-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fu8B01NsgUZ8K7WgUU3SaAu8uGI4noc9hEEE7DQX+zw212ntEr22kPHNVSU+gUWs HCHKa/OB+an2jSbR4dEhKg== 0001188112-04-001079.txt : 20040715 0001188112-04-001079.hdr.sgml : 20040715 20040715142200 ACCESSION NUMBER: 0001188112-04-001079 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040531 FILED AS OF DATE: 20040715 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALTON INC CENTRAL INDEX KEY: 0000717216 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 222433361 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-08846 FILM NUMBER: 04915537 BUSINESS ADDRESS: STREET 1: 2013 INDIAN RIVER BOULEVARD CITY: VERO BEACH STATE: FL ZIP: 32960 BUSINESS PHONE: 7727941414 MAIL ADDRESS: STREET 1: 2013 INDIAN RIVER BOULEVARD CITY: VERO BEACH STATE: FL ZIP: 32960 10QSB 1 t10qsb-3172.txt 10QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended May 31, 2004 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file no. 1-8846 CALTON, INC. (Exact name of registrant as specified in its charter) NEW JERSEY 22-2433361 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 2013 INDIAN RIVER BLVD. VERO BEACH, FLORIDA 32960 (Addresses of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (772) 794-1414 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 --- --- As of July 14, 2004, 9,298,766 shares of Common Stock were outstanding. Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No CALTON, INC. AND SUBSIDIARIES INDEX
PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Financial Statements Consolidated Balance Sheets at May 31, 2004 (Unaudited) and November 30, 2003.............................. 3 Consolidated Statements of Operations (Unaudited) for the Three Months Ended May 31, 2004 and May 31, 2003............................ 4 Consolidated Statements of Operations (Unaudited) for the Six Months Ended May 31, 2004 and May 31, 2003.............................. 5 Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended May 31, 2004 and May 31, 2003.............................. 6 Notes to Consolidated Financial Statements.................................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 13 Item 3. Controls and Procedures..................................................... 16 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Securityholders.......................... 17 Item 5. Other Information........................................................... 17 Item 6. Exhibits and Reports on Form 8-K............................................ 17 SIGNATURES ............................................................................ 19
- -------------------------------------------------------------------------------- Certain information included in this report and other Company filings (collectively, "SEC filings") under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (as well as information communicated orally or in writing between the dates of such SEC filings) contains or may contain forward looking information that is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from expected results. Among these risks, trends and uncertainties are continued operating losses and their effect on liquidity, the Company's ability to raise capital, national and local economic conditions, the lack of an established operating history for the Company's current business activities, conditions and trends in the homebuilding, Internet and technology industries in general, changes in interest rates, continued acceptance of the Company's co-branded customer loyalty credit card program, the Company's ability to acquire property for development, the effect of governmental regulation on the Company and the risks described under the caption "Certain Risks" in the Company's Annual Report on Form 10-KSB for the fiscal year ended November 30, 2003. - -------------------------------------------------------------------------------- 2
PART I - FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS CALTON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS May 31, November 30, 2004 2003 ------------------- ------------------- ASSETS (UNAUDITED) Current Assets Cash and cash equivalents $ 2,822,000 $ 1,821,000 Accounts receivable, net of allowance for doubtful accounts of $6,000 143,000 101,000 Inventory 3,768,000 4,335,000 Deposits on land 174,000 - Prepaid expenses and other current assets 384,000 95,000 ------------------- ------------------- Total current assets 7,291,000 6,352,000 ------------------- ------------------- Deferred charges 123,000 233,000 Property and equipment, net 53,000 52,000 ------------------- ------------------- Total assets $ 7,467,000 $ 6,637,000 =================== =================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable, accrued expenses and other liabilities $ 2,759,000 $ 1,228,000 Notes payable 1,464,000 1,843,000 ------------------- ------------------- Total current liabilities 4,223,000 3,071,000 ------------------- ------------------- Noncurrent portion of notes payable 355,000 1,098,000 Commitments and contingent liabilities (Note 9) - - Shareholders' Equity Common stock, $.05 par value, 25,000,000 shares authorized; 9,299,000 and 9,240,000 shares outstanding at May 31, 2004 and November 30, 2003, respectively 465,000 462,000 Additional paid-in capital 11,818,000 12,185,000 Retained earnings (deficit) (1,784,000) (1,913,000) Less cost of shares held in treasury, 1,399,000 and 1,457,000 shares as of May 31, 2004 and November 30, 2003, respectively (7,873,000) (8,266,000) Accumulated other comprehensive income 263,000 - ------------------- ------------------- Total shareholders' equity 2,889,000 2,468,000 ------------------- ------------------- Total liabilities and shareholders' equity $ 7,467,000 $ 6,637,000 =================== =================== See notes to consolidated financial statements.
3
CALTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MAY 31, 2004 AND 2003 (UNAUDITED) 2004 2003 ---------------- ---------------- REVENUE Homebuilding and consulting $ 1,997,000 $ - Technical staffing - 129,000 Website design and implementation 193,000 123,000 Credit card loyalty program revenue - 1,000 ---------------- ---------------- 2,190,000 253,000 ---------------- ---------------- COSTS AND EXPENSES Cost of sales Homebuilding 1,632,000 - Internet development/technical staffing 83,000 162,000 Credit card loyalty program 1,000 1,000 Selling, general and administrative 574,000 539,000 ---------------- ---------------- 2,290,000 702,000 ---------------- ---------------- Loss from operations (100,000) (449,000) ---------------- ---------------- OTHER (EXPENSE) INCOME Interest income 2,000 6,000 Loss on disposal of long-lived assets - (13,000) Realized gain on sale of marketable securities 228,000 - Interest expense (11,000) - Litigation settlements (20,000) 20,000 Other (expense) income (1,000) (1,000) ---------------- ---------------- 198,000 12,000 ---------------- ---------------- NET INCOME/(LOSS) $ 98,000 $ (437,000) ================ ================ INCOME/(LOSS) PER SHARE Basic $ 0.01 $ (0.09) ================ ================ Diluted $ 0.01 $ (0.09) ================ ================ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING Basic shares 9,264,000 4,645,000 Diluted shares 9,474,000 4,645,000
See notes to consolidated financial statements. 4
CALTON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS SIX MONTHS ENDED MAY 31, 2004 AND 2003 (UNAUDITED) 2004 2003 ---------------- ---------------- REVENUE Homebuilding and consulting $ 4,559,000 $ - Technical staffing - 363,000 Website design and implementation 317,000 250,000 Credit card loyalty program revenue 1,000 13,000 ---------------- ---------------- 4,877,000 626,000 ---------------- ---------------- COSTS AND EXPENSES Cost of sales Homebuilding 3,673,000 - Internet development/technical staffing 146,000 406,000 Credit card loyalty program 1,000 4,000 Selling, general and administrative 1,138,000 1,269,000 ---------------- ---------------- 4,958,000 1,679,000 ---------------- ---------------- Loss from operations (81,000) (1,053,000) ---------------- ---------------- OTHER (EXPENSE) INCOME Interest income 4,000 15,000 Loss on disposal of long-lived assets - (13,000) Realized gain on sale of marketable securities 228,000 - Interest expense (22,000) - Litigation settlements (20,000) (38,000) Other (expense) income 19,000 6,000 ---------------- ---------------- 209,000 (30,000) ---------------- ---------------- NET INCOME/(LOSS) $ 128,000 $ (1,083,000) ================ ================ INCOME/(LOSS) PER SHARE Basic $ 0.01 $ (0.23) ================ ================ Diluted $ 0.01 $ (0.23) ================ ================ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING Basic shares 9,252,000 4,644,000 Diluted shares 9,499,000 4,644,000
See notes to consolidated financial statements. 5
CALTON, INC. AND SUBSIDIARIES CONOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED MAY 31, 2004 AND 2003 (UNAUDITED) 2004 2003 ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income/(loss) $ 128,000 $ (1,083,000) Adjustments to reconcile net income/(loss) to net cash used in operating activities: Realized gain on sale of marketable securities (228,000) - Depreciation and amortization 81,000 26,000 Loss on disposal of long-lived assets - 13,000 Stock based compensation 30,000 9,000 Changes in operating assets and liabilities: Accounts receivable (42,000) 161,000 Inventory 567,000 - Deposits on land (174,000) - Prepaid expenses and other assets 19,000 (85,000) Accounts payable, accrued expenses and other liabilities 1,531,000 (146,000) ---------------- ---------------- Net cash flows from operating activities 1,912,000 (1,105,000) ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES Receipts from holdback escrow account - 55,000 Purchase of equipment and software (17,000) - Proceeds from the sale of marketable securities 228,000 - ---------------- ---------------- Net cash flows from investing activities 211,000 55,000 ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on notes payable (1,122,000) - ---------------- ---------------- Net cash flows from financing activities (1,122,000) - ---------------- ---------------- Net increase/(decrease) in cash and cash equivalents 1,001,000 (1,050,000) Cash and cash equivalents at beginning of period 1,821,000 3,286,000 ---------------- ---------------- Cash and cash equivalents at end of period $ 2,822,000 $ 2,236,000 ================ ================ SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest, net of amounts capitalized $ 25,000 - Cash paid for income taxes - -
See notes to consolidated financial statements. 6 CALTON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Calton, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company's financial position as of May 31, 2004, the results of operations for the three and six months ended May 31, 2004 and 2003 and the cash flows for the six months ended May 31, 2004 and 2003 have been included. These interim financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-KSB, as filed with the Securities and Exchange Commission on March 1, 2004. Operating results for the three and six months ended May 31, 2004 are not necessarily indicative of the results that may be expected for the year ending November 30, 2004. 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 now 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. 2. INVENTORY Inventory consists of the following as of May 31, 2004 and November 30, 2003: May 31, Nov. 30, 2004 2003 ------------------ ----------------- Developed land $ 634,000 $ 1,829,000 Work in process 3,134,000 1,593,000 Speculative and model homes - 913,000 ------------------ ----------------- $ 3,768,000 $ 4,335,000 ================== ================= 7 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following as of May 31, 2004 and November 30, 2003: May 31, Nov. 30, 2004 2003 --------------- -------------- Computer equipment and furniture $ 149,000 $ 132,000 Leasehold improvements 65,000 65,000 Other 3,000 3,000 --------------- -------------- 217,000 200,000 Less: Accumulated Depreciation (164,000) (148,000) --------------- -------------- $ 53,000 $ 52,000 =============== ============== 4. ACCOUNTS PAYABLE, OTHER ACCRUED EXPENSES AND OTHER LIABILITIES Accounts payable, other accrued expenses and other liabilities consist of the following as of May 31, 2004 and November 30, 2003: May 31, Nov. 30, 2004 2003 ------------------ ------------------ Accounts payable, trade $ 530,000 $ 125,000 Other accrued expenses 170,000 229,000 Customer deposits 1,720,000 694,000 Deferred revenue 339,000 180,000 ------------------ ------------------ $ 2,759,000 $ 1,228,000 ================== ================== 5. NOTES PAYABLE Notes payable consists of borrowings under a combined $1.2 million acquisition and construction financing loan and a $5.0 million revolving line of credit with Harbor Federal Savings Bank. Inventories and related homebuilding assets secure the credit facilities. The annual interest rate is the bank's prime rate plus 1% (5.25% at May 31, 2004). In July 2004, Harbor Federal Savings Bank increased the Company's revolving line of credit to $6.5 million. 6. SHAREHOLDERS' EQUITY ACTIVITY During the three and six months ended May 31, 2004, 23,000 and 35,000 shares of treasury stock, respectively, were issued to non-employee directors in lieu of fees. The Company records stock-based compensation associated with the issuance of common stock to non- 8 employee directors based upon the closing market price of the shares on the date issued. Compensation expense for the three and six-month periods ended May 31, 2004, amounted to $15,000 and $15,000, 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 in paid-in capital. 7. NET INCOME/(LOSS) PER COMMON SHARE The following table reconciles the numerators and denominators of the basic and diluted income/(loss) per share computations:
Three Months Ended Six Months Ended May 31, May 31, --------------------------------- ------------------------------------ 2004 2003 2004 2003 ---- ---- ---- ---- Net income/(loss) - (numerator) $ 98,000 $ (437,000) $ 128,000 $ (1,083,000) =============== =============== ================= ================= Basic: Weighted average shares outstanding - (denominator) 9,264,000 4,645,000 9,252,000 4,644,000 =============== =============== ================= ================= Net income/(loss) per common share $ 0.01 $ (0.09) $ 0.01 $ (0.23) =============== =============== ================= ================= Diluted Weighted average shares outstanding 9,264,000 4,645,000 9,252,000 4,644,000 Effect of dilutive securities 210,000 - 247,000 - --------------- --------------- ----------------- ----------------- Adjusted weighted average shares - (denominator) 9,474,000 4,645,000 9,499,000 4,644,000 =============== =============== ================= ================= Net income/(loss) per common share - diluted $ 0.01 $ (0.09) $ 0.01 $ (0.23) =============== =============== ================= =================
The effects of 184,000 stock options outstanding as of May 31, 2004 have been excluded from common stock equivalents because their effect on income per share would be anti-dilutive. The effects of 735,400 stock options outstanding as of May 31, 2003 have been excluded from common stock equivalents because their effect on loss per share would be anti-dilutive. 8. SEGMENT REPORTING 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 identifiable business segments as follows: HOMEBUILDING AND CONSULTING Homes by Calton, LLC ("Homes by Calton"), which commenced operations in the fourth quarter of fiscal 2003, constructs single-family residential homes in the state of Florida. Revenues and related profits from the homebuilding segment are recognized using the full 9 accrual method, as the term is defined in Statements on Financial Accounting (SFAS) No. 66. Revenue is recognized under the full accrual method when the earning process of constructing 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. We remedy any issues with our customers prior to closing. We do not provide customer financing. o In all instances, the buyer's commitment to pay for the property is between the buyer and the buyer's lender. We do not provide customer financing and there is no recourse against us for non-payment by the buyers. o The risks and rewards of ownership of the home pass to the customer at closing and we have no substantial continuing involvement with the property. INTERNET DEVELOPMENT AND STAFFING The Internet development division of eCalton.com, Inc. ("eCalton") 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. Revenues from the Internet development division are derived under short-term time-and-material and, to a lesser extent, fixed price contract 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. In the fourth quarter of fiscal 2003, the Company wound down the technical staffing division of eCalton due to the severe downturn in economic conditions in its regional market of Houston, Texas. Revenues for this division were generated under contracts with its customers to provide staffing services. The Company charged hourly rates for the services of its employees. The Company recorded revenues as the services were performed, based upon service delivery evidence provided by its employees that were directly engaged in the service. The Company did not report the wind down of the technical staffing division as a discontinued operation as, in accordance with FAS 141 - paragraph 41, the division's operations and cash flows could not be clearly distinguished operationally and for financial reporting purposes from the rest of the entity. In addition, the Company previously concluded that the staffing activities did not rise to the level of an operating segment, as that term is defined in paragraph 10 of FAS 131, since discrete financial information was not fully available. The Company does not anticipate incurring any restructuring or impairment charges, including severance or similar employment separation charges, as a result of the wind down of the division's operations. 10 CORPORATE The corporate segment provides senior management, accounting, human resources and investor relations services to all wholly-owned subsidiaries of Calton, Inc. CREDIT CARD LOYALTY BUSINESS PrivilegeONE Networks, LLC ("PrivilegeONE") 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. This segment recognizes revenue upon receipt of its proportionate share of finance charges incurred on existing PrivilegeONE credit card accounts and upon receipt of fees associated with new card issuances. Operating results, by industry segment, for the six months ended May 31, 2004 and 2003 are as follows (in thousands):
SIX MONTHS ENDED MAY 31, 2004 ------------------------------------------------------------------------- Credit Card Homebuilding Internet Loyalty and Consulting Total Development Business Services Corporate Company Total revenues $ 317 $ 1 $ 4,559 $ - $ 4,877 Total cost of revenues 146 1 3,673 - 3,820 Depreciation and amortization 1 - 65 15 81 Income/(loss) from operations 33 (1) 498 (611) (81) Interest income/(expense), net - - (22) 4 (18) Net income/(loss) 46 (1) 475 (392) 128 Total assets $ 197 $ 1 $ 6,097 $ 1,172 $ 7,467 SIX MONTHS ENDED MAY 31, 2003 ------------------------------------------------------------------------- Internet Credit Card Homebuilding Development Loyalty and Consulting Total and Staffing Business Services Corporate Company Total revenues $ 613 $ 13 $ - $ - $ 626 Total cost of revenues 406 4 - - 410 Depreciation and amortization - - - 26 26 Loss from operations (89) (371) - (593) (1,053) Interest income - - - 15 15 Net loss (109) (370) - (604) (1,083) Total assets $ 212 $ 510 $ - $ 1,963 $ 2,685
11 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 total revenue. 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 six months ended May 31, 2004: Balance at end of period $ 23,000 Reserves 10,000 Payments (1,000) ------------------- Balance at end of period $ 32,000 =================== LAND PURCHASE AGREEMENTS In April 2004, the Company entered into 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 total deposit required is $300,000. As of May 31, 2003, an initial deposit of $150,000 had been made. In December 2003, the Company entered into a contract to purchase eight (8) developed lots in the Amelia Plantation 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 full deposit of $24,000 was made during the six months ended May 31, 2004. 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 $5.2 million. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MAY 31, 2004 AND 2003 REVENUES: Consolidated revenues for the three months ended May 31, 2004 increased to $2,190,000 compared to $253,000 for the three months ended May 31, 2003. Revenues for the six months ended May 31, 2004 and 2003 were $4,877,000 and $626,000, respectively. This increase for both the quarter and six months is directly attributable to the Company's homebuilding segment which commenced operations in the fourth quarter of fiscal 2003. The technical staffing division of eCalton, which generated $129,000 and $363,000 of revenues for the three and six months ended May 31, 2003, respectively, was wound down in the fourth quarter of fiscal 2003 and therefore, did not generate any revenues for the quarter or six months ended May 31, 2004. 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/technical staffing segment and direct expenses of the credit card loyalty segment. Homebuilding cost of goods sold was $1,632,000 and $3,673,000 for the quarter and six months ended May 31, 2004. As the homebuilding segment began operations in the fourth quarter of fiscal 2003, there were no expenses recorded for the three and six months ended May 31, 2003. Project personnel and expenses decreased from $162,000 in the three months ended May 31, 2003 to $83,000 in the three months ended May 31, 2004. Project personnel and expenses decreased from $406,000 in the six months ended May 31, 2003 to $146,000 in the six months ended May 31, 2004. The decrease in both the quarter and six-month results is primarily attributable to the technical staffing division of eCalton being wound down in the fourth quarter of 2003. Gross profit margin for the homebuilding segment was 18% and 19% for the quarter and six months ended May 31, 2004. Gross profit margin for the Internet development/technical staffing segment was 57% and 36% for the quarters ended May 31, 2004 and 2003, respectively. Gross profit margin for the Internet development/technical staffing segment was 54% and 34% for the six months ended May 31, 2004 and 2003, respectively. The increase in gross profit margin for both the quarter and six-month results for eCalton is primarily attributable to the technical staffing division of eCalton being wound down in the fourth quarter of fiscal 2003. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses for the quarter ended May 31, 2004 were $574,000 compared to $539,000 for the quarter ended May 31, 2003. Selling, general and administrative expenses for the six months ended May 31, 2004 were $1,138,000 compared to $1,269,000 for the six months ended May 31, 2003. The slight increase in expenses is primarily attributable to new product development, hiring of personnel and costs related to the commencement of development activities at new communities. INTEREST INCOME: Interest income is derived principally from interest on depository accounts and money market-type accounts. Interest income decreased from $6,000 during the quarter ended May 31, 2003 to $2,000 during the quarter ended May 31, 2004. Interest income decreased from $15,000 during the six months ended May 31, 2003 to $4,000 during the six months ended May 31, 2004. The decrease was a result of lower average 13 deposited balances. Currently, cash is being used in operating activities and accordingly, interest income is expected to decline during fiscal 2004. REALIZED GAIN ON SALES OF MARKETABLE SECURITIES: During the quarter ended May 31, 2004, the Company received $228,000 from the sale of 237,500 shares of CorVu Corporation's common stock. The Company has additional shares of CorVu Corporation common stock with a current value of $263,000. LITIGATION SETTLEMENTS: Corporate recorded $20,000 in litigation settlements for the six months ended May 31, 2004. The Company paid $58,000 in litigation settlements for the six months ended May 31, 2003 and received $20,000 in proceeds from the settlement of a previously written-off account. SALES ACTIVITY AND BACKLOG Contract Number Backlog of Homes ------------- ------------- Backlog as of November 30, 2003 $6,700,000 13 Less: Homes delivered during the six months ended May 31, 2004 ($4,500,000) (9) Plus: New contracts signed during the six months ended May 31, 2004 $8,400,000 17 ------------- ------------- Backlog as of May 31, 2004 $10,600,000 21 ============= ============= The Company is currently taking lot reservations in two new communities: Amelia Plantation and Pointe West, both located in Vero Beach, Florida. LIQUIDITY AND CAPITAL RESOURCES GENERAL The Company has incurred operating losses in recent fiscal years. However, with the Company's strategic decision to capitalize on senior management's experience in the homebuilding market and its curtailment of operations in the technical staffing business, management believes that cash on hand as of May 31, 2004, plus amounts to be generated from operations and borrowing availability under the Company's revolving credit facility, will be sufficient to support consolidated operations during the next twelve months. Additionally, in July 2004, Harbor Federal Savings Bank increased the Company's revolving line of credit to $6.5 million. Total working capital as of May 31, 2004 was $3,068,000 compared to $3,281,000 at November 30, 2003. Total current assets increased $939,000 to $7,291,000, reflecting increases in cash from homebuilding sales proceeds. Total current liabilities increased $1,152,000 to $4,223,000, reflecting increases in customer deposits and trade accounts payable related to homebuilding operations. CASH FLOWS FROM OPERATING ACTIVITIES The Company generated cash of $1,912,000 from its operating activities during the six months ended May 31, 2004, compared to using cash of $1,105,000 during the same period of the prior year. The current year's cash generation reflects a $567,000 reduction in 14 inventory due to the delivery of nine homes during the six months ended May 31, 2004, a $1,026,000 increase in customer deposits (included in other liabilities) and a $159,000 increase in deferred revenue. CASH FLOWS FROM INVESTING ACTIVITIES The Company generated $211,000 in cash from its investing activities during the six months ended May 31, 2004, primarily related to the sale of marketable securities. CASH FLOWS FROM FINANCING ACTIVITIES The Company used $1,122,000 in its financing activities during the six months ended May 31, 2004. This represented payments on the Notes Payable outstanding in the homebuilding segment. COMMITMENTS, GUARANTEES AND OFF BALANCE SHEET ITEMS LAND PURCHASE AGREEMENTS: In April 2004, the Company entered into 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 total deposit required is $300,000. As of May 31, 2003, an initial deposit of $150,000 has been made. In December 2003, the Company entered into a contract to purchase eight (8) developed lots in the Amelia Plantation 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 full deposit of $24,000 was made during the six months ended May 31, 2004. 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 $5.2 million. PROFIT SHARING ARRANGEMENT: The Company has entered into an arrangement with John G. Yates, its President, and Thomas C. Corley, Senior Vice President of PrivilegeONE, pursuant to which Mr. Yates and Mr. Corley have agreed to serve as unpaid officers of the Company and 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. LOAN AGREEMENT: The Company entered into a loan agreement with Harbor Federal Savings Bank in August of 2003. The loan agreement provides for $1.2 million of acquisition and construction financing and a $5 million line of credit. 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. The loan agreement has a term of two years expiring in August 2005. As of May 31, 2004, $355,000 of acquisition and 15 construction borrowings and $1,464,000 of advances under the line of credit were outstanding. In July 2004, Harbor Federal Savings Bank increased the Company's revolving line of credit to $6.5 million. SENSITIVE ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes. Significant estimates include management's estimate of the carrying value of accounts receivable, homebuilding inventories and the establishment of reserves for contingencies. Actual results could differ from those estimates. The Company's critical accounting policies relating to certain of these items are described in the Company's Annual Report on Form 10-KSB for the year ended November 30, 2003. As of May 31, 2004, there have been no material additions to our critical accounting policies and there have been no changes in the application of existing accounting principles. ITEM 3. 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 May 31, 2004 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 the Company's reports filed or submitted under the Securities 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. 16 PART II: OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS The Company held its 2004 Annual Meeting of Shareholders (the "Meeting) on April 27, 2004. At the Meeting, shareholders were asked to elect Frank Cavell Smith, Jr. as a director for a four-year term expiring at the 2008 annual meeting. In addition, the shareholders were asked to approve an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of the Company's Common Stock from 10,740,000 to 25,000,000 shares. The results of the voting were as follows:
Broker For Against Withheld Abstain Non-Vote -------------- ------------ ------------- ------------ -------------- Frank C. Smith, Jr. 7,277,922 - - 77,956 N/A Amendment of Certificate of Incorporation 7,120,089 277,466 - 8,323 -
The terms of each of Anthony J. Caldarone, J. Ernest Brophy, Mark N. Fessel, Kenneth D. Hill, Robert E. Naughton and John G. Yates (the other Directors) continued after the meeting. ITEM 5. OTHER INFORMATION The Company and PrivilegeONE entered into a credit card processing agreement with Fleet Credit Card Services, L.P. ("Fleet") in 2001 pursuant to which Fleet agreed to issue and administer the PrivilegeONE credit card loyalty program. In April 2004, the Company and PrivilegeONE executed a mutual release agreement with Fleet whereby the credit card processing agreement was cancelled. PrivilegeONE is currently seeking a new issuer for the program as well as alternative revenue generating opportunities. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A) Exhibits 3.1 Certificate of Amendment to Amended and Restated Certificate of Incorporation as filed with Division of Revenue, State of New Jersey, on June 2, 2004 10.31 Real Estate Purchase and Sale Agreement dated April 6, 2004 between Homes by Calton, LLC and Pointe West of Vero Beach, Ltd. Information has been omitted from this exhibit and is subject to a request for confidential treatment. 31.1 Certification by Chief Executive Officer pursuant to Section 302 of Sarbanes- 17 Oxley Act of 2002 31.2 Certification by Chief Financial Officer pursuant to Section 302 of Sarbanes- Oxley Act of 2002 32.1 Certification by Chief Executive Officer pursuant to Section 906 of Sarbanes- Oxley Act of 2002 32.2 Certification by Chief Financial Officer pursuant to Section 906 of Sarbanes- Oxley Act of 2002 B) Reports on Form 8-K On April 12, 2004, the Company filed a report on Form 8-K to report that it had issued a news release that disclosed its financial results for the quarter ended February 29, 2004. On April 29, 2004, the Company filed a report on Form 8-K to report the appointment of Laura A. Camisa as its Chief Financial Officer and Treasurer, as well as to report the results of the Annual Meeting of Shareholders. 18 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Calton, Inc. -------------------------------------------- (Registrant) By: /s/ Laura A. Camisa -------------------------------------------- Laura A. Camisa Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Date: July 14, 2004 19 EX-3.1 2 tex3_1-3172.txt EX-3.1 EXHIBIT 3.1 CERTIFICATE OF AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF CALTON, INC. To: The Department of Treasury State of New Jersey Pursuant to the provisions of Sections 14A:7-15.1(3), 14A:9-2(2) and 14A:9-4(2) of the New Jersey Business Corporation Act, the undersigned Corporation executes the following Certificate of Amendment to its Amended and Restated Certificate of Incorporation: 1. The name of the Corporation is "Calton, Inc." 2. The following amendment to the Amended and Restated Certificate of Incorporation (the "Amendment") was approved by the Board of Directors and thereafter duly adopted by the shareholders of the Corporation on April 27, 2004: The first paragraph of Article IV of the Amended and Restated Certificate of Incorporation of the Company is amended to read in its entirety as follows: "The total number of shares of all classes of stock which the Corporation shall have authority to issue is 27,520,000, of which 25,000,000 shares shall be classified as "Common Stock," having a par value of five cents ($.05) per share, 520,000 shares shall be of a class designated "Preferred Stock," having a part value of ten cents ($.10) per share, and 2,000,000 shares shall be of a class designated "Class A Preferred Stock," having a par value of ten cents ($.10) per share." 3. The number of shares entitled to vote on the adoption of the Amendment was 9,263,474 shares of Common Stock, par value five cents ($.05) per share, entitling the holders thereof to one (1) vote per share. The number of shares of Common Stock voted for the Amendment was 7,120,089 shares and the number of shares of Common Stock voting against the Amendment was 277,466 shares. A total of 8,323 shares abstained from voting on the Amendment. IN WITNESS WHEREOF, Calton, Inc. has caused its duly authorized officer to execute this Certificate of Amendment on this 27th day of May, 2004. Calton, Inc. By: ______________________________ Name: Laura A. Camisa Title: Chief Financial Officer EX-10.31 3 tex10_31-3172.txt EX-10.31 - -------------------------------------------------------------------------------- Certain confidential information has been omitted from this exhibit 10.31 pursuant to a confidentail treatment request filed separately with the Securities and Exchange Commission. The ommited information is indicated by the symbol "***" at each place in this Exhibit 10.31 where the omitted information appeared in the original. - -------------------------------------------------------------------------------- REAL ESTATE PURCHASE AND SALE AGREEMENT (POINTE WEST) THIS REAL ESTATE PURCHASE AND SALE AGREEMENT (the "Agreement") is made and entered into as of the Effective Date (as hereinafter defined), by and between POINTE WEST OF VERO BEACH LTD., a Florida limited partnership (the "Seller") and HOMES BY CALTON, LLC, a Florida limited liability company (the "Purchaser"). RECITALS: A. Seller is the owner of certain real property located in Indian River County, Florida, described on EXHIBIT A attached hereto (the "Property"). B. Seller plans to develop and plat the Property into a subdivision consisting of two or more plats (hereinafter referred to as "Pointe West South Village") with eighty two (82) lots as shown on the preliminary subdivision plan (the "Subdivision Plan") of the Property prepared by the Seller which is attached hereto as EXHIBIT B. Subsequently, Seller plans to develop and plat a subdivision adjacent to the Property to be known as "Pointe West East Village". C. Purchaser desires to purchase 41 of the lots as described in EXHIBIT C attached hereto (the "Lots"), in multiple closings and to construct single family detached residences thereon (the "Intended Improvements"). D. Seller desires to sell the Lots to Purchaser and Purchaser desires to purchase the Lots from Seller, upon the terms and conditions herein contained. E. Purchaser desires to obtain a right of first refusal to purchase one half of the golf course lots in Pointe West East Village. NOW, THEREFORE, in consideration of the foregoing, and the mutual covenants hereinafter made, it is agreed as follows: 1. RECITALS. The recitals set forth above are incorporated herein by reference and made a part hereof as fully as if set forth herein verbatim. 2. AGREEMENT TO PURCHASE AND SELL. For the consideration and upon and subject to the terms and conditions hereinafter set forth, Seller agrees to sell and convey to Purchaser, and Purchaser agrees to purchase from Seller, the Lots together with all improvements constructed thereon and all rights, easements, appurtenances, and hereditaments appertaining thereto. 1 3. EFFECTIVE DATE. This Agreement shall become effective on the date this Agreement is signed by the last of Purchaser and Seller (the "Effective Date"). 4. SCHEDULE OF LOT PURCHASES AND PURCHASE PRICE. Seller agrees to sell all of the Lots to Purchaser and Purchaser agrees to purchase all of the Lots from Seller at a rate of a minimum of two (2) Lots per month and at least six (6) Lots per calendar quarter. Lot purchases in excess of two per month may be applied toward the purchase requirement applicable for future months in the same calendar quarter, but may not be applied toward the minimum monthly Lot purchase requirement for months in future calendar quarters. The Lot takedown schedule is more fully described on Schedule A-1 attached hereto. The closing on the first two Lots, as described on EXHIBIT C (the "Phasing Plan"), will take place ten days (10) days after the requirements of Section 9 hereunder are satisfied as to the Phase One Lots (the "Initial Closing"). The purchase price (the "Purchase Price Schedule") for the Lots are shown on the Lot Closing Schedule attached hereto as EXHIBIT D. After the Initial Closing, provided this Agreement is not in default (after the applicable cure period), as defined in Section 16 below, Purchaser may purchase Lots at any time by giving Seller a minimum of five (5) days written notice prior to the date Purchaser desires to close on any Lots. The notice shall identify the Lots desired to be purchased by Purchaser and the requested date of closing. If the Purchaser does not satisfy the minimum Lot takedown requirement, Seller may, at Seller's sole option, sell a sufficient number of Lots to bring the Purchaser into compliance with the minimum Lot take down requirement to third parties with the understanding that said third parties must contract with an approved golf builder to build a house within two (2) years. Seller shall not exercise the right to sell Lots to third parties until five (5) business days shall have elapsed from the time Seller shall have notified Purchaser in writing of the Purchaser's failure to satisfy the minimum Lot takedown requirement and Seller's intention to sell Lots to Third Parties. If, during five (5) business days after such written notice is given to Purchaser, Purchaser shall come into compliance with the minimum Lot takedown requirement, then Seller may not sell Lots to a third party. As long as the Purchaser is not in default of any condition of this agreement, Seller shall extend to Purchaser the right of first refusal to purchase fifty percent (50%) of the golf front lots in the East Village at the market price a willing buyer would pay. 5. DEPOSIT. Purchaser shall deposit with Seller a deposit in the amount of $300,000. Fifty percent (50%) of the deposit or $150,000 will be due five (5) business days after the conclusion of the Inspection Period (as defined in Section 11(E) below) and the balance of $150,000 shall be due sixty (60) days after the Effective Date. The Purchaser deposit will be returned with a credit of ten thousand dollars ($10,000) off of st 30 lots purchased. 2 6. DEED OF CONVEYANCE. Seller shall convey to Purchaser, at the time of the Closings, title in fee simple to the Lots by recordable special warranty deed (the "Deed" or "Deeds") signed by all parties necessary or required by the title insurance commitment, free and clear of all liens and encumbrances, except for real estate taxes for the year of the Closings and subsequent years not yet due and payable. Permitted exception to the title policy are those matters shown on EXHIBIT E and all other matters approved in writing by Purchaser (the "Permitted Exceptions"). 7. DEFECTS IN TITLE. Within thirty (30) days after the Effective date, Seller shall supply Purchaser with a pro forma title insurance commitment issued by Attorneys Title Insurance Fund, Inc. showing that after each Lot closing, title will be vested in Purchaser, subject only to the Standard ALTA Form B Owner's Title Insurance Policy Exceptions, the Permitted Exceptions and any purchase money mortgage executed by Purchaser in connection with the Purchase of the Lot. If the title to the Property is subject to any other matter not reasonably acceptable to Purchaser, then Purchaser shall, prior to the expiration of the Inspection Period, give Seller written notice of such objections to title to the Property. Seller shall use its best efforts to eliminate or modify all unacceptable matters to the reasonable satisfaction of Purchaser. Seller shall not be obligated to file suit nor expend more than Ten Thousand Dollars ($10,000) to cure title defects provided, however, Seller shall remove from title to the Property (i) any mortgage, construction law lien or other encumbrance granted or incurred by Seller against the Property, or (ii) past due and delinquent taxes or assessments. Seller shall have until the Initial Lot Closing to cure any such title defects. In the event Seller is unable to satisfy said defects within the time permitted or Seller notifies Purchaser that Seller is unable to cure a title defect pursuant to this Agreement, Purchaser, at its option may elect to (i) terminate its obligation to purchase whereupon the Deposit shall be returned to Purchaser and this Agreement shall be of no further force or effect; or (ii) take title to the Lots Seller can convey without title defects and reduce the Purchase Price by the price assigned to the Lots with title defects; or (iii) notify Seller within fifteen (15) days from the receipt of Seller's notice that Purchaser will accept title to the Property with the defects and proceed to close on the Property in accordance with the terms of this Agreement. 8. SURVEY. On or before each Closing, Purchaser may, at its sole expense, have a survey of a Lot or Lots Purchaser is purchasing prepared by a licensed surveyor. In the event the survey(s) show any encroachments of any improvements upon, from, or onto the Property or any easement, lack of ingress and egress, or any other types of encumbrances, except those acceptable to Purchaser, in Purchaser's sole and absolute discretion, said conditions or encroachments shall be treated in the same manner as a title defect under the procedure set forth in this Agreement, except that the time period to notify Seller of the defect shall be extended until five (5) business days after receipt of the survey. 9. LOT COMPLETION REQUIREMENTS. Immediately after receipt of Purchasers 3 deposit money and after obtaining the approvals and permits, Seller shall promptly begin development of the Phase One Lots and construction of the Subdivision Improvements (as hereinafter defined) for Phase One and shall diligently pursue completion of the Phase One Lots and Subdivision Improvements. Seller shall start the development of the Phase Two Lots, as defined on EXHIBIT C, in a timely manner in order to meet the agreed upon purchase schedule. Except for the Initial Closing, the Lot completion requirements that must be satisfied at the time a Lot is purchased are as follows: A. The Lot shall be substantially constructed and developed as shown on the construction plans for the Property to be mutually agreed upon (the "Construction Plans"). B. Seller shall have installed and substantially completed the following subdivision improvements adjacent to the Lot so that said improvements shall be available to serve the Lot (hereinafter collectively referred to as the "Subdivision Improvements"): (1) All water and sanitary sewer lines shall have been constructed and accepted for maintenance in accordance with governmental requirements and shall be fully sufficient to service the Lots, and shall be stubbed to the Lot with service available so as to allow Purchaser, upon payment of the applicable connection fees, to connect to such systems. (2) The Lot shall have storm drainage retention and detention facilities, storm sewer lines a drainage system as required by all applicable governmental agencies accepted and approved by Indian River County. (3) Paved streets, curbs, and gutters to the Lot shall have been constructed and approved by Indian River County. (4) Underground telephone transmission lines and underground electric power lines shall have been completed with power immediately available located adjacent to the Lot. C. The Lot size and building pad dimensions for the Lot meets or exceeds that as shown on EXHIBIT F attached hereto. D. The Lot shall comply with all governmental ordinances, codes, development orders, and regulations including but not limited to those relating to zoning, platting, and subdivision regulations in effect as of the Closing Dates. 4 E. The plat in which the Lot is located shall have been recorded in the public records of Indian River County. F. The Lot is ready; both legally and physically, for the construction thereon of a single family detached residence. The Lot shall not be deemed "completed" unless Purchaser can, after submission of building plans meeting all governmental requirements, obtain a building permit from Indian River County to construct a single family detached residence and a Certificate of Occupancy can be issued upon completion of the home by the Purchaser. G. Seller shall have all required street signs installed on the roads serving the Lot and shall have installed any overhead street lighting required by any governmental authority that provides illumination to the Lot. H. Seller shall have delivered to Purchaser a set of as-built plans and drawings of the Subdivision Improvements serving or related to the Lot and a written certification from the project engineer stating Seller has completed each and every one of the foregoing conditions. I. Seller shall provide verification of the flood hazard area designation used to determine if the purchase of flood insurance is required for the obtaining of any federally insured loan. Notwithstanding the foregoing, Purchaser shall have the right to purchase a Lot in accordance with this Agreement if the Lot is substantially complete. In the event Purchaser elects to close on one or more Lots which have not been fully and completely developed pursuant to the terms of this Agreement, Seller agrees (i) to promptly and without delay complete the development of those Lots, and (ii) to indemnify Purchaser from any loss or expense which Purchaser may suffer by virtue of any work on the Lots or the right of way adjacent to the Lots. This provision includes, but is not limited to, an indemnification for damages suffered by Purchaser for utility contractors damaging or destroying Purchaser's erosion control measures. Notwithstanding anything in this Agreement to the contrary, Seller does and shall indemnify, defend, save, and hold harmless Purchaser from and against any and all causes of action, losses, claims, damages, liabilities, and all costs and expenses, attorney fees and court costs, fees and costs and all other expenses related to, growing out of, or arising from any breach of any of the above representations or obligations. The provisions of this Section shall survive the Closings. 10. INSTALLATION OF SIDEWALKS AND COMMUNITY FEATURES. Purchaser shall, at its expense, install sidewalks in the front or side, as applicable, of any Lots 5 which are required to have sidewalks, in accordance with the sidewalk plan approved by Indian River County or the appropriate governmental authority and all applicable governmental regulations. Seller shall, at its expense, install any and all other required sidewalks on the Property as required by Indian River County or the appropriate governmental authority. All Sidewalk Completion bonds for the Lots referenced in this agreement, required by Indian River County as part of the Final Plat Process shall be provided by Purchaser. Seller acknowledges that the entrance off 12th Street into the South Village will include signage and landscaping with a similar design and theme as the Links Lane, 74th Avenue Entrance. Seller acknowledges that the improvements for the park located in the center of the South Village will be similar in caliber to the improvements constructed in the Central Village Park located east of 76th Drive between 15th Lane and 15th Street. 11. CONDITIONS PRECEDENT TO CLOSING. Purchaser's obligation to close on a Lot pursuant to this Agreement is conditioned on the following: A. Except as set forth in this Agreement, no material adverse change in the condition of the Property shall have occurred since the Effective Date. B. As of each Closing, the Lot and Subdivision Improvements shall be completed as set forth in Section 9 of this Agreement and there shall be no governmental prohibition (including zoning and concurrency restrictions) that prevents Purchaser from receiving building permits for construction of single-family house on each Lot and upon completion of such house a certificate of occupancy, without exception or qualification. C. To the best of Seller's knowledge, all of Seller's covenants and obligations contained in this Agreement shall have been performed by Seller, and all of Seller's representations and warranties are true and correct and shall be true and correct at each Closing. D. There is ingress and egress to the Property sufficient for the Intended Improvements. E. The Purchaser shall have been satisfied, in its sole discretion, of the results of its due diligence conducted during the fourteen (14) day period beginning on the April 6, 2004 (the "Inspection Period"). If Purchaser is not satisfied, in its sole discretion, of the results of its due diligence conducted during the Inspection Period, then the Purchaser shall notify the Seller in writing within five (5) business days after the Inspection Period that Purchaser is terminating this agreement, whereupon this 6 Agreement shall be terminated and all parties release from all liability hereunder. Failure to give such notice or If Purchaser shall notify Seller in writing within five (5) business days after the Inspection Period that it is willing to proceed with the transactions contemplated by this agreement, or if Purchaser shall make the initial deposit of $150,000, then Purchaser shall be deemed to have waived the right to terminate this Agreement due to the outcome of its due diligence investigation during the Inspection Period. If conditions precedents (A) through (D) above to Purchaser's obligation shall not have been satisfied prior to each Closing, Purchaser shall notify Seller of the unfulfilled condition, and Seller shall have up to sixty (60) days to cause such condition to be fulfilled. Closing shall occur five (5) business days following satisfaction of all unsatisfied conditions precedent. If Seller has not corrected the unfulfilled condition within said sixty (60) day period, Purchaser may cancel this Agreement by notifying Seller and seek other remedies provided for in this Agreement. If Purchaser elects to terminate this Agreement, Seller is obligated to return the Deposit to Purchaser whereupon the parties hereto shall be relieved of all further obligations hereunder, or Purchaser may, at Purchaser's option and in Purchaser's sole discretion, (i) take title to only the completed Lots and those acceptable to Purchaser and reduce the Purchase Price by the purchase price of each Lot Seller is unable to complete and purchase the remainder of the Lots when complete, or (ii) proceed to close without thereby waiving Purchaser's right to seek specific performance of Seller's obligations under this Agreement. Seller shall use its best efforts to promptly complete the unfulfilled condition. In the event a Closing on a Lot is delayed due to an unfulfilled condition precedent to closing, all subsequent Closing Dates for Lots within the same plat as the Lot on which the closing is delayed shall be likewise extended. 12. THE CLOSINGS. The sale and purchase of the Lots shall be consummated at closings to be held on the Closing Dates set forth in Section 4 of this Agreement at the office of the Title Company selected by Seller in Indian River County Florida. A. DELIVERY BY SELLER. At each Closing, Seller shall deliver or cause to be delivered to Purchaser: (1) The Deed duly executed by Seller. (2) All other documentation necessary or required to complete the purchase and sale contemplated in this Agreement including, without limitation, any tax proration agreements, utility agreements, or documentation or affidavits reasonably requested by Purchaser or Title Company. 7 (3) A no-lien, gap and exclusive possession affidavit in form and content customarily used in Florida and sufficient to allow the issuer of the Title Insurance Commitment at closing to delete the standard exceptions under schedule B-I of the Title Insurance Commitment. (4) In order to comply with the requirements of the Foreign Investment Real Property Tax Act of 1980 ("FIRPTA"), Seller will deliver to Purchaser at closing Seller's affidavit under penalty of perjury stating the Seller is not a "foreign person" as defined in Section 1445 of the Internal Revenue Code of 1986 and the U.S. Treasury Regulations there under, setting forth Seller's taxpayer identification number, and that Seller intends to file a United States income tax return with respect to the transfer. Seller represents and warrants to Purchaser that they have not made nor does Seller have any knowledge of any transfer of the Property or any part thereof that is subject to any provisions of FIRPTA that has not been fully compiled with by either transferor or transferee. As required by law, if Seller fails to comply with the requirement of this paragraph, Purchaser shall withhold 10% of the Purchase Price in lieu of payment thereof to Seller and pay it over instead to the Internal Revenue Service in such form and manner as may be required by law. (5) A "Marked Up" title commitment showing the deletions of the Schedule B-I items and Standard Exceptions (1), (3), (4), (5) and (6) in Schedule B-II of the title commitment. B. DELIVERY BY PURCHASER. At each Closing, Purchaser shall deliver or cause to be delivered to Seller: (1) Cash, cashier's check, bank check or a wire transfer in the amount of the Purchase Price, together with such additional funds as may be necessary to pay Purchaser's share of the Closing costs and prorations hereunder. (2) All other documentation necessary or required to complete the purchase and sale contemplated in this Agreement including, without limitation, any tax proration agreements, utility agreements, or documentation or affidavits reasonably requested by Seller or Title Company. (3) An unsecured promissory note for $4,000 for the balance of the marketing fees payable 180 days after the lot closing as described in Section 26 below. 8 13. CLOSING COSTS AND PRORATION. At each Closing, Seller shall pay for the documentary stamps on the Deed, the cost of the title commitment and premium for the title insurance policy to be furnished to Purchaser at the Closing and recording fees for corrective instruments, if necessary. Purchaser shall pay for recording the Deeds and the cost of any Lot survey. All other expenses incurred by Seller and Purchaser with respect to each Closing, including, but not limited to, attorneys fees and costs and expenses incurred in connection with the satisfaction of conditions hereunder, shall be borne and paid exclusively by the party incurring them, except to the extent otherwise specifically provided in this Agreement. The following items shall be prorated and adjusted between Seller and Purchaser as of the day of each Closing: A. TAXES Real property or ad valorem taxes for each Lot shall be prorated between Seller and Purchaser for the year in which a Closing is held on the basis of the tax statement for such year (due allowance being made for early payment discounts); provided, however, that if such tax statement is not available as of the Closing, the tax proration between Seller and Purchaser shall be estimated based upon the most recent tax bill and subsequently readjusted upon receipt of the tax bill for the year in which the Closing occurs. Seller and Purchaser agree to adjust the proration of taxes and, if necessary, to refund or pay, on or before January 1 of the year following the Closing. B. EXPENSE PRORATIONS. Seller shall pay in full all special assessments levied against each Lot prior to Closing. Purchaser shall pay all special assessments levied after Closing. C. DEVELOPMENT FEES. Seller shall be responsible for all fees, costs, and expenses necessary to obtain final engineering plan approval, preliminary subdivision plan approval, final plat approval and the other permits and approvals, including payments for mitigation credit in connection with the St. Johns River Water Management District permit necessary for development of the Property. Purchaser shall be responsible for the payment of all fees and other charges imposed by Indian River County or other governmental authorities relating to the construction of residences on the Lots and utility hookup fees. 14. SELLER'S WARRANTIES, COVENANTS, AND REPRESENTATIONS. Seller warrants as of the Effective Date and as of the date of each Closing that the following are and shall be true and correct: 9 A. Seller has full right and authority to enter into this Agreement and to consummate the transactions contemplated in this Agreement. B. Each of the persons executing this Agreement on behalf of Seller is authorized to do so. C. This Agreement constitutes a valid and legally binding obligation of the Seller, enforceable in accordance with its terms. D. Seller and all such other persons deemed as the transferor of the Property are not foreign persons requiring the withholding of tax by Purchaser pursuant to Section 1445 of the Internal Revenue Code. E. Seller shall have on the date of each Closing, good, marketable and insurable title to the Property, free and clear of all mortgages, liens, encumbrances, leases, tenancies, security interests, covenants, conditions, restrictions, rights-of-way, easements, or reservations, except the Permitted Exceptions, except those items to be released at closing. F. Any lien against the Property, incurred by Seller, shall be removed and satisfied of record by Seller at Closing. If subsequent to Closing any lien shall be filed against the Property or its assigns based on any act or claims against Seller, Seller shall, within thirty (30) days after delivery of written notice by Purchaser of the filing thereof, take such action by bonding, depositing payment or otherwise, as will remove, transfer, insure over, or satisfy such lien of record which affects the Property. G. From and after the Effective Date, Seller will comply fully with all permits, approvals, exemptions, and other rights relating to the Property. H. Seller has received no notice and has no knowledge of any pending liens, or any special assessments to be made against the Property by governmental authority. I. The Lots contain no threatened or endangered species or endangered or protected habitats or items of archaeological significance as defined by applicable state and federal laws J. There are no wetlands or state jurisdictional waters located upon any Lot. K. The Association, as described in Section 23 of this Agreement, is an existing corporation and Seller has properly funded the Association and 10 the Association is in compliance with all applicable laws and rules relating to homeowner associations. L. Seller represents and warrants that, to the best of Seller's knowledge, no hazardous substances as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 USC 9601(14), pollutants or contaminants as defined by CERCLA, or hazardous wastes as defined by the Resource Conservation and Recovery Act, 42 USC 6903 (5), or other similar applicable federal or state laws or regulations including, but not limited to, asbestos, pesticides, PCB'S, and urea formaldehyde, have been generated, released, stored or deposited over, beneath, or on the Property. M. The current applicable zoning classification of the Property will permit the construction of the Intended Improvements and Seller has or will, prior to the expiration of the Inspection Period, provide Purchaser with a copy of the zoning conditions for Pointe West and Seller represents that there have been no modifications or changes to those zoning conditions. N. All builders on the golf course are signing a substantially similar agreement as to price, take downs, terms, etc. Notwithstanding anything in this Agreement to the contrary, Seller does and shall indemnify, defend, save, and hold harmless Purchaser from and against any and all losses, claims, damages, liabilities, and all costs and expenses, attorney fees and court costs, fees and costs, and all other expenses related to, growing out of, or arising from any breach of any representation or warranty of Seller set forth above. The provisions of this Section shall survive the Closings or the termination of this Agreement. 15. PURCHASER'S WARRANTIES, COVENANTS, AND REPRESENTATIONS. Purchaser warrants as of the date hereof and as of the date of each Closing that the following are and shall be true and correct: A. Purchaser is a duly authorized and existing corporation. B. Purchaser has full right and authority to enter into this Agreement and to consummate the transactions contemplated in this Agreement. C. Each of the persons executing this Agreement on behalf of Purchaser is an agent of Purchaser authorized to do so. D. This Agreement constitutes a valid and legally binding obligation of the Purchaser, enforceable in accordance with its terms. 11 Notwithstanding anything in this Agreement to the contrary, Purchaser does and shall indemnify, defend, save, and hold harmless Seller from and against any and all causes of action, losses, claims, damages, liabilities, and all costs and expenses, attorney fees and court costs, fees and costs and all other expenses related to, growing out of, or arising from any breach of any representation or warranty of Purchaser set forth above. The provisions of this Section shall survive the Closings or the termination of this Agreement. 16. DEFAULT AND REMEDY. If Purchaser shall be in breach of its obligations hereunder and if such breach on Purchaser's part is not cured within five (5) business days after Seller shall have notify Purchaser in writing of such breach, then Purchaser shall be deemed to be in default of this Agreement. Upon default of this Agreement Seller may terminate this Agreement and any remaining deposit monies not credited against past sales shall be retained by Seller as liquidated damages and as an estimate of Seller's actual damages, as Seller's sole remedy. If Seller shall fails or refuses to convey the Property according to the terms of this Agreement, and such failure to convey continues for five (5) business days after Purchaser shall have notified Seller in writing of such failure, then Purchaser shall be entitled to seek specific performance of this Agreement. If the Seller shall be in breach of its obligations hereunder, other than the obligation to convey the Property according to the terms of this Agreement, and such breach on Seller's part is not cured within five (5) business days after Purchaser gives written notice of such breach to Seller, then Purchaser shall have the right to an immediate refund of the Deposit and to seek specific performance of this Agreement. 17. BROKERAGE COMMISSION. Seller represents and warrants to Purchaser that Seller has not engaged the services of a real estate broker or agent in connection with the sale and purchase transaction contemplated in this Agreement, except OnSite Realty Group, Inc. to whom Seller has agreed to pay commissions pursuant to separate agreements. Seller shall be solely responsible for any commissions or payments relating to this transaction due to the Brokers. Purchaser represents and warrants to Seller that Purchaser has not engaged the services of a real estate broker or agent in connection with the sale and purchase transaction contemplated in this Agreement. Seller shall indemnify Purchaser against and hold Purchaser harmless from all liabilities, costs, damages and expenses (including reasonable attorneys fees), arising from any claims for commissions or other similar fees in connection with the transaction covered by this Agreement, based upon alleged arrangements or agreements made by Seller. Purchaser shall indemnify Seller against and hold Seller harmless from all liabilities, costs, damages, and expenses (including reasonable attorneys fees) arising from any claims for brokerage commissions or other similar fees in connection with the transactions covered by this Agreement, based upon alleged arrangements or agreements made by Purchaser except claims made by the Brokers. 12 18. CONDEMNATION. If all or any of the Lots are taken in condemnation or under the right of eminent domain after the Effective Date and before a scheduled Closing, Purchaser may, at its option, and within five (5) days after receipt of notice of such taking, either (I) terminate this Agreement with respect to the affected Lots by written notice to Seller and receive an immediate refund of the portion of the Deposit applicable to the affected Lots, or (ii) proceed to close the purchase and sale as provided in this Agreement. If Purchaser elects to close, Seller shall deliver to Purchaser at the next Closing any proceeds actually received by Seller attributable to the affected Lots from any such condemnation or eminent domain proceeding, and shall assign to Purchaser its right to receive any award not yet paid, and there shall be no reduction in the Purchase Price. 19. SIGNAGE. Purchaser and Seller agree that Purchaser may place marketing signs approved by Seller, on the Property at locations approved by Seller after the expiration of the Inspection Period, provided such signs do not violate any law or governmental regulation. 20. HOMEOWNERS ASSOCIATION. Purchaser acknowledges Seller has established a community association (the "Association") under a Declaration of Covenants, Conditions, Restrictions, Easements and Reservations for Pointe West (the "Declaration") which will encumber the Property. Purchaser, as an owner of the Property purchased hereunder, will be a member of the Association, subject to all of the rights and obligations applicable to a member of the Association. Purchaser agrees to accept title to the Property, subject to the Declaration and to abide by and comply with all the terms and conditions thereof. Seller will deliver a copy of the Declaration, the Association documents and the most recent Association budget (collectively, the "Association Documents") to Purchaser within ten (10) days from the Effective Date. Seller does and shall indemnify, defend, save, and hold harmless Purchaser from and against any loss, liability, cost, injury, expense, or damage of any and every kind whatsoever (including without limitation, court costs and attorneys' fees and expenses) arising from or related to Seller's acts or omissions as Declarant or Developer under the Declaration or in the management or use of the Property. At the Initial Closing, Seller shall deliver to Purchaser a partial assignment of its rights and exemptions as Declarant under the Declaration assigning Purchaser all rights as may be reasonably necessary to facilitate the completion and sale of Lots and improvements thereon, including but not limited to, a model area, the maintenance of a sales office in the model area, the showing of Property, the display of signs, and the right to construct or place sales and construction offices of a temporary nature on the Property. Purchaser shall not have any other Developer rights or duties The Association Documents provide that assessments shall commence upon the transfer of title to the Purchaser. Dues for the amenities will begin when Lot title transfers to Purchaser. If it is decided that the South Village is to become maintenance 13 free, dues for the amenities will be due at Lot transfer but the South Village association dues will not be due until a CO is issued and the Lot is actually receiving a benefit ie. Irrigation, lawn maintenance. Notwithstanding any architectural review criteria contained in the Association Documents, Seller acknowledges and agrees that Seller shall promptly review the plans for the homes Purchaser will be building within the Property and Seller will not unreasonably withhold approval of same. All floor plans and elevation must have a minimum of three (3) different front elevations and two (2) rear elevations. No identical elevation may be constructed next to each other. Purchaser shall be entitled to make non-structural or other minor alterations to the plans of any home design without seeking further architectural review approval of Seller or the homeowners association. In addition, Purchaser agrees that each home shall have a minimum landscape budget of six thousand dollars ($6,000) not including sod and irrigation and that a landscape plan for each home will be submitted to Seller for his review and approval. For as long as Seller is in control of the Homeowners Association, Purchaser shall not be subject to any architectural review board fees or assessments relative to any plans pre-approved by Seller as provided herein. Seller does and shall indemnify, defend, save, and hold harmless Purchaser from and against any and all losses, claims, damages, liabilities, and all costs and expenses, attorney fees and court costs, fees and costs, and all other expenses related to, growing out of, or arising from any breach of the foregoing representation. The provisions of this paragraph shall survive the Closings or the termination of this Agreement. 21. RECREATIONAL AMENITIES. Purchaser agrees that the Seller assess an initial non refundable fee to each third party purchaser from Purchaser to provide for the establishment, maintenance or repair of a clubhouse and other recreational facilities and community programs (the "Recreational Fee"). In addition, each third party purchaser who pays the Recreational Fee shall have the right to obtain a Sport Membership by paying the periodic dues to the Golf Club. Subsequent purchasers of homes in Pointe West may assume a homeowner's Sport Membership in the Golf Club, provided the homeowner is a Sport Member of the Golf Club in good standing and current in payment of dues. If a Sport Membership cannot be assumed, a subsequent purchaser from an existing homeowner in Pointe West may obtain a Sport Membership by paying the then current Sport Membership price. The Purchaser shall join in, consent and otherwise execute any and all documents required to be signed by builders (commercial and residential) in the Pointe West, or owners of land within Pointe West, to provide for the Recreational Fee, provided that Purchaser shall have no liability associated with the assessment, collection or operation of the Recreational Fee other than as to payment of Recreational Fees properly imposed upon Lots purchased by Purchaser. The initial assessment of the Recreational Fee shall not exceed Two Thousand Dollars ($2,000) per Lot and is due at the time of third party home closing. The Seller anticipates that a portion of the Recreational Fee will provide the owner of each Lot with a social membership with rights to access the clubhouse and its amenities 14 and limited access to the golf course. 22. GOLF COURSE. On or before the sale and collection of the Recreational Fee from all of the Lots, Seller shall commence the construction of a golf course clubhouse and related facilities on Seller's Property within Pointe West, which shall be no less than 4,000 square feet. Seller's golf course at Pointe West (the "Golf Course") will either be a pay-for-play course open to the general public, including without limitation the buyers of the dwelling units to be constructed by Purchaser on the Property ("Pointe West Homeowners") or a private golf course that provides limited access to all Pointe West Homeowners. If Seller offers memberships to the Golf Course, Seller agrees to offer memberships to Pointe West Homeowners at more favorable terms than offered to members of the general public. 23. DEFECTIVE LOT. In the event that Purchaser, prior to the commencement of construction on any Lot, through no fault of Purchaser, discovers fill materials unsuitable to support standard house footing, then Purchaser shall have the right to reconvey the Lot involved (the "Defective Lot") to Seller provided Purchaser discovers such condition and provides Seller written notice thereof within one (1) year following the Closing of the Defective Lot. The purchase price to be paid by Seller to Purchaser for any such Defective Lot shall be the Purchase Price per Lot paid therefore by Purchaser. In the event a reconveyance to Seller of a Defective Lot occurs hereunder, then Seller and Purchaser shall equally bear the entire cost of any (i) recording fee and (ii) state, county or other recordation tax, documentary stamp tax, or other transfer tax incurred in recording the deed to any such Defective Lot. The reconveyance shall be free and clear of all encumbrances except those to which the conveyance by Seller to Purchaser was subject. 24. ATTORNEY'S FEES. In connection with any litigation concerning this Agreement, the prevailing party shall be entitled to recover costs and reasonable attorney's fees through all trial and appellate levels of litigation. 25. NOTICES. All notices to be given or to be served upon any party hereto in connection with this Agreement must be in writing, and shall be hand delivered or sent by facsimile transmission or by an overnight delivery service. Notice shall be deemed to have been given and received when personally served, on the day sent when notice is given by facsimile transmission and upon delivery when notice is given by overnight delivery service. Notices shall be given to Seller and Purchaser at the addresses set forth in this Agreement. Any party hereto may, at any time, by giving three (3) days written notice to the other party, designate a substitute address to which such notice shall be given. Notices delivered on Saturday, Sunday or a national holiday shall be deemed delivered on the next business day. The initial addresses of the parties shall be set forth below: 15 As to Seller: Pointe West of Vero Beach Ltd. 1999 Pointe West Drive Vero Beach, Florida 32966 Attention: Mr. Chuck Mechling Telephone: (772) 794-9912 Telecopy: (772) 794-9916 With a copy to: Hatch & Doty, P.A. 701 A-1-A Highway Suite 220 Vero Beach, Florida 32963 Attention: Ira C. Hatch, Esq. Telephone (772) 234-4711 Telecopy (772) 234-8299 As to Purchaser: Homes by Calton, LLC 2013 Indian River Blvd. Vero Beach, Florida 32960 Attention: Maria Caldarone Telephone: (772) 794-1414 Telecopy: (772) 794-2828 With a copy to: Samuel Block, Esquire 3339 Cardinal Drive Suite 200 Vero Beach, Florida 32963 Telephone: (772) 234-1501 Telecopy: (772) 231-3923 26. POINTE WEST MARKETING PROGRAM. Seller shall present to Purchaser during the Inspection Period the Pointe West Welcome Center Document. In consideration of the Purchaser's payment of $8,000 per Lot to be paid $4,000 at the Lot closing and $4,000 due 180 days after the lot closing. Seller agrees to undertake a program of marketing/advertising for Pointe West, including the Property to be conveyed to Purchaser pursuant to this Agreement (the "Marketing Program"). A. The Marketing Program is intended to be a shared vehicle promoting Pointe West and specifically identifying the participants in the Marketing Program, including Seller, Purchaser and other builders active in Pointe West. B. All participants in the Marketing Program, including Seller, shall contribute 16 fees to the Program. If any sign or advertisement paid for by the Marketing Program identifies any participant in the Marketing Program, including but not limited to Seller or Purchaser, all participants will be identified in such advertisements and signs paid for through the Marketing Program. C. All participants in the Marketing Program shall be treated equitably. D. Seller shall include the requirement of participation in the Marketing Program in each contract to sell single family residential land to builders within Pointe West, and Seller shall collect all amounts due as Marketing Fees from all participants. Purchaser shall not be required to pay Marketing Fees unless all future builders and owners of land in Pointe West are required to pay Marketing Fees. E. Within sixty (60) days of the Effective Date and on or before each December 1 thereafter until either Purchaser has sold all residences in Pointe West constructed by Purchaser, Seller shall deliver to Purchaser, and to all other participants in the Marketing Program, an annual plan for the Marketing Program setting forth the proposed signs and advertisements, and other promotional events, for the ensuing year. Purchaser shall have fifteen (15) days after receipt of the proposed annual plan in which to notify Seller in writing of suggestions it may have. F. Seller agrees that Marketing Fees paid by builders and owners in Pointe West shall be used for Pointe West per the Pointe West Welcome Center Agreement. 27. LOT GRADE AND SOIL COMPACTION. Seller shall be responsible for grading each Lot such that the entire Lot is within two and one half (2 1/2) inches above or below the elevation of the grade of the nearest curb to the Lot. Purchaser shall grade each Lot so that all stormwater from the Lot shall drain into or onto adjacent road rightsof- way, drainage easements, retention and/or detention areas, swales or other drainage facilities and shall not drain or flow onto, over, under, across or upon any adjacent Lot, unless a drainage easement shall exist therefore in accordance with all applicable regulations of the St. Johns Water management District and all applicable permits. Purchaser shall comply with all regulations governing maximum impervious surface areas and other regulations concerning the land areas of a Lot covered by a house and related improvement 28. POLLUTION CONTROL. Purchaser and Seller will fully comply with the General NPDES Permit to Discharge Storm Water Associated with Construction Activities, pursuant to the Clean Water Act or similar laws (the "Permit"). If either party 17 fails to do so, the other may elect the default remedies available to it under this Agreement. After Notice to the defaulting party and the expiration of the applicable cure period, the non defaulting party shall have the right, but not the obligation, to perform the defaulting party's obligations under said Permit, including creating and implementing the requisite Erosion, Sedimentation and Pollution Control Plan. All reasonable costs associated with the performance of the obligations under the Permit, including attorneys' and consultants' fees, shall be reimbursed to the non defaulting party by the defaulting party within fifteen (15) days of demand by the non defaulting party. In addition, Purchaser and Seller hereby fully indemnify and hold the other harmless against any and all consequences, including any claims by third parties or any governmental authority, resulting directly or indirectly from the other's failure to comply with the Permit. Purchaser shall not be required to complete any Closing unless Seller is in compliance with the NPDES rules (including the establishment of an approved plan and monitoring obligations) at the time of the Closing. 29. MISCELLANEOUS PROVISIONS. A. ENTIRE AGREEMENT. This Agreement, including all exhibits attached hereto, embodies the complete and entire agreement between the parties regarding this transaction and supersedes all prior negotiations, agreements and understandings relating thereto. It may not be varied or modified except by written agreement executed by both Seller and Purchaser. B. NON-WAIVER. No delay or omission in the exercise of any right or remedy accruing to Seller or Purchaser upon any breach under this Agreement shall impair such right or remedy or be construed as a waiver of any other breach occurring before or after such breach. The waiver by Seller or Purchaser of any breach of any term, covenant or condition in this Agreement stated shall not be deemed to be a waiver of any other breach, or of a subsequent breach of the same or any other term, covenant or condition herein contained. C. FURTHER ASSURANCES. In addition to the obligations recited in this Agreement and contemplated to be performed, executed or delivered by Seller and Purchaser, both parties shall perform, execute and deliver or cause to be performed, executed and delivered, at the Closings or after the Closings, any and all further acts, deeds and assurances as either party or the Title Company may reasonably require to consummate this transaction and vest title to the Property in Purchaser. D. GOVERNING LAW. This Agreement shall be construed under and in accordance with the laws of the State of Florida and venue for its enforcement shall be in Indian River County. 18 E. PARTIAL INVALIDITY. If any provision in this Agreement is held to be invalid, illegal, or unenforceable in any respect or the application of any provision is held to be invalid, illegal, or unenforceable as to any person, fact, circumstance or situation, such invalidity, illegality, or unenforceability shall not affect the remainder of such provision, any other provision hereof, or any permitted application provided that the invalidity or unenforceability of such provision does not materially adversely affect the benefits accruing to, or the obligations imposed upon, any party hereunder, and the parties agree to substitute for the invalid or unenforceable provision a valid and enforceable provision that most closely approximates the intent and economic effect of the invalid or unenforceable provision. This Agreement shall be construed so as to be valid, legal, binding, and enforceable to the fullest extent permitted by law, and as if this Agreement had never contained any such invalid, illegal, or unenforceable provision. This Agreement shall be construed so as to be valid, legal, binding and enforceable to the fullest extent permitted by law, and as if this Agreement had never contained any such invalid, illegal, or unenforceable provision. F. COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which together shall constitute one and the same instrument. There may be duplicate originals of this Agreement, only one of which need be produced as evidence of the terms hereof. G. TIME. If any date described in this Agreement falls on a Saturday, Sunday or national holiday that date shall be automatically extended to the next day that is not a Saturday, Sunday or national holiday. Time shall be of the essence as to all maters set forth herein H. RISK OF LOSS. Risk of loss or damage to the Property, or any part thereof, by fire or any other casualty from the Effective Date to the time of recording of the Deeds will be on the Seller and thereafter will be on the Purchaser. I. SURVIVAL OF COVENANTS. The respective obligations and covenants in this agreement contained of a continuing nature shall survive the Closing Dates. J. ASSIGNMENT. Purchaser's rights and duties pursuant to this Agreement may not be assigned by Purchaser, except to Southern Classic Homes, LC. without the written consent of Seller, which consent shall not be unreasonably withheld. All transfers or assignments must be approved by both parties, in writing, which approval will not be unreasonably withheld or delayed. Purchaser may not assign its interest in this 19 Agreement if the Agreement is in default (after the applicable cure period) as defined in Section 16 above. K. FORCE MAJEURE. In the event that the performance by either party of any of its obligations or undertakings hereunder shall be interrupted or delayed by any occurrence and not occasioned by the conduct of the party claiming the benefits of this clause, whether such occurrence be an act of God or the common enemy or the result of war, riot, strikes or labor unrest, civil commotion, sovereign conduct, or the act or conduct of any person or persons not party or privy hereto, then such party shall be excused from such performance for such period of time as is reasonably necessary after such occurrence to remedy the effects thereof. IN WITNESS WHEREOF, Seller and Purchaser have executed this Agreement as of the dates set forth below their signatures. SELLER: POINTE WEST OF VERO BEACH LTD. BY: POINTE WEST OF VERO BEACH, INC., IT'S GENERAL PARTNER By: ________________________________ Charles R. Mechling, President Dated: ____________________, 2004 PURCHASER: HOMES BY CALTON, LLC By: ________________________________ Its: ________________________________ Dated: _____________________, 2004 20 EXHIBIT "A" PROPERTY DESCRIPTION Forty one (41) of the proposed eighty two (82) golf Lots located in the South Village at Pointe West. EXHIBIT "B" SUBDIVISION PLAN Attached hereto in the form of the preliminary Plat. EXHIBIT "C" LOT PHASING SCHEDULE Phase I shall consist of Lots (Schedule to be attached during the Inspection Period). The Initial two Lots to be purchased are (Schedule to be attached during Inspection Period. Phase II shall consist of Lots (Schedule to be attached during Inspection Period). 21 EXHIBIT D PURCHASE PRICE SCHEDULE TAKEDOWN SCHEDULE The Purchaser agrees to purchase nineteen (19) Lots in Phase I and twenty-two (22) Lots in Phase II according to the following takedown and pricing schedules: Upon issuance of Land Development Building Permit 2 Lots (model construction) Upon Completion of Subdivision Improvements 4 Lots (beginning of Phase I) - Initial Closing Every 3 Months (quarterly) 6 Lots (2 per Month) Phase II to commence on the completion of Phase I (19 Lots) and all Lots purchased in the final 3 months of Phase I will count towards the minimum quarterly Lot purchase requirement in Phase II. All Lots purchased in the final 3 months of Phase II will count towards the quarterly minimum requirement in the East Village. See Schedule A-1 hereto for the minimum required takedown schedule. PRICING OF LOTS Base Lot Price - Phase I *** Base Lot Price - Phase II *** Base Lot Price - East Village *** The Purchaser shall pay the base price per Lot plus a 6% simple interest escalation to begin accruing 30 days after initial takedown in each Phase in accordance with the attached Schedules A-2 and A-3. The Purchaser has the right to purchase the minimum required six Lots per quarter, at a rate of two lots per month, for the lot price and escalation fee accrued as of such date. In addition, the Purchaser may elect to accelerate the purchase of additional Lots during any given quarter, paying the Lot price and escalation fee accrued as of such date. EXHIBIT "E" PERMITTED EXCEPTIONS To be attached during the Inspection Period. 22 EXHIBIT "F" LOTS SIZE AND BUILDING ENVELOPES The Lots sizes are depicted in Exhibit "B". The minimum front setback is 5 feet. The rear setback is 20 feet. The minimum side setback is 6 feet and the maximum building width is 60 feet. The maximum number of homes which have side entry courtyard style garages is 33% of the total contracted Lots. 23 EX-31.1 4 tex31_1-3172.txt EX-31.1 EXHIBIT 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Anthony J. Caldarone, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Calton, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financing reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Date: July 14, 2004 By: /s/ Anthony J. Caldarone --------------------------- Anthony J. Caldarone CHAIRMAN AND CHIEF EXECUTIVE OFFICER EX-31.2 5 tex31_2-3172.txt EX-31.2 EXHIBIT 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Laura A. Camisa, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Calton, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financing reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Date: July 14, 2004 By: /s/ Laura A. Camisa ---------------------------------- Laura A. Camisa CHIEF FINANCIAL OFFICER AND TREASURER EX-32.1 6 tex32_1-3172.txt EX-32.1 EXHIBIT 32.1 CALTON, INC. CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the quarterly report of Calton, Inc. (the "Company") on Form 10-QSB for the quarterly period ended May 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Anthony J. Caldarone, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: July 14, 2004 By: /s/ Anthony J. Caldarone -------------------------------------- Anthony J. Caldarone CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER EX-32.2 7 tex32_2-3172.txt EX-32.2 EXHIBIT 32.2 CALTON, INC. CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the quarterly report of Calton, Inc. (the "Company") on Form 10-QSB for the quarterly period ended May 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Laura A. Camisa, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: July 14, 2004 By: /s/ Laura A. Camisa --------------------------------------------- Laura A. Camisa CHIEF FINANCIAL OFFICER AND TREASURER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) -----END PRIVACY-ENHANCED MESSAGE-----