<PAGE>
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                       SECURITIES AND EXCHANGE COMMISSION

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

                                   FORM 10-K

(MARK ONE)

<TABLE>
<C>        <S>
   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                                       OR

<TABLE>
<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

        FOR THE TRANSITION PERIOD FROM ______________ TO ______________

                         COMMISSION FILE NUMBER 0-17189
                            ------------------------

                      CALIFORNIA COASTAL COMMUNITIES, INC.

             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                     <C>
                    DELAWARE                                         02-0426634
          (State or other jurisdiction                             (IRS Employer
       of incorporation or organization)                        Identification No.)

         6 EXECUTIVE CIRCLE, SUITE 250                                 92614
               IRVINE, CALIFORNIA                                    (Zip Code)
    (Address of principal executive offices)
</TABLE>

       Registrant's telephone number, including area code: (949) 250-7700

          Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

          Securities registered pursuant to Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $.05 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 or any amendment to this
Form 10-K. Yes /X/  No / /

    The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 1, 2001 was $17,669,222.

    Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes /X/  No / /

    The number of shares of Common Stock outstanding as of March 1, 2001 was
10,058,589.

                      DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the registrant's Proxy Statement for the 2001 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Annual Report
on Form 10-K.

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<PAGE>
                                     PART I

ITEM 1. BUSINESS

    California Coastal Communities, Inc. (the "Company") is a residential land
development and homebuilding company with properties located primarily in
Southern California. The principal activities of the Company and its
consolidated subsidiaries include: (i) obtaining zoning and other entitlements
for land it owns and improving the land for residential development; and
(ii) single-family residential construction in Southern California. Once the
residential land owned by the Company is entitled, the Company may build homes,
sell unimproved land to other developers or homebuilders, sell improved land to
homebuilders, or participate in joint ventures with other developers, investors
or homebuilders to finance and construct infrastructure and homes. During 2001,
the Company will focus its immediate efforts to (i) obtain approval from the
County of Orange and the California Coastal Commission ("Coastal Commission")
for development permits for the 65-acre upper bench of the Bolsa Chica Mesa
("Upper Mesa") project, as further described in Note 5 to the Company's
Financial Statements; (ii) vigorously pursue litigation challenging the Coastal
Commission's November 2000 suggested modifications to the County's Local Coastal
Program ("LCP") which would prohibit development on the 140-acre lower bench of
the Bolsa Chica Mesa ("Lower Mesa"); and (iii) prepare to commence
infrastructure construction on the Upper Mesa in the third quarter of 2002
provided that County and Coastal Commission approvals are obtained on a timely
basis; however, the Company may also consider other strategic and joint venture
opportunities. There can be no assurance that the Company will accomplish, in
whole or in part, all or any of these strategic goals.

    The Company's executive offices are located at 6 Executive Circle, Suite
250, Irvine, California 92614 (telephone: (949) 250-7700).

PRINCIPAL PROPERTIES

    The following sections describe the Company's principal properties.

    BOLSA CHICA.  The Bolsa Chica Mesa property is the principal property in the
Company's portfolio. Bolsa Chica Mesa is one of the last large undeveloped
coastal properties in Southern California, and is located in Orange County,
approximately 35 miles south of downtown Los Angeles. Bolsa Chica is bordered on
the north and east by residential development, to the south by open space and
the Bolsa Chica wetlands, and to the west by the Pacific Coast Highway, the
Bolsa Chica State Beach, and the Pacific Ocean. The Company owns 350 acres of
the approximately 1,600 acres of undeveloped land at Bolsa Chica. The Company's
holdings include 208 acres on Bolsa Chica Mesa, approximately 100 acres on, or
adjacent to, the Huntington Mesa and 42 acres of lowlands acquired in
September 1997.

    In February 1997, the Company completed the sale of its approximately
880-acre Bolsa Chica lowlands, which had previously been planned for the
development of up to 900 homes and wetlands restoration, to the California State
Lands Commission for $25 million. Under an interagency agreement among various
state and federal agencies, these agencies have agreed to restore the Bolsa
Chica wetlands habitat utilizing escrowed funds from the Ports of Los Angeles
and Long Beach.

    The planned community at Bolsa Chica Mesa is expected to offer a broad mix
of home choices, including primarily single-family homes. An LCP for development
of up to 2,500 homes on Bolsa Chica Mesa was approved by the Orange County Board
of Supervisors in December 1994 and by the Coastal Commission in January 1996.
However, a court order in litigation (the "Coastal Act Lawsuit") which followed
the approvals required a hearing by the Coastal Commission in November 2000 with
respect to the relocation of raptor habitat. At the hearing, the Coastal
Commission approved suggested modifications to the LCP which would limit
development to 65 acres of the Bolsa Chica Mesa (the "Upper Mesa") and would
prohibit the Company and other landowners from development on the approximately
140-acre remainder of the Bolsa Chica Mesa (the "Lower Mesa"). In January 2001,
the Company filed litigation

                                       2
<PAGE>
(the "Coastal Commission Lawsuit") challenging the Coastal Commission's
November 2000 suggested modifications to the County's Bolsa Chica LCP. The
complaint includes causes of action for violation of the Company's
constitutional rights of equal protection and due process, and for a public
taking of its private property without compensation in contravention of the U.S.
and California Constitutions. The complaint alleges that the Coastal Commission
arbitrarily abandoned decades of prior approvals which would have permitted
development on the entire Bolsa Chica Mesa. See Item 3. "Legal Proceedings"
below for further discussion.

    While the Company vigorously pursues its litigation to obtain entitlement
for residential construction on the Lower Mesa, it is also pursuing approval of
permits for development of the Upper Mesa. After review of environmental,
economic, marketing, construction and political considerations, the Company is
currently planning to apply for permits to build approximately 400 single family
homes on the Upper Mesa. However, the Company is continuing to evaluate
alternative development plans which could result in higher density development.
If a plan is approved by the County of Orange in early 2002, the Company could
then seek approval from the Coastal Commission during the second quarter of 2002
and expect to commence infrastructure construction on the Upper Mesa during the
third quarter of 2002 provided that County and Coastal Commission approvals are
obtained on a timely basis. The Company does not believe that the Coastal
Commission process will ultimately prevent it from developing a planned
community at Bolsa Chica, however, there can be no assurance in that regard, or
as to the number of acres the Company would be permitted to develop, or that
further litigation or administrative delay will not result.

    Upon completion of the Company's recapitalization (the "Recapitalization")
as discussed in Note 3, the Company applied the principles required by
Fresh-Start Reporting and the carrying value of land held for development (Bolsa
Chica) was adjusted to fair value as of September 2, 1997, after consideration
of the October 1997 Coastal Commission action discussed above. As prescribed in
SFAS 121, the fair value was determined in 1997 using discounted estimated cash
flows expected from the asset's operations and eventual disposition. In
addition, given the significance of the Bolsa Chica asset to the financial
statements of the Company, the value of the Company's stock immediately
following the closing of the Recapitalization was used as an indicator of value
of the subject property. Following the November 2000 Coastal Commission action,
an assessment of impairment was conducted by the Company for the year ended
December 31, 2000, in accordance with the Company's policy described in
Note 2--Impairment of Long-Lived Assets. Based upon the Company's assessment of
estimated undiscounted future cash flows, no provision for impairment has been
considered necessary subsequent to the Recapitalization.

    SANDOVER.  The Company's subsidiary is currently building 16 homes on
approximately five acres of Bolsa Chica Mesa, which is in the City of Huntington
Beach (whereas the rest of the Company's Bolsa Chica Mesa property is in an
unincorporated area within the County of Orange). The Company opened for sales
at the project, known as "Sandover, in July 2000. As of March 19, 2001, seven of
the 16 homes were delivered and the remaining nine homes were in escrow.

    RANCHO SAN PASQUAL.  In the City of Escondido in San Diego County,
approximately 30 miles north of downtown San Diego, the Company is developing an
850-acre, gated community consisting of 580 residential lots surrounding an
18-hole championship golf course, developed by the Company. From 1996 through
April 1998, the Company sold 468 Phase I residential lots at Rancho San Pasqual
to four homebuilders. The Company began constructing infrastructure and homes on
the 112-home Phase II of the project in 1999, and opened for sales in
October 1999. As of March 19, 2001, 70 homes were delivered and 41 of the
remaining 42 homes were in escrow.

    CHAPMAN HEIGHTS.  In June 2000, the Company acquired 29 finished lots which
are part of a master-planned community known as Chapman Heights, in the city of
Yucaipa, California, and obtained an option to purchase an additional 57
finished lots. The community surrounds an operating 18-hole public golf course
and is planned for a total of approximately 2,100 homes, civic and commercial
centers and two

                                       3
<PAGE>
school sites. The Company opened for sales in January 2001, and 10 homes were in
escrow as of March 19, 2001.

    FAIRBANKS HIGHLANDS.  The Fairbanks Highlands property consists of
approximately 390 acres near the communities of Fairbanks Ranch and Rancho Santa
Fe in the northern part of the City of San Diego. The project includes 93 luxury
homes on single-family residential lots averaging 1.34 acres each and
approximately 215 acres of open space. In December 1996, the Company formed a
joint venture with a major homebuilder to develop this property, and retained a
continuing 35% partnership interest in the venture. The Company's partner is
managing the day-to-day operations of the venture, providing all construction
financing and building all of the homes at the site. As of March 19, 2001, 55
homes were delivered and 29 homes were in escrow, with nine homes remaining for
sale.

    OTHER PROPERTIES.  The Company owns approximately seven acres of land zoned
as a church site in San Diego, California, two acres of land zoned for
commercial/industrial use in Signal Hill, California, and approximately 62 acres
of resort/residential property in Michigan. These properties are currently held
for sale, subject to market conditions. The seven-acre church site is in escrow
to be sold for $675,000 and scheduled to close by March 30, 2001.

    PROPERTY DISPOSITIONS.  See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a description of the
Company's property dispositions during 1998, 1999 and 2000.

    ENVIRONMENTAL AND REGULATORY MATTERS.  Before the Company can develop a
property, it must obtain a variety of discretionary approvals from local and
state governments, as well as the federal government in certain circumstances,
with respect to such matters as zoning, subdivision, grading, architecture and
environmental matters. The entitlement approval process is often a lengthy and
complex procedure requiring, among other things, the submission of development
plans and reports and presentations at public hearings. Because of the
provisional nature of these approvals and the concerns of various environmental
and public interest groups, the approval process can be delayed by withdrawals
or modifications of preliminary approvals and by litigation and appeals
challenging development rights. Accordingly, the ability of the Company to
develop properties and realize income from such projects could be delayed or
prevented due to litigation challenging previously obtained governmental
approvals.

    As more fully described below in Item 3. Legal Proceedings, in April 1999
the California Court of Appeal overturned an August 1997 trial court judgment in
the Coastal Act Lawsuit, ruling that the Coastal Commission should not have
approved removal and relocation of certain raptor habitat. In response to the
court, in November 2000, the Coastal Commission approved suggested modifications
to the LCP, which would limit development to 65 acres of the Bolsa Chica Mesa.
The Company has filed a lawsuit challenging the Coastal Commission's action and
is concurrently seeking development permits for the 65-acre Upper Mesa.
Therefore, the regulatory approval process for the Bolsa Chica Mesa property
remains subject to litigation and further Coastal Commission approval, and there
can be no assurance that further delays will not result.

    The Company has expended and will continue to expend significant financial
and managerial resources to comply with environmental regulations and local
permitting requirements. Although the Company believes that its operations are
in general compliance with applicable environmental regulations, certain risks
of unknown costs and liabilities are inherent in developing and owning real
estate. However, the Company does not believe that such costs will have a
material adverse effect on its business, financial condition or results of
operations, including the potential remediation expenditures proposed in
connection with certain indemnity obligations discussed below in "Corporate
Indemnification Matters."

    CORPORATE INDEMNIFICATION MATTERS.  The Company and its predecessors have,
through a variety of transactions effected since 1986, disposed of several
assets and businesses, many of which are unrelated to the Company's current
operations. By operation of law or contractual indemnity provisions, the Company

                                       4
<PAGE>
may have retained liabilities relating to certain of these assets and
businesses, including certain tax liabilities. (See Notes 8, 9 and 10 to the
Company's Financial Statements included in this Annual Report.) Many of such
liabilities are supported by insurance or by indemnities from certain of the
Company's predecessors and currently or previously affiliated companies. The
Company believes its balance sheet reflects adequate reserves for these matters.

    EMPLOYEES.  As of March 1, 2001 the Company and its subsidiaries had 40
employees.

    SAFE HARBOR, STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. Certain of the foregoing information contains forward-looking statements
that relate to future events or the Company's future financial performance.
These statements involve known and unknown risks, uncertainties and other
factors which may cause the Company's actual results, performance or
achievements to be materially different from any future results, performances or
achievements expressed or implied by the forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may",
"will", "should", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential", "continue", or the negative of such terms or other
comparable terminology. These forward-looking statements include, but are not
limited to, statements about the Company's plans, objectives, goals,
expectations and intentions, the number and types of homes and number of acres
of land that the Company may develop and sell, outcomes of litigation,
regulatory approval processes or administrative proceedings (including, but not
limited to ongoing litigation and administrative proceedings in the Coastal
Commission Lawsuit related to the Company's principal asset, the Bolsa Chica
Mesa), the Company's ability to continue relationships with current or future
partners, the Company's ability to expend resources to comply with environmental
regulations and local permitting requirements, the effect of certain costs,
contractual obligations and tax liabilities, both known and unknown, on the
Company's business, results of operations and financial condition, the condition
and adequacy of the Company's properties, the Company's ability to estimate cash
flow projections due to uncertainties in valuing real property, the Company's
ability to acquire residential lots in order to continue home-building
operations, the adequacy of capital, financing and cash flow required to
continue the Company's operations and land development activities, the future
condition of the real estate market in Southern California, and other statements
contained herein that are not historical facts.

                       EXECUTIVE OFFICERS OF THE COMPANY

<TABLE>
<CAPTION>
NAME AND TITLE                 AGE                          BUSINESS EXPERIENCE
--------------               --------   ------------------------------------------------------------
<S>                          <C>        <C>
Raymond J. Pacini               45      President, Chief Executive Officer and Director of the
  President and                         Company since May 1998, Executive Vice President, Chief
  Chief Executive Officer               Financial Officer, Secretary and Treasurer of the Company
                                        from prior to 1995 to May 1998. Director of Metalclad
                                        Corporation since March 1999.

Sandra G. Sciutto               41      Chief Financial Officer, Secretary and Treasurer of the
  Senior Vice President and             Company since May 1998. Senior Vice President of the Company
  Chief Financial Officer               since February 1996 and Vice President and Controller of the
                                        Company from prior to 1995 to April 1998.
</TABLE>

ITEM 2. PROPERTIES

    The Company's principal executive offices are located in Irvine, California.
The Company and each of its subsidiaries believe that their properties are
generally well maintained, in good condition and adequate for their present and
proposed uses. The inability to renew any short-term real property lease would
not be expected to have a material adverse effect on the Company's results of
operations.

                                       5
<PAGE>
    The principal properties of the Company and its subsidiaries, which are
owned in fee unless otherwise indicated, are as follows:

<TABLE>
<CAPTION>
PROPERTY                            LOCATION            ACRES           PRESENT OR PLANNED USE
--------                      ---------------------  -----------   ---------------------------------
<S>                           <C>                    <C>           <C>
Irvine*                       Irvine, CA                     --    Headquarters

Bolsa Chica                   Orange County, CA             350    Oceanview residential community

Sandover                      Huntington Beach, CA            5    Residential community

Rancho San Pasqual            Escondido, CA                 465    Residential community

Chapman Heights               Yucaipa, CA                     6    Residential community

Fairbanks Highlands**         San Diego, CA                 312    Residential community

Fairbanks Highlands           San Diego, CA                   7    Raw land

Michigan Land                 Upper Peninsula, MI            62    Resort/residential lots

Signal Hill                   Signal Hill, CA                 2    Industrial land
</TABLE>

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

*   Leased

**  Minority interest in limited liability company

ITEM 3. LEGAL PROCEEDINGS

    In March 1996, a lawsuit (the "Coastal Act Lawsuit") was filed in the San
Francisco County Superior Court (and later removed to San Diego Superior Court)
by the Bolsa Chica Land Trust, et al. against the Coastal Commission, the
Company and other Bolsa Chica landowners as real parties in interest, alleging
that the Coastal Commission's approval of the LCP in January 1996 was not in
compliance with the Coastal Act and other statutory requirements. The Coastal
Act Lawsuit sought to set aside the approval of the Bolsa Chica project. In
August 1997, the San Diego Superior Court rendered a judgment that returned the
LCP to the Coastal Commission for further consideration in the context of two
issues. The court's decision that the Coastal Commission reconsider the LCP was
based on the court's determination (i) that development of homes in the lowlands
is not in compliance with the Coastal Act, and (ii) that the Commission's
findings regarding the filling of a 1.7 acre pond on the Bolsa Chica Mesa
("Warner Pond") were not in compliance with the Coastal Act. With respect to
Warner Pond, the court determined in August 1997 that the Coastal Commission
failed to weigh and resolve a conflict in Coastal Act policies related to the
proposed filling of Warner Pond. The court's August 1997 decision required the
Coastal Commission to reconsider its treatment of Warner Pond. In every other
respect, the court denied challenges to the Coastal Commission's approval of the
LCP for development of Bolsa Chica Mesa. The court specifically approved the
Coastal Commission's findings with regard to (i) the relocation of raptor
habitat, (ii) the adequacy of a buffer between the new residential development
and the wetlands, and (iii) treatment of archeological resources. The
August 1997 judgment was appealed by both the project opponents and the Company
as discussed below.

    On October 9, 1997, in response to the trial court's decisions, the Coastal
Commission approved modifications to the LCP which eliminated the filling of
Warner Pond and thereby reduced the maximum number of homes from 2,500 to no
more than 1,235 homes on the Bolsa Chica Mesa. On November 18, 1997 and
February 3, 1998, the Orange County Board of Supervisors accepted the Coastal
Commission's suggested modifications.

    In October 1997, opponents of the Bolsa Chica Mesa project appealed the
trial court's August 1997 decision on the basis that the trial court should have
reversed the Coastal Commission's January 1996 approval allowing relocation of
certain raptor habitat. On April 16, 1999, the California Court of Appeal
overturned the August 1997 judgment of the trial court with respect to the
raptor habitat. The appellate

                                       6
<PAGE>
court ruled that, under the Coastal Act, the Coastal Commission should not have
allowed the removal and relocation of this raptor habitat. The court order
instructing the Coastal Commission on how to proceed in response to this
decision was issued in June 1999.

    In response to the court order, on November 16, 2000, the Coastal Commission
held another public hearing on the LCP and approved suggested modifications to
the LCP which would limit development to approximately 65 acres of the Bolsa
Chica Upper Mesa and would prohibit the Company and other landowners from
development on the approximately 140-acre remainder of the Bolsa Chica Lower
Mesa. On January 12, 2001 the Company's subsidiaries filed a complaint in Orange
County Superior Court challenging the Coastal Commission's November 2000
suggested modifications to the County's Bolsa Chica LCP. The complaint includes
causes of action for violation of the Company's constitutional rights of equal
protection and due process, and for a public taking of its private property
without compensation, in contravention of the U.S. and California Constitutions.
The complaint alleges that the Coastal Commission arbitrarily abandoned decades
of prior approvals which would have permitted development on the entire Bolsa
Chica Mesa. On February 28, 2001, the Orange County Superior Court ordered that
the case be reassigned to San Diego Superior Court based on the request of the
Coastal Commission. Due to the uncertainty of the litigation process, the
Company cannot predict how long it will take to pursue its claims, or the
probability for success.

    On November 1, 1999, AV Partnership filed a lawsuit against the Company in
Los Angeles County Superior Court, for collection of a guarantee of
approximately $4.8 million principal amount of capital contribution notes plus
accrued interest due to the partnership. On December 2, 1999, the Company filed
a cross-complaint for recission of the guarantee and other causes of action. The
partnership was a real estate home-building venture, in which the Company held a
49% general partnership interest. On January 25, 2001, the Company entered into
a court-approved settlement regarding its AV Partnership investment and related
contribution notes payable to the partnership. In settlement of the contribution
notes payable, the Company agreed to pay $3.75 million and to indemnify its
former partner with respect to any long-term home warranty matters and any
future contruction defects claims regarding 1,202 homes built by the Company's
subsidiary under contract to the joint venture.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

    None.

                                       7
<PAGE>
                                    PART II

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

    The following tables set forth information with respect to bid quotations
for the Common Stock of the Company for the periods indicated as reported on the
National Market. These quotations are interdealer prices without retail markup,
markdown or commission and may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
                                                                HIGH       LOW
                                                              --------   --------
<S>                                                           <C>        <C>
2000
First Quarter...............................................   $7.50      $5.44
Second Quarter..............................................   $6.31      $5.19
Third Quarter...............................................   $5.94      $5.31
Fourth Quarter..............................................   $6.63      $2.63

1999
First Quarter...............................................   $7.13      $6.25
Second Quarter..............................................   $7.25      $5.06
Third Quarter...............................................   $8.25      $6.88
Fourth Quarter..............................................   $8.06      $5.75
</TABLE>

    The number of beneficial holders of the Company's Common Stock as of
March 1, 2001 was approximately 2,700. The Company has not paid any cash
dividends on its Common Stock to date, nor does the Company currently intend to
pay regular cash dividends on the Common Stock.

ITEM 6. SELECTED FINANCIAL DATA

    The Selected Financial Data with respect to the Company and its subsidiaries
are set forth on pages 13 to 14 of this Annual Report.

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

    Management's Discussion and Analysis of Financial Condition and Results of
Operations is set forth beginning on page 15 of this Annual Report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    Financial statements, schedules and supplementary data of the Company and
its subsidiaries, listed under Item 14, are submitted as a separate section of
this Annual Report, commencing on page F-2.

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

    None.

                                       8
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    DIRECTORS.  The information appearing under the caption "Election of
Directors" of the Company's Proxy Statement for its 2001 Annual Meeting of
Stockholders is incorporated herein by reference in this Annual Report.

    EXECUTIVE OFFICERS.  Information with respect to executive officers appears
under the caption "Executive Officers of the Company" in Item 1 of this Annual
Report.

ITEM 11. EXECUTIVE COMPENSATION

    Information in answer to this Item appears under the caption "Compensation
of Directors and Executive Officers" of the Company's Proxy Statement for its
2001 Annual Meeting of Stockholders and is incorporated herein by reference in
this Annual Report.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    Information in answer to this Item appears under the captions "Voting
Securities and Principal Holders Thereof" and "Election of Directors" of the
Company's Proxy Statement for its 2001 Annual Meeting of Stockholders, and is
incorporated herein by reference in this Annual Report.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Information in answer to this Item appears under the captions "Certain
Transactions" and "Compensation of Directors and Executive Officers" of the
Company's Proxy Statement for its 2001 Annual Meeting of Stockholders, and is
incorporated herein by reference in this Annual Report on Form 10-K.

                                       9
<PAGE>
                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1)  Financial Statements:

    The following financial statements and supplementary data of the Company are
included in a separate section of this Annual Report on Form 10-K commencing on
the page numbers specified below:

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
Selected Financial Data.....................................      13

Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................      15

Independent Auditors' Report................................     F-1

Consolidated Balance Sheets as of December 31, 1999 and
  2000......................................................     F-2

Consolidated Statements of Operations for the Years Ended
  December 31, 1998, 1999 and 2000..........................     F-3

Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1998, 1999 and 2000..........................     F-4

Consolidated Statements of Changes in Stockholders' Equity
  for the Years Ended December 31, 1998, 1999 and 2000......     F-5

Notes to Consolidated Financial Statements..................     F-6
</TABLE>

(2) Financial Statement Schedules:

    All schedules have been omitted since they are not applicable, not required,
or the information is included in the financial statements or notes thereto.

(3) Listing of Exhibits:

<TABLE>
<C>        <S>
 3.01      Amended and Restated Certificate of Incorporation of the
           Registrant, incorporated by reference to Form 8-K filed
           October 14, 1999.

 3.02      Amended By-Laws of the Registrant, incorporated by reference
           to Exhibit 4.03 to the Registrant's Post-Effective Amendment
           No. 4 to Form S-4, Registration Statement No. 333-29883,
           filed August 28, 1997.

 4.01      Amended and Restated Certificate of Incorporation of the
           Registrant, incorporated by reference to Form 8-K filed
           October 14, 1999.

 4.02      Amended By-Laws of the Registrant, incorporated by reference
           to Exhibit 4.03 to the Registrant's Post-Effective Amendment
           No. 4 to Form S-4, Registration Statement No. 333-29883,
           filed August 28, 1997.

10.01      Tax Sharing Agreement dated as of December 18, 1989, between
           the Registrant and The Henley Group, Inc. ("Henley Group"),
           incorporated by reference to Exhibit 10.03 to the
           Registrant's Annual Report on Form 10-K for 1989.

10.02      Tax Sharing Agreement dated as of December 15, 1988, between
           Wheelabrator Technologies, Inc. (formerly The Wheelabrator
           Group, Inc.) ("WTI") and the Registrant ("WTI Tax Sharing
           Agreement"), incorporated by reference to Exhibit 10.02 to
           Amendment No. 3 on Form 8 to the Registrant's Registration
           Statement on Form 10.

10.02A     Amendment No. 1 to WTI Tax Sharing Agreement dated
           February 14, 1994, incorporated by reference to
           Exhibit 10.02A to the Registrant's Annual Report on
           Form 10-K for 1993.

10.03      Tax Sharing Agreement dated as of June 10, 1992, between
           Henley Group and Abex Inc., incorporated by reference to
           Exhibit 10.15 to the Registrant's Annual Report on
           Form 10-K for 1992.
</TABLE>

                                       10
<PAGE>
<TABLE>
<C>        <S>
10.04      Amendment to Tax Sharing Agreement dated January 25, 1999
           between the Registrant and Fisher Scientific
           International Inc., incorporated by reference to
           Exhibit 10.04 to the Registrant's Annual Report on
           Form 10-K for 1998.
10.05      1993 Stock Option/Stock Issuance Plan, incorporated by
           reference to Exhibit 10.03A to the Registrant's Annual
           Report on Form 10-K for 1993.
10.06      Deferred Compensation Plan for Non-Employee Directors of the
           Registrant, incorporated by reference to Exhibit 10.14 to
           the Registrant's Registration Statement on Form 10.
10.07      Retirement Plan for Non-Employee Directors of the
           Registrant, incorporated by reference to Exhibit 10.15 to
           the Registrant's Registration Statement on Form 10.
10.08      Retirement Plan of the Registrant, incorporated by reference
           to Exhibit 10.16 to Amendment No. 3 on Form 8 to the
           Registrant's Registration Statement on Form 10.
10.08A     Amendment to Retirement Plan of the Registrant dated
           December 8, 1993, incorporated by reference to
           Exhibit 10.07A to the Registrant's Annual Report on
           Form 10-K for 1993.
10.08B     Amendment to Retirement Plan of the Registrant dated
           effective January 1, 2000, incorporated by reference to
           Exhibit 10.08B to the Registrant's Annual Report on
           Form 10-K for 1999.
10.09      California Coastal Communities, Inc. 401(k) Plan and Trust
           Agreement dated effective January 1, 2000, incorporated by
           reference to Exhibit 10.10 to Registrant's Annual Report on
           Form 10-K for 1999.
10.10      Employment Agreement between the Registrant and
           Mr. Raymond J. Pacini, dated as of May 1, 1998, incorporated
           by reference to Exhibit 10.1 to Registrant's Quarterly
           Report on Form 10-Q for the quarter ended March 31, 1998.
10.10A     Extension and Modification of Employment Agreement between
           the Registrant and Raymond J. Pacini, dated as of
           December 7, 1999, incorporated by reference to
           Exhibit 10.11A to Registrant's Annual Report on Form 10-K
           for 1999.
10.11      Employment Agreement between the Registrant and Ms. Sandra
           G. Sciutto, dated as of May 1, 1998, incorporated by
           reference to Exhibit 10.2 to Registrant's Quarterly Report
           on Form 10-Q for the quarter ended March 31, 1998.
10.11A     Extension and Modification of Employment Agreement between
           the Registrant and Sandra G. Sciutto, dated as of
           December 7, 1999, incorporated by reference to
           Exhibit 10.12A to Registrant's Annual Report on Form 10-K
           for 1999.
10.12      Independent Contractor Consulting Agreement among the
           Registrant, GSSW-REO, L.C., a Texas limited liability
           company and Thomas W. Sabin, Jr. dated as of May 20, 1998,
           incorporated by reference to Exhibit 10.1 to Registrant's
           Quarterly Report on Form 10-Q for the quarter ended
           June 30, 1998.
10.12A     Extension and Modification of Independent Contractor
           Consulting Agreement among the Registrant, GSSW-REO, L.C., a
           Texas limited liability company and Thomas W. Sabin, Jr.
           dated as of December 7, 1999, incorporated by reference to
           Exhibit 10.13A to Registrant's Annual Report on Form 10-K
           for 1999.
10.13      KREG Operating Co. Stock Purchase Agreement dated as of
           March 30, 1998 between the Registrant and Koll Development
           Company, LLC and certain affiliates, incorporated by
           reference to Exhibit 10.25 to Registrant's Annual Report on
           Form 10-K for 1997.
21.01      Subsidiaries of the Registrant, incorporated by reference to
           Exhibit 21.01 to Registrant's Annual Report on Form 10-K for
           1999.
</TABLE>

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

(b) Reports on Form 8-K:

    Current Report on Form 8-K dated November 21, 2000 attaching a press release
announcing that the California Coastal Commission had approved suggested
modifications to the Bolsa Chica Local Coastal Program that would substantially
reduce the number of developable acres at the Registrant's Bolsa Chica Mesa
property.

                                       11
<PAGE>
                                   SIGNATURES

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

<TABLE>
<S>                                                    <C>  <C>
Date: March 30, 2001                                   CALIFORNIA COASTAL COMMUNITIES, INC.

                                                       By:            /s/ SANDRA G. SCIUTTO
                                                            -----------------------------------------
                                                                        Sandra G. Sciutto
                                                                    SENIOR VICE PRESIDENT AND
                                                                     CHIEF FINANCIAL OFFICER
</TABLE>

    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 date indicated.

<TABLE>
<CAPTION>
                   SIGNATURE                                      TITLE                        DATE
                   ---------                                      -----                        ----
<C>                                                   <S>                                 <C>
           /s/ PHILLIP R. BURNAMAN II
     --------------------------------------           Director                            March 30, 2001
            (Phillip R. Burnaman II)
             /s/ RAYMOND J. PACINI
     --------------------------------------           President, Chief Executive          March 30, 2001
              (Raymond J. Pacini)                       Officer and Director
            /s/ THOMAS W. SABIN, JR.
     --------------------------------------           Director and Chairman of the        March 30, 2001
             (Thomas W. Sabin, Jr.)                     Board
             /s/ SANDRA G. SCIUTTO
     --------------------------------------           Senior Vice President and           March 30, 2001
              (Sandra G. Sciutto)                       Chief Financial Officer
              /s/ J. THOMAS TALBOT
     --------------------------------------           Director                            March 30, 2001
               (J. Thomas Talbot)
</TABLE>

                                       12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

    Set forth below is selected financial data of the Company and its
consolidated subsidiaries, which has been reclassified for prior periods to
present the commercial development business as discontinued operations (see
Note 4 to the Company's Financial Statements). On September 2, 1997, the Company
completed a recapitalization under Chapter 11 of the bankruptcy code (the
"Recapitalization", see Note 3 to the Company's Financial Statements). The
following information should be read in conjunction with the financial
statements beginning on page F-1 of this Form 10-K.

<TABLE>
<CAPTION>
                                               PREDECESSOR COMPANY                     SUCCESSOR COMPANY
                                           ---------------------------   ---------------------------------------------
                                                          EIGHT-MONTH     FOUR-MONTH
                                            YEAR ENDED    PERIOD ENDED   PERIOD ENDED      YEARS ENDED DECEMBER 31,
                                           DECEMBER 31,   SEPTEMBER 2,   DECEMBER 31,   ------------------------------
                                               1996           1997           1997         1998       1999       2000
                                           ------------   ------------   ------------   --------   --------   --------
                                                             (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                                        <C>            <C>            <C>            <C>        <C>        <C>
BALANCE SHEET DATA AT PERIOD END:
  Unrestricted cash, cash equivalents and
    short-term investments (a)...........     $  2.1                       $   7.2       $ 26.6     $  8.8     $  6.9
  Total assets (a).......................      256.6                         173.3        174.2      169.9      178.7
  Bank debt (b)..........................        8.2                            --           --         --         --
  Project debt (b).......................         --                            --           --        7.4        9.0
  Subordinated debentures and other
    liabilities subject to
    compromise (b).......................      200.3                            --           --         --         --
  Total stockholders' equity (c).........     $  1.1                       $ 140.1       $142.7     $132.8     $142.6
  Shares outstanding at end of
    period (g)...........................        N/A            N/A           11.9         11.5       10.1       10.1
  Book value per common
    share-basic (g)......................        N/A            N/A        $ 11.77       $12.41     $13.15     $14.12
STATEMENT OF OPERATIONS DATA:
  Revenues (d),(e).......................     $ 34.5        $  33.9        $   4.3       $  2.1     $   --     $ 23.0
  Income (loss) from continuing
    operations (e),(f)...................      (29.3)         (85.3)          (1.3)        (2.3)      (1.8)       5.6
  Net income (loss) (f)..................      (28.9)           9.6            (.5)         4.2       (1.6)       5.6
PER COMMON SHARE-BASIC AND DILUTED:
  Income (loss) from continuing
    operations (g).......................        N/A            N/A        $  (.11)      $ (.19)    $ (.17)    $  .55
  Earnings (loss) (g)....................        N/A            N/A        $  (.04)      $  .35     $ (.15)    $  .55
WEIGHTED-AVERAGE SHARES
  OUTSTANDING (g)........................        N/A            N/A           11.9         11.9       10.7       10.1
</TABLE>

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

(a) The decrease in total assets at December 31, 1997 primarily reflects
    Fresh-Start Reporting adjustments recorded in connection with the
    Recapitalization on September 2, 1997 (see Notes 3 and 5 to the Company's
    Financial Statements). The increase in cash, cash equivalents and short-term
    investments at December 31, 1998 primarily reflects the April 1998 sale of
    the commercial development business, partially offset by project development
    costs, stock repurchases and general and administrative expenses. The
    decrease in cash, cash equivalents and short-term investments at
    December 31, 1999 primarily reflects stock repurchases, the deposit of
    restricted cash and expenditures for project development costs and general
    and administrative expenses. The decrease in cash, cash equivalents and
    short-term investments at December 31, 2000 is primarily attributable to the
    funding of project development costs and general and administrative
    expenses, partially offset by proceeds from sales of real estate held for
    development or sale and partnership distributions received.

(b) The decrease in bank debt at December 31, 1997 reflects the repayment of the
    outstanding bank debt in the first quarter of 1997. The decrease in
    subordinated debentures and other liabilities subject to compromise reflects
    the Recapitalization on September 2, 1997. The increase in project debt at
    December 31, 1999 reflects borrowings under a construction loan for the
    Company's Rancho San Pasqual project. The increase in project debt at
    December 31, 2000 reflects borrowings for construction of infrastructure and
    homes at

                                       13
<PAGE>
    Rancho San Pasqual and Sandover in excess of principal repayments upon sales
    of homes at Rancho San Pasqual and Sandover.

(c) The increase in equity at December 31, 1997 reflects the issuance of new
    Common Stock in exchange for the subordinated debentures and other
    liabilities subject to compromise upon completion of the Recapitalization,
    partially offset by Fresh-Start Reporting adjustments. The increase in
    equity at December 31, 1998 reflects net income for the year then ended,
    along with the issuance of restricted stock to the Company's Chief Executive
    Officer, partially offset by $2.9 million of stock repurchases in
    December 1998. The decrease in equity at December 31, 1999 reflects stock
    repurchases of $8.3 million and the net loss for the year then ended (see
    Note 12 to the Company's Financial Statements). The increase in equity at
    December 31, 2000 reflects the net income for the year then ended, as well
    as the addition of the deferred income tax provision to capital in excess of
    par value pursuant to Fresh-Start reporting.

(d) The increase in 1997 revenues primarily reflects the sale of the Bolsa Chica
    lowlands, partially offset by the absence of the Eagle Crest Golf Course
    sale and the formation of the Fairbanks Highlands joint venture in 1996. The
    decrease in revenues in 1998 reflects the absence of the 1997 sale of the
    Bolsa Chica lowlands and the completion of Rancho San Pasqual Phase I lot
    sales in May 1998. The increase in 2000 revenues reflects the sale of 61
    homes at Rancho San Pasqual and one home at Sandover.

(e) Amounts have been reclassified to present the commercial development
    business as a discontinued operation (see Note 4 to the Company's Financial
    Statements).

(f) The net income for the eight-month period ended September 2, 1997 reflects
    the extraordinary gain on extinguishment of debt as a result of the
    Recapitalization, partially offset by Fresh-Start Reporting adjustments,
    reorganization costs and non-cash interest charged on the subordinated
    debentures. The net income for 1998 reflects the after-tax gain on sale of
    the commercial development business of $6.1 million, partially offset by
    general and administrative expenses. The net loss for 1999 primarily
    reflects general and administrative expenses, partially offset by
    $1.5 million of non-recurring other income from a change in estimate for an
    indemnity obligation reserve related to a disposed business based on an
    analysis of recent claims history. The net income for the year ended
    December 31, 2000 primarily reflects home sales at Rancho San Pasqual,
    income from the unconsolidated Fairbanks Highlands joint venture and the
    settlement or resolution of certain other liabilities.

(g) The new Common Stock began trading on September 2, 1997 concurrent with the
    Recapitalization and the one-for-one hundred (1:100) reverse stock split.
    Accordingly, per share information for the old common shares is not shown,
    as it would not be comparable.

                                       14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

    The Company is a residential land development and homebuilding company with
properties located primarily in Southern California. The principal activities of
the Company and its consolidated subsidiaries include: (i) obtaining zoning and
other entitlements for land it owns and improving the land for residential
development; and (ii) single-family residential construction in Southern
California. Once the residential land owned by the Company is entitled, the
Company may build homes, sell unimproved land to other developers or
homebuilders, sell improved land to homebuilders, or participate in joint
ventures with other developers, investors or homebuilders to finance and
construct infrastructure and homes. During 2001, the Company will focus its
immediate efforts to (i) obtain approval from the County of Orange and the
California Coastal Commission ("Coastal Commission") for development permits for
the 65-acre upper bench of the Bolsa Chica Mesa ("Upper Mesa") project, as
further described in Note 5 to the Company's Financial Statements;
(ii) vigorously pursue litigation (the "Coastal Commission Lawsuit") challenging
the Coastal Commission's November 2000 suggested modifications to the County's
Local Coastal Program ("LCP") which would prohibit development on the 140-acre
lower bench of the Bolsa Chica Mesa ("Lower Mesa"); and (iii) prepare to
commence infrastructure construction on the Upper Mesa in the third quarter of
2002 provided that County and Coastal Commission approvals are obtained on a
timely basis; however, the Company may also consider other strategic and joint
venture opportunities. There can be no assurance that the Company will
accomplish, in whole or in part, all or any of these strategic goals.

    During 2000, the Company generated significant gross operating margins and
cash flows from home-building activities on assets other than Bolsa Chica. The
Company currently has on-going Southern California projects in Huntington Beach,
Escondido and Yucaipa, and a significant venture interest in a project in San
Diego. These home-building projects are expected to generate significant gross
operating margins and cash flows in 2001. However, the Company expects that its
current inventory of entitled land available for home-building projects will be
fully developed during the next 12 months, except for completion of the Yucaipa
project. Due to delays in approvals for home-building at Bolsa Chica,
continuation of home-building operations during 2002 is dependent upon
acquisition of suitable, entitled residential lots within the Southern
California area.

    Bolsa Chica is the Company's principal asset. It has required and continues
to require significant investments for entitlement and land development
activities. Due to the November 2000 Coastal Commission approval of suggested
modifications to the LCP which would limit residential development to only 65
acres on the Upper Mesa, the Company is faced with further delays in
implementing its plans for residential development on the Bolsa Chica Mesa.
While the Company vigorously pursues its litigation to obtain entitlement for
residential construction on the Lower Mesa, it is also pursuing approval of
development permits on the Upper Mesa. After review of environmental, economic,
marketing, construction and political considerations, the Company is currently
planning to apply to the County of Orange for permits to build approximately 400
single family homes on the Upper Mesa. However, the Company is continuing to
evaluate alternative development plans which could result in higher density
development. If a plan is approved by the County of Orange in early 2002, the
Company could then seek approval from the Coastal Commission in the second
quarter of 2002 and expect to commence infrastructure construction on the Upper
Mesa during the third quarter of 2002 provided that County and Coastal
Commission approvals are obtained on a timely basis, followed by the start of
home construction during the first quarter of 2003. The Company does not believe
that the Coastal Commission process will ultimately prevent it from developing a
planned community at Bolsa Chica, however, there can be no assurance in that
regard, or as to the number of acres the Company will be permitted to develop,
or that further litigation or administrative delay will not result. While the
Company currently anticipates obtaining County of Orange and Coastal Commission
approval for home-building on the Upper Mesa in 2002, which would allow
infrastructure construction to commence later next year, there can be no
assurance in that regard.

    Following the November 2000 Coastal Commission action, the Company conducted
an assessment of potential impairment of its Bolsa Chica property for the year
ended December 31, 2000. Based upon the

                                       15
<PAGE>
Company's assessment of estimated future cash flows, which indicate that
undiscounted expected cash flows are in excess of the carrying value of this
asset, no provision for impairment is currently considered necessary. The
Company's assumptions underlying the estimated undiscounted cash flows for the
Upper Mesa land include a three year build-out of homes beginning in 2003,
assuming timely processing of permits by the County of Orange and the Coastal
Commission, and home prices approximating current market prices, with annual
inflation in home prices and costs approximating long-term historical rates.
Based on preliminary development plans, homes are expected to range from 1,500
to 4,500 square feet at current home prices, including lot premiums but before
inflation, of approximately $370,000 to $1,050,000, respectively. The estimated
undiscounted cash flows also assumed that the Company will build homes and or
enter into joint ventures for construction of the homes. The amount of
home-builder profit captured by the Company will depend upon the actual scope of
home-building operations of the Company.

    In addition to the Upper Mesa land, the Company holds several other Bolsa
Chica parcels aggregating approximately 285 acres which may be developed as
residential lots or sold as park lands to various governmental agencies, subject
to the outcome of litigation against the Coastal Commission and negotiations, if
any, with potential purchasers of the various parcels. The Company believes that
those additional parcels represent substantial value to be realized upon
resolution of litigation and/or through sales to third parties. The estimated
undiscounted cash flows discussed above are preliminary in nature and are based
on the Company's internally conducted analysis and independently arrived at
assumptions. While the Company believes that its analysis and assumptions are
reasonable in light of current circumstances, there can be no assurance that any
of the estimated amounts will be realized or that independent third parties
might not arrive at a materially lower estimated amount.

    Real estate held for current development or sale and land held for future
development (real estate properties) are carried at fair value as of
September 2, 1997, following adoption of Fresh-Start Reporting as discussed in
Note 3, as adjusted by subsequent activity. The Company's real estate properties
are subject to a number of uncertainties which can affect the values of those
assets. These uncertainties include litigation or appeals of regulatory
approvals (as discussed above) and availability of adequate capital, financing
and cash flow. In addition, future values may be adversely affected by increases
in property taxes, increases in the costs of labor and materials and other
development risks, changes in general economic conditions, including higher
mortgage interest rates, and other real estate risks such as the general demand
for housing and the supply of competitive products. Real estate properties do
not constitute liquid assets and, at any given time, it may be difficult to sell
a particular property for an appropriate price. During the last three years, the
robust economy of California has resulted in improvement in the real estate
market, and the number of potential purchasers interested in Southern California
residential properties has increased, resulting in improved prices. However,
there can be no assurance regarding the continued health of the California
economy and the strength and longevity of current conditions affecting the
residential real estate market. In particular, the recent apparent slow-down in
the national economy and electricity shortages in California could put
recessionary pressures on the California economy and have a negative impact on
the Southern California housing market.

LIQUIDITY AND CAPITAL RESOURCES.

    The principal assets in the Company's portfolio are residential land which
must be held over an extended period of time in order to be developed to a
condition that, in management's opinion, will ultimately maximize the return to
the Company. Consequently, the Company requires significant capital to finance
its real estate development operations. Historically, sources of capital have
included bank lines of credit, specific property financings, asset sales and
available internal funds. The Company is utilizing project debt to fund
construction on the Rancho San Pasqual and Sandover projects and utilizing
internally generated cash to fund the Yucaipa and Bolsa Chica projects. The
Company believes that its cash on hand, sales proceeds and funds available under
its credit agreements will be sufficient to meet anticipated cash and capital
requirements, primarily project development costs for Bolsa Chica and general
and administrative expenses, for the next 12 months. The Company expects that
its Fairbanks Highlands joint venture,

                                       16
<PAGE>
Rancho San Pasqual and Sandover projects will generate positive cash flow
aggregating approximately $20 million during 2001, based on present economic
conditions and market assumptions.

FINANCIAL CONDITION.

DECEMBER 31, 2000 COMPARED WITH DECEMBER 31, 1999

    The $1.1 million increase in cash and cash equivalents primarily reflects
the maturity of short-term investments, cash distributions received from the
unconsolidated Fairbanks joint venture and proceeds from home sales at the
Rancho San Pasqual project, partially offset by spending on project development
costs for Bolsa Chica, and the Company's home-building project in Yucaipa,
California which is unencumbered and has been internally financed since the
costs of borrowing are significantly greater than the Company's return on cash
and short-term investments, as well as other activity presented in the
Statements of Cash Flows.

    The $1.5 million decrease in restricted cash reflects the release of a
portion of the collateral for a letter of credit obtained by the Company to
secure certain indemnity obligations under a tax sharing agreement with a former
affiliate.

    The $6.3 million increase in real estate held for current development or
sale reflects an aggregate of $24.0 million of infrastructure and home-building
costs for the Company's 112-home Rancho San Pasqual project in Escondido,
California, the 16-home Sandover project in Huntington Beach, California, and
the purchase of 29 lots in the Yucaipa project, as well as home-building costs
on the Yucaipa project. These investments were partially offset by
$17.7 million charged to cost of sales for deliveries of 61 homes at the Rancho
San Pasqual project, and one home at the Sandover project during the year.

    The $5.5 million increase in land held for future development reflects
investment in the Bolsa Chica project during the year primarily for attorneys
and other consultants engaged in the entitlement process.

    Other assets increased by $.4 million, primarily reflecting the increased
investment in the unconsolidated Fairbanks Highlands joint venture reflecting
the Company's share of income in excess of cash distributions received by the
Company, partially offset by the release of collateral held under an insurance
indemnity agreement and the collection of income tax refunds receivable.

    Accounts payable and accrued liabilities increased by $2.0 million, to a
balance of $4.0 million as of December 31, 2000, primarily reflecting increased
construction activity at the Rancho San Pasqual, Sandover and Yucaipa projects.

    The $1.6 million increase in project debt reflects $18.2 million borrowed
under bank loans for infrastructure and home construction costs at the Rancho
San Pasqual and Sandover projects, offset by repayments of $16.6 million made in
conjunction with home deliveries at the Rancho San Pasqual and Sandover
projects.

    The $4.6 million decrease in other liabilities primarily reflects (i) the
resolution of a contingent environmental liability for a superfund site and
(ii) the settlement of a lawsuit regarding a partnership investment. In
January 2000, a transaction was completed with the Charter Township of Calumet,
Michigan (the "Township"), whereby the Company donated approximately 160 acres
of its land in Michigan, and certain other assets, to the Township. The donation
was made in exchange for the Township's agreement to make a borrow source
available to the U.S. Environmental Protection Agency ("EPA") for soil cover to
be used in the EPA's implementation of remedial actions on that portion of the
conveyed property which is a portion of a superfund site. The Township also
assumed certain other liabilities and provided the Company with certain
indemnities in connection with the transaction. The Company believes its
liabilities, if any, with respect to this superfund site have been discharged as
a result of this transaction. Accordingly, the Company recognized other income
of $1.1 million, which represents elimination of a reserve for an indemnity
obligation, net of unamortized discount, during the first quarter of 2000.

    On January 25, 2001 the Company entered into a court-approved litigation
settlement regarding its AV Partnership investment and related contribution
notes payable to the partnership, which had a

                                       17
<PAGE>
recorded balance in other liabilities of $7.1 million. In settlement of the
contribution notes payable, the Company agreed to pay $3.75 million and to
indemnify its former partner with respect to any long-term home warranty matters
and any future construction defects claims regarding 1,202 homes built by the
Company's subsidiary under contract to the joint venture, estimated to be
approximately $1.0 million. As a result of this settlement, the Company
recognized other income of $2.1 million for the year ended December 31, 2000, in
accordance with generally accepted accounting principles.

DECEMBER 31, 1999 COMPARED WITH DECEMBER 31, 1998

    The $17.8 million decrease in cash, cash equivalents and short-term
investments primarily reflects the repurchase of shares of the Company's stock
for an aggregate of approximately $8.3 million, the $3.2 million deposit of
restricted cash described below, along with spending on project development
costs for Bolsa Chica and the payment of federal income taxes related to the
settlement of IRS audits for the years ended December 31, 1989, 1990 and 1991,
as discussed in Note 8, as well as other activity presented in the Statements of
Cash Flows.

    Restricted cash as of December 31, 1999 reflects collateral for a letter of
credit obtained by the Company to secure certain indemnity obligations under a
tax sharing agreement with a former affiliate.

    The $11.9 million increase in real estate held for current development or
sale primarily represents infrastructure and home-building costs for the
Company's 112-home Rancho San Pasqual project in Escondido, California and its
16-home Sandover project in Huntington Beach, California. In addition, it
reflects the reclassification of land with an historical value of $3.3 million
from land held for investment to land held for development for the Sandover
project.

    The $.8 million decrease in land held for future development reflects the
reclassification of Sandover land described above, partially offset by
$2.5 million of investment in the Bolsa Chica project during 2000.

    Other assets decreased by $1.0 million primarily as a result of amortization
of prepaid costs and collection of a receivable.

    The $.3 million increase in accounts payable and accrued liabilities
reflects the increased level of construction activity for the Company's Rancho
San Pasqual and Sandover projects.

    The $7.4 million increase in project debt reflects borrowing under a
construction loan for the Company's Rancho San Pasqual project.

    The $2.1 million decrease in other liabilities primarily reflects (i) a
change in estimate resulting in a $1.5 million reduction in the anticipated
indemnity obligations for a disposed business, based on an analysis of recent
claims history, (ii) the payment of federal income taxes discussed above, and
(iii) full payment on a claim related to a joint venture interest sold in 1992,
partially offset by a change in estimate related to obligations to certain
former directors under a frozen retiree director pension plan.

    The $9.9 million decrease in stockholders' equity reflects stock repurchases
of $8.3 million, as well as the net loss for the year.

RESULTS OF OPERATIONS

    The nature of the real estate development business is such that individual
real estate transactions often cause significant fluctuations in operating
results from quarter to quarter and year to year.

2000 COMPARED WITH 1999

    The Company reported revenues of $23.0 million, resulting in gross operating
profit of $4.8 million for the year ended December 31, 2000 compared with no
revenues or gross operating profit in the 1999 period. Revenues in the 2000
period primarily reflect the delivery of 61 homes at the Rancho San Pasqual
project in Escondido, California, and one home delivered at the Sandover
project.

                                       18
<PAGE>
    Selling, general and administrative expenses of $3.4 million decreased by
$.1 million compared to the 1999 period, reflecting a decrease in compensation
and professional services expenses, partially offset by an increase in selling
costs charged for the Rancho San Pasqual and Sandover projects in the 2000
period.

    The decrease in interest expense from $.8 million in 1999 to $.3 million in
the 2000 period primarily reflects (1) the absence of interest incurred in 1999
related to settlement of litigation over a joint venture interest sold in 1992,
(2) the April 1999 cessation of interest accruals on capital contribution notes
due to AV Partnership and (3) reduced amortization of discount on liabilities
which was recorded under Fresh-Start Reporting in connection with the Company's
1997 Recapitalization, due to resolution of certain discounted liabilities.

    The $4.5 million of income from unconsolidated joint venture in the 2000
period reflects the Company's share of profits in the 93-home Fairbanks
Highlands joint venture. The venture delivered 53 homes during the year ended
December 31, 2000.

    The increase in other income, net from $2.6 million in the 1999 period to
$4.3 million for the year ended December 31, 2000 primarily reflects the
January 2000 transaction with the Township described above, the settlement of AV
Partnership litigation described above, income from reversal of reserves of
$.6 million for expiring home warranties, and the full recognition of deferred
income of $.5 million on the 1996 land sale to the Fairbanks Highlands joint
venture. These increases were partially offset by the absence in 2000 of
non-recurring income from a change in estimate for an indemnity obligation on a
disposed business, recovery of legal expenses related to settled construction
defects litigation and a reduction in interest income due to lower cash
balances.

    The benefit for deferred income taxes for the year ended December 31, 1999
was offset by a corresponding valuation allowance. For the year ended
December 31, 2000, pursuant to Fresh-Start reporting, a deferred income tax
provision of $4.2 million is reflected in the statement of operations, while the
offsetting realization of a tax benefit from utilization of pre-Reorganization
NOL is reflected by increasing the Company's capital in excess of par value.

    Gain from discontinued operations for the 1999 period reflects income tax
refunds for overpayment of 1998 alternative minimum taxes.

1999 COMPARED WITH 1998

    The Company reported no revenues for 1999, compared with revenues from
continuing operations of $2.1 million for 1998. Revenues and related costs of
sale in the 1998 period reflect the sales of the final 35 lots in phase I of the
Company's Rancho San Pasqual project and an industrial building in Naples,
Florida.

    The decrease in interest expense primarily reflects the cessation of
accruing for interest expense on capital contribution notes due to a partnership
effective April 1999 (see Note 4).

    Other income of $2.6 million for the year ended December 31, 1999 primarily
reflects non-recurring income of $1.5 million resulting from a change in
estimate for an indemnity obligation on a disposed business, based on an
analysis of recent claims history, and interest income of $1.0 million. Income
from recovery of legal expenses related to settled construction defects
litigation and settlement of certain other litigation is partially offset by a
change in estimate for pension payments to certain former directors under a
frozen retiree director pension plan. The $1.5 million in other income, net for
the year ended December 31, 1998 primarily reflects interest income.

    The benefit for income taxes for the year ended December 31, 1999 has been
offset by a corresponding valuation allowance.

    Gain from discontinued operations for the 1999 period reflects income tax
refunds for overpayment of 1998 alternative minimum taxes.

    SAFE HARBOR, STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.  Certain of the foregoing information contains forward-looking statements
that relate to future events or the Company's

                                       19
<PAGE>
future financial performance. These statements involve known and unknown risks,
uncertainties and other factors which may cause the Company's actual results,
performance or achievements to be materially different from any future results,
performances or achievements expressed or implied by the forward-looking
statements. In some cases, you can identify forward-looking statements by
terminology such as "may", "will", "should", "expects", "plans", "anticipates",
"believes", "estimates", "predicts", "potential", "continue", or the negative of
such terms or other comparable terminology. These forward-looking statements
include, but are not limited to, statements about the Company's plans,
objectives, goals, expectations and intentions, the number and types of homes
and number of acres of land that the Company may develop and sell, outcomes of
litigation, regulatory approval processes or administrative proceedings
(including, but not limited to ongoing litigation and administrative proceedings
in the Coastal Commission Lawsuit related to the Company's principal asset, the
Bolsa Chica Mesa), the Company's ability to continue relationships with current
or future partners, the Company's ability to expend resources to comply with
environmental regulations and local permitting requirements, the effect of
certain costs, contractual obligations and tax liabilities, both known and
unknown, on the Company's business, results of operations and financial
condition, the condition and adequacy of the Company's properties, the Company's
ability to estimate cash flow projections due to uncertainties in valuing real
property, the Company's ability to acquire residential lots in order to continue
home-building operations, the adequacy of capital, financing and cash flow
required to continue the Company's operations and land development activities,
the future condition of the real estate market in Southern California, and other
statements contained herein that are not historical facts.

                                       20
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

To The Board of Directors and Stockholders
of California Coastal Communities, Inc.:

    We have audited the accompanying consolidated balance sheets of California
Coastal Communities, Inc. and its subsidiaries (the "Company") as of
December 31, 2000 and 1999, and the related consolidated statements of
operations, cash flows, and changes in stockholders' equity for the years ended
December 31, 2000, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

    In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of California Coastal
Communities, Inc. and its subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for the years ended
December 31, 2000, 1999 and 1998, in conformity with accounting principles
generally accepted in the United States of America.

    As discussed in Note 2, the Company carries its land held for future
development at cost, with write-downs to fair value in the event of impairment.
The value estimation process is inherently uncertain and relies to a
considerable extent on future events and market conditions. As discussed in
Note 5, the development of the Company's Bolsa Chica project is dependent upon
various governmental approvals, results of litigation and economic factors.
Accordingly, the amount ultimately realized from such project may differ
materially from current estimates, as well as the project's carrying value.

Deloitte & Touche LLP

Costa Mesa, California
March 21, 2001

                                      F-1
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              -------------------
                                                                1999       2000
                                                              --------   --------
                                                                 (IN MILLIONS)
<S>                                                           <C>        <C>
                                     ASSETS

Cash and cash equivalents...................................   $  5.8     $  6.9
Short-term investments......................................      3.0         --
Restricted cash.............................................      3.4        1.9
Real estate held for current development or sale............     15.1       21.4
Land held for future development............................    136.5      142.0
Other assets................................................      6.1        6.5
                                                               ------     ------
                                                               $169.9     $178.7
                                                               ======     ======

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Accounts payable and accrued liabilities..................   $  2.0     $  4.0
  Project debt..............................................      7.4        9.0
  Other liabilities.........................................     27.7       23.1
                                                               ------     ------
    Total liabilities.......................................     37.1       36.1
                                                               ------     ------

Commitments and Contingencies

Stockholders' equity:
Common Stock--$.05 par value; 18,000,000 and 11,000,000
  shares authorized, respectively; 10,058,589 shares issued
  and outstanding...........................................       .5         .5
Excess Stock--$.05 par value; 18,000,000 and 11,000,000
  shares authorized, respectively; no shares outstanding....       --         --
Capital in excess of par value..............................    130.2      134.4
Retained earnings...........................................      2.1        7.7
                                                               ------     ------
    Total stockholders' equity..............................    132.8      142.6
                                                               ------     ------
                                                               $169.9     $178.7
                                                               ======     ======
</TABLE>

    See independent auditors' report and accompanying notes to consolidated
                             financial statements.

                                      F-2
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                   FOR THE YEARS ENDED
                                                                       DECEMBER 31,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
                                                                 (IN MILLIONS EXCEPT PER
                                                                      SHARE AMOUNTS)
<S>                                                           <C>        <C>        <C>
Revenues....................................................   $ 2.1      $  --      $23.0
Cost of sales...............................................     1.8         --       18.2
                                                               -----      -----      -----
  Gross operating profit....................................      .3         --        4.8

Selling, general and administrative expenses................     3.7        3.5        3.4
Interest expense............................................     1.4         .8         .3
Income from unconsolidated joint venture....................      --         --       (4.5)
Other income................................................    (1.5)      (2.6)      (4.3)
                                                               -----      -----      -----
Income (loss) from continuing operations before income
  taxes.....................................................    (3.3)      (1.7)       9.9
Provision (benefit) for income taxes........................    (1.0)        .1        4.3
                                                               -----      -----      -----
Income (loss) from continuing operations....................    (2.3)      (1.8)       5.6
Discontinued operations:
  Income from operations, net of income taxes of $.3, $0 and
    $0, respectively........................................      .4         --         --
  Gain on disposition, net of income taxes of $4.4, ($.2)
    and $0, respectively....................................     6.1         .2         --
                                                               -----      -----      -----
Net income (loss)...........................................   $ 4.2      $(1.6)     $ 5.6
                                                               =====      =====      =====

Net earnings (loss) per common share--basic and diluted:
  Continuing operations.....................................   $(.19)     $(.17)     $ .55
  Discontinued operations...................................     .54        .02         --
                                                               -----      -----      -----
Net earnings (loss) per common share--basic and diluted.....   $ .35      $(.15)     $ .55
                                                               =====      =====      =====
</TABLE>

    See independent auditors' report and accompanying notes to consolidated
                             financial statements.

                                      F-3
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                   FOR THE YEARS ENDED
                                                                       DECEMBER 31,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
                                                                      (IN MILLIONS)
<S>                                                           <C>        <C>        <C>
Cash flows from operating activities:
  Net income (loss).........................................   $ 4.2      $ (1.6)    $  5.6
  Adjustments to reconcile to cash used by operating
    activities:
    Change in indemnity obligation..........................      --        (1.5)        --
    Non-cash interest expense...............................     1.4          .5         .3
    Interest income on restricted cash......................      --         (.2)        --
    Deferred income taxes...................................    (1.4)         --        4.2
    Gain on sale of discontinued operation..................    (6.1)         --         --
    Gains on asset sales....................................     (.3)         --       (4.8)
    Proceeds from asset sales, net..........................     2.0          --       22.5
  Changes in assets and liabilities:
    Investments in real estate held for current development
      or sale...............................................     (.9)       (8.6)     (24.0)
    Investment in land held for future development..........    (4.1)       (2.5)      (5.5)
    Decrease (increase) in other assets.....................     (.6)        1.0        (.4)
    Decrease in accounts payable, accrued and other
      liabilities...........................................    (3.1)        (.8)      (2.9)
                                                               -----      ------     ------
      Cash used by operating activities of continuing
        operations..........................................    (8.9)      (13.7)      (5.0)
                                                               -----      ------     ------
      Cash used by operating activities of discontinued
        operations..........................................   (27.8)         --         --
                                                               -----      ------     ------
Cash flows from investing activities:
  Proceeds from sale of discontinued operation..............    33.3          --         --
  Purchase of short-term investments........................      --        (3.0)        --
  Maturity of short-term investments........................      --          --        3.0
                                                               -----      ------     ------
      Cash provided by (used in) investing activities.......    33.3        (3.0)       3.0
                                                               -----      ------     ------
Cash flows from financing activities:
  Borrowings of project debt................................      --         7.4       18.2
  Repayments of project debt................................      --          --      (16.6)
  Deposit of restricted cash................................      --        (3.2)        --
  Release of restricted cash................................      --          --        1.5
  Issuance of restricted stock..............................     1.1          --         --
  Repurchases of common stock...............................    (2.9)       (8.3)        --
                                                               -----      ------     ------
      Cash provided by (used in) financing activities of
        continuing operations...............................    (1.8)       (4.1)       3.1
                                                               -----      ------     ------
      Cash provided by financing activities of discontinued
        operations..........................................    24.6          --         --
                                                               -----      ------     ------
Net increase (decrease) in cash and cash equivalents........    19.4       (20.8)       1.1
Cash and cash equivalents--beginning of period..............     7.2        26.6        5.8
                                                               -----      ------     ------
Cash and cash equivalents--end of period....................   $26.6      $  5.8     $  6.9
                                                               =====      ======     ======
</TABLE>

    See independent auditors' report and accompanying notes to consolidated
                             financial statements.

                                      F-4
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                      CAPITAL IN   RETAINED
                                                            COMMON    EXCESS OF    EARNINGS
                                                            STOCK     PAR VALUE    (DEFICIT)    TOTAL
                                                           --------   ----------   ---------   --------
                                                                          (IN MILLIONS)
<S>                                                        <C>        <C>          <C>         <C>
Balance at December 31, 1997.............................    $ .6       $140.0       $ (.5)     $140.1
  Net income.............................................      --           --         4.2         4.2
  Utilization of Pre-Reorganization net operating
    losses...............................................      --           .2          --          .2
  Restricted stock grant.................................      --          1.1          --         1.1
  Stock repurchases......................................      --         (2.9)         --        (2.9)
                                                             ----       ------       -----      ------
Balance December 31, 1998................................      .6        138.4         3.7       142.7
  Net loss...............................................      --           --        (1.6)       (1.6)
  Stock repurchases......................................     (.1)        (8.2)         --        (8.3)
                                                             ----       ------       -----      ------
Balance December 31, 1999................................      .5        130.2         2.1       132.8
  Net income.............................................      --           --         5.6         5.6
  Utilization of Pre-Reorganization net operating
    losses...............................................      --          4.2          --         4.2
                                                             ----       ------       -----      ------
Balance December 31, 2000................................    $ .5       $134.4       $ 7.7      $142.6
                                                             ====       ======       =====      ======
</TABLE>

    See independent auditors' report and accompanying notes to consolidated
                             financial statements.

                                      F-5
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--FORMATION AND BASIS OF PRESENTATION

    The principal activities of California Coastal Communities, Inc. and its
consolidated subsidiaries (the "Company", formerly known as Koll Real Estate
Group, Inc., The Bolsa Chica Company and Henley Properties Inc.) include:
(i) obtaining zoning and other entitlements for land it owns and improving the
land for residential development; and (ii) single-family residential
construction in Southern California. Once the residential land owned by the
Company is entitled, the Company may build homes, sell unimproved land to other
developers or homebuilders; sell improved land to homebuilders; or participate
in joint ventures with other developers, investors or homebuilders to finance
and construct infrastructure and homes.

    On December 31, 1989, The Henley Group, Inc. separated its business into two
public companies through a distribution to its Class A and Class B common
stockholders of all of the common stock of a newly formed Delaware corporation
to which The Henley Group, Inc. had contributed its non-real estate development
operations, assets and related liabilities. The new company was named The Henley
Group, Inc. ("Henley Group") immediately following the distribution. The
remaining company was renamed Henley Properties Inc. ("Henley Properties") and
consisted of the real estate development business and assets of Henley Group,
including its principal subsidiary Signal Landmark.

    On July 16, 1992, a subsidiary of Henley Properties merged with and into
Henley Group (the "Merger") and Henley Group became a wholly owned subsidiary of
Henley Properties. In the Merger, Henley Properties, through its Henley Group
subsidiary, received net assets having a book value as of July 16, 1992 of
approximately $45.3 million, consisting of approximately $103.6 million of
assets, including $58.3 million of cash and a 44% interest in Deltec Panamerica
S.A. ("Deltec"), and $58.3 million of liabilities. In connection with the
Merger, Henley Properties was renamed The Bolsa Chica Company.

    On September 30, 1993, a subsidiary of The Bolsa Chica Company acquired the
domestic real estate development business and related assets of The Koll
Company. In connection with this acquisition, The Bolsa Chica Company was
renamed Koll Real Estate Group, Inc.

    On September 2, 1997, the Company completed a recapitalization which
resulted in the exchange of all the then existing Debentures, Series A Preferred
Stock and Class A Common Stock into new Common Stock. In addition, upon the
recapitalization, the Company adopted the provisions of Statement of Position
("SOP") No. 90-7 "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("Fresh-Start Reporting"). The recapitalization is further
described in Note 3.

    On April 30, 1998, the Company sold its commercial development business as
further described in Note 4. Accordingly, the financial results of the
commercial development business have been treated as discontinued operations in
the accompanying financial statements. Immediately following the sale, Koll Real
Estate Group, Inc. was renamed California Coastal Communities, Inc.

    The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America and include the accounts of the Company and its wholly-owned
subsidiaries. Intercompany accounts and transactions have been eliminated.
Certain amounts have been reclassified to conform with the current year
presentation.

                                      F-6
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

    The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents.

SHORT-TERM INVESTMENTS

    The Company's short-term investments were classified as available for sale
at December 31, 1999, and consisted primarily of commercial paper carried at
amortized cost which approximated fair market value.

RESTRICTED CASH

    Restricted cash as of December 31, 2000 reflects a mortgage backed security
recorded at amortized cost, which matured and was re-invested in January 2001.
The security is held as collateral for a letter of credit obtained by the
Company to secure certain indemnity obligations under a tax sharing agreement
with a former affiliate.

REAL ESTATE

    Real estate held for current development or sale is carried at the lower of
cost, or fair value less costs to sell. Land held for future development is
carried at cost, with write-downs to fair value only in the event of impairment
as described under "Impairment of Long-Lived Assets." The estimation process
involved in the determination of fair value is inherently uncertain since it
requires estimates as to future events and market conditions. Such estimation
process assumes the Company's ability to complete development and dispose of its
real estate properties in the ordinary course of business based on management's
present plans and intentions. Economic, market, environmental and political
conditions may affect management's development and marketing plans. In addition,
the implementation of such development and marketing plans could be affected by
the availability of future financing for development and construction
activities. Accordingly, the ultimate values of the Company's real estate
properties are dependent upon future economic and market conditions, the
availability of financing, and the resolution of political, environmental and
other related issues.

    The cost of sales of multi-unit projects is generally computed using the
relative sales value method. Interest cost is capitalized to real estate
projects during their development and construction period.

IMPAIRMENT OF LONG-LIVED ASSETS

    The Company assesses the impairment of land held for future development and
other long-lived assets in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of" ("SFAS 121"), which requires an impaired
asset to be written down to fair value. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. As provided by SFAS 121,
impairment is evaluated by comparing an asset's carrying value to the
undiscounted estimated cash flows expected from the asset's operations and
eventual disposition. If the sum of the undiscounted estimated future cash flows
is less than the carrying value of the asset, an impairment loss is recognized
based on the fair value of the asset. If an impairment occurs, the fair value of
an asset for purposes of SFAS 121 is deemed to be the amount a willing buyer
would pay a willing seller for such asset in a current transaction. On
September 2, 1997, the Company completed its recapitalization

                                      F-7
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
pursuant to court confirmation of a Prepackaged Plan of Reorganization, and the
Company applied the principles required by the American Institute of Certified
Public Accountant's SOP 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("Fresh-Start Reporting") and the carrying value of
real estate properties was adjusted to fair value (Note 3). Following the
Coastal Commission's November 2000 suggested modifications to the Bolsa Chica
Local Coastal Program to limit development to only 65 acres of the Company's 208
acre Bolsa Chica Mesa (see Note 5), the Company evaluated this asset's carrying
value. Since the undiscounted estimated future cash flows from the upper bench
of the Bolsa Chica Mesa and the Company's additional 285 acres at Bolsa Chica
exceed its carrying value, there has been no impairment. Therefore, during the
years ended December 31, 1998, 1999 and 2000, no provision for impairment was
considered necessary.

INCOME TAXES

    The Company accounts for income taxes on the liability method. Deferred
income taxes are determined based on the difference between the financial
statement and tax bases of assets and liabilities, using enacted tax rates in
effect in the years in which these differences are expected to reverse. The
liability method requires an evaluation of the probability of being able to
realize the future benefits indicated by such asset. A valuation allowance
related to the deferred tax asset is recorded when it is more likely than not
that some portion or all of the deferred tax asset will not be realized.

RECOGNITION OF REVENUES

    Sales are recorded using the full accrual method when title to the real
estate sold is passed to the buyer and the buyer has made an adequate financial
commitment. When it is determined that the earnings process is not complete,
income is deferred using the installment, cost recovery or percentage of
completion methods of accounting.

EARNINGS (LOSS) PER COMMON SHARE

    The weighted average common shares outstanding were 10.7 million and
10.1 million for the years ended December 31, 1999 and 2000, respectively. The
weighted average common shares outstanding reflect the repurchase and
cancellation of approximately 1.4 million shares in June 1999. Earnings (loss)
per share, assuming dilution, is computed using the weighted average number of
common shares outstanding and the dilutive effect of potential common shares
outstanding.

NEW ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS 133 was adopted on January 1, 2001 as
required. The Company does not currently hold derivatives or engage in hedging
activities; therefore, the adoption of this standard did not have a material
effect on the Company.

    In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions involving
Stock Compensation," an interpretation of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees." Among other

                                      F-8
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
matters, FIN 44 clarifies the application of APB Opinion No. 25 regarding the
definition of an employee for purposes of applying APB Opinion No. 25, the
criteria for determining whether a plan qualifies as non-compensatory and the
accounting consequences of modifications to the terms of previously issued stock
options or similar awards. The Company's adoption of FIN 44 did not have a
material impact on its financial condition or results of operations.

    In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101, Revenue Recognition ("SAB 101"). SAB 101
summarizes certain of the SEC staff's views in applying generally accepted
accounting principles to selected revenue recognition issues in financial
statements. The Company adopted SAB 101 during fiscal year 2000 and has
determined that SAB 101 did not have an impact on its financial position and its
results of operations.

USE OF ESTIMATES

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

NOTE 3--RECAPITALIZATION

    On September 2, 1997, the Company completed its recapitalization (the
"Recapitalization") pursuant to a prepackaged plan of reorganization that was
confirmed by the U.S. Bankruptcy Court for the District of Delaware on
August 19, 1997. The prepackaged plan was filed by the Company, excluding all of
its subsidiaries and affiliates, contemporaneously with a voluntary petition for
relief under Chapter 11 of the bankruptcy code on July 14, 1997. The
Recapitalization had previously received over 95% approval of each class of
stock and bondholders that voted through a public solicitation process in
June 1997. On September 2, 1997, the effective date of the Recapitalization, the
Company adopted the provisions of SOP No. 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code" ("Fresh-Start Reporting") as
promulgated by the American Institute of Certified Public Accountants in
November 1990. Accordingly, all assets and liabilities were revalued to reflect
their reorganization value, approximating their fair value at the effective date
of the Recapitalization. In addition, the accumulated deficit of the Company was
eliminated and its capital structure recast in conformity with the
Recapitalization, and as such, the Company has recorded the effects of the
Recapitalization and Fresh-Start Reporting as of the effective date.

    The Recapitalization provided for a restructuring of the Company's capital
structure. The only impaired parties under the Recapitalization were the holders
of (a) the Company's 12% Senior Subordinated Pay-In-Kind Debentures due
March 15, 2002 ("Senior Debentures"), (b) the Company's 12% Subordinated
Pay-In-Kind Debentures due March 15, 2002 ("Subordinated Debentures")
(collectively, the "Debentures"), (c) liquidated, non-contingent claims, and
(d) equity securities of the Company. The prepackaged plan did not alter the
Company's obligations to its other creditors, including its trade creditors,
customers, employees, holders of contingent and unliquidated claims, holders of
guaranty claims, and parties to contracts with the Company. Under the
Recapitalization, Senior Debenture holders and Subordinated Debenture holders
received 56 shares and 28 shares, respectively, for each $1,000 of principal
amount of their Debentures outstanding as of March 15, 1997, and holders of
liquidated,

                                      F-9
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--RECAPITALIZATION (CONTINUED)
non-contingent claims received 56 shares for each $1,000 of their claims (all
after consolidation of all outstanding shares of preferred and common stock into
a single class of newly issued common stock and the reverse split described
below).

    Upon implementation of the Recapitalization, $216.9 million book value of
Debentures and other liabilities subject to compromise were cancelled in
exchange for equity, resulting in an $89.5 million extraordinary gain on
extinguishment of debt. This gain was partially offset by $57.1 million of net
adjustments to revalue all assets and liabilities to reflect fair value as of
September 2, 1997 as required by Fresh-Start Reporting.

    The reorganization value of the Company's common equity was determined by
the Company with the assistance of financial advisors after consideration of
several factors and by reliance on various valuation methods, including
discounted projected cash flows, and other economic and industry information
relevant to the operations of the Company. The reorganization value of the
Company was allocated to specific asset categories pursuant to Fresh-Start
Reporting. Reorganization Value in Excess of Amounts Allocated to Net Assets,
which represented the difference in the Company's estimated valuation and the
Company's net assets at fair value, of $3.1 million was amortized on a
straight-line basis according to a 15-year schedule. Such amount was reduced to
zero in 1998 by the amount of the income tax provision recorded for the gain on
the sale of the commercial development business, pursuant to Fresh-Start
Reporting. In addition, $13.6 million of Reorganization Value in Excess of
Amounts Allocated to Net Assets was originally allocated to such business, and
the net unamortized amount as of the date of the sale was charged to the gain on
disposition of discontinued operations for the year ended December 31, 1998.

NOTE 4--ACQUISITIONS AND DISPOSITIONS

    On April 30, 1998, the Company completed the sale of its commercial
development business to Koll Development Company LLC ("KDC") and NorthStar
Capital Investment Corp. for (1) $33.3 million in cash, which included
approximately $3.3 million for 1998 activity, and (2) the assumption by KDC of
all liabilities related to the business. KDC was a newly formed limited
liability company, whose members include the Company's former Chairman and Chief
Executive Officer, Donald M. Koll and its former President, Richard M. Ortwein,
along with an affiliate of NorthStar Capital Investment Corp. Upon completion of
the transaction, Messrs. Koll and Ortwein resigned from their positions with the
Company and Raymond J. Pacini, the Company's Chief Financial Officer since 1992,
became the Company's new President and Chief Executive Officer. The Company
realized an after-tax gain of approximately $6.1 million ($10.5 million pretax)
from this transaction. Accordingly, the statements of operations and cash flows
have been reclassified to present the commercial development business as
discontinued operations. Revenues related to discontinued operations were
$28.1 million for the year ended December 31, 1998 through the date of sale. Net
income from discontinued operations for the year ended December 31, 1998 through
the date of sale was $.4 million.

    In November 1994, the Company acquired the stock of Kathryn G. Thompson
Company ("KGTC") and related assets. The principal activities of the acquired
business, now known as Hearthside Homes, Inc., are residential land development
and homebuilding, focusing on the entry-level and move-up market segments. The
principal project of the business, at the time of the acquisition, was a 49%
general partnership interest in a 230-acre project planned for approximately
1,200 residential units in Aliso Viejo in southern Orange County ("AV
Partnership"). In addition to third-party construction project financing, the
partnership owed a significant amount of participating mortgages with preference
to the Company's

                                      F-10
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4--ACQUISITIONS AND DISPOSITIONS (CONTINUED)
equity interest. These mortgages, held by the entity's other 49% general
partner, gave that partner a controlling interest, and limited the Company's 49%
interest to a non-controlling one and therefore the equity method of accounting
has been used to account for the partnership investment.

    In accordance with the equity method of accounting, the Company's initial
investment in the partnership has been reduced by its share of partnership
losses as incurred, with offsetting allowances recorded to reflect the
limitation of the Company's obligation to fund losses. Accordingly, the
Company's results of operations recorded in 1998 and 1999 reflect only accrued
interest on the capital contribution notes due to the partnership, as the
Company's net investment in AV Partnership is $0. The controlling general
partner funded all known obligations and estimated unknown contingent
liabilities to complete all activities of the partnership. In accordance with
the partnership agreement, the partnership and the controlling general partner
have not claimed any amounts due from the Company, other than the capital
contribution notes discussed below.

    In connection with the acquisition of the partnership interest, the Company
guaranteed approximately $4.8 million principal amount of capital contribution
notes due to AV Partnership. The notes were intended to be primarily payable out
of positive net cash flow to be generated by the Company's partnership interest.
However, due to a significant shortfall in sales during 1995 versus forecast,
the highly-leveraged capital structure of the partnership and the significant
amount of participating mortgages with preference to the Company's equity
interest, the Company did not receive a financial return from this partnership.
In 1996, certain information came to the Company's attention concerning the
enforceability of the Company's guarantee of the $4.8 million principal amount
of capital contribution notes due in April 1999. Since that time, the Company
attempted to negotiate a settlement of its dispute with the partnership, which
resulted in extensions of the maturity date. Following expiration of the last
extension on October 31, 1999, the Company and the partnership commenced
litigation regarding the enforceability of the guarantee.

    On January 25, 2001, the Company entered into a court-approved litigation
settlement regarding its AV Partnership investment and related contribution
notes payable to the partnership. In settlement of the contribution notes
payable, the Company agreed to pay $3.75 million and to indemnify its former
partner with respect to any long-term home warranty matters and any future
construction defects claims regarding 1,202 homes built by the Company's
subsidiary under contract to the joint venture, estimated to be approximately
$1.0 million. The Company had provided a reserve including accrued interest
thereon, through the original maturity date, of $7.1 million at December 31,
1999, which is included in other liabilities. As a result of this settlement,
the Company recognized other income of $2.1 million for the year ended
December 31, 2000.

                                      F-11
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4--ACQUISITIONS AND DISPOSITIONS (CONTINUED)
    Summarized financial information of AV Partnership is presented below at
December 31, 1999 and 2000 and for the years ended December 31, 1998, 1999 and
2000 (in millions, except home closings):

<TABLE>
<CAPTION>
                                                        1998       1999       2000
                                                      --------   --------   --------
<S>                                                   <C>        <C>        <C>
Balance Sheet Data:
  Total assets......................................              $ 20.7     $  1.7
  Total project debt and other liabilities..........                29.1       14.9
                                                                  ------     ------
  Partners' deficit.................................              $ (8.4)    $(13.2)
                                                                  ======     ======

Statement of Operations Data:
  Revenues..........................................   $101.0     $ 46.5     $ 18.9
  Expenses..........................................    (94.1)     (44.9)     (23.7)
                                                       ------     ------     ------
  Net income (loss).................................   $  6.9     $  1.6     $ (4.8)
                                                       ======     ======     ======
Home Closings.......................................      378        156         71
                                                       ======     ======     ======
</TABLE>

NOTE 5--LAND HELD FOR FUTURE DEVELOPMENT

    The Company owns approximately 350 acres located in Orange County,
California overlooking the Pacific Ocean and the Bolsa Chica wetlands (which
were sold by the Company to the State of California as described below),
surrounded by the City of Huntington Beach and approximately 35 miles south of
downtown Los Angeles. The Company's holdings include 208 acres on a mesa north
of the Bolsa Chica wetlands ("Bolsa Chica Mesa"), approximately 100 acres on, or
adjacent to, the Huntington Mesa and 42 acres of lowlands which were acquired by
the Company in September 1997.

    The planned community at Bolsa Chica Mesa is expected to offer a broad mix
of home choices, including primarily single-family homes. A Local Coastal
Program ("LCP") for development of up to 2,500 homes on the Bolsa Chica Mesa,
was approved by the Orange County Board of Supervisors in December 1994 and by
the California Coastal Commission (the "Coastal Commission") in January 1996.

    In February 1997, the Company completed the sale of its approximately
880-acre Bolsa Chica lowlands, which had previously been planned for the
development of up to 900 homes and wetlands restoration, to the California State
Lands Commission for $25 million. Under an interagency agreement among various
state and federal agencies, these agencies have agreed to restore the Bolsa
Chica wetlands habitat utilizing escrowed funds from the Ports of Los Angeles
and Long Beach.

    In March 1996, a lawsuit (the "Coastal Act Lawsuit") was filed challenging
the approvals of the Coastal Commission. The judgment in the Coastal Act Lawsuit
was entered by the trial court in August 1997, and required the Coastal
Commission to reconsider the filling of a 1.7 acre pond on the Bolsa Chica Mesa
("Warner Pond"). The August 1997 judgment was appealed by both the project
opponents and the Company as discussed below. In October 1997, in response to
the trial court's decisions, the Coastal Commission approved modifications to
the LCP which eliminated the filling of Warner Pond and thereby reduced the
maximum number of homes to be built from 2,500 to no more than 1,235 homes on
Bolsa Chica Mesa. The Orange County Board of Supervisors subsequently accepted
the Coastal Commission's suggested modifications.

                                      F-12
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--LAND HELD FOR FUTURE DEVELOPMENT (CONTINUED)
    In October 1997, opponents of the Bolsa Chica Mesa project appealed the
trial court's August 1997 decision on the basis that the trial court should have
reversed the Coastal Commission's January 1996 approval allowing relocation of
certain raptor habitat. On April 16, 1999, the California Court of Appeal
overturned the August 1997 judgment of the trial court with respect to the
raptor habitat. The appellate court ruled that, under the Coastal Act, the
Coastal Commission should not have allowed the removal and relocation of this
raptor habitat. The court order instructing the Coastal Commission on how to
proceed in response to this decision was issued in June 1999.

    In response to the court order, on November 16, 2000, the Coastal Commission
held another public hearing on the LCP and approved suggested modifications to
the LCP which would limit development to only 65 acres of the Bolsa Chica Mesa
(the "Upper Mesa") and would prohibit the Company and other landowners from
development on the approximately 140-acre remainder of the Bolsa Chica Mesa (the
"Lower Mesa"). On January 12, 2001 the Company's subsidiaries filed a complaint
in Orange County Superior Court challenging the Coastal Commission's
November 2000 suggested modifications to the County's Bolsa Chica LCP. The
complaint includes causes of action for violation of the Company's
constitutional rights of equal protection and due process, and for a public
taking of its private property without compensation in contravention of the U.S.
and California Constitutions. The complaint alleges that the Coastal Commission
arbitrarily abandoned decades of prior approvals which would have permitted
development on the entire Bolsa Chica Mesa. Due to the uncertainty of the
litigation process, the Company cannot predict how long it will take to pursue
its claims, or the probability for success.

    While the Company vigorously pursues its litigation to obtain entitlement
for residential construction on the Lower Mesa, it is also pursuing approval of
permits for development of the Upper Mesa. After review of environmental,
economic, marketing, construction and political considerations, the Company is
currently planning to apply for permits to build approximately 400 single family
homes on the Upper Mesa. However, the Company is continuing to evaluate
alternative development plans which could result in higher density development.
If a plan is approved by the County of Orange in early 2002, the Company could
then seek approval from the Coastal Commission during the second quarter of 2002
and expect to commence infrastructure construction on the Upper Mesa during the
third quarter of 2002 provided that County and Coastal Commission approvals are
obtained on a timely basis. The Company does not believe that the Coastal
Commission process will ultimately prevent it from developing a planned
community at Bolsa Chica, however, there can be no assurance in that regard, or
as to the number of acres the Company would be permitted to develop, or that
further litigation or administrative delay will not result.

    Upon completion of the Company's Recapitalization as discussed in Note 3,
the Company applied the principles required by Fresh-Start Reporting and the
carrying value of land held for future development (Bolsa Chica) was adjusted to
fair value as of September 2, 1997, after consideration of the October 1997
Coastal Commission action discussed above. As prescribed in SFAS 121, the fair
value was determined in 1997 using discounted estimated cash flows expected from
the asset's operations and eventual disposition. In addition, given the
significance of the Bolsa Chica asset to the financial statements of the
Company, the value of the Company's stock immediately following the closing of
the Reorganization was used as an indicator of value of the subject property.
Following the November 2000 Coastal Commission action, an assessment of
impairment was conducted by the Company for the year ended December 31, 2000, in
accordance with the Company's policy described in Note 2--Impairment of
Long-Lived Assets. Based upon the Company's assessment of estimated future cash
flows, which indicate that undiscounted expected cash flows are in excess of the
current carrying value of this asset, no provision for impairment has been
considered necessary subsequent to the Recapitalization.

                                      F-13
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--LAND HELD FOR FUTURE DEVELOPMENT (CONTINUED)
    The estimation process involved in the determination of value is inherently
uncertain since it requires estimates as to future events and market conditions.
Such estimation process assumes the Company's ability to complete development
and dispose of its real estate properties in the ordinary course of business
based on management's present plans and intentions. Economic, market,
environmental and political conditions may affect management's development and
marketing plans. In addition, the implementation of such development and
marketing plans could be affected by the availability of future financing for
development and construction activities. At such time as the Company's
home-building activities commence, the Company would be required to account for
such properties at the lower of cost or market which may necessitate a
write-down of its carrying value. Accordingly, the ultimate values of the
Company's real estate properties are dependent upon future economic and market
conditions, the availability of financing, and the resolution of political,
environmental and other related issues. The development of the Company's Bolsa
Chica Mesa project is dependent upon various governmental approvals, results of
litigation and economic factors. Accordingly, the amount ultimately realized
from such project may differ materially from current estimates, as well as the
project's carrying value.

NOTE 6--INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

    The Company's investments in unconsolidated joint ventures represent the
majority of its other assets. These home-building joint ventures are 50% or less
owned and, accordingly are accounted for using the equity method and are not
consolidated with the Company's consolidated financial statements. The Company's
investment in AV Partnership is described in Note 4, along with condensed
financial information. Condensed financial information regarding the Company's
investment in the 93-home Fairbanks Highlands (in San Diego, California) joint
venture is summarized as follows (in millions, except home closings):

<TABLE>
<CAPTION>
                                                            1998         1999       2000
                                                         -----------   --------   --------
<S>                                                      <C>           <C>        <C>
Balance Sheet Data:
  Total assets.........................................                 $26.0      $ 26.2
  Total project debt and other liabilities.............                  (3.8)     $ (6.2)
                                                                        -----      ------
  Partners' capital....................................                 $22.2      $ 20.0
                                                                        =====      ======

Statement of Operations Data:
  Revenues.............................................  $        --    $  --      $ 61.8
  Expenses.............................................           --      (.4)      (47.0)
                                                         -----------    -----      ------
  Net income (loss)....................................  $        --    $ (.4)     $ 14.8
                                                         ===========    =====      ======
Home Closings..........................................  $        --    $  --      $   53
                                                         ===========    =====      ======
</TABLE>

    During 2000, the Company received $3.6 million in aggregate cash
distributions from the Fairbanks Highlands joint venture.

NOTE 7--PROJECT DEBT

    In January 1999, Signal Landmark, a subsidiary of the Company, entered into
a construction loan agreement with a commercial bank to finance construction of
infrastructure and the first 45 homes at phase II of the Company's 112-home
Rancho San Pasqual project in Escondido, California. Effective in

                                      F-14
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--PROJECT DEBT (CONTINUED)
July 2000, the loan was amended to finance an additional 29 homes, increasing
the original $14.3 million facility to $18.8 million. As of December 31, 2000,
approximately $17.9 million had been drawn on this facility and an aggregate of
$15.9 million had been repaid upon home closings, resulting in an outstanding
balance of $2.0 million. The loan was repaid in full on January 11, 2001. The
loan was secured by a deed of trust on the Rancho San Pasqual project and
carried an interest rate of prime plus three-fourths percent (9.75% at December
31, 2000). In March 2001, the Company's subsidiary entered into a new
$6.0 million construction loan agreement to finance home construction of phases
6 and 7 of the project. The loan bears terms similar to the initial loan, and is
due in full on September 19, 2001. For the years ended December 31, 1999 and
2000, approximately $.3 million and $.6 million, respectively, of construction
period interest was capitalized to the project.

    In March 2000, Signal Landmark entered into an additional construction loan
agreement with a commercial bank to finance the construction of infrastructure
and 16 homes at the Company's Sandover project on the Bolsa Chica upper mesa,
overlooking the Bolsa Chica wetlands in Huntington Beach, California. The
$9 million loan facility is secured by a deed of trust on the Sandover project
and requires principal repayments upon the sale of homes. The loan bears an
interest rate of prime plus three-fourths percent (9.75% at December 31, 2000)
and has an extended maturity date of June 21, 2001. As of December 31, 2000,
approximately $7.7 million was drawn on this facility, and $.7 million was
repaid on the delivery of one home, resulting in an outstanding balance of
$7.0 million. Construction period interest capitalized to the project was
approximately $.4 million for the year ended December 31, 2000.

NOTE 8--OTHER LIABILITIES

    Other liabilities were comprised of the following as of December 31 (in
millions):

<TABLE>
<CAPTION>
                                                                1999       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Net deferred taxes and other tax liabilities................   $13.6      $13.6
Accrued pensions and benefits...............................     3.1        2.8
Obligation on capital contribution notes....................     7.1        3.7
Home warranty reserves......................................      --        1.2
Accrued indemnity obligations...............................     7.4        3.4
Unamortized discount........................................    (3.5)      (1.6)
                                                               -----      -----
                                                               $27.7      $23.1
                                                               =====      =====
</TABLE>

    The decrease in the obligation on capital contribution notes and the
increase in home warranty reserves reflect the litigation settlement described
in Note 4.

    Accrued indemnity obligations primarily reflect reserves before related
discount (recorded pursuant to Fresh-Start Reporting) for contractual indemnity
obligations for disposed businesses unrelated to the Company's current
operations. The indemnities cover certain known and unidentified potential
claims by third parties including, but not limited to, health-related issues
claimed to be caused in connection with work in facilities with which the
disposed business were connected.

    In January 2000, a transaction was completed with the Charter Township of
Calumet, Michigan (the "Township"), whereby the Company donated approximately
160 acres of its land in Michigan, and certain other assets, to the Township.
The donation was made in exchange for the Township's agreement to make a borrow
source available to the U.S. Environmental Protection Agency ("EPA") for soil
cover to be used in

                                      F-15
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--OTHER LIABILITIES (CONTINUED)
the EPA's implementation of remedial actions on that portion of the conveyed
property which is a portion of a superfund site. The Township also assumed
certain other liabilities and provided the Company with certain indemnities in
connection with the transaction. The Company believes its liabilities, if any,
with respect to this superfund site have been discharged as a result of this
transaction. Accordingly, the Company recognized other income of $1.1 million,
which represents elimination of a $2.5 million reserve for an indemnity
obligation, net of unamortized discount, during the first quarter of 2000.

NOTE 9--INCOME TAXES

    Upon completion of the Recapitalization, the Company experienced an
"ownership change" under Section 382 of the Internal Revenue Code (the "Code")
as a result of the increase in the percentage of the Company's stock by value
held by certain persons (including creditors who exchanged debt for stock) of
more than 50 percentage points at any time during a three-year period.
Subsequent to an ownership change, the Company's annual use of its net operating
losses ("NOLs") is generally limited to the value of the Company's equity
immediately before the ownership change multiplied by the long-term tax-exempt
rate. However, Section 382(l)(5) of the Code, the "bankruptcy exception,"
provides that if the ownership change occurs through a bankruptcy, such as the
Company's Recapitalization which utilized a prepackaged plan, and if the
continuing shareholders and "qualifying creditors" before the ownership change
own at least 50% of the Company's stock after the ownership change, the general
limitations of Section 382 will not apply. "Qualifying creditors" generally must
have held their debt at least 18 months before the prepackaged plan was filed on
July 14, 1997, or the debt must have arisen in the ordinary course of the
Company's business.

    The Company believes that it qualifies for the "bankruptcy exception" of
Section 382(l)(5). Under this exception, the Company was required to reduce its
NOLs by (i) the amount of interest accrued on any debt exchanged for stock in
the bankruptcy proceeding during the year of the proceeding and the three prior
taxable years and (ii) an additional amount required to make the total reduction
equal to the amount of cancellation of indebtedness income realized.
Accordingly, the Company's NOLs of approximately $271 million as of
September 2, 1997 were reduced by approximately $79 million. As reduced, the
Company's NOL carryovers will be fully deductible against post-reorganization
income, subject to the general rules regarding change of ownership as discussed
below, and expiration of NOLs. The federal NOLs available as of December 31,
2000, which expire beginning in 2005, are approximately $198 million after
reflecting activity subsequent to September 2, 1997 and the settlement with the
IRS discussed below.

    The Company remains subject to the general rules regarding a change of
ownership under Section 382 of the Code, which limit the availability of NOLs if
an ownership change occurs within any three-year period. If the Company were to
experience another ownership change, the use of all remaining NOLs would
generally be subject to an annual limitation equal to the value of the Company's
equity before the ownership change, multiplied by the long-term tax-exempt rate.
The first date upon which the Company experienced an ownership shift subsequent
to September 2, 1997 was June 16, 1998. The Company estimates that after giving
effect to various transactions by stockholders who hold a 5% or greater interest
in the Company, and the Company's repurchase of an aggregate of approximately
1.9 million shares in December 1998 and June 1999, it has experienced a
cumulative ownership shift as computed in accordance with Section 382 of
approximately 40%.

    In response to an unsolicited written consent from a majority of its
stockholders, the Company amended its certificate of incorporation on
October 14, 1999 in order to preserve the ability of the

                                      F-16
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--INCOME TAXES (CONTINUED)
Company to utilize its $198 million of tax loss carryforwards. Since the
Company's use of its NOLs would be severely restricted if it experiences an
ownership change of 50% or more, the Company's majority stockholders requested
that the Board of Directors enact the amendments, which have been determined to
be in the best interest of the Company and its stockholders. The amendments
prohibit future purchases of the Company's common stock by persons who would
become new 5% holders, and also prohibit current holders of over 5% from
increasing their positions, except in certain permissible circumstances which
would not jeopardize the Company's ability to use its NOLs. While these
amendments reduced the Company's risk of an ownership change occurring due to
the acquisition of shares by 5% stockholders, the risk remains that an ownership
change could result from the sale of shares by existing 5% stockholders.

    The tax effects of items that gave rise to significant portions of the
deferred tax accounts are as follows for the years ended December 31 (in
millions):

<TABLE>
<CAPTION>
                                                                1999       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Deferred tax assets:
  Real estate held for development or sale and real estate
    joint ventures (due to asset revaluations and interest
    capitalized for tax purposes)...........................   $  3.9     $   .5
  Accruals/reserves not deductible until paid...............      3.3        2.9
  Net operating loss carryforwards..........................     69.0       69.5
  Other.....................................................      1.5        1.1
  Valuation allowance.......................................    (61.1)     (56.4)
                                                               ------     ------
                                                               $ 16.6     $ 17.6
                                                               ======     ======

<CAPTION>
                                                                1999       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Deferred tax liabilities:
  Land held for development (principally due to accounting
    for a prior business combination, partially offset by
    asset revaluations in 1995 and 1997)....................   $ 19.1     $ 19.4
  Other.....................................................      1.5        2.2
                                                               ------     ------
                                                               $ 20.6     $ 21.6
                                                               ======     ======
</TABLE>

    The Company has established a valuation allowance related to the utilization
of its deferred tax assets due to uncertainties that preclude it from
determining that it is more likely than not that the Company will be able to
generate sufficient taxable income to realize such assets. Such uncertainties
include the availability of real estate for development at economically viable
prices, government approvals, results of litigation and economic factors
affecting the Company's operations. The Company monitors these as well as other
positive and negative factors that may arise in the future, as it assesses the
need for a valuation allowance against its deferred tax assets. Recognition of
tax benefits from pre-Reorganization NOLs is excluded from results of operations
and credited to capital in excess of par value.

    Net deferred tax liabilities at December 31, 1999 and 2000 are comprised
entirely of state net deferred tax liabilities and are included in other
liabilities.

                                      F-17
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--INCOME TAXES (CONTINUED)

    The following is a summary of the income tax provision (benefit) applicable
to losses from continuing operations for the years ended December 31 (in
millions):

<TABLE>
<CAPTION>
                                                             1998        1999         2000
                                                           --------   -----------   --------
<S>                                                        <C>        <C>           <C>
Income Tax Provision (Benefit):
  Current................................................   $  .1     $        .1     $ .1
  Deferred...............................................    (1.1)             --      4.2
                                                            -----     -----------     ----
                                                            $(1.0)    $        .1     $4.3
                                                            =====     ===========     ====
</TABLE>

    Cash payments for federal, state and local income taxes were approximately
$.1 million, $1.2 million and $.1 for the years ended December 31, 1998, 1999
and 2000, respectively. The Company received tax refunds of approximately
$.3 million during the year ended December 31, 2000.

    The principal items accounting for the difference in taxes on income
computed at the statutory rate and as recorded, are as follows for the years
ended December 31 (in millions):

<TABLE>
<CAPTION>
                                                             1998       1999       2000
                                                           --------   --------   --------
<S>                                                        <C>        <C>        <C>
Provision (benefit) for income taxes at statutory rate...   $(1.2)      $(.6)      $3.5
State income taxes, net..................................     (.2)        .1         .7
Increase in federal valuation allowance..................      --         .6         --
Non-deductible executive compensation....................      .5         --         --
All other items, net.....................................     (.1)        --         .1
                                                            -----       ----       ----
                                                            $(1.0)      $ .1       $4.3
                                                            =====       ====       ====
</TABLE>

    For the year ended December 31, 2000, pursuant to Fresh-Start reporting, a
deferred income tax provision of $4.2 million is reflected in the statement of
operations, while the offsetting realization of a tax benefit from utilization
of pre-Reorganization NOL is reflected by increasing the Company's capital in
excess of par value.

TAX SHARING AGREEMENTS

    Henley Group and MAFCO Consolidated Group Inc. ("MAFCO"; formerly known as
Abex Inc.), a former subsidiary of Henley Group whose stock was distributed to
stockholders of Henley Group in July 1992, entered into a tax sharing agreement
in 1992 prior to the Distribution to provide for the payment of taxes for
periods during which Henley Group and MAFCO were included in the same
consolidated group for federal income tax purposes, the allocation of
responsibility for the filing of tax returns, the cooperation of the parties in
realizing certain tax benefits, the conduct of tax audits and various related
matters.

    1989-1992 INCOME TAXES.  The Company is generally charged with
responsibility for all of its federal, state, local or foreign income taxes for
this period and, pursuant to the tax sharing agreement with MAFCO, all such
taxes attributable to Henley Group and their consolidated subsidiaries,
including any additional liability resulting from adjustments on audit (and any
interest or penalties payable with respect thereto), except that MAFCO is
generally charged with responsibility for all such taxes attributable to it and
its subsidiaries for 1990-1992. In addition, under a separate tax sharing
agreement between Henley

                                      F-18
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--INCOME TAXES (CONTINUED)
Group and a former subsidiary of Henley Group, Fisher Scientific
International Inc. ("Fisher"), Fisher is generally charged with responsibility
for its own income tax liabilities for this period.

    The Internal Revenue Service ("IRS") proposed material audit adjustments
with respect to the tax returns of the Company and its consolidated
subsidiaries, including formerly affiliated entities, for the years ended
December 31, 1989, 1990 and 1991. The adjustments proposed by the IRS, if
upheld, could have resulted in Federal tax liability, before interest, of
approximately $17 million and disallowance of up to $132 million of NOL
carryforwards. The Company disagreed with the positions taken by the IRS and
filed protests with the IRS to contest the proposed adjustments. In
December 1998, the Company executed a settlement agreement with the IRS with
respect to the proposed adjustments described above. As a result of this
agreement, in February 1999 the Company paid $759,000 (which includes $280,000
of tax and $479,000 of interest through January 1999), net of the Company's
refund claim for 1992 NOL carrybacks of approximately $1.6 million, in full
settlement of such claims. Under this settlement agreement approximately
$10 million of the Company's NOL carryforwards was disallowed. The Company
utilized $8.1 million of NOL carryback from 1992 to 1991 in connection with its
refund claim. There can be no assurance that the refund will be upheld. The
Company has reviewed the extent of potential accompanying state tax liability
adjustments and does not believe that any such adjustments would have a material
impact on the Company's financial statements.

NOTE 10--COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

    See Note 5 for a discussion of certain litigation relating to the California
Coastal Commission's approvals of suggested modifications to the LCP for Bolsa
Chica.

    See Note 4 for a discussion of settlement of litigation relating to the
enforceability of a guarantee of capital contribution notes due to AV
Partnership.

    There are various other lawsuits and claims pending against the Company and
certain subsidiaries. In the opinion of the Company's management, ultimate
liability, if any, will not have a material adverse effect on the Company's
financial condition or results of operations.

LEASE OBLIGATIONS

    For the years ended December 31, 1998, 1999 and 2000 the Company incurred
rents of approximately $143 thousand, $115 thousand and $234 thousand,
respectively, including rents discussed in Note 10 below. Future minimum
noncancelable operating lease payments for the year ending December 31, 2001 are
approximately $250 thousand and thereafter such amounts are zero.

CORPORATE INDEMNIFICATION MATTERS

    The Company and its predecessors have, through a variety of transactions
effected since 1986, disposed of several assets and businesses, many of which
are unrelated to the Company's current operations. By operation of law or
contractual indemnity provisions, the Company has retained liabilities relating
to certain of these assets and businesses. Many of such liabilities are
supported by insurance or by indemnities from certain of the Company's
predecessors and currently or previously affiliated companies. The Company
believes its balance sheet reflects adequate reserves for these matters.

                                      F-19
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--RELATED PARTY TRANSACTIONS

    Related party transactions reflected in discontinued operations are as
follows:

SALE OF COMMERCIAL DEVELOPMENT BUSINESS

    See Note 4 for a description of this related party transaction.

GENERAL CONTRACTOR AGREEMENTS

    In 1996 the Company entered into a general contractor agreement with Koll
Construction in conjunction with a build-to-suit project for a third-party
corporate office building in Nevada. In 1997 and 1998 the Company entered into
general contractor agreements with Koll Construction in conjunction with four
build-to-suit projects in California and one build-to-suit project in Kansas
owned by the Company. During the four months ended April 30, 1998 (after which
Koll Construction was no longer a related party), the Company incurred fees
aggregating approximately $5.4 million to Koll Construction in consideration for
these services and related reimbursements.

SUBLEASE AGREEMENTS

    In September 1993, the Company entered into an annual Sublease Agreement
with The Koll Company to sublease a portion of The Koll Company affiliate's
office building located in Newport Beach, California. The lease was terminated
September 5, 1998. Under this Sublease Agreement lease costs were approximately
$119 thousand for the four months ended April 30, 1998.

DEVELOPMENT FEES

    For the four months ended April 30, 1998 the Company earned fees of
approximately $1.7 million for real estate development and disposition services
provided to partnerships in which The Koll Company and certain former directors
and officers of the Company had an ownership interest.

NOTE 12--RETIREMENT PLANS

    The Company adopted a retirement savings plan effective January 1, 2000
pursuant to Section 401(k) of the Code, and participants may contribute a
portion of their compensation to their respective retirement accounts, in an
amount not to exceed the maximum allowed under the Code. Prior to January 1,
2000, the Company participated in a similar plan sponsored by a former
affiliate. All participants in the previous plan were allowed to transfer their
balances to the Company sponsored plan effective January 1, 2000. The new plan
provides for certain matching contributions by the Company, which commenced in
January 2000. Plan participants are immediately vested in their own
contributions.

    The Company has a noncontributory defined benefit retirement plan covering
substantially all employees of the Company prior to September 30, 1993 who had
completed one year of continuous

                                      F-20
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--RETIREMENT PLANS (CONTINUED)
employment. The benefit accrual for all participants was terminated on
December 31, 1993. Net periodic pension cost was as follows for the years ended
December 31 (in millions):

<TABLE>
<CAPTION>
                                                              1998       1999       2000
                                                            --------   --------   --------
<S>                                                         <C>        <C>        <C>
Service cost..............................................   $  --       $ --       $ --
Interest cost.............................................      .3         .3         .4
Actual return on assets...................................    (1.2)       (.5)       (.6)
Net amortization and deferral.............................      .8         --         --
                                                             -----       ----       ----
Net periodic pension income...............................   $ (.1)      $(.2)      $(.2)
                                                             =====       ====       ====
</TABLE>

    The development of the projected benefit obligation for the plan at
December 31, 1999 and 2000 is based on the following assumptions: a discount
rate of 7.5% for 1999 and 2000, and an expected long-term rate of return on
assets of 9% for 1999 and 2000. Assets of the plan are invested primarily in
stocks, bonds, short-term securities and cash equivalents.

    The funded status and accrued pension cost at December 31, 1999 and 2000 for
the defined benefit plan were as follows (in millions):

<TABLE>
<CAPTION>
                                                                1999       2000
                                                              --------   --------
<S>                                                           <C>        <C>
BENEFIT OBLIGATION:
Benefit obligation at beginning of year.....................    $5.6       $4.8
Service cost................................................      --         --
Interest cost...............................................      .3         .4
Actuarial (gain) loss.......................................     (.6)        .1
Benefits paid...............................................     (.5)       (.5)
                                                                ----       ----
Benefit obligation at end of year...........................    $4.8       $4.8
                                                                ====       ====

PLAN ASSETS:
Fair value of plan assets at end of prior year..............    $6.5       $6.3
Net return on plan assets...................................      .3         .3
Benefits paid...............................................     (.5)       (.5)
                                                                ----       ----
Fair value of plan assets at end of year....................    $6.3       $6.1
                                                                ====       ====
Funded status...............................................    $1.5       $1.3
Unrecognized net actuarial gain.............................     (.8)       (.4)
                                                                ----       ----
Net amount recognized.......................................    $ .7       $ .9
                                                                ====       ====
</TABLE>

NOTE 13--CAPITAL STOCK

COMMON STOCK

    In June 1999, the Company repurchased an aggregate of 1,419,021 shares at an
average cost of $5.85 per share or approximately $8.3 million in (i) an
unsolicited private transaction and (ii) a reverse and a forward split
transaction, which cashed out holders of less than 100 shares as of June 18,
1999, as approved by the Company's stockholders at the 1999 Annual Meeting. In
December 1998, the Company repurchased

                                      F-21
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13--CAPITAL STOCK (CONTINUED)
an aggregate of 490,000 of its shares at an average cost of $5.96 per share
(representing a discount to market prices), or approximately $2.9 million, in
unsolicited private transactions. In May 1998, the Company issued 100,000 shares
to its Chief Executive Officer under a restricted stock grant.

    On October 14, 1999, pursuant to an unsolicited written consent from a
majority of the Company's stockholders, the Company adopted certain amendments
to its certificate of incorporation. The amendments authorized 18,000,000 shares
of a second class of stock, ("Excess Stock") to be issued under certain
circumstances. The effect of the amendments is to prohibit the acquisition of
the Company's Common Stock by anyone who would become a 5% stockholder or by
existing 5% stockholders, except in certain permissible circumstances which
would not significantly increase the risk of an Ownership Change (as defined by
the Internal Revenue Code of 1986, as amended) and would not, therefore,
jeopardize the Company's ability to use its $198 million of NOLs (see Note 9).
While these amendments reduced the Company's risk of an Ownership Change
occurring due to the acquisition of shares by 5% stockholders, the risk remains
that an Ownership Change could result from the sale of shares by existing 5%
stockholders.

    At the May 2000 Annual Meeting, the Company's shareholders approved a
reduction in authorized shares of both Common Stock and Excess Stock from
18,000,000 shares to 11,000,000 shares.

WARRANTS

    In December 1999 the Company issued warrants for an aggregate of 48,000
shares to two consultants in partial compensation for their services. The
warrants were issued at market prices, averaging $6.92 per share, and vested
after one year. The warrants remain exercisable through December 2003. The fair
value of the warrants is not material to the financial statements.

NOTE 14--STOCK PLANS

1993 STOCK OPTION/STOCK ISSUANCE PLAN

    The 1993 Stock Option/Stock Issuance Plan ("1993 Plan") was approved at the
1994 Annual Meeting of Stockholders, reserving 7.5 million shares each of
Series A Preferred Stock and Class A Common Stock for issuance to officers, key
employees and consultants of the Company and its subsidiaries and the
non-employee members of the Board. Through September 2, 1997, no options were
exercised, and all options outstanding were cancelled during 1997 in connection
with the Recapitalization.

    On April 28, 1997, in connection with the Recapitalization, the Compensation
Committee of the Company's Board of Directors approved the grant of stock
options equivalent to 6% of the Company's fully diluted equity for certain
directors and officers, which options were issued upon completion of the
Recapitalization. Stock option grants of 759,984 shares were issued at a price
of $11.99 per share based on the 20-day average closing price following
completion of the Recapitalization in 1997. The options have a term of ten years
and vested 40% after one year, an additional 30% after two years and the final
30% after three years. In connection with the sale of the commercial development
business described in Note 4, options for an aggregate of 569,988 shares were
terminated.

    During 1998 and 1999 options aggregating 295,000 and 270,000 shares,
respectively, were issued to certain officers and directors of the Company and
its subsidiaries. These options have a term of ten years and vest 50% after one
year and the remaining 50% after two years. In December 1999, options for

                                      F-22
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--STOCK PLANS (CONTINUED)
189,996 and 200,000 shares granted in 1997 and 1998, respectively, to certain
directors and officers with prices of $11.99 and $9.88 per share, respectively,
were re-priced to $9.25 per share.

    A summary of the status of the Company's stock option plan for the years
ended December 31, 1998, 1999 and 2000, follows:

<TABLE>
<CAPTION>
                                                                   WEIGHTED-AVERAGE
OPTIONS OUTSTANDING                            NUMBER OF OPTIONS    EXERCISE PRICE
-------------------                            -----------------   ----------------
<S>                                            <C>                 <C>
December 31, 1997............................       759,984            $ 11.30
  Granted....................................       295,000               9.25
  Exercised..................................            --                 --
  Cancelled..................................      (569,988)            (11.99)
                                                   --------
December 31, 1998............................       484,996            $  9.25
  Granted....................................       270,000               7.00
  Exercised..................................            --                 --
  Cancelled..................................            --                 --
                                                   --------
December 31, 1999............................       754,996            $  8.89
  Granted....................................            --                 --
  Exercised..................................            --                 --
  Cancelled..................................            --                 --
                                                   --------
December 31, 2000............................       754,996            $  8.89
                                                   ========
Options exercisable at December 31, 2000.....       619,996            $  8.76
Options available for future grants at
  December 31, 2000..........................         4,988
</TABLE>

    At December 31, 2000, the Company had 619,996 options exercisable with a
weighted-average exercise price of $8.76 and a weighted-average remaining life
of 7.1 years. Additionally, 135,000 of the Company's outstanding options with an
exercise price of $7.00 were not exercisable and had a weighted-average
remaining life of 8.9 years.

    The Company applies APB opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its plan. Accordingly,
no compensation expense has been recognized for its stock-based compensation
plans other than for performance-based awards. The fair value of the options
granted is estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions: no dividend yield, volatility of 38% and
27% in 1998 and 1999, respectively, risk-free interest rate of 5.00% and 6.24%
in 1998 and 1999, respectively, and an expected life of 3 years. The fair value
of the options granted was estimated to be $.9 million ($3.05 per option) and
$.5 million ($1.85 per option) for options granted in 1998 and 1999,
respectively. Had compensation cost for the Company's stock option plan been
determined based upon the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS No. 123, "Accounting
for Stock-Based Compensation", 1998, 1999 and 2000 net income (loss) would have
been as follows (in millions, except per share amounts):

                                      F-23
<PAGE>
             CALIFORNIA COASTAL COMMUNITIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--STOCK PLANS (CONTINUED)

<TABLE>
<CAPTION>
                                               1998                      1999                      2000
                                      -----------------------   -----------------------   -----------------------
                                      AS REPORTED   PRO FORMA   AS REPORTED   PRO FORMA   AS REPORTED   PRO FORMA
                                      -----------   ---------   -----------   ---------   -----------   ---------
<S>                                   <C>           <C>         <C>           <C>         <C>           <C>
Net income (loss) from
  Continuing operations.............     $(2.3)       $(2.8)       $(1.8)       $(2.4)        $5.6        $5.1
  Discontinued operations...........       6.5          6.3           .2           .2           --          --
                                         -----        -----        -----        -----         ----        ----
    Net income (loss)...............     $ 4.2        $ 3.5        $(1.6)       $(2.2)        $5.6        $5.1
                                         =====        =====        =====        =====         ====        ====
Earnings (loss) per share-basic:
  Continuing operations.............     $(.19)       $(.24)       $(.17)       $(.22)        $.55        $.50
  Discontinued operations...........       .54          .53          .02          .02           --          --
                                         -----        -----        -----        -----         ----        ----
    Net earnings (loss) per common
      share.........................     $ .35        $ .29        $(.15)       $(.20)        $.55        $.50
                                         =====        =====        =====        =====         ====        ====
</TABLE>

NOTE 15--UNAUDITED QUARTERLY FINANCIAL INFORMATION

    The following is a summary of quarterly financial information for 1999 and
2000 (in millions, except per share amounts):

<TABLE>
<CAPTION>
                                                          FIRST      SECOND     THIRD      FOURTH    FULL YEAR
                                                         --------   --------   --------   --------   ---------
<S>                                                      <C>        <C>        <C>        <C>        <C>
2000
Revenues (a)...........................................   $  --      $ 7.4      $ 7.1      $ 8.5       $23.0
Cost of sales..........................................      --        5.8        5.6        6.8        18.2
Gross operating profit.................................      --        1.6        1.5        1.7         4.8
Net income (b).........................................      .4        1.1        1.0        3.1         5.6
Earnings per common share..............................   $ .04      $ .11      $ .10      $ .31       $ .55
Weighted-average common shares outstanding.............    10.1       10.1       10.1       10.1        10.1

<CAPTION>
                                                          FIRST      SECOND     THIRD      FOURTH    FULL YEAR
                                                         --------   --------   --------   --------   ---------
<S>                                                      <C>        <C>        <C>        <C>        <C>
1999
Revenues...............................................   $  --      $  --      $  --      $  --       $  --
Cost of sales..........................................      --         --         --         --          --
Gross operating profit.................................      --         --         --         --          --
Income (loss) from continuing operations...............     (.9)       (.5)      (1.0)        .6        (1.8)
Net income (loss) (c)..................................     (.9)       (.5)       (.8)        .6        (1.6)
Earnings (loss) per common share.......................   $(.08)     $(.05)     $(.08)     $ .06       $(.15)
Weighted-average common shares outstanding (d).........    11.5       11.1       10.1       10.1        10.7
</TABLE>

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

(a) The Company recorded revenues from the sales of 62 homes.

(b) Net income for the first, third and fourth quarters of 2000 reflects
    $1.1 million, $.6 million and $2.1 million, respectively, of other income
    before related tax expense from the settlement of certain other liabilities
    (see Notes 4 and 8).

(c) Net loss for the third quarter of 1999 reflects adjustments to alternative
    minimum taxes related to the second quarter 1998 disposition of the
    commercial development business. Net income for the fourth quarter of 1999
    includes $1.5 million of nonrecurring other income resulting from a change
    in estimate for an indemnity obligation reserve for a disposed business due
    to favorable claims history.

(d) Weighted-average common shares outstanding reflect the second quarter 1999
    repurchases of over 1.4 million shares of the Company's stock in private
    transactions and a reverse and forward split transaction.

                                      F-24