's reorganization. The
Company also implemented a general price increase in February 2002, its first
since January 2001.

Cost of sales (expressed as a percentage of revenues) were largely
unchanged in the Company's transportation and insurance agency operations and
were down slightly in the Company's reinsurance operations, principally as the
result of slightly lower claims for the year ended June 28, 2002.

Selling, General and Administrative Expenses. Selling general and
administrative expenses were $39.0 million (or 36% of revenues) for the year
ended June 28, 2002, compared to $77.9 million (or 32% of revenues) for the year
ended June 29, 2001. These expenses declined principally as the result of the
decline in revenues. During the Company's reorganization, a substantial number
of sales centers and manufacturing operations were closed or sold to others,
giving rise to substantial reductions in fixed operating costs such as wages,
benefits, rents, utilities and property taxes.

Restructuring Charges. There were no restructuring charges for the year
ended June 28, 2002, compared to $139.2 million for the year ended June 29,
2001. These costs related to asset revaluations (goodwill write offs and
adjustment of carrying value of other assets to net realizable value) as well as
costs associated with idling and closing manufacturing facilities and non-core
retail centers.

Interest Expense. Interest expense was $1.0 million for the year ended June
28, 2002, compared to $11.2 million for the year ended June 29, 2001. As the
result of the Company's reorganization, interest expense on a substantial amount
of the Company's debt ceased in mid-fiscal 2001. Lower interest expense for the
year ended June 28, 2002 was the result of substantially lower average debt
levels ($80.5 million in fiscal 2002, as compared to $173.8 million in fiscal
2001) and lower prevailing and average interest rates for the year ended June
28, 2002, as compared to the year ended June 29, 2001.

Reorganization Costs. In connection with the Company's Chapter 11 filing,
reorganization and impairment costs of $2.8 million and $1.4 million were
incurred during the years ended June 29, 2001 and June 28, 2002, respectively.
These costs related primarily to professional fees and similar type expenditures
directly related to the Chapter 11 proceedings.

Income Taxes. Income tax expense for the year ended June 28, 2002 was $0.3
million on pretax loss (before Fresh-Start adjustments) of $0.3 million compared
to tax expense of $16.2 million on pretax losses of $164 million for the year
ended June 29, 2001. The tax expense in the current period is attributable to
the Company's transportation and reinsurance operations whose tax returns are
not included in the Company's consolidated tax returns. The most significant
source of the 2001 tax expense was the provision of a full ($15.8 million)
valuation allowance against the Company's deferred tax assets which arose in
prior periods. The remainder of the tax expense for the year ended June 29,
2001 was attributable to the Company's transportation and reinsurance operations
described above.

Earnings in Affiliates. The Company's 50% share in the after-tax earnings
of Homestar 21, LLC. was $0.6 million for the year ended June 28, 2002, compared
to $0.5 million for the year ended June 29, 2001.

Minority Interests. The Company owns 51% of its transportation operations
and therefore consolidates (or includes 100% of) the transportation company's
results in its financial statements. Because the Company only benefits by 51%
of the income, the remaining 49% is shown as a deduction on the Company's
consolidated income statement. This deduction was $0.3 million for the year
ended June 28, 2002, compared to a negative deduction (add-back) of $0.1 million
for the year ended June 29, 2001. The negative deduction for the year ended
June 29, 2001 arose as a result of a loss in the transportation company which
was restored to profitability for the year ended June 28, 2002.

YEAR ENDED JUNE 29, 2001 COMPARED TO YEAR ENDED JUNE 30, 2000

Net Sales. Net sales of manufactured homes were $217.4 million for the year
ended June 29, 2001, compared to $532.6 million for the year ended June 30,
2000. The 59% decline in sales was primarily attributable to the Company's
reorganization and downsizing including a significant reduction in the average
number of company sales centers and manufacturing facilities in the year ended
June 29, 2001, as compared to the year ended June 30, 2000.

Retail sales declined $186.2 million (or 57% in both units and dollars) due
to several factors. The most significant factor was a 35% decline in the average
number of retail stores operating for the year ended June 29, 2001, compared to
the year ended June 30, 2000 (from 118 to 76). Average new home sales per store
also declined 21% (from 76 to 60). Same store sales in the Company's core
operations also declined 25% from an average of 56 new home sales per store in
the year ended June 30, 2000, to an average of 42 new home sales per store in
the year ended June 29, 2001. The Company's retail sales activity was
dramatically affected by the announcement of its reorganization, but gradually
improved to normal levels by the end of the year ended June 29, 2001.

Manufacturing division sales to independent dealers were $76.9 million for
the year ended June 29, 2001, compared to $205.9 million for the year ended June
30, 2000, a decline of 63%. This significant decline was the result of two
principal factors related to the Company's reorganization. One factor was the
reduction in average number of manufacturing facilities in operation (seven in
the year ended June 29, 2001, compared to 13 in the year ended June 30, 2000).
The other factor was a reduction in the number of independent dealers purchasing
products from the Company. There were largely no sales to independent dealers
during the Company's reorganization (from January 2001 through October 2001).

Other Revenues. Other revenues were $24.4 million for the year ended June
29, 2001, compared to $41.4 million for the year ended June 30, 2000, a decline
of $17 million or 41%. Other revenues in the retail division (consisting
primarily of commissions from both the sale of insurance and the sale of
consigned lender repossessions as well as franchise-related revenues) declined
$10.8 million or 72%. Insurance commission income declined proportionately with
retail sales, the sales of repossessions declined 45%, and the Company suspended
its franchise operations in mid-fiscal year 2001 in connection with its
reorganization.

Cost of Sales. Cost of sales was $175.0 million (or 72% of revenues) for
the year ended June 29, 2001, compared to $446.4 million (or 78% of revenues)
for the year ended June 30, 2000. The 61% decline in dollar amount of cost of
sales is largely attributable to the 58% decline in total revenues. The
reduction of cost of sales (expressed as a percentage of total revenues) was
due, in large measure, to the closing of all, lower margin, non-core retail
operations during the year ended June 29, 2001, as well as higher proportionate
sales of discounted inventory (both new and used) which the company was able to
purchase on the open market as well as from its secured lender as part of the
company's reorganization.

Selling, General and Administrative Expenses. Selling general and
administrative expenses were $77.9 million (or 32% of revenues) for the year
ended June 29, 2001, compared to $153.8 million (or 27% of revenues) for the
year ended June 30, 2000. These expenses declined as the result of the decline
in revenues. During the Company's reorganization, a substantial number of sales
centers and manufacturing operations were closed or sold to others, giving rise
to substantial reductions in fixed operating costs such as wages, benefits,
rents, utilities and property taxes. The Company retained the fixed costs
necessary to fund its core market infrastructure during reorganization when
revenues were temporarily disrupted.

Restructuring Charges. Restructuring charges for the year ended June 29,
2001 were $139.2 million, compared to $22.1 million for the year ended June 30,
2000. These costs related to asset revaluations (goodwill write offs and
adjustment of carrying value of other assets to net realizable value) as well as
costs associated with idling and closing manufacturing facilities and non-core
retail centers.

Interest Expense. Interest expense was $11.2 million for the year ended
June 29, 2001, compared to $18.4 million for the year ended June 30, 2000. As
the result of the Company's reorganization, interest expense on a substantial
amount of the Company's debt ceased in the year ended June 29, 2001. Lower
interest expense for the year ended June 29, 2001was the result of substantially
lower average debt levels ($173.8 million in the year ended June 29, 2001, as
compared to $212.3 million in the year ended June 30, 2000), and lower
prevailing and average interest rates in the year ended June 29, 2001, as
compared to the year ended June 30, 2000.

Reorganization Costs. In connection with the Company's Chapter 11 filing,
reorganization costs of $2.8 million were incurred for the year ended June 29,
2001. These costs related primarily to professional fees and similar type
expenditures directly related to the Chapter 11 proceedings. No reorganization
costs are reflected for the year ended June 30, 2000.

Income Taxes. Income tax expense for the year ended June 29, 2001 was
$16.2 million (on a pretax loss of $163.6 million) compared to tax benefit of
$20.1 million (on a pretax loss of $67.1 million) for the year ended June 30,
2000. The most significant source was the provision of a full ($15.8 million)
valuation allowance against the Company's deferred tax assets which arose in
prior periods. The remainder of the tax expense for the year ended June 29,
2001 was attributable to the Company's transportation and reinsurance operations
which are not included in the Company's consolidated tax returns. The tax
benefit for the year ended June 30, 2000 related to the loss carry-backs and
carry-forwards which the Company believed, at the time, it could fully utilize.

Earnings in Affiliates. The Company's 50% share in the after-tax earnings
of its finance company joint venture (21st Mortgage, LLC) was $0.5 million for
the year ended June 29, 2001, compared to a loss of $0.4 million for the year
ended June 30, 2000. The Company sold its interests in 21st Mortgage in June
2000 and formed a new joint venture (Homestar 21, LLC) to originate all new
business from July 1, 2000 forward.

Minority Interests. The Company owns 51% of its transportation operations
and therefore consolidates (or includes 100% of) the transportation company's
results in its financial statements. Because the Company only benefits by 51%
of the income, the remaining 49% is shown as a deduction on the Company's
consolidated income statement. This deduction was $0.2 million for the year
ended June 30, 2000, compared to a negative deduction (add-back) of $0.1 million
for the year ended June 29, 2001. The negative deduction for the year ended
June 29, 2001 arose as a result of a loss in the transportation company which
was profitable during the year ended June 30, 2000, had modest losses for the
year ended June 29, 2001, and was restored to profitability for the year ended
June 28, 2002.

LIQUIDITY AND CAPITAL RESOURCES

At June 28, 2002, the Company had operating cash and cash equivalents of
$32.2 million, cash - reserved for claims of $6.2 million, and cash - restricted
of $4.2 million. The reserved cash balance was for payment of an initial
distribution to shareholders and management's estimate of cash required to pay
remaining claims under the Plan. The restricted cash represents $4.2 million
held in a cash collateral account, which secures the Company's floor plan
through Associates Housing Financial LLC ("Associates").

Under the floor plan credit facility with Associates, although the maximum
line of credit is $38 million with various sub-limits for each category of
inventory financed, the Company estimates that the loan currently has a maximum
potential advancement of $23 to $24 million. The line is contractually
committed until October 2, 2004. The balance outstanding at June 28, 2002 was
$20.7 million, consisting of $19.3 million in revolving debt and $1.4 million
under liquidating lines. As the liquidating lines are paid down, additional

borrowing capacity is added to the revolving lines. The revolving portions of
the line carry an annual interest rate of prime plus 1%. The liquidating
portions of the line carried no interest through April 3, 2002, and thereafter
accrue interest at a rate of prime plus 1% per annum. Management believes that
this floor plan credit facility is sufficient to meet its inventory financing
needs for the foreseeable future.

Under the Plan, the Company was required to make an initial distribution to
its new shareholders of approximately $5.3 million. A distribution of
approximately $2.1 million was made in April 2002 and approximately $3.2 million
is held in escrow for the remainder of the distribution.

Also under the Plan, the Company identified certain non-core assets
(principally idle factories in non-core markets) where there are no current
intentions to reactivate these facilities for future core operations. At June
28, 2002, management estimated the fair market value of these assets to be
approximately $5.4 million. The Company has reported these assets as "Assets
held for sale" and is actively seeking to sell or lease these properties. Net
cash proceeds, if any, resulting from the sale or lease of these properties will
be deposited in the restricted cash collateral account.

In accordance with customary business practice in the manufactured housing
industry, the Company has entered into repurchase agreements with various
financial institutions and other credit sources pursuant to which the Company
has agreed, under certain circumstances, to repurchase manufactured homes sold
to independent dealers in the event of a default by such independent dealer on
their obligation to such credit sources. Under the terms of such repurchase
agreements, the Company agrees to repurchase manufactured homes at declining
prices over the periods of the agreements (which generally range from 18 to 24
months). While repurchase activity is very sporadic and cyclical, the Company
provides for anticipated repurchase losses. At June 28, 2002, the Company was
at risk to repurchase approximately $2.9 million of manufactured homes and has
provided for estimated net repurchase losses of approximately $0.2 million.

The Company believes that its current cash position, along with its floor
plan facility, and expected cash flow from operations will be sufficient to
support the Company's cash and working capital requirements for the foreseeable
future.

INFLATION AND SEASONALITY

Inflation in recent years has been modest and has primarily affected the
Company's manufacturing costs in the areas of labor, manufacturing overhead and
raw materials other than lumber. The price of lumber is affected more by the
imbalances between supply and demand than by inflation. Historically, the
Company believes it has been able to minimize the effects of inflation by
increasing the selling prices of its products, improving its manufacturing
efficiency and increasing its employee productivity. In addition, the Company's
business is seasonal, with weakest demand typically from mid-November through
February and the strongest demand typically from March through mid-November.
Over the history of the Company's operations, management has not observed any
correlation between interest rate fluctuations and increases or decreases in
sales based solely on such fluctuations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed to market risks related to fluctuations in interest
rates on its variable rate debt, which consists of its liability for floor plan
of manufactured housing retail inventories. The Company does not use interest
rate swaps, futures contracts or options on futures, or other types of
derivative financial instruments.

For fixed rate debt, changes in interest rates generally affect the fair
market value, but not earnings or cash flows. Conversely, for variable rate
debt, changes in interest rates generally do not influence fair market value,
but do affect future earnings and cash flows. The Company does not have an
obligation to prepay fixed rate debt prior to maturity, and as a result,
interest rate risk and changes in fair market value should not have a
significant impact on such debt until the Company would be required to refinance
it. Based on the current level of variable rate debt, each one percentage point
increase (decrease) in interest rates occurring on the first day of the year
would result in an increase in interest expense for the coming year of
approximately $0.2 million.

The Company's financial instruments are not currently subject to foreign
currency risk or commodity price risk. The Company does not believe that future
market interest rate risks related to its marketable investments or debt
obligations will have a material impact on the Company or the results of its
future operations.

The Company has no financial instruments held for trading purposes. The
Company originates loans through its 50% owned affiliate Homestar 21, most of
which are at fixed rates of interest, in the ordinary course of business and
periodically securitizes them to obtain permanent financing for such loan
originations. Accordingly, Homestar 21 loans held for sale are exposed to risk
from changes in interest rates between the time loans are originated and the
time at which Homestar 21 obtains permanent financing, generally at fixed rates
of interest, in the asset-backed securities market. Homestar 21 attempts to
manage this risk by minimizing the warehousing period of unsecuritized loans.
Homestar 21 currently does not originate any loans with the intention of holding
them for investment.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is listed under Item 14 (a) and
begins at page F-1 hereof.

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

As previously reported on Form 8-K filed on January 23, 2001, the
Registrant and 21 of its affiliates filed a voluntary petition for bankruptcy on
January 11, 2001, under Chapter 11 of the U.S. Bankruptcy code in the United
States Bankruptcy Court for the Southern District of Texas (the "Bankruptcy
Court"). The Registrant emerged from bankruptcy protection after the Bankruptcy
Court confirmed the Registrant's Third Amended Plan of Reorganization (the
"Plan") on August 14, 2001. The Plan became effective on October 3, 2001, as to
all 22 entities that filed bankruptcy.

Prior to January 21, 2002, KPMG LLP ("KPMG") served as the Registrant's
independent auditors. On January 8, 2002, upon the recommendation of the
Registrant's Audit Committee, the Board of Directors of the Registrant resolved
that the Registrant would retain Mann Frankfort Stein & Lipp Advisors, Inc.
("Mann Frankfort") as the Registrant's independent public accountants following
the Registrant's emergence from bankruptcy. On January 21, 2002, the Registrant
formally engaged Mann Frankfort and notified KPMG (which had last audited the
Registrant's financial statements for the fiscal year ended June 30, 2000) of
the dismissal of KPMG and subsequent engagement of Mann Frankfort.

The reports of KPMG on the Registrant's consolidated financial statements
as of May 31, 1999 and June 30, 2000 and for each of the two years ended May 31,
1999 and June 30, 2000 and the one month ended June 30, 1999, included in the
Registrant's annual report on Form 10-K filed October 13, 2000 contained no
adverse opinion or disclaimer of opinion and were not qualified as to
uncertainty, audit scope or accounting principles.

During the fiscal years ended May 31, 1999 and June 30, 2000, and
subsequent periods through January 21, 2002 there have been no disagreements
with KPMG on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of KPMG would have caused them to make reference
thereto in their report on the consolidated financial statements for such
periods.

The Registrant requested that KPMG furnish it with a letter addressed to
the Securities and Exchange Commission stating whether or not it agrees with the
above statements. A copy of such letter, dated January 22, 2002, was filed as
Exhibit 16.1 to the Form 8-K filed on January 23, 2001.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The directors and executive officers of the Company, their age and their
position as of September 24, 2002 are set forth below.

YEAR TERM
---------
NAME AGE POSITION ENDS
- --------- --- -------- ----

Finis F. Teeter . . . . . . . 58 President, Chief Executive
Officer and Director 2004

Craig A. Reynolds . . . . . . 53 Executive Vice-President, Chief
Financial Officer and Secretary

Charles N. Carney, Jr . . . . 47 Vice President, Chief Operating
Officer-Retail Operations

James J. Fallon . . . . . . . 62 Vice President, Chief Operating
Officer-Manufacturing Operations

Deborah H. Midanek (1) (2). . 47 Director, Chairman 2004

Richard N. Grasso (1) (2) . . 56 Director 2004

Richard F. Dahlson. . . . . . 43 Director 2004
<FN>
___________________________
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.

FINIS F. TEETER founded the Company in 1971. Mr. Teeter has served as
President, Chief Executive Officer and a Director since October 2000, and also
served as Chairman of the Board and Chief Executive Officer from 1971 until
August 1993. From August 1993 until January 2000, Mr. Teeter served as Chairman
of the Board and Co-Chief Executive Officer. From January to October 2000, Mr.
Teeter served as a Director of the Company. Shortly before the Company's
reorganization, Mr. Teeter was appointed as the President and CEO and was
actively involved in repositioning and downsizing operations as well as defining
core operations and key provisions of the Company's Plan of Reorganization.
Prior to forming the Company, Mr. Teeter served in various sales and sales
management capacities with Teeter Mobile Homes from 1962 to 1969 and with Mobile
Home Industries from 1969 to late 1970.

CRAIG A. REYNOLDS has served as Executive Vice President, Chief Financial
Officer and Secretary of the Company since joining the Company in 1982. Mr.
Reynolds is a Certified Public Accountant (inactive status) and holds an MBA
from Florida Institute of Technology. Mr. Reynolds was the Company's CFO before
and during the reorganization and was actively involved in cash management,
administrative downsizing and centralization, and meeting all reorganization
related reporting obligations of the Company.

CHARLES N. CARNEY, JR. has served as Vice President, Chief Operating
Officer-Retail Operations of the Company since June 1987. Mr. Carney served as
a Director of the Company from 1993 to 2000. Mr. Carney has served in various
sales, sales management and senior sales management capacities with the Company
since joining its predecessor in 1977. Mr. Carney holds a Bachelor of Business
Administration degree from Eastern Kentucky University.

JAMES J. FALLON has served as Vice President, Chief Operating
Officer-Manufacturing Operations of the Company since July 2001. Prior to that
period, Mr. Fallon served as Director of Operations for the Central Region at
Fleetwood Homes, Inc. from May 2000 until June 2001. Mr. Fallon briefly entered
retirement from January 2000 to May 2000. From August 1993 through December
1999, Mr. Fallon was a Director of the Company. Mr. Fallon has also served in
various general management capacities with Oak Creek, Kaufman & Broad Home
Systems, Inc., Cavco, and Fleetwood Homes, Inc. Mr. Fallon holds a Bachelor of
Science in electrical engineering from Purdue University.

DEBORAH H. MIDANEK has served as a director of the Company since October
2001. Ms. Midanek serves as Chairman of the Board of Directors and also as
Chairman of the Compensation Committee since December 2001. Ms. Midanek is a
Principal of Glass & Associates, a turnaround consulting firm, where she has
been responsible for the New York practice of the firm since November 2000.
Glass & Associates served as a financial advisor to the Creditor's Committee
during the Company's reorganization. From 1997 to 2000, Ms. Midanek was
previously a Principal with Jay Alix & Associates. From 1993 to 1998 Ms.
Midanek served as CEO and Chairman of Solon Asset Management, LP. From 1996 to
1998 she also served as CEO of Standard Brands Paint Company. Ms. Midanek holds
an MBA from The Wharton School, and a BA from Bryn Mawr College, and spent the
early part of her career at Bankers Trust and Drexel Burnham

RICHARD N. GRASSO has been a director of the Company since 2001, is a
member of the Compensation Committee and serves as Chairman of the Audit
Committee. Mr. Grasso is currently the Director of Credit for the Ben E. Keith
Company. From 1974 through 2001 Mr. Grasso was a Vice President with Kevco,
Inc., a supplier to the Manufactured Housing Industry and a creditor of the
Company prior to the Company's reorganization. Mr. Grasso was a co-chair of the
Creditor's Committee during the Company's reorganization and has a substantial
amount of experience as a supplier to the manufactured housing industry. Mr.
Grasso holds a BA in Business Administration and Economics from Iowa Wesleyan.

RICHARD F. DAHLSON has been a director of the Company since January 2002.
Mr Dahlson is a partner in Jackson Walker L.L.P., a law firm headquartered in
Dallas, Texas, which served as outside corporate counsel to the Company from
1993 to 2001. Mr. Dahlson has been with Jackson Walker since 1984. Mr. Dahlson
received his B.S.B.A. from the University of Minnesota and his J.D. degree from
the University of Wisconsin. Mr. Dahlson also serves as a director of MAII
Holdings, Inc., a holding company, and CRD Holdings, Inc., a subsidiary of MAII
that is engaged in the long-term automobile rental business.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

As a consequence of the Company's bankruptcy reorganization, all of its
equity securities registered under Section 12 of the Securities Exchange Act of
1934, as amended, were cancelled in October 2001. Under the Company's plan of
reorganization two new series of common stock, Series C and Series M, were
created. The Company believes that its executive officers, directors and
holders of 10% or more of its Series C and Series M common stock remained
subject to the reporting requirements of Section 16(a) following its
reorganization, even though its equity securities that were registered under the
Exchange Act were cancelled and its new equity securities were not so
registered. Accordingly, based solely upon a review of the copies of such
reports furnished to the Company, the Company believes that Ms. Midanek filed
one report on Form 3 on September 10, 2002, that was required to be filed on
October 13, 2001; that Mr. Grasso filed one report on Form 3 on September 10,
2002, that was required to be filed on October 13, 2001; that Mr. Dahlson filed
one report on Form 3 on September 10, 2002, that was required to be filed on
October 13, 2001.

ITEM 11. EXECUTIVE COMPENSATION

The following discloses summary information regarding the compensation of
(i) Finis F. Teeter, the Chief Executive Officer, and (ii) the three most highly
compensated officers other than Mr. Teeter that earned in excess of $100,000
during the fiscal year ended June 28, 2002 (collectively the "Named
Executives").

Annual Compensation Long Term Compensation
---------------------------------------------- ---------------------------------
Awards Payouts
----------------------- --------
Securities
Underlying
Restricted Options/ LTIP All Other
Other Annual Stock SARs Payouts Compensation
Year Salary Bonus Compensation Awards ($) (Shares) ($) ($)
---------------------------------------------- -----------------------------------------------

Finis F. Teeter. . . . . . 2002 $288,771 $204,750 $ -- -- 2,999,900 $ -- $ --
Director, President and . 2001 334,632 0 (a) -- -- -- --
Chief Executive Officer . 2000 261,448 0 (a) -- -- -- --

Craig A. Reynolds. . . . . 2002 $159,231 $154,675 $ -- -- 250,000 $ -- $ --
Executive Vice President, 2001 171,000 25,000 (a) -- -- -- --
Chief Financial Officer . 2000 180,000 62,500 (a) -- -- -- --
and Secretary

Charles N. Carney, Jr. . . 2002 $185,741 $154,675 $ (a) -- 250,000 $ -- $ --
Vice President, Chief . . 2001 225,000 50,000 (a) -- -- -- --
Operating Officer-Retail. 2000 240,000 125,000 (a) -- -- -- --
Operations

James J. Fallon. . . . . . 2002 $191,153 $136,500 $ -- -- 250,000 $ -- $ --
Vice President, Chief . . 2001 0 0 -- -- -- -- --
Operating Officer-. . . . 2000(b) 47,500 139,874 (a) -- -- -- --
Manufacturing Operations
<FN>
_______________________________
(a) Other Annual Compensation was less than $50,000 or 10% of such officer's annual salary and bonus for such year.
(b) Partial year only

OPTION/SAR GRANTS IN THE LAST FISCAL YEAR

The following table provides information on option grants in fiscal 2002 to
the Named Executives.

Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (1)
-------------------------------------------------------- ---------------------------------
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees Exercise or
Granted In Fiscal Base Price
(Shares) Year Per Share Expiration Date 5% 10%
-------------------------------------------------------- ---------------------------------

Finis F. Teeter. . . . 2,999,900 61% $ 1.35 10/3/2011 $ 2,219,926 $ 5,489,817
Craig A. Reynolds. . . 250,000 5% 1.35 10/3/2011 185,000 457,000
Charles N. Carney, Jr. 250,000 5% 1.35 10/3/2011 185,000 457,000
James J. Fallon. . . . 250,000 5% 1.35 10/3/2011 185,000 457,000
<FN>
____________________
(1) The Company's common equity has not been publicly traded and price quotations have not been established
since the Company emerged from bankruptcy, effective October 3, 2001. Therefore, calculations of potential
realizable value cannot be based upon prices at which the common equity is sold or at bid and asked prices. The
calculations were made on the basis of 5% and 10% appreciation of the exercise price per share of the options,
$1.35 per share, which is based upon the fresh start accounting valuation of the Company established by an
independent third party in connection with the Company's emergence from bankruptcy.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES

The following table provides information on option/SAR exercises in fiscal
2002 by the Named Executives and the values of such officers' unexercised
options at June 28, 2002.

Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs at Options/SARs at
Shares Fiscal Year-End Fiscal Year-End
Acquired Value (#); Exercisable/ (#) ; Exercisable/
on Exercise Realized Unexercisable Unexercisable (1)
----------- --------- ----------------- --------------------

Finis F. Teeter. . . . N/A $ N/A --/2,999,900 $ --/--
Craig A. Reynolds. . . N/A N/A --/250,000 $ --/--
Charles N. Carney, Jr. N/A N/A --/250,000 $ --/--
James J. Fallon. . . . N/A N/A --/250,000 $ --/--
<FN>
____________________________
(1) The Company's common equity has not been publicly traded and price quotations
have not been established since the Company emerged from bankruptcy, effective October
3, 2001. Therefore, the Company is unable to accurately determine the value of any
unexercised options.

COMPENSATION OF DIRECTORS

The Company does not pay any additional remuneration to employees for
serving as directors of the Company. Other directors of the Company who are not
employees receive an annual retainer fee of $36,000, payable in monthly
installments of $3,000, plus fees of $2,000 per day for attendance at meetings
of the Board of Directors and $1,000 per day for attendance at meetings of its
committees. The Chairman of the Board receives an additional annual retainer fee
of $20,000, payable in monthly installments of $1,667, and committee chairmen,
other than a committee chair that is also the Chairman of the Board, receive an
additional $4,000, annually in quarterly installments of $1,000. Directors of
the Company are also reimbursed for out-of-pocket expenses incurred in
connection with attendance at Board and committee meetings.

AUDIT COMMITTEE REPORT

The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates this
Report by reference therein. The members of the Audit Committee are Deborah
Midanek and Richard Grasso, who serves as Chairman. The board of directors has
determined that each member of the Audit Committee meets the independence and
experience requirements as determined under the National Association of
Securities Dealers' listing standards.

The Audit Committee acts under a written charter, which sets forth its
responsibilities and duties, as well as requirements for the committee's
composition and meetings. To carry out its responsibilities, the Audit
Committee met four times during fiscal 2002. Members of the Audit Committee met
with both management and the Company's outside auditors, Mann Frankfort Stein &
Lipp CPAs, L.L.P. ("Mann Frankfort"), to review and discuss all financial
statements prior to their issuance and to discuss significant accounting issues.
The Audit Committee's review included discussion with Mann Frankfort on those
matters required to be discussed pursuant to Statement on Auditing Standards No.
61 "Communication With Audit Committees". The Audit Committee also discussed
with Mann Frankfort matters relating to their independence, including the
disclosures made to the Audit Committee as required by the Independence
Standards Board Standard No. 1 "Independence Discussions with Audit Committees".
The Audit Committee has discussed with the auditors that they are retained by
the Audit Committee, and that the auditors must raise any concerns about the
Company's financial reporting and procedures directly with the Audit Committee.

Based on these discussions with the independent auditors, the Audit Committee
believes it has a basis for its oversight judgments and for recommending that
the Company's audited financial statements be included in the Company's Annual
Report on Form 10-K.

Additionally, the Audit Committee has discussed with management and the
independent accountants the scope of the audit, the Company's critical
accounting policies, and the Company's financial statements. On the basis of the
reviews and discussions mentioned, the Audit Committee recommended that the
audited financial statements be included in the Company's Annual Report on Form
10-K for the year ended June 28, 2002 for filing with the SEC. Also based on
these reviews, as well as an assessment of the performance of the key engagement
partners at Mann Frankfort, the Audit Committee recommended that Mann Frankfort
be reappointed as the Company's independent auditors for the 2003 fiscal year.

The members of the Audit Committee are not financial professionals engaged
in the practice of auditing or accounting and are not experts in these fields.
Members rely without independent verification on the information provided to
them by management and the independent auditors. The Audit Committee's oversight
function thus does not duplicate the activities of the management verification
that management has employed appropriate accounting and financial reporting
principles, or that appropriate procedures to ensure compliance with accounting
standards and laws and regulation, or that the financial statements have been
presented in accordance with accounting principles generally accepted in the
United States of America.

Respectfully submitted,

Richard Grasso, Chairman
Deborah Midanek

EMPLOYMENT AGREEMENTS

The Company entered into an employment agreement, effective as of October
3, 2001, with Mr. Teeter (the "Employment Agreement") for a five-year term.
Under the Employment Agreement, Mr. Teeter among other things (a) receives an
annual salary of $300,000; and (b) is entitled to participate in fringe benefit
or incentive compensation plans as authorized and adopted from time to time by
the Company and made available to other employees, including the 2001 Management
Incentive Program, any pension plan, profit-sharing plan, disability or sick pay
plan, thrift and savings plan, medical reimbursement plan, group life insurance
plan or other employee benefit plans made available to other employees and
executives of the Company. The Company granted Mr. Teeter an option to purchase
2,999,900 shares of Series M Common Stock under the 2001 Management Incentive
Program during fiscal year 2002. These options vest seven years from the date
of grant and may vest earlier (up to 20% per year) if certain annual performance
criteria established by the Board of Directors are met. In addition, all
unvested options vest immediately if Mr. Teeter is terminated without cause.

In the event of a change of control of the Company, either the Company or
Mr. Teeter may terminate the Employment Agreement upon 30 days notice to the
other party. Under the Employment Agreement, if the Company terminates Mr.
Teeter's employment for other than cause, Mr. Teeter will be entitled to receive
an amount equal to one-half his base salary for the remainder of the five-year
term of the Agreement, payable in accordance with the Company's normal payroll
procedures. If the Company terminates Mr. Teeter's employment because of the
failure of the Company to meet reasonable performance targets established by the
Board of Directors from time to time, Mr. Teeter will be entitled to receive an
amount equal to one-quarter his base salary for the remainder of the five-year
term of the Agreement, payable in accordance with the Company's normal payroll
procedures. The maximum amount, however, that Mr. Teeter shall be entitled to
receive for early termination of the Employment Agreement by the Company is
$500,000.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors is composed of
non-employee Directors of the Company and the Compensation Committee's duties
include reviewing and making recommendations to the Board generally with respect
to the compensation of the Company's executive officers. The Board of Directors
reviews these recommendations and approves all executive compensation action.
During the Company's reorganization, the official committee of unsecured
creditors appointed by the United States Trustee in Chapter 11 cases (the
"Creditors Committee") and the Company established the overall framework for the
compensation for Company employees during negotiations related to the Company's
reorganization. Since the Company's emergence from bankruptcy in October 2001,
the Compensation Committee has implemented and provided oversight of the
compensation framework set forth under the Plan of Reorganization.

The Company's executive compensation program is designed to align
compensation with the Company's business strategy, values and management
initiatives. The program:

- Integrates compensation programs with the Company's annual and
long-term strategic planning and measurement processes.

- Reinforces strategic performance objectives through the use of
incentive compensation programs.

- Rewards executives for long-term strategic management and the
enhancement of shareholder value by delivering an appropriate
ownership interest in the Company.

- Seeks to attract and retain quality talent, which is critical to both
the short-term and long-term success of the Company.

In connection with the Company's Plan of Reorganization, the Company
entered into a written employment agreement with Mr. Teeter in October 2001. Mr.
Teeter abstains from voting on any issue submitted to the board of directors
that relates to executive compensation. The Company has not entered into written
employment agreements with any other of its executive officers. See the section
titled "Employment Agreements" above for further details.

The three components of the Company's current compensation program for
executive officers are: (i) base compensation, (ii) discretionary annual bonuses
and (iii) incentive stock options.

Base Compensation

During the reorganization process, the Company and the Creditors Committee
jointly determined the framework for base compensation for the Company's
executive officers and management, after seeking the advice and guidance of an
outside consulting firm during the negotiations related to the reorganization of
the Company. The guidance provided by the outside consultant included evaluating
and determining appropriate ranges of pay for management to facilitate a salary
structure. In determining appropriate pay ranges, the Company and the Creditors
Committee examined market compensation levels for executives who are currently
employed in similar positions in public companies with comparable revenues, net
income and market capitalization. This market information is used as a frame of
reference for annual salary adjustments and starting salaries and will continue
to be monitored by the Compensation Committee.

Discretionary Annual Bonuses

The Compensation Committee believes that annual cash bonuses may be
effectively used to motivate and reward the accomplishment of corporate annual
objectives, reinforce strong performance with differentiation in individual
awards based on contributions to business results and to provide a fully
competitive compensation package with the objective of attracting, rewarding and
retaining individuals of the highest quality. As a pay-for-performance plan,
year-end cash bonus awards are paid upon the achievement of performance goals
established for the fiscal year. Executive officers are measured on two
performance components: (1) corporate financial performance (specific
measurements are defined each year and threshold, target and maximum performance

levels are established to reflect the Company's objectives) and (2) key
individual performance which contributes to achieving critical results for the
Company. A weighting is established for each component taking into account the
relative importance of each based on each executive officer's position.
Appropriate performance objectives are established by the Compensation Committee
and recommended to the board of directors for each fiscal year in support of the
Company's strategic plan. The Company and the Creditors Committee collectively
determined the initial ranges of discretionary bonuses, after seeking the advice
and guidance of an outside consulting firm during the Company's reorganization
process.

Incentive Stock Options

Stock options align the interests of employees and shareholders by
providing value to the employee when the stock price increases. All options are
granted at an exercise price of at least 100% of the fair market value of the
Common Stock on the date of grant. Incentive stock options were granted to
Messrs. Teeter, Reynolds, Carney, Fallon and other members of management under
the Company's 2001 Management Incentive Program in connection with the Company's
emergence from bankruptcy during fiscal 2002. The specific amounts of stock
options granted under the 2001 Management Incentive Program, which Program was
approved under the Plan of Reorganization, were determined collectively by the
Company and the Creditors Committee, after seeking the advice and guidance of an
independent consultant during the negotiations related to the Company's
reorganization. These stock options vest seven years from the date of grant and
may vest earlier (up to 20% per year) if certain annual performance criteria are
met. See "Option/SAR Grants in Last Fiscal Year" for more information.

Section 162(m) of the Interval Revenue Code of 1986, as amended (the
"Code"), limits an employer's income tax deduction for compensation paid to
certain key executives of a public company to $1,000,000 per executive per year.
The Company has no executives whose salaries currently approach this level and,
accordingly, has not addressed what approach it will take with respect to
section 162(m), except to the extent the 2001 Management Incentive Program
contains standard limits and provisions on awards which are intended to exempt
such awards from the section 162(m) deduction limits.

Compensation of Chief Executive Officer

In connection with the Company's reorganization, the annual base salary of
Finis F. Teeter, President and Chief Executive Officer, was established at
$300,000. As detailed above in the section titled "Employment Agreements", Mr.
Teeter was awarded an option to purchase 2,999,900 shares of Series M Common
Stock under the Company's Plan of Reorganization. These stock options vest seven
years from the date of grant and may vest earlier (up to 20% per year) if
certain annual performance criteria are met. The board of directors approved the
accelerated vesting of 20% of these options after reviewing the Company's
performance during the partial fiscal year following reorganization, which ended
June 28, 2002. Mr. Teeter was also awarded a cash bonus in the amount of
$204,750 based upon the Company's performance for the partial fiscal year
following the Company's reorganization. The Compensation Committee concluded
that Mr. Teeter's total fiscal 2002 compensation was competitive and aligned in
the mid-range of total compensation for other chief executives of publicly held
companies in similar businesses and of similar size. Furthermore, the
Compensation Committee believes that total fiscal 2002 compensation reflects its
confidence in Mr. Teeter's ability to lead the Company to execute the Company's
strategic plans

This report is submitted by the members of the Compensation Committee:

Deborah H. Midanek, Chairman
Richard N. Grasso

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

BENEFICIAL OWNERSHIP TABLE

The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of June 28, 2002 by (i)
each of the Company's directors, (ii) each of the Company's executive officers,
(iii) all directors and executive officers as a group and (iv) each person who
is known by the Company to own five percent or more of any class of the
Company's voting securities at the end of fiscal 2002.

Name and Address of Amount and Nature of
Beneficial Owner(1) Title of Class Beneficial Ownership(2) Percent of Class(2)
- ----------------------- --------------------- ----------------------- -------------------

Richard F. Dahlson None *

Richard N. Grasso None *

Deborah H. Midanek None *

Finis F. Teeter Series M Common Stock 600,080 shares(3) 4.0%

Craig A. Reynolds Series M Common Stock 50,000 shares(4) *

Charles N. Carney, Jr Series M Common Stock 50,000 shares(4) *

James J. Fallon Series M Common Stock 50,000 shares(4) *
<FN>
________________________
* Less than 1%

(1) The business address of each of the directors and officers is c/o American Homestar
Corporation, 2450 South Shore Boulevard, Suite 300, League City, Texas 77573.

(2) The Company's voting securities consist of Series C Common Stock and Series M Common
Stock. Under the Third Amended Plan of Reorganization, effective October 3, 2001, the
Company is obligated to issue 10,000,000 shares of its Series C Common Stock to certain
former creditors of the Company (that were creditors prior to the Company's reorganization).
The Company is currently undergoing a claims resolution procedure to determine the number of
shares of Series C Common Stock that will be issued to each approved former creditor. The
Company cannot make an accurate determination of the former creditors that may ultimately
become owners of at least 5% of the voting securities of the Company.

(3) Includes 100 shares of Series M Common Stock, being all of the shares of Series M
Common Stock currently outstanding, as well as vested but unexercised options to purchase
599,880 shares of Series M Common Stock pursuant to the 2001 Management Incentive Program.

(4) Includes vested but unexercised options to purchase 50,000 shares of Series M Common
Stock pursuant to the 2001 Management Incentive Program.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information with respect to
compensation plans of the Company under which equity securities of the
registrant are authorized for issuance to employees or non-employees (such as
directors, consultants, advisors, vendors, customers, suppliers or lenders) in
exchange for consideration in the forms of goods or services as described in
Statement of FAS No. 123, "Accounting for Stock-Based Compensation".

Number of securities
Number of securities Weighted-average remaining available
to be issued upon exercise price of for future issuance
exercise of outstanding outstanding options, under equity compensation
options, warrants and plans (excluding securities
Plan Category warrants and rights rights reflected in column (a)
- ----------------------------- ------------------------ --------------------- -----------------------------

(a) (b) (c)
Equity compensation plans
approved by shareholders 4,949,900 $ 1.35 50,000

Equity compensation plans not
approved by shareholders None N/A N/A
------------------------ --------------------- -----------------------------
TOTAL 4,949,900 $ 1.35 50,000
======================== ===================== =============================

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company has entered into two lease agreements with MOAMCO Properties,
Inc. ("MOAMCO"), a corporation owned by Mr. Teeter, under which the Company
leases two retail sales centers. Between July 1, 2001 and June 28, 2002, the
Company paid $88,894 to MOAMCO under the lease agreements. The Company believes
that the lease agreements are on terms as favorable to the Company as generally
available to unaffiliated parties for comparable properties. Both lease
agreements expire in May 2003.

It is the policy of the Company that any future transactions with
affiliated individuals or entities will be on terms as favorable to the Company
as those reasonably available from unrelated third parties, and any such
affiliated transactions will require the approval of a majority of the Company's
disinterested directors.

PART IV

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

(a)(1) FINANCIAL STATEMENTS

PAGE
----

Independent Auditors' Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

Consolidated Balance Sheets as of June 29, 2001 and June 28, 2002 . . . . . . . . . . . . . . . . . . . . . F-4

Consolidated Statements of Operations for the years ended June 30, 2000, June 29, 2001,
three months ended September 29, 2001 and nine months ended June 28, 2002. . . . . . . . . . . . . . . F-5

Consolidated Statements of Shareholders' Equity (Deficit) for the years ended June 30, 2000, June 29, 2001
three months ended September 29, 2001, September 29, 2001 (Fresh Start) and
nine months ended June 28, 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6

Consolidated Statements of Cash Flows for the years ended June 30, 2000, June 29, 2001
three months ended September 29, 2001 and nine months ended June 28, 2002. . . . . . . . . . . . . . . F-7

Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8

(2) SUPPLEMENTARY SCHEDULE TO FINANCIAL STATEMENTS

Financial Statement Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . F-30

(3) EXHIBITS

The exhibits filed as part of this report are listed under "Exhibits"
at subsection (c) of Item 14

(b) REPORTS ON FORM 8-K

None.

2.1 Debtors' Third Amended and Restated Plan of Reorganization (Incorporated
by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K
filed on January 8, 2002)

3.1 Amended and Restated Articles of Incorporation of the Company
(Incorporated by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q filed on May 10, 2002)

3.2 Amended and Restated Bylaws of the Company (Incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed on May
10, 2002)

3.3* Charter for the Audit Committee of the Company, dated September 19, 2001

3.4* Charter for the Compensation Committee of the Company, dated September 18,
2001

10.1* Employment Agreement, effective as of October 3, 2001, by and between the
Company and Finis F. Teeter

10.2* American Homestar Corporation 2001 Management Incentive Program, effective
as of October 3, 2001

10.3* Non-Qualified Stock Option Agreement, effective as of October 3, 2002, by
and between the Company and Finis F. Teeter.

10.4* Non-Qualified Stock Option Agreement, effective as of October 3, 2002, by
and between the Company and Craig A. Reynolds.

10.5* Non-Qualified Stock Option Agreement, effective as of October 3, 2002, by
and between the Company and Charles N. Carney, Jr.

10.6* Non-Qualified Stock Option Agreement, effective as of October 3, 2002, by
and between the Company and James J. Fallon.

16.1 Letter Regarding Change in Certifying Accountant (Incorporated by
reference to Exhibit 16.1 to the Company's Current Report on Form 8-K
filed on January 25, 2002)

21.1* Subsidiaries of American Homestar Corporation

23.1* Consent of KPMG LLP

99.1* Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for Finis F. Teeter.

99.2* Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for Craig A. Reynolds.

____________
* Filed herewith

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.

AMERICAN HOMESTAR CORPORATION

Date: September 24, 2002 By: /s/ FINIS F. TEETER
-------------------------------
Finis F. Teeter, President

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.

Signature Title Date
--------- ----- ----

/s/ FINIS F. TEETER President, CEO and September 24, 2002
-------------------- Director
Finis F. Teeter

/s/ CRAIG A. REYNOLDS Executive Vice President, September 24, 2002
---------------------- Chief Financial Officer,
Craig A. Reynolds and Secretary
(Principal Financial
and Accounting Officer)

/s/ DEBORAH H. MIDANEK Director September 24, 2002
----------------------
Deborah H. Midanek

/s/ RICHARD N. GRASSO Director September 24, 2002
----------------------
Richard N. Grasso

/s/ RICHARD F. DAHLSON Director September 24, 2002
----------------------
Richard F. Dahlson

AMERICAN HOMESTAR CORPORATION

CERTIFICATION OF PERIODIC FINANCIAL REPORT
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Finis F. Teeter, certify that:

1. I have reviewed this annual report on Form 10-K of American
Homestar Corporation;

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

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

Date: September 24, 2002

/s/ Finis F. Teeter
--------------------------------------
Finis F. Teeter
President, Chief Executive Officer and
Director
(Principal Executive Officer)

I, Craig A. Reynolds, certify that:

1. I have reviewed this annual report on Form 10-K of American
Homestar Corporation;

Date: September 24, 2002

/s/ Craig A. Reynolds
--------------------------------------------
Craig A. Reynolds
Executive Vice-President, Chief Financial
Officer and Secretary
(Principal Financial and Accounting Officer)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

Independent Auditors' Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

Consolidated Balance Sheets as of June 29, 2001 and June 28, 2002. . . . . . . . . . . . . . . . . . . . . F-4

Consolidated Statements of Operations for the years ended June 30, 2000, June 29, 2001,
three months ended September 29, 2001 and nine months ended June 28, 2002 . . . . . . . . . . . . . . F-5

Consolidated Statements of Shareholders' Equity (Deficit) for the years ended June 30, 2000, June 29, 2001
three months ended September 29, 2001, September 29, 2001 (Fresh Start) and
nine months ended June 28, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6

Consolidated Statements of Cash Flows for the years ended June 30, 2000, June 29, 2001
three months ended September 29, 2001 and nine months ended June 28, 2002 . . . . . . . . . . . . . . F-7

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8

Financial Statement Schedule II - Valuation and Qualifying Accounts. . . . . . . . . . . . . . . . . . . . F-30

F-1

Independent Auditors' Report
----------------------------

To the Board of Directors of
American Homestar Corporation
League City, Texas

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

As discussed in Note 1 to the consolidated financial statements, on August 14,
2001, the Bankruptcy Court entered an order confirming the Third Amended Joint
Plan of Reorganization, which became effective after the close of business on
October 3, 2001. Accordingly, the accompanying balance sheets have been prepared
in conformity with American Institute of Certified Public Accountants Statement
of Position 90-7, "Financial Reporting for Entities in Reorganization Under the
Bankruptcy Code," for the Company as a new entity with assets, liabilities, and
a capital structure having carrying values not comparable with prior periods as
described in Note 1.

In our opinion, the Successor Company consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of American Homestar Corporation and subsidiaries as of June 28, 2002
and the consolidated results of their operations and their cash flows for the
nine months ended June 28, 2002, in conformity with accounting principles
generally accepted in the United States. Further, in our opinion, the
Predecessor Company consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Homestar Corporation and subsidiaries as of June 29, 2001 and the
consolidated results of their operations and their cash flows for the three
months ended September 29, 2001 and the year ended June 29, 2001, in conformity
with accounting principles generally accepted in the United States.

/s/ MANN FRANKFORT STEIN & LIPP CPAs, L.L.P.

Houston, Texas
August 16, 2002

F-2

Independent Auditors' Report
----------------------------

The Board of Directors
American Homestar Corporation:

We have audited the consolidated statements of operations, stockholders' equity
(deficit) and cash flows of American Homestar Corporation and subsidiaries for
the year ended June 30, 2000. In connection with our audit of these
consolidated financial statements, we also audited the financial statement
schedule as listed in the accompanying index for the year ended June 30, 2000.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations of American Homestar
Corporation and subsidiaries and their cash flows for the year ended June 30,
2000, in conformity with accounting principles generally accepted in the Untied
States of America. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

/S/ KPMG LLP

Houston, Texas
August 14, 2000, except as to notes 1 and 8
which are as of October 11, 2000

F-3

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)

PREDECESSOR CO. SUCCESSOR CO.
JUNE 29, JUNE 28,
2001 2002
----------------- --------------

ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,177 $ 32,250
Cash - reserved for claims . . . . . . . . . . . . . . . . . . . . . . . . . -- 6,244
Cash - restricted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,453 4,190
Accounts receivable - trade, net . . . . . . . . . . . . . . . . . . . . . . 3,413 2,692
Accounts receivable - other, net . . . . . . . . . . . . . . . . . . . . . . 566 287
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,037 27,006
Prepaid expenses, notes receivable and other current assets. . . . . . . . . 3,465 792
----------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 64,111 73,461
----------------- --------------

Notes receivable and other assets. . . . . . . . . . . . . . . . . . . . . . 609 555
Investments in affiliates, at equity 2,892 3,205
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . 22,697 10,149
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,043 5,379
----------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 96,352 $ 92,749
================= ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Floor plan payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,097 $ 20,689
Current installments of notes payable. . . . . . . . . . . . . . . . . . . . 125 370
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,628 1,315
Warranty reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,635 1,818
Accrued other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 4,561 7,265
Liquidation and plan reserve . . . . . . . . . . . . . . . . . . . . . . . . 1,971 3,626
Claims reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 3,067
Initial distribution payable . . . . . . . . . . . . . . . . . . . . . . . . -- 3,177
----------------- --------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . 37,017 41,327
----------------- --------------

Notes payable, less current installments . . . . . . . . . . . . . . . . . . 1,240 644
Minority interest in consolidated subsidiary . . . . . . . . . . . . . . . . 666 965
Liabilities subject to compromise under reorganization proceedings . . . . . 148,756 --
Commitments and contingencies. . . . . . . . . . . . . . . . . . . . . . . . -- --

SHAREHOLDERS' EQUITY (DEFICIT)
Old preferred stock, no par value; 5,000,000 shares authorized; 134,167
shares issued and outstanding at June 29, 2001. . . . . . . . . . . . . 1,610 --
Old common stock, $0.05 par value; 50,000,000 shares authorized; 18,423,707
shares issued and outstanding at June 29, 2001 . . . . . . . . . . . . 921 --
Common stock series C, par value $0.01; 15,000,000 shares authorized,
10,000,000 shares issued and outstanding at June 28, 2002 . . . . . . . -- 100
Common stock series M, par value $0.01; 7,500,000 shares authorized, 100
shares issued and outstanding at June 28, 2002. . . . . . . . . . . . . -- --
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 62,519 48,449
Retained earnings (accumulated deficit). . . . . . . . . . . . . . . . . . . (156,377) 1,264
----------------- --------------
Total shareholders' equity (deficit) . . . . . . . . . . . . . . . (91,327) 49,813
----------------- --------------
Total liabilities and shareholders' equity (deficit) . . . . . . . $ 96,352 $ 92,749
================= ==============
<FN>

See accompanying notes to consolidated financial statements

F-4

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)

THREE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
JUNE 30 JUNE 29, SEPTEMBER 29, JUNE 28,
2000 2001 2001 2002
------------ ---------- --------------- -------------
PREDECESSOR CO. SUCCESSOR CO.
----------------------------------------- -------------

Revenues:
Net sales . . . . . . . . . . . . . . . . . . $ 532,634 $ 217,375 $ 21,107 $ 64,234
Other revenues. . . . . . . . . . . . . . . . 41,402 24,399 5,137 18,584
------------ ---------- --------------- ------------
Total revenues. . . . . . . . . . . . . . 574,036 241,774 26,244 82,818
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . 446,378 174,999 16,086 52,184
Selling, general and administrative . . . . . 153,769 77,948 10,290 28,703
Restructuring charges, goodwill and asset
impairment. . . . . . . . . . . . . . . . . 22,097 139,216 -- --
------------ ---------- --------------- ------------
Total costs and expenses. . . . . . . . . 622,244 392,163 26,376 80,887
------------ ---------- --------------- ------------
Operating income (loss) . . . . . . . . . (48,208) (150,389) (132) 1,931
------------ ---------- --------------- ------------

Interest expense. . . . . . . . . . . . . . . . (18,366) (11,231) (214) (825)
Other income (expense). . . . . . . . . . . . . (566) 813 88 245
------------ ---------- --------------- ------------
Income (loss) before items shown below. . (67,140) (160,807) (258) 1,351
------------ ---------- --------------- ------------

Reorganization items:
Fresh-Start adjustments . . . . . . . . . . . -- -- 18,863 --
Reorganization costs. . . . . . . . . . . . . -- (2,796) (1,433) --
------------ ---------- --------------- ------------
Income (loss) before items shown below. . (67,140) (163,603) 17,172 1,351
------------ ---------- --------------- ------------
Income tax expense (benefit). . . . . . . . . (20,141) 16,239 20 247
------------ ---------- --------------- ------------
Income (loss) before items shown below. . (46,999) (179,842) 17,152 1,104
------------ ---------- --------------- ------------

Earnings (losses) in affiliates . . . . . . . . (350) 492 145 409
Minority interests. . . . . . . . . . . . . . . (242) 142 (50) (249)
------------ ---------- --------------- ------------
Income (loss) before items shown below. . (47,591) (179,208) 17,247 1,264
------------ ---------- --------------- ------------

Extraordinary item:
Gain on forgiveness of debt . . . . . . . -- -- 139,130 --
------------ ---------- --------------- ------------
Net income (loss) . . . . . . . . . . . . $ (47,591) $(179,208) $ 156,377 $ 1,264
============ ========== =============== ============

Earnings (loss) per share - basic and diluted:
Income (loss) . . . . . . . . . . . . . . . . (2.59) N/A N/A $ 0.13
============ ========== =============== ============
Weighted average shares
Outstanding - basic and diluted . . . . . . . 18,423,000 N/A N/A 10,000,100
============ ========== =============== ============
<FN>

See accompanying notes to consolidated financial statements

F-5

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS EXCEPT FOR SHARE INFORMATION)

RETAINED
ADDITIONAL EARNINGS TOTAL
PREFERRED STOCK COMMON STOCK PAID-IN (ACCUMULATED SHAREHOLDERS'
SHARES VALUE SHARES PAR VALUE CAPITAL DEFICIT) EQUITY
--------- -------- ------------- ------------ ------------ -------------- -------------

BALANCES AT JUNE 30, 1999 -- $ -- 18,416,707 $ 921 $ 62,484 $ 71,159 $ 134,564
Exercise of stock options -- -- 7,000 -- 35 -- 35
Issuance of preferred stock 509,167 6,110 -- -- -- -- 6,110
Payment of preferred stock
dividends -- -- -- -- -- (216) (216)
Net loss -- -- -- -- -- (47,591) (47,591)
--------- -------- ------------- ------------ ------------ -------------- -------------

BALANCES AT JUNE 30, 2000 509,167 6,110 18,423,707 921 62,519 23,352 92,902
Redemption of preferred stock (375,000) (4,500) -- -- -- -- (4,500)
Payment of preferred stock
dividends -- -- -- -- -- (521) (521)
Net loss -- -- -- -- -- (179,208) (179,208)
--------- -------- ------------- ------------ ------------ -------------- -------------

BALANCES AT JUNE 29, 2001 134,167 1,610 18,423,707 921 62,519 (156,377) (91,327)
Net loss -- -- -- -- -- (1,616)(1) (1,616)
--------- -------- ------------- ------------ ------------ -------------- -------------

PREDECESSOR COMPANY
BALANCES AT
SEPTEMBER 29, 2001 134,167 1,610 18,423,707 921 62,519 (157,993) (92,943)

Cancellation of former equity
under the Plan of
Reorganization (134,167) (1,610) (18,423,707) (921) (62,519) 157,993 92,943

Issuance of new equity interest
in connection with emergence
from Chapter 11 -- -- -- -- 30,179 -- 30,179

Issuance of new Series M
common stock in connection
with emergence from
Chapter 11 -- -- 100 -- -- -- --
--------- -------- ------------- ------------ ------------ -------------- -------------

SUCCESSOR COMPANY
BALANCES AT
SEPTEMBER 29, 2001 -- -- 100 -- 30,179 -- 30,179

Issuance of new Series C
common stock -- -- 3,922,280 39 (39) -- --

Series C common stock held in
constructive trust -- -- 6,077,720 61 (61) -- --

Income tax refund recorded as
paid-in capital -- -- -- -- 18,370 -- 18,370

Net income -- -- -- -- -- 1,264 1,264
--------- -------- ------------- ------------ ------------ -------------- -------------
SUCCESSOR COMPANY
BALANCES AT JUNE 28,
2002 -- $ -- 10,000,100 $ 100 $ 48,449 $ 1,264 $ 49,813
<FN>
________________________
(1) Net loss before fresh-start adjustments and extraordinary item relating to gain on forgiveness of debt.

See accompanying notes to consolidated financial statements

F-6

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

YEARS ENDED THREE MONTHS NINE MONTHS
----------------------- ENDED ENDED
JUNE 30, JUNE 29, SEPTEMBER 29, JUNE 28,
2000 2001 2001 2002
PREDECESSOR CO. SUCCESSOR CO.
--------------------------------------- -------------

Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . $ (47,591) $(179,208) $ 156,377 $ 1,264
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Fresh-Start adjustments. . . . . . . . . . . . . . . . . . . . . . -- -- (18,863) --
Extraordinary item - Gain on forgiveness of debt . . . . . . . . . -- -- (139,130) --
Tax refund . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- 18,370
Loss on sale of assets . . . . . . . . . . . . . . . . . . . . . -- -- -- 18
Depreciation and amortization. . . . . . . . . . . . . . . . . . 16,493 9,799 748 448
Minority interests in income of consolidated subsidiaries. . . . (43) (141) 50 249
Loss on sale of affiliate. . . . . . . . . . . . . . . . . . . . 246 -- -- --
Losses (earnings) in affiliates. . . . . . . . . . . . . . . . . 350 1,427 (145) (409)
Restructuring charges, goodwill and asset
impairments. . . . . . . . . . . . . . . . . . . . . . . . . . 28,120 102,751 -- --
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . (11,601) 15,753 -- --
Change in assets and liabilities:
Change in receivables. . . . . . . . . . . . . . . . . . . . . 14,999 34,216 1,396 (396)
Change in inventories. . . . . . . . . . . . . . . . . . . . . 32,550 64,444 584 (4,122)
Change in prepaid expenses, notes receivable and
other current assets . . . . . . . . . . . . . . . . . . . . 5,498 2,841 903 1,770
Changes in notes receivable and other assets . . . . . . . . . -- 11,426 (95) 149
Change in accounts payable . . . . . . . . . . . . . . . . . . 1,058 (24,245) (2,216) (1,097)
Change in accrued expenses and other liabilities . . . . . . . (24,606) (22,308) 1,527 (3,294)
Payment of Plan obligations. . . . . . . . . . . . . . . . . . -- -- -- (309)
Change in long term debt and floor plan. . . . . . . . . . . . -- (156,365) -- --
Change in liabilities subject to compromise under
reorganization proceedings . . . . . . . . . . . . . . . . . -- 148,756 -- --
---------- ---------- --------------- -------------
Net cash provided by operating activities. . . . . . . . . . 15,473 9,146 1,136 12,641
---------- ---------- --------------- -------------
Cash flows from investing activities:
Payment for purchase of acquisitions, net of cash acquired . . . . (958) -- -- --
Net proceeds from sale of investment affiliate . . . . . . . . . . 4,012 -- -- --
Proceeds from sale of property, plant and equipment. . . . . . . . -- 4,701 -- 3
Proceeds from sale of assets held for sale . . . . . . . . . . . . -- -- -- 581
Purchases of property, plant and equipment . . . . . . . . . . . . (8,850) (1,239) (76) (155)
Dividends from unconsolidated affiliate. . . . . . . . . . . . . . -- -- -- 272
Investment in affiliate. . . . . . . . . . . . . . . . . . . . . . -- -- -- (31)
---------- ---------- --------------- -------------
Net cash provided by (used in) investing activities. . . . . (5,796) 3,462 (76) 670
---------- ---------- --------------- -------------
Cash flows from financing activities:
Participation in floor plan payable. . . . . . . . . . . . . . . . 20,402 21,503 -- --
Borrowings under floor plan payable. . . . . . . . . . . . . . . . 157,830 76,198 9,368 22,382
Repayments of floor plan payable . . . . . . . . . . . . . . . . . (189,123) (118,217) (12,843) (21,315)
Proceeds from long-term debt borrowings. . . . . . . . . . . . . . 1,630 4 214 275
Principal payments of long-term debt . . . . . . . . . . . . . . . (4,386) (1,171) (99) (299)
Change in restricted cash. . . . . . . . . . . . . . . . . . . . . (1,156) (7,297) (4,563) 2,582
Redemption of preferred stock. . . . . . . . . . . . . . . . . . . -- (4,500) -- --
Payment of preferred stock dividends . . . . . . . . . . . . . . . (216) (521) -- --
Exercise of stock options. . . . . . . . . . . . . . . . . . . . . 35 -- -- --
---------- ---------- --------------- -------------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . (14,984) (34,001) (7,923) 3,625
---------- ---------- --------------- -------------
Net increase (decrease) in cash and cash equivalents . . . . . . . . (5,307) (21,393) (6,863) 16,936
Cash and cash equivalents at beginning of year . . . . . . . . . . . 48,877 43,570 22,177 15,314
---------- ---------- --------------- -------------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . $ 43,570 $ 22,177 $ 15,314 $ 32,250
========== ========== =============== =============
Supplemental Cash Flow Information
Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,073 $ 64 $ 25 $ 296
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . 17,851 7,031 233 850
========== ========== =============== =============
Non-cash investing and financing activities:
Sale of assets in exchange for debt reduction. . . . . . . . . . . $ -- $ 5,666 $ -- $ 442
Stock issuance recorded as reduction in paid in capital. . . . . . -- -- -- 100
========== ========== =============== =============
<FN>

See accompanying notes to consolidated financial statements.

F-7

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) REORGANIZATION AND BASIS OF REPORTING

REORGANIZATION

On January 11, 2001 (the "Petition Date"), American Homestar Corporation
and Subsidiaries (the "Company") and twenty-one (21) of its subsidiaries filed
separate voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11") in the United States Bankruptcy Court for
the Southern District of Texas (the "Bankruptcy Court"). On August 14, 2001, the
Bankruptcy Court confirmed the Third Amended Joint Plan of Reorganization, (the
"Plan"), of the Company and its subsidiaries. On October 3, 2001, all conditions
required for the effectiveness of the Plan were met, and the Plan became
effective ("Effective Date"), and the Company and its subsidiaries emerged from
bankruptcy.

SUMMARY OF PLAN

Under the Plan, the Company maintained ongoing business operations
primarily in Texas, Louisiana and Oklahoma, and conducted sales to independent
dealers in New Mexico, Arkansas and Colorado. The Company continued use of the
manufacturing facilities in North Texas and the operation of approximately 40
retail locations. Moreover, through affiliated entities that were not subject to
the Plan, the Company continued its insurance, financial services and
transportation lines of business.

Unsecured Claims: Holders of unsecured claims of $10,000 or less were given
varying options, depending upon the entity owing the unsecured claim. In
general, most holders of such claims are entitled to receive a small payment in
cash (typically 10% or 20% of the amount of their claim, depending on the entity
allowing such claim). Certain of the Company's affiliated entities have
discontinued or will discontinue doing business under the terms of the Plan.
Holders of unsecured claims against those entities could accept a pro rata
distribution in three years when the liquidation value of the subsidiary is
determined. Very few creditors have elected this option. The typical holder of
an unsecured claim of more than $10,000 will receive Series C common stock in
the Successor Company. The stock will be issued solely by the Company, without
regard to which subsidiary actually owing the claim.

F-8

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Miscellaneous Secured Claims: The Company was given the option to return
the collateral for secured claims or to pay secured claims over an extended
period of time, with interest.

Secured Claims by Primary Lender: As part of the Plan, the Company and
several of its subsidiaries entered into a new financing arrangement with the
Company's principal secured lender. The arrangement provided for substantial
debt forgiveness by the secured lender and for the extension of a 36-month loan
by the secured lender. The new loan is secured by substantially all of the
Company's inventory and real estate and by certain other assets (including
certain specified cash deposits, totaling approximately $4.2 million at June 28,
2002, which is included in restricted cash on the balance sheet included in the
Company's financial statements). The loan has a maximum limit of $38 million,
although the available amount varies based on various covenants and other
requirements. The Company estimates that the loan has a maximum potential
advancement of $23 to $24 million, of which $20.7 million was advanced as of
June 28, 2002. In addition to this facility, the secured lender issued certain
other shorter-term loan accommodations to provide for the acquisition of certain
specified inventory by the Company or its affiliates.

BASIS OF REPORTING

Upon emergence from Chapter 11, the Company adopted the provisions of
Statement of Position No. 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("Fresh-Start Reporting") as
promulgated by the AICPA. Accordingly, all assets and liabilities have been
restated to reflect their reorganization value, which approximates their fair
value at the Effective Date. In addition, the accumulated deficit of the Company
was eliminated and its capital structure was recast in conformity with the Plan,
and the Company has recorded the effects of the Plan and Fresh-Start Reporting
as of September 29, 2001. Activity between September 29, 2001, the date of the
Consolidated Fresh-Start Balance Sheet, and October 3, 2001, the Effective Date
of the Plan, was not material. The adjustment to eliminate the accumulated
deficit totaled $158 million of which $139 million was forgiveness of debt and
$19 million was from Fresh-Start adjustments. The results of operations and cash
flows for the three months ended September 29, 2001 include operations prior to
the Company's emergence from Chapter 11 proceedings (referred to as "Predecessor
Company") and the effects of Fresh-Start Reporting. The results of operations
and cash flows for the nine months ended June 28, 2002 include operations
subsequent to the Company's emergence from Chapter 11 proceedings and reflect
the on-going effects of Fresh-Start Reporting. As a result, the net income for
the nine months ended June 28, 2002 is not comparable with prior periods and the
net income for the twelve months ended June 28, 2002 is divided into Successor
Company and Predecessor Company and is also not comparable with prior periods.
In addition, the Balance Sheet as of June 28, 2002 is not comparable to prior
periods for the reasons discussed above.

The reorganization value of the Company's common equity of approximately
$30 million was determined by an independent valuation and financial specialist
after consideration of several factors and by using various valuation methods
including appraisals, cash flow multiples, price/earnings ratios and other
relevant industry information. The reorganization value of the Company has been
allocated to various asset categories pursuant to Fresh-Start accounting
principles.

F-9

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DEBT DISCHARGE AND FRESH START REPORTING
The effects of the Plan on the Predecessor Company's unaudited balance sheet at
September 29, 2001 were as follows (in thousands, except per share information):

September 29, Debt Fresh-Start Reorganized
2001 Discharge Entries Balance Sheet
--------------- ---------- ------------ --------------

ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . $ 19,767 (4,453) $ 15,314
Cash - reserved for claims . . . . . . . . . . . . . . . . . -- 4,453 4,453
Cash - restricted. . . . . . . . . . . . . . . . . . . . . . 8,563 8,563
Accounts receivable - trade, net . . . . . . . . . . . . . . 2,251 2,251
Accounts receivable - other, net . . . . . . . . . . . . . . 332 332
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . 25,453 (2,569) 22,884
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . 1,201 1,201
Notes receivable . . . . . . . . . . . . . . . . . . . . . . 285 285
Other current assets . . . . . . . . . . . . . . . . . . . . 1,076 1,076
--------------- ---------- ------------ --------------
Total current assets . . . . . . . . . . . . . . . . . . . 58,928 -- (2,569) 56,359
--------------- ---------- ------------ --------------

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 383 383
Investments in affiliates, at equity . . . . . . . . . . . . . 3,037 3,037
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . 321 321
Property, plant and equipment. . . . . . . . . . . . . . . . . 22,025 (11,562) 10,463
Assets held for sale . . . . . . . . . . . . . . . . . . . . . 6,043 6,043
--------------- ---------- ------------ --------------
$ 90,737 -- (14,131) $ 76,606
=============== ========== ============ ==============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Floor plan payable . . . . . . . . . . . . . . . . . . . . . $ 19,622 $ 19,622
Current installments of notes payable. . . . . . . . . . . . 331 331
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 2,412 2,412
Accrued salaries and benefits. . . . . . . . . . . . . . . . 825 825
Accrued federal and state taxes payable. . . . . . . . . . . 56 56
Other reserves . . . . . . . . . . . . . . . . . . . . . . . 2,069 3,073 5,142
Other taxes. . . . . . . . . . . . . . . . . . . . . . . . . 653 653
Warranty reserve . . . . . . . . . . . . . . . . . . . . . . 2,145 2,145
Customer deposits. . . . . . . . . . . . . . . . . . . . . . 922 922
Accrued other liabilities. . . . . . . . . . . . . . . . . . 3,687 3,687
Deferred income. . . . . . . . . . . . . . . . . . . . . . . 337 337
Liquidation and plan reserve . . . . . . . . . . . . . . . . -- 1,877 1,877
Claims reserve . . . . . . . . . . . . . . . . . . . . . . . -- 4,453 4,453
Initial distribution payable . . . . . . . . . . . . . . . . -- 2,100 2,100
--------------- ---------- ------------ --------------
Total current liabilities. . . . . . . . . . . . . . . . 33,059 9,626 1,877 44,562
--------------- ---------- ------------ --------------

Notes payable, less current installments . . . . . . . . . . . 1,149 1,149
Minority interest in consolidated subsidiary . . . . . . . . . 716 716
Liabilities subject to compromise under reorganization
proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 148,756 (148,756) --

Shareholders' Equity (Deficit):
Preferred stock, no par value; 5,000,000 shares authorized,
509,167 shares issued and outstanding. . . . . . . . . . . 1,610 (1,610) --
Common stock, $0.05 par value; 50,000,000 shares
authorized,
18,423,707 shares issued and outstanding . . . . . . . . . 921 (921) --
Common stock series C, par value $0.01 (15,000,000 shares
authorized, 10,000,000 shares issued). . . . . . . . . . . -- --
Common stock series M, par value $0.01 (7,500,000 shares
authorized, 100 shares outstanding) . . . . . . . . . . . -- --
Additional paid in capital . . . . . . . . . . . . . . . . . . 62,519 (32,340) 30,179
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . (157,993) 139,130 18,863 --
--------------- ---------- ------------ --------------
Total Shareholders' Equity (Deficit) . . . . . . . . . . (92,943) (16,008) 30,179
--------------- ---------- ------------ --------------
$ 90,737 -- (14,131) $ 76,606
=============== ========== ============ ==============

F-10

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(2) SIGNIFICANT RISKS AND MANAGEMENT'S PLANS

Prior to its emergence from Chapter 11 proceedings on October 3, 2001 (see
Note 1), the Company had incurred significant losses from operations. These
losses stemmed from several factors as a direct or indirect result of growing
industry over-capacity. Steadily declining retail sales of new homes per store
and declining new home orders at the Company's manufacturing facilities
ultimately led to sales levels which were insufficient to cover the fixed costs
of the Company's then national operations. In addition, the Company was called
upon to repurchase significant amounts of inventory from independent dealers,
which gave rise to increased losses of a cyclical nature. The Company was also
experiencing increased debt servicing costs relating to its senior unsecured
debt.

Management believes that the restructuring initiatives completed through
October 3, 2001 and new initiatives since that date have positioned the Company
for a return to profitability in the future. However, the Company's ability to
attain profitability in the future is dependent upon many factors including, but
not limited to, general economic conditions in the Company's principal market
areas as well as factors which drive housing demand. These include, but are not
limited to, consumer confidence and new job formation. The Company's performance
is further affected by such factors as the availability of alternative housing
(site-constructed homes and apartments), the availability of affordable retail
or mortgage financing and general industry conditions and competition.

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND GENERAL

The consolidated financial statements include the accounts of American
Homestar Corporation and its majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain amounts previously reported have been reclassified to conform with the
2002 presentation. The Company also owns a 50% interest in a joint venture
(Homestar 21st, LLC), which is accounted for under the equity method of
accounting. In 2002 the Company formed a second 50% owned joint venture
(American Homestar Mortgage), which will also be accounted for under the equity
method of accounting.

The Company's fiscal year ends on the Friday closest to June 30 and each
interim period ends on the Friday closest to the end of the respective calendar
period.

ACCOUNTING ESTIMATES

Significant estimates were made to determine the following amounts
reflected on the Company's Balance Sheets:

- Property Plant and Equipment is reflected at its estimated fair market
value at September 29, 2001, less accumulated depreciation for the
period subsequent to September 29, 2001. The determination of periodic
depreciation expense requires an estimate of the remaining useful
lives of each asset.

- Assets Held For Sale are reflected at estimated fair market value.

- Warranty Reserves include an estimate of all future warranty-related
service expenses that will be incurred as to all homes previously
sold, which are still within the one-year warranty period. These
estimates are based on average historical warranty expense per home,
applied to the number of homes that are still under warranty.

F-11

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

- Reserve for future repurchase losses reflects management's estimate of
both repurchase frequency and severity of net losses, related to
agreements with various financial institutions and other credit
sources to repurchase manufacturing homes sold to independent dealers
in the event of a default by the independent dealer or its obligation
to such credit sources. Such estimates are based on historical
experience.

- Liquidation and Plan Reserve reflects management's estimate of all
costs and expenses to be incurred in administering and satisfying plan
obligations as well as the net cost to complete the liquidation of all
non-core operations.

- Claims Reserve reflects management's estimate of the cash required to
satisfy all remaining priority, tax, administrative and convenience
class claims. This reserve does not include the remaining initial
distribution that is reflected in another liability account, has been
escrowed, and is not subject to estimation.

REVENUE RECOGNITION

Retail sales are recognized once full cash payment is received and the home
has been delivered to the customer.

Manufacturing sales to independent dealers and subdivision developers are
recognized as revenue when the following criteria are met:

- there is a firm retail commitment from the dealer;
- there is a financial commitment (i.e. an approved floor plan source,
cash or cashiers check received in advance);
- the home is completely finished;
- the home is invoiced; and
- the home has been shipped.

The Company also maintains used manufactured home inventory owned by
outside parties and consigned to the Company, for which the Company recognizes a
sales commission when received.

Agency insurance commissions are recognized when received and acknowledged
by the underwriter as due.

Transportation revenues are recognized after the service has been performed
and invoiced to the customer.

INVENTORIES

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, were recorded at cost at June 29, 2001 or,
as required by Fresh-Start Reporting, were reflected at management's estimate of
fair market value at September 29, 2001, and since that date additions are
recorded at cost. Depreciation on property, plant and equipment is provided by
the straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are amortized using the straight-line method over the
useful lives of the improvements or lease periods, whichever is shorter. The
Company has six manufacturing plants and several non-core retail sales centers
that are not in operation which are classified as assets held for sale and are
reflected at management's estimate of net realizable value.

F-12

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company evaluates the recoverability of long-lived assets not held for
sale by measuring the carrying value of the assets against the estimated
undiscounted future cash flows in accordance with SFAS No. 121. At the time such
evaluations indicate that the undiscounted future cash flows of certain
long-lived assets are not sufficient to recover the carrying value of such
assets, the assets are adjusted to their estimated fair values. Estimated fair
values are determined using the present value of estimated future cash flows.
In conjunction with the SFAS No. 121 analysis performed in fiscal years 2000 and
2001, the Company recorded long-term asset impairments of approximately $4.8
million in fiscal 2000 and approximately $38.8 million in fiscal 2001.

GOODWILL

The Company evaluates the recoverability of long-lived assets not held for
sale by measuring the carrying value of the assets against the estimated
undiscounted future cash flows in accordance with SFAS No. 121. At the time such
evaluations indicate that the undiscounted future cash flows of certain
long-lived assets are not sufficient to recover the carrying value of such
assets, the assets are adjusted to their estimated fair values. Estimated fair
values are determined using the present value of estimated future cash flows.
In conjunction with the SFAS No. 121 analysis performed in fiscal years 2000 and
2001, the Company recorded goodwill write-off of approximately $14.6 million in
fiscal 2000 and approximatley $63.9 million in fiscal 2001.

INCOME TAXES

RESERVES FOR FUTURE LOSSES ON CREDIT SALES

ACCRUED WARRANTY AND SERVICE COSTS

F-13

AMERICAN HOMESTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EARNINGS PER SHARE

Basic earnings per share is based on the weighted average shares
outstanding without any dilutive effects considered. Diluted earnings per share
reflects dilution from all contingently issuable shares from outstanding
options. Optons granted under the Company's 2001 Management Incentive Program
are not reflected in diluted earnings per share as there have been no sales and
no quoted and asked prices for the stock. Per share data for periods ended June
29, 2001 and September 29, 2001 have been omitted as the Company was in
bankruptcy during these periods and the amounts do not reflect the current
capital structure.

FINANCIAL INSTRUMENTS

CASH EQUIVALENTS

CONCENTRATION OF CREDIT RISK

The Company maintains cash in several bank accounts which at times exceed
federally insured limits. The Company monitors the financial condition of the
banks where it maintains accounts and has experienced no losses associated with
these accounts.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangibles. The statement requires that goodwill not be
amortized but instead be tested at least annually for impairment and expensed
against earnings when the implied fair value of a reporting unit, including
goodwill, is less than its carrying amount. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001, and management does not expect
its adoption will have a material impact on the Company's financial condition or
results of operations.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS 143 will be effective for financial
statements issued for fiscal years beginning after June 15, 2002, and management
does not expect its adoption will have a material impact on the Company's
financial condition or results of operations.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," as it relates to the accounting for the disposal of a
segment of a business (as previously defined in that Opinion). The provisions of
SFAS 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001, and management does not expect its adoption
will have a material impact on the Company's financial condition or results of
operations.

F-14

AMERICAN HOMESTAR CORPORATION AND SUBSIDIERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(4) RESTRUCTURING CHARGES, GOODWILL AND ASSET IMPAIRMENT

Fiscal 2001 Restructuring.

In August 2000, the Company idled its Lynn, Alabama manufacturing facility.
As a result, the Company recorded a restructuring charge of approximately
$565,000 and an inventory write-down which approximated $100,000 to cost of
sales in the results of operations.

In December 2000, the Company incurred substantial restructuring charges
just prior to its reorganization as a result of the Company concluding that it
would close or sell all non-core operations and assets. Correspondingly, the
Company made provision for the impairment (total write-off) of goodwill relative
to all non-core operations and for the impairment of other assets (receivables,
and property plant and equipment) used in those operations. Provision was also
made for the other costs and expenses in connection with the closure of all
non-core operations. The table below shows the various components of the
restructuring charge in fiscal 2001:

MANUFACTURING RETAIL
RESTRUCTURINGS (1) RESTRUCTURING (2) CORPORATE (3) TOTAL
-----------------------------------------------------------------

Cost of sales $ 100 $ -- $ -- $ 100
Selling, general and
administrative -- -- -- --
Restructuring costs:
Goodwill write-off, 61,466 2,436 --
Long-term asset
impairments 19,161 19,688 --
Receivable
impairments 3,919 7,633 10,698
Other -- -- 14,215 139,216
-----------------------------------------------------------------
Total $ 84,646 $ 29,757 $ 24,913 $139,316
=================================================================

- ------------------------
1) Restructuring charges relative to the closure of eight manufacturing
plants in Oregon, Idaho, Alabama and North Carolina.
2) Restructuring charges relative to the closure of 58 retail centers in
Oregon, Washington, New Mexico, Colorado, Alabama, Tennessee,
Kentucky, North Carolina and South Carolina.
3) Restructuring charges relative the impairment of receivables and
provision for other costs and expenses associated with the closure of
the above.

During fiscal 2001, the plants that were either closed or idled contributed
$63.5 million in revenues and had an operating income of $0.8 million. During
fiscal 2001, the retail sales centers closed or idled contributed $52.5 million
in revenues and had an operating loss of $7.4 million. Approximately 2,800
employees were affected by the manufacturing facilities closing and idling and
the retail restructuring.

Fiscal 2000 Restructuring.

As a result of the industry downturn during fiscal 2000, the Company made
decisions to close and idle two manufacturing plants in the first and third
quarters of fiscal 2000. In the fourth quarter of fiscal 2000, another
manufacturing plant was idled and a significant restructuring of the Company's
retail operations occurred. The restructuring plan called for conversion of
non-core retail sales centers from Company-owned to franchise operations or
closure if conversion was not possible. Concurrent with the retail
restructuring, the Company evaluated the ability of two North Carolina entities
(First Value Homes, Inc. and Nationwide NC Homes, Inc. to produce sufficient
cash flows to support the carrying value of associated intangible and long-term
assets.

F-15

AMERICAN HOMESTAR CORPORATION AND SUBSIDIERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

This year-long review of the Company's operations in fiscal 2000 resulted
in the following special pre-tax charges that were reflected in a variety of
captions within the Company's consolidated statement of operations for the year
ended June 30, 2000:

MANUFACTURING RETAIL IMPAIRMENT
RESTRUCTURINGS RESTRUCTURING EVALUATIONS TOTAL
---------------------------------------------------------

Cost of sales $ 3,869 (1) $ 6,036 (2) $ -- $ 9,905
Selling, general and
administrative -- -- 11,573(3) 11,573
Restructuring costs, 970 (4) 1,733 (5) --
goodwill write-off,
and -- 14,639 (6) --
long-term asset
impairments 1,908 (7) 2,847 (8) -- 22,097
---------------------------------------------------------
Total $ 6,747 $ 25,255 $ 11,573 $43,575
=========================================================

- ---------------------
1) Special warranty and repossession loss accruals established for
manufacturing markets as well as inventory write-downs related to
manufacturing plants that were closed or idled during the first, third
and fourth quarter of fiscal 2000.
2) Inventory write-downs from sales centers scheduled to be converted to
franchise operations or closed if conversion is not possible.
3) Impairment of goodwill related to the North Carolina retail operations
(First Value Homes, Inc. and Nationwide NC Homes, Inc.).
4) Severance obligations related to manufacturing plants closed or idled
during fiscal 2000.
5) Expected severance obligations and unfavorable operating lease
commitments for retail sales centers subject to the restructuring
plan.
6) Goodwill associated with retail sales centers scheduled to be
converted or closed.
7) Fair value adjustment to property held for sale related to the closure
of the Vicksburg, Mississippi manufacturing plant.
8) Asset impairments related to retail sales centers that are subject to
conversion or disposal.

During fiscal 2000, the plants that were either closed or idled contributed
$40.0 million in revenues and had an operating loss of $5.1 million. During
fiscal 2000, the retail sales centers affected by the retail restructuring
contributed $65.3 million in revenues and had an operating loss of $7.8 million.
Approximately 910 employees were affected by the manufacturing facilities
closing and idling and the retail restructuring.

(5) REORGANIZATION COSTS

Prior to the Company's emergence from bankruptcy, professional fees and
similar type expenditures directly relating to the Chapter 11 proceedings were
classified as reorganization costs and were expensed as incurred. Reorganization
costs, primarily professional fees, for the twelve-month period ended June 29,
2001 and the three month period ended September 29, 2001 were $2.8 million and
$1.4 million, respectively. Reorganization costs after emergence from
bankruptcy have been charged against the liquidation and plan reserve liability
established as a result of Fresh-Start Reporting at September 29, 2001.

F-16

AMERICAN HOMESTAR CORPORATION AND SUBSIDIERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(6) INVENTORIES

A summary of inventories, net of valuation reserves follows (in thousands):

JUNE 29, JUNE 28,
2001 2002
--------- ---------

Manufactured homes:
New. . . . . . . . . . . . . . . . . . . . . $ 22,442 $ 22,987
Used . . . . . . . . . . . . . . . . . . . . 1,282 1,995
Furniture and supplies. . . . . . . . . . . . -- 468
Raw materials and work-in-process . . . . . . 2,314 1,556
--------- ---------
Total . . . . . . . . . . . . . . . . . . . $ 26,037 $ 27,006
========= =========

Substantially all the Company's new and used manufactured homes were
pledged as collateral against its floor plan credit facility (see note 12).

(7) PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant and equipment follows (in thousands):

USEFUL JUNE 29, JUNE 28,
LIVES 2001 2002
---------- --------- ---------

Land . . . . . . . . . . . . . . . . . . . . . - $ 7,131 $ 7,017
Buildings. . . . . . . . . . . . . . . . . . . 5-30 years 12,042 2,573
Machinery and equipment. . . . . . . . . . . . 5-10 years 2,816 430
Furniture and equipment. . . . . . . . . . . . 5 years 3,326 432
Vehicles . . . . . . . . . . . . . . . . . . . 3 years 1,346 26
Leasehold improvements . . . . . . . . . . . . 5-13 years 9,206 287
--------- ---------
Total 35,867 10,765
Less accumulated depreciation and amortization 13,170 616
--------- ---------
Property, plant and equipment, net $ 22,697 $ 10,149
========= =========

(8) ASSETS HELD FOR SALE

Under the Plan, the Company identified certain non-core assets (principally
idle factories in non-core markets) where there were no current intentions to
reactivate these facilities for future core operations. Management estimates the
fair market value of these assets at June 29, 2001 and June 28, 2002 to be
approximately $6.0 million and $5.4 million, respectively. The Company has
reported these assets as Assets held for sale and is actively seeking to sell or
lease these properties. Net cash proceeds resulting from such sale or lease will
be deposited in the restricted cash collateral account. The Company sold two
non-core retail sales centers in fiscal 2002.

F-17

AMERICAN HOMESTAR CORPORATION AND SUBSIDIERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(9) PREPAID EXPENSES, NOTES RECEIVABLE AND OTHER ASSETS

A summary of other assets follows (in thousands):

JUNE 29, JUNE 28,
2001 2002
--------- ---------

Prepaid expenses . . . . . . . . . . . . . . . . . . . . . $ 756 $ 568
Notes receivable . . . . . . . . . . . . . . . . . . . . . 748 453
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 345 251
Deposit with Associates. . . . . . . . . . . . . . . . . . 478 --
Net cash surrender value of company-owned life insurance . 75 75
Insurance funds withheld for claims reserve. . . . . . . . 551 --
Repossessed assets from 21st Mortgage. . . . . . . . . . . 1,000 --
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 121 --
--------- ---------
Total. . . . . . . . . . . . . . . . . . . . . . . . . 4,074 1,347
Less current portion . . . . . . . . . . . . . . . . . . . 3,465 792
--------- ---------
Prepaid expenses, notes receivable and other assets less
current portion. . . . . . . . . . . . . . . . . . . . $ 609 $ 555
========= =========

(10) INCOME TAXES

The provision for income taxes related to operations in the consolidated
statements of operations is summarized below (in thousands):

YEARS ENDED THREE MONTHS NINE MONTHS
--------------------- ENDED ENDED
JUNE 30, JUNE 29, SEPTEMBER 29, JUNE 28,
2000 2001 2001 2002
---------- --------- -------------- -------------
PREDECESSOR CO. SUCCESSOR CO.
------------------------------------- -------------

Federal-current expense (benefit). $ (7,834) $ -- $ -- $ --
Federal-deferred expense (benefit) (11,101) 16,239 20 247
State-current expense (benefit). . (706) -- -- --
State-deferred expense (benefit) . (500) -- -- --
---------- --------- -------------- -------------
Total. . . . . . . . . . . . . $ (20,141) $ 16,239 $ 20 $ 247
========== ========= ============== =============

F-18

AMERICAN HOMESTAR CORPORATION AND SUBSIDIERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company files a consolidated return for federal tax purposes;
accordingly, taxes at statutory rates are computed based on earnings before
earnings in affiliates and minority interests. The provision for income taxes
related to operations varied from the amount computed by applying the U.S.
federal statutory rate as a result of the following:

YEARS ENDED THREE MONTHS NINE MONTHS
---------------------- ENDED ENDED
JUNE 30, JUNE 29, SEPTEMBER 29, JUNE 28,
2000 2001 2001 2002
---------- ---------- ---------------
PREDECESSOR CO. SUCCESSOR CO.
--------------------------------------- -------------

Computed "expected" tax expense
(benefit). . . . . . . . . . . . . $ (23,499) $ (57,261) $ 6,010 $ 473
State income tax, net of federal tax
benefit. . . . . . . . . . . . . . (784) (245) -- --
Nondeductible goodwill. . . . . . . . 3,207 11,746 -- --
Tax gain on sale of unconsolidated
subsidiary . . . . . . . . . . . . 1,330 -- -- --
Nondeductible restructing cost. . . . -- 869 7,779 489
Carry back of net operating loss
recorded in equity . . . . . . . . -- 18,370 -- --
Other, net. . . . . . . . . . . . . . (394) 2,005 2,100 245
Increase (decrease) in valuation
allowance. . . . . . . . . . . . . -- 40,755 (15,869) (960)
---------- ---------- --------------- ------------
Total. . . . . . . . . . . . . . $ (20,141) $ 16,239 $ 20 $ 247
========== ========== =============== ============

The Job Creation and Worker Assistance Act of 2002, among other things,
extended the loss carry back period for losses generated in fiscal 2001 and
2002. Accordingly, the Company was eligible for a refund of federal income
taxes paid in fiscal years 1997 and 1998. During the year ended June 28, 2002,
the Company received such refund of approximately $18.4 million. The tax refund
has been reflected in the equity section of the Consolidated Balance Sheet in
accordance with Fresh-Start accounting as an addition to Additional paid-in
capital. The Company's remaining net operating loss carry forward will be offset
entirely by income from discharge of indebtedness as a result of the Company's
reorganization.

F-19

AMERICAN HOMESTAR CORPORATION AND SUBSIDIERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (in thousands):

JUNE 29, JUNE 28,
2001 2002
---------- ----------

Current deferred tax assets:
Uniform capitalization of interest . . . . . . . . . . $ 245 $ 128
Inventory reserve. . . . . . . . . . . . . . . . . . . 3,999 252
Allowance for doubtful accounts. . . . . . . . . . . . 1,870 270
Liabilities not deductible until paid. . . . . . . . . 1,193 1,266
Net operating loss carry forward . . . . . . . . . . . 3,016 --
---------- ----------
Total before valuation allowance . . . . . . . . . . . 10,323 1,916
Valuation allowance. . . . . . . . . . . . . . . . . . (10,323) (1,916)
---------- ----------
Current deferred tax assets. . . . . . . . . . . . $ -- $ --
========== ==========

Noncurrent deferred tax assets (liabilities):
Goodwill amortization and write-offs . . . . . . . . . $ 15,577 $ 14,223
Plant and equipment, principally due to differences in
depreciation and estimated costs to dispose of
manufacturing facilities . . . . . . . . . . . . . . (281) 12,853
Impairment of assets . . . . . . . . . . . . . . . . . 9,835 8
Net operating loss carry forward . . . . . . . . . . . 10,373 --
---------- ----------
Total before valuation allowance . . . . . . . . . . . 35,504 27,084
Valuation allowance. . . . . . . . . . . . . . . . . . (35,504) (27,084)
---------- ----------
Noncurrent deferred tax assets, net. . . . . . . . $ -- $ --
========== ==========

In assessing the realizability of deferred income tax assets, the Company
considers whether that it is more likely than not that some portion or all of
the deferred income tax assets will not be realized. The ultimate realization
of deferred income tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Due to the recent historical operating results of the Company,
management is unable to conclude on a more likely than not basis that all
deferred income tax assets generated through operating losses through June 28,
2002 will be realized. Accordingly, the Company has recognized a full
valuation allowance to reduce the net deferred tax asset to an amount that
management believes will more likely than not be realized.

F-20

AMERICAN HOMESTAR CORPORATION AND SUBSIDIERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(11) INVESTMENT IN AFFILIATED COMPANIES

Homestar 21, LLC ("Homestar 21") is 50% owned by the Company and 50% owned
by 21st Mortgage, a company not affiliated with the Company. Homestar 21 is a
finance company, which specializes in providing chattel and land/home financing
to the Company's customers. The Company accounts for its investment in Homestar
21 using the equity method. The Company invested $2.4 million in Homestar 21
during fiscal 2000. Summary financial information for Homestar 21, derived from
the audited financial statements of 21st Mortgage, as of the periods indicated
follows (in thousands):

JUNE 29, JUNE 28,
2001 2002
--------- ---------

Total assets . . . . . . . . . . . . $ 13,089 $ 17,494
========= =========

Total liabilities. . . . . . . . . . $ 7,305 $ 11,147
Shareholders' equity . . . . . . . . $ 5,784 $ 6,347
========= =========

Total revenues . . . . . . . . . . . $ 1,425 $ 2,706
Net income . . . . . . . . . . . . . $ 984 $ 1,107
========= =========

In May 2002, the Company invested $31,500 to provide one-half of the
initial capitalization of American Homestar Mortgage, L.P. ("Homestar
Mortgage"), a joint venture owned 50% by the Company and 50% by Home Loan
Corporation ("Home Loan"), a Company not affiliated with the Company. Homestar
Mortgage will operate as a mortgage broker/loan originator for ultimate
placement with Home Loan and other mortgage banks. Homestar Mortgage will not
bear any lending risk on loans it originates. The Company accounts for its
investment in Homestar Mortgage using the equity method.

(12) NOTES AND FLOOR PLAN PAYABLE

On October 3, 2001, the Company entered into a floorplan credit facility
with Associates Housing Financial LLC ("Associates") to finance the purchase of
its display models and inventory homes. The maximum allowance under the line of
credit is $38 million with various sub-limits for each category of inventory
financed and the line is contractually committed until October 2, 2004. The
balance outstanding at June 28, 2002 was $20.7 million, consisting of
approximately $19.3 million in revolving debt and $1.4 million under two
liquidating lines. As the liquidating lines are paid down, additional borrowing
capacity is added to the revolving lines. The revolving portions of the line
carry an annual interest rate of prime plus 1%. The liquidating portions of the
line carried no interest for the first six months (until April 3, 2002) and
thereafter accrues interest at a rate of prime plus 1% per annum (7.75% at June
29, 2001 and 5.75% at June 28, 2002). The floor plan payable is secured by
substantially all of the Company's inventory, real estate and by certain other
assets (including certain specific cash deposits, approximately $4.2 million at
June 28, 2002 included in restricted cash). In addition to traditional
subjective covenants, there are two financial covenant tests the Company is
required to meet under its floor plan agreements. One test is floor plan debt
compared to total assets (as defined). The other test is a minimum cash balances
requirements. At June 28, 2002 and for all prior periods as of and after
September 29, 2001, the Company was in compliance with all covenants.

Amounts due under the floor plan credit facility follows (in thousands):

JUNE 29, JUNE 28,
2001 2002
----------- ---------
Floor plan payable . . . . . . . . . . $ 23,097 $ 20,689
=========== =========

F-21

AMERICAN HOMESTAR CORPORATION AND SUBSIDIERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A summary of notes payable, all to non-financial institutions unless
otherwise noted, with no covenants follows (in thousands):

JUNE 29, JUNE 28,
2001 2002
--------------------

Note payable in monthly installments, including interest of 7.25%, due
through March 2009; secured by real property . . . . . . . . . . . . . . $ 512 $ --
Notes payable in monthly installment, including interest of 10.0% due
through August 2008; secured by real property. . . . . . . . . . . . . . 345 306
Note payable to Associates in monthly installments, principal only, due
through July 2002; secured by lot signs and equipment. . . . . . . . . . -- 20
Note payable in monthly installments, including interest of 10.0% due
through November 2010; secured by real property 144 131
Note payable in monthly installments, including interest of 10.0%, due
through September 2007; secured by real property 126 106
Note payable to an individual and a financial institution in monthly
installments, including interest of 9.5%, due through July 2012; secured
by real property 98 91
Note payable in monthly installments, including interest of 8.0%, due
through July 2008; secured by real property 86 79
Bank revolving line of credit, bearing interest at prime plus 1% due
June, 2003; secured by affiliate accounts receivable -- 250
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 31
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,365 $ 1,014
Less current installments. . . . . . . . . . . . . . . . . . . . . . . . . 125 370
--------- ---------
Notes payable, less current installments. . . . . . . . . . . . . . . $ 1,240 $ 644
========= =========

The aggregate maturities of notes payable for each of the five years and
thereafter subsequent to June 28, 2002 are as follows (in thousands):

2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 370
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
------
$1,014
======

Following is a description of the notes payable classified as liabilities
subject to compromise at June 29, 2001:

On July 15, 1997, the Company completed the private placement of $61
million of 8.32% Senior Unsecured Notes with an average life of 7.5 years and a
final maturity in July 2007. The Company used the net proceeds from this debt
to repay approximately $25 million in existing secured bank indebtedness and
approximately $6 million in secured debt of Brilliant Carriers, Inc.
Consequently, the Company recorded an extraordinary loss of $634,000 (net of
income tax benefit), which represents the write-off of unamortized debt issue
costs as well as a prepayment penalty associated with the early repayment of the
bank debt.

On September 30, 1998, the Company completed the private placement of $46
million of 7.25% Series A Senior Unsecured Notes and $5.0 million of 7.14%
Series B Senior Unsecured Notes with an average life of eight years and a final
maturity in September 2008. Such notes required semi-annual interest payments
and equal annual principal reductions to have begun in 2004. Proceeds from the
notes were used to fund acquisitions and expansions with the remainder used for
general corporate purposes.

F-22

AMERICAN HOMESTAR CORPORATION AND SUBSIDIERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company's amended loan agreements related to the 8.32% Senior Unsecured
Notes issued in July 1997 and the 7.25% Series A and 7.14% Series B Senior
Unsecured Notes described above contained certain requirements as to net working
capital, consolidated net worth, disposition of assets, additional long-term
debt, redemption of common stock, payment of dividends and prepayment of
subordinated debt. The terms of the agreements, as amended during fiscal 2000,
provide for quarterly, rather than semi-annual, payments of interest and for
maintenance of certain financial covenants as well as possible increases in the
interest rate based on levels of the fixed charge coverage ratio. Because of the
operating losses reported by the Company during fiscal 2000, the Company would
not have been in compliance with the fixed charge coverage requirement during
fiscal 2000 had the noteholders not granted waivers of such technical defaults
through September 29, 2000. In addition, based on actual charge coverage ratios,
an additional 35, 60 and 125 basis points was added to the interest rate for the
second, third and fourth quarter, respectively, of fiscal 2000.

Subsequent to year end June 30, 2000, the Company reached agreement with
the noteholders as to a temporary amendment, which covered the period from
September 30, 2000 through, and including September 29, 2001. Under the terms
of this amendment, the Company was required to meet certain financial
performance and condition tests based on its fiscal 2001 Business Plan. The
tests include meeting certain interest coverage ratios, the maintenance of
minimum levels of net worth and limitations on the amount of net debt the
Company was allowed to carry, expressed both in absolute terms and in relation
to shareholders' equity. In exchange, the Company agreed to additional
quarterly interest payments of 1.75% per annum, above the stated rates on each
note. An additional interest charge of 3.50% per annum was accrued for the
one-year amendment period. At September 30, 2001, the Company could have elect
to pay the additional 3.5% interest or add it to the principal balance of the
original debt. In addition, the Company was required to grant warrants, which
would have been exchangeable for common stock, beginning in January 2005. The
warrants, which represent a total of 10% of the outstanding stock of the Company
(plus warrants to purchase 10% of currently outstanding options and convertible
securities, the same are exercised or converted), were exercisable at the par
value ($0.05 per share) of the common stock. The warrants also had
anti-dilution protection and registration rights. While the warrants had not
been valued, the Company estimated that all these changes increased the
effective cost of the senior notes from an original average rate of
approximately 7.8% to an effective average rate of as much as 13.8 %, adding
approximately $ 6.7 million in interest charges for the period of the amendment.
The Company was also required to hire a consultant or advisor during the
one-year amendment period to assist in improving overall performance.

The Company also had a note payable originating in March 1999 with an
original principal balance of $4.4 million that had been reduced to a principal
balance of $2.9 million. The note required annual principal installments plus
interest at prime.

The notes discussed above were classified as liabilities subject to
compromise as of June 29, 2001. Interest was paid or accrued through December
2000. Had the Company not filed for bankruptcy, contractual interest related to
the notes for the six-month period ended June 29, 2001 would have been
approximately $7.4 million.

F-23

AMERICAN HOMESTAR CORPORATION AND SUBSIDIERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(13) LIABILITIES SUBJECT TO COMPROMISE

Liabilities subject to compromise consist of the following as of June 29,
2001 (in thousands):

Secured liabilities:
Floor plan payable. . . . . . . . . . . . . . . . . $ 9,443
Unsecured liabilities:
Senior notes payable. . . . . . . . . . . . . . . . 112,000
Notes payable . . . . . . . . . . . . . . . . . . . 2,930
Other payables and accrued expenses . . . . . . . . 24,383
--------
Total. . . . . . . . . . . . . . . . . . . . . . $148,756
========

These liabilities subject to compromise were discharged on the Effective
Date, by operation of the Plan, including forgiveness of debt of $139 million.

(14) STOCKHOLDERS' EQUITY

In 2001, the Company adopted the American Homestar Corporation 2001
Management Incentive Program (the "Stock Option Plan") under which 4,999,900
shares of the Series M common stock are available through the issuance of
nonqualified stock options to certain members of management and key employees.
At June 28, 2002, options for 4,949,900 shares have been granted at an exercise
price of $1.35. No options were exercised or vested during the period. No
options were granted during 2001.

The Company applies APB Opinion 25 and related Interpretations in
accounting for stock options. In compliance with SFAS No. 123, the Company has
elected to provide the pro forma disclosure. As such, the Company's net income
and earnings per share for nine months ended 2002 adjusted to reflect pro forma
amounts are indicated below:

NINE MONTHS
ENDED
JUNE 28, 2002
---------------

Net income
As reported. . . . . . . . . . . . . . . . . . . . . . . . $ 1,264
Pro forma. . . . . . . . . . . . . . . . . . . . . . . . . $ 1,009

Earnings per share
As reported. . . . . . . . . . . . . . . . . . . . . . . . $ 0.13
Pro forma. . . . . . . . . . . . . . . . . . . . . . . . . $ 0.10

F-24

AMERICAN HOMESTAR CORPORATION AND SUBSIDIERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The fair value of stock options granted in 2002 was estimated on the date
of grant using the "minimum value" method as the stock was not trading as of
August 16, 2002. The weighted average fair values and related assumptions were:

NINE MONTHS
ENDED
JUNE 28, 2002
---------------

Weighted average fair value . . . . . . . . . . . . . . . $ 1.35
Market interest rate. . . . . . . . . . . . . . . . . . . 4.41%

(15) RELATED PARTY BALANCES AND TRANSACTIONS

MOAMCO Properties, Inc. (MOAMCO), an entity owned by the Company's Chief
Executive Officer, owns and leases to the Company, under operating leases, land,
improvements and buildings related to two sales centers at June 30, 2000, June
29, 2001 and one sales center at June 28, 2002. During the years June 30, 2000,
June 29, 2001, three months ended September 29, 2001 and nine months ended June
28, 2002, the Company paid MOAMCO approximately $86,000, $91,000, $22,000 and
$67,000, respectively, for these operating leases (see note 16).

(16) COMMITMENTS AND CONTINGENCIES

REPURCHASE AGREEMENTS

The Company has entered into repurchase agreements with various financial
institutions and other credit sources pursuant to which the Company has agreed,
under certain circumstances, to repurchase manufactured homes sold to
independent dealers in the event of a default by such independent dealer on its
obligation to such credit sources. Under the terms of such repurchase
agreements, the Company agrees to repurchase manufactured homes at declining
prices over the periods of the agreements (which generally range from 18 to 24
months).

While repurchase activity is very sporadic and cyclical, the Company
provides for anticipated repurchase loses. As the Company had very few sales of
manufactured homes to independent dealers between the Effective Date and June
29, 2001, there was no potential repurchase obligation at that date. At June 28,
2002, the Company was at risk to repurchase approximately $2.9 million of
manufactured homes and has provided for estimated net repurchase losses at
approximately $0.2 million.

LEGAL MATTERS

On the Effective Date of the Plan, most pending claims were discharged and
an injunction was issued barring any future claims arising from events that
occurred prior to October 3, 2001. In a few cases, litigation has been
reinstated solely for the purpose of determining the amount of a general
unsecured claim against the Company or a claim to be paid by the Company's
insurers. Since the Effective Date, there are no other pending legal
proceedings, except for routine litigation incidental to the business, which
management believes is not material to its business or financial condition.

SAVINGS PLAN

The Company has adopted the American Homestar Corporation 401(k) Retirement
Plan (the "Savings Plan") whereby all employees of the Company who have
completed six months of service and have reached the age of twenty and one-half
are eligible to participate in the Savings Plan. A Plan Administrator appointed
by the Company administers the Savings Plan. Eligible employees may contribute
a portion of their annual compensation up to the legal maximum established by
the Internal Revenue Service for each plan year. No employee contributions are
invested in securities issued by the Company or its subsidiary companies. The
Company has made no contributions to the Savings Plan since January 2001. During
the year ended June 30, 2000 and June 29, 2001 the Company contributed
approximately $129,000 and $39,000 to the Savings Plan.

F-25

AMERICAN HOMESTAR CORPORATION AND SUBSIDIERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

WORKERS COMPENSATION LIABILITY

The Company has rejected the insurance coverage provided by the Texas
Workers' Compensation Act. While the Company maintains excess indemnity
insurance, the Company's portion of self-insured retention is $250,000 per
occurrence. Management, in assessing loss experience, adjusts its reserve for
losses through periodic provisions. In states other than Texas, the Company is
insured for workers compensation.

LEASES

The Company is obligated under various noncancelable operating lease
agreements with varying monthly payments and varying expiration dates through
March, 2007. Rental expense under operating leases for the years ended June 30,
2000, June 29, 2001, the three months ended September 29, 2001 and the nine
months ended June 28, 2002 were $6,558,000, $4,973,000, $410,000 and $1,472,000,
respectively.

Aggregate annual rental payments that include amounts due to related
parties, on future lease commitments at June 28, 2002 were as follows (in
thousands):

TOTAL LEASE AMOUNTS DUE
COMMITMENTS RELATED PARTIES
------------ ----------------

2003 . . . . . . . . . . . . $ 1,622 $ 91
2004 . . . . . . . . . . . . 579 --
2005 . . . . . . . . . . . . 180 --
2006 . . . . . . . . . . . . 80 --
2007 . . . . . . . . . . . . 62 --
Thereafter . . . . . . . . . -- --
------------ ----------------
$ 2,523 $ 91
============ ================

F-26

AMERICAN HOMESTAR CORPORATION AND SUBSIDIERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(17) BUSINESS SEGMENTS

The Company operates primarily in three business segments - (i) retail
sales; (ii) manufacturing; and (iii) corporate, which consists of financial
service, transportation services and the corporate group. The following table
summarizes, for the periods indicated, information about these segments (in
thousands):

ADJUSTMENTS/
RETAIL MANUFACTURING CORPORATE ELIMINATIONS TOTAL
--------- --------------- ----------- -------------- ----------

YEAR ENDED JUNE 30, 2000
Revenues from external customers . $352,472 $ 205,836 $ 15,728 $ -- $ 574,036
Intersegment revenues. . . . . . . (194) 158,932 10,804 (169,542) --
Interest expense . . . . . . . . . 14,505 4,465 9,953 (10,557) 18,366
Depreciation and amortization. . . 9,014 5,876 1,603 -- 16,493
Segment profit (loss) before
Income taxes and earning in
affiliates . . . . . . . . . . . . (45,052) (2,389) (22,500) 2,801 (67,140)
Segment assets . . . . . . . . . . 194,104 149,743 267,836 (262,657) 362,233
Expenditures for segment assets. . 4,339 3,736 799 -- 8,874

YEAR ENDED JUNE 29, 2001

Revenues from external customers . $140,500 $ 76,875 $ 24,399 $ -- $ 241,774
Intersegment revenues. . . . . . . -- 59,405 -- (59,405) --
Interest expense . . . . . . . . . 7,179 2,211 6,421 (4,580) 11,231
Depreciation and amortization. . . 1,578 1,961 6,260 -- 9,799
Segment profit (loss) before
reorganization costs, income taxes
and earnings in affiliates . . . . (63,881) (71,961) (14,245) (10,720) (160,807)
Segment assets . . . . . . . . . . 43,285 34,089 136,606 (117,628) 96,352
Expenditures for segment assets. . 171 735 333 -- 1,239

THREE MONTHS ENDED SEPTEMBER
29, 2001

Revenues from external customers . $ 18,969 $ 2,138 $ 5,137 $ -- $ 26,244
Intersegment revenues. . . . . . . -- 9,616 -- (9,616) --
Interest expense . . . . . . . . . 214 -- -- -- 214
Depreciation and amortization. . . 445 274 29 -- 748
Segment profit (loss) before
income taxes and earnings in
affiliates . . . . . . . . . . . . (712) 356 (246) 344 (258)
Segment assets . . . . . . . . . . 32,810 26,676 42,714 (25,594) 76,606
Expenditures for segment assets. . -- 42 34 -- 76

NINE MONTHS ENDED JUNE 28,
2002

Revenues from external customers . $ 58,022 $ 6,212 $ 18,584 $ -- $ 82,818
Intersegment revenues. . . . . . . -- 33,059 -- (33,059) --
Interest expense . . . . . . . . . 824 773 -- -- 825
Depreciation and amortization. . . 208 181 59 -- 448
Segment profit (loss) before
income taxes and earnings in a
affiliates . . . . . . . . . . . . 48 3,368 (1,169) (896) 1,351
Segment assets . . . . . . . . . . 35,749 27,020 61,191 (31,211) 92,749
Expenditures for segment assets. . 113 6 36 -- 155

F-27

AMERICAN HOMESTAR CORPORATION AND SUBSIDIERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Intersegment revenues are primarily sales by the manufacturing segment to
the retail segment and are transferred at market price. Earnings in affiliates
in the consolidated statements of operations relates to the financial services
segment. The adjustment to intersegment revenue is made to eliminate
intercompany sales between the manufacturing and retail segments. The interest
expense adjustment is made to eliminate intersegment interest between the
corporate and manufacturing and retail segments and to net the interest expense
on the floor plan credit facility against the interest earned. The segment
assets adjustment is primarily made up of an adjustment to eliminate
subsidiary's equity at the corporate level, a reclass of the floor plan
participation balance and the elimination of intercompany receivables.

(18) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following presents a summary of the unaudited quarterly financial
information for the years ended June 29, 2001 and June 28, 2002 (in thousands):

FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
----------------- ---------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2001 PREDECESSOR CO.
---------------------------------------------------

Revenues . . . . . . . . . . . . . . $ 120,323 $ 72,242 $ 16,689 $ 32,520 $ 241,774
Operating income (loss). . . . . . . (3,783) (143,906) (5,089) 2,389 (150,389)
Net income (loss). . . . . . . . . . (9,290) (164,604) (6,171) 857 (179,208)
Earnings per share-basic
and diluted . . . . . . . . . . . . . N/A N/A N/A N/A N/A

2002 PREDECESSOR CO. SUCCESSOR CO
----------------- -------------------------------
Revenues . . . . . . . . . . . . . . $ 26,244 $ 29,057 $ 25,377 $ 28,384 $ 109,062
Operating income (loss). . . . . . . (132) 1,086 111 734 1,799
Net income (loss). . . . . . . . . . 156,377(1) 981 (104) 387 157,641
Loss per share-basic
and diluted. . . . . . . . . . . . N/A $ 0.10 $ (0.01) $ 0.04 $ 0.13 (2)

- ---------------------
(1) Includes Fresh-Start adjustment gain of $19 million and extraordinary gain
of $139 million related to debt forgiveness
(2) Based on net income of $1.3 million for nine month period ended June 28,
2002

F-28

AMERICAN HOMESTAR CORPORATION AND SUBSIDIERIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Independent Auditors' Report
----------------------------

To the Board of Directors of
American Homestar Corporation
League City, Texas

We have audited the accompanying consolidated balance sheets of American
Homestar Corporation and subsidiaries (the "Company") as of June 28, 2002
(Successor Company) and June 29, 2001 (Predecessor Company) and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for the nine months ended June 28, 2002 (Successor Company), the three
months ended September 29, 2001 and the year ended June 29, 2001 (Predecessor
Company) and have issued our report thereon dated August 16, 2002 (included
elsewhere in this Annual Report on Form 10-K). Our audits also included the
financial statement schedule as of June 28, 2002 and June 29, 2001 and for the
nine months ended June 28, 2002 (Successor Company), the three months ended
September 29, 2001 and the year ended June 29, 2001 (Predecessor Company), as
listed in Item 14 of this Annual Report on Form 10-K. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.

/s/ MANN FRANKFORT STEIN & LIPP CPAs, L.L.P.

Houston, Texas
August 16, 2002

F-29

SCHEDULE II
AMERICAN HOMESTAR CORPORATION AND SUBSIDIERIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

ADDITIONS
-------------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION YEAR EXPENSES ACCOUNTS OTHER DEDUCTIONS YEAR
- ---------------------------- ----------- ----------- --- ----------- ------ ------------ -----------

Year ended June 30, 2000
Warranty and service costs $ 8,368 $ 25,867 $ -- $1,874 (1) $ 27,360 $ 8,749
Restructuring reserve $ - $ - $ -- $7,458 (2) $ - $ 7,458

Year ended June 29, 2001
Warranty and service costs $ 8,749 $ 10,587 $ -- $ -- $ 16,701 $ 2,635
Restructuring reserve $ 7,458 $ 565 $ -- $ -- $ 8,023 $ --
Reorganization costs $ -- $ 179,942 (3) $ -- $ -- $ 176,538 $ 3,404

Three months ended
September 29, 2001
Warranty and service costs $ 2,635 $ 678 $ -- $ -- $ 1,168 $ 2,145
Reorganization costs $ 3,404 $ -- $ -- $ -- $ 1,527 $ 1,877

Nine months ended June 28,
2002
Warranty and service costs $ 2,145 $ 2,016 $ -- $ -- $ 2,343 $ 1,818
Reorganization costs $ 1,877 $ -- $ -- $ -- $ (1,774) $ 3,651

- ---------------------
(1) Amount represents additional restructuring reserve for warranty and service
costs.
(2) Amount represents restructuring reserve.
(3) Amount represents reorganization costs related to liquidation of non-core
operational and Plan obligation costs accrued in December 2000.

F-30

Index of Exhibits