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 February 29, 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 April 9, 2004, 10,697,855 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
February 29, 2004 (Unaudited) and November 30, 2003............... 3
Consolidated Statements of Operations (Unaudited) for the
Three Months Ended February 29, 2004 and February 28, 2003........ 4
Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended February 29, 2004 and February 28, 2003........ 5
Notes to Consolidated Financial Statements........................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 11
Item 3. Controls and Procedures........................................... 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................. 15
SIGNATURES .................................................................. 16
- ------------------------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 29, November 30,
2004 2003
------------------- -------------------
ASSETS (UNAUDITED)
Current Assets
Cash and cash equivalents $ 2,008,000 $ 1,821,000
Accounts receivable, net of allowance for doubtful accounts of $6,000 57,000 101,000
Inventory 3,363,000 4,335,000
Deposits on land 24,000 -
Prepaid expenses and other current assets 106,000 95,000
------------------- -------------------
Total current assets 5,558,000 6,352,000
------------------- -------------------
Deferred charges 200,000 233,000
Property and equipment, net 49,000 52,000
------------------- -------------------
Total assets $ 5,807,000 $ 6,637,000
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable, accrued expenses and other liabilities $ 1,756,000 $ 1,228,000
Notes payable 643,000 1,843,000
------------------- -------------------
Total current liabilities 2,399,000 3,071,000
------------------- -------------------
Noncurrent portion of notes payable 895,000 1,098,000
Commitments and contingent liabilities (Note 9) - -
Shareholders' Equity
Common stock, $.05 par value, 10,740,000 shares authorized;
9,263,000 and 9,240,000 shares outstanding at February 29, 2004
and November 30, 2003, respectively 463,000 462,000
Additional paid-in capital 12,059,000 12,185,000
Retained earnings (deficit) (1,883,000) (1,913,000)
Less cost of shares held in treasury, 1,434,000 and 1,457,000 shares
as of February 29, 2004 and November 30, 2003, respectively (8,126,000) (8,266,000)
------------------- -------------------
Total shareholders' equity 2,513,000 2,468,000
------------------- -------------------
Total liabilities and shareholders' equity $ 5,807,000 $ 6,637,000
=================== ===================
See notes to consolidated financial statements.
3
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
(UNAUDITED)
2004 2003
---------------- ----------------
REVENUE
Homebuilding and consulting $ 2,562,000 $ -
Technical staffing - 234,000
Website design and implementation 124,000 127,000
Credit card loyalty program revenue 1,000 12,000
---------------- ----------------
2,687,000 373,000
---------------- ----------------
COSTS AND EXPENSES
Cost of sales
Homebuilding 2,041,000 -
Internet development/technical staffing 63,000 244,000
Credit card loyalty program - 3,000
Selling, general and administrative 564,000 730,000
---------------- ----------------
2,668,000 977,000
---------------- ----------------
Income/(loss) from operations 19,000 (604,000)
---------------- ----------------
OTHER (EXPENSE) INCOME
Interest income 2,000 9,000
Interest expense (11,000) -
Litigation settlements - (58,000)
Other income 20,000 7,000
---------------- ----------------
11,000 (42,000)
---------------- ----------------
NET INCOME/(LOSS) $ 30,000 $ (646,000)
================ ================
INCOME/(LOSS) PER SHARE
---------------- ----------------
Basic and Diluted: $ 0.003 $ (0.142)
================ ================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic and diluted 9,241,000 4,557,000
See notes to consolidated financial statements.
4
CALTON, INC. AND SUBSIDIARIES
CONOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
(UNAUDITED)
2003 2002
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) $ 30,000 $ (646,000)
Adjustments to reconcile net income/(loss) to net cash used in
operating activities:
Depreciation and amortization 42,000 15,000
Stock based compensation 15,000 -
Changes in operating assets and liabilities:
Accounts receivable 44,000 58,000
Inventory 972,000 -
Deposits on land (24,000) -
Prepaid expenses and other assets (11,000) (45,000)
Accounts payable, accrued expenses and other liabilities 528,000 3,000
---------------- ----------------
Net cash flows from operating activities 1,596,000 (615,000)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Receipts from holdback escrow account - 55,000
Purchase of equipment and software (6,000) -
---------------- ----------------
Net cash flows from investing activities (6,000) 55,000
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (1,403,000) -
---------------- ----------------
Net cash flows from financing activities (1,403,000) -
---------------- ----------------
Net increase/(decrease) in cash and cash equivalents 187,000 (560,000)
Cash and cash equivalents at beginning of period 1,821,000 3,286,000
---------------- ----------------
Cash and cash equivalents at end of period $ 2,008,000 $ 2,726,000
================ ================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 11,000 -
Cash paid for income taxes - -
See notes to consolidated financial statements.
5
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 February 29,
2004, the results of operations for the three months ended February 29,
2004 and February 28, 2003 and the cash flows for the three months ended
February 29, 2004 and February 28, 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
months ended February 29, 2004 are not necessarily indicative of the
results that may be expected for the year ending November 30, 2004.
2. INVENTORY
Inventory consists of the following as of February 29, 2004 and November
30, 2003:
Feb. 29, Nov. 30,
2004 2003
------------------ -----------------
Developed land $ 1,134,000 $ 1,829,000
Work in process 2,229,000 1,593,000
Speculative and model homes - 913,000
------------------ -----------------
$ 3,363,000 $ 4,335,000
================== =================
3. DEPOSITS ON LAND
In December 2003, the Company entered into a contract to purchase eight
developed lots in the Amelia Plantation development located in Vero
Beach, Florida. The initial deposit made on these lots was $24,000 and
final payment is subject to the development receiving a certificate of
completion.
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4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of February 29, 2004
and November 30, 2003:
Feb. 29, Nov. 30,
2004 2003
--------------- ----------------
Computer equipment and furniture $ 137,000 $ 132,000
Leasehold improvements 65,000 65,000
Other 3,000 3,000
--------------- ----------------
205,000 200,000
Less: Accumulated Depreciation (156,000) (148,000)
--------------- ----------------
$ 49,000 $ 52,000
=============== ================
5. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES
Accounts payable, accrued expenses and other liabilities consist of the
following as of February 29, 2004 and November 30, 2003:
Feb. 29, Nov. 30,
2004 2003
------------------ -----------------
Accounts payable, trade $ 211,000 $ 125,000
Accrued expenses 1,545,000 1,103,000
------------------ -----------------
$ 1,756,000 $ 1,228,000
================== =================
6. NOTES PAYABLE
Notes payable consists of borrowing under a combined $1.2 million
acquisition and construction financing line and a $5.0 million demand
revolving line of credit with Harbor Federal Savings Bank. The credit
facilities are secured by inventories and related homebuilding assets
and expire in August 2005. The annual interest rate is the bank's prime
rate plus 1% (5.25% at February 29, 2004).
7. SHAREHOLDERS' EQUITY ACTIVITY
During the three months ended February 29, 2004, 23,000 shares of
treasury stock were issued to directors in lieu of fees. 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
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 when title and possession of the
home have been passed to the buyer and there are no further material
obligations of the Company.
INTERNET DEVELOPMENT AND STAFFING
The eCalton.com, Inc. ("eCalton") Internet development division provides
Internet strategy 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.
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. The
Company does not anticipate incurring any restructuring or impairment
charges as a result of the wind down of the division's operations.
Revenues for this division were recognized when earned at the time the
staffing services were rendered to clients.
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
aggregates 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.
8
Operating results, by industry segment, for the three months ended
February 29, 2004 and February 28, 2003 are as follows (in thousands):
THREE MONTHS ENDED FEBRUARY 29, 2004
----------------------------------------------------------------------------
Credit Card Homebuilding
Internet Loyalty and Consulting Total
Development Business Services Corporate Company
Total revenues $ 124 $ 1 $ 2,562 $ - $ 2,687
Total cost of revenues 63 - 2,041 - 2,104
Depreciation and amortization - - 34 8 42
Income/(loss) from operations (4) 2 315 (294) 19
Interest income/(expense), net - - - (9) (9)
Net income/(loss) 9 2 303 (284) 30
Total assets $ 148 $ 4 $ 4,650 $ 1,005 $ 5,807
THREE MONTHS ENDED FEBRUARY 28, 2003
----------------------------------------------------------------------------
Internet Credit Card Homebuilding
Development Loyalty and Consulting Total
and Staffing Business Services Corporate Company
Total revenues $ 361 $ 12 $ - $ - $ 373
Total cost of revenues 244 3 - - 247
Depreciation and amortization - - - 15 15
Loss from operations (53) (202) - (349) (604)
Interest income - - - 9 9
Net loss (53) (202) - (391) (646)
Total assets $ 262 $ 63 $ - $ 2,937 $ 3,262
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.
9
Following is the Company's warranty reserve activity for the three
months ended February 29, 2004:
Balance at beginning of period $ 11,000
Reserves 13,000
Payments $ (1,000)
---------------
Balance at end of period $ 23,000
===============
CREDIT CARD PROCESSING AGREEMENT
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 has agreed to issue and administer the
PrivilegeONE credit cards. Under the agreement, Fleet is required to
remit a fee for each account established through the PrivilegeONE
program, plus a percentage of the revenue realized from finance charges.
PrivilegeONE is required to pay Fleet a fee for the development of the
credit card for each participating automotive dealer. The agreement
requires the Company to capitalize PrivilegeONE with not less than
$500,000 during the original five-year term of the agreement and
maintain a contingency reserve fund equal to three and one-half (3.5%)
percent of all net revenues received by PrivilegeONE, up to a maximum of
$1,500,000.
The Credit Card Loyalty Business Segment continues to be in an early
stage of development. Having established technological and market
feasibility, management is currently accessing marketing channels and
developing strategic partners to support the business. Access to and
maintenance of credit card services, such as those provided in the Fleet
agreement, is essential to conduct the Credit Card Loyalty Business
Segment. Fleet informed PrivilegeONE in March 2003 of its desire to exit
the PrivilegeONE Loyalty Credit Card business. PrivilegeONE is currently
seeking a new issuer for the Program.
10. SUBSEQUENT EVENTS
On March 31, 2004, the Company received notification from the Listing
Qualifications Panel of the American Stock Exchange ("AMEX") of its
decision to delist the Company's common stock from the AMEX effective
with the opening of business on April 6, 2004.
The Listing Qualifications Panel of the AMEX indicated that the basis
for its decision to delist the Company's common stock was that the
Company is not in compliance with continued listing standards since the
Company's stockholders' equity is less than $4 million and it has
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
American Stock Exchange.
10
On April 6, 2004, the Company entered into a contract to purchase 41
golf course lots, on a rolling option basis, in an established community
in Vero Beach, Florida. The Company is currently in the due diligence
phase. If no issues arise during due diligence, the Company will be
required to make deposits of $150,000 on the lots in May and July of
2004.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARY 29, 2004 AND
FEBRUARY 28, 2003
REVENUES: Consolidated revenues for the three months ended February 29,
2004 increased to $2,687,000 compared to $373,000 for the three months
ended February 28, 2003. This increase is directly attributable to the
Company's homebuilding segment which commenced operations in the fourth
quarter of fiscal 2003. The Company's technical staffing division of
eCalton, which generated $234,000 of revenues in the three months ended
February 28, 2003, was wound down in the fourth quarter of fiscal 2003
and therefore, did not generate any revenues for the quarter ended
February 29, 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
$2,041,000 for the quarter ended February 29, 2004. As the homebuilding
segment began operations in the fourth quarter of fiscal 2003, there
were no expenses recorded for the three months ended February 28, 2003.
Project personnel and expenses decreased from $244,000 in the three
months ended February 28, 2003 to $63,000 in the three months ended
February 29, 2004. The decrease 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
20% for the quarter ended February 29, 2004. Gross profit margin for the
Internet development/Technical staffing segment was 49% and 32% for the
quarters ended February 29, 2004 and February 28, 2003, respectively.
The increase in gross profit margin 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 February 29, 2004 were
$564,000 compared to $730,000 for the quarter ended February 28, 2003.
The reduction in expenses is primarily attributable to the significant
downsizing of operations at both the PrivilegeONE and eCalton segments,
the complete wind-down of the technical staffing division, reduced
occupancy costs and the continued cost containment efforts focused on by
management in all of the Company's business segments. In addition, the
Internet development division of eCalton performs a significant amount
of inter-company work for Homes by Calton and PrivilegeONE, thereby
reducing consolidated selling, general and administrative expenses.
INTEREST INCOME: Interest income is derived principally from interest on
depository accounts and money market-type accounts. Interest income
decreased from $9,000 during the quarter ended February 28, 2003 to
$2,000 during the quarter ended February 29, 2004. The decrease was a
result of lower average deposited balances. Currently, cash is being
11
used in operating activities and accordingly, interest income is
expected to decline during fiscal 2004.
LITIGATION SETTLEMENTS: The Company recorded $58,000 in litigation
settlements for the quarter ended February 28, 2003.
OTHER INCOME: Other income primarily consists of a $13,000 reduction in
bad debt reserve due to the payment of a previously written off
receivable.
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 February 29, 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 fiscal 2004. Total working capital decreased slightly from
$3,281,000 at November 30, 2003 to $3,159,000 at February 29, 2004.
CASH FLOWS FROM OPERATING ACTIVITIES
The Company generated cash of $1,596,000 from its operating activities
during the three months ended February 29, 2004 compared to using cash
of $615,000 during the same period of the prior year. The current year
cash generation reflects a $972,000 reduction in inventories due to the
delivery of five homes during the quarter ended February 29, 2004, a
$200,000 increase in customer deposits and a $325,000 increase in
deferred revenue.
CASH FLOWS FROM INVESTING ACTIVITIES
The Company used $6,000 in cash in its investing activities during the
three months ended February 29, 2004 for the purchase of equipment.
CASH FLOWS FROM FINANCING ACTIVITIES
The Company used $1,403,000 in its financing activities during the three
months ended February 29, 2004. This represented payments on the Notes
Payable outstanding in the homebuilding segment.
COMMITMENTS, GUARANTEES AND OFF BALANCE SHEET ITEMS
CREDIT CARD PROCESSING AGREEMENT:
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 has agreed to issue and administer the
PrivilegeONE credit cards. Under the agreement, Fleet is required to
remit a fee for each account established through the PrivilegeONE
program, plus a percentage of the revenue realized from finance charges.
PrivilegeONE is required to pay Fleet a fee for the development of the
credit card for each participating automotive dealer. The agreement
requires the Company to capitalize PrivilegeONE with not less than
$500,000 during
12
the original five-year term of the agreement and maintain a contingency
reserve fund equal to three and one-half (3.5%) percent of all net
revenues received by PrivilegeONE, up to a maximum of $1,500,000.
The Credit Card Loyalty Business Segment continues to be in an early
stage of development. Having established technological and market
feasibility, management is currently accessing marketing channels and
developing strategic partners to support the business. Access to and
maintenance of credit card services, such as those provided in the Fleet
agreement, is essential to conduct the Credit Card Loyalty Business
Segment. Fleet informed PrivilegeONE in March 2003 of its desire to exit
the PrivilegeONE Loyalty Credit Card business. PrivilegeONE is currently
seeking a new issuer for the Program.
PROFIT SHARING ARRANGEMENT:
The Company has entered into an arrangement with John G. Yates, its
President, and Thomas C. Corley, its Senior Vice President and Chief
Financial Officer, 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
that is due on demand. 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
February 29, 2004, $895,000 of acquisition and construction borrowings
and $643,000 of advances under the line of credit were outstanding.
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
February 29, 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.
13
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
February 29, 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 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.
14
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
31.1 - Certification by Chief Executive Officer pursuant to
Section 302 of Sarbanes-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 March 1, 2004, the Company issued a news release to report its
receipt of a delisting notification from the American Stock
Exchange and to report its financial results for the three and
twelve months ended November 30, 2003.
On April 2, 2004, the Company filed a report on Form 8-K to report
that its Common Stock had been delisted from the American Stock
Exchange.
15
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/ Thomas C. Corley
----------------------------------------------
Thomas C. Corley
Senior Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
Date: April 9, 2004
16