<PAGE>

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

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

                   For the fiscal year ended November 30, 2005

                                       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
  incorporation or organization)                      Identification Number)

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

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


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

Securities registered under Section 12 (b) of the Exchange Act:

                                      None

Securities registered under Section 12 (g) of the Exchange Act:

                         Common Stock, $0.05 par value

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

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

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

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

Revenues for the fiscal year ended November 30, 2005: $13,848,000.

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 17, 2006 was
$1,576,065.

As of February 17, 2006, 9,497,491 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
          is also in the business of providing Internet business solutions and a
          loyalty and co-branded credit card program which both recently
          generated minimal revenues.

          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 being
          developed in Vero Beach, Florida. The Company has expanded its
          homebuilding operations since such time and continues to pursue other
          homebuilding opportunities in Florida.

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

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

     (B)  BUSINESS OF ISSUER

          GENERAL
          The Company's business activities are primarily focused on (i)
          homebuilding through Homes by Calton, LLC ("Homes by Calton"), (ii)
          providing Internet business solutions through eCalton.com, Inc.
          ("eCalton"), and (iii) developing a loyalty and co-branded credit card
          program through PrivilegeONE Networks, LLC ("PrivilegeONE").

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

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

                                       1
<PAGE>

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

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

          PRODUCT OFFERING
          Homes by Calton offers single-family detached homes at prices,
          including customized options and lot premiums, which have ranged from
          $461,000 up to $704,000 during the year ended November 30, 2005. Homes
          by Calton offers four different house floor plans in each of its
          communities, with the size of homes ranging from 2,700 to 3,600 square
          feet. A wide selection of options is available to purchasers for
          additional charges. Major options include built-in entertainment
          centers, bonus rooms and pools. On average, Homes by Calton's
          homebuyers added approximately 16%, or $81,000 per home, in options
          and lot premiums to the base price of homes delivered in fiscal 2005.
          At November 30, 2005, four homes were under contract, representing
          $2,250,000 of sales backlog.

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

          SALES AND MARKETING
          Homes by Calton markets its homes primarily to upper-income buyers,
          emphasizing high-quality construction and customer satisfaction. The
          Company maintains sales offices at its communities under development
          which are staffed by Homes by Calton sales personnel. Local realtors
          also introduce customers to Homes by Calton. Homes by Calton also
          advertises in newspapers and other local and regional publications and
          potential homebuyers can obtain detailed information regarding the
          communities where the Company builds by visiting Homes by Calton's
          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 construction time generally ranges from about
          150 to 180 calendar days.

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

                                       2
<PAGE>

          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.

          ECALTON.COM
          eCalton provides Internet business solutions that empower large and
          medium-sized businesses to rapidly create, deliver and manage
          e-commerce solutions and web initiatives. eCalton provides its clients
          with proven, cost-effective software solutions supported by consulting
          personnel to assist with implementation and ongoing project support.
          eCalton's service offerings include application development, commerce
          portals, eBusiness integration, and outsourcing infrastructure. The
          Company has identified and focuses on one prime vertical market
          segment, the homebuilding industry. eCalton assists homebuilders in
          using the Internet to communicate effectively with customers,
          suppliers, trades and employees by developing and implementing
          cost-effective web-based solutions and strategies.

          SALES AND MARKETING
          eCalton markets its services through existing client referrals, its
          Web site, WWW.ECALTON.COM, direct mail, trade shows and co-operative
          advertising. In addition, eCalton establishes strategic partnerships
          with complementary organizations such as advertising agencies and
          homebuilding technology suppliers to facilitate cooperative
          advertising and lead generation.

          COMPETITION
          The market for Internet professional services is highly competitive
          and characterized by numerous companies that have introduced or
          developed products and services similar to those offered by eCalton.
          The Company expects competition to persist. Continuous competition may
          result in price reductions, reduced margins and loss of market share.
          Many of eCalton's competitors and potential competitors have longer
          operating histories, larger installed customer bases, greater name
          recognition, longer relationships with their clients, and
          significantly greater financial, marketing and public relations
          resources than eCalton. As a result, many of eCalton's competitors may
          be better positioned to react in the ever-changing market place.
          eCalton expects competition to persist and intensify in the future.

          PRIVILEGEONE NETWORKS, LLC
          PrivilegeONE was formed to develop and implement the PrivilegeONE
          Loyalty program. The patent pending program is designed to aggregate
          disparate entities under the PrivilegeONE umbrella to create customer
          loyalty and retention through the issuance of co-branded credit card
          and membership cards. PrivilegeONE initially focused on the retail
          automobile industry. Under the terms of this program, customers of
          participating automobile dealers were offered the opportunity to apply
          for the PrivilegeONE VISA credit card. Through PrivilegeONE's unique
          credit card acquisition system technology, qualifying customers were
          granted instant credit approval. By using the PrivilegeONE card,
          customers earned rebate dollars, which could be redeemed

                                       3
<PAGE>

          when the customer purchased or leased a new or used vehicle. In
          addition, participating dealers provided up to a ten percent discount
          on parts and service when the PrivilegeONE card was used at the
          dealership. As a result of a shift in strategy, PrivilegeONE did not
          conduct any significant business activities in fiscal 2005 other than
          the redemption of the PrivilegeONE Rebate Dollars. It is currently
          exploring different opportunities for revenue generation, including,
          but not limited to, licensing its online credit card acquisition
          system and joint venture opportunities.

          INSTALLED DEALERSHIPS
          The PrivilegeONE co-branded loyalty and credit card program was
          initially launched at 29 retail automotive dealerships in New York,
          New Jersey and New Hampshire. Approximately 2,200 cards were initially
          issued. No cards have been issued since March 2003 when the program
          expired; however, existing cardholders were able to redeem their
          rebate dollars with a participating dealership through June 2005. As
          of November 30, 2005, there are no dealerships installed with the
          PrivilegeONE system.

          PATENTS & TRADEMARKS
          PrivilegeONE has applied to the United States Patent and Trademark
          Office for a patent for CCAS, its online credit card acquisition
          system. No assurance can be given that the patent will be issued.
          However, on September 25, 2003, the U.S. Patent Office issued
          PrivilegeONE a Patent Application Publication Number, US 2003/0182247
          A1. PrivilegeONE has received Preliminary Patent Approval and has
          requested a formal approval from the U.S. Patent Office. Failure to
          obtain patent protection for CCAS, which the Company believes gives
          PrivilegeONE an advantage over potential competitors, could result in
          other parties duplicating the system.

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

          SEGMENT DATA
          See Note 7 to the Company's Consolidated Financial Statements for
          financial data about its segments.

          EMPLOYEES
          As of February 17, 2006, the Company and its wholly owned subsidiaries
          employed 27 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 $1,000
          per month, for a renewable term of one year, (b) approximately 2,000
          square feet of office space in Vero Beach, Florida at a monthly rate
          of approximately $2,750 for a term of five years ending September
          2009, (c) approximately 1,400 square feet of office space in
          Melbourne, Florida at a monthly rate of approximately $1,900 on a
          month-to-month basis and (d) two model homes pursuant to
          sale-leaseback arrangements at the Pointe West community in Vero
          Beach, under renewable terms of one year each, for a combined total of
          $8,250 per month. Management believes that these arrangements
          currently provide adequate space for all of the Company's business
          operations.

          Because of the nature of our homebuilding operations, significant
          amounts of property are held as inventory in the ordinary course of
          our 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

                                       4
<PAGE>

          During the fourth quarter of fiscal 2005, 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

          On April 6, 2004, the Company's common stock was delisted from the
          American Stock Exchange ("AMEX"). The Company's common stock was
          delisted as a result of the Company not being in compliance with the
          continued listing standards of the AMEX. Specifically, the Company's
          stockholders' equity was less than $4 million and the Company had
          sustained losses from continuing operations and/or net losses in three
          of its four most recent fiscal years.

          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 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 2005 and 2004:

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

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


                      FISCAL 2004             High       Low
                                            --------   --------

                      1st Quarter             $0.81      $0.50
                      2nd Quarter              1.09       0.35
                      3rd Quarter              0.47       0.30
                      4th Quarter              0.45       0.33

          At February 17, 2006, 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
          $0.56.

          In fiscal 2005 and 2004, the Company did not pay dividends. The
          Company intends to retain future earnings to finance the expansion of
          operations and for general corporate purposes.


                                       5
<PAGE>

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

          RESULTS OF OPERATIONS FOR THE YEARS ENDED NOVEMBER 30, 2005 AND 2004

          REVENUES: Consolidated revenues increased from $12,202,000 in 2004 to
          $13,848,000 in 2005. The majority of this increase occurred in the
          homebuilding segment where revenues increased from $11,587,000 in 2004
          to $13,120,000 in 2005. The increase in revenues is primarily
          attributable to increased base sales prices of homes sold. Revenues
          from the homebuilding operations are anticipated to continue to
          outpace revenues from other business operations and are ultimately
          expected to constitute the most significant component of consolidated
          revenues.

          Revenues from the internet development division of eCalton increased
          from $614,000 in 2004 to $728,000 in 2005.

          The Credit Card Loyalty segment did not generate any revenues in 2005
          compared to $1,000 in 2004. This segment has undergone a shift in
          strategy and is now exploring different opportunities for revenue
          generation including, but not limited to, licensing its patent-pending
          software and joint venture prospects.

          COST OF SALES: Cost of sales consists of cost of goods sold for the
          homebuilding segment, project personnel and expenses associated with
          the internet development segment, and credit card loyalty program
          direct expenses. Homebuilding cost of goods sold increased from
          $9,176,000 for the year ended November 30, 2004 to $9,762,000 for the
          year ended November 30, 2005 primarily as a result of the increased
          revenues. Project personnel and expenses for eCalton increased from
          $289,000 in 2004 to $358,000 in 2005. The increase was due to
          increased staffing and additional project activity during the year.
          Gross profits on revenues for the homebuilding business increased to
          26% in 2005 from 21% in 2004 due to higher sales prices of homes.
          Gross profits on revenues for the internet development segment were
          53% and 51% for the years ended November 30, 2004 and 2005,
          respectively.

          SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and
          administrative expenses increased from $2,276,000 in 2004 to
          $2,709,000 in 2005. The increase in selling, general and
          administrative expenses is primarily attributable to increases in
          personnel at the homebuilding division and increased sales and
          marketing expenditures at the homebuilding and Internet development
          divisions.

          INTEREST INCOME: Interest income is derived principally from interest
          on depository accounts and money-market type accounts. Interest income
          decreased from $8,000 in 2004 to $6,000 in 2005. The decrease was a
          result of lower average deposited balances. Currently, cash is being
          used in operating activities and accordingly, interest income is
          expected to decline during 2006.

          INTEREST EXPENSE: Interest expense amounted to $153,000 for the year
          ended November 30, 2005 compared to $165,000 for the year ended
          November 30, 2004. Interest is incurred on the Company's demand
          revolving line of credit and, to the extent required under generally
          accepted accounting principles, capitalized in real estate inventory.
          During the years ended November 30, 2005 and 2004, the Company
          capitalized $98,000 and $84,000, respectively

          GAINS ON INVESTMENTS: During the year ended November 30, 2005, the
          Company incurred a $48,000 unrealized loss on the carrying value of
          CorVu Corporation's common stock. During the year ended November 30,
          2004, the Company realized a gain of $228,000 from the sale of 237,500
          shares of CorVu Corporation's common stock. As of November 30, 2005,
          the Company carried CorVu common stock with a fair value of $55,000.

                                       6
<PAGE>

          LITIGATION SETTLEMENTS: The Company received $71,000 in litigation
          settlements during the year ended November 30, 2005. The Company paid
          $20,000 in litigation settlements and received $5,000 as a result of
          the resolution of certain matters in the year ended November 30, 2004.

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

          SALES ACTIVITY AND BACKLOG:

<TABLE>
<CAPTION>
                                                          Contract         Number
                                                          Backlog         of Homes
                                                      ---------------  ---------------
<S>                                                      <C>                  <C>
          Backlog as of November 30, 2004               $ 3,800,000           7

          Less:  Homes delivered during the
                 year ended November 30, 2005           (13,120,000)        (22)

          Plus:  New contracts signed during the
                 year ended November 30, 2005            11,570,000          19

                                                      ---------------  ---------------
          Backlog as of November 30, 2005               $ 2,250,000           4
                                                      ===============  ===============
</TABLE>

          The Company is currently constructing homes in two communities: Amelia
          Plantation and Pointe West, located in Vero Beach, Florida. In
          addition the Company has begun its "On-Your-Lot" program in which it
          arranges for the construction of homes for individual landowners. The
          Company has one On-Your-Lot home in its backlog as of November 30,
          2005. In December 2005, the Company acquired a 10-acre parcel in Vero
          Beach, Florida on which it intends to construct 21 single family
          homes. Management continues to assess land acquisition opportunities
          and negotiate with various landowners, brokers and agents to expand
          its operations and create a more diversified product offering.

          LIQUIDITY AND CAPITAL RESOURCES

          GENERAL:

          In November 2005, the Company entered into a contract to purchase an
          undeveloped 10-acre parcel in Vero Beach, Florida for the development
          of 21 single family homes. The Company purchased the land in December
          2005 through a combination of new bank financing and working capital.

          In fiscal 2004, the Company entered into two land purchase agreements
          covering 49 developed lots in Vero Beach, Florida. The majority of the
          lots are under a rolling option land purchase agreement. The lot
          purchases are financed through bank financing (Note 4) and working
          capital. The Company plans to complete the development of these lots,
          develop its "On Your Lot" program and pursue other opportunities in
          the homebuilding industry in Florida.

          As of November 30, 2005, the Company had $4,144,000 in working capital
          compared to $3,042,000 at November 30, 2004. Management believes that
          cash on hand as of November 30, 2005, plus amounts to be generated
          from operations, borrowing availability under the Company's revolving
          credit facility and bank financing, will be sufficient to support
          consolidated operations during fiscal 2006.

                                       7
<PAGE>

          CASH FLOWS FROM OPERATING ACTIVITIES:

          The Company used $281,000 in cash in its operating activities during
          the year ending November 30, 2005 compared to generating $2,101,000 in
          cash in its operating activities in the year ending November 30, 2004.
          The primary use of cash in 2005 was the increase in homebuilding
          inventory levels.

          CASH FLOWS FROM INVESTING ACTIVITIES:

          The Company used $150,000 in investing activities during the year
          ended November 30, 2005. The use of cash represents the purchase of
          furniture for its model homes and the purchase of computer equipment.
          The Company generated cash of $250,000 from investing activities
          during the year ended November 30, 2004. This represented cash
          received from the sale of available-for-sale equity securities and the
          net of purchases and disposals of property and equipment.

          CASH FLOWS FROM FINANCING ACTIVITIES:

          The Company generated $540,000 in cash from its financing activities
          for the year ended November 30, 2005. This represented borrowings on
          the Company's construction line of credit. The Company used $1,544,000
          in cash from financing activities for the year ended November 30,
          2004. This represented payments on the Company's construction line of
          credit.

          As a result of the above cash flow activities, cash increased from
          $2,628,000 at November 30, 2004 to $2,737,000 at November 30, 2005.
          Total working capital increased from $3,042,000 at November 30, 2004
          to $4,144,000 at November 30, 2005.

          COMMITMENTS, GUARANTEES AND CONTINGENCIES

          LAND PURCHASE AGREEMENTS:

          In November 2005, the Company entered into a contract to purchase an
          undeveloped 10-acre parcel in Vero Beach, Florida for the development
          of 21 single family homes. The Company purchased the land in December
          2005 and anticipates construction to commence in the fourth quarter of
          fiscal 2006.

          In April 2004, the Company entered in to a rolling option contract to
          purchase forty-one (41) developed, golf course lots in the Pointe West
          development located in Vero Beach, Florida. If the Company does not
          perform under the contract, its liability is limited to the deposit
          money held by the seller. The deposit remaining as of November 30,
          2005 is $140,000. Twenty-six lots have been purchased under this
          agreement as of November 30, 2005.

          The Company anticipates purchasing all of the lots it has under its
          existing land contracts. The estimated cost to the Company to perform
          all of its obligations under the existing land contracts is
          approximately $1.5 million.

          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.

                                       8
<PAGE>

          LOAN AGREEMENT:

          The Company maintains a $6.5 million construction revolving line of
          credit with Harbor Federal Savings Bank. Interest on advances, which
          are secured by a mortgage on the Company's homebuilding properties,
          accrues at a rate equal to the prime rate plus one percent (1%) per
          annum. As of November 30, 2005, $1,937,000 of advances under the line
          of credit was outstanding.

          In December 2005, the Company financed the purchase of a 10-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.

          OPERATING LEASE COMMITMENTS:

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

                            2006                $    152,000
                            2007                      69,000
                            2008                      36,000
                            2009                      38,000
                                               --------------
                            Total               $    295,000
                                               ==============

          GUARANTEES AND OFF BALANCE SHEET ARRANGEMENTS:

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

          PARTICULARLY SENSITIVE ACCOUNTING ESTIMATES

          RESERVE FOR BAD DEBTS: The Company provides reserves against
          uncollectible accounts receivable. This process requires significant
          subjective estimates that take into account the credit worthiness of
          the customer, historical collection experience, and the general
          economic environment. The Company continues to perform formal reviews
          on all open accounts receivable, write off balances known to be
          uncollectible against existing reserves, and estimate the appropriate
          levels of reserves on existing balances. As a result of this on-going
          process, reserves were reduced from $23,000 as of November 30, 2004 to
          $5,000 as of November 30, 2005.

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

          ESTIMATED CONSTRUCTION COSTS:
          The Company recognizes revenue from fixed price and modified fixed
          price construction contracts for homebuilding on customer-owned lots
          based on the percentage-of-completion method, measured by the
          percentage of cost incurred to date to estimated total cost for each
          contract. Contract costs include all direct

                                       9
<PAGE>

          material and labor costs and those indirect costs related to contract
          performance, such as indirect labor, supplies, tools, repairs and
          depreciation. Provisions for estimated losses on uncompleted contracts
          are made in the period in which such losses are determined. Changes in
          job performance, job conditions, contract penalty provisions, claims,
          change orders, and settlements are accounted for as changes in
          estimates in the current period. Because of the inherent uncertainties
          in estimating costs, it is at least reasonably possible that the
          estimates used will change within the near term.

          RECENT ACCOUNTING PRINCIPLES

          FASB INTERPRETATION NO. 47, ACCOUNTING FOR CONDITIONAL ASSET
          RETIREMENT OBLIGATIONS
          In March 2005, the FASB issued interpretation No. 47, "Accounting for
          Conditional Asset Retirement Obligations", an interpretation of FASB
          Statement No 143 ("FIN 47"), which requires an entity to recognize a
          liability for the fair value of a conditional asset retirement
          obligation when incurred if the liability's fair value can be
          reasonably estimated. FIN 47 is effective for fiscal years ending
          after December 15, 2005. The Company is currently evaluating the
          effect of the adoption of FIN 47 on its consolidated results of
          operations and financial condition but does not expect it to have a
          material impact.

          FASB STATEMENT NO. 123 (R) (STATEMENT 123(R))
          On December 16, 2004, the FASB issued Statement No. 123 (revised
          2004), "Share-Based Payments." Statement 123(R) replaces FASB
          Statement No. 123, "Accounting for Stock-Based Compensation,"
          supersedes APB Opinion No. 25, "Accounting for Stock Issued to
          Employees" and amends FASB Statement No. 95, "Statement of Cash
          Flows." Generally, the approach in Statement 123(R) is similar to the
          approach described in Statement 123. However, Statement 123(R)
          requires all share-based payments to employees, including grants of
          employee stock options, to be recognized in the financial statements
          based on their fair values (i.e., pro forma disclosure is no longer an
          alternative to financial statement recognition). Statement 123(R) is
          effective for small business issuers at the beginning of the first
          interim or annual period beginning after December 15, 2005. The
          Company does not anticipate the adoption of this statement to have a
          material impact on its consolidated financial position, results of
          operations or cash flows.

          FASB STATEMENT NO. 154, ACCOUNTING CHANGES AND ERROR CORRECTIONS
          In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
          Error Corrections" ("SFAS 154"). SFAS 154 replaces APB No. 20,
          "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
          Interim Financial Statements" and establishes retrospective
          application as the required method for reporting a change in
          accounting principle. SFAS 154 provides guidance for determining
          whether retrospective application of a change in accounting principle
          is impracticable and for reporting a change when retrospective
          application is impracticable. The reporting of a correction of an
          error by restating previously issued financial statements is also
          addressed. SFAS 154 is effective for accounting changes and
          corrections of errors made in fiscal years beginning after December
          15, 2005. The Company does not anticipate that that the adoption of
          SFAS 154 will have a material impact on its consolidated balance
          sheets and statements of operations, shareholders' equity and cash
          flows.

          FASB STATEMENT NO. 155, FOR CERTAIN HYBRID FINANCIAL INSTRUMENTS--AN
          AMENDMENT OF FASB STATEMENTS NO. 133 AND 140
          In February 2006, the FASB issued Statement of Financial Accounting
          Standard (SFAS) No. 155 (SFAS No. 155), ACCOUNTING FOR CERTAIN HYBRID
          FINANCIAL INSTRUMENTS--AN AMENDMENT OF FASB STATEMENTS NO. 133 AND
          140, to simplify and make more consistent the accounting for certain
          financial instruments. Specifically, SFAS No. 155 amends SFAS No. 133,
          ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, to
          permit fair value remeasurement for any hybrid financial instrument
          with an embedded derivative that otherwise would require bifurcation,
          provided that the whole instrument is accounted for on a fair value
          basis. Prior to fair value measurement, however, interests in
          securitized financial assets must be evaluated to identify interests
          containing embedded derivatives requiring bifurcation. The amendments
          to SFAS No. 133 also clarify that interest-only and principal-only
          strips are not subject to the requirements of the SFAS, and that
          concentrations of credit risk in the

                                       10
<PAGE>

          form of subordination are not embedded derivatives. Finally, SFAS No.
          155 amends SFAS No. 140, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
          LONG-LIVED ASSETS, to allow a qualifying special-purpose entity (SPE)
          to hold a derivative financial instrument that pertains to a
          beneficial interest other than another derivative financial
          instrument. SFAS No. 155 applies to all financial instruments acquired
          or issued after the beginning of an entity's first fiscal year that
          begins after September 15, 2006, with earlier application allowed. The
          Company does not anticipate that the adoption of this statement to
          have a material impact on its consolidated financial statements.

ITEM 7.   FINANCIAL STATEMENTS

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

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

          None.

ITEM 8A.  CONTROLS AND PROCEDURES

          As of the end of the period covered by this report, the Company
          carried out an evaluation of the effectiveness of the design and
          operation of the Company's disclosure controls and procedures. This
          evaluation was carried out under the supervision and with the
          participation of the Company's management, including the Company's
          Chairman and Chief Executive Officer, along with the Company's Chief
          Financial Officer, who concluded that the Company's disclosure
          controls and procedures were effective as of the date of the
          evaluation. There were no significant changes in the Company's
          internal controls during the quarter ended November 30, 2005 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.

                                       11

<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 24, 2006, 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:

<TABLE>
<CAPTION>
          Name                      Age     Position
          ----                      ---     --------
<S>                                                                           <C>
          Anthony J. Caldarone      68      Chairman, President and Chief Executive Officer
                                            Chairman and Chief Executive Officer - Homes by Calton, LLC
                                            President - eCalton.com, Inc.
          Maria F. Caldarone        42      Executive Vice President of Corporate Development and Asst. Secretary
                                            President - Homes by Calton, LLC
                                            Executive Vice President of Operations - PrivilegeONE
          Laura A. Camisa           43      Senior Vice President, Chief Financial Officer and Treasurer
                                            Senior Vice President - Homes by Calton, LLC
                                            Executive Vice President and Secretary - eCalton.com, Inc.
                                            Senior Vice President of Strategic Planning - PrivilegeONE
</TABLE>

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

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

          Ms. Camisa has served as Chief Financial Officer and Treasurer of the
          Company since April 2004 and Senior Vice President of the Company
          since September 2002. From April 2000 until her appointment as Senior
          Vice President, she served as the Company's Vice President of
          Strategic Planning, having been hired in February 2000 as a Financial
          Analyst. Ms. Camisa was appointed Senior Vice President of Homes by
          Calton in January 2004 and Executive Vice President of eCalton in June
          2001. Prior to joining Calton, she held the position of Director of
          Investor Relations and Financial Analyst at Hovnanian Enterprises,
          Inc. from June 1998 through February 2000. Ms. Camisa held the
          position of Financial Analyst - International Mergers and Acquisitions
          at Marsh & McLennan Companies from January 1995 through May 1998. Ms.
          Camisa spent five years with Kidder, Peabody & Co. as a Financial
          Analyst specializing in Mergers & Acquisitions and High Yield Debt
          Financing, as well as successfully completing the company's Investment
          Banking Analyst Training Program.

                                       12
<PAGE>

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

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

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

ITEM 10.  EXECUTIVE COMPENSATION

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

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

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

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

ITEM 13.  EXHIBITS

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

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

                                       13
<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 24, 2006              By: /s/ Laura A. Camisa
                                         ---------------------------------------
                                         Laura A. Camisa, Senior Vice President,
                                         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 Laura A. Camisa 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.

<TABLE>
<CAPTION>
<S>                                                                           <C>
        Signature                                Title                               Date
        ---------                                -----                               ----

/s/ Anthony J. Caldarone         Chairman, President, Chief Executive          February 24, 2006
------------------------------   Officer & Director (Principal Executive
Anthony J. Caldarone             Officer)

/s/ Laura A. Camisa              Senior Vice President, Chief Financial        February 24, 2006
------------------------------   Officer & Treasurer (Principal Financial
Laura A. Camisa                  & Accounting Officer)

/s/ J. Ernest Brophy             Director                                      February 24, 2006
------------------------------
J. Ernest Brophy

/s/ Mark N. Fessel               Director                                      February 24, 2006
------------------------------
Mark N. Fessel

/s/ Kenneth D. Hill              Director                                      February 24, 2006
------------------------------
Kenneth D. Hill

/s/ Frank Cavell Smith, Jr.      Director                                      February 24, 2006
------------------------------
Frank Cavell Smith, Jr.

/s/ John G. Yates                Director                                      February 24, 2006
------------------------------
John G. Yates
</TABLE>

                                       14
<PAGE>

                         CALTON, INC. AND SUBSIDIARIES
                   INDEX OF CONSOLIDATED FINANCIAL STATEMENTS


                                                                       PAGE

Report of Independent Registered Public Accounting Firm                F-2

Consolidated Balance Sheet as of November 30, 2005                     F-3

Consolidated Statements of Operations for the Years Ended
November 30, 2005 and 2004                                             F-4

Consolidated Statements of Cash Flows for the Years Ended
November 30, 2005 and 2004                                             F-5

Consolidated Statements of Shareholders' Equity for the Years
Ended November 30, 2005 and 2004                                       F-6

Notes to Consolidated Financial Statements                             F-7





                                      F-1

<PAGE>

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


To the Board of Directors and Shareholders
Calton, Inc.


We have audited the accompanying consolidated balance sheet of Calton, Inc. and
Subsidiaries ("Calton") as of November 30, 2005, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended November 30, 2005. These consolidated financial
statements are the responsibility of Calton'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 auditing 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 consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. We were not engaged to
perform an audit of Calton's 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
Calton's internal control over financial reporting. Accordingly, we express no
opinion. 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 at November 30, 2005, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended November 30, 2005, in conformity with accounting principles generally
accepted in the United States of America.




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

Tampa, Florida
February 3, 2006


                                       F-2
<PAGE>

                         CALTON, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                               NOVEMBER 30, 2005


                                                                November 30,
                                                                    2005
                                                               --------------
ASSETS
    Current Assets
       Cash and cash equivalents                               $   2,737,000
       Accounts receivable, net of allowance for doubtful
         accounts of $5,000                                          261,000
       Inventory                                                   4,734,000
       Deposits on land                                              350,000
       Prepaid expenses and other current assets                     164,000
                                                               --------------
         Total current assets                                      8,246,000
                                                               --------------

       Deferred charges                                               19,000
       Property and equipment, net                                   159,000
                                                               --------------
         Total assets                                          $   8,424,000
                                                               ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
    Current Liabilities
       Accounts payable                                        $   1,058,000
       Accrued expenses                                              617,000
       Other current liabilities                                     490,000
       Notes payable                                               1,937,000
                                                               --------------
         Total liabilities                                         4,102,000
                                                               --------------

    Commitments and contingent liabilities (Note 9)                        -

    Shareholders' Equity
       Common stock, $.05 par value, 25,000,000 shares
         authorized; 10,697,855 shares issued and 9,497,491
         shares outstanding                                          475,000
       Additional paid-in capital                                 11,178,000
       Accumulated deficit                                          (938,000)
       Less cost of shares held in treasury 1,200,364 shares      (6,448,000)
       Accumulated other comprehensive income                         55,000
                                                               --------------
         Total shareholders' equity                                4,322,000
                                                               --------------
         Total liabilities and shareholders' equity            $   8,424,000
                                                               ==============


                 See notes to consolidated financial statements.


                                       F-3

<PAGE>
<TABLE>
<CAPTION>

                                CALTON, INC. AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF OPERATIONS
                           YEARS ENDED NOVEMBER 30, 2005 AND 2004


                                                             2005                2004
                                                       ----------------    ----------------
<S>                                                    <C>                 <C>
REVENUE
    Homebuilding and consulting                        $    13,120,000     $    11,587,000
    Internet development                                       728,000             614,000
    Credit card loyalty program                                      -               1,000
                                                       ----------------    ----------------
                                                            13,848,000          12,202,000
                                                       ----------------    ----------------
COSTS AND EXPENSES
    Cost of sales
      Homebuilding                                           9,762,000           9,176,000
      Internet development                                     358,000             289,000
      Credit card loyalty program                                1,000               1,000
    Selling, general and administrative                      2,709,000           2,276,000
                                                       ----------------    ----------------
                                                            12,830,000          11,742,000
                                                       ----------------    ----------------
      Income from operations                                 1,018,000             460,000

OTHER (EXPENSE) INCOME
    Interest income                                              6,000               8,000
    Interest expense                                          (153,000)           (165,000)
    Realized gain on sale of marketable securities                   -             228,000
    Litigation settlements                                      71,000             (15,000)
    Other income                                               194,000              41,000
                                                       ----------------    ----------------
      Net income before income taxes                         1,136,000             557,000

INCOME TAX (EXPENSE) BENEFIT                                    (2,000)              4,000
                                                       ----------------    ----------------

NET INCOME                                             $     1,134,000     $       561,000
                                                       ================    ================

INCOME PER SHARE:
    Basic and Diluted:                                 $          0.12     $          0.06
                                                       ================    ================

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
      Basic                                                  9,421,000           9,285,000
                                                       ================    ================
      Diluted                                                9,545,000           9,414,000
                                                       ================    ================
</TABLE>

                       See notes to consolidated financial statements.


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

                                        CALTON, INC. AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    YEARS ENDED NOVEMBER 30, 2005 AND 2004


                                                                              2005                2004
                                                                        ----------------    ----------------
<S>                                                                     <C>                 <C>
Cash flows from operating activities
Net income                                                              $     1,134,000     $       561,000
     Adjustments to reconcile net income to net cash
         used in operating activities:
     Realized gain on sale of marketable securities                                   -            (228,000)
     Gain on disposal of long lived assets                                            -             (49,000)
     Depreciation                                                                39,000              32,000
     Amortization of deferred charges                                           111,000             136,000
     Increase in deferred charges                                               (33,000)                  -
     Stock-based compensation for directors                                      49,000              55,000
     Changes in operating assets and liabilities:
         Accounts receivable                                                   (142,000)            (18,000)
         Inventory                                                           (2,233,000)          1,834,000
         Deposits on land                                                       (38,000)           (312,000)
         Prepaid expenses and other assets                                       58,000             (72,000)
         Accounts payable                                                       794,000             162,000
         Accrued expenses                                                       313,000                   -
         Other current liabilities                                             (333,000)                  -
                                                                        ----------------    ----------------
Net cash flows from operating activities                                       (281,000)          2,101,000
                                                                        ----------------    ----------------

Cash flows from investing activities
     Proceeds from the sale of securities held as available for sale                  -             228,000
     Purchases of property and equipment                                       (150,000)            (45,000)
     Proceeds from disposal of property and equipment                                 -              67,000
                                                                        ----------------    ----------------
Net cash flows from investing activities                                       (150,000)            250,000
                                                                        ----------------    ----------------

Cash flows from financing activities
     Proceeds from (payments on) notes payable                                  540,000          (1,544,000)
                                                                        ----------------    ----------------
Net cash flows from financing activities                                        540,000          (1,544,000)
                                                                        ----------------    ----------------

Net increase in cash and cash equivalents                                       109,000             807,000
Cash and cash equivalents at beginning of period                              2,628,000           1,821,000
                                                                        ----------------    ----------------
Cash and cash equivalents at end of period                              $     2,737,000     $     2,628,000
                                                                        ================    ================

SUPPLEMENTAL CASH FLOW INFORMATION
     Non-cash investing and financing activities
         Interest paid                                                  $       141,000     $        62,000
                                                                        ================    ================
         Income taxes paid                                              $         2,000     $         2,000
                                                                        ================    ================
</TABLE>

                               See notes to consolidated financial statements.


                                                     F-5

<PAGE>
<TABLE>
<CAPTION>

                                                   CALTON, INC. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                               YEARS ENDED NOVEMBER 30, 2005 AND 2004
                                                       (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 November 30, 2003                 9,240   $     462   $   12,905   $   (2,633)  $  (8,266)   $         -   $      2,468

     Net Income                                -           -            -          561           -              -            561
     Stock issued to Directors               132           7         (872)           -         920              -             55
     Unrealized Gain on Investments            -           -            -            -           -            103            103
                                       ----------  ----------  -----------  -----------  ----------   ------------  -------------
Balances November 30, 2004                 9,372   $     469   $   12,033   $   (2,072)  $  (7,346)   $       103   $      3,187
                                       ----------  ----------  -----------  -----------  ----------   ------------  -------------

     Net Income                                -           -            -        1,134           -              -          1,134
     Stock issued to Directors               125           6         (855)           -         898              -             49
     Unrealized Losses on Investments          -           -            -            -           -            (48)           (48)
                                       ----------  ----------  -----------  -----------  ----------   ------------  -------------
Balances November 30, 2005                 9,497   $     475   $   11,178   $     (938)  $  (6,448)   $        55   $      4,322
                                       ==========  ==========  ===========  ===========  ==========   ============  =============


                                           See notes to consolidated financial statements.
</TABLE>

                                                                 F-6

<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2005 AND 2004

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 (i) constructing single
        family homes through Homes by Calton, LLC ("Homes by Calton"), (ii)
        providing Internet business solutions through eCalton.com, Inc.
        ("eCalton") and (iii) offering a loyalty and co-branded credit card
        program through PrivilegeONE Networks, LLC ("PrivilegeONE").

        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        USE OF ESTIMATES

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

        PRINCIPLES OF CONSOLIDATION

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

        REVENUE RECOGNITION

        Revenues and related profits from the homebuilding segment 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. 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, 2005 AND 2004


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

        Revenues from the Internet development division are derived under
        short-term time-and-material and, to a lesser extent, fixed price
        contracts with principally commercial business customers. Internet
        development revenues under time-and-material contracts are recognized
        upon acceptance by the customer of the website. Internet development
        revenues under fixed-price contracts are recognized as the contract
        progresses, using the cost-to-cost method to determine percentage of
        completion. There were no material incomplete fixed price website design
        and implementation contracts as of November 30, 2005.

        Hosting revenues are recognized over the term of the service agreement.

        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.

        ACCOUNTS RECEIVABLE, ALLOWANCES FOR DOUBTFUL ACCOUNTS AND CREDIT RISK

        The Company provides reserves against uncollectible accounts receivable.
        This process requires significant subjective estimates that take into
        account the credit worthiness of the customer, historical collection
        experience, and the general economic environment. The Company continues
        to perform formal reviews on all open accounts receivable, write off
        balances known to be uncollectible against existing reserves and
        estimate the appropriate levels of reserves on existing balances.

        INVESTMENTS

        The Company holds certain equity securities which are classified as
        available-for-sale as defined in SFAS No. 115. As a result, at November
        30, 2005 the securities are valued at fair market value of $55,000 and
        are included in prepaid expenses and other current assets in the
        accompanying consolidated balance sheet. The corresponding unrealized
        loss on securities held as available-for-sale is recorded as a component
        of other comprehensive income.

        INVENTORY

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

        In accordance with SFAS 34, CAPITALIZATION OF INTEREST COSTS, the
        Company capitalizes interest incurred on lots under development and
        homes under construction. During the year ended November 30, 2005,
        approximately $98,000 of interest was capitalized. Capitalization begins
        when the construction of a home commences, whether it is under contract
        or being built on a speculative basis. Capitalized interest costs are
        charged to cost of sales in the period when the revenues from home
        closings are recognized. Interest costs are expensed on developed,
        vacant lots and completed speculative homes.


                                      F-8
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2005 AND 2004


        PROPERTY AND EQUIPMENT

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

        IMPAIRMENTS OF LONG-LIVED ASSETS

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

        DEFERRED FINANCE CHARGES

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

        INCOME TAXES

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

        FAIR VALUE OF FINANCIAL INSTRUMENTS

        The Company's financial instruments consist of cash and cash
        equivalents, accounts receivable, investments, accounts payable, accrued
        expenses and other liabilities and notes payable. At November 30, 2005,
        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 $507,000 and $100,000 for the years ended November 30,
        2005 and 2004, respectively.

        PER SHARE COMPUTATIONS

        Basic net income per common share is computed by dividing net income by
        the weighted average number of common shares outstanding during the
        period. Diluted income per share is computed by dividing the net income
        by the


                                      F-9
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2005 AND 2004


        weighted average number of common shares outstanding, increased by the
        assumed conversion of other potentially dilutive securities during the
        period.

<TABLE>
<CAPTION>
                                                                               2005              2004
                                                                          --------------    --------------
<S>                                                                       <C>               <C>
        Net income - [numerator]                                          $   1,134,000     $     561,000
                                                                          ==============    ==============

        Basic:
            Weighted average shares outstanding [denominator]                 9,421,000         9,285,000
                                                                          ==============    ==============
            Net income per common share                                   $        0.12     $        0.06
                                                                          ==============    ==============
        Diluted:
            Weighted average shares outstanding                               9,421,000         9,285,000
            Effect of dilutive securities                                       124,000           129,000
                                                                          --------------    --------------
            Adjusted weighted average shares - [denominator]                  9,545,000         9,414,000
                                                                          ==============    ==============

        Net income per common share - diluted                             $        0.12     $        0.06
                                                                          ==============    ==============
</TABLE>

        The effect of 758,200 and 705,400 stock options outstanding at November
        30, 2005 and 2004, respectively, were not included in the calculation of
        diluted income per share for each of those years, as they were
        anti-dilutive pursuant to the treasury stock method.

        STOCK-BASED COMPENSATION

        The Company accounts for employee stock-based compensation using the
        intrinsic method in accordance with Accounting Principles Board Opinion
        No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25), and related
        interpretations. Accordingly, in cases where exercise prices for stock
        option grants equal or exceed the trading market value of the stock at
        the date of grant, the Company recognizes no compensation expense. In
        cases where exercise prices are less than the fair value of the stock at
        the date of grant, compensation is recognized over the period of
        performance or the vesting period. The Company accounts for non-employee
        stock-based compensation using the fair market value approach for stock
        options and warrants, in accordance with SFAS 123, ACCOUNTING FOR
        STOCK-BASED COMPENSATION ARRANGEMENTS (SFAS 123).


                                      F-10
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2005 AND 2004


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

<TABLE>
<CAPTION>
                                                                               2005              2004
                                                                          --------------    --------------
<S>                                                                       <C>               <C>
        Year ended November 30:

        Net income, as reported                                           $   1,134,000     $     561,000
                                                                          ==============    ==============
        Income per share, as reported                                     $        0.12     $        0.06
                                                                          ==============    ==============

        Stock-based employee compensation costs used in the
        determination of net income, as reported                          $           -     $           -
                                                                          ==============    ==============

        Stock-based employee compensation costs that would
        have been included in the determination of net income
        if the fair value method (SFAS 123) had been
        applied to all awards                                             $    (105,000)    $     (30,000)
                                                                          ==============    ==============

        Unaudited pro forma net income, as if the
        fair value method had been applied to all awards                  $   1,029,000     $     531,000
                                                                          ==============    ==============

        Unaudited pro forma income per share, as if the
        fair value method had been applied to all awards                  $        0.11     $        0.06
                                                                          ==============    ==============
</TABLE>

        Stock based compensation costs that would have been included in the
        determination of net income if the fair value method had been applied is
        calculated using the Black-Scholes option-pricing model, with the
        following assumptions: dividend yield - none, volatility of 137% and
        196% in 2005 and 2004, respectively, risk-free interest rate of 4.49% in
        2005 and 4.36% in 2004, assumed forfeiture rate as they occur, and an
        expected life of 4.3 years at November 30, 2004 and 2005.

        RECENT ACCOUNTING PRONOUNCEMENTS
        FASB INTERPRETATION NO. 47, ACCOUNTING FOR CONDITIONAL ASSET RETIREMENT
        OBLIGATIONS
        In March 2005, the FASB issued interpretation No. 47, "Accounting for
        Conditional Asset Retirement Obligations", an interpretation of FASB
        Statement No 143 ("FIN 47"), which requires an entity to recognize a
        liability for the fair value of a conditional asset retirement
        obligation when incurred if the liability's fair value can be reasonably
        estimated. FIN 47 is effective for fiscal years ending after December
        15, 2005. The Company is currently evaluating the effect of the adoption
        of FIN 47 on its consolidated results of operations and financial
        condition, but does not expect it to have a material impact.

        FASB STATEMENT NO. 123 (R) (STATEMENT 123(R))
        On December 16, 2004, the FASB issued Statement No. 123 (revised 2004),
        "Share-Based Payments." Statement 123(R) replaces FASB Statement No.
        123, "Accounting for Stock-Based Compensation," supersedes APB Opinion
        No. 25, "Accounting for Stock Issued to Employees" and amends FASB
        Statement No. 95, "Statement of Cash Flows." Generally, the approach in
        Statement 123(R) is similar to the approach described in Statement 123.
        However, Statement 123(R) requires all share-based payments to
        employees, including grants of employee stock options, to be recognized
        in the financial statements based on their fair values (i.e., pro forma
        disclosure is no longer an alternative to financial statement
        recognition). Statement 123(R) is effective for small business issuers
        at


                                      F-11
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2005 AND 2004


        the beginning of the first interim or annual period beginning after
        December 15, 2005. The Company does not anticipate the adoption of this
        statement to have a material impact on its consolidated financial
        position, results of operations or cash flows.

        FASB STATEMENT NO. 154, ACCOUNTING CHANGES AND ERROR CORRECTIONS
        In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
        Corrections" ("SFAS 154"). SFAS 154 replaces APB No. 20, "Accounting
        Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim
        Financial Statements" and establishes retrospective application as the
        required method for reporting a change in accounting principle. SFAS 154
        provides guidance for determining whether retrospective application of a
        change in accounting principle is impracticable and for reporting a
        change when retrospective application is impracticable. The reporting of
        a correction of an error by restating previously issued financial
        statements is also addressed. SFAS 154 is effective for accounting
        changes and corrections of errors made in fiscal years beginning after
        December 15, 2005. The Company does not anticipate that the adoption of
        SFAS 154 will have a material impact on its consolidated balance sheets
        and statements of operations, shareholders' equity and cash flows.

        FASB STATEMENT NO. 155, FOR CERTAIN HYBRID FINANCIAL INSTRUMENTS--AN
        AMENDMENT OF FASB STATEMENTS NO. 133 AND 140
        In February 2006, the FASB issued Statement of Financial Accounting
        Standard (SFAS) No. 155 (SFAS No. 155), ACCOUNTING FOR CERTAIN HYBRID
        FINANCIAL INSTRUMENTS--AN AMENDMENT OF FASB STATEMENTS NO. 133 AND 140,
        to simplify and make more consistent the accounting for certain
        financial instruments. Specifically, SFAS No. 155 amends SFAS No. 133,
        ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, to permit
        fair value remeasurement for any hybrid financial instrument with an
        embedded derivative that otherwise would require bifurcation, provided
        that the whole instrument is accounted for on a fair value basis. Prior
        to fair value measurement, however, interests in securitized financial
        assets must be evaluated to identify interests containing embedded
        derivatives requiring bifurcation. The amendments to SFAS No. 133 also
        clarify that interest-only and principal-only strips are not subject to
        the requirements of the SFAS, and that concentrations of credit risk in
        the form of subordination are not embedded derivatives. Finally, SFAS
        No. 155 amends SFAS No. 140, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL
        OF LONG-LIVED ASSETS, to allow a qualifying special-purpose entity (SPE)
        to hold a derivative financial instrument that pertains to a beneficial
        interest other than another derivative financial instrument. SFAS No.
        155 applies to all financial instruments acquired or issued after the
        beginning of an entity's first fiscal year that begins after September
        15, 2006, with earlier application allowed. The Company does not
        anticipate that the adoption of this statement to have a material impact
        on its consolidated financial statements.

        RECLASSIFICATIONS
        Certain 2004 balances have been reclassified to conform with the current
        year presentation.

2.      INVENTORY

        Inventory consists of the following as of November 30, 2005:

                Developed land                  $       824,000
                Homes under construction              1,075,000
                Speculative and model homes           2,835,000
                                                ----------------
                                                $     4,734,000
                                                ================

        The Company capitalizes interest on loans directly associated with the
        real estate development projects. During the years ended November 30,
        2005 and 2004, the Company capitalized $98,000 and $84,000,
        respectively.


                                      F-12
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2005 AND 2004


3.      PROPERTY AND EQUIPMENT

        Property and equipment consists of the following as of November 30,
        2005:

                Computer equipment and furniture        $     273,000
                Leasehold improvements                          6,000
                Other                                           8,000
                                                        --------------
                                                              287,000
                       Less: Accumulated Depreciation        (128,000)
                                                        --------------
                                                        $     159,000
                                                        ==============

4.      NOTES PAYABLE

        Notes payable consists of borrowings under a $6.5 million demand
        revolving line of credit with Harbor Federal Savings Bank. The credit
        facility is secured by inventories and related homebuilding assets. The
        annual interest rate is the bank's prime rate plus 1% (7.75% at November
        30, 2005).

5.      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 REPURCHASE PROGRAM

        During 1998, the Company commenced a stock repurchase program covering
        up to 2,000,000 shares of Common Stock in open market repurchases and
        privately negotiated transactions. Treasury stock is recorded at cost as
        a reduction of shareholders' equity. During the fiscal years ended
        November 30, 2005 and 2004, there were no treasury stock purchases.

        STOCK COMPENSATION PROGRAMS AND TRANSACTIONS

        As of November 30, 2005, there were 758,200 options exercisable under
        all plans in the aggregate with a weighted average exercise price of
        $0.70. Stock option activity is summarized as follows:


                                      F-13
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2005 AND 2004

<TABLE>
<CAPTION>
                                                     2005                                  2004
                                        ----------------------------------    ----------------------------------
                                                             Weighted                              Weighted
                                                             Average                               Average
                                                             Exercise                              Exercise
                                            Options           Price               Options           Price
                                        ----------------------------------    ----------------------------------
<S>                                           <C>            <C>                    <C>            <C>
Outstanding
      Beginning of year                       705,400        $   1.58               735,400        $   2.48
      Granted at market price                 165,000            0.46                94,000            0.56
      Expired or cancelled                   (112,200)           5.90              (124,000)           6.08
                                        ----------------------------------    ----------------------------------
Outstanding end of year                       758,200        $   0.70               705,400        $   1.58
                                        ==================================    ==================================

                                        ----------------------------------    ----------------------------------
Exercisable as of November 30                 758,200        $   0.70               392,696        $   2.15
                                        ==================================    ==================================
</TABLE>

        The weighted average exercise price of the options granted during fiscal
        years ended 2005 and 2004 is $0.46 and $0.56, respectively. The range of
        exercise prices for exercisable options and the weighted average
        remaining lives are reflected in the following table:

                        Options Outstanding and Exercisable
        --------------------------------------------------------------------
            Range of                        Weighted Avg.     Weighted Avg.
             Prices            Number      Remaining Life    Exercise Price
        ------------------  ------------  ----------------  ----------------
          $ 0.01 - 1.00          708,200      5.15 yrs.          $ 0.46
            1.01 - 5.00           50,000      0.42 yrs.            4.12
                            ------------

          $ 0.01 - 5.00          758,200      4.84 yrs.          $ 0.70
                            ============  ================  ================

        During 2005 and 2004, 125,000 and 132,000 shares, respectively, of
        treasury stock were issued to directors of the Company in lieu of
        receiving cash fees. The Company records stock-based compensation
        associated with the issuance of common stock to directors based upon the
        fair market value of the shares on the date issued. Compensation expense
        for the years ended November 30, 2005 and 2004 amounted to $49,000 and
        $55,000, respectively, under this method. Treasury stock was relieved
        using the first-in first-out method of accounting with the difference
        being recorded as a reduction of paid-in capital.

        As of November 30, 2005, there were 252,907 shares of Common Stock
        reserved for possible future issuances under the Company's stock option
        plans.

        In November 2005, the Company's Board of Directors approved the
        acceleration of the vesting of all outstanding unvested stock options.
        The acceleration was effective on November 30, 2005. Per APB 25, no
        additional stock-based compensation expense was recorded since the
        modification of the options did not have any intrinsic value.

        PREFERRED STOCK RIGHTS AGREEMENTS

        In February 1999, the Company's Board of Directors adopted a shareholder
        rights plan (the "Rights Plan") and declared a dividend of one preferred
        stock purchase right (a "Right") for each outstanding share of Common
        Stock.


                                      F-14
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2005 AND 2004


        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 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, 2005.

        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, 2005 and 2004 represents the changes in
        unrealized gains (losses) on available-for-sale equity securities which
        are included in prepaid expenses and other current assets. The following
        table reflects comprehensive income for the years ended November 30,
        2005 and 2004:

                                                 2005             2004

                Net income                  $   1,134,000     $     561,000
                Unrealized (loss) gain
                  on investments                  (48,000)          103,000
                                            --------------    --------------
                Comprehensive income        $   1,086,000     $     664,000
                                            ==============    ==============

6.      INCOME TAXES

        The federal net operating loss carryforward for tax purposes is
        approximately $31,742,000 and $31,968,000 at November 30, 2005 and 2004,
        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 2024.


                                      F-15
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2005 AND 2004


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

                                                    2005              2004
                                               --------------    --------------

                Tax expense using statutory
                  rate                         $     370,000     $    (195,000)
                Change in valuation allowance       (370,000)          195,000
                                               --------------    --------------
                                               $           -     $           -
                                               ==============    ==============

        Temporary differences and carryforwards that give rise to deferred tax
        assets as of November 30, 2005 are as follows:

                Net operating losses                $  12,503,000
                Asset impairment charges                  321,000
                Capital loss carryforwards                403,000
                Investment impairment charges             263,000
                Unamortized start up costs                301,000
                Bad debt and other allowances               2,000
                Other                                      66,000
                                                    --------------
                    Deferred tax assets                13,859,000
                Less: Valuation allowances            (13,859,000)
                                                    --------------
                Net deferred taxes                  $           -
                                                    ==============

7.      INDUSTRY SEGMENTS AND MAJOR CUSTOMERS

        The Company accounts for reportable segments using the "management
        approach." The management approach focuses on disclosing financial
        information that the Company's management uses to make decisions about
        the Company's operating matters. During the operating periods presented
        in the accompanying financial statements, the Company operated in four
        business segments, as follows:

        HOMEBUILDING AND CONSTRUCTION SERVICES
        Homes by Calton constructs single-family residential homes in the state
        of Florida through its qualified contractors.

        INTERNET DEVELOPMENT
        The Internet development division of eCalton.com, Inc. provides Internet
        consulting services and develops comprehensive Internet-based solutions
        for its clients. Its mission is to help businesses and organizations
        optimize their competitive business advantages through strategic use of
        the Internet and related technologies. This division of eCalton provides
        its services to medium and large size companies in various industries,
        as well as one prime vertical market - the homebuilding industry.

        CORPORATE
        The corporate division provides senior management, accounting, human
        resources and investor relations services to all wholly owned
        subsidiaries of Calton, Inc.


                                      F-16
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2005 AND 2004


        CREDIT CARD LOYALTY BUSINESS
        PrivilegeONE Networks, LLC was formed to develop and implement the
        PrivilegeONE Loyalty Program. The patent pending program was developed
        to aggregate disparate entities under the PrivilegeONE umbrella to
        create customer loyalty and retention to the individual entity through
        the issuance of co-branded credit cards and membership cards. To
        introduce the program, PrivilegeONE elected the initial target customer
        base of automobile dealers throughout the United States.

        Operating results, by segment, for the years ended November 30, 2005 and
        2004 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                               Fiscal year ended November 30, 2005
                                        ---------------------------------------------------------------------------------
                                                            P-ONE
                                            eCalton       Credit Card
                                           Internet         Loyalty                                           Total
                                          Development      Business      Homebuilding       Corporate        Company
                                        ---------------------------------------------------------------------------------
<S>                                      <C>               <C>           <C>                <C>             <C>
        Segment revenues                 $        728      $      -      $     13,120       $       -       $  13,848
        Cost of sales                             358             1             9,762               -          10,121
        Depreciation                               11             -                14              14              39
        Interest income                             -             -                 -               6               6
        Income (loss) from operations              36            (5)            2,101          (1,114)          1,018
        Net income (loss)                          52            (5)            1,971            (884)          1,134
        Total assets                     $        225      $      -      $      7,879       $     320       $   8,424


                                                               Fiscal year ended November 30, 2004
                                        ---------------------------------------------------------------------------------
                                            eCalton         P-ONE
                                           Internet       Credit Card
                                          Development       Loyalty      Homebuilding                         Total
                                         and Staffing      Business      & Consulting       Corporate        Company
                                        ---------------------------------------------------------------------------------

        Segment revenues                 $        614      $      1      $     11,587       $       -       $  12,202
        Cost of sales                             289             1             9,176               -           9,466
        Depreciation                                5             -               138              25             168
        Interest income                             -             -                 -               8               8
        Income (loss) from operations              38            (5)            1,481          (1,054)            460
        Net income (loss)                          38            (5)            1,481            (953)            561
        Total assets                     $        192      $      -      $      5,269       $     514       $   5,975
</TABLE>

8.      RELATED PARTY TRANSACTIONS

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


                                      F-17
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2005 AND 2004


9.      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, 2005 and 2004:

                                                     2005             2004
                                                --------------   --------------

                Balance at beginning of period  $      57,000    $      11,000
                Reserves                               68,000           57,000
                Payments and other adjustments        (66,000)         (11,000)
                                                --------------   --------------
                Balance at end of period        $      59,000    $      57,000
                                                ==============   ==============

        LAND PURCHASE AGREEMENTS
        In November 2005, the Company entered into a contract to purchase an
        undeveloped 10-acre parcel in Vero Beach, Florida for the development of
        21 single family homes. The Company completed the transaction in
        December 2005 and anticipates construction to commence in the fourth
        quarter of fiscal 2006.

        In April 2004, the Company entered in to a rolling option contract to
        purchase forty-one (41) developed, golf course lots in the Pointe West
        development located in Vero Beach, Florida. If the Company does not
        perform under the contract, its liability is limited to the deposit
        money held by the seller. The deposit remaining as of November 30, 2005
        is $140,000. Twenty-six lots have been purchased under this agreement as
        of November 30, 2005.

        The Company anticipates purchasing all of the lots it has under its
        existing land contracts. The estimated cost to the Company to perform
        all of its obligations under the existing land contracts is
        approximately $1.5 million.

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


                                      F-18
<PAGE>

CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2005 AND 2004


                        2006      $     152,000
                        2007             69,000
                        2008             36,000
                        2009             38,000
                                  --------------
                        Total     $     295,000
                                  ==============

        Rent expense for the years ended November 30, 2005 and 2004 amounted to
        $106,000 and $112,000, respectively.

        LITIGATION SETTLEMENTS
        During the fiscal year ended November 30, 2005, the Company received
        $71,000 in litigation settlements. During the fiscal year ended November
        30, 2004, the Company paid $20,000 in final and complete settlement of
        one litigation matter, which closed the matter in its entirety and
        received $5,000 in a litigation settlement.


                                      F-19
<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.

4.1     Option to Purchase Common Stock dated May 10, 2002 issued to Steven R.
        Tetreault, incorporated by reference to similarly numbered exhibit filed
        with Registrant's Report on Form 10-Q for the fiscal quarter ended May
        31, 2001.


                                       E-1
<PAGE>

4.2     Option to Purchase Common Stock dated May 10, 2002 issued to Thomas E.
        Van Fechtmann, incorporated by reference to similarly numbered exhibit
        filed with Registrant's Report on Form 10-Q for the fiscal quarter ended
        May 31, 2001.

4.3     Option to Purchase Common Stock dated May 10, 2002 issued to Thomas
        Corley, incorporated by reference to similarly numbered exhibit filed
        with Registrant's Report on Form 10-Q for the fiscal quarter ended May
        31, 2001.

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.

10.1    1996 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to
        Form 10-K of Registrant for the fiscal year ended November 30, 1996.(*)

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

10.4    Incentive Compensation Plan of Registrant, incorporated by reference to
        Exhibit 10.4 of Form 10-QSB of Registrant for the fiscal quarter ended
        February 28, 2005.(*)

10.7    Executive Employment Agreement dated as of January 1, 2006 between
        Registrant and Anthony J. Caldarone. (**)

10.9    2000 Equity Incentive Plan. (*)

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. (**)

10.26   10.23 Mandatory Redeemable, Convertible, Subordinated Note issued by
        Automated Information Management, Inc., incorporated by reference to
        similarly numbered exhibit to Form 10-K of Registrant for fiscal year
        ended November 30, 2001.

10.27   Stock Purchase Agreement dated as of June 26, 2003 among the Registrant,
        Anthony J. Caldarone, John G. Yates, Maria F. Caldarone and Laura A.
        Camisa, incorporated by reference to Exhibit 10 to Form 10-QSB of
        Registrant for the fiscal quarter ended May 31, 2003.

10.28   Amendment to Stock Purchase Agreement dated as of June 26, 2003 among
        the Registrant, Anthony J. Caldarone, John G. Yates, Maria F. Caldarone
        and Laura A. Camisa, incorporated by reference to Exhibit 10.28 to Form
        10-KSB for 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.


                                       E-2
<PAGE>

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

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

10.32   Assignment Agreement dated as of November 11, 2005 between Atlantic
        Coast Construction & Development, Inc. and Homes by Calton, LLC.

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). Information has been omitted
        from the exhibit and is subject to an order granting confidential
        treatment.

10.44   Commitment Letter dated as of December 15, 2005 between Harbor Federal
        Savings Bank and Homes by Calton, LLC.

10.45   First Mortgage Loan dated December 28, 2005 between Harbor Federal
        Savings Bank and Homes by Calton, LLC.

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

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

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

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

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

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

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

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

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


                                       E-3