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

                                    FORM 10-K
     [x]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
          EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2004        Commission File Number 1-6844

                               CALPROP CORPORATION

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K ___.

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes___ No _X_.

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

                           $1,138,300 at May 25, 2005

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

                  9,737,205 Shares Outstanding at May 25, 2005


                                      -1-
<PAGE>

                                     PART I

ITEM 1.  Business

General

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

     During 2004, the Company was primarily engaged in the disposition of real
estate assets in order to continue operations and maintain viability as a going
concern. As of December 31, 2004, the Company owned one residential housing
project in the final stages of development consisting of nine homes under
construction (including three homes in escrow and one model home), as well as
various undeveloped properties and options held for sale or speculative
development. Under approval by the Board of Directors and for the intention of
having Calprop Corporation become a privately held organization, a tender offer
was extended to shareholders. The tender offer was successfully completed by May
26, 2005. See Item 7 concerning "Going private transaction".

Residential Housing Industry

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

The Company's Strategy

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


                                      -2-
<PAGE>

Future Projects

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

Land Acquisition and Construction

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

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

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

     The Company acts as its own general contractor, and its supervisory
employees coordinate all work on a project. The Company has been engaged to act
as general contractor to other related-party entities as well. 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 shortages have not
impaired the Company's ability to conduct its business in the past and are not
expected to do so in the near future.


                                      -3-
<PAGE>

Marketing

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

Warranties

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

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

Financing

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

     After final working drawings from architects are prepared, the Company
obtains a construction loan, secured by the portion of the project site to which
the loan relates. The Company's construction loans are used to finance projected
construction costs. In order to obtain the construction loan, the Company must
repay all acquisition financing or obtain a reconveyance of that portion of the
project site which is used to secure the construction loan. The construction
loan is due and payable shortly after completion of the construction being
financed. The Company repays construction financing from the proceeds of project
unit sales. The construction financing provides for release of individual lots
for sale during the term of the financing upon partial repayment of principal in
a specified amount per lot. All cash sales proceeds in excess of the specified
release amount are retained by the Company. If the Company experienced a delay
in unit sales following construction and was unable to extend the term of its
construction financing, the Company would be required to repay the construction
financing or obtain other financing in order to hold the unsold units until
market conditions improved. Although the Company does not arrange third-party
financing for its customers, it has provided secured purchase money financing
from time to time to the extent required by market conditions. In addition, the
Company in the future may also subsidize home purchasers, as an alternative to
providing direct financing, by "buying down" the interest rate on loans from
lending institutions, the extent and amount of which would depend upon
prevailing market conditions and interest rate levels at the time.

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


                                      -4-
<PAGE>

Competition

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

Business Risks

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

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

Governmental Regulations

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


                                      -5-
<PAGE>

Employees

     The Company had approximately seven full-time employees, including two
executive officers, four persons in its finance, marketing and operations
departments, and one general laborer at December 31, 2004. The Company also
employs temporary and part-time laborers from time to time as necessary. None of
the Company's employees are currently represented by a collective bargaining
unit. The Company compensates its employees with salaries and fringe benefits
that it believes are competitive with the building industry and the local
economy. The Company believes that relations with its employees generally are
excellent.

Licensing

     The Company is licensed by the State of California as a general building
contractor, and this license is essential to its operations. This license must
be renewed every two years. The Company's current license expires in July of
2006.

ITEM 2.  Properties

Current projects

     The information below describes the Company's real estate holdings as of
December 31, 2004 and during the previous twelve months:

<TABLE>
<CAPTION>
                                 Units sold                   Units sold    Remaining
                                   during     Units under     subject to   units to be
                                  12 months   construction   construction      sold
                                    ended        as of           as of        as of
Development projects              12/31/04     12/31/04        12/31/04      12/31/04
--------------------            --------------------------------------------------------
<S>                                  <C>          <C>             <C>         <C>
1.   High Ridge Court                24            8               3          6 (B)
2.   Saddlerock                      18           --              --            --
3.   Rohnert Park                    (A)          --              --            --
4.   Parcwest                        (A)          --              --            --
5.   Mission Gorge                   (A)          --              --            --
                                --------------------------------------------------------
             Total                   42            8               3            6
                                --------------------------------------------------------

Undeveloped land or options         Size
                                --------------
6. Smolin Land                     28 lots
7. Winkler Acres                   64 acres
</TABLE>

(A)  Bulk sales of the Rohnert Park, Parcwest, and Mission Gorge projects
     occurred in 2004.
(B)  Units remaining include one model unit.

See also "Management Discussion and Analysis of Financial Condition and Results
of Operations" for additional discussion of real estate sales for 2004 and 2003.

1.   High Ridge Court (Thornton, Colorado)

     The High Ridge Court project consists of 170 units of single-family
detached housing. The project sells two models ranging from 1,238 to 1,884
square feet with base sales prices before lot premiums or sales incentives of
$209,900 to $231,600. As of December 31, 2004, High Ridge Court was the only
active construction and development project of the Company.

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


                                      -6-
<PAGE>

     The Company has an acquisition loan with Curci on the entire project which
matures on June 30, 2005. The loan permits borrowing by the Company of
$4,250,000 on this project and bears interest at 12%. The loan contains a profit
sharing provision for 50% of "net proceeds" as defined in the agreement. As of
December 31, 2004, $2,178,905 in principal of this loan was outstanding.

     The Company obtained a revolving construction loan on the entire project in
1998 from First American Bank Texas. The revolving loan permitted the Company to
have a maximum outstanding balance of $5,000,000 for the construction of the
High Ridge and Saddlerock projects. The loan bore interest at the prime rate
plus one percent. During 2001, the Company paid off this revolving construction
loan in its entirety and obtained a construction loan on the third and fourth
phase with Imperial Capital Bank. The loan permitted borrowing by the Company of
$9,340,000 on this project and bore interest at the bank's reference rate plus
1.0%. As of December 31, 2003, this loan had been paid in its entirety.

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

     The Company's construction loan on the fifth phase of construction was
obtained from Imperial Capital in 2003. The loan permits borrowing by the
Company of $8,500,000 on this project and bears interest at the bank's reference
rate plus 1.25%. As of December 31, 2004, the outstanding principal of this loan
was $60,349. The maturity date of the loan is July 1, 2005. The remaining credit
line was sufficient to complete the final phase of construction for the project
and was paid off in 2005, prior to the maturity date.

2.   Saddlerock (Aurora, Colorado)

     Saddlerock is a 94-unit, single-family detached housing project located in
Aurora, Colorado which was completed in 2004. On May 6, 2004, the remaining ten
lots of the Saddlerock project were sold to VLZ Development, LLC ("VLZ"), a
limited liability company that is managed and owned primarily by a related party
to the Company.

     In 1998, the Company obtained an acquisition/construction loan with Curci
on the entire project. The loan permitted borrowing by the Company of $2,350,000
on this project at an interest rate of 12%. In 2003, the Curci loan commitment
was increased by an additional $1,900,000 to pay off the project's construction
loans that had been provided by commercial bank lenders for the first and second
phases. Pursuant to the sale to VLZ, $1,390,000 of the outstanding debt to Curci
was assumed by VLZ and the Company granted Curci a first trust deed in its
interest in the Smolin project as additional collateral.

3.   Rohnert Park (Sonoma County, California)

     Rohnert Park is a 77-unit planned single-family housing planned project
located 48 miles north of San Francisco. During 2004, the Company sold the
undeveloped property in its entirety.

     The Company acquired the land through financing with CC Santa Rosa 77, LLC,
secured by the 77 lots. The original note balances of $2,210,000 and $390,000
bear interest at 10%. As of December 31, 2004, these loans were paid in full.

4.   Parcwest (Milpitas, California)

     The Parcwest project consists of a 68-unit affordable apartment project
adjacent to the Parc Metropolitan project, approximately 45 miles south of San
Francisco. The 68 units were completed in 2002 and substantially leased in 2003.
During 2003, management approved a plan of action to sell the operating assets
of the apartment building. As a result, the rental property was classified as
held for sale and depreciation ceased as of the date the plan was approved.
Operations of the apartment building are classified as discontinued operations
in the consolidated statements of operations. The apartment project was sold on
March 12, 2004 with a gross sales price of $9,000,000 (a $135,083 gain from the
sale).


                                      -7-
<PAGE>

     In 1999, the Company formed PWA Associates, LLC, a California limited
liability company, ("PWA") with RGC Associates, LLC (RGC Associates). In
December of 1999, land for the 68-unit apartment in the Parcwest project was
acquired by PWA. The profits and losses of PWA were distributed between the
members as follows: 50% to RGC Associates and 50% to the Company. In May of
2001, the Company acquired RGC's 50% partnership interest in PWA to attain 100%
ownership as of December 31, 2003.

     The Company had an acquisition loan with the City of Milpitas which was
paid in full in 2003. The Company's construction loans for this project were
obtained from Comerica Bank in 2001 which were refinanced in 2003. The Company
obtained a permanent loan in 2003 with UBS Warburg which was paid in full by the
sale date of the property.

5.   Mission Gorge (San Diego, California)

     In 1996, the Company formed Mission Gorge, LLC, a California limited
liability company, as a joint venture with Curci-Turner, LLC for the purpose of
developing 200 acres of land in San Diego, California. The net proceeds were to
be divided equally among the two members. In December 2000, the Curci-Turner,
LLC made a distribution of its 50% interest to the members of Curci-Turner, LLC
in the following proportions: The John L. Curci Trust as to a 25% interest and
The Janet Curci Living Trust No. Il as to a 25% interest.

     A $2 million note to Mission Gorge, LLC executed in June 1999 by the
Company was repaid in 2004. The note bore interest at 12% per annum.

     On February 24, 2004, the Company purchased the remaining 50% interest from
The John L. Curci Trust and The Janet Curci Living Trust No. II for $3,600,000.
On May 21, 2004, the Company sold the Mission Gorge property for a gross sales
price of $6,849,679. As a result, the Company recorded a gain from the sale of
$431,703.

6.   Smolin Land (Riverside, California)

     In December 2003, the Company purchased land in Riverside County,
California which was planned for the development of 28 single-family homes. The
undeveloped Smolin property is now being marketed for sale to potential buyers.

     The purchase was financed with a loan from Curci, secured by the entire
project. The loan permits borrowing by the Company of approximately $1,470,000
and bears interest at 12% per annum. The loan matures on June 30, 2005. As of
December 31, 2004, principal of $1,398,962 plus accrued and unpaid interest of
$113,208 was outstanding.

7.   Winkler Acres (Riverside, California)

     The Company entered into an agreement in June, 2004 to sell its contractual
option rights to purchase approximately 64 acres of unimproved land in Riverside
County, California. Sale of the option for $9.4 million was contingent upon the
recording of the final map for the property, which occurred on May 27, 2005. A
net gain of approximately $8.3 million is expected to be recorded from this
transaction.

     The Company remained obligated to reimburse the buyer $2,375,000 paid to
the previous owner and return $1,000,000 in funds advanced on the sale, until
the final map was recorded. Holdback proceeds of $3 million from the sale will
be received after the lots are in blue-topped condition, anticipated to occur
three months after the recording date.


                                      -8-
<PAGE>

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. Management believes any possible
exposure is adequately covered by insurance.

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

     No matters were submitted to a vote of Company's security holders during
the fourth quarter of 2004.

                                     PART II

ITEM 5. Market for the Registrant's Common Equity, Related Stockholder Matters
        and Issuer Purchases of Equity Securities

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

<TABLE>
<CAPTION>
                                First Quarter      Second Quarter    Third Quarter    Fourth Quarter
                                -------------      --------------    -------------    --------------
<S>                                    <C>                 <C>              <C>               <C>
2004 stock price range:
 -High                                 $ 0.51              $ 0.51           $ 0.28            $ 0.17
 -Low                                    0.26                0.22             0.12              0.08

2003 stock price range:
 -High                                 $ 0.89              $ 0.72           $ 0.70            $ 0.65
 -Low                                    0.60                0.28             0.15              0.15
</TABLE>

As of December 31, 2004, there were 640 record holders of common stock.

Dividends: There have been no cash or stock dividends declared by the Company in
the past five years. The dividend policy is reviewed by the Board of Directors
on an annual basis.

ITEM 6. Selected Financial Data

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

                FOR THE FIVE YEAR PERIOD ENDED DECEMBER 31, 2004

<TABLE>
<CAPTION>
                                                 2004           2003           2002           2001            2000
                                        ---------------------------------------------------------------------------
<S>                                       <C>            <C>            <C>            <C>             <C>
SALES AND OPERATING REVENUE               $10,021,247    $19,892,939    $91,641,620    $90,614,622     $64,238,615

NET INCOME (LOSS)                         (4,052,029)   (15,144,157)    (7,890,557)      3,326,106       3,627,940
</TABLE>


                                      -9-
<PAGE>

                FOR THE FIVE YEAR PERIOD ENDED DECEMBER 31, 2004

<TABLE>
<CAPTION>
                                                 2004           2003           2002           2001            2000
                                        ---------------------------------------------------------------------------
<S>                                        <C>           <C>            <C>            <C>            <C>
INCOME (LOSS) FROM CONTINUING
    OPERATIONS PER SHARE:
         BASIC                                ($0.41)        ($1.25)        ($0.71)          $0.32           $0.35
         DILUTED                              ($0.41)        ($1.25)        ($0.71)          $0.32           $0.35

INCOME (LOSS) FROM DISCONTINUED
    OPERATIONS PER SHARE:
        BASIC                                   $0.00        ($0.23)        ($0.06)          $0.00           $0.00
        DILUTED                                 $0.00        ($0.23)        ($0.06)          $0.00           $0.00

AS OF DECEMBER 31:
TOTAL ASSETS                               $4,370,733    $23,523,872    $46,074,946    $98,967,700    $108,609,523
LONG TERM OBLIGATIONS                              $0     $5,243,182     $6,000,000     $7,979,090      $1,000,000
</TABLE>

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

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

     The Company began experiencing difficulties due to the downturn in the
California real estate submarkets in which it operates during the second quarter
of 1990, and has 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. In general,
the Company's products were well received. The number of units sold subject to
construction has decreased due to having fewer completed homes available for
sale at December 31, 2004, 2003 and 2002 of 5, 8 and 12 units, respectively,
compared to 60 and 128 units as of December 31, 2001 and 2000, respectively.

     The Company's real estate sales decreased from $91,641,620 in 2002 to
$19,892,939 in 2003, and decreased to $10,021,247 in 2004. The decrease in real
estate sales over the last three years is primarily attributable to a decrease
in units available for sale resulting from a decrease in production.

     The Company had a loss of $2,221,072 from development operations before
recognition of impairment of real estate in 2004 as compared to a loss of
$823,053 in 2003. As a percentage of real estate sales, a loss from development
operations before recognition of impairment of real estate increased by 18
percentage points to (22.2%) in 2004, compared to (4.1)% in 2003. The Company
had a loss from development operations in 2003 of $823,053 before recognition of
impairment of real estate of $5,046,150. As a percentage of real estate sales, a
loss from development operations before recognition of impairment of real estate
increased by 3.3 percentage points to (4.1)% in 2003 compared to (0.8)% in 2002.
The significant decrease of income before recognition of impairment of real
estate as a percentage of gross revenues from 2004 to 2002 resulted from a
slower absorption rate and increased production overhead costs. Sales prices of
homes were not sufficient to offset the increased direct construction cost,
marketing and sales incentives, production overhead and interest costs.

An impairment loss for the High Ridge Court project was recorded in 2004. This
impairment loss is primarily a result of a slower than anticipated absorption
rate. The decrease in absorption had increased marketing,


                                      -10-
<PAGE>

production and interest costs, and as a result the Company recorded an
impairment loss for this project of $255,294. As of December 31, 2004, the
Company had nine remaining units in the final phases of construction, including
one model, of which three had been sold.

Results of operations

     The Company had a loss from continuing operations before income taxes of
$4,097,858 in 2004, a loss from continuing operations before income taxes of
$6,269,560 in 2003, and a loss from continuing operations before income taxes of
$7,263,252 in 2002. The losses suffered in all three years are primarily a
result of losses from development operations and a reflection of the recognition
of asset impairment of the High Ridge and Saddlerock projects in the amount of
$255,294, $5,046,150 and $4,471,693, respectively.

     Real estate sales decreased to $10,021,247 in 2004 from $19,892,939 in
2003, down 50%. Real estate sales were $91,641,620 in 2002. In 2004, the Company
sold 42 homes at an average sales price of $238,601. In 2003, 54 homes were sold
at an average sales price of $322,160, and 50 lots were sold at an average sales
price of $49,925. In 2002, the Company sold 248 homes at an average sales price
of $369,523.

     The overall gross profit percentage before recognition of impairment loss
of the Company was (22.2%), (4.1)%, and (0.8)%, for the years ended December 31,
2004, 2003, and 2002, respectively.

     General and administrative expenses were $1,915,478 in 2004 and $1,711,586
in 2003, an increase of 12%. General and administrative expenses were $2,379,007
in 2002. Efforts by management to control expenditures has effectively decreased
administrative costs since 2002; however, the Company incurred an increase of
such costs in 2004 due to payout of severance costs from further downsizing of
operations and costs to take the Company private.

Liquidity and capital resources

     As of December 31, 2004, the Company has a construction loan outstanding to
a financial institution, secured by the development project, with a rate of
prime plus 1.25% and maturing July 1, 2005. As of December 31, 2004, the
outstanding balance owing on this loan totaled $132,871 and a remaining loan
commitment of approximately $1,043,000 was available for the final costs of the
project.

Related-Party Notes:

     Curci - A principal of Curci is a major stockholder of the Company. The
Company has the following notes payable to Curci at December 31, 2004 and 2003.
Under the terms of the note payable for High Ridge Court, Curci participates in
net proceeds (as defined in the loan agreement), which is comparable to net
profit.

<TABLE>
<CAPTION>
Description                    Profit share            December 31,           December 31,
                                                               2004                   2003
-------------------------    -----------------   -------------------     ------------------
<S>                                <C>                   <C>                    <C>
Secured loans:
  High Ridge Court                 50%                   $2,178,819             $2,499,024
  Saddlerock                       n/a                            0              4,444,419
                                                 -------------------     ------------------
                                                          2,178,819              6,943,443
Unsecured loans (A)                                       7,217,656              5,356,254
                                                 -------------------     ------------------
                                                         $9,396,475            $12,299,697
                                                 ===================     ==================
</TABLE>

               (A) The Company obtained unsecured working capital loans from
               Curci-Turner and Curci Investments, with a maturity date that has
               been extended to June 30, 2005. Amount represents principal plus
               unpaid interest, at a rate of 15% per annum on $5,705,486 of the
               debt and 12% per annum on $1,512,170 as of December 31, 2004.

     Other Related Parties - During 1996, the Company converted its preferred
stock to common stock. Consequently, the accrued preferred stock dividends due
to an officer of the Company and a related party of


                                      -11-
<PAGE>

$581,542 and $472,545, respectively, were exchanged for notes with interest
payable at 10%. The outstanding principal due an officer of the Company and a
related party on these notes was $581,542 and $462,330 as of both December 31,
2004 and 2003. These notes mature on December 31, 2005.

     Included in notes payable to related parties was a note payable to Mission
Gorge, LLC bearing interest at 12%. The outstanding balance as of December 31,
2004 and 2003 was $0 and $2,000,000, respectively.

     Included in notes payable to related parties is a note payable to an
officer which bears interest at 12%. The outstanding balance as of December 31,
2004 and 2003 was $2,371,451 and $499,062, respectively. This note matures on
December 31, 2005.

     The Company has other loans from related parties which provide for interest
at 10% per annum. As of December 31, 2004 and 2003, these loans totaled
$640,000. Of this amount, $600,000 matures on December 31, 2005 and the balance
is due on demand.

     Included in accounts payable as of December 31, 2004 and 2003 is interest
payable on the notes discussed above of $600,724 and $503,798, respectively.

     As of December 31, 2004, the Company had one remaining project at the final
stage of construction and development. The Company owns undeveloped land in
Riverside County, California which is being marketed for sale. The Company has
agreed to act as general contractor to various real estate projects that are
underway by Drake Development, LLC, an entity formed by Mr. Zaccaglin and Mr.
Curci, who are the major shareholders of the Company. Compensation to act as
general contractor is based on appropriate profit margins for such services.

     In order to obtain cash to continue the Company's operations and maintain
viability as a going concern, the Company negotiated the sale of the Riverside
option and plans to sell its remaining property instead of developing the real
estate as originally intended. On June 3, 2005, the Company received proceeds of
$5.4 million from the option sale, and expects to receive a $3 million holdback
from the sale in the 3rd quarter of 2005 after the lots are in blue-topped
condition. Based on its agreements with its lenders, the Company believes that
it will have sufficient liquidity to finance its remaining construction project
in 2005 using funds generated from operations, including funds received from
sale of the option and funds available under its existing bank commitment.

     The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. During the years ended
December 31, 2004 and 2003, the Company has incurred net losses of approximately
$4.1 million and $15.1 million, respectively. At December 31, 2004, the Company
has cumulative losses of approximately $47.8 million, a stockholders' deficit of
approximately $12.2 million, and diminishing financial resources. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The accompanying consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

     Management's plan with respect to managing cash flow includes the following
components: pay off debt that is coming due in 2005, minimize operating
expenses, and maintain control over costs. With regard to debt coming due,
management has paid off the remaining bank loan through cash flow from
operations and expects to extend remaining related-party loans until funds are
made available. 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 will be adequate to allow
the Company to continue operations.

Going private transaction

     In 2004, Mr. Victor Zaccaglin, who is the Company's chairman of the Board
of Directors, chief executive officer and single largest stockholder, proposed
to the Board that the Company become a privately held company. Under approval by
the Board, a tender offer was made to purchase outstanding Company stock through
a private corporation, NewCal Corporation ("NewCal"). The formation of NewCal by
Mr. Zaccaglin and to which certain other existing Company stockholders have
contributed their Company shares is planned to be followed by a merger of that
corporation with the Company in which cash would be paid at the same amount as
that paid in the tender offer ($0.65 per share) for any publicly held Company
shares not tendered


                                      -12-
<PAGE>

in the tender offer. On May 27, 2005, NewCal announced that it had successfully
completed its tender offer, and as a result, NewCal beneficially owns 9,494,212
shares, representing 97.5% of outstanding common shares of the Company.

     The Company retained Duff & Phelps, LLC to provide financial advice to the
Company in connection with this transaction and to provide its opinion as to the
fairness of the tender offer to the Company's public stockholders from a
financial point of view. The offer received approval from the Board of Directors
based on the fairness opinion.

     The tender offer was prompted by the Company's deteriorating financial
condition, the substantial continuing costs that will be incurred if the Company
remains a publicly traded company and uncertainty regarding the Company's
continuing viability on a long-term basis unless additional equity capital is
obtained.

Contractual obligations

     The Company's significant contractual obligations as of December 31, 2004
follow:

<TABLE>
<CAPTION>
                                                                    Payments Due by Period
                                         -----------------------------------------------------------------------------
                                                2005             2006       2007-2008      Thereafter       Total
                                         -----------------------------------------------------------------------------
<S>                                         <C>                <C>            <C>              <C>        <C>
Debt                                        $13,584,668             $0             $0             $0      $13,584,668
Debt related to assets held for sale                  0              0              0              0                0
Operating leases                                 80,271         79,185         81,004          6,763          247,223
                                         -----------------------------------------------------------------------------
Total contractual obligations               $13,664,939        $79,185        $81,004         $6,763      $13,831,891
                                         =============================================================================
</TABLE>

     At December 31, 2004, the Company had scheduled maturities on existing debt
of $13,584,668 through December 31, 2005. Of this amount, $132,871 is due to a
financial institution and the balance is owed to related parties. The ability to
make scheduled payments of principal or interest on or to refinance this
indebtedness depends on future performance, which is subject to general
economic, financial, competitive and other factors beyond the Company's control.
We believe our borrowing availability under our existing credit facility, our
operating cash flow, and proceeds from the planned sales of properties described
above should provide the funds necessary to meet our working capital
requirements in 2005 through the completion of our current remaining development
and construction project. We will need, however, to obtain new equity capital
and debt funding to be able to commence any new development projects. Our recent
operating results and significant deficit in stockholders equity will make
obtaining any such financing extremely difficult and there is no assurance that
such financing can be obtained. In this connection, Mr. Victor Zaccaglin, who is
one of two substantial stockholders who have loaned money to the Company for
working capital and other purposes (referred to herein as "related-party loans")
has indicated that he does not currently intend to make loans or provide equity
capital to the Company for new projects. In addition, even if all currently
anticipated sales of properties are completed and the remaining development
project is completed, it is a possibility that the Company will not be able to
repay all of the existing related-party indebtedness and there is no assurance
that the related parties to whom such indebtedness is owed will continue to
extend the required repayment dates of such indebtedness.

         In the normal course of its business, the Company provides a one-year
express warranty against defects in the workmanship and materials to purchasers
of homes in its projects. Applicable California and Colorado law provides
additional implied warranties that extend beyond the Company's express one-year
warranties. The Company believes that it has established the necessary accruals
for any representations, warranties and guarantees.

Critical accounting policies

     In the preparation of our consolidated financial statements, we select and
apply accounting principles generally accepted in the United States of America.
The application of some of these generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in our financial statements and accompanying results. The accounting
policies that include


                                      -13-
<PAGE>

significant estimates and assumptions are in the areas of valuing our real
estate under development and rental property and determining if any are
impaired.

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

Recent accounting pronouncements

     In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46"). FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements" and
provides guidance on the identification of entities for which control is
achieved through means other than voting rights ("variable interest entities" or
"VIEs") and how to determine when and which business enterprise should
consolidate the VIE. This new model for consolidation applies to an entity in
which either: (1) the equity investors (if any) lack one or more characteristics
deemed essential to a controlling financial interest or (2) the equity
investment at risk is insufficient to finance that entity's activities without
receiving additional subordinated financial support from other parties. In
December 2003, the FASB published a revision to FIN 46 ("FIN 46R") to clarify
some of the provisions of the interpretation and defer the effective date of
implementation for certain entities. The provisions of FIN 46R are effective for
the first reporting period ending after December 15, 2003 for entities
considered to be special-purpose entities. The provisions for all other entities
subject to FIN 46R are effective for financial statements of the first reporting
period ending after March 15, 2004. On February 1, 2003, the Company adopted the
provisions of this interpretation, which did not have a material effect on the
Company's results of operations or financial condition.

     In November 2004, the FASB issued Statement of Financial Accounting
Standard ("SFAS") No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter
4." SFAS No. 151 clarifies the accounting for amounts of idle facility expenses,
freight, handling costs, and wasted material (spoilage). This statement is
effective for the Company on January 1, 2006. The adoption of SFAS No. 151 is
not expected to have a material effect on our consolidated financial statements.

     On December 16, 2004, the FASB issued Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment," ("SFAS No. 123R") which
is a revision of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123"). SFAS No. 123R
supersedes Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," ("APB Opinion No. 25") and its related implementation
guidance. SFAS No. 123R requires companies to record compensation expense for
share-based payments to employees, including grants of employee stock options,
at fair value. SFAS No. 123R is effective for most public companies at the
beginning of the first interim or annual period beginning after June 15, 2005.
We believe that the implementation of the provisions of SFAS No. 123R will not
have a material impact on our financial position or results of operations.

     In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB No. 29". SFAS No. 153 amends APB Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A monetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. This statement is effective for the
Company on January 1, 2006. The adoption of SFAS No. 153 is not expected to have
a material effect on our consolidated financial statements.

ITEM 7A.   Quantitative and Qualitative Disclosures About Market Risk

     The following table represents the contractual balances of our financial
instruments at the expected maturity dates as well as their fair value at
December 31, 2004. The expected maturity categories take into


                                      -14-
<PAGE>

consideration actual amortization of principal and do not take into
consideration reinvestment of cash. The actual weighted average interest rate
for various liabilities is presented as of December 31, 2004.

<TABLE>
<CAPTION>
                                                       Principal maturing in:                                        Fair value
                               ------------------------------------------------------------------------             December 31,
                                  2005        2006        2007        2008        2009     Thereafter     Total         2004
                               --------------------------------------------------------------------------------------------------
<S>                            <C>                                                                       <C>         <C>
Interest rate-sensitive
liabilities:
Variable rate borrowings          $132,871                                                                 $132,871     $132,871
   Average interest rate             5.38%                                                                    5.38%
Fixed rate borrowings           13,451,797                                                               13,451,797   13,451,797
   Average interest rate            13.02%                                                                   13.02%
                               --------------------------------------------------------------------------------------------------
                               $13,584,668                                                              $13,584,668  $13,584,668
                               --------------------------------------------------------------------------------------------------
Weighted average interest rate      12.95%                                                                   12.95%
                               --------------------------------------------------------------------------------------------------
</TABLE>

     The following table represents the contractual balances of our financial
instruments at the expected maturity dates as well as their fair value at
December 31, 2003. The expected maturity categories take into consideration
actual amortization of principal and do not take into consideration reinvestment
of cash. The actual weighted average interest rate for various liabilities is
presented as of December 31, 2003.

<TABLE>
<CAPTION>
                                                       Principal maturing in:                                        Fair value
                               ------------------------------------------------------------------------             December 31,
                                  2004        2005        2006        2007        2008     Thereafter     Total         2003
                               --------------------------------------------------------------------------------------------------
<S>                            <C>           <C>                                            <C>         <C>          <C>
Interest rate sensitive
liabilities:
Variable rate borrowings        $1,500,000    $144,158                                                   $1,644,158   $1,644,158
   Average interest rate             4.00%       5.25%                                                        4.11%
Fixed rate borrowings           14,105,152   5,099,024                                       7,678,544   26,882,720   26,882,720
   Average interest rate            12.85%       8.56%                                           6.08%       10.10%
                               --------------------------------------------------------------------------------------------------
                               $15,605,152  $5,243,182                                      $7,678,544  $28,526,878  $28,526,878
                               --------------------------------------------------------------------------------------------------
Weighted average interest rate      12.00%       8.47%                                           6.08%        9.76%
                               --------------------------------------------------------------------------------------------------
</TABLE>

Effects of inflation

     Real estate has long been considered a hedge against inflation, and
inflation has often contributed to dramatic growth in property values. Lack of
growth in property values in the submarkets in which the Company operates has
made it difficult in passing higher costs of materials and labor to buyers. In
1996, the Company was adversely affected by a general economic down turn and
incurred substantial losses; however, it returned to profitability in 1997 and
1998. Although the Company was able to maintain its stockholder's equity from
the year 1999 to 2001, heavy losses in 2002, 2003 and 2004 due to such adverse
market conditions has resulted in the current deteriorating financial condition
of the Company.

ITEM 8. Financial Statements and Supplementary Data

<TABLE>
<CAPTION>
Page No. Financial Statements:
-----------------------------
<S>           <C>
    22        Report of Independent Registered Public Accounting Firm

    24        Consolidated Balance Sheets as of December 31, 2004 and 2003
</TABLE>


                                      -15-
<PAGE>

<TABLE>
<CAPTION>
<S>           <C>
    25        Consolidated Statements of Operations for Each of the Three Years Ended December 31, 2004

    26        Consolidated Statements of Stockholders' Equity (Deficit) for Each of the Three Years Ended December 31, 2004

    27        Consolidated Statements of Cash Flows for Each of the Three Years Ended December 31, 2004

    29        Notes to Consolidated Financial Statements

              FINANCIAL STATEMENT SCHEDULE:

    44        II - Valuation and Qualifying Accounts --Three Years Ended December 31, 2004

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

ITEM 9. Changes in and Disagreements on Accounting and Financial Disclosure

     None.

ITEM 9A. Controls and Procedures

     The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's reports
required to be filed under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms, and that such
information is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Accounting Officer, as
appropriate, to allow timely decisions regarding required disclosure.

     As of December 31, 2004, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and the Company's Chief Accounting
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Disclosure controls and procedures are
designed to ensure that information required to be disclosed in the periodic
reports filed or submitted under the Securities and Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms. Based on that
evaluation, the Company's Chief Executive Officer and Chief Accounting Officer
concluded that the Company's disclosure controls and procedures were not
effective. Even though the Company has adequate procedures and controls in place
to ensure that the relevant information is recorded, processed, summarized and
reported to the Company's management or other person involving similar
functions, the Company procedures and mechanisms for outsourcing personnel in
particular situations is inadequate; the Company has concluded that it lacks the
necessary procedures and mechanism in place to compensate for the unexpected
and/or extended leaves of any of its accounting and other similarly situated
employees.

     The Company is in the process of taking corrective measures to rectify the
foregoing problem to ensure timely filing of its required reports under the
Securities Exchange Act of 1934. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.

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


                                      -16-
<PAGE>

                                    PART III

ITEMS 10 and 11. Directors, Executive Officers, Promoters and Control Persons
                 Executive Compensation

The following table sets forth compensation paid to named executive officers for
services rendered in all capacities to the Company during the fiscal year ended
December 31, 2004 and the two preceding fiscal years.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
   Name and Principal                                                                      Other Annual
        Position               Year               Salary ($) (1)        Bonus ($)        Compensation(11)
--------------------------------------------------------------------------------------------------------
<S>                            <C>                  <C>                   <C>                   <C>
Victor Zaccaglin (2)
CEO and Director               2002                 $ 208,500                 $ 0                 $ 887
                          ------------------------------------------------------------------------------
                               2003                   160,586                   0                     0
                          ------------------------------------------------------------------------------
                               2004                   153,526                   0                     0
--------------------------------------------------------------------------------------------------------
Ronald Petch (3)
COO, President                 2002                 $ 216,659             $61,000               $ 1,320
                          ------------------------------------------------------------------------------
                               2003                   101,429                   0                 1,320
                          ------------------------------------------------------------------------------
                               2004                         0                   0                     0
--------------------------------------------------------------------------------------------------------
Mark Spiro (4)
CFO                            2002                 $ 222,308             $31,000                 $ 512
                          ------------------------------------------------------------------------------
                               2003                   145,289                   0                   512
                          ------------------------------------------------------------------------------
                               2004                   142,840                   0               108,157
--------------------------------------------------------------------------------------------------------
Richard Greene (5)
Divisional VP                  2002                 $ 155,192             $14,000                 $ 924
                          ------------------------------------------------------------------------------
                               2003                   119,423                   0                   924
                          ------------------------------------------------------------------------------
                               2004                    58,435                   0                    22
--------------------------------------------------------------------------------------------------------
Curtis Gullet (6)
Divisional VP                  2002                 $ 100,000             $17,500                 $ 246
                          ------------------------------------------------------------------------------
                               2003                    82,692                   0                   246
                          ------------------------------------------------------------------------------
                               2004                    85,014                   0                51,659
--------------------------------------------------------------------------------------------------------
Susan Soh (7)
Controller                     2002                 $ 110,000             $15,000                 $ 298
                          ------------------------------------------------------------------------------
                               2003                    92,112                   0                   298
                          ------------------------------------------------------------------------------
                               2004                    67,780                   0                51,040
--------------------------------------------------------------------------------------------------------
Jim Gibson (8)
Project Manager                2002                 $ 100,000             $11,000                  $ 81
                          ------------------------------------------------------------------------------
                               2003                    56,964                   0                    81
                          ------------------------------------------------------------------------------
                               2004                         0                   0                     0
--------------------------------------------------------------------------------------------------------
Henry Nierodzik (9)
CAO and Director               2002                     $   0                  $0                   $ 0
                          ------------------------------------------------------------------------------
                               2003                         0                   0                     0
                          ------------------------------------------------------------------------------
                               2004                    36,082                   0                    11
--------------------------------------------------------------------------------------------------------
Barry Glaser (10)
Director                       2002                     $   0                  $0                   $ 0
                          ------------------------------------------------------------------------------
                               2003                         0                   0                     0
                          ------------------------------------------------------------------------------
                               2004                         0                   0                     0
--------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Does not include certain amounts paid by the Company which may have value
     to the recipient as personal benefits. Although such amounts cannot be
     precisely determined, the Company has concluded that the aggregate amount
     thereof does not exceed 10% of the cash compensation of the named executive
     officers above.

(2)  Mr. Zaccaglin, age 84, has been Chairman of the Board and Chief Executive
     Officer of the Company since 1961. He was President from March, 1992 to
     November, 1993 and prior to that, from 1961 to October, 1987.

(3)  Mr. Petch, age 60, was President from November, 1993 to April, 2003 and
     prior to that was Vice President, Operations since February 1992. He was a
     director of the Company from 1974 to 2003, and from March 1981 until
     February 1992, he was engaged in real estate investments, development and
     marketing.


                                      -17-
<PAGE>

(4)  Mr. Spiro, age 53, was employed by the Company from November 1993 to
     October, 2004 as its VP of Finance, Secretary and Treasurer.

(5)  Mr. Greene, age 57, was a Vice President of the Northern California
     Division of the Company. He was employed by the Company from July, 1984 to
     January, 2004, and prior to September 1991, was a senior project manager
     for the Company.

(6)  Mr. Gullett, age 41, was a Vice President of the Southern California
     Division of the Company. He was employed by the Company from February, 1997
     to October, 2004, and prior to December 2000, was general superintendent
     for the Company.

(7)  Ms. Soh, age 35, was employed by the Company from June, 1997 to August,
     2004 as its Controller.

(8)  Mr. Gibson, age 51, was a project manager of the Company. He was employed
     by the Company from September, 1995 to May, 2003, and prior to June 1997
     was customer service manager for the Company.

(9)  Mr. Nierodzik, age 47, has been employed by the Company since August, 2004
     as its Chief Accounting Officer. From February 1991 through August 2004, he
     was employed as the accounting manager for the Roman Catholic Archdiocese
     of Los Angeles. The Roman Catholic Archdiocese of Los Angeles is a
     multi-entity non-profit corporation with a $2.7 billion consolidated
     balance sheet, and is not affiliated with the Company.

(10) Mssr. Barry Glaser, age 60, was a vice president with Morgan Stanley and
     retired in 2003. He currently manages his own investments.

(11) Such other compensation represents the amount of severance paid out, as
     well as insurance premiums paid by the Company with respect to term life
     insurance for the benefit of the named executive officers.

Each non-employee director (Mssr. Glaser) receives compensation of $500 per
regular meeting for serving as a director, and a fee of $100 per hour for
serving as a member of the Special Committee.

Currently, one member remains on the Audit Committee of the Company due to the
resignation of two Board members during 2004. The remaining member on this
committee, who is also CEO and director of the Company, is not serving as an
audit committee financial expert. The Company is in the process of becoming a
privately-held corporation, and therefore does not anticipate that the open
audit committee positions will be replaced.

ITEM 12.  Security Ownership of Certain Beneficial Owners and Management

The following table sets forth, as of December 31, 2004, certain information
concerning the beneficial ownership of the Company's equity securities of each
person known by the Company to own beneficially five percent or more of the
Company's Common Stock, the Company's only outstanding class of securities. A
person is deemed to be the beneficial owner of securities, whether or not he has
any economic interest therein, if he directly or indirectly has (or shares with
others) voting or investment power with respect to the securities or has the
rights to acquire such beneficial ownership within sixty days. The percentages
set forth in the following table and in the table under the caption "Beneficial
Ownership of Management" as to each person's ownership of the Company's Common
Stock are based on the 9,737,205 shares of Common Stock outstanding on December
31, 2004.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
                                            Number of Shares
Name and Address of                         of Common Stock                     Percent
Beneficial Owner                            Beneficially Owned (1)              of Class
-------------------------------------------------------------------------------------------
<S>                                         <C>                                 <C>
Victor and Hannah Zaccaglin                 4,439,218                           45.6%
13160 Mindanao Way, #180
Marina del Rey, CA  90292

John Curci (2)                              3,096,643                           31.8%
717 Lido Park Drive
Newport Beach, CA  92663
</TABLE>

     (1)  Information with respect to beneficial ownership is based on
          information furnished to the Company by each shareholder included in
          the table or included in filings with the Securities and Exchange
          Commission. Except as indicated in the notes to the table, each
          shareholder included in the table has sole voting and dispositive
          power with respect to the shares shown to be beneficially owned by
          such shareholder. The table may not reflect limitations on voting
          power arising under community property and similar laws.


                                      -18-
<PAGE>

     (2)  John Curci is Victor Zaccaglin's cousin.

The following table sets forth, as of December 31, 2004, certain information
concerning the beneficial ownership of the equity securities of the Company of
(i) each director of the Company, (ii) each executive officer of the Company
covered by the Summary Compensation Table below and (iii) all directors and
executive officers of the Company as a group.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------
                                      Number of Shares of
                                      Common Stock               Percent
Name of Beneficial Owner              Beneficially Owned (1)     of Class
---------------------------------------------------------------------------
<S>                                         <C>                   <C>
Victor Zaccaglin, CEO                       4,439,218             45.6%

Barry Glaser, Director                         81,746              0.9%

Henry Nierodzik, CAO                                0              0.0%
                                            ---------             -----

All Directors and Executive
Officers as a group (3 persons)             4,520,964             46.5%
                                            ---------             -----
</TABLE>

ITEM 13. Certain Relationships and Related Transactions

     Reference is made to Item 7 "Liquidity and Capital Resources" for a
complete description of Company related-party notes and related interest payable
outstanding during the year ended December 31, 2004.

     On May 6, 2004, sale of ten remaining partially-developed lots of the
Saddlerock project was made for $1,390,000 to VLZ Development, LLC, a company
that is owned and managed primarily by a related party to the Company.

                                      -19-
<PAGE>

ITEM 14. Principal Accounting Fees and Services

     The following table presents fees for professional audit services rendered
by our principal accountant for the audit of our annual consolidated financial
statements for 2004 and 2003, and fees billed for other services rendered:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                 2004                 2003
                                                 ----                 ----
<S>                                         <C>                  <C>
  Audit Fees (1)                            $  89,300            $  78,499
  Tax Fees (2)                                 53,650               53,800
  All Other Fees (3)                           16,585                    0
                                            ---------            ---------
     Total (4)                              $ 159,535            $ 132,299
                                            =========            =========
</TABLE>

(1)  Audit fees consisted principally of fees for audit and review services
     related annual and quarterly required SEC filings.
(2)  Tax fees consisted of fees for income tax consulting and tax compliance,
     including preparation of federal and state income tax returns.
(3)  All Other Fees incurred pertain to the preparation of responses to past SEC
     inquires.
(4)  All fees shown above exclude reimbursements for taxes and out-of-pocket
     costs of $11,421 and $9,005, for 2004 and 2003, respectively.
--------------------------------------------------------------------------------

Each year, the Audit Committee approves the annual audit engagement in advance.
The Audit Committee also pre-approves all non-audit services provided by the
principal independent accountants.

                                     PART IV

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

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

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

     31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

     31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Accounting Officer

     32.1 Section 1350 Certification of Chief Executive Officer

     32.2 Section 1350 Certification of Chief Accounting Officer

(b)  Reports on Form 8-K

     A Current Report on Form 8-K dated June 22, 2004 was filed with the
Securities and Exchange Commission to announce the sale of the Company's
contractual rights to purchase approximately 60 acres of undeveloped land.

     A Current Report on Form 8-K dated July 13, 2004 was filed with the
Securities and Exchange Commission to announce the Company's change in
certifying accountants.


                                      -20-
<PAGE>

     A Current Report on Form 8-K dated August 26, 2004 was filed with the
Securities and Exchange Commission to announce the resignation of the Company's
Chief Accounting Officer, who was also a director, and the appointment of his
replacement in such position.

     A Current Report on Form 8-K dated October 29, 2004 was filed with the
Securities and Exchange Commission to announce the resignation of a director of
the Company.

     A Current Report on Form 8-K dated December 14, 2004 was filed with the
Securities and Exchange Commission to announce the appointment of a director of
the Company.

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

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


/s/ Victor Zaccaglin                                                July 7, 2005
--------------------------------------------------------------------------------
Victor Zaccaglin,                                                       Date
Chairman of the Board
Chief Executive Officer

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

/s/ Henry Nierodzik                                                 July 7, 2005
--------------------------------------------------------------------------------
Henry Nierodzik                                                         Date
Chief Accounting Officer

/s/ Victor Zaccaglin                                                July 7, 2005
--------------------------------------------------------------------------------
Victor Zaccaglin                                                        Date
Chairman of the Board
Chief Executive Officer


                                      -21-
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Calprop Corporation:

We have audited the accompanying consolidated balance sheet of Calprop
Corporation and Subsidiaries ("the Company") as of December 31, 2004, and the
related consolidated statements of operations, stockholders' deficit and cash
flows for the year then ended. Our audit also included the financial statement
schedule listed in the Index at Item 8 for the year ended December 31, 2004.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also 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
audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Calprop Corporation
and Subsidiaries as of December 31, 2004, and the results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule for the year ended December 31, 2004,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has cumulative losses of $47.8
million, a stockholders' deficit of approximately $12.2 million, and diminishing
financial resources. These conditions raise substantial doubt about its ability
to continue as a going concern. Management's plans regarding those matters also
are described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


/s/ Rothstein, Kass & Company, P.C.


Beverly Hills, California
May 26, 2005


                                      -22-
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Calprop Corporation:

We have audited the accompanying consolidated balance sheet of Calprop
Corporation and subsidiaries (the "Company") as of December 31, 2003, and the
related consolidated statements of operations, stockholders' (deficit) equity,
and cash flows for the years ended December 31, 2003 and 2002. Our audits also
included the financial statement schedule for the years ended December 31, 2003
and 2002 listed in the Index at Item 8. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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, 2003, and the results of their operations and
their cash flows for the years ended December 31, 2003 and 2002 in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule for the years ended
December 31, 2003 and 2002, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.


/s/ DELOITTE & TOUCHE LLP


Los Angeles, California
June 29, 2004


                                      -23-
<PAGE>

                               CALPROP CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                      2004           2003
                                                                                  ------------    ------------
<S>                                                                               <C>             <C>
Assets:
Investment in real estate
  Real estate under development                                                   $  3,633,576    $ 13,175,441
  Assets held for sale                                                                       0       8,864,917
                                                                                  ------------    ------------

       Total investment in real estate                                               3,633,576      22,040,358
                                                                                  ------------    ------------

Other assets
    Cash and cash equivalents                                                          207,494         190,770
    Other assets                                                                       529,663       1,292,744
                                                                                  ------------    ------------
       Total other assets                                                              737,157       1,483,514
                                                                                  ------------    ------------
                                                                                  $  4,370,733    $ 23,523,872
                                                                                  ============    ============
Liabilities and Stockholders' Deficit:
LIABILITIES
Trust deeds and notes payable                                                     $    132,871    $  4,365,703
Related-party notes                                                                 13,451,797      16,482,631
                                                                                  ------------    ------------
       Total trust deeds, notes payable and related-party notes                     13,584,668      20,848,334
Liabilities of assets held for sale                                                          0       7,720,608
Accounts payable and accrued liabilities                                             1,321,828       2,521,487
Other liabilities                                                                    1,652,640         686,376
                                                                                  ------------    ------------
          Total liabilities                                                         16,559,136      31,776,805
                                                                                  ------------    ------------

STOCKHOLDERS' DEFICIT
Common stock - no par value, $1 stated value; Authorized 20,000,000 shares;
  Issued and outstanding - 9,737,205 and 10,239,105 shares at December 31, 2004
  and 2003, respectively

                                                                                     9,737,205      10,239,105
 Additional paid-in capital                                                         25,920,151      25,850,776
 Stock purchase loans                                                                        0        (549,084)
 Accumulated deficit                                                               (47,845,759)    (43,793,730)
                                                                                  ------------    ------------
         Total stockholders' deficit                                               (12,188,403)     (8,252,933)
                                                                                  ------------    ------------
                                                                                  $  4,370,733    $ 23,523,872
                                                                                  ============    ============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      -24-
<PAGE>

                               CALPROP CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                    --------------------------------------------
                                                                        2004            2003            2002
                                                                    ------------    ------------    ------------
<S>                                                                 <C>             <C>             <C>
Development operations:
     Real estate sales                                              $ 10,021,247    $ 19,892,939    $ 91,641,620
     Cost of real estate sales                                        12,242,319      20,715,992      92,399,110
                                                                    ------------    ------------    ------------
     Loss from development operations before
          recognition of impairment of real estate                    (2,221,072)       (823,053)       (757,490)

     Recognition of impairment of real estate under development         (255,294)     (5,046,150)     (4,471,693)
                                                                    ------------    ------------    ------------
        Loss from development operations                              (2,476,366)     (5,869,203)     (5,229,183)
                                                                    ------------    ------------    ------------

Income (loss) from investment in real estate venture                           0               0         109,253
                                                                    ------------    ------------    ------------

Other income:
    Gain on sale of investment in real estate venture                          0       2,000,000               0
    Gain on sale of land                                               1,310,214               0               0
    Interest and miscellaneous                                           395,747         620,406         433,760
    Management fee                                                             0               0         222,957
                                                                    ------------    ------------    ------------
       Total other income                                              1,705,961       2,620,406         656,717
                                                                    ------------    ------------    ------------

Other expenses:
    General and administrative                                         1,915,478       1,711,586       2,379,007
    Interest expense                                                   1,412,775       1,309,177         420,797
                                                                    ------------    ------------    ------------
       Total other expenses                                            3,328,253       3,020,763       2,799,804
                                                                    ------------    ------------    ------------

Minority interest                                                              0               0             235
                                                                    ------------    ------------    ------------

Loss from continuing operations before provision for income taxes     (4,098,658)     (6,269,560)     (7,263,252)

Provision for income taxes                                                     0       6,535,343               0
                                                                    ------------    ------------    ------------
Loss from continuing operations                                       (4,098,658)    (12,804,903)     (7,263,252)
Discontinued operations:
Income (loss) from discontinued operations                                46,629      (2,339,254)       (627,305)
                                                                    ------------    ------------    ------------
NET LOSS                                                            ($ 4,052,029)   ($15,144,157)   ($ 7,890,557)
                                                                    ============    ============    ============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      -25-
<PAGE>

                               CALPROP CORPORATION
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2004

<TABLE>
<CAPTION>
                       ---------------------------------------------------------------------------------------------------
                             Common Stock          Additional                    Stock                        Total
                       ------------------------     Paid-In       Deferred      Purchase     Accumulated   Stockholders'
                         Shares        Amount       Capital     Compensation     Loans         Deficit    Equity (Deficit)
--------------------------------------------------------------------------------------------------------------------------
<S>                    <C>          <C>           <C>             <C>          <C>          <C>             <C>
           BALANCES,
     January 1, 2002   10,254,005   $10,254,005   $25,845,986     ($51,000)    ($537,179)   ($20,759,016)   $14,752,796
--------------------
            Net loss                                                                          (7,890,557)    (7,890,557)
--------------------
     Cancellation of
              shares
    under 1989 stock
      incentive plan       (1,400)       (1,400)                     1,400
--------------------
         Purchase of
           Company's
        common stock      (17,300)      (17,300)        3,460                                                   (13,840)
--------------------
 Accrual of interest
               under
      stock purchase
               loans                                                             (15,812)                       (15,812)
--------------------
  Repayment of stock
       purchase loan                                                              25,133                         25,133
--------------------
     Amortization of
            deferred
        compensation                                                21,000                                       21,000
--------------------------------------------------------------------------------------------------------------------------
           BALANCES,
   December 31, 2002   10,235,305    10,235,305    25,849,446      (28,600)     (527,858)    (28,649,573)     6,878,720
--------------------
            Net loss                                                                         (15,144,157)   (15,144,157)
--------------------
   Sale of Company's        3,800         3,800         1,330                                                     5,130
        common stock
--------------------
 Accrual of interest
               under
      stock purchase
               loans                                                             (21,226)                       (21,226)
--------------------
     Amortization of
            deferred
        compensation                                                28,600                                       28,600
--------------------------------------------------------------------------------------------------------------------------
           BALANCES,
   December 31, 2003   10,239,105    10,239,105    25,850,776            0      (549,084)    (43,793,730)    (8,252,933)
--------------------
            Net loss                                                                          (4,052,029)    (4,052,029)
--------------------
  Reverse accrual of                                                             123,459                        123,459
interest under stock
      purchase loans
--------------------
     Cancellation of
   shares under 1993
stock incentive plan     (501,900)     (501,900)       69,375                    425,625                         (6,900)
--------------------------------------------------------------------------------------------------------------------------
           BALANCES,
   December 31, 2004    9,737,205    $9,737,205   $25,920,151           $0            $0    ($47,845,759)  ($12,188,403)
--------------------   ==========   ===========   ===========       ======       =======    ============   ============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      -26-
<PAGE>

                               CALPROP CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                              Year Ended December 31,
                                                                                   --------------------------------------------
                                                                                        2004           2003            2002
                                                                                   --------------------------------------------
<S>                                                                                <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss                                                                          ($ 4,052,029)   ($15,144,157)   ($ 7,890,557)
 Adjustments to reconcile net loss to net cash provided by operating activities:
         Minority interests                                                                   0               0             235
         Recognition of impairment of real estate under development                     255,294       5,046,150       4,471,693
         Recognition of impairment of rental property                                         0       2,268,948               0
         Gain on sale of land                                                        (1,310,214)              0               0
         Gain on sale of investment in real estate venture                                    0      (2,000,000)              0
         Gain on forgiven debt                                                         (306,701)       (392,575)              0
         Gain on sale of rental property                                               (135,083)              0               0
         Income from sale of investment in real estate venture                                0               0        (109,253)
         Loss on sale of property and equipment                                          34,848           1,312               0
         Amortization of deferred compensation                                                0          28,600          21,000
         Depreciation and amortization                                                   18,625         183,739         165,287
         Provision for warranty reserves                                                 34,000          54,000         252,105
         Provision for bad debt                                                         107,500               0               0
         Interest related to executive stock purchase loans                             116,559         (21,226)        (15,812)
         Deferred income taxes                                                                0       6,535,343               0
 Increase (decrease) in cash and cash equivalents attributable to changes in
   operating assets and liabilities:
        Other assets                                                                    610,070        (671,607)         18,116
        Receivable from affiliates                                                            0               0         788,752
        Accounts payable and accrued liabilities                                     (1,199,659)       (161,305)     (2,609,594)
        Deposits                                                                      1,000,000               0       2,000,000
        Warranty reserves                                                               (67,736)       (125,174)       (164,670)
        Real estate under development                                                10,596,785       5,945,238      48,954,987
                                                                                   --------------------------------------------
               Net cash provided by operating activities                              5,702,259       1,547,286      45,882,289
                                                                                   --------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
     Investment in rental property                                                            0          (5,680)              0
     Proceeds from sale of rental property                                            9,000,000               0               0
     Capital expenditures                                                                (7,962)         (6,140)        (31,993)
                                                                                   --------------------------------------------
               Net cash provided by (used in) investing activities                    8,992,038         (11,820)        (31,993)
                                                                                   --------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Borrowings under related-party notes                                              4,691,680       3,010,849       1,663,977
    Payments under related-party notes                                               (7,415,813)       (123,277)    (13,895,903)
    Borrowings under trust deeds and notes payable                                    4,360,581      18,909,061      32,681,856
    Payments under trust deeds and notes payable                                    (16,314,021)    (26,591,000)    (64,946,449)
    Common stock                                                                              0           5,130         (13,840)
    Repayment of stock purchase loans                                                         0               0          25,133
                                                                                   --------------------------------------------
          Net cash used in financing activities                                     (14,677,573)     (4,789,237)    (44,485,226)
                                                                                   --------------------------------------------
    Net increase (decrease) in cash and cash equivalents                                 16,724      (3,253,771)      1,365,070
    Cash and cash equivalents at beginning of the year                                  190,770       3,444,541       2,079,471
                                                                                   --------------------------------------------
    Cash and cash equivalents at end of the year                                   $    207,494    $    190,770    $  3,444,541
                                                                                   ============================================
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      -27-
<PAGE>

                                    Continued
                               CALPROP CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                            Years Ended December 31,
                                                                    ----------------------------------------
                                                                       2004          2003           2002
                                                                    ----------------------------------------
<S>                                                                 <C>          <C>            <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
     Cash paid (refunded) during the year for:
          Interest, net of amount capitalized                       $2,468,627   $ 1,424,483    $    699,849
          Income taxes                                              $        0   ($   55,998)   ($    44,331)

NON-CASH INVESTING AND FINANCING ACTIVITIES:
     Transfer of real estate under development to rental property   $        0   $         0    $ 11,304,761
     Interest reversal and cancellation of shares                   $  116,559   $         0    $          0
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      -28-
<PAGE>

(1)  Organization

          Nature of operations and going concern consideration - Calprop
          Corporation ("the Company"), a California corporation, primarily
          constructs and sells single-family detached and attached homes and
          townhomes as part of condominiums or planned-unit developments in
          California and Colorado. The Company's products have ranged from homes
          for first-time buyers to custom homes. In addition to the construction
          and sale of single-family and multifamily housing, the Company has
          engaged in the development of apartments and townhomes available for
          lease.

          In order to obtain cash to continue the Company's operations and
          maintain viability as a going concern, most of the land held for
          development and an option to purchase property in Riverside County,
          California either has been or is planned to be sold instead of being
          used as originally intended. Based on its agreements with its lenders,
          the Company believes that it will have sufficient liquidity to finance
          its remaining construction project in 2005 using funds generated from
          operations, including funds received from sale of the option discussed
          above, and funds available under its existing bank commitment.

          The accompanying consolidated financial statements have been prepared
          assuming the Company will continue as a going concern. During the
          years ended December 31, 2004, 2003 and 2002, the Company has incurred
          net losses of approximately $4.1 million, $15.1 million, and $7.9
          million, respectively. At December 31, 2004, the Company has
          cumulative losses of approximately $47.8 million, a stockholders'
          deficit of approximately $12.2 million and diminishing financial
          resources. Contractual obligations of approximately $13.6 million will
          mature in 2005. These conditions raise substantial doubt about the
          Company's ability to continue as a going concern. The accompanying
          consolidated financial statements do not include any adjustments that
          might result from the outcome of this uncertainty.

          A tender offer was successfully accepted by 97.5% of the Company's
          stockholders on May 26, 2005 for the intention of privatizing the
          Company. The tender offer was prompted by the Company's deteriorating
          financial condition, the substantial continuing costs that will be
          incurred if the Company remains a publicly traded company and
          uncertainty regarding the Company's continuing viability.

          Management's plan with respect to managing cash flow includes the
          following components: pay off debt that is coming due in 2005,
          minimize operating expenses, and maintain control over costs. With
          regard to debt coming due, management has paid off the remaining bank
          loan through cash flow from operations and expects to extend remaining
          related-party loans until funds are made available. 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 will be adequate to allow the
          Company to continue operations.

          The results of operations for the year ended December 31, 2004 may not
          be indicative of future operating results.

          Basis of presentation - The accompanying consolidated financial
          statements include the accounts of Calprop Corporation and all its
          subsidiaries. All significant intercompany transactions and balances
          have been eliminated in consolidation.

          Such statements have been prepared in accordance with accounting
          principles generally accepted in the United States of America.


                                      -29-
<PAGE>

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                                                 Ownership
                 Entity                         interest at
                                             December 31, 2004                 Real estate holdings
------------------------------------------------------------------------------------------------------------
<S>                                                 <C>              <C>
Colorado Pacific Homes, Inc. ("CPH")                100%             High Ridge Court and Saddlerock
                                                                     projects, Colorado.

DMM Development, LLC ("DMM")                         67%             Cierra del Lago and Antares projects,
                                                                     California (project sold in 2000).

Rohnert Park Development Co., LLC                   100%             77 lots in Rohnert, California (project
("Rohnert")                                                          sold in 2004).

Parkland Farms Development Co., LLC                  99%             115 lots in Healdsburg, California
("Parkland")                                                         (project sold in 2001).

RGCCLPO Development Co., LLC ("RGCCLPO")            100%             382 lots in Milpitas, California
                                                                     (project sold in 2003).

PWA Associates, LLC ("PWA")                                          68-unit apartment building in Milpitas,
                                                    100%             California (project sold in 2004).
------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

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

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

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

          PWA: The Company was entitled to receive fifty percent of the profits
          of PWA, and the other member, RGC, was entitled to receive the
          remaining fifty-percent of the profits. In 2001, the Company purchased
          all of RGC's ownership interest in PWA.

          During the year ended December 31, 2004, income of $2,526 pertained to
          the minority interest. The unrecognized minority interest in the
          deficit of the Company as of December 31, 2004 and 2003 was $68,104
          and $70,630, respectively. The Company does not reflect the deficit
          for the minority interest because the minority owners are not
          responsible for losses incurred beyond their equity.

(2)  Summary of Significant Accounting Policies

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

          The Company reviews the carrying value of its real estate developments
          for impairment whenever events or changes in circumstances indicate
          that the carrying amount of the asset may not be recoverable. If the
          sum of the expected future cash flows is less than the carrying amount
          of the asset, the Company recognizes an impairment loss. During 2004,
          2003 and


                                      -30-
<PAGE>

          2002, the Company recorded an impairment loss of $255,294, $5,046,150
          and $4,471,693, respectively, related to its homebuilding activities.
          In addition, the Company recorded an impairment loss of $2,268,948
          during 2003 related to the apartment building held for sale.

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

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

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

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

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

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

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

          Earnings per share - Basic earnings (loss) per common share are
          computed by dividing net income (loss) by the weighted average number
          of common shares outstanding during the period. Diluted earnings
          (loss) per common share incorporate the dilutive effect of common
          stock equivalents on an average basis during the period. The Company's
          common stock equivalents currently include stock options.

          Employee stock plans - The Company has complied with the
          disclosure-only provisions of Statement of Financial Accounting
          Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation,"
          as amended by SFAS No. 148, until January 1, 2005, at which date the
          Company adopted SFAS No. 123R which requires companies to record
          compensation expense for share-based payments to employees. Accounting
          Principles Board Opinion No. 25 and related interpretations was
          applied by the Company in accounting for its stock option plans,
          adjusted for stock dividends, and, accordingly, no compensation cost
          had been recognized prior to 2005 because stock options granted under
          the plans were at exercise prices which were equal to or above the
          market value of the underlying stock on the date of


                                      -31-
<PAGE>

          grant. Had compensation expenses been determined as provided by SFAS
          No. 123 using the Black-Scholes option-pricing model for the year
          ended December 31, 2004, the pro forma effect on the Company's net
          income (loss) and per share amounts would have been immaterial. The
          Company provides a tabular reconciliation of reported net income under
          the intrinsic method to proforma net income under the fair value
          method within its consolidated financial statements.

          Use of estimates - The preparation of financial statements in
          conformity with accounting principles generally accepted in the United
          States of America requires management to make estimates and
          assumptions that affect the reported amounts of assets and liabilities
          and disclosure of contingent assets and liabilities at the date of the
          financial statements and the reported amounts of revenues and expenses
          during the reporting period. Actual results could differ from those
          estimates.

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

          Equity method - The Company's investments in affiliated companies
          which are not majority owned or controlled are accounted for using the
          equity method. Investments carried at equity consist of Mission Gorge,
          LLC and RGC Carmel Country Associates, LLC, described further in Note
          3.

          Recent accounting pronouncements - In January 2003, the FASB issued
          FASB Interpretation No. 46, "Consolidation of Variable Interest
          Entities" ("FIN 46"). FIN 46 clarifies the application of Accounting
          Research Bulletin No. 51, "Consolidated Financial Statements" and
          provides guidance on the identification of entities for which control
          is achieved through means other than voting rights ("variable interest
          entities" or "VIEs") and how to determine when and which business
          enterprise should consolidate the VIE. This new model for
          consolidation applies to an entity in which either: (1) the equity
          investors (if any) lack one or more characteristics deemed essential
          to a controlling financial interest or (2) the equity investment at
          risk is insufficient to finance that entity's activities without
          receiving additional subordinated financial support from other
          parties. In December 2003, the FASB published a revision to FIN 46
          ("FIN 46R") to clarify some of the provisions of the interpretation
          and defer the effective date of implementation for certain entities.
          The provisions of FIN 46R are effective for the first reporting period
          ending after December 15, 2003 for entities considered to be
          special-purpose entities. The provisions for all other entities
          subject to FIN 46R are effective for financial statements of the first
          reporting period ending after March 15, 2004. On February 1, 2003, the
          Company adopted the provisions of this interpretation, which did not
          have a material effect on the Company's results of operations or
          financial condition.

          In November 2004, the FASB issued Statement of Financial Accounting
          Standard ("SFAS") No. 151, "Inventory Costs, an amendment of ARB No.
          43, Chapter 4." SFAS No. 151 clarifies the accounting for amounts of
          idle facility expenses, freight, handling costs, and wasted material
          (spoilage). This statement is effective for the Company on January 1,
          2006. The adoption of SFAS No. 151 is not expected to have a material
          effect on the Company's consolidated financial statements.

          On December 16, 2004, the FASB issued Statement of Financial
          Accounting Standards No. 123 (revised 2004), "Share-Based Payment,"
          ("SFAS No. 123R") which is a revision of Statement of Financial
          Accounting Standards No. 123, "Accounting for Stock-Based
          Compensation," ("SFAS No. 123"). SFAS No. 123R supersedes Accounting
          Principles Board Opinion No. 25, "Accounting for Stock Issued to
          Employees," ("APB Opinion No. 25") and its related implementation
          guidance. SFAS No. 123R requires companies to record compensation
          expense for share-based payments to employees, including grants of
          employee stock options, at fair value. SFAS No. 123R is effective for
          most public companies at the beginning of their next fiscal year after
          June 15, 2005. The implementation of the


                                      -32-
<PAGE>

          provisions of SFAS No. 123R is not expected to have a material impact
          on the Company's consolidated financial position or results of
          operations.

          In December 2004, the FASB issued SFAS No. 153, "Exchanges of
          Nonmonetary Assets, an amendment of APB Opinion No. 29". SFAS No. 153
          amends APB Opinion No. 29 to eliminate the exception for nonmonetary
          exchanges of similar productive assets and replaces it with a general
          exception for exchanges of nonmonetary assets that do not have
          commercial substance. A monetary exchange has commercial substance if
          the future cash flows of the entity are expected to change
          significantly as a result of the exchange. This statement is effective
          for the Company on January 1, 2006. The adoption of SFAS No. 153 is
          not expected to have a material effect on the Company's consolidated
          financial statements.

(3)  Real Estate under Development

     Real estate under development at December 31, 2004 and 2003 is summarized
     as follows:

<TABLE>
<CAPTION>
                                                                   2004                          2003
                                                       -----------------------------------------------------------
                                                           Amount      Units/Lots         Amount      Units/Lots
                                                       ----------------------------   ----------------------------
<S>                                                         <C>                  <C>      <C>                  <C>
Single-family residences                                    $1,849,369           9         $7,389,708          39
Townhomes                                                            0           0        (1,082,607)           0
                                                       ----------------------------   ----------------------------
Total residences                                             1,849,369           9          6,307,101          39
                                                                       ============                   ============
Land and options                                             1,784,207                      4,237,525
                                                       ----------------               ----------------
Total real estate under development before                   3,633,576
     Investment in joint ventures                                                          10,544,626
Investment in joint ventures                                         0                      2,630,815
                                                       ----------------               ----------------
Total real estate under development                         $3,633,576                    $13,175,441
                                                       ================               ================
</TABLE>

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

     In 1996, Mission Gorge, LLC, a California limited liability company, was
     formed as a joint venture to develop and construct single-family homes. The
     net proceeds were to be divided equally among the two members, Calprop
     Corporation and Curci-Turner, LLC. In December 2000, Curci-Turner, LLC made
     a distribution of its 50% interest equally to its members, The John L.
     Curci Trust and The Janet Curci Living Trust No. Il. On February 24, 2004,
     the Company purchased the remaining 50% interest from The John L. Curci
     Trust and The Janet Curci Living Trust No. II for $3,600,000. On May 21,
     2004, the Company sold the Mission Gorge property for $6,849,679. As a
     result, the Company recorded income from the sale of land of $430,912.

     In 1999, the Company formed RGC Carmel Country Associates, LLC, a
     California limited liability company ("RGC Carmel"), with RGC to develop,
     construct and lease a 181-unit townhome project. The profits and losses of
     RGC Carmel were distributed between the members as follows: 50% to RGC and
     50% to the Company. During 2000, RGC Carmel admitted additional members in
     the following proportions: The John L. Curci Trust as to a 12.5% interest,
     the Janet Curci Living Trust No. Il as to a 12.5% interest, and an officer
     of the Company as to a 25% interest in exchange for financing for the
     project as follows: $2,000,000 in equity and $2,000,000 in notes payable.
     As a result, the Company's interest in RGC Carmel was reduced to 25%.
     During 2002, the Company transferred 0.5% of its interest in RGC Carmel to
     Calprop Andalucia, a 100% wholly owned subsidiary of the Company. In
     January 2003, the Company sold the remaining 24.5% of its interest in RGC
     Carmel to related parties in the following proportions: The Janet Curci
     Living Trust No. II as to a 6.125% interest, JAMS Management as to a 6.125%
     interest, and an officer of the Company as to a 12.25%


                                      -33-
<PAGE>

     interest. Sale of the Company's direct interest resulted in a gain on sale
     of investment in real estate venture of $2,000,000 in 2003. The Company
     retained its 0.5% indirect interest in RGC Carmel and remained liable, on a
     contingent basis through a guarantee, with respect to a mortgage loan
     payable by the Joint Venture until the property was sold in September 2004.

     During 2004, 2003 and 2002, the Company recorded income from investment in
     real estate ventures of $0, $0, and $109,253, respectively. During 2004,
     2003 and 2002, the Company recorded gains on sale of investments in real
     estate ventures of $0, $2,000,000, and $0, respectively.

     Development operations in 2004, 2003 and 2002 are summarized as follows:

<TABLE>
<CAPTION>
                                                2004                  2003                   2002
                                           ------------------------------------------------------------------
REAL ESTATE SALES:                             Amount      Units     Amount      Units      Amount      Units
                                           ------------------------------------------------------------------
<S>                                           <C>             <C>  <C>              <C>  <C>             <C>
     Single-family residences                 $8,631,247      32   $9,739,000       38   $32,160,152     100
     Townhomes                                         0       0    7,657,678       16    59,481,468     148
     Lots                                      1,390,000      10    2,496,261       50
                                           ------------------------------------------------------------------
          Total Sales                         10,021,247      42   19,892,939      104    91,641,620     248
                                                         ========             =========              ========

COST OF REAL ESTATE SALES:
     Single-family residences                 12,208,319           10,698,724             31,977,269
     Townhomes                                         0            7,609,716             60,169,736
     Lots                                              0            2,353,552                      0
     Warranty                                     34,000               54,000                252,105
                                           --------------        -------------         --------------
          Total Cost of Sales                 12,242,319           20,715,992             92,399,110

Recognition of impairment of real estate
   under development                           (255,294)          (5,046,150)            (4,471,693)
                                           --------------        -------------         --------------

Loss from development operations            ($2,476,366)         ($5,869,203)           ($5,229,183)
                                            ============         ============           ============
</TABLE>

     On May 6, 2004, sale of the remaining ten partially-developed lots of the
     Saddlerock project was made to VLZ Development, LLC, a company that is
     owned and managed primarily by a related party to the Company.

     The 2004 impairment loss on real estate under development pertains to the
     High Ridge Court project. This impairment loss is primarily a result of a
     slower than anticipated absorption rate. The decrease in absorption had
     increased marketing, production and interest costs, and as a result the
     Company recorded an impairment loss for this project of $255,294.

     The 2003 impairment loss on real estate under development includes the
     recording of an impairment loss for two projects. The impairment loss on
     the Saddlerock project is primarily a result of the lack of demand of the
     product lines resulting in a slower absorption rate. The Company introduced
     three new product lines and converted certain upgrades as standards to
     increase the absorption rate. The introduction of the new product lines
     increased direct construction cost, marketing, production overhead and
     interest costs, and as a result the Company recorded an impairment loss on
     real estate under development for this project of $4,614,756. The
     impairment loss on the High Ridge Court project is primarily a result of a
     slower than anticipated absorption rate. The decrease in absorption
     increased marketing, production and interest costs, and as a result, the
     Company recorded an impairment loss on real estate under development for
     this project of $431,394.

     The 2002 impairment loss on real estate under development includes the
     recording of an impairment loss for three projects. The impairment loss on
     the Saddlerock project is primarily a result of the lack


                                      -34-
<PAGE>

     of demand of the product lines resulting in a slower absorption rate. The
     Company introduced three new product lines and converted certain upgrades
     as standards to increase the absorption rate. The introduction of the new
     product lines increased direct construction cost, marketing, production
     overhead and interest costs, and as a result, the Company recorded an
     impairment loss on real estate under development for this project of
     $1,503,792. The impairment loss on the High Ridge Court project is
     primarily a result of a slower than anticipated absorption rate. The
     decrease in absorption increased marketing, production and interest costs
     and as a result, the Company recorded an impairment loss on real estate
     under development for this project of $1,407,520. The impairment loss on
     the Parc Metropolitan project resulted from actual sales prices for certain
     units that were lower than anticipated. In addition, the lack of demand for
     upgrades and options in the project also impacted the sales revenue, and as
     a result the Company recorded an impairment loss on real estate under
     development for this project of $1,560,381.

(4)  Assets and liabilities held for sale; discontinued operations

     During 2003, management approved a plan of action to sell the operating
     assets of its wholly owned subsidiary, PWA Associates, LLC ("PWA"). As a
     result, the rental property held by PWA was reclassified as held for sale
     and the Company ceased recording depreciation with respect to that
     property. The sale of PWA occurred on March 12, 2004 at a gross sales price
     of $9 million. The Company recognized a gain of $135,083 on the PWA sale.

     Assets held for sale are summarized as follows:

<TABLE>
<CAPTION>
                                                     December 31, 2004          December 31, 2003
                                                     -----------------          -----------------
<S>                                                                <C>               <C>
Land                                                               $ 0               $  1,500,000
Building and improvements, net                                       0                  7,364,917
                                                     ------------------         ------------------

Assets held for sale                                               $ 0               $  8,864,917
                                                     ==================         ==================
</TABLE>

     Depreciation expense for building and improvements for the year ended
     December 31, 2004, 2003 and 2002 was $0, $146,250 and $121,875,
     respectively.

     Liabilities of assets held for sale are summarized as follows:

<TABLE>
<CAPTION>
                                                     December 31, 2004          December 31, 2003
                                                     -----------------          -----------------
<S>                                                             <C>                  <C>
Trust deeds and notes payable                                   $    0               $  7,678,544
Accounts payable and accrued liabilities                             0                     42,064
                                                     -----------------          -----------------
Liabilities of assets held for sale                             $    0               $  7,720,608
                                                     =================          =================
</TABLE>

     In accordance with SFAS 144 "Accounting for the Impairment or Disposal of
     Long-Lived Assets," the net income (loss) of assets held for sale is
     reflected in the consolidated statements of operations as discontinued
     operations for all periods presented.


                                      -35-
<PAGE>

     The following table summarizes the components of discontinued operations:

<TABLE>
<CAPTION>
                                                   2004          2003           2002
                                               ----------------------------------------
<S>                                            <C>           <C>            <C>
Revenues:
Rental income                                  $   167,197   $   972,706    $   256,117
Gain on sale of rental property                    135,083             0              0
Gain on forgiven debt                              306,701       392,575              0
Interest and miscellaneous                           3,966        26,966         12,516
                                               ----------------------------------------
  Total revenues                                   612,947     1,392,247        268,633
Expenses:
Rental operating                                   254,404       660,793        502,059
Recognition of impairment of rental property             0     2,268,948              0
Depreciation                                             0       151,015        123,036
Interest                                           311,914       650,745        270,843
                                               ----------------------------------------
  Total expenses                                   566,318     3,731,501        895,938
                                               ----------------------------------------
Income (loss) from discontinued operations     $    46,629   ($2,339,254)   ($  627,305)
                                               ========================================
</TABLE>

(5)  Other assets; other liabilities

     Other assets at December 31, 2004 and 2003 are as follows:

<TABLE>
<CAPTION>
                                           Interest Rate    Outstanding Balance
                                           -------------   ---------------------
                                                             2004        2003
                                                           --------   ----------
<S>                                              <C>       <C>        <C>
Trust deeds receivable                           11.75%     $48,269      $49,975
Accounts receivable                                         256,497            0
Less reserve                                               (137,500)     (30,000)
                                                           --------   ----------
Net trust deeds and accounts receivable                     167,266       19,975
Deposits in escrow                                           52,000      501,010
Office equipment and other, net of
accumulated depreciation of $292,967 and
$362,580 as of December 31, 2004 and 2003,
respectively                                                211,887      751,255
Prepaid expenses                                             98,510       20,504
                                                           --------   ----------
                                                           $529,663   $1,292,744
                                                           ========   ==========
</TABLE>

     Depreciation expense included in general and administrative expenses for
     the years ended December 31, 2004, 2003 and 2002 was $18,625, $32,725 and
     $43,412, respectively.

     Other liabilities at December 31, 2004 and 2003 are as follows:

<TABLE>
<CAPTION>
<S>                                                        <C>          <C>
Warranty reserves (refer to Schedule II)                   $  652,640   $686,376
Deferred income (refer to Note 10)                          1,000,000          0
                                                           ----------   --------
                                                           $1,652,640   $686,376
                                                           ==========   ========
</TABLE>


                                      -36-
<PAGE>

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

          Trust deeds, notes payable and related-party notes as of December 31,
          2004 and 2003 are as follows:

<TABLE>
<CAPTION>
                                                                                        2004        2003
                                                                                   -------------------------
<S>                                                                                <C>           <C>
Trust Deeds and Notes Payable:
Notes payable to financial institutions, secured by development projects' trust
deeds - variable and fixed interest rates ranging from prime plus 1.25% to 10%,
interest payable monthly (prime rate equals 5.0% and 4.0% at
December 31, 2004 and 2003, respectively); maturing July 1, 2005                   $    60,349   $ 2,744,158
Line of credit to financial institution, unsecured - variable interest rate at
prime; interest payable monthly (prime rate of 4.0% at December 31,
2003); matured  August 2004                                                                  0     1,500,000
Notes payable to financial institutions, unsecured - prime plus 1.25%,
interest payable monthly; maturity dated May 1, 2005                                    72,522       121,545
                                                                                   -------------------------
Total trust deeds and notes payable                                                    132,871     4,365,703
                                                                                   -------------------------
Related-Party Notes:
Notes payable to related parties, secured by development projects' trust deeds -
interest rate of 12%, interest payable monthly; maturing on demand
through June 2005                                                                    2,178,819     6,943,443
Notes payable to related parties, unsecured - interest rates of 10% to 15%,
interest payable monthly; maturing on demand through December 2005                  11,272,978     9,539,188
                                                                                   -------------------------
Total related-party notes                                                           13,451,797    16,482,631
                                                                                   -------------------------
Total trust deeds, notes payable and related-party notes                           $13,584,668   $20,848,334
                                                                                   -------------------------
</TABLE>

     As of December 31, 2004, the Company had one remaining loan commitment from
     a financial institution of approximately $1,043,000 that could be drawn
     down by the Company upon the satisfaction of certain conditions, until the
     maturity date of June 30, 2005.

     During 2004, 2003 and 2002, the Company paid interest of $123,797,
     $592,028, and $2,323,387, respectively, on trust deeds and notes payable.
     The Company capitalized interest of $8,182, $136,456, and $2,047,647 during
     2004, 2003 and 2002, respectively.

     Related-Party Notes - Curci

     The Company has the following notes payable to Curci-owned entities
     ("Curci") at December 31, 2004 and 2003. A principal of Curci is a major
     stockholder of the Company. Under the terms of the note payable for High
     Ridge Court, Curci participates in net proceeds, as defined in the loan
     agreement, which is comparable to net profit.


                                      -37-
<PAGE>

<TABLE>
<CAPTION>
Description                 Profit share       December 31, 2004        December 31, 2003
------------------------    -------------    ---------------------    -----------------------
<S>                             <C>                    <C>                       <C>
Secured loans:

High Ridge Court                50%                    $2,178,819                $2,499,024
Saddlerock                      n/a                             0                 4,444,419
                                             ---------------------    -----------------------

                                                        2,178,819                 6,943,443
Unsecured loans (A)                                     7,217,656                 5,356,254
                                             ---------------------    -----------------------

                                                       $9,396,475               $12,299,697
                                             =====================    =======================
</TABLE>

(A) The Company obtained unsecured working capital loans from Curci-Turner and
Curci Investments, with a maturity date that has been extended to June 30, 2005.
Amount represents principal plus unpaid interest, at a rate of 15% per annum on
$5,705,486 of the debt and 12% per annum on $1,512,170 as of December 31, 2004.

     During the years ended December 31, 2004, 2003, and 2002, net participation
proceeds expensed to cost of real estate sales in the accompanying consolidated
statements of operations were $0, $0, and $24,385, respectively. Accrued
participation proceeds included in accounts payable and accrued liabilities in
the accompanying consolidated balance sheets at December 31, 2004 and 2003 was
$0.

Other Related Parties

During 1996, the Company converted its Preferred Stock to Common Stock.
Consequently, the accrued Preferred Stock dividends due to an officer of the
Company and a related party of $581,542 and $472,545, respectively, were
exchanged for notes with interest payable at 10%. The outstanding principal due
an officer of the Company and a related party on these notes was $581,542 and
$462,330 for both December 31, 2004 and 2003.

Included in notes payable to related parties is a note payable to Mission Gorge,
LLC bearing interest at 12%. The outstanding balance as of December 31, 2004 and
2003 was $0 and $2,000,000, respectively.

Included in notes payable to related parties are various notes payable to an
officer with interest rates ranging from 10% to 12%. The outstanding balance as
of December 31, 2004 and 2003 was $2,371,451 and $499,062, respectively.

The Company has other loans from related parties which provide for interest at
10% per annum. As of December 31, 2004 and 2003, these loans totaled $640,000.

Aggregate future principal payments due on trust deeds payable, notes payable
and related party notes mature during the year ended December 31, 2005.

     During 2004, 2003 and 2002, the Company paid interest of $2,344,830,
$1,589,309, and $2,918,200, respectively, on loans from related parties. The
Company capitalized interest of $0, $620,398, and $2,494,091 during 2004, 2003
and 2002, respectively. Included in accounts payable as of December 31, 2004 and
2003 is interest payable on the notes discussed above of $600,724 and $503,798,
respectively.


                                      -38-
<PAGE>

(7)  Income Taxes

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

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                             ---------------------------------------------
                                                                       2004          2003            2002
                                                             ---------------------------------------------
<S>                                                                      <C>  <C>             <C>
Current income tax (benefit) expense                                     $0   ($2,429,776)    ($3,152,732)
Net deferred income tax expense (benefit)                                 0     2,429,776       3,152,732
Increase in valuation allowance to write-off deferred
tax assets                                                                0     6,535,343               0
                                                             ---------------------------------------------
Provision for income taxes                                               $0    $6,535,343              $0
                                                             =============================================
</TABLE>

     As of December 31, 2004, the Company reported gross deferred tax assets of
     $14,494,000, which have been fully offset by a deferred tax asset valuation
     allowance of $14,494,000. The entire deferred income tax assets of the
     Company have been fully offset by a valuation allowance since management
     does not believe the recoverability of the deferred income tax assets
     during the next year is more likely than not. As of December 31, 2004, the
     Corporation had net operating loss carry forwards for federal and state
     income tax purposes of approximately $42,555,000 and $19,147,000,
     respectively. For federal tax purposes the net operating loss carry
     forwards expire from 2013 through 2023. For state tax purposes the net
     operating loss carry forwards expire from 2005 through 2009.

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

<TABLE>
<CAPTION>
                                                          2004                2003                 2002
                                          --------------------------------------------------------------
<S>                                               <C>                 <C>                   <C>
Inventory reserves                                          $0                  $0             $284,113
Warranty reserve and other                          (1,667,519)          4,399,475            1,651,075
State net operating loss                             1,692,616             555,520              822,218
Federal net operating loss                          14,468,651           8,448,873            8,307,677
                                          --------------------------------------------------------------
Total                                               14,493,748          13,403,868           11,065,083
Valuation allowance                                (14,493,748)        (13,403,868)          (4,529,740)
                                          --------------------------------------------------------------
Net deferred tax assets                                     $0                  $0           $6,535,343
                                          --------------------------------------------------------------
</TABLE>

     The following is a reconciliation of the federal statutory rate to the
     Company's effective rate for 2004, 2003, and 2002:

<TABLE>
<CAPTION>
                                         -----------------------------------------------------------------------------------
                                                     2004                        2003                       2002
                                         -----------------------------------------------------------------------------------
                                         Amount          Percentage   Amount        Percentage   Amount         Percentage
                                         -----------------------------------------------------------------------------------
<S>                                         <C>                 <C>    <C>                 <C>     <C>                <C>
Statutory rate                               ($1,377,775)        (34%)  ($2,742,848)        (34%)   ($2,682,709)       (34%)
State  franchise tax, net of federal tax
benefit                                         (236,436)       (5.8%)     (458,250)       (5.7%)      (460,005)      (5.8%)

Other                                            524,331          13%       771,322         9.6%        (10,018)      (0.1%)

Change in valuation allowance                  1,089,880        26.8%     8,965,119       111.1%      3,152,732       39.9%
                                         -----------------------------------------------------------------------------------
                                                      $0           0%    $6,535,343        81.0%             $0          0%
                                         ===================================================================================
</TABLE>


                                      -39-
<PAGE>

(8)  Qualified and Non-Qualified Stock Option Plans

     The Company has three stock-based compensation plans which are described
     below. The pronouncement of SFAS No. 123R, which requires companies to
     record compensation expense for share-based payments to employees, becomes
     effective for most public companies at the beginning of the first interim
     or annual period beginning after June 15, 2005, and was implemented by the
     Company as of January 1, 2005. The Company has applied APB Opinion No. 25
     and related Interpretations in accounting for its stock-based compensation
     until December 31, 2004. Accordingly, no compensation costs have been
     recognized for its fixed stock option plans during 2004, 2003, and 2002.
     The compensation cost that has been charged against income for its stock
     incentive plan was $0 in 2004, $28,600 in 2003, and $21,000 in 2002. Had
     compensation costs for the Company's stock-based compensation plans been
     determined based on the fair value at the grant dates for awards under
     these plans, the Company's net (loss) income and net (loss) income per
     share would have been adjusted to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                                 2004               2003             2002
----------------------------------------------------------------------------------------------------------
<S>                                     <C>              <C>               <C>               <C>
                 Net income (loss):     As reported      ($4,052,029)      ($15,144,157)     ($7,890,557)
----------------------------------------------------------------------------------------------------------
                                          Pro forma      ($4,052,029)      ($15,148,227)     ($7,894,021)
----------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------
Diluted net income(loss) per share:     As reported           ($0.42)            ($1.48)          ($0.77)
----------------------------------------------------------------------------------------------------------
                                          Pro forma           ($0.42)            ($1.48)          ($0.77)
----------------------------------------------------------------------------------------------------------
</TABLE>

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

<TABLE>
<CAPTION>
                                    2004       2003           2002
                                 -------------------------------------------
                                                                   Weighted-
                                                                     Average
                                                                    Exercise
                                  Shares     Shares     Shares         Price
                                 -------------------------------------------
<S>                                   <C>        <C>   <C>             <C>
Outstanding, beginning of year        --         --     58,000         $2.93

Expired                               --         --    (58,000)        $2.93
                                 -------------------------------------------
Outstanding, end of year              --         --         --
                                 =============================
Exercisable, end of year              --         --         --
                                 =============================
</TABLE>

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

<TABLE>
<CAPTION>
                                               2004                    2003                     2002
                                       ----------------------   ----------------------   ----------------------
                                                    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           439,500    $1.32        697,700     $1.32         860,700    $1.27
Canceled                                (415,100)   $1.32       (258,200)    $1.31        (163,000)   $1.04
                                       -------------------      -------------------      -------------------
Outstanding, end of year                  24,400    $1.33        439,500     $1.32         697,700    $1.32
                                       ===================      ===================      ===================
Exercisable, end of year                  24,400                 439,500                   697,700
                                       =========                ========                 =========
Available for grant, end of year       1,164,550                 749,450                   491,250
                                       =========                ========                 =========
</TABLE>


                                      -40-
<PAGE>

     The following table summarizes information about the outstanding options
     for the year ended December 31, 2004 from the Company's 1993 stock option
     plan:

<TABLE>
<CAPTION>
                                    Options Outstanding                         Options Exercisable
                       -------------------------------------------------  ---------------------------------
                            Number   Weighted-Average                             Number
Range of               Outstanding          Remaining   Weighted-Average     Exercisable   Weighted-Average
Exercise Prices        at 12/31/04   Contractual Life     Exercise Price     at 12/31/04     Exercise Price
---------------        -------------------------------------------------  ---------------------------------
<S>                         <C>            <C>                     <C>            <C>                 <C>
$0.69 to $0.99               5,700         2.30 years              $0.69           5,700              $0.69
$1.00 to $1.63              18,700         2.71 years              $1.53          18,700              $1.53
                       -------------------------------------------------  ---------------------------------
$0.69 to $1.63              24,400         2.61 years              $1.33          24,400              $1.33
                       =================================================  =================================
</TABLE>

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

<TABLE>
<CAPTION>
                                                     2004               2003               2002
                                                ------------------------------------------------
<S>                                               <C>                <C>                <C>
Outstanding, beginning of year                    411,680            418,580            419,980
Shares canceled                                         0            (6,900)            (1,400)
                                                ------------------------------------------------
Outstanding, end of year                          411,680            411,680            418,580
                                                  =======            =======            =======
Vested, end of year                               411,680            411,680            400,980
                                                  =======            =======            =======
Available for grant, end of year                        0                  0                  0
                                                  =======            =======            =======
</TABLE>

     The 1992 Director Stock Option Plan authorizes an aggregate amount of
     100,000 shares to be granted. Each year, the directors that are members of
     the stock option committee are eligible to be granted options to buy 7,500
     shares at the market price at the date of grant, exercisable one year after
     grant, which expire the shorter of ten years following the grant date or 60
     days after resignation from the Company. Options were not granted to
     directors from the 1992 Director Stock Option Plan during 2004 and 2003.
     During 2002, 15,000 shares were granted under this plan at an exercise
     price of $1.13 per share, the market price at the date of grant. As of
     December 31, 2004, there were no shares outstanding related to this plan.
     In 1996, the Company issued warrants to purchase 150,000 shares of common
     stock at an exercise price of $1.00 that expired on September 30, 2003. As
     of December 31, 2004, there were no warrants outstanding.

     The weighted-average fair value of the options granted during 2002 is $0.51
     (none granted in 2004 and 2003). The fair value of each option was
     estimated on the date of grant using the Black-Scholes option-pricing model
     with the following weighted-average assumptions for 2002: risk-free
     interest rate of 6.5 percent; dividend yield of zero percent; expected life
     of 5.0; and volatility of 44 percent.

     For the years ended December 31, 2004, 2003 and 2002, options were not
     included in the computation of diluted net loss per common share because
     the effect would be antidilutive to the net loss in the periods.

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


                                      -41-
<PAGE>

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

     In 2004, remaining executive stock purchase loans with a face value of
     $425,625 were canceled. The value was recategorized as authorized and
     unissued common stock of the Company, and related accrued interest of
     $123,459 was forgiven.

     As of December 31, 2004 and 2003, accrued interest for the stock purchase
     loans was $0 and $123,459, respectively. The stock purchase loans and the
     related accrued interest were reflected as a reduction to stockholders'
     equity.

(9)  Earnings Per Share

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

<TABLE>
<CAPTION>
                                                                                       2004           2003           2002
                                                                                  -------------------------------------------
<S>                                                                               <C>            <C>             <C>
Net loss from continuing operations                                               ($4,098,658)   ($12,804,903)   ($7,263,252)

Discontinued operations                                                                46,629      (2,339,254)      (627,305)
                                                                                  -------------------------------------------
Numerator for basic and diluted net loss per share                                 (4,052,029)   ($15,144,157)   ($7,890,557)
                                                                                  ===========================================
Denominator for basic net loss per share (weighted average outstanding shares)      9,920,651      10,238,781     10,252,592

   Effect of dilutive stock options                                                         0               0              0
                                                                                  -------------------------------------------
Weighted average shares for dilutive net loss per share                             9,920,651      10,238,781     10,252,592
                                                                                  ===========================================
Loss from continuing operations per common share - basic                               ($0.41)         ($1.25)        ($0.71)
                                                                                  ===========================================
Loss from continuing operations per common share - diluted                             ($0.41)         ($1.25)        ($0.71)
                                                                                  ===========================================
Income (loss) from discontinued operations per common share - basic                     $0.00          ($0.23)        ($0.06)
                                                                                  ===========================================
Income (loss) from discontinued operations per common share - diluted                   $0.00          ($0.23)        ($0.06)
                                                                                  ===========================================
Loss per common share - basic                                                          ($0.41)         ($1.48)        ($0.77)
                                                                                  ===========================================
Loss per common share - diluted                                                        ($0.41)         ($1.48)        ($0.77)
                                                                                  ===========================================
</TABLE>

(10) Commitments and Contingencies

     The Company entered into an agreement to sell its contractual option rights
     to purchase property (the Winkler Acres) in Riverside County, California.
     Sale of the option was contingent upon the recording of the final map for
     the property, which occurred in May, 2005. The Company remained obligated
     to reimburse the buyer $2,375,000 paid to the previous owner and return
     $1,000,000 in funds advanced on the sale, until the final map was recorded.
     Holdback proceeds of $3 million from the sale will be received after the
     lots are in blue-topped condition, anticipated to occur three months after
     the recording date.

     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. Management believes
     any possible exposure is adequately covered by insurance.

     Employee benefit plan - The Company has a 401(k) plan (the "Plan"), which
     allows eligible employees to contribute from one to 15 percent of their
     annual compensation, not to exceed statutory


                                      -42-
<PAGE>

     limits. Company matching is at management's discretion. The Company did not
     make any contributions to the Plan for the years ended December 31, 2004,
     2003, and 2002.

Leases - The Company has operating leases that expire through 2008. Future
minimum rents are as follows:

<TABLE>
<CAPTION>
Year Ending December 31,                               Amount
------------------------                               ------
<S>                                                   <C>
2005                                                  $80,271
2006                                                   79,185
2007                                                   81,004
2008                                                    6,763
                                                     --------
                                                     $247,223
                                                     ========
</TABLE>

     Rent expense for the years ended December 31, 2004, 2003 and 2002 was
     $110,003, $219,387, and $269,023, respectively.

(11) Subsequent event

     A tender offer made by shareholders for the purpose of privatizing the
     Company was successfully accepted by the expiration date of May 26, 2005.

(12) Quarterly Financial Data - (unaudited)

<TABLE>
<CAPTION>
    Year Ended December 31, 2004                        First          Second            Third          Fourth
                                             ------------------------------------------------------------------
<S>                                                <C>             <C>              <C>               <C>
Sales                                              $3,656,711      $4,247,413       $1,177,412        $939,711
                                                   ==========      ==========       ==========        ========
Loss from development
operations                                         ($860,433)      ($516,572)       ($189,271)      ($910,090)
                                                   ==========      ==========       ==========      ==========
Net loss                                           ($802,735)      ($893,374)       ($959,967)     (1,395,953)
                                                   ==========      ==========       ==========     ===========
Basic loss per share                                  ($0.08)         ($0.09)          ($0.10)         ($0.15)
                                                      =======         =======          =======         =======
Diluted loss per share                                ($0.08)         ($0.09)          ($0.10)         ($0.15)
                                                      =======         =======          =======         =======

<CAPTION>
Year Ended December 31, 2003                            First          Second            Third          Fourth
                                             ------------------------------------------------------------------
<S>                                                <C>             <C>              <C>             <C>
Sales                                              $4,572,279      $7,592,899       $5,569,748      $2,158,013
                                                   ==========      ==========       ==========      ==========
Loss from development
operations                                         ($530,679)    ($4,430,598)        ($27,336)      ($880,590)
                                                   ==========    ============        =========      ==========
Net income (loss)                                    $413,344   ($12,843,593)     ($1,193,342)    ($1,520,566)
                                                     ========   =============     ============    ============
Basic income (loss) per share                           $0.04         ($1.25)          ($0.12)         ($0.15)
                                                        =====         =======          =======         =======
Diluted income (loss) per share                         $0.04         ($1.25)          ($0.12)         ($0.15)
                                                        =====         =======          =======         =======
</TABLE>


                                      -43-
<PAGE>

                                   SCHEDULE II

                               CALPROP CORPORATION
                        VALUATION AND QUALIFYING ACCOUNTS
                   For the three years ended December 31, 2004


<TABLE>
<CAPTION>
---------------------------------------------------------------------------
                                                     Accounts   Trust Deeds
                                        Warranty    Receivable   Receivable
                                         Reserve      Reserve      Reserve
                                       ------------------------------------
<S>              <C>                   <C>          <C>          <C>
Balance, January 1, 2002               $ 670,115    $       0    $  30,000

     Additions charged to operations     252,105            0            0
     Reductions                         (164,670)           0            0
                                       ---------    ---------    ---------
Balance, December 31, 2002               757,550            0       30,000
     Additions charged to operations      54,000            0            0
     Reductions                         (125,174)           0            0
                                       ---------    ---------    ---------
Balance, December 31, 2003               686,376            0       30,000
     Additions charged to operations      34,000      107,500            0
     Reductions                          (67,736)           0            0
                                       ---------    ---------    ---------
Balance, December 31, 2004             $ 652,640    $ 107,500    $  30,000
                                       =========    =========    =========
---------------------------------------------------------------------------
</TABLE>


                                      -44-
<PAGE>

                                Index to Exhibits

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

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

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

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

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

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

23   Consent of Independent Registered Public Accounting Firm

42   Financial Data Schedule


                                      -45-
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

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

/s/ Victor Zaccaglin                                                July 7, 2005
--------------------------------------------------------------------------------
Victor Zaccaglin                                                         Date
Chairman of the Board
and Chief Executive Officer

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

/s/ Henry Nierodzik                                                 July 7, 2005
--------------------------------------------------------------------------------
Henry Nierodzik                                                          Date
Chief Accounting Officer

/s/ Victor Zaccaglin                                                July 7, 2005
--------------------------------------------------------------------------------
Victor Zaccaglin                                                         Date
Chairman of the Board
Chief Executive Officer


                                      -46-