Check whether the Issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act |_|
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes |X|
No |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this Form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes |_| No |X|
Revenues for the fiscal year ended November 30, 2007: $4,866,000.
The aggregate market value (based upon the last sales price of the Issuer's
Common Stock reported by the OTC Bulletin Board) of voting shares and non-voting
equity held by non-affiliates of the registrant as of February 21, 2008 was
$469,941.
As of February 21, 2008, 9,898,506 shares of Common Stock were outstanding.
Certain portions of the Company's Proxy Statement for the annual meeting of
shareholders are incorporated by reference into Part III hereof.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESSES
Calton, Inc. ("Calton" or the "Company") was incorporated in the State
of New Jersey in 1981. The Company is engaged in constructing single
family homes through Homes by Calton, LLC ("Homes by Calton") and the
continued development of a loyalty and co-branded credit card program
through PrivilegeONE Networks, LLC ("PrivilegeONE"). However, there are
currently no revenues or expenses being accrued with respect to
PrivilegeONE and, as such, the Company currently operates in just one
business segment.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
inter-company accounts and transactions have been eliminated in the
accompanying consolidated financial statements.
REVENUE RECOGNITION
Revenues and related profits from homebuilding on the Company's lots
are recognized using the deposit method, as defined in Statements on
Financial Accounting (SFAS) No. 66. Revenue is recognized when the
earning process of constructing and selling the home has been completed
as follows:
o The Company recognizes revenue at the time of closing
and title transfer. Prior to closing, the customer
performs walkthroughs of the home and any other
procedures that they consider necessary to accept the
home. The Company attempts to remedy any issues with
its customers prior to closing.
o In all instances, the buyer's commitment to repay
financing obtained to purchase the property is
between the buyer and the buyer's lender. The Company
does not provide customer financing and there is no
recourse against the Company for non-payment by the
buyers.
o The risks and rewards of ownership of the home pass
to the customer at closing and the Company has no
substantial continuing involvement with the property.
In addition, the Company recognizes revenue from fixed price and
modified fixed price construction contracts for homebuilding on
customer-owned lots based on the percentage-of-completion method,
measured by the percentage of cost incurred to date to estimated total
cost for each contract. Contract costs include all direct material and
labor costs and those indirect costs related to contract performance,
such as indirect labor, supplies, tools, repairs, and depreciation.
Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined without regard to the
percentage of completion. Changes in job performance, job conditions,
contract penalty provisions, claims, change orders, and settlements are
accounted for as changes in estimates in the current period. Because of
the inherent uncertainties in estimating costs, it is at least
reasonably possible that the estimates used will change within the near
term.
F-7
CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006
In accordance with SFAS No. 13, Accounting for Leases, the Company
defers a portion of its gross profit on the sale-leasebacks of its
model homes. The Company will recognize the deferred revenue (the net
present value of the lease payments) and deferred cost in equal
increments over the term of the lease (deferred gross profit is $58,000
at November 30, 2007 and is included in other current liabilities in
the 2007 balance sheet).
CASH AND CASH EQUIVALENTS
Cash equivalents consist of demand deposits and highly liquid money
market funds. The Company places its temporary cash investments with
high credit quality financial institutions. At times, such investments
may be in excess of the FDIC insurance limits. The Company has not
experienced any loss to date on these investments.
INVESTMENTS
The Company held certain equity securities which were classified as
available-for-sale as defined in SFAS No. 115, and were valued at fair
market value. The corresponding unrealized gain on securities held as
available-for-sale was recorded as a component of other comprehensive
income. During fiscal 2007 all the securities were sold.
INVENTORY
Homebuilding work in process, speculative and model homes and developed
land are stated at the lower of cost (including direct construction
costs, capitalized interest and real estate taxes) or net realizable
value. The capitalized costs are included in cost of homebuilding
revenues as homes are sold and customers take title to the home and
real estate.
In accordance with SFAS 34, CAPITALIZATION OF INTEREST COSTS, the
Company capitalizes interest incurred on lots under development and
homes under construction. During the year ended November 30, 2007,
approximately $124,000 of interest was capitalized. Capitalization
begins when the construction of a home commences, whether it is under
contract or being built on a speculative basis. Capitalized interest
costs are charged to cost of sales in the period when the revenues from
home closings are recognized. Interest costs are expensed on developed,
vacant lots and when construction ceases or is completed on speculative
homes.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Computer equipment is being
depreciated using the straight-line method over a useful life of three
years, office furniture is being depreciated using the straight-line
method over five years, and leasehold improvements are being
depreciated using the straight-line method over the lesser of the asset
useful life or the terms of the respective leases, which range from one
to five years. Maintenance and repairs are expensed as incurred, while
renewals and betterments are capitalized.
IMPAIRMENTS OF LONG-LIVED ASSETS
The Company performs an assessment of the carrying values of property
and equipment when indications that the carrying values of such assets
may not be recoverable are present. This review consists of a
comparison of the carrying value of the assets with expected
undiscounted cash flows. If the respective carrying values exceed
expected undiscounted cash flows, the impairment is measured using fair
value measures to the extent available or discounted cash flows.
F-8
CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006
DEFERRED FINANCE CHARGES
Deferred finance charges are associated with the Company's current
revolving credit agreement (Note 5). Deferred finance charges are
amortized over the term of the line of credit. Amortization is
reflected as a component of interest expense.
INCOME TAXES
The Company records deferred taxes based on temporary differences
between the tax bases of the Company's assets and liabilities and their
financial reporting bases. A valuation allowance is established when it
is more likely than not that some or all of the deferred tax assets
will not be realized. Income tax expense is the tax payable for the
period and the change during the period in deferred tax assets and
liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses
and other liabilities and notes payable. At November 30, 2007, the fair
value of these instruments approximated their carrying value.
ADVERTISING EXPENSE
The costs of advertising are expensed as incurred. Included in selling,
general and administrative expenses are advertising costs of
approximately $306,000 and $430,000 for the years ended November 30,
2007 and 2006, respectively.
PER SHARE COMPUTATIONS
Basic loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding during the period.
Diluted loss per share is computed by dividing the net loss by the
weighted average number of common shares outstanding, increased by the
assumed conversion of other potentially dilutive securities during the
period.
2007 2006
----------- -----------
Net loss - [numerator] $(1,043,000) $(1,406,000)
=========== ===========
Basic and diluted:
Weighted average shares outstanding
[denominator] 9,667,000 9,528,000
=========== ===========
Net loss per common share $ (0.11) $ (0.15)
==========================
|
The effects of 827,000 and 717,000 stock options outstanding at
November 30, 2007 and 2006, respectively, were not included in the
calculation of diluted loss per share for each of those years, as they
were anti-dilutive pursuant to the treasury stock method.
F-9
CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006
STOCK-BASED COMPENSATION
In December 2005, the Company adopted the accounting provisions of
Statement of Financial Accounting Standards No. 123R - Share-based
Payments (FAS 123R) which required the use of the fair-value based
method to determine compensation for all arrangements under which
employees and others received shares of stock or equity instruments
(warrants and options). The adoption of this standard had a minimal
impact on the Company's results of operations for the fiscal year ended
November 30, 2007.
The Company uses the Black-Scholes option-pricing model to determine
the fair value of each option grant as of the date of grant for expense
incurred. In applying the Black-Scholes option-pricing model during
fiscal 2007, the following assumptions were made: dividend yield -
none, volatility ranging from 114% to 183%, risk-free interest rate
ranging from 4.60% to 4.64%, share prices of $0.21, option exercise
prices of $0.21 and $0.23, and an expected life ranging from 3.0 to 6.5
years (based upon the simplified method).
The Company recorded stock-based compensation expense of $17,000 in the
year ended November 30, 2007, related to employee and director stock
options. The Company recorded stock-based compensation expense of
$7,000 in the year ended November 30, 2006, related to director stock
options.
RECENT ACCOUNTING PRONOUNCEMENTS
FASB STATEMENT NO. 159, THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND
FINANCIAL LIABILITIES, INCLUDING AN AMENDMENT OF FASB STATEMENT NO. 115
In February 2007, the FASB issued statement No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities, including an
amendment of FASB Statement No. 115" ("FAS 159"). FAS 159 permits
entities to choose to measure many financial instruments and certain
other items as fair value that are not currently required to be
measured at fair value. FAS 159 is effective for fiscal years beginning
after November 15, 2007. Management does not expect the adoption of FAS
159 to have a material effect on the Company's financial position or
results of operations.
2. LIQUIDITY AND MANAGEMENT'S PLANS
The Company's consolidated financial statements are prepared on a going
concern basis, which assumes that the Company will realize its assets
and discharge its liabilities in the normal course of business. As
reflected in the financial statements, the Company has incurred net
losses in each of the last two years. Additionally, the Company has
significant completed and work-in-process inventories of approximately
$2.5 million and developed lots of approximately $0.8 million which are
collateral for the credit facility with a $2.2 million balance at
November 30, 2007. The Company's $6.5 million credit facility expired
on May 31, 2007. On July 16, 2007, the bank extended the facility
through December 31, 2007, and on December 7, 2007, extended it through
June 30, 2008, each time reducing borrowing availability under the
facility. The facility was reduced to $4.8 million in July and further
reduced to $2.8 million in December, 2007. In connection with the
extensions, the terms of the facility were revised to limit future
funding to the completion of existing speculative homes under
construction for which a sales contract providing for at least a 10%
customer deposit has been signed. Maximum available borrowings are
reduced as each of these homes is sold. Amounts outstanding under the
credit facility in June 2008 will be due on that date. These conditions
raise doubt as to the ability of the Company to continue its normal
business operations as a going concern.
Management's plan to sustain the Company's operations includes targeted
marketing for new home sales, incentive pricing for current inventory
homes, renegotiating pricing with subcontractors, curtailing expenses
to the extent
F-10
CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006
appropriate, seeking further extensions of the terms of the credit
facility, and raising additional debt or equity capital from external
sources. There can be no assurance that the Company will be successful
in achieving these plans.
3. INVENTORY
Inventory consists of the following as of November 30, 2007:
Land $2,404,000
Homes under construction 1,586,000
Speculative and model homes 871,000
----------
$4,861,000
==========
|
During the year ended November 30, 2006, the company recorded a
$677,000 inventory impairment charge. No impairment charges have been
recognized during the year ended November 30, 2007. However, negative
market conditions in the homebuilding industry, possible fluctuations
in interest rates, and the Company's plans to offer sales incentives in
order to liquidate inventory could result in further impairment charges
during the year ending November 30, 2008, and/or thereafter.
The Company capitalizes interest on loans directly associated with the
real estate development projects. During the years ended November 30,
2007 and 2006, the Company capitalized $124,000 and $108,000,
respectively.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of November 30,
2007:
Computer equipment and furniture $ 208,000
Leasehold improvements 5,000
Other 75,000
---------
288,000
Less: Accumulated Depreciation (152,000)
---------
$ 136,000
=========
5. NOTES PAYABLE
|
As of November 30, 2007, notes payable includes borrowings under a
demand line of credit with National City Bank (formerly Harbor Federal
Savings Bank) with future funding limited to the completion of existing
speculative homes under construction for which a sales contract
providing for at least a 10% customer deposit has been signed. On
December 7, 2007, the bank reduced available borrowings to $2.8 million
and extended the credit facility with the same terms through June 30,
2008. As of November 30, 2007, $2.2 million of advances under the line
of credit was outstanding. The credit facility is secured by
inventories and related homebuilding assets. Notes payable also
includes a $1 million mortgage note due September 1, 2008, that is
payable to National City Bank. The mortgage note is secured by the land
purchased in the Magnolia Plantation subdivision. The annual interest
rate on both the revolving credit line and mortgage note is the bank's
prime rate plus 1% (8.5% at November 30, 2007).
F-11
CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006
6. SHAREHOLDERS' EQUITY ACTIVITY
The Company's Certificate of Incorporation, as amended, provides for
25,000,000 authorized shares of Common Stock (par value $.05 per
share), 520,000 shares of Redeemable Convertible Preferred Stock (par
value $.10 per share) and 2,000,000 shares of Class A Preferred Stock
(par value $.10 per share), 1,000,000 shares of which have been
designated as Class A Series One Preferred Stock. None of the Preferred
Stock is issued or outstanding.
STOCK COMPENSATION PROGRAMS AND TRANSACTIONS
Stock option activity is summarized as follows:
2007 2006
-------------------- --------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
-------------------- --------------------
Outstanding
Beginning of year 717,000 $ 0.45 758,200 $ 0.70
Granted at market price 305,000 0.22 50,000 0.45
Expired or cancelled (195,000) 0.53 (91,200) 2.51
-------------------- --------------------
Outstanding end of year 827,000 $ 0.35 717,000 $ 0.45
==================== ====================
-------------------- --------------------
Exercisable as of November 30 522,000 $ 0.43 667,000 $ 0.45
==================== ====================
|
The fair value of each option award is estimated on the date of grant
using the Black-Scholes valuation model that uses assumptions for
expected volatility, expected dividends, expected term and the
risk-free interest rate. Expected volatilities are based on implied
volatilities from traded options on the Company's stock, historical
volatility of the Company's stock and other factors estimated over the
expected term of the options. The expected term of options granted is
derived using the "simplified method" which computes expected term as
the average of the sum of the vesting term plus contract term. The
risk-free rate is based on the U.S. Treasury yield curve in effect at
the time of grant for the period of the expected term.
The weighted average grant date fair value of the options granted
during the year ended November 30, 2007 was $0.18. The range of
exercise prices for exercisable options and the weighted average
remaining lives are reflected in the following table:
Options Outstanding Exercisable
------------------------------------------------------------------ ----------------------------------------------------
Weighted Weighted Aggregate Weighted Weighted Aggregate
Range of Average Average Intrinsic Average Average Intrinsic
Prices Number Remaining Life Exercise Price Value Number Remaining Life Exercise Price Value
------------- -------- -------------- -------------- -------- ------- -------------- -------------- ---------
$ 0.16 - 0.83 827,000 4.62 yrs. $ 0.35 $ - 522,000 3.28 yrs. $ 0.43 $ -
|
F-12
CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006
A summary of the status of the Company's non-vested stock options as of
November 30, 2007, and changes during the year then ended, is presented
below:
Weighted Average
Grant Date
Nonvested Stock Options Shares Fair Value
----------------------- ---------- ----------
Nonvested at November 30, 2006 50,000 $ 0.29
Granted 305,000 0.22
Vested (50,000) (0.29)
Forfeited -- --
---------- ----------
Nonvested at November 30, 2007 305,000 $ 0.22
========== ==========
|
As of November 30, 2007 there was approximately $46,000 of total
unrecognized compensation cost related to non-vested share-based
compensation arrangements granted under the Plan. That cost is expected
to be recognized over a weighted-average period of approximately 45
months.
As of November 30, 2007, there were 646,520 shares of Common Stock
reserved for possible future issuances under the Company's stock option
plans.
During 2007 and 2006, 306,000 and 96,000 shares, respectively, of
treasury stock were issued to directors of the Company in lieu of
receiving cash fees. The Company records stock-based compensation
associated with the issuance of common stock to directors based upon
the fair market value of the shares on the date issued. Compensation
expense amounted to $50,000 for each of the years ended November 30,
2007 and 2006, under this method. Treasury stock was relieved using the
first-in first-out method of accounting with the difference being
recorded as a reduction of paid-in capital. Treasury stock is carried
at cost at acquisition date, and at November 30, 2007, there were
approximately 800,000 shares of treasury stock with an average cost of
$4.47 per share remaining.
PREFERRED STOCK RIGHTS AGREEMENTS
In February 1999, the Company's Board of Directors adopted a
shareholder rights plan (the "Rights Plan") and declared a dividend of
one preferred stock purchase right (a "Right") for each outstanding
share of Common Stock. Under the Rights Plan, each Right represents the
right to purchase from the Company one one-hundredth (1/100th) of a
share of Class A Preferred Stock Series One (the "Preferred Stock") at
a price of $5.50 per one one-hundredth (1/100th) of a share. Each one
one-hundredth (1/100th) of a share of Preferred Stock has economic and
voting terms equivalent to those of one share of the Company's Common
Stock.
The Rights will not become exercisable unless and until, among other
things, a person or group acquires or commences a tender offer for 15%
or more of the Company's outstanding Common Stock. In the event that a
person or group, without Board approval, acquires 15% or more of the
outstanding Common Stock, each Right would entitle its holder (other
than the person or group) to purchase shares of Preferred Stock having
a value equal to twice the exercise price. Also, if the Company is
involved in a merger or sells more than 50% of its assets or earning
power, each Right will entitle its holder (other than the acquiring
person or group) to purchase shares of common stock of the acquiring
company having a market value equal to twice the exercise price. If any
person or group acquires at least 15%, but less than 50%, of the
Company's Common Stock, the Board may, at its option, exchange one
share of Common Stock for each Right (other than Rights held by such
person or group). The Rights Plan may cause substantial dilution to a
person or group that, without prior Board approval, acquires 15% or
more of the Company's Common Stock unless the Rights are first redeemed
by the Board. The Rights expire on February 1, 2009 and may be
F-13
CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006
redeemed by the Company at a price of $0.01 per Right. The Company had
9,497,491 preferred stock rights outstanding as of November 30, 2007.
OTHER COMPREHENSIVE INCOME:
Under Statements of Financial Accounting Standards No. 130 (SFAS 130),
Reporting Comprehensive Income, the Company is required to display
comprehensive income and its components as part of its full set of
financial statements. Comprehensive income comprises net income and
other comprehensive income items. Other comprehensive income during the
years ended November 30, 2007 and 2006 represents the changes in
unrealized gains (losses) on available-for-sale equity securities.
These securities were all sold in fiscal 2007. The following table
reflects comprehensive income for the years ended November 30, 2007 and
2006:
2007 2006
----------- -----------
Net loss $(1,043,000) $(1,406,000)
Unrealized gain on investments 38,000 61,000
Realized gain on sale of investments (154,000) --
----------- -----------
Comprehensive loss $(1,159,000) $(1,345,000)
=========== ===========
7. INCOME TAXES
|
The federal net operating loss carryforward for tax purposes is
approximately $34,808,000 and $33,411,000 at November 30, 2007 and
2006, respectively. The Company's ability to utilize its deferred tax
assets, including the federal net operating loss carryforwards created
prior to November 21, 1995 to offset future income, is limited to
approximately $1,000,000 per year under Section 382 of the Internal
Revenue Code as a result of the change in control of the Company in
November 1995. These federal carryforwards will expire between 2007 and
2027.
The following schedule reconciles the income tax benefit at the federal
statutory rate (35%) to the effective rate:
2007 2006
-------------------------
Tax benefit using statutory rate $ (368,000) $ (489,000)
Change in valuation allowance 368,000 489,000
-------------------------
$ -- $ --
=========================
|
F-14
CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006
Temporary differences and carryforwards that give rise to deferred tax
assets as of November 30, 2007, are as follows:
Net operating losses $ 13,626,000
Asset impairment charges 177,000
Capital loss carryforwards --
Investment impairment charges 263,000
Unamortized start up costs --
Bad debt and other allowances 7,000
Other 54,000
-------------------
Deferred tax assets 14,127,000
Less: Valuation allowances (14,127,000)
-------------------
Net deferred taxes $ --
===================
|
In June 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48 ("FIN 48"), ACCOUNTING FOR UNCERTAINTY IN INCOME
TAXES, AN INTERPRETATION OF FASB STATEMENT NO. 109. FIN 48 clarifies
the accounting for income taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in
the financial statements. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure and transition. FIN 48
applies to all tax positions related to income taxes subject to SFAS
109, ACCOUNTING FOR INCOME TAXES. Differences between the amounts
recognized in the statements of financial position prior to the
adoption of FIN 48 and the amounts reported after adoption should be
accounted for as a cumulative-effect adjustment recorded to the
beginning balance of retained earnings. FIN 48 is effective for fiscal
years beginning after December 15, 2006 and was required to be adopted
by the Company on December 1, 2007. The Company does not believe the
adoption of FIN 48 will have a material impact on its financial
statements.
8. RELATED PARTY TRANSACTIONS
In November 2007, Homes by Calton entered into a contract and completed
the sale of two homes in its Pointe West development to AFP
Enterprises, Inc. ("AFP"), a company owned by the Caldarone family,
including two corporate officers of the Company, Anthony J. Caldarone
and Maria F. Caldarone. The contract prices for the homes were $617,000
and $629,000, respectively. Costs for the homes totaled $562,000 and
$584,000, respectively. All funds have been paid to the Company in full
as of November 30, 2007. Homes by Calton has also entered into a
sale-leaseback agreement with AFP for one of these homes to be used as
a sales model on a month-to-month basis, at a cost of $2,000 per month.
The transactions between Homes by Calton and AFP were reviewed and
approved by the Company's Board of Directors and the Audit Committee of
the Board of Directors.
9. DISCONTINUED OPERATIONS
On July 31, 2006, the Company completed the sale of substantially all
of the assets of eCalton.com, Inc. to Bray Web Development, Inc. for
$250,000 less purchase price adjustments of approximately $41,000.
F-15
CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006
The consolidated financial statements and related footnotes for all
periods presented have been reclassified to reflect the discontinued
operations. The operating results of the discontinued operations for
the year ended November 30, 2006 is summarized below. There was no
related activity for 2007.
Net revenues $ 509,000
Cost of goods sold 277,000
------------
Gross profit 232,000
Operating expense (307,000)
Non-operating expense, net (9,000)
------------
Loss from discontinued operations (84,000)
Gain on sale of assets 229,000
------------
Income from discontinued operations $ 145,000
============
10. COMMITMENTS AND CONTINGENT LIABILITIES
WARRANTY COMMITMENTS ON HOMES BY CALTON
|
The Company provides a basic limited warranty on workmanship and
materials for all homes for a period of one year. The Company estimates
the costs that may be incurred under its basic limited warranty and
records a liability in the amount of such costs at the time the product
revenue is recognized. Factors that affect the Company's warranty
liability include the number of homes sold, historical and anticipated
rates of warranty claims and average cost per claim. Estimated future
warranty costs are charged to cost of sales in the period when the
revenues from home closings are recognized. Such estimated warranty
costs are 0.5% of the total sales price of the home. The Company
periodically assesses the adequacy of its recorded warranty liabilities
and adjusts the amount as necessary.
Following is the Company's warranty reserve activity for the years
ended November 30, 2007 and 2006:
2007 2006
-------- --------
Balance at beginning of period $ 33,000 $ 59,000
Reserves 26,000 39,000
Payments and other adjustments (37,000) (65,000)
-------- --------
Balance at end of period $ 22,000 $ 33,000
======== ========
|
Warranty reserves are included in accrued expenses in the accompanying
consolidated balance sheet.
OPERATING LEASE COMMITMENTS
The Company and its consolidated subsidiaries lease their facilities
under operating lease agreements with various expiration dates through
2009. Future non-cancelable minimum lease payments for each of the
following years ending November 30 are as follows:
2008 $ 110,000
2009 46,000
-------------
Total $ 156,000
==============
|
F-16
CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2007 AND 2006
Rent expense for continuing operations for the years ended November 30,
2007 and 2006 amounted to $100,000 and $70,000, respectively.
PROFIT SHARING ARRANGEMENT
The Company has entered into an arrangement with John G. Yates and
Thomas C. Corley, who are the President and Chief Financial Officer of
PrivilegeONE, respectively, pursuant to which Mr. Yates and Mr. Corley
have agreed to serve as unpaid officers of PrivilegeONE and pursue
business opportunities on behalf of PrivilegeONE in consideration of
the Company's agreement to pay them 25% of the net profit attributable
to business arrangements with parties introduced by either of them to
PrivilegeONE. There were no revenues derived from PrivilegeONE in
fiscal years 2007 and 2006.
LITIGATION
The Company is involved from time to time in litigation arising in the
ordinary course of business, none of which is expected to have a
material adverse effect on the Company's financial position or results
of operations.
There were no litigation settlements recorded for the year ended
November 30, 2007. The Company paid $15,000 in litigation settlements
as a result of the resolution of certain matters in the year ended
November 30, 2006.
F-17
CALTON, INC. AND SUBSIDIARIES