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, 2003    Commission File Number 1-6844
                                                                      ------

                               CALPROP CORPORATION

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

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

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

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

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

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

                            $463,339 at June 24, 2004

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

                 10,235,305 Shares Outstanding at June 24, 2004

                      Documents Incorporated by reference:

Portions of the registrant's definitive Proxy Statement for 2003 Annual Meeting
of Shareholders are incorporated by reference into Part III of this report.
<PAGE>

                                     PART I

ITEM 1.  Business

General

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

     During 2003, the Company was primarily engaged in the development of lots,
and the construction and marketing of single-family detached homes and
townhomes. As of December 31, 2003, the Company had three residential housing
projects in various stages of construction and development, consisting of 39
homes and townhomes under construction (including 8 homes in escrow and two
model homes), and 89 lots under development. The Company's products range from
homes for first-time buyers to custom homes. In addition to the construction and
sale of single-family and multifamily housing, the Company was engaged in the
development of apartments available for lease. During the year, management
approved a plan of action to sell the operating assets of the apartment
building. As a result, the rental property has been classified as held for sale
and depreciation has 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 (see Notes 4 and 11).

Residential Housing Industry

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

The Company's Strategy

     The Company's strategy has been to acquire land in or near major urban
centers in California and Colorado and to construct single-family housing for
resale. The Company does not specialize in the construction of a specific
type or design of housing and does not limit its operation to any specific


                                       2
<PAGE>

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.

Future Projects

      Land Acquisition - During 2004, the Company completed the sale of its
contractual rights to purchase approximately 60 acres of undeveloped land in
Southern California for a gross sales price of $11,700,000. The Company has
entered into approximately $8,625,000 in contracts to acquire two properties and
has acquired one project for $600,000 in its current market in Riverside County
in Southern California. These three properties are zoned for residential
development and can be subdivided into approximately 213 single family detached
lots. The Company plans to start construction in the first quarter of 2005.

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

Land Acquisition and Construction

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

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

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

     The Company acts as its own general contractor, and its supervisory
employees coordinate all work on a project. The services of independent
architectural, design, engineering and other consulting firms are engaged to
assist in the pre-construction aspects of the project. The Company's
construction activities are conducted through independent subcontractors, under
fixed-price contracts, operating in conformity with plans, specifications and
detailed drawings furnished by the Company and under the direction of on-site
construction supervisors employed by the Company. Generally, the Company
solicits bids from several potential subcontractors and awards a contract for a
single phase of a project based on the subcontracting bid as well as the
Company's knowledge of the subcontractor's work and reputation.


                                       3
<PAGE>

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 foreseeable future.

Marketing

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

Warranties

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

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

Financing

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

     After final working drawings from architects are prepared, the Company
obtains a construction loan, secured by the portion of the project site to which
the loan relates. The Company's construction loans are used to finance projected
construction costs. In order to obtain the construction loan, the Company must
repay all acquisition financing or obtain a reconveyance of that portion of the
project site which is used to secure the construction loan. The construction
loan is due and payable shortly after completion of the construction being
financed. The Company repays construction financing from the proceeds of project
unit sales. The construction financing provides for release of individual lots
for sale during the term of the financing upon partial repayment of principal in
a specified amount per lot. All cash sales


                                       4
<PAGE>

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.

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


                                       5
<PAGE>

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.

Employees

     The Company has approximately eleven full-time employees, including four
executive officers, five persons in its finance, marketing and operations
departments, and two field superintendents and general laborers at June 10,
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 2006.


                                       6
<PAGE>

ITEM 2.  Properties

Current projects

     The table below sets forth certain information relating to the Company's
current projects as of December 31, 2003 and certain information relating to the
Company's development operations during the previous twelve months.

<TABLE>
<CAPTION>
                                                                                   Units sold    Remaining
                                           Units sold   Units under     Units      subject to    units to
                                            12 months   construction  completed   construction   construct
                                              ended        as of        as of        as of         as of
Project                                     12/31/03    12/31/03 (1)   12/31/03     12/31/03     12/31/03
-------                                   -------------------------------------------------------------------
<S>                                            <C>           <C>          <C>          <C>          <C>
Units Held For Sale
1.   Parc Metropolitan                         16            --           --           --           --
2.   High Ridge Court                          31            21           --           7            12
3.   Saddlerock                                57            18           --           1            --
4.   Rohnert Park                              --            --           --           --           77
5.   Mission Gorge (accounted for under
     the equity method)                        --            --           --           --           --
                                          -------------------------------------------------------------------
Total                                          104           39           --           8            89
                                          ===================================================================
Total inventory units as of 12/31/03                                                                128
                                                                                               ==============
(1) Units under construction includes 8 units sold subject to construction and 2
    model units

Assets Held For Sale
6.   Parcwest Apartments                       --            --           68           --           --
                                          -------------------------------------------------------------------
Total                                                                     68
                                          ===================================================================
</TABLE>

Backlog- As noted in the above table, the total number of units sold subject to
construction ("backlog") at December 31, 2003, was 8 units, with gross revenues
of such backlog equal to $2,020,000. As of March 31, 2004, the backlog was 11
units, representing $2,877,000 compared to a backlog of 21 units representing
$6,620,000 as of March 28, 2003. See also "Management Discussion and Analysis of
Financial Condition and Results of Operations" for additional discussion of Real
Estate Sales for 2003 and 2002.

1. Parc Metropolitan (Milpitas, California)

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

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

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

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


                                       7
<PAGE>

     The Company closed escrow on all units as of December 31, 2003.

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

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

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

     The Company's acquisition and development loan on the entire 382 lots of
the project was obtained in 1998 from Lowe Enterprises Residential Advisors,
("Lowe"). The loan permitted borrowing by the Company of $9,700,000 and bore
interest at the prime plus 2.0%. After repayment of principal and interest, Lowe
received, as participating interest, a 27% IRR calculated on an annual basis. In
December of 2001, the loan was refinanced and obtained with Curci for
$4,500,000. The loan bore interest at 20%. As of December 31, 2002, the loan was
paid in its entirety.

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

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

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

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

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

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

     The Company's construction loan on the third phase of construction for
Product A was obtained from Comerica Bank in 2001. The loan permitted borrowing
by the Company of $15,900,000 on this project


                                       8
<PAGE>

and bore interest at the bank's reference rate plus 1.0%. As of December 31,
2002, the loan had been paid in its entirety.

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

     The Company's construction loan on the build-out units in the third phase
of construction for Product A was obtained from Comerica Bank in 2002. The loan
permits borrowing by the Company of $7,520,000 on this project and bears
interest at the bank's reference rate plus 1.0%. As of December 31, 2003, the
loan had been paid in its entirety.

2. High Ridge Court (Thornton, Colorado)

     The High Ridge Court project, consists of 170 units of single-family
detached housing. The project consists of 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, 2003, the Company had 12 lots under
development, 19 units under construction (7 were in escrow), and two models.

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

     The Company has an acquisition loan with Curci on the entire 170 lots of
the project. The loan permits borrowing by the Company of $4,250,000 on this
project and bears interest at 12%. The loan contains a profit sharing provision
in the amount of 50% of "net proceeds" as defined in the agreement. As of
December 31, 2003, $2,499,024 of the principal of this loan was outstanding.

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

     The Company's revolving construction loan on the entire 170 lots of the
project was obtained in 1998 from First American Bank Texas. The revolving loan
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 1.0%. During 2001, the Company paid the
revolving construction loan in its entirety and obtained a construction loan on
the third and fourth phase with Imperial Capital Bank. The loan 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, 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, 2003, the outstanding principal of this loan
was $32,204, and the Company had available $4,252,258. The Company believes
these funds are adequate to complete the construction of the final phase of
construction.

3. Saddlerock (Aurora, Colorado)

     The Saddlerock project consists of 94 units of single-family detached
housing . The project consists of two models ranging from 1,899 to 2,900 square
feet with base sales prices before lot premiums or sales incentives of $335,653
to $372,769. As of December 31, 2003, the Company had 18 units under
construction with one in escrow. As of December 31, 2003, the two models were
sold.


                                       9
<PAGE>

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

     The Company has an acquisition/construction loan with Curci on the entire
94 lots of the project. The loan permits borrowing by the Company of $3,000,000
on this project and bears interest at 12%. The loan contains a profit sharing
provision in the amount of 50% of "net proceeds" as defined in the agreement.
During 2003, the loan amount to be borrowed under this loan was increased to pay
of the projects construction loan for the first and second phase of the project.
As of December 31, 2003, $4,444,419 of the principal of this loan was
outstanding.

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

     The Company's revolving construction loan on the entire 94 lots of the
project was obtained in 1998 from First American Bank Texas. The revolving loan
permitted the Company to have a maximum outstanding balance of $5,000,000 for
the construction of the Saddlerock and High Ridge projects. The loan bore
interest at the prime rate plus 1.0%. During 2000, the construction loan for the
remaining units was refinanced and obtained with Comerica Bank. The loan
permitted borrowing by the Company of $13,538,913 on this project and bears
interest at the bank's reference rate plus 1.0%. During 2003, the loan was
refinanced with Curci-Turner. The Company believes these funds are adequate to
complete the construction of the final phase of construction.

     On May 6, 2004, the Company sold the Saddlerock project for a gross sales
price of $1,390,000. There was no gain or loss on this transaction.

4. Rohnert Park, (Sonoma County, California)

     The Rohnert Park project consists of lots available to build 77 units of
single-family attached housing. As of December 31, 2003, the Company had 77 lots
under development.

         The project is located approximately 48 miles north of San Francisco
along highway 101 in the Sonoma County area.

     The Company acquired the land through financing with CC Santa Rosa 77, LLC,
on the entire 77 lots. The original notes balances of $2,210,000 and $390,000
bears interest at 10%. As of December 31, 2003, $2,210,000 and $390,000 of the
principal of these loans were outstanding.

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

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

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


                                       10
<PAGE>

     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 a total
purchase price of $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
will record a gain on the sale of land of $431,703 in the second quarter of
2004.

6. Parcwest (Milpitas, California)

     The Parcwest project consists of a 68-unit affordable apartment project
adjacent to the Parc Metropolitan project. The 68 units were completed in 2002
and substantially leased as of December 31, 2003. During the year, management
approved a plan of action to sell the operating assets of the apartment
building. As a result, the rental property has been classified as held for sale
and depreciation has 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 (see Note 4 and 11).

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

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

     The Company had an acquisition loan with the City of Milpitas. The loan
permitted borrowing by the Company of $1,000,000 on this project and bore
interest at 6.35%. As of December 31, 2003, the loan was paid in its entirety.

     The Company's construction loans were obtained from Comerica Bank in 2001.
The loans permitted borrowing by the Company of $6,816,000 and $1,061,670 on
this project and bore interest at the bank's reference rate plus 1.0% and 5.5%,
respectively. During 2003, the construction loans were refinanced and obtained a
permanent loan with UBS Warburg. As of December 31, 2003, $7,678,544 of the
principal of this loan was outstanding.

ITEM 3.  Legal Proceedings

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

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

     No matters were submitted to a vote of Company's security holders during
the fourth quarter of 2003.


                                       11
<PAGE>

                                     PART II


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

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

                          First      Second       Third       Fourth
                         Quarter     Quarter     Quarter     Quarter
                         -------     -------     -------     -------
2003 stock price
  range-
    High                $    .85     $   .73     $   .56     $   .65
    Low                      .73         .31         .35         .15

2002 stock price
  range-
    High                $   1.01     $  1.02     $   .95     $   .93
    Low                      .80         .60         .80         .75

As of June 24, 2004, there were 434 record holders of common stock.

Dividends:    There have been no cash dividends declared in the past two years,
              nor was there a stock dividend declared during 2003 or 2002. The
              dividend policy, whether cash or stock, is reviewed by the Board
              of Directors on an annual basis. During 2003, there were no
              restrictions, as a result of a loan or other agreement, limiting
              the Company's ability to issue a dividend.


                                       12
<PAGE>

ITEM 6.  Selected Financial Data

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

                FOR THE FIVE YEAR PERIOD ENDED DECEMBER 31, 2003
                ------------------------------------------------

<TABLE>
<CAPTION>
                                        2003              2002            2001            2000            1999
<S>                                 <C>              <C>              <C>             <C>             <C>
SALES AND OPERATING REVENUE         $ 19,892,939     $ 91,641,620     $ 90,614,622    $ 64,238,615    $ 52,598,849

NET (LOSS) INCOME                    (15,144,157)      (7,890,557)       3,326,106       3,627,940        (752,582)

(LOSS) INCOME FROM CONTINUING
   OPERATIONS PER SHARE:
         BASIC                      $      (1.25)    $      (0.71)    $       0.32    $       0.35    $      (0.07)
         DILUTED                    $      (1.25)    $      (0.71)    $       0.32    $       0.35    $      (0.07)

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

AS OF DECEMBER 31:

TOTAL ASSETS                        $ 23,523,872     $ 46,074,946     $ 98,967,700    $108,609,523    $ 87,817,643

LONG TERM OBLIGATIONS               $  5,243,182     $  6,000,000     $  7,979,090    $  1,000,000    $ 17,201,168
</TABLE>


                                       13
<PAGE>

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

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

     The Company began experiencing difficulties due to the downturn in the
California real estate market during the second quarter of 1990, and through
1996 the Company continued to be impacted by the general economic downturn. In
response to these conditions the Company began utilizing marketing programs
which included price reductions and incentives to potential buyers. During 1997
however, the California real estate market began to experience a recovery. In
general, the Company's products were well received. However, the number of units
sold subject to construction ("backlog") has decreased due to having fewer
completed homes available for sale at December 31, 2003, 2002 and 2000 of 8, 12
and 60 units, respectively compared to 87 and 128 units as of December 31, 1999
and 2000, respectively. As of December 31, 2003, the Company has entered into
contracts to purchase three new development projects to start construction in
2004. Additionally, the Company's real estate sales increased from $90,614,622
in 2001 to $91,641,620 in 2002, and decreased to $19,892,939 in 2003. The
increase in real estate sales in 2001 and 2002 is primarily attributable to an
increase in units available for sale resulting from an increase in production of
249 and 248, respectively from previous years. The decrease in real estate sales
between 2002 and 2003 is primarily attributable to a decrease in units available
for sale resulting from a decrease in production of 37 in 2003.

      The Company had a loss of $823,053 from development operations before
recognition of impairment of real estate in 2003 as compared to a loss of
$757,490 in 2002. As a percentage of real estate sales, a loss from development
operations before recognition of impairment of real estate decreased by 3.31
percentage points to (4.14)% in 2003 compared to (0.83)% in 2002. The Company
had a loss from development operations before recognition of impairment of real
estate in 2002 of $757,490 from income from development operations before
recognition of impairment of real estate of $7,943,613 in 2001. As a percentage
of real estate sales, a loss from development operations before recognition of
impairment of real estate decreased by 9.6 percentage points to (0.83)% in 2002
compared to as a percentage of real estate, income from development operations
before recognition of impairment of real estate to 8.77% in 2001. The
significant decrease of income before recognition of impairment of real estate
as a percentage of gross revenues from 2003 to 2001 results from a slower
absorption rate, and increased production overhead costs. The increased sales
price was not sufficient to offset the increased direct construction cost,
marketing and sales incentives, production overhead and interest costs.

      The 2003 impairment loss on real estate 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
resulted in a slower absorption rate. The Company introduced three new product
lines and converted certain upgrades as standards to increase the absorption
rate. The project consisted of 94 homes with five product lines in Aurora,
Colorado. The introduction of the new product lines increased direct
construction cost, marketing, production overhead and interest costs and as a
result the Company recorded an impairment loss on real estate under development
of $4,614,756. As of December 31, 2003, the Company has no remaining units to
construct, 18 units under construction, one of which has been sold. On May 6,
2004, the Company sold the Saddlerock project for a gross sales price of
$1,390,000. There was no gain or loss on this transaction.

      The impairment loss on the High Ridge Court project is primarily a result
of an absorption rate slower than anticipated. The decrease in absorption rate
increased marketing, production and interest costs and as a result the Company
recorded an impairment loss on real estate under development of $431,394. As of
December 31, 2003, the Company has 33 remaining units to construct, 21 units
under construction, seven of which have been sold.


                                       14
<PAGE>

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

     The Company developed and constructed a 68-unit affordable apartment, the
Parc West Apartment Homes located in Milpitas, California, adjacent to the Parc
Metropolitan project owned by RGCCLPO. Construction was completed in August 2002
and the 68 units were available for lease. As of December 31, 2003, the
apartment project was substantially leased. The apartment project was sold on
March 12, 2004 at a gross sales price of $9,000,000. In accordance with the SFAS
144 "Accounting for the Impairment or Disposal of Long-lived Assets," the net
loss of assets held for sale is reflected in the consolidated statement of
operations as discontinued operations for all periods presented. The loss from
discontinued operations during the year ended December 31, 2003 includes an
impairment loss of $2,268,948.

Results of operations

     The Company had a loss from continuing operations before income taxes of
$6,269,560 in 2003, a loss from continuing operations before income taxes of
$7,263,252 in 2002, and income from continuing operations before income taxes of
$3,492,971 in 2001. The net loss suffered in 2003 and 2002 is primarily a result
of loss from development operations and a reflection of the recognition of asset
impairment of the High Ridge and Saddlerock projects in the amount of $5,046,150
and $4,471,693, respectively. The income in 2001 is primarily due to increase in
profit from operations as the Company began selling homes in its Parkland Farms,
Montserrat Estates and Parc Metropolitan projects.

     Real estate sales decreased to $19,892,939 in 2003 from $90,641,620 in
2002, down 78.1%. Real estate sales were $90,614,622 in 2001. In 2003, the
Company sold 54 homes, with an average sales price of $322,160 and 50 lots, with
an average sales price of $49,925. In 2002, the Company sold 248 homes, with an
average sales price of $369,523. In 2001, the Company sold 249 homes, with an
average sales price of $363,914.

     The overall gross profit percentage before recognition of impairment loss
of the Company was (4.1)%, (0.8)%, and 8.8% in 2003, 2002, and 2001,
respectively.

     General and administrative expenses were $1,711,586 in 2003 and $2,379,007
in 2002, down 28.1%. General and administrative expenses were $2,924,795 in
2001. The decrease in 2003 from 2002 and 2001 is the result of a decrease in
payroll costs, and decreased accounting costs due to the efforts of management
to function more effectively. The decrease is also attributed to the decrease of
the number of projects currently in construction.

     The provision for income taxes of $6,535,343 in 2003 represents the
increase in the deferred tax valuation allowance to fully offset the deferred
tax asset. During 2002, the Company increased the deferred tax valuation
allowance to offset current year's net income tax benefit of $3,152,732. The
provision for income taxes of $171,742 in 2001 includes the decrease of the
deferred income tax valuation to offset 2001 deferred income taxes of
$1,187,934.

Liquidity and capital resources

     As of December 2003, the Company has construction loans outstanding to
financial institutions, secured by the development projects' trust deeds, with
rates ranging from prime plus 1.25% to 10% and maturing January 2005 through
June 2005. As of December 31, 2003, the outstanding balances owing on these
loans totaled $2,744,158. Additionally, the Company has an unsecured line of
credit with a financial institution available to borrow up to $1,500,000 at
prime and mature on August 1, 2004. As of December 31, 2003, $1,500,000 is
outstanding. The Company also have notes payable to financial institutions to
finance general liability policies for the Company's projects for $121,545. The
notes are


                                       15
<PAGE>

unsecured with interest rate at 6.25% and mature through May 31, 2004. The
balance of these loans as of December 31, 2003 is $4,365,703.

     As of December 31, 2003, the Company had remaining construction loan
commitments from banks and financial institutions of approximately $4,252,000,
which may be drawn down by the Company upon the satisfaction of certain
conditions. The Company continues to seek joint venture partners and additional
financing to fund its operations.

Related-Party Notes:

     Curci-The Company has the following notes payable to Curci at December 31,
2003 and 2002. A principal of Curci is a stockholder of the Company. Under the
terms of certain of the notes payable, Curci participates in "Net Proceeds" from
certain projects, as defined in the loan agreement, which is comparable to net
profit:

                                              December 31,       December 31,
       Project           Profit share            2003                2002
---------------------  -----------------   ------------------   ----------------
Secured loans:
  High Ridge Court              50%          $ 2,499,024         $ 2,366,102
  Saddlerock                    50%            4,444,419           2,413,597
                                             -----------         -----------
                                               6,943,443           4,779,699
Unsecured loans                                5,356,254(1)        5,000,000(1)
                                             -----------         -----------
                                             $12,299,697         $ 9,779,699
                                             ===========         ===========

     (1) During 2001, the Company obtained a $5,000,000 unsecured working
capital loan from Curci which bear interest at 15% and matures on July 16, 2004.
Interest is payable monthly. Unpaid interest of $356,254 has been added to the
note principal.

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

     Included in notes payable to related parties is a note payable to Mission
Gorge, LLC which bear interest at 12%. Outstanding balances as of December 31,
2003 and 2002 was $2,000,000.

     Included in notes payable to related parties are notes payable to an
officer which bear interest at 12%. Outstanding balances as of December 31, 2003
and 2002 were $499,062 and $424,063, respectively.

     The Company has other loans from related parties, which provide for
interest at 10% per annum. As of December 31, 2003 and 2002 these loans totaled
$640,000 and $740,000, respectively.

     Included in accounts payable as of December 31, 2003 and 2002 is interest
payable on the notes discussed above of $503,798 and $259,913, respectively.

     As of December 31, 2003, the Company had three remaining projects in
various stages of construction and development. During 2003, the Company had
four projects producing revenues from completed homes and apartments: Parc
Metropolitan, High Ridge Court, Saddlerock and Parcwest Apartments. As of
December 31, 2003, Parc Metropolitan was completed and all homes were sold. The
Company enters 2004 with 39 homes under construction, of which 8 are in escrow
for sale, and 2 model


                                       16
<PAGE>

units. The Company has an inventory of 89 lots under development. In addition,
the Company has a 68 unit apartment building that is substantially leased as of
December 31, 2003, and is being held for sale.

     Based on its agreements with its lenders, the Company believes that it will
have sufficient liquidity to finance its construction projects in 2004 through
funds generated from operations, funds available under its existing bank
commitments, funds generated from new lending institutions, and, if necessary,
funds that could be obtained by using its internally financed real estate
development in process as collateral for additional loans.

     Management's plan, with respect to managing cash flow includes the
following components: pay off debt that is coming due in 2004, minimize
operating expenses, and maintain control over costs. With regard to the debt
coming due in 2004, management expects to extend the maturity dates of various
loans and pay the remaining loans off through cashflow from operations, prior to
their maturity date. With regard to minimizing operating expenses, management
plans to achieve this by continuing to closely examine overhead items.
Management anticipates that the funds generated from operations, including
borrowings from existing loan commitments, will be adequate to allow the Company
to continue operations throughout 2004.

Contractual Obligations

Our significant contractual obligations as of December 31, 2003 follows:

<TABLE>
<CAPTION>
                                                                   Payments Due by Period
-------------------------------------    --------------------------------------------------------------------------
                                             2004         2005-2006      2007-2008     After 2008         Total
<S>                                      <C>             <C>                           <C>             <C>
Debt related to assets held for sale                                                   $ 7,678,544     $ 7,678,544
Debt                                     $15,605,152     $ 5,243,182                                    20,848,334
Operating leases                             205,854         276,684                                       482,538
                                         --------------------------------------------------------------------------
Total contractual obligations            $15,811,006     $ 5,519,866                   $ 7,678,544     $29,009,416
                                         ==========================================================================
</TABLE>

At December 31, 2003 we had scheduled maturities on existing debt of $15,605,152
through December 31, 2004. Our ability to make scheduled payments of principal
or interest on or to refinance this indebtedness depends on our future
performance, which to a certain extent, is subject to general economic,
financial, competitive and other factors beyond our control. We believe our
borrowing availability under existing credit facilities, our operating cash
flow, and our ability to obtain new borrowings and/or raise new capital, should
provide the funds necessary to meet our working capital requirements, debt
service and maturities and short- and long-term needs based upon currently
anticipated levels of growth. However, limitations on access to financing
constrain our ability to take advantage of opportunities that might lead to more
significant growth.

Critical Accounting Policies

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

We review our real estate under development and rental property for impairment
of value. This includes considering certain indications of impairment such as
significant declines in occupancy, other significant changes in property
operations, significant deterioration in the surrounding economy or
environmental


                                       17
<PAGE>

problems. If such indications are present, we estimate the total future cash
flows from the property and compare the total future cash flows to the carrying
value of the property. If the total future cash flows are less than the carrying
value, we adjust the carrying value down to its estimated fair value. Fair value
may be based on third-party appraisals or our estimate of the property's fair
value.

Recent Accounting Pronouncements

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

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

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

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

In December 2002, the Financial Accounting Standards Board, ("FASB") issued SFAS
148, "Accounting for Stock-Based Compensation--Transition and Disclosure" ("SFAS
148"). SFAS 148 amends SFAS 123 "Accounting for Stock Based Compensation" ("SFAS
123") to provide alternative methods of transition for


                                       18
<PAGE>

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

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). FIN 46 clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements" and
provides guidance on the identification of entities for which control is
achieved through means other than 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 May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150").
SFAS 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. The
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of this statement In January
2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable
Interest Entities" ("FIN 46"). FIN 46 clarifies the application of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements" and provides
guidance on the identification of entities for which control is achieved through
means other than through voting rights ("variable interest entities" or "VIEs")
and how to determine when and which business enterprise should consolidate the
VIE. This new model for consolidation applies to an entity which either (1) the
equity investors (if any) do not have a controlling financial interest or (2)
the equity investment at risk is insufficient to finance that entity's
activities without receiving additional subordinated financial support from
other parties. The provisions of this interpretation are immediately effective
for VIEs formed after January 31, 2003. For VIEs formed prior to January 31,
2003, the provisions of this interpretation apply to the first fiscal year or
interim period beginning after June 15, 2003. Management does not expect that
the adoption of this standard will have a material effect on the Company's
results of operations or financial condition.


                                       19
<PAGE>

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

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

<TABLE>
<CAPTION>
                                                          Principal maturing in:                                        Fair value
                                 -------------------------------------------------------------------------             December 31,
                                     2004          2005         2006      2007     2008      Thereafter    Total          2003
                                 ---------------------------------------------------------------------------------------------------
<S>                              <C>            <C>          <C>         <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>

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

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


                                       20
<PAGE>

Effects of inflation

     Real estate has long been considered a hedge against inflation, and
inflation has often contributed to dramatic growth in property values. During
normal markets, the Company has been able to pass increased costs of materials
and labor to its buyers by increasing its sales prices. However, growth in
property values slowed or reversed during 1996, 1997 then again in 2002 and 2003
in California, thus preventing the Company from increasing sales prices to cover
increased costs. In 1998, 1999, 2000, and 2001 due to the strength and stability
of the economy, the real estate market has experienced increases in sales price
and the number of home buyers.


                                       21
<PAGE>

ITEM 8. Financial Statements and Supplementary Data

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

   25       Report of Independent Registered Public Accounting Firm

   26       Consolidated Balance Sheets as of December 31, 2003 and 2002

   27       Consolidated Statements of Operations For Each of the Three Years
            Ended December 31, 2003

   29       Consolidated Statements of Stockholders' Equity For Each of the
            Three Years Ended December 31, 2003

   30       Consolidated Statements of Cash Flows For Each of the Three Years
            Ended December 31, 2003

   32       Notes to Consolidated Financial Statements

            FINANCIAL STATEMENT SCHEDULE:
            -----------------------------

   48       II - Valuation and Qualifying Accounts --Three Years Ended December
            31, 2003

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

ITEM 9.  Disagreements on Accounting and Financial Disclosure

         None.

                                    PART III

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

                                     PART IV

Item 14. Controls and Procedures

     The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's reports
required to be filed under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms, and that such
information is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure, except
during the period from August 2003 - June 2004 where the accounting department
was short of the required personnel needed to file its required reports timely.
The Company is in the process of taking corrective measures 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.


                                       22
<PAGE>

     Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on the foregoing, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective.

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

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

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

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

     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 Financial Officer

     32.1  Section 1350 Certification of Chief Executive Officer

     32.2  Section 1350 Certification of Chief Financial Officer

(b)  Reports on Form 8-K -

     A Current Report on Form 8-K dated June 20, 2003 was filed with the
Securities and Exchange Commission (the "Commission") and included under item
7(a) its unaudited consolidated financial statements for the quarter ended March
31, 2003, and under item 7(c) a press release announcing Calprop Corporations'
first quarter results.

     A Current Report on Form 8-K dated January 15, 2004 was filed with the
Securities and Exchange Commission (the "Commission") and included under item
7(a) its unaudited consolidated financial statements for the quarter ended June
30, 2003, and under item 7(c) a press release announcing Calprop Corporations'
second quarter results.

     A Current Report on Form 8-K dated March 19, 2004 was filed with the
Securities and Exchange Commission (the "Commission") and included under item
7(a) its unaudited consolidated financial statements for the quarter ended
September 30, 2003, and under item 7(c) a press release announcing Calprop
Corporations' third quarter results.


                                       23
<PAGE>

                                   SIGNATURES

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


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


/s/ Victor Zaccaglin                                           June 29, 2004
------------------------------                            ----------------------
Victor Zaccaglin,                                                  Date
Chairman of the Board
  and Chief Executive Officer


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


/s/ Mark F. Spiro                                              June 29, 2004
------------------------------                            ----------------------
Mark F. Spiro                                                     Date
Vice President/Secretary and
Treasurer (Chief Financial
and Accounting Officer)


/s/ Mark T. Duvall                                             June 29, 2004
------------------------------                            ----------------------
Mark T. Duvall                                                    Date
Director


/s/ Victor Zaccaglin                                           June 29 2004
------------------------------                            ----------------------
Victor Zaccaglin                                                  Date
Chairman of the Board
Chief Executive Officer


                                       24
<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 sheets of Calprop
Corporation and subsidiaries (the "Company") as of December 31, 2003 and 2002,
and the related consolidated statements of operations, stockholders' (deficit)
equity, and cash flows for each of the three years in the period ended December
31, 2003. Our audits also included the financial statement schedule listed in
the Index at Item 8. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement schedule
based on our audits.

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


DELOITTE & TOUCHE LLP

Los Angeles, California
June 29, 2004


                                       25
<PAGE>

                               CALPROP CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
Assets                                                                                       December 31,
                                                                                    ------------------------------
                                                                                        2003              2002
                                                                                    ------------------------------
<S>                                                                                 <C>               <C>
Investment in Real Estate (Notes 3 and 4):
Real estate under development                                                       $ 13,175,441      $ 24,166,829
Assets held for sale                                                                   8,864,917        11,214,659
                                                                                    ------------------------------
     Total investment in real estate                                                  22,040,358        35,381,488

OTHER ASSETS:
    Cash and cash equivalents                                                            190,770         3,444,541
    Deferred tax asset (Note 7)                                                                          6,535,343
    Other assets (Note 5)                                                              1,292,744           713,574
                                                                                    ------------------------------
          Total other assets                                                           1,483,514        10,693,458
                                                                                    ------------------------------
     Total assets                                                                   $ 23,523,872      $ 46,074,946
                                                                                    ==============================
Liabilities and Stockholders' Equity
LIABILITIES:
TRUST DEEDS AND NOTES PAYABLE (Note 6)                                              $  4,365,703      $ 11,784,923
RELATED-PARTY NOTES (Note 6)                                                          16,482,631        13,987,634
                                                                                    ------------------------------
     Total trust deeds, notes payable and related-party notes                         20,848,334        25,772,557
LIABILITIES RELATED TO ASSETS HELD FOR SALE (Note 4)                                   7,720,608         8,291,256
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Note 6)                                      2,521,487         2,374,863
DEPOSIT (Note 3)                                                                                         2,000,000
WARRANTY RESERVES                                                                        686,376           757,550
                                                                                    ------------------------------
     Total liabilities                                                                31,776,805        39,196,226
                                                                                    ------------------------------

MINORITY INTERESTS (Note 1)
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' (DEFICIT) EQUITY (Note 9):
     Common stock, no par value; $1 stated value, 20,000,000 shares authorized;
         authorized, 10,239,105 and 10,235,305 shares issued and
         outstanding at December 31, 2003 and 2002, respectively                      10,239,105        10,235,305
     Additional paid-in capital                                                       25,850,776        25,849,446
     Deferred Compensation (Note 8)                                                                        (28,600)
     Stock Purchase Loans (Note 8)                                                      (549,084)         (527,858)
     Accumulated deficit                                                             (43,793,730)      (28,649,573)
                                                                                    ------------------------------
          Total (deficit) equity                                                      (8,252,933)        6,878,720
                                                                                    ------------------------------
                                                                                    $ 23,523,872      $ 46,074,946
                                                                                    ==============================
</TABLE>

                 See notes to consolidated financial statements


                                       26
<PAGE>

                               CALPROP CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
                                                                        ------------------------------------------------
                                                                            2003              2002              2001
                                                                        ------------------------------------------------
<S>                                                                     <C>               <C>               <C>
DEVELOPMENT OPERATIONS (Note 3):
     Real estate sales                                                  $ 19,892,939      $ 91,641,620      $ 90,614,622
     Cost of real estate sales (Note 6)                                   20,715,992        92,399,110        82,671,009
                                                                        ------------------------------------------------
     (Loss) income from development operations before
          recognition of impairment of real estate                          (823,053)         (757,490)        7,943,613

     Recognition of impairment of real estate development (Note 3)        (5,046,150)       (4,471,693)       (2,018,088)
                                                                        ------------------------------------------------
        (Loss) income from development operations                         (5,869,203)       (5,229,183)        5,925,525

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

Other income:
    Gain on sale of investment in real estate venture (Note 3)             2,000,000
    Interest and miscellaneous                                               620,406           433,760           181,958
    Management fee (Note 3)                                                                    222,957           542,818
                                                                        ------------------------------------------------
       Total other income                                                  2,620,406           656,717           724,776

Other expenses:
    General and administrative (Note 5 and 10)                             1,711,586         2,379,007         2,924,795
    Interest expense (Note 6)                                              1,309,177           420,797           115,096
                                                                        ------------------------------------------------
       Total other expenses                                                3,020,763         2,799,804         3,039,891

Minority interests                                                                                 235            (1,325)
                                                                        ------------------------------------------------
(Loss) income from continuing operations before provision for
income taxes                                                              (6,269,560)       (7,263,252)        3,492,971
Provision for income taxes (Note 7)                                        6,535,343                             171,742
                                                                        ------------------------------------------------
(Loss) income from continuing operations                                 (12,804,903)       (7,263,252)        3,321,229
Discontinued operations (Note 11 ):
(Loss) income from discontinued operations (including impairment
of $2,268,948 for the year ended December 31, 2003)                       (2,339,254)         (627,305)            4,877
                                                                        ------------------------------------------------
(Loss) income from discontinued operations                                (2,339,254)         (627,305)            4,877
                                                                        ------------------------------------------------
NET (LOSS) INCOME                                                       $(15,144,157)     $  7,890,557      $  3,326,106
                                                                        ================================================


                                       27
<PAGE>

(Loss) income from continuing operations per common share- basic        ($      1.25)     ($      0.71)     $       0.32
                                                                        ============      ============      ============

(Loss) income from continuing operations per common share - diluted     ($      1.25)     ($      0.71)     $       0.32
                                                                        ============      ============      ============

(Loss) income from discontinued operations per common share - basic     ($      0.23)     ($      0.06)
                                                                        ============      ============

(Loss) income from discontinued operations per common share - diluted   ($      0.23)     ($      0.06)
                                                                        ============      ============

Net (loss) income per common share - basic                              ($      1.48)     ($      0.77)     $       0.32
                                                                        ============      ============      ============

Net (loss) income per common share - diluted                            ($      1.48)     ($      0.77)     $       0.32
                                                                        ============      ============      ============
</TABLE>

                 See notes to consolidated financial statements


                                       28
<PAGE>

                               CALPROP CORPORATION
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

<TABLE>
<CAPTION>
                                Common        Stock        Additional       Deferred        Stock                          Total
                             -----------------------        Paid-In           Comp-        Purchase      Accumulated   Stockholders'
                                 Shares        Amount        Capital         ensation       Loans          Deficit        Equity
                              ------------------------------------------------------------------------------------------------------
<S>                           <C>          <C>            <C>            <C>            <C>             <C>            <C>
BALANCE,
January 1, 2001               10,290,535   $ 10,290,535   $ 25,849,961   $   (105,525)  $   (519,733)   $(24,085,122)  $ 11,430,116

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

  Cancellation of shares
    under 1989 stock
    incentive plan (Note 8)       (2,300)        (2,300)                        2,300

  Purchase of Company's          (34,230)       (34,230)        (3,975)                                                     (38,205)
    common stock

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

Repayment of stock
  purchase loan (Note 8)                                                                       5,180                          5,180

  Amortization of deferred
    compensation (Note 8)                                                      52,225                                        52,225
                              -----------------------------------------------------------------------------------------------------
BALANCE,
December 31, 2001             10,254,005     10,254,005     25,845,986        (51,000)      (537,179)    (20,759,016)    14,752,796

  Net loss                                                                                                (7,890,557)    (7,890,557)
  Cancellation of shares
  under 1989 stock incentive
  plan (Note 8)                   (1,400)        (1,400)                        1,400

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

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

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

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

  Net loss                                                                                               (15,144,157)   (15,144,157)

  Common stock                     3,800          3,800          1,330                                                        5,130

  Accrual of interest
    under stock purchase
    loans (Note 8)                                                                           (21,226)                       (21,226)

Amortization of deferred
    compensation (Note 8)                                                      28,600                                        28,600
                              -----------------------------------------------------------------------------------------------------
BALANCE,
December 31, 2003             10,239,105   $ 10,239,105   $ 25,850,776   $       --     $   (549,084)   $(43,793,730)  $ (8,252,933)
                              =====================================================================================================
</TABLE>

                 See notes to consolidated financial statements


                                       29
<PAGE>

                               CALPROP CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                                    ------------------------------------------------
                                                                        2003              2002              2001
                                                                    ------------------------------------------------
<S>                                                                 <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net (loss) income                                              $(15,144,157)     $ (7,890,557)     $  3,326,106
     Adjustments to reconcile net (loss) income to net
     cash provided by operating activities:
          Gain on sale of joint venture interest                      (2,000,000)
          Minority interests                                                                   235            (1,325)
          (Income) loss from investment in real estate  venture                           (109,253)          118,764
          Amortization of deferred compensation                           28,600            21,000            52,225
          Depreciation and amortization                                  183,739           165,287            45,807
          Recognition of impairment of real estate
            development Recognition of impairment of
            asset held for sale                                        5,046,150         4,471,693         2,018,088
          Recognition of impairment of rental property                 2,268,948
          Loss on sale of property and equipment                           1,312
          Provision for warranty reserves                                 54,000           252,105           332,899
     Change in assets and liabilities
          Other assets                                                  (672,607)           18,116            49,277
          Receivable from affiliates                                                       788,752          (788,752)
          Deferred tax assets                                          6,535,343
          Accounts payable and accrued liabilities                      (161,305)       (2,609,594)       (3,982,231)
          Deposit                                                                        2,000,000
          Warranty reserves                                             (125,174)         (164,670)         (209,768)
          Payable to affiliates                                                                             (272,011)
          Additions to real estate under development                 (14,770,754)      (43,444,123)      (74,779,330)
          Cost of real estate sales                                   20,715,992        92,399,110        82,671,009
          Accrued interest for executive stock purchase loans            (21,226)          (15,812)          (22,626)
                                                                    ------------------------------------------------
               Net cash provided by operating activities               1,938,861        45,882,289         8,558,132
                                                                    ------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
          Investment in rental property                                   (5,680)
          Proceeds from sale of property and equipment                     1,000
          Capital expenditures                                            (6,140)          (31,993)           (6,554)
                                                                    ------------------------------------------------
               Net cash used in investing activities                     (10,820)          (31,993)           (6,554)

CASH FLOWS FROM FINANCING ACTIVITIES
          Borrowings under related-party notes                         2,618,274         1,663,977        12,280,542
          Payments under related-party notes                            (123,277)      (13,895,903)       (6,763,225)
          Borrowings under trust deeds and notes payable              18,909,061        32,681,856        67,603,361
          Payments under trust deeds and notes payable               (26,591,000)      (64,946,449)      (81,954,070)
          Common stock                                                     5,130           (13,840)          (38,205)
          Repayment of stock purchase loans                                                 25,133             5,180
                                                                    ------------------------------------------------
               Net cash used in financing activities                  (5,181,812)      (44,485,226)       (8,866,417)
                                                                    ------------------------------------------------
          Net (decrease) increase in cash and cash equivalents        (3,253,771)        1,365,070          (314,839)
          Cash and cash equivalents at beginning of the year           3,444,541         2,079,471         2,394,310
                                                                    ------------------------------------------------
          Cash and cash equivalents at end of the year              $    190,770      $  3,444,541      $  2,079,471
                                                                    ================================================
</TABLE>

                 See notes to consolidated financial statements

                                    Continued


                                       30
<PAGE>

                               CALPROP CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                Years Ended December 31,
                                                                    ------------------------------------------------
                                                                        2003              2002              2001
                                                                    ------------------------------------------------
<S>                                                                 <C>               <C>               <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
     Cash paid (refunded) during the year for:
          Interest (net of amount capitalized)                        $1,424,483          $699,849          $115,096
          Income taxes                                                  $(55,998)         $(44,331)         $229,315


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

                                    Concluded

                 See notes to consolidated financial statements


                                       31
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

(1)      Organization

         Nature of operations - Calprop Corporation ("the Company"), a
         California Corporation, primarily constructs and sells single-family
         detached and attached homes and townhomes as part of condominiums or
         planned unit developments in California and Colorado. As of December
         31, 2003, the Company had three residential housing projects in various
         stages of construction and development, consisting of 39 homes under
         construction (including 8 homes in escrow and 2 model homes), and 89
         lots under development. The Company's products range from homes for
         first-time buyers to custom homes. In addition to the construction and
         sale of single-family and multifamily housing, the Company is engaged
         in the development of apartments and townhomes available for lease. As
         of December 31, 2003, the Company has a 68-unit apartment building that
         is substantially leased. During the year, management approved a plan of
         action to sell the operating assets of the apartment building. As a
         result, the rental property has been classified as held for sale and
         depreciation has 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 at a gross sales price of $9,000,000
         (see Note 4 and 11).

         Based on its agreements with its lenders, the Company believes that it
         will have sufficient liquidity to finance its construction projects in
         2004 through funds generated from operations, funds available under its
         existing bank commitments, funds generated from new lending
         institutions, and, if necessary, funds that could be obtained by using
         its internally financed real estate development in process as
         collateral for additional loans.

         Management's plan, with respect to managing cash flow includes the
         following components: pay off debt that is coming due in 2004, minimize
         operating expenses, and maintain control over costs. With regard to the
         debt coming due in 2004, management expects to extend the maturity
         dates of various loans and pay the remaining loans off through cashflow
         from operations, prior to their maturity date. With regard to
         minimizing operating expenses, management plans to achieve this by
         continuing to closely examine overhead items. Management anticipates
         that the funds generated from operations, including borrowings from
         existing loan commitments, will be adequate to allow the Company to
         continue operations throughout 2004.

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


                                       32
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

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

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                   Entity                   Ownership interest at                       Development
                                               December 31, 2003
---------------------------------------------------------------------------------------------------------------
<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 (Completed projects)

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

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

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

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

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

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

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

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

         RGCCLPO: The Company is entitled to receive all of the profits of
         RGCCLPO. As of December 31, 2003, all units have been sold.

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

         During the year ended December 31, 2003, the loss of $2,271 incurred by
         the entities related to the minority interest was not allocated to the
         minority interest because the minority interest had a deficit interest
         in the Company. The Company does not reflect the deficit for the
         minority interest because the minority owners are not responsible for
         losses incurred beyond their equity. The unrecognized minority interest
         in deficit of the Company as of December 31, 2003 and 2002 was $70,630
         and $68,359, respectively. As a result, the Company has recorded
         minority interest of $0 as of December 31, 2003 and 2002.

(2)      Summary of Significant Accounting Policies

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

         The Company reviews the carrying value of its real estate developments
         for impairment whenever events or changes in circumstances indicate
         that the carrying amount of the asset may not be recoverable. If the
         sum of the expected future cash flows is less than the carrying amount
         of the asset, the Company recognizes an impairment loss. During 2003
         and 2002, the Company recorded


                                       33
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

         an impairment loss of $5,046,150 and $4,471,693, respectively (Note 3)
         related to its home-building activities. In addition, the Company
         recorded an impairment loss of $2,268,948 during 2003 related to the
         apartment building held for sale (Note 4).

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

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

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

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

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

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

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

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

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

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

         Recent accounting pronouncements - On October 3, 2001, the FASB issued
         SFAS No. 144 "Accounting for the Impairment or Disposal of Long-lived
         Assets." SFAS 144 supersedes SFAS 121 "Accounting for the Impairment of
         Long-lived Assets and for Long-lived Assets to Be Disposed Of." SFAS
         144 applies to all long-lived assets (including discontinued
         operations) and consequently amends Accounting Principles Board Opinion
         No. 30 (APB 30), Reporting Results of Operations Reporting the


                                       34
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

         Effects of Disposal of a Segment of a Business. SFAS 144 develops one
         accounting model for long-lived assets that are to be disposed of by
         sale. SFAS 144 requires that long-lived assets that are to be disposed
         of by sale be measured at the lower of book value or fair value less
         cost to sell. Additionally, SFAS 144 expands the scope of discontinued
         operations to include all components of an entity with operations that
         (1) can be distinguished from the rest of the entity and (2) will be
         eliminated from the ongoing operations of the entity in a disposal
         transaction. SFAS 144 is effective for the Company for all financial
         statements issued in fiscal 2002. The adoption of SFAS 144 did not have
         a material impact on the Company's financial position or results of
         operations.

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

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

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

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


                                       35
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

         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 May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
         Financial Instruments with Characteristics of both Liabilities and
         Equity" ("SFAS 150"). SFAS 150 establishes standards for how an issuer
         classifies and measures certain financial instruments with
         characteristics of both liabilities and equity. The statement is
         effective for financial instruments entered into or modified after May
         31, 2003, and otherwise is effective at the beginning of the first
         interim period beginning after June 15, 2003. The adoption of this
         statement did not have a material effect on the Company's results of
         operations or financial condition.

         (3) Real Estate Under Development

         Real estate under development at December 31, 2003 and 2002 is
         summarized as follows:

<TABLE>
<CAPTION>
                                                           2003                              2002
                                             -----------------------------------------------------------------
                                                 Amount        Units/Lots           Amount         Units/Lots
                                             -----------------------------------------------------------------
<S>                                          <C>                <C>               <C>                       <C>
Single-family residences                     $  7,389,708              39         $ 12,750,091              48
Townhomes                                      (1,082,607)                           4,335,593              16
                                             -----------------------------------------------------------------
Total residences                                6,307,101              39           17,085,684              64
Land under development                          4,237,525              89            4,474,884              91
                                             -----------------------------------------------------------------
Total real estate under development before
     investment in joint ventures              10,544,626             128           21,560,568             155
Investment in joint ventures                    2,630,815                            2,606,261
                                             -----------------------------------------------------------------
Total real estate under development          $ 13,175,441             128         $ 24,166,829             155
                                             =================================================================
</TABLE>

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

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

         In 1999, the Company formed RGC Carmel Country Associates, LLC, a
         California limited liability company, ("RGC Carmel") with RGC to
         develop, construct and lease a 181 townhome project. The profits and
         losses of RGC Carmel were distributed between the members as follows:
         50% to RGC and 50% to the Company. During


                                       36
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

         2000, RGC Carmel admitted additional members in the following
         proportions: The John L. Curci Trust as to a 12.5% interest, The Janet
         Curci Living Trust No. Il as to a 12.5% interest, and an officer of the
         Company as to a 25% interest in exchange for financing for the project
         as follows: $2,000,000 in equity and $2,000,000 in notes payable. As a
         result, the Company's interest in RGC Carmel was reduced to 25%, which
         is accounted for under the equity method of accounting. During 2002,
         the Company transferred .5% of its interest in RGC Carmel to Calprop
         Andalucia, a 100% wholly owned subsidiary of the Company. In January
         2003, the Company sold the remaining 24.5% of its interest in RGC
         Carmel to related parties in the following proportions: The Janet Curci
         Living Trust No. II as to a 6.125%, JAMS Management as to a 6,125%, and
         an officer of the Company as to a 12.25%. The Company's interest was
         sold for $2,000,000 in cash, which was received in 2002 and resulted in
         recording a deposit of $2,000,000 as of December 31, 2002. The Company
         recorded a gain of $2,000,000 on the sale of the joint venture in 2003.
         The gain equals the proceeds received of $2,000,000 as the Company had
         no basis in the investment sold. As a result, the Company's interest in
         RGC Carmel was reduced to .5%.

         During 2003, 2002 and 2001, the Company recorded income (loss) from
         investment in real estate venture of $0, $109,253 and $(118,764).

         Development operations in 2003, 2002 and 2001 are summarized as
         follows:

<TABLE>
<CAPTION>
                                                 2003                        2002                       2001
                                             -------------------------------------------------------------------------------
REAL ESTATE SALES:                                 Amount       Units          Amount       Units          Amount      Units
                                             -------------------------------------------------------------------------------
<S>                                          <C>                   <C>   <C>                  <C>    <C>                 <C>
     Single-family residences                $  9,739,000          38    $ 32,160,152         100    $ 34,578,692        109
     Townhomes                                  7,657,678          16      59,481,468         148      56,035,930        140
     Lots                                       2,496,261          50
                                             -------------------------------------------------------------------------------
          Total Sales                          19,892,939         104      91,641,620         248      90,614,622        249

COST OF REAL ESTATE SALES:
     Single-family residences                  10,698,724                  31,977,269                  32,548,574
     Townhomes                                  7,609,716                  60,169,736                  49,773,731
     Lots                                       2,296,560
     Warranty                                     110,992                     252,105                     348,704
                                             ------------                ------------                ------------
          Total Cost of Sales                  20,715,992                  92,399,110                  82,671,009
 Recognition of impairment of real estate
    development                                (5,046,150)                 (4,471,693)                 (2,018,088)
                                             ------------                ------------                ------------
(Loss) income from development operations    $ (5,869,203)               $ (5,229,183)               $  5,925,525
                                             ============                ============                ============
</TABLE>

         The 2003 impairment loss on real estate 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 resulted in a slower absorption rate. The Company
         introduced three new product lines and converted certain upgrades as
         standards to increase the absorption rate. The project consisted of 94
         homes with five product lines in Aurora, Colorado. The introduction of
         the new product lines increased direct construction cost, marketing,
         production overhead and interest costs and as a result the Company
         recorded an impairment loss on real estate under development of
         $4,614,756. As of December 31, 2003, the Company has no remaining units
         to construct, 18 units under construction, one of which have been sold.
         The impairment loss on the High Ridge Court project is primarily a
         result of an absorption rate slower than anticipated. The decrease in
         absorption rate increased marketing, production and interest costs and
         as a result the Company recorded an impairment loss on real estate
         under development of $431,394. As of


                                       37
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

         December 31, 2003, the Company has 33 remaining units to construct, 21
         units under construction, seven of which have been sold.

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

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

(4)      Assets and Related Liabilities Held for Sale

         During the year ended December 31, 2003, management approved a plan of
         action to sell the operating assets of PWA. As a result, the rental
         property has been classified as held for sale and depreciation has
         ceased as of the date the plan was approved. Operations of PWA are
         classified as discontinued operations in the consolidated statements of
         operations. The apartment project was sold on March 12, 2004 at a gross
         sales price of $9,000,000 (see Note 11).

         Assets held for sale at December 31 is summarized as follows:

                                                         2003             2002
              Land                                $ 1,500,000      $ 1,500,000
              Building and improvements, net        7,364,917        9,714,659
                                                  ----------------------------
              Assets held for sale, net             8,864,917      $11,214,659
                                                  ============================

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

         Liabilities related to assets held for sale at December 31 is
         summarized as follows:

<TABLE>
<CAPTION>
                                                                     2003            2002
<S>                                                            <C>             <C>
              Trust deed and note payable                      $7,678,544      $7,941,263
              Accounts payable and accrued liabilities             42,064         349,993
                                                               --------------------------
              Liabilities related to assets held for sale       7,720,608      $8,291,256
                                                               ==========================
</TABLE>

         Trust deed and note payable secured by the apartment project bear
         interest at 6.08% and mature on September 11, 2010.


                                       38
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

(5)      Other Assets

         Other assets at December 31, 2003 and 2002 are as follows:

<TABLE>
<CAPTION>
                                          Interest Rate          Outstanding Balance
                                          -------------    -----------------------------
                                                                  2003              2002
                                                           -----------------------------
<S>                                             <C>        <C>               <C>
Trust deeds receivable                          11.75%     $    49,975       $    52,370
Less reserve                                                   (30,000)          (30,000)
                                                           -----------------------------
Net trust deeds receivable                                      19,975            22,370
Deposits in escrow                                             501,010           151,000
Office equipment and other, net of
accumulated depreciation of $362,580 and
$334,974 as of December 31, 2003 and 2002,
respectively                                                   751,255           502,967
Prepaid expenses                                                20,504            37,237
                                                           -----------------------------
Other assets                                               $ 1,292,744       $   713,574
                                                           =============================
</TABLE>

         Depreciation expense included in general and administrative expenses
         for the year ended December 31, 2003, 2002 and 2001 were $32,725,
         $43,412 and $45,277, respectively.

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

         Trust deeds, notes payable and related party notes as of December 31,
         2003 and 2002 are as follows:

<TABLE>
<CAPTION>
                                                                                          2003               2002
                                                                                      --------------------------------
<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 4.0% and 4.25% at
December 31, 2003 and 2002, respectively); maturing January 2005 through
June 2005                                                                             $ 2,744,158          $10,174,334
Line of credit to financial institution, unsecured - variable interest
rate at prime, interest payable monthly (prime rate equals 4.0% and 4.25% at
December 31, 2003 and 2002, respectively); maturing  August 2004                        1,500,000            1,500,000

Notes payable to financial institutions, unsecured - interest rate at
6.25%, interest payable monthly; maturing May 2004                                        121,545              110,589
                                                                                      --------------------------------
Total trust deeds and notes payable                                                     4,365,703           11,784,923
                                                                                      --------------------------------
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 January 2005                                                                  $ 6,943,443          $ 4,779,699

Notes payable to related parties, unsecured - interest rates of 10% to 15%,
interest payable monthly; maturing on demand through July 2004                          9,539,188            9,207,935

                                                                                      --------------------------------
Total related party notes                                                              16,482,631           13,987,634

                                                                                      --------------------------------
Total trust deeds, notes payable and related-party notes                              $20,848,334          $25,772,557
                                                                                      ================================
</TABLE>


                                       39
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

         As of December 31, 2003, the Company had remaining loan commitments
         from banks and financial institutions of approximately $4,252,258 which
         may be drawn down by the Company upon the satisfaction of certain
         conditions. The Company continues to seek joint venture partners and
         additional financing to fund its operations.

         During 2003, 2002 and 2001, the Company paid interest of $592,028,
         $2,323,387 and $10,680,033, respectively, on trust deeds and notes
         payable. The Company capitalized interest of approximately $136,456,
         $2,047,647 and $10,680,033 during 2003, 2002 and 2001, respectively.

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

         Related-Party Notes

         Curci - The Company has the following notes payable to Curci at
         December 31, 2003 and 2002. A principal of Curci is a stockholder of
         the Company. Under the terms of certain of the notes payable, Curci
         receives interest and participates in "Net Proceeds" from certain
         projects, as defined in the loan agreement, which is comparable to net
         profit:

<TABLE>
<CAPTION>
                                                       December 31,      December 31,
                Project           Profit share             2003              2002
         ----------------------  ----------------  ------------------  ------------------
<S>                                    <C>                <C>                 <C>
         Secured loans:
           High Ridge Court            50%                $2,499,024          $2,366,102
           Saddlerock                  50%                 4,444,419           2,413,597
                                                   ------------------  ------------------
                                                           6,943,443           4,779,699
         Unsecured loans                                   5,356,254(1)        5,000,000(1)
                                                   ------------------  ------------------
                                                         $12,299,697          $9,779,699
                                                   ==================  ==================
</TABLE>

         (1) During 2001, the Company obtained a $5,000,000 unsecured working
         capital loan from Curci which bear interest at 15% and matures on July
         16, 2004. Interest is payable monthly. Unpaid interest of $356,254 has
         been added to the note principal.

         During the years ended December 31, 2003, 2002, and 2001, net
         participation proceeds expensed to cost of real estate sales in the
         accompanying consolidated statements of operations were $0, $24,385,
         and $675,198, respectively. Accrued participation proceeds included in
         accounts payable and accrued liabilities in the accompanying
         consolidated balance sheets at December 31, 2003 and 2002 was $0.

         Other Related Parties

         During 1996, the Company converted its Preferred Stock to Common Stock
         and the accrued Preferred Stock dividend due to an officer of the
         Company and a related party of $581,542 and $472,545, respectively, was
         exchanged for notes with interest payable at 10%. As of both December
         31, 2003 and 2002, the outstanding principal due on the officer and
         related party loans was $581,542 and $462,330, respectively. The notes
         mature on December 31, 2004.

         Included in notes payable to related parties is a note payable to
         Mission Gorge, LLC which bears interest at 12%. The outstanding balance
         as of December 31, 2003 and 2002 was $2,000,000 and 2,000,000,
         respectively. The note matures on December 31, 2004.

         Included in notes payable to related parties are notes payable to an
         officer which bear interest at 12%. Outstanding balances as of December
         31, 2003 and 2002 were $499,062 and $424,063, respectively. The notes
         mature on December 31, 2004.


                                       40
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

         As of December 31, 2003, the Company had other loans, which bear for
         interest at 10%. $40,000 is due on demand and the remaining notes
         mature through December 31, 2004. As of December 31, 2003 and 2002,
         these loans totaled $640,000 and $740,000, respectively. Aggregate
         future principal payments due on trust deeds payable, notes payable and
         related party notes are as follows:

                           Year Ended
                           December 31,
                           --------------------------
                            2004          $15,605,152
                            2005            5,243,182
                            2006
                            2007
                            2008
                            Thereafter
                           --------------------------
                           Total          $20,848,334
                           ==========================

         During 2003, 2002 and 2001, the Company paid interest of $1,589,309,
         $2,918,200 and $5,300,889, respectively, on loans from related parties.
         The Company capitalized interest of approximately $620,398, $2,494,091
         and $5,185,793 during 2003, 2002 and 2001, respectively.

(7)      Income Taxes

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

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                           ---------------------------------------------
                                                               2003             2002             2001
                                                           ---------------------------------------------
<S>                                                        <C>              <C>              <C>
 Current income tax (benefit) expense                      $(2,429,776)     $(3,152,732)     $   171,742
 Net deferred income tax expense (benefit)                   2,429,776        3,152,732
 Increase in valuation allowance to write-off deferred
 tax  assets                                                 6,535,343
                                                           ---------------------------------------------
Provision for income taxes                                 $ 6,535,343      $         0          171,742
                                                           =============================================
</TABLE>

         As of December 31, 2003, the Company had gross deferred tax assets of
         $13,403,868 which have been fully offset by a deferred tax asset
         valuation allowance of $13,403,868. During 2003, the Company increased
         the deferred tax valuation allowance to offset current year's net
         income tax benefit of $2,338,785 as it has been determined that is it
         unlikely that the deferred tax assets will be utilized. Furthermore in
         the current year, as a result of Company's assessment of its past
         earnings history and trends, sales backlog, budgeted sales, and
         expiration dates of carryforwards, the Company determined that it would
         not be able to realize its recorded net reserve for its deferred tax
         assets since the likelihood of realization of the deferred tax benefits
         cannot be determined.

         As of December 31, 2003, the Corporation had net operating loss
         carryforwards for federal and state income tax purposes of
         approximately $24,869,625 and $6,800,746, respectively. For federal tax
         purposes the net operating loss carryforwards expire from 2013 through
         2022. For state tax purposes the net operating loss carryforwards
         expire from 2005 through 2008.


                                       41
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

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

                                                 2002                 2001
                                         ---------------------------------
     Inventory reserves                                       $    284,113
     Warranty reserves and others        $  4,399,475            1,651,075
     State net operating loss                 555,520              822,218
     Federal net operating loss             8,448,873            8,307,677
                                         ---------------------------------
                                           13,403,868           11,065,083
     Valuation allowance                  (13,403,868)          (4,529,740)
                                         ---------------------------------
                                         $          0         $  6,535,343
                                         =================================

         The following is a reconciliation of the federal statutory rate to the
         Company's effective rate for 2003, 2002, and 2001:

<TABLE>
<CAPTION>
                                                     2003                       2002                       2001
                                         ------------------------------------------------------------------------------
                                            Amount       Percentage     Amount      Percentage      Amount     Percentage
                                         ------------------------------------------------------------------------------
<S>                                      <C>                <C>      <C>                <C>      <C>                 <C>
Statutory rate                           $(2,742,848)       (34%)    $(2,682,709)       (34%)    $ 1,189,268         34%
State franchise tax, net of federal tax
benefit                                     (458,250)      (5.7%)       (460,005)      (5.8%)        167,718        4.8%
                                                                                                 $     2,690          0%
Other                                        771,322        9.6%         (10,018)       (.1%)

Change in valuation allowance              8,965,119      111.1%       3,152,732       39.9%      (1,187,934)       (34%)
                                         ------------------------------------------------------------------------------
                                         $ 6,535,343       81.0%     $         0          0%     $   171,742        4.9%
                                         ===============================================================================
</TABLE>

(8)      Qualified and Non-Qualified Stock Option Plans

         The Company has three stock-based compensation plans, which are
         described below. The Company applies APB Opinion 25 and related
         Interpretations in accounting for its stock-based compensation.
         Accordingly, no compensation costs have been recognized for its fixed
         stock option plans during 2003, 2002, and 2001. The compensation cost
         that has been charged against income for its stock incentive plan was
         $28,600 in 2003, $21,000 in 2002 and $52,225 in 2001. Had compensation
         costs for the Company's stock-based compensation plans been determined
         based on the fair value at the grant dates for awards under those plans
         consistent with SFAS No. 123, the Company's net (loss) income and net
         (loss) income per share would have been adjusted to the pro forma
         amounts indicated below:

<TABLE>
<CAPTION>
                                                           2003              2002            2001
                                                           ----              ----            ----
<S>                                    <c>             <C>               <C>              <C>
Net (loss) income:                     As reported     $(15,144,157)     $(7,890,557)     $3,326,106

                                       Pro forma       $(15,148,227)     $(7,894,021)     $3,318,068

Diluted net (loss) income per share:   As reported     $      (1.48)     $     (0.77)     $      .32

                                       Pro forma       $      (1.48)     $     (0.77)     $      .32
</TABLE>


                                       42
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

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

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

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

<TABLE>
<CAPTION>
                                        2003                        2002                       2001
                                -----------------------   -------------------------  -------------------------
                                                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      697,700      $ 1.32       860,700       $ 1.27       860,700     $   1.27
Canceled                           (258,200)     $ 1.31      (163,000)      $ 1.04
                                ------------------------  -------------------------  ---------------------
Outstanding, end of year            439,500      $ 1.32       697,700       $ 1.32       860,700     $   1.27
                                ========================  =========================  =====================
Exercisable, end of year            439,500                   697,700                    860,700
                                =============              ==============             =============
Available for grant, end of year    749,450                   491,250                    328,250
                                =============              ==============             =============
</TABLE>

         The following table summarizes information about the outstanding
         options as of and for the year ended December 31, 2003, from the
         Company's 1993 stock option plan:

<TABLE>
<CAPTION>
                                     Options Outstanding                          Options Exercisable
                     -----------------------------------------------------  --------------------------------
                        Number       Weighted-Average       Weighted-           Number        Weighted-
     Range of         Outstanding        Remaining           Average         Exercisable       Average
  Exercise Prices     at 12/31/03    Contractual Life     Exercise Price     at 12/31/03    Exercise Price
-------------------- -----------------------------------------------------  --------------------------------
<S>                        <C>           <C>                  <C>                  <C>          <C>
  $0.49 to $0.96           114,950       3.3 years            $0.70                114,950      $0.70
  $1.00 to $1.88           324,550       5.0 years            $1.55                324,550      $1.55
                     -----------------------------------------------------  --------------------------------
  $0.69 to $1.88           439,500       4.5 years            $1.32                439,500      $1.32
                     =======================================================================================
</TABLE>

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


                                       43
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

                                          2003          2002          2001
                                      --------------------------------------
Outstanding, beginning of year          418,580       419,980       422,280
Shares canceled                         (6,900)       (1,400)       (2,300)
                                      --------------------------------------
Outstanding, end of year                411,680       418,580       419,980
                                      ======================================
Vested, end of year                     411,680       400,980       368,980
                                      ======================================
Available for grant, end of year             --            --            --
                                      ======================================

         Included as a separate deduction of stockholder's equity is deferred
         compensation relating to this plan of $0 and $28,600 as of December 31,
         2003, and 2002, respectively.

         The 1992 Director Stock Option Plan authorizes an aggregate amount of
         100,000 shares to be granted. Each year, the directors that are members
         of the stock option committee are eligible to be granted options to buy
         7,500 shares at the market price at the date of grant, exercisable one
         year after grant, and expire 10 years after the grant date. Options
         were not granted to directors from the 1992 Director Stock Option Plan
         during 2003. During 2002 and 2001, 15,000 shares and 15,000 shares,
         respectively, were granted under this plan at an exercise prices of
         $1.13 and $1.13 per share, respectively. The exercise prices represent
         the market price at the date of grant. At December 31, 2003, 22,500
         shares were outstanding related to this plan. In 1996, the Company
         issued warrants to purchase 150,000 shares of common stock at an
         exercise price of $1.00 that expired on September 30, 2003. As of
         December 31, 2003, no warrants were outstanding.

         The weighted-average fair value of the options granted during 2002 and
         2001 is $0.51 and $0.46, respectively. The fair value of each option
         was estimated on the date of grant using the Black-Scholes
         option-pricing model with the following weighted-average assumptions
         for 2002 and 2001, respectively: risk-free interest rates of 6.5
         percent for all years; dividend yield of zero percent for all years;
         expected lives of 5.0 and 5.0 years; and volatility of 44 and 33
         percent.

         For the years ended December 31, 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. In addition, for the year ended December 31, 2001, options of
         601,700 were not included in the computation of diluted net income
         because their exercise prices were higher than the average market price
         per share of common stock.

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

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

         As of December 31, 2003 and 2002, accrued interest for the stock
         purchase loans was $123,459 and $102,233 respectively. The stock
         purchase loans and the related accrued interest are reflected as
         reductions to stockholder's equity.


                                       44
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

(9)      Earnings Per Share

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

<TABLE>
<CAPTION>
                                                                            2003             2002             2001
                                                                        ---------------------------------------------
<S>                                                                     <C>              <C>              <C>
Net (loss) income from continuing operations                            ($12,804,903)    ($ 7,263,252)    $ 3,321,229
Discontinued operations                                                   (2,339,254)        (627,305)          4,877
                                                                        ---------------------------------------------

Numerator for basic and diluted net (loss) income per share             ($15,144,157)    ($ 7,890,557)    $ 3,326,106
                                                                        =============================================
Denominator for basic net (loss) income per share (weighted average
outstanding shares)                                                       10,238,781       10,252,592      10,281,879
   Effect of dilutive stock options                                                                           128,327
                                                                        ---------------------------------------------
Weighted average shares for dilutive net (loss) income per share          10,238,781       10,252,592      10,410,206
                                                                        =============================================
(Loss) income from continuing operations per common share - basic       ($      1.25)    ($      0.71)    $      0.32
                                                                        =============================================
(Loss) income from continuing operations per common share - diluted     ($      1.25)    ($      0.71)    $      0.32
                                                                        =============================================

(Loss) income from discontinued operations per common share - basic     ($      0.23)    ($      0.06)
                                                                        =============================================
(Loss) income from discontinued operations per common share - diluted   ($      0.23)    ($      0.06)
                                                                        =============================================

Net (loss) income per common share - basic                              ($      1.48)    ($      0.77)    $      0.32
                                                                        =============================================
Net (loss) income per common share - diluted                            ($      1.48)    ($      0.77)    $      0.32
                                                                        =============================================
</TABLE>

(10)     Commitments and Contingencies

         Land Acquisition - During 2004, the Company completed the sale of its
         contractual rights to purchase approximately 60 acres of undeveloped
         land in Southern California for a gross sales price of $11,700,000. The
         Comapny estimates that the net sale proceeds will be approximately
         $9,000,000. The Company has entered into approximately $8,625,000 in
         contracts to acquire two properties and has acquired one project for
         $600,000 in its current market in Riverside County in Southern
         California. These three properties are zoned for residential
         development and can be subdivided into approximately 213 single family
         detached lots. The Company plans to start construction in the first
         quarter of 2005.

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

         Employee benefit plan - The Company has a 401(k) plan (the "Plan"),
         which allows eligible employees to contribute from 1 percent to 15
         percent of their annual compensation, not to exceed statutory limits.
         Company matching is at management's discretion. The Company's
         contribution to the Plan for the years ended December 31, 2003, 2002,
         and 2001 was $0, $0, and $0, respectively.

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

                    Year Ending December 31,      Amount
                                                --------
                    2004                        $205,854
                    2005                         154,015
                    2006                         122,669
                                                --------
                                                $482,538
                                                ========


                                       45
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

         Rent expense for the years ended December 31, 2003, 2002 and 2001 was
         $219,387, $269,023, and $239,304, respectively.

(11)     Discontinued operations

         In accordance with the SFAS 144 "Accounting for the Impairment or
         Disposal of Long-Lived Assets," the net loss of assets held for sale is
         reflected in the consolidated statement of operations as discontinued
         operations for all periods presented. For the years ended December 31,
         2003, 2002 and 2001, discontinued operations relates to an apartment
         project held for sale. The apartment project was sold on March 12, 2004
         with a sales price of $9,000,000 (see Note 4). The following table
         summarizes the income and expense components of discontinued operations
         for the years ended December 31,:

<TABLE>
<CAPTION>
                                                           2003           2002          2001
                                                      -----------------------------------------
         Revenues:
<S>                                                       <C>           <C>            <C>
         Rental income                                    $972,706      $256,117       $
         Gain on forgiven debt                             392,575
         Interest and miscellaneous                         26,966        12,516        4,877
                                                      -----------------------------------------
           Total revenues                                1,392,247       268,633        4,877
                                                      -----------------------------------------
         Expenses:
         Rental operating                                  660,793       502,059
         Impairment loss                                 2,268,948
         General and administrative
         Depreciation                                      151,015       123,036
         Interest                                          650,745       270,843
                                                      -----------------------------------------
           Total expenses                                3,731,501       895,938
                                                      -----------------------------------------
         (Loss) income from discontinued operations   ($2,339,254)     ($627,305)       $4,877
                                                      =========================================
</TABLE>

(12)     Subsequent events

         On May 6, 2004, the Company sold the Saddlerock project for a gross
         sales price of $1,390,000. There was no gain or loss on this
         transaction.

         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 a total purchase price of $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 will record a gain on the sale of land of
         $431,703 in the second quarter of 2004.

         On June 18, 2004, the Company sold the contractual rights to purchase
         land in the Riverside area for a gross sales price of $11,700,000.


                                       46
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

(13)     Quarterly Financial Data - (unaudited)

         Year Ended December 31, 2003

<TABLE>
<CAPTION>
                                        First            Second            Third            Fourth
                                   ------------------------------------------------------------------
<S>                                <C>               <C>               <C>               <C>
Sales                              $  4,572,279      $  7,592,899      $  5,569,748      $  2,158,013
                                   ==================================================================
(Loss) income from development     $   (530,679)     $ (4,430,598)     $    (27,336)     $   (880,590)
operations
                                   ==================================================================
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)
                                   ==================================================================

Year Ended December 31, 2002
                                       First            Second            Third            Fourth
                                   ------------------------------------------------------------------
Sales                              $ 21,292,270      $ 43,058,399      $ 21,678,306      $  5,612,645
                                   ==================================================================
Income (loss) from development
  operations                       $     94,774      $ (1,079,218)     $ (3,587,274)     $   (657,465)
                                   ==================================================================
Net loss                           $   (267,446)     $ (1,224,951)     $ (4,709,052)     $ (1,689,108)
                                   ==================================================================
Basic loss per share               $      (0.03)     $      (0.12)     $      (0.46)     $      (0.16)
                                   ==================================================================
Diluted loss share                 $      (0.03)     $      (0.12)     $      (0.46)     $      (0.16)
                                   ==================================================================
</TABLE>


                                       47
<PAGE>

                               CALPROP CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2003

                               CALPROP CORPORATION
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                   For the three years ended December 31, 2003

                                                       Trust Deeds
                                           Warranty     Receivable
                                           Reserve       Reserve
                                         ------------------------
Balance January 1, 2001                  $ 546,984      $  30,000
     Additions charged to operations       332,899
     Reductions                           (209,768)            --
                                         ------------------------
Balance December 31, 2001                  670,115         30,000
     Additions charged to operations       252,105
     Reductions                           (164,670)            --
                                         ------------------------
Balance December 31, 2002                  757,550         30,000
     Additions charged to operations        54,000             --
     Reductions                           (125,174)            --
                                         ------------------------
Balance December 31, 2003                $ 686,376      $  30,000
                                         ========================


                                       48
<PAGE>

                                Index to Exhibits
                                -----------------

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

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

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

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

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

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

     23     Consent of Independent Registered Public Accounting Firm

     42     Financial Data Schedule


                                       49
<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)

                                                           June 29, 2004
--------------------------------------                  -----------------------
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.

                                                           June 29, 2004
--------------------------------------                  -----------------------
Mark F. Spiro                                                   Date
Vice President/Secretary and
Treasurer (Chief Financial
and Accounting Officer)

                                                           June 29, 2004
--------------------------------------                  -----------------------
Mark T. Duvall                                                  Date
Director

                                                           June 29, 2004
--------------------------------------                  -----------------------
Victor Zaccaglin                                                Date
Chairman of the Board
Chief Executive Officer

                                       50