Calton: Shareholder Information To Our Shareholders: The Company began 1998 as we expected or better. We opened two new communities and realized a strong, better than expected sales backlog through excellent sales results in all of our communities. We also achieved a stronger financial position through the sale of our largest parcel of commercial land and the settlement of the legal action with the FDIC. Based upon these results, the Company is better positioned for the future. As expected, the Company incurred a net loss for the first quarter ended February 28, 1998 of $537,000 or $.02 per share on revenues of $12.8 million from 37 home deliveries. This compares to a net loss of $478,000 or $.02 per share on revenues of $22.6 million from 88 home deliveries for the same period in 1997. The results for the first quarter of 1997 included $6.8 million from 45 home deliveries attributable to the Orlando, Florida homebuilding assets that were sold at the end of 1997. Revenues include the sale of commercial land and land under option for $4.1 million and $3.3 million in 1998 and 1997, respectively. Neither transaction resulted in any significant gain or loss. The Company's sales backlog totaled an aggregate dollar value of $52.5 million representing 167 homes at February 28, 1998 compared to $25.4 million representing 79 homes, excluding the Florida division, at February 28 1997, representing a 107% increase in dollars and a 111% increase in homes. These significantly higher levels are the result of increased sales activity in the Northeast division of 185% generated primarily from the opening of four new communities in 1997, three at Renaissance and The Crossing at Grover's Mill, and two additional communities, The Winner's Circle and Marlboro Pointe, in early 1998 that were aided by favorable market conditions. In March 1998, the Company reached an agreement in principle whereby the FDIC agreed to dismiss the remaining causes of action in exchange for $50,000. This agreement was approved by the FDIC committee overseeing this lawsuit on April 9, 1998. The settlement is subject to the execution of a definitive agreement. We appreciate the support that you, our shareholders, and our homebuyers have reflected and we are also grateful to our employees and subcontractors for their continued commitment to building quality and value into the Company's homes. With all of this positive energy supporting us, the Company has the foundation to continue to improve upon its financial results and achieve higher shareholder value. Sincerely, /s/ Anthony J. Caldarone Anthony J. Caldarone Chairman of the Board, President and Chief Executive Officer April 15, 1998 All statements included in this report, including without limitation the statements under "To Our Shareholders," are or may be deemed to be "forward looking statements" within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve assumptions, known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such potential risks and uncertainties, include without limitation, matters related to national and local economic conditions, the effect of governmental regulation on the Company, the competitive environment in which the Company operates, changes in interest rates, home prices, availability and cost of land for future growth, the timing of land acquisition and product development, the availability and cost of labor and materials, adverse weather conditions and other risk factors detailed herein and in the Company's Securities and Exchange Commission filings. FINANCIAL HIGHLIGHTS (Unaudited) SELECTED OPERATING DATA Three Months Ended February 28, 1998 1997 ----------- ----------- Revenues. . . . . . . . . . . $12,804,000 $22,609,000 Gross profit. . . . . . . . . 1,142,000 2,354,000 Loss from operations. . . . . (748,000) (676,000) Loss before income taxes. . . (977,000) (956,000) Net loss. . . . . . . . . . . (537,000) (478,000) Basic and diluted loss per share. . . . . . . . . . (.02) (.02) Average shares outstanding. . 26,627,000 26,533,000 SELECTED BALANCE SHEET DATA As of February 28, 1998 1997 ----------- ----------- Total assets. . . . . . . . . $68,281,000 $87,998,000 Inventories . . . . . . . . . 53,921,000 68,249,000 Revolving credit facility . . 20,843,000 42,000,000 Shareholders' equity. . . . . 31,906,000 27,136,000 SELECTED BACKLOG DATA As of February 28, 1998 1997(1) ----------- ----------- Dollar amount . . . . . . . . $52,500,000 $25,400,000 Average sales price . . . . . 314,000 321,000 Units . . . . . . . . . . . . 167 79 (1) Reflects Northeast division results. Ends.