SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 13G

(Rule 13d-102)

INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT

TO RULES 13d-1(b), (c), AND (d) AND AMENDMENTS THERETO FILED

PURSUANT TO RULE 13d-2(b)

(AMENDMENT NO.     )*

Palm Harbor Homes, Inc.

(Name of Issuer)

Common Stock, par value $0.01 per share

(Title of Class of Securities)

696639103

(CUSIP Number)

January 29, 2010

(Date of Event Which Requires Filing of this Statement)

Check the appropriate box to designate the rule pursuant to which this Schedule is filed:

¨ Rule 13d-1(b)

x Rule 13d-1(c)

¨ Rule 13d-1(d)

The information required in the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

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CUSIP NO. 696639103

Palm Harbor Homes, Inc., a Florida corporation (the “Issuer”).

15303 Dallas Parkway, Suite 800

Addison, TX 75001-4600

Virgo – Redwood, LP (“Redwood”)

667 Madison Avenue, Fl 11

New York, NY 10065

Citizenship: Delaware

Virgo – Magnolia, LP (“Magnolia”)

667 Madison Avenue, Fl 11

New York, NY 10065

Citizenship: Delaware

Virgo – Sierra, LP (“Sierra”)

667 Madison Avenue, Fl 11

New York, NY 10065

Citizenship: Delaware

Virgo – Willow, LP (“Willow”)

667 Madison Avenue, Fl 11

New York, NY 10065

Citizenship: Delaware

Virgo Investment Group LLC (“Virgo LLC”)

250 University Avenue, Suite 400

Palo Alto, CA 94301

Citizenship: Delaware

Jesse Watson

250 University Avenue, Suite 400

Palo Alto, CA 94301

Citizenship: United States

Each of the foregoing is referred to as a “Reporting Person” and collectively as the “Reporting Persons.”

Common Stock, par value $0.01 per share (the “Common Stock”)

696639103

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Not Applicable.

(a) Amount beneficially owned:

As of January 29, 2010, (i) Redwood beneficially owned 987,998 shares of Common Stock, consisting of 987,998 shares of Common Stock purchasable upon the exercise of warrants held by it, (ii) Magnolia beneficially owned 87,389 shares of Common Stock, consisting of 87,389 shares of Common Stock purchasable upon the exercise of warrants held by it, (iii) Sierra beneficially owned 62,542 shares of Common Stock, consisting of 62,542 shares of Common Stock purchasable upon the exercise of warrants held by it and (iv) Willow beneficially owned 158,705 shares of Common Stock, consisting of 158,705 shares of Common Stock purchasable upon the exercise of warrants held by it.

Virgo LLC, as the general partner and investment adviser of Redwood, Magnolia, Sierra and Willow, may be deemed to beneficially own the 1,296,634 shares of Common Stock, consisting of 1,296,634 shares of Common Stock purchasable upon the exercise of the warrants held in the aggregate by Redwood, Magnolia, Sierra and Willow.

Mr. Watson, as the managing member of Virgo LLC, may be deemed to beneficially own the 1,296,634 shares of Common Stock, consisting of 1,296,634 shares of Common Stock purchasable upon the exercise of the warrants that may be deemed to be beneficially owned by Virgo LLC.

The warrants discussed above were issued on January 29, 2010, and enable the warrant holders to purchase up to an aggregate of 1,296,634 shares of the Company’s Common Stock at a purchase price of $2.1594 per share. The warrants contain an anti-dilution provision that prevents the warrant holder’s fully-diluted percentage interest in the Company from being diluted in the event that any convertible securities of the Company are converted into other equity securities of the Company. The warrants also contain an anti-dilution provision that prevents the warrant holder from having its fully-diluted percentage ownership in the Company diminished by more than 10% in the event that the Company issues additional equity securities. These anti-dilution provisions expire four years after the issuance of the warrants. The warrants themselves expire five years after their issuance.

The foregoing should not be construed in and of itself as an admission by any Reporting Person as to beneficial ownership of any shares of Common Stock owned by another Reporting Person. Each of Virgo LLC and Mr. Watson disclaims beneficial ownership of the shares of Common Stock beneficially owned by Redwood, Magnolia, Sierra and Willow and the filing of this statement shall not be construed as an admission that any such person or entity is the beneficial owner of any such securities.

(b) Percent of class:

Based on 22,875,245 shares of Common Stock outstanding as of February 3, 2010, as reported in the Issuer’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on February 3, 2010, (i) Redwood beneficially owned 4.14% of the outstanding shares of Common Stock, (ii) Magnolia beneficially owned less than 1% of the outstanding shares of Common Stock, (iii) Sierra beneficially owned less than 1% of the outstanding shares of Common Stock, (iv) Willow beneficially owned less than 1% of the outstanding shares of Common Stock and (v) each of Virgo LLC and Mr. Watson may be deemed to beneficially own 5.36% of the outstanding shares of Common Stock.

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In accordance with Rule 13d-3(d)(1)(i), in computing the number of shares of Common Stock beneficially owned by each Reporting Person and the percentage ownership of that Reporting Person, we deemed as outstanding shares of Common Stock underlying warrants held by that Reporting Person that are currently exercisable or exercisable within 60 days of January 29, 2010. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other Reporting Person.

(c) Number of shares as to which such person has:

(i) Sole power to vote or to direct the vote

See Cover Pages Items 5-9.

(ii) Shared power to vote or to direct the vote

See Cover Pages Items 5-9.

(iii) Sole power to dispose or to direct the disposition of

See Cover Pages Items 5-9.

(iv) Shared power to dispose or to direct the disposition of

See Cover Pages Items 5-9.

If this statement is being filed to report the fact that as of the date hereof the reporting person has ceased to be the beneficial owner of more than five percent of the class of securities, check the following [    ].

Not Applicable.

Not Applicable.

Based on the relationships described herein, the Reporting Persons may be deemed to constitute a “group” within the meaning of Rule 13d-5(b)(1) under the Securities Exchange Act of 1934, as amended. The filing of this statement shall not be construed as an admission that Redwood, Magnolia, Sierra, Willow, Virgo LLC and Mr. Watson are a group, or have agreed to act as a group.

Not Applicable.

By signing below each of the undersigned certifies that, to the best of its knowledge and belief, the securities referred to above were not acquired and are not held for the purpose of or with the effect of changing or influencing the control of the issuer of the securities and were not acquired and are not held in connection with or as a participant in any transaction having that purpose or effect.

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CUSIP NO. 696639103

SIGNATURE

After reasonable inquiry and to the best of his knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct.

Dated: February 8, 2010

Exhibit 99.1

JOINT FILING AGREEMENT

The undersigned hereby agree that the Statement on Schedule 13G dated February 8, 2010 with respect to the shares of Common Stock of Palm Harbor Homes, Inc., and any further amendments thereto executed by each and any of the undersigned shall be filed on behalf of each of the undersigned pursuant to and in accordance with the provisions of Rule 13d-1(k)(1) under the Securities Exchange Act of 1934, as amended.

Dated: February 8, 2010