<PAGE>


                                 UNITED STATES
                       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, 2007

                                       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     (I.R.S. Employer Identification Number)
     incorporation or organization)

               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, 2007:   $4,866,000.

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 21, 2008 was
$469,941.

As of February 21, 2008, 9,898,506 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.

         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").

                                       1
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         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. Currently, the
         Company is offering homes in two 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
         continues to promote its Custom Home Division 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
         $425,000 up to $775,000 during the year ended November 30, 2007. Homes
         by Calton offers 14 different house floor plans with the size of homes
         ranging from 1,900 to 3,600 square feet. A wide selection of options is
         available to purchasers for additional charges. Major options include
         media rooms, bonus rooms, pools and outdoor kitchens.

         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 new model types to be
         developed and were introduced into the marketplace in the spring of
         2005. In 2007 the Company developed two additional models for buyers
         wanting smaller homes. The Company is using the new and existing model
         types to refine its custom home program through its Custom Home
         Division.

         SALES AND MARKETING
         Homes by Calton markets its homes primarily to upper-income buyers,
         emphasizing high-quality construction and customer satisfaction. The
         Company maintains a sales office at its community under development
         which is 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
         website, 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's construction time
         generally ranges from about 150 to 180 calendar days.


                                       2
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         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.

         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 21, 2008, 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 $3,000 for a term of five years ending September 2009;
         (c) one model home pursuant to a sale-leaseback arrangement at the
         Pointe West community in Vero Beach, Florida, at a monthly rate of
         $4,000 for a term of one year; and (d) one home at the Pointe West
         community on a month-to-month basis for $2,000 per month. Management
         believes that these arrangements currently provide adequate space for
         all of the Company's business operations.


                                       3
<PAGE>

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

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 2007, 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 2007 and 2006:

                  FISCAL 2007               High                Low
                                          --------           ---------

                  1st Quarter              $   0.47           $   0.30
                  2nd Quarter                  0.31               0.18
                  3rd Quarter                  0.35               0.16
                  4th Quarter                  0.20               0.06


                  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


         At February 21, 2008, there were approximately 374 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
         $0.14.

         In fiscal 2007 and 2006, 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
<PAGE>

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

         RESULTS OF OPERATIONS FOR THE YEARS ENDED NOVEMBER 30, 2007 AND 2006

         REVENUES: Consolidated revenues decreased from $6,631,000 in 2006 to
         $4,866,000 in 2007. The reduction is due to fewer homes delivered and
         discounted sales prices on inventory homes, attributable to the
         continued downturn in the homebuilding market. We delivered 11 homes in
         2006 compared to nine homes in 2007.

         COST OF SALES: Cost of sales consists of cost of goods sold for the
         homebuilding operations. Homebuilding cost of goods sold decreased from
         $5,644,000 for the year ended November 30, 2006 to $4,347,000 for the
         year ended November 30, 2007 as a result of fewer home deliveries.
         Included in the $5,644,000 of cost of goods sold for the year ended
         November 30, 2006 was $677,000 in impairment charges on our inventory.
         There were no impairment charges on our inventory for the year ended
         November 30, 2007. However, negative market conditions in the
         homebuilding industry, interest rate levels, and our plans to offer
         sales incentives in order to liquidate inventory in 2008 might result
         in future impairment charges. Gross margins on homebuilding revenues
         decreased due to discounted sales prices on inventory homes and sales
         incentives given, to 11% in 2007, compared to 15% in 2006. No
         assurances can be given that gross profits will not be adversely
         impacted by market conditions in fiscal 2008.

         SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and
         administrative expenses decreased from $2,186,000 in 2006 to $1,351,000
         in 2007. The decrease in selling, general and administrative expenses
         is primarily attributable to reductions in personnel and overall
         expenses, including marketing.

         INTEREST INCOME: Interest income is derived principally from interest
         on depository accounts and money-market type accounts. Interest income
         decreased from $8,000 in 2006 to $7,000 in 2007. The decrease was a
         result of withdrawals from investment accounts to fund operating
         activities.

         INTEREST EXPENSE: Interest expense amounted to $379,000 for the year
         ended November 30, 2007 compared to $344,000 for the year ended
         November 30, 2006. Interest is incurred on our demand 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, 2007 and 2006, we capitalized $124,000 and
         $108,000, respectively, of interest.

         GAINS ON INVESTMENTS: We exercised warrants and sold shares of CorVu
         Company common stock for a net gain of $154,000 during the year ended
         November 30, 2007. The securities sold represented our entire holding
         of available-for-sale equity securities.

         LITIGATION SETTLEMENTS: There were no litigation settlements recorded
         for the year ended November 30, 2007. We paid $15,000 in litigation
         settlements as a result of the resolution of certain matters in the
         year ended November 30, 2006.

         OTHER EXPENSE: Other expense for the year ending November 30, 2007 was
         $0, compared to $1,000 for the year ending November 30, 2006.

         RELATED PARTY TRANSACTIONS: In November 2007, we entered into a
         contract with and completed the sale of two homes in the Pointe West
         development to AFP Enterprises, Inc. ("AFP"), a company owned by the
         Caldarone family, including two of our corporate officers, Anthony J.
         Caldarone and Maria F. Caldarone. The contract prices for the homes
         were $617,000 and $629,000, respectively. Costs for the homes totaled
         $562,000 and $584,000, respectively. All funds have been paid to the
         Company in full as of November 30, 2007. We also entered into a
         sale-leaseback agreement with AFP for one of these homes to be used as
         a sales model on a month-to-month basis, at a cost of $2,000 per month,
         and at a savings of $3,000 per month from a prior sale-

                                       5
<PAGE>


         leaseback agreement. The transactions between Homes by Calton and AFP
         were reviewed and approved by our Board of Directors and the Audit
         Committee of the Board of Directors.

         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 $84,000 in operating losses from discontinued operations for
         the year ended November 30, 2006.

         SALES ACTIVITY AND BACKLOG:

                                                     Contract        Number
                                                     Backlog        of Homes
                                                   -----------    -----------

            Backlog as of November 30, 2006        $         0              0

            Less: Homes delivered during the
                  year ended November 30, 2007      (5,247,000)            (9)

            Plus: New contracts signed during the
                  year ended November 30, 2007       5,850,000             10

                                                   -----------    -----------
            Backlog as of November 30, 2007        $   603,000              1
                                                   ===========    ===========

        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. We continue to promote our Custom Home Division, in
        which we seek to act as the contract builder for individual landowners.
        We delivered one custom home in 2006, and in November 2007 contracted to
        build a custom home to be delivered in the third quarter of 2008. We
        have not incurred any construction expenses on this home as of November
        30, 2007.

         In December 2005, we acquired an undeveloped 10-acre parcel in Vero
         Beach, Florida on which we anticipate constructing 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 $1,043,000 during the fiscal year ended November 30,
         2007. Additionally, we have significant completed and work-in-process
         inventories of approximately $2.5 million and developed lots of
         approximately $0.8 million which are collateral for our credit facility
         with a $2.2 million balance at November 30, 2007. Our $6.5 million
         credit facility expired on May 31, 2007. On July 16, 2007, the bank
         extended the facility through December 31, 2007, and on December 7,
         2007, extended it through June 30, 2008, each time reducing borrowing
         availability under the facility. The facility was reduced to $4.8
         million in July 2007 and further reduced to $2.8 million in December
         2007. In connection with the extensions, the terms of the facility were
         revised to limit future funding to the completion of existing
         speculative homes

                                       6
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         under construction for which a sales contract providing for at least a
         10% customer deposit has been signed. Maximum available borrowings are
         reduced as each of these homes is sold. These conditions raise doubt as
         to our ability to continue our normal business operations as a going
         concern. As of November 30, 2007, we had $1,805,000 in working capital.
         However, this working capital includes significant inventory of homes
         and developed and undeveloped land which must be liquidated in order to
         cover our operating costs and our debt-service obligations.

         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, seeking further extensions of the term of the
         credit facility, and raising additional debt or equity capital from
         external sources. No assurance can be given that we will be successful
         in achieving these plans.

         CASH FLOWS FROM OPERATING ACTIVITIES:

         We generated $1,948,000 from operating activities during the year ended
         November 30, 2007, and used $5,548,000 during the year ended November
         30, 2006. The increase in cash flows from operating activities in 2007
         is due primarily to decreasing inventory through sales, combined with
         reductions in homebuilding activities and curtailing expenses whenever
         possible. 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.

         CASH FLOWS FROM INVESTING ACTIVITIES:

         We used $5,000 in cash for investing activities during the year ended
         November 30, 2007 primarily for the purchase of software. We generated
         $189,000 in cash flows from our investing activities during the year
         ended November 30, 2006, primarily from the sale of the assets of
         eCalton.

         CASH FLOWS FROM FINANCING ACTIVITIES:

         We used $2,134,000 in cash for financing activities for the year ended
         November 30, 2007, primarily for repayment of notes payable which was
         required as we liquidated inventory that collateralized these notes
         payable. We generated $3,391,000 in cash from our financing activities
         for the year ended November 30, 2006. This amount 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
         $769,000 at November 30, 2006 to $578,000 as of November 30, 2007.
         Total working capital decreased from $2,843,000 at November 30, 2006 to
         $1,805,000 at November 30, 2007.

         COMMITMENTS, GUARANTEES AND CONTINGENCIES

         PROFIT SHARING ARRANGEMENT:

         We have 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
         our 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 2007 and 2006.

                                       7
<PAGE>

         LOAN AGREEMENT:

         We maintain a construction line of credit with National City Bank
         (formerly Harbor Federal Savings Bank). Interest on advances, which are
         secured by a mortgage on our homebuilding properties, accrues at a rate
         equal to the prime rate plus one percent (1%) per annum (8.5% on
         November 30, 2007). On July 16, 2007, the bank reduced borrowing
         available under the facility to $4.8 million and revised the terms to
         limit future funding to the completion of existing speculative homes
         under construction for which a sales contract providing for at least a
         10% customer deposit has been signed. Maximum available borrowings are
         reduced as each of these homes is sold. On December 7, 2007, the bank
         reduced available borrowings to $2.8 million and extended the credit
         facility through June 30, 2008. As of November 30, 2007, $2.2 million
         of advances under the line of credit was outstanding.

         In December 2005, we 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,
         2007, $1 million was outstanding under the note.

         OPERATING LEASE COMMITMENTS:

         We and our consolidated subsidiaries lease 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:

                         2008          $          110,000
                         2009                      46,000
                                       ------------------
                         Total         $          156,000
                                       ==================

         SUMMARIZATION OF CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS:

         Our obligations as of November 30, 2007 are as follows:

                                               2008         2009        Total
                                            ----------   ----------   ----------

         Short-term debt                    $3,359,000   $       --   $3,359,000
         Leases                                110,000       46,000      156,000
                                            ----------   ----------   ----------
         Total contractual cash obligations $3,469,000   $   46,000   $3,515,000
                                            ==========   ==========   ==========

         GUARANTEES AND OFF-BALANCE SHEET ARRANGEMENTS:

         We have no guarantees outside of the consolidated organization and no
         off-balance sheet arrangements of any nature.

         PARTICULARLY SENSITIVE ACCOUNTING ESTIMATES

         RESERVE FOR WARRANTY:

         We provide a basic limited warranty on workmanship and materials for
         all homes for a period of one year. We estimate the costs that may be
         incurred under our basic limited warranty and record a liability in the
         amount of such costs at the time the product revenue is recognized.
         Factors that affect our 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

                                       8
<PAGE>

         recognized. Such estimated costs are 0.5% of the total sales price of
         the home. We periodically assess the adequacy of our recorded warranty
         liabilities and adjust the amount as necessary. Our warranty liability
         is included in accrued expenses on the balance sheet.

         ESTIMATED CONSTRUCTION COSTS:

         We recognize 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. As of November 30, 2007, we have one contract for a home to be
         built on a customer-owned lot. We have not incurred any construction
         expenses on this home as of November 30, 2007 and, as such, have not
         recognized any revenue on this contract as of that date.

         IMPAIRMENT EVALUATION:

         Management's estimate of impairment of its inventory is based on the
         appraisal values of its land, selling prices of homes closed by all
         homebuilders in the geographical area and the community, current
         selling prices of our homes, and the overall homebuilding market in
         Vero Beach. We concluded that no impairment adjustment was required at
         November 30, 2007. However, negative market conditions in the
         homebuilding industry, possible fluctuations in interest rates, and our
         plans to offer sales incentives in order to liquidate inventory could
         result in impairment charges during the year ending November 30, 2008,
         and/or thereafter.

         RECENT ACCOUNTING PRINCIPLES

         FASB STATEMENT NO. 159, THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND
         FINANCIAL LIABILITIES, INCLUDING AN AMENDMENT OF FASB STATEMENT NO. 115

         In February 2007, the FASB issued statement No. 159, "The Fair Value
         Option for Financial Assets and Financial Liabilities, including an
         amendment of FASB Statement No. 115" ("FAS 159"). FAS 159 permits
         entities to choose to measure many financial instruments and certain
         other items as fair value that are not currently required to be
         measured at fair value. FAS 159 is effective for fiscal years beginning
         after November 15, 2007. Management does not expect the adoption of FAS
         159 to have a material effect on our financial position or results of
         operations.

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

                                       9
<PAGE>


         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, 2007 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.


                                       10
<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, 2008, 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    70     Chairman, President and Chief Executive
                                        Officer
                                        Chairman and Chief Executive Officer -
                                        Homes by Calton, LLC

         Maria F. Caldarone      44     Executive Vice President of Corporate
                                        Development and Asst. Secretary
                                        President - Homes by Calton, LLC
                                        Executive Vice President of Operations -
                                        PrivilegeONE

         Vicky F. Savage         60     Vice President, Acting Chief Financial
                                        Officer and Treasurer
                                        Vice President and Treasurer - Homes by
                                        Calton, LLC
                                        Vice President and Treasurer -
                                        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.

         Vicky F. Savage was 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 served as Accounting Manager for
         the Company from December 2001 through February of 2007. From June 2000
         until November 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 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.

                                       11
<PAGE>

         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.

                                       12
<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:  February 28, 2008            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,          February 28, 2008
---------------------------  Chief Executive Officer
Anthony J. Caldarone         & Director (Principal
                             Executive Officer)


/s/ Vicky F. Savage          Acting Chief Financial        February 28, 2008
---------------------------  Officer  & Treasurer
Vicky F. Savage              (Principal Financial &
                             Accounting Officer)


/s/ J. Ernest Brophy         Director                      February 28, 2008
---------------------------
J. Ernest Brophy


/s/ Mark N. Fessel           Director                      February 28, 2008
---------------------------
Mark N. Fessel


/s/ Kenneth D. Hill          Director                      February 28, 2008
---------------------------
Kenneth D. Hill


/s/ Frank Cavell Smith, Jr.  Director                      February 28, 2008
---------------------------
Frank Cavell Smith, Jr.


/s/ John G. Yates            Director                      February 28, 2008
---------------------------
John G. Yates

                                       13
<PAGE>



                          CALTON, INC. AND SUBSIDIARIES
                   INDEX OF CONSOLIDATED FINANCIAL STATEMENTS


                                                                         Page
                                                                         ----

  Report of Independent Registered Certified Public Accounting Firm       F-2

  Consolidated Balance Sheet as of November 30, 2007                      F-3

  Consolidated Statements of Operations for the Years Ended
  November 30, 2007 and 2006                                              F-4

  Consolidated Statements of Cash Flows for the Years Ended
  November 30, 2007 and 2006                                              F-5

  Consolidated Statements of Shareholders' Equity for the Years Ended
  November 30, 2007 and 2006                                              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. and Subsidiaries

Tampa, Florida

We have audited the accompanying consolidated balance sheet of Calton, Inc. and
Subsidiaries as of November 30, 2007 and the consolidated statements of
operations, shareholders' equity, and cash flows for the years ended November
30, 2007 and 2006. 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 consolidated 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, 2007 and the consolidated results of
their operations and their cash flows for the years ended November 30, 2007 and
2006 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
consolidated financial statements, the Company has incurred net losses during
each of the years ended November 30, 2007 and 2006. Additionally, the Company
has minimal pending home sales, and its primary lender has reduced the Company's
borrowing availability under its existing credit facility as well as revised the
terms under this facility to limit future funding. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regards 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 28, 2008

                                      F-2
<PAGE>

CALTON, INC.  AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 2007

                                                                    November 30,
                                                                       2007
                                                                    -----------
ASSETS
 Current Assets
  Cash and cash equivalents                                         $   578,000
  Accounts receivable                                                    20,000
  Inventory                                                           4,861,000
  Prepaid expenses and other current assets                              23,000
  Deferred finance charges                                                5,000
                                                                    -----------
     Total current assets                                             5,487,000
                                                                    -----------

 Property and equipment, net                                            136,000
                                                                    -----------
     Total assets                                                   $ 5,623,000
                                                                    ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
 Current Liabilities
  Accounts payable                                                  $   157,000
  Accrued expenses                                                      151,000
  Other current liabilities                                             119,000
  Notes payable                                                       3,255,000
                                                                    -----------
     Total current liabilities                                        3,682,000
                                                                    -----------

 Commitments and contingent liabilities (Note 10)                            --

 Shareholders' Equity
  Common stock, $.05 par value, 25,000,000 shares authorized;
    10,697,855 shares issued and 9,898,506 shares outstanding           495,000
  Additional paid-in capital                                          8,407,000
  Accumulated deficit                                                (3,388,000)
  Less cost of shares held in treasury (799,349 shares)              (3,573,000)
                                                                    -----------
     Total shareholders' equity                                       1,941,000
                                                                    -----------
     Total liabilities and shareholders' equity                     $ 5,623,000
                                                                    ===========

                 See notes to consolidated financial statements.

                                      F-3
<PAGE>

CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED NOVEMBER 30, 2007 AND 2006

                                                       2007          2006
                                                   -----------    -----------
REVENUE
    Homebuilding
      Related party (Note 8)                       $   926,000    $        --
      Other                                          3,940,000      6,631,000
                                                   -----------    -----------
                                                     4,866,000      6,631,000
                                                   -----------    -----------
COSTS AND EXPENSES
    Cost of sales
      Cost of sales
        Related party (Note 8)                         864,000             --
        Other                                        3,483,000      4,967,000
      Inventory impairment                                  --        677,000
                                                   -----------    -----------
    Total cost of sales                              4,347,000      5,644,000
    Selling, general and administrative              1,351,000      2,186,000
                                                   -----------    -----------
                                                     5,698,000      7,830,000
                                                   -----------    -----------
      Loss from operations                            (832,000)    (1,199,000)

OTHER INCOME (EXPENSE)
    Interest income                                      7,000          8,000
    Interest expense                                  (379,000)      (344,000)
    Litigation settlements                                  --        (15,000)
    Investment income                                  154,000             --
    Other expense                                           --         (1,000)
                                                   -----------    -----------
      Loss before discontinued operations           (1,050,000)    (1,551,000)
        and income taxes

INCOME (LOSS) FROM DISCONTINUED OPERATIONS (NOTE 9)
    Gain on sale of certain assets                          --        229,000
    Discontinued operations                                 --        (84,000)
                                                   -----------    -----------
      Loss before income taxes                      (1,050,000)    (1,406,000)

    Income tax benefit (expense)                         7,000             --
                                                   -----------    -----------

NET LOSS                                           $(1,043,000)   $(1,406,000)
                                                   ===========    ===========

BASIC AND DILUTED LOSS PER SHARE:
    Loss from continuing operations                $     (0.11)   $     (0.16)
                                                   ===========    ===========
    Income from discontinued operations            $        --    $      0.01
                                                   ===========    ===========
    Net loss                                       $     (0.11)   $     (0.15)
                                                   ===========    ===========

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
      Basic and Diluted                              9,667,000      9,528,000
                                                   ===========    ===========


                 See notes to consolidated financial statements.

                                      F-4
<PAGE>
<TABLE>
<CAPTION>

CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, 2007 AND 2006

                                                                           2007          2006
                                                                       -----------    -----------
<S>                                                                    <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                               $(1,043,000)   $(1,406,000)
     Adjustments to reconcile net loss to net cash
         flows from operating activities:
     Depreciation from continuing operations                                40,000         40,000
     Depreciation from discontinued operations                                  --          9,000
     Amortization of deferred charges                                       34,000         41,000
     Impairment charge to inventory                                             --        677,000
     Gain on sale of assets of discontinued operations                          --       (229,000)
     Stock-based compensation for directors                                 67,000         57,000
     Increase (decrease) in cash resulting from changes in:
         Accounts receivable                                                (6,000)       125,000
         Inventory                                                       2,824,000     (3,690,000)
         Deposits on land                                                       --        350,000
         Prepaid expenses and other assets                                  18,000         29,000
         Accounts payable                                                  (31,000)      (859,000)
         Accrued expenses                                                  (55,000)      (391,000)
         Other current liabilities                                          67,000       (400,000)
         Assets of discontinued operations                                  33,000        169,000
         Liabilities of discontinued operations                                 --        (70,000)
                                                                       -----------    -----------
Net cash flows from operating activities                                 1,948,000     (5,548,000)
                                                                       -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
     Proceeds from sale of certain assets of discontinued operations            --        209,000
     Purchases of property and equipment for continuing operations          (5,000)       (11,000)
     Purchases of property and equipment for discontinued operations            --         (9,000)
                                                                       -----------    -----------
Net cash flows from investing activities                                    (5,000)       189,000
                                                                       -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
     Increase in deferred charges                                          (19,000)       (42,000)
     Proceeds from (payments for) notes payable, net                    (2,115,000)     3,433,000
                                                                       -----------    -----------
Net cash flows from financing activities                                (2,134,000)     3,391,000
                                                                       -----------    -----------

Net decrease in cash and cash equivalents                                 (191,000)    (1,968,000)
Cash and cash equivalents at beginning of period                           769,000      2,737,000
                                                                       -----------    -----------
Cash and cash equivalents at end of period                             $   578,000    $   769,000
                                                                       ===========    ===========

SUPPLEMENTAL CASH FLOW INFORMATION
     Interest paid                                                     $   503,000    $   411,000
                                                                       ===========    ===========
     Income taxes paid                                                 $        --    $        --
                                                                       ===========    ===========

                          See notes to consolidated financial statements.

</TABLE>

                                                F-5
<PAGE>
<TABLE>
<CAPTION>

CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED NOVEMBER 30, 2007 AND 2006
(AMOUNTS IN THOUSANDS)


                                         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, 2005              9,497    $   475     $11,178    $  (938)    $(6,448)    $    55     $ 4,322

     Net Loss                              --         --          --     (1,406)         --          --      (1,406)
     Shares issued for Stock-based
       Compensation                        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

     Net Loss                              --         --          --     (1,043)         --          --      (1,043)
     Shares issued for Stock-based
       Compensation                       306         15     (2,140)         --       2,192          --          67
     Sale of Investments                   --         --          --         --          --        (116)       (116)
                                      -------    -------     -------    -------     -------     -------     -------
Balances, November 30, 2007             9,899    $   495     $ 8,407    $(3,387)    $(3,573)    $    --     $ 1,942
                                      =======    =======     =======    =======     =======     =======     =======


                                   See notes to consolidated financial statements.

                                                         F-6
</TABLE>
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006

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"). However, there are
         currently no revenues or expenses being accrued with respect to
         PrivilegeONE and, as such, the Company currently operates in just one
         business segment.

         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, 2007 AND 2006

         In accordance with SFAS No. 13, Accounting for Leases, the Company
         defers a portion of its gross profit on the sale-leasebacks of its
         model homes. The Company will recognize the deferred revenue (the net
         present value of the lease payments) and deferred cost in equal
         increments over the term of the lease (deferred gross profit is $58,000
         at November 30, 2007 and is included in other current liabilities in
         the 2007 balance sheet).

         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 held certain equity securities which were classified as
         available-for-sale as defined in SFAS No. 115, and were valued at fair
         market value. The corresponding unrealized gain on securities held as
         available-for-sale was recorded as a component of other comprehensive
         income. During fiscal 2007 all the securities were sold.

         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, 2007,
         approximately $124,000 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 when construction ceases or is completed on 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
         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 lesser of the asset
         useful life or 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 property
         and equipment when indications that the carrying values 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, 2007 AND 2006

         DEFERRED FINANCE CHARGES

         Deferred finance charges are associated with the Company's current
         revolving credit agreement (Note 5). 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, accounts payable, accrued expenses
         and other liabilities and notes payable. At November 30, 2007, 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 $306,000 and $430,000 for the years ended November 30,
         2007 and 2006, respectively.

         PER SHARE COMPUTATIONS

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

                                                       2007           2006
                                                   -----------    -----------

         Net loss - [numerator]                    $(1,043,000)   $(1,406,000)
                                                   ===========    ===========

         Basic and diluted:
           Weighted average shares outstanding
            [denominator]                            9,667,000      9,528,000
                                                   ===========    ===========

         Net loss per common share                 $     (0.11)   $     (0.15)
                                                   ==========================


         The effects of 827,000 and 717,000 stock options outstanding at
         November 30, 2007 and 2006, respectively, were not included in the
         calculation of diluted loss per share for each of those years, as they
         were anti-dilutive pursuant to the treasury stock method.

                                      F-9
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006

         STOCK-BASED COMPENSATION

         In December 2005, 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 a minimal
         impact on the Company's results of operations for the fiscal year ended
         November 30, 2007.

         The Company uses the Black-Scholes option-pricing model to determine
         the fair value of each option grant as of the date of grant for expense
         incurred. In applying the Black-Scholes option-pricing model during
         fiscal 2007, the following assumptions were made: dividend yield -
         none, volatility ranging from 114% to 183%, risk-free interest rate
         ranging from 4.60% to 4.64%, share prices of $0.21, option exercise
         prices of $0.21 and $0.23, and an expected life ranging from 3.0 to 6.5
         years (based upon the simplified method).

         The Company recorded stock-based compensation expense of $17,000 in the
         year ended November 30, 2007, related to employee and director stock
         options. The Company recorded stock-based compensation expense of
         $7,000 in the year ended November 30, 2006, related to director stock
         options.

         RECENT ACCOUNTING PRONOUNCEMENTS

         FASB STATEMENT NO. 159, THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND
         FINANCIAL LIABILITIES, INCLUDING AN AMENDMENT OF FASB STATEMENT NO. 115

         In February 2007, the FASB issued statement No. 159, "The Fair Value
         Option for Financial Assets and Financial Liabilities, including an
         amendment of FASB Statement No. 115" ("FAS 159"). FAS 159 permits
         entities to choose to measure many financial instruments and certain
         other items as fair value that are not currently required to be
         measured at fair value. FAS 159 is effective for fiscal years beginning
         after November 15, 2007. Management does not expect the adoption of FAS
         159 to have a material effect on the Company's financial position or
         results of operations.


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 net
         losses in each of the last two years. Additionally, the Company has
         significant completed and work-in-process inventories of approximately
         $2.5 million and developed lots of approximately $0.8 million which are
         collateral for the credit facility with a $2.2 million balance at
         November 30, 2007. The Company's $6.5 million credit facility expired
         on May 31, 2007. On July 16, 2007, the bank extended the facility
         through December 31, 2007, and on December 7, 2007, extended it through
         June 30, 2008, each time reducing borrowing availability under the
         facility. The facility was reduced to $4.8 million in July and further
         reduced to $2.8 million in December, 2007. In connection with the
         extensions, the terms of the facility were revised to limit future
         funding to the completion of existing speculative homes under
         construction for which a sales contract providing for at least a 10%
         customer deposit has been signed. Maximum available borrowings are
         reduced as each of these homes is sold. Amounts outstanding under the
         credit facility in June 2008 will be due on that date. These conditions
         raise doubt as to the ability of the Company to continue its normal
         business operations as a going concern.

         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

                                      F-10
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006

         appropriate, seeking further extensions of the terms of the credit
         facility, and raising additional debt or equity capital from external
         sources. There can be no assurance that the Company will be successful
         in achieving these plans.

3.       INVENTORY

         Inventory consists of the following as of November 30, 2007:

                    Land                          $2,404,000
                    Homes under construction       1,586,000
                    Speculative and model homes      871,000
                                                  ----------
                                                  $4,861,000
                                                  ==========

         During the year ended November 30, 2006, the company recorded a
         $677,000 inventory impairment charge. No impairment charges have been
         recognized during the year ended November 30, 2007. However, negative
         market conditions in the homebuilding industry, possible fluctuations
         in interest rates, and the Company's plans to offer sales incentives in
         order to liquidate inventory could result in further impairment charges
         during the year ending November 30, 2008, and/or thereafter.

         The Company capitalizes interest on loans directly associated with the
         real estate development projects. During the years ended November 30,
         2007 and 2006, the Company capitalized $124,000 and $108,000,
         respectively.

4.       PROPERTY AND EQUIPMENT

         Property and equipment consists of the following as of November 30,
         2007:

               Computer equipment and furniture        $ 208,000
               Leasehold improvements                      5,000
               Other                                      75,000
                                                       ---------
                                                         288,000
                      Less: Accumulated Depreciation    (152,000)
                                                       ---------
                                                       $ 136,000
                                                       =========

5.       NOTES PAYABLE

         As of November 30, 2007, notes payable includes borrowings under a
         demand line of credit with National City Bank (formerly Harbor Federal
         Savings Bank) with future funding limited to the completion of existing
         speculative homes under construction for which a sales contract
         providing for at least a 10% customer deposit has been signed. On
         December 7, 2007, the bank reduced available borrowings to $2.8 million
         and extended the credit facility with the same terms through June 30,
         2008. As of November 30, 2007, $2.2 million of advances under the line
         of credit was outstanding. The credit facility is secured by
         inventories and related homebuilding assets. Notes payable also
         includes a $1 million mortgage note due September 1, 2008, that is
         payable to National City 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% (8.5% at November 30, 2007).

                                      F-11
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 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.

         STOCK COMPENSATION PROGRAMS AND TRANSACTIONS

         Stock option activity is summarized as follows:

                                        2007                  2006
                                --------------------   --------------------
                                          Weighted               Weighted
                                           Average                Average
                                          Exercise               Exercise
                                 Options    Price       Options    Price
                                --------------------   --------------------

Outstanding
      Beginning of year          717,000    $   0.45    758,200    $   0.70
      Granted at market price    305,000        0.22     50,000        0.45
      Expired or cancelled      (195,000)       0.53    (91,200)       2.51
                                --------------------   --------------------
Outstanding end of year          827,000    $   0.35    717,000    $   0.45
                                ====================   ====================

                                --------------------   --------------------
Exercisable as of November 30    522,000    $   0.43    667,000    $   0.45
                                ====================   ====================

         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, 2007 was $0.18. 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       Weighted      Aggregate
   Range of                 Average         Average      Intrinsic               Average         Average      Intrinsic
    Prices       Number  Remaining Life  Exercise Price    Value     Number   Remaining Life  Exercise Price    Value
-------------  --------  --------------  --------------   --------  -------   --------------  --------------   ---------
<C>             <C>          <C>             <C>            <C>     <C>           <C>             <C>             <C>
$ 0.16 - 0.83   827,000      4.62 yrs.       $ 0.35         $ -     522,000       3.28 yrs.       $ 0.43          $ -

</TABLE>

                                      F-12
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006


         A summary of the status of the Company's non-vested stock options as of
         November 30, 2007, and changes during the year then ended, is presented
         below:

                                                          Weighted Average
                                                             Grant Date
             Nonvested Stock Options             Shares      Fair Value
             -----------------------           ----------    ----------

              Nonvested at November 30, 2006       50,000    $     0.29
              Granted                             305,000          0.22
              Vested                              (50,000)        (0.29)
              Forfeited                                --            --
                                               ----------    ----------
              Nonvested at November 30, 2007      305,000    $     0.22
                                               ==========    ==========

         As of November 30, 2007 there was approximately $46,000 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 45
         months.

         As of November 30, 2007, there were 646,520 shares of Common Stock
         reserved for possible future issuances under the Company's stock option
         plans.

         During 2007 and 2006, 306,000 and 96,000 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 amounted to $50,000 for each of the years ended November 30,
         2007 and 2006, 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. Treasury stock is carried
         at cost at acquisition date, and at November 30, 2007, there were
         approximately 800,000 shares of treasury stock with an average cost of
         $4.47 per share remaining.

         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 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

                                      F-13
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006

         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, 2007.

         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, 2007 and 2006 represents the changes in
         unrealized gains (losses) on available-for-sale equity securities.
         These securities were all sold in fiscal 2007. The following table
         reflects comprehensive income for the years ended November 30, 2007 and
         2006:

                                                     2007           2006
                                                  -----------    -----------

           Net loss                               $(1,043,000)   $(1,406,000)
           Unrealized gain on investments              38,000         61,000
           Realized gain on sale of investments      (154,000)            --
                                                  -----------    -----------
           Comprehensive loss                     $(1,159,000)   $(1,345,000)
                                                  ===========    ===========

7.       INCOME TAXES

         The federal net operating loss carryforward for tax purposes is
         approximately $34,808,000 and $33,411,000 at November 30, 2007 and
         2006, respectively. 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
         2027.

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

                                                       2007           2006
                                                    -------------------------

               Tax benefit using statutory rate     $ (368,000)    $ (489,000)
               Change in valuation allowance           368,000        489,000
                                                    -------------------------
                                                    $       --     $       --
                                                    =========================

                                      F-14
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006

         Temporary differences and carryforwards that give rise to deferred tax
         assets as of November 30, 2007, are as follows:

               Net operating losses                $        13,626,000
               Asset impairment charges                        177,000
               Capital loss carryforwards                           --
               Investment impairment charges                   263,000
               Unamortized start up costs                           --
               Bad debt and other allowances                     7,000
               Other                                            54,000
                                                   -------------------
                   Deferred tax assets                      14,127,000
               Less: Valuation allowances                  (14,127,000)
                                                   -------------------
               Net deferred taxes                  $                --
                                                   ===================

         In June 2006, the Financial Accounting Standards Board ("FASB") issued
         Interpretation No. 48 ("FIN 48"), ACCOUNTING FOR UNCERTAINTY IN INCOME
         TAXES, AN INTERPRETATION OF FASB STATEMENT NO. 109. FIN 48 clarifies
         the accounting for income taxes by prescribing the minimum recognition
         threshold a tax position is required to meet before being recognized in
         the financial statements. FIN 48 also provides guidance on
         derecognition, measurement, classification, interest and penalties,
         accounting in interim periods, disclosure and transition. FIN 48
         applies to all tax positions related to income taxes subject to SFAS
         109, ACCOUNTING FOR INCOME TAXES. Differences between the amounts
         recognized in the statements of financial position prior to the
         adoption of FIN 48 and the amounts reported after adoption should be
         accounted for as a cumulative-effect adjustment recorded to the
         beginning balance of retained earnings. FIN 48 is effective for fiscal
         years beginning after December 15, 2006 and was required to be adopted
         by the Company on December 1, 2007. The Company does not believe the
         adoption of FIN 48 will have a material impact on its financial
         statements.

8.       RELATED PARTY TRANSACTIONS

         In November 2007, Homes by Calton entered into a contract and completed
         the sale of two homes in its Pointe West development to AFP
         Enterprises, Inc. ("AFP"), a company owned by the Caldarone family,
         including two corporate officers of the Company, Anthony J. Caldarone
         and Maria F. Caldarone. The contract prices for the homes were $617,000
         and $629,000, respectively. Costs for the homes totaled $562,000 and
         $584,000, respectively. All funds have been paid to the Company in full
         as of November 30, 2007. Homes by Calton has also entered into a
         sale-leaseback agreement with AFP for one of these homes to be used as
         a sales model on a month-to-month basis, at a cost of $2,000 per month.
         The transactions between Homes by Calton and AFP were reviewed and
         approved by the Company's Board of Directors and the Audit Committee of
         the Board of Directors.

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-15
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006


         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 year ended November 30, 2006 is summarized below. There was no
         related activity for 2007.

                 Net revenues                             $    509,000
                 Cost of goods sold                            277,000
                                                          ------------
                      Gross profit                             232,000

                 Operating expense                            (307,000)
                 Non-operating expense, net                     (9,000)
                                                          ------------
                 Loss from discontinued operations             (84,000)
                 Gain on sale of assets                        229,000
                                                          ------------
                 Income from discontinued operations      $    145,000
                                                          ============

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, 2007 and 2006:

                                                2007        2006
                                              --------    --------
             Balance at beginning of period   $ 33,000    $ 59,000
             Reserves                           26,000      39,000
             Payments and other adjustments    (37,000)    (65,000)
                                              --------    --------
             Balance at end of period         $ 22,000    $ 33,000
                                              ========    ========

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

         OPERATING LEASE COMMITMENTS

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

                         2008               $     110,000
                         2009                      46,000
                                            -------------
                         Total              $     156,000
                                           ==============


                                      F-16
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006

         Rent expense for continuing operations for the years ended November 30,
         2007 and 2006 amounted to $100,000 and $70,000, 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 2007 and 2006.

         LITIGATION

         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's financial position or results
         of operations.

         There were no litigation settlements recorded for the year ended
         November 30, 2007. The Company paid $15,000 in litigation settlements
         as a result of the resolution of certain matters in the year ended
         November 30, 2006.



                                      F-17
<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 the
         Registrant for the fiscal year ended November 30, 1995. (*)

10.4     Incentive Compensation Plan of Registrant incorporated by reference to
         Exhibit 10.4 to Form 10-K of the Registrant for the fiscal year ended
         November 30, 2007. (*)

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, incorporated by reference to Exhibit 10.8 to
         Form 10-K of the Registrant for the fiscal year ended November 30,
         2007. (**)

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
         (currently National City 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 (currently National City 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.


                                      E-2
<PAGE>

10.45    First Mortgage Loan dated December 28, 2005 between Harbor Federal
         Savings Bank (currently National City 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.

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.

10.48    Builder Line of Credit Revised Commitment dated July 16, 2007 between
         National City Bank and Homes by Calton, LLC, incorporated by reference
         to Exhibit 10.48 to Form 10-QSB of Registrant for the fiscal quarter
         ended August 31, 2007.

10.49    Second Amendment to Executive Employment Agreement between Registrant
         and Anthony J. Caldarone, dated December 20, 2007, incorporated by
         reference to Exhibit 10.49 to Report on Form 8-K filed by the
         Registrant with the Securities and Exchange Commission on December 20,
         2007. (**)

10.50    Builder Line of Credit Revised Commitment dated December 7, 2007
         between National City Bank and Homes by Calton, LLC.

10.51    Promissory Note Modification Agreement dated December 7, 2007 between
         National City Bank and Homes by Calton, LLC.

21.      Subsidiaries of the Registrant.

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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