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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K

(MARK ONE)

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                         COMMISSION FILE NUMBER 1-6844
                            ------------------------

                              CALPROP CORPORATION

             (Exact name of registrant as specified in its charter)

         INCORPORATED IN CALIFORNIA         (IRS 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.

                          $8,255,437 at March 02, 1998

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

                 9,434,785 Shares Outstanding at March 02, 1998

                      DOCUMENTS INCORPORATED BY REFERENCE:

    Portions of the registrant's definitive Proxy Statement for 1998 Annual
Meeting of Shareholders are incorporated by reference into Part III of this
report.

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                                     PART I

ITEM 1. BUSINESS

GENERAL

    Calprop Corporation ("Calprop") designs, constructs and sells single-family
detached and attached homes and townhomes as part of condominiums or planned
unit developments in California. The Company selects and acquires the site,
secures construction financing and constructs and sells homes. The Company also
sells improved lots in California. 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 develops raw land through the
planning, zoning, and entitlement process.

    During 1997, the Company was primarily engaged in the development of 317
lots, and the construction and marketing of 220 single-family detached homes and
31 townhomes. As of December 31, 1997, the Company had seven residential housing
projects in various stages of development , consisting of 145 homes under
construction (114 were in escrow), 5 completed homes and 317 lots under
development. Additionally, the Company has 10 model homes used in selling the
various types of housing developed. The Companys products range from less
expensive homes for first-time buyers to more expensive near custom homes.

RESIDENTIAL HOUSING INDUSTRY

    The California 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.
California 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

    In recent years, the Company's strategy has been to acquire land in or near
major urban centers in California 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, although the Company constructs housing only in
California, it does not limit its operation to any specific location in
California. The Company usually acquires 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 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 proper
zoning and other permits necessary for development into single-family housing
and other urban uses.

                                       2
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FUTURE PROJECTS

    As the Company intends to continue specializing in the construction and sale
of single-family and multifamily housing, the Company is presently considering
potential projects for 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.

    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

                                       3
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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.

    Projects in which product is currently in the marketing stage are Summertree
Park, Montserrat, Montserrat Estates, Antares and Cierra Del Lago. All such
projects are being marketed through realtors who have no other affiliation with
the Company.

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 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. In the past 3 years, the Company has not completely closed out any
projects.

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 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

                                       4
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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.

    For projects in master planned developments, the Company's units are
adjacent to those of other builders and usually marketed at the same time
through participation in joint advertising programs. While this often increases
direct competition for the Company, it also attracts a larger group of potential
purchasers than would be the case if the Company advertised by itself.

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

                                       5
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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 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 eighteen full-time employees, including four
executive officers, eight persons in its finance, marketing and operations
departments, and six field superintendents and general laborers. The Company
also employs temporary and part-time laborers from time to time as necessary.
None of the Company's employees is 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 June 1998
and the Company expects to renew its license on or before expiration.

                                       6
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ITEM 2. PROPERTIES

CURRENT PROJECTS

    The table below sets forth certain information relating to the Company's
current projects as of December 31, 1997 and certain information relating to the
Company's development operations during the previous twelve months. In addition,
the Company owns 517 entitled lots in Victorville, California.

<TABLE>
<CAPTION>
                                                                                  UNITS       UNITS SOLD    REMAINING
                                                    UNITS SOLD   UNITS UNDER    COMPLETED     SUBJECT TO     UNITS TO
                                                    12 MONTHS    CONSTRUCTION   AND UNSOLD   CONSTRUCTION   CONSTRUCT
                                                      ENDED         AS OF         AS OF         AS OF         AS OF
PROJECT                                              12/31/97      12/31/97      12/31/97      12/31/97      12/31/97
--------------------------------------------------  ----------   ------------   ----------   ------------   ----------
<S>                                                 <C>          <C>            <C>          <C>            <C>
1. Cierra Del Lago................................    --              41          --              38          --
2. Antares........................................    --              60            --            60             37
3. Summertree Park-Elk Grove......................       12            6             5             6             73
4. Cypress Cove...................................       31        --             --           --             --
5. Pleasant Oaks Estates..........................        2        --             --           --             --
6. Montserrat.....................................       57           15          --               2              2
7. Montserrat Estates.............................    --              23          --               8             90
8. Mockingbird Canyon.............................    --           --             --           --                31
9. Parkland Hills.................................    --           --             --           --                84
10. Mission Gorge.................................    --           --             --           --             --
                                                        ---          ---            --           ---            ---
                                                        102          145             5           114            317
                                                        ---          ---            --           ---            ---
                                                        ---          ---            --           ---            ---
Total inventory units as of 12/31/97 (including 10 model units)..............                                   477
                                                                                                                ---
                                                                                                                ---
</TABLE>

    BACKLOG--As noted in the above table, the total number of units sold subject
to construction ("backlog") at December 31, 1997, was 114 units, with gross
revenues of such backlog equal to $23,372,000. As of March 15, 1998, the backlog
was 145 units, representing $29,674,000 compared to a backlog of 60 units
representing $14,309,000 as of March 16, 1997. See also "Management Discussion
and Analysis of Financial Condition and Results of Operations" on page 14 for a
further comparison of the sales for 1997 and 1996.

1. CIERRA DEL LAGO (RANCHO SANTA MARGUERITA, ORANGE COUNTY, CALIFORNIA)

    The Cierra Del Lago project, formerly Montana Del Lago, consists of 41 units
of single-family detached housing. The project consists of two models ranging
from 1,281 to 1,412 square feet with base sales prices before lot premiums or
sales incentives of $155,400 to $163,400. As of December 31, 1997, 38 of the
units were sold subject to construction. The Company expects the majority of
these units, and the three units sold subsequent to year end, to close in the
second quarter of 1998.

    The project is located about 50 miles southeast of Los Angeles along
Interstate 5 near Newport Beach.

    The Company has obtained two construction loans for the Cierra Del Lago
project from United Savings Bank. The loans permit borrowings by the Company of
$2,781,000 on this project and bear interest at the banks reference rate plus
1.5%. As of December 31, 1997, the outstanding principal of these loans totaled
$666,472, and the Company had available $2,114,528, respectively. The Company
believes these funds are adequate to complete the construction of the first and
second phases of construction.

    In 1996, the Company formed DMM Development Co., LLC, a California limited
liability company, ("DMM") with RGC Courthomes, Inc., a California corporation,
("RGC"). In October, 1996, 41 lots in the Cierra Del Lago project were acquired
by DMM. The profits and losses of DMM are to be distributed between the members
as follows, 33.3% to RGC and 66.7% to the Company.

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    The Company has an acquisition loan with the Curci-Turner Company on the
entire 41 lots of the project. The loan permits borrowing by the Company of
$650,000 on this project and bears interest at 12%. The loan contains a profit
sharing provision in the amount of 33% of net proceeds as defined in the
agreement. As of December 31, 1997, $650,000 of the principal of this loan was
outstanding.

2. ANTARES (DEL MAR HEIGHTS, SAN DIEGO COUNTY, CALIFORNIA)

    The Antares project, formerly Elysian 2, consists of 100 units of
single-family detached housing. The project consists of three models ranging
from 1,212 to 1,567 square feet with base sales prices before lot premiums or
sales incentives of $192,900 to $236,900. As of December 31, 1997, sixty of the
units in the first two phases were sold subject to construction. The Company
expects the majority of these units, to close in the second quarter of 1998.
Additionally, the Company expects to begin construction on the final two phases
of construction in April and July of 1998.

    The project is located about 20 miles north of San Diego along Interstate 5.

    The Company has obtained two construction loans for the first two phases of
the Antares project from Imperial Bank. The loans permit borrowings by the
Company of $7,702,313 on this project and bear interest at the banks reference
rate plus 1.5%. As of December 31, 1997, the outstanding principal of these
loans totaled $263,453, and the Company had available $7,496,546. The Company
believes these funds are adequate to complete the construction of the first and
second phases of construction.

    In 1996, the Company formed DMM with RGC. In December, 1996, 100 lots in the
Antares project were acquired by DMM. The profits and losses of DMM are to be
distributed between the members as follows, 33.3% to RGC and 66.7% to the
Company.

    The Company has an acquisition loan with the Curci-Turner Company on the
entire 100 lots of the project. The loan permits borrowing by the Company of
$3,050,000 on this project and bears interest at 12%. The loan contains a profit
sharing provision in the amount of 33.3% of net proceeds as defined in the
agreement. As of December 31, 1997, $3,050,000 of the principal of this loan was
outstanding.

3. SUMMERTREE PARK (ELK GROVE, SACRAMENTO COUNTY, CALIFORNIA)

    The Summertree Park project consists of 120 units of single-family detached
housing. The first phase of 22 units and four models, which product has been
discontinued, was released for construction in July of 1995 and has been sold in
its entirety as of December 31, 1997. The project presently consists of three
models ranging from 1,509 to 2,183 square feet with base sales prices, before
lot premiums or sales incentives, of $129,900 to $157,900. Construction of 18
units and three models of the first phase of the new product began in October
1996, and as of December 31, 1997, six of these units were in escrow and five
were completed and not sold. Construction of the second phase of 19 units is
expected to begin in April 1998.

    The project is located about 20 miles south of Sacramento along Highway 99.

    The Company's construction loan on the second phase of construction was
secured with Imperial Bank. The loan permits borrowing by the Company of
$2,092,967 on this project and bears interest at the banks reference rate plus
1.5%. As of December 31, 1997, the outstanding principal of this loan was
$1,090,756, and the Company had available $99,029. The Company believes these
funds are adequate to complete the construction of the second phase of
construction.

    The Company has an acquisition/construction loan with the Curci-Turner
Company on the entire 120 lots of the project. The loan permits borrowing by the
Company of $4,000,000 on this project and bears interest at 10%. The loan
contains a profit sharing provision in the amount of 40% of net proceeds as
defined in the agreement. As of December 31, 1997, $3,070,504 of the principal
of this loan was outstanding.

                                       8
<PAGE>
4. CYPRESS COVE (HALF MOON BAY, SAN MATEO COUNTY, CALIFORNIA)

    The Cypress Cove project consists of 128 units of townhomes. The project
consists of 4 plans ranging from 1,282 to 1,659 square feet with base sales
prices, before lot premiums or sales incentives, of $239,900 to $294,900. The
Company released the project's first 22 units and four models for construction
in 1991, sixteen homes in 1992, thirteen homes in 1993, 37 homes in 1994 and the
remaining 36 homes in 1996. The Company closed escrow on two homes in 1991, 21
homes in 1992, sixteen homes in 1993, seventeen homes in 1994, fifteen homes in
1995, 26 homes in 1996 and the final 31 homes in 1997.

    The project is located about 30 miles South of San Francisco along Highway
1, 10 miles from San Mateo.

    As of December 31, 1997, there is no outstanding debt related to the Cypress
Cove project.

5. PLEASANT OAKS ESTATES (THOUSAND OAKS, VENTURA COUNTY, CALIFORNIA)

    The Pleasant Oaks Estates project consists of fourteen units of
single-family detached housing. The project consists of product ranging from
2,800 to 3,300 square feet with base sales prices before lot premiums or sales
incentives of $375,000 to $495,000. The Company released nine units and one
model for construction in 1994 and the final four units in 1995. The Company
closed escrow on ten homes in 1995, two in 1996, and two in 1997.

    The project is located about 30 miles northwest of Los Angeles along Highway
101.

    As of December 31, 1997, there is no outstanding debt related to the
Pleasant Oaks Estates project.

6. MONTSERRAT (MURRIETA, RIVERSIDE COUNTY, CALIFORNIA)

    The Montserrat project consists of 91 units of single-family detached
housing. The Company released for construction four models and 41 units in 1996.
The Company closed escrow on seventeen units in 1996 and 57 units in 1997. As of
December 31, 1997, the Company had 15 units under construction (2 were in
escrow), and two lots on which construction will begin in 1998.

    The project is located about 65 miles southeast of Los Angeles along Highway
15.

    The Company secured a $1,346,000 acquisition loan from L & N Consultants,
Inc., the land seller, which bears interest at prime plus 2.0%. As of December
31, 1997, the loan had been paid in its entirety.

    The Company's construction loan on the 24 units in the forth phase of
construction was secured in 1997 with Imperial Bank. The loan permits borrowing
by the Company of $4,226,170 and bears interest at the prime plus 1.25%. As of
December 31, 1997, the outstanding principal of this loan was $1,363,498, and
the Company had available $680,203. The Company believes these funds are
adequate to complete the construction of the fourth phase of construction.

    The Company has model and acquisition loans with the Curci-Turner Company on
four model units and 21 units of the project. The loans permit borrowing by the
Company of $400,000 and $1,487,500, respectively and bear interest at 12%. The
loans contain a profit sharing provision in the amount of 50% of net proceeds as
defined in the agreement. As of December 31, 1997, $104,250 was outstanding on
the model loan and the acquisition loan was paid off in its entirety.

7. MONTSERRAT ESTATES (MURRIETA, RIVERSIDE COUNTY, CALIFORNIA)

    The Montserrat project consists of 117 units of single-family detached
housing. The project consists of four models ranging from 2,280 to 3,389 square
feet with base sales prices before lot premiums or sales incentives of $174,900
to $226,900. The Company released for construction 24 units in 1997. As of
December 31, 1997, the Company had 24 units under construction (8 were in
escrow), and four models.

                                       9
<PAGE>
    The project is located about 65 miles southeast of Los Angeles along Highway
15.

    The Company secured a $752,000 acquisition loan from Oak Properties 24, LLC,
the land seller, which bears interest at 4.0%. As of December 31, 1997, the
outstanding balance on this loan was $664,685.

    On October 30, 1997, the Company and PICal Housing Associates, L.P.
("PICal") formed Montserrat II, LLC. As part of the formation, Calprop
contributed 117 lots of its Montserrat Estates project as well as certain
obligations related to the lots, for a basis of $550,000, which approximated
book value and fair value. PICal contributed $2,000,000 at the formation and
contributed an additional $195,039 during the year. Pursuant to the operating
agreement of Montserrat II, LLC, losses are allocated 100% first to Calprop
until its capital account is zero, then to PICal. Income is allocated first to
reverse losses, then to PICal to attain a return on its capital, then to
Calprop. As of December 31, 1997, PICal's ownership interest in Montserrat II,
LLC was eighty-one percent.

    The Company's construction loan on the 46 units in the first two phases of
construction was secured in 1997 with Imperial Bank. The loan permits borrowing
by the Company of $7,760,000 and bears interest at the prime plus 1.25%. As of
December 31, 1997, the outstanding principal of this loan was $263,454, and the
Company had available $7,496,546. The Company believes these funds are adequate
to complete the construction of the first two phases of construction.

8. MOCKINGBIRD CANYON (UNINCORPORATED TERRITORY OF RIVERSIDE COUNTY, CALIFORNIA)

    The Mockingbird Canyon project consists of 31 lots. The Company is planning
on building single-family homes averaging 3,200 square feet and average sales
prices near $390,000 on the 31 lots.

    The project is located about 90 miles east of Los Angeles and 30 miles south
of San Bernardino along Interstate 15.

9. PARKLAND HILLS (HEALDSBURG, SONOMA COUNTY, CALIFORNIA)

    In October 1997 the Company purchased 84 entitled lots in Healdsburg,
California. The Company is planning on building single-family homes averaging
1,450 square feet with average sales prices near $206,000. The first phase of
construction is expected to begin in March 1998.

    The project is located about 75 miles north of San Francisco along highway
101.

    The Company has an acquisition/construction loan with the Curci-Turner
Company on the entire 83 lots of the project. The loan permits borrowing by the
Company of $2,025,000 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, 1997, $2,025,000 of the principal
of this loan was outstanding.

10. 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 Company 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 Company.

                                       10
<PAGE>
LAND HELD FOR INVESTMENT

1. BRENTWOOD (VICTORVILLE, SAN BERNARDINO COUNTY, CALIFORNIA)

    This project consists of 517 lots. The Company substantially completed the
entitlement process on the project during 1992. The project is part of a Mello
Roos Community Facilities District for major infrastructure in the Victorville
area. Beginning in 1996, the Company has considered selling the vacant land, and
has valued the investment accordingly. However, in the future, the Company may
ultimately decide to build single family housing on 140 lots, with homes
averaging 1000 square feet and average sales prices near $85,000. The plans for
the remaining 377 lots include lot sales to other builders and possibly a second
project for which the basic parameters have not been determined.

    The project is located about 90 miles northeast of Los Angeles and 30 miles
north of San Bernardino near Interstate 15 and Highway 395.

DEVELOPMENTS IN ESCROW

    The Company has entered into escrow to acquire three projects in the Denver
area of Colorado, Saddlerock, a 94 lot development, in Aurora, Colorado,
Templeton Heights, a 117 lot development, in Colorado Springs, Colorado and
Hunters Chase, a 170 lot development, in Thornton, Colorado. The Company is also
in escrow to acquire 410 lots in Milpitas, California. All four of these
developments are scheduled to commence in 1998.

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.

                                       11
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    No matters were submitted to a vote of Companys security holders during the
fourth quarter of 1997.

                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
  MATTERS

    Since October 1, 1996, transactions in the Company's common stock, its only
class of common equity security, have been regularly quoted on the OTC Bulletin
Board under the symbol CLPO. Prior to October 1, 1996, the Companys common stock
was traded on the American Stock Exchange under the symbol, CPP.

<TABLE>
<CAPTION>
                                                            FIRST       SECOND        THIRD       FOURTH
                                                           QUARTER      QUARTER      QUARTER      QUARTER
                                                         -----------  -----------  -----------  -----------
<S>                                                      <C>          <C>          <C>          <C>
1997 stock price range--...............................
  High.................................................        9/16         9/16        15/16        15/16
  Low..................................................        9/32         9/32          3/8          1/2

1996 stock price range--...............................
  High.................................................       1 1/4        1 1/8            1          5/8
  Low..................................................         1/2          3/8          3/8         3/16
</TABLE>

    As of March 2, 1998, there were 551 record holders of common stock.

    Source of Information: Chase Mellon Shareholder Services

Dividends: There have been no cash dividends declared in the past three years,
           nor was there a stock dividend declared during 1997 or 1996. The
           dividend policy, whether cash or stock, is reviewed by the Board of
           Directors on an annual basis. During 1997, there were no
           restrictions, as a result of a loan or other agreement, limiting the
           Companys ability to issue a dividend.

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.

                                       12
<PAGE>
                FOR THE FIVE YEAR PERIOD ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                  1997           1996           1995           1994           1993
                                              -------------  -------------  -------------  -------------  -------------
<S>                                           <C>            <C>            <C>            <C>            <C>

SALES AND OPERATING REVENUE.................  $  22,908,649  $  13,717,126  $  17,061,239  $  18,733,525  $  23,431,438

(LOSS) INCOME BEFORE EXTRAORDINARY ITEM.....     (1,620,211)    (9,200,342)       513,381     (1,628,889)    (3,147,770)

EXTRAORDINARY ITEM-- EXTINGUISHMENT OF
  DEBT......................................       --             --             --             --              610,893

NET (LOSS) INCOME...........................     (1,620,211)    (9,200,342) $     513,381     (1,628,889)    (2,536,877)

(LOSS) INCOME BEFORE EXTRAORDINARY ITEM PER
  COMMON SHARE..............................  $       (0.18) $       (1.28) $        0.01  $       (0.44) $       (0.70)

EXTRAORDINARY ITEM PER COMMON SHARE.........       --             --             --             --        $        0.13

BASIC (LOSS) INCOME PER COMMON SHARE........  $       (0.18) $       (1.28) $        0.01  $       (0.44) $       (0.57)

AS OF DECEMBER 31:

TOTAL ASSETS................................  $  30,956,802  $  27,533,378  $  31,805,263  $  30,433,365  $  31,851,283

LONG TERM OBLIGATIONS.......................  $  14,267,931  $  14,993,355  $  10,444,731  $   4,336,544  $     828,263
</TABLE>

    The extraordinary item in 1993 is a result of forgiveness of debt.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS

    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 Companys products were well received, exemplified by an increase in
the number of units sold subject to construction (backlog) at December 31, 1997
of 114 units compared to 33 units one year ago. Additionally, the Company's
sales revenue increased from $13,717,126 in 1996 to $22,908,649 in 1997. The
increase in sales revenue between 1996 and 1997 is primarily attributable to an
increase in units sold, from 66 in 1996 to 102 in 1997. The Company increased
its gross profit to $54,702 in 1997 from a gross loss of $432,998 in 1996. The
increase was a result of a reduction in incentives required to stimulate sales,
warranty costs and marketing expenses.

    The decrease in sales, and cost of sales between 1995 and 1996 is primarily
attributable to a decrease in units sold and the mix of units sold. The
Company's sales decreased from $17,061,239 in 1995 to $13,717,126 in 1996. The
Company sold 76 units in 1995 as opposed to 66 in 1996. The Company's gross
profit decreased from $824,406 in 1995 to a gross loss of $432,998 in 1996. Such
gross loss was a result of increased incentives required to stimulate sales,
increased capitalized overhead and interest due to slower absorption and
increased warranty costs.

    In 1993, the Company's Oceanside property was taken by the State of
California through eminent domain. The Company received a deposit of probable
compensation of $2,332,000 from the State of California and a loss was recorded
at that time. In January 1995, a valuation trial was held, and the verdict
entitled the Company to an additional $2,080,900, plus interest. On March 24,
1995, the Company received $2,280,363 in settlement of this matter, which was
recorded as income in the first quarter of 1995. The

                                       13
<PAGE>
reversal of warranty reserves and the settlement with the State of California
contributed to net income of $513,381 in 1995.

    In 1996, the Company recognized impairment of real estate under development
and land held for investment in the amount of $6,093,475. Impairment losses
recognized on the Companys real estate under development projects, Pleasant Oaks
Estates, Cypress Cove, and Summertree Park, Elk Grove, were $1,014,629,
$1,540,972 and $1,911,676, respectively. The impairment loss recognized on the
Companys land held for investment, the Victorville project, was $1,626,198.

    The impairment loss on the Pleasant Oaks Estates project is primarily a
result of additional municipal requirements in 1996 which contributed to a
significant delay of the completion of the final units. Additional land
development costs were incurred to satisfy the municipal requirements, and as a
result of the delay, the Company incurred increased project overhead and
interest costs, and was forced to reduce sales prices and raise incentives as
the competition in this market increased.

    The impairment loss on the Cypress Cove project is due to the Company
incurring increased production overhead, interest and marketing costs as a
result of a slow down in absorption due to a decreased customer base, and an
increased production period, as the area experienced the impact of inclement
weather conditions in the winter and spring of 1996, including the closure of a
major access road from the San Francisco Bay Area. Additionally, in order to
revitalize the project subsequent to the storms in 1996, the Company increased
sales incentives.

    The impairment loss on the Summertree Park, Elk Grove project is primarily a
result of a slower absorption caused by a sagging real estate market in the
Sacramento area. As a result, the Company discontinued the product after the
first phase of production, and began to develop a new product line in 1996,
which the Company opened in April 1997. The Company incurred increased
capitalized marketing, production overhead and interest costs as models were
constructed for the new product line. Contributing to additional production
overhead and interest costs relating to the development of the new product, the
carrying costs for the development were further increased as inclement weather
conditions in the area during the winter and spring of 1996 hampered sales and
the development efforts. Additionally, in order to increase the absorption of
the old product line, the Company increased sales incentives.

    The impairment loss recognized on the Company's land held for investment,
the Victorville property, was a result of the Company valuing the land based on
the sale of the vacant lots as opposed to the development of the project.

    The Company has continued its program of cost reduction and control in all
areas of its operations. The Company feels that based on a continuation of
current economic conditions and current interest rates, a return to
profitability in 1998 appears feasible.

RESULTS OF OPERATIONS

    The Company had a net loss of $1,620,211 in 1997, a net loss of $9,200,342
in 1996, and a net income of $513,381 in 1995. The net loss in 1997 is primarily
due to the impact of impairment losses on three projects recognized in 1996
resulting in low gross profit in 1997. The net loss suffered in 1996 is
primarily a reflection of the recognition of asset impairment of the Company's
properties in the amount of $6,093,475. The net income in 1995 is primarily the
result of both the favorable $2,332,000 State of California settlement and the
reversal of $729,933 in warranty reserves as a result of the settlement of a
lawsuit.

    Gross revenues increased to $22,908,649 in 1997 from $13,717,126 in 1996, up
67.0%. Gross revenues were $17,061,239 in 1995. In 1997, the Company sold 102
homes, with an average sales price of $224,595. In 1996, the Company sold 66
homes, with an average sales price of $204,733. In 1995, the Company sold 76
homes and two lots, with an average sales price of a home of $223,174.

                                       14
<PAGE>
    The overall gross profit percentage of the Company was a positive 0.2%,
negative 3.2%, positive 4.8% in 1997, 1996 and 1995, respectively. Increased
warranty costs negatively impacted the gross profit in 1996, while the reversal
of warranty reserves positively impacted the gross profit in 1995.

    General and administrative expenses were $1,444,096 in 1997 and $2,332,444
in 1996, down 38.1%. General and administrative expenses were $2,429,009 in
1995. The decrease in 1997 is the result of a reduction in payroll costs,
decreased accounting costs and the capitalization of general liability insurance
premiums to real estate under development which is to be expensed when the homes
are sold.

    Benefit for income taxes in 1997 of $185,857 represents the net refund
resulting from a claim filed for the carryback of losses related to certain
qualifying expenses incurred in 1996.

    Other income in 1995 of $2,401,450 is due primarily to the State of
California settlement which resulted in $2,332,000 of income.

LIQUIDITY AND CAPITAL RESOURCES

    During 1995, the Company obtained a loan in the amount of $4,000,000 from
the Curci-Turner Company for the acquisition and development of the Summertree
Park project. In addition to interest, this loan contains a profit sharing
provision which provides that Curci-Turner Company receive 40% of Net Proceeds
as defined in the agreement, which is comparable to gross profit. As of December
31, 1997, the outstanding balance owing on this loan totaled $3,070,492.

    During 1996, the Curci-Turner Company made a loan of $3,700,000 to the
Company secured by 41 lots in the Cierra Del Lago project in Rancho Santa
Marguerita and 100 lots in the Antares project in Del Mar Heights. In addition
to interest, this loan contains a profit sharing provision which provides that
Curci-Turner Company receive thirty-three percent of "Net Proceeds" as defined
in the agreement. As of December 31, 1997, the outstanding principal on this
note was $3,700,000.

    During 1996, the Curci-Turner Company made loans of $1,487,500 to the
Company secured by 21 lots and a four unit model complex in the Montserrat
project in Murrieta, California. In addition to interest, each loan contains a
profit sharing provision which provides that the Curci-Turner Company receive
50% of "Net Proceeds" as defined in the agreement, which is comparable to gross
profit. As of December 31, 1997, the outstanding principal on these notes
totaled $104,250.

    During 1997, the Company obtained a loan in the amount of $2,025,000 from
the Curci-Turner Company for the acquisition and development of the Parkland
Hills project. In addition to interest, this loan contains a profit sharing
provision which provides that the Curci-Turner Company receive 50% of "Net
Proceeds" as defined in the agreement, which is comparable to gross profit. As
of December 31, 1997, the outstanding balance owing on this loan totaled
$2,025,000.

    During 1997, the Company obtained a loan in the amount of $2,000,000 from
Mission Gorge, LLC, a related party, for working capital purposes. The loan
provides for interest at 12%. As of December 31, 1997, the outstanding principal
on this note was $2,000,000.

    During 1997, the Company borrowed an additional $1,006,000 from and repaid
$1,450,000 to an officer of the Company. As of December 31, 1997, the
outstanding principal on remaining on these notes, which accrue interest at 12%,
was $690,000.

    During 1996, the Company converted its Preferred Stock to Common Stock.
Accrued Preferred Stock dividend due an officer of the Company and a related
party of $581,541 and $472,545, respectively, was exchanged for notes with
interest payable at 10%. As of December 31, 1997, the outstanding principal due
an officer of the Company and a related party on these notes was $581,541 and
$472,545, respectively.

                                       15
<PAGE>
    As of December 31, 1997, the Company had loans, which provide for interest
at prime and are due on demand, from certain employees and related parties. As
of December 31, 1997, these loans totaled $75,000.

    As of December 1997, the Company has loans outstanding to financial
institutions, secured by the development projects trust deeds, with rates
ranging from 4% to prime plus 1.50% and maturing April 1998 through January
1999. As of December 31, 1997, the outstanding balances owing on these loans
totaled $6,711,530.

    As of December 31, 1997, the Company has an outstanding balance on the
Community Facilities District Special Tax Bonds (CFD), issued by the City of
Victorville, California, of $2,336,544. Given the weakness in the Victorville
housing market, the Company has determined that servicing the nonrecourse bond
liability is not a prudent use of capital. As of December 31, 1997, the Company
has a delinquency of $777,000 for the Victorville bond liability principal and
accrued interest.

    As of December 31, 1997, the Company had remaining loan commitments from
banks of approximately $15,600,000, 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, 1997, the Company does not have any material commitments
for capital expenditures in 1998.

    As of December 31, 1997, the Company had seven projects in various stages of
development, with four producing revenues from completed homes: Cypress Cove,
Summertree Park, Pleasant Oaks Estates and Montserrat. The remaining three
projects, Cierra Del Lago, Antares and Parkland Hills, are in the initial stages
of development. The Company enters 1997 with 145 homes under construction, of
which 114 are sold, five homes completed and unsold, and ten model units.
Additionally, the Company has an inventory of 317 improved lots and 517 mapped
unimproved lots.

    Based on its agreements with its lenders, the Company believes that it will
have sufficient liquidity to finance its construction projects in 1998 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 1998, minimize operating
expenses, and maintain control over costs. With regard to the debt coming due in
1998, management expects to pay these 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 1998.

    Many of the world's computer systems currently record years in a two-digit
format. Some of these computer systems will be unable to properly interpret
dates beyond the year 1999, which could lead to business disruptions in the U.S.
and internationally (the "Year 2000" issue). The Company has reviewed each of
its systems and programs and has determined that it is Year 2000 compliant. No
material costs have been or will be incurred related to the Year 2000 compliance
issue.

                                       16
<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 1995, 1996 and 1997 in California,
thus preventing the Company from increasing sales prices to cover increased
costs.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
  PAGE NO.     FINANCIAL STATEMENTS:
-------------  --------------------------------------------------------------------------------------------------------
<S>            <C>

         19    Independent Auditors' Report

         20    Consolidated Balance Sheets as of December 31, 1997 and 1996

         21    Consolidated Statements of Operations--Three Years Ended December 31, 1997

         22    Consolidated Statements of Stockholders' Equity--Three Years Ended December 31, 1997

         23    Consolidated Statements of Cash Flows--Three Years Ended December 31, 1997

         25    Notes to Consolidated Financial Statements

               SCHEDULE SUPPORTING FINANCIAL STATEMENTS:

         38    II--Valuation and Qualifying Accounts--Three Years Ended December 31, 1997
</TABLE>

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. 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.

 (b) Reports on Form 8-K--

    No Reports on Form 8-K were filed during the quarter ending on December 31,
                                        1997.

                                       17
<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                                         March 26, 1998
       ZACCAGLIN                                    ------------------------
  -------------------                                         Date
   Victor Zaccaglin
    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.

             NAME                         TITLE                    DATE
------------------------------  --------------------------  -------------------

                                Vice President/Secretary
      /s/ MARK F. SPIRO           and Treasurer (Chief
------------------------------    Financial and Accounting    March 26, 1996
        Mark F. Spiro             Officer)

     /s/ RONALD S. PETCH
------------------------------  President                     March 26, 1998
       Ronald S. Petch

 /s/ GEORGE R. BRAVANTE, JR.
------------------------------  Director                      March 26, 1998
   George R. Bravante, Jr.

      /s/ JOHN L. CURCI
------------------------------  Director                      March 26, 1998
        John L. Curci

     /s/ VICTOR ZACCAGLIN
------------------------------  Chairman of the Board         March 26, 1998
       Victor Zaccaglin           Chief Executive Officer

                                       18
<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 as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. 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 these
financial statements and financial statement schedule based on our audits.

    We conducted our audits in accordance with generally accepted auditing
standards. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
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 20, 1998

                                       19
<PAGE>
                              CALPROP CORPORATION

                          CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
                                                                                         1997           1996
                                                                                     -------------  -------------
<S>                                                                                  <C>            <C>

                                                     ASSETS

REAL ESTATE UNDER DEVELOPMENT (Notes 1, 2 and 5)...................................  $  26,325,978  $  21,908,164

INVESTMENT IN LAND (Note 3)........................................................      2,975,982      4,037,187
                                                                                     -------------  -------------

TOTAL INVESTMENT IN REAL ESTATE....................................................     29,301,960     25,945,351
                                                                                     -------------  -------------

OTHER ASSETS:

  Cash and cash equivalents (Note 1)...............................................      1,100,028      1,224,780

  Prepaid expenses.................................................................         23,149         29,587

  Deferred and other assets (Note 4)...............................................        531,665        333,660
                                                                                     -------------  -------------

    Total other assets.............................................................      1,654,842      1,588,027
                                                                                     -------------  -------------

                                                                                     $  30,956,802  $  27,533,378
                                                                                     -------------  -------------
                                                                                     -------------  -------------

                                      LIABILITIES AND STOCKHOLDERS' EQUITY

<CAPTION>

                                                                                         1997           1996
                                                                                     -------------  -------------
<S>                                                                                  <C>            <C>

TRUST DEEDS AND NOTES PAYABLE (Note 5).............................................  $   6,713,809  $   5,011,866

RELATED PARTY NOTES (Note 5).......................................................     12,718,829     12,528,550
                                                                                     -------------  -------------

  Total trust deeds and notes payable..............................................     19,432,638     17,540,416

COMMUNITY FACILITIES DISTRICT SPECIAL TAX BONDS (Notes 3 and 5)....................      2,336,544      2,336,544

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES...........................................      3,954,885      3,025,783

WARRANTY RESERVES (Note 1).........................................................        288,278        261,401

ACCRUED DIVIDENDS PAYABLE ON PREFERRED STOCK (Note 7)..............................       --             --
                                                                                     -------------  -------------

  Total liabilities................................................................     26,012,345     23,164,144

MINORITY INTEREST (Note 1).........................................................      2,187,847         10,000

COMMITMENTS AND CONTINGENCIES (Note 10)

STOCKHOLDERS' EQUITY (Notes 7 and 8):

  Common stock, no par value; 20,000,000 shares authorized; 9,304,785 and 9,224,585
    shares issued and outstanding at December 31, 1997 and 1996, respectively......      9,304,785      9,224,585

  Additional paid-in capital.......................................................     25,886,906     25,911,579

  Deferred Compensation (Note 8)...................................................       (106,595)       (68,655)

  Accumulated deficit..............................................................    (32,328,486)   (30,708,275)
                                                                                     -------------  -------------

      Total Equity.................................................................      2,756,610      4,359,234
                                                                                     -------------  -------------

                                                                                     $  30,956,802  $  27,533,378
                                                                                     -------------  -------------
                                                                                     -------------  -------------
</TABLE>

                 See notes to consolidated financial statements

                                       20
<PAGE>
                              CALPROP CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                      THREE YEARS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                          1997           1996           1995
                                                                      -------------  -------------  -------------
<S>                                                                   <C>            <C>            <C>

DEVELOPMENT OPERATIONS (Notes 1 and 2):

  Real estate sales.................................................  $  22,908,649  $  13,717,126  $  17,061,239

  Cost of real estate sales.........................................     22,853,947     14,150,124     16,236,833
                                                                      -------------  -------------  -------------

                                                                             54,702       (432,998)       824,406

  Recognition of impairment of real estate under development and
    land held for investment (Note 2)...............................       --           (6,093,475)      --
                                                                      -------------  -------------  -------------

  Income (loss) from development operations.........................         54,702     (6,526,473)       824,406

Other income (Note 9)...............................................         91,738        181,788      2,406,350

Other expenses:

  General and administrative........................................      1,444,096      2,332,444      2,429,009

  Interest expense (Note 5).........................................        339,766        217,854         25,211

  Investment property holding costs (Note 3)........................        185,838        305,359        263,155
                                                                      -------------  -------------  -------------

    Total other expenses............................................      1,969,700      2,855,657      2,717,375

Minority interests (Note 1).........................................        (17,192)      --             --
                                                                      -------------  -------------  -------------

(Loss) income before benefit for income taxes.......................     (1,806,068)    (9,200,342)       513,381

Benefit for income taxes (Note 6)...................................       (185,857)      --             --
                                                                      -------------  -------------  -------------

NET (LOSS) INCOME...................................................  $  (1,620,211) $  (9,200,342) $     513,381
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------

NET (LOSS) INCOME ALLOCABLE TO COMMON STOCK.........................  $  (1,620,211) $  (9,402,589) $      48,938
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------

BASIC (LOSS) INCOME PER SHARE (Note 1)..............................  $       (0.18) $       (1.28) $        0.01
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------

WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK...................      9,242,386      7,346,772      4,836,393
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------
</TABLE>

                 See notes to consolidated financial statements

                                       21
<PAGE>
                              CALPROP CORPORATION

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
                               PREFERRED STOCK         COMMON STOCK      ADDITIONAL                                  TOTAL
                            ---------------------  --------------------   PAID-IN      DEFERRED     ACCUMULATED   STOCKHOLDERS'
                             SHARES      AMOUNT     SHARES     AMOUNT     CAPITAL    COMPENSATION     DEFICIT        EQUITY
                            ---------  ----------  ---------  ---------  ----------  -------------  ------------  ------------
<S>                         <C>        <C>         <C>        <C>        <C>         <C>            <C>           <C>
BALANCE,
January 1, 1995...........  3,574,875  $4,575,840  4,813,641  $4,813,641 $25,902,955      --        ($21,354,624)  $13,937,812
  Net income..............                                                                              513,381       513,381
  Net issuance of shares
    under 1989 stock
    incentive plan (Note
    8)....................                            79,400     79,400       7,438      (87,938)                      (1,100)
  Issuance of shares upon
    exercise of options
    issued under 1993
    stock option plan
    (Note 8)..............                             1,500      1,500        (375)                                    1,125
  Conversion of preferred
    stock to common
    stock.................     (3,507)     (4,489)     4,489      4,489                                                --
  Dividend accrual--
    preferred stock.......                                                                             (464,443)     (464,443)
                            ---------  ----------  ---------  ---------  ----------  -------------  ------------  ------------
BALANCE, December 31,
  1995....................  3,571,368   4,571,351  4,899,030  4,899,030  25,910,018      (87,938)   (21,305,686)   13,986,775
  Net loss................                                                                           (9,200,342)   (9,200,342)
  Cancellation of shares
    under 1989 stock
    incentive plan (Note
    8)....................                            (3,680)    (3,680)      1,561                                    (2,119)
  Amortization of deferred
    compensation (Note
    8)....................                                                                19,283                       19,283
  Redemption of
    preferredstock for
    cash..................   (189,153)   (242,116)                                                                   (242,116)
Conversion of preferred
  stock to common stock...  (3,382,215) (4,329,235) 4,329,235 4,329,235                                                --
  Dividend accrual--
    preferred stock.......                                                                             (202,247)     (202,247)
                            ---------  ----------  ---------  ---------  ----------  -------------  ------------  ------------
BALANCE, December 31,
  1996....................     --          --      9,224,585  9,224,585  25,911,579      (68,655)   (30,708,275)    4,359,234
  Net loss................                                                                           (1,620,211)   (1,620,211)
  Net issuance of shares
    under 1989 stock
    incentive plan (Note
    8)....................                            80,200     80,200     (24,673)     (55,527)                      --
  Amortization of deferred
    compensation (Note
    8)....................                                                                17,587                       17,587
                            ---------  ----------  ---------  ---------  ----------  -------------  ------------  ------------
BALANCE, December 31,
  1997....................     --          --      9,304,785  $9,304,785 $25,886,906   $(106,595)   ($32,328,486)  $2,756,610
                            ---------  ----------  ---------  ---------  ----------  -------------  ------------  ------------
                            ---------  ----------  ---------  ---------  ----------  -------------  ------------  ------------
</TABLE>

                 See notes to consolidated financial statements

                                       22
<PAGE>
                              CALPROP CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                         1997           1996           1995
                                                                     -------------  -------------  -------------
<S>                                                                  <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net (loss) income................................................  $  (1,620,211) $  (9,200,342) $     513,381
  Adjustments to reconcile net (loss) income to net cash (used in)
    provided by operating activities:
    Minority interests.............................................        (17,192)      --             --
    Depreciation and amortization..................................         50,677         48,109         15,277
    Recognition of impairment of real estate under development and
      land held for investment.....................................       --            6,093,475       --
    Other..........................................................       --             --               86,837
    Provision for warranty reserves................................        207,844        399,905        275,966
  Change in assets and liabilities
    (Increase) decrease in deferred and other assets...............       (209,943)       (49,600)       384,207
    (Increase) in investments in land..............................       --               (8,322)        (5,556)
    Decrease (increase) in prepaid expenses........................          6,438        258,961        (36,712)
    Increase (decrease) in accounts payable and accrued liabilities
      and warranty reserves........................................        748,135       (461,635)    (1,512,487)
    Additions to real estate development in process................    (26,210,556)   (15,663,366)   (18,398,550)
    Cost of real estate sales......................................     22,853,947     14,150,124     16,236,833
                                                                     -------------  -------------  -------------
      Net cash used in operating activities........................     (4,190,861)    (4,432,691)    (2,440,804)

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures.............................................        (21,152)       (73,875)       (39,846)

CASH FLOWS FROM FINANCING ACTIVITIES
  Borrowings under construction loans-related parties..............  $   6,652,968  $  10,855,868  $   6,060,000
  Payments under construction loans-related parties................     (6,342,689)    (5,902,318)    (3,692,084)
  Borrowings under construction loans..............................     15,318,368      9,598,373      9,790,510
  Payments under construction loans................................    (13,616,425)    (9,269,433)    (9,882,267)
  Contributions from joint venture partners........................      2,483,019         10,000       --
  Distributions to joint venture partner...........................       (407,980)      --             --
  Payments of preferred stock dividends............................       --              (77,351)      (136,257)
  Redemption of convertible preferred stock........................       --             (242,116)      --
  Payments on bond liability.......................................       --             --              (44,888)
  Proceeds from issuance of common stock...........................       --             --                1,125
                                                                     -------------  -------------  -------------
    Net cash provided by financing activities......................      4,087,261      4,973,023      2,096,139
                                                                     -------------  -------------  -------------
  Net (decrease) increase in cash and cash equivalents.............       (124,752)       466,457       (384,511)
  Cash and cash equivalents at beginning of the year...............      1,224,780        758,323      1,142,834
                                                                     -------------  -------------  -------------
  Cash and cash equivalents at end of the year.....................  $   1,100,028  $   1,224,780  $     758,323
                                                                     -------------  -------------  -------------
                                                                     -------------  -------------  -------------
</TABLE>

                 See notes to consolidated financial statements

                                       23
<PAGE>
                              CALPROP CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                        1997            1996            1995
                                                                   --------------  --------------  --------------
<S>                                                                <C>             <C>             <C>

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

  Cash paid during the year for:

    Interest (net of amount capitalized).........................  $      339,766  $      217,854  $       25,211

NON-CASH INVESTING AND FINANCING ACTIVITIES:

  Accrual of preferred dividend..................................        --              (202,247)       (464,443)

  Conversion of preferred stock to common stock..................        --             4,329,235        --

  Exchange of loan from related party to minority interest.......         120,000        --              --

  Exchange of real estate development of $4,400,984, less a loan
    payable of $2,000,000 for fifty percent interest in joint
    venture......................................................        --             2,000,000        --
</TABLE>

                 See notes to consolidated financial statements

                                       24
<PAGE>
                              CALPROP CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    NATURE OF OPERATIONS--  Calprop Corporation ("the Company"), a California
Corporation, constructs and sells single-family detached and attached homes and
townhomes as part of condominiums or planned unit developments in California.
During 1997, the Company was primarily engaged in the development of 317 lots,
and the construction and marketing of 220 single-family detached homes and 31
townhomes. As of December 31, 1997, the Company had seven residential housing
projects in various stages of development , consisting of 145 homes under
construction (114 were in escrow), 5 completed homes and 317 lots under
development. Additionally, the Company has 10 model homes used in selling the
various types of housing developed. The Companys products range from less
expensive homes for first-time buyers to more expensive near custom homes.

    USE OF ESTIMATES--  The preparation of financial statements in conformity
with generally accepted accounting principles 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.

    REAL ESTATE SALES--  Revenue from real estate sales and related costs are
recognized at the close of escrow, when title passes to the buyer. The Company
follows the guidelines for profit recognition as set forth by Statement of
Financial Accounting Standards ("SFAS") No. 66, "Accounting for Sales of Real
Estate."

    The Company regularly 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.

    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.

    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 actual
warranty costs.

    CASH AND CASH EQUIVALENTS--  For purposes of the statement of cash flows,
cash and cash equivalents include readily marketable securities with an original
maturity of 90 days or less.

    NET INCOME (LOSS) PER SHARE--  In February 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 128, "Earnings per Share". This
statement established standards for computing and presenting earnings per share
("EPS"). The statement simplified the standards for computing EPS and made them
comparable to international EPS standards. It replaced the presentation of
primary EPS with the presentation of basic EPS. Basic EPS excludes dilution and
is computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. Diluted EPS is
computed similarly to previously reported fully diluted EPS.

                                       25
<PAGE>
                              CALPROP CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    The following table sets forth the computation of basic and diluted net
income (loss) per common share:

<TABLE>
<CAPTION>
                                                        1997           1996           1995
                                                    -------------  -------------  ------------
<S>                                                 <C>            <C>            <C>

Numerator:

  Net (loss) income...............................  $  (1,620,211) $  (9,200,342) $    513,381

  Preferred stock dividends.......................       --             (202,247)     (464,443)
                                                    -------------  -------------  ------------

  Numerator for basic and diluted net (loss)
    income per share..............................  $  (1,620,211) $  (9,402,589) $     48,938
                                                    -------------  -------------  ------------
                                                    -------------  -------------  ------------

Denominator for basic and diluted net (loss)
  income per common share--weighted-average
  shares..........................................      9,242,386      7,346,772     4,836,393
                                                    -------------  -------------  ------------
                                                    -------------  -------------  ------------

Basic and diluted net (loss) income per common
  share...........................................  $       (0.18) $       (1.28) $       0.01
                                                    -------------  -------------  ------------
                                                    -------------  -------------  ------------
</TABLE>

    Options and warrants to purchase 1,536,000 and 1,269,250 shares of common
stock were outstanding during 1997 and 1996, respectively, but were not included
in the computation of diluted net loss per common share because the effect in
years with a net loss would be antidilutive. Options to purchase 1,207,750
shares of common stock at a weighted average price of $1.06 per share were
outstanding during 1995, but were not included in the computation of diluted net
income per share because the options exercise price was greater than the average
market price of the common shares, and therefore, the effect would be
antidilutive. Additionally, preferred stock convertible to 5,851,329 shares of
common stock were outstanding during 1995, but were not included in the
computation of diluted income per share because the adjustment for preferred
stock dividends would cause an antidilutive effect.

    On February 20, 1998, an officer of the company exercised options to
purchase 130,000 shares of common stock with an exercise price of $0.825 per
share. The Company received $107,250 cash as a result of the exercise of these
options.

    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
$199,389 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 are secured by 520,000 shares of the Company's
common stock, accrue interest at 4.987% and mature on March 10, 2001.

    EMPLOYEE STOCK PLANS--  In October 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation", which was effective for the Company
beginning January 1, 1996. SFAS No. 123 requires expanded disclosure of
stock-based compensation arrangements with employees and allows for compensation
cost to be measured either based on the fair market value of the equity
instrument awarded or under APB 25, which recognizes compensation cost based on
intrinsic value of the equity instrument awarded.

                                       26
<PAGE>
                              CALPROP CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company continues to apply APB Opinion No. 25 to its stock based
compensation awards to employees and will disclose the required pro forma effect
on net income and earnings per share.

    FAIR VALUE OF FINANCIAL INSTRUMENTS--  SFAS No. 107, "Disclosure about Fair
Value of Financial Instruments", requires disclosure of fair value information
on financial instruments, when it is practicable to estimate that value.
Management believes that the recorded value of all financial instruments
approximates their fair market value as result of variable interest rates and
short term durations.

    BASIS OF CONSOLIDATION--  The accompanying financial statements include the
accounts of Calprop Corporation and all its subsidiaries.

    The Company has consolidated the financial statements of DMM Development,
LLC ("DMM"), a joint-venture formed for the development of the Cierra del Lago
and Antares projects, Montserrat Development Co., LLC ("MDC"), a joint-venture
formed for the development of certain lots in the Montserrat project, and
Montserrat II, LLC, a joint-venture formed for the development of 117 lots
adjacent to Companys original Montserrat project.

    Calprop Corporation 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. As of December 31, 1997, RGC's ownership
percentage in DMM was fifty percent.

    On February 10, 1997, the Company and an officer of the Company formed MDC.
As part of the formation, the Company contributed 24 partially developed lots of
its Montserrat project, in Murrieta, California, for a basis of $550,000, and
the officer exchanged a $120,000 note due from the Company for a basis of
$120,000. Ninety-nine percent of the profits or losses from the development of
the 24 lots is to be received by Calprop Corporation, and the remaining 1
percent of the profits or losses is to be received by the officer. In July of
1997, the Company contributed an additional 29 partially developed lots to MDC
to facilitate construction financing and based on the Companys agreement with
the officer, the Company is to receive one hundred percent of the profits or
losses from the development of these additional lots. During the third quarter
of 1997, all of the initial 24 lots were sold, the officer was paid his equity
and his share of the profits, and the Company became the sole owner of MDC.

    On October 30, 1997, the Company and PICal Housing Associates, L.P.
("PICal") formed Montserrat II, LLC. As part of the formation, Calprop
contributed 117 lots of its Montserrat Estates project as well as certain
obligations related to the lots, for a basis of $550,000, which approximated
book value and fair value. PICal contributed $2,000,000 at the formation and
contributed an additional $195,039 during the year. Pursuant to the operating
agreement of Montserrat II, LLC, losses are allocated 100% first to Calprop
until its capital account is zero, then to PICal. Income is allocated first to
reverse losses, then to PICal to attain a return on its capital, then to the
Calprop. As of December 31, 1997, PICal's ownership interest in Montserrat II,
LLC was eighty-one percent.

    As a result of the consolidations, the Company has recorded minority
interest of $2,187,847 and $10,000 as of December 31, 1997, and December 31,
1996, respectively.

                                       27
<PAGE>
                              CALPROP CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

(2) REAL ESTATE UNDER DEVELOPMENT

    Real estate under development at December 31, 1997 and 1996 is summarized as
follows:

<TABLE>
<CAPTION>
                                                     1997                          1996
                                         ----------------------------  ----------------------------
                                            AMOUNT       UNITS/LOTS       AMOUNT       UNITS/LOTS
                                         -------------  -------------  -------------  -------------
<S>                                      <C>            <C>            <C>            <C>

Single-family residences...............  $  15,110,870          160    $   7,411,791           79

Townhomes..............................       --             --            5,178,177           31
                                         -------------          ---    -------------          ---

Total single family residences.........     15,110,870          160       12,589,968          110

Land under development.................      8,753,849          317        6,917,212          257
                                         -------------          ---    -------------          ---

Total real estate under development
  before investment in joint venture...     23,864,719          477       19,507,180          367

Investment in joint venture............      2,461,259                     2,400,984
                                         -------------          ---    -------------          ---

Total real estate under development....  $  26,325,978          477    $  21,908,164          367
                                         -------------          ---    -------------          ---
                                         -------------          ---    -------------          ---
</TABLE>

    During 1996, the Company recorded an impairment loss on its Pleasant Oaks
Estates project, the Cypress Cove project, and the Summertree Park, Elk Grove
project of $1,014,629, $1,540,972 and $1,911,676, respectively.

    The impairment loss on the Pleasant Oaks Estates project is primarily a
result of additional municipal requirements in 1996 which contributed to a
significant delay of the completion of the final units. Additional land
development costs were incurred to satisfy the municipal requirements, and as a
result of the delay, the Company incurred increased project overhead and
interest costs. Additionally, the Company was forced to reduce sales prices and
raise incentives as the competition in this market increased.

    The impairment loss on the Cypress Cove project is due to the Company
incurring increased production overhead, interest and marketing costs as a
result of a slow down in absorption due to a decreased customer base, and an
increased production period, as the area experienced the impact of inclement
weather conditions in the winter and spring of 1996, including the closure of a
major access road from the San Francisco Bay Area. Additionally, in order to
revitalize the project subsequent to the storms in 1996, the Company increased
sales incentives.

    The impairment loss on the Summertree Park, Elk Grove project is primarily a
result of a slower absorption caused by a sagging real estate market in the
Sacramento area. As a result, the Company discontinued the product after the
first phase of production, and began to develop a new product line in 1996,
which the Company opened in April 1997. The Company incurred increased
capitalized marketing, production overhead and interest costs as models were
constructed for the new product line. Contributing to additional production
overhead and interest costs relating to the development of the new product, the
carrying costs for the development were further increased as inclement weather
conditions in the area during the winter and spring of 1996 hampered sales and
the development efforts. Additionally, in order to increase the absorption of
the old product line, the Company increased sales incentives.

                                       28
<PAGE>
                              CALPROP CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

(2) REAL ESTATE UNDER DEVELOPMENT (CONTINUED)
    Investment in joint venture, shown above, represents the Companys investment
in Mission Gorge, LLC. In 1996, Mission Gorge, LLC, a California limited
liability company, was formed and the Company and transferred its Mission Gorge
property to the joint venture. In connection with the formation, the
Curci-Turner Company, of which a principal is a stockholder of the Company,
converted its $2,000,000 note into equity in Mission Gorge, LLC. As a result,
Mission Gorge, LLC is 50% owned by both the Company and the Curci-Turner
Company, and each is entitled to receive 50% of "Net Proceeds" as defined in the
operating agreement.

    Development operations in 1997, 1996 and 1995 are summarized as follows:

<TABLE>
<CAPTION>
                                               1997                     1996                     1995
                                      -----------------------  -----------------------  -----------------------
REAL ESTATE SALES:                      AMOUNT       UNITS       AMOUNT       UNITS       AMOUNT       UNITS
                                      ----------     -----     ----------     -----     ----------     -----
<S>                                   <C>         <C>          <C>         <C>          <C>         <C>

  Single-family residences..........  $14,283,509         71   $6,956,676          40   $12,929,854         61

  Townhomes.........................   8,625,140          31    6,760,450          26    4,131,385          15
                                                                                   --                       --
                                      ----------         ---   ----------               ----------

    Total Sales.....................  22,908,649         102   13,717,126          66   17,061,239          76

COST OF REAL ESTATE SALES:

  Single-family residences..........  14,090,308                7,005,459               12,591,882

  Townhomes.........................   8,555,795                6,744,760                4,143,297

  Warranty..........................     207,844                  399,905                  275,966

  Reversal of warranty reserves.....      --                       --                     (774,312)
                                      ----------               ----------               ----------

    Total Cost of Sales.............  22,853,947               14,150,124               16,236,833

Recognition of impairment of real
  estate under development and land
  held for investment...............      --                   (6,093,475)                  --
                                      ----------               ----------               ----------

(Loss) income from development
  operations........................  $   54,702               $(6,526,473)             $  824,406
                                      ----------               ----------               ----------
                                      ----------               ----------               ----------
</TABLE>

    Reversal of warranty reserves in 1995 is the result of the settlement of a
lawsuit filed against the Company for general damages caused by alleged land
subsidence.

(3) INVESTMENT IN LAND

    The Company is deferring the development of the Victorville project in San
Bernardino County, California, due to market conditions.

    The Company regularly reviews the carrying value of its investment in land
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.

                                       29
<PAGE>
                              CALPROP CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

(3) INVESTMENT IN LAND (CONTINUED)
    During 1996, the Company recorded an impairment loss associated with the
Victorville property, which is included as land held for investment, of
$1,626,198. The recognition of impairment loss was a result of the Company
valuing the land based on the sale of the vacant lots as opposed to the
development of the project.

    The Company has expensed the holding costs related to the Victorville
property, consisting primarily of property taxes, and debt service on the
Victorville bond liability (Note 5). In addition, as of December 31, 1997, the
Company has a delinquency of $777,000 for the Victorville bond liability and
$55,000 for property taxes. Given the weakness in the Victorville housing
market, the Company has determined that paying these taxes and servicing the
nonrecourse bond liability is not a prudent use of capital. Subsequent to July
1997, accruals were no longer recorded as the value of the property subject to
the debt equaled the liability of the debt. The debt is non-recourse and the
Company is prepared to forfeit the property if other options are deemed
uneconomical.

(4) DEFERRED AND OTHER ASSETS

    Included in deferred and other assets is trust deeds receivable. The Trust
deeds receivable at December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                           INTEREST
                                                             RATE       OUTSTANDING BALANCE
                                                         ------------  ----------------------
<S>                                                      <C>           <C>         <C>
                                                                          1997        1996
                                                                       ----------  ----------

Trust deeds receivable.................................      10%-12%   $  148,655  $  168,597

Less reserve...........................................                   (50,000)    (50,000)
                                                                       ----------  ----------

Net trust deeds receivable.............................                    98,655     118,597

Income tax refund receivable...........................                   185,857      --

Other..................................................                   247,153     215,063
                                                                       ----------  ----------

Deferred and other assets..............................                $  531,665  $  333,660
                                                                       ----------  ----------
                                                                       ----------  ----------
</TABLE>

    These trust deeds are collateralized by lots, houses, and condominium units
sold by the Company, and mature from 1998 to 2014.

    Income tax refund receivable in 1997 of $185,857 represents the net refund
receivable resulting from a claim filed for the carryback of losses related to
certain qualifying expenses incurred in 1996.

                                       30
<PAGE>
                              CALPROP CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

(5) TRUST DEEDS AND NOTES PAYABLE

    Trust deeds and notes payable as of December 31, 1997 and 1996 are as
follows:

<TABLE>
<CAPTION>
                                                                           BALANCE
                                                                 ----------------------------
                                                                     1997           1996
                                                                 -------------  -------------
<S>                                                              <C>            <C>

Notes payable to financial institutions, secured by development
  projects' trust deeds--variable rates ranging from 4% to
  prime + 1.75%; maturing April 1998 through January 1999......  $   6,713,809  $   5,011,866

Notes payable to related parties, secured by development
  projects' trust deeds--rates of prime + 1.5% and 12%;
  maturing October 1998 through October 2000...................      8,899,743      9,759,364

Note payable to related parties, unsecured--rates ranging from
  prime to 12%; maturing May 1998 through June 1999............      3,819,086      2,769,186
                                                                 -------------  -------------

Total trust deeds and notes payable............................  $  19,432,638  $  17,540,416
                                                                 -------------  -------------
                                                                 -------------  -------------

Community Facilities District Special Tax Bonds................  $   2,336,544  $   2,336,544
                                                                 -------------  -------------
                                                                 -------------  -------------
</TABLE>

    At December 31, 1997, the Prime rate was 8.50%.

    As of December 31, 1997, the Company had remaining loan commitments from
banks of approximately $15,600,000, 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 1995, the Company obtained a loan in the amount of $4,000,000 from
the Curci-Turner Company for the acquisition and development of the Summertree
Park project. In addition to interest, this loan contains a profit sharing
provision which provides that Curci-Turner Company receive 40% of "Net Proceeds"
as defined in the agreement, which is comparable to gross profit. As of December
31, 1997, the outstanding balance owing on this loan totaled $3,070,492.

    During 1996, the Curci-Turner Company made a loan of $3,700,000 to the
Company secured by 41 lots in the Cierra Del Lago project in Rancho Santa
Marguerita and 100 lots in the Antares project in Del Mar Heights. In addition
to interest, this loan contains a profit sharing provision which provides that
the Curci-Turner Company receive thirty-three percent of "Net Proceeds" as
defined in the agreement. As of December 31, 1997, the outstanding principal on
this note was $3,700,000.

    During 1996, the Curci-Turner Company made loans totaling $1,487,500 to the
Company secured by 21 lots and a four unit model complex in the Montserrat
project in Murrieta, California. In addition to interest, each loan contains a
profit sharing provision which provides that the Curci-Turner Company receive
50% of "Net Proceeds" as defined in the agreement, which is comparable to gross
profit. As of December 31, 1997, the outstanding principal on these notes
totaled $104,250.

    During 1996, the Company converted its Preferred Stock to Common Stock and
the accrued Preferred Stock dividend due an officer of the Company and a related
party of $581,541 and $472,545, respectively,

                                       31
<PAGE>
                              CALPROP CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

(5) TRUST DEEDS AND NOTES PAYABLE (CONTINUED)
was exchanged for notes with interest payable at 10%. As of December 31, 1997,
the outstanding principal due an officer of the Company and a related party on
these notes was $581,541 and $472,545, respectively.

    During 1997, the Company obtained a loan in the amount of $2,025,000 from
the Curci-Turner Company for the acquisition and development of the Parkland
Hills project. In addition to interest, this loan contains a profit sharing
provision which provides that the Curci-Turner Company receive 50% of "Net
Proceeds" as defined in the agreement, which is comparable to gross profit. As
of December 31, 1997, the outstanding balance owing on this loan totaled
$2,025,000.

    During 1997, the Company obtained a loan in the amount of $2,000,000 from
Mission Gorge, LLC, a related party, for working capital purposes. The loan
provides for interest at 12%. As of December 31, 1997, the outstanding principal
on this note was $2,000,000.

    During 1997, the Company borrowed an additional $1,006,000 from and repaid
$1,450,000 to an officer of the Company. As of December 31, 1997, the
outstanding principal on remaining on these notes, which accrue interest at 12%,
was $690,000.

    The $2,336,544 Community Facilities District Special Tax Bonds (CFD), were
issued by the City of Victorville, California, to finance the construction of
the infrastructure within the District, of which the Companys Victorville
property is a part. The bonds are repaid through a special tax assessment on the
parcels of land within the development. As the amount of the liability is fixed
and determinable, and the related assets are subject to a lien, the liability
and corresponding site improvement assets have been reflected in the financial
statements.

    Aggregate future principal payments due on trust deeds payable, notes
payable, and CFD indebtedness are summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,                                                     PRINCIPAL PAYMENTS
--------------------------------------------------------------------------  ------------------
<S>                                                                         <C>

1998......................................................................    $    7,501,252

1999......................................................................        10,148,482

2000......................................................................         2,089,938

2001......................................................................            69,726

2002......................................................................            75,412

Thereafter................................................................         1,884,372
                                                                            ------------------

Total.....................................................................    $   21,769,182
                                                                            ------------------
                                                                            ------------------
</TABLE>

    During 1997, 1996 and 1995, the Company paid interest of $1,081,847,
$743,401 and $862,505, respectively, on loans from related parties.

                                       32
<PAGE>
                              CALPROP CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

(6) INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                     1997            1996
                                                                --------------  --------------
<S>                                                             <C>             <C>
Inventory reserves............................................  $    3,758,000  $    4,706,000
Warranty reserves.............................................          98,000         102,000
State net operating loss......................................       1,700,000       1,517,000
Loss carryback claim..........................................        --               457,000
Federal operating loss........................................       5,282,000       4,127,000
                                                                --------------  --------------
                                                                    10,838,000      10,909,000
Valuation reserve.............................................     (10,838,000)    (10,909,000)
                                                                --------------  --------------
                                                                $     --        $     --
                                                                --------------  --------------
                                                                --------------  --------------
</TABLE>

    The Company has established a valuation reserve equal to the deferred tax
asset, as realization depends on the Companys ability to generate future
earnings.

    During 1995, the Company filed a claim for a refund resulting from the
carryback of losses related to the condemnation of certain property. As of
December 31, 1997, the Internal Revenue Service has rejected the claim, and as a
result, the Company has not included the related deferred tax asset as of
December 31, 1997. The Company is currently considering continuing the appeals
process.

    Benefit for income taxes in 1997 of $185,857 represents the net refund
resulting from a claim filed for the carryback of losses related to certain
qualifying expenses incurred in 1996.

    The following is a reconciliation of the federal statutory rate to the
Company's effective rate for 1997, 1996, and 1995:

<TABLE>
<CAPTION>
                                                                                         PERCENTAGE OF
                                                                 AMOUNT                  PRETAX INCOME
                                                               -----------             ------------------
                                                      1997        1996        1995     1996   1996   1995
                                                    ---------  -----------  ---------  ----   ----   ----
<S>                                                 <C>        <C>          <C>        <C>    <C>    <C>
Statutory rate....................................  $(550,872) $(3,128,116) $ 174,550  (34%)  (34%)   34%
Utilization of unrecognized deferred income tax
  benefit.........................................     --          --        (174,550) --     --     (34%)
Limitation of loss carryforward...................    550,872    3,128,116     --       34%    34%   --
                                                    ---------  -----------  ---------  ----   ----   ----
                                                    $  --      $   --       $  --      --     --     --
                                                    ---------  -----------  ---------  ----   ----   ----
                                                    ---------  -----------  ---------  ----   ----   ----
</TABLE>

    As of December 31, 1997, the Corporation had net operating loss
carryforwards for federal and state income tax purposes of approximately
$15,500,000 and $18,300,000, respectively. For federal and state tax purposes
the net operating loss carryforwards expire from 2007 through 2012, and from
1998 through 2007, respectively.

(7) PREFERRED STOCK

    In the third quarter of 1996, the Company paid $319,467 to redeem 189,153
shares of its Convertible Preferred Stock at the redemption price of $1.28 per
share, plus accrued dividends of approximately $0.32

                                       33
<PAGE>
                              CALPROP CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

(7) PREFERRED STOCK (CONTINUED)
per share, for shareholders of record on June 7, 1996. The remaining preferred
shares (3,382,215) were converted into Common Stock. In addition, the
shareholders received a promissory note in the amount of the preferred dividends
accrued of $1,054,086, bearing interest at the rate of 10.0% per annum, payable
quarterly. The total number of shares of Common Stock issued for Convertible
Preferred Stock was 4,329,235 shares.

(8) QUALIFIED AND NON-QUALIFIED STOCK OPTION PLANS

    The Company has three stock-based compensation plans, which are described
below. In addition, the Company issued 150,000 warrants in 1996 for non-employee
services. 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 or issuance of warrants
during 1995, 1996, and 1997. The compensation cost that has been charged against
income for its stock incentive plan was $17,588 in 1997 and $17,164 in 1996. Had
compensation costs for the Companys stock-based compensation plans and issuance
of warrants been determined based on the fair value at the grant dates for
awards under those plans consistent with SFAS No. 123, the Companys net (loss)
income and (loss) income per share would have been reduced to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
                                                                    1997           1996          1995
                                                                -------------  -------------  ----------
<S>                             <C>                             <C>            <C>            <C>
Net (loss) income to
  common shareholders:          As reported...................  $  (1,620,211) $  (9,402,589) $   48,938
                                Pro forma.....................  $  (1,737,223) $  (9,519,652) $  (49,744)
Basic (loss) income per share:  As reported...................  $       (0.18) $       (1.28) $     0.01
                                Pro forma.....................  $       (0.19) $       (1.30) $    (0.01)
</TABLE>

    The 1983 Stock Option Plan authorized an aggregate of 596,957 (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 Options Plan
are summarized as follows:

<TABLE>
<CAPTION>
                                               1997                     1996                    1995
                                      -----------------------  ----------------------  ----------------------
                                                   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......     284,500   $    1.37     324,500   $    1.53     325,000   $    1.54
Granted.............................      --                      --                      --
Exercised...........................      --                      --                      --
Canceled............................    (130,000)  $    0.96     (40,000)  $    2.69        (500)  $    2.50
                                      ----------       -----   ---------       -----   ---------       -----
Outstanding, end of year............     154,500   $    1.72     284,500   $    1.37     324,500   $    1.53
                                      ----------       -----   ---------       -----   ---------       -----
                                      ----------       -----   ---------       -----   ---------       -----
Exercisable, end of year............     129,500                 237,500                 235,500
                                      ----------               ---------               ---------
                                      ----------               ---------               ---------
</TABLE>

                                       34
<PAGE>
                              CALPROP CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

(8) QUALIFIED AND NON-QUALIFIED STOCK OPTION PLANS (CONTINUED)
    The 1993 Stock Option Plan, (amended by the shareholders May 23, 1996)
authorizes an aggregate of 1,500,000 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:

<TABLE>
<CAPTION>
                                            1997                     1996                    1995
                                   -----------------------  ----------------------  ----------------------
                                                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...     877,250   $    0.89     883,250   $    0.89     582,000   $    0.79

Granted..........................     289,000   $    0.71       5,000   $    0.69     305,250   $    1.09

Exercised........................      --                      --                      (1,500)  $    0.75

Canceled.........................      (7,250)  $    0.87     (11,000)  $    0.84      (2,500)  $    0.75
                                   ----------       -----   ---------       -----   ---------       -----

Outstanding, end of year.........   1,159,000   $    0.85     877,250   $    0.89     883,250   $    0.89
                                   ----------       -----   ---------       -----   ---------       -----
                                   ----------       -----   ---------       -----   ---------       -----

Exercisable, end of year.........     870,000                 872,250                 563,000
                                   ----------               ---------               ---------
                                   ----------               ---------               ---------

Available for grant, end of
  year...........................     339,500                 621,250                 120,250
                                   ----------               ---------               ---------
                                   ----------               ---------               ---------
</TABLE>

    The following table summarizes information about the outstanding options at
December 31, 1997, from the Companys 1983 and 1993 stock option plans:

<TABLE>
<CAPTION>
                                     OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                       ------------------------------------------------  ------------------------------
                         NUMBER     WEIGHTED-AVERAGE                       NUMBER
  RANGE OF EXERCISE    OUTSTANDING     REMAINING      WEIGHTED-AVERAGE   EXERCISABLE  WEIGHTED-AVERAGE
       PRICES          AT 12/31/97  CONTRACTUAL LIFE   EXERCISE PRICE    AT 12/31/97   EXERCISE PRICE
---------------------  -----------  ----------------  -----------------  -----------  -----------------
<S>                    <C>          <C>               <C>                <C>          <C>

$0.69 to $0.96.......     944,500        5.5 years        $    0.77         655,500       $    0.79

$1.00 to $1.25.......     304,500        6.1 years        $    1.10         304,500       $    1.10

$2.50 to $3.00.......      64,500        4.0 years        $    2.89          39,500       $    2.82
                       -----------        --------            -----      -----------          -----

$0.69 to $3.00.......   1,313,500        5.5 years        $    0.95         999,500       $    0.97
                       -----------        --------            -----      -----------          -----
                       -----------        --------            -----      -----------          -----
</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,

                                       35
<PAGE>
                              CALPROP CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

(8) QUALIFIED AND NON-QUALIFIED STOCK OPTION PLANS (CONTINUED)
vests at 20 percent a year from the date of grant. The non-vested shares
represent unearned compensation. Changes in the 1989 Executive Long-Term Stock
Incentive plan are summarized as follows:

<TABLE>
<CAPTION>
                                                                 1997       1996       1995
                                                               ---------  ---------  ---------
<S>                                                            <C>        <C>        <C>

Issued shares, beginning of year.............................    257,380    261,060    181,660

Issued.......................................................     82,000     --         83,000

Returned at termination of employment........................     (1,800)    (3,680)    (3,600)
                                                               ---------  ---------  ---------

Issued shares, end of year...................................    337,580    257,380    261,060
                                                               ---------  ---------  ---------
                                                               ---------  ---------  ---------

Vested, end of year..........................................    174,180    131,980     83,590
                                                               ---------  ---------  ---------
                                                               ---------  ---------  ---------

Available for award, end of year.............................    158,840    242,620     13,940
                                                               ---------  ---------  ---------
                                                               ---------  ---------  ---------
</TABLE>

    Included as a separate deduction of stockholders equity is deferred
compensation relating to this plan of $106,595 and $68,655 as of December 31,
1997, and 1996, 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 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. During 1996 and 1997, 7,500 shares and 15,000
shares, respectively, were granted under this plan at an exercise prices of
$0.69 and $0.44 per share, respectively. The exercise prices represent the
market price at the date of grant. At December 31, 1997, no other shares related
to this plan were outstanding.

    On May 23, 1996, the Company issued warrants to purchase 150,000 shares of
common stock to a consultant. One-third of the warrants were exercisable
immediately, one-third are exercisable one year after the grant date, and the
remaining one-third are exercisable two years after the grant date. Such
warrants have a $1.00 exercise price and expire 5 years from the grant date.

    The weighted-average fair value of the options and warrants granted during
1997, 1996 and 1995 is $0.60, $0.38 and $0.65, respectively. The fair value of
each option and warrant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995, respectively: risk-free interest rates of
6.5 percent for all years; dividend yield of zero percent for all years;
expected lives of 8.1, 5.4, and 10.0 years; and volatility of 106, 67, and 37
percent.

    On October 31, 1996, the Company issued warrants to purchase 150,000 shares
of common stock to the minority owner of DMM Development, LLC (see Note 2).
One-third of the warrants were exercisable immediately, one-third are
exercisable one year after the grant date, and the remaining one-third are
exercisable two years after the grant date. Such warrants have a $1.00 exercise
price and expire 5 years from the grant date. The market price of common stock
at the date of issuance was less than the exercise price. Accordingly, no value
was ascribed the warrants.

(9) OTHER INCOME

    In 1993, the Company's Oceanside property was taken by the State of
California through eminent domain. The Company received a deposit of probable
compensation of $2,332,000 from the State and a loss of $194,932 was recorded at
that time. In January 1995, a valuation trial was held, and the verdict

                                       36
<PAGE>
                              CALPROP CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

(9) OTHER INCOME (CONTINUED)
entitled the Company to an additional $2,080,900, plus accrued interest. On
March 24, 1995, the Company received $2,280,363 in settlement of this matter,
which was recorded as other income in the first quarter of 1995.

(10) COMMITMENTS AND CONTINGENCIES

    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.

    The Company has an operating lease with a related party that expires in
2001. Future minimum rent as of December 31, 1997, is $94,770 in 1998, $92,096
in 1999 and 2000, and $76,746 in 2001, for a total of $355,707. Rent expense for
the years ended December 31, 1997, 1996 and 1995 was $127,667 ($94,862 to a
related party), $101,721 ($34,951 to a related party) and $82,178, respectively.

(11) QUARTERLY FINANCIAL DATA--(UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31, 1997                     FIRST     SECOND      THIRD       FOURTH
                                               ---------  ---------  ----------  ----------
<S>                                            <C>        <C>        <C>         <C>

Sales........................................  $5,144,495 $9,085,987 $5,114,792  $3,563,375

Gross income (loss)..........................      1,207     32,462      32,071     (11,038)

Net loss.....................................  $(492,726) $(517,150) $ (325,344) $ (284,991)
                                               ---------  ---------  ----------  ----------
                                               ---------  ---------  ----------  ----------

Net loss per share...........................  $   (0.05) $   (0.06) $    (0.04) $    (0.03)
                                               ---------  ---------  ----------  ----------
                                               ---------  ---------  ----------  ----------

<CAPTION>

Year Ended December 31, 1996                     FIRST     SECOND      THIRD       FOURTH
                                               ---------  ---------  ----------  ----------
<S>                                            <C>        <C>        <C>         <C>

Sales........................................  $1,844,278 $2,550,093 $2,626,505  $6,696,250

Gross loss...................................    (59,511)   (83,087) (4,411,503) (1,972,372)

Net loss.....................................  $(770,131) $(831,099) $(5,001,876) $(2,597,236)
                                               ---------  ---------  ----------  ----------
                                               ---------  ---------  ----------  ----------

Net loss per share...........................  $   (0.18) $   (0.15) $    (0.54) $    (0.28)
                                               ---------  ---------  ----------  ----------
                                               ---------  ---------  ----------  ----------
</TABLE>

    During the third and fourth quarter of 1996, the Company recognized
impairment losses for real estate under development and land held for investment
of $4,326,848 and $1,766,627, respectively. The impairment losses were for the
Company's Victorville, Cypress Cove and Elk Grove projects.

                                       37
<PAGE>
                              CALPROP CORPORATION
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                                   TRUST DEEDS
                                                                        WARRANTY   RECEIVABLE
                                                                       ----------  -----------
<S>                                                                    <C>         <C>
Balance January 1, 1995..............................................  $1,499,408   $ 105,790
  Additions charged to operations....................................     275,966      --
  Reductions.........................................................  (1,473,674)    (55,790)
                                                                       ----------  -----------
Balance December 31, 1995............................................     301,700      50,000
  Additions charged to operations....................................     399,905      --
  Reductions.........................................................    (440,204)     --
                                                                       ----------  -----------
Balance December 31, 1996............................................     261,401      50,000
  Additions charged to operations....................................     207,844      --
  Reductions.........................................................    (180,967)     --
                                                                       ----------  -----------
Balance December 31, 1997............................................  $  288,278   $  50,000
                                                                       ----------  -----------
                                                                       ----------  -----------
</TABLE>

                                       38
<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                                         March 26, 1998
       ZACCAGLIN                                    ------------------------
  -------------------                                         Date
   Victor Zaccaglin
    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.

             NAME                         TITLE                    DATE
------------------------------  --------------------------  -------------------

                                Vice President/Secretary
      /s/ MARK F. SPIRO           and Treasurer (Chief
------------------------------    Financial and Accounting    March 26, 1996
        Mark F. Spiro             Officer)

     /s/ RONALD S. PETCH
------------------------------  President                     March 26, 1998
       Ronald S. Petch

 /s/ GEORGE R. BRAVANTE, JR.
------------------------------  Director                      March 26, 1998
   George R. Bravante, Jr.

      /s/ JOHN L. CURCI
------------------------------  Director                      March 26, 1998
        John L. Curci

     /s/ VICTOR ZACCAGLIN
------------------------------  Chairman of the Board         March 26, 1998
       Victor Zaccaglin           Chief Executive Officer
<PAGE>
                               INDEX TO EXHIBITS

<TABLE>
<S>        <C>
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

27         Financial Data Schedule
</TABLE>