`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 September 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 NOVEMBER  16, 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 September 30, 2006.............................................2

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

          Condensed Consolidated  Statements of Changes in Stockholders'
          Deficit for the Nine Months Ended September 30, 2006 and 2005,
          for the year ended  December  31,  2005,  for the period  from
          November 17, 2004 (Inception) to December 31, 2004 and for the
          period from  November 17, 2004  (Inception)  to September  30,
          2006.................................................................4

          Condensed  Consolidated  Statements of Cash Flows for the Nine
          Months Ended September 30, 2006 and 2005 and for the
          period from November 17, 2004 (Inception) to September 30, 2006......5

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

Item 2.   Management's Discussion and Analysis or Plan of Operation ..........18

Item 3.   Controls and Procedures.............................................24

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings...................................................26

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.........26

Item 3.   Defaults Upon Senior Securities.....................................26

Item 4.   Submission of Matters to a Vote of Security Holders.................26

Item 5.   Other Information...................................................27

Item 6.   Exhibits............................................................27

          Signatures..........................................................29




                                               PART I
                                        FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

                                ENCLAVES GROUP, INC. AND SUBSIDIARIES
                                    (A Development Stage Company)
                                CONDENSED CONSOLIDATED BALANCE SHEET
                                         September 30, 2006
                                             (Unaudited)

                                               ASSETS

Current Assets
   Cash                                                                                $     20,069
   Restricted cash                                                                           33,068
   Tax escrow                                                                                41,154
   Prepaid expenses and other current assets                                                 15,615
                                                                                       ------------

   Total current assets                                                                     109,906

   Land                                                                                   9,393,374
   Deferred project costs                                                                 5,437,692
   Deferred financing costs,
      net of accumulated amortization $1,049,884                                            208,120
   Website development costs, net of accumulated amortization of $13,387                     41,719
                                                                                       ------------

                 Total assets                                                          $ 15,190,811
                                                                                       ============

                                LIABILITIES AND STOCKHOLDERS' DEFICIT


Liabilities
Current Liabilities
   Mortgages and notes payable                                                         $  8,389,011
   Convertible debentures                                                                 6,618,782
   Accounts payable                                                                       1,122,664
   Accrued expenses                                                                         964,139
   Due to stockholder                                                                        57,074
                                                                                       ------------

   Total current liabilities                                                             17,151,670
                                                                                       ------------

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 and outstanding                                816
   Common stock - 5,000,000,000 authorized shares - $.001 par value
      87,242,533 shares issued and outstanding                                               87,242
   Additional paid-in capital                                                                  (962)
   Deficit accumulated during the development stage                                      (2,047,955)
                                                                                       ------------

   Total stockholders' deficit                                                           (1,960,859)
                                                                                       ------------

   Total liabilities and stockholders' deficit                                         $ 15,190,811
                                                                                       ============





  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                     Nine Months Ended               2004 (Inception) to
                                September 30, 2006  September 30, 2005   September 30, 2006   September 30, 2005  September 30, 2006
                                ----------------------------------------------------------------------------------------------------
Revenue                            $       --          $       --           $       --           $       --          $       --

(Income) Expenses

  Other income                             (439)             (1,220)              (3,064)             (4,487)             (7,923)
  General, administrative
    and selling expenses  (A)           249,558             275,152            1,010,696             498,958           2,055,878
                                   ------------        ------------         ------------         ------------        ------------

Net loss                           $   (249,119)       $   (273,932)        $ (1,007,632)        $   (494,471)       $ (2,047,955)
                                   ============        ============         ============         ============        ============



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

Weighted average
  shares outstanding                 87,242,533          87,242,533           87,242,533           52,269,107
                                   ============        ============         ============         ============        ============

*  Less than $.005

(A) Includes stock-based compensation of $0 and $26,100 for the three and nine months ended September 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 CHANGES IN STOCKHOLDERS' DEFICIT
                                                             (Unaudited)

                                                                                                                           Deficit
                                                     Common Stock                 Preferred Stock                        Accumulated
                                             ------------------------------ -----------------------------                During the
                                                                                                            Additional   Development
                                               # of shares       Amount    # of shares        Amount     Paid-in Capital    Stage
                                             ---------------------------------------------------------------------------------------
     Issuance of Common Stock -
       November 17, 2004 (A)                     5,637,874   $    10,000          --      $      --      $    43,996    $      --

     Issuance of Preferred Stock -
       November 17, 2004                              --            --       1,000,000          1,000           --             --

     Net loss for the period ended
       December 31, 2004                              --            --            --             --             --         (103,090)
                                             ---------------------------------------------------------------------------------------


Balance, December 31, 2004                       5,637,874        10,000     1,000,000          1,000         43,996       (103,090)

     Number of shares outstanding of
       legal acquirer, Alliance
       Towers, Inc. - April 27, 2005             4,362,126          --            --             --             --             --

     Issuance of Preferred Stock -
       April 27, 2005                                 --            --       6,000,000          6,000           --             --

     Conversion of Preferred Stock -
       April 27, 2005 (B)                       77,242,533        77,242    (6,000,000)        (6,000)       (71,242)          --

     Net loss for the nine months ended
       September 30, 2005                             --            --            --             --             --         (494,471)
                                             ---------------------------------------------------------------------------------------

Balance, September 30, 2005                     87,242,533        87,242     1,000,000          1,000        (27,246)      (597,561)

     Exchange of Preferred Stock for a
       Warrant - November 9, 2005                     --            --        (184,000)          (184)           184           --

     Net loss for the three months ended
       December 31, 2005                              --            --            --             --             --         (442,762)
                                             ---------------------------------------------------------------------------------------

Balance, December 31, 2005                      87,242,533        87,242       816,000            816        (27,062)    (1,040,323)

     Issuance of Warrants for
       Services-January 31, 2006                      --            --            --             --            5,850           --

     Issuance of Warrants for
       Services-February 28, 2006                     --            --            --             --            5,400           --

     Issuance of Warrants for
       Services-March 31, 2006                        --            --            --             --            7,650           --

     Issuance of Warrants for
       Services-April 30, 2006                        --            --            --             --            7,200           --

     Net loss for the nine months ended
       September 30, 2006                             --            --            --             --             --       (1,007,632)
                                             ---------------------------------------------------------------------------------------

Balance, September 30, 2006                     87,242,533   $    87,242       816,000    $       816    $      (962)   $(2,047,955)
                                             =======================================================================================

(A)  Stock issued by Alliance Towers, Inc. in exchange for stock of Enclaves Group, Inc. (reverse merger) as if it had occurred with
     the inception of Enclaves Group, Inc. on November 17, 2004.

(B)  Exchange of Preferred for Common Stock as part of completing the reverse merger. See Note 1 Organization

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



                                                                 4



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


                                                                               Nine Months        Nine Months    From November, 17,
                                                                                  ended               ended      2004 (Inception) to
                                                                         September, 30, 2006 September, 30, 2005 September, 30, 2006
                                                                         -----------------------------------------------------------
Cash flows from operating activities
  Net loss                                                                  $ (1,007,632)       $   (494,471)       $ (2,047,955)
  Adjustments to reconcile net loss to net cash flows used in
    operating activities:
    Amortization                                                                  13,387                --                13,387
    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 current assets             5,595             (24,640)            (15,615)
      Increase in accounts payable                                                36,317              20,741             235,009
      Increase (Decrease) in accrued expenses                                    (10,151)               --                69,699
                                                                         -----------------------------------------------------------

            Net cash used in operating activities                               (936,384)           (498,186)         (1,590,393)

Cash flows from investing activities
    Purchase of land                                                                --            (2,978,912)         (8,444,624)
    Deferred project costs                                                    (1,020,583)           (463,811)         (1,783,741)
    Website development costs                                                     (2,114)            (45,716)            (55,106)
    Deposits                                                                      25,000              35,000                --
    Payment of escrow fees                                                          --               (50,000)            (41,154)
                                                                         -----------------------------------------------------------

            Net cash used in investing activities                               (997,697)         (3,503,439)        (10,324,625)
                                                                         -----------------------------------------------------------

Cash flows from financing activities
    Proceeds from issuance of convertible debt                                      --             4,000,000           5,500,000
    Proceeds from mortgages and notes payable                                  2,994,011                --             9,159,011
    Repayment of mortgages and notes payable                                  (1,458,750)               --            (1,558,750)
    Restricted cash                                                              241,932                --               (33,068)
    Proceeds from stockholder loan                                                  --                  --                55,297
    Payment of merger costs                                                         --              (109,872)           (109,872)
    Payment of deferred financing costs                                          (77,232)           (540,887)         (1,077,531)
                                                                         -----------------------------------------------------------

            Net cash provided by financing activities                          1,699,961           3,349,241          11,935,087
                                                                         -----------------------------------------------------------

Net increase (decrease) in cash                                                 (234,120)           (652,384)             20,069
Cash, beginning of period                                                        254,189             819,443                --
                                                                         -----------------------------------------------------------

Cash, end of period                                                         $     20,069        $    167,059        $     20,069
                                                                         ===========================================================

Supplemental disclosure of cash flow information:
Cash paid for interest                                                      $    492,839        $       --          $    542,973

Noncash investing and financing activities
  Deposit for acquisition of land parcels paid by a stockholder                     --                  --               160,000
  Good faith deposits applied against purchase price of land parcels                --               100,000             160,000
  Payment of deferred project costs by stockholder                                  --                  --               339,503
  Payment of general, administrative and selling expenses by stockholder            --                  --               103,090
  1,000,000 shares of preferred stock issued in partial settlement
    of loan by stockholder                                                          --                  --                 1,000
  10,000 shares of common stock issued in partial settlement of
    loan by stockholder                                                             --                  --               600,000
  Balance of purchase price of land acquired with seller financing                  --               788,750             788,750
  Capitalization of amortized deferred financing costs as deferred
    project costs                                                                634,586             257,425           1,049,884
  Capitalization of interest on convertible debentures as deferred
    project costs                                                                   --                62,260             718,074
  Deferred financing costs included in accounts payable and accrued
    expenses                                                                      14,810                --                92,974
  Deferred project costs included in accounts payable and accrued
    expenses                                                                     648,418             114,236             799,063
  Accrued interest capitalized as deferred project costs                         606,559             287,694             747,426
  Surrender of preferred stock and issuance of warrant                              --                  --                   184

                  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.


                                       6




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.

         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.


                                       7



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  costs
incurred  have been charged to deferred  project  costs and  deferred  financing
costs, respectively, and will be allocated to the land account when improvements
have been completed.

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 $4,552 and $0 for the three
months ended September 30, 2006 and 2005,  respectively,  $13,387 and $0 for the
nine months ended September 30, 2006 and 2005, respectively, and $13,387 for the
period from November 17, 2004 (Inception) to September 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.


                                       8



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 management's best estimate of future trends,  events,  and
overall  business  climate.  If such reviews indicate 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

         SFAS 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 nine months ended September 30, 2006 and 2005
were the same.

         The following  table shows the securities  outstanding at September 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.



                                           September 30, 2006   September 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
                                           ==================   ==================


                                       9


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 nine
months ended September 30, 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 nine months
ended  September 30, 2006 was $0 and $26,100,  respectively,  which consisted of
stock-based  compensation  expense  related to  warrants  issued  for  "Investor
Relations"  services.  There was no stock-based  compensation expense related to
employee equity awards and employee stock purchases  recognized  during the nine
months ended September 30, 2006.

         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  Statements 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 nine months
ended September 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  Statements of Operations for the three
and nine months ended September 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.

                                       10



         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).

         From  November  17, 2004  (Inception)  through  September  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 will adopt the provisions of
FIN 48 for fiscal years  beginning after December 15, 2006. The Company does not
expect  FIN  48 to  have  a  material  impact  on our  consolidated  results  of
operations, financial position, or cash flows.

         SFAS No. 157,  "FAIR VALUE  MEASUREMENTS"  ("SFAS  157"),  defines fair
value,  establishes a framework for  measuring  fair value in GAAP,  and expands
disclosures about fair value measurements. The Company will adopt the provisions
of SFAS 157 effective  January 1, 2008.  The Company does not expect SFAS 157 to
have a material  impact on the  Company's  consolidated  results of  operations,
financial position, or cash flows.

         SFAS No. 158,  "EMPLOYERS'  ACCOUNTING FOR DEFINED  BENEFIT PENSION AND
OTHER  POSTRETIREMENT  PLANS - an amendment of FASB  Statements No. 87, 88, 106,
and 132(R)" ("SFAS 158"),  improves financial reporting by requiring an employer
to  recognize  the  overfunded  or  underfunded  status  of  a  defined  benefit
postretirement  plan as an asset or  liability  in its  statement  of  financial
position and to recognize changes in that funded status in the year in which the
changes occur through comprehensive income. The Company does not expect SFAS 158
to have an impact on the Company's consolidated results of operations, financial
position, or cash flow.


                                       11



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 September 30, 2006:

           LLC OWNER                      ACRES           LOCATION

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

     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 September 30, 2006.


NOTE 5:  MORTGAGES AND NOTES PAYABLE

         The Company has a note and  mortgage  (the  "Wilson  Note")  payable to
Charles J. Wilson,  assignee of Orinda Capital Partners,  LLP, 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.  On October  3, 2006 the  Wilson  Note was  amended  to  increase  the
interest rate and to extend the maturity to October 31, 2006 from July 31, 2006.
As of September 30, 2006, the balance  outstanding  of the mortgage  payable was
$650,000.  The mortgage note bears interest at 15% per annum. The Company was in
default as of November 1, 2006,  since it was unable to  refinance  the property
before the  maturity  date,  but then paid the  balance  of the  Wilson  Note in
entirety  on November  10,  2006,  with the  proceeds  of a loan  obtained  from
Magellan Mortgage Group secured by the same property,  which loan bears interest
at 15% per annum and matures on November  10,  2007.  (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.  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 September 30, 2006 the
loan balance  outstanding  was  $2,441,011.  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).

                                       12



         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.  HFAH has guaranteed this loan. (See Note 9 - Related
Party Transactions and Note 11 - Subsequent Events).

         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. On September 15,
2006,  Enclaves of Grand Oaks LLC, the LLC owning the subject  land,  issued its
note in the amount of the balance  outstanding to establish an extended maturity
date.  The note  bears  interest  at 10% per  annum  and is due and  payable  on
December 31, 2006. As of September 30, 2006 the balance outstanding on this loan
was $130,000.

         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, and 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.
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.  On November 3, 2006, each of these notes was assigned by Mr. MacFarlane
to HFAH, the current holder.  (See Note 9 - Related Party  Transactions and Note
11 - Subsequent Events).

         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,  and a second
note payable to Mr. Hayes of $33,000 for monies  advanced on September 19, 2006,
for working capital.  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.  On November 3, 2006, each of these notes was assigned by
Mr. Hayes to HFAH, the current holder.  (See Note 9 - Related Party Transactions
and Note 11 - Subsequent Events).

         The Company has five notes payable in the aggregate  amount of $390,000
to HFAH for monies  advanced for working  capital and project  costs as follows:
(i) $200,000 on June 16, 2006; (ii) $40,000 on August 1, 2006;  (iii) $65,000 on
August 17, 2006;  (iv) $50,000 on August 30, 2006;  and (v) $35,000 on September
26,  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).  The Company has
borrowed  additional  funds from HFAH after  September 30, 2006.  (See Note 11 -
Subsequent Events).

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


                                       13



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 $551,565 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 has reached an  agreement  in
principle with the lenders  waiving such default and modifying the payment terms
and is currently in negotiations  with the lenders to document the extension and
modification of the terms. (See Note 11 - Subsequent Events).

         On  April 6,  2006,  the  Company  and  Cornell  Capital  Partners,  LP
("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  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  (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
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.


                                       14



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  September  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  September 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 September  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 September 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 September 30, 2006.

         Further,  the Company has  borrowed  funds from HFAH and its  executive
officers. (See Note 5 - Mortgages and Notes Payable). The Company has notes of $
390,000 to HFAH,  two notes totaling  $83,000 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.  The executive officers have subsequently
assigned  their notes to HFAH and HFAH has loaned the Company  additional  funds
after September 30, 2006. (See Note 11 - Subsequent Events).


                                       15



         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 $19,000 for the three months ended  September 30,
2006 and 2005,  respectively,  approximately  $13,000  and  $33,000 for the nine
months  ended  September  30,  2006 and 2005,  respectively,  and  approximately
$152,000 for the period from  November  17, 2004  (Inception)  to September  30,
2006.  Included in the  accounts  payable as of  September  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  September 30,
2006, an entity affiliated with 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 nine  months  ended
September 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 $15,000  during the three and nine months ended  September  30,
2005 and $50,000  for the period from  November  17,  2004  (Inception)  through
September  30, 2006.  No such  consulting  services were provided to the Company
during the three and nine months ended September 30, 2006.

         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 September 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,  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.


                                       16



         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 several of their original comments still open,  including the question
on the treatment of the convertible  preferred  stock.  The Company has obtained
advice on the appropriate accounting treatment and will now file its response to
those last open comments in the next five business days.

         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.


NOTE 11:          SUBSEQUENT EVENTS

         The Company and Cornell  have been in further  discussions  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 October 31, 2006, the Wilson Note,  which has a balance of $650,000,
was due and payable but not paid.  (See Note 5 - Mortgages  and Notes  Payable).
The Company was in default as of November 1, 2006, but repaid the Wilson Note in
entirety on  November  10,  2006,  through a  refinancing  loan in the amount of
$788,750  replacement  mortgage obtained from Magellan  Mortgage Company,  which
loan was secured by the same real property, bears interest at 15% per annum, and
matures on November 10, 2007.

         On November 3, 2006,  our  executive  officers  sold and  assigned  the
Company notes, in the aggregate  amount of $83,000 held by Mr. Hayes and $80,000
held by Mr.  MacFarlane,  to HFAH, which paid the principal and accrued interest
through that date to the assignors. On November 3, 2006, in consideration of the
extension of the due date of the $50,000 note of the Company  originally made on
May 25, 2006, to Mr. MacFarlane, from November 24, 2006 to December 31, 2006, we
amended its interest  rate from the date of issuance  from 6.25%  (increased  to
6.50% as of August 15, 2006), his cost of funds, to 10%, to conform the maturity
date and other terms with all of the other related party notes.

                                       17



         The Company has borrowed  additional  funds since  September  30, 2006,
from HFAH and issued  notes to HFAH as follows:  (i) $33,000 on October 3, 2006;
(ii) $205,000 on October 18, 2006;  (iii) $85,000 on October 31, 2006;  and (iv)
$25,000 on November 9, 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.


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 Securities and Exchange  Commission  ("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,  we have 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


                                       18



("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  following  discussion  of our  financial  condition and results of
operations should be read in conjunction with our 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 HOME SM 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. ("HFAH")
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").
Cornell  offered bridge  financing in the form of convertible  debentures and an
equity  credit  line  financing  for the  immediate  launch  of the YOUR HOME SM
Program.

         As consideration  for these properties and assets,  valued in excess of
Six Hundred Thousand Dollars  ($600,000),  in December 2004 HFAH 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 HFAH. Through
those voting rights, HFAH retains  substantial  ownership rights and the ability
to control the development and expansion of our business.

         The common stock of HFAH was previously  registered under Section 12(g)
of the  Exchange  Act and HFAH  itself was a public  corporation  with its stock
traded on the over-the-counter  markets with the trading symbol "HFAM." However,
HFAH failed to make any of its mandated  public  filings  after the period ended
September 30, 2002, and as a result of this failure,  HFAH consented to an order
of the SEC that pursuant to Section  12(j) of the Exchange Act, as amended,  the
registration of each class of HFAH securities registered under Section 12 of the
Exchange Act, 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 HOME SM Program with HFAH, 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 SM unit of HFAH, and Daniel G. Hayes,  our President
and Chief  Executive  Officer,  who served as counsel to HFAH and the Company in
closing the original debt and equity facilities in December 2004.

         We have been able to complete  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 will
submit  the  contracts  for  bids  from  established   general  contractors  for
guaranteed  construction  cost contracts once the projects have been approved by
construction  lenders for  construction  financing  sufficient  to commence  and
complete build-out of those projects.  Our initial financing has also enabled us


                                       19



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 SM
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.

         To proceed  with such an  ambitious  acquisition  plan and  realize the
advantage  of being first to market with our YOUR HOME SM 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  from HFAH  sufficient to provide  working capital for our
immediate plans through  December 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  HOME SM  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 constructing  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,  however, 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 YOUR HOME SM lease and own business  model  contemplates  our
developing,  building,  leasing,  and  selling  new homes to a target  market of
working families


                                       20



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.

         We are  currently  seeking  and have  been  seeking  for a  substantial
period, including the last two fiscal quarters permanent loan commitments, since
we believe use of immediate sales would  inadequately  demonstrate our YOUR HOME
SM lease and own  business  model and limit our ability to promote the  existing
project sites. Since we have not obtained  construction  financing for the Texas
projects with any acceptable revolving take-out facility, we are now considering
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  has
approximately  960 home  lots  (depending  on size and  configuration),  we have
obtained a letter of interest for 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  sections,  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 are  negotiating  to conclusion a purchase  commitment  from a single
builder  sufficient  for  us to  obtain  the  financing  and  commence  the  lot
improvements, with such purchase and refinancing anticipated to occur before the
end of the fourth fiscal quarter.

         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
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


                                       21



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  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 quarters
ended June 30 and  September  30, 2006,  has been  obtained  from related  party
borrowings  from  our  principal  stockholder,  HFAH,  and two of our  executive
officers.

         In addition to related  party  borrowings,  we are actively  seeking 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 initial 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


                                       22



capital from revenue  through the sale of equity  securities and ultimately from
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  nine-month  period ended  September  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  and  are not  now  pursuing.  We are
negotiating  with the  holders  of the  convertible  debentures  to  extend  the
maturity and the payment dates and otherwise modify their terms to coincide with
the anticipated capital resources of the Company.

         On October 31, 2006, the Wilson Note,  which has a balance of $650,000,
was due and payable  but not paid.  The Company was in default as of November 1,
2006,  but repaid the Wilson Note in entirety on November  10,  2006,  through a
refinancing loan in the amount of $788,750  replacement  mortgage  obtained from
Magellan  Mortgage  Company,  which loan was secured by the same real  property,
bears interest at 15% per annum, and matures on November 10, 2007.

         During the nine-month  period ended  September 30, 2006, our balance of
unrestricted cash decreased by $234,120 to $20,069. 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, HFAH, and two of our executive officers.

         Our primary  liquidity  and capital  resource  needs are to finance the
operating costs of our corporate 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 planned to refinance each of the Texas parcels
in connection with any  construction  financing for those projects.  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.

                                       23



         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.

 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
Exchange Act, as of September 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 Exchange Act
(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 September 30, 2006, there have been
no  changes  in  our  internal  controls  over  financial  reporting  that  have
materially affected, or are 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.

                                       24



         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 that 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.


                                       25



                                     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.

         None.

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  $551,565  plus  interest  commencing  January  15,  2006,  and
continuing  until  January 15, 2007.  As  described  under Notes 6 and 10 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 $5,515,650 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.

                                       26



ITEM 5.  OTHER INFORMATION.

         The following  "Subsequent  Events" have occurred  after  September 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  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.

         On October 31, 2006, the Wilson Note,  which has a balance of $650,000,
was due and payable  but not paid.  The Company was in default as of November 1,
2006,  but repaid the Wilson Note in entirety on November  10,  2006,  through a
refinancing loan in the amount of $788,750  replacement  mortgage  obtained from
Magellan  Mortgage  Company,  which loan wwas secured by the same real property,
bears interest at 15% per annum, and matures on November 10, 2007.

         On November 3, 2006,  our  executive  officers  sold and  assigned  the
Company notes, in the aggregate  amount of $83,000 held by Mr. Hayes and $80,000
held by Mr.  MacFarlane,  to HFAH, which paid the principal and accrued interest
through that date to the assignors. On November 3, 2006, in consideration of the
extension of the due date of the $50,000 note of the Company  originally made on
May 25, 2006, to Mr.  MacFarlane,  from November 24, 2006, to December 31, 2006,
we amended its interest rate from the date of issuance from 6.25%  (increased to
6.50% as of August 15,  2006),  to 10%, to conform the  maturity  date and other
terms with all of the other related party notes.

         The Company has borrowed  additional  funds since  September  30, 2006,
from HFAH and issued  notes to HFAH as follows:  (i) $33,000 on October 3, 2006;
(ii) $205,000 on October 18, 2006;  (iii) $85,000 on October 31, 2006;  and (iv)
$25,000 on November 9, 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.


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.


                                       27


Exhibit Number      Exhibit
--------------      -------
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.


                                       28



                                   SIGNATURES

         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:  November 16, 2006           /s/ Daniel G. Hayes
                                        ----------------------------------------
                                                    Daniel G. Hayes
                                          Chief Executive Officer and President


     Date:  November 16, 2006           /s/ Mark D. MacFarlane
                                        ----------------------------------------
                                                  Mark D. MacFarlane
                                        Chief Operating Officer and acting Chief
                                                   Financial Officer


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