<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB
                                   (MARK ONE)

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

                   For the fiscal year ended November 30, 2006

                                       or

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

                           Commission file no. 1-8846

                                  CALTON, INC.
           (Name of small business issuer as specified in its charter)

                 NEW JERSEY                                     22-2433361
(State or other jurisdiction of incorporation                 (I.R.S. Employer
              or organization)                            Identification Number)

       2050 40TH AVENUE - SUITE ONE
            VERO BEACH, FLORIDA                                    32960
(Addresses of principal executive offices)                      (Zip Code)

         Issuer's telephone number, including area code: (772) 794-1414

   (Former name, former address and former fiscal year, if changed since last
                                     report)

Securities registered under Section 12 (b) of the Exchange Act:  None

Securities registered under Section 12 (g) of the Exchange Act:  Common Stock,
                                                                 $0.05 par value

Check whether the Issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act [ ]

Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this Form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [ ] No [X]

Revenues for the fiscal year ended November 30, 2006: $6,630,000.

The aggregate market value (based upon the last sales price of the Issuer's
Common Stock reported by the OTC Bulletin Board) of voting shares and non-voting
equity held by non-affiliates of the registrant as of February 28, 2007 was
$1,020,550.

As of February 28, 2007, 9,592,746 shares of Common Stock were outstanding.

Certain portions of the Company's Proxy Statement for the annual meeting of
shareholders are incorporated by reference into Part III hereof.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

<PAGE>

--------------------------------------------------------------------------------
DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS

All statements, other than statements of historical fact, included in this Form
10-KSB, including in Part II, Item 6: "Management's Discussion and Analysis or
Plan of Operation" and the statements under "Business" are, or may be deemed to
be, "Forward-Looking Statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Words such
as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates," and variations of such words and similar phrases are intended to
identify such forward-looking statements. Such forward-looking statements
involve assumptions, known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements contained in this Form
10-KSB. Such potential risks and uncertainties, include without limitation, the
Company's ability to raise capital, matters related to national and local
economic conditions, including conditions in the residential homebuilding
industry, the effect of governmental regulation on the Company, commercial
acceptance of the Company's co-branded customer loyalty credit card program, the
competitive environment in which the Company operates, the Company's ability to
acquire property for development, the impact of severe weather on the Company's
homebuilding operations, changes in interest rates, and other risk factors
detailed herein and in other of the Company's Securities and Exchange Commission
filings. The forward-looking statements are made of the date of this Form 10-KSB
and the Company assumes no obligation to update the forward-looking statements
or to update the reasons actual results could differ from those projected in
such forward-looking statements.
--------------------------------------------------------------------------------

                                     PART I

ITEM 1.   DESCRIPTION OF BUSINESS

     (A)  BUSINESS DEVELOPMENT

          Calton, Inc. (the "Company" or "Calton") was incorporated in 1981 and
          is a New Jersey corporation.

          The Company's primary business activity is homebuilding. The Company
          also holds a patent on its User Rewards Program and Associated
          Communications Systems developed in connection with its loyalty and
          co-branded credit card program operation which currently does not
          generate any revenues.

          From July 1999 to July 2006, the Company provided Internet business
          solutions to large and medium-sized businesses through its web
          development subsidiary, eCalton.com, Inc. On July 31, 2006, the
          Company completed the sale of substantially all of the assets of
          eCalton.com, Inc. to Bray Web Development, Inc. for $250,000 less
          purchase price adjustments of approximately $41,000.

          In August 2003, the Company decided to capitalize on existing
          management's experience in the residential homebuilding industry and
          acquired 35 residential lots in a 121-home residential community then
          being developed in Vero Beach, Florida. The Company has expanded its
          homebuilding operations since such time and continues to pursue other
          homebuilding opportunities in Florida.

          From July 2000 to October 2003, the Company provided technical
          staffing services in the Houston, Texas area. The technical staffing
          business was wound down in the fourth quarter of fiscal 2003 as a
          result of a severe downturn in economic conditions in its regional
          market.

          Calton maintains its corporate offices at 2050 40th Avenue, Suite One,
          Vero Beach, Florida 32960 and its telephone number is (772) 794-1414.

          In this report, references to "we", "us" and "our" refer to the
          Company.

     (B)  BUSINESS OF ISSUER

          GENERAL
          The Company's business activities are primarily focused on
          homebuilding through Homes by Calton, LLC ("Homes by Calton") and the
          continued development of a loyalty and co-branded credit card program
          through PrivilegeONE Networks, LLC ("PrivilegeONE").

          HOMES BY CALTON, LLC
          Homes by Calton was formed for the express purpose of capitalizing on
          existing management's experience in the residential homebuilding
          marketplace. The Company's focus is on homebuilding developments
          primarily located in Indian River County, Florida.


                                        1

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          Homes by Calton's initial homebuilding endeavor involved the August
          29, 2003 acquisition of 35 residential lots in the Riverside at The
          Island Club, a 121-home residential community then being developed in
          Vero Beach, Florida.

          During fiscal 2004 and 2005, Homes by Calton expanded its homebuilding
          operations throughout the Indian River County market area. Currently,
          the Company is constructing homes in two different communities. In
          addition, management continues to assess land acquisition
          opportunities and negotiate with various landowners, brokers and
          agents to expand its operations and to create a more diversified
          product offering. However, there can be no assurances that
          transactions can be entered into on terms reasonably satisfactory to
          management.

          In addition to developing residential communities, the Company offers
          its "On Your Lot" program pursuant to which the Company arranges for
          the construction of homes for individual landowners.

          PRODUCT OFFERING
          Homes by Calton offers single-family detached homes at prices,
          including customized options and lot premiums, which ranged from
          $515,000 up to $750,000 during the year ended November 30, 2006. Homes
          by Calton offers four different house floor plans in each of its
          communities, with the size of homes ranging from 2,700 to 3,600 square
          feet. A wide selection of options is available to purchasers for
          additional charges. Major options include built-in entertainment
          centers, bonus rooms and pools.

          PRODUCT DEVELOPMENT
          The Company increased its land bank in fiscal 2004 by entering into
          two land purchase agreements covering an additional 49 developed lots
          in Vero Beach, Florida in two different subdivisions. Each, by virtue
          of the lot size and zoning requirements, required eight new model
          types to be developed and were introduced into the marketplace in the
          spring of 2005. In addition, the Company plans to use the new and
          existing model types to refine its "On Your Lot" program.

          SALES AND MARKETING
          Homes by Calton markets its homes primarily to upper-income buyers,
          emphasizing high-quality construction and customer satisfaction. The
          Company maintains sales offices at its communities under development
          which are staffed by Homes by Calton sales personnel. Local realtors
          also introduce customers to Homes by Calton. Homes by Calton also
          advertises in newspapers and other local and regional publications and
          potential homebuyers can obtain detailed information regarding the
          communities where the Company builds by visiting Homes by Calton's web
          site, www.homesbycalton.com. Homes by Calton's homes are sold under a
          limited warranty as to workmanship and materials.

          CONSTRUCTION
          Homes by Calton employees provide purchasing and quality assurance
          for, and construction management of, the homes it builds, while the
          material and labor components of its homes are provided by
          subcontractors. Homes by Calton generally contracts for most of its
          materials and labor at fixed prices during the construction period of
          the home. This process allows Homes by Calton to mitigate the risks
          associated with increases in building materials and labor costs
          between the time construction begins and the time the home closes.
          Homes by Calton complies with local and state building codes,
          including Florida's stringent hurricane and energy efficiency
          regulations. Depending upon the size and complexity of a home's
          design, Homes by Calton construction time generally ranges from about
          150 to 180 calendar days.

          COMPETITION
          The homebuilding business is highly competitive and fragmented. Homes
          by Calton competes with numerous homebuilders of varying sizes,
          ranging from local to national in scope, some of which have
          significantly greater sales and financial resources than Homes by
          Calton. Sales of existing homes are also a competitive factor. Homes
          by Calton competes primarily on the basis of price, location, design,
          quality and service.


                                        2

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          REGULATORY AND ENVIRONMENTAL MATTERS
          Homes by Calton's operations are subject to Federal, state and local
          laws and regulations. In particular, development of property in
          Florida is subject to comprehensive Federal and state environmental
          legislation. This regulatory framework, in general, encompasses areas
          such as traffic considerations, availability of municipal services,
          use of natural resources, impact of growth, utility services,
          conformity with local and regional plans, together with a number of
          other safety and health regulations. Permits and approvals mandated by
          regulation for development of any magnitude are often numerous,
          significantly time-consuming and onerous to obtain and not guaranteed.
          Such permits, once expired, may or may not be renewed and development
          for which the permit is required may not be completed if such renewal
          is not granted. These requirements have a direct bearing on Homes by
          Calton's ability to further develop communities in Florida. Although
          the Company believes that Homes by Calton's operations are in full
          compliance in all material respects with applicable Federal, state and
          local requirements, Homes by Calton's growth and development
          opportunities in Florida may be limited and more costly as a result of
          legislative, regulatory or municipal requirements.

          Homes by Calton's operating costs may also be affected by the cost of
          complying with existing or future environmental laws, ordinances and
          regulations, which require a current or previous owner or operator of
          real property to bear the costs of removal or remediation of hazardous
          or toxic substances on, under, or in the property.

          PRIVILEGEONE NETWORKS, LLC
          PrivilegeONE was formed to develop and implement the PrivilegeONE
          Loyalty and co-branded credit card program. Currently, PrivilegeONE
          has no active business operations; however PrivilegeONE continues to
          explore different opportunities for revenue generation, including
          licensing and joint venture opportunities.

          PATENTS AND TRADEMARKS
          On September 5, 2006, PrivilegeONE received a patent on its User
          Rewards Program and Associated Communications Systems.

          PrivilegeONE has received trademark registrations for "PrivilegeONE"
          and the PrivilegeONE stylized logo.

          EMPLOYEES
          As of February 26, 2007, the Company and its wholly-owned subsidiaries
          employed ten full time personnel and two part-time employees. None of
          the Company's employees are subject to collective bargaining
          agreements. The Company believes that its employee relations are
          satisfactory.

ITEM 2.   DESCRIPTION OF PROPERTY

          The Company currently leases: (a) approximately 650 square feet of
          office space located in Red Bank, New Jersey, for approximately $1,100
          per month, for a renewable term of one year, (b) approximately 2,000
          square feet of office space in Vero Beach, Florida at a monthly rate
          of approximately $2,900 for a term of five years ending September
          2009, and (c) two model homes pursuant to sale-leaseback arrangements
          at the Pointe West community in Vero Beach, Florida, under renewable
          terms of one year each, for a combined total of $8,600 per month.
          Management believes that these arrangements currently provide adequate
          space for all of the Company's business operations.

          Because of the nature of the Company's homebuilding operations,
          significant amounts of property are held as inventory in the ordinary
          course of the Company's homebuilding business. Such properties are not
          included in response to this item.


                                        3

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ITEM 3.   LEGAL PROCEEDINGS

          The Company is involved from time to time in litigation arising in the
          ordinary course of business, none of which is expected to have a
          material adverse effect on the Company.

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

          During the fourth quarter of fiscal 2006, no matter was submitted to a
          vote of security holders through the solicitation of proxies or
          otherwise.

                                     PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

          The Company's common stock is currently being traded on the OTC
          Bulletin Board under the symbol CTON.OB. Once the Company meets the
          listing qualifications of the American Stock Exchange (the "AMEX"), it
          intends to reapply for trading on the AMEX. The following chart
          reflects the high and low sales prices of the common stock during
          fiscal 2006 and 2005:

                           FISCAL 2006    High    Low
                          -----------   -----   -----

                          1st Quarter   $0.70   $0.43
                          2nd Quarter    0.79    0.43
                          3rd Quarter    0.67    0.40
                          4th Quarter    0.60    0.38

                           FISCAL 2005    High    Low
                          -----------   -----   -----

                          1st Quarter   $0.48   $0.27
                          2nd Quarter    0.76    0.40
                          3rd Quarter    0.48    0.36
                          4th Quarter    0.61    0.35

          At February 28, 2007, there were approximately 373 shareholders of
          record of the Company's common stock, based on information obtained
          from the Company's transfer agent. On that date, the last sales price
          the Company's common stock as reported by the OTC Bulletin Board was
          $0.34.

          In fiscal 2006 and 2005, the Company did not pay dividends. The
          Company intends to retain future earnings to finance the expansion of
          operations and for general corporate purposes.


                                        4

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ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

          RESULTS OF OPERATIONS FOR THE YEARS ENDED NOVEMBER 30, 2006 AND 2005

          REVENUES: Consolidated revenues decreased from $13,120,000 in 2005 to
          $6,631,000 in 2006. The decrease is attributable to a downturn in the
          homebuilding market. We delivered 22 homes in 2005 compared to 11
          homes in 2006.

          COST OF SALES: Cost of sales consists of cost of goods sold for the
          homebuilding operations. Homebuilding cost of goods sold decreased
          from $9,762,000 for the year ended November 30, 2005 to $5,644,000 for
          the year ended November 30, 2006 as a result of the decreased
          revenues. Included in the $5,644,000 of cost of goods sold for the
          year ended November 30, 2006 is $677,000 in impairment charges on our
          inventory. Gross profits on revenues for the homebuilding business
          remained fairly stable, reaching 26% in 2005 and 25% in 2006
          pre-impairment charge. Gross margin for fiscal 2006 after fully taking
          the affect of the impairment charge was 15%. Although the sales pace
          decreased significantly in fiscal 2006, we were able to avoid price
          reductions on the homes we sold and delivered during the year. No
          assurances can be given that gross profits will not be adversely
          impacted by market conditions in fiscal 2007.

          SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and
          administrative expenses decreased from $2,339,000 in 2005 to
          $2,186,000 in 2006. The decrease in selling, general and
          administrative expenses is primarily attributable to decreases in
          personnel at the homebuilding division and overall expense reductions.

          INTEREST INCOME: Interest income is derived principally from interest
          on depository accounts and money-market type accounts. Interest income
          increased from $6,000 in 2005 to $8,000 in 2006. The increase was a
          result of higher average deposited balances. Currently, cash is being
          used in operating activities and accordingly, interest income is
          expected to decline during 2007.

          INTEREST EXPENSE: Interest expense amounted to $344,000 for the year
          ended November 30, 2006 compared to $153,000 for the year ended
          November 30, 2005. Interest is incurred on our demand revolving line
          of credit and mortgage note and, to the extent required under
          generally accepted accounting principles, capitalized in real estate
          inventory. During the years ended November 30, 2006 and 2005, we
          capitalized $108,000 and $98,000, respectively.

          GAINS ON INVESTMENTS: During the year ended November 30, 2006, we
          incurred a $61,000 unrealized gain on the carrying value of CorVu
          Corporation's common stock. During the year ended November 30, 2005,
          we incurred a $48,000 unrealized loss on the carrying value of CorVu
          Corporation's common stock. As of November 30, 2006, we carried CorVu
          common stock with a fair value of $116,000.

          LITIGATION SETTLEMENTS: We paid $15,000 in litigation settlements as a
          result of the resolution of certain matters in the year ended November
          30, 2006. We received $71,000 in litigation settlements during the
          year ended November 30, 2005.

          OTHER INCOME (EXPENSE): We received a $194,000 insurance settlement
          during the year ended November 30, 2005 for business interruption
          losses sustained due to Hurricanes Frances and Jeanne.

          DISCONTINUED OPERATIONS: On July 31, 2006, we completed the sale of
          substantially all of the assets of eCalton.com, Inc. to Bray Web
          Development, Inc., a corporation controlled by an officer of
          eCalton.com, Inc., for $250,000, less purchase price adjustments of
          approximately $41,000. We recorded a gain of $229,000 on the sale of
          assets and $145,000 in operating income from discontinued operations
          for the year ended November 30, 2006.


                                        5

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          SALES ACTIVITY AND BACKLOG:

                                                    Contract     Number
                                                    Backlog     of Homes
                                                  -----------   --------
          Backlog as of November 30, 2005         $ 2,250,000          4

          Less: Homes delivered during the
                year ended November 30, 2006       (6,630,000)       (11)

          Plus: New contracts signed during the
                year ended November 30, 2006        4,380,000          7
                                                  -----------   --------
          Backlog as of November 30, 2006         $         0          0
                                                  ===========   ========

          We are currently constructing homes in the Pointe West traditional
          neighborhood community, located in Vero Beach, Florida. We have
          completed construction of homes in Amelia Plantation, also located in
          Vero Beach, Florida. In 2005, we began our "On-Your-Lot" program in
          which we arrange for the construction of homes for individual
          landowners. We delivered one On-Your-Lot home in 2006. In December
          2005, we acquired a 10-acre parcel in Vero Beach, Florida on which we
          intend to construct 21 single family homes. Management continues to
          assess land acquisition opportunities and negotiate with various
          landowners, brokers and agents to expand its operations and create a
          more diversified product offering.

          LIQUIDITY AND CAPITAL RESOURCES

          GENERAL:

          Our consolidated financial statements are prepared on a going concern
          basis, which assumes that we will realize our assets and discharge our
          liabilities in the normal course of business. As reflected in the
          financial statements, we have incurred a loss from continuing
          operations of $1,551,000 and used cash in our continuing operations of
          $5,548,000 during the fiscal year ended November 30, 2006. These
          conditions raise doubt as to our ability to continue our normal
          business operations as a going concern. As of November 30, 2006, we
          had $2,843,000 in working capital which is anticipated to be
          sufficient to fund the current operating plan during the fiscal year
          ending on November 30, 2007.

          Management's plan to sustain our operations includes targeted
          marketing for new home sales, incentive pricing for current inventory
          homes, renegotiating pricing with subcontractors, curtailing expenses
          to the extent appropriate and raising additional debt or equity
          capital from external sources.

          CASH FLOWS FROM OPERATING ACTIVITIES:

          We used $5,548,000 in cash in our operating activities during the year
          ended November 30, 2006 compared to using $248,000 in cash in our
          operating activities during the year ending November 30, 2005. The
          primary uses of cash in the year ended November 30, 2006 were the
          increase in homebuilding inventory levels, decrease in accounts
          payable and the net loss incurred for the year. The primary use of
          cash in the year ended November 30, 2005 was an increase in inventory
          levels.


                                        6

<PAGE>

          CASH FLOWS FROM INVESTING ACTIVITIES:

          We generated $189,000 in cash from our investing activities during the
          year ended November 30, 2006 primarily from the sale of substantially
          all of the assets of eCalton.com, Inc. We used $150,000 in our
          investing activities during the year ended November 30, 2005. The use
          of cash represents the purchase of furniture for our model homes and
          the purchase of computer equipment.

          CASH FLOWS FROM FINANCING ACTIVITIES:

          We generated $3,391,000 in cash from our financing activities for the
          year ended November 30, 2006. We generated $507,000 in cash from our
          financing activities for the year ended November 30, 2005. These
          amounts represented borrowings on our construction line of credit and
          mortgage note primarily due to increased inventory levels.

          As a result of the above cash flow activities, cash decreased from
          $2,737,000 at November 30, 2005 to $769,000 as of November 30, 2006.
          Total working capital decreased from $4,165,000 at November 30, 2005
          to $2,843,000 at November 30, 2006.

          COMMITMENTS, GUARANTEES AND CONTINGENCIES

          PROFIT SHARING ARRANGEMENT:

          The Company has entered into an arrangement with John G. Yates and
          Thomas C. Corley, who are the President and Chief Financial Officer of
          PrivilegeONE, respectively, pursuant to which Mr. Yates and Mr. Corley
          have agreed to serve as unpaid officers of PrivilegeONE and pursue
          business opportunities on behalf of PrivilegeONE in consideration of
          the Company's agreement to pay them 25% of the net profit attributable
          to business arrangements with parties introduced by either of them to
          PrivilegeONE. There were no revenues derived from PrivilegeONE in
          fiscal years 2006 and 2005.

          LOAN AGREEMENT:

          The Company maintains a $6.5 million construction revolving line of
          credit with Harbor Federal Savings Bank. Interest on advances, which
          are secured by a mortgage on the Company's homebuilding properties,
          accrues at a rate equal to the prime rate plus one percent (1%) per
          annum. As of November 30, 2006, $4,370,000 of advances under the line
          of credit was outstanding.

          In December 2005, the Company financed the purchase of a ten-acre
          undeveloped land parcel in Vero Beach, Florida through a $1 million
          mortgage note from Harbor Federal Savings Bank and working capital.
          Interest on the note, which is secured by the land purchased, accrues
          at a rate equal to the prime rate plus one percent (1%) per annum. As
          of November 30, 2006, $1 million was outstanding under the note.

          OPERATING LEASE COMMITMENTS:

          The Company and its consolidated subsidiaries lease their facilities
          with various expiration dates through 2009. Future non-cancelable
          minimum lease payments for each of the following years ending November
          30 are as follows:

                                  2007     100,000
                                  2008      36,000
                                  2009      32,000
                                          --------
                                  Total   $168,000
                                          ========


                                        7

<PAGE>

          GUARANTEES AND OFF BALANCE SHEET ARRANGEMENTS:

          The Company has no guarantees outside of the consolidated organization
          and no off balance sheet arrangements of any nature.

          PARTICULARLY SENSITIVE ACCOUNTING ESTIMATES

          RESERVE FOR WARRANTY: The Company provides a basic limited warranty on
          workmanship and materials for all homes for a period of one year. The
          Company estimates the costs that may be incurred under its basic
          limited warranty and records a liability in the amount of such costs
          at the time the product revenue is recognized. Factors that affect the
          Company's warranty liability include the number of homes sold,
          historical and anticipated rates of warranty claims and average cost
          per claim. Estimated future warranty costs are charged to cost of
          sales in the period when the revenues from home closings are
          recognized. Such estimated costs are 0.5% of the total sales price of
          the home. The Company periodically assesses the adequacy of its
          recorded warranty liabilities and adjusts the amount as necessary. The
          Company's warranty liability is included in accrued expenses on its
          balance sheet.

          ESTIMATED CONSTRUCTION COSTS:
          The Company recognizes revenue from fixed price and modified fixed
          price construction contracts for homebuilding on customer-owned lots
          based on the percentage-of-completion method, measured by the
          percentage of cost incurred to date to estimated total cost for each
          contract. Contract costs include all direct material and labor costs
          and those indirect costs related to contract performance, such as
          indirect labor, supplies, tools, repairs and depreciation. Provisions
          for estimated losses on uncompleted contracts are made in the period
          in which such losses are determined. Changes in job performance, job
          conditions, contract penalty provisions, claims, change orders, and
          settlements are accounted for as changes in estimates in the current
          period. Because of the inherent uncertainties in estimating costs, it
          is at least reasonably possible that the estimates used will change
          within the near term.

          RECENT ACCOUNTING PRINCIPLES

          FASB STATEMENT NO. 157, FAIR VALUE MEASUREMENTS
          In September 2006, the FASB issued Financial Accounting Standard No.
          157 (FAS 157), Fair Value Measurements. FAS No. 157 enhances prior
          definitions of fair value and establishes a framework for measuring
          fair value in generally accepted accounting principles and expands
          disclosures on fair value measurements. This statement does not
          require any new fair value measurements. FAS 157 is effective for
          fiscal years beginning after December 15, 2007. The Company does not
          expect the adoption of FAS 157 to have an affect on the Company's
          consolidated results and financial position.

          FASB INTERPRETATION NO. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
          FASB Interpretation No. 48, "Accounting for Uncertainty in Income
          Taxes" (FIN 48) clarifies the accounting for uncertainty in income
          taxes recognized in an enterprise's financial statements in accordance
          with FASB Statement No. 109, "Accounting for Income Taxes". This
          interpretation 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
          also provides guidance on derecognition, classification, interest and
          penalties, accounting in interim periods, disclosure and transition.
          FIN 48 is effective for fiscal years beginning after December 15,
          2006. The Company has not yet determined the impact of the adoption of
          FIN 48 on its consolidated financial statements.


                                        8

<PAGE>

ITEM 7.   FINANCIAL STATEMENTS

          The Financial Statements are set forth herein commencing on page F-1
          of this report.

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

          None.

ITEM 8A.  CONTROLS AND PROCEDURES

          As of the end of the period covered by this report, the Company
          carried out an evaluation of the effectiveness of the design and
          operation of the Company's disclosure controls and procedures. This
          evaluation was carried out under the supervision and with the
          participation of the Company's management, including the Company's
          Chairman and Chief Executive Officer, along with the Company's Chief
          Financial Officer, who concluded that the Company's disclosure
          controls and procedures were effective as of the date of the
          evaluation. There were no significant changes in the Company's
          internal controls during the year ended November 30, 2006 that have
          materially affected, or are reasonably likely to have materially
          affected, the Company's internal controls subsequent to the date the
          Company carried out its evaluation.

          Disclosure controls and procedures are controls and other procedures
          that are designed to provide reasonable assurance that information
          required to be disclosed in Company reports filed or submitted under
          the Securities and Exchange Act of 1934 ("Exchange Act") is recorded,
          processed, summarized and reported, within the time periods specified
          in the Securities and Exchange Commission's rules and forms.
          Disclosure controls and procedures include, without limitation,
          controls and procedures designed to provide reasonable assurance that
          information required to be disclosed in Company reports filed under
          the Exchange Act is accumulated and communicated to management,
          including the Company's Chief Executive Officer and Chief Financial
          Officer as appropriate, to allow timely decisions regarding required
          disclosure.


                                        9

<PAGE>

                                    PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

          EXECUTIVE OFFICERS
          The executive officers of the Company, as of February 28, 2007, are
          listed below and brief summaries of their business experience and
          certain other information with respect to them are set forth in the
          following table and in the information which follows the table:

          NAME                 AGE  POSITION
          ----                 ---  --------
          Anthony J. Caldarone 69   Chairman, President and Chief Executive
                                    Officer
                                    Chairman and Chief Executive Officer - Homes
                                    by Calton, LLC

          Maria F. Caldarone   43   Executive Vice President of Corporate
                                    Development and Asst. Secretary
                                    President - Homes by Calton, LLC
                                    Executive Vice President of Operations -
                                    PrivilegeONE

           Laura A. Camisa      44  Senior Vice President, Chief Financial
                                    Officer and Treasurer
                                    Senior Vice President - Homes by Calton, LLC
                                    Senior Vice President of Strategic Planning-
                                    PrivilegeONE

          Mr. Caldarone has served as Chairman, President and Chief Executive
          Officer of the Company since January 27, 2005 and served in the same
          capacity from the inception of the Company in 1981 through June 1993
          and from November 1995 through September 2002. From September 2002
          until January 2005, he served as Chairman and Chief Executive Officer
          of the Company. He served as director of the Company from June 1993
          through October 1995.

          Ms. Caldarone has served as Executive Vice President of the Company
          since September 2002, President of Homes by Calton since January 2004
          and Executive Vice President of PrivilegeONE since May 2001. She
          served as Vice President of the Company from February 2000 until
          September 2002. From 1995 through January 1999, Ms. Caldarone was a
          non-practicing attorney. Prior to 1995, Ms. Caldarone was employed by
          Trafalgar Homes from December 1993 to November 1994, where she served
          as Director of Land Acquisition. Ms. Caldarone is a licensed attorney
          in the state of Florida. Ms. Caldarone is the daughter of Mr.
          Caldarone.

          Ms. Camisa, who resigned her positions with the Company effective as
          of February 28, 2007, has served as Chief Financial Officer and
          Treasurer of the Company since April 2004 and Senior Vice President of
          the Company since September 2002. From April 2000 until her
          appointment as Senior Vice President, she served as the Company's Vice
          President of Strategic Planning, having been hired in February 2000 as
          a Financial Analyst. Ms. Camisa was appointed Senior Vice President of
          Homes by Calton in January 2004. Prior to joining Calton, she held the
          position of Director of Investor Relations and Financial Analyst at
          Hovnanian Enterprises, Inc. from June 1998 through February 2000. Ms.
          Camisa held the position of Financial Analyst - International Mergers
          and Acquisitions at Marsh & McLennan Companies from January 1995
          through May 1998. Ms. Camisa spent five years with Kidder, Peabody &
          Co. as a Financial Analyst specializing in Mergers & Acquisitions and
          High Yield Debt Financing, as well as successfully completing the
          company's Investment Banking Analyst Training Program.

          Vicky F. Savage has been elected by the Board of Directors to serve as
          Vice President, Acting Chief Financial Officer and Treasurer for the
          Company, effective March 1, 2007. She has served as Accounting Manager
          for the Company from December 2001 through February of 2007. From June
          of 2000 until November of 2001, she held the positions of Accountant,
          Controller and Finance Manager of the Company's subsidiary,
          eCalton.com, Inc., which sold its business in July 2006. Prior to


                                       10

<PAGE>

          June 2000, Ms. Savage was Accounting Supervisor at Central Rural
          Electric Cooperative in Stillwater, Oklahoma.

          DIRECTORS
          Information regarding Directors of the Company is incorporated herein
          by reference to the Company's proxy statement to be filed with the
          Securities and Exchange Commission pursuant to Regulation 14A, not
          later than 120 days after the end of the fiscal year covered by this
          report.

          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
          Information regarding compliance with Section 16(a) of the Securities
          Exchange Act of 1934 is incorporated herein by reference to the
          Company's proxy statement to be filed with the Securities and Exchange
          Commission pursuant to Regulation 14A, not later than 120 days after
          the end of the fiscal year covered by this report.

          CODE OF CONDUCT
          The Company has adopted a Code of Conduct that applies to all of its
          directors, officers and employees, including its Chief Executive
          Officer, Chief Financial Officer and other senior financial officers.
          The Company's Code of Conduct is posted on its website,
          www.caltoninc.com, under Investor Relations. The Company intends to
          disclose on its website any amendment to, or waiver of, a provision of
          the Code of Conduct that applies to its Chief Executive Officer, Chief
          Financial Officer or other senior financial officers.

ITEM 10.  EXECUTIVE COMPENSATION

          The information required by Item 10 is incorporated herein by
          reference to the Company's proxy statement to be filed with the
          Securities and Exchange Commission pursuant to Regulation 14A, not
          later than 120 days after the end of the fiscal year covered by this
          report.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

          The information required by Item 11 is incorporated herein by
          reference to the Company's proxy statement to be filed with the
          Securities and Exchange Commission pursuant to Regulation 14A, not
          later than 120 days after the end of the fiscal year covered by this
          report.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          The information required by Item 12 is incorporated herein by
          reference to the Company's proxy statement to be filed with the
          Securities and Exchange Commission pursuant to Regulation 14A, not
          later than 120 days after the end of the fiscal year covered by this
          report.

ITEM 13.  EXHIBITS

          Reference is made to the Index of Exhibits hereinafter contained on
          page E-1.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

          The information required by Item 14 is incorporated herein by
          reference to the Company's proxy statement to be filed with the
          Securities and Exchange Commission pursuant to Regulation 14A, not
          later than 120 days after the end of the fiscal year covered by this
          report.


                                       11

<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                                 CALTON, INC.
                                                 -------------------------------
                                                 (Registrant)


Dated: March 14, 2007                        By: /s/ Vicky F. Savage
                                                 -------------------------------
                                                 Vicky F. Savage, Acting Chief
                                                 Financial Officer and Treasurer

                                POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Anthony J. Caldarone and Vicky F. Savage and each
of them, as his true lawful attorney-in-fact and agent, with full power of
substitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Form 10-KSB, and to file the
same, together with all the exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and being requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, of his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.

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


/s/ Anthony J. Caldarone        Chairman, President, Chief        March 14, 2007
-----------------------------   Executive Officer & Director
Anthony J. Caldarone            (Principal Executive Officer)


/s/ Vicky F. Savage             Acting Chief Financial Officer    March 14, 2007
-----------------------------   & Treasurer (Principal
Vicky F. Savage                 Financial & Accounting Officer)


/s/ J. Ernest Brophy            Director                          March 14, 2007
-----------------------------
J. Ernest Brophy


/s/ Mark N. Fessel              Director                          March 14, 2007
-----------------------------
Mark N. Fessel


/s/ Kenneth D. Hill             Director                          March 14, 2007
-----------------------------
Kenneth D. Hill


/s/ Frank Cavell Smith, Jr.     Director                          March 14, 2007
-----------------------------
Frank Cavell Smith, Jr.


/s/ John G. Yates               Director                          March 14, 2007
-----------------------------
John G. Yates


                                       12

<PAGE>

                          CALTON, INC. AND SUBSIDIARIES
                   INDEX OF CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----
Report of Independent Registered Public Accounting Firm                      F-2

Consolidated Balance Sheet as of November 30, 2006                           F-3

Consolidated Statements of Operations for the Years Ended November 30,
2006 and 2005                                                                F-4

Consolidated Statements of Cash Flows for the Years Ended November 30,
2006 and 2005                                                                F-5

Consolidated Statements of Shareholders' Equity for the Years Ended
November 30, 2006 and 2005                                                   F-6

Notes to Consolidated Financial Statements                                   F-7


                                       F-1

<PAGE>

        REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
        -----------------------------------------------------------------

To the Board of Directors and Shareholders
Calton, Inc.
Vero Beach, Florida

We have audited the accompanying consolidated balance sheet of Calton, Inc. and
Subsidiaries as of November 30, 2006 and the consolidated statements of
operations, shareholders' equity, and cash flows for the years ended November
30, 2006 and 2005. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Calton,
Inc. and Subsidiaries as of November 30, 2006 and the consolidated results of
their operations and their cash flows for the years ended November 30, 2006 and
2005 in conformity with accounting principles generally accepted in the United
States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company incurred a net loss of approximately $1.4
million during the year ended November 30, 2006 and experienced approximately
$5.5 million of negative operating cash flows during that same period.
Additionally, as of the date of this report the Company had minimal pending
homes sales. The Company has approximately $5 million of substantially completed
homes in inventory which are the collateral for the demand notes payable. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 2. The consolidated financial statements do not include any adjustments
with respect to the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
might result from the outcome of this uncertainty.


                                               /s/ AIDMAN, PISER & COMPANY, P.A.

Tampa, Florida
February 26, 2007


                                       F-2

<PAGE>

CALTON, INC.  AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 2006

ASSETS
   Current Assets
      Cash and cash equivalents                                     $   769,000
      Accounts receivable                                                14,000
      Inventory                                                       7,685,000
      Prepaid expenses and other current assets                         157,000
      Assets of discontinued operations (Note 9)                         33,000
                                                                    -----------
         Total current assets                                         8,658,000
                                                                    -----------
   Deferred charges                                                      20,000
   Property and equipment, net                                          171,000
                                                                    -----------
         Total assets                                               $ 8,849,000
                                                                    ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
   Current Liabilities
      Accounts payable                                              $   188,000
      Accrued expenses                                                  206,000
      Other current liabilities                                          51,000
      Notes payable                                                   5,370,000
                                                                    -----------
         Total liabilities                                            5,815,000
                                                                    -----------
   Commitments and contingent liabilities (Note 10)                           -

   Shareholders' Equity
      Common stock, $.05 par value, 25,000,000 shares authorized;
         10,697,855 shares issued and 9,592,746 shares outstanding      480,000
      Additional paid-in capital                                     10,547,000
      Accumulated deficit                                            (2,344,000)
      Less cost of shares held in treasury 1,105,109 shares          (5,765,000)
      Accumulated other comprehensive income                            116,000
                                                                    -----------
         Total shareholders' equity                                   3,034,000
                                                                    -----------
         Total liabilities and shareholders' equity                 $ 8,849,000
                                                                    ===========

                 See notes to consolidated financial statements.


                                      F-3

<PAGE>

CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED NOVEMBER 30, 2006 AND 2005

                                                         2006           2005
                                                     ------------   -----------
REVENUE
   Homebuilding                                      $  6,631,000   $13,120,000
                                                     ------------   -----------
                                                        6,631,000    13,120,000
                                                     ------------   -----------
COSTS AND EXPENSES
   Cost of sales
      Cost of sales                                     4,967,000     9,762,000
      Inventory impairment                                677,000             -
                                                     ------------   -----------
   Total cost of sales                                  5,644,000     9,762,000
   Selling, general and administrative                  2,186,000     2,339,000
                                                     ------------   -----------
                                                        7,830,000    12,101,000
                                                     ------------   -----------
      Income (loss) from operations                    (1,199,000)    1,019,000
OTHER INCOME (EXPENSE)
   Interest income                                          8,000         6,000
   Interest expense                                      (344,000)     (153,000)
   Litigation settlements                                 (15,000)       71,000
   Other income (expense)                                  (1,000)      179,000
                                                     ------------   -----------
      Income (loss) before discontinued operations     (1,551,000)    1,122,000
         and income taxes

INCOME (LOSS) FROM DISCONTINUED OPERATIONS (NOTE 9):
   Gain on sale of certain assets                         229,000             -
   Discontinued operations                                (84,000)       14,000
                                                     ------------   -----------
Income (loss) before income taxes                      (1,406,000)    1,136,000
   Income tax expense                                           -        (2,000)
                                                     ------------   -----------
NET INCOME (LOSS)                                    $ (1,406,000)  $ 1,134,000
                                                     ============   ===========
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
   Income (loss) from continuing operations          $      (0.16)  $      0.12
                                                     ============   ===========
   Income from discontinued operations               $       0.01   $         -
                                                     ============   ===========
   Net income (loss)                                 $      (0.15)  $      0.12
                                                     ============   ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
      Basic                                             9,528,000     9,421,000
                                                     ============   ===========
      Diluted                                           9,528,000     9,545,000
                                                     ============   ===========

                 See notes to consolidated financial statements.


                                      F-4

<PAGE>

CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, 2006 AND 2005

<TABLE>
<CAPTION>
                                                                         2006           2005
                                                                      -----------   -----------
<S>                                                                   <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                                     $(1,406,000)  $ 1,134,000
   Adjustments to reconcile net income (loss) to net cash
      used in operating activities:
   Depreciation from continuing operations                                 40,000        28,000
   Depreciation from discontinued operations                                9,000        11,000
   Amortization of deferred charges                                        41,000       111,000
   Impairment charge to inventory                                         677,000             -
   Gain on sale of assets of discontinued operations                     (229,000)            -
   Stock-based compensation for directors                                  57,000        49,000
   Increase (decrease) in cash resulting from changes in:
      Accounts receivable                                                 125,000      (124,000)
      Inventory                                                        (3,690,000)   (2,233,000)
      Deposits on land                                                    350,000       (38,000)
      Prepaid expenses and other assets                                    29,000        74,000
      Accounts payable                                                   (859,000)      802,000
      Accrued expenses                                                   (391,000)      308,000
      Other current liabilities                                          (400,000)     (315,000)
      Assets of discontinued operations                                   169,000       (34,000)
      Liabilities of discontinued operations                              (70,000)      (21,000)
                                                                      -----------   -----------
Net cash flows from operating activities                               (5,548,000)     (248,000)
                                                                      -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from sale of certain assets of discontinued operations        209,000             -
   Purchases of property and equipment from continuing operations         (11,000)     (140,000)
   Purchases of property and equipment from discontinued operations        (9,000)      (10,000)
                                                                      -----------   -----------
Net cash flows from investing activities                                  189,000      (150,000)
                                                                      -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES
   Increase in deferred charges                                           (42,000)      (33,000)
   Proceeds from notes payable, net                                     3,433,000       540,000
                                                                      -----------   -----------
Net cash flows from financing activities                                3,391,000       507,000
                                                                      -----------   -----------
Net increase (decrease) in cash and cash equivalents                   (1,968,000)      109,000
Cash and cash equivalents at beginning of period                        2,737,000     2,628,000
                                                                      -----------   -----------
Cash and cash equivalents at end of period                            $   769,000   $ 2,737,000
                                                                      ===========   ===========
SUPPLEMENTAL CASH FLOW INFORMATION
   Non-cash investing and financing activities
      Interest paid                                                   $   411,000   $   141,000
                                                                      ===========   ===========
      Income taxes paid                                               $        --   $     2,000
                                                                      ===========   ===========
</TABLE>

                 See notes to consolidated financial statements.


                                      F-5

<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2006 AND 2005
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
                                       Common Stock     Additional                          Accum.         Total
                                      ---------------     Paid In     Accum.   Treasury     Other      Shareholders'
                                      Shares   Amount     Capital    Deficit     Stock    Comp. Inc.      Equity
                                      ------   ------   ----------   -------   --------   ----------   -------------
<S>                                    <C>      <C>      <C>         <C>       <C>           <C>          <C>
Balances, December 1, 2004             9,372    $469     $12,033     $(2,072)  $(7,346)      $103         $ 3,187

   Net Income                              -       -           -       1,134         -          -           1,134
   Stock issued to Directors             125       6        (855)          -       898          -              49
   Unrealized Losses on Investments        -       -           -           -         -        (48)            (48)
                                       -----    ----     -------     -------   -------       ----         -------
Balances, November 30, 2005            9,497    $475     $11,178     $  (938)  $(6,448)      $ 55         $ 4,322
                                       -----    ----     -------     -------   -------       ----         -------
   Net Loss                                -       -           -      (1,406)        -          -          (1,406)
   Stock issued to Directors              96       5        (631)          -       683          -              57
   Unrealized Gains on Investments         -       -           -           -         -         61              61
                                       -----    ----     -------     -------   -------       ----         -------
Balances, November 30, 2006            9,593    $480     $10,547     $(2,344)  $(5,765)      $116         $ 3,034
                                       =====    ====     =======     =======   =======       ====         =======
</TABLE>

                 See notes to consolidated financial statements.


                                       F-6

<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2006 AND 2005

1.   NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     NATURE OF BUSINESSES

     Calton, Inc. ("Calton" or the "Company") was incorporated in the State of
     New Jersey in 1981. The Company is engaged in constructing single family
     homes through Homes by Calton, LLC ("Homes by Calton") and the continued
     development of a loyalty and co-branded credit card program through
     PrivilegeONE Networks, LLC ("PrivilegeONE").

     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
     principles generally accepted in the United States of America requires
     management to make estimates and assumptions that affect the amounts
     reported in the consolidated financial statements and accompanying notes.
     Actual results could differ from those estimates.

     PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of the Company
     and its wholly-owned subsidiaries. All significant inter-company accounts
     and transactions have been eliminated in the accompanying consolidated
     financial statements.

     REVENUE RECOGNITION

     Revenues and related profits from homebuilding on the Company's lots are
     recognized using the deposit method, as defined in Statements on Financial
     Accounting (SFAS) No. 66. Revenue is recognized when the earning process of
     constructing and selling the home has been completed as follows:

     o       The Company recognizes revenue at the time of closing and title
             transfer. Prior to closing, the customer performs walkthroughs
             of the home and any other procedures that they consider
             necessary to accept the home. The Company attempts to remedy any
             issues with its customers prior to closing.

     o       In all instances, the buyer's commitment to repay financing
             obtained to purchase the property is between the buyer and the
             buyer's lender. The Company does not provide customer financing
             and there is no recourse against the Company for non-payment by
             the buyers.

     o       The risks and rewards of ownership of the home pass to the
             customer at closing and the Company has no substantial
             continuing involvement with the property.

     In addition, the Company recognizes revenue from fixed price and modified
     fixed price construction contracts for homebuilding on customer-owned lots
     based on the percentage-of-completion method, measured by the percentage of
     cost incurred to date to estimated total cost for each contract. Contract
     costs include all direct material and labor costs and those indirect costs
     related to contract performance, such as indirect labor, supplies, tools,
     repairs, and depreciation. Provisions for estimated losses on uncompleted
     contracts are made in the period in which such losses are determined
     without regard to the percentage of completion. Changes in job performance,
     job conditions, contract penalty provisions, claims, change orders, and
     settlements are accounted for as changes in estimates in the current
     period. Because of the inherent uncertainties in estimating costs, it is at
     least reasonably possible that the estimates used will change within the
     near term.


                                       F-7

<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2006 AND 2005

     In accordance with SFAS No. 13, Accounting for Leases, the Company defers a
     portion of its revenue on the sale-leasebacks of its model homes. The
     Company will recognize the deferred revenue (the net present value of the
     lease payments) in equal increments over the term of the lease.

     CASH AND CASH EQUIVALENTS

     Cash equivalents consist of demand deposits and highly liquid money market
     funds. The Company places its temporary cash investments with high credit
     quality financial institutions. At times, such investments may be in excess
     of the FDIC insurance limits. The Company has not experienced any loss to
     date on these investments.

     INVESTMENTS

     The Company holds certain equity securities which are classified as
     available-for-sale as defined in SFAS No. 115. As a result, at November 30,
     2006 the securities are valued at fair market value of $116,000 and are
     included in prepaid expenses and other current assets in the accompanying
     consolidated balance sheet. The corresponding unrealized gain on securities
     held as available-for-sale is recorded as a component of other
     comprehensive income.

     INVENTORY

     Homebuilding work in process, speculative and model homes and developed
     land are stated at the lower of cost (including direct construction costs,
     capitalized interest and real estate taxes) or net realizable value. The
     capitalized costs are included in cost of homebuilding revenues as homes
     are sold and customers take title to the home and real estate.

     In accordance with SFAS 34, Capitalization of Interest Costs, the Company
     capitalizes interest incurred on lots under development and homes under
     construction. During the year ended November 30, 2006, approximately
     $180,000 of interest was capitalized. Capitalization begins when the
     construction of a home commences, whether it is under contract or being
     built on a speculative basis. Capitalized interest costs are charged to
     cost of sales in the period when the revenues from home closings are
     recognized. Interest costs are expensed on developed, vacant lots and
     completed speculative homes.

     PROPERTY AND EQUIPMENT

     Property and equipment are carried at cost. Computer equipment is being
     depreciated using the straight-line method over a useful life of three to
     four years, office furniture is being depreciated using the straight-line
     method over five years, and leasehold improvements are being depreciated
     using the straight-line method over the terms of the respective leases,
     which range from one to five years. Maintenance and repairs are expensed as
     incurred, while renewals and betterments are capitalized.

     IMPAIRMENTS OF LONG-LIVED ASSETS

     The Company performs an assessment of the carrying values of fixed assets
     and other long-lived assets to be held and used when indications that the
     carrying value of such assets may not be recoverable are present. This
     review consists of a comparison of the carrying value of the assets with
     expected undiscounted cash flows. If the respective carrying values exceed
     expected undiscounted cash flows, the impairment is measured using fair
     value measures to the extent available or discounted cash flows.


                                       F-8

<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2006 AND 2005

     DEFERRED FINANCE CHARGES

     Deferred finance charges are associated with the Company's current
     revolving credit agreement (Note 4). Deferred finance charges are amortized
     over the term of the line of credit. Amortization is reflected as a
     component of interest expense.

     INCOME TAXES

     The Company records deferred taxes based on temporary differences between
     the tax bases of the Company's assets and liabilities and their financial
     reporting bases. A valuation allowance is established when it is more
     likely than not that some or all of the deferred tax assets will not be
     realized. Income tax expense is the tax payable for the period and the
     change during the period in deferred tax assets and liabilities.

     FAIR VALUE OF FINANCIAL INSTRUMENTS

     The Company's financial instruments consist of cash and cash equivalents,
     accounts receivable, investments, accounts payable, accrued expenses and
     other liabilities and notes payable. At November 30, 2006, the fair value
     of these instruments approximated their carrying value.

     ADVERTISING EXPENSE

     The costs of advertising are expensed as incurred. Included in selling,
     general and administrative expenses are advertising costs of approximately
     $430,000 and $507,000 for the years ended November 30, 2006 and 2005,
     respectively.

     PER SHARE COMPUTATIONS

     Basic income (loss) per common share is computed by dividing net income
     (loss) by the weighted average number of common shares outstanding during
     the period. Diluted income (loss) per share is computed by dividing the net
     income (loss) by the weighted average number of common shares outstanding,
     increased by the assumed conversion of other potentially dilutive
     securities during the period.

                                                           2006         2005
                                                       -----------   ----------
     Net income (loss) - [numerator]                   $(1,406,000)  $1,134,000
                                                       ===========   ==========
     Basic:
        Weighted average shares outstanding
          [denominator]                                  9,528,000    9,421,000
                                                       ===========   ==========
        Net income (loss) per common share             $     (0.15)      $ 0.12
                                                       ===========   ==========
     Diluted:
        Weighted average shares outstanding              9,528,000    9,421,000
        Effect of dilutive securities                            -      124,000
                                                       -----------   ----------
        Adjusted weighted average shares -
          [denominator]                                  9,528,000    9,545,000
                                                       ===========   ==========
     Net income (loss) per common share - diluted      $     (0.15)  $     0.12
                                                       ===========   ==========


                                       F-9

<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2006 AND 2005

     The effect of 717,000 and 758,200 stock options outstanding at November 30,
     2006 and 2005, respectively, were not included in the calculation of
     diluted income (loss) per share for each of those years, as they were
     anti-dilutive pursuant to the treasury stock method.

     STOCK-BASED COMPENSATION
     In March 2006, the Company adopted the accounting provisions of Statement
     of Financial Accounting Standards No. 123R - Share-based Payments (FAS
     123R) which required the use of the fair-value based method to determine
     compensation for all arrangements under which employees and others received
     shares of stock or equity instruments (warrants and options). The adoption
     of this standard had no impact on the Company's results of operations for
     the fiscal year ended November 30, 2006.

     The following table reflects supplemental financial information related to
     stock-based employee compensation, as required by SFAS 148:

       Year ended November 30, 2005:
       Net income, as reported                                 $ 1,134,000
                                                               ===========
       Income per share, as reported                           $      0.12
                                                               ===========
       Stock-based employee compensation costs used in the
       determination of net income, as reported                $         -
                                                               ===========
       Stock-based employee compensation costs that would
       have been included in the determination of net income
       if the fair value method (SFAS 123) had been
       applied to all awards                                   $  (105,000)
                                                                ===========
       Unaudited pro forma net income, as if the
       fair value method had been applied to all awards        $  1,029,000
                                                               ============
       Unaudited pro forma income per share, as if the
       fair value method had been applied to all awards        $       0.11
                                                               ============

     Stock based compensation costs that would have been included in the
     determination of net income if the fair value method had been applied is
     calculated using the Black-Scholes option-pricing model, with the following
     assumptions in the year ended November 30, 2005: dividend yield - none,
     volatility of 137%, risk-free interest rate of 4.49%, assumed forfeiture
     rate as they occur, and an expected life of 4.3 years.


                                      F-10

<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2006 AND 2005

     RECENT ACCOUNTING PRONOUNCEMENTS

     FASB STATEMENT NO. 157, FAIR VALUE MEASUREMENTS
     In September 2006, the FASB issued Financial Accounting Standard No. 157
     (FAS 157), Fair Value Measurements. FAS No. 157 enhances prior definitions
     of fair value and establishes a framework for measuring fair value in
     generally accepted accounting principles and expands disclosures on fair
     value measurements. This statement does not require any new fair value
     measurements. FAS 157 is effective for fiscal years beginning after
     December 15, 2007. The Company is but does not expect the adoption of FAS
     157 to have an affect on the Company's consolidated results and financial
     position.

     FASB INTERPRETATION NO. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
     FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes"
     (FIN 48) clarifies the accounting for uncertainty in income taxes
     recognized in an enterprise's financial statements in accordance with FASB
     Statement No. 109, "Accounting for Income Taxes". This interpretation
     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 also provides guidance on
     derecognition, classification, interest and penalties, accounting in
     interim periods, disclosure and transition. FIN 48 is effective for fiscal
     years beginning after December 15, 2006. The Company has not yet determined
     the impact of the adoption of FIN 48 on its consolidated financial
     statements.

     RECLASSIFICATIONS
     Certain balances have been reclassified to conform with the current year
     presentation.

2.   LIQUIDITY AND MANAGEMENT'S PLANS

     The Company's consolidated financial statements are prepared on a going
     concern basis, which assumes that the Company will realize its assets and
     discharge its liabilities in the normal course of business. As reflected in
     the financial statements, the Company has incurred a loss from continuing
     operations of $1,551,000 and used cash in continuing operations of
     $5,548,000 during the fiscal year ended November 30, 2006. These conditions
     raise doubt as to the ability of the Company to continue its normal
     business operations as a going concern. As of November 30, 2006, the
     Company had $2,843,000 in working capital which is anticipated to be
     sufficient to fund the current operating plan during the fiscal year ending
     on November 30, 2007.

     Management's plan to sustain the Company's operations includes targeted
     marketing for new home sales, incentive pricing for current inventory
     homes, renegotiating pricing with subcontractors, curtailing expenses to
     the extent appropriate and raising additional debt or equity capital from
     external sources.


                                      F-11

<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2006 AND 2005

3.   INVENTORY

     Inventory consists of the following as of November 30, 2006:

                   Land                          $2,504,000
                   Homes under construction       1,589,000
                   Speculative and model homes    3,592,000
                                                 ----------
                                                 $7,685,000
                                                 ==========

     The Company capitalizes interest on loans directly associated with the real
     estate development projects. During the years ended November 30, 2006 and
     2005, the Company capitalized $108,000 and $98,000, respectively.

4.   PROPERTY AND EQUIPMENT

     Property and equipment consists of the following as of November 30, 2006:

               Computer equipment and furniture    $ 204,000
               Leasehold improvements                  5,000
               Other                                  74,000
                                                   ---------
                                                     283,000

                 Less: Accumulated Depreciation     (112,000)
                                                   ---------
                                                   $ 171,000
                                                   =========

5.   NOTES PAYABLE

     Notes payable includes borrowings under a $6.5 million demand revolving
     line of credit with Harbor Federal Savings Bank. The credit facility is
     secured by inventories and related homebuilding assets. Notes payable also
     includes a $1 million mortgage note due in March 2007 that is payable to
     Harbor Federal Savings Bank. The mortgage note is secured by the land
     purchased in the Magnolia Plantation subdivision. The annual interest rate
     on both the revolving credit line and mortgage note is the bank's prime
     rate plus 1% (9.25% at November 30, 2006).

6.   SHAREHOLDERS' EQUITY ACTIVITY

     The Company's Certificate of Incorporation, as amended, provides for
     25,000,000 authorized shares of Common Stock (par value $.05 per share),
     520,000 shares of Redeemable Convertible Preferred Stock (par value $.10
     per share) and 2,000,000 shares of Class A Preferred Stock (par value $.10
     per share), 1,000,000 shares of which have been designated as Class A
     Series One Preferred Stock. None of the Preferred Stock is issued or
     outstanding.


                                      F-12

<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2006 AND 2005

     STOCK COMPENSATION PROGRAMS AND TRANSACTIONS

     As of November 30, 2006, there were 667,000 options exercisable under all
     plans in the aggregate with a weighted average exercise price of $0.45.
     Stock option activity is summarized as follows:

                                              2006                  2005
                                       ------------------   -------------------
                                                 Weighted              Weighted
                                                  Average               Average
                                                 Exercise              Exercise
                                       Options     Price     Options     Price
                                       --------  --------   ---------  -------
        Outstanding
           Beginning of year            758,200    $ 0.70     705,400     $1.58
           Granted at market price       50,000      0.45     165,000      0.46
           Expired or cancelled         (91,200)     2.51    (112,200)     0.59
                                       --------  --------   ---------   -------
        Outstanding end of year         717,000    $ 0.45     758,200     $0.70
                                       ========  ========   =========   =======
        Exercisable as of November 30   667,000    $ 0.45     758,200     $0.70
                                       ========  ========   =========   =======

     The fair value of each option award is estimated on the date of grant using
     the Black-Scholes valuation model that uses assumptions for expected
     volatility, expected dividends, expected term and the risk-free interest
     rate. Expected volatilities are based on implied volatilities from traded
     options on the Company's stock, historical volatility of the Company's
     stock and other factors estimated over the expected term of the options.
     The expected term of options granted is derived using the "simplified
     method" which computes expected term as the average of the sum of the
     vesting term plus contract term. The risk-free rate is based on the U.S.
     Treasury yield curve in effect at the time of grant for the period of the
     expected term.

     The weighted average grant date fair value of the options granted during
     the year ended November 30, 2006 was $0.29. The range of exercise prices
     for exercisable options and the weighted average remaining lives are
     reflected in the following table:

<TABLE>
<CAPTION>
                       Options Outstanding                                    Exercisable
----------------------------------------------------------------  ----------------------------------
                          Weighted        Weighted     Aggregate              Weighted     Aggregate
  Range of                Average         Average      Intrinsic              Average      Intrinsic
   Prices      Number  Remaining Life  Exercise Price     Value    Number  Exercise Price    Value
------------  -------  --------------  --------------  ---------  -------  --------------  ---------
<S>           <C>         <C>               <C>         <C>       <C>           <C>         <C>
$0.16 - 0.83  717,000     4.21 yrs.         $0.45       $54,225   667,000       $0.45       $54,225
</TABLE>


                                      F-13

<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2006 AND 2005

     A summary of the status of the Company's non-vested stock options as of
     November 30, 2006, and changes during the year then ended, is presented
     below:

                                                            Weighted
                                                            Average
                                                           Grant Date
              Nonvested Stock Options             Shares   Fair Value
              ---------------------------------   ------   ----------
                 Nonvested at November 30, 2005        -      $     -
                 Granted                          50,000         0.29
                 Vested                                -            -
                 Forfeited                             -            -
                                                  ------   ----------
                 Nonvested at November 30, 2006   50,000      $  0.29
                                                  ======   ===========

     As of November 30, 2006 there was approximately $7,300 of total
     unrecognized compensation cost related to non-vested share-based
     compensation arrangements granted under the Plan. That cost is expected to
     be recognized over a weighted-average period of approximately six months.

     During 2006 and 2005, 95,000 and 125,000 shares, respectively, of treasury
     stock were issued to directors of the Company in lieu of receiving cash
     fees. The Company records stock-based compensation associated with the
     issuance of common stock to directors based upon the fair market value of
     the shares on the date issued. Compensation expense for the years ended
     November 30, 2006 and 2005 amounted to $50,000 and $49,000, respectively,
     under this method. Treasury stock was relieved using the first-in first-out
     method of accounting with the difference being recorded as a reduction of
     paid-in capital.

     As of November 30, 2006, there were 939,175 shares of Common Stock reserved
     for possible future issuances under the Company's stock option plans.

     In November 2005, the Company's Board of Directors approved the
     acceleration of the vesting of all outstanding unvested stock options. The
     acceleration was effective on November 30, 2005. No additional stock-based
     compensation expense was recorded since the modification of the options did
     not have any intrinsic value.

     PREFERRED STOCK RIGHTS AGREEMENTS

     In February 1999, the Company's Board of Directors adopted a shareholder
     rights plan (the "Rights Plan") and declared a dividend of one preferred
     stock purchase right (a "Right") for each outstanding share of Common
     Stock. Under the Rights Plan, each Right represents the right to purchase
     from the Company one one-hundredth (1/100th) of a share of Class A
     Preferred Stock Series One (the "Preferred Stock") at a price of $5.50 per
     one one-hundredth (1/100th) of a share. Each one one-hundredth (1/100th) of
     a share of Preferred Stock has economic and voting terms equivalent to
     those of one share of the Company's Common Stock.

     The Rights will not become exercisable unless and until, among other
     things, a person or group acquires or commences a tender offer for 15% or
     more of the Company's outstanding Common Stock. In the event that a person
     or group, without Board approval, acquires 15% or more of the outstanding
     Common Stock, each Right would entitle its holder (other than the person or
     group) to purchase shares of Preferred Stock having a value equal to twice
     the exercise price. Also, if the Company is involved in a merger or sells
     more than 50% of its assets or earning power, each Right will entitle its
     holder (other than the acquiring person or group) to purchase shares of
     common stock of the acquiring company having a market value equal to twice
     the exercise price. If any person or group acquires at least 15%, but less
     than 50%, of the Company's Common Stock, the Board may, at its option,
     exchange one share of


                                      F-14

<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2006 AND 2005

     Common Stock for each Right (other than Rights held by such person or
     group). The Rights Plan may cause substantial dilution to a person or group
     that, without prior Board approval, acquires 15% or more of the Company's
     Common Stock unless the Rights are first redeemed by the Board. The Rights
     expire on February 1, 2009 and may be redeemed by the Company at a price of
     $0.01 per Right. The Company had 9,497,491 preferred stock rights
     outstanding as of November 30, 2006.

     OTHER COMPREHENSIVE INCOME:

     Under Statements of Financial Accounting Standards No. 130 (SFAS 130),
     Reporting Comprehensive Income, the Company is required to display
     comprehensive income and its components as part of its full set of
     financial statements. Comprehensive income comprises net income and
     other comprehensive income items. Other comprehensive income during the
     years ended November 30, 2006 and 2005 represents the changes in
     unrealized gains (losses) on available-for-sale equity securities which
     are included in prepaid expenses and other current assets. The following
     table reflects comprehensive income for the years ended November 30,
     2006 and 2005:

                                                  2006           2005
                                              -----------    -----------
      Net income (loss)                       $(1,406,000)   $ 1,134,000
      Unrealized (loss) gain on investments        61,000        (48,000)
                                              -----------    -----------
      Comprehensive income (loss)             $(1,345,000)   $ 1,086,000
                                              ===========    ===========

7.   INCOME TAXES

     The federal net operating loss carryforward for tax purposes is
     approximately $33,411,000 at November 30, 2006. The Company's ability to
     utilize its deferred tax assets, including the federal net operating loss
     carryforwards created prior to November 21, 1995 to offset future income,
     is limited to approximately $1,000,000 per year under Section 382 of the
     Internal Revenue Code as a result of the change in control of the Company
     in November 1995. These federal carryforwards will expire between 2007 and
     2026.


                                      F-15

<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2006 AND 2005

     The following schedule reconciles the income tax expense (benefit) at the
     federal statutory rate (35%) to the effective rate:

                                                       2006        2005
                                                     ---------------------
       Tax expense (benefit) using statutory rate    $(489,000)  $ 370,000
       Change in valuation allowance                   489,000    (370,000)
                                                     ---------------------
                                                     $       -   $       -
                                                     =====================

     Temporary differences and carryforwards that give rise to deferred tax
     assets as of November 30, 2006 are as follows:

               Net operating losses            $ 13,064,000
               Asset impairment charges             237,000
               Capital loss carryforwards           215,000
               Investment impairment charges        263,000
               Bad debt and other allowances          1,000
               Other                                 57,000
                                              -------------
                  Deferred tax assets            13,837,000
              Less: Valuation allowances       (13,837,000)
                                              -------------
              Net deferred taxes              $           -
                                              =============

8.   RELATED PARTY TRANSACTIONS

     The Company provides a uniform Employee Discount Plan which provides a
     seven and one half percent discount to employees who purchase a home from
     Homes by Calton as their principal residence. During the year ended
     November 30, 2005, one corporate officer, Maria Caldarone, had entered into
     a contract and completed the purchase of a home under the Employee Discount
     Plan. The contract price was $602,912 and has been paid to the Company in
     full as of November 30, 2005.

9.   DISCONTINUED OPERATIONS

     On July 31, 2006, the Company completed the sale of substantially all of
     the assets of eCalton.com, Inc. to Bray Web Development, Inc. for $250,000
     less purchase price adjustments of approximately $41,000.


                                      F-16

<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2006 AND 2005

     The consolidated financial statements and related footnotes for all periods
     presented have been reclassified to reflect the discontinued operations.
     The operating results of the discontinued operations for the years ended
     November 30, 2006 and 2005 are summarized below:

                                                       2006        2005
                                                    ---------   ---------
       Net revenues                                 $ 509,000   $ 728,000
       Cost of goods sold                             277,000     358,000
                                                    ---------   ---------
          Gross profit                                232,000     370,000
       Operating expense                             (307,000)   (371,000)
       Non-operating income (expense), net             (9,000)     15,000
       Gain on sale of assets                         229,000           -
                                                    ---------   ---------
       Income (loss) from discontinued operations   $ 145,000   $  14,000
                                                    =========   =========

10.  COMMITMENTS AND CONTINGENT LIABILITIES

     WARRANTY COMMITMENTS ON HOMES BY CALTON

     The Company provides a basic limited warranty on workmanship and materials
     for all homes for a period of one year. The Company estimates the costs
     that may be incurred under its basic limited warranty and records a
     liability in the amount of such costs at the time the product revenue is
     recognized. Factors that affect the Company's warranty liability include
     the number of homes sold, historical and anticipated rates of warranty
     claims and average cost per claim. Estimated future warranty costs are
     charged to cost of sales in the period when the revenues from home closings
     are recognized. Such estimated warranty costs are 0.5% of the total sales
     price of the home. The Company periodically assesses the adequacy of its
     recorded warranty liabilities and adjusts the amount as necessary.

     Following is the Company's warranty reserve activity for the years ended
     November 30, 2006 and 2005:

                                                 2006       2005
                                               --------   --------
             Balance at beginning of period   $ 59,000    $ 57,000
             Reserves                           39,000      68,000
             Payments and other adjustments    (65,000)    (66,000)
                                              --------    --------
             Balance at end of period         $ 33,000    $ 59,000
                                              ========    ========

     Warranty reserves are included in accrued expense in the accompanying
     consolidated balance sheet.


                                      F-17

<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2006 AND 2005

     OPERATING LEASE COMMITMENTS

     The Company and its consolidated subsidiaries lease their facilities under
     operating lease agreements with various expiration dates through 2009. In
     November 2004, the Company relocated its corporate office and entered into
     a new five-year lease for its office space. The Company was relieved of its
     obligations under the lease for its prior office space due to the effect of
     hurricanes Frances and Jeanne. Future non-cancelable minimum lease payments
     for each of the following years ending November 30 are as follows:

                                2007     100,000
                                2008      36,000
                                2009      32,000
                                        --------
                               Total    $168,000
                                        ========

     Rent expense for continuing operations for the years ended November 30,
     2006 and 2005 amounted to $70,000 and $106,000, respectively.

     PROFIT SHARING ARRANGEMENT
     The Company has entered into an arrangement with John G. Yates and Thomas
     C. Corley, who are the President and Chief Financial Officer of
     PrivilegeONE, respectively, pursuant to which Mr. Yates and Mr. Corley have
     agreed to serve as unpaid officers of PrivilegeONE and pursue business
     opportunities on behalf of PrivilegeONE in consideration of the Company's
     agreement to pay them 25% of the net profit attributable to business
     arrangements with parties introduced by either of them to PrivilegeONE.
     There were no revenues derived from PrivilegeONE in fiscal years 2006 and
     2005.

     LITIGATION SETTLEMENTS
     The Company paid $15,000 in litigation settlements as a result of the
     resolution of certain matters in the year ended November 30, 2006. During
     the fiscal year ended November 30, 2005, the Company received $71,000 in
     litigation settlements.


                                      F-18

<PAGE>

                          CALTON, INC. AND SUBSIDIARIES
                                INDEX TO EXHIBITS
                                -----------------

2.1   Amended and Restated Stock Purchase Agreement effective September 2, 1998
      among Calton, Inc., Calton Homes, Inc. and Centex Real Estate Corp.,
      incorporated by reference to Exhibit 2 to Form 8-K of Registrant dated
      December 31, 1998.

2.2   Amendment No. 1 to Amended and Restated Stock Purchase Agreement dated as
      of December 28, 1998 among Calton, Inc., Calton Homes, Inc. and Braewood
      Development Corp. (assignee of Centex Real Estate Corp.), incorporated by
      reference to Exhibit 2.1 to Form 8-K of Registrant dated December 31,
      1998.

2.3   Assignment of Interest in Innovative Growth Partners, LLC and Agreement as
      to Other Matters dated as of April 18, 2002 among Calton, Inc., Innovation
      Growth Partners, LLC and, Richard Dole, Frederick Huttner and James West,
      incorporated by reference to Exhibit 2 to Form 8-K of Registrant dated May
      8, 2002.

2.4   Amended and Restated Agreement for Sale and Purchase of Assets effective
      June 13, 2003 between Homes by Calton, LLC, the Registrant and Beazer
      Homes Corp., incorporated by reference to Exhibit 2.1 to Form 10-QSB of
      Registrant for the fiscal quarter ended May 31, 2003.

2.5   First Amendment to Amended and Restated Agreement for Sale and Purchase of
      Assets effective June 13, 2003 between Homes by Calton, LLC, the
      Registrant and Beazer Homes Corp., incorporated by reference to Exhibit
      2.2 to Form 10-QSB for the fiscal quarter ended May 31, 2003.

2.6   LLC Purchase Agreement dated as of July 10, 2003 among the Registrant,
      Anthony J. Caldarone, John G. Yates, Maria F. Caldarone and Laura A.
      Camisa, incorporated by reference to Exhibit 2.3 to Form 10-QSB of
      Registrant for the fiscal quarter ended May 31, 2003.

3.1   Amended and Restated Certificate of Incorporation of the Registrant filed
      with the Secretary of State, State of New Jersey on May 28, 1993,
      incorporated by reference to Exhibit 3.2 to Amendment No. 1 to Form S-1
      Registration Statement under the Securities Act of 1933, Registration No.
      33-60022, Certificate of Amendment to Amended and Restated Certificate of
      Incorporation of Registrant filed with the Secretary of State, State of
      New Jersey on April 27, 1994, incorporated by reference to Exhibit 3(b) to
      Form S-1 Registration Statement under the Securities Act of 1933,
      Registration No. 33-76312, and Certificate of Amendment to Amended and
      Restated Certificate of Incorporation of Registrant filed with the
      Secretary of State, State of New Jersey on May 29, 1997, incorporated by
      reference to Exhibit 3.1 to Form 10-K of Registrant for the fiscal year
      ended November 30, 1997, Certificate of Amendment to Amended and Restated
      Certificate of Incorporation of Registrant filed with the Secretary of
      State, State of New Jersey on February 2, 1999, incorporated by reference
      to Exhibit 3.1 to Form 10-K of Registrant for the fiscal year ended
      November 30, 1998, Certificate of Amendment to Amended and Restated
      Certificate of Incorporation filed with the Secretary of State, State of
      New Jersey on May 30, 2000, incorporated by reference to Exhibit 3.1 to
      Form 10-K of Registrant for the fiscal year ended November 30, 2000 and
      Certificate of Amendment to Amended and Restated Certificate of
      Incorporation filed with the Division of Revenue, State of New Jersey, on
      June 20, 2004, incorporated by reference to Exhibit 3.1 to Form 10-QSB of
      the Registrant for fiscal quarter ended May 31, 2004.

3.2   By Laws of Registrant, incorporated by reference to Exhibit 3.2 to Form
      10-KSB of Registrant for the fiscal year ended November 30, 2003.

4.4   Rights Agreement dated February 1, 1999 by and between the Registrant and
      First City Transfer Company as Rights Agent, including forms of Rights
      Certificate and Election to Purchase included as Exhibit B thereto,
      incorporated by reference to Exhibit 1 to Form 8-A Registration Statement
      of Registrant filed with the Securities and Exchange Commission on
      February 2, 1999.


                                       E-1

<PAGE>

10.3  Registrant's Amended and Restated 1993 Non-Qualified Stock Option Plan,
      incorporated by reference to Exhibit 10.3 to Form 10-K of Registrant for
      the fiscal year ended November 30, 1995. (*)

10.4  Incentive Compensation Plan of Registrant. (*)

10.7  Executive Employment Agreement dated as of January 1, 2006 between
      Registrant and Anthony J. Caldarone, incorporated by reference to Exhibit
      10.7 to Form 10-KSB of Registrant for the fiscal year ended November 30,
      2006. (**)

10.8  First Amendment to Executive Employment Agreement between Registrant and
      Anthony J. Caldarone. (**)

10.9  2000 Equity Incentive Plan, incorporated by reference to Exhibit 10.9 to
      Form 10-KSB of Registrant for the fiscal year ended November 30, 2006. (*)

10.10 Option Agreement dated July 19, 1999 between the Company and Kenneth D.
      Hill, incorporated by reference to Exhibit 10.11 to Form 10-K of
      Registrant for the fiscal year ended November 30, 1999.

10.12 Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.12
      to Form 10-K of Registrant for the fiscal year ended November 30, 2000,
      incorporated by reference to Exhibit 10.12 of Form 10-KSB for the fiscal
      year ended November 30, 2003.

10.21 Profit Sharing Arrangement among the Registrant, John G. Yates and Thomas
      C Corley, incorporated by reference to Exhibit 10.21 to Form 10-KSB of
      Registrant for the fiscal year ended November 30, 2003. (**)

10.29 Registration Rights Agreement dated as of April 29, 2003 among the
      Registrant, Anthony J. Caldarone, John G. Yates, Maria F. Caldarone and
      Laura A. Camisa, incorporated by reference to Exhibit 10.1 to Form 10-QSB
      of Registrant for the fiscal quarter ended August 31, 2003.

10.30 Commitment Letter dated as of August 13, 2003 and Promissory Notes dated
      as of August 27, 2003, between Harbor Federal Savings Bank and Homes by
      Calton, LLC, incorporated by reference to Exhibit 10.30 to Form 10-KSB for
      fiscal year ended November 30, 2003.

10.31 Real Estate Purchase and Sale Agreement dated April 6, 2004 between Homes
      by Calton, LLC and Pointe West of Vero Beach, Ltd., incorporated by
      reference to Exhibit 10.31 to Form 10-QSB of Registrant for fiscal quarter
      ended May 31, 2004. Information has been omitted from the exhibit and is
      subject to an order granting confidential treatment.

10.32 Assignment Agreement dated as of November 11, 2005 between Atlantic Coast
      Construction & Development, Inc. and Homes by Calton, LLC, incorporated by
      reference to Exhibit 10.32 to Form 10-KSB of Registrant for the fiscal
      year ended November 30, 2006.

10.33 Vacant Land Contract dated as of September 15, 2005 between William Dewey
      Walker & Delma Jean and Atlantic Coast Construction & Development, Inc.
      (assigned to Homes by Calton, LLC), incorporated by reference to Exhibit
      10.33 to Form 10-KSB of the Registrant for the fiscal year ended November
      30, 2006.

10.44 Commitment Letter dated as of December 15, 2005 between Harbor Federal
      Savings Bank and Homes by Calton, LLC, incorporated by reference to
      Exhibit 10.44 to Form 10-KSB of Registrant for the fiscal year ended
      November 30, 2005.

10.45 First Mortgage Loan dated December 28, 2005 between Harbor Federal Savings
      Bank and Homes by Calton, LLC, incorporated by reference to Exhibit 10.45
      to Form 10-KSB of Registrant for the fiscal year ended November 30, 2005.


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<PAGE>

10.46 2006 Equity Incentive Plan, incorporated by reference to Exhibit 10.45 to
      Form 10-QSB of Registrant for the fiscal quarter ended May 31, 2006 (*).

10.47 Asset Purchase Agreement, dated July 24, 2006 between Bray Web
      Development, Inc. and eCalton.com, Inc., incorporated by reference to
      Exhibit 10.47 to Form 10-QSB of Registrant for the fiscal quarter ended
      August 31, 2006.

21.   Subsidiaries of the Registrant, incorporated by reference to Exhibit 21 to
      Form 10-KSB for fiscal year ended November 30, 2003.

23.   Consent of Aidman, Piser & Company, P.A.

24.   Power of Attorney (located on signature page of this Report).

31.1  Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2  Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1  Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

32.2  Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

  (*) Constitutes a compensatory plan required to be filed pursuant to Item
      13(a) of Form 10-KSB.

 (**) Constitutes a management contract required to be filed pursuant to Item
      13(a) of Form 10-KSB.


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