`UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549

                                    FORM 10-QSB

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                    ACT OF 1934

                    For the quarterly period ended June 30, 2006

                                       OR

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

        For the transition period from ________________ to ________________

                         Commission file number: 000-29689

                                Enclaves Group, Inc.
---------------------------------------------------------------------------------
         (Exact Name of Small Business Issuer as Specified in its Charter)

            Delaware                                     20-1951556
--------------------------------------       ------------------------------------
(State or Other Jurisdiction of              (I.R.S. Employer Identification No.)
 Incorporation or Organization)

          2550 East Trinity Mills Road, Suite 122, Carrollton, Texas 75006
---------------------------------------------------------------------------------
                      (Address of Principal Executive Offices)

                                   (972) 416-9304
---------------------------------------------------------------------------------
                  (Issuer's Telephone Number, Including Area Code)


---------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

         Check  whether  the issuer (1) filed all  reports  required to be filed by
Section  13 or 15(d) of the  Exchange  Act  during  the past 12 months (or for such
shorter period that the registrant was required to file such reports),  and (2) has
been subject to such filing requirements for the past 90 days. Yes |X| No |_|

         Indicate  by check mark  whether  the  registrant  is a shell  company (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

         State the number of shares  outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of AUGUST 9, 2006,  87,242,533
shares of common stock ($0.001 per share par value) were issued and outstanding.

         Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|




                              ENCLAVES GROUP, INC.

                                      INDEX

                                                                                                   PAGE
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheet
         as of June 30, 2006..........................................................................2

         Condensed Consolidated Statements of Operations
         for the Three and Six Months Ended June 30, 2006 and 2005 and for the period from
         November 17, 2004 (Inception) to June 30, 2006...............................................3

         Condensed Consolidated Statements of Cash Flows
         for the Six Months Ended June 30, 2006 and 2005 and for the period from
         November 17, 2004 (Inception) to June 30, 2006...............................................4

         Notes to Condensed Consolidated Financial Statements
         .............................................................................................6

Item 2.  Management's Discussion and Analysis or Plan of Operation ..................................15

Item 3.  Controls and Procedures.....................................................................20

PART II. OTHER INFORMATION

Item 1.  Legal proceedings...........................................................................21

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.................................21

Item 3.  Defaults Upon Senior Securities.............................................................21

Item 4.  Submission of Matters to a Vote of Security Holders.........................................21

Item 5.  Other Information...........................................................................21

Item 6.  Exhibits....................................................................................22




                                                  PART I
                                          FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

                                  ENCLAVES GROUP, INC. AND SUBSIDIARIES
                                      (A Development Stage Company)
                                   CONDENSED CONSOLIDATED BALANCE SHEET
                                              June 30, 2006
                                               (Unaudited)
                                                  ASSETS
Current Assets
       Cash                                                                                 $     69,341
       Restricted cash                                                                           116,509
       Tax escrow                                                                                 41,154
       Prepaid expenses and other current assets                                                  20,915
                                                                                            ------------

       Total current assets                                                                      247,919
                                                                                            ------------

       Land                                                                                    9,393,374
       Deferred project costs                                                                  4,414,763
       Deferred financing costs,
           net of accumulated amortization of $855,372                                           402,632
       Website development costs, net of accumulated amortization of $8,835                       44,177
                                                                                            ------------

                  Total assets                                                              $ 14,502,865
                                                                                            ============


                                  LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities
Current Liabilities
       Mortgages and notes payable                                                          $  8,109,391
       Convertible debentures                                                                  6,618,782
       Accounts payable                                                                          658,088
       Accrued expenses                                                                          771,270
       Due to stockholder                                                                         57,074
                                                                                            ------------

       Total current liabilities                                                              16,214,605
                                                                                            ------------

Commitments and contingencies                                                                       --

Stockholders' deficit
       Preferred stock- 10,000,000 authorized shares
                 Series A Convertible Preferred - $.001 par value, 1,000,000 authorized
                 816,000 shares issued & outstanding                                                 816
       Common stock - 5,000,000,000 authorized shares - $.001 par value
                 87,242,533 shares issued & outstanding                                           87,242
       Additional paid in capital                                                                   (962)
       Deficit accumulated during the development stage                                       (1,798,836)
                                                                                            ------------

                  Total stockholders' deficit                                                 (1,711,740)
                                                                                            ------------

                  Total liabilities and stockholders' deficit                               $ 14,502,865
                                                                                            ============

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


                                                    2


                                                ENCLAVES GROUP, INC. AND SUBSIDIARIES
                                                    (A Development Stage Company)
                                           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                             (Unaudited)

                                                                                                            From November 17,
                                          Three Months Ended                   Six Months Ended            2004 (Inception) to
                                   June 30, 2006      June 30, 2005     June 30, 2006      June 30, 2006      June 30, 2006
                                   ------------       -------------     -------------      -------------      --------------


Revenue                            $      --          $      --          $      --          $      --          $      --

(Income) Expenses

    Other income                          (979)            (3,267)            (2,625)            (3,267)            (7,484)
    General, administrative
    and selling expenses
    (A)                                384,149            127,348            761,138            223,805          1,806,320
                                   -----------        -----------        -----------        -----------        -----------

Net loss                           $  (383,170)       $  (124,081)       $  (758,513)       $  (220,538)       $(1,798,836)
                                   ===========        ===========        ===========        ===========        ===========


Net loss per share,
     basic and diluted             $     --           $     --           $    (0.01)        $     (0.01)
                                   ===========        ===========        ===========        ===========

Weighted average
     shares outstanding             87,242,533         63,030,162         87,242,533         34,492,560
                                   ===========        ===========        ===========        ===========

         (A)  Includes  stock-based  compensation  of $7,200  and  $26,100,  for the  three  and six  months  ended  June 30,  2006,
         respectively.

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


                                                                 3



                                        ENCLAVES GROUP, INC. AND SUBSIDIARIES
                                            (A Development Stage Company)
                                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                     (Unaudited)

                                                           Six Months          Six Months        From November 17,
                                                             ended               ended          2004 (Inception) to
                                                         June 30, 2006        June 30, 2005        June 30, 2006
                                                         -------------        -------------        -------------

Cash flows from operating activities
Net loss                                                 $   (758,513)        $   (220,538)        $ (1,798,836)
Adjustments to reconcile net loss to net cash
flows used in:
operating activities:
Amortization                                                    8,835                 --                  8,835
Expenditures funded by stockholder                               --                    184              103,274
Interest on convertible debentures                               --                   --                 25,708
Stock-based compensation                                       26,100                 --                 26,100
Changes in operating assets and liabilities:
(Increase) Decrease in prepaid expenses and other                 295               (3,762)             (20,915)
current assets
Increase (Decrease) in accounts payable                       (53,662)                (760)             145,030
Increase (Decrease) in accrued expenses                        (1,196)                --                 78,654

Net cash  used  in  operating                               (778,141)            (224,876)          (1,432,150)
activities

Cash flows from investing activities
Purchase of land                                                 --             (2,919,152)          (8,444,624)
Deferred project costs                                       (768,587)            (267,976)          (1,531,746)
Website development costs                                         (20)                --                (53,012)
Deposits                                                       25,000                 --                   --
Payment of escrow fees                                           --                   --                (41,154)


                                            [Continued on next page]


                                                        4



                                        ENCLAVES GROUP, INC. AND SUBSIDIARIES
                                            (A Development Stage Company)
                                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                     (Unaudited)

                                                           Six Months          Six Months        From November 17,
                                                             ended               ended          2004 (Inception) to
                                                         June 30, 2006        June 30, 2005        June 30, 2006
                                                         -------------        -------------        -------------

Net cash used in investing activities                        (743,607)          (3,187,128)         (10,070,536)

Cash flows from financing activities
Proceeds from issuance of convertible debt                       --              4,000,000            5,500,000
Proceeds from mortgages and notes payable                   2,714,391                 --              8,879,391
Repayment of mortgages and notes payable                   (1,458,750)                --             (1,558,750)
Restricted cash                                               158,491                 --               (116,509)
Proceeds from stockholder loan                                   --                   --                 55,297
Payment of merger costs                                          --               (109,872)            (109,872)
Payment of deferred financing costs                           (77,232)            (540,887)          (1,077,530)

Net cash provided by financing activities                   1,336,900            3,349,241           11,572,027

Net increase (decrease) in cash                              (184,848)             (62,763)              69,341
Cash, beginning of period                                     254,189              819,443                 --

Cash, end of period                                      $     69,341         $    756,680         $     69,341


Supplemental disclosure of cash flow information:
Cash paid for interest                                   $    290,662         $       --           $    340,796


Noncash investing and financing activities
Deposit for acquisition of land parcels paid by a                --                   --                160,000
stockholder
Good faith deposits  applied against purchase                    --                100,000              160,000
price of land parcels
Payment of deferred project costs by stockholder                 --                   --                339,503
Payment of general, administrative and selling                   --                   --                103,090
expenses by stockholder
1,000,000 shares of preferred stock issued in                    --                   --                  1,000
partial settlement of loan by stockholder
10,000 shares of common stock issued in partial                  --                   --                600,000
settlement of loan by stockholder
Balance of purchase price of land acquired with                  --                788,750              788,750
seller financing
Capitalization of amortized deferred financing                440,073                 --                855,372
costs as deferred project costs
Capitalization  of  interest  on  convertible                    --                   --                718,074
debentures as deferred project costs
Deferred financing costs included in accounts                  72,690               62,260              180,474
payable and accured expenses
Deferred project costs included in accounts                   291,660              141,971              442,305
payable and accrued expenses
Accrued interest capitalized as deferred project              386,896               83,434              527,763
costs
Surrender of preferred stock and issuance of                     --                   --                    184
warrant

          THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                                         5


                      ENCLAVES GROUP, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1:  ORGANIZATION

NATURE OF OPERATIONS

         Enclaves Group, Inc.  ("Enclaves") is a development stage company which
was  incorporated  in the State of Delaware on November  17,  2004.  The primary
purpose of Enclaves is to develop and manage real estate projects throughout the
United  States.  Enclaves  has  created  five  wholly  owned  limited  liability
companies  ("LLCs") to develop each project site  separately:  Enclaves of Eagle
Nest LLC (Florida), Enclaves of Grand Oaks LLC (South Carolina), and Enclaves of
Live Oak LLC,  Enclaves of Spring  Magnolia LLC, and Enclaves of Spring Magnolia
II LLC (Texas) (collectively with Enclaves,  the "Company" or "we"). The Company
currently  has four  projects  in  progress  in the  States  of  Florida,  South
Carolina,  and Texas that it anticipates  completing for occupancy within twelve
to fourteen months of commencing construction.

REVERSE MERGER

         On April 27, 2005,  Alliance  Towers,  Inc., a Florida  corporation and
public  company  ("Alliance")  which  had  discontinued  day-to-day  operations,
acquired  100 % of the  outstanding  interests of Enclaves  Group,  Inc. and its
subsidiaries ("Enclaves"). Enclaves then merged with Alliance, which changed its
name to  "Enclaves  Group,  Inc."  and its  corporate  situs  to  Delaware  (the
"Merger"). Although Alliance is the legal survivor in the Merger and remains the
Registrant  with  the  Securities  and  Exchange  Commission,  under  accounting
principles generally accepted in the United States, the Merger was accounted for
as a reverse  acquisition,  whereby  Enclaves is  considered  the  "acquirer" of
Alliance for financial  reporting  purposes as its shareholders  controlled more
than 50 % (98 %) of the post  transaction  combined  company.  This requires the
Company to present in all  financial  statements  and other  public  information
filings,  prior  historical and other  information  of Enclaves,  and requires a
retroactive restatement of Enclaves historical  shareholders' investment for the
equivalent number of shares of common stock received in the Merger. Accordingly,
the accompanying condensed consolidated financial statements present the results
of operations of Enclaves for the period from November 17, 2004  (Inception)  to
April 27, 2005 and reflect the  acquisition  of Alliance on April 27, 2005 under
the purchase method of accounting.  Subsequent to April 27, 2005, the operations
of the Company are presented on a consolidated basis.

REVERSE STOCK SPLIT

         After  acquiring  Enclaves and completing the Merger,  the  outstanding
common  stock of the Company had  increased  to  43,621,264,600  (pre  1-for-500
reverse stock split) shares and the Company then had an authorized capital which
was out of proportion to its actual paid in capital and assets. On July 8, 2005,
the Board of Directors of the Company and a majority of the  stockholders  voted
to approve a reduction in the Company's authorized common stock to 5,000,000,000
shares and effected a 1-for-500  reverse stock split.  All  references to common
stock have been retroactively restated.


NOTE 2:  BASIS OF PRESENTATION AND GOING CONCERN - DEVELOPMENT STAGE COMPANY

         The accompanying  unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted  accounting  principles
in the United States of America ("GAAP") for interim  financial  information and
the general  instructions to Form 10-QSB.  Accordingly,  they do not include all
information and footnotes  required by GAAP for complete  financial  statements.
These  interim  financial  statements  should  be read in  conjunction  with our
audited  consolidated  financial  statements  and notes thereto  included in our
Annual  Report on Form l0-KSB for the year ended  December 31,  2005.  Operating
results for the interim  period are not  necessarily  indicative  of the results
that may be expected for the year ending December 31, 2006 or any future period.
In the opinion of management,  all adjustments  (consisting of normal  recurring
adjustments) considered necessary for a fair presentation have been included.


                                       6


         The Company has not earned any operating revenues to date. Accordingly,
the Company's  activities  have been  accounted  for as those of a  "Development
Stage Enterprise" as set forth in Financial Accounting Standards Board Statement
No.  7  ("SFAS  7").  Among  the  disclosures  required  by SFAS 7 are  that the
Company's  financial  statements be  identified as those of a development  stage
company,  and that the statements of operation and cash flows disclose  activity
since the date of the Company's inception.

         The Company's condensed  consolidated financial statements are prepared
using accounting  principles  generally accepted in the United States of America
applicable to a going concern which  contemplates  the realization of assets and
liquidation of liabilities in the normal course of business. The Company has not
yet established an ongoing source of revenues  sufficient to cover its operating
costs and allow it to continue as a going concern. The ability of the Company to
continue  as a going  concern is  dependent  on the Company  obtaining  adequate
capital to fund operating losses until it becomes profitable.  If the Company is
unable to obtain adequate capital, it could be forced to cease operations. These
factors raise  substantial  doubt about the  Company's  ability to continue as a
going  concern.  Our auditors have referred to the  substantial  doubt about our
ability to continue as a going concern in their audit report on our consolidated
financial statements included with the Annual Report on Form 10-KSB for the year
ended December 31, 2005.

         In order to continue as a going concern,  develop a reliable  source of
revenues,  and achieve a profitable  level of operations  the Company will need,
among other things, additional capital resources. Management's plans to continue
as a going concern include (i) refinancing or selling  appreciated real property
assets and (ii)  raising  additional  capital  through  the  issuance of debt or
equity  securities  provided the Company gets its equity  securities  registered
under the Securities Exchange Act of 1934. Although there are no assurances that
management's plans will be realized,  management  believes that the Company will
be able to continue operations in the future.

         The accompanying  condensed  consolidated  financial  statements do not
include any adjustments  that might be necessary in the event the Company cannot
continue in existence.


NOTE 3:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

         The accompanying  condensed  consolidated  financial statements include
the  accounts  of  the  Company  and  its  subsidiaries   after  elimination  of
inter-company accounts and transactions.

REVENUE AND EXPENSE RECOGNITION

         The Company will record  revenues when all goods and services have been
performed and delivered, the amounts are readily determinable, and collection is
reasonably assured. Costs and expenses are recorded when incurred.

LAND

         The acquisition costs of land parcels are being capitalized.  Any costs
related to the improvements of the land acquisitions and financing cost incurred
have  been  charged  to  deferred  project  cost and  deferred  financing  cost,
respectively,  and will be allocated to the land account when  improvements have
been completed.


                                       7


DEFERRED PROJECT COSTS

         Deferred  project  costs are stated at cost.  The  Company  capitalizes
certain costs related to the acquisition,  development, and construction of real
estate  projects.   These  capitalized  costs  are  periodically   reviewed  for
impairment.

DEFERRED FINANCING COSTS

         Deferred financing costs are amortized on the straight-line method over
the term of the related debt.

WEBSITE DEVELOPMENT COSTS

         Costs associated with developing a website are recognized in accordance
with the  American  Institute  of  Certified  Public  Accountants  Statement  of
Position No. 98-1,  "Accounting for the Costs of Computer Software  Developed or
Obtained for Internal  Use",  and Emerging  Issues Task Force ("EITF") No. 00-2,
"Accounting for Website  Development  Costs." Costs  associated with the website
consist  primarily of software  purchased and customized for internal use. These
costs are  capitalized  and amortized  based on their  estimated  useful life of
three years.  Costs incurred to update  graphics and enter initial  product data
are expensed as incurred. Amortization expense was $ 4,417 and $ 0 for the three
months ended June 30, 2006 and 2005,  respectively,  $ 8,835 and $ 0 for the six
months  ended June 30, 2006 and 2005,  respectively,  and $ 8,835 for the period
from November 17, 2004 (Inception) to June 30, 2006.

USE OF ESTIMATES

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

CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid  investments with a maturity of
three months or less, when  purchased,  to be cash  equivalents.  At the present
time, the Company does not have any such investments.

CONCENTRATIONS OF CREDIT RISK

         The  Company   maintains   significant  cash  balances  with  financial
institutions, which are insured by the Federal Deposit Insurance Corporation for
up to $ 100,000 per  institutional  account.  The Company has not  incurred  any
losses in such accounts and believes it is not exposed to any significant credit
risk on cash.

DEFERRED INCOME TAXES

         The Company  accounts for income taxes in accordance  with Statement of
Financial  Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes",
determining deferred tax assets and liabilities using the liability method.

         Deferred income taxes arise from net operating loss  carryforwards  and
differences  between  financial  reporting  and  income  tax bases of assets and
liabilities,   using  enacted  income  tax  rates.   Valuation   allowances  are
established until realization is assured.

INTEREST COSTS

         Interest costs incurred during the periods of acquisition, development,
and/or construction of real property are being capitalized.

IMPAIRMENT OF LONG-LIVED ASSETS

         The Company  periodically  reviews  the  carrying  value of  long-lived
assets in relation to historical  results, as well as management's best estimate
of future trends, events, and overall business climate. If such reviews indicate


                                       8


an issue as to whether the carrying value of such assets may not be recoverable,
the Company will then  estimate  the future cash flows  generated by such assets
(undiscounted  and  without  interest  charges).  If such  future cash flows are
insufficient  to recover the carrying  amount of the assets,  then impairment is
triggered and the carrying value of any impaired assets would then be reduced to
fair value.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         Statement of Financial  Accounting Standards No. 107, "Disclosure About
Fair Value of Financial Instruments",  as amended,  requires certain entities to
disclose  the fair  value of  specified  financial  instruments  for which it is
practicable to estimate that value. The Company's financial  instruments include
cash, accounts payable, convertible debentures, mortgages and notes payable, and
an amount due to a stockholder. The carrying amount of the financial instruments
approximates fair value. The Company is not currently exposed to any significant
credit risk or currency risk.

LOSS PER COMMON SHARE

         We compute basic loss per share by dividing loss to common stockholders
by the  weighted-average  common  shares  outstanding  for the  period.  Diluted
earnings per share reflects the potential  dilution of earnings that could occur
if  securities  or contracts  to issue common stock were  exercised or converted
into common  stock or resulted in the  issuance of common stock that then shared
in the earnings of the entity.  Since the effect of any outstanding  options and
warrants is anti-dilutive  with respect to losses,  they have been excluded from
our  computation of loss per common share.  Therefore,  basic and diluted losses
per common  share for the three and six months ended June 30, 2006 and 2005 were
the same.

         The following  table shows the securities  outstanding at June 30, 2006
and 2005 that could  potentially  dilute basic  earnings per share in the future
but were not included in the calculation of diluted loss per share because their
inclusion would have been anti-dilutive.


                                      June 30, 2006       June 30, 2005
                                      -------------       -------------
Shares issuable upon conversion
 of convertible debentures              24,514,007         21,989,852
Shares issuable upon conversion
 of convertible preferred stock        261,727,599        261,727,599
Shares issuable upon exercise
 of warrants                               180,000               --
                                       -----------        -----------

Total                                  286,421,606        283,717,451
                                       ===========        ===========

SIGNIFICANT ACCOUNTING POLICY UPDATES - STOCK-BASED COMPENSATION EXPENSE

         On  January  1,  2006,  the  Company  adopted  Statement  of  Financial
Accounting  Standards  No. 123 (revised  2004),  "Share-Based  Payment,"  ("SFAS
123(R)") which requires the measurement and recognition of compensation  expense
for all  share-based  payment  awards made to employees and  directors  based on
estimated fair values.  SFAS 123(R) supersedes the Company's previous accounting
under Accounting  Principles Board Opinion No. 25,  "Accounting for Stock Issued
to  Employees"  ("APB 25") for periods  beginning in fiscal 2006. In March 2005,
the Securities and Exchange  Commission issued Staff Accounting Bulletin No. 107
("SAB 107")  relating to SFAS 123(R).  The Company has applied the provisions of
SAB 107 in its adoption of SFAS 123(R).

         The  Company  adopted  SFAS  123(R)  using  the  modified   prospective
transition method,  which requires the application of the accounting standard as
of  January 1,  2006,  the first day of the  Company's  fiscal  year  2006.  The
Company's Condensed  Consolidated  Financial  Statements as of and for the three
months  ended March 31, 2006 reflect the impact of SFAS  123(R).  In  accordance
with  the  modified  prospective  transition  method,  the  Company's  Condensed
Consolidated  Financial  Statements  for prior periods have not been restated to
reflect, and do not include, the impact of SFAS 123(R). As of December 31, 2005,
the  Company  did not  have  unvested  stock-based  compensation  .  Stock-based
compensation  expense  recognized under SFAS 123(R) for the three and six months
ended June 30, 2006 were $ 7,200 and $26,100,  respectively,  which consisted of
stock-based  compensation  expense  related to  warrants  issued  for  "Investor


                                       9


Relations"  services.  There was no stock-based  compensation expense related to
employee  equity awards and employee stock purchases  recognized  during the six
months ended June 30, 2005.

         SFAS  123(R)   requires   companies  to  estimate  the  fair  value  of
share-based  payment awards on the date of grant using an option-pricing  model.
The value of the  portion of the award that is  ultimately  expected  to vest is
recognized  as  expense  over the  requisite  service  period  in the  Company's
Condensed  Consolidated  Statement of Operations.  Prior to the adoption of SFAS
123(R),  the Company  accounted for employee  equity  awards and employee  stock
purchases  using the intrinsic value method in accordance with APB 25 as allowed
under  Statement of Financial  Accounting  Standards  No. 123,  "Accounting  for
Stock-Based  Compensation"  ("SFAS  123").  There were no  employee  stock based
compensation  equity awards or employee  stock  purchases  during the six months
ended June 30, 2006

         Stock-based  compensation expense recognized during the period is based
on the value of the portion of  share-based  payment  awards that is  ultimately
expected to vest during the period.  Stock-based compensation expense recognized
in the Company's  Condensed  Consolidated  Statement of Operations for the three
and six  months  ended  June 30,  2006  included  compensation  expense  for the
share-based  payment awards granted subsequent to December 31, 2005 based on the
grant  date fair value  estimated  in  accordance  with the  provisions  of SFAS
123(R).  SFAS 123(R)  requires  forfeitures to be estimated at the time of grant
and revised,  if necessary,  in subsequent  periods if actual forfeitures differ
from those estimates.

         The fair value of share-based  payment awards is estimated at the grant
date using the Black-Scholes option valuation model. The Company's determination
of fair  value of  share-based  payment  awards  on the  date of grant  using an
option-pricing  model  is  affected  by the  Company's  stock  price  as well as
assumptions regarding a number of highly complex and subjective variables. These
variables  include,  but are not limited to, the Company's  expected stock price
volatility over the term of the awards,  and actual and projected employee stock
option exercise behaviors.

         On November 10, 2005, the Financial Accounting Standards Board ("FASB")
issued FASB Staff  Position No. FAS  123(R)-3  "Transition  Election  Related to
Accounting  for Tax  Effects of  Share-Based  Payment  Awards."  The Company has
elected to adopt the modified prospective transition method provided in the FASB
Staff  Position  for  calculating  the tax effects of  stock-based  compensation
pursuant to SFAS 123(R). The alternative  transition method includes  simplified
methods to establish the beginning  balance of the  additional  paid-in  capital
pool  ("APIC  pool")  related  to  the  tax  effects  of  employee   stock-based
compensation,  and to  determine  the  subsequent  impact  on the APIC  pool and
Condensed  Consolidated  Statements of Cash Flows of the tax effects of employee
stock-based  compensation  awards  that are  outstanding  upon  adoption of SFAS
123(R).

         Since November 17, 2004  (Inception)  through June 30, 2006 the Company
has not issued any Share-Based Payment Awards to employees.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In June 2006, the FASB issued  Interpretation  No. 48,  "Accounting for
Uncertainty in Income Taxes--an  Interpretation of FASB Statement No. 109" ("FIN
48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in a company's financial statements in accordance with SFAS No. 109, "Accounting
for Income  Taxes." FIN 48  prescribes a recognition  threshold and  measurement
attribute for the  financial  statement  recognition  and  measurement  of a tax
position taken or expected to be taken in a tax return.  FIN 48 is effective for
fiscal years beginning after December 15, 2006. We are currently  reviewing this
new standard to determine its effects,  if any, on our  consolidated  results of
operations or financial position.

NOTE 4:  LAND

         The principal  assets of the Company are comprised of land held through
its wholly-owned LLCs. Land consists of the following as of June 30, 2006:

              LLC OWNER                         ACRES     LOCATION

         Enclaves of Live Oak LLC               16.488    City of Mesquite,
                                                          Dallas County, Texas


                                       10


         Enclaves of Eagle Nest LLC             56.90     North Fort Myers,
                                                          Lee County, Florida

         Enclaves of Spring Magnolia LLC        23.873    Fort Worth,
                                                          Tarrant County, Texas

         Enclaves of Spring Magnolia II LLC     28.9      Fort Worth,
                                                          Tarrant County, Texas

         Enclaves of Grand Oaks LLC            277.34     Columbia, Lexington
                                                          County, South Carolina

         The Company  had no  outstanding  land  options or  contracts  for land
purchase / sale in place as of June 30, 2006.


NOTE 5:  MORTGAGES AND NOTES PAYABLE

         The  Company has a mortgage  payable to Orinda  Capital  Partners,  LLP
("Orinda  Capital"),  the seller in the Fort Worth, Texas land transaction.  The
original  principal  amount of the  mortgage  is $ 788,750 and is secured by the
second  phase  portion of the  subject  property.  The note has been  amended to
extend  the  maturity  to July  31,  2006.  As of June  30,  2006,  the  balance
outstanding  of the  mortgage  payable was $ 650,000.  The  mortgage  note bears
interest at 10 % per annum.  The Company is in default as of July 31, 2006.  The
Company has a pending loan application with United General Mortgage  Corporation
to refinance the property in an amount  sufficient to pay Orinda Capital in full
and provide additional working capital to the Company. (See Note 11 - Subsequent
Events).

         The  Company  had a  mortgage  payable  to  Magellan  Mortgage  in  the
principal  amount of $ 1,250,000 and secured by the Company's land in North Fort
Myers,  Florida.  The mortgage note bore interest at 10.5 % per annum and was to
mature on December 9, 2006.  On January 18, 2006,  the Company  refinanced  this
mortgage with a loan from Orion Bank ("Orion Bank"). The principal amount of the
refinanced  mortgage is $ 2,300,000  and is secured by the same land in Florida.
The  balance  of the loan  proceeds  were used on  acquisition  and  development
expenses of the property.  In addition,  Orion Bank agreed to increase this loan
by up to $ 200,000 to $ 2,500,000 to fund current interest payments.  As of June
30, 2006 the loan balance  outstanding was  $2,384,391.  The mortgage note bears
interest at "prime" plus 1% per annum and matures on January 18, 2007.  The note
may be prepaid at any time without penalty. Homes for America Holdings,  Inc., a
Nevada  corporation  ("HFAH") and a principal  stockholder  of the Company,  has
guaranteed this loan. (See Note 9 - Related Party Transactions).

         The Company has a mortgage  payable to Sovereign  Bank.  The  principal
amount of the mortgage is $ 4,615,000  and is secured by the  Company's  land in
Lexington County, South Carolina. The mortgage note bears interest at 2.25 % per
annum  above the LIBOR rate and  matures on  December  31,  2006.  The  mortgage
requires  no  principal  payments  until  maturity.  The note may be  prepaid at
anytime without penalty.

         The  Company  has  a  note  payable  of $  300,000  to  South  Carolina
Development Partners,  LLC ("SCDP"), an affiliate of the seller of the Company's
land in Lexington  County,  South Carolina,  delivered in  consideration  of the
assignment of the purchase  contract to our LLC and the release and  termination
of a development  agreement with SCDP for the subject  property.  The note bears
interest at 10 % per annum and is due and payable in monthly  installments  of $
50,000  with the last  installment  due July 15,  2006.  As of June 30, 2006 the
balance outstanding on this loan was $ 130,000.  The Company is in default under
this loan and is  currently  in  negotiations  with SCDP to modify its terms and
extend its due date.

         The Company has a note payable of $ 50,000 to Mark D.  MacFarlane,  its
Chief  Operating  Officer,  for monies  advanced for working  capital on May 25,
2006. This note bears interest at 6.25 % per annum,  the lender's cost of funds,
and is due on August 24,  2006.  The Company  has a second  note  payable to Mr.
MacFarlane  of $ 30,000 for monies  advanced  on June 16,  2006 for  development
costs at the Eagle Nest project in Florida. This note bears interest at 10 % per
annum and is due on December  31,  2006.  The Company is required to prepay this
second  note to the  extent  it  receives  net  financing  proceeds  or net sale
proceeds  from any of its real  property  assets.  (See Note 9 -  Related  Party
Transactions).


                                       11


         The  Company  has a note  payable of $ 50,000 to Daniel G.  Hayes,  its
Chief  Executive  Officer,  for  monies  advanced  for  working  capital  in two
installments,  $ 20,000  on May 30,  2006 for a  payment  on the SCDP note and $
30,000 on June 16,  2006 for  development  costs at the Eagle  Nest  project  in
Florida.  This note bears  interest at 10 % per annum and is due on December 31,
2006.  The Company is required to prepay this note to the extent it receives net
financing  proceeds or net sale proceeds  from any of its real property  assets.
(See Note 9 - Related Party Transactions).

         The Company has a note payable of $ 200,000 to HFAH for monies advanced
for  working  capital  and  project  costs on June 23,  2006,  and a second note
payable of $ 40,000 to HFAH for monies advanced for working capital on August 1,
2006.  Each of  these  notes  bears  interest  at 10 % per  annum  and is due on
December 31,  2006.  The Company is required to prepay these notes to the extent
it receives net  financing  proceeds or net sale  proceeds  from any of its real
property assets. (See Note 9 - Related Party Transactions).

         During the period  ended June 30, 2006,  the Company was in  compliance
with all debt  covenants  as defined by the  agreements  other than as described
above.


NOTE 6:  CONVERTIBLE DEBENTURES

The  Company has  outstanding  convertible  debentures  of $  6,618,782,  due on
January 15,  2007,  which bear  interest at 12 % per annum,  payable in 12 equal
installments  of $ 542,449 plus interest  until January 15, 2007. The debentures
may be  converted  into common stock of the Company at a fixed price of $ 0.27 /
share. These debentures are pre-payable in whole or in part but subject to a 12%
redemption premium and are secured by all assets and property of the Company and
are  guaranteed by HFAH.  The Company is in default on its  installment  payment
terms and is  currently  in  negotiations  with the lenders to extend the terms.
(See Note 11 - Subsequent Events).

         On April 6, 2006,  the  Company  and Cornell  reached an  agreement  in
principle,  pursuant to which the parties  will  document  an  extension  of the
maturity  date of the  debentures,  an immediate  conversion of a portion of the
debenture  balances  into common  stock (not to exceed 9.9 % of the  outstanding
common stock after conversion),  and immediate  conversion of another portion of
the debenture  balances into a warrant for common stock,  for a total  immediate
reduction  of $  2,500,000  in the  debenture  balances,  a release  of the real
property mortgages in exchange for a pledge of the Company's LLCs, a termination
of  the  Standby  Equity  Distribution  Agreement  ("SEDA"),  with  the  Company
obligated  (i) to amend its pending SB-2  registration  to remove the SEDA stock
and  proceed  with  the  balance  of  the  registration,   (ii)  to  obtain  the
confirmation of the corporate guaranty by HFAH of the Company obligations to the
debenture  holders,  and  (iii)  to make  no new  cash  payments  to HFAH or its
principals while any of the debentures remain outstanding. Cornell has indicated
since June 30,  2006,  that it would like to modify the  agreement  to include a
smaller immediate  reduction of the debenture  balances,  but has not stated its
final terms for the  modification  and the parties  continue to  negotiate  such
terms.


NOTE 7:  CONVERTIBLE PREFERRED STOCK

         On December 29, 2004, the Company issued 1,000,000 shares of its Series
A convertible  preferred stock to two  stockholders,  HFAH (816,000  shares) and
Cornell Capital Partners,  LP ("Cornell")  (184,000 shares), in consideration of
the  undertakings  of  HFAH  and  Cornell  for the  original  equity  line  SEDA
transaction  to  capitalize  the  Company.  On November 9, 2005,  as part of the
consideration  for  the  parties  amending  and  restating  the  SEDA,   Cornell
surrendered  its 184,000  shares,  which were  canceled,  and received a warrant
entitling  it to elect to acquire  in  aggregate  the same  number of shares for
nominal  consideration,  subject  to the  requirement  that  after any  exercise
Cornell and its affiliates not then directly or beneficially  own more than 4.99
% of the outstanding common stock of the Company.

         The convertible  preferred stock has a conversion  feature allowing the
holders to elect to convert the preferred  stock to common stock of the Company.
At the time of the  conversion,  without  regard to the  number  of  outstanding
shares  of  common  stock,  the  preferred  stock  converts  as a class to equal
seventy-five  percent of the outstanding common stock,  effectively diluting all
common  stockholders  to 1/4  of  their  previous  holdings.  The  anti-dilution
provision  represents  a  contingent   conversion  feature  of  the  convertible
preferred  stock.  The  effect of this  feature  may result in the  issuance  of
additional  shares at some future  date;  however,  since the  issuance of these


                                       12


shares is  contingent  on future  events,  the  effect of this  feature  will be
recorded at the time the events  occur.  The  preferred  stock is  automatically
converted to common stock without  notice or election on the second  anniversary
of the common stock achieving registration.


NOTE 8:  INCENTIVE PLAN

         The Company has adopted an incentive  plan agreeing to issue up to 20 %
of the Series A convertible  preferred stock outstanding to its founders and key
executive  officers as follows:  4 % each to two founders,  Robert A. MacFarlane
and Robert M. Kohn; 4 % each to Daniel G. Hayes,  its Chief  Executive  Officer,
and Mark D. MacFarlane,  its Chief Operating  Officer; 2 % to Emilia Nuccio, its
Chief  Marketing  Officer;  1 % to the  current  chief  financial  officer of an
affiliate  who provides  services to the Company,  and 1 % to the Company  Chief
Financial  Officer  who remains to be  recruited.  No  preferred  stock has been
issued under the incentive plan. The Company has negotiated employment agreement
terms  with  its   executive   officers  for  salaries,   benefits,   and  other
compensation.


NOTE 9:    RELATED PARTY TRANSACTIONS

         A stockholder  of the Company,  HFAH, has paid on behalf of the Company
certain  startup costs and expenses  relating to the projects  being proposed in
the states of Florida  and Texas.  During the  period  from  November  17,  2004
(Inception)  through  June 30,  2006  those  costs  and  deposits  incurred  for
acquisition,  planning,  and financing of these projects totaling $ 499,503 were
recorded as assets on the financial  statements.  Certain  administrative  costs
amounting  to $ 103,274  were  recorded as expenses of the  projects  during the
period from November 17, 2004  (Inception)  through June 30, 2006. HFAH has also
advanced the Company $ 55,297 since  inception.  The amount  payable to HFAF for
the above costs and expenses  was $ 57,074 as of June 30,  2006.  As part of the
agreement with HFAH, the Company has agreed to pay a 2.5 % finance placement fee
for the funds  raised from the  convertible  debentures.  During the period from
November  17, 2004  (Inception)  through  June 30,  2006 the Company  incurred $
137,500 of the  aforementioned  placement fees under the  agreement,  which were
capitalized  as  deferred  financing  costs  with $ 50,000  included  in accrued
expenses as of June 30, 2006.

         In addition the Company has borrowed  funds from HFAH and its executive
officers.  (See Note 5 - Mortgages and Notes Payable). The Company has a note of
$ 200,000 to HFAH, a note of $ 50,000 to Daniel G. Hayes,  the  Company's  Chief
Executive  Officer,  and two notes totaling $ 80,000 to Mark D. MacFarlane,  the
Company's Chief  Operating  Officer.  On August 1, 2006 the Company  borrowed an
additional $40,000 from HFAH for working capital.

         The  Company  engaged   Girasole   International,   Inc.,  a  New  York
corporation  ("Girasole")  and a related party,  as a third party  consultant to
oversee marketing and product development. The Company's Chief Marketing Officer
and  Assistant  Secretary,  Emilia  Nuccio  founded  Girasole in 2001 and is its
principal  stockholder.  Ms.  Nuccio  is the wife of  Robert  A.  MacFarlane,  a
principal  of HFAH.  Consulting  services  provided  to the  Company by Girasole
totaled  approximately $ 0 and $ 18,000 for the three months ended June 30, 2006
and 2005,  respectively,  approximately  $13,000  and $18,000 for the six months
ended June 30, 2006 and 2005,  respectively and  approximately  $152,000 for the
period from  November 17, 2004  (Inception)  to June 30,  2006.  Included in the
accounts  payable  as of June 30,  2006 was $ 31,993  payable  to Emilia  Nuccio
Consulting LLC (formerly known as Girasole), for consulting services rendered.

         During the period November 17, 2004 (inception)  through June 30, 2006,
an entity affiliated to Mark D. MacFarlane  provided  consulting services to the
Company totaling $ 53,656.  No consulting  services were provided to the Company
by that  affiliated  entity  during the three and six months ended June 30, 2006
and 2005.

         The Company paid each of its two  founders,  Robert A.  MacFarlane  and
Robert M. Kohn,  who are also  principals  and executive  officers of HFAH,  for
consulting services to the Company in fund-raising and real estate development a
total amount of $ 50,000  during the period from  November 17, 2004  (Inception)
through June 30, 2006. No such consulting  services were provided to the Company
during the three and six months ended June 30, 2006 and 2005.


                                       13


         In  connection  with the mortgage  loan by Orion Bank in January  2006,
HFAH also delivered its unconditional  guaranty of the loan obligation,  subject
to the understanding that the Company would pay HFAH $ 37,500,  being 1-1/2 % of
the loan amount, from available funds. This guaranty fee was included in accrued
expenses as of June 30, 2006.

NOTE 10: COMMITMENTS AND CONTINGENCIES

         The Company filed a registration statement on Form SB-2 on November 29,
2005, and received a comment letter on December 27, 2005,  from the staff of the
Division of Corporation Finance of the Securities and Exchange  Commission.  The
staff's  letter  addressed  a number  of  issues  relating  to the  registration
statement,   including   several  issues  relating  to  the  Company's   audited
consolidated and unaudited condensed consolidated financial statements that were
contained  in the  registration  statement.  Among other  comments,  the staff's
letter inquired regarding the Company's  accounting  treatment for the Company's
convertible preferred stock in the Company's financial statements.

         The  Company  sent a  response  letter to the  staff on July 19,  2006,
advising it that based upon the current  agreement  with  Cornell  Capital,  the
Company intended to amend or withdraw the  registration  statement (See Note 6 -
Convertible  Debentures) and responding to the accounting  questions.  The staff
has responded with a letter on August 1, 2006,  advising that it would defer its
review and  response to the  Company's  response  until the  Company  amended or
withdrew the registration statement.

         The  staff  has also sent the  Company  a letter  dated  May 24,  2005,
addressing a number of similar issues  relating to the  accounting  treatment in
the  Company's  audited  consolidated  financial  statements  for the year ended
December 31, 2005, as filed with its annual report on Form 10-KSB.  The comments
restated the staff's questions regarding the Company's  accounting treatment for
its  convertible  preferred  stock in the Company's  financial  statements.  The
Company  sent a  letter  to the  staff  on July 19,  2006,  responding  to these
accounting  questions  in  substantially  the same manner as the response to the
comments on the  registration  statement.  The staff has  responded on August 1,
2006 with some of their  original  comments  still  open.  The Company is in the
process of responding to those open comments.

         If  the  Company  were  required  to  amend  its  accounting  treatment
regarding the convertible preferred stock, the Company would have to restate the
unaudited condensed  consolidated  financial statements contained in this report
on Form  10-QSB,  as  well as the  unaudited  condensed  consolidated  financial
statements  contained  in the  Company's  reports on Form 10-QSB for the periods
since  March  31,  2005,  and  the  audited  consolidated  financial  statements
contained  in the  Company's  reports on Form 10-KSB for the fiscal  years ended
December 31, 2004 and 2005.  The  modifications  to the  Company's  consolidated
financial  statements  would involve only non-cash  accounting  items, but would
materially  impact the Company's  consolidated  balance  sheet and  consolidated
statements of operations,  changes in stockholder's  deficit, and cash flows for
each period presented. The Company will continue to respond to and work with the
staff to  resolve  all  remaining  comments  they may have  after  review of our
responses.


                                       14



NOTE 11:   SUBSEQUENT EVENTS

         The Company and Cornell have been in further discussions since June 30,
2006 and Cornell has  indicated  that it would like to modify the  agreement  in
principle to include a smaller  immediate  reduction of the debenture  balances,
but it has not  stated  its final  terms for the  modification  and the  parties
continue to negotiate such terms. (See Note 6 - Convertible Debentures).

         On July 31, 2006,  the Orinda  Note,  which has a balance of $ 650,000,
was due and payable. (See Note 5 - Mortgages and Notes Payable).  The Company is
`in default as of July 31, 2006. The Company has a pending loan application with
United  General  Mortgage  Corporation  to  refinance  the property in an amount
sufficient to pay Orinda Capital in full and provide  additional working capital
to the Company.


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

FORWARD-LOOKING STATEMENTS

         This  quarterly   report  on  Form  10-QSB   contains   forward-looking
statements  (as defined in Section 27A of the Securities Act of 1933 and Section
21E of the Securities  Exchange Act of 1934 (the "Exchange  Act"). To the extent
that  any  statements  made  in  this  Report  contain  information  that is not
historical,  these statements are essentially  forward-looking.  Forward-looking
statements  can be  identified  by the use of words such as  "expects,"  "plans"
"will," "may," "anticipates,"  believes," "should," "intends,"  "estimates," and
other  words of  similar  meaning.  These  statements  are  subject to risks and
uncertainties  that cannot be predicted or quantified and  consequently,  actual
results  may  differ   materially  from  those  expressed  or  implied  by  such
forward-looking  statements.  Such  risks  and  uncertainties  include,  without
limitation,  our  ability to raise  capital to finance  the  development  of our
products,  the  effectiveness,  profitability  and the  marketability  of  those
products, our ability to protect our proprietary  information,  general economic
and  business   conditions,   the  impact  of  technological   developments  and
competition,   our  expectations  and  estimates   concerning  future  financial
performance and financing plans,  adverse results of any legal proceedings,  the
impact of current, pending or future legislation and regulation,  our ability to
satisfy customers using our technology,  the volatility of our operating results
and  financial  condition,  our  ability to attract or retain  qualified  senior
management personnel,  including sales and marketing and technical personnel and
other risks  detailed  from time to time in our filings  with the SEC. We do not
undertake any obligation to publicly update any forward-looking statements. As a
result, you should not place undue reliance on these forward-looking statements.

         We  also  use  market  data  and  industry  forecasts  and  projections
throughout this Report,  which we have obtained from market  research,  publicly
available information and industry  publications.  These sources generally state
that the information  they provide has been obtained from sources believed to be
reliable,  but that the accuracy and  completeness  of the  information  are not
guaranteed.  The forecasts and projections are based on industry surveys and the
preparers'  experience  in the industry,  and the  projected  amounts may not be
achieved.  Similarly,  although we believe that the surveys and market  research
others have  performed  are  reliable,  it has not  independently  verified this
information. Forecasts and other forward-looking information obtained from these
sources are subject to the same qualifications and the additional  uncertainties
accompanying any estimates of future market size,  revenue and market acceptance
of products and services.

OVERVIEW

         The  Company  has not earned any  revenues  to date.  Accordingly,  the
Company's  activities  have been accounted for as those of a "Development  Stage
Enterprise" as set forth in Financial Accounting Standards Board Statement No. 7
("SFAS 7").  Among the  disclosures  required  by SFAS 7 are that the  Company's
financial  statements be identified as those of a development stage company, and
that the statements of operation and cash flows disclose activity since the date
of the Company's inception.


                                       15


         The following  discussion of our consolidated  financial  condition and
results  of  operations  should  be  read  in  conjunction  with  our  condensed
consolidated  financial statements and notes thereto appearing elsewhere in this
document.

         We were  incorporated in the State of Delaware on November 17, 2004, as
Enclaves Group,  Inc., a privately held  corporation  organized for the specific
purpose of  introducing  our  proprietary  YOUR HOMESM  Lease and Own Program to
target the working  class  families  who  continue to rent  housing  rather than
purchasing.  Our  principal  stockholder,   Homes  For  America  Holdings,  Inc.
originally   developed  our  business  plan,  and  conducted   demographic   and
test-market   investigations,   prepared  brand   identification  and  marketing
materials, and negotiated the right to purchase our original building sites, and
contributed  those  business  assets  to us,  and  negotiated  debt  and  equity
facilities (described below) with Cornell Capital Partners,  LP. Cornell Capital
Partners, LP offered bridge financing in the form of convertible  debentures and
an  equity  credit  line  financing  for the  immediate  launch of the YOUR HOME
program.

         As consideration  for these properties and assets,  valued in excess of
Six Hundred  Thousand  Dollars  ($600,000),  in December  2004 Homes For America
Holdings,  Inc. obtained all of the initial common stock and significant  voting
rights through the issuance of our Series A Convertible  Preferred Stock, all of
which is held by Homes For America  Holdings,  Inc. Through those voting rights,
Homes for America Holdings,  Inc. retains  substantial  ownership rights and the
ability to control the development and expansion of our business.

         The common stock of Homes For America  Holdings,  Inc.  was  previously
registered  under Section 12(g) of the Securities  Exchange Act of 1934 and that
Homes for America Holdings,  Inc. itself was a public corporation with its stock
traded on the over-the-counter  markets with the trading symbol "HFAM." However,
Homes For  America  Holdings,  Inc.  failed to make any of its  mandated  public
filings  after the period  ended  September  30,  2002,  and as a result of this
failure,  Homes  for  America  Holdings,  Inc.  consented  to an  order  of  the
Securities  and  Exchange  Commission  that  pursuant  to  Section  12(j) of the
Securities and Exchange Act of 1934, as amended,  the registration of each class
of Homes for America Holdings,  Inc.'s securities registered under Section 12 of
the Securities and Exchange Act of 1934, as amended,  be immediately  revoked as
of October 12, 2005.

PLAN OF OPERATION

         1.   BUILDING PROJECTS AND OPERATIONS

         The original bridge financing represented by the convertible debentures
allowed us to acquire approximately $ 4.2 million in real property sites for our
first three (3)  ENCLAVES  communities.  It also  provided  the working  capital
enabling us to recruit our key employees, including Mark D. MacFarlane, original
promoter of the YOUR HOMESM  Program with Homes for America  Holdings,  Inc., as
our Chief Operating Officer based in our Texas office,  Emilia Nuccio,  our Vice
President and Director of Marketing,  who oversaw the  development  of the brand
identification  and  marketing  materials  for the Your  Home  unit of Homes for
America  Holdings,  Inc., and Daniel G. Hayes, our President and Chief Executive
Officer,  who served as counsel to Homes for America  Holdings,  Inc.  and us in
closing the original debt and equity facilities in December 2004.

         We have been able to commence  initial  site  development  and contract
bidding  for the two  projects to be  commenced  first,  "Enclaves  of Live Oak"
(Mesquite) and "Enclaves of Spring  Magnolia" (Fort Worth) each in Texas. We are
submitting  the  contracts for bids from  established  general  contractors  for
guaranteed   construction   cost   contracts  and  submitting  the  projects  to
construction  lenders for  construction  financing  sufficient  to commence  and
complete  build-out  of those  projects.  It has also  enabled  us to engage and
oversee outside  consultants to complete zoning and planning  approvals required
for the Florida  project,  "Enclaves of Eagle Nest" (North Fort Myers),  and for
the South Carolina project,  "Enclaves of Grand Oaks" (Columbia), and to solicit
and evaluate proposals for additional acquisition sites in Texas, Florida, North
Carolina, South Carolina, Connecticut, and New York.

         Our present plan of growth requires identification of multiple projects
in diverse real estate markets. To assure timely roll out of the YOUR HOME Lease
and Own program on a national  level,  we have entered  into media  distribution
agreements with ClearVision, Inc., Global Media Fund, and other firms to promote
our business plan.  Simultaneously  with the announcement of the initial project
commencements,   we  plan  to  enter  into  binding   agreements  and  immediate
development  plans with  proposals  in New York,  South  Carolina,  and Florida,
together with additional sites identified in other markets.


                                       16


         To proceed  with such an  ambitious  acquisition  plan and  realize the
advantage of being first to market with our YOUR HOME Lease and Own program,  we
recognize  our  immediate  need for, and will incur costs for,  regional  office
management  and  staff,  local  contractors,  professional  representation,  and
physical resources including offices and equipment to accompany the direct costs
of site acquisition and development and product  marketing.  While we have funds
and loan  commitments  sufficient to provide  working  capital for our immediate
plans through  September 2006, we must raise  additional  funds from one or more
sources to continue  operations  thereafter and to embark upon this  acquisition
plan.

         We have established relations with land developers and brokers who have
access to  available  land  sites  suitable  for  construction  of our  ENCLAVES
communities  and  understand  the  YOUR  HOMESM  Program  and can  assist  us in
presenting the  opportunity to land sellers and to  jurisdictions  who recognize
the need for attainable or workforce housing.

         The  number of new  employees  and  offices we would  require  would be
determined by our ability to identify and acquire additional projects, in one or
more regions, our ability to raise additional funds from sale of stock or equity
joint  ventures,  our  ability  to  obtain  conventional  construction  mortgage
financing,  and our management and staff to oversee such expansions.  Subject to
financing, we have a present plan to supplement regional offices in New York and
Florida with new regional offices in Connecticut and South Carolina in 2007.

         2.   CONSTRUCTION FINANCING

         Our two Texas  projects,  in  Mesquite  and Fort  Worth,  are ready for
immediate  construction,  subject to obtaining the  construction  loans. We have
presented these projects to conventional commercial lenders and obtained letters
of interest from several  lenders to provide the requisite  funds (i) to pay for
the lot improvements,  roads, and similar facilities required for the individual
lots, and (ii) to pay on a revolving basis the cost of construction  model homes
and up to ten to twenty  homes at a time.  For the  projects  to be  feasible to
proceed and for us to accept the proposed construction  financing we must either
(A) demonstrate to the respective  construction lenders that their lines will be
paid from  immediate  sales of the homes as  constructed  or (B)  produce to the
lenders'  satisfaction  an advance  commitment  for a  permanent  loan  take-out
facility to replace their advanced funds.

         Since our LEASE AND OWNSM business model  contemplates  our developing,
building,  leasing, and selling new homes to a target market of working families
who rent and have not yet entered the residential  home market,  we have elected
not to construct the existing Texas projects for immediate sale and have instead
pursued through  presentations to long-term  lenders  applications for permanent
loan take-out facilities that will be compatible with the anticipated short-term
hold of the leased homes while our  customers  qualify to purchase  them.  These
facilities  have included  applications  for revolving  facilities that would be
available for use at multiple  projects as they are built out and sold.  Several
lenders  have  expressed  interest  in  providing  such  facilities,  subject to
appropriate collateral and corporate or personal guaranties,  but as of the date
of this filing we have obtained no acceptable letter of interest or commitment.

         In the event  construction  financing is not  obtained  shortly for the
Texas  projects  with  a  revolving  take-out  facility,   we  may  revisit  the
alternatives  of immediate sale of homes as  constructed or even  disposition of
the Texas sites.

         In the  case of our  South  Carolina  project  where  the site may have
approximately  1,000 home lots  (depending on size and  configuration),  we have
obtained a letter of interest for a complete  construction  financing sufficient
to construct the spine road and interior roads, lot improvements, amenities, and
similar  facilities,  together with our proposed ENCLAVES home project in one of
the subdivision  secttions,  subject to the production of commitments from other
builders to purchase at least 400 of the excess improved lots. We have solicited
builder  commitments  from several  builders in the  Columbia,  South  Carolina,
market and currently anticipate receiving such commitments sufficient during the
third quarter of 2006 to obtain the financing and commence the lot improvements.

         3.   TERMINATION OF EQUITY LINE

         The original plan of operations for the Company  included the use of an
equity line under a Standby Equity Distribution  Agreement ("SEDA") entered into
with Cornell Capital Partners, LP ("Cornell") pursuant to which on certain terms
Cornell would be obligated to purchase  common stock of the Company upon request
of the Company from time to time. The  availability  of funds from that proposed
line could have allowed the Company to acquire and develop more projects using a


                                       17


combination  of equity from the equity  line and  conventional  acquisition  and
construction  financing.  The equity line required the Company however to obtain
an effective  registration of its common stock sufficient both to provide shares
of stock for sale  under the equity  line and shares of stock for the  potential
conversion of the Company's convertible debentures,  also held by Cornell or its
affiliates.  On advice of counsel the Company has determined  however it may not
be  practicable  to  pursue  the   registration   of  stock  for  both  purposes
simultaneously.

         On April 6, 2006,  the  Company  and Cornell  reached an  agreement  in
principle,  pursuant to which the parties  will  document  an  extension  of the
maturity  date of the  debentures,  an immediate  conversion of a portion of the
debenture  balances  into common  stock (not to exceed  9.9% of the  outstanding
common stock after conversion),  and immediate  conversion of another portion of
the debenture  balances into a warrant for common stock,  for a total  immediate
reduction  of  $2,500,000  in the  debenture  balances,  a  release  of the real
property mortgages in exchange for a pledge of the Company's LLCs, a termination
of  the  SEDA,  with  the  Company  obligated  (i) to  amend  its  pending  SB-2
registration  to remove  the SEDA  stock and  proceed  with the  balance  of the
registration,  (ii) to obtain the confirmation of the corporate guaranty by HFAH
of the Company  obligations to the debenture  holders,  and (iii) to make no new
cash  payments  to HFAH or its  principals  while any of the  debentures  remain
outstanding.

         Cornell has indicated  since June 30, 2006 that it would like to modify
the  agreement  to  include  a  smaller  immediate  reduction  of the  debenture
balances,  but has not  stated  its  final  terms for the  modification  and the
parties continue to negotiate such terms.

         4.   FUNDING FOR OPERATIONS

         We have been in operation  since November 2004, and have had no revenue
to date. Our business  operations will consume capital for a substantial  period
before  our  ENCLAVES  home  communities  are built,  leased,  and sold to their
residents  under  our  Lease  and  Own  Program.  No net  operating  revenue  is
anticipated in 2006 and our current business plan contemplates our continued use
of other  revenues,  as they  arise  from  development  fees,  leases,  or asset
disposition  or sales  and  after  repayment  of  acquisition  and  construction
financing and the convertible  debentures,  to the extent not converted by their
holders, to fund additional expansion into new communities.

         In the quarter ended March 31, 2006, we obtained working capital from a
refinancing of the Florida land. The most recent working  capital in the quarter
ended June 30, 2006,  has been obtained from related party  borrowings  from our
principal  stockholder,  Homes  for  America  Holdings,  Inc.,  and  two  of our
executive officers.

         In  addition  to  securing  construction  financing  for  the  existing
projects we may seek to refinance existing assets,  including without limitation
the land site in North Fort Myers,  Florida, and other financing facilities made
available from institutional lenders,  together with the net proceeds of leasing
and sale of completed housing units as built. The principal source of additional
funds however, by which we contemplate  satisfying our cash requirements for the
next twelve (12) months, is likely to be from land refinancings or dispositions.

GOING CONCERN

         Our consolidated  financial statements are presented on a going concern
basis,  which  contemplates  the  realization  of  assets  and  satisfaction  of
liabilities in the normal course of business.  Nevertheless we are a development
stage company and only became organized on November 17, 2004.

         Since  we  have  incurred  losses  since  inception,  we  will  require
additional  funds to meet and fund our obligations  and operations.  We have not
yet determined how to finance our operations.  Our independent registered public
accounting  firm has added an  explanatory  paragraph to their audit  opinion in
connection  with  our  consolidated  financial  statements  for the  year  ended
December  31,  2005,  which  expresses  substantial  doubt as to our  ability to
continue as a going concern. Such an opinion may adversely affect our ability to
obtain financing on reasonable terms or at all.

         The  condensed  consolidated  financial  statements  do not include any
adjustments  to reflect the possible  future effects on the  recoverability  and
classification  of assets or the amounts and  classification of liabilities that
may result from the possible inability of us to continue as a going concern.

         Management  recognizes  that  we  must  generate  capital  and  revenue
resources  to enable us to  continue to  operate.  We plan to obtain  additional
capital from revenue  through the sale of equity  securities and ultimately from


                                       18


revenue  generated from  profitable  operations.  However,  no assurances can be
given that we will be successful in these activities.

LIQUIDITY AND CAPITAL RESOURCES

         During the  six-month  period ended June 30,  2006,  we were in default
under the installment payment terms of our convertible debentures, which require
principal and interest  installments  equal to  one-twelfth  of the  outstanding
balance as of the fifteenth day of each month  commencing  January 15, 2006. The
debentures were originally  structured to be paid from draws under the SEDA, but
that equity line is not yet effective and would not become  effective  unless or
until the pending SB-2  registration  statement  were declared  effective by the
SEC, which we do not anticipate in the short term. We are  negotiating  with the
holders of the  convertible  debentures  to extend the maturity and the payments
dates and otherwise modify their terms to coincide with the anticipated  capital
resources of the Company.

         During the six-month period ended June 30, 2006, we were in default and
currently remain in default under a promissory note to SC Development  Partners,
for  which  $  130,000  remains  outstanding  and  past  due.  We are  currently
renegotiating  with SC  Development  Partners  to  obtain  an  extension  of the
maturity date. While SC Development Partners has expressed willingness to modify
the loan terms, the loan has not yet been modified to cure these defaults and we
lack the capital resources immediately available to pay it currently.

         On July 31, 2006,  the Orinda  Note,  which has a balance of $ 650,000,
was due and payable.  The Company is in default as of July 31, 2006. The Company
has a pending loan  application  with United  General  Mortgage  Corporation  to
refinance the property in an amount sufficient to pay Orinda Capital in full and
provide additional working capital to the Company. We lack the capital resources
immediately  available to pay this note  currently  and the  noteholder  has not
indicated that it would agree to any further extension of the maturity past July
31, 2006.

         During  the  six-month  period  ended  June 30,  2006,  our  balance of
unrestricted cash and cash equivalents  decreased by $ 184,848 to $ 69,340.  Our
original  working capital had been obtained  entirely from the net loan proceeds
we retained after paying for the three land  acquisitions,  in Mesquite and Fort
Worth,  Texas,  and North Fort Myers,  Florida,  with those net proceeds issuing
from the convertible  debentures described above. In the quarter ended March 31,
2006, we obtained  working  capital from a refinancing  of the Florida land. The
most recent working capital has been obtained from related party borrowings from
our principal  stockholder,  Homes for America  Holdings,  Inc.,  and two of our
executive officers.

         Our primary  liquidity  and capital  resource  needs are to finance the
operating  costs of our three  offices,  to service our debt,  to fund legal and
consulting fees, loan application fees, and third-party  charges for the further
development  and  financing  of our  four  owned  sites,  to fund  deposits  and
professional  fees and costs of  initial  acquisition  and  development  for new
sites,  and legal,  accounting,  and auditing fees and expenses  relating to our
compliance with applicable requirements for a public company.

         Our plan to continue during the interim period before  development fees
and sale proceeds are made available from operations, each of which depends upon
construction  financing being obtained for the project sites ready for immediate
lot  improvement  and  buildings,  requires us to  refinance  one or more of the
parcels  of  real  property  owned  by us and  otherwise  not  made  subject  to
financing.  While our real  property is made  subject to recorded  mortgages  to
secure the  debenture  holders,  under the terms of those  mortgages the secured
parties are  required  to  subordinate  their  interest  to new  financings  for
acquisition and construction.  We plan to refinance each of the Texas parcels in
connection  with the initial  construction  financing being sought for the third
quarter  of 2006.  At the same  time,  in  reliance  upon  the  availability  of
construction  financing to build the  improvements,  we have presented the Texas
projects to several  lenders of  mezzanine  financing  to provide any  remaining
funds required to complete the projects.

         Successful  refinancing  of the land  parcels  would  provide  adequate
working  capital  for the period  until the  projects  under  development  would
generate fees and sale proceeds  from business  operations  are available to us;
further  such  refinancings  would  enable us to fund the initial  soft costs of
acquisition and development of certain additional projects we have identified in
other jurisdictions.



                                       19


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         Management's   discussion  and  analysis  of  the  Company's  condensed
consolidated  financial  condition  and results of  operations  are based on its
condensed  consolidated  financial  statements,  which  have  been  prepared  in
accordance with accounting principles generally accepted in the United States of
America.  The preparation of these condensed  consolidated  financial statements
requires the Company to make estimates and assumptions  that affect the reported
amounts of assets and  liabilities  and the disclosure of contingent  assets and
liabilities at the date of the condensed consolidated  financial statements,  as
well as the revenues  and expenses  during the  reporting  periods.  The Company
evaluates its estimates and judgments on an ongoing basis. The Company bases its
estimates on historical  experience and on various other factors it believes are
reasonable  under the  circumstances,  the  results  of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily  apparent  from other  sources.  Actual  results  may differ  from these
estimates under different assumptions or conditions.

ITEM 3.  CONTROLS AND PROCEDURES.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.

         Under the  supervision  and with the  participation  of our management,
including our principal  executive officer and principal  financial officer,  we
evaluated  the  effectiveness  of the design  and  operation  of our  disclosure
controls and  procedures,  as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities  Exchange Act of 1934, as of June 30, 2006. Based on this evaluation,
our principal  executive  officer and our principal  financial officer concluded
that,  as of the end of the  period  covered  by  this  report,  our  disclosure
controls and procedures  were  effective and adequately  designed to ensure that
the information  required to be disclosed by us in the reports we file or submit
under  the  Securities  Exchange  Act  of  1934  (i)  is  recorded,   processed,
summarized,  and reported within the time periods  specified in applicable rules
and forms and (ii) is accumulated and communicated to our management,  including
our  chief  executive  officer  and chief  financial  officer,  to allow  timely
decisions regarding required disclosures.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING.

         During the three month period  ended June 30, 2006,  there have been no
changes in our internal  controls over  financial  reporting that has materially
affected,  or is reasonably  likely to materially  affect,  our internal control
over financial reporting.

LIMITATIONS OF CONTROLS AND PROCEDURES.

         Our  disclosure  controls and  internal  controls  and  procedures  are
designed to provide  reasonable  assurance of achieving their objectives and our
chief  executive  officer and chief  financial  officer have  concluded that our
disclosure  controls and procedures are effective at that  reasonable  assurance
level.

         Our  management,  including  our  chief  executive  officer  and  chief
financial officer,  however does not expect that our disclosure  controls or our
internal  controls will prevent all error and all fraud.  A control  system,  no
matter how well  conceived  and  operated,  can  provide  only  reasonable,  not
absolute,  assurance  that the  objectives  of the  control  system are met.  In
addition,  the design of a control  system must  reflect the fact that there are
resource  constraints,  and the benefits of controls must be considered relative
to their costs.  Because of the inherent  limitations in all control systems, no
evaluation of controls can provide  absolute  assurance  that all control issues
and  instances  of fraud,  if any,  within a company have been  detected.  These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.

         Additionally,  controls can be  circumvented  by the individual acts of
some persons,  by collusion of two or more people or by  management  override of
the  control.  The design of any systems of controls  also is based in part upon
certain  assumptions about the likelihood of future events,  and there can be no
assurance  that any design will succeed in achieving  its stated goals under all
potential future conditions. Over time, control may become inadequate because of
changes  in  conditions,  or the  degree  of  compliance  with the  policies  or
procedures  may  deteriorate.   Because  of  these  inherent  limitations  in  a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.

         It is  recognized  individual  persons  perform  multiple  tasks  which
normally would be allocated to separate  persons and therefore  extra  diligence
must be exercised during the period these tasks are combined.


                                       20


                                     PART II
                                OTHER INFORMATION

ITEM  1. LEGAL PROCEEDINGS.

         To the best knowledge of the officers and directors, the Company is not
a party to any legal proceedings or litigation.

ITEM  2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

         The Company has not sold any equity  securities  during the three month
period ended June 30, 2006. As discussed in Part I, Item 1, Note 6  (Convertible
Debentures) and Item 5 below,  the Company and Cornell have reached an agreement
in principle  under which Cornell  would convert a portion of the  debentures it
holds into a warrant for common stock..

ITEM  3. DEFAULTS UPON SENIOR SECURITIES.

         The Company has outstanding convertible debentures of $ 6,618,782,  due
on January 15, 2007,  which bear per annum interest of 12%,  payable in 12 equal
installments  of $ 542,449  plus  interest  commencing  January  15,  2006,  and
continuing  until  January 15, 2007.  As  described  under Notes 6 and 11 to the
Unaudited  Condensed  Consolidated  Financial  Statements  (See  Part I,  Item 1
above), the Company is in default for not making the installment  payments under
the debentures,  for total arrears of $ 3,797,143 as of the date of this filing.
The Company has reached an  agreement in principle  with these  lenders  waiving
such default and modifying  the payment  terms and is currently in  negotiations
with those lenders to document the extension and modification terms.

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

         None.

ITEM 5.  OTHER INFORMATION.

         The following  "Subsequent  Events" have occurred  after June 30, 2006.
References  to  "Notes"  refer  to  the  corresponding  Note  to  our  condensed
consolidated financial statements set forth above under Part I.

         The Company and Cornell have been in further discussions since June 30,
2006,  and Cornell has  indicated  that it would like to modify the agreement to
include a smaller  immediate  reduction of the debenture  balances,  but has not
stated  its  final  terms  for the  modification  and the  parties  continue  to
negotiate such terms.

         The note payable to SC  Development  Partners had a current  balance of
$130,000  on June 30,  2006 and the  Company is in  default.  The Company and SC
Development Partners are negotiating terms to extend the maturity date.

         On July 31, 2006,  the Orinda  Note,  which has a balance of $ 650,000,
was due and payable. (See Note 5 - Mortgages and Notes Payable).  The Company is
in default as of July 31, 2006. The Company has a pending loan  application with
United  General  Mortgage  Corporation  to  refinance  the property in an amount
sufficient to pay Orinda Capital in full and provide  additional working capital
to the Company.


                                       21


ITEM 6.  EXHIBITS

EXHIBIT NUMBER      EXHIBIT

31.1                Certification  by Chief Executive  Officer  pursuant to Rule
                    13a-14(a)  or 15d-14(a)  of the  Securities  Exchange Act of
                    1934,   as  adopted   pursuant   to   Section   302  of  the
                    Sarbanes-Oxley Act of 2002.

31.2                Certification  by Chief Financial  Officer  pursuant to Rule
                    13a-14(a)  or 15d-14(a)  of the  Securities  Exchange Act of
                    1934,   as  adopted   pursuant   to   Section   302  of  the
                    Sarbanes-Oxley Act of 2002.

32.1                Certification  by Chief  Executive  Officer  pursuant  to 18
                    U.S.C.  Section 1350, as adopted  pursuant to Section 906 of
                    the Sarbanes-Oxley Act of 2002.

32.2                Certification  by Chief  Financial  Officer  pursuant  to 18
                    U.S.C.  Section 1350, as adopted  pursuant to Section 906 of
                    the Sarbanes-Oxley Act of 2002.


                                       22


                                    SIGNATURE

         Pursuant to the  requirements  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.

                                                  Enclaves Group, Inc.
                                                  ------------------------------
                                                  (Registrant)


Date:  August 11, 2006                            /s/ Daniel G. Hayes
                                                  ------------------------------
                                                  Daniel G. Hayes
                                                  Chief Executive Office and President


Date:  August 11, 2006                            /s/ Mark D. MacFarlane
                                                  ------------------------------
                                                  Mark D. MacFarlane
                                                  Chief Operating Officer and Acting Chief
                                                  Financial Officer


                                       23`