UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K/A

               |X|  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                    SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2002        Commission File Number 1-6844

                               CALPROP CORPORATION

      Incorporated in California              I.R.S. Employer Identification No.
      13160 Mindanao Way, #180                            95-4044835
      Marina Del Rey, California  90292
      (310) 306-4314

      Securities Registered Pursuant to Section 12(b) of the Act: None

      Securities Registered Pursuant to Section 12(g) of the Act: Common Stock,
      no par value

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 |_|.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K |X|.

State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing.

                         $1,208,161 at January 13, 2003

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

                10,235,305 Shares Outstanding at January 13, 2003

                      Documents Incorporated by reference:

Portions of the registrant's definitive Proxy Statement for 2002 Annual Meeting
of Shareholders are incorporated by reference into Part III of this report.
<PAGE>

                                     PART I

ITEM 1.  Business

General

      Calprop Corporation ("Calprop") designs, constructs, and sells
single-family detached homes and townhomes as part of condominiums or planned
unit developments in California and Colorado. The Company selects and acquires
the site, secures construction financing and constructs and sells homes. The
Company also sells improved lots in California and Colorado. The Company selects
projects of varying types in several local markets in an effort to reduce the
risks inherent in the residential housing industry. To enable the Company to
adapt to the changing market conditions and to control its overhead expenses,
the Company performs its construction activities through independent
subcontractors under the direction of on-site construction supervisors employed
by the Company rather than employing a permanent construction work force. The
Company does not generally finance the purchase of its homes, but has done so in
the past to facilitate sales and may do so in the future to the extent it is
feasible, if market conditions require such financing. In addition to the
continuing emphasis on single-family construction, the Company also designs,
constructs, and leases apartments and townhomes in Southern and Northern
California.

      During 2002, the Company was primarily engaged in the development of lots,
and the construction and marketing of single-family detached homes and
townhomes. As of December 31, 2002, the Company had three residential housing
projects in various stages of development, consisting of 58 homes and townhomes
under construction (12 were in escrow), 91 lots under development, and 6 model
homes used in selling the various types of housing developed. The Company's
products range from homes for first-time buyers to custom homes. In addition to
the construction and sale of single-family and multifamily housing, the Company
was engaged in the development of apartments and townhomes available for lease.
As of December 31, 2002, the Company has a 68-unit apartment building available
for lease.

Residential Housing Industry

      The residential housing industry includes several hundred developers and
home builders of various sizes and capabilities. The development process starts
with the acquisition of a raw parcel of land. The developer prepares preliminary
plans, environmental reports and obtains all necessary governmental approvals,
including zoning and conditional use permits before subdividing the land into
final tract maps and approved development plans. The subdivided parcel is then
graded and the infrastructure of roads, sewers, storm drains, and public
utilities are added to develop finished lots. Building permits are obtained and
housing is constructed, and then sold or rented. Residential housing is
constructed in a variety of types, including single-family detached homes
(ranging from the less expensive "first-time buyer" homes to the medium priced
"trade-up" homes to the more expensive "custom" homes), patio-homes (adjacent
homes with party walls), condominiums (owner-occupied multifamily housing), and
multifamily rental housing (apartments, retirement homes and other types of
nonowner occupied multifamily housing). Any of these types can be built as part
of a planned unit development with common areas such as green belts, swimming
pools and other recreational facilities for common use by occupants.

The Company's Strategy

      The Company's strategy has been to acquire land in or near major urban
centers in California and Colorado and to construct single-family housing for
resale. The Company does not specialize in the construction of a specific type
or design of housing and does not limit its operation to any specific location.
The Company usually acquires project sites which are zoned and subdivided so
that the Company can construct and sell single-family housing in a relatively
short period of time, usually two to three years. The Company will also acquire
raw land that is not zoned or subdivided for investment or for development by
processing it through the entitlement process to obtain zoning and other permits
necessary for development into single-family housing and other urban uses.


                                       2
<PAGE>

Future Projects

      Land Acquisition - The Company has entered into approximately $14,300,000
in contracts to acquire five properties in two of its current markets in
California, Sonoma County in Northern California and Riverside County in
Southern California. These five properties are zoned for residential development
and can be subdivided into approximately 416 single family detached lots and 77
single family attached units, totaling 493 units. All of these properties are
being purchased subject to obtaining entitlements along with necessary
environmental approvals from local, state and federal agencies. The Company has
obtained term sheets from one or up to three capital sources to acquire each of
these properties. The terms of the contracts provide options for the Company to
acquire the properties from June 2003 to September 2004. The Company plans to
start construction in the third quarter of 2003.

       As the Company intends to continue specializing in the construction and
sale of single-family and multifamily housing, the Company is continually
considering potential projects for development. In addition to the construction
and sale of single-family and multifamily housing, the Company has entered the
market to construct and lease single-family and multifamily housing. This market
would provide consistent cash flow in the cyclical industry of real estate
development. The following discussion is the process which the Company follows
to acquire land, entitle, market and build residential housing projects.

Land Acquisition and Construction

      In considering the purchase of land for the construction of housing, the
Company takes various factors into account, including, among others, population
growth patterns, availability of utilities and community services such as water,
gas, electricity, sewer, transportation and schools, the estimated absorption
rate for new housing, estimated costs of construction and success of the
Company's past projects in and familiarity with the area.

      The Company's long-term strategy is to acquire or option project sites
which are properly zoned and subdivided so that the Company can construct and
sell single-family housing in a relatively short period of time, usually less
than three years, after acquiring the land. Larger projects are constructed in
phases, and the Company determines the number of homes in each phase based upon
the estimated costs of construction and estimated sales schedule. The division
of a project into phases may also be required by the project construction
lender. Although a construction and marketing schedule is established for all
phases at the commencement of a project, the precise timing of construction of
each phase depends on the rate of sales of homes in previous phases.

      In certain instances, the Company purchases land which is not
substantially ready for construction. Depending on the stage of development of
the parcel, the Company might be required to obtain necessary entitlements to
subdivide the parcel of land; these entitlements include environmental
clearances, zoning, subdivision mapping, permits and other governmental
approvals. After the entitlement process the Company would then develop the land
through grading lots and streets, and building the infrastructure of water,
sewer, storm drains, utilities, curbs, streets, and possibly amenities, such as
parks, pools and recreational facilities.

      The Company acts as its own general contractor, and its supervisory
employees coordinate all work on a project. The services of independent
architectural, design, engineering and other consulting firms are engaged to
assist in the pre-construction aspects of the project. The Company's
construction activities are conducted through independent subcontractors, under
fixed-price contracts, operating in conformity with plans, specifications and
detailed drawings furnished by the Company and under the direction of on-site
construction supervisors employed by the Company. Generally, the Company
solicits bids from several potential subcontractors and awards a contract for a
single phase of a project based on the subcontracting bid as well as the
Company's knowledge of the subcontractor's work and reputation. Subcontracting
enables the Company to retain the necessary flexibility to react to changes in
the demand for housing, and to utilize the management strengths, specialization
capabilities, equipment and facilities of its subcontractors without large
capital investments of its own.


                                       3
<PAGE>

      The Company does not have long-term contractual commitments with any of
its subcontractors, consultants or suppliers of materials. The Company selects
subcontractors who it believes will perform the required work in a timely manner
and whose quality of workmanship meets the Company's standards. Although some
subcontractors employ unionized labor, the Company has not signed a master labor
agreement or experienced any significant delays in construction as a result of
strikes or stoppages; however, there can be no assurances that the Company will
not experience such delays in the future.

      The Company secures raw materials, fixtures and furnishings directly or
through its subcontractors from customary trade sources. Although certain
products have been in short supply from time to time, such shortages have not
impaired the Company's ability to conduct its business in the past and are not
expected to do so in the foreseeable future.

Marketing

      The Company's marketing department coordinates the design of the homes to
be built and the interior design of model units and the design and preparation
of advertising materials. The Company builds, landscapes and furnishes model
units for public display. After each project is sufficiently completed so as to
permit retail sales to begin, the Company selects a realtor or realty company to
market homes which are under construction or completed.

Warranties

      The Company provides a one-year express warranty against defects in
workmanship and materials to purchasers of homes in its projects. In addition,
California and Colorado law provides the Company's customers certain implied
warranties, the scope and duration of which exceed the Company's express
warranties. The Company requires its subcontractors to indemnify the Company in
writing and requires the insurance of the subcontractor to provide that the
Company is a primary insured and an additional insured from its subcontractors
for liabilities arising from their work, except for liability arising through
the sole negligence or willful misconduct of the Company or from defects in
designs furnished by the Company. Nevertheless, the Company is primarily liable
to its customers for breach of warranty. The Company has builder's product
liability insurance coverage which it believes to be adequate in light of the
Company's claims history.

      Schedule II to the financial statements sets forth the Company's warranty
reserves which the Company believes are adequate. Normal warranty costs are
accrued at the close of escrow and held on a project until two years after the
project is completed and all completion bonds posted with governmental agencies
are released.

Financing

      Generally, the Company acquires a project site for a purchase price paid
with cash or a combination of cash and short-term acquisition financing secured
by the project site. The amount and terms of financing vary from project to
project.

      After final working drawings from architects are prepared, the Company
obtains a construction loan, secured by the portion of the project site to which
the loan relates. The Company's construction loans are used to finance projected
construction costs. In order to obtain the construction loan, the Company must
repay all acquisition financing or obtain a reconveyance of that portion of the
project site which is used to secure the construction loan. The construction
loan is due and payable shortly after completion of the construction being
financed. The Company repays construction financing from the proceeds of project
unit sales. The construction financing provides for release of individual lots
for sale during the term of the financing upon partial repayment of principal in
a specified amount per lot. All cash sales proceeds in excess of the specified
release amount are retained by the Company. If the Company experienced a delay
in unit sales following construction and was unable to extend the term of its
construction financing, the Company would be required to repay the construction
financing or obtain other financing in order to hold the unsold units until
market conditions improved. Although the Company does not arrange


                                       4
<PAGE>

third-party financing for its customers, it has provided secured purchase money
financing from time to time to the extent required by market conditions. In
addition, the Company in the future may also subsidize home purchasers, as an
alternative to providing direct financing, by "buying down" the interest rate on
loans from lending institutions, the extent and amount of which would depend
upon prevailing market conditions and interest rate levels at the time.

      The Company usually receives the full sales price for its homes in cash at
the closing of purchase escrows. Most of the Company's home purchasers obtain
conventional financing from independent financial institutions. Depending upon
the price range of the homes in a particular project and the prevailing mortgage
market in the area, the financing obtained by the Company's qualifying home
purchasers may be insured either by the Federal Housing Administration ("FHA")
or guaranteed by the Veterans Administration ("VA"). As a result of government
regulations, FHA and VA financing of the purchase of homes from the Company is
limited because, among other things, the loan amount may not exceed certain
specified levels.

Competition

      The home building industry is highly competitive, particularly in the
large urban areas of California. In each of the areas in which it operates, the
Company competes in terms of location, design, quality, price and available
mortgage financing with numerous other residential construction firms, including
large national and regional firms, many of which have greater financial
resources than the Company. The Company believes that no single competitor
dominates any single market area served by the Company.

Business Risks

      The development, construction and sale of single-family homes generally
are subject to various risks, including, among others, possible changes in the
governmental structure of the project locality, possible shortages of suitable
undeveloped land at reasonable prices, unfavorable general and local economic
conditions such as employment conditions and income levels of the general
population, adverse local market conditions resulting from such unfavorable
economic conditions or competitive overbuilding, increases in prevailing
interest rates, increases in real estate taxes and the cost of materials and
labor, and the availability of construction financing and home mortgage
financing attractive to home purchasers. In addition, the demand for residential
housing depends in part on the tax consequences of home ownership to home
purchasers. There have been various tax legislation proposals before Congress
over the past few years which could reduce the tax advantages currently
associated with home ownership. There can be no assurances that any such
legislation, if enacted, would not adversely impact the residential housing
industry in general or the Company's business and results of operations.

      The Company's business in particular depends upon the successful
completion of construction and sale of homes on established schedules.
Construction and sale schedules may be adversely affected by a variety of
factors which are not within the Company's control, including the factors
described above, inclement weather conditions, earthquakes, labor and material
shortages and strikes. Although the Company has not experienced any serious
labor or material shortages in recent years, the residential housing industry
from time to time experiences serious labor and material shortages.

Governmental Regulations

      The residential housing industry is also subject to increasing
environmental, building, zoning and real estate sales regulation by various
federal, state and local governmental authorities. Such regulations affect home
building by specifying, among other things, the type and quality of building
material which must be used, certain aspects of land use and building design, as
well as the manner in which the Company conducts its sales, lending activities
and other dealings with its customers. For example, the Federal Consumer Credit
Protection Act requires, among other things, certain disclosures to purchasers
about finance charges in credit transactions, such as sales financed by the
Company. California law requires that full information concerning certain
subdivisions be filed with the California Real Estate Commissioner, and in such
instances no sales may be made to the public until the Commissioner has


                                       5
<PAGE>

issued a public report which is delivered to purchasers. Because the Company's
competitors are also subject to the foregoing regulation, the Company believes
that it is not placed at a competitive disadvantage, except to the extent that
competitors with greater financial resources and greater volume of development
activity may more readily withstand longer delays and increased costs in the
development of projects.

      Although the strategy of the Company is to build homes on land which is
already subdivided, zoned and improved with utilities, the Company occasionally
undertakes projects which entail the subdivision of partially improved land. In
such cases the Company is required to obtain the approval of numerous
governmental authorities regulating such matters as permitted land uses and
levels of population density, access to utility services such as water and waste
disposal, and the dedication of acreage for open space, parks, schools and other
community purposes. Furthermore, changes in prevailing local circumstances or
applicable law, including moratoria, zoning changes and other governmental
actions, can require additional approvals or modification of approvals
previously obtained. As a result of such regulation, the time between the
original acquisition and the commencement and completion of a project can
increase significantly. Furthermore, the commencement or completion of a project
could be precluded entirely, in which case the Company would sustain a
substantial loss on the project.

Employees

      The Company has approximately twenty four full-time employees, including
six executive officers, ten persons in its finance, marketing and operations
departments, and eight field superintendents and general laborers at March 28,
2003. The Company also employs temporary and part-time laborers from time to
time as necessary. None of the Company's employees are currently represented by
a collective bargaining unit. The Company compensates its employees with
salaries and fringe benefits that it believes are competitive with the building
industry and the local economy. The Company believes that relations with its
employees generally are excellent.

Licensing

      The Company is licensed by the State of California as a general building
contractor, and this license is essential to its operations. This license must
be renewed every two years. The Company's current license expires in July 2004
and the Company expects to renew its license on or before expiration.


                                       6
<PAGE>

ITEM 2. Properties

Current projects

      The table below sets forth certain information relating to the Company's
current projects as of December 31, 2002 and certain information relating to the
Company's development operations during the previous twelve months.

<TABLE>
<CAPTION>
                                                                                    Units sold    Remaining
                                           Units sold   Units under      Units       subject to    units to
                                            12 months   construction   completed   construction   construct
                                              ended        as of         as of        as of         as of
    Project                                 12/31/02    12/31/02 (1)    12/31/02    12/31/02      12/31/02
    -------                               ------------------------------------------------------------------
    <S>  <C>                                  <C>            <C>          <C>            <C>         <C>
    Units Held For Sale
    1.   Montserrat Classics                    62           --           --             --          --
    2.   Mockingbird Canyon                     12           --           --             --          --
    3.   Parc Metropolitan                     148           16           --              7          --
    4.   High Ridge Court                       14           28           --              2          36
    5.   Saddlerock                             12           20           --              3          55
    6.  Mission Gorge                           --           --           --             --          --
                                          ------------------------------------------------------------------
    Total                                      248           64           --             12          91
                                          ==================================================================
    Total inventory units as of 12/31/02                                                             155
                                                                                                 ===========

    (1)  Units under construction includes units sold subject to construction
         and 6 model units

    Units Held For Lease

    7.   Parcwest Apartments                    --           --           68             --          --
                                          ------------------------------------------------------------------
    Total                                                                 68
                                          ==================================================================
</TABLE>

Backlog- As noted in the above table, the total number of units sold subject to
construction ("backlog") at December 31, 2002, was 12 units, with gross revenues
of such backlog equal to $4,825,000. As of March 28, 2003, the backlog was 21
units, representing $6,620,000 compared to a backlog of 108 units representing
$40,400,000 as of March 10, 2002. See also "Management Discussion and Analysis
of Financial Condition and Results of Operations" for additional discussion of
Real Estate Sales for 2002 and 2001.

1. Montserrat Classics (Murrieta, Riverside County, California)

      The Montserrat Classics project consisted of 105 units of single-family
detached housing. The Company closed escrow on all units as of December 31,
2002.

      The project was located about 75 miles southeast of Los Angeles along
Highway 15.

      The Company had an acquisition/construction loan with the Curci-Turner
Company ("Curci") on the entire 105 lots of the project. The loan permited
borrowing by the Company of $3,450,000 on this project and bore interest at 12%.
The loan contained a profit sharing provision in the amount of 50% of "net
proceeds" as defined in the agreement. As of December 31, 2002, the loan had
been paid in its entirety.

      The Company's construction loan on the 52 units in the first and second
phase of construction was obtained in 2000 from Comerica Bank, formerly Imperial
Bank. The loan permited borrowing by the Company of $12,465,000 and bore
interest at the prime rate plus 1.0%. As of December 31, 2002, the loan had been
paid in its entirety


                                       7
<PAGE>

      The Company's construction loan on the remaining 53 units, phases three
through five was obtained in 2001 from Comerica Bank. The loan permited
borrowing by the Company of $11,824,400 and bore interest at the prime rate plus
1.0%. As of December 31, 2002, the loan had been paid in its entirety.

2. Mockingbird Canyon (Unincorporated Territory of Riverside County, California)

      The Mockingbird Canyon project consisted of 31 units of single-family
housing. The Company closed escrow on all units as of December 31, 2002.

      The project is located about 60 miles east of Los Angeles and 30 miles
south of San Bernardino along Interstate 91.

      The Company had an acquisition/construction loan with Curci on the entire
31 lots of the project. The loan permited borrowing by the Company of $3,500,000
on this project and bore interest at 12%. The loan contained a profit sharing
provision in the amount of 50% of "net proceeds" as defined in the agreement. As
of December 31, 2002, the loan had been paid in its entirety.

      The Company's construction loan on the entire 31 units was obtained in
2000 from Comerica Bank. The loan permited borrowing by the Company of
$10,000,000 and bore interest at the prime rate plus 1.0%. As of December 31,
2002, the loan had been paid in its entirety.

3. Parc Metropolitan (Milpitas, California)

      The Parc Metropolitan project consists of three separate
projects/products, Product A, Product B, and Product C for a total of 382 units.

      Product A consists of 130 townhomes. The project consists of two models
ranging from 1,404 to 1,764 square feet with base sales prices before lot
premiums or sales incentives of $405,900 to $513,000.
      Product B consists of 108 townhomes. The project consists of six models
ranging from 1,012 to 1,369 square feet with base sales prices before lot
premiums or sales incentives of $354,900 to $423,900.

      Product C consists of 144 townhomes. The project consists of two models
ranging from 1,353 to 1,534 square feet with base sales prices before lot
premiums or sales incentives of $395,900 to $458,900.

      As of December 31, 2002, the Company had 15 units under construction (7
were in escrow), and one model.

      The project is located approximately 45 miles south of San Francisco along
highway 880 in the Silicon Valley area.

      In 1998, the Company formed RGCCLPO Development Co., LLC, a California
limited liability company, ("RGCCLPO") with RGC. In September, 1998, 382 lots in
the Parc Metropolitan project were acquired by RGCCLPO. The profits and losses
of RGCCLPO were distributed between the members as follows: 50% to RGC and 50%
to the Company. During 1999, the Company acquired RGC's 50% partnership interest
in RGCCLPO to attain 100% ownership as of December 31, 1999.

      The Company acquired the land through seller financing with Ford Motor
Company and Ford Motor Land Development Corporation on the entire 382 lots and
the land for the Parcwest Apartments project. The original note balance of
$12,850,000 bore interest at 9%. As of December 31, 2001, the loan had been paid
in its entirety. The Company has a profit participation agreement with Ford for
$6,200,000 to be paid on or before December 13, 2002. The amount was paid off on
December 6, 2002.

      The Company's acquisition and development loan on the entire 382 lots of
the project was obtained in 1998 from Lowe Enterprises Residential Advisors,
("Lowe"). The loan permited borrowing by the Company of $9,700,000 and bore
interest at the prime plus 2.0%. After repayment of principal and


                                       8
<PAGE>

interest, Lowe received, as participating interest, a 27% IRR calculated on an
annual basis. In December of 2001, the loan was refinanced and obtained with
Curci for $4,500,000. The loan bore interest at 20%. As of December 31, 2002,
the loan was paid in its entirety.

      The Company's construction loan on the first phase of construction for
Product A was obtained from Comerica Bank in 1998. The loan permited borrowing
by the Company of $13,773,142 on this project and bore interest at the bank's
reference rate plus 1.0%. As of December 31, 2001, the loan had been paid in its
entirety.

      The Company's construction loan on the first phase of construction for
Product B was obtained from Comerica Bank in 1999. The loan permited borrowing
by the Company of $10,604,352 on this project and bore interest at the bank's
reference rate plus 1.0%. As of December 31, 2001, the loan had been paid in its
entirety.

      The Company's construction loan on the first phase of construction for
Product C was obtained from Comerica Bank in 1999. The loan permited borrowing
by the Company of $12,342,388 on this project and bore interest at the bank's
reference rate plus 1.0%. As of December 31, 2001, the loan had been paid in its
entirety.

      The Company's construction loan on the second phase of construction for
Product A was obtained from Comerica Bank in 2000. The loan permited borrowing
by the Company of $13,612,993 on this project and bore interest at the bank's
reference rate plus 1.0%. As of December 31, 2002, the loan was paid in its
entirety.

      The Company's construction loan on the second phase of construction for
Product B was obtained from Comerica Bank in 2000. The loan permited borrowing
by the Company of $10,661,232 on this project and bore interest at the bank's
reference rate plus 1.0%. As of December 31, 2002, the loan was paid in its
entirety.

      The Company's construction loan on the second phase of construction for
Product C was obtained from Comerica Bank in 2000. The loan permited borrowing
by the Company of $12,897,860 on this project and bore interest at the bank's
reference rate plus 1.0%. As of December 31, 2002, the loan was paid in its
entirety.

      The Company's construction loan on the third phase of construction for
Product A was obtained from Comerica Bank in 2001. The loan permited borrowing
by the Company of $15,900,000 on this project and bore interest at the bank's
reference rate plus 1.0%. As of December 31, 2002, the loan had been paid in its
entirety.

      The Company's construction loan on the third phase of construction for
Product C was obtained from Comerica Bank in 2001. The loan permited borrowing
by the Company of $9,321,000 on this project and bore interest at the bank's
reference rate plus 1.0%. As of December 31, 2002, the loan had been paid in its
entirety.

      The Company's construction loan on the build-out units in the third phase
of construction for Product A was obtained from Comerica Bank in 2002. The loan
permits borrowing by the Company of $7,520,000 on this project and bears
interest at the bank's reference rate plus 1.0%. As of December 31, 2002, the
outstanding principal of this loan was $3,627,171, and the Company had available
$960,494. The Company believes these funds are adequate to complete the
construction of the final phase of construction.

4. High Ridge Court (Thornton, Colorado)

      The High Ridge Court project, consists of 170 units of single-family
detached housing. The project consists of three models ranging from 1,238 to
1,884 square feet with base sales prices before lot


                                       9
<PAGE>

premiums or sales incentives of $209,900 to $231,600. As of December 31, 2002,
the Company had 36 lots under development, 25 units under construction (2 were
in escrow), and three models.

      The project is located approximately 3 miles west of I-25 in the city of
Thornton.

      The Company has an acquisition loan with Curci on the entire 170 lots of
the project. The loan permits borrowing by the Company of $4,250,000 on this
project and bears interest at 12%. The loan contains a profit sharing provision
in the amount of 50% of "net proceeds" as defined in the agreement. As of
December 31, 2002, $2,366,102 of the principal of this loan was outstanding.

      The Company's acquisition and development loan for the remaining three
phases of the project was obtained in 1999 from First American Bank Texas. The
loan permitted borrowing by the Company of $2,041,000 and bore interest at the
prime rate plus 1.0%. As of December 31, 2002, the loan had been paid in its
entirety.

      The Company's revolving construction loan on the entire 170 lots of the
project was obtained in 1998 from First American Bank Texas. The revolving loan
permited the Company to have a maximum outstanding balance of $5,000,000 for the
construction of the High Ridge and Saddlerock projects. The loan bore interest
at the prime rate plus 1.0%. During 2001, the Company paid the revolving
construction loan in its entirety and obtained a construction loan on the third
and fourth phase with Imperial Capital Bank. The loan permits borrowing by the
Company of $9,340,000 on this project and bears interest at the bank's reference
rate plus 1.0%. As of December 31, 2002, the outstanding principal of this loan
was $1,737,307 and the Company had available $2,226,820. The Company believes
these funds are adequate to complete the construction of the third and fourth
phase of construction.

5. Saddlerock (Aurora, Colorado)

      The Saddlerock project consists of 94 units of single-family detached
housing . The project consists of two models ranging from 1,899 to 2,900 square
feet with base sales prices before lot premiums or sales incentives of $335,653
to $372,769. As of December 31, 2002, the Company had 55 lots under development,
18 units under construction (3 were in escrow), and two models.

      The project is located adjacent to highway E470 approximately 7 miles east
of I-25 in the city of Aurora.

      The Company has an acquisition/construction loan with Curci on the entire
94 lots of the project. The loan permits borrowing by the Company of $3,000,000
on this project and bears interest at 12%. The loan contains a profit sharing
provision in the amount of 50% of "net proceeds" as defined in the agreement. As
of December 31, 2002, $2,413,597 of the principal of this loan was outstanding.

      The Company's acquisition and development loan on the entire 94 lots of
the project was obtained in 1998 from First American Bank Texas. The loan
permitted borrowing by the Company of $2,606,800 and bore interest at the prime
rate plus 1.0%. As of December 31, 2000, the loan had been paid in its entirety.

      The Company's revolving construction loan on the entire 94 lots of the
project was obtained in 1998 from First American Bank Texas. The revolving loan
permitted the Company to have a maximum outstanding balance of $5,000,000 for
the construction of the Saddlerock and High Ridge projects. The loan bore
interest at the prime rate plus 1.0%. During 2000, the construction loan for the
remaining units was refinanced and obtained with Comerica Bank. The loan permits
borrowing by the Company of $13,538,913 on this project and bears interest at
the bank's reference rate plus 1.0%. As of December 31, 2002, the outstanding
principal of this loan was $4,809,857 and the Company had available $2,777,605.
The Company believes these funds are adequate to complete the construction of
the remaining units under construction.


                                       10
<PAGE>

6. Mission Gorge (San Diego, San Diego County, California)

      In 1987, the Company purchased approximately 200 acres of land in San
Diego. The previous owners, as a part of a group of property owners, had entered
into an option agreement with another developer to acquire the group's property,
upon obtaining an Amended Community Plan for the community in which the property
is located. At the present time, the Amended Community Plan has not been
completed. The Company is actively pursuing alternative land development
opportunities.

      The Company formed Mission Gorge, LLC, a California limited liability
company, with the Curci-Turner, LLC for the purposes of developing the 200 acres
of the Mission Gorge project. The net proceeds are to be divided equally, as
defined in the operating agreement, among the two members, Calprop and
Curci-Turner, LLC. In December 2000, the Curci-Turner, LLC made a distribution
of its 50% interest to the members of Curci-Turner, LLC in the following
proportions: The John L. Curci Trust as to a 25% interest and The Janet Curci
Living Trust No. Il as to a 25% interest.

7. Parcwest (Milpitas, California)

      The Parcwest project consists of a 68-unit affordable apartment project
adjacent to the Parc Metropolitan project. The 68 units were completed in 2002
and substantially leased as of December 31, 2002.

      The project is located approximately 45 miles south of San Francisco along
highway 880 in the Silicon Valley area.

      In 1999, the Company formed PWA Associates, LLC, a California limited
liability company, ("PWA") with RGC Associates, LLC (RGC Associates). In
December, 1999, land for the 68-unit apartment in the Parcwest project was
acquired by PWA. The profits and losses of PWA were distributed between the
members as follows: 50% to RGC Associates and 50% to the Company. In May of
2001, the Company acquired RGC's 50% partnership interest in PWA to attain 100%
ownership as of December 31, 2002.

      The Company has an acquisition loan with the City of Milpitas. The loan
permits borrowing by the Company of $1,000,000 on this project and bears
interest at 6.35%. As of December 31, 2002, $1,000,000 of the principal of this
loan was outstanding.

      The Company's construction loans were obtained from Comerica Bank in 2001.
The loans permit borrowing by the Company of $6,816,000 and $1,061,670 on this
project and bears interest at the bank's reference rate plus 1.0% and 5.5%,
respectively. As of December 31, 2002, the outstanding principal balances of the
loans are $5,921,890 and $1,061,218, respectively. The Company plans to
refinance the construction loans with a permanent loan in 2003.

ITEM 3. Legal Proceedings

      There are no pending legal proceedings to which the Company is a party or
to which any of its properties are subject other than routine litigation
incidental to the Company's business, none of which is considered by the Company
to be material to its business or operations.

ITEM 4. Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of Company's security holders during
the fourth quarter of 2002.


                                       11
<PAGE>

                                     PART II

ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters

     Transactions in the Company's common stock, its only class of common equity
security, are quoted on the OTC Bulletin Board under the symbol CLPO.

                            First        Second          Third          Fourth
                           Quarter       Quarter        Quarter        Quarter
                           -------       -------        -------        -------
2002 stock price
  range-
    High                   $ 1.01        $ 1.02         $  .95         $  .93
    Low                       .80           .60            .80            .75

2001 stock price
  range-
    High                   $ 1.28        $ 1.49         $ 1.55         $ 1.10
    Low                      1.06          1.09           1.01            .76

As of January 13, 2003, there were 439 record holders of common stock.

Dividends:          There have been no cash dividends declared in the past two
                    years, nor was there a stock dividend declared during 2002
                    or 2001. The dividend policy, whether cash or stock, is
                    reviewed by the Board of Directors on an annual basis.
                    During 2002, there were no restrictions, as a result of a
                    loan or other agreement, limiting the Company's ability to
                    issue a dividend.


                                       12
<PAGE>

ITEM 6. Selected Financial Data

     The following data should be read in conjunction with the financial
statements of the Company and the related notes thereto which are included
elsewhere in this Form 10K and in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," which is also
included elsewhere in this Form 10K.

                         FOR THE FIVE YEAR PERIOD ENDED DECEMBER 31, 2002
                         ------------------------------------------------

<TABLE>
<CAPTION>
                                     2002             2001           2000            1999           1998
<S>                              <C>              <C>            <C>             <C>              <C>
SALES AND OPERATING REVENUE      $ 91,641,620     $90,614,622    $ 64,238,615    $ 52,598,849     $33,071,722

NET (LOSS) INCOME                  (7,890,557)      3,326,106    $  3,627,940        (752,582)    $ 5,368,006

BASIC (LOSS) INCOME PER
     COMMON SHARE                $      (0.77)    $      0.32    $       0.35    $      (0.07)    $      0.54

DILUTED (LOSS) INCOME PER
     COMMON SHARE                $      (0.77)    $      0.32    $       0.35    $      (0.07)    $      0.52

AS OF DECEMBER 31:

TOTAL ASSETS                     $ 46,074,946     $98,967,700    $108,609,523    $ 87,817,643     $72,521,889

LONG TERM OBLIGATIONS            $  6,000,000     $ 7,979,090    $  1,000,000    $ 17,201,168     $24,037,842
</TABLE>


                                       13
<PAGE>

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

     The following discussion relates to the consolidated financial statements
of the Company and should be read in conjunction with the financial statements
and notes thereto appearing elsewhere in this report. Statements contained in
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations" that are not historical facts may be forward-looking statements.
Such statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those projected. You are
cautioned not to place undue reliance on these forward-looking statements.

     The Company began experiencing difficulties due to the downturn in the
California real estate market during the second quarter of 1990, and through
1996 the Company continued to be impacted by the general economic downturn. In
response to these conditions the Company began utilizing marketing programs
which included price reductions and incentives to potential buyers. During 1997
however, the California real estate market began to experience a recovery. In
general, the Company's products were well received, exemplified by an increase
in the number of units sold subject to construction ("backlog") at December 31,
2002, 2001, and 2000 of 12, 60, and 128 units, respectively compared to 33 units
as of 1996. The decrease in 2002 is primarily due to having fewer completed
homes available for sale. As of December 31, 2002, the Company has entered into
contracts to purchase five new development projects to start construction in
2003. Additionally, the Company's real estate sales increased from $64,238,615
in 2000 to $90,614,622 in 2001, and to $91,641,620 in 2002. The increase in real
estate sales between 2000, 2001, and 2002 is primarily attributable to an
increase in units available for sale resulting from an increase in production.
Units increased from 219 in 2000 to 249 in 2001, and decreased to 248 in 2002.

     The Company had a loss of $757,490 from development operations before
recognition of impairment of real estate in 2002 as compared to income of
$7,943,613 in 2001. As a percentage of real estate sales, a loss from
development operations before recognition of impairment of real estate decreased
by 9.6 percentage points to (0.83)% in 2002 compared to 8.77% in 2001. The
Company increased its income from development operations before recognition of
impairment of real estate to $7,943,613 in 2001 from $5,676,912 in 2000. As a
percentage of real estate sales, income before recognition of impairment of real
estate decreased by 0.07 percentage points to 8.77% in 2001 compared to 8.84% in
2000. The significant decrease of income before recognition of impairment of
real estate as a percentage of gross revenues during 2002 results from a slower
absorption rate, and increased production overhead costs. The increased sales
price was not sufficient to offset the increased direct construction cost,
marketing and sales incentives, production overhead and interest costs.

     The 2002 impairment loss on real estate development includes the recording
of an impairment loss for three projects. The impairment loss on the Saddlerock
project is primarily a result of the lack of demand of the product lines
resulted in a slower absortion rate. The Company introduced three new product
lines and converted certain upgrades as standards to increase the absorption
rate. The project consisted of 94 homes with five product lines in Aurora,
Colorado. The introduction of the new product lines increased direct
construction cost, marketing, production overhead and interest costs and as a
result the Company recorded an impairment loss on real estate under development
of $1,503,792. As of December 31, 2002, the Company has 55 remaining units to
construct, 20 units under construction, three of which have been sold.

     The impairment loss on the High Ridge Court project is primarily a result
of an absorption rate slower than anticipated. The decrease in absorption rate
increased marketing, production and interest costs and as a result the Company
recorded an impairment loss on real estate under development of $1,407,520. As
of December 31, 2002, the Company has 36 remaining units to construct, 28 units
under construction, two of which have been sold.

     The impairment loss on the Parc Metropolitan project resulted from actual
sales prices for certain units were lower than anticipated. In addition, the
lack of demand for upgrades and options in the project also impated the sales
revenue and as a result the Company recorded an impairment loss on real estate
under development of $1,560,381. As of December 31, 2002, the Company has 16
units under construction, 7 of which have been sold.


                                       14
<PAGE>

     The Company developed and constructed a 68-unit affordable apartment, the
Parc West Apartment Homes located in Milpitas, California, adjacent to the Parc
Metropolitan project owned by RGCCLPO. Construction was completed in August 2002
and the 68 units were available for lease. As of December 31, 2002, the
apartment project was 97% leased. For the period ended December 31, 2002, the
apartment project generated $256,117 of rental income and $419,733 of rental
expenses.

     In January 2003, the Company sold its 24.5% interest in RGC Carmel Country,
LLC, the ("Joint Venture") to related parties. The Joint Venture consisted of
181 townhomes available for lease in San Diego. The Company's basis in the Joint
Venture was $0. The proceeds from the sale, in the amount of $2,000,000, was
received in 2002 and was recorded as a deposit at December 31, 2002. The amount
will be recognized as income in 2003.

Results of operations

     The Company had a loss before income taxes of $7,890,557 in 2002, income
before income taxes of $3,497,848 in 2001, and income before benefit for income
taxes of $3,486,452 in 2000. The net loss suffered in 2002 is primarily a result
of loss from development operations and a reflection of the recognition of asset
impairment of the Parc Metropolitan, High Ridge and Saddlerock projects in the
amount of $4,471,693. The income in 2001 and 2000 is primarily due to increase
in profit from operations as the Company began selling homes in its Parc
Metropolitan project.

     Real estate sales increased to $91,641,620 in 2002 from $90,614,622 in
2001, up 1.1%. Real estate sales were $64,238,615 in 2000. In 2002, the Company
sold 248 homes, with an average sales price of $369,523. In 2001, the Company
sold 249 homes, with an average sales price of $363,914. In 2000, the Company
sold 219 homes, with an average sales price of $293,327.

     The overall gross profit percentage before recognition of impairment loss
of the Company was (0.8)%, 8.8%, and 8.8% in 2002, 2001, and 2000, respectively.

     General and administrative expenses were $2,379,007 in 2002 and $2,924,795
in 2001, down 18.7%. General and administrative expenses were $2,637,496 in
2000. The decrease in 2002 from 2001 is the result of a decrease in payroll
costs, and decreased accounting costs due to the efforts of management to
function more effectively. The decrease is also attributed to the decrease of
the number of projects currently in construction.

     During 2002, the Company increased the deferred tax valuation allowance to
offset current year's net income tax benefit of $3,152,732. The provision for
income taxes of $171,742 in 2001 includes the decrease of the deferred income
tax valuation to offset 2001 deferred income taxes of $1,187,934. Benefit for
income taxes of $141,488 in 2000 includes the utilization of unrecognized
deferred income tax benefit of $1,538,994 to offset 2000 income taxes. The
remaining benefit for income taxes of $141,488 represents the net refund
resulting from a claim filed for the carryback of losses related to certain
qualifying expenses incurred in 1994.

Liquidity and capital resources

     As of December 2002, the Company has construction loans outstanding to
financial institutions, secured by the development projects' trust deeds, with
rates ranging from prime plus 1% to prime plus 5.5% and maturing May 2003
through July 2029. As of December 31, 2002, the outstanding balances owing on
these loans totaled $18,115,597. Additionally, the Company has an unsecured line
of credit with a financial institution available to borrow up to $1,500,000 at
prime and mature on June 1, 2003. As of December 31, 2002, $1,500,000 is
outstanding. The Company also have notes payable to financial institutions to
finance general liability policies for the Company's projects for $110,589. The
notes are unsecured with interest rate at 6.25% and mature through May 31, 2003.
The balance of these loans as of December 31, 2002 is $19,726,186.


                                       15
<PAGE>

     As of December 31, 2002, the Company had remaining construction loan
commitments from banks and financial institutions of approximately $5,965,000,
which may be drawn down by the Company upon the satisfaction of certain
conditions. The Company continues to seek joint venture partners and additional
financing to fund its operations.

     As of December 31, 2002, the Company does not have any material commitments
for future capital expenditures.

     Related-Party Notes:

     Curci-The Company has the following notes payable to Curci at December 31,
2002 and 2001. A principal of Curci is a stockholder of the Company. Under the
terms of certain of the notes payable, Curci participates in "Net Proceeds" from
certain projects, as defined in the loan agreement, which is comparable to net
profit:

<TABLE>
<CAPTION>
       Project              Profit share        December 31,         December 31,
                                                    2002                  2001
--------------------       -------------      -----------------     ----------------
Secured loans:
<S>                             <C>               <C>                  <C>
  High Ridge Court              50%               $2,366,102           $2,414,492
  Saddlerock                    50%                2,413,597            2,595,711
  Mockingbird Canyon            50%                                     1,927,405
  Montserrat Classics           50%                                     2,304,234
  Parc Metropolitan              0%                                     3,000,000
                                              -----------------     ----------------
                                                   4,779,699           12,241,842
Unsecured loans                                    5,000,000(1)         8,366,236(1)
                                              -----------------     ----------------
                                                  $9,779,699          $20,608,078
                                              =================     ================
</TABLE>

      (1) During 2001, the Company obtained a $5,000,000 unsecured working
capital loan from Curci which bear interest at 15% and matures on July 16, 2004.

      During 2001, the Company obtained a $2,200,000 unsecured loan from Curci
which bore interest at 20% with a maturity date of June 30, 2002. The loan was
paid in its entirety as of December 31, 2002.

      During 1999, the Company obtained a $1,000,000 unsecured loan from Curci
which bore interest at 12% with a maturity date of June 20, 2002. The loan was
paid in its entirety as of December 31, 2002.

      Included in unsecured loans as of December 31, 2001 is accrued interest on
the notes discussed above of $166,236.

      Other Related Parties-During 1999, the Company purchased RGC's fifty
percent ownership in RGCCLPO. Consideration for the purchase consisted of
issuance of a note payable for $2,000,000 and payment of cash of $1,000,000.
Outstanding balances as of December 31, 2002 and 2001 were $0 and $1,000,000,
respectively.

      During 1996, the Company converted its Preferred Stock to Common Stock and
the accrued Preferred Stock dividend due to an officer of the Company and a
related party of $581,542 and $472,545, respectively, was exchanged for notes
with interest payable at 10%. As of both December 31, 2002 and 2001, the
outstanding principal due an officer of the Company and a related party on these
notes was $581,542 and $462,330, respectively.

      Included in notes payable to related parties is a note payable to Mission
Gorge, LLC which bear interest at 12%. Outstanding balances as of December 31,
2002 and 2001 were $2,000,000 and $2,030,399, respectively.


                                       16
<PAGE>

      Included in notes payable to related parties are notes payable to an
officer which bear interest at 12%. Outstanding balances as of December 31, 2002
and 2001 were $424,063 and $557,211, respectively.

      The Company has other loans from related parties, which provide for
interest at 10% per annum. As of December 31, 2002 and 2001 these loans totaled
$740,000 and $980,000, respectively.

      Included in accounts payable as of December 31, 2002 and 2001 is interest
payable on the notes discussed above of $259,913 and $138,033, respectively.

      As of December 31, 2002, the Company had three remaining projects in
various stages of development. During 2002, the Company had six projects
producing revenues from completed homes and apartments: Mockingbird Canyon, Parc
Metropolitan, High Ridge Court, Saddlerock, Montserrat Classics, and Parcwest
Apartments. As of December 31, 2002, Mockingbird Canyon and Montserrat Classics
were completed and all homes were sold. The Company enters 2003 with 64 homes
under construction, of which 12 are in escrow for sale, and 6 model units. The
Company has an inventory of 91 lots under development. In addition, the Company
has a 68 units apartment building that is substantially leased as of December
31, 2002.

      Based on its agreements with its lenders, the Company believes that it
will have sufficient liquidity to finance its construction projects in 2003
through funds generated from operations, funds available under its existing bank
commitments, funds generated from new lending institutions, and, if necessary,
funds that could be obtained by using its internally financed real estate
development in process as collateral for additional loans.

      Management's plan, with respect to managing cash flow includes the
following components: pay off debt that is coming due in 2003, minimize
operating expenses, and maintain control over costs. With regard to the debt
coming due in 2003, management expects to extend the maturity dates of various
loans and pay the remaining loans off through cashflow from operations, prior to
their maturity date. With regard to minimizing operating expenses, management
plans to achieve this by continuing to closely examine overhead items.
Management anticipates that the funds generated from operations, including
borrowings from existing loan commitments, will be adequate to allow the Company
to continue operations throughout 2003.

Contractual Obligations

Our significant contractual obligations as of December 31, 2002 follows:

<TABLE>
<CAPTION>
                                                           Payments Due by Period

------------------------------      -------------------------------------------------------------------
                                       2003        2004-2005     2006-2007    After 2007      Total
<S>                                 <C>            <C>           <C>         <C>           <C>
Long-term debt                      $27,713,820    $5,000,000    $           $1,000,000    $33,713,820
Opertating leases                       216,665       359,869     122,669                      699,203
                                    -------------------------------------------------------------------
Total contractual obligations       $27,930,485    $5,359,869    $122,669    $1,000,000    $34,413,023
                                    ===================================================================
</TABLE>

At December 31, 2002, we had scheduled maturities on existing debt of
$27,713,820 through December 31, 2003. Our ability to make scheduled payments of
principal or interest on or to refinance this indebtedness depends on our future
performance, which to a certain extent, is subject to general economic,
financial, competitive and other factors beyond our control. We believe our
borrowing availability under existing credit facilities, our operating cash
flow, and our ability to obtain new borrowings and/or raise new capital, should
provide the funds necessary to meet our working capital requirements, debt
service and maturities and short- and long-term needs based upon currently
anticipated levels of


                                       17
<PAGE>

growth. However, limitations on access to financing constrain our ability to
take advantage of opportunities that might lead to more significant growth.

Critical Accounting Policies

In the preparation of our financial statements, we select and apply accounting
principles generally accepted in the United States of America. The application
of some of these generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in our financial
statements and accompanying results. The accounting policies that include
significant estimates and assumptions are in the areas of valuing our real
estate under development and rental property and determining if any are
impaired.

We review our real estate under development and rental property for impairment
of value. This includes considering certain indications of impairment such as
significant declines in occupancy, other significant changes in property
operations, significant deterioration in the surrounding economy or
environmental problems. If such indications are present, we estimate the total
future cash flows from the property and compare the total future cash flows to
the carrying value of the property. If the total future cash flows are less than
the carrying value, we adjust the carrying value down to its estimated fair
value. Fair value may be based on third-party appraisals or our estimate of the
property's fair value.

Recent Accounting Pronouncements

 On October 3, 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS 144 supercedes SFAS 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS 144 applies to all long-lived assets (including discontinued
operations) and consequently amends Accounting Principles Board Opinion No. 30
(APB 30), Reporting Results of Operations Reporting the Effects of Disposal of a
Segment of a Business. SFAS 144 develops one accounting model for long-lived
assets that are to be disposed of by sale. SFAS 144 requires that long-lived
assets that are to be disposed of by sale be measured at the lower of book value
or fair value less cost to sell. Additionally, SFAS 144 expands the scope of
discontinued operations to include all components of an entity with operations
that (1) can be distinguished from the rest of the entity and (2) will be
eliminated from the ongoing operations of the entity in a disposal transaction.
SFAS 144 is effective for the Company for all financial statements issued in
fiscal 2002. The adoption of SFAS 144 did not have a material impact on the
Company's financial position or results of operations.

In April 2002, FASB issued SFAS 145, "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS
145"). The most significant provisions of this statement relate to the
rescission of Statement No. 4 "Reporting Gains and Losses from Extinguishment of
Debt." SFAS 145 also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions. Under SFAS 145, any gain or loss on extinguishment of
debt that was classified as an extraordinary item in prior periods presented
that does not meet certain defined criteria must be reclassified. The provisions
of SFAS 145 are effective for fiscal years beginning after May 15, 2002.
Management does not expect that the adoption of this statement will have a
material effect on the Company's results of operations or financial condition.

In June 2002, FASB issued SFAS 146, "Accounting for Costs Associated with Exit
or Disposal Activities" ("SFAS 146"). SFAS 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity". SFAS
146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. The provisions of SFAS
146 are effective for exit or disposal activities that are initiated after
December 31, 2002. Management does not expect that the adoption of this
statement will have a material effect on the Company's results of operations or
financial condition.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 significantly changes the current
practice in the accounting for, and disclosure of, guarantees. Guarantees


                                       18
<PAGE>

and indemnification agreements meeting the characteristics described in FIN 45
are required to be initially recorded as a liability at fair value. FIN 45 also
requires a guarantor to make significant new disclosures for virtually all
guarantees even if the likelihood of the guarantor having to make payment under
the guarantee is remote. The disclosure requirements within FIN 45 are effective
for financial statements for annual or interim periods ending after December 15,
2002. The initial recognition and initial measurement provisions are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002.
The Company adopted the disclosure provisions of FIN 45 as of December 31, 2002.
Management does not expect the adoption of the initial recognition and
measurement provisions will have a material effect on the Company's results of
operations or financial condition.

In December 2002, the Financial Accounting Standards Board, ("FASB") issued SFAS
148, "Accounting for Stock-Based Compensation--Transition and Disclosure" ("SFAS
148"). SFAS 148 amends SFAS 123 "Accounting for Stock Based Compensation" ("SFAS
123") to provide alternative methods of transition for an entity that
voluntarily changes to the fair value recognition provision of recording stock
option expense. SFAS 148 also requires disclosure in the summary of significant
accounting policies of the effects of an entity's accounting policy with respect
to stock options on reported net income and earnings per share in annual and
interim financial statements. The Company voluntarily adopted the fair value
recognition provision prospectively, for all employee awards granted or settled
after January 1, 2002. Under this provision, total compensation expense related
to stock options is determined using the fair value of the stock options on the
date of grant and is recognized on a straight-line basis over the option vesting
period. Prior to 2002, the Company accounted for stock options issued under this
plan under the recognition and measurement provision of APB Opinion 25
"Accounting for Stock Issued to Employees and Related Interpretations".


In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements" and
provides guidance on the identification of entities for which control is
achieved through means other than through voting rights ("variable interest
entities" or "VIEs") and how to determine when and which business enterprise
should consolidate the VIE. This new model for consolidation applies to an
entity which either (1) the equity investors (if any) do not have a controlling
financial interest or (2) the equity investment at risk is insufficient to
finance that entity's activities without receiving additional subordinated
financial support from other parties. The provisions of this interpretation are
immediately effective for VIEs formed after January 31, 2003. For VIEs formed
prior to January 31, 2003, the provisions of this interpretation apply to the
first fiscal year or interim period beginning after June 15, 2003. Management
does not expect that the adoption of this standard will have a material effect
on the Company's results of operations or financial condition.


                                       19
<PAGE>

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

      The table below represents the contractual balances of our financial
instruments at the expected maturity dates as well as their fair value at
December 31, 2002. The expected maturity categories take into consideration
actual amortization of principal and does not take into consideration
reinvestment of cash. The weighted average interest rate for various liabilities
presented are actual as of December 31, 2002.

<TABLE>
<CAPTION>
                                                     Principal maturing in:                                    Fair value
                               ---------------------------------------------------------------
                                  2003         2004       2005    2006    2007   Thereafter       Total       December 31,
                                                                                                                  2002
                               -------------------------------------------------------------------------------------------
Interest rate sensitive
liabilities
<S>                            <C>           <C>                                 <C>            <C>            <C>
Variable rate borrowings       $18,615,597   $       --                          $       --     $18,615,597    $18,615,597
   Average interest rate              6.48%                                                                           6.48%
Fixed rate borrowings            9,098,223    5,000,000                           1,000,000      15,098,223     14,287,932
   Average interest rate             11.54%       15.00%                               6.35%          12.34%
                               --------------------------------------------------------------------------------------------
                               $27,713,820   $5,000,000                          $1,000,000     $33,713,820    $32,903,529
                               ============================================================================================
Weighted average interest rate        8.14%       15.00%                               6.35%           9.10%
                               ============================================================================================
</TABLE>

      The table below represents the contractual balances of our financial
instruments at the expected maturity dates as well as their fair value at
December 31, 2001. The expected maturity categories take into consideration
actual amortization of principal and does not take into consideration
reinvestment of cash. The weighted average interest rate for various liabilities
presented are actual as of December 31, 2001.

<TABLE>
<CAPTION>
                                                        Principal maturing in:                                        Fair value
                               --------------------------------------------------------------------
                                  2002         2003         2004       2005      2006   Thereafter      Total       December 31,
                                                                                                                        2001
                               -------------------------------------------------------------------------------------------------
Interest rate sensitive
liabilities
<S>                            <C>           <C>          <C>                            <C>          <C>           <C>
Variable rate borrowings       $49,533,160   $1,343,973   $      --                      $       --   $50,877,133   $50,877,133

   Average interest rate              8.75%        8.00%                                                     8.73%
Fixed rate borrowings           20,698,089      540,000    5,095,117                      1,000,000    27,333,206    26,500,937
   Average interest rate             13.86%       10.00%       15.00%                          6.35%        13.72%
                               -------------------------------------------------------------------------------------------------
                               $70,231,249   $1,883,973   $5,095,117                     $1,000,000   $78,210,339   $77,378,070
                               =================================================================================================
Weighted average interest rate       10.25%        8.57%       15.00%                          6.35%        10.47%
                               =================================================================================================
</TABLE>


                                       20
<PAGE>

Effects of inflation

      Real estate has long been considered a hedge against inflation, and
inflation has often contributed to dramatic growth in property values. During
normal markets, the Company has been able to pass increased costs of materials
and labor to its buyers by increasing its sales prices. However, growth in
property values slowed or reversed during 1996, 1997 then again in 2002 in
California, thus preventing the Company from increasing sales prices to cover
increased costs. In 1998, 1999, 2000, and 2001 due to the strength and stability
of the economy, the real estate market has experienced increases in sales price
and the number of home buyers.


                                       21
<PAGE>

ITEM 8. Financial Statements and Supplementary Data

Page No. Financial Statements:
-----------------------------

    27      Independent Auditors' Report

    28      Consolidated Balance Sheets as of December 31, 2002 and 2001

    29      Consolidated Statements of Operations For Each of the Three Years
            Ended December 31, 2002

    30      Consolidated Statements of Stockholders' Equity For Each of the
            Three Years Ended 31, 2002

    31      Consolidated Statements of Cash Flows For Each of the Three Years
            Ended December 31, 2002

    33      Notes to Consolidated Financial Statements

            FINANCIAL STATEMENT SCHEDULE:

    48      II - Valuation and Qualifying Accounts --Three Years Ended December
            31, 2002

            Schedules other than listed above are omitted because they are not
            applicable, not required, or the information required to be set
            forth therein is included in the financial statements or the notes
            thereto.

ITEM 9. Disagreements on Accounting and Financial Disclosure

      None.

                                    PART III

      Items 10, 11, 12 and 13 are incorporated by reference from the Company's
definitive proxy statement to be filed within 120 days after the close of the
calendar year with the Commission, pursuant to Regulation 14A.

                                     PART IV

Item 14. Controls and Procedures

      The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's reports
required to be filed under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms, and that such
information is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.

      Within 90 days prior to the date of this report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and


                                       22
<PAGE>

operation of the Company's disclosure controls and procedures. Based on the
foregoing, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures were effective.

      There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect the internal controls
subsequent to the date the Company completed its evaluation.

ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)   (1) and (2) For a listing of financial statements and schedules, reference
      is made to Item 8 included in this Form 10-K.

      (3) The Exhibits listed on the accompanying Index to Exhibits immediately
      following Schedule II are filed as part of this report. Exhibits 10.1
      through 10.4 are compensatory plans.

      In accordance with SEC Release No. 33-8212, the following exhibit is being
      furnished, and is not being filed as part of this Report or as a separate
      disclosure document, and is not being incorporated by reference into any
      Securities Act of 1933 registration statement:

            99.1  Certification of Chief Executive Officer and Chief Financial
                  Officer pursuant to 18 U.S.C. Section 1350, as created by
                  Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K -

      A Current Report on Form 8-K dated April 1, 2002 was filed with the
Securities and Exchange Commission (the "Commission") and included under item
7(a) its audited consolidated financial statements for the year ended December
31, 2001 and unaudited consolidated financial statements for the quarter ended
December 31, 2001, and under item 7(c) a press release announcing Calprop
Corporations' 2001 annual and fourth quarter results.

      A Current Report on Form 8-K dated May 15, 2002 was filed with the
Securities and Exchange Commission (the "Commission") and included under item
7(a) its unaudited consolidated financial statements for the quarter ended March
31, 2002, and under item 7(c) a press release announcing Calprop Corporations'
first quarter results.

      A Current Report on Form 8-K dated August 14, 2002 was filed with the
Securities and Exchange Commission (the "Commission") and included under item
7(a) its unaudited consolidated financial statements for the quarter ended June
30, 2002, and under item 7(c) a press release announcing Calprop Corporations'
second quarter results.

      A Current Report on Form 8-K dated November 14, 2002 was filed with the
Securities and Exchange Commission (the "Commission") and included under item
7(a) its unaudited consolidated financial statements for the quarter ended
September 30, 2002, and under item 7(c) a press release announcing Calprop
Corporations' third quarter results.


                                       23
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) 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.

CALPROP CORPORATION
-----------------------------------
(Registrant)

/s/ Victor Zaccaglin                                              March 28, 2003
-----------------------------------                         --------------------
Victor Zaccaglin,                                                      Date
Chairman of the Board
  and Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

/s/ Mark F. Spiro                                                 March 28, 2003
-----------------------------------                         --------------------
Mark F. Spiro                                                          Date
Vice President/Secretary and
Treasurer (Chief Financial
and Accounting Officer)

/s/ Ronald S. Petch                                               March 28, 2003
-----------------------------------                         --------------------
Ronald S. Petch,                                                       Date
President

/s/ E. James Murar                                                March 28, 2003
-----------------------------------                         --------------------
E. James Murar                                                         Date
Director

/s/ Mark T. Duvall                                                March 28, 2003
-----------------------------------                         --------------------
Mark T. Duvall                                                         Date
Director

/s/ Victor Zaccaglin                                              March 28, 2003
-----------------------------------                         --------------------
Victor Zaccaglin                                                       Date
Chairman of the Board
Chief Executive Officer


                                       24
<PAGE>

                                 CERTIFICATIONS

I, Victor Zaccaglin, certify that:

      1. I have reviewed this annual report on Form 10-K of Calprop Corporation;

      2. Based on my knowledge, this annual 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 quarterly
report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

      4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) designed such disclosure controls and procedures 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 annual report is being prepared;

      b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

      c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

      5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

      a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; 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; and

      6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date: March 28, 2003


                                        /s/ Victor Zaccaglin
                                        ----------------------------------------
                                        Victor Zaccaglin
                                        Chairman of the Board
                                        Chief Executive Officer


                                       25
<PAGE>

                                 CERTIFICATIONS

I, Mark F. Spiro, certify that:

      1. I have reviewed this annual report on Form 10-K of Calprop Corporation;

      2. Based on my knowledge, this annual 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 annual
report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

      4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) designed such disclosure controls and procedures 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 annual report is being prepared;

      b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

      c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

      5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

      a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; 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; and

      6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date: March 28, 2003

                                        /s/ Mark F. Spiro
                                        ----------------------------------------
                                        Mark F. Spiro
                                        Vice President/Secretary/Treasurer
                                        (Chief Financial and Accounting Officer)


                                       26
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
and Stockholders of Calprop Corporation:

     We have audited the accompanying consolidated balance sheets of Calprop
Corporation and subsidiaries (the "Company") as of December 31, 2002 and 2001,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2002.
Our audits also included the financial statement schedule listed in the Index at
Item 8. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Calprop Corporation and
subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.


DELOITTE & TOUCHE LLP

Los Angeles, California
March 28, 2003


                                       27
<PAGE>

<TABLE>
<CAPTION>
                               CALPROP CORPORATION
                           CONSOLIDATED BALANCE SHEETS

Assets                                                                                 December 31,
                                                           -----------------------------------------
                                                                          2002                 2001
                                                           -----------------------------------------
Investment in Real Estate (Notes 3 and 6):
<S>                                                                <C>                  <C>
Real estate under development                                      $24,166,829          $88,789,252
Rental property, (net of accumulated depreciation
     of $121,875)                                                   11,182,886
                                                           -----------------------------------------
     Total investment in real estate                                35,349,715           88,789,252

OTHER ASSETS:

    Cash and cash equivalents                                        3,444,541            2,079,471
    Deferred tax asset (Note 7)                                      6,535,343            6,535,343

    Other assets (Note 4)                                              745,347              774,882
    Receivable from affiliates (Note 5)                                                     788,752
                                                           -----------------------------------------
          Total other assets                                        10,725,231           10,178,448
                                                           -----------------------------------------
     Total assets                                                  $46,074,946          $98,967,700
                                                           =========================================
Liabilities and Stockholders' Equity
LIABILITIES:
TRUST DEEDS AND NOTES PAYABLE (Note 6)                             $19,726,186          $51,990,779
RELATED-PARTY NOTES (Note 6)                                        13,987,634           26,219,560
                                                           -----------------------------------------
     Total trust deeds, notes payable and
         related-party notes                                        33,713,820           78,210,339
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Note 6)                    2,724,856            5,334,450
DEPOSIT (Note 3)                                                     2,000,000

WARRANTY RESERVES                                                      757,550              670,115
                                                           -----------------------------------------
     Total liabilities                                              39,196,226           84,214,904
                                                           -----------------------------------------

MINORITY INTERESTS (Note 1)
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 9):
     Common stock, no par value; $1 stated value,
         20,000,000 shares authorized, 10,235,305
         and 10,254,005 shares issued and
         outstanding at December 31, 2002 and 2001,
         respectively                                               10,235,305           10,254,005
     Additional paid-in capital                                     25,849,446           25,845,986
     Deferred Compensation (Note 8)                                    (28,600)             (51,000)
     Stock Purchase Loans (Note 8)                                    (527,858)            (537,179)
     Accumulated deficit                                           (28,649,573)         (20,759,016)
                                                           -----------------------------------------
          Total equity                                               6,878,720           14,752,796
                                                           -----------------------------------------
                                                                   $46,074,946          $98,967,700
                                                           =========================================
</TABLE>

                 See notes to consolidated financial statements


                                       28
<PAGE>

<TABLE>
<CAPTION>
                               CALPROP CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                         Year Ended December 31,
                                                          -----------------------------------------------
                                                                  2002             2001             2000
                                                          -----------------------------------------------
DEVELOPMENT OPERATIONS (Note 3):
<S>                                                       <C>               <C>               <C>
     Real estate sales                                    $ 91,641,620      $90,614,622       $64,238,615
     Cost of real estate sales (Note 6)                     92,399,110       82,671,009        58,561,703
                                                          -----------------------------------------------

     (Loss) income from development operations before
          recognition of impairment of real estate            (757,490)       7,943,613         5,676,912

     Recognition of impairment of real estate
          development (Note 3)
                                                            (4,471,693)      (2,018,088)
                                                          -----------------------------------------------
        (Loss) income from development operations           (5,229,183)       5,925,525         5,676,912

Income (loss) from investment in real estate
          venture (Note 3)                                     109,253         (118,764)

Other income:
    Rental                                                     256,117
    Interest and miscellaneous                                 368,847          186,835           230,643
    Management fee (Note 5)                                    222,957          542,818
                                                          -----------------------------------------------
       Total other income                                      847,921          729,653           230,643

Other expenses:
    Rental operating                                           419,733
    General and administrative (Note 4 and 10)               2,379,007        2,924,795         2,637,496
    Depreciation (Note 3)                                      119,724
    Interest expense (Note 6)                                  699,849          115,096
                                                          -----------------------------------------------
       Total other expenses                                  3,618,313        3,039,891         2,637,496

Minority interests                                                 235           (1,325)         (216,393)
                                                          -----------------------------------------------

(Loss) income before provision (benefit)
          for income taxes                                  (7,890,557)       3,497,848         3,486,452
Provision (benefit) for income taxes (Note 7)                                   171,742          (141,488)
                                                          -----------------------------------------------

NET (LOSS) INCOME                                         $ (7,890,557)     $ 3,326,106       $ 3,627,940
                                                          ===============================================

BASIC NET (LOSS) INCOME PER SHARE (Note 9)                      $(0.77)           $0.32             $0.35
                                                          ===============================================
DILUTED NET (LOSS) INCOME PER SHARE (Note 9)                    $(0.77)           $0.32             $0.35
                                                          ===============================================
</TABLE>

                 See notes to consolidated financial statements


                                       29
<PAGE>

<TABLE>
<CAPTION>
                               CALPROP CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002

                                Common       Stock       Additional      Deferred       Stock                         Total
                              ------------------------
                                                           Paid-In         Comp-      Purchase     Accumulated    Stockholders'
                                Shares       Amount        Capital       ensation       Loans         Deficit         Equity
                              -------------------------------------------------------------------------------------------------
BALANCE,
<S>     <C>                   <C>          <C>             <C>           <C>          <C>         <C>              <C>
January 1, 2000               10,293,735   $10,293,735     $25,849,961   $(170,327)   $(496,934)  $(27,713,062)    $7,763,373
     Net income                                                                                      3,627,940      3,627,940
   Cancellation of shares
     under 1989 stock
     incentive plan (Note 8)      (3,200)       (3,200)                      3,200

   Accrual of interest
     under stock purchase
     loans (Note 8)                                                                     (22,799)                      (22,799)

   Amortization of
     deferred compensation
     (Note 8)                                                               61,602                                     61,602

                              -------------------------------------------------------------------------------------------------
BALANCE,
December 31, 2000             10,290,535    10,290,535      25,849,961    (105,525)    (519,733)   (24,085,122)    11,430,116

     Net income                                                                                      3,326,106      3,326,106

    Cancellation of shares
     under 1989 stock
     incentive plan
     (Note 8)                     (2,300)       (2,300)                      2,300
    Purchase of Company's
     common stock                (34,230)      (34,230)         (3,975)                                               (38,205)


    Accrual of interest
     under stock purchase
     loans (Note 8)                                                                     (22,626)                      (22,626)

    Repayment of stock
     purchase loan                                                                        5,180                         5,180
     (Note 8)
    Amortization of
     deferred compensation
     (Note 8)                                                               52,225                                     52,225
                              -------------------------------------------------------------------------------------------------

BALANCE,
December 31, 2001             10,254,005    10,254,005      25,845,986     (51,000)    (537,179)   (20,759,016)    14,752,796
     Net loss                                                                                       (7,890,557)    (7,890,557)

    Cancellation of shares
     under 1989 stock
     incentive plan (Note 8)      (1,400)       (1,400)                       1,400

    Purchase of  Company's
     common stock                (17,300)      (17,300)          3,460                                                (13,840)


    Accrual of interest
     under stock purchase
     loans (Note 8)                                                                     (15,812)                      (15,812)

    Repayment of stock
     purchase loan
     (Note 8)                                                                            25,133                        25,133

    Amortization of
     deferred compensation
     (Note 8)                                                               21,000                                     21,000
                              -------------------------------------------------------------------------------------------------
BALANCE,
December 31, 2002             10,235,305   $10,235,305     $25,849,446   $ (28,600)   $(527,858)  $(28,649,573)    $6,878,720
                              =================================================================================================
</TABLE>

                 See notes to consolidated financial statements


                                       30
<PAGE>

<TABLE>
<CAPTION>
                               CALPROP CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                       Year Ended December 31,
                                                               -------------------------------------------------
                                                                        2002             2001              2000
                                                               -------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                              <C>               <C>               <C>
     Net (loss) income                                           $(7,890,557)      $ 3,326,106       $ 3,627,940

     Adjustments to reconcile net (loss) income
       to net cash provided by (used in)
       operating activities:

          Minority interests                                             235            (1,325)         (216,393)
          (Income) loss from investment in real
            estate venture                                          (109,253)          118,764
          Amortization of deferred compensation                       21,000            52,225            61,602
          Depreciation and amortization                              165,287            45,807            64,093
          Deferred income taxes                                                                          (35,343)
          Recognition of impairment of real estate
            development                                            4,471,693         2,018,088
          Provision for warranty reserves                            252,105           332,899           283,732
     Change in assets and liabilities
          Other assets                                                18,116            49,277           (44,421)
          Receivable from affiliates                                 788,752          (788,752)
          Accounts payable and accrued liabilities                (2,609,594)       (3,982,231)        2,925,060
          Deposit                                                  2,000,000
          Warranty reserves                                         (164,670)         (209,768)          (95,035)
          Payable to affiliates                                                       (272,011)          229,970
          Additions to real estate under development             (43,444,123)      (74,779,330)      (78,265,329)
          Cost of real estate sales                               92,399,110        82,671,009        58,561,703
          Accrued interest for executive stock
            purchase loans                                           (15,812)          (22,626)          (22,799)
                                                               -------------------------------------------------
              Net cash provided by (used in)
                operating activities                              45,882,289       $ 8,558,132       (12,925,220)
                                                               -------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES

     Capital expenditures                                            (31,993)           (6,554)          (41,895)
                                                               -------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
     Borrowings under related-party notes                          1,663,977        12,280,542         5,650,000
     Payments under related-party notes                          (13,895,903)       (6,763,225)       (9,807,789)
     Borrowings under trust deeds and
        notes payable                                             32,681,856        67,603,361        80,797,103
     Payments under trust deeds and
        notes payable                                            (64,946,449)      (81,954,070)      (62,671,754)
     Purchase of Company's common stock                             (13,840)           (38,205)
     Distributions to joint venture partners                                                             (11,798)
     Repayment of stock purchase loans                                25,133             5,180
                                                               -------------------------------------------------
              Net cash (used in) provided
               by financing activities                           (44,485,226)       (8,866,417)       13,955,762
                                                               -------------------------------------------------
     Net increase (decrease) in cash
        and cash equivalents                                       1,365,070          (314,839)          988,647

     Cash and cash equivalents at
        beginning of the year                                      2,079,471         2,394,310         1,405,663
                                                               -------------------------------------------------
     Cash and cash equivalents at
        end of the year                                          $ 3,444,541       $ 2,079,471       $ 2,394,310
                                                               =================================================
</TABLE>
                 See notes to consolidated financial statements
                                    Continued


                                       31
<PAGE>
<TABLE>
<CAPTION>
                               CALPROP CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                      Years Ended December 31,
                                                              ---------------------------------------------
                                                                    2002            2001           2000
                                                              ---------------------------------------------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
     Cash paid (refunded) during the year for:
<S>                                                             <C>                 <C>            <C>
          Interest (net of amount capitalized)                  $    699,849        $ 347,016      $     --
          Income taxes                                          $    (44,331)       $ 229,315      $(116,380)

NON-CASH INVESTING AND FINANCING ACTIVITIES:
     Transfer of real estate under development                  $ 11,304,761
        to rental property
</TABLE>

                                    Concluded

                 See notes to consolidated financial statements


                                       32
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002

(1)   Organization

            Nature of operations - Calprop Corporation ("the Company"), a
            California Corporation, primarily constructs and sells single-family
            detached and attached homes and townhomes as part of condominiums or
            planned unit developments in California and Colorado. As of December
            31, 2002, the Company had three residential housing projects in
            various stages of development, consisting of 58 homes under
            construction (12 were in escrow), 91 lots under development, and 6
            model homes used in selling the various types of housing developed.
            The Company's products range from homes for first-time buyers to
            custom homes. In addition to the construction and sale of
            single-family and multifamily housing, the Company is engaged in the
            development of apartments and townhomes available for lease. As of
            December 31, 2002, the Company has a 68-unit apartment building that
            is substantially leased.

            Basis of presentation - The accompanying financial statements
            include the accounts of Calprop Corporation and all its
            subsidiaries. All significant intercompany transactions and balances
            have been eliminated in consolidation. Such statements have been
            prepared in accordance with accounting principles generally accepted
            in the United States of America.

            The Company has consolidated the financial statements of the
            following entities:

<TABLE>
<CAPTION>
      -----------------------------------------------------------------------------------------------------------------------
                         Entity                     Ownership interest at                     Development
                                                      December 31, 2002
      -----------------------------------------------------------------------------------------------------------------------
      <S>                                                    <C>              <C>
      Colorado Pacific Homes, Inc. ("CPH")                   100%             Real estate in the state of Colorado
      DMM Development, LLC ("DMM")                            67%             Cierra del Lago and Antares projects,
                                                                              California
      Parkland Farms Development Co., LLC                     99%             115 lots in Healdsburg, California
      ("Parkland")
      RGCCLPO Development Co., LLC ("RGCCLPO")               100%             382 lots in Milpitas, California

      PWA Associates, LLC ("PWA")                            100%             68-unit apartment building in Milpitas,
                                                                              California
      -----------------------------------------------------------------------------------------------------------------------
</TABLE>

            CPH: The Company was entitled to receive eighty percent of the
            profits of CPH, and the other partner, an officer of CPH, was
            entitled to receive the remaining twenty-percent of the profits.
            During November 2001, Calprop obtained all of the officer's
            ownership interest in CPH.

            DMM: The Company is entitled to receive two-thirds of the profits of
            DMM, and the other owner, RGC Courthomes, Inc. ("RGC"), is entitled
            to receive the remaining one-third of the profits.

            Parkland: Pursuant to the operating agreement of Parkland, Calprop
            is entitled to receive ninety-nine percent of the profits of
            Parkland, and the other member, an officer of the Company, is
            entitled to receive the remaining one percent of the profits.

            RGCCLPO: The Company is entitled to receive all of the profits of
            RGCCLPO.

            PWA: Pursuant to the operating agreement of PWA, Calprop was
            entitled to receive fifty percent of the profits of PWA, and the
            other member, RGC, was entitled to receive the remaining
            fifty-percent of the profits. During May 2001, Calprop purchased all
            of RGC's ownership interest in PWA.

            During the year ended December 31, 2002, $2,494 of the total loss of
            $2,729 incurred by the entities related to the minority interest was
            not allocated to the minority interest because the minority interest
            had a deficit interest in the Company. The Company does not reflect
            the deficit for the minority interest because the minority owners
            are not responsible for losses incurred beyond their equity. The
            unrecognized minority interest in deficit of the Company as of
            December 31, 2002 and 2001 was


                                       33
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002

            $68,359 and $65,865, respectively. As a result, the Company has
            recorded minority interest of $0 as of December 31, 2002 and 2001.

(2)   Summary of Significant Accounting Policies

            Revenue and cost recognition - Revenue from real estate sales and
            related costs are recognized at the close of escrow, when title
            passes to the buyer. Cost of real estate sales is based upon the
            relative sales value of units sold to the estimated total sales
            value of the respective projects.

            The Company reviews the carrying value of its real estate
            developments for impairment whenever events or changes in
            circumstances indicate that the carrying amount of the asset may not
            be recoverable. If the sum of the expected future cash flows is less
            than the carrying amount of the asset, the Company recognizes an
            impairment loss. During 2002 and 2001, the Company recorded an
            impairment loss of $4,471,693 and $2,018,088, respectively (Note 3).

            Rental revenue recognition - The Company generally leases its rental
            property under one year operating leases. Rental income is
            recognized as it is earned on a straight-line basis over the
            appropriate lease term.

            Cash and cash equivalents - The Company considers readily marketable
            securities with a maturity of 90 days or less at the date of
            purchase to be cash equivalents.

            Income taxes - Deferred income tax assets and liabilities are
            computed for differences between the financial statement and income
            tax bases of assets and liabilities. Such deferred income tax asset
            and liability computations are based on enacted tax laws and rates
            applicable to periods in which the differences are expected to
            reverse. A valuation allowance is established, when necessary, to
            reduce deferred income tax assets to the amount expected to be
            realized.

            Office equipment and other - Office equipment and other is stated at
            cost less accumulated depreciation. Equipment is depreciated
            utilizing the straight-line method over its estimated useful life of
            five years.

            Rental Property - Rental property is carried at the lower of
            historical cost less accumulated depreciation or estimated fair
            value. The cost of rental property includes the purchase price or
            development costs of the property. Costs incurred for the
            acquisition, construction and betterment of the rental property are
            capitalized to the Company's investment in that property.
            Maintenance and repairs are charged to expense as incurred.

            A property is evaluated for potential impairment whenever events or
            changes in circumstances indicate that its carrying amount may not
            be recoverable. In the event that periodic assessments reflect that
            the carrying amount of a property exceeds the sum of the
            undiscounted cash flows (excluding interest) that are expected to
            result from the use and eventual disposition of the property, the
            Company would recognize an impairment loss to the extent the
            carrying amount exceeded the fair value of the property. The Company
            estimates the fair value using available market information or other
            industry valuation techniques such as present value calculations.
            The Company did not record any impairment loss for the year ended
            December 31, 2002.

            Depreciation and amortization of building and improvements - The
            cost of building and improvements are depreciated on a straight-line
            method over the estimated useful life of 40 years.


            Warranty reserves - The Company provides a one-year warranty to
            purchasers of single-family homes. The Company accrues estimated
            warranty costs on properties as they are sold. Estimated warranty
            costs are based on historical warranty costs.

            In addition to the Company's one-year warranty, California and
            Colorado law provides the Company's customers certain implied
            warranties, the scope and duration of which exceed the Company's
            express warranties. The Company requires its subcontractors to
            indemnify the Company in writing and requires the insurance of the
            subcontractor to provide that the Company is a primary insured on
            their insurance


                                       34
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002

            policy and an additional insured from its subcontractors for
            liabilities arising from their work, except for liability arising
            through the sole negligence or willful misconduct of the Company or
            from defects in designs furnished by the Company. Nevertheless, the
            Company is primarily liable to its customers for breach of warranty.
            The Company has builder's product liability insurance coverage which
            it believes to be adequate in light of the Company's claims history.

            Employee stock plans - The Company adheres to APB Opinion No. 25 to
            account for its stock-based compensation awards to employees and
            discloses the required pro forma effect on net income and earnings
            per share consistent with SFAS No. 123, "Accounting for Stock-Based
            Compensation."

            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 reported amounts of assets and
            liabilities and disclosure of contingent assets and liabilities at
            the date of the financial statements and the reported amounts of
            revenues and expenses during the reporting period. Actual results
            could differ from those estimates.

            Segment information - The Company's reportable segments consist of
            two types of real estate properties for which management internally
            evaluates operating performance and financial results: residental
            homes for sale and residental rental property for lease. The Company
            also has certain corporate level activities including accounting,
            finance, and management information systems, which are not
            considered separate segments.

            Fair value of financial instruments - Management believes the
            recorded value of notes payable to financial institutions
            approximate the fair market value as a result of variable interest
            rates and short-term durations. Management also believes that it is
            not practical to estimate the fair value of related-party notes.

            Recent accounting pronouncements - On October 3, 2001, the FASB
            issued SFAS No. 144 "Accounting for the Impairment or Disposal of
            Long-Lived Assets." SFAS 144 supercedes SFAS 121 "Accounting for the
            Impairment of Long-Lived Assets and for Long-Lived Assets to Be
            Disposed Of." SFAS 144 applies to all long-lived assets (including
            discontinued operations) and consequently amends Accounting
            Principles Board Opinion No. 30 (APB 30), Reporting Results of
            Operations Reporting the Effects of Disposal of a Segment of a
            Business. SFAS 144 develops one accounting model for long-lived
            assets that are to be disposed of by sale. SFAS 144 requires that
            long-lived assets that are to be disposed of by sale be measured at
            the lower of book value or fair value less cost to sell.
            Additionally, SFAS 144 expands the scope of discontinued operations
            to include all components of an entity with operations that (1) can
            be distinguished from the rest of the entity and (2) will be
            eliminated from the ongoing operations of the entity in a disposal
            transaction. SFAS 144 is effective for the Company for all financial
            statements issued in fiscal 2002. The adoption of SFAS 144 did not
            have a material impact on the Company's financial position or
            results of operations.

            In April 2002, FASB issued SFAS 145, "Rescission of FASB Statements
            No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
            Corrections" ("SFAS 145"). The most significant provisions of this
            statement relate to the rescission of Statement No. 4 "Reporting
            Gains and Losses from Extinguishment of Debt." SFAS 145 also amends
            other existing authoritative pronouncements to make various
            technical corrections, clarify meanings, or describe their
            applicability under changed conditions. Under SFAS 145, any gain or
            loss on extinguishment of debt that was classified as an
            extraordinary item in prior periods presented that does not meet
            certain defined criteria must be reclassified. The provisions of
            SFAS 145 are effective for fiscal years beginning after May 15,
            2002. Management does not expect that the adoption of this statement
            will have a material effect on the Company's results of operations
            or financial condition.

            In June 2002, FASB issued SFAS 146, "Accounting for Costs Associated
            with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses
            financial accounting and reporting for costs associated with exit or
            disposal activities and nullifies Emerging Issues Task Force Issue
            No. 94-3 "Liability Recognition for Certain Employee Termination
            Benefits and Other Costs to Exit an Activity". SFAS


                                       35
<PAGE>
                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002

            146 requires that a liability for a cost associated with an exit or
            disposal activity be recognized when the liability is incurred. The
            provisions of SFAS 146 are effective for exit or disposal activities
            that are initiated after December 31, 2002. Management does not
            expect that the adoption of this statement will have a material
            effect on the Company's results of operations or financial
            condition.

            In November 2002, the FASB issued Interpretation No. 45,
            "Guarantor's Accounting and Disclosure Requirements for Guarantees
            Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
            FIN 45 significantly changes the current practice in the accounting
            for, and disclosure of, guarantees. Guarantees and indemnification
            agreements meeting the characteristics described in FIN 45 are
            required to be initially recorded as a liability at fair value. FIN
            45 also requires a guarantor to make significant new disclosures for
            virtually all guarantees even if the likelihood of the guarantor
            having to make payment under the guarantee is remote. The disclosure
            requirements within FIN 45 are effective for financial statements
            for annual or interim periods ending after December 15, 2002. The
            initial recognition and initial measurement provisions are
            applicable on a prospective basis to guarantees issued or modified
            after December 31, 2002. The Company adopted the disclosure
            provisions of FIN 45 as of December 31, 2002. Management does not
            expect the adoption of the initial recognition and measurement
            provisions will have a material effect on the Company's results of
            operations or financial condition.

            In December 2002, the Financial Accounting Standards Board, ("FASB")
            issued SFAS 148, "Accounting for Stock-Based
            Compensation--Transition and Disclosure" ("SFAS 148"). SFAS 148
            amends SFAS 123 "Accounting for Stock Based Compensation" ("SFAS
            123") to provide alternative methods of transition for an entity
            that voluntarily changes to the fair value recognition provision of
            recording stock option expense. SFAS 148 also requires disclosure in
            the summary of significant accounting policies of the effects of an
            entity's accounting policy with respect to stock options on reported
            net income and earnings per share in annual and interim financial
            statements. The Company voluntarily adopted the fair value
            recognition provision prospectively, for all employee awards granted
            or settled after January 1, 2002. Under this provision, total
            compensation expense related to stock options is determined using
            the fair value of the stock options on the date of grant and is
            recognized on a straight-line basis over the option vesting period.
            Prior to 2002, the Company accounted for stock options issued under
            this plan under the recognition and measurement provision of APB
            Opinion 25 "Accounting for Stock Issued to Employees and Related
            Interpretations".

            In January 2003, the FASB issued FASB Interpretation No. 46,
            "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46
            clarifies the application of Accounting Research Bulletin No. 51,
            "Consolidated Financial Statements" and provides guidance on the
            identification of entities for which control is achieved through
            means other than through voting rights ("variable interest entities"
            or "VIEs") and how to determine when and which business enterprise
            should consolidate the VIE. This new model for consolidation applies
            to an entity which either (1) the equity investors (if any) do not
            have a controlling financial interest or (2) the equity investment
            at risk is insufficient to finance that entity's activities without
            receiving additional subordinated financial support from other
            parties. The provisions of this interpretation are immediately
            effective for VIEs formed after January 31, 2003. For VIEs formed
            prior to January 31, 2003, the provisions of this interpretation
            apply to the first fiscal year or interim period beginning after
            June 15, 2003. Management does not expect that the adoption of this
            standard will have a material effect on the Company's results of
            operations or financial condition.


                                       36
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002

(3)   Investment in Real Estate

      Real Estate Under Development-Real estate under development at December
31, 2002 and 2001 is summarized as follows:

<TABLE>
<CAPTION>
                                                      2002                          2001
                                                     Amount       Units/Lots       Amount       Units/Lots
                                                  ----------------------------------------------------------
     <S>                                             <C>                   <C>     <C>                  <C>
     Single-family residences                        $12,750,091           48      $25,502,318          108

     Townhomes                                         4,335,593           16       46,155,664          152
                                                  ----------------------------------------------------------
     Total residences                                 17,085,684           64       71,657,982          260

     Land under development                            4,474,884           91       14,132,077          211
                                                  ----------------------------------------------------------
     Total real estate under development
          before investment in joint ventures         21,560,568          155       85,790,059          471

     Investment in joint ventures                      2,606,261                     2,999,193          182 (1)
                                                  ----------------------------------------------------------
     Total real estate under development             $24,166,829          155      $88,789,252          653
                                                  ==========================================================
</TABLE>

      (1)   Reflects 100% of the units/lots in the project

      Investment in joint ventures represents the Company's investment in
      Mission Gorge, LLC and RGC Carmel Country Associates, LLC. Such
      investments are accounted for under the equity method of accounting.

      In 1996, Mission Gorge, LLC, a California limited liability company, was
      formed to develop and construct single-family homes and the Company
      transferred its Mission Gorge property to the joint venture. In connection
      with the formation, the Curci-Turner Company ("Curci"), exchanged a
      $2,000,000 note receivable from the Company for a 50% ownership interest
      in Mission Gorge, LLC. A principal of the Curci-Turner Company is a
      stockholder of the Company.

      In 1999, the Company formed RGC Carmel Country Associates, LLC, a
      California limited liability company, ("RGC Carmel") with RGC to develop,
      construct and lease a 181 townhome project. The profits and losses of RGC
      Carmel were distributed between the members as follows: 50% to RGC and 50%
      to the Company. During 2000, RGC Carmel admitted additional members in the
      following proportions: The John L. Curci Trust as to a 12.5% interest, The
      Janet Curci Living Trust No. Il as to a 12.5% interest, and an officer of
      the Company as to a 25% interest in exchange for financing for the project
      as follows: $2,000,000 in equity and $2,000,000 in notes payable. As a
      result, the Company's interest in RGC Carmel was reduced to 25%, which is
      accounted for under the equity method of accounting. During 2002, the
      Company transferred .5% of its interest in RGC Carmel to Calprop
      Andalucia, a 100% wholly owned subsidiary of the Company. In January 2003,
      the Company sold the remaining 24.5% of its interest in RGC Carmel to
      related parties in the following proportions: The Janet Curci Living Trust
      No. II as to a 6.125%, JAMS Management as to a 6,125%, and an officer of
      the Company as to a 12.25%. The Company's interest was sold for $2,000,000
      in cash, which was received in 2002 and resulted in recording a deposit of
      $2,000,000 as of December 31, 2002. The gain on sale of investment in
      joint venture will be recognized in January 2003. The gain will equal the
      proceeds received of $2,000,000 as the Company had no basis in the
      investment sold. As a result, the Company's interest in RGC Carmel was
      reduced to .5%.

      During 2002 and 2001, the Company recorded income (loss) from investment
      in real estate venture of $109,253 and $(118,764).


                                       37
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002

      Development operations in 2002, 2001 and 2000 are summarized as follows:

<TABLE>
<CAPTION>
                                            2002                     2001                     2000
                                        --------------------------------------------------------------------------
REAL ESTATE SALES:                        Amount       Units       Amount       Units        Amount       Units
                                        --------------------------------------------------------------------------
<S>                                      <C>               <C>     <C>              <C>      <C>              <C>
     Single-family residences            $32,160,152       100     $34,578,692      109      $36,056,559      141

     Townhomes                            59,481,468       148      56,035,930      140       28,182,056       78
                                        --------------------------------------------------------------------------
          Total Sales                     91,641,620       248      90,614,622      249       64,238,615      219

COST OF REAL ESTATE SALES:
     Single-family residences             31,977,269                32,548,574                34,607,881
     Townhomes                            60,169,736                49,773,731                23,670,090
     Warranty                                252,105                   348,704                   283,732
                                        -------------            --------------            --------------
          Total Cost of Sales             92,399,110                82,671,009                58,561,703

 Recognition of impairment of real
     estate development                   (4,471,693)               (2,018,088)
                                        -------------            --------------            --------------
(Loss) income from development
      operations                         $(5,229,183)              $ 5,925,525               $ 5,676,912
                                        =============            ==============            ==============
</TABLE>

      The 2002 impairment loss on real estate development includes the recording
      of an impairment loss for three projects. The impairment loss on the
      Saddlerock project is primarily a result of the lack of demand of the
      product lines resulted in a slower absortion rate. The Company introduced
      three new product lines and converted certain upgrades as standards to
      increase the absorption rate. The project consisted of 94 homes with five
      product lines in Aurora, Colorado. The introduction of the new product
      lines increased direct construction cost, marketing, production overhead
      and interest costs and as a result the Company recorded an impairment loss
      on real estate under development of $1,503,792. As of December 31, 2002,
      the Company has 55 remaining units to construct, 20 units under
      construction, three of which are in escrow for sale. The impairment loss
      on the High Ridge Court project is primarily a result of an absorption
      rate slower than anticipated. The decrease in absorption rate increased
      marketing, production and interest costs and as a result the Company
      recorded an impairment loss on real estate under development of
      $1,407,520. As of December 31, 2002, the Company has 36 remaining units to
      construct, 28 units under construction, two of which are in escrow for
      sale. The impairment loss on the Parc Metropolitan project resulted from
      actual sales prices for certain units were lower than anticipated. In
      addition, the lack of demand for upgrades and options in the project also
      impated the sales revenue and as a result the Company recorded an
      impairment loss on real estate under development of $1,560,381. As of
      December 31, 2002, the Company has 16 units under construction, 7 of which
      are in escrow for sale.

      The 2001 impairment loss on the Mockingbird Canyon project is primarily a
      result of the slow absorption rate. The sales price was not sufficient to
      offset the increased marketing and sales incentives, production overhead
      and interest costs and as a result the Company recorded an impairment loss
      on real estate under development of $2,018,088 during the third quarter of
      2001. The Company has 12 units remaining as of December 31, 2001. The
      project was completed during 2002.

      Rental Property - During 2002, the Company completed construction of a
      68-unit apartment project it intended to sell. The Company did not sell
      the apartment project and the related cost recorded as real estate under
      development were transferred to rental property. The Company started
      leasing the apartment during the third quarter of 2002.


                                       38
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002

      Rental property at December 31, 2002 is summarized as follows:

        Land                                 $1,500,000

        Building and improvements             9,804,761
                                           -------------
        Total rental property                11,304,761

        Accumulated depreciation               (121,875)
                                           -------------
        Rental property, net                $11,182,886
                                           =============

      Depreciation expense for building and improvements for the year ended
      December 31, 2002, was $121,875.

(4)   Other Assets

      Other assets at December 31, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                   Interest Rate           Outstanding Balance
                                                   --------------     ---------------------------------
                                                                            2002                2001
                                                                      ---------------------------------
       <S>                                             <C>                 <C>                 <C>
        Trust deeds receivable                         11.75%            $ 52,370             $54,043
        Less reserve                                                      (30,000)            (30,000)
                                                                      ---------------------------------
        Net trust deeds receivable                                         22,370              24,043
        Deposits in escrow                                                151,000               1,000

        Office equipment and other, net of
        accumulated depreciation of $336,135
        and $292,723 as of December 31, 2002
        and 2001, respectively                                            525,627             722,944

        Prepaid expenses                                                   46,350              26,895
                                                                      ---------------------------------
        Other assets                                                     $745,347            $774,882
                                                                      =================================
</TABLE>

      Depreciation expense included in general and administrative expenses for
      the year ended December 31, 2002, 2001 and 2000 were $43,412, $45,277 and
      $64,093, respectively.

(5)   Receivable from/Payable to Affiliate

      In 2000, the Company entered into an agreement to construct and manage the
      RGC Carmel project for a construction fee of $750,000 and management fee
      equal to one percent of rental income. The construction fee is earned as
      units related to the project are completed. Construction and managment fee
      earned for the years ended December 31, 2002 and 2001 was $222,957 and
      $542,818, respectively. Construction and management fee receivable as of
      December 31, 2002 and 2001 was $0 and $542,818, respectively.

      The Company also pays certain payroll costs on behalf of RGC Carmel for
      which it is reimbursed. The total amount receivable from and payable to
      RGC Carmel related to these costs was $0 and $245,934, respectively at
      December 31, 2002 and 2001, respectively.


                                       39
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002

(6)   Trust Deeds, Notes Payable and Related-Party Notes

      Trust deeds, notes payable and related party notes as of December 31, 2002
      and 2001 are as follows:

<TABLE>
<CAPTION>
                                                                                 2002          2001
                                                                             -----------------------------
Trust Deeds and Notes Payable:
<S>                                                                            <C>            <C>
Notes payable to financial institutions, secured by development
projects' trust deeds - variable interest rates ranging from prime to
prime + 5.5%, interest payable monthly (prime rate equals 4.25%
and 4.75% at December 31, 2002 and 2001, respectively);
maturing May 2003 through July 2029                                            $18,115,597    $50,377,132

Line of credit to financial institution, unsecured - variable interest
rate at prime, interest payable monthly (prime rate equals 4.25% and 4.75%
at December 31, 2002 and 2001, respectively); maturing  June 2003                1,500,000      1,500,000

Notes payable to financial institutions, unsecured  -  interest
rate at 6.25%, interest payable monthly; maturing May 2003                         110,589        113,647
                                                                             -----------------------------
Total trust deeds and notes payable                                             19,726,186     51,990,779
                                                                             -----------------------------
Related-Party Notes:
Notes payable to related parties, secured by development projects'
trust deeds - interest rate of 12%, interest payable monthly;
maturing on demand through December 2003                                       $ 4,779,699    $13,272,241

Notes payable to related parties, unsecured - interest rates of
10% to 15%, interest payable monthly; maturing on demand
through July 2004                                                                9,207,935     12,947,319
                                                                             -----------------------------
Total related party notes                                                       13,987,634     26,219,560
                                                                             -----------------------------
Total trust deeds and related party notes                                      $33,713,820    $78,210,339
                                                                             =============================
</TABLE>

As of December 31, 2002, the Company had remaining loan commitments from banks
and financial institutions of approximately $5,965,000 which may be drawn down
by the Company upon the satisfaction of certain conditions. The Company
continues to seek joint venture partners and additional financing to fund its
operations.

During 2002, 2001 and 2000, the Company paid interest of $2,323,387, $10,680,033
and $6,471,996, respectively, on trust deeds and notes payable. The Company
capitalized interest of approximately $2,047,647, $10,680,033 and $6,471,996 for
2002, 2001 and 2000, respectively.

During 2002, the Company paid and capitalized $6,200,000 of profit
participation. The Company had a profit participation agreement with Ford for
$6,200,00 to be paid on December 13, 2002. The Company had acquired the land
through seller financing with Ford Motor Company and Ford Motor Land Development
Corporation on the entire 382 lots and the land for the Parcwest Apartments
project. The original note balance of $12,850,000 bore interest at 9%. The loan
was repaid in 2001.

Related-Party Notes

Curci - The Company has the following notes payable to Curci at December 31,
2002 and 2001. A principal of Curci is a stockholder of the Company. Under the
terms of certain of the notes payable, Curci receives interest and participates
in "Net Proceeds" from certain projects, as defined in the loan agreement, which
is comparable to net profit:


                                       40
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002

<TABLE>
<CAPTION>
            Project             Profit share      December 31,        December 31,
                                                     2002                 2001
      ---------------------    --------------   -----------------   -----------------
      Secured loans:
<S>                                 <C>               <C>                 <C>
        High Ridge Court            50%               $2,366,102          $2,414,492
        Saddlerock                  50%                2,413,597           2,595,711
        Mockingbird Canyon          50%                                    1,927,405
        Montserrat Classics         50%                                    2,304,234
        Parc Metropolitan            0%                                    3,000,000
                                                -----------------   -----------------
                                                       4,779,699          12,241,842
      Unsecured loans                                  5,000,000 (1)       8,366,236 (1)
                                                -----------------   -----------------
                                                      $9,779,699         $20,608,078
                                                =================   =================
</TABLE>

(1)   During 2001, the Company obtained a $5,000,000 unsecured working capital
      loan from Curci which bear interest at 15% and matures on July 16, 2004.

During 2001, the Company obtained a $2,200,000 unsecured loan from Curci which
bore interest at 20% with a maturity date of June 30, 2002. The loan was paid in
its entirety as of December 31, 2002.

During 1999, the Company obtained a $1,000,000 unsecured loan from Curci which
bore interest at 12% with a maturity date of June 20, 2002. The loan was paid in
its entirety as of December 31, 2002.

Included in unsecured loans as of December 31, 2001 is accrued interest on the
notes discussed above of $166,236.

During the years ended December 31, 2002, 2001, and 2000, net participation
proceeds expensed to cost of real estate sales in the accompanying consolidated
statements of operations were $24,385, $675,198, and $514,105, respectively.
Accrued participation proceeds included in accounts payable and accrued
liabilities in the accompanying consolidated balance sheets at December 31, 2002
and 2001 was $0 and $475,615, respectively.

Other Related Parties

During 1999, the Company purchased RGC's fifty percent ownership in RGCCLPO.
Consideration for the purchase consisted of issuance of a note payable for
$2,000,000 and payment of cash of $1,000,000. Outstanding balances as of
December 31, 2002 and 2001 were $0 and $1,000,000, respectively.

During 1996, the Company converted its Preferred Stock to Common Stock and the
accrued Preferred Stock dividend due to an officer of the Company and a related
party of $581,542 and $472,545, respectively, was exchanged for notes with
interest payable at 10%. As of both December 31, 2002 and 2001, the outstanding
principal due on these notes was $581,542 and $462,330, respectively. The notes
mature on December 31, 2003.

Included in notes payable to related parties is a note payable to Mission Gorge,
LLC which bears interest at 12%. The outstanding balance as of December 31, 2002
and 2001 was $2,000,000 and 2,030,399, respectively. The note matures on
December 31, 2003.

Included in notes payable to related parties are notes payable to an officer
which bear interest at 12%. Outstanding balances as of December 31, 2002 and
2001 were $424,063 and $557,211, respectively. The notes mature on December 31,
2003.


                                       41
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002

As of December 31, 2002, the Company had other loans, which bear for interest at
10%. $40,000 is due on demand and the remaining notes mature through August 1,
2003. As of December 31, 2002 and 2001, these loans totaled $740,000 and
$980,000, respectively.

Aggregate future principal payments due on trust deeds payable, notes payable
and related party notes are as follows:

           Year Ended
           December 31,
           ---------------------------------------------
            2003                             $27,713,820
            2004                               5,000,000
            2005
            2006
            2007
           Thereafter                          1,000,000
           ----------------------------------------------
           Total                             $33,713,820
           ==============================================

During 2002, 2001 and 2000, the Company paid interest of $2,918,200, $5,300,889
and $2,432,635, respectively, on loans from related parties. The Company
capitalized interest of approximately $2,494,091, $5,185,793 and $2,432,635 for
2002, 2001 and 2000, respectively.

(7)   Income Taxes

      The provision (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                    --------------------------------------------
                                                        2002          2001           2000
                                                    --------------------------------------------
<S>                                                  <C>              <C>             <C>
      Current income tax (benefit) expense           $(3,152,732)     $171,742        $   35,343
      Net deferred income tax expense (benefit)        3,152,732                         (35,343)
      Income tax refund                                                                 (141,488)
                                                    --------------------------------------------
      Provision (benefit) for income taxes                    $0      $171,742        $ (141,488)
                                                    ============================================
</TABLE>

      As of December 31, 2002, the Company had gross deferred tax assets of
      $11,065,083 offset by a deferred tax asset valuation allowance of
      $4,529,740. During 2002, the Company increased the deferred tax valuation
      allowance to offset current year's net income tax benefit of $3,152,732 as
      it has been determined that is it unlikely that the deferred tax assets
      will be utilized. During the year ended December 31, 2000, the Company
      reduced the deferred tax valuation allowance to recognize a deferred
      income tax benefit of $35,343. The deferred tax benefit is based upon
      expected utilization of net operating loss carryforwards. The Company has
      assessed its past earnings history and trends, sales backlog, budgeted
      sales, and expiration dates of carryforwards and has determined that it is
      more likely than not that the $6,535,343 of deferred tax assets will be
      realized.

      As of December 31, 2002, the Corporation had net operating loss
      carryforwards for federal and state income tax purposes of approximately
      $24,164,000 and $9,301,000, respectively. For federal tax purposes the net
      operating loss carryforwards expire from 2013 through 2022. For state tax
      purposes the net operating loss carryforwards expire from 2005 through
      2008.

      Benefit for income taxes in 2000 of $141,488 represents the net refund
      resulting from a claim filed for the carryback of losses related to
      certain qualifying expenses incurred in 1994.


                                       42
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002

      The deferred income tax assets, resulting from differences between
accounting for financial statements purposes and tax purposes, less valuation
allowance, are as follows:

                                              2002                2001
                                          --------------------------------
       Inventory reserves                 $   284,113         $   691,666
       Warranty reserves and others         1,651,075           1,629,800
       State net operating loss               822,218
       Federal net operating loss           8,307,677           5,618,700
                                          --------------------------------
                                           11,065,083           7,940,166
       Valuation allowance                 (4,529,740)         (1,404,823)
                                          --------------------------------
                                          $ 6,535,343         $ 6,535,343
                                          ================================

      The following is a reconciliation of the federal statutory rate to the
Company's effective rate for 2002, 2001, and 2000:

<TABLE>
<CAPTION>
                                    ----------------------------------------------------------------------------------
                                              2002                        2001                       2000
                                    ----------------------------------------------------------------------------------
                                           Amount    Percentage        Amount    Percentage         Amount  Percentage
                                    ---------------------------------------------------------------------------------
<S>                                  <C>                  <C>      <C>                 <C>     <C>                <C>
Statutory rate                       $(2,682,709)         (34%)    $1,189,268          34%     $1,185,394         34%
State franchise tax, net of
federal tax benefit                     (460,005)        (5.8%)       167,718         4.8%        208,884          6%
Other                                                                  $2,690           0%         $3,228         .1%
                                         (10,018)         (.1%)
Change in valuation allowance
                                       3,152,732         39.9%     (1,187,934)        (34%)    (1,538,994)     (44.1%)
                                    ---------------------------------------------------------------------------------
                                              $0            0%       $171,742         4.9%     $ (141,488)        (4%)
                                    =================================================================================
</TABLE>

(8)   Qualified and Non-Qualified Stock Option Plans

      The Company has three stock-based compensation plans, which are described
      below. The Company applies APB Opinion 25 and related Interpretations in
      accounting for its stock-based compensation. Accordingly, no compensation
      costs have been recognized for its fixed stock option plans during 2002,
      2001, and 2000. The compensation cost that has been charged against income
      for its stock incentive plan was $21,000 in 2002, $52,225 in 2001 and
      $61,602 in 2000. Had compensation costs for the Company's stock-based
      compensation plans been determined based on the fair value at the grant
      dates for awards under those plans consistent with SFAS No. 123, the
      Company's net (loss) income and net (loss) income per share would have
      been adjusted to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                               2002               2001          2000
                                                            ------------       ----------     ----------
<S>                                                         <C>                <C>            <C>
      Net (loss) income:                      As reported   $(7,890,557)       $3,326,106     $3,627,940

                                              Pro forma     $(7,894,021)       $3,318,068     $3,505,121

      Diluted net (loss) income per share:    As reported        $(0.77)             $.32           $.35
                                              Pro forma          $(0.77)             $.32           $.34
</TABLE>


                                       43
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002

      The 1983 Stock Option Plan authorized an aggregate of 653,006 (adjusted
      for stock dividends) shares of common stock to be reserved for grant. The
      1983 Stock Option Plan expired in September, 1993. Changes in the 1983
      Stock Option Plan are summarized as follows for the years ended December
      31,:

<TABLE>
<CAPTION>
                                           2002                         2001                       2000
                                 --------------------------   --------------------------    -------------------------
                                                 Weighted-                     Weighted-                    Weighted-
                                                 Average                       Average                      Average
                                                 Exercise                      Exercise                     Exercise
                                    Shares       Price             Shares      Price           Shares       Price
                                 --------------------------   --------------------------    -------------------------
<S>                                    <C>       <C>                 <C>        <C>              <C>        <C>
Outstanding, beginning of year         58,000    $2.93               58,000     $2.93            58,000     $2.93
Expired                               (58,000)   $2.93
                                 --------------------------   --------------------------    -------------------------
Outstanding, end of year                                             58,000     $2.93            58,000     $2.93
                                 ==========================   ==========================    =========================
Exercisable, end of year                                             53,000                      48,000
                                 =============                =============                 ============
</TABLE>

      The 1993 Stock Option Plan, (amended by the shareholders May 20, 1999)
      authorizes an aggregate of 2,000,000 shares of the Company's common stock
      to be reserved for grant. The options fully vest a year from the date of
      grant. Changes in the 1993 Stock Option plan are summarized as follows for
      the years ended December 31,:

<TABLE>
<CAPTION>
                                          2002                        2001                       2000
                                 ------------------------   -------------------------   ------------------------
                                                Weighted-                   Weighted-                   Weighted-
                                                Average                     Average                     Average
                                                Exercise                    Exercise                    Exercise
                                    Shares      Price           Shares      Price          Shares       Price
                                 ------------------------   -------------------------   ------------------------
<S>                                   <C>        <C>              <C>        <C>              <C>        <C>
Outstanding, beginning of year        860,700    $1.27            860,700    $1.27            866,800    $1.27

Canceled                             (163,000)   $1.04                                         (6,100)   $1.55
                                 ------------------------   -------------------------   ------------------------
Outstanding, end of year              697,700    $1.32            860,700    $1.27            860,700    $1.27
                                 ========================   =========================   ========================
Exercisable, end of year              697,700                     860,700                     860,700
                                 =============              =============               ==============
Available for grant, end of           491,250                     328,250                     328,250
year
                                 =============              =============               ==============
</TABLE>

      The following table summarizes information about the outstanding options
      as of and for the year ended December 31, 2002, from the Company's 1993
      stock option plan:

<TABLE>
<CAPTION>
                                     Options Outstanding                           Options Exercisable
                      ---------------------------------------------------   --------------------------------
                        Number       Weighted-Average    Weighted-Average       Number     Weighted-Average
     Range of         Outstanding        Remaining        Exercise Price     Exercisable    Exercise Price
  Exercise Prices     at 12/31/02    Contractual Life                        at 12/31/02
------------------    ----------------------------------------------------  --------------------------------
<S>                        <C>           <C>                  <C>                  <C>          <C>
  $0.69 to $0.96           192,750       4.4 years            $0.69                192,750      $0.69
  $1.00 to $1.88           504,950       6.1 years            $1.56                504,950      $1.56
                      ----------------------------------------------------  --------------------------------
  $0.69 to $1.88           697,700       5.6 years            $1.32                697,700      $1.32
                      ======================================================================================
</TABLE>

      The 1989 Executive Long-Term Stock Incentive Plan, (amended by the
      shareholders May 23, 1996) authorizes an aggregate of 500,000 (adjusted
      for stock dividends) shares of the Company's common stock to be reserved
      for awards to key employees of the Company. The stock, once granted to the
      key employees, vests at 20 percent a year from the date of grant. The
      non-vested shares represent unearned compensation. The 1989 Executive
      Long-Term Incentive Plan expired in May, 1999. Changes in the 1989
      Executive Long-Term Stock Incentive plan are summarized as follows for the
      years ended December 31,:


                                       44
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002

                                           2002            2001          2000
                                      -----------------------------------------
   Outstanding, beginning of year        419,980         422,280       425,480

   Shares cancelled                       (1,400)         (2,300)       (3,200)
                                      -----------------------------------------
   Outstanding, end of year              418,580         419,980       422,280
                                      =========================================
   Vested, end of year                   400,980         368,980       335,180
                                      =========================================
   Available for grant, end of year           --              --            --
                                      =========================================

      Included as a separate deduction of stockholder's equity is deferred
      compensation relating to this plan of $28,600 and $51,000 as of December
      31, 2002, and 2001, respectively.

      The 1992 Director Stock Option Plan authorizes an aggregate amount of
      100,000 shares to be granted. Each year, the directors that are members of
      the stock option committee are eligible to be granted options to buy 7,500
      shares at the market price at the date of grant, exercisable one year
      after grant, and expire 10 years after the grant date. Options were not
      granted to directors from the 1992 Director Stock Option Plan during 2002.
      During 2001 and 2000, 15,000 shares and 15,000 shares, respectively, were
      granted under this plan at an exercise prices of $1.13 and $1.27 per
      share, respectively. The exercise prices represent the market price at the
      date of grant. At December 31, 2002, 30,000 shares were outstanding
      related to this plan. In 1996, the Company issued warrants to purchase
      150,000 shares of common stock at an exercise price of $1.00 that expire
      on September 30, 2003. As of December 31, 2002, 150,000 warrants were
      outstanding. The weighted-average fair value of the options granted during
      2001 and 2000 is $0.46 and $0.61, respectively. The fair value of each
      option was estimated on the date of grant using the Black-Scholes
      option-pricing model with the following weighted-average assumptions for
      2001 and 2000, respectively: risk-free interest rates of 6.5 percent for
      all years; dividend yield of zero percent for all years; expected lives of
      5.0 and 5.0 years; and volatility of 33 and 44 percent.

      For the year ended December 31, 2002, options were not included in the
      computation of diluted net loss per common share because the effect would
      be antidilutive to the net loss in the period. In addition, for the years
      ended December 31, 2001 and 2000, options of 601,700 and 579,700,
      respectively, were not included in the computation of diluted net income
      because their exercise prices were higher than the average market price
      per share of common stock.

      On March 10, 1998, three officers and a director of the Company exercised
      options to purchase a total of 720,000 shares of common stock with a
      weighted-average exercise price of $0.8989 per share. The Company received
      $199,395 cash from an officer and received $447,813 in notes receivable
      from the remaining two officers and the director as a result of the
      exercise of these options. The notes receivable accrue interest at 4.987%
      and mature on March 10, 2001 and are guaranteed by the officers. The
      notes' maturity dates have been extended to March 10, 2004. During 2002,
      the director repaid his portion of the note receivable in the amount of
      $22,188.

      On October 15, 1998, one officer of the Company exercised options to
      purchase a total of 10,000 shares of common stock with a weighted-average
      exercise price of $0.8125 per share. The Company received a note
      receivable for $8,125 from the officer as a result of the exercise of
      these options. The note receivable accrued interest at 4.987% and was
      guaranteed by the officer. During 2001, the officer partially repaid the
      note receivable, with the balance repaid during 2002.

      As of December 31, 2002 and 2001, accrued interest for the stock purchase
      loans was $102,233 and $86,421 respectively. The stock purchase loans and
      the related accrued interest are reflected as reductions to stockholder's
      equity.


                                       45
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002

(9)   Earnings Per Share

      The following table sets forth the computation of basic and diluted net
      (loss) income per common share:

<TABLE>
<CAPTION>
                                                 2002            2001            2000
                                            ----------------------------------------------
Numerator:
<S>                                           <C>               <C>            <C>
     Net (loss) income                        $(7,890,557)      $3,326,106     $3,627,940
                                            ----------------------------------------------
     Numerator for basic and diluted
       net (loss) income per share             (7,890,557)       3,326,106      3,627,940
                                            ==============================================
Denominator for basic net (loss)
  income per share (weighted
  average outstanding shares)                  10,252,592       10,281,879     10,290,816

     Effect of dilutive stock options              39,203          128,327        170,753
                                            ----------------------------------------------
Denominator for dilutive net (loss)
     income per share (weighted average
     outstanding  shares)                      10,291,795       10,410,206     10,461,569
                                            ==============================================
Basic net (loss) income per share                  $(0.77)           $0.32          $0.35
                                            ==============================================
Diluted net (loss) income per share                $(0.77)           $0.32          $0.35
                                            ==============================================
</TABLE>

(10)  Commitments and Contingencies

      Land Acquisition - The Company has entered into approximately $14,300,000
      in contracts to acquire five properties in two of its current markets in
      California, Sonoma County in Northern California and Riverside County in
      Southern California. These five properties are zoned for residential
      development and can be subdivided into approximately 416 single family
      detached lots and 77 single family attached units, totaling 493 units. All
      of these properties are purchased subject to obtaining entitlements along
      with necessary environmental approvals from local, state and federal
      agencies. The Company has obtained term sheets from one or up to three
      capital sources to acquire each of these properties. The terms of the
      contracts provides an opportunity for the Company to acquire these
      properties from September 2003 to September 2004.

      Legal - There are several legal actions and claims pending against the
      Company. Based on the advice of legal counsel, management believes that
      the ultimate liability, if any, which may result from any of these
      lawsuits will not materially affect the financial position or results of
      operations of the Company.

      Employee benefit plan - The Company has a 401(k) plan (the "Plan"), which
      allows eligible employees to contribute from 1 percent to 15 percent of
      their annual compensation, not to exceed statutory limits. Company
      matching is at management's discretion. The Company's contribution to the
      Plan for the years ended December 31, 2002, 2001, and 2000 was $0, $0, and
      $119,926, respectively.

      Leases - The Company has operating leases that expire through 2006. Future
      minimum rents are as follows:

           Year Ending December 31,               Amount
                                               ---------------
           2003                                      $216,665
           2004                                       205,854
           2005                                       154,015
           2006                                       122,669
                                               ---------------
                                                     $699,203
                                               ===============

      Rent expense for the years ended December 31, 2002, 2001 and 2000 was
      $269,023, $239,304, and $188,711, respectively.


                                       46
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002

(11)  Segment Disclosure

      The Company's reportable segments consist of two types of real estate
      properties for which management internally evaluates operating performance
      and financial results: residental homes for sale and residental rental
      property for lease. The Company also has certain corporate level
      activities including accounting, finance, and management information
      systems, which are not considered separate segments.

      The Company evaluates the performance of its segments based upon
      contribution to income.

      The following table provides financial information regarding revenues from
      customers, loss and total assets for the Company's business segments and
      also provides a reconciliation to the Company's consolidated total:

                                          Year Ended December 31, 2002
                                 -----------------------------------------------
                                   Revenues     Contribution to      Assets
                                                      Loss
                                 -----------------------------------------------
     Residential                   $91,641,620       ($7,608,190)   $34,934,101
     Rental property                   256,117          (163,616)    11,182,886
                                 -----------------------------------------------
                                    91,897,737        (7,771,806)    46,116,987
     Interest and other, net           591,804          (118,751)
                                 -----------------------------------------------
                                   $92,489,541       ($7,890,557)   $46,116,987
                                 ===============================================

      Prior to the year ended December 31, 2002, the Company operated under one
      reportable segment of residential homes for sale.

(12)  Quarterly Financial Data - (unaudited)

Year Ended December 31, 2002

<TABLE>
<CAPTION>
                                                 First          Second            Third          Fourth
                                         ---------------------------------------------------------------
    <S>                                    <C>             <C>              <C>              <C>
    Sales                                  $21,292,270     $43,058,399      $21,678,306      $5,612,645
                                         ===============================================================
    Income (loss) from development
      operations                               $94,774     $(1,079,218)     $(3,587,274)      $(657,465)
                                         ===============================================================
    Net (loss) income                        $(267,446)    $(1,224,951)     $(4,709,052)    $(1,689,108)
                                         ===============================================================
    Basic (loss) income per share               $(0.03)         $(0.12)          $(0.46)         $(0.16)
                                         ===============================================================
    Diluted income per share                    $(0.03)         $(0.12)          $(0.46)         $(0.16)
                                         ===============================================================

<CAPTION>
Year Ended December 31, 2001

                                                   First          Second           Third           Fourth
                                         -----------------------------------------------------------------
 <S>                                          <C>             <C>             <C>              <C>
    Sales                                     $23,672,136     $26,757,550     $18,880,000      $21,304,936
                                         =================================================================
    Income from development operations         $2,045,837      $2,380,158        $173,438       $1,326,092
                                         =================================================================
    Net income (loss)                          $1,344,177      $1,724,075       $(833,428)      $1,091,282
                                         =================================================================
    Basic income (loss) per share                   $0.13           $0.17          $(0.08)           $0.10
                                         =================================================================
    Diluted income per share                        $0.13           $0.17          $(0.08)           $0.10
                                         =================================================================
</TABLE>


                                       47
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE THREE YEARS ENDED DECEMBER 31, 2002

                               CALPROP CORPORATION
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                   For the three years ended December 31, 2002

                                                                 Trust Deeds
                                                Warranty         Receivable
                                                 Reserve           Reserve
                                            --------------------------------
Balance January 1, 2000                           $358,287          $50,000
     Additions charged to operations               283,732               --
     Reductions                                    (95,035)         (20,000)
                                            --------------------------------
Balance December 31, 2000                          546,984           30,000
     Additions charged to operations               332,899               --
     Reductions                                   (209,768)              --
                                            --------------------------------
Balance December 31, 2001                          670,115           30,000
     Additions charged to operations               252,105               --
     Reductions                                   (164,670)              --
                                            --------------------------------
Balance December 31, 2002                         $757,550          $30,000
                                            ================================


                                       48
<PAGE>

                                Index to Exhibits

      3.1   Articles of Incorporation of the Company (Incorporated by reference
            to Exhibit 3.1 to the Company's Amendment No. 1 to Form S-1 filed
            with Securities Exchange Commission on July 3, 1994 bearing File
            #33-62516.)

      3.2   By-laws of the Company (Incorporated by reference to Exhibit 3.2 to
            the Company's Amendment No. 1 to Form S-1 filed with Securities
            Exchange Commission on July 3, 1994 bearing File #33-62516.)

      10.1  1983 Calprop Corporation Stock Option Plan (Incorporated by
            reference to the Company's Form S-8 Registration Statement (File No.
            2-86872), which became effective September 30, 1983.)

      10.2  1989 Executive Long-Term Stock Incentive Option Plan (Incorporated
            by reference to the Company's Form S-8 Registration Statement (File
            No. 33-33640), which became effective March 18, 1991.)

      10.3  1992 Directors Stock Option Plan (Incorporated by reference to the
            Company's Form S-8 Registration Statement (File No. 33-57226), which
            became effective January 18, 1993.)

      10.4  1993 Calprop Corporation Stock Option Plan (Incorporated by
            reference to Exhibit 10.3 to the Company's Amendment No. 1 to Form
            S-1 filed with Securities Exchange Commission on July 3, 1993
            bearing File #33-62516.)

      23    Independent Auditors' Consent

      42    Financial Data Schedule


                                       49
<PAGE>

                                   Exhibit 23

                               CALPROP CORPORATION

                          INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement Nos.
333-92633 and 333-92635 of Calprop Corporation on Form S-8 of our report dated
March 28, 2003 appearing in this Annual Report on Form 10-K of Calprop
Corporation for the year ended December 31, 2002.

Deloitte & Touche LLP

Los Angeles, California
March 28, 2003


                                       50
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) 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.

CALPROP CORPORATION
-----------------------------------
(Registrant)

                                                                  March 28, 2003
-----------------------------------                         --------------------
Victor Zaccaglin,                                                      Date
Chairman of the Board
  and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

                                                                  March 28, 2003
-----------------------------------                         --------------------
Mark F. Spiro                                                          Date
Vice President/Secretary and
Treasurer (Chief Financial
and Accounting Officer)

                                                                  March 28, 2003
-----------------------------------                         --------------------
Ronald S. Petch                                                        Date
President

                                                                  March 28, 2003
-----------------------------------                         --------------------
E. James Murar                                                         Date
Director

                                                                  March 28, 2003
-----------------------------------                         --------------------
Mark T. Duvall                                                         Date
Director

                                                                  March 28, 2003
-----------------------------------                         --------------------
Victor Zaccaglin                                                       Date
Chairman of the Board
Chief Executive Officer


                                       52