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, 2002

                         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>
                                     PART I

ITEM 1.  BUSINESS

The Company and Affiliates

     We are a real estate  investment  trust (REIT)  incorporated in Maryland on
March 18, 1999. We began  operations  May 1, 1999.  We make and fund  short-term
construction   mortgage   loans  that  are  made  to   developers  of  for-sale,
single-family and multi-unit  residential real estate.  All loans are secured by
recorded deeds of trust on the property  being  developed,  and title  insurance
protecting  the position of the deeds of trust is always a condition to making a
loan.  Most loans are  secured  by first  deeds of trust on the  property  being
developed,  although,  under proper  circumstances  and where the loan meets our
requirements,  we may accept a junior deed of trust. To date, we have made loans
only in Northern California,  however, there is no restriction on our ability to
make or fund loans in other areas. We do not engage in any foreign operations or
derive any revenue from foreign operations.

     Primecore  Funding  Group,  Inc., an affiliate,  pursuant to an amended and
restated  management  agreement  dated  October  17,  2002,  manages  all of our
affairs.  We have no  employees.  Our  manager,  or an affiliate of our manager,
originates  and  services  all of the  mortgage  loans  that  we  make  and  the
properties  we own  through  foreclosure  or deed in  lieu of  foreclosure.  Our
manager bears all operating expenses connected with originating and managing our
mortgage loan portfolio and receives a monthly  management  fee. At December 31,
2002,  our manager  serviced our  portfolio of mortgage  loans with an aggregate
balance of $192.6 million.

     Susan Fox, one of our founders,  is the President and sole  shareholder  of
Primecore Funding Group,  Inc.  Primecore Funding Group, Inc. holds a restricted
real estate broker license  issued by the California  Department of Real Estate.
We have affiliates with whom we share common officers and some common directors,
but which have their own, independent business purposes.  Our affiliates include
Primecore  Properties,  Inc.,  Eprime,  Inc., and 99 El Camino  Partners LLC. 99
Investors, LLC is a California limited liability company of which the Company is
the sole member.  We have issued four classes of  securities:  (1) common stock;
(2) Class A Convertible  Preferred  stock;  (3) Series A notes; and (4) Series B
notes.

Business Strategies

     Our investment  objective is to make construction loans on projects that we
believe  are  likely  to  ultimately  sell for an  amount  in excess of the loan
principal,  plus interest at the agreed upon rate, and contractual loan fees. We
conduct, through our manager, centralized loan underwriting and pricing, project
evaluation,  loan funding and loan servicing to maintain control of the risks of
operating a construction  mortgage lending operation and managing a portfolio of
short-term construction mortgage loans. All of our loans are secured by recorded
deeds of trust,  and are supported by loan  documents that have been designed to
protect our investments. Our manager manages the loans with the goal of assuring
that disbursements are proper and that projects are built, to the maximum extent
possible, in accordance with stated budgets and timelines.

     We serve a niche that is different from institutional new-home construction
lenders.  Nevertheless,  we face  competition in the business of originating and
servicing  construction mortgage loans from banks, thrifts and other independent
mortgage  lenders.  While  many of these  entities  have  significantly  greater
resources,  we compete  effectively  due to: (1) our tax advantaged  status as a
REIT;  (2)  our  concentration  in  construction   lending,   (3)  freedom  from
bureaucracy  that allows more  flexibility in meeting  borrower  needs;  and (4)
freedom from  regulatory-related  administrative  costs and requirements,  which
requirements can result in increased costs to the borrower due to delays in loan
approval, construction or funding of loans.

Dividend Policy and Distributions

     In order to maintain our status as a REIT, we are required to distribute at
least 90% of our annual taxable income. We currently make dividend distributions
monthly,  although  this is subject to change at the  discretion of our Board of
Directors. So long as shares of preferred stock remain outstanding, only holders
of our  preferred  stock  will  receive  dividends;  and  there  will be no cash
dividends declared or paid on our common stock.

     We pay dividends  monthly to  shareholders of record based on the number of
weighted  average  shares owned during the preceding  calendar  month.  Since we
began  operations  on May 1, 1999,  we have paid  dividends  totaling  $3.97 per
weighted average share.

     Our Board of Directors  determines the amount of dividends.  On October 17,
2002, our Board of Directors  voted  unanimously to adjust our monthly  dividend
distribution  to  shareholders  from  $0.0875  per  share to  $0.0583  per share


                                       2
<PAGE>
beginning with distributions declared in October 2002 and paid in November 2002.
In adjusting the distribution,  the Board considered the following factors:  the
economy over the past year; prospects for a quick turnaround in the economy; the
economic  uncertainties  arising from world events;  and the weakness in the San
Francisco Bay Area real estate market and its actual and potential impact on our
loan portfolio. The Board also considered the needs of shareholders when setting
the  distribution  rate,  recognizing  the  desires of  shareholders  to receive
monthly  distributions and also recognizing that  distributions at the specified
rate will result in a return of capital to shareholders  since the distributions
will  exceed  income.  The Board  will  continue  to  review  and  reassess  the
distribution policy as new information becomes available.

Mortgage Lending

     General Business Model. Our business plan is to make and hold to maturity a
portfolio of  construction  mortgage loans for  investment  that generates a net
interest  margin  over time and  allows us to take  full  advantage  of our REIT
status.  The  loans  are  made to  developers  of  for-sale,  single-family  and
multi-unit  residential  real estate.  Our loans often include  funding for both
land acquisition and development.  Most loans are written with maturity dates of
up to 18 months, which dates may be extended by our manager when deemed to be in
the Company's best interests,  especially,  during periods of economic slowdown.
Loan interest rates are fixed and have ranged from 11% to 18%. In the past, loan
origination fees,  typically 4% of the loan commitment amount, have been charged
to borrowers.  On a going forward basis,  such origination fees may be reflected
in the interest  rate  charged to a borrower.  All loans are secured by recorded
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.  To
date,  we have made  loans only in  Northern  California,  however,  there is no
restriction on our ability to make or fund loans in other areas.

     All approved loans are subject to detailed loan documentation that has been
formulated by legal counsel for our specific purposes.  Our manager monitors all
loans to ensure that they are being properly administered and that loan proceeds
are properly disbursed.  All 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  our  manager  determine  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.  Although we do not limit the amount of our  investment in any single
construction loan, we generally lend up to 75% of the estimated  completed value
of the real estate.

     Management of the Company and Its Loan Portfolio.  Primecore Funding Group,
Inc., our affiliate,  manages all of our business, subject to direction from our
Board of  Directors.  Our manager bears all operating  expenses  connected  with
originating  and managing our mortgage  loan  portfolio,  and receives a monthly
management  fee that is established  by a written  management  agreement that we
entered  into with our manager.  Our  manager's  responsibilities,  which may be
satisfied by subcontracts with affiliates or others, include:

     Representing the Company in connection with arranging loans;

     In accordance  with the  directions  of the  Company's  Board of Directors,
investing  or  reinvesting  any  money  of the  Company;Furnishing  reports  and
statistical  and economic  research to the Company  regarding the Company's real
estate loan activities and the performance of its portfolio of loans;

     Administering  the  day-to-day  operations  of the Company  and  performing
administrative  functions necessary in the management of the Company,  including
the  collection of revenues,  the payment of the Company's  expenses,  debts and
obligations and the maintenance of appropriate computer services to perform such
administrative functions;

     Counseling  the Company in connection  with policy  decisions to be made by
the Board of Directors;

     Overseeing the servicing of the Company's loans;Establishing  underwriting,
appraisal and quality control procedures for the loans made by the Company;

     Providing  the  Company  with data  processing,  legal  and  administrative
services  to the extent  required  to  implement  the  business  strategy of the
Company;

                                       3
<PAGE>

     Providing  all actions  necessary  for  compliance  by the Company with all
federal,  state and local regulatory  requirements  applicable to the Company in
respect of its business activities,  including maintaining books and records and
preparing  or causing to be prepared all  financial  statements  required  under
applicable regulations and contractual undertakings;

     Providing  all actions  necessary  to enable the  Company to make  required
federal,  state and local tax  filings  and  reports  and  generally  enable the
Company  to  maintain  its  status as a REIT,  including,  but not  limited  to,
soliciting  stockholders for required  information to the extent required by the
REIT provisions of the Code;

     Communicating on behalf of the Company with the stockholders of the Company
as required  to satisfy any  reporting  requirements  and to maintain  effective
relations with such stockholders;

     and Performing such other services as may be required from time to time for
management and other activities relating to the assets and growth of the Company
as the Board of Directors  shall  reasonably  request or the Manager  shall deem
appropriate under the particular circumstances.


Our manager is contractually obligated to bear the following expenses on our
behalf:

1. Employment expenses of the personnel employed by the Manager, including, but
not limited to, salaries, wages, payroll taxes, and the cost of employee benefit
plans;

2. Rent, telephone, utilities, office furniture, equipment and machinery
(including computers, to the extent utilized) and other office expenses (such as
asset/liability software, modeling software and other software and hardware) of
the Manager needed in order to perform its duties as set forth herein;

3. Bookkeeping fees and expenses including any costs of computer services, other
than in connection with communications to security holders of the Company;

4. Miscellaneous administrative expenses incurred in supervising and monitoring
the Company's investments or any subsidiary's investments or relating to
performance by the Manager of its functions;

5. Fees and expenses paid to advisors under agreements with the Manager;

6. Expenses connected with the acquisition of the Company's assets and mortgage
loans;

7. Expenses related to the servicing of the Company's mortgage loans; and

8. Travel and related expenses of personnel of the Manager when attending
meetings or performing other business activities which relate to the Company or
any subsidiary of the Company.

     Our  headquarters  are the offices of our manager.  We currently do not pay
any rent for our headquarters,  as these expenses are borne by our manager.  The
headquarters  consist of 6,828 square feet of office space at 99 El Camino Real,
Menlo Park,  California  94025 leased by our manager from 99 El Camino Partners.
The lease expires on May 31, 2009,  but includes two 5 year options  expiring on
May 31, 2019. We believe our present facilities are adequate to meet our current
business requirements and those of our manager, and that suitable facilities for
expansion will be available if and when necessary.

     Loan Origination.  Our manager evaluates prospective  construction loans on
our behalf.  Our manager,  at times with  Primecore  Properties,  Inc., its real
estate brokerage  affiliate,  arranges and services all loans on our behalf. Our
manager  employs  persons  skilled  in  loan   underwriting,   disbursement  and
monitoring,  and the various business and legal issues that may be involved with
real estate lending. Mortgage loan originations are generally generated from new
loans made to existing developer  relationships,  referrals from real estate and
mortgage loan brokers and contacts from  prospective  borrowers.  Proposed loans
are  evaluated  by our  manager  to  determine  whether  the  loan  is of a type
typically  made by us, if the  security for the loan and the loan to value ratio
meets our investment  standards,  and whether the loan can be priced in a manner
to meet our  investment  criteria and  objectives.  In the past, our manager has
generally  relied on  analysis  by its  representatives  and not on third  party
appraisals in determining  whether to originate a particular  construction loan.

                                       4
<PAGE>

In January 2003, we  commissioned  third party  appraisals  for all our existing
loans and  properties  we owned.  We will also seek third party  appraisals  for
loans made in the future and for modified loans.

     Collateral  valuation.  Collateral  valuation receives special attention in
the underwriting of our construction  loans. Our manager utilizes the experience
of its employees,  brokers in its real estate brokerage  affiliate,  third party
appraisals and other information deemed useful to make assessments of a proposed
project's  viability  and projected  value,  and to determine if a proposed loan
meets our criteria.  In the loan evaluation process,  primary 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 outstanding loan balance.

     Loan Servicing.  Our manager has overall servicing  responsibility  for all
construction  loans that we make,  with the goal being  protection of loan funds
and  collateral  for loans.  Servicing  involves  taking all steps  necessary to
administer  the  loan  and  collect  loan  payments,  including  monitoring  the
propriety of loan draw requests,  monitoring  progress of a project,  accounting
for  principal and  interest,  addressing  loan  delinquencies,  arranging  loan
workouts or extensions  where  appropriate,  and  supervising  foreclosures  and
property  dispositions.  Our  manager  may,  where  appropriate,  employ  at the
borrower's expense, an outside agent to oversee  construction  progress and draw
requests. Loan proceeds are disbursed as construction progresses, and only after
our manager has received  satisfactory  documentation  and  evidence.  Using its
experience in construction lending and its knowledge of real estate development,
our manager  monitors  the  progress of all  development  projects  securing our
loans,  and takes steps to ensure that the development  projects are being built
in a timely manner, within an agreed budget. 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.
In addition,  our manager generally  requires the submission of signed labor and
material lien releases by the builder in connection with each completed phase of
the project before making any periodic disbursements for a loan.

     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.

     Other  REIT  qualified  investments.  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.  We may also  purchase  the stock of other  mortgage  REITs or similar
companies if we believe that they will yield  attractive  returns on capital and
otherwise not violate any requirements for maintaining our status as a REIT.

ITEM 2. PROPERTIES.

     We do not own any property  for  investment  purposes.  We own certain real
property  that  we  have  acquired  through  foreclosure  or  deed  in  lieu  of
foreclosure. Our policy is to attempt to maximize the value of the property

                                       5
<PAGE>

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,
2002:
<TABLE>
<CAPTION>

                                                                                            Estimated
                                                               Number      Carrying         Realizable
   Property Type                    Construction Status        of units    Amount           Value
------------------------------------------------------------------------------------------------------
     <S>                                    <C>                   <C>        <C>              <C>
Per unit market value estimated at less than $2.5 million

   Land development                 Completed for sale            4      $1,676,642       $ 1,584,241
   Condominium                      Framing                       2       1,542,395         1,788,641
   Single family detached           Demolition/Grading            4       1,235,039         1,654,059
                                    Drywall                       1         134,000           134,000
                                    Cabinets/Countertops          2       3,420,626         3,626,737
                                    Completed for sale            6       8,098,752         8,098,752
                                                               ---------------------------------------
                                                                 19      16,107,454        16,886,430

Per unit market value estimated at $2.5 million or higher

   Single family detached           Entitlement/Permit            2       1,698,708         1,698,708
                                    Demolition/Grading            1       1,168,069         1,640,124
                                    Framing                       1       1,690,291         1,690,292
                                    Drywall                       1       3,573,246         3,573,246
                                    Cabinets/Countertops          3       9,538,400        10,142,979
                                    Completed for sale            1       3,041,000         3,041,000

                                                                  9      20,709,714        21,786,349
                                                               ---------------------------------------
                                                                 28      36,817,168        38,672,779
                                                               =======================================
</TABLE>

ITEM 3. LEGAL PROCEEDINGS.

     We are  not  presently  subject  to any  material  litigation  nor,  to our
knowledge,  is any  litigation  threatened  against  us  which  collectively  is
expected  to  have a  material  adverse  effect  on our  cash  flows,  financial
condition or results of  operations.

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, 2002.

                                     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, 2002, there were issued and outstanding 22,496,804 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
newly issued shares, shareholder redemptions and dividend reinvestments. 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.

                                       6
<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," 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 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
common  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

                                       7
<PAGE>

distribution to the holders of our common shares.  Thereafter, to the extent any
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 preferred  shareholders  was held on May 25,
2000.  Subsequent general meetings of shareholders were held on May 31, 2001 and
May 30, 2002.  Special  meetings of preferred  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.

     Repurchase of Shares and Restrictions on Transfer.  Two of the requirements
of  qualification  for the tax benefits  accorded by the REIT  provisions of the
Internal Revenue Code are that (1) during the last half of each taxable year not
more  than 50% in value  of the  outstanding  shares  may be owned  directly  or
indirectly by five or fewer  individuals,  the "50%/5 stockholder test", and (2)
there  must be at least 100  stockholders  on at least 335 days of each  taxable
year of 12 months.

     To meet these  requirements at all times, our charter prohibits any person,
without the prior consent of the Board of Directors,  from acquiring or holding,
directly or  indirectly,  shares of capital  stock in excess of 9.8%, by vote or
value, of the aggregate of the outstanding  shares of capital stock or in excess
of 9.8%,  by value or number of shares,  whichever is more  restrictive,  of the
aggregate of the outstanding  shares of our common stock. For this purpose,  the

                                       8
<PAGE>

term  "ownership" is defined in accordance  with the REIT provisions of the Code
and the  constructive  ownership  provisions  of  Section  544 of the  Code,  as
modified  by  Section  856(h)(1)(B)  of the  Code.

     For purposes of the 50%/5  stockholder  test,  the  constructive  ownership
provisions  applicable  under  Section 544 of the Code  attribute  ownership  of
securities owned by a corporation,  partnership, estate or trust proportionately
to its  stockholders,  partners or  beneficiaries.  These Code  provisions  also
attribute  ownership of securities  owned by family  members to other members of
the same  family  and treat  securities  with  respect  to which a person has an
option to purchase  as actually  owned by that person in each case only if to do
so would cause a violation of the 50%/5 test. Further, these Code provisions set
forth  rules  as  to  when  securities  constructively  owned  by a  person  are
considered to be actually owned for the further  application of such attribution
provisions,  referred to as  "reattribution".  Thus, for purposes of determining
whether a person  holds shares of capital  stock in  violation of the  ownership
limitations set forth in our charter, many persons may be deemed to own directly
more than the 9.8% limit  because an  entities'  shares  are  attributed  to its
individual  investors.  A person  will be treated  as owning not only  shares of
capital stock  actually or  beneficially  owned,  but also any shares of capital
stock  attributed to such person under the attribution  rules  described  above.
Accordingly, under some circumstances, shares of capital stock owned by a person
who individually owns less than 9.8% of the shares  outstanding may nevertheless
be in violation of the ownership limitations set forth in our charter. Ownership
of shares of our capital stock through such attribution is generally referred to
as constructive  ownership.  Actual, and not constructive,  ownership determines
the 100 stockholder test.

     Our charter provides that if any transfer of shares of capital stock occurs
which, if effective,  would result in any person  beneficially or constructively
owning shares of capital  stock in excess or in violation of the above  transfer
or  ownership  limitations,  then that  number of  shares of  capital  stock the
beneficial or constructive  ownership of which otherwise would cause such person
to violate  such  limitations,  rounded to the nearest  whole  shares,  shall be
automatically transferred to a trustee, as trustee of a trust, for the exclusive
benefit of one or more  charitable  beneficiaries,  and the intended  transferee
shall not acquire any rights in such shares. Shares held by the trustee shall be
issued and outstanding  shares of capital stock.  The intended  transferee shall
not benefit  economically from ownership of any shares held in the trust,  shall
have no rights to  dividends,  and shall not possess any rights to vote or other
rights  attributable to the shares held in the trust. The trustee shall have all
voting  rights and rights to  dividends or other  distributions  with respect to
shares held in the Trust,  which  rights shall be  exercised  for the  exclusive
benefit of the charitable  beneficiary.  Any dividend or other distribution paid
to the intended transferee before our discovery that shares of common stock have
been transferred to the trustee shall be paid with respect to such shares to the
trustee  by the  intended  transferee  upon  demand  and any  dividend  or other
distribution  authorized  but unpaid shall be paid when due to the trustee.  Our
Board of Directors may, in their discretion,  waive these requirements on owning
shares in excess of the ownership limitations.

     Within 20 days of  receiving  notice from us that  shares of capital  stock
have been  transferred  to the trust,  the trustee shall sell the shares held in
the trust to a person,  designated by the trustee, whose ownership of the shares
will not violate the ownership  limitations set forth in our charter.  Upon such
sale,  the interest of the  charitable  beneficiary in the shares sold shall end
and the trustee  shall  distribute  the net proceeds of the sale to the intended
transferee and to the charitable beneficiary as follows. The intended transferee
shall  receive the lesser of (1) the price paid by the intended  transferee  for
the shares or, if the intended  transferee  did not give value for the shares in
connection  with the  event  causing  the  shares to be held in the  trust,  for
example,  in the case of a gift,  devise or other such  transaction,  the market
price,  as  defined  below,  of the shares on the day of the event  causing  the
shares to be held in the trust  and (2) the  price  per  share  received  by the
trustee from the sale or other  disposition of the shares held in the trust. Any
net sales  proceeds in excess of the amount  payable to the intended  transferee
shall be immediately paid to the charitable beneficiary.  In addition, shares of
capital  stock  transferred  to the trustee shall be deemed to have been offered
for sale to us, or our designee, at a price per share equal to the lesser of (1)
the price per share in the  transaction  that  resulted in such  transfer to the
trust, or, in the case of a devise or gift, the market price at the time of such
devise  or gift,  and (2) the  market  price on the  date we,  or our  designee,
accepts  such  offer.  We shall have the right to accept  such  offer  until the
trustee has sold shares held in the trust.  Upon such a sale to us, the interest
of the charitable beneficiary in the shares sold shall end and the trustee shall
distribute the net proceeds of the sale to the intended transferee.

                                       9
<PAGE>

     The term "market  price" on any date shall mean,  with respect to any class
or series of our  outstanding  shares of stock,  the closing  price,  as defined
below,  for such shares on such date. The "closing price" on any date shall mean
the last sale price for such shares, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
for such  shares,  in either  case as  reported  in the  principal  consolidated
transaction  reporting  system with respect to securities  listed or admitted to
trading on the NYSE or, if such  shares are not listed or admitted to trading on
the NYSE, as reported on the principal consolidated transaction reporting system
with respect to securities listed on the principal national  securities exchange
on which such  shares are listed or  admitted  to trading or, if such shares are
not listed or admitted to trading on any national securities exchange,  the last
quoted  price,  or, if not so quoted,  the average of the high bid and low asked
prices in the  over-the-counter  market, as reported by the National Association
of Securities Dealers,  Inc. Automated Quotation System of, if such system is no
longer in use, the principal other automated  quotation  system that may then be
in use or, if such shares are not quoted by any such  organization,  the average
of the closing bid and asked prices as furnished by a professional  market maker
making a market in such  shares  selected  by the Board of  Directors  or, if no
trading price is available for such shares, the fair market value of the shares,
as determined in good faith by the Board of Directors.

     Every  owner of more than 5%, or such lower  percentage  as required by the
Code or the regulations promulgated thereunder,  of all classes or series of our
stock,  within 30 days after the end of each taxable  year,  is required to give
written  notice to us stating the name and address of such owner,  the number of
shares  of  each  class  and  series  of  our  stock  beneficially  owned  and a
description  of the manner in which such shares are held.  Each such owner shall
provide to us with such  additional  information  as we may request to determine
the effect, if any, of such beneficial  ownership on our status as a REIT and to
ensure compliance with the ownership limitations.

     Subject to limitations, the Board of Directors may increase or decrease the
ownership  limitations.  In  addition,  to the extent  consistent  with the REIT
provisions  of the  Code,  the  Board  of  Directors  may  waive  the  ownership
limitations  for and at the request of purchasers  in this private  placement or
subsequent purchasers.

     The  provisions  described  above  may  inhibit  market  activity  and  the
resulting  opportunity for the holders of our capital stock to receive a premium
for their shares that might otherwise  exist in the absence of such  provisions.
Such provisions also may make us an unsuitable investment vehicle for any person
seeking  to obtain  ownership  of more than  9.8% of the  outstanding  shares of
capital stock.

     Before the listing of our stock for trading on a national exchange, we will
not permit a qualified  plan, for this purpose only, the term  "qualified  plan"
also includes  IRAs,  entities  whose assets  include plan assets by reason of a
plan's investment in such entity,  and other employee benefit plans described in
Section  3(3) of ERISA,  whether or not subject to Title I of ERISA,  to acquire
our stock, either directly from us or by transfer from an existing  shareholder,
if such proposed transfer would cause the ownership of any class of our stock by
qualified plans in the aggregate to equal or exceed 25%. As a result,  we retain
the right not to approve of the purchase of stock by or on behalf of a qualified
plan transferee or purchaser of shares.  This restriction could adversely affect
the ability of a shareholder to sell his or her stock.

ITEM 6. SELECTED FINANCIAL INFORMATION.

You should  read the  following  financial  and  operating  data  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.

                                       10
<PAGE>

Capitalization

Our capitalization, as of December 31, 2002, was as follows:

 Borrowings:
    Unsecured notes payable                         $  14,276,929
    Secured line of credit
     ($15,000,000 facility)                            14,431,132
                                                ------------------

      Total borrowings                                 28,708,061
                                                ------------------

 Capital Stock
    Class A Convertible preferred stock
     - 22,496,804 shares outstanding                  226,079,882
 Common stock - 100 shares outstanding  (1)                     1
    Accumulated dividends and distributions           (80,132,217)
                                                ------------------

          Total borrowings and capital stock        $ 174,655,727
                                                ==================

(1)  Our founders have 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 Form 10-K.




















                                       11
<PAGE>


<TABLE>
<CAPTION>
                                                                   December 31, 2001   December 31, 2000   December 31, 1999
                                               December 31, 2002       (as restated)       (as restated)       (as restated)
                                              ------------------- ------------------ -------------------- -------------------
                                                                 (in thousands, except per share amounts)
  <S>                                                      <C>                <C>                 <C>                <C>
  Total assets................................       $   147,374         $  184,597         $   207,077        $   176,756
  Total debt..................................            28,708             32,313              45,432              9,039
  Convertible preferred stock.................           226,080            216,158             199,286            189,851
  Accumulated deficit.........................           (29,520)            (8,215)             (8,882)           (12,455)

                                                                                                                 Inception
                                                      Year Ended         Year Ended          Year Ended   (March 18, 1999) to
                                               December 31, 2002  December 31, 2001   December 31, 2000   December 31, 1999
                                              ------------------- ------------------ -------------------- -------------------

  Operating  Results under Generally  Accepted
  Accounting Principles in the United States:
      Revenues................................            10,018             12,588              15,140              2,583
      Net Income (loss).......................           (21,305)               667               3,572            (12,455)

 (Loss) Income allocable to a Preferred Share:
      Basic and Diluted.......................        $    (0.96)        $     0.03          $     0.19              (0.72)

 Preferred stock dividends and  distributions
      per share...............................        $     0.96         $     1.12          $     1.14          $    0.75

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

 Cash flows from (used by):
      Operating activities....................              (322)            (2,156)              6,076             (1,434)
      Investing activities....................            17,991             26,400            ( 28,139)           (26,887)
      Financing activities....................           (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.  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

     Primecore  is engaged in the business of  providing  secured  loans for the
development  of  residential  real  estate.  The business has been active in its
current REIT form since 1999 and related  business  activities that preceded the
formation of the REIT began in 1996.  Officers and  employees of Primecore  have
substantial   experience  in  real  estate  and  real  estate  lending  matters.

Primecore's strategy has been specifically  designed to serve the needs of small
and medium-sized  developers who are actively building single-family and smaller
multi-family   housing  units  in  high  demand   residential   areas.

                                       12
<PAGE>

     Several  characteristics  of this  target  customer  base  and  residential
housing market have been vital to Primecore's success:

1.      These borrowers are generally not well served by  institutional  lenders
such as commercial banks. There are few lending institutions that are interested
in  making  construction  loans  to  smaller  developers.   Traditional  lending
institutions  often lack the focused local  residential real estate  development
expertise to evaluate  specific projects  involving  redevelopment of individual
home  sites or  smaller  multifamily  complexes.  Thus  these  institutions  are
generally slow to respond to developers  needs and they propose  difficult terms
and  conditions  on their  loans.  Developers  have  been  pleased  to deal with
Primecore due to its knowledge and responsiveness with respect to such projects.
Furthermore,  the  developers  have been willing to pay interest  rates and loan
fees above  those  charged by  commercial  banks on other  classes of loans.

2.      Residential real estate demand in certain well-established locations has
historically  been  strong  throughout  the various  stages of economic  cycles.
Except during exceptional economic downturns, this demand strength has supported
relatively  strong and  stable  valuations  for such  residential  real  estate.
Similarly,  this demand  strength  has  typically  led to high sales  volumes of
dwelling units.

3.      The greater San Francisco Bay Area and  specifically  the  mid-peninsula
region surrounding Primecore,  includes numerous cities, towns and neighborhoods
that exhibit very attractive  residential housing  characteristics.  This region
has a large and diverse economy developed in a geographically  constrained area.
Most residential housing locations have been fully developed for decades and yet
a chronic  shortage of housing  perpetually  exists in proximity  to  employment
opportunities.  New  housing  built in this  region on either the few  remaining
undeveloped lots or on lots formerly occupied by older housing has historically,
excluding  exceptional economic downturns,  enjoyed strong demand and relatively
stable high values.  Most of the loans we make are  classified  as  Acquisition,
Development  and  Construction  (ADC) loans  because  they  contain  most of the
characteristics  peculiar to these types of loans.  ADC loans have the following
characteristics:

1.   The loans are made to acquire, develop and construct real estate.
2.   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;
3.   The lender funds substantially all the interest and fees during the term of
     the loan by adding them to the loan balance;
4.   Typically, the lender's only security is the project itself. The lender no
     recourse to other assets of the borrower, and the borrower does not
     guarantee the debt;
5.   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.


     Primecore's  business  model  contemplates  making  ADC  loans  secured  by
residential  real estate.  We have,  in the past,  sought to  accomplish a gross
yield  of  approximately  16% on our  loans.  After  payment  of  expenses,  the
Primecore  model  contemplates  an annual  cash  dividend  return  to  Primecore
investors of 9% to 11%.

     However, the Bay Area economy has endured an unprecedented slowdown in 2001
and 2002.  This was driven  first by a reversal  of the rapid  expansion  of the
technology and  telecommunications  industries in which Silicon Valley companies
play a leading role.  Then,  the general  economic  slowdown  experienced in the
United States and Europe following terrorist attacks in the fall of 2001 further
exacerbated this economic slowdown.

     While some residential real estate in the region has generally continued to
enjoy strong demand despite the economic downturn, projects in the locations and
price  ranges we funded were hard hit.  In  particular,  housing  with prices in
excess of $2.5 million  experienced a significant  slow down in sales volume and
unprecedented  valuation  declines.  Prior  to 2000,  we had made a  significant
number of ADC loans for the  development  of such housing  units.  As of January
2001, 64% of the ADC loan portfolio consisted of loans greater than $2.5 million
per unit.  These  projects have been slower to sell than  anticipated,  and in a
number of cases have been sold at substantially  lower prices than  contemplated
when the ADC loans were made.  As a result,  the income we expected in 2002 from
these ADC loans was not realized.

                                       13
<PAGE>

     During 2003,  certain  additional under performing ADC loans and foreclosed
properties that we now own must be liquidated. We expect continued impact on our
income from this  liquidation.  As existing projects are completed and sold, new
ADC loans will be made to balance the  portfolio  with loans  projected to yield
positive rates of return.

Results of Operations

Revenue

     We charge  interest on the money we lend to developers.  Our business model
targeted  a 16% gross  rate of return on these  funds.  Although  we charge  our
borrowers  for the  use of our  money,  we do not  actually  collect  principal,
interest or fees until the financed  property has sold or been  refinanced  by a
third party  lender.  We also do not generally  have recourse to other  borrower
assets,  so we must  rely on the  value  of the  securing  property  to  support
repayment of our loan plus accrued interest.

     In 2001,  the San  Francisco  Bay Area  experienced  a quick decline in the
values of homes  priced  above $5  million.  In 2002,  this  market  experienced
further  declines  in  values  and  fewer  homes  sold at  those  price  points.
Additionally,  in 2002,  the decline in the number of sales began to affect what
had been the middle priced sector,  those homes priced at between $2 million and
$5 million.  The effect essentially merged the middle sector into the high price
sector at a price point above $2.5  million.  Therefore,  homes now priced above
$2.5 million have roughly the same market  characteristics as homes priced above
$5 million:  there are few buyers,  and the buyers that exist are very selective
and  deliberate  about  making a purchasing  decision.  The result is that homes
priced above $2.5 million are  typically  taking  longer to sell and selling for
lower prices.

     A large  percentage of our assets are invested in properties that have been
projected to sell above $2.5 million. As of December 31, 2002, approximately 64%
of our assets  were  invested in this  sector.  As a result,  we are  especially
vulnerable to the continued  softening in the high-end  market.  During the year
ended  December 31, 2002, we charged  $21.2  million to  impairment  expense for
properties  on which we believe we will not recover the  carrying  amount of our
investment upon the  disposition of the property  compared with $73,000 in 2001.
The increase in the impairment  charge is a result of two factors:  management's
reduction in projected values based on the deterioration of the high-end market,
and  increased  costs to  complete  projects  which have been  acquired  through
foreclosure.

     During 2002, as prices continued to decline in the high-end sector, many of
our  borrowers  experience   difficulties  in  completing  projects  or  selling
properties at prices that previously seemed reasonable. In many cases, borrowers
recognized  that there would be no profit from the sale of their project.  Their
motivation to continue to manage the project had therefore diminished,  and in a
number  of  cases  we  had  to  foreclose  on  projects  in  order  to  complete
construction and sell the property.  The foreclosure  process adds approximately
four months to the time period required to construct a property since frequently
all work ceases during the foreclosure period. In addition,  in 2002, several of
our borrowers declared bankruptcy  immediately prior to a scheduled  foreclosure
sale, thereby delaying further our ability to take control of properties.  After
control has been  obtained,  it is necessary to restart the project and complete
construction.  This can sometimes significantly add to the original cost. During
2002  we  took  title  to 23  projects  through  foreclosure  or deed in lieu of
foreclosure  compared with 11 and none during the years ended  December 31, 2001
and 2000.










                                       14
<PAGE>


The following table breaks down the results of our operations from our
investments during 2002:

<TABLE>
<CAPTION>
                          Number
                          of loans         Repayments             Income         Yield          Impairment
                          --------- ------------------ ------------------ -------------  ------------------
        <S>                  <C>              <C>               <C>            <C>                <C>
Paid investments
       Foreclosed               14      $  17,620,481       $    381,200         (4.73)%     $   2,484,337
       ADC loans                19         28,243,279          9,636,989         12.13                  --
Active investments
       Foreclosed               18          4,756,801                 --            --          16,410,930
       ADC loans                39          7,520,458                 --            --           2,342,776
                                    ------------------ ------------------ -------------  ------------------
       Total                    90      $  58,141,019      $  10,018,189          8.11%      $  21,238,043
                                    ================== ================== =============  ==================
</TABLE>

     The  $16,410,930  impairment  reflected as  Foreclosed  active  investments
includes  impairment charges of $11,419,566 related to properties formerly owned
by our  affiliates.  As part of an  Affiliate  Loan  Agreement,  our  manager is
obligated to repay the amount of these impairments.  The repayments will be made
from 70% of any cash flow or rate of return  bonuses due to our  manager.  These
payments will be accounted for as income when received.

     We calculate the gross  internal rate of return for our  investments  which
have repaid  based on the  discounted  present  value of the cash flows from our
investment  activity on an investment by investment  basis. In 2002, our average
yield from paid investments was 8.11%.  This average yield is approximately  one
half of our  target  yield of 16%.  The  chart  below  depicts  the yield on our
investments  by quarter  since the  beginning of 2000.  The chart shows a fairly
constant  yield  until  the  second  quarter  2002  when  the  yield   decreased
significantly.  The  decrease  resulted  mainly  from  the  sale  of  foreclosed
properties,  many of which  stemmed from loans made in 1999 and 2000,  when real
estate values were at their peak.  We expect  continued  depressed  yields as we
continue to liquidate our existing  portfolio of investments  and replenish them
with more balanced investments.


                               [GRAPHIC OMITTED]


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. Because we have
a  contractual  right to receive it, the amount of interest and points we charge
borrowers  is added to the  balance  due on our ADC loans.  As the values of the
collateral supporting payment of our ADC loans have declined, the collectibility
of our  accrued  interest  and  points  has,  in many  cases,  become  doubtful.
Management  includes  the  amount  of  collectible  interest  and  points we are


                                       15
<PAGE>

entitled  to receive  when it sets  dividend  rates and prices for  selling  and
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, 2002
                                           -------------------
Investments in real estate under
   construction                                 $ 101,141,515
Investments in real estate held for sale           36,817,168
                                           -------------------
Total investments in real estate per US
   GAAP                                           137,958,683
Add: GAAP impairments                            18,753,706
   Accrued interest and points                     64,337,376
Less: Capitalized interest                        (6,566,481)
                                           -------------------

Balance owed on real estate investments           214,483,284
Amount estimated uncollectible                    (43,875,448)
                                           -------------------
Realizable value of investments in real
   estate                                       $ 170,607,836
                                           ===================

     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,  some outside our control,  can
cause changes in these estimates and produce different results. We have obtained
independent  appraisals for our investments to help us determine  expected value
upon completion. However, due to the lack of recent sale comparables for many of
our properties  priced in the high-end  sector,  it is difficult to project with
much certainty the ultimate sale price of many of these properties.

     Many of the ADC loans in our portfolio were made in 1999 and 2000, when the
real estate  market in the San  Francisco  Bay area  reached its peak.  With the
decline in values over the last two years,  current values no longer support the
prices paid to acquire the land.  The  following  chart shows the portion of our
portfolio we estimate will not be collectible based on the year the ADC loan was
made:

                                [GRAPHIC OMITTED]






                                       16
<PAGE>

Stock Redemption Price

     Subsequent  to year-end,  the Board of  Directors  approved a change to our
redemption  policy which provided for the disclosure of the fair market value of
our stock.  Because our stock does not trade on any  secondary  market,  another
method must be used to determine the fair market value. 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, 2002 for purposes of our redemption policy:

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

Cash                                                      $   4,394,107
Realizable value of investments in real estate              170,607,836
Loans secured by real estate                                  4,695,000
                                                     -------------------

Total realizable assets                                     179,696,943
Total liabilities                                            30,946,018
                                                     -------------------

Net realizable assets                                       148,750,925
Preferred shares outstanding                                 22,496,804
                                                     -------------------

Net realizable assets per share                                    6.61
                                                     ===================

Expense

     Prior to January 1, 2003,  we paid  management  fees based on the amount of
loan  commitments  outstanding  at the end of each month.  During the year ended
December 31, 2002,  our  management  fee expense was  $9,630,071  compared  with
$11,345,585 and $10,967,249 in 2001 and 2000  respectively.  The decrease in our
management fee expense resulted primarily from the decrease in the amount of our
loan commitments during 2002.

     As of October 17, 2002, we entered into an amended and restated  management
agreement  with our manager,  Primecore  Funding  Group,  Inc. The agreement was
included in an 8-K filing on December 20, 2002. The agreement generally provides
that the fees our manager earns will be based on three  components:  a base fee,
determined  monthly,  of 3.125%  per annum of the total  carrying  amount of our
investments in real estate,  determined according to US GAAP; a cash flow bonus,
determined  quarterly,  payable  only  upon  achieving  certain  levels  of loan
repayments;  and a rate of return bonus, determined quarterly,  which is payable
only upon  achieving  certain  income per share returns for holders of Preferred
Stock.

     The changes  made to the  management  agreement  are  intended to provide a
better  alignment  of interest  between our manager and the  shareholders  given
current  economic  realities.  The base fee is a reduced  fee given the  current
portfolio since the fee is based on the carrying amount of ADC loans, instead of
loan commitments.  To the extent that the manager's actions produce results that
are  above  base  expectations,   the  manager  will  be  rewarded.   Under  the
restructured agreement our base management fee expense is expected to be reduced
from $9.6 million in 2002 to approximately $4.5 million in 2003.

     Since December 31, 1999, all interest costs have been capitalized as a cost
of our investments.  Interest cost associated with our borrowings was $2,578,762
during the year ended December 31, 2002 compared with  $4,174,852 and $4,680,818
during the years ended 2001 and 2000.  The decrease is due to a combination of a
lower  average cost of debt,  9.08% in 2002  compared  with 11.01% and 10.96% in
2001 and 2000, respectively; and a lower amount of debt on our balance sheet, an
average of $28.65  million in 2002 compared with averages of $37.22  million and
$42.70  million in 2001 and 2000.  We are seeking to maintain  our debt at their
existing  levels,  and intend to negotiate  extensions of existing notes or seek
new sources to enable us to lower the cost of our debt.



                                       17
<PAGE>

     We have no employees, and our general and administrative and other expenses
consist  primarily of professional  fees,  directors' fees and insurance  costs.
General  administrative  and other  expenses  were  $454,900  for the year ended
December  31,  2002,  compared  with  $502,080  and $600,776 for the years ended
December 31, 2001 and 2000.

Liquidity and Capital Resources

     Liquidity  means the need for,  access to and uses of cash.  Our  principal
demands  for  liquidity  are cash for  operations,  funds that are  required  to
satisfy  obligations under existing loan commitments,  management fees, interest
expense   associated  with  our  indebtedness,   debt  repayments  and  dividend
distributions  to  shareholders.  In the near  term,  our  principal  sources of
liquidity are the repayments of our real estate investments, funds received from
issuance of unsecured  notes payable,  our line of credit and sales of preferred
stock.

Sources of cash

     By far,  the  largest  source  of our  liquidity  is the  repayment  of our
investments  in real  estate.  In most  cases,  we must  rely on the sale of the
project before we can collect our investment,  which means that our repayment is
largely  dependent on the state of the real estate  market.  As discussed in our
Results of Operations, at December 31, 2002 approximately 64% of our investments
were in  properties  expected  to sell at  prices  over $2.5  million.  Sales of
properties in this sector have been very slow in 2001 and 2002 as the few buyers
who are able to afford these  properties have been very  deliberate  about their
purchase decisions. Our cash flows from loan repayments are therefore a function
of both the construction period and the time it takes for the completed property
to sell.  The chart below shows the amount of proceeds we expect to collect from
our  existing  investments  based on the  quarter  the  project is  expected  to
complete  construction  and be ready for sale. The bars of the graph  categorize
the proceeds by the price sector of the underlying property.
















                                       18
<PAGE>



                               [GRAPHIC OMITTED]











     Based on existing market  conditions,  we expect completed  properties with
offer  prices  under $2.5 million to sell in three to six months if the property
is well priced.  For properties  with offer prices  exceeding  $2.5 million,  we
expect six  months to one year for the  property  to sell if it is well  priced.
Because  a single  loan  repayment  can  have a large  impact  on our  repayment
projections,  it  is  difficult  to  predict  repayments  with  much  precision,
especially  as  construction  and sales can be  delayed  due to  foreclosure  or
borrower bankruptcy  proceedings.  However, due to the large value of properties
that were  complete at December  31, 2002 and those  expected to complete in the
first quarter of 2003, we believe that we will have sufficient liquidity to meet
our commitments in a timely manner.

     In the event that our  repayments  are not  sufficient  to timely  meet our
commitments  we may be forced to reduce prices on properties we control in order
to expedite their repayment. In such cases, 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.

     Our  liquidity is also enhanced  through  sales of our Preferred  Stock and
issuance of notes  payable to  investors.  Our  Preferred  Stock is sold through
private  placements.  For the year ended  December 31, 2002 we sold 1.26 million
shares of  Preferred  Stock for  proceeds of $12.6  million  compared  with 2.79
million  shares for proceeds of $27.9 million and 2.84 million  shares for $28.2
million during 2001 and 2000, respectively.  Sales of our stock decreased during
2002  compared  with 2001 and 2000  apparently  as a result of general  economic
conditions and the  performance of our investment  portfolio.  In November 2002,
the Board of Directors voted to close our private placement. We expect to open a
new  private  placement  in 2003,  however  we do not  expect  to  generate  any
appreciable  sales until we have  liquidated a substantial  part of our existing
investment portfolio and reinvested the proceeds in new projects.

     We issue a limited  amount of  short-term  notes  payable as an  investment
alternative to our Preferred Stock.  Originally conceived as a means to fund our
portfolio  growth during the period we registered our Preferred Stock, we issued
$4.1 million in notes during the year ended 2002 compared with $19.3 million and
$61.2 million issued during the years 2001 and 2000. For the most part, this was
a  planned  reduction  on our part as we  sought  to  limit  the  amount  of our
short-term  indebtedness.  Our  objective for 2003 and beyond is to maintain our


                                       19
<PAGE>

existing notes payable balances at or around current levels through extension of
existing  notes and  issuance  of new notes to replace  maturities  of  existing
notes.

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 2003 and 2004:

<TABLE>
<CAPTION>
       Obligation                                   Total                 2003                2004
       -------------------------------    ----------------    -----------------   -----------------
               <S>                                <C>                 <C>                  <C>
       Investment fundings                   $ 46,250,000         $ 42,500,000         $ 3,750,000
       Line of credit                          14,431,432           14,431,432                  --
       Short term notes payable                14,276,929           13,806,929             470,000
       Dividend payments                       31,494,000           15,747,000          15,747,000
                                          ----------------    -----------------   -----------------
       Total                                 $106,452,361         $ 86,485,361        $ 19,967,000
                                          ================    =================   =================
</TABLE>

     Investment  fundings are our largest use of our cash.  At December 31, 2002
we  estimated  costs to complete  our  investments  were $46.25  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,
2002 as we continue to make and fund new loan commitments in 2003 and beyond.

     Our line of credit  matures in May 2003. We are  discussing an extension of
this loan with our current lender and others.  We are optimistic that we will be
successful in renewing  this  commitment or obtaining a new line of credit based
on the amount of  collateral we have  available to secure the  facility.  In the
event that we are  unsuccessful  in renewing  this facility we would have to use
more of the  proceeds  from the  repayment  of our  investments  to  repay  this
facility  rather than using the funds to make new loans.  We have  approximately
$13.8 million in unsecured notes payable that mature in 2003. Our strategy is to
extend these notes on terms that are favorable to us. As of December 31, 2001 we
had  approximately  $17.3  million in unsecured  notes payable which were due to
mature in 2002.  During the year we were successful in extending and issuing new
notes to  replace  the notes we paid  while,  at the same time,  decreasing  the
average cost of our borrowings  from 11.01% to 9.08%.  The net decrease in notes
payable resulting from our efforts was approximately $3 million.

     Although dividend payments are not contractual obligations we have included
their impact on our  liquidity  since the Board of Directors  has  determined to
maintain a dividend to shareholders  even though the dividend is currently,  and
for the foreseeable  future,  paid out of capital and not income. As such, these
dividend payments will not be taxable to shareholders.  Dividend payments may be
discontinued  at any  time,  if  circumstances  warrant  and if this can be done
without a risk to our REIT status.

     In addition to the above,  we expect to pay management  fees to our manager
as described under Results of Operations  above,  and make periodic  payments of
interest on our short term notes payable based upon balances outstanding.

     We redeemed  0.75 million  shares of Preferred  Stock with payments of $7.4
million  during the year ended  December  31, 2002  compared  with 1.71  million
shares for $17.1  million and 2.47 million  shares for $24.7 million in 2001 and
2000,  respectively.  We began the year with outstanding  redemption requests of
3.8  million  shares.  By  the  end  of  the  year,   redemption  requests  were
approximately  6.88 million,  with a significant  number of such requests  being
made following the announcement in October 2002 that the Board would be reducing
dividend  payments.  Shareholders  do not have a vested right to  redemption  of
their stock,  however the Board of Directors  maintains a redemption policy that
provides for  redemption  subject to  availability  of funds.  A  moratorium  on
redemptions was declared in October 2002. Effective February 12, 2003, the 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


                                       20
<PAGE>

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,"
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,  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. The text of the new policy was disclosed in
an 8-K filing on February 18, 2003.

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.

     Valuation  and  Realizability  of  Investments.  All of our ADC  loans  are
classified for financial  reporting purposes as investments in real estate under
development or investments in real estate under  development by affiliates  (see
Notes 3 and 4 to the financial statements). We have foreclosed on some ADC loans
that are  classified as  investments in real estate held for sale (Note 5). 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 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 income.  In accordance  with this policy,  we
recorded  a  provision  for  impairment  of  investments  in real  estate  under
development  totaling  $21.2  million  during the year ended  December  31, 2002
compared  with  $73,000 and none during the years  ended  December  31, 2001 and
2000. We believe that all of our investments  are carried at realizable  values,
however  conditions  may change and cause our ADC loans 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

                                       21
<PAGE>

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, 4 and 5
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.

     REIT status and taxation.  As a REIT,  we generally  will not be subject to
corporate-level  federal  income tax on net  income  that we  distribute  to our
shareholders.  As such, no provision for federal income taxes is included in our
financial  statements.  Such  taxes  are the  responsibility  of the  individual
shareholders.  To maintain our  classification  as a REIT, we must satisfy tests
concerning  the  sources of our income,  the nature and type of our assets,  the
amount of our distributions to shareholders,  and concentration of the ownership
of our stock.  If we fail to qualify as a REIT in any taxable  year,  we will be
subject to  federal  income  taxes at regular  corporate  rates  (including  any
applicable alternative minimum tax) and may not be able to qualify as a REIT for
four subsequent taxable years. Even if we qualify for taxation as a REIT, we may
be subject to certain  state and local taxes on our income and  property  and to
federal income and excise taxes on our  undistributed  taxable  income.  Regular
federal and state income taxes would be included in our statements of operations
if we fail to qualify as a REIT. We distribute  preferred  stock  dividends at a
level that the Board of Directors deems, at a given time, to be prudent.  Actual
dividends  may be in excess of taxable  income.  Rates of return are  subject to
adjustment by our Board of Directors  based upon  prevailing  market and company
specific  conditions.  Payment of preferred  stock  dividends could be adversely
effected if we experience a further slow down in the repayment of our ADC loans.

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;  under our  business  model,  loan  commitments  will
generally  exceed  immediately  available cash resources,  and failure to obtain
repayment  of ADC loans in our  portfolio,  or a failure to maintain  sufficient
equity would affect our ability to fund commitments; since we have no employees,
if our  manager  refused or became  unable to continue to serve us, and a proper
replacement were not found, this would materially impact our business.

     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

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.


                                       22
<PAGE>

     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.

     Changes in  interest  rates.  The levels of and  fluctuations  in  interest
rates,  which affect the ability to earn a spread between  interest  received on
loans  and  the  costs  of  borrowings,   may  directly  affect   profitability.
Profitability is likely to be adversely affected during any period of unexpected
or rapid changes in interest  rates.  For example,  a  substantial  or sustained
increase in interest rates could adversely affect the interest rate differential
between newly originated loans and the cost of borrowing.  A significant decline
in interest  rates could  decrease the size of our loan  portfolio by increasing
the level of loan prepayments as our loans carry fixed rates of interest.  While
we monitor the interest rate  environment,  and generally should earn a positive
spread between  interest paid on borrowed funds and interest  earned on mortgage
loans, there can be no assurance that our  profitability,  and thus our dividend
rate,  would not be adversely  affected during any period of changes in interest
rates.

     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.

     Legislation and regulation. The mortgage loan and REIT areas are 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


                                       23
<PAGE>

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 Preferred stock and transfer is subject to
significant   restrictions  under  federal  and  state  law.  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,  especially  during  economic  times when loan
repayments are slowed.  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,  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. In the near term, we  anticipate  that there will be additional  losses as
loans and real estate owned properties are repaid, foreclosed upon and/or sold.

     Dependence on manager. We do not have any employees.  All of our day-to-day
operations are conducted on our behalf by our manager and  affiliate,  Primecore
Funding  Group,  Inc.,  which  provides  services  to us  pursuant  to a written
management  agreement.  If our  manager  refused  or became  unable  to  perform
services on our behalf,  and if a substitute  manager  could not be found,  this
would materially and adversely impact on our ability to continue to do business.

     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.


                                       24
<PAGE>

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.

     Funding of loan commitments. We use our capital to invest in mortgage loans
with  outstanding  balances  generally  less  than  the  outstanding  commitment
amounts.  This is because disbursements under the commitments occur over time in
conjunction  with  the  construction  progress  of any  particular  construction
mortgage  loan. We cannot  predict with certainty the total amount of our future
capital,  however,  we expect that proceeds generated from completed real estate
developments and additional equity placements and note issuances, and borrowings
will be sufficient to fund all loan commitments. If, however, for some reason we
were unable to obtain loan payoffs or raise additional  capital through the sale
of  equity  and debt  securities  or the  sale of  assets  to meet  our  funding
commitments,  and if we were unable to borrow sufficient funds, we might then be
unable to fund all of our existing  loan  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.

     Manager Relationship. Some of our directors and executive officers are also
executive  officers,   employees  and  shareholders  of  our  manager.  Under  a
management  agreement,  our manager earns a management fee based upon the dollar
amount of our construction mortgage loan portfolio.  In evaluating  construction
mortgage  loans,  if our manager were to place an undue  emphasis on  maximizing
income at the expense of other criteria,  such as  preservation  of capital,  to
increase  compensation for our manager,  this could result in increased exposure
to losses on our mortgage loan portfolio.

     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
other mortgage REITs.  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 will 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. We will face competition for financing
sources,  and the effect of the existence of additional mortgage REITs may be to
deny us access to sufficient funds to carry out our business plan or to increase


                                       25
<PAGE>

the  cost  of  funds  to us.  Our  goal  is to  strike  a  balance  between  the
under-utilization of leverage,  which reduces potential returns to shareholders,
and the over-utilization of leverage, which could reduce our ability to meet our
obligations during adverse market conditions.

     Our ability to achieve all of our investment objectives may depend not only
on our ability to borrow money in sufficient  amounts and on favorable terms but
also on our  ability  to renew or  replace on a  continuous  basis our  maturing
short-term  borrowings.  In the event we are unable to renew or replace maturing
borrowings,  we could be required to sell mortgage  loans under  adverse  market
conditions and could incur losses as a result. A sharp rise in interest rates or
increasing  market  concern  about the value or  liquidity of a type or types of
mortgage  loans in which our  portfolio is  concentrated  will reduce the market
value of the  mortgage  loans,  which  would  likely  cause  lenders  to require
additional  collateral.  A number  of those  factors  in  combination  may cause
difficulties for us, including a possible  liquidation of a major portion of our
mortgage loans portfolio at disadvantageous prices with consequent losses, which
could have a material adverse effect on our solvency.

     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  we are  offering  under  this  placement
memorandum  in the event of our  liquidation.  Additional  equity  offerings may
dilute  the  equity of our  shareholders  or  reduce  the price of shares of our
outstanding securities, or both.

     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.

     Operating  history.  The Company was organized in March 1999,  and has been
operating  since  May 1,  1999.  Our  prior  results  will  not  necessarily  be
indicative  of our future  results.  Furthermore,  although  the  principals  of
Primecore  Funding Group,  Inc., our manager,  have  experience in  construction
mortgage  lending that  predates  organization  of the Company,  there can be no
assurance  that the past  experience  of our manager will be  indicative  of our
future results.

     Public  market price  volatility.  We have made a business  decision not to
list our securities for trading on any public market in order to avoid the price
volatility to which  publicly-traded  securities may be subject.  It is possible
that future  events  could  result in a  determination  to change such  business
decision.  In the event a public  market for our  securities  did  develop,  the
market price of the securities might increase or decrease for reasons  unrelated
to our operating  performance.  In particular,  general market price  movements,
interest  rate  changes  and credit  quality  trends  might  affect the price of
securities  related to the specialty  finance and real estate  industries market
segments.  Also,  market prices might be influenced by any variation between the
net yield on our mortgage loan  portfolio and prevailing  market  interest rates
and by the market's  perception of our ability to achieve  earnings  growth.  In
addition,  if the market price of other REIT stocks declined for any reason,  or
if there was a broad-based  decline in real estate values or in the value of our
portfolio  of  mortgage   loans,   the  market  price  of  the   securities  and
transferability could be adversely affected.

     Restrictions on ownership of capital stock.  Subject to the limitations set
forth in the articles  supplementary  creating our preferred  stock, our charter
authorizes  our Board of Directors to reclassify  any of the unissued  shares of
authorized  capital  stock  into a class or  classes  of  preferred  stock.  The
issuance  of  additional  preferred  stock  could have the effect of making more
difficult any attempt to gain control of us by means of a merger,  tender offer,
proxy contest or otherwise. To comply with the requirements for qualification as
a REIT at all times, our charter prohibits any person,  absent a waiver from the
Board of Directors, from acquiring or holding, directly or indirectly, shares of
capital stock (including  warrants and options),  in excess of 9.8% of the vote,
value or aggregate  number of the outstanding  shares of capital stock or common
stock.  See the  section  "Description  of Capital  Stock"  for a more  detailed
description  of these  limitations  on ownership.  If a public market were to be
established for our stock,  which we presently do not anticipate for reasons set
forth above,  these  provisions  might inhibit market activity and the resulting


                                       26
<PAGE>

opportunity  for the holders of our capital stock to receive a premium for their
securities that might otherwise exist in the absence of those provisions.  Those
provisions  also may make us an  unsuitable  investment  vehicle  for any person
seeking  to obtain  ownership  of more than  9.8% of the  outstanding  shares of
capital stock.

     In addition, provisions of Maryland law relating to "business combinations"
and a "control share  acquisition"  and of our charter and bylaws,  particularly
the  staggered  terms  for  directors,  may also have the  effect  of  delaying,
deterring  or  preventing a takeover  attempt or other  change in control  which
would be beneficial to shareholders and might otherwise result in a premium over
then prevailing market prices.

     Every  owner of more than 1% (or such lower  percentage  as required by the
Code or related  regulations)  of all classes or series of our stock,  within 30
days after the end of each  taxable  year,  is required to respond in writing to
our  annual  request  for  stock  ownership  information,  or  to  include  such
information  on their tax return,  including  by stating the name and address of
such  owner,  the  number  of  shares  of each  class  and  series  of our stock
beneficially  owned and a  description  of the manner in which  such  shares are
held. Each such owner shall provide to us such additional  information as we may
request to determine  the effect,  if any, of such  beneficial  ownership on our
status as a REIT and to ensure compliance with the ownership limitations.

     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:

          (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.

     REIT  status and  taxation.  We intend to continue to operate as a REIT for
federal  income tax purposes.  We elected to be subject to tax as a REIT when we
filed  our  first   federal   income  tax  return  for  1999.  To  maintain  our
classification  as a REIT, we must satisfy tests  concerning  the sources of our
income,  the nature and type of our assets,  the amount of our  distributions to
shareholders,  and  concentration  of the ownership of our stock.  If we fail to
qualify as a REIT in any taxable year and the relief  provisions  of the Code do
not apply,  we would be subject  to  federal  income tax as a regular,  domestic
corporation,  and our  shareholders  would be subject to tax as  shareholders of
such a corporation.  Distributions  to shareholders in any year in which we fail
to qualify as a REIT would not be deductible in computing our taxable income. As
a result, we could be subject to income tax liability and the cash available for
repayment of our short term notes or distribution to our  shareholders  would be
significantly reduced or eliminated. Further, we could also be disqualified from
re-electing  REIT status for the four taxable  years  following  the year during
which we became disqualified.


                                       27
<PAGE>

     REIT  qualification  requirements with respect to (1) our source of income,
the nature of our assets and distribution of dividends may limit operational and
financial   opportunities   otherwise   available  to  us  and  (2)  shareholder
diversification may limit our access to certain otherwise interested investors.

     There is no assurance that future legislation, regulations,  administrative
interpretations  or court decisions will not  significantly  change the tax laws
with  respect to our  qualification  as a REIT or with  respect  to the  federal
income tax  consequences of that  qualification.  Any such changes may reduce or
eliminate our competitive advantage over non-REIT competitors.

     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 would 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

In July we engaged Grant Thornton LLP as our independent auditors, replacing
Arthur Andersen.


                                    PART III

ITEM 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT

     Our  Board of  Directors  consists  of five  directors,  two of which  were
elected after expansion of our Board on March 1, 2002. Our directors,  executive
officers and senior officers and their positions are:

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

        Susan Fox               President and Director
        William Whitlow         Chairman of the Board of Directors
        Michael Rider           Treasurer, Chief Financial Officer and Director
        Robert Puette           Director
        James Barrington        Director
        Ben Hamburg             Secretary

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

     Susan Fox, age 46, is a co-founder,  director and President of the Company.
Ms. Fox is also a  director,  President  and sole  shareholder  of our  manager,
Primecore Funding Group, Inc., and other affiliated companies.  Ms. Fox has been
involved in real estate  development  and  construction  lending for over twenty
years. In 1993, Ms. Fox became a consultant,  then employee and President of Jim
Ward & Associates,  Inc. Ms. Fox was  responsible  for dealing with  substantial
loan  workout  situations  relating to loans made prior to her  retention by Jim
Ward &  Associates.  Since 1996,  Ms. Fox has been the  President  of  Primecore
Funding Group, Inc. Ms. Fox has overall  management  responsibility  and primary
responsibility for loan underwriting and managing the loan portfolio.


                                       28
<PAGE>

     William  Whitlow,  age 49, is Chief  Executive  Officer and Chairman of the
Board of  Directors  of the Company,  and Chief  Operating  Officer of Primecore
Funding Group,  Inc. Mr. Whitlow received a Masters of Management from the J. L.
Kellogg Graduate School of Management at Northwestern University,  and a Masters
of Architecture from the University of Illinois. Prior to joining Primecore, Mr.
Whitlow was Managing  Director of Arthur  Andersen's  Western Region Real Estate
Capital  Markets Group based in San Francisco.  He was responsible for strategic
capital markets consulting, private placements of debt and equity, portfolio and
company sales, and mergers and  acquisitions.  Prior to joining Arthur Andersen,
Mr.  Whitlow  was a Director  of  PricewaterhouseCoopers'  Real  Estate  Capital
Markets Group,  operated his own real estate firm,  Alliance  Management,  was a
Vice President at Pacific  Gateway  Properties,  where he directed the strategic
management and  repositioning  of the company's real estate  portfolio,  and was
with Aetna  Realty  Investors,  where he held  various  positions  over a 9-year
period, performing loan production,  asset management and dispositions services.
Mr.  Whitlow is a member of the Urban Land  Institute,  PREA,  and the  National
Association of Real Estate Investment Trusts.

     Michael  Rider,  age 40, is a  co-founder,  director,  treasurer  and Chief
Financial  Officer  of the  Company.  Mr.  Rider's  term of office as a director
expires in 2003.  Mr.  Rider is a Certified  Public  Accountant.  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.  Since July 1998,  he has served as
Chief Financial  Officer of Primecore  Funding Group,  Inc. He is also the Chief
Financial Officer for our affiliates:  Eprime, Inc., Primecore Properties, Inc.,
and 99 Investors, LLC.

     Robert L.  Puette,  61, 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. He
is currently a Partner with WK Technology Fund, a 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 the Magis Network  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,  61, 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,  49, is secretary of the Company, and Executive Vice President
and General Counsel of Primecore  Funding Group, Inc. 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 with the San Francisco law firm
of Freeland Cooper & Hamburg,  and has specialized in real estate and commercial
matters.

Compensation of Directors

     None of the  directors of the Company who also serve as executive  officers
or employees of our affiliates receives any separate compensation for service on
our Board of Directors or on any Board  committee.  Although all  directors  are
entitled to receive reimbursement of reasonable  out-of-pocket expenses incurred
in connection with meetings of the Board of Directors,  to date, no director has
requested   compensation  for  out  of  pocket  expenses.   Messrs.  Puette  and
Barrington,  who are not employed by our  affiliates or us, each receive  annual
compensation  totaling  $25,000.  Our  charter  obligates  us to  indemnify  our


                                       29
<PAGE>

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
directors.  Ms. Fox is a Class I  director  and her term  expires  in 2004.  Mr.
Whitlow and Mr. Puette are Class II  directors,  and their terms expire in 2005.
Mr. Rider and Mr. Barrington are Class III directors,  and their terms expire in
2003. 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.

Section 16(a) Beneficial Ownership Reporting Compliance

     Each of Susan Fox, William Whitlow, Michael Rider, James Barrington, Robert
Puette and Ben Hamburg filed a report on Form 5 reporting  beneficial  ownership
of common and/or Class A Convertible  Preferred Shares. The total number of such
shares held by each of them is set forth under Item 12 below

ITEM 11.     EXECUTIVE COMPENSATION.

None of the executive officers of the Company receive compensation from us for
their services. All are 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.

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, 2002 of: (1) each person known by us to


                                       30
<PAGE>

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    Susan Fox               22,715              *
                                 Michael Rider            5,000              *
                                 Ben Hamburg              5,318              *
                                 Robert Puette          405,241            1.8
                                                    ------------    ------------
                                 Total                  438,274            1.9
                                                    ============    ============

Common                           William Whitlow             40             40
                                 Susan Fox                   40             40
                                 Michael Rider               20             20
                                                    ------------    ------------
                                 Total                      100            100
                                                    ============    ============

   * Less than one percent of our outstanding capital stock.


ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Primecore Funding Group, Inc., our affiliate,  manages all of our business,
subject  to  direction  from our  Board of  Directors.  Our  manager  bears  all
operating  expenses  connected with  originating  and managing our mortgage loan
portfolio,  and  receives  a monthly  management  fee that is  established  by a
written  management  agreement that we entered into with our manager.  Primecore
Funding  Group,  Inc.  holds a  restricted  real  estate  license  issued by the
California  Department of Real Estate.  Our  headquarters are the offices of our
manager.  We  currently  do not pay any  rent  for our  headquarters,  as  these
expenses are borne by our manager.

     We have other  affiliates,  which are  entities  with whom we share  common
officers and some common directors,  but which have their own business purposes.
The following is a list of other affiliates:

     Primecore  Properties,  Inc. is a California  corporation,  incorporated in
1997.  Ms.  Fox is its  sole  shareholder  and one of its  directors.  Primecore
Properties,  Inc. is licensed by the  California  Department of Real Estate as a
real estate corporation. Primecore Properties, Inc. provides some services to us
through an  agreement  with our manager.  Primecore  Properties,  Inc.  does not
receive any compensation from us.

     Eprime, Inc. is a California corporation,  incorporated in 2000. Ms. Fox is
the sole shareholder and director.  She is the president and secretary,  and Mr.
Rider is the chief financial officer.  Eprime, Inc. does not have any employees,
does not provide any services to us and does not receive any  compensation  from
us.

     99 Investors,  LLC, a California limited liability  company,  was formed in
1996. The Company is the sole member of 99 Investors,  LLC. It does not have any
employees,  does not  perform  any  services  for us and does  not  receive  any
compensation  from us. 99 Investors,  LLC, holds title to certain  properties on
which we have loans.

     99 El Camino Partners,  LLC, a California  limited liability  company,  was
formed in 1996. Ms. Fox is its sole member.  The  partnership  has no employees,
does not provide any services to us and does not receive any  compensation  from
us. 99 El Camino  Partners  owns the property at 99 El Camino Real,  Menlo Park,
California, our principal place of business and that of our affiliates.


                                       31
<PAGE>

     Because  of our prior  policy not to take  title to real  property  through
foreclosure  or  otherwise,  we  previously  relied on our  affiliates to assume
defaulted  loans.  Our prior policy was modified in 2002.  We or a  wholly-owned
subsidiary  will  take  title  to  property  acquired  through   foreclosure  or
otherwise.


                                     PART IV

ITEM 14.   CONTROLS AND PROCEDURES.

     Within the past 90 days we carried out an evaluation, under the supervision
of 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,  the Chief Executive  Officer and Chief Financial  Officer have each
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  nor did we find  any
significant  deficiencies  and  material  weaknesses  that would  have  required
corrective actions to be taken with respect to those controls.

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, 2002 and 2001
3.   Statements of Operations for the years ended December 31, 2002, 2001, and
     2000
4.   Statements of Shareholders' Equity for the years ended December 31, 2002,
     2001, and 2000
5.   Statements of Cash Flows for the years ended December 31, 2002, 2001, and
     2000
6.   Notes to Financial Statements December 31, 2002, 2001, and 2000
7.   Schedule IV - Investments in real estate at December 31, 2002


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


                                       32
<PAGE>

     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

    99.1            Certifications



c.       Reports on Form 8-K

     The Company  filed a report on Form 8-K on October 17, 2002 relating to the
Board of Director's decision to (1) adjust our monthly dividend rate to $0.05833
per share, on Preferred Stock investments,  beginning with dividends declared as
of October 31, 2002; (2) enter into an amended and restated management agreement
with  Primecore  Funding  Group,  Inc.;  and (3) enter  into an  affiliate  loan
agreement with our affiliates.

     The Company filed a report on Form 8-K on December 20, 2002 which disclosed
the text of (1) the Amended and Restated  Management  Agreement  with  Primecore
Funding Group; and (2) the Affiliate Loan Agreement.


                                   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


/s/ Susan Fox                 President and Director         March 31, 2003
-----------------------
Susan Fox


/s/ William Whitlow           Chairman                       March 31, 2003
-----------------------
William E. Whitlow


/s/ Michael Rider             Chief Financial Officer        March 31, 2003
-----------------------       and Director
Michael Rider


/s/ Robert Puette             Director                       March 31, 2003
-----------------------
Robert Puette


/s/ James Barrington          Director                       March 31, 2003
-----------------------
James Barrington





                                       33
<PAGE>

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

     I, Susan Fox, certify that:

     1.           I have reviewed this Form 10-K of Primecore Mortgage Trust,
                  Inc.;

     2.           Based on my knowledge, this annual report does not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  annual report;

     3.           Based on my knowledge, the financial statements, and other
                  financial information included in this annual report, fairly
                  present in all material respects the financial condition,
                  results of operations and cash flows of the registrant as of,
                  and for, the periods presented in this annual report;

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

          (a)     designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

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

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

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

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

                  auditors any material weaknesses in internal controls; and
          (b)     any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

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



         /s/ SUSAN FOX
         -----------------------
         Susan Fox, President
         March 31, 2003



                                       34
<PAGE>


                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

     I, Michael Rider, certify that:

     1.           I have reviewed this Form 10-K of Primecore Mortgage Trust,
                  Inc.;

     2.           Based on my knowledge, this annual report does not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  annual report;

     3.           Based on my knowledge, the financial statements, and other
                  financial information included in this annual report, fairly
                  present in all material respects the financial condition,
                  results of operations and cash flows of the registrant as of,
                  and for, the periods presented in this annual report;

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

          (a)     designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

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

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

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

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

          (b)     any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

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



         /s/ MICHAEL RIDER
         --------------------------
         Michael Rider, Chief Financial Officer
         March 31, 2003




                                       35
<PAGE>



                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

                                                                         Page No

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

Report of independent public accountants - Arthur Andersen                  F-2

Balance sheets as of December 31, 2002 and 2001                             F-3

Statements of operations for the years ended December 31, 2002,
     2001, and 2000                                                         F-4

Statements of shareholders' equity for the years ended
     December 31, 2002, 2001, and 2000                                      F-5

Statements of cash flows for the years ended December 31, 2002,
     2001, and 2000                                                         F-6

Notes to financial statements                                               F-8

Schedule IV--Investments In Real Estate at December 31, 2002                F-22







                                       36

<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 sheet of Primecore
Mortgage Trust, Inc., as of December 31, 2002 and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year
ended December 31, 2002. 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
audit. The financial statements of Primecore Mortgage Trust, Inc. as of December
31, 2001 and for each of the two years in the period then ended 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 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 audit 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 audit provides a
reasonable basis for our opinion.

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

As discussed above, the financial statements of Primecore Mortgage Trust as of
December 31, 2001, and for each of the two years in the period then ended 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 and 2000 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 and 2000 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 and 2000 financial statements taken
as a whole.

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.


                                            Grant Thornton LLP


San Francisco, California
March 14, 2003





                                      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 the statements of operations, shareholders' equity and cash flows for
the two years ended December 31, 2001 and the balance sheet as of December 31,
2000, which is no longer included in the accompanying financial statements.



                                      FS-2
<PAGE>


                                       PRIMECORE MORTGAGE TRUST, INC.

                                        CONSOLIDATED BALANCE SHEETS
                                             As of December 31,

<TABLE>
<CAPTION>

                                                                                                                    2001
                                                                                               2002        (as Restated)
                                                                                -------------------- --------------------
     <S>                                                                                 <C>                  <C>
ASSETS:
Investments in real estate under development .................................       $  101,141,515      $   131,759,510
Investments in real estate under development by affiliates....................                   --           30,769,822
Investments in real estate held for sale......................................           36,817,168           18,952,063
Loans secured by real estate..................................................            4,695,000                   --
Cash and cash equivalents.....................................................            4,394,107            2,706,204
Other assets, net.............................................................              326,245              408,905
                                                                                -------------------- --------------------

        Total assets..........................................................       $  147,374,035      $   184,596,504
                                                                                ==================== ====================


LIABILITIES AND SHAREHOLDERS' EQUITY:

Notes payable (including $150,000, and $0 to affiliates at December 31, 2002
   and 2001, respectively)....................................................       $   14,276,929       $   17,312,526
Secured line of credit........................................................           14,431,132           15,000,000
Accrued expenses and other....................................................              256,059            1,232,022
Preferred stock dividends payable.............................................            1,312,417            1,903,928
Payable to manager............................................................              669,480               31,193
                                                                                -------------------- --------------------

        Total liabilities.....................................................           30,946,017           35,479,669

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

Convertible Preferred stock: par value $0.01, 40,000,000 shares authorized;
   22,496,804 and 21,633,864 shares issued and outstanding at December 31, 2002
   and 2001, respectively....................................................
                                                                                        226,079,882          216,157,968
Common stock: par value $0.01, 10,000,000 shares authorized; 100 shares
   issued and outstanding at December 31, 2002 and 2001.......................                    1                    1
Accumulated dividends and distributions.......................................          (80,132,217)         (58,826,211)
Accumulated deficit...........................................................          (29,519,648)          (8,214,923)
                                                                                -------------------- --------------------

        Total shareholders' equity............................................          116,428,018          149,116,835
                                                                                -------------------- --------------------

        Total liabilities and shareholders' equity............................         $147,374,035      $   184,596,504
                                                                                ==================== ====================



                               The accompanying notes are an integral part of these statements.

</TABLE>





                                                         FS-3
<PAGE>


                                  PRIMECORE MORTGAGE TRUST, INC.

                               CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

                                                               Year Ended        Year Ended         Year Ended
                                                        December 31, 2002      December 31,       December 31,
                                                                                       2001              2000
                                                      -------------------- ----------------- ------------------
     <S>                                                       <C>                <C>                <C>
REVENUES:
Income from completed real estate development
   (including $981,443, $145,468, and $3,040,082 from
   affiliates)........................................        $10,018,189      $ 12,519,618       $ 15,103,946
Other.................................................                730            68,510             36,390
                                                      -------------------- ----------------- ------------------
         Total revenues...............................         10,018,919        12,588,128         15,140,336

EXPENSES:
Management fees paid to Manager.......................          9,630,701        11,345,585         10,967,249
Provision for impairment of investments in real
   estate development.................................         21,238,043            73,000                 --
General, administrative and other.....................            454,900           502,080            600,776
                                                      -------------------- ----------------- ------------------
         Total expenses...............................         31,323,644       11, 920,665         11,568,025
                                                      -------------------- ----------------- ------------------

         Net(loss) income.............................        (21,304,725)          667,463          3,572,311
         Preferred stock dividends....................        (21,306,006)      (24,118,443)       (21,609,791)
                                                      -------------------- ----------------- ------------------

         Net loss allocable to common.................   $    (42,610,731)     $(23,450,980)      $(18,037,481)
                                                      ==================== ================= ==================

Basic and diluted net loss per common share...........   $       (426,107)     $   (234,510)      $   (180,375)

                                                      ==================== ================= ==================
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,
   2000 (as restated)............      18,985,118    $189,851,180     100       $  1   $(13,097,977)   $(12,454,697)  $164,298,507

Issuance of preferred stock, net
   of offering costs of $178,589...     2,841,062      28,232,031      --         --             --              --     28,232,031
Issuance of preferred stock under
   dividend reinvestment plan......       589,684       5,896,840      --         --             --              --      5,896,840
 Redemptions of preferred stock....    (2,469,419)    (24,694,190)     --         --             --              --    (24,694,190)
Dividends and distributions paid
   to preferred shareholders.......            --              --      --         --    (21,609,791)             --    (21,609,791)
Net income.........................            --              --      --         --             --       3,572,311      3,572,311
                                   --------------- --------------- ------- ---------- -------------- --------------- --------------
Shareholders' equity at
   December 31, 2000
   (as restated)...................    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
   (as restated).................      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
                                   =============== =============== ======= ========== ============== =============== ==============




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



                                                       FS-5
<PAGE>


                         PRIMECORE MORTGAGE TRUST, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>



                                                                          Year Ended          Year Ended         Year Ended
                                                                   December 31, 2002   December 31, 2001  December 31, 2000
                                                                  ------------------- ------------------- ------------------
     <S>                                                                   <C>                 <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net (loss) income............................................    $  (21,304,725)        $   667,463      $   3,572,311
   Adjustments to reconcile net (loss) income to net cash provided
     by (used in) operating activities:
        Provision for impairment..................................        21,238,043                  --                 --
        (Decrease) increase in accrued expenses and other.........          (975,963)         (2,578,431)         3,595,841
        Increase (decrease) in payable to Manager.................           638,287            (205,779)        (1,167,718)
        Decrease (Increase) in other assets, net..................            82,661             (39,270)            75,299
                                                                  ------------------- ------------------- ------------------
             Net cash provided by (used in) operating activities.           (321,697)         (2,156,017)         6,075,733
                                                                  ------------------- ------------------- ------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Investments in real estate under development and held for
        sale......................................................       (30,888,569)        (63,190,884)      (164,372,910)
     Investments in real estate under development by affiliates...        (9,261,172)        (10,869,856)       (30,322,772)
     Proceeds from investments in real estate under development
     and held for sale............................................        54,124,936          87,597,220        124,348,190
     Proceeds from investments in real estate under development
     by affiliates................................................         4,016,083          12,863,389         40,465,714
     Decrease (increase) in receivable from affiliate.............                --                  --          1,743,081
                                                                  ------------------- ------------------- ------------------
             Net cash provided by (used in) investing activities.         17,991,278          26,399,869        (28,138,697)
                                                                  ------------------- ------------------- ------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sales of preferred stock, net of offering costs..        12,550,430          27,972,287         28,082,031
   Redemptions of preferred stock.................................        (7,414,590)        (17,091,870)       (24,694,190)
   Proceeds from sales of common stock............................                --                  --                 --
   Issuance of notes payable......................................         4,098,562          19,345,400         61,199,293
   Capital contributions from Manager.............................         1,220,484
   Repayment of notes payable.....................................        (7,535,769)        (41,756,585)       (31,898,384)
   Net (Repayments) borrowings on secured line of credit..........          (568,868)          8,355,308          4,449,692
   Payment of preferred stock dividends...........................       (18,331,927)        (18,124,688)       (15,609,972)
   Loan fees paid ................................................                --            (237,500)          (141,034)
                                                                  ------------------- ------------------- ------------------
             Net cash provided by (used in) financing activities.        (15,981,678)        (21,537,648)        21,387,436
                                                                  ------------------- ------------------- ------------------
             Net increase (decrease) in cash and cash equivalents.         1,687,903           2,706,204           (675,528)
             Beginning cash and cash equivalents..................         2,706,204                  --            675,528
                                                                  ------------------- ------------------- ------------------

             Ending cash and cash equivalents.....................        $4,394,107          $2,706,204          $      --
                                                                  =================== =================== ==================
Cash paid for interest, net of amounts capitalized of $2,199,961,
   $4,358,952, and $4,680,818 for the periods ending December 31,
   2002, 2001 and 2000 respectively...............................        $       --           $      --          $      --
                                                                  =================== =================== ==================
</TABLE>





                                                  FS-6
<PAGE>


                         PRIMECORE MORTGAGE TRUST, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (continued)


SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
<TABLE>
<CAPTION>



                                                                          Year Ended          Year Ended         Year Ended
                                                                   December 31, 2002   December 31, 2001  December 31, 2000
                                                                  ------------------- ------------------- ------------------
     <S>                                                                   <C>                 <C>                <C>
Reinvested Preferred Stock dividends..............................    $    3,565,590    $      5,991,690     $    5,896,840
Interest capitalized on Notes Payable.............................    $      401,610    $        936,447     $    1,846,881
Investments in real estate under development received in exchange
   for issuance of Preferred Stock................................                                    --     $      150,000
Investments in real estate under development by affiliates
   received in exchange for issuance of Preferred Stock...........                --                  --                 --
Investments in real estate under development received in exchange
   for notes......................................................                --                  --      $     795,000
Investments in real estate under development by affiliates
   received in exchange for notes payable.........................                --                  --                 --










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



















                                             FS-7

<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. 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.
We are managed by Primecore  Funding Group,  Inc., (the "Manager") an affiliated
California  corporation  located in Menlo  Park,  California.  Our  manager,  or
another  affiliate,  Primecore  Properties,  Inc.,  originates  and services the
construction mortgage loans we invest in for a monthly management fee.

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,  dependence on our manager, timely
completion  of  projects,  lack  of  borrower  diversification,   and  potential
environmental  matters  relating to properties on which we have made loans.  For
additional information see Risk Factors set forth in our Form 10-K.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Restatement of Previously Reported Financial Statements

     The balances  presented at December 31, 2001 and 2000 have been restated 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. Prior filings did not present the impairment. However, we have now
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.







                                      FS-8
<PAGE>


                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS


The following schedule sets forth the restated amounts:

<TABLE>
<CAPTION>

                                                 As previously
December 31, 2001                                     reported   Amount  of change        As Restated
                                            ------------------- ------------------- --------------------
     <S>                                               <C>             <C>                   <C>
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 earinings (deficit)                      1,253,216         (9,468,139)        (8,214,923)
Total liabilities and shareholders' equity         194,064,643         (9,468,139)       184,596,504

December 31, 2000
Accumulated earnings (deficit)                         585,753         (9,468,139)        (8,882,386)
Shareholders' equity                               165,163,847         (9,468,139)       155,695,708

January 1, 2000
Accumulated deficit                                 (2,986,558)        (9,468,139)       (12,454,697)
Shareholders' equity                               173,766,646         (9,468,139)       164,298,507
</TABLE>


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. The Company's  significant  estimates include the valuation of
investments in real estate. Actual results could differ from those estimates.

Investments in Real Estate under Development
and Investments in Real Estate under Development by Affiliates

     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:

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.

     Therefore, our ADC loans are classified for financial reporting purposes as
investments in real estate under development or investments in real estate under
development  by affiliates  (Notes 3 and 4). Revenue from interest and points is
recognized as cash is received from the sale or refinancing of such properties.


                                      FS-9
<PAGE>


                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

ADC loans are classified  as investments  in  real estate under  development  or
investments in real estate under  development by affiliates and 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  arrangements  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.

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

     Our  investment  objective  is to make ADC loans on projects we believe are
likely to ultimately  sell for an amount  sufficient to repay the principal plus
accrued interest and points on those ADC loans at the contracted  interest rate.
We do not intend to own or develop property and do not participate in the profit
realized  by the  borrower,  including  affiliated  borrowers,  upon sale of the
property.

     We recognize  income from our ADC loans and investments in real estate held
for sale as costs are  recovered,  generally upon the sale or refinancing of the
underlying  completed 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

     To continue to qualify as a REIT, we must distribute at least 90 percent of
our taxable  income each year.  As a REIT,  we generally  will not be subject to
corporate-level   federal  income  tax  on  net  income  we  distribute  to  our
shareholders.  As such, no provision for federal income taxes is included in our
financial  statements.  Such  taxes  are the  responsibility  of the  individual
Preferred shareholders.  If we fail to qualify as a REIT in any taxable year, we
will be subject to federal income taxes at regular  corporate  rates  (including


                                     FS-10
<PAGE>

                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

any applicable alternative minimum tax) and may not be able to qualify as a REIT
for four subsequent taxable years. Even if we qualify for taxation as a REIT, we
may be subject to certain  state and local taxes on our income and  property and
to federal income and excise taxes on our undistributed taxable income.

Our taxable (loss) income for the years ended December 31, 2002, 2001 and 2000
is computed as follows:
<TABLE>
<CAPTION>
                                                   December 31, 2002   December 31, 2001   December 31, 2000
                                                  ------------------- ------------------- -------------------
     <S>                                                    <C>               <C>                 <C>
Revenues - interest income and points                    31,478,965          39,296,945         38,011,681
Operating expenses................................      (12,439,364)        (16,284,169)       (16,023,843)
Loans charged off.................................      (25,553,208)                  -                  -
                                                  ------------------- ------------------- -------------------
   Taxable (loss) income before dividends.........       (6,513,607)         23,012,776         21,987,838
   Dividends and distributions....................      (21,306,006)        (24,118,443)       (21,609,791)
                                                  ------------------- ------------------- -------------------
   Distributions in excess of taxable (loss)
     income......................................       (27,819,613)         (1,105,667)           378,047
                                                  =================== =================== ===================
</TABLE>

     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 distribute  Preferred
Stock dividends at a level  sufficient to satisfy  specified  return targets for
our investors.  As a result,  dividends paid may be in excess of taxable income.
Dividend distributions are subject to adjustment by our Board of Directors based
upon prevailing  market and company  specific  conditions.  Payment of Preferred
Stock dividends could be adversely  effected if we experience a slow down in the
repayment of our ADC loans.

     On October 17, 2002, our Board of Directors voted unanimously to adjust our
monthly dividend  distribution to shareholders from $0.0875 per share to $0.0583
per share  beginning  with  distributions  declared in October  2002 and paid in
November 2002. In adjusting the distribution, the Board considered the following
factors: the economy over the past year; prospects for a quick turnaround in the
economy; the economic  uncertainties arising from world events; and the weakness
in the San  Francisco  Bay Area real estate  market and its actual and potential
impact  on  our  loan  portfolio.   The  Board  also  considered  the  needs  of
shareholders  when setting the  distribution  rate,  recognizing  the desires of
shareholders  to  receive  monthly   distributions  and  also  recognizing  that
distributions  at the  specified  rate will  result in a return  of  capital  to
shareholders since the distributions will exceed income. During 2002 we paid
dividends of $21,897,517, all of which in excess of our taxable income. The
Board will continue to review  and  reassess  the  distribution  policy as new
information  becomes available.

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, 2002,  2001 and 2000, are the same
and are 100 shares.

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.

SFAS 143, Accounting for Asset Retirement Obligations

     FASB Statement No. 143,  Accounting for Asset Retirement  Obligations.  The
Statement  addresses the  financial  accounting  and  reporting for  obligations
associated with the retirement of tangible  long-lived assets and the associated
asset retirement  costs.  The Statement  requires the Company to record the fair
value of an asset retirement obligation as a liability in the period in which it
incurs  a  legal  obligation  associated  with  the  retirement  of  a  tangible
long-lived  asset.  This  Statement  was  adopted  effective  June 15,  2002 and
adoption is not expected to have a material impact on the financial condition or
operating results of the Company.

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets

     FASB  Statement  No.  144,  Accounting  for the  Impairment  or Disposal of
Long-Lived  Assets.   Statement  No.  144  addresses  financial  accounting  and



                                     FS-11
<PAGE>

                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

reporting for the impairment or disposal of long-lived assets. The provisions of
this Statement were adopted effective  January 1, 2002.  Adoption did not have a
material impact on the financial condition or operating results of the Company.

SFAS No. 145, Rescissions of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections

     The provisions of this  Statement  related to the rescission of Statement 4
are applicable in fiscal years  beginning  after May 15, 2002. The provisions of
this Statement related to Statement 13 are effective for transactions  occurring
after May 15, 2002.  All other  provisions  of this  Statement are effective for
financial statements issued on or after May 15, 2002. Adoption of the provisions
applicable to the year ended December 31, 2002 did not have a material impact on
the financial condition or operating results of the Company.

SFAS No. 146, Accounting for Costs Associated with Exit or Disposed Activities

     The  provisions  of this  Statement  are  effective  for exit and  disposal
activities that are initiated  after December 31, 2002. This Statement  requires
that a liability  for a cost  associated  with an exit or  disposal  activity be
recognized  when the liability is incurred.  The Company does not currently have
plans to exit or dispose of activities.

SFAS No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure

     The provisions of this Statement  amend FASB Statement No. 123,  Accounting
for Stock-Based Compensation,  and provide alternative methods of transition for
enterprises  that elect to change to the  Statement No. 123 fair value method of
accounting for stock-based employee compensation.  The Statement also amends the
disclosure  requirements of Statement No. 123 to require  prominent  disclosures
about the method of accounting for  stock-based  employee  compensation  and the
effect of the method used on reported results.

FASB  Interpretation  No. 45,  Guarantor's  Accounting and Disclosure
Requirements for Guarantees,  Including  Indirect  Guarantees of Indebtedness of
Others (the Interpretation)

     This  Interpretation  addresses the disclosure to be made by a guarantor in
its  interim  and  annual  financial  statements  about  its  obligations  under
guarantees.  These  disclosure  requirements  are  included  in  note  13 to the
consolidated   financial   statement.   The  Interpretation  also  requires  the
recognition  of  a  liability  by  a  guarantor  at  the  inception  of  certain
guarantees.

     The Interpretation  requires the guarantor to recognize a liability for the
noncontingent component of the guarantee,  this is the obligation to stand ready
to perform in the event that specified  triggering  events or conditions  occur.
The initial  measurement of this liability is the fair value of the guarantee at
inception.  The recognition of the liability is required even it is not probable
that  payments  will be required  under the  guarantee or if the  guarantee  was
issued  with a  premium  payment  or as  part  of a  transaction  with  multiple
elements.

     As noted above the Company has adopted the  disclosure  requirement  of the
Interpretation  (note  13)  and  will  apply  the  recognition  and  measurement
provisions for all guarantees  entered into or modified after December 31, 2002.
To date the company has not entered  into or  modified  any  guarantees  and has
recognized no liability pursuant to the provisions of the Interpretation.

FASB Interpretation No. 46, Consolidation of Variable Interest Entities

     Interpretation  No. 46 addresses  consolidation by business  enterprises of
variable   interest   entities,   which  have  one  or  both  of  the  following
characteristics:  1) the equity  investment at risk is not  sufficient to permit
the entity to finance its activities without  additional  financial support from
other  parties,  or 2) the equity  investors  lack one or more of the  following
essential  characteristics of a controlling financial interest: a) the direct or


                                     FS-12
<PAGE>

                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

indirect ability to make decisions about the entity's  activities through voting
or similar rights, b) the obligation to absorb the expected losses of the entity
if they occur, or c) the right to receive the expected  residual  returns of the
entity if they occur. The  Interpretation  requires  existing  variable interest
entities to be consolidated if those entities do not effectively  disburse risks
amount  parties  involved.   The  Company  has  determined  that  they  have  no
significant ownership in variable interest entities.


3.   INVESTMENTS IN REAL ESTATE UNDER DEVELOPMENT:

     We make ADC loans  with  maturity  dates  generally  ranging  from 12 to 18
months.  The term of an ADC  loan  may be  extended,  when  management  deems it
appropriate to do so. For financial reporting  purposes,  we account for our ADC
loans as  investments  in real estate  under  development.  Investments  in real
estate  under  development  represent  funds  advanced in cash plus  capitalized
interest on  arrangements  in effect at any particular  time.  Since real estate
under development generates no operating income, we do not accrue any income for
financial reporting purposes until the sale to a third party or refinancing of a
property by another lender.  The income (interest and points) that we ultimately
realize is based upon the value of the  financed  property  and terms of the ADC
loan.  During the years ended  December 31, 2002,  2001 and 2000 fixed  interest
rates on ADC loans outstanding ranged from 11 percent to 18 percent. In the case
of ADC  loans on which the  borrower  defaulted  under the terms of our  lending
contract,  the  interest  rate  charged  during  the  period of  default  was an
additional 5 percent over the note rate. In addition,  we charged points on most
ADC loans, which were typically 4 percent of the borrowed amount.

The following table summarizes our portfolio of ADC loans at December 31, 2002:
<TABLE>
<CAPTION>

                                                                 Commitment            Carrying
Location - County                        Maturity Dates              Amount              Amount
------------------------------------------------------------------------------------------------
     <S>                                        <C>                 <C>                 <C>
Alameda                                     12/02-04/03       $   6,894,000       $   2,501,513
Marin                                       08/01-11/03          42,140,000          22,368,188
Monterey                                    12/02-12/03          29,825,000          11,896,192
Napa                                        11/02-11/02           4,750,000           3,410,477
San Francisco                               03/02-06/03          25,675,000          11,495,202
San Mateo                                   06/02-12/03          53,274,485          32,969,133
Santa Clara                                 05/02-06/03          23,300,000          15,083,579
Santa Cruz                                  06/01-06/01           6,750,000           1,417,231
                                                        ----------------------------------------

                                                             $  192,608,485      $  101,141,515
                                                        ========================================
</TABLE>



The following table summarizes our portfolio of ADC loans at December 31, 2001:
<TABLE>
<CAPTION>

                                                                Commitment            Carrying
Location - County                       Maturity Dates              Amount              Amount
-----------------------------------  ------------------ ------------------- -------------------
     <S>                                        <C>                 <C>                 <C>
Alameda                                    06/01-10/01       $   5,700,000       $   1,177,035
Contra Costa                               05/02-05/02           5,610,000           4,668,141
Marin                                      06/01-07/02          29,765,000          19,263,088
Monterey                                   12/01-12/02          27,160,000          12,051,692
San Francisco                              01/02-10/02          26,935,000          15,363,685
San Mateo                                  09/01-10/02          53,361,140          27,921,345
Santa Clara                                06/01-08/02          71,075,000          41,699,251
Other                                      06/01-09/01          17,665,000           9,615,273
                                                        ------------------- -------------------
                                                            $  237,271,140      $  131,759,510
                                                        =================== ===================
</TABLE>

     During the year ended  December  31, 2002,  we  capitalized  $1,720,862  of
interest expense from our secured line of credit and our unsecured notes payable
to investments  in real estate under  development  compared with  $3,369,004 and
$3,562,236 during the years ended December 31, 2001 and 2000, respectively.



                                     FS-13
<PAGE>


                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

     We will fund unfunded  commitments on existing ADC loans from the repayment
of other ADC  loans,  borrowings  on our line of credit  (Note 8),  issuance  of
short-term  notes  payable or  issuance of  additional  preferred  stock.  As of
December 31, 2002 our unfunded commitment was $23,835,015, exclusive of interest
and points.  We believe we will have  adequate  sources of capital to fund these
commitments when and as they become due.

     As of  December  31,  2002,  we had ADC  loans  with a  carrying  amount of
$10,293,731, which had not been paid by their stated maturity dates and which we
do not intend to extend  compared with  $19,218,517 at December 31, 2001.  These
ADC loans accrue  interest at the default rate,  which is 500 basis points above
the note  rate.  We choose  not to extend  these  contracts  in order to provide
incentive for the builder to price the property for sale in a short period.

     Additionally,  at December 31, 2002, we had recorded  notices of default on
ADC loans with a carrying  amount of  $18,886,100  compared with  $14,293,382 at
December  31,  2001.  Recording  a notice  of  default  begins  the  process  of
foreclosure.  All ADC loans for which a notice of default has been  recorded are
charged  interest at the default  rate which  interest  will be  collected  upon
repayment of the ADC loan assuming  there are sufficient  proceeds.  Recording a
Notice of Default is our last  resort and  usually  done only in cases  where we
believe that the builder cannot or will not maximize the value of the property.

     During  the year  ended  December  31,  2002,  we  charged  $2,342,776,  to
operations  for ADC loans we believe are impaired  compared with none during the
years ended December 31, 2001 and 2000.

4. INVESTMENTS IN REAL ESTATE UNDER DEVELOPMENT BY AFFILIATES:

     In the past, we had made ADC loans to affiliates of our Manager on projects
on which the affiliates  were acting as the developer.  Additionally,  after the
default  under  certain  loans made to Windy Hill  Associates,  an entity  whose
principal was one of the original  founders of our Manager,  and consistent with
our then policy of not taking foreclosed  properties in our name, the Windy Hill
ADC loans were transferred to another affiliate,  E-Prime,  Inc., and foreclosed
upon by E-Prime,  Inc. in March 2000. Our Manager guaranteed  repayment of these
foreclosed  Windy Hill ADC loans.  These  arrangements  are  accounted  for in a
manner  identical to that  described in Note 3 above.  On October 17, 2002,  the
non-management  members of the Board of  Directors,  with  management  directors
abstaining, resolved to enter into an agreement with our Manager relating to the
E-Prime,  Inc.  ADC loans and  certain ADC loans made to another  affiliate,  99
Investors,  LLC.  Among  other  things,  pursuant to the  agreement,  all of the
membership  interests  in 99  Investors,  LLC were  transferred  to us,  thereby
effectively  transferring ownership of all properties owned by 99 Investors, LLC
to us. The agreement also provided for the release of repayment  guarantees from
our Manager and its owner,  in exchange for a reduction in the  compensation  we
pay to our  Manager,  a decrease  in the fee  payable  upon  termination  of our
Manager,  from 10% of our loan commitments to 4% of our loan commitments,  and a
promise to pay certain  deficiencies  that might result upon  liquidation of the
properties  securing the loans on the  properties.  Refer to the  discussion  of
Management  Fees in Note 10 -  Transactions  with  Affiliates.  The  text of the
Affiliate Loan Agreement was disclosed in an 8-K filing on December 20, 2002.

     As a result of these agreements,  the balance of Investments in Real Estate
Under  Development By Affiliates has  transferred  $19,075,533 to Investments in
Real Estate Held For Sale. Additionally, during the year ended December 31, 2002
we charged  $11,419,566  to  impairments  for these ADC loans compared with none
during  the years  ended  December  31,  2001 and  2000.  Under the terms of the
Affiliate Loan Agreement, our Manager is responsible for repaying any difference
between the carrying  amount of the  properties  and the appraised  value at the
time we took ownership.  Repayments will come from bonuses earned by the Manager
under an amended and restated  management  agreement,  and the entire  shortfall
amount  shall be paid no later  than  January  2, 2010.  The  shortfall  amount,
estimated  at  $11,419,566,  the amount of our  impairment  charge  bears simple
interest at the rate of seven  percent (7%) per annum until  repaid.  Because of
the  uncertainty  in timing and ultimate  collection of the Manager's  repayment
obligation,  we have  charged  income for the full amount of  impairment  of the
properties transferred by the Affiliate Loan Agreement.  We will account for any
payments by our Manager under this agreement as income when received.


                                     FS-14
<PAGE>

                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS


The following table summarizes our portfolio of investments in real estate under
development by affiliates at December 31, 2001:
<TABLE>
<CAPTION>

                                               Maturity  Commitment Amount            Carrying
Location - County                                 Dates                                 Amount
-------------------------------------------------------- ------------------ -------------------
     <S>                                        <C>                 <C>                 <C>
San Mateo                                   12/01-04/03       $ 14,200,000         $ 8,290,751
Santa Clara                                 12/01-03/03         56,125,000          22,479,071
                                                         ------------------ -------------------
                                                              $ 70,325,000         $30,769,822
                                                         ================== ===================
</TABLE>

     During the year  ended  December  31,  2002,  we  capitalized  $334,513  of
interest expense from our secured line of credit and our unsecured notes payable
to  investments  in real estate under  development  by affiliates  compared with
$805,848  and  $1,118,582  during the years  ended  December  31, 2001 and 2000,
respectively.


5. INVESTMENT IN REAL ESTATE HELD FOR SALE:

     As of December 31, 2002, we or our wholly-owned  subsidiary,  99 Investors,
LLC, held title to 18 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 following table summarizes  investments in real estate held for sale at
December 31, 2002:


                                                            Carrying
County                                    Number              Amount
--------------------------------------- --------- -------------------

Alameda                                        1       $   1,676,642
Marin                                          2           4,105,484
San Francisco                                  1           1,542,395
San Mateo                                      5           8,362,275
Santa Clara                                    9          21,130,372
                                        --------- -------------------
         Total                                18        $ 36,817,168
                                                  ===================


The following table summarizes investments in real estate held for sale at
December 31, 2001:

                                                            Carrying
County                                    Number              Amount
--------------------------------------- --------- -------------------
Alameda                                                $   5,498,629
                                               3
Marin                                          4           8,438,341


San Mateo                                      2           2,620,510
Santa Clara                                    1           2,394,583
                                        --------- -------------------
         Total                                10       $  18,952,063
                                                  ===================

     We report these  properties at the lower of their existing  carrying amount
or net realizable value and are in various stages of construction.  They will be
sold in the manner which we believe maximizes their value to us. During the year


                                     FS-15
<PAGE>


                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

ended  December  31,  2002,  we  capitalized  $523,387  of  interest  expense to
investments  in real  estate  held for sale that were still  under  construction
compared with none during the years ended December 31, 2001 and 2000.

     Additional funds will be required to complete  certain  investments in real
estate  held for sale.  We will fund  these  costs from the  repayment  of other
loans,  borrowings on our line of credit (Note 8), issuance of short-term  notes
payable or issuance of additional  preferred stock. As of December 31, 2002, our
estimated costs to complete these investments was $15,320,528.

     During  the  year  ended  December  31,  2002,  we  charged  $7,475,701  to
operations for  impairments on Investments in Real Estate Held For Sale compared
with $73,000 and none during the years ended December 31, 2001 and 2000.

6.   LOAN SECURED BY REAL ESTATE:

     We had a loan secured by real  property that we received as payment for one
of our  Investments in Real Estate by Affiliates.  The loan bears fixed interest
at 7%, with interest  payments of $27,388  payable monthly and matures on August
1, 2003. The loan is secured by three parcels of real property and is subject to
certain  collateral  release  provisions.  As of December  31, 2002 the loan was
current.

7.  NOTES PAYABLE:

     We had unsecured  borrowings of  $14,095,017  at December 31, 2002 compared
with  $17,312,526  at December 31, 2001 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, 2002,  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, 2002, we had $181,912 due on notes payable to
financial  institutions to finance the cost of our insurance  policies  compared
with none at December 31, 2001.  The notes bear interest at rates between 7.462%
and 11.274% and require monthly payments totaling $25,430.

     The  following  table  summarizes  the  maturities  of our notes payable at
December 31, 2002:

                Year                              Amount
                ---------------------   -----------------

                2003                          13,806,929
                2004                             470,000
                                        -----------------

                         Total              $ 14,276,929
                                        =================


8.   LINE OF CREDIT:

     We have a  $15,000,000  line of credit with a commercial  bank.  The amount
borrowed  under  the line of credit  at  December  31,  2002,  was  $14,431,132,
compared  with  $15,000,000  at  December  31,  2001.  The  line  of  credit  is
collateralized  by  our  assets  and  guaranteed  by  our  Manager  and  another
affiliate, carries interest at prime plus 1.50 percent (5.75 percent at December
31,  2002) and matures in May 2003.  In order for us to request  advances on our
line of credit, the terms of the line of credit require, among other provisions,
that we maintain  total  equity of no less than  $150,000,000,  a debt to equity
ratio of less than 1.5 to 1.0 and quarterly taxable income from operations of at


                                     FS-16
<PAGE>


                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

least  $500,000.  Since our total equity at December 31, 2002 was less than $150
million, we will be unable to request additional advances until we either obtain
a waiver of the requirement or increase our equity to at least $150 million.  We
incurred  loan fees and other costs of $235,169  in  connection  with this loan,
which are included in other assets in the  accompanying  balance  sheets and are
being amortized on the effective  interest method over the life of the facility.
Accumulated amortization of loan fees amounted to $180,325 at December 31, 2002.


9.  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, 2002,  there were 100 shares of common stock  outstanding,
all held by William Whitlow,  Susan Fox and Michael Rider, who are employees and
officers of our manager. Ms. Fox owns all of the stock of our manager.

     The 22,496,804 and 21,633,864  shares of Preferred Stock  outstanding as of
December 31, 2002 and 2001, 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  $0.96,  $1.12 and $1.14 per share  (based on  weighted  average  preferred
shares outstanding of 22,168,539, 21,450,948 and 18,955,134) for the years ended
2002,  2001  and  2000.  Under  the  terms  of our  dividend  reinvestment  plan
shareholders  were able to reinvest  dividends in additional shares of Preferred
Stock.  On November 20, 2002 the Board of Directors  voted to close the existing
private placement,  thus terminating the dividend reinvestment option until such
time as a new private placement it opened.

     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.  Effective February 12, 2003,
the Board of Directors  implemented a new redemption policy for shareholders who
wish to sell their shares to us. 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 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 sell our stock  through  private  placement 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,
2002 we did not have an active private placement.


                                     FS-17
<PAGE>


                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS


10.   TRANSACTIONS WITH AFFILIATES:

Management Fees

     A management agreement dated March 30, 1999, as amended, between us and our
Manager  provided for a monthly fee payable in arrears  equal to 0.25 percent of
the total  commitment  amount of the ADC loans in our investments in real estate
under  development,  in our  investments  in real estate  under  development  by
affiliates,  and in our  investments  in real estate held for sale. For the year
ended  December 31, 2002,  the portfolio  management  fees earned by our Manager
were  $9,630,701  compared with  $11,345,585 and $10,967,249 for the years ended
December 31, 2001 and 2000.

     As of October 17, 2002, we entered into an amended and restated  management
agreement  with  our  Manager,  Primecore  Funding  Group,  Inc.  The  agreement
generally  provides  that  the  fees our  manager  earns  will be based on three
components:  a base fee,  determined  monthly,  of 3.125% per annum of the total
carrying  amount of our investments in real estate,  determined  according to US
GAAP;  a cash flow bonus,  determined  quarterly,  payable  only upon  achieving
certain  levels  of loan  repayments;  and a rate of  return  bonus,  determined
quarterly, which is payable only upon achieving certain income per share returns
for holders of Preferred Stock.

     The changes  made to the  management  agreement  are  intended to provide a
better  alignment  of interest  between our Manager and the  shareholders  given
current  economic  realities.  The base fee is a reduced  fee given the  current
portfolio since the fee is based on the carrying amount of ADC loans, instead of
ADC loan  commitments.  To the extent that the manager's actions produce results
that are above base expectations, the manager will be rewarded with bonuses. The
restructured agreement  is  expected  to reduce our base  management fee expense
from $9.6 million in 2002 to approximately $4.5 million in 2003.

Real Estate Sales Commissions

     We paid real estate  sales  commissions  of $446,350  during the year ended
December 31, 2002 to Primecore Properties, Inc., an affiliate compared with none
during the years ended December 31, 2001 and 2000. 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  $669,480 to our  Manager at  December  31, 2002 for fees earned in
December  2002  compared  with $31,193  payable  December 31, 2001.  The amounts
payable are typically paid the following month.

Affiliate Loans

     Our  affiliates  are  entities  with whom we share common  control  through
common  management.  Primecore  Funding Group, Inc. is our affiliate and holds a
restricted license as a California real estate broker.

     During  2002,  as prices for high end homes in the San  Francisco  Bay Area
continued  to decline,  we were advised by our manager  that  proceeds  from the
sales of  properties  securing the  affiliate  loans would not be  sufficient to
fully repay the loans and we would have to rely on the  Manager's  guarantee for
full  repayment.  Based on the  estimated  amount  of the  payment  due from the
Manager,  the time period over which the Manager would be able to accomplish the
payments and the ultimate uncertainty of receiving full repayment,  our Board of
Directors  decided it would be better to  restructure  the  existing  management
agreement  to better align the  Manager's  compensation  with our  shareholders'
interests. On October 17, 2002, our board of directors resolved to enter into an


                                     FS-18
<PAGE>


                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

Affiliate  Loan  Agreement  with our manager which  provided for the transfer of
ownership of the remaining properties securing our affiliate loans and a release
of  repayment  guarantees  from our  manager  and its  owner,  in  exchange  for
restructuring our management  agreement with Primecore  Funding Group.  Refer to
Note 4 -  Investments  In Real Estate  Under  Development  By  Affiliates  for a
discussion of the Affiliate Loan Agreement. As a result of this agreement, we no
longer have any  affiliate ADC loans.  The  ownership of 99 Investors,  LLC, the
owner of  properties  securing  affiliate  ADC loans,  has been  transferred  to
Primecore  Mortgage  Trust,  and its properties are classified as Investments in
Real  Estate  Held for Sale at  December  31,  2002.  The  following  narratives
describe the current status of our affiliate relationships.

     Eprime, Inc. is our affiliate and is a California corporation, incorporated
in 2000. Eprime, Inc. was formed for the purpose of acquiring title,  completing
and  selling the Windy Hill ADC loans which were  foreclosed  in March 2000.  As
part of that transaction,  our manager and its owner guaranteed the repayment of
the Windy Hill ADC loans.  As of the date of the Affiliate Loan  Agreement,  all
the properties acquired by Eprime had been completed and sold. At that time, the
carrying  amount  of the ADC loans  due from  Eprime  was zero as a result of an
impairment  charge of $9,468,139 on one of the Eprime ADC loans,  completion and
sale of the Eprime properties and payments made under the guarantee agreement by
our Manager.  The balance owed under the  guarantee  agreement,  which  included
accrued interest, loan fees and the $9,468,139 written down for US GAAP purposes
was $17,846,428. In accordance with the Affiliate Loan Agreement, the guarantees
provided for these ADC loans were  released and the balances were written off as
uncollectible.

     99 Investors,  LLC, a California Limited Liability Company, is an affiliate
which is now wholly-owned by us. 99 Investors, LLC was originally formed for the
purpose of developing and selling residential real estate. As of the date of the
Affiliate  Loan  Agreement,  99  Investors  owned  title to eleven  homes  under
construction which secured five ADC loans held by Primecore Mortgage Trust, Inc.
In accordance with the agreement,  ownership of 99 Investors,  LLC, and thus all
of its interest in the properties,  has been transferred to us as a wholly-owned
subsidiary.  We will continue to complete  construction and sell the properties.
Our Manager is  responsible  for the  difference,  if any,  between the carrying
amount of the ADC loans as of the date of our agreement and the appraised values
of the properties at that time. This amount will be paid to us from bonuses that
the Manager  receives in  accordance  with our revised and  restated  management
agreement,  and if the bonuses are  insufficient  to cover the full amount,  the
full amount will be paid in full on or before January 2, 2010,  with interest at
seven percent (7%) per annum.  Because of the uncertainty in timing and ultimate
collection of our Manager's repayment obligation, we have charged income for the
full amount of impairment of the  properties  transferred  by the Affiliate Loan
Agreement.  We will account for payments by our Manager under this  agreement as
income when received.

     99 El  Camino  Partners  LLC  is our  affiliate  and a  California  limited
liability  company.  The  partnership  has no  employees,  does not  provide any
services to us and does not receive any  compensation or benefits from us. 99 El
Camino Partners owns the property at 99 El Camino Real, Menlo Park,  California,
our principal place of business and that of our affiliates.

     Primecore   Properties,   Inc.  is  our   affiliate  and  is  a  California
corporation, incorporated in 1997. Primecore Properties, Inc. is licensed by the
California  Department  of  Real  Estate  as a real  estate  broker.  Except  as
disclosed above,  Primecore  Properties,  Inc. does not receive any compensation
from us, but does provide  services to us for certain  activities that require a
California real estate broker license. Those services are performed for us under
the terms of our management  agreement with Primecore  Funding Group, Inc. There
are  currently  no  arrangements  for  us  to  separately  compensate  Primecore
Properties, Inc. for those services.



                                     FS-19
<PAGE>


                         PRIMECORE MORTGAGE TRUST, INC.

                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

11.   COMMITMENTS AND CONTINGENCIES:

Litigation

     We are  involved  in legal  actions  arising  in the  normal  course of our
business.  We are not presently  subject to any material  litigation nor, to our
knowledge,  is any  litigation  threatened  against  us  which  collectively  is
expected  to  have a  material  adverse  effect  on our  cash  flows,  financial
condition or results of operations.

Construction Contracts

     In connection  with our  development of investments in real estate held for
sale,  we have entered  into  contracts  with  construction  companies  totaling
$9,420,708 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.

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.

12.  QUARTERLY STATEMENTS OF OPERATIONS (UNAUDITED):

The following tables contain selected unaudited quarterly financial data for
fiscal years 2002 and 2001:






                                     FS-20
<PAGE>


                                   PRIMECORE MORTGAGE TRUST, INC.

                             CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                   Three Months      Three Months        Three Months         Three Months
                                          Ended             Ended               Ended                Ended
                                 March 31, 2002     June 30, 2002  September 30, 2002    December 31, 2002
                                  (as restated)     (as restated)       (as restated)
                                ---------------- ----------------- --------------------- ------------------
     <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     (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                 100               100                 100                  100
    shares outstanding
                                ================ ================= ===================== ===================
</TABLE>





                                             FS-21
<PAGE>


                                   PRIMECORE MORTGAGE TRUST, INC.

                             CONSOLIDATED NOTES TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                    Three Months     Three Months        Three Months         Three Months
                                           Ended            Ended               Ended                Ended
                                  March 31, 2001    June 30, 2001  September 30, 2001    December 31, 2001
                                ---------------- ----------------- --------------------- ------------------
     <S>                              <C>                <C>                 <C>                    <C>
 REVENUES:
 Income from completed real
    estate development
    (including $0, $0, $0, and
    $0 from affiliates)               3,978,796        2,742,380           1,430,690            4,367,752

 Other........................               81               --                  --               68,429
                                ---------------- ----------------- --------------------- ------------------
          Total                       3,978,877        2,742,380           1,430,690            4,436,181
 revenues.....................

 EXPENSES:
 Management fees paid to
    Manager...................        3,122,154        2,989,063           2,808,680            2,425,688
 Provision for impairment of
    investments in real estate
    development...............               --               --                  --               73,000
 General, administrative and
    other.....................           44,658          225,053             104,651              127,718
                                ---------------- ----------------- --------------------- ------------------
          Total expenses              3,166,812        3,214,116           2,913,331            2,626,406
                                ---------------- ----------------- --------------------- ------------------
          Net income (loss)             812,065         (471,736)         (1,482,641)           1,809,775
          Preferred stock            (5,951,458)      (6,126,847)         (6,288,698)          (5,751,440)
 dividends and distributions
                                ---------------- ----------------- --------------------- ------------------
          Net loss allocable
          to common                  (5,139,393)      (6,598,583)         (7,771,339)          (3,941,665)
                               ================= ================= ===================== ==================

 Basic and diluted net loss
    per common share.........           (51,394)         (65,986)            (77,713)             (39,417)
                               ================= ================= ===================== ==================

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





                                                  FS-22
<PAGE>
                                                               SCHEDULE IV



                         PRIMECORE MORTGAGE TRUST, INC.

                          MORTGAGE LOANS ON REAL ESTATE

                                DECEMBER 31, 2002



INVESTMENTS IN REAL ESTATE UNDER DEVELOPMENT:

<TABLE>
<CAPTION>


                                                 Final    Periodic                             Face         Carrying        Carrying
                             Interest         Maturity     Payment                           Amount        Amount of          Amount
    Description                  Rate             Date       Terms   Prior Liens       of Mortgages        Mortgages    of Defaulted
                                                                                                                               Loans
------------------------- ------------ ---------------- ----------- ------------- ------------------ ---------------- --------------
     <S>                       <C>            <C>            <C>          <C>             <C>               <C>                <C>


Land Development            12 - 16%    03/02 - 11/02      Note 1            --       $ 11,460,000      $ 4,932,757      $ 1,417,230
Condominium                 11 - 16%    06/01 - 07/03      Note 1            --         14,225,000        4,165,509        4,165,509
Single Family Detached      11 - 16%    08/01 - 12/03      Note 1    15,307,630        166,923,485       92,043,249       23,597,092
                                                                                 ------------------ ---------------- ---------------

                                                                                      $192,608,485    $ 101,141,515     $ 29,179,831
                                                                                 ================== ================ ===============
</TABLE>







INVESTMENTS IN REAL ESTATE HELD FOR SALE:





                                                     Carrying        Estimated
                                    Mortgage        Amount of         Costs to
         Description                   Liens       Properties         Complete
-------------------------- ------------------ ---------------- ----------------

Land Development                    $     --     $  1,676,642       $  197,059
Condominium                               --        1,542,395        1,455,487
Single Family Detached            13,395,000       33,598,131       13,667,982

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

                                $ 13,395,000     $ 36,817,168      $15,320,528
                           ================== ================ ================











                                     FS-23