Calton: Shareholder Information To Our Shareholders: The Company is pleased to report net income for the third quarter ended August 31, 1996 of $385,000 or $.01 per share on revenues of $33.4 million, compared to net income of $1.0 million or $.04 per share on revenues of $60.4 million for the same period in 1995. The decrease was primarily attributable to a substantial decline in homes delivered in the Northeast division as a result of the backlog level entering the year due to the reduction in the number of communities open for sales after the consolidation of operations over a year ago, and the effect of deliveries from six communities that are winding down and will be substantially complete by the end of 1996. In addition, the Northeast division has faced a general weakening of housing activity in its markets. The Florida division increased home deliveries by fifty-four percent (54%) and housing revenues of seventy-seven percent (77%) over the same period of 1995. These improvements reflect an increase in the number of communities open for sales and an expansion of the Florida division's product line to include higher-priced homes ranging up to $197,000. Also included in the third quarter results is the pretax profit from the sales of land and commercial land and buildings of $762,000, reflecting management's continued focus on the sale of non-homebuilding assets. For the nine months ended August 31, 1996 the Company incurred a net loss of $558,000 on revenues of $81.5 million as compared to net income of $317,000 on revenues of $137.4 million for the nine months ended August 31, 1995. The decreases are attributable to fewer deliveries due to the decline in the number of communities open for sales in the Northeast division. The Florida division continues to deliver at increased levels from the prior year, primarily due to an increase in the number of communities open for sales. Management continues to realize cost savings by reducing selling, general and administrative costs and interest expense associated with lower debt levels. The Company's sales backlog totalled 208 homes with an aggregate dollar value of $42.0 million at August 31, 1996 compared to 249 homes having an aggregate dollar value of $54.6 million. The backlog levels are indicative of fewer communities open for sales and a general weakness in housing activity in the markets served in the Northeast. The number of homes reflected in net sales increased by nine percent (9%) to 418 homes for the nine months ended August 31, 1996 as compared to 385 homes for the nine months ended August 31, 1995. The softness in the Northeast was offset by a sixty-four percent (64%) increase in home sales in the Florida division, primarily due to an increase in the number of communities open for sales. Net sales totalled $83.3 million and $84.1 million for the nine months ended August 31, 1996 and 1995, respectively, reflecting the higher proportion of Florida division activity where average sales prices are lower than in the Northeast. The Company opened a total of six communities for sales during the nine months ended August 31, 1996, one in the Northeast and five in the Florida division. Management anticipates opening two additional communities in the Northeast and four communities in the Florida division during the fourth quarter of 1996. We are grateful to our employees for their continued commitment to building quality and value into the Company's products and to you, our shareholders, for your support. Management continues to focus on reducing the level of debt outstanding thus lowering interest incurred, thereby, increasing profitability. This strategy has resulted in the lowest level of debt outstanding in over ten years. Sincerely, /s/ Anthony J. Caldarone Anthony J. Caldarone Chairman of the Board, President and Chief Executive Officer October 15, 1996 FINANCIAL HIGHLIGHTS (Unaudited) SELECTED OPERATING DATA Three Months Ended August 31, 1996 1995 Revenues. . . . . . . . . . . . . . . . $ 33,355,000 $ 60,362,000 Gross profit. . . . . . . . . . . . . . 4,746,000 7,418,000 Income from operations. . . . . . . . . 1,069,000 2,512,000 Income before income taxes. . . . . . . 876,000 1,975,000 Net income. . . . . . . . . . . . . . . 385,000 1,008,000 Income per share. . . . . . . . . . . . .01 .04 Average shares outstanding. . . . . . . 26,519,000 26,255,000 Nine Months Ended August 31, 1996 1995 Revenues. . . . . . . . . . . . . . . . $ 81,486,000 $137,413,000 Gross profit. . . . . . . . . . . . . . 10,275,000 16,232,000 Income (loss) from operations . . . . . (344,000) 2,088,000 Income (loss) before income taxes . . . (1,059,000) 620,000 Net income (loss) . . . . . . . . . . . (558,000) 317,000 Income (loss) per share . . . . . . . . (.02) .01 Average shares outstanding. . . . . . . 26,480,000 26,299,000 SELECTED BALANCE SHEET DATA As of August 31, 1996 1995 Total assets. . . . . . . . . . . . . . $ 87,487,000 $101,950,000 Inventories.. . . . . . . . . . . . . . 63,849,000 75,652,000 Revolving credit facility . . . . . . . 43,000,000 51,000,000 Shareholders' equity. . . . . . . . . . 25,993,000 29,877,000 SELECTED BACKLOG DATA As of August 31, 1996 1995 Dollar amount . . . . . . . . . . . . . $ 42,000,000 $ 54,600,000 Average sales price . . . . . . . . . . 202,000 219,000 Units . . . . . . . . . . . . . . . . . 208 249 Ends.