SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                          ---------------------------
                   FORM 10-K Annual Report Pursuant to Section
           13 or 15(d) of the Securities Exchange Act of 1934 For the
                       Fiscal Year Ended December 31, 2003
                          ---------------------------
                         PRIMECORE MORTGAGE TRUST, INC.
             (Exact Name of Registrant as Specified in its Charter)

                    Maryland                           94-3324992
        (State or other jurisdiction of             (I.R.S. Employer
         incorporation or organization)            Identification No.)

                                99 El Camino Real
                              Menlo Park, CA 94025
                         (Address of principal offices)
                                 (650) 328-3060
              (Registrant's telephone number, including area code)
                          ---------------------------
             Securities registered under Section 12(b) of the Act:
                                      None
          Securities registered pursuant to Section 12(g) of the Act:
         Class A Convertible Preferred Stock, par value $0.01 per share
                                (Title of class)

         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. [ ]

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

      The aggregate market value of the voting and non-voting common equity
                held by non-affiliates of the registrant is $0.

Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: 100 Shares of Common Stock

--------------------------------------------------------------------------------

<PAGE>


This Annual Report on Form 10-K of Primecore Mortgage Trust, Inc. (the
"Company") contains forward-looking statements. All statements other than
statements of historical fact may be forward-looking statements. These include
statements regarding the Company's future financial results, operating results,
business strategies, projected costs and capital expenditures, products,
competitive positions, and plans and objectives of management for future
operations. Forward-looking statements may be identified by the use of words
such as "may," "will," "should," "expect," "plan," anticipate," "believe,"
"estimate," "predict," "intend" and "continue," or the negative of these terms,
and include the assumptions that underlie such statements. The Company's actual
results could differ materially from those expressed or implied in these
forward-looking statements as a result of various risks and uncertainties,
including those set forth in the section entitled "Item 7: Management's
Discussion and Analysis of Financial Condition and Results of Operations." All
forward-looking statements in this report are based on information available to
the Company as of the date hereof and the Company assumes no obligation to
update any such statements.

The following information should be read in conjunction with the Financial
Statements and notes thereto included in this Form 10-K.

                                     PART I

ITEM 1.  BUSINESS.

Business Focus and Strategies

Organized in 1999 as a real estate investment trust or "REIT," we make and fund
development and construction loans to developers of residential real estate. We
generally invest in for-sale single-family or multi-family subdivision projects,
which are typically structured as construction loans, mezzanine loans, or equity
investments. To date, all of our investments have been made in Northern
California; however, we plan to seek investment opportunities in other areas of
California and neighboring states. We do not engage in any foreign operations or
derive any revenue from foreign operations, and do not intend to do so in the
future. As of January 1, 2004, we elected to withdraw our election of REIT
taxation status.

Most loans are written with maturity dates of up to 18 months, which dates may
be extended when deemed to be in the Company's best interests. All construction
loans are secured by recorded first deeds of trust on the property being
developed, and title insurance protecting the position of our deeds of trust is
always a condition to making a loan. Investments, other than construction loans,
may be evidenced by a second deed of trust securing a mezzanine loan, or an
ownership interest in the development entity. As part of the acquisition of a
particular loan, or through a foreclosure we may acquire an equity interest in
the real property securing the loan in the form of a shared appreciation
interest or other equity participation. We also may invest our funds directly in
real property, if in the opinion of our Board of Directors it is in our best
interest.

All approved investments are subject to detailed loan documentation that has
been formulated by legal counsel for our specific purposes. In addition, our
Board of Directors has implemented specific guidelines for the making of loans
and investments. All construction loans provide for monthly payments of interest
only and a payment of principal in full at the end of the loan term. In
accordance with our loan documents, we generally advance the monthly interest
payments out of available loan proceeds, although our loan documents provide us
with a right not to advance or to cease such payments should it be determined
that conditions require such actions. Loan fees, if charged, are typically
advanced out of the loan proceeds with the initial loan advance. Generally, our
loans require the borrower to make a "balloon payment" equal to the principal
amount, advanced interest and fees upon maturity of the loan. The loan maturity
date is the date of sale of the underlying real estate or the date stated in the
loan documents.

Management of the Company. Until December 31, 2003, Primecore Funding Group,
Inc. managed all of our affairs pursuant to a management agreement. Primecore
Funding Group, Inc. was wholly owned by Susan Fox. On December 19, 2003, our
Board of Directors voted not to renew our Manager's contract and to manage our
operations internally. We entered into a new agreement with Primecore Funding
Group for management services until March 31, 2004, while we effected our

                                       2
<PAGE>

transition to internal management. On March 19, 2004, Susan Fox resigned as
President, Chief Executive Officer and Director of Primecore Mortgage Trust,
Inc. As of the date of filing, our business is managed by employees of the
Company, subject to direction from our Board of Directors.

Our headquarters consist of 6,828 square feet of office space at 99 El Camino
Real, Menlo Park, California 94025 leased from 99 El Camino Partners, LLC. The
lease expires on December 31, 2004. Upon expiration of the lease, we intend to
seek office space at a new location.

Loan Origination. We employ persons skilled in loan underwriting, disbursement
and monitoring, and the various business and legal issues that may be involved
with real estate lending. Our employees, and independent contractors where
appropriate, provide all of the services previously provided through Primecore
Funding Group, Inc., including but not limited to underwriting loans and
investments, overseeing all loans and investments, and servicing loans. Our
loans and investments are arranged through Eric Hanke, Vice-President of
Business Development. Mr. Hanke is a licensed California real estate broker, and
performs in such capacity in arranging loans and investments on our behalf.

Proposed loans and investments are evaluated to determine whether the loan or
investment is of a type typically made by us, whether the developer has the
experience necessary to manage the project, if the security for the loan and the
loan to value ratio meets our investment standards, and whether the loan or
investment meets investment criteria and objectives set forth by the Board of
Directors. The Board of Directors must approve any loans or investments outside
of certain guidelines of loans and investments that may be made by management.
We also require third party appraisals to support valuation of proposed future
investments and for modifying loans.

Collateral valuation. We utilize the experience of our employees, brokers in the
real estate industry, third party appraisals or other information deemed useful
to make assessments of a proposed project's viability and projected value, and
to determine if a proposed investment meets our criteria. In the evaluation
process, emphasis is placed on the ability of the underlying collateral to
protect against losses in the event of default by the borrower. The evaluation
is based on the projected market value of the proposed project, using various
tools, including comparable sales of similar properties and projections of
market appeal and demand at completion. The goal of the underwriting process is
to achieve a comfort level that the projected completion value of the property
will support full repayment of the investment plus the projected rate of return.

Servicing. Our primary goal in servicing our investments is protection of loan
funds and collateral for loans. Servicing involves taking all steps necessary to
administer the investment, including monitoring the propriety of funding
requests, monitoring progress of a project and accounting for principal and
interest. Where appropriate, we employ an outside agent to monitor construction
progress and draw requests. Loan proceeds are disbursed as construction
progresses, and only after we have received satisfactory documentation. Before
making disbursements of loan proceeds, borrower disbursement requests are
verified by invoices from the developer or its subcontractors, and by periodic
site inspections of progress.

Sales of construction mortgage loans. We plan to hold mortgage loans to
maturity, and have not embarked on selling loans in any secondary market. Nor
are we aware that a secondary market exists for the loans we hold. We may,
however, decide to sell assets from time to time for a number of reasons,
including, without limitation: (1) to dispose of an asset for which credit risk
concerns have arisen; (2) to reduce interest rate risk; (3) or to re-structure
our balance sheet when our management deems it advisable. We will select any
mortgage loans to be sold according to the particular purpose the sale is
intended to serve. Our Board of Directors has not adopted a policy that would
restrict management's authority to determine the timing of sales or the
selection of mortgage loans to be sold.

ITEM 2. PROPERTIES.

We own certain real property that we have acquired through foreclosure or deed
in lieu of foreclosure. In addition, we obtained certain properties upon our
acquisition of all of the ownership of 99 Investors, LLC in 2002. Our policy is
to maximize the value of the property prior to liquidation. In some cases this
may involve completing construction, sometimes through a subsidiary or
affiliate, and then marketing the property for sale. The following is a list of
real estate owned by us as of December 31, 2003 :

                                       3
<PAGE>


<TABLE>
<CAPTION>
                                                                                          Carrying
                           Amount Funded        Capitalized         Recognized           Amount of           Costs to
Description            (net of payments)     Interest Costs         Impairment            Property           Complete
--------------------- ------------------- ------------------ ------------------ ------------------- ------------------
   <S>                           <C>                  <C>               <C>                 <C>                 <C>
Property 2216               $  8,647,522        $   548,095       $  2,145,617       $   7,050,000          $      --
Property 2345                  4,112,001            189,228                 --           4,301,229            264,903
Property 2368                  1,746,770             74,153                 --           1,820,923          1,398,927
Property 2396                  1,770,914             97,691            813,805           1,054,800          1,194,794
Property 2407                  2,227,414             69,015                 --           2,296,429              9,593
Property 2443                    682,283             34,890                 --             717,173          1,504,579
Property 2446                  1,186,884             79,740             88,696           1,177,928          1,501,072
Property 2448                    629,528             26,584             48,859             607,253                 --
Property 2451                  1,931,183             75,811            266,848           1,740,146            377,204
Property 2455                 10,089,541            374,774          5,417,299           5,047,016          1,814,984
Property 2462                  6,899,377            286,517          3,262,704           3,923,190            306,810
Property 2464                  5,792,445            334,196          3,424,141           2,702,500                 --
Property 2465                    208,423             13,076                 --             221,499             50,862
Property 2473                  6,578,658            415,304          1,417,876           5,576,086             63,914
Property 2492                  3,048,971            101,468            665,388           2,485,051            898,949
Property 2498                  6,906,889            346,720          3,423,110           3,830,499                 --
                      ------------------- ------------------ ------------------ ------------------- ------------------

Total                      $  62,458,803       $  3,067,262      $  20,974,343       $  44,551,722       $  9,386,591
                      =================== ================== ================== =================== ==================
</TABLE>


Property 2216 - This is an approximately 8-acre parcel which has been approved
for development of 72 townhomes and condominiums totaling approximately 123,372
square feet in San Jose, California. After receiving title to the property,
management conducted a study to determine the disposition of this project.
During this study period, management commissioned an appraisal and market
analysis of the property while the property was listed for sale during a 90-day
period. The results of the study and analysis suggested that we would benefit by
development of the project rather than selling the project in its current
condition. Subsequent to December 31, 2003, the Board of Directors approved this
project for development.

Property 2345 - This is an approximately 7,000 square foot home in the Pacific
Heights neighborhood of San Francisco, California. It is currently under
construction and is expected to be complete and on the market in June 2004.

Property 2368 - This is an 8-unit condominium project totaling approximately
6,100 square feet in the South of Market area of San Francisco, California. The
units are loft-style condominiums. The project is currently under construction
and is expected to be complete and on the market in September 2004 .

Property 2396 - This is a 2-unit condominium project totaling approximately
4,450 square feet on Russian Hill in San Francisco, California. The project is
currently under construction and is expected to be complete and on the market in
June 2004.

Property 2407 - This property consists of 6 subdivided and improved lots in San
Rafael, California. The lots are approved, subject to design review, for 6
single-family homes. We currently intend to sell the lots either singly or in
bulk. Subsequent to December 31, 2003, we entered into a contract to sell all 6
lots to a single developer. The contract is ratified and is pending close of
escrow.

Property 2443 - This project consists of 3 lots for the construction of
single-family homes in the Oakland Hills averaging approximately 4,000 square
feet each. Two of the homes had started foundation work before construction was
halted while we pursued our foreclosure action. No work had commenced on the
third home prior to beginning our foreclosure action. We currently intend to
sell the properties in their existing condition. Subsequent to December 31,
2003, we entered into a contract to sell the two lots which had started
construction to a builder.


                                       4
<PAGE>

Property 2446 - This project is designed to be an approximately 5,500 square
foot home in unincorporated Santa Clara County adjacent to the city limits of
Los Gatos. The project design has been approved and we are currently working
with an architect to produce construction drawings. Currently we anticipate
beginning construction in June 2004.

Property 2448 - This project is an approximately 3,600 square foot home in
Oakland, California. The home had started construction before work was halted
while we pursued our foreclosure action. We currently intend to sell the
property in its existing condition and the property was under contract for sale
pending close of escrow.

Property 2451 - This project consists of 4 subdivided lot townhomes totaling
approximately 8,000 square feet in Mountain View, California. All four homes
were complete and had been sold at December 31, 2003, three of which were
pending close of escrow.

Property 2455 - This project is an approximately 8,850 square foot home in
Atherton, California. The project is under construction and we currently
estimate it will be complete and ready for sale in August 2004.

Property 2462 - This project is an approximately 7,000 square foot home in
Saratoga, California. The project is under construction and we currently
estimate it will be complete and ready for sale in May 2004.

Property 2464 - This project is an approximately 12,500 square foot house in
Atherton, California. The home had started construction before work was halted
while we pursued our foreclosure action. In January 2004, this property closed
escrow.

Property 2465 - This project is an approximately 8,900 square foot lot in
Oakland, California. Construction had not started prior to our foreclosure
action. We currently plan to sell the property in its existing condition and
have listed it for sale.

Property 2473 - This project is an approximately 13,000 square foot home in
Pebble Beach, California. The property is approved for development but no
construction has taken place on the property. We currently intend to sell the
property in its existing condition and have listed it for sale.

Property 2492 -This is an approximately 4,500 square foot home in Portola
Valley, California. It is currently under construction and is expected to be
complete and on the market in April 2004.

Property 2498 - This project is an approximately 11,000 square foot house in
Atherton, California. The home had started construction before work was halted
while we pursued our foreclosure action. As of December 31, 2003 the property
was under contract for sale pending close of escrow. Subsequent to December 31,
2003, we extended the close of escrow for this property in order to correct
damage which occurred as a result of water intrusion. The cost of the damage is
currently estimated at less than $50,000. Once the repairs have been completed,
we expect the sale to close escrow.


ITEM 3. LEGAL PROCEEDINGS.

From time to time, we may and have become subject to litigation in connection
with our business. In addition, as of December 31, 2003, we were involved in
several litigation matters that are considered to be out of the ordinary course
of business. The following is a list of non-routine litigation (i.e. suits other
than mechanic's lien lawsuits or similar lawsuits in which the Company becomes
involved from time to time due to its status as a lender) in which the Company
was involved as party, as of December 31, 2003. It is currently believed that
potential liability could each exceed $1 million if the Company is unsuccessful
in its defense, which the Company does not currently believe will be the case
and as such, no amounts have been accrued in the financial statements in
connection with the following lawsuits:

                                       5
<PAGE>

1. Baigent, et. al. v. Susan Fox, Primecore Mortgage Trust, Inc., et. al., San
Mateo Superior Court Action No. 435648. Approximately 35 shareholders, holding
approximately 1,260,000 shares of Preferred Stock, approximately 5% of the
Preferred Shares of the Company, filed this lawsuit on November 14, 2003. The
lawsuit generally alleges that the Company, its former Manager, and two former
officers failed to disclose the true risks of the investments made by the
plaintiff-shareholders. The Complaint does not specify the amount of damages
being sought. The Company filed a petition to compel mediation and binding
arbitration, which was granted on January 21, 2004. The Company believes the
lawsuit is without merit, intends to vigorously defend against the claims, and
believes that it has strong and viable defenses.

2. Showplace Square Lofts Company, LLC v. Primecore, et. al., U.S. Bankruptcy
Court (N.D. Cal) No. 02-3157 DM. On June 25, 2002, a borrower filed a complaint
against the Company in connection with its bankruptcy. Prior to the time that
the bankruptcy case and complaint were filed, the borrower had defaulted under
its loan and the Company was proceeding to enforce its rights through
foreclosure. The complaint purported to assert claims for avoidance of
fraudulent transfer, breach of contract, intentional fraud, negligent
misrepresentation, negligence declaratory relief, breach of fiduciary duty, and
unfair business practices. The Court has granted summary judgment in favor of
the Company on all claims except the claim for transfer in violation of
Bankruptcy Code Sec. 544. The Company believes that the lawsuit is wholly
without merit. Among other things, the borrower admitted, in a written agreement
signed prior to the filing of the case, that it had no claims against the
Company, and also provided written releases of any possible claims. The Company
intends to vigorously defend against the claims, and believes that it has strong
and viable defenses.

3. Bay Area Luxury Homes/Santa Clara 3, LLC v. Primecore, et. al., Bay Area
Luxury Homes/Alameda VI, LLC v. Primecore, et. al., Bay Area Luxury Homes/Stern
VII, LLC v. Primecore, et. al., U.S. Bankruptcy Court (N.D. Cal.). Three limited
liability companies that are under the control of two individuals, both of whom
are being sued by Primecore for over $5 million under written guarantees that
they signed, filed this series of cases. On or around March 31, 2004, the debtor
companies converted their bankruptcies to liquidation bankruptcies under Chapter
7 of the Bankruptcy Code. It is possible that the cases might be dismissed by
the Chapter 7 trustee since he or she will not have the vested interest that the
borrowers had in trying to pursue the claims, which the Company believes are
without merit. Among other things, the borrowers all admitted, in written
agreements signed prior to the filing of the cases, that they had no claims
against the Company, and also signed written releases of any possible claims. If
the cases are pursued, the Company intends to vigorously defend against the
claims asserted and believes that it has strong and viable defenses.

4. In re JH Country Club Estates, LLC, United States Bankruptcy Court No.
03-11473-AJ 11. This lawsuit involved a claim by a contractor claiming that its
mechanic's lien had priority over our deed of trust. The claimant was seeking
approximately $1.1 million. Subsequent to December 31, 2003, the matter was
resolved by a settlement in which it was agreed that the contractor would
receive only $100,000, and with all claims between the parties being dismissed.
The Company's title insurance carrier contributed $25,000 toward the settlement,
so that the net cost to the Company was only $75,000. The settlement is subject
to Bankruptcy Court approval.

5. On March 19, 2004, the Company was served with a Complaint in the matter of
Amoroso, et. al. v. Primecore Mortgage Trust, et. al, San Mateo Superior Court.
The Complaint, filed by 20 shareholders holding a total of 627,322 shares of
Preferred Stock, approximately 3% of the shares of Preferred Stock of the
Company, is nearly identical to the Baigent lawsuit discussed above. The Company
believes the lawsuit is without merit, intends to vigorously defend against the
claims, and believes that it has strong and viable defenses. The Company intends
to compel compliance with the mediation and arbitration clause signed by the
shareholder-plaintiffs, just as it has done in the Baigent matter.

In addition to the above matters, at December 31, 2003, the Company was involved
in several lawsuits in which it sought recovery from borrowers, guarantors, and
others. The actions included the following:

1. A lawsuit filed in connection with a loan made on a subdivision project in
Marin County. While the Company had written off the loan approximately two years

                                       6
<PAGE>

ago, it was felt that legal avenues existed to seek recovery on the loan. The
Company filed suit and entered into a settlement subsequent to December 31,
2003. Under the settlement, the Company is entitled to receive $2,300,000 in
payments of varying amounts to be made over a 17-month term, beginning in March
2004. In the event that the payments are not made when due, the Company has a
right to obtain a stipulated judgment. If and when payments are received, the
payments will be reflected in income. The settlement will not be reflected in
the financial statements until payments are received, as collection is not
reasonably assured. The first payment of $100,000 was received on March 2, 2004.

2. A lawsuit filed by the Company in April 2003 to recover approximately
$5,000,000 from two guarantors of certain loan obligations. The Company obtained
a non-binding arbitration award of $4.4 million, however, defendants then
demanded a trial. The matter is set for trial in May 2004. The Company currently
believes that the facts and law support a judgment in favor of the Company,
although the prospect of collection of the judgment is not reasonably assured,
therefore, if and when payments are received, the payments will be reflected in
income. No potential recovery is currently reflected in the financial
statements.

3. A lawsuit to recover damages from the principal of a borrower, and from
another lender on a project on which the Company had a loan, and on which it
currently holds title. The Company seeks to recover several million dollars from
the borrower's principal, including for alleged misappropriation of loan funds
through fraud. In addition, the Company seeks to recover alleged usurious
interest and other relief against the other lender. No potential recovery is
currently reflected in the financial statements.

4. A lawsuit to judicially foreclose upon and obtain a deficiency judgment from
a borrower in connection with a loan made on a property in Palo Alto. The
Company obtained the property from the borrower as part of a settlement, and,
subsequent to December 31, 2003, sold the property. In addition, the borrower
has agreed to stipulate to judgment in the amount of $750,000. The prospect of
collection of the judgment is not reasonable assured, therefore if and when
payments are received, the payments will be reflected in income. No potential
recovery is currently reflected in the financial statements.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our stockholders during the fourth
quarter of the year ended December 31, 2003.

                                     PART II

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

There is currently no public trading market for our Class A Convertible
Preferred Stock or our Common Stock. We are authorized to issue up to 50,000,000
shares of stock, of which 40,000,000 shares are designated as Class A
Convertible Preferred Stock and 10,000,000 are designated as Common Stock. At
December 31, 2003, there were issued and outstanding 22,229,739 shares of Class
A Convertible Preferred Stock and 100 shares of Common Stock, issued and
outstanding. The number of outstanding shares is subject to change because of
shareholder redemptions. We currently are not offering any new shares of stock
for sale. We have also offered and sold Series A and B promissory notes of
varying amounts and maturities.

All sales of stock and issuances of notes to date have been made under exemption
from the registration requirements of the Securities Act of 1933 pursuant to
Regulation D, Rule 506. All sales of stock and notes are made only to accredited
investors, as defined in Regulation D, Rule 501 (a)(4), (5) or (6) under the
1933 Securities Act. Appropriate legends were placed on each stock certificate
and promissory note. No underwriters were involved and no underwriting
commissions were paid in any of the transactions.

We have not paid any cash dividends to holders of our Common Stock.

                                       7
<PAGE>

The Preferred Stock has the rights and privileges and is subject to the
conditions set forth in our supplementary articles of incorporation, filed with
the State of Maryland Department of Assessments and Taxation. Subject to the
limitations set forth in the terms of the Preferred Stock, we may issue
additional Preferred Stock from time to time in one or more classes or series,
with such distinctive designations, rights and preferences as shall be
determined by the Board of Directors. Additional series of Preferred Stock would
be available for possible future financings, or acquisitions by us, and for
general corporate purposes without any legal requirement that further
shareholder authorization for issuance be obtained. Our issuance of additional
series of Preferred Stock could have the effect of making an attempt to gain
control of our company more difficult by means of a merger, tender offer, proxy
contest or otherwise.

The following summary of the rights of the Preferred Stock and the Common Stock
is qualified in its entirety by reference to our charter and related
supplementary articles.

Dividends.  Holders of our Class A Convertible Preferred Stock are entitled
to dividends declared and payable at such times and in such amounts as the Board
of Directors may from time to time determine from amounts legally  available for
such  distribution.  For so long as  shares  of  Preferred  Stock  shall  remain
outstanding,  there shall be no dividends declared or paid nor any distributions
made on the Common Stock, nor, without the written consent of holders of 66 2/3%
of the  outstanding  Preferred  Stock,  shall  any  shares  of  Common  Stock be
purchased  or  redeemed  for a price in excess of their  par  value.

Redemption  Policy.  Holders of our Class A Convertible  Preferred Stock do
not have a vested right to redeem their shares. Our Board of Directors, however,
currently has a stock redemption policy,  effective as of February 12, 2003, for
shareholders  who wish to sell their shares to us. The policy may be modified or
terminated at the Board's discretion at any time. Currently,  we will repurchase
shares, at fair market value, as determined by our Board of Directors, utilizing
25% of "free cash flow" for such  purposes.  "Free cash flow" means the total of
all proceeds  from  repayments  of loans and all net  proceeds  from the sale of
real-estate-owned  properties  in the  Company's  portfolio  during a Repurchase
Period,  and then subtracting from such total amounts due during the same period
for (i) existing loan  commitments,  (ii) debt payments to third parties,  (iii)
dividend or other  distributions to shareholders,  and (iv) operating  expenses.
The periods  between  October 1 and March 31 of the following  year, and April 1
and September 30 are each a "Repurchase  Period" for the purposes of calculating
"free cash flow".  Redemption  of shares is always  subject to  availability  of
funds for redemption purposes,  and is generally made only twice per year, at or
around  the  last  days  of May and  November.  We will  not  sell or  otherwise
liquidate any portion of our mortgage  loan  portfolio or other assets to fund a
redemption  request. We also reserve the right to limit the number and frequency
of stock redemptions by shareholders.

Conversion.  Our Articles  Supplementary,  as filed, provide that shares of
Preferred Stock will convert to Common  Stock upon:  (1) the  closing of a firm
commitment underwritten initial public offering of the common stock resulting in
aggregate  gross  proceeds  to us of at least $50 million at a share price of at
least $10.00,  or for such lesser amount of proceeds or lower price, or both, as
is approved by at least  two-thirds of the voting power of the Preferred  Stock;
or (2) five years after the last closing of the initial offering. This provision
was  included  at the  time  that  the  Articles  Supplementary  were  filed  in
connection with certain agreements that existed at the time of filing, but which
were subsequently rescinded. Since these agreements are no longer of any effect,
and  because  the Board of  Directors  has no  present  plans to seek any public
market for the Company's  stock,  it is expected  that the Preferred  Stock will
convert to Common Stock on  September  1, 2004.  Since only 100 shares of Common
Stock  are  outstanding  and we have no plans to sell or  issue  any  additional
shares of Common Stock prior to that date,  the  conversion  should not have any
material impact on the rights of the preferred shareholders.

Liquidation.  Upon  the  liquidation,  dissolution  or  winding  up of  our
company, either voluntary or involuntary, the holders of our Class A Convertible
Preferred  Stock will be  entitled to receive  out of our assets  available  for
distribution  to our  shareholders,  an amount  per share of up to the  original
purchase  price per share,  plus any declared but unpaid  dividends,  before any
distribution to the holders of our common shares.  Thereafter, to the extent any

                                       8
<PAGE>

assets remain in our company,  such assets shall be distributed in equal amounts
per  share to the  holders  of  common  shares  and  preferred  shares on an "as
converted"  basis, that is, as if the preferred shares had converted into shares
of  common  shares.  Neither a  consolidation  or  merger  with or into  another
corporation,  nor a merger of any other corporation with us, nor the sale of all
or substantially all of our property or business,  other than in connection with
a winding up of our business,  will be considered a liquidation,  dissolution or
winding up for these purposes.

Merger.  In the event of a change in control,  a merger,  consolidation  or
other combination by our company, or transfer of all or substantially all of our
assets,  each  holder of the  preferred  shares will have the option to elect to
receive either: (1) what the common shares would have received if conversion had
occurred  before the record date, or (2) 100% of the  liquidation  preference of
the preferred shares as provided under "Liquidation"  above.

Voting.  Except as provided by law or our charter, the holders of our Class
A Convertible  Preferred shares and Common shares shall vote together as a class
for the  election of  directors  and on all other  matters to be voted on by our
shareholders.  Each holder of preferred  stock shall be entitled to one vote for
each share of common  stock  that  would be  issuable  to such  holder  upon the
conversion  of all the shares of  preferred  stock so held,  and each  holder of
common stock shall be entitled to one vote per share.  Despite these provisions,
(a) the  holders  of common  stock and the  holders of  preferred  stock will be
entitled to vote as separate classes (1) for any proposed merger,  consolidation
or sale of the assets of our company as an entirety,  but only if at the time of
such  proposal,  one person or group of persons is the  "beneficial  owner",  as
determined  under the rules of Regulation  13D-6 under the Exchange Act, of more
than 66 2/3% of the preferred stock, and (2) for any stock splits, reverse stock
splits,  or other  amendments to our charter which in any way adversely  affects
the preferences, qualifications, special or relative rights or privileges of the
common  stock,  and (b) the holders of preferred  stock will be entitled to vote
separately as a class on the matters described under  "Restrictions"  below. Our
charter does not provide for cumulative voting and, accordingly,  the holders of
a majority of the  outstanding  shares of capital  stock have the power to elect
all directors to be elected each year.

Our founding  shareholders held our first annual meeting of shareholders in
1999.  Our first  general  meeting  of  shareholders  was held on May 25,  2000.
Subsequent  general meetings of shareholders  were held on May 31, 2001, May 30,
2002 and June 26, 2003.  Special  meetings of shareholders  may be called at any
time by the President,  by the Chairman of the Board of Directors, by a majority
of the Board of Directors, or by the written request of shareholders entitled to
cast a majority of the votes which all  shareholders are entitled to cast at the
particular  meeting,  addressed to the Secretary  and then the  Secretary  shall
proceed to call a special  meeting  only as may be required by law.  Our charter
and bylaws may be amended in accordance with Maryland law.

Restrictions.  Unless a greater  percentage  vote is required by law or our
charter,  and in addition to any other vote  required by law,  without the prior
consent of holders of 66 2/3% of the  outstanding  preferred  stock  voting as a
separate class:  (1) we will not create or issue any additional  class or series
of capital stock unless such class or series ranks junior to the preferred stock
in respect of dividends and  liquidation  preference or increase the  authorized
amount of preferred  stock; and (2) we will not amend the terms of the preferred
stock  in  any  way  or  our  charter  in a  way  which  adversely  affects  the
preferences,  qualifications,  special or relative  rights or  privileges of the
preferred stock.

ITEM 6. SELECTED FINANCIAL INFORMATION.

The following financial and operating  data should be read together with
"Management's  Discussion  and Analysis  of  Financial  Condition  and Results
of  Operations"  and our audited financial statements included elsewhere in this
Form 10-K.

Capitalization

Our capitalization, as of December 31, 2003, was as follows:

                                       9
<PAGE>



Borrowings:
   Unsecured notes payable                                    $  4,692,517
   Secured notes payable                                         3,185,000
                                                         ------------------

   Total borrowings                                              7,877,517


Capital Stock
   Class A Convertible Preferred Stock -
                       22,229,739 shares outstanding           225,142,861
Common Stock - 100 shares outstanding  (1)                               1
   Accumulated dividends and distributions                     (90,621,455)
   Retained deficit                                            (51,368,714)
                                                         ------------------

         Total borrowings and capital stock                   $ 91,030,210
                                                         ==================

(1)    Our founders purchased a total of 100 shares of common stock at $.01 per
       share.



The selected financial data set forth below has been derived from our audited
financial statements included elsewhere in this and previously filed Forms 10-K
(in 000's except per share amounts).





















                                       10
<PAGE>



<TABLE>
<CAPTION>

                                        December 31,      December 31,       December 31,      December 31,      December 31,
                                                2003              2002               2001              2000              1999
                                    ----------------- ----------------- ------------------ ----------------- -----------------
   <S>                                         <C>              <C>                 <C>               <C>              <C>
Total assets........................     $    91,387       $   155,067        $   184,597       $   207,077       $   176,756
Total debt..........................           7,878            36,401             32,313            45,432             9,039
Convertible preferred stock.........         225,143           226,080            216,158           199,286           189.851
Accumulated deficit.................     $   (51,369)      $   (29,520)       $    (8,215)      $    (8,882)      $   (12,455)

</TABLE>


<TABLE>
<CAPTION>
                                                                                                                  Period from
                                                                                                                    Inception
                                          Year Ended        Year Ended         Year Ended        Year Ended  (March 18, 1999)
                                        December 31,      December 31,       December 31,      December 31,      December 31,
                                                2003              2002               2001              2000              1999
                                    ----------------- ----------------- ------------------ ----------------- -----------------
   <S>                                         <C>              <C>                 <C>               <C>              <C>
 Operating Results under Generally
   Accepted Accounting Principles
   in the United States:
   Revenues.........................     $    11,390       $    10,018        $    12,588       $    15,140       $     2,583
   Net Income (loss)................         (21,849)          (21,305)               667             3,572           (12,455)

(Loss) Income allocable to a Preferred
  Share:
   Basic and Diluted................     $     (0.98)      $     (0.96)       $      0.03       $      0.19       $     (0.72)
   Preferred stock dividends and
     distribuions per share.........     $      0.47       $      0.96               1.12              1.14       $     (0.75)
   Weighted average Preferred
     Shares.........................          22,442            22,169             21,451            18,955            17,390

Loss allocable to each common share:
   Basic and Diluted................     $  (323,383)      $  (426,107)       $  (234,510)      $  (180,375)      $  (124,547)

Cash flows from (used by):
   Operating activities.............     $     3,904       $      (322)       $    (2,156)      $     6,076       $    (1,434)
   Investing activities.............          43,731            17,991             26,400           (28,139)          (26,887)
   Financing activities.............         (41,328)          (15,982)           (21,538)           21,387            28,997
</TABLE>


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

General

Our material financial transactions have been purchasing and holding a
portfolio of construction mortgage loans, and the construction and sale of real
estate acquired through foreclosure or deed in lieu of foreclosure. Statements
contained in this Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and elsewhere in this Form 10-K, which are
not historical facts, may be forward-looking statements. Such statements are
subject to risks and uncertainties that could cause actual results to differ
materially from those projected. Investors are cautioned not to attribute undue
certainty to these forward-looking statements, which speak only as of the date
of this Form 10-K. We undertake no obligation to publicly release any revisions
to these forward-looking statements to reflect events or circumstances after the
date of this Form 10-K or to reflect the occurrence of unanticipated events,
other than as required by law.


Overview

Beginning with its inception in March 1999, Primecore has been engaged in the
business of providing loans for the development of residential real estate.

                                       11
<PAGE>

During 1999 and 2000 Primecore raised significant amounts of capital from
investors. We invested this capital in San Francisco Bay Area residential
real estate at a time when prices were increasing at a frenetic pace. By the end
2000, Primecore had $436 million in commitments on 117 loans with over $216
million invested in residential real estate under development.

In 2000, the market for high-end real estate in the San Francisco Bay Area began
to deteriorate. We significantly scaled back our new lending and concentrated on
funding the existing loans in our portfolio. During 2001 we funded 6 new loans
and closed out 38. At the same time, we began to experience borrower defaults
and sought to enforce our security rights. During 2001, we took title to 11
projects through foreclosure, which were classified as Real Estate Owned (REO).
Of the 38 investments we closed in 2001, 2 were REO properties.

During 2002 and 2003 we continued the task of completing and closing out the
development properties in our portfolio. We originated two new loans during that
period and closed out 60, 30 of which were REO properties. In 2002 and 2003 we
took title to an additional 37 properties by way of foreclosure or deed in lieu
of foreclosure as the high-end real estate market continued to soften with the
stagnant Bay Area economy. We also began to recognize significant impairments in
our portfolio. For the two years ended December 31, 2003, during a period where
we recognized $21,390,625 in revenues from the completion of our real estate
investments, we charged $48,737,682 to expense for impairments in our investment
portfolio.

The large amount of impairments in our portfolio has lead to significant
operating losses. As of December 31, 2003 we had a net operating loss of
approximately $45 million and we currently estimate that we will realize
approximately $50 million in additional tax losses as we continue to complete
and sell our non performing portfolio in 2004 and 2005. We will have the ability
to use these losses to offset future taxable income, if any. At current maximum
corporate tax rates, this net operating loss carryforward could save the Company
between $36 million and $40 million in taxes on future taxable income, if any.
We have elected to withdraw our REIT tax filing status in order to use these net
operating losses going forward. In prior years we were able to avoid corporate
level income tax by distributing our income as dividends. However, this
advantage came at a price. We had to meet strict rules in order to maintain our
REIT status. These rules affected our ability to enter into other types of
alternative financing structures, such as loans with profit participations.
Without these constraints going forward, we should have significantly more
opportunities to invest and grow our capital.

The concentration of our efforts on completing and closing the investments in
our portfolio has had some benefits. One of those benefits is the positive cash
flow we have generated. We have used a large amount of the cash received from
the repayment of our investments to fund our loan commitments, complete our
projects, pay down our debt and build a positive cash balance. This enhanced
liquidity makes us well positioned to take advantage of opportunities we see in
the improving economic environment.

During this period of time we have also taken steps to restructure our
operations. Our CEO, Susan Fox, resigned on March 19, 2004 and we have
terminated our management agreement with her company, Primecore Funding Group.

                                       12
<PAGE>

We have internalized operations under our new CEO, Michael Rider who will lead
our internal management team. We believe these steps will lead to greater
transparency for our shareholders, accountability of management to our Board of
Directors and cost savings.

Additionally, while we have been concentrating on completing the investments in
our portfolio, we have had an opportunity to assess the strengths and weaknesses
in our past business plan and model and implement procedures designed to refine
and improve our business plan and model. We have determined that certain changes
are critical to our future profitability. Our new management has formalized
these changes in a plan for future business operation and is working with the
Board to adopt its policies. The basic principles of the plan are as follows:

o We will focus on investments in housing priced closer to the median sale
prices for the counties in which we lend.
o We will add new investment products, such as mezzanine and equity financing,
to our product mix.
o We intend to diversify the portfolio into other California metropolitan areas.
o We plan to change the Company's name in order to better identify us as a
  residential development capital source.
o We have formed a team focused on developing new relationships designed to
  expand our pipeline of new business opportunities.
o We will continue to provide liquidity to shareholders through stock
  redemption.

We will face challenges as we execute this plan. In particular, we must be
successful in developing new business relationships to find new investment
opportunities. The real estate capital market is currently very competitive. We
will be competing with larger companies that have the advantage of significant
brand recognition. It will be our challenge to identify customers and compete
for their business on the basis of price and service.

However, we do have advantages that will help us compete. Our company size and
structure provides us with a great deal of flexibility when negotiating with
developers. We believe we can compete against our larger competitors by
providing more flexible deal structures and faster response time. We also have
the advantage of our net operating loss carryforward. This asset essentially
reduces our capital cost by as much as 40% by allowing us to generate
approximately $95 million of tax-free income. Additionally, as a smaller
company, we can find attractive investment opportunities that are below the
scale required for our larger competitors.

Results of Operations

Revenue
-------

During the year ended December 31, 2003 we reported income of $11,372,436 from
our investments compared with $10,018,189 and $12,519,618 for the years ended
December 31, 2002 and 2001, respectively. Our income increased compared to 2002
largely as a result of the repayment of investments which had remained active
for a long period of time. These investments continued to accrue interest during
the period they remained outstanding and we were able to collect a significant
portion of that income for a number of our loans. The income decreased compared
to 2001 due to the lower amount of repayments we received in 2003 and the
impairment of a number of our investments. Since our income is reported when we
collect it, the income is a function of the amount of collections we receive
from our investments, as well as the value of the collateral or property which
supports it.

Realizable Value of Investments
-------------------------------

For financial statement purposes, we do not report as income the amount of
interest and points we charge to borrowers until we collect it. To the extent we
believe we will collect it, the amount of interest and points we charge
borrowers is added to the balance due on our loans for purposes of this
calculation. As the values of the collateral supporting payment of our loans


                                       13
<PAGE>

have declined, the ability to collect our accrued interest and points has, in
many cases, become doubtful. Management includes the amount of collectible
interest and points we are entitled to receive when it sets prices for redeeming
our stock. The information presented below summarizes that analysis and
reconciles the differences between US GAAP and the estimated realizable value of
our investments.


                                          December 31, 2003  December 31, 2002
                                         --------------------------------------
Investments in real estate under
   construction                               $  34,629,956      $ 101,141,515
Investments in real estate held for sale         44,551,722         44,510,168
                                         --------------------------------------
Total investments in real estate per US
   GAAP                                          79,181,678        145,651,683
Add:   GAAP impairments                          26,436,565         18,753,706
   Accrued interest and points                   38,360,634         64,337,376
Less:  Capitalized interest                      (4,633,962)        (6,566,481)
                                         --------------------------------------

Balance owed on real estate investments         139,344,915        222,176,284
Amount estimated uncollectible                  (54,162,649)       (43,875,448)
                                         --------------------------------------
Realizable value of investments in real
   estate                                     $  85,182,266      $ 178,300,836
                                         ======================================









                                       14
<PAGE>

The realizable value of our investments represents our current estimate of the
amount of proceeds we expect to receive once our investment is completed and
ready for sale. The estimate relies on a number of assumptions including the
expected value of the investment once completed, less applicable selling costs,
the remaining costs required to complete the project and the length of time
required to complete the project. Many factors outside our control can cause
changes in these estimates and produce different results. Additionally, many of
our properties are custom style homes which appeal to a limited high-end market
with few comparable transactions which makes it difficult to project with
certainty the market value of these properties.

Stock Redemption Price
----------------------

We provide liquidity to our Preferred Stock holders through the repurchase of
outstanding shares. Because our Preferred Stock does not trade in any secondary
market, another method must be used to determine the fair market value in order
to set the repurchase price. The Board has determined that the value of the
stock should be determined with reference to the Net Realizable Value of our
assets. Therefore, in accordance with the resolutions of the Board of Directors,
the following calculation determines the fair market value of our stock at
December 31, 2003 for purposes of our redemption policy:

                                     December 31, 2003  December 31, 2002
                                    ------------------- ------------------

Cash                                     $  10,701,188       $  4,394,107
Other assets                                 1,504,470                 --
Realizable value of investments
     in real estate                         85,182,266        178,300,836
Loans secured by real estate                        --          4,695,000
                                    ------------------- ------------------

Total realizable assets                     97,387,924        187,389,943
Total liabilities                            8,234,645         38,639,017
                                    ------------------- ------------------

Net realizable assets                       89,153,279        148,750,926
Preferred shares outstanding                22,229,739         22,496,804
                                    ------------------- ------------------

Net realizable assets per share             $     4.01         $     6.61
                                    =================== ==================




                                       15
<PAGE>

Expenses
--------

In the past, all of our day-to-day operations were performed by Primecore
Funding Group, Inc, operating under a written management agreement. Before
January 1, 2004, we did not have any employees, and substantially all of our
operating costs were paid through our management fee. During the year ended
December 31, 2003, our management fee expense was $3,808,260 compared with
$9,630,701 and $11,345,585 in 2002 and 2001 respectively. The decrease in our
management fee expense resulted from the restructuring of the agreement with our
Manager, which became effective January 1, 2003. As part of the restructuring we
agreed to release the Manager and its owner from certain guarantees of
repayments of our investments in exchange for control of the assets securing our
investments, a reduction in any termination fee payable to our Manager and a
change in the method of calculation of the fee which was designed to decrease
the base fee amount and provide for incentive payments should certain targets be
reached. The decrease in the management fee in 2002 compared to 2001 was due the
decrease in the average amount of loan commitments between the two periods which
served as the basis for determination of the fee prior to the restructuring of
the contract.

On December 19, 2003 our Board of Directors voted not to renew our management
agreement with Primecore Funding Group effective December 31, 2003 and will
transition to internalized management during the first three months of 2004. The
Board believes that this action will result in greater transparency to the
shareholders, increased accountability of the employees to the Board of
Directors and the ability to better manage company costs. On December 23, 2003
we entered into an agreement, effective January 1, 2004 with Primecore Funding
Group to provide management services during the transition period. This
agreement served to provide for a smooth transition from outside management to
our internal management and is believed to be fair compensation for the services
provided. As of the date of this filing, the transition has been accomplished
and the Company is now internally managed.

Since December 31, 1999, all interest costs have been capitalized as a cost of
our investments. Interest cost associated with our borrowings was $1,590,531
during the year ended December 31, 2003 compared with $2,578,762 and $4,174,852
during the years ended 2002 and 2001. The decrease is due to a combination of a
lower average cost of debt, 8.34% in 2003 compared with 9.08% and 11.01% in 2002
and 2001, respectively; and a lower amount of debt on our balance sheet, an
average of $19.05 million in 2003 compared with averages of $28.65 million and
$37.22 million in 2001 and 2000. We received a significant amount of investment
repayments during the six months ended December 31, 2003 and used a large
portion of it to pay down our debt. We intend to continue to retire outstanding
debt in order to save costs while our cash balance increases from the proceeds
we receive from our investments.

As of December 31, 2003 we had no employees, and our general and administrative
and other expenses consisted primarily of costs to acquire and carry our REO
properties, legal and professional fees, directors' fees and insurance costs.
General, administrative and other expenses were $1,930,722 for the year ended
December 31, 2003, compared with $454,900 and $502,080 for the years ended
December 31, 2002 and 2001. The reason for the increase in these expenses during
the year ended 2003 compared to 2002 and 2001 was due primarily to two factors:
legal and foreclosure related expenses, including foreclosure trustee's fees, of
$511,731 we incurred in 2003 order to protect our rights to properties in which
we invested compared with $18,146 and $0 in 2002 and 2001; and $948,933 during
the year ended December 31, 2003 in expenses incidental to ownership of those
REO properties from the time development of the properties was complete to the
time we sold them compared to $105,506 and $0 in 2002 and 2001. We expect to
continue to have higher than normal legal costs and costs of ownership during
2004 as we continue to take title to our non-performing assets. Additionally in
2004 we will incur expenses for employment, office rent and normal business
operations which have been borne by our Manager since our inception. These
expenses will be incurred in lieu of the fees paid in the past to the manager.
We expect these expenses to be lower than the fees we have paid ourManager in
prior periods.


                                       16
<PAGE>

Liquidity and Capital Resources

Liquidity means the need for, access to and uses of cash. Our principal source
of liquidity is the repayment of our real estate investments. Our principal
demands for liquidity are funds that are required to satisfy obligations under
existing loan commitments, operating expenses, interest expense associated with
our indebtedness and debt repayments.

Sources of cash
---------------

As of December 31, 2003 our primary source of liquidity was the repayment of our
investments in real estate. We do not currently have an open private placement
for the sale of our Preferred Stock and do not expect to open a new one for the
foreseeable future. Additionally, we are currently not soliciting or accepting
application to issue new unsecured notes payable. However, we do have the
ability to borrow money from various financial institutions using our REO
properties as collateral if we determine that we need additional liquidity. We
do not currently expect that we will have such a need during the next 12 months.

In order to receive repayment on our investments, the property typically must be
completed and sold to third parties. Accordingly, our repayments are a function
of our developers' ability, or our ability in the case of REO properties, to
complete and sell the properties developed. The following table summarizes our
liquidity expectations for the 27 investments held at December 31, 2003. The
expected proceeds in the table are higher than our net realizable value
estimates because they include our estimated costs to complete.


                                                    Expected Proceeds
                                                    ------------------
Investments under contract pending
  close of escrow                                     $    13,128,989
Investments offered for sale                               22,719,800
Investments under construction scheduled
  to be complete and on the
   market:
   Q1 2004                                                 24,675,000
   Q2 2004                                                 18,941,000
   Q1 2005                                                 19,938,550
   Q2 2005                                                  2,679,000
   Q4 2005                                                  7,050,000
                                                    ------------------
       Total                                          $   109,132,339
                                                    ==================


It is possible that our repayments may not be sufficient to timely meet our
commitments and we may be forced to reduce prices on the properties that we
control in order to expedite their repayment. In such cases, the amount of
proceeds received could be substantially less than what we would have expected
if we allowed a proper marketing period for the property. This would have a
negative impact on the estimated net realizable value of our assets.


                                       17
<PAGE>


Uses of Cash

The following table sets forth the projected timing and amount of our
obligations over the next two years, without taking into account new loans that
may be made in 2004 and 2005:

 Obligation                            Total              2004             2005
 --------------------------- ---------------- ----------------- ----------------

 Investment fundings            $ 23,950,074      $ 16,453,358      $ 7,496,716
 Short term notes payable          4,692,517         4,692,517               --
 Secured note payable              3,185,000         3,185,000               --
                             ---------------- ----------------- ----------------

 Total                           $31,827,591      $ 24,330,875      $ 7,496,716
                             ================ ================= ================

Investment fundings are our largest use of our cash. At December 31, 2003 we
estimated costs to complete investments in our portfolio were $24 million. These
amounts will be funded as construction progresses on our investments. The exact
timing of the investment fundings is dependent on several factors including
weather, governmental regulation and developer related issues, so the timing of
investment fundings in the above table is an estimate based on information
available to us at this time. Additionally, we expect the amount of actual
investment fundings to be higher than our obligation existing at December 31,
2003 as we continue to make and fund new loan commitments in 2004 and beyond.

We have approximately $4.7 million in unsecured notes payable at December 31,
2003. In order to save interest costs, we intend to retire these notes. Many of
our notes are callable at our option and we intend to exercise this option in
most cases.

Our secured note payable is secured by an REO property and is due in 2030,
however it will be repaid upon sale of the property it secures. We currently
expect that property to complete construction and sell during 2004.

Effective February 12, 2003, our Board of Directors implemented a new redemption
policy for shareholders who wish to sell their shares to us. The policy may be
modified or terminated at the Board's discretion at any time. Currently, we will
repurchase shares, at fair market value, as determined by our Board of
Directors, utilizing 25% of "free cash flow" for such purposes. "Free cash flow"
means the total of all proceeds from repayments of loans and all net proceeds
from the sale of real-estate-owned properties in the Company's portfolio during
a Repurchase Period, and then subtracting from such total amounts due during the
same period for (i) existing loan commitments, (ii) debt payments to third
parties, (iii) dividend or other distributions to shareholders, and (iv)
operating expenses. The periods between October 1 and March 31 of the following
year, and April 1 and September 30 are each a "Repurchase Period" for the
purposes of calculating "free cash flow". Redemption of shares is always subject
to availability of funds and all redemption requests are acted upon in
accordance with the best interests of the Company. We will not sell or otherwise
liquidate any portion of our mortgage loan portfolio or other assets to fund a
redemption request.

Critical Accounting Policies and Estimates

Management's Discussion and Analysis of Financial Condition and Results of
Operations covers our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the 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. On an on-going basis, management evaluates its
estimates and judgments, including those related to the valuation of our assets
and liabilities. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions. Management believes the following
critical accounting policies, among others, affect the more significant
judgments and estimates used in the preparation of its consolidated financial
statements.



                                       18
<PAGE>

Valuation and Realizability of Investments. All of our ADC loans are classified
for financial reporting purposes as investments in real estate under development
(see Note 3 to the financial statements). We have foreclosed on some ADC loans
that are classified as investments in real estate held for sale (Note 4). Such
investments include capitalized interest and are stated at the lower of cost or
fair value. Management conducts a review for impairment on an
investment-by-investment basis whenever events or changes in circumstances
indicate that the carrying amount of an investment may not be recoverable.
Impairment is recognized when estimated expected future cash flows (undiscounted
and without interest charges), typically from the sale of a completed property,
are less than the carrying amount of the investment, plus estimated costs to
complete. The estimation of expected future net cash flows is inherently
uncertain and relies to a considerable extent on assumptions regarding current
and future economics and market conditions. If, in future periods, there are
changes in the estimates or assumptions incorporated into the impairment review
analysis, the changes could result in an adjustment to the carrying amount of
the investments. To the extent that there is an impairment , the excess of the
carrying amount of the investment over its estimated fair value, less estimated
selling costs, will be charged to income. In accordance with this policy, we
recorded a provision for impairment of investments in real estate under
development totaling $27,499,639 during the year ended December 31, 2003
compared with $21,238,043 and $73,000 during the years ended December 31, 2002
and 2001. We believe that all of our investments are carried at fair value,
however conditions may change and cause our ADC loans and REO properties to
decline in value in a future period.

Loan Accounting. We have applied the guidance of AICPA Practice Bulletin 1,
Purpose and Scope of AcSEC Practice Bulletins and Procedures for Their Issuance,
Exhibit I in accounting for our investment loans as real estate acquisition,
development, or construction (ADC) arrangements. In accordance with the ADC
accounting rules, we do not accrue income for interest and points on our ADC
loans until the sale or refinancing of a property. Revenue from interest and
points is recognized as cash is received from the sale or refinancing of such
properties. ADC loans are classified as investments in real estate under
development and investments in real estate held for sale (see Notes 3 and 4 to
the financial statements) and include amounts funded under the loan agreements
and capitalized interest expense. If our ADC loans qualified as loans under
GAAP, interest and points would be recognized as income in periods prior to the
sale of the underlying property.


ITEM 7A.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

An investment in our stock involves a high degree of risk. Among other things,
some of the principal risks are: the real estate lending business may be
adversely affected by periods of economic slowdown, which may be accompanied by
declining real estate values on properties securing repayment of ADC loans;
construction mortgage loans involve greater risks of repayment than loans
secured by property that has already been improved since completion market
valuation of a given project can be highly speculative and subject to
unanticipated conditions; there is no public market for our securities, and
liquidity is not assured.

In addition to the foregoing, and other information contained or incorporated
into this Form 10-K, the following is a discussion of risk factors that we
believe are material at this time



                                       19
<PAGE>

General Risks Related to Construction Mortgage Lending

Real estate security. Our securities are subject to risks inherent in real
estate lending. Many of the risks of holding mortgage loans are similar to the
risks of investing directly in the real estate securing the mortgage loans. This
may be especially true in the case of a relatively small or less diverse pool of
mortgage loans. If there is a default on the mortgage loan, the ultimate extent
of our loss, if any, may only be determined after a foreclosure of the mortgage
encumbering the property and, if we take title to the property, upon liquidation
of the property. Factors such as the title to the property or its physical
condition, including environmental considerations and state of construction, may
make a third party unwilling to purchase the property at a foreclosure sale or
for a price sufficient to satisfy the obligations with respect to the related
mortgage loan. Foreclosure laws may protract the foreclosure process. In
addition, the condition of a property may deteriorate during the pendency of
foreclosure proceedings. Some borrowers may become subject to bankruptcy
proceedings, in which case the amount and timing of amounts due may be
materially adversely affected. Even if the real property provides adequate
security for the mortgage loan, substantial delays could be encountered in
connection with the liquidation of a defaulted mortgage loan and a corresponding
delay in the receipt and reinvestment of principal and interest payments could
occur.

Real estate market conditions. The real estate lending business may be adversely
affected by periods of economic slowdown or recession, which may be accompanied
by declining real estate values. Any material decline in real estate values
reduces the ability of borrowers to use real estate equity to support borrowings
and increases the loan-to-value ratios of mortgage loans previously made,
thereby weakening collateral coverage and increasing the possibility of a loss
in the event of default. In addition, delinquencies, foreclosures and losses
generally increase during economic slowdowns and recessions.

Loans on properties not yet constructed. A mortgage loan made to finance a
property that is not yet constructed will generally involve greater risks than a
mortgage loan on property that has been constructed. In the case of a property
already constructed, market value at the time the loan is made is more readily
ascertainable from current market valuations. In the case of a property not
already constructed, there can be no assurance that the improvements to be
constructed can be accomplished with available funds or in a timely manner. Sale
or refinancing of the completed project generally provides the funds for
repayment of a construction mortgage loan. While analyses are made to predict
the completed market value of the development project, such analyses are subject
to unanticipated changes over which we may have no control. Since market value
cannot be determined until a property is actually sold in the marketplace, the
market valuation of a proposed construction project can be especially
speculative.

Economic conditions. The performance of a mortgage loan portfolio will depend
on, among other things, the level of net interest income generated by the
mortgage loans, the market value of the mortgage loans and the supply of and
demand for construction mortgage loans. Prepayment rates, interest rates,
borrowing costs and credit losses depend upon the nature and terms of the
mortgage loans, the geographic location of the properties securing the mortgage
loans, conditions in financial markets, the fiscal and monetary policies of the
United States government and the Board of Governors of the Federal Reserve
System, international economic and financial conditions, competition and other
factors, none of which can be predicted.

Environmental liabilities. In the event that hazardous substances are found to
have contaminated properties secured by mortgage loans, the value of the real
property may be diminished. If forced to foreclose on a defaulted mortgage loan
on a contaminated property, we might potentially become subject to environmental
liabilities even if we were not responsible for the contamination. While we
intend to exercise due diligence to discover potential environmental liabilities
before the acquisition of any property through foreclosure, hazardous substances
or wastes, contaminants or pollutants may be discovered on properties during our
ownership or after a sale of the property to a third party. If hazardous
substances are discovered on a property, we may be required to remove those
substances or sources and clean up the property. We may also be liable to
tenants and other users of neighboring properties. In addition, we may find it
difficult or impossible to sell the property before or following any clean up.


                                       20
<PAGE>


Legislation and regulation. The mortgage loan business is subject to extensive
regulation, supervision and licensing by federal, state and local governmental
authorities and to various laws and judicial and administrative decisions
imposing requirements and restrictions. Laws and regulations may be subject to
legislative, administrative and judicial interpretation, especially laws and
regulations that have been infrequently interpreted or only recently enacted.
Infrequent interpretations of laws and regulations or an insignificant number of
interpretations of recently enacted regulations can result in ambiguity with
respect to permitted conduct under these laws and regulations. Ambiguity under
regulations to which our manager or we are subject may lead to regulatory
investigations or enforcement actions and private causes of action. Failure to
comply with regulatory requirements can lead to loss of approved status,
lawsuits and administrative enforcement actions. There can be no assurance that
we or our manager will maintain compliance with these requirements in the future
without additional expenses, or that more restrictive local, state or federal
laws, rules and regulations will not be adopted or that existing laws and
regulations will not be interpreted in a more restrictive manner, which would
make compliance more difficult for us and our manager.

Specific Risks of Investment in Our Securities

Restrictions on transferability and lack of liquidity of shares. Shares of our
Class A Convertible Preferred stock have been privately placed solely with
accredited investors who have acquired them for investment purposes only and not
with a view toward transfer, resale, exchange or distribution. There currently
is no public market for our shares of stock. Accordingly, the transferability of
such shares of stock is limited. Additionally, the shares may not be readily
accepted as collateral for a loan. Holders of our Class A Convertible Preferred
stock do not have a vested right to redeem their shares, and therefore may not
be able to liquidate their investment in the event of an emergency or otherwise.

Our Board of Directors currently has a stock redemption policy for shareholders
who wish to sell their shares to us. The policy may be modified or terminated at
the Board's discretion at any time, subject to the exercise of their prudent
business judgment. In addition, redemption requests are only honored where there
is cash available for redemption purposes, and shareholders may therefore not
have their redemption requests honored in as timely a manner as they may wish.
Also, a change in the redemption policy, which would be effected solely for the
benefit of the Company, could affect a shareholder's ability to liquidate their
investments.

Loans losses. As noted above, a mortgage loan made to finance a property that is
not yet constructed generally involves greater risks than a mortgage loan on
property that has been constructed since there can be no assurance that the
improvements to be constructed can be accomplished with available funds or in a
timely manner. Furthermore, while analyses are made to predict the completed
market value of the development project, such analyses are subject to
unanticipated changes over which we may have no control, including recessions
and economic downturns. During 2002 and 2003, we sustained significant losses in
our portfolio, as discussed above, and also were required to acquire a number of
properties through foreclosure, in many cases because their values were
insufficient to repay all of our investment, including accrued interest and
fees.

Balloon loans. The loans in our portfolio will typically require the borrower to
make a "balloon payment" on the principal amount upon maturity of the loan. To
the extent that a borrower has an obligation to pay a mortgage loan in a large
lump sum payment, their ability to satisfy this obligation may be dependent upon
their ability to obtain suitable refinancing or otherwise raise a substantial
cash amount. An increase in market interest rates over the mortgage rates
available at the time the loan was originated may have an adverse effect on the
borrower's ability to obtain refinancing or to pay required monthly payments. As
a result, these loans may involve a higher risk of default than fully amortizing
loans.

Lack of geographic diversification. Properties securing repayment of the
mortgage loans are currently located in the San Francisco Bay Region of Northern
California. Since the properties secured by the mortgage loans are located in
the same geographic region, these mortgage loans may be subject to a greater
risk of delinquency, default and potential loss if economic or political
conditions or real property values in the region deteriorated substantially.
Also, since borrowers will not be required to purchase earthquake insurance, and
properties are in the San Francisco Bay Area, known for its earthquake activity,
mortgage loans are subject to greater risk of loss than properties located in
more stable geologic areas.


                                       21
<PAGE>

Funding of loan commitments. We expect that proceeds generated from completed
real estate developments will be sufficient to fund all loan commitments. If,
however, for some reason we were unable to obtain loan repayments we might then
be unable to fund all of our existing commitments. Borrowers might then be
unable to complete their projects if they could not obtain financing from other
sources, and we conceivably could incur damages. Also, if we became unable to
meet our contractual obligations, our reputation would likely suffer, and we
might be unable to attract new borrowers, resulting in the loss of future
business. This might have a materially adverse effect upon our financial
condition, cash flows and results of operations.

Litigation. We are subject to risks of litigation filed against us by
shareholders and others. These legal proceedings and claims, whether with or
without merit, are time-consuming and expensive to defend and divert
management's attention and resources.

Discretion of Board of Directors. Management has established our operating
policies and strategies. These policies and strategies may be modified or waived
by the Board of Directors, without shareholder approval. The ultimate effect of
any such changes may adversely affect our operations.

Competition. As with any business, we may face competition, primarily from
commercial banks, savings and loans, other independent mortgage lenders, and
real estate investment funds. Also, if we expand into particular geographic
markets in order to increase geographic diversity and take advantage of
opportunities in such markets, we may face competition from lenders with
established positions in these locations. Competition can take place on various
levels, including convenience in obtaining a mortgage loan, service, marketing,
origination channels and pricing. Although we do not know of any particular
competitor that dominates our market, many of our competitors in the financial
services business are substantially larger and have more capital and other
resources. There can be no assurance that we will be able to compete
successfully in this market environment. Any failure in this regard could have a
material adverse effect on our results of operations and financial condition.

Borrowing. We may employ a financing strategy to increase the size of our
mortgage loan portfolio by borrowing a portion of the market value of our
mortgage loans. The costs of those borrowings vary depending upon the lender,
the nature and liquidity of the underlying collateral, the movement of interest
rates, the availability of financing in the market and other factors. If the
returns on the mortgage loans purchased with borrowed funds fail to cover the
cost of the borrowings, we will experience net interest losses and may
experience net losses. In addition, we may not be able to achieve the degree of
leverage we believe to be optimal, which may cause us to be less profitable than
we might be otherwise. We may finance some of the mortgage loans that we hold
through interim financing facilities such as bank credit lines. We may be
dependent upon a few lenders to provide the primary credit facilities for our
mortgage loans. Any failure to renew or obtain adequate funding under these
financings, or any substantial reduction in the size of or pricing in the market
for our mortgage loans, could have a material adverse effect on our operations.
We have not made any agreements under which a lender would be required to enter
into new borrowing agreements during a specified period of time; however, we may
make such agreements if deemed favorable.

Future offerings. We may increase our capital resources by making additional
offerings of equity and debt securities, including classes of preferred stock,
common stock, commercial paper, medium-term notes, mortgage-backed obligations
and senior or subordinated debt. All debt securities will be and some classes of
preferred stock could potentially be senior to the Class A Convertible Preferred
stock.

Deficiency upon liquidation of our mortgages. The market value of our mortgage
assets may fluctuate significantly. If we need to sell assets to repay our
outstanding notes or other borrowings or commitments, our mortgage assets may
prove to be illiquid. Even if sold at a discount, the proceeds of sale might be
less than the outstanding principal amount of, and interest payable on, our
notes.

Investment by tax-exempt entities. A fiduciary of a pension, profit-sharing,
stock bonus plan or individual retirement account, including a plan for
self-employed individuals and their employees or any other employee benefit plan
subject to the prohibited transaction provisions of the Internal Revenue Code or
the fiduciary responsibility provisions or "prudent man" rule of the Employee
Retirement Income Security Act of 1974, known as "ERISA", should consider:


                                       22
<PAGE>

          (a) whether the ownership of our securities is in accordance with the
     documents and instruments governing the employee benefit plan,

          (b) whether the ownership of our securities is consistent with the
     fiduciary's responsibilities and satisfies the applicable requirements of
     ERISA, in particular, the diversification, prudence and liquidity
     requirements of section 404 of ERISA,

          (c) the prohibitions under ERISA on improper delegation of control
     over, or responsibility for "plan assets" and ERISA's imposition of
     co-fiduciary liability on a fiduciary who participates in, or permits, by
     action or inaction, the occurrence of, or fails to remedy, a known breach
     of duty by another fiduciary with respect to plan assets, and

          (d) the need to value the assets of the employee benefit plan
     annually.

A plan fiduciary should understand the illiquid nature of an investment in our
securities and that no secondary market will exist for them, and should review
both anticipated and unanticipated liquidity needs for the plan and conclude
that an investment in our securities is consistent with the plan's foreseeable
future liquidity needs.

Investment Company Act exemption. We conduct our business so as not to become
regulated as an investment company under the Investment Company Act. The
Investment Company Act exempts entities that are "primarily engaged in the
business of purchasing or otherwise acquiring mortgages and other liens on and
interests in real estate." If we should fail to qualify for an exemption from
registration as an investment company, our ability to use leverage would be
substantially reduced and we may be unable to conduct our business.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Required financial statements and supplementary data are included in this Form
10-K commencing on page F-1.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

Not applicable.



                                       23
<PAGE>

ITEM 9A. CONTROLS AND PROCEDURES.

As of the end of the period covered by this report, we carried out an
evaluation, under the supervision of Michael Rider, the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
Company's disclosure controls and procedures. Based on that evaluation, Mr.
Rider has concluded that those controls and procedures were effective in making
known to them, on a timely basis, the material information needed for the
preparation of this Report on Form 10-K. There were no significant changes in
the Company's internal controls or in other factors that could significantly
affect those internal controls since the date of their evaluation.

Reportable conditions involve matters relating to significant deficiencies in
the design or operation of internal controls that, in an auditor's judgment,
could adversely affect a company's ability to record, process, summarize, and
report financial data consistent with the assertions of management in the
financial statements.

Our auditors identified the following two reportable conditions in connection
with their audit of the 2003 Financial Statements: (i) there was a lack of
evidence indicating that journal entries were reviewed and approved by
appropriate finance department personnel as part of the periodic closing
process; and (ii) there were not sufficient personnel in the accounting and
finance department which, the auditors noted, was due in part to the assumption
of additional duties by our CFO after the resignation of our CEO. Our auditors
determined that these significant deficiencies, in the aggregate, do not
constitute material weaknesses in the system of internal controls.

The Company intends to address these reportable conditions by adding a
controller to its accounting department who will be responsible for overseeing
accounting functions, including reviewing and approving journal entries, and
reporting to our Chief Financial Officer.






                                       24
<PAGE>
                                    PART III


ITEM 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT

Our Board of Directors consists of five director positions,, two of which were
vacant after the resignation of Susan Fox on March 19, 2004. Our directors,
executive officers and senior officers and their positions, as of the date of
this filing, are:

    Name                   Position
    ----                   --------

    Michael Rider          Chief Executive  Officer,  Chief Financial Officer
                           and Director
    Robert Puette          Chairman
    James Barrington       Director
    Ben Hamburg            Secretary
    Eric Hanke             Vice President, Business Development

       The business background and experience of our directors and executive
officers is as follows:

       Michael Rider, age 41, is a co-founder, director, Chief Executive Officer
and Chief Financial Officer of the Company. Mr. Rider's term of office as a
director expires in 2006. Mr. Rider was controller, then Chief Financial Officer
for The Plymouth Group and its successor, TPG Development Corporation, a San
Francisco Bay Area real estate development company from 1991 until 1998. From
1986 to 1990 Mr. Rider was senior accountant with Kenneth Leventhal & Company,
a national public accounting firm specializing in real estate accounting and
advisory services. Mr. Rider is a certified public accountant. Mr. Rider
received a B.A. degree in Economics/Business from the University of California
Los Angeles.

       Robert L. Puette, 62, has been a member of the Board since March 1, 2002.
Prior to such time, Mr. Puette served as an advisory director to the Company.
Between 2001 and 2004, Mr. Puette was a partner at the WK Technology venture
capital firm. Between 1997 and 2000, Mr. Puette was the President, Chief
Executive Officer, and member of the Board of Directors of Centigram
Communications Corporation (NASDAQ), a communications technology firm. Prior to
his position at Centigram, from 1995 to 1997, Mr. Puette served as President,
CEO and Chairman of the Board of Directors at NetFRAME Systems (NASDAQ), a
high-availability computer server company, and from 1990 to 1993, Mr. Puette
served as President of Apple USA, Apple Corporation (NASDAQ). Prior to 1990, Mr.
Puette served as a Group General Manager of Hewlett-Packard Corporation (NYSE).
Mr. Puette is also on the Board of Cupertino Electric Corporation (Private) and
iPolicy Networks Corporation (Private), and is a former director of Cisco
Systems (NASDAQ). Mr. Puette holds a BSEE degree from Northwestern University
and a MSOR degree from Stanford University.

       James Barrington, 62, has been a director since March 2002. From 1965 to
1999, Mr. Barrington was with Arthur Andersen LLP, serving primarily as an audit
and business advisory partner. In his capacity as a partner of Arthur Andersen
LLP, Mr. Barrington did not personally provide any services to the Company. Mr.
Barrington received a B.S. in accounting from San Jose State University and a
M.B.A. from the University of California at Berkeley.

       Ben Hamburg, 50, is Secretary and General Counsel of the Company. Mr.
Hamburg graduated from the University of California, Los Angeles, and earned his
law degree from the University of California, Berkeley, Boalt Hall School of Law
in 1979. Mr. Hamburg served as a law clerk to the Honorable Ira A. Brown, Jr.,
Judge of the San Francisco Superior Court. Prior to joining Primecore Funding
Group, Mr. Hamburg was in private practice, most recently as a partner with the
San Francisco law firm of Freeland Cooper & Hamburg, and has specialized in real
estate and commercial matters.


                                       25
<PAGE>

         Eric Hanke, 35, is the Vice President of Business Development. His
activities include overseeing the origination of new investment opportunities
and capital raising activities, marketing and investor relations. Prior to
joining Primecore, Mr. Hanke was an investment-banking associate with Arthur
Andersen's Real Estate Capital Markets Group based in San Francisco and
Washington D.C. He is a member of the Urban Land Institute and is a licensed
real estate broker. Mr. Hanke earned his B.A. in economics from the University
of California at Irvine and a MBA, with an emphasis in real estate and finance,
from the Marshall School of Business at the University of Southern California.

Compensation of Directors

None of the directors of the Company who also serve as executive officers or
employees receives any separate compensation for service on our Board of
Directors or on any Board committee. Messrs. Puette and Barrington, who are not
employed by us, receive annual compensation totaling $35,000 and $25,000,
respectively for their participation in our standard board meetings. They are
also compensated $1,000 for every special board meeting they attend. Our charter
obligates us to indemnify our directors and officers and to pay or reimburse
expenses for such individuals in advance of the final disposition of a
proceeding to the maximum extent permitted from time to time by Maryland law.
The Maryland General Corporation Law, the "Maryland GCL", permits a corporation
to indemnify its present and former directors and officers, among others,
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service in those or other capacities, unless it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (1) was committed in
bad faith, or (2) was a result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services, or (c) in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or omission was
unlawful.

Terms of Directors and Officers

Our Board of Directors consists of the number of persons as shall be fixed by
the Board of Directors from time to time by resolution to be divided into three
classes, designated Class I, Class II and Class III, with each class to be as
nearly equal in number of directors as possible. Currently there are five
director positions. Susan Fox was the only Class I director before her
resignation on March 19, 2004. The Class I director position would have come up
for election in 2004. This position is currently vacant. Mr. Puette is a Class
II director. There is currently one vacancy in the Class II director. The terms
of Class II directors expire in 2005. Mr. Rider and Mr. Barrington are Class III
directors, and their terms expire in 2006. At each annual meeting, the
successors to the class of directors whose term expires at that time are to be
elected to hold office for a term of three years, and until their successors are
elected and qualified, so that the term of one class of directors expires at
each annual meeting.

For any vacancy on the Board of Directors, including a vacancy created by an
increase in the number of directors, the vacancy may be filled by election of
the Board of Directors or the shareholders, with the director so elected to
serve until the next annual meeting of shareholders, if elected by the Board of
Directors, or for the remainder of the term of the director being replaced, if
elected by the shareholders; any newly-created directorships or decreases in
directorships are to be assigned by the Board of Directors so as to make all
classes as nearly equal in number as possible. Directors may be removed only for
cause and then only by vote of a majority of the combined voting power of
shareholders entitled to vote in the election for directors. Subject to the
voting rights of the holders of the preferred stock, the charter may be amended
by the vote of a majority of the combined voting power of shareholders, provided
that amendments to the article dealing with directors may only be amended if it
is advised by at least two-thirds of the Board of Directors and approved by vote
of at least two-thirds of the combined voting power of shareholders. The effect
of these as well as other provisions of our charter and bylaws may discourage
takeover attempts and make more difficult attempts by shareholders to change
management.

Executive officers are appointed by the Board of Directors, serve at the Board's
pleasure and may be removed from office at any time without cause. There are no
family relationships among any of our directors or executive officers.


                                       26
<PAGE>

Audit Committee

The Company has no separate audit committee. The Board of Directors acts as the
audit committee for all purposes relating to communications with the auditors
and responsibility for oversight of the audit. The Board of Directors has an
independent member with financial expertise as a partner with a national public
accounting firm.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely on a review of copies of the Forms 3, 4 and 5 and amendments
thereto furnished to the Company with respect to 2003, or written
representations that no such reports were required to be filed with the
Securities and Exchange Commission, the Company believes that during 2003 all
directors and officers of the Company and beneficial owners of more than 10% of
any class of equity securities of the Company registered pursuant to Section 12
of the Exchange Act filed their required Forms 3, 4, or 5, as required by
Section 16(a) of the Securities Exchange Act of 1934, as amended, on a timely
basis.

Code of Ethics

The Company has adopted a Code of Ethics applicable to the Chief Executive
Officer, the Chief Financial Officer, and the principal accounting officer. The
Company's Code of Ethics is set forth as Exhibit 14.1 to this report.

ITEM 11.     EXECUTIVE COMPENSATION.

Prior to December 31, 2003, none of the executive officers of the Company
receive compensation from us for their services. All were paid directly by our
manager as part of and not in addition to the management fee. We do not have a
stock option or deferred compensation plan. See Item 13 below for a description
of compensation paid to the Manager during 2003 and certain transactions between
the Company and the Manager.

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table presents information regarding the beneficial ownership of
our capital stock as of December 31, 2003 of: (1) each person known by us to own
beneficially five percent or more of our outstanding capital stock; (2) each of
our directors and executive officers; and (3) all of our directors and executive
officers as a group. Unless otherwise indicated in the footnotes to the table,
the beneficial owners named have, to our knowledge, sole voting and investment
power with respect to the shares beneficially owned, subject to community
property laws where applicable.

                                                    Number     Percent
  Title of Class          Beneficial Owner       of Shares    of Class

Class A Convertible
   Preferred              Michael Rider             5,000            *
                          Ben Hamburg               5,518            *
                          Robert Puette           405,241          1.8
                                             ------------- ------------

                          Total                   415,759          1.87
                                             ============= ============

Common                    Michael Rider                20           20
                                             ------------- ------------

                          Total                        20           20
                                             ============= ============

   * Less than one percent of our outstanding capital stock.



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<PAGE>

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

During the year ended December 31, 2003 the Company engaged in the following
transactions with Ms. Susan Fox, who until March 19, 2004 was our President and
Chief Executive Officer:

Primecore Funding Group, Inc. Transactions

Primecore Funding Group, Inc. ("PFG") served as manager of all of the Company's
business from inception through March 31, 2004. During this period, the Company
had no employees and PFG covered all operating expenses with the exception of
certain legal, accounting and insurance expenses and expenses incurred to hold
property taken in foreclosure from its borrowers. PFG was paid management fees
pursuant to a Management Agreement entered into at inception and amended October
17, 2002 and terminated December 31, 2003. During the year ended December 31,
2003 we incurred management fee expenses to PFG of $3,808,260.

On December 19, 2003 our Board of Directors voted not to renew the management
agreement with Primecore Funding Group, effective December 31, 2003. The Company
decided to internalize management of the Company, and proceeded to do so. The
Board believes that this action will result in greater transparency to the
shareholders, more accountability of the employees and management to the Board
of Directors and the ability to better manage company costs. On December 23,
2003 we entered into an agreement, effective January 1, 2004 with Primecore
Funding Group to provide management services during a three-month transition
period ending March 31, 2004. As of the date of this filing, the transition has
been accomplished, and the Company is now internally managed. Accordingly, all
expenses in the future will be borne by the Company, and there will be no
further payment of any management fees to an outside manager.

Our management contract with PFG provided for the payment of a termination fee
equal to 4% of our outstanding loan commitments at the date of termination. The
agreement also provided that any termination fee due under the contract would be
offset by any amounts PFG owed the Company under our Affiliate Loan Agreement
which was entered into concurrently with the Amended and Restated Management
Agreement. Under the terms of the Affiliate Loan Agreement, PFG was indebted to
the Company for approximately $15.6 million prior to offsetting the termination
fee. The amount of the termination fee was approximately $6.2 million which
payment was offset by the obligation to the Company, leaving an obligation of
approximately $9.4 million from PFG. Due to doubts about the ultimate
collectibility of this obligation from PFG, the Company has never reflected it
as an asset in its financial statements. Management does not currently believe
that PFG has assets sufficient to warrant any collection activity for this
obligation, and will therefore continue to reserve the entire asset balance from
its financial statements.

On March 19, 2004, Susan Fox resigned as President, Chief Executive Officer and
Director of Primecore Mortgage Trust, Inc. Ms. Fox will be retained as a
consultant to the company for a period of 12 months in order to assist with any
issues that occur in connection with the transition of management. For her
services she will be paid $30,000 per month. We have also agreed to compensate
Ms. Fox for her assistance in recovery of legal actions we have brought on some
of our former developers. Our agreement with her provides that she will receive
5% of any sums we actually collect from such legal proceedings. Additionally, we
purchased certain furniture, computer equipment and software from her company,
Primecore Funding Group, for $200,000. Finally, we have entered into a agreement
to lease the building at 99 El Camino Real, a property owned by 99 El Camino
Partners, LLC, a limited liability company in which Susan Fox is the sole
member, at a monthly rate of $25,000 through June 30, 2004 and then decreasing
to $20,000 per month through December 31, 2004. The agreement also provides that
we will pay for real estate taxes, insurance and maintenance expenses associated
with the building.


                                       28
<PAGE>

                                     PART IV

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES.



         The Company accrues 100% of its budgeted expenses associated with
principal accountant fees and services in the year being audited or serviced.
The following table presents the expenses accrued by the Company for such fees
and services in 2003 and 2002.

                 Principal Accountant Fees and Services
--------------------------------------------------------------------
                                               2003            2002
Audit fees                                $ 270,937       $ 169,801
Audit-related fees                                0               0
Tax fees                                     36,423          41,349
All other fees                                    0               0
                                  ----------------------------------
Total                                     $ 307,360       $ 211,150
                                  ==================================


         Tax fees are comprised of fees related to the preparation and filing of
the Company's federal and applicable state tax returns.

         The Company does not have an independent audit committee, and the full
board of directors therefore serves as the audit committee for all purposes
relating to communication with the Company's auditors and responsibility for the
Company audit. All engagements for audit services, audit related services and
tax services are approved in advance by the full board of directors of the
Company. The Company's Board of Directors has considered whether the provision
of the services described above for the fiscal years ended December 31, 2003 and
2002, is compatible with maintaining the auditor's independence.

         All audit and non-audit services that may be provided by our principal
accountant to the Company shall require pre-approval by the Board. Further, our
auditor shall not provide those services to the Company specifically prohibited
by the Securities and Exchange Commission, including bookkeeping or other
services related to the accounting records or financial statements of the audit
client; financial information systems design and implementation; appraisal or
valuation services, fairness opinion, or contribution-in-kind reports; actuarial
services; internal audit outsourcing services; management functions; human
resources; broker-dealer, investment adviser, or investment banking services;
legal services and expert services unrelated to the audit; and any other service
that the Public Company Oversight Board determines, by regulation, is
impermissible.

ITEM 15.  EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K


a. Financial Statements. The following financial information is included as a
separate section of this Annual Report on Form 10-K:

1.     Report of Independent Public Accountants
2.     Balance Sheets As of December 31, 2003 and 2002
3.     Statements of Operations for the years ended December 31, 2003, 2002, and
       2001
4.     Statements of Shareholders' Equity for the years ended December 31, 2003,
       2002, and 2001
5.     Statements of Cash Flows for the years ended December 31, 2003, 2002, and
       2001 6. Notes to Financial Statements December 31, 2003, 2002, and 2001
7.     Schedule IV - Investments in real estate at December 31, 2003


                                       29
<PAGE>

b. Exhibits

     Exhibits submitted with this Form 10-K, as filed with the Securities and
     Exchange Commission, or those incorporated by reference to other filings
     are:

     Exhibit No.     Description of Exhibit

     3(i)            Articles of Incorporation of the Company is incorporated by
                     reference to Exhibit 3(i) to the Company's Form 10-12 G/A,
                     previously filed on April 28, 2000

     3(ii)           Bylaws, Amended March 30, 2000 is incorporated by reference
                     to Exhibit 3(ii) to the Company's Form 10-12 G/A,
                     previously filed on April 28, 2000

     3(iii)          Articles Supplementary of the Company is incorporated by
                     reference to Exhibit 99.1 to the Company's Form 10-12 G/A,
                     previously filed on April 28, 2000

     3(iv)           Specimen Stock Certificate, is incorporated by reference to
                     Exhibit 99.2 to the Company's Form 10-12 G/A, previously
                     filed on April 28, 2000

     4.1             Registration Rights Agreement is incorporated by reference
                     to Exhibit to the Company's Form 10-12 G/A, previously
                     filed on April 28, 2000

     4.2             Founder's Registration Rights Agreement is incorporated by
                     reference to Exhibit to the Company's Form 10-12 G/A,
                     previously filed on April 28, 2000

     4.3             Management Agreement dated March 30, 1999 is incorporated
                     by reference to Exhibit 10 to the Company's Form 10-12 G/A,
                     previously filed on April 28, 2000

    10.1             Letter agreement with Primecore Funding Group, Inc. and
                     Susan Fox

    14.1             Code of ethics for Chief Executive Officer, Chief Finacial
                     Officer and Chief Accounting officer

    31.1             Certification of Chief Executive Officer and Chief
                     Financial Officer

    31.2             Certification Pursuant to 18 U.S.C. Section 1350, as
                     Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
                     of 2002


Reports on Form 8-K

None filed.




                                       30
<PAGE>

                                   SIGNATURES


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.

Signature                 Capacity                           Date

                          Chief Executive Officer, Chief
/s/ Michael Rider         Finacial Officer and Director      April 14, 2004
-----------------------

Michael Rider

/s/ Robert Puette         Chairman                           April 14, 2004
-----------------------

Robert Puette

/s/ James Barrington      Director                           April 14, 2004
-----------------------

James Barrington

















                                       31


<PAGE>



                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

                                                                     Page No

Report of independent public accountants
     - Grant Thornton, LLP                                             FS-1


Report of independent public accountants
     - Arthur Andersen                                                 FS-2


Balance sheets as of December 31, 2003 and 2002                        FS-3


Statements of operations for the years
     ended December 31, 2003, 2002, and 2001                           FS-4


Statements of shareholders' equity for the years
     ended December 31, 2003, 2002, and 2001                           FS-5


Statements of cash flows for the years
     ended December 31, 2003, 2002, and 2001                           FS-6


Notes to financial statements                                          FS-7










                                       32

<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Shareholders and Board of Directors of
Primecore Mortgage Trust, Inc.

We have audited the accompanying consolidated balance sheets of Primecore
Mortgage Trust, Inc., as of December 31, 2003 and 2002 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the two years ended December 31, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits. The
financial statements of Primecore Mortgage Trust, Inc. for the year ended
December 31, 2001 were audited by other auditors who have ceased operations.
Those auditors expressed an unqualified opinion on those financial statements in
their report dated February 8, 2002 which statements included an explanatory
paragraph that described a change in the Company's method of accounting for
interest expense effective January 1, 2000 before restatement.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Primecore Mortgage
Trust, Inc. as of December 31, 2003 and 2002, and the results of its
consolidated operations and its consolidated cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.

As discussed above, the financial statements of Primecore Mortgage Trust, Inc.
as of and for the year ended December 31, 2001 were audited by other auditors
who have ceased operations. As described in Note 2, these financial statements
have been restated. We audited the adjustments described in Note 2 that were
applied to restate the 2001 financial statements. In our opinion, such
adjustments are appropriate and have been properly applied. However, we were not
engaged to audit, review, or apply any procedures to the 2001 financial
statements of the Company other than with respect to such adjustments and,
accordingly, we do not express an opinion or any other form of assurance on the
2001 financial statements taken as a whole.



                                                           Grant Thornton LLP


San Francisco, California
March 23, 2004



                                      FS-1
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors of
Primecore Mortgage Trust, Inc.

We have audited the accompanying balance sheets of Primecore Mortgage Trust,
Inc. (a Maryland Corporation), as of December 31, 2001, and 2000, and the
related statements of operations, shareholders' equity, and cash flows for the
years ended December 31, 2001 and 2000, and for the period from inception (March
18, 1999) to December 31, 1999. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Primecore Mortgage Trust, Inc.
as of December 31, 2001 and 2000, and the results of its operations and its cash
flows for the years ended December 31, 2001and 2000 and for the period from
inception (March 18, 1999) to December 31, 1999, in conformity with accounting
principles generally accepted in the United States.

As further discussed in Note 2 to the accompanying financial statements, the
Company changed its method of accounting for interest expense effective January
1, 2000.

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statements and schedule is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.


                                                              ARTHUR ANDERSEN

San Francisco, California
February 8, 2002


The report of Arthur Andersen LLP (Andersen) is a copy of a report previously
issued by Andersen on February 8, 2002. The report has not been reissued by
Andersen nor has Andersen consented to its inclusion in this Annual Report on
Form 10-K. The Andersen report refers to the balance sheet as of December 31,
2001 and 2000, and the statements of operations, shareholders' equity and cash
flows for the years (period) ended December 31, 2000 and 1999, which are no
longer included in the accompanying financial statements.


                                      FS-2
<PAGE>

                         PRIMECORE MORTGAGE TRUST, INC.

                           CONSOLIDATED BALANCE SHEETS
                               As of December 31,


<TABLE>
<CAPTION>

                                                                           2003               2002
                                                               -----------------  -----------------
  <S>                                                                  <C>                <C>
ASSETS:
Investments in real estate under development ..................  $   34,629,956     $  101,141,515
Investments in real estate held for sale.......................      44,551,722         44,510,168
Loans secured by real estate...................................              --          4,695,000
Cash and cash equivalents......................................      10,701,188          4,394,107
Other assets, net..............................................       1,504,472            326,245
                                                               -----------------  -----------------

        Total assets...........................................  $   91,387,338     $  155,067,035
                                                               =================  =================


LIABILITIES AND SHAREHOLDERS' EQUITY:

Notes payable (including $280,000, and $150,000
   to a director at December 31, 2003 and 2002
   respectively)...............................................  $    4,692,517     $   14,276,929
Secured notes payable..........................................       3,185,000          7,693,000
Secured line of credit.........................................              --         14,431,132
Accrued expenses and other.....................................         235,551            256,059
Preferred stock dividends payable..............................              --          1,312,417
Payable to manager.............................................         121,577            669,480
                                                               -----------------  -----------------

        Total liabilities......................................       8,234,645         38,639,017

Commitments and contingencies (see note 10)....................

Convertible Preferred stock: par value $0.01,
   40,000,000 shares authorized; 22,229,739 and
   22,496,804 shares issued and outstanding at
   December 31, 2003 and 2002 , respectively

                                                                    225,142,861        226,079,882
Common stock: par value $0.01, 10,000,000 shares
   authorized; 100 shares issued and
   outstanding at December 31, 2003 and 2002...................               1                  1
Accumulated dividends and distributions........................     (90,621,455)       (80,132,217)
Accumulated deficit............................................     (51,368,714)       (29,519,648)
                                                               -----------------  -----------------

        Total shareholders' equity.............................      83,152,693        116,428,018
                                                               -----------------  -----------------

        Total liabilities and shareholders' equity.............  $   91,387,338     $  155,067,035
                                                               =================  =================

</TABLE>


              The accompanying notes are an integral part of these statements.



                                             FS-3
<PAGE>


                         PRIMECORE MORTGAGE TRUST, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>


                                                                           Year Ended           Year Ended            Year Ended
                                                                   December 31, 2003     December 31, 2002     December 31, 2001
                                                                  -------------------- -------------------- ---------------------
   <S>                                                                     <C>                  <C>                   <C>
REVENUES:
Income from completed real estate development (including $0,
   $981,443 and $145,468 from affiliates)........................       $  11,372,436          $10,018,189          $ 12,519,618
Other............................................................              17,119                  730               68,510
                                                                  -------------------- -------------------- ---------------------
         Total revenues..........................................          11,389,555           10,018,919            12,588,128

EXPENSES:
Management fees paid to Manager..................................           3,808,260            9,630,701            11,345,585
Provision for impairment of investments in real estate development
                                                                           27,499,639           21,238,043                73,000
General, administrative and other................................           1,930,722              454,900               502,080
                                                                  -------------------- -------------------- ---------------------
         Total expenses..........................................          33,238,621           31,323,644           11, 920,665
                                                                  -------------------- -------------------- ---------------------

         Net(loss) income........................................         (21,849,066)         (21,304,725)              667,463
         Preferred stock dividends and distributions.............         (10,489,238)         (21,306,006)          (24,118,443)
                                                                  -------------------- -------------------- ---------------------

         Net loss allocable to common............................        $(32,338,304)      $  (42,610,731)         $(23,450,980)
                                                                  ==================== ==================== =====================

Basic and diluted net loss per common share......................           $(323,383)       $    (426,107)            $(234,510)
                                                                  ==================== ==================== =====================

 Basic and diluted weighted-average common shares outstanding..                   100                  100                   100
                                                                  ==================== ==================== =====================




                                The accompanying notes are an integral part of these statements.
</TABLE>

                                                            FS-4
<PAGE>


                                       PRIMECORE MORTGAGE TRUST, INC.

                              CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                           For the years ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>

                                          Preferred Stock            Common Stock
                                   -------------------------------------------------
                                                                                        Accumulated
                                                                                      Dividends and     Accumulated
                                           Shares       Amount      Shares    Amount  Distributions         Deficit          Total
                                   --------------- --------------- -------- --------- --------------- --------------- -------------
   <S>                                    <C>             <C>         <C>      <C>         <C>              <C>            <C>
Shareholders' equity at
   January 1, 2001...............      19,946,445    $199,285,861     100       $  1   $(34,707,768)    $(8,882,386)  $155,695,708
Issuance of preferred stock, net
   of offering costs of $2,083...       2,797,437      27,972,287      --         --             --              --     27,972,287
Issuance of preferred stock under
   dividend reinvestment plan....         599,169       5,991,690      --         --             --              --      5,991,690
Redemptions of preferred stock...      (1,709,187)    (17,091,870)     --         --             --              --    (17,091,870)
Dividends and distributions paid
   to preferred shareholders.....              --              --      --         --    (24,118,443)             --    (24,118,443)
Net income.......................              --              --      --         --             --         667,463        667,463
                                   --------------- --------------- -------- --------- --------------- --------------- -------------
Shareholders' equity at December
   31, 2001......................      21,633,864    $216,157,968     100       $  1   $(58,826,211)    $(8,214,923)  $149,116,835
Issuance of preferred stock......       1,255,043      12,550,430      --         --             --              --     12,550,430
Issuance of preferred stock under
   dividend reinvestment plan....         356,559       3,565,590      --         --             --              --      3,565,590
Redemptions of preferred stock...        (748,662)     (7,414,590)     --         --             --              --     (7,414,590)
Additional paid in capital.......              --       1,220,484      --         --             --              --      1,220,484
Dividends and distributions paid
   to preferred shareholders.....              --              --      --         --    (21,306,006)             --    (21,306,006)
 Net loss........................              --              --      --         --             --     (21,304,725)   (21,304,725)
                                   --------------- --------------- -------- --------- --------------- --------------- -------------
Shareholders' equity at December
   31, 2002 .....................     22,496,804    $226,079,882     100       $  1   $(80,132,217)   $(29,519,648)  $116,428,018
Issuance of preferred stock under
   dividend reinvestment plan....             235           1,499      --         --             --              --          1,499
Adjustment for dividend
   reinvestment..................          (9,433)        (94,330)     --         --             --              --        (94,330)
Redemptions of preferred stock...        (257,867)       (844,190)     --         --             --              --       (844,190)
Dividends and distributions paid
   to preferred shareholders.....              --              --      --         --    (10,489,238)             --    (10,489,238)
 Net loss........................              --              --      --         --             --     (21,849,066)   (21,849,066)
                                   --------------- --------------- -------- --------- --------------- --------------- -------------
Shareholders' equity at December
   31, 2003 .......................    22,229,739    $225,142,861     100       $  1   $(90,621,455)   $(51,368,714)   $83,152,693
                                   =============== =============== ======== ========= =============== =============== =============




                          The accompanying notes are an integral part of these statements.
</TABLE>


                                                      FS-5
<PAGE>


                                           PRIMECORE MORTGAGE TRUST, INC.

                                    CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>


                                                                              Year Ended           Year Ended          Year Ended
                                                                       December 31, 2003    December 31, 2002   December 31, 2001
                                                                      ------------------- -------------------- -------------------
   <S>                                                                          <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net (loss) income................................................       (21,849,066)      $  (21,304,725)        $   667,463
   Adjustments to reconcile net (loss) income to net cash provided by
      (used in) operating activities:
        Provision for impairment......................................        27,499,639           21,238,043                  --
        (Decrease) increase in accrued expenses and other.............           (20,508)            (975,963)         (2,578,431)
        Increase (decrease) in payable to Manager.....................          (547,903)             638,287            (205,779)
        Decrease (increase) in other assets, net......................        (1,178,227)              82,661             (39,270)
                                                                      ------------------- -------------------- -------------------
             Net cash provided by (used in) operating activities......         3,903,935             (321,697)         (2,156,017)
                                                                      ------------------- -------------------- -------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Investments in real estate under development and held for sale...       (26,146,923)         (30,888,569)        (63,190,884)
     Investments in real estate under development by affiliates.......                --           (9,261,172)        (10,869,856)
     Proceeds from investments in real estate under development and
     held for sale....................................................        65,182,905           54,124,936          87,597,220
     Proceeds from investments in real estate under development by
     affiliates.......................................................                --            4,016,083          12,863,389
     Decrease (increase) in receivable from loan repayments...........         4,695,000                   --                  --
                                                                      ------------------- -------------------- -------------------
             Net cash provided by (used in) investing activities......        43,730,982           17,991,278          26,399,869
                                                                      ------------------- -------------------- -------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sales of preferred stock, net of offering costs......                --           12,550,430          27,972,287
   Redemptions of preferred stock.....................................          (844,190)          (7,414,590)        (17,091,870)
    Adjustment for dividend reinvested................................           (94,330)                  --                  --
   Issuance of notes payable..........................................           476,679            4,098,562          19,345,400
   Capital contributions from Manager.................................                --            1,220,484                  --
    Repayment of unsecured notes payable..............................       (10,126,707)          (7,535,769)        (41,756,585)
   Repayment of secured notes payable.................................        (4,508,000)                  --                  --
   Net (Repayments) borrowings on secured line of credit..............       (14,431,132)            (568,868)          8,355,308
   Payment of preferred stock dividends...............................       (11,800,156)         (18,331,927)        (18,124,688)
   Loan fees paid ....................................................                --                   --            (237,500)
                                                                      ------------------- -------------------- -------------------
             Net cash used in financing activities....................       (41,327,836)         (15,981,678)        (21,537,648)
                                                                      ------------------- -------------------- -------------------

             Net increase in cash and cash equivalents................         6,307,081            1,687,903           2,706,204
             Beginning cash and cash equivalents......................         4,394,107            2,706,204                  --
                                                                      ------------------- -------------------- -------------------

             Ending cash and cash equivalents.........................        10,701,188           $4,394,107                   $
                                                                                                                        2,706,204
                                                                      =================== ==================== ===================
Cash paid for interest, net of amounts capitalized of $141,177,
   $2,199,961, and $4,358,952 for the periods ending December 31,
   2003, 2002 and 2001 respectively...................................          $     --             $     --                   $
                                                                                                                                --
                                                                      =================== ==================== ===================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Reinvested Preferred Stock dividends..................................        $    1,499         $  3,565,590        $  5,991,690
                                                                      =================== ==================== ===================

Interest capitalized on Notes Payable.................................       $    65,616          $   401,610         $   936,447
                                                                      =================== ==================== ===================

                                   The accompanying notes are an integral part of these statements.
</TABLE>

                                                                FS-6

<PAGE>

                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS


1.   ORGANIZATION AND BUSINESS:


Organization

Primecore Mortgage Trust, Inc., a Maryland corporation, was formed on March 18,
1999 and commenced operations effective May 1, 1999 as a real estate investment
trust (REIT). We are engaged in the business of funding and holding land
acquisition, development and construction mortgage loans secured by residential
real property, as well as secured by undeveloped real property, located in the
greater San Francisco Bay Area. We are organized in a single operating segment
for purposes of making operating decisions and assessing performance. Primecore
Mortgage Trust, Inc. is also the sole member of 99 Investors, LLC a California
limited liability company. 99 Investors, LLC owns certain real property in which
we have invested. Prior to December 31, 2003, we were managed by Primecore
Funding Group, Inc., at the time an affiliated California corporation located in
Menlo Park, California.

On October 7, 2003 our Board of Directors voted to withdraw our REIT election
effective for the tax year beginning January 1, 2004. Pro-forma information is
not provided as there would be no effect on the current year's net loss as a
result of the Company's decision to withdraw its REIT election.

On December 19, 2003 our Board of Directors voted not to renew our management
agreement with Primecore Funding Group, Inc. effective December 31, 2003 and
will transition to internalized management during the first three months of
2004. The Board believes that this action will result in greater transparency to
the shareholders, increased accountability of the employees to the Board of
Directors and the ability to better manage company costs. On December 23, 2003
we entered into an agreement, effective January 1, 2004 with Primecore Funding
Group to provide management services during the transition period. This
agreement served to provide for a smooth transition from outside management to
our internal management.

Risk Factors

General Economic Conditions in Lending Areas. Properties securing repayment of
the mortgage loans are located in the San Francisco Bay Area, with the majority
in the counties of Santa Clara and San Mateo. Since the properties secured by
the mortgage loans are located in a limited geographical region, these mortgage
loans may be subject to a greater risk of delinquency or default if the
industries concentrated there suffer adverse economic or business developments.

Realization of Assets. The Company's liquidity and ability to meet its
obligations as they become due are subject to, among other things, its ability
to obtain timely repayments of its ADC loans and sales of its investment in real
estate held for sale. In the event that repayments are not sufficient to timely
meet our commitments and credit facilities are not extended on terms favorable
to us, we will be forced to reduce prices on properties we control in order to
expedite their repayment. In such cases, the amount of proceeds received could
be substantially less than what we would have expected if we allowed a proper
marketing period for the property. This would have a negative impact on the
estimated net realizable value of our assets and would force the Company to
adopt an alternative strategy that may include actions such as seeking
additional capital or further downsizing of the Company. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

Other. In addition, we are subject to other significant business and financial
risks, including but not limited to liquidity, the prevailing market for
residential real estate, interest rates, timely completion of projects, lack of
borrower diversification, and potential environmental matters relating to
properties on which we have made loans.

The Securities and Exchange Commission has requested in a letter of inquiry that
we provide certain company information. In April 2004 we complied with this
request.


                                      FS-7

<PAGE>

                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                                   (continued)

                               DECEMBER 31, 2003


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Restatement of Previously Reported Financial Statements

The balances presented at December 31, 2001 were restated in our December 31,
2002 Form 10-K filing to correct the accounting of an affiliate loan. The loan
should have been determined to have been impaired in November 1999 when the
obligor defaulted under the terms of the loan and the expected estimated future
cash flows of the underlying collateral were less than the then carrying value
of the investment. Subsequently, on or about March 2000, in order to protect the
shareholders from loss of capital as a result of the impairment, the Manager
provided a guaranty of repayment. Filings prior to December 31, 2002 did not
present the impairment. However, in our December 31, 2002 Form 10-K filing we
determined that because the guaranty was provided subsequent to the
determination of impairment, in accordance with our accounting policy on
impairments, the loan should have been written down by the amount of the
impairment when the determination was made.

The following schedule sets forth the restated amounts:


                              As previously        Amount
December 31, 2001                  reported     of change      As Restated
                             --------------- ---------------- ----------------
Investments in real estate
   under development by
   affiliates                  $ 40,237,961   $  (9,468,139)   $  30,769,822
Total assets                    194,064,643      (9,468,139)     184,596,504
Accumulated earnings
   (deficit)                      1,253,216      (9,468,139)      (8,214,923)
Total liabilities and
   shareholders' equity         194,064,643      (9,468,139)     184,596,504

Use of Estimates

These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. 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. Valuations of investments in real estate include management's
best estimates of the amounts expected to be realized on the sale of its
investments. The estimates are based on an analysis of the properties, including
certain inherent assumptions and estimates that are involved in preparing such
valuations. The amounts the Company will ultimately realize could differ
materially in the near term from these estimates.

Investments in Real Estate under Development

We have originated loans to Acquire, Develop and Construct (ADC) residential
real estate ("ADC loans"). Our loans contain many of the following
characteristics which are identified with ADC loans:

                                      FS-8
<PAGE>


                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                                   (continued)

                               DECEMBER 31, 2003

1.   The lender has agreed to provide all or substantially all necessary funds
     to acquire, develop or construct the property. The borrower has title to
     but little or no cash equity in the project;
2.   The lender funds substantially all the interest and fees during the term of
     the loan by adding them to the loan balance; 3. Typically, the lender's
     only security is the project itself. The lender has no recourse to other
     assets of the borrower,
     and the borrower does not guarantee the debt;
4.   In order for the lender to recover its investment in the project, the
     property must be sold to independent third parties or the borrower must
     obtain refinancing from another source.

Because our loans contain many of the characteristics of ADC Loans they are
classified for financial reporting purposes as investments in real estate under
development (Note 3). Revenue from interest and points is recognized as cash is
received from the sale or refinancing of such properties. Investments in real
estate under development include amounts funded under the loan agreements and
capitalized interest expense. If our ADC loans qualified as loans under US GAAP,
interest and points would be recognized in income as earned instead of at the
time of sale of the underlying property.

Such investments are stated at the lower of cost or fair value. Management
conducts a review for impairment on an investment-by-investment basis whenever
events or changes in circumstances indicate that the carrying amount of an
investment may not be recoverable. Impairment is recognized when estimated
expected future cash flows (undiscounted and without interest charges),
typically from the sale of a completed property, are less than the carrying
amount of the investment, which does not include accrued interest and points.
The estimation of expected future net cash flows is inherently uncertain and
relies to a considerable extent on assumptions regarding current and future
economic and market conditions. If, in future periods, there are changes in the
estimates or assumptions incorporated into the impairment review analysis, the
changes could result in an adjustment to the carrying amount of the investments.
To the extent an impairment has occurred, the excess of the carrying amount of
the investment over its estimated fair value, less estimated selling costs, will
be charged to operations.

Investments in Real Estate Held for Sale

We may take title to property through foreclosure or by deed in lieu of
foreclosure when a borrower defaults on our ADC loan. Such properties are termed
real estate owned (REO) and are accounted for in a manner similar to our
investments in real estate under development. Interest income for tax purposes
is not accrued on investments in real estate held for sale.

Consolidation Policy

The consolidated financial statements include the accounts of Primecore Mortgage
Trust and its wholly owned subsidiary, 99 Investors LLC. All intercompany
accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents include cash held in financial institutions and other
highly liquid short-term investments with original maturities of three months or
less.

Income from Completed Real Estate Development

We recognize income from our ADC loans and REO properties as costs are
recovered, generally upon the sale or refinancing of the underlying completed

                                      FS-9
<PAGE>

                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                                   (continued)

                               DECEMBER 31, 2003

real estate to or by a third party. No interest income or points are recognized
until the financed property is sold or refinanced. We compute income as the
difference between cash received from the sale or refinancing of the property
and the carrying value of the investments at the date of repayment.

Income Taxes

Our taxable income differs from income measured in accordance with generally
accepted accounting principles in the United States of America due to timing
differences in the recognition of income from our ADC loans. For tax purposes,
interest and points are accrued as income according to the terms of our loan
contracts, but not recognized under generally accepted accounting principles in
the United States of America until the contract has been paid through sale or
refinancing of the secured property. We have, in the past, distributed Preferred
Stock dividends at a level sufficient to satisfy specified return targets for
our investors. As a result, dividends were paid in excess of taxable income
during some years. On July 17, 2003 our Board of Directors voted to suspend
payment of dividends effective after payment of our August declaration.

On October 7, 2003 our Board of Directors voted to withdraw our REIT election
effective with the tax year beginning January 1, 2004. The withdrawal of this
election results in the loss of our ability to deduct the payment of dividends
from our taxable income. However, as of December 31, 2003 we had generated a net
operating loss of approximately $45 million from the disposition of impaired
assets in our portfolio. The ability to use this net operating loss to offset
future taxable income would result in tax savings to the company. The Company
has established a full valuation allowance against these net operating loss
carryforwards and future tax deductions because of the possibility that the
carryforwards may expire unused and that future tax deductions may not be
realized through future operations.

Net Loss Per Share of Common Stock

Per share amounts for our common stock are computed using the weighted average
common shares outstanding during the period. Net loss used in the calculation is
increased by declared dividends owed to preferred shareholders. There are
currently no stock options or other dilutive common stock equivalents, and as a
result, the basic and diluted weighted average common shares outstanding for the
years ended December 31, 2003, 2002 and 2001, are the same and are 100 shares.


3.   INVESTMENTS IN REAL ESTATE UNDER DEVELOPMENT:

We have made ADC loans with maturity dates generally ranging from 12 to 18
months. As of December 31, 2003 we had eleven ADC loans outstanding which are
described below.


<TABLE>
<CAPTION>

                                Final              Face    Amount Funded                                             Carrying
               Interest      Maturity            Amount          (net of       Capitalized        Recognized        Amount of
Description        Rate          Date      of Mortgages        payments)             Costs        Impairment        Mortgages
------------------------ ------------- ----------------- ---------------- ----------------- ----------------- ----------------
   <S>             <C>          <C>              <C>              <C>               <C>               <C>              <C>
Loan 2423        16.50%       12/1/03      $  7,300,000      $ 5,413,196       $   262,555       $   159,436     $  5,516,315
Loan 2442        16.00%        8/1/03         7,000,000        4,780,499           242,264           178,038        4,844,725
Loan 2468        16.50%      12/31/03         3,775,000        2,245,289            93,994                --        2,339,283
Loan 2503        11.50%        6/1/04         7,075,000        4,507,833           129,346         1,582,725        3,054,454
Loan 2504        11.50%        6/1/04         7,950,000        4,925,288           154,301         1,373,894        3,705,695
Loan 2506        13.00%       12/1/03         3,500,000        3,762,851            40,195           548,236        3,254,810
Loan 2515        16.00%       9/26/03         4,600,000               --                --                --               --
Loan 2517        21.00%        8/4/05         4,135,000        2,159,865           110,456                --        2,270,321
Loan 2518        11.50%       11/1/03         9,400,000        3,411,870           208,056           197,293        3,422,633
Loan 2521        13.00%        6/1/03         6,000,000        4,306,027           218,574         1,422,601        3,102,000
Loan 2523        16.00%        8/4/05        11,300,000        3,110,954             8,766                --        3,119,720
                                       ----------------- ---------------- ----------------- ----------------- ----------------
                                           $ 72,035,000     $ 38,525,481      $  1,566,698      $  5,462,223     $ 34,629,956
Total
                                       ================= ================ ================= ================= ================
</TABLE>



                                     FS-10
<PAGE>



                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                                   (continued)

                               DECEMBER 31, 2003


Loan 2423 - This $7,300,000 loan bears interest at 16.50%, was due on December
1, 2003 and is secured by an approximately 4,200 square foot home in Belvedere,
California. The home is complete and on the market for sale and we have no
further obligation to fund additional amounts toward the loan.

Loan 2442 - This $7,000,000 loan bears interest at 16.00%, was due on August 1,
2003 and is secured by an approximately 10,000 square foot home in Atherton,
California. We have recorded a notice of default for this loan and expect to
take title to the property through foreclosure. The home is complete and on the
market for sale. We have estimated an additional $43,275 in costs will be
necessary to properly market the property for sale.

Loan 2468 - This $3,775,000 loan bears interest at 16.50%, was due on December
31, 2003 and is secured by an approximately 4,000 square foot home in Tiburon,
California. As the loan is currently past due we are reviewing our alternatives
with respect to this property. Because the loan is in default, the current
accrual rate of interest on the loan is 21.5% which is 500 basis points above
its note rate. We have a remaining obligation of $547,752 to fund on our
commitment. Construction is ongoing and we currently expect the home to be
complete and ready for sale in July 2004.

Loan 2503 - This loan is secured by an approximately 8,300 square foot home in
Carmel, California. The $7,075,000 loan matures on June 1, 2004 and as of
December 31, 2003, we had an additional $1,175,546 commitment remaining to fund
for the non interest portion of the loan. Because the estimated completed value
of the property is not sufficient to fully repay the loan, we are not currently
accruing interest on the loan. Construction is ongoing and we currently expect
the home to be complete and ready for sale in May 2004.

Loan 2504 - This loan is secured by an approximately 7,900 square foot home in
Carmel, California. The $7,950,000 loan matures on June 1, 2004 and as of
December 31, 2003, we had an additional $1,304,190 commitment remaining to fund
for the non interest portion of the loan. Because the estimated completed value
of the property is not sufficient to fully repay the loan, we are not currently
accruing interest on the loan. Construction is ongoing and we currently expect
the home to be complete and ready for sale in April 2004.

Loan 2506 - This $3,500,000 loan is secured by an approximately 6,400 square
foot home in Hillsborough, California. We have recorded a notice of default and
expect to take title to the property through foreclosure. As long as the default
is not cured, we have no obligation to fund the $1,304,190 remaining on the non
interest portion of our loan commitment, however, we have elected to continue
funding the loan in order to keep the construction in progress. We expect the
home to be complete and ready for sale in September 2004.

Loan 2515 - This $700,000 loan is secured by a second deed on an approximately
4,400 square foot home in Tiburon, California. Our deed of trust is subordinate
to a $4,000,000 deed of trust to a financial institution. This note was issued
on October 31, 2003 and represents the balance remaining from a $4,600,000 note
which was partially repaid. The note bears interest at 16% and matured on
December 15, 2003. As of December 31, 2003 the funded amount remaining after
taking into account the partial repayment was $0. On January 7, 2004 the
borrower fully repaid the balance due on our loan which will be accounted for
entirely as earned income.

Loan 2517 - This $4,135,000 loan is secured by a second deed of trust on 17
condominiums totaling approximately 31,500 square feet in San Mateo, California.
Our deed of trust is subordinate to our $11.3 million construction deed of
trust, Loan 2523. This note was issued on May 24, 2002, the proceeds of which
were used to acquire the property and provide funds for obtaining development


                                     FS-11
<PAGE>

                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                                   (continued)

                               DECEMBER 31, 2003

approvals, and was modified on August 3, 2003 as part of the agreement to
provide an additional $11.3 million for funds needed to construct the
condominiums. The note bears interest at 21%, which is accrued and payable
August 4, 2005, the loan's maturity date. We have fully funded the non interest
portion of our commitment.

Loan 2518 - This $9,400,000 loan is secured by a deed of trust on an
approximately 6,400 square foot home in Tiburon, California. This note was
issued on July 29, 2002, the proceeds of which were used to acquire the property
and provide funds for construction, bears interest at 11.5% and matured on
November 1, 2003. Because the estimated completed value of the property is not
sufficient to fully repay the loan, we are not currently accruing interest on
the loan. The loan is in default and we are currently reviewing our options with
regard to this loan. As long as the default is not cured, we have no obligation
to fund the $3,439,367 remaining on the non interest portion of our loan
commitment. Construction on the property was halted after framing and there is
no construction activity currently associated with the property.

Loan 2521 - This $6,000,000 loan is secured by a first deed of trust on an
approximately 7,000 square foot home in Saratoga, California, the proceeds of
which were used to acquire the property and provide funds for construction. The
loan bears interest at 11.25% and matured on June 1, 2003. The estimated
completed value of the property is not sufficient to fully repay the loan and
thus we are not currently accruing interest on the loan. The property is
completed and as of December 31, 2003 was sold pending close of escrow.
Subsequent to December 31, 2003 the property closed escrow.

Loan 2523 - This $11,300,000 loan is secured by a first deed of trust on 17
condominiums totaling approximately 31,500 square feet in San Mateo, California.
The note was issued on August 4, 2003, the proceeds of which will be used for
construction of the condominiums. The note bears interest at 16%, which is
accrued and payable August 4, 2005, the loan's maturity date. As of December 31,
2003 we had $6,589,047 remaining to fund on the non interest portion of our loan
committment.


4. INVESTMENT IN REAL ESTATE HELD FOR SALE:

As of December 31, 2003, we or our wholly-owned subsidiary, 99 Investors, LLC,
held title to 16 properties which we received through foreclosure, by deed in
lieu of foreclosure, or as a result of an agreement dated October 17, 2002,
pursuant to which all membership interests in 99 Investors, LLC were transferred
to us. The properties are described below:









                                     FS-12
<PAGE>

                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                                   (continued)

                               DECEMBER 31, 2003


<TABLE>
<CAPTION>
                                                                                   Carrying         Estimated
                          Amount Funded       Capitalized        Recognized       Amount of          Costs to
Description            (net of payments)   Interest Costs        Impairment        Property          Complete
--------------------- ------------------- ---------------- ----------------- ---------------- -----------------
   <S>                          <C>              <C>                <C>              <C>               <C>
Property 2216               $  8,647,522       $  548,095      $  2,145,617      $ 7,050,000          $     --
Property 2345                  4,112,001          189,228                --        4,301,229           264,903
Property 2368                  1,746,770           74,153                --        1,820,923         1,398,927
Property 2396                  1,770,914           97,691           813,805        1,054,800         1,194,794
Property 2407                  2,227,414           69,015                --        2,296,429             9,593
Property 2443                    682,283           34,890                --          717,173         1,504,579
Property 2446                  1,186,884           79,740            88,696        1,177,928         1,501,072
Property 2448                    629,528           26,584            48,859          607,253                --
Property 2451                  1,931,183           75,811           266,848        1,740,146           377,204
Property 2455                 10,089,541          374,774         5,417,299        5,047,016         1,814,984
Property 2462                  6,899,377          286,517         3,262,704        3,923,190           306,810
Property 2464                  5,792,445          334,196         3,424,141        2,702,500                --
Property 2465                    208,423           13,076                --          221,499            50,862
Property 2473                  6,578,658          415,304         1,417,876        5,576,086            63,914
Property 2492                  3,048,971          101,468           665,388        2,485,051           898,949
Property 2498                  6,906,889          346,720         3,423,110        3,830,499                --
                      ------------------- ---------------- ----------------- ---------------- -----------------

Total                      $  62,458,803      $ 3,067,262      $ 20,974,343     $ 44,551,722       $ 9,386,591
                      =================== ================ ================= ================ =================
</TABLE>


Property 2216 - This is an approximately 8 acre parcel which has been approved
for development of 72 townhomes and condominiums totaling approximately 123,372
square feet in San Jose, California. After receiving title to the property,
management conducted a careful study to determined the disposition of this
project. During this study period, management commissioned an appraisal and
market analysis of the property while the property was listed for sale during a
90 day period. The results of the study and analysis suggested that the company
would benefit by development of the project rather than selling the project in
its current conditions. Subsequent to December 31, 2003 the Board of Directors
approved this project for development.

Property 2345 - This is an approximately 7,000 square foot home in the Pacific
Heights neighborhood of San Francisco, California. It is currently under
construction and is expected to be complete and on the market in June 2004.

Property 2368 - This is an 8 unit condominium project totaling approximately
6,100 square feet in the South of Market area of San Francisco, California. The
units are loft style condominiums which are popular in that area of the city.
The project is currently under construction and is expected to be complete and
on the market in September 2004.

Property 2396 - This is a 2 unit condominium project totaling approximately
4,450 square feet on Russian Hill in San Francisco, California. The project is
currently under construction and is expected to be complete and on the market in
June 2004.

Property 2407 - This property consists of 6 subdivided and improved lots in San
Rafael, California. The lots are approved, subject to design review, for 6
single family homes. We currently intend to sell the lots either singly or in
bulk. Subsequent to December 31, 2003 we entered into a contract to sell all 6
lots to a single developer. The contract is ratified and is pending close of
escrow.

                                     FS-13
<PAGE>

                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                                   (continued)

                               DECEMBER 31, 2003

Property 2443 - This project consists of 3 lots for the construction of single
family homes averaging approximately 4,000 square feet each. Two of the homes
had started foundation work before construction was halted while we pursued our
foreclosure action. No work had commenced on the third home prior to beginning
our foreclosure action. We currently intend to sell the properties in their
existing condition. Subsequent to December 31, 2003 we entered into a contract
to sell the two lots which had started construction a builder. The contract is
ratified and is pending close of escrow.

Property 2446 - This project is designed to be an approximately 5,500 square
foot home in unincorporated Santa Clara County adjacent to the city limits of
Los Gatos. The project design has been approved and we are currently working
with our architect to produce construction drawings. Currently we anticipate
beginning construction in June 2004 and completing the home in April 2005.

Property 2448 - This project is an approximately 3,600 square foot home in
Oakland, California. The home had started construction before work was halted
while we pursued our foreclosure action. We currently intend to sell the
property in its existing condition and the property was under contract for sale
pending close of escrow.

Property 2451 - This project consists of 4 subdivided lot townhomes totaling
approximately 8,000 square feet in Mountain View, California. All four homes
were complete and had been sold at December 31, 2003, three of which were
pending close of escrow.

Property 2455 - This project is an approximately 8,850 square foot home in
Atherton, California. The project is under construction and we currently
estimate it will be complete and ready for sale in August 2004.

Property 2462 - This project is an approximately 7,000 square foot home in
Saratoga, California. The project is under construction and we currently
estimate it will be complete and ready for sale in May 2004.

Property 2464 - This project is an approximately 12,500 square foot house in
Atherton, California. The home had started construction before work was halted
while we pursued our foreclosure action. We currently intend to sell the
property in its existing condition and at December 31, 2003 the property was
under contract for sale pending close of escrow. In January 2004 this property
closed escrow.

Property 2465 - This project is an approximately 8,900 square foot lot in
Oakland, California. Construction had not started prior to our foreclosure
action. We currently plan to sell the property in its existing condition and
have listed it for sale.

Property 2473 - This project is an approximately 13,000 square foot home in
Pebble Beach, California. The property is approved for development but no
construction has taken place on the property. We currently intend to sell the
property in its existing condition and have listed it for sale.
Property 2492 - This is an approximately 4,500 square foot home in Portola
Valley, California. It is currently under construction and is expected to be
complete and on the market in April 2004.

Property 2498 - This project is an approximately 11,000 square foot house in
Atherton, California. The home had started construction before work was halted
while we pursued our foreclosure action. We currently intend to sell the
property in its existing condition and at December 31, 2003 the property was
under contract for sale pending close of escrow. Subsequent to December 31, 2003
we extended the close of escrow for this property in order to correct damage
which occurred as a result of water intrusion. The cost of the damage is
currently estimated at less than $50,000. Once the repairs have been completed,
we expect the sale to close escrow.

                                     FS-14
<PAGE>

                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                                   (continued)

                               DECEMBER 31, 2003

5.  NOTES PAYABLE:

We had unsecured borrowings of $4,648,765 at December 31, 2003 compared with
$14,095,017 at December 31, 2002 on notes issued to accredited investors through
private placements. These notes have varying maturities of up to two years from
the date of issuance and bear interest at fixed rates between 6.00 and 12.0
percent with interest payable monthly in arrears. We may repay these notes,
without penalty, at our option before their stated maturity. As of December 31,
2003, we estimate that the carrying amounts of our notes payable approximate
their fair value based on current borrowing rates available to us.

Additionally, at December 31, 2003, we had $43,752 due on a note payable to
financial institutions to finance the cost of our insurance policies compared
with $181,912 at December 31, 2002. The note bears interest at 8.770% and
requires monthly payments of $11,138.

The following table summarizes the maturities of our notes payable at December
31, 2003:

                   Year                                       Amount
                   ------------------------------   -----------------
                   2004                                  $ 4,312,517
                   2005                                      380,000
                                                    -----------------

                            Total                        $ 4,692,517
                                                    =================


6.  SHAREHOLDERS' EQUITY:

We have authorized 50,000,000 shares of capital stock with a $0.01 par value;
40,000,000 shares are designated Class A Convertible Preferred (Preferred
Stock), and 10,000,000 shares are designated as common.

At December 31, 2003 and 2002, there were 100 shares of common stock
outstanding.

The 22,229,739 and 22,496,804 shares of Preferred Stock outstanding as of
December 31, 2003 and 2002, respectively, rank senior to our common stock as to
dividends and liquidation rights. The shares are convertible into, and have
voting rights equal to, the same number of shares of our common stock. We will
not pay any dividends to the holders of the common stock so long as any
Preferred Stock is outstanding.

Preferred Stock dividends and distributions are paid monthly in arrears and were
$0.47, $0.96 and $1.12 per share (based on weighted average preferred shares
outstanding of 22,442,178, 22,168,539 and 21,450,948) for the years ended 2003,
2002 and 2001. Under the terms of our dividend reinvestment plan shareholders
were able to reinvest dividends in additional shares of Preferred Stock. On July
17, 2003 the Board of Directors voted to suspend the payment of dividends until
such time as the Board determines that it is in the best interests of the
Company to resume their payment.

Holders of our Preferred Stock do not have a right to redeem their shares. Our
Board of Directors has adopted a stock redemption policy for Preferred
shareholders who wish to sell their shares to us. The policy may be modified or
terminated at the Board's discretion at any time. Under this policy we will
repurchase shares, at fair market value, as determined by our Board of
Directors, utilizing 25% of "free cash flow" for such purposes. "Free cash flow"
means the total of all proceeds from repayments of loans and all net proceeds
from the sale of real-estate-owned properties in the Company's portfolio during
a Repurchase Period, and then subtracting from such total amounts due during the
same period for (i) existing loan commitments, (ii) debt payments to third


                                     FS-15
<PAGE>

                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                                   (continued)

                               DECEMBER 31, 2003

parties, (iii) dividend or other distributions to shareholders, and (iv)
operating expenses. The periods between October 1 and March 31 of the following
year, and April 1 and September 30 are each a "Repurchase Period" for the
purposes of calculating "free cash flow," except that the first Repurchase
Period under the policy runs from January 1, 2003 through March 31, 2003.
Redemption of shares is always subject to availability of funds for redemption
purposes. All redemption requests will be determined and acted upon in
accordance with the best interests of the Company. We will not sell or otherwise
liquidate any portion of our mortgage loan portfolio or other assets to fund a
redemption request.

We sold our stock through private placements and have closed five private
placements since our inception, issuing 26,161,438 shares at $10.00 per share.
We use the proceeds from issuance of our Preferred Stock primarily to fund
additional ADC loans and also for working capital purposes. As of December 31,
2003 we did not have an active private placement.


7.   TRANSACTIONS WITH AFFILIATES:

Prior to March 19, 2004, we had the following affiliates all of which were owned
by Susan Fox, who, prior to such date was the President, CEO and a Director of
the Company: Primecore Funding Group, Inc; 99 El Camino Partners, LLC; Primecore
Properties, Inc. During the year ended December 31, 2003, Primecore Funding
Group, Inc. received management fees from us, and Primecore Properties, Inc.
received real estate commissions in connection with the sale of certain REO
properties on which it acted as the listing broker. 99 El Camino Partners, LLC
owns the building, which we began leasing in 2004.

On December 19, 2003 our Board of Directors voted not to renew the management
agreement with Primecore Funding Group effective December 31, 2003 and will
transition to internalized management during the first three months of 2004. On
December 23, 2003 we entered into an agreement, effective January 1, 2004 with
Primecore Funding Group to provide management services during the transition
period concluding on March 31, 2004.

On March 19, 2004, Susan Fox resigned as President, Chief Executive Officer and
Director of Primecore Mortgage Trust, Inc. Ms. Fox was retained as a consultant
to the Company for a period of 12 months in order to assist with any issues that
occur in connection with the transition of management. For her services she will
be paid $30,000 per month. We have also agreed to compensate Ms. Fox for her
assistance in recovery of legal actions we have brought on some of our former
developers. Our agreement with her provides that she will receive 5% of any sums
we collect from such legal proceedings. Additionally, we purchased certain
furniture, computer equipment and software from her company, Primecore Funding
Group, for $200,000. Finally, we have entered into a agreement to lease the
premises at 99 El Camino Real, a property owned by 99 El Camino Partners, LLC, a
limited liability company in which Susan Fox is the sole member, through
December 31, 2004 at a monthly rate of $25,000 through June 30, 2004 and then
decreasing to $20,000 per month through December 31, 2004. The agreement also
provides that we will pay for real estate taxes, insurance and maintenance
associated with the building.

As of March 19, 2004, none of these entities are affiliates of the Company and,
as of the date of this filing, except as discussed in this Note 7, we have no
business relationships with these entities.

Management Fees

For the year ended December 31, 2003, the portfolio management fees earned by
our Manager were $3,808,260 compared with $9,630,701 and $11,345,585 for the
years ended December 31, 2002 and 2001.

Real Estate Sales Commissions

We paid real estate sales commissions of $835,500 during the year ended December
31, 2003 to Primecore Properties, Inc., an affiliate compared with $446,350 and

                                     FS-16
<PAGE>


                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                                   (continued)

                               DECEMBER 31, 2003

none during the years ended December 31, 2002 and 2001. The commissions were
paid for services provided by Primecore Properties under listing agreements to
sell property acquired by us through foreclosure or deed in lieu of foreclosure.

Payable to Affiliate

We owed $121,577 to the manager at December 31, 2003 for fees earned in December
2003 compared with $669,480 payable December 31, 2002. The amounts payable are
typically paid the following month.

8.   COMMITMENTS AND CONTINGENCIES:

Litigation

From time to time, we may and have become subject to litigation in connection
with our business. In addition, as of December 31, 2003, we were involved in
several litigation matters that are considered to be out of the ordinary course
of business. The following is a list of non-routine litigation (i.e. suits other
than mechanic's lien lawsuits or similar lawsuits in which the Company becomes
involved from time to time due to its status as a lender) in which the Company
was involved as party, as of December 31, 2003, and in which it is currently
believed that potential liability could each exceed $1 million if the Company is
unsuccessful in its defense, which the Company does not currently believe will
be the case:

1. Baigent, et. al. v. Susan Fox, Primecore Mortgage Trust, Inc., et. al., San
Mateo Superior Court Action No. 435648. Approximately 35 shareholders, holding
approximately 1,260,000 shares of Preferred Stock, approximately 5% of the
Preferred shares of the Company, filed this lawsuit on November 14, 2003. The
lawsuit generally alleges that the Company, its former Manager, and two former
officers failed to disclose the true risks of the investments made by the
plaintiff-shareholders. The Complaint does not specify the amount of damages
being sought. The Company filed a petition to compel mediation and binding
arbitration, which was granted on January 21, 2004. The Company believes the
lawsuit is without merit, intends to vigorously defend against the claims, and
believes that it has strong and viable defenses.

2. Showplace Square Lofts Company, LLC v. Primecore, et. al., U.S. Bankruptcy
Court (N.D. Cal) No. 02-3157 DM. On June 25, 2002, a borrower filed a complaint
against the Company in connection with its bankruptcy. Prior to the time that
the bankruptcy case and complaint were filed, the borrower had defaulted under
its loan and the Company was proceeding to enforce its rights through
foreclosure. The complaint purported to assert claims for avoidance of
fraudulent transfer, breach of contract, intentional fraud, negligent
misrepresentation, negligence declaratory relief, breach of fiduciary duty, and
unfair business practices. The Court has granted summary judgment in favor of
the Company on all claims except the claim for transfer in violation of
Bankruptcy Code Sec. 544. The Company believes that the lawsuit is wholly
without merit. Among other things, the borrower admitted, in a written agreement
signed prior to the filing of the case, that it had no claims against the
Company, and also provided written releases of any possible claims. The Company
intends to vigorously defend against the claims, and believes that it has strong
and viable defenses.

3. Bay Area Luxury Homes/Santa Clara 3, LLC v. Primecore, et. al., Bay Area
Luxury Homes/Alameda VI, LLC v. Primecore, et. al., Bay Area Luxury Homes/Stern
VII, LLC v. Primecore, et. al., U.S. Bankruptcy Court (N.D. Cal.). Three limited
liability companies that are under the control of two individuals, both of whom
are being sued by Primecore for over $5 million under written guarantees that
they signed, filed this series of cases. On or around March 31, 2004, the debtor
companies converted their bankruptcies to liquidation bankruptcies under Chapter
7 of the Bankruptcy Code. It is possible that the cases might be dismissed by
the Chapter 7 trustee since he or

                                     FS-17
<PAGE>

                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                                   (continued)

                               DECEMBER 31, 2003

she will not have the vested interest that the borrowers had in trying to pursue
the claims, which the Company believes are without merit. Among other things,
the borrowers all admitted, in written agreements signed prior to the filing of
the cases, that they had no claims against the Company, and also signed written
releases of any possible claims. If the cases are pursued, the Company intends
to vigorously defend against the claims asserted and believes that it has strong
and viable defenses.

4. In re JH Country Club Estates, LLC, United States Bankruptcy Court No.
03-11473-AJ 11. This lawsuit involved a claim by a contractor claiming that its
mechanic's lien had priority over our deed of trust. The claimant was seeking
approximately $1.1 million. Subsequent to December 31, 2003, the matter was
resolved by a settlement in which it was agreed that the contractor would
receive only $100,000, and with all claims between the parties being dismissed.
The Company's title insurance carrier contributed $25,000 toward the settlement,
so that the net cost to the Company was only $75,000. The settlement is subject
to Bankruptcy Court approval.

5. On March 19, 2004, the Company was served with a Complaint in the matter of
Amoroso, et. al. v. Primecore Mortgage Trust, et. al, San Mateo Superior Court.
The Complaint, filed by 20 shareholders holding a total of 627,322 shares of
Preferred Stock, approximately 3% of the shares of Preferred Stock of the
Company, is nearly identical to the Baigent lawsuit discussed above. The Company
believes the lawsuit is without merit, intends to vigorously defend against the
claims, and believes that it has strong and viable defenses. The Company intends
to compel compliance with the mediation and arbitration clause signed by the
shareholder-plaintiffs, just as it has done in the Baigent matter.

In addition to the above matters, at December 31, 2003, the Company was involved
in several lawsuits in which it sought recovery from borrowers, guarantors, and
others. The actions included the following:

1. A lawsuit filed in connection with a loan made on a subdivision project in
Marin County. While the Company had written off the loan approximately two years
ago, it was felt that legal avenues existed to seek recovery on the loan. The
Company filed suit and entered into a settlement subsequent to December 31,
2003. Under the settlement, the Company is entitled to receive $2,300,000 in
payments of varying amounts to be made over a 17-month term, beginning in March
2004. In the event that the payments are not made when due, the Company has a
right to obtain a stipulated judgment. If and when payments are received, the
payments will be reflected in income. The settlement will not be reflected in
the financial statements until payments are received, as collection is not
reasonably assured. The first payment of $100,000 was received on March 2, 2004.

2. A lawsuit to judicially foreclose upon and obtain a deficiency judgment from
a borrower in connection with a loan made on a property in Palo Alto. The
Company obtained the property from the borrower as part of a settlement, and,

                                     FS-18
<PAGE>

                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                                   (continued)

                               DECEMBER 31, 2003

subsequent to December 31, 2003, sold the property. In addition, the borrower
has agreed to stipulate to judgment in the amount of $750,000. The prospect of
collection of the judgment is not reasonably assured, therefore,if and when
payments are received, the payments will be reflected in income. No potential
recovery is currently reflected in the financial statements.

Construction Contracts

In connection with our development of investments in real estate held for sale,
we have entered into contracts with construction companies totaling $1,438,837
to complete these projects where necessary. We will make payments on these
contracts as construction progresses in much the same manner we do for our
investments in real estate under development.

Guarantees

We have issued indemnity agreements to insurance companies in connection with
the sale of certain of our REO properties. The indemnity agreements were
provided in order to induce the insurance companies to issue surety bonds
covering mechanics liens recorded against properties we owned. The total amount
of the surety bonds issued with respect to which we have issued indemnity
agreement is $1,262,957. We believe that we have remedies against the mechanics
lien claims and that we will not become liable for their payment as such, no
amounts have been accrued in the financial statements in connection to these
liens.

General Uninsured Losses

We require that our borrowers carry comprehensive liability, fire, flood,
extended coverage, and rental loss insurance with policy specifications, limits,
and deductibles customarily carried for similar properties. We also carry
insurance to cover losses in case a borrower's policy lapses. Additionally, we
carry insurance on investments in real estate held for sale. There are, however,
certain types of extraordinary losses that may be either uninsurable or not
economically insurable. Further, all of our investments are located in areas
that are subject to earthquake activity, and we generally do not require our
borrowers to maintain earthquake insurance. Should an investment sustain damage
as a result of an earthquake, we may incur losses due to insurance deductibles,
co-payments on insured losses, or uninsured losses. Should an uninsured loss
occur, we could lose our investment in, and anticipated profits and cash flows
from an investment.






                                     FS-19
<PAGE>

                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                                   (continued)

                               DECEMBER 31, 2003

9.  QUARTERLY STATEMENTS OF OPERATIONS (UNAUDITED):

The following tables contain selected unaudited quarterly financial data for
fiscal years 2003 and 2002:
<TABLE>
<CAPTION>

                                                                           Three Months     Three Months
                                       Three Months      Three Months             Ended            Ended
                                              Ended             Ended     September 30,     December 31,
                                     March 31, 2003     June 30, 2003              2003             2003
                                    ---------------- ----------------- ----------------- ----------------
   <S>                                     <C>               <C>              <C>               <C>
REVENUES:
Income from completed real estate
   development......................   $  2,797,671      $  1,436,429      $  3,984,006      $ 3,154,330
Other...............................         16,157               107                95              760
                                    ---------------- ----------------- ----------------- ----------------
   Total revenues...................      2,813,828         1,436,536         3,984,101        3,155,090

EXPENSES:
Management fees paid to Manager.....      1,127,933         1,096,143           868,137          716,047
Provision for impairment of
   investments in real estate
   development......................        763,059        13,606,038         2,208,575       10,921,967
General, administrative and other...        392,636           250,550           529,883          757,653
                                    ---------------- ----------------- ----------------- ----------------
   Total expenses...................      2,283,628        14,952,731         3,606,595       12,395,667
                                    ---------------- ----------------- ----------------- ----------------

   Net income (loss)................        530,200       (13,516,195)          377,506       (9,240,577)
   Preferred stock dividends and
     distributions..................     (3,930,392)       (3,935,292)       (2,623,554)              --
                                    ---------------- ----------------- ----------------- ----------------

   Net loss allocable to common.....     (3,400,192)      (17,451,487)       (2,246,048)      (9,240,577)
                                    ================ ================= ================= ================

Basic and diluted net loss per
   common share.....................        (34,002)         (174,515)          (22,460)         (92,406)
                                    ================ ================= ================= ================

Basic and diluted weighted-average
   common shares....................            100               100               100              100
                                    ================ ================= ================= ================
</TABLE>














                                                FS-20
<PAGE>


                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                                   (continued)

                               DECEMBER 31, 2003

<TABLE>
<CAPTION>



                                                                           Three Months     Three Months
                                       Three Months      Three Months             Ended            Ended
                                              Ended             Ended     September 30,     December 31,
                                     March 31, 2003     June 30, 2003              2003             2003
                                    ---------------- ----------------- ----------------- ----------------
   <S>                                     <C>               <C>              <C>               <C>
REVENUES:
Income from completed real estate
   development (including $0, $0,
   $981,443 and  $0 from affiliates)   $  1,055,530      $  5,682,996       $ 2,787,906      $   491,757
Other...............................             --            61,957               141          (61,368)
                                    ---------------- ----------------- ----------------- ----------------
   Total  revenues..................      1,055,530         5,744,953         2,788,047          430,389

EXPENSES:
Management fees paid to Manager.....      2,658,152         2,450,403         2,438,338        2,083,808
Provision for impairment of
   investments in real estate
   development......................        145,782         1,327,534         7,992,171       11,772,556
General, administrative and other...        105,505            62,852           117,001          169,542
                                    ---------------- ----------------- ----------------- ----------------
   Total expenses...................      2,909,439         3,840,789        10,547,510       14,025,906
                                    ---------------- ----------------- ----------------- ----------------

   Net income (loss)                     (1,853,909)        1,904,164        (7,759,463)     (13,595,517)
   Preferred stock dividends and
     distributions..................     (5,733,818)       (5,763,743)       (5,871,995)      (3,936,450)
                                    ---------------- ----------------- ----------------- ----------------

   Net loss allocable to common.....   $ (7,587,727)     $ (3,859,579)    $ (13,631,458)   $ (17,531,967)
                                    ================ ================= ================= ================

Basic and diluted net loss per
   common share.....................    $   (75,877)      $   (38,596)      $  (136,315)     $  (175,320)
                                    ================ ================= ================= ================

Basic and diluted weighted-average
   common shares outstanding........            100               100               100              100
                                    ================ ================= ================= ================
</TABLE>















                                     FS-21