<PAGE>

          This Form 10-Q consists of 15 sequentially numbered pages.

                                   FORM 10-Q

                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

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

              QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

               For the quarterly period ended September 30, 1998

                        Commission file number 0-17189

                     CALIFORNIA COASTAL COMMUNITIES, INC.
                     ------------------------------------
            (Exact name of registrant as specified in its charter)

                   DELAWARE                           02-0426634
        (State or other jurisdiction of            (I.R.S. Employer
        incorporation or organization.)           Identification No.)

         6 Executive Circle, Suite 250
              IRVINE, CALIFORNIA                         92614
    (Address of principal executive offices)           (Zip Code)

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

     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 whether the Registrant has filed all documents 
and reports required to be filed by Sections 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 at November 1, 1998 was 
11,968,075.

<PAGE>

                     CALIFORNIA COASTAL COMMUNITIES, INC.

                                   FORM 10-Q

                   FOR THE QUARTER ENDED SEPTEMBER 30, 1998

                                   I N D E X
                               -----------------

<TABLE>
<CAPTION>

                                                                              Page No.
                                                                              --------
<S>                                                                           <C>
PART I -    Financial Information:

            Item 1 -    Financial Statements

                        Balance Sheets -
                        December 31, 1997 and September 30, 1998..................3

                        Statements of Operations -
                        Two-Month Period Ended September 2, 1997,
                            One-Month Period Ended September 30, 1997,
                            Three Months Ended September 30, 1998,
                            Eight-Month Period Ended September 2, 1997
                            and Nine Months Ended September 30, 1998..............4

                        Statements of Cash Flows -
                        Eight-Month Period Ended September 2, 1997,
                            One-Month Period Ended September 30, 1997
                            and Nine Months Ended September 30, 1998..............5

                        Notes to Financial Statements.............................6


            Item 2 -    Management's Discussion and Analysis of Financial
                        Condition and Results of Operations......................11

            Item 3 -    Quantitative and Qualitative Disclosures About
                        Market Risk..............................................13


PART II - Other Information:

            Item 1 - Legal Proceedings...........................................14

            Item 6 - Exhibits and Reports on Form 8-K............................14

SIGNATURE........................................................................15

</TABLE>


                                       2

<PAGE>

                     CALIFORNIA COASTAL COMMUNITIES, INC.

                                BALANCE SHEETS
                                --------------

                                (in millions)

<TABLE>
<CAPTION>

                                                       December 31,      September 30,
                                                           1997              1998
                                                       ------------      -------------
<S>                                                    <C>               <C>
                      ASSETS

Cash and cash equivalents ........................        $  7.2            $ 31.8
Real estate held for development or sale .........           4.0               2.7
Land held for development ........................         133.2             136.2
Reorganization value in excess of amounts
  allocated to net assets ........................           3.1                .3
Discontinued operations ..........................          19.3              --
Other assets .....................................           6.5               7.3
                                                          ------            ------
                                                          $173.3            $178.3
                                                          ------            ------
                                                          ------            ------

       LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
  Accounts payable and accrued liabilities........        $  3.5            $  1.9
  Other liabilities ..............................          29.7              29.9
                                                          ------            ------

  Total liabilities ..............................          33.2              31.8
                                                          ------            ------

Stockholders' equity:
  Common stock ...................................            .6                .6
  Capital in excess of par value .................         140.0             141.1
  Retained earnings (accumulated deficit).........           (.5)              4.8
                                                          ------            ------

  Total stockholders' equity .....................         140.1             146.5
                                                          ------            ------

                                                          $173.3            $178.3
                                                          ------            ------
                                                          ------            ------

</TABLE>

              See the accompanying notes to financial statements.


                                       3

<PAGE>

                     CALIFORNIA COASTAL COMMUNITIES, INC.
                           STATEMENTS OF OPERATIONS
                           ------------------------

                    (in millions, except per share amounts)

<TABLE>
<CAPTION>

                                           Predecessor        Successor          Successor         Predecessor        Successor
                                             Company           Company            Company            Company           Company
                                             -------           -------            -------            -------
                                            Two-Month         One-Month         Three Months       Eight-Month       Nine Months
                                          Period Ended       Period Ended          Ended          Period Ended          Ended
                                        September 2, 1997 September 30, 1997 September 30, 1998 September 2, 1997 September 30, 1998
                                        ----------------- ------------------ ------------------ ----------------- ------------------
<S>                                     <C>               <C>                <C>                <C>               <C>
Revenues .............................       $   .5             $ 1.6              $ --              $ 33.9             $ 2.1

Costs of sales .......................           .4               1.6                --                33.4               1.8
                                             ------             -----              -----             ------             -----

  Gross operating margin .............           .1               --                 --                  .5                .3

General and administrative expenses ..          2.2                .2                 .9                5.5               2.8
Interest expense .....................          4.4               --                  .3               17.1               1.0
Other expense (income), net ..........          (.3)               .1                (.2)              (3.7)              (.7)
                                             ------             -----              -----             ------             -----

Loss from continuing operations
  before reorganization costs and
  income taxes .......................         (6.2)              (.3)              (1.0)             (18.4)             (2.8)

Reorganization items:
  Reorganization costs ...............          1.8               --                 --                 2.8               --
  Fresh-start adjustments ............         63.8               --                 --                63.8               --
                                             ------             -----              -----             ------             -----

Loss from continuing operations
  before income taxes ................        (71.8)              (.3)              (1.0)             (85.0)             (2.8)

Provision (benefit) for income
  taxes ..............................           .1               --                  --                 .3               (.3)
                                             ------             -----              -----             ------             -----

Loss from continuing operations ......        (71.9)              (.3)              (1.0)             (85.3)             (2.5)

Discontinued operations:
  Income from operations,
    net of income taxes of $0, $.2,
    $0, $0 and $.2 ...................          6.4                .5                --                 5.4                .5
  Gain on disposition, net of
    income taxes of $3.3 .............          --                --                 --                 --                7.2
                                             ------             -----              -----             ------             -----

Income (loss) before extraordinary
  gain ...............................        (65.5)               .2               (1.0)             (79.9)              5.3

Extraordinary gain on
 extinguishment of debt, net of
 income taxes of $0 ..................         89.5               --                 --                89.5               --
                                             ------             -----              -----             ------             -----

Net income (loss) ....................       $ 24.0             $  .2              $(1.0)            $  9.6             $ 5.3
                                             ------             -----              -----             ------             -----
                                             ------             -----              -----             ------             -----

Earnings (loss) per common
  share - basic and diluted:
    Continuing operations ............                          $(.02)             $(.08)                               $(.20)
    Discontinued operations ..........                            .04                --                                   .64
                                                                -----              -----                                -----
                                               N/A              $ .02              $(.08)              N/A              $ .44
                                             ------             -----              -----             ------             -----
                                             ------             -----              -----             ------             -----

Weighted average common
  shares outstanding .................         N/A               11.9               12.0               N/A               12.0
                                             ------             -----              -----             ------             -----
                                             ------             -----              -----             ------             -----

</TABLE>

              See the accompanying notes to financial statements.


                                       4

<PAGE>

                     CALIFORNIA COASTAL COMMUNITIES, INC.
                           STATEMENTS OF CASH FLOWS
                           ------------------------
                                 (in millions)

<TABLE>
<CAPTION>

                                                                       Predecessor           Successor             Successor
                                                                         Company              Company               Company
                                                                         -------              -------               -------
                                                                       Eight-Month           One-Month            Nine Months
                                                                      Period Ended          Period Ended             Ended
                                                                    September 2, 1997    September 30, 1997    September 30, 1998
                                                                    -----------------    ------------------    ------------------
<S>                                                                 <C>                  <C>                   <C>
Cash flows from operating activities:
  Net income ...................................................         $  9.6                $  .2                $  5.3
  Adjustments to reconcile to cash provided (used) by
    operating activities:
    Fresh-start adjustments ....................................           63.8                  --                    --
    Extraordinary gain on extinguishment of debt ...............          (89.5)                 --                    --
    Non-cash reorganization costs ..............................            1.9                  --                    --
    Non-cash interest expense ..................................           17.1                  --                    1.0
    Deferred income taxes ......................................            --                   --                    (.5)
    Gain on sale of discontinued operation .....................            --                   --                   (7.2)
    Gains on asset sales .......................................            (.4)                 --                    (.3)
    Proceeds from asset sales, net .............................           33.5                  1.6                   2.0
    Investments in real estate held for development or sale.....           (2.3)                 (.1)                  (.4)
    Investment in land held for development ....................           (4.2)                (1.8)                 (3.0)
    Decrease (increase) in other assets ........................            1.0                  (.1)                  (.8)
    Decrease in accounts payable, accrued and
      other liabilities ........................................           (6.8)                (1.0)                 (2.4)
                                                                          -----                -----                 -----

    Cash provided (used) by operating activities
           of continuing operations ............................           23.7                 (1.2)                 (6.3)
                                                                          -----                -----                 -----

    Cash used by operating activities of
           discontinued operations .............................          (37.6)                (2.2)                (28.1)
                                                                          -----                -----                 -----

Cash flows from investing activities:
  Proceeds from sale of discontinued operation .................            --                   --                   33.3
                                                                          -----                -----                 -----

Cash flows from financing activities:
  Borrowings of bank debt ......................................             .9                  --                    --
  Repayments of bank debt ......................................           (9.1)                 --                    --
  Use of restricted cash .......................................             .2                  --                    --
  Issuance of restricted stock .................................            --                   --                    1.1
                                                                          -----                -----                 -----

    Cash (used) provided by financing activities
      of continuing operations .................................           (8.0)                 --                    1.1
                                                                          -----                -----                 -----

    Cash provided by financing activities
      of discontinued operations ...............................           27.1                  1.1                  24.6
                                                                          -----                -----                 -----

Net increase (decrease) in cash and cash equivalents ...........            5.2                 (2.3)                 24.6

Cash and cash equivalents - beginning of period ................            2.1                  7.3                   7.2
                                                                          -----                -----                 -----

Cash and cash equivalents - end of period ......................         $  7.3                $ 5.0                $ 31.8
                                                                          -----                -----                 -----
                                                                          -----                -----                 -----

</TABLE>

              See the accompanying notes to financial statements.


                                       5

<PAGE>

                     CALIFORNIA COASTAL COMMUNITIES, INC.

                         NOTES TO FINANCIAL STATEMENTS
                         -----------------------------

NOTE 1 - BASIS OF PRESENTATION

     On May 1, 1998, following completion of the sale of the commercial 
development business (see Note 4), Koll Real Estate Group, Inc. changed its 
name to California Coastal Communities, Inc.  The corresponding change of the 
Company's stock symbol from "KREG" to "CALC" was effective on May 29, 1998.

     The accompanying financial statements have been prepared by California 
Coastal Communities, Inc. and its consolidated subsidiaries (the "Company"), 
without audit, pursuant to the rules and regulations of the Securities and 
Exchange Commission.  Certain information and footnote disclosures normally 
included in financial statements prepared in accordance with generally 
accepted accounting principles have been condensed or omitted pursuant to 
such rules and regulations.  The Company believes that the disclosures are 
adequate to make the information presented not misleading when read in 
conjunction with the Financial Statements and Notes thereto included in the 
Company's Annual Report on Form 10-K for the year ended December 31, 1997, 
and the current year's previously issued Quarterly Reports on Form 10-Q.  The 
financial information presented herein reflects all adjustments, including 
Fresh-Start Reporting adjustments as discussed below, which are, in the 
opinion of management, necessary for a fair presentation of the results for 
the interim periods presented.  The results for interim periods are not 
necessarily indicative of the results to be expected for the full year.  This 
report contains forward looking statements.  Readers are cautioned that any 
such forward looking statements are not guarantees of future performance and 
involve risks and uncertainties that actual events or results may differ 
materially from those described herein as a result of various factors, 
including without limitation, the factors discussed generally in this report.

NOTE 2 - RECAPITALIZATION

     On September 2, 1997, the Company completed its recapitalization (the 
"Recapitalization") which became effective 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 (referred to as "Successor Company" for 
periods after September 2, 1997) adopted the provisions of Statement of 
Position 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.

     The results of operations for the two-month and eight-month periods 
ended September 2, 1997 and cash flows for the eight-month period ended 
September 2, 1997 include operations prior to completion of the Recapitalization
(referred to as "Predecessor Company").  The results of operations and cash 
flows for the one-month period ended September 30, 1997 and the nine months 
ended September 30, 1998 include operations subsequent to the Company's 
Recapitalization and are not comparable with prior periods for the reasons 
discussed above.


                                       6

<PAGE>

     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 approximately $3.1 million is amortized 
on a straight-line basis over 15 years.  Such amount was reduced in the second 
quarter of 1998 by the amount of the net 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 allocated to the commercial 
development business, and is reflected in discontinued operations net of 
related amortization, as of December 31, 1997.

     Reorganization costs during the periods ended September 2, 1997 
consisted primarily of legal, financial advisors and other professional fees 
and expenditures directly related to the Company's Recapitalization and were 
expensed as incurred.

NOTE 3 - EARNINGS PER COMMON SHARE

     The Company computes earnings per share in accordance with Statement of 
Financial Accounting Standards No. 128, "Earnings per Share".  For periods 
commencing September 2, 1997, earnings per share is computed using the 
weighted average number of outstanding shares of the Successor Company's 
Common Stock.  For the three months and nine months ended September 30, 1998, 
the weighted average common shares outstanding were 12.0 million.  The 
weighted average common shares outstanding reflect the issuance, effective 
May 6, 1998, of 100,000 shares to the Company's Chief Executive Officer under 
a restricted stock grant.  Earnings per share, assuming dilution, is computed 
using the weighted average number of common shares outstanding and the 
dilutive effect of potential common shares outstanding.  Per share data for 
periods prior to September 2, 1997 have been omitted as these amounts do not 
reflect the Successor Company's current capital structure.

NOTE 4 - DISPOSITION

     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 is 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 
$7.2 million ($10.5 million pretax) from this transaction.

     Discontinued operations as of December 31, 1997 was comprised of the 
following (in millions):

<TABLE>

          <S>                                                       <C>
          Restricted cash.....................................      $   .2
          Real estate held for development or sale............        87.9
          Reorganization value in excess of amounts
            allocated to net assets...........................        13.3
          Other assets........................................         8.5
          Accounts payable and other liabilities..............       (13.1)
          Bank debt...........................................       (74.6)
          Minority interest...................................        (2.9)
                                                                    ------
            Net assets........................................      $ 19.3
                                                                    ------
                                                                    ------

</TABLE>

     Revenues related to discontinued operations were $2.4 million and 
$26.9 million for the two and eight-month periods ended September 2, 1997, 
respectively, $12.3 million for the one-month period ended September 30, 1997 
and $28.1 million for the nine months ended September 30, 1998, through the 
date of sale.  The net income from discontinued operations for the two-month 
and eight-month periods ended September 2, 1997 was $6.3 million and 
$5.4 million, repectively, and $.5 million for the one-month period ended 
September 30, 1997.  Net income from discontinued operations for the nine 
month period ended September 30, 1998, was $.5 million through the date of 
sale.


                                       7

<PAGE>

NOTE 5 - LAND HELD FOR DEVELOPMENT

     The Company owns approximately 340 acres located in Orange County, 
California adjacent to the Pacific Ocean and the Bolsa Chica lowlands (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 approximately 200 acres
to be developed on a mesa north of the Bolsa Chica lowlands ("Warner Mesa"), 
approximately 100 acres on, or adjacent to, the Huntington mesa and 
approximately 40 acres of lowlands which were acquired by the Company in 
September 1997.

     The planned community at Warner Mesa is expected to offer a broad mix of 
home choices, including primarily single-family homes, as well as townhomes, 
at a wide range of prices.  A Local Coastal Program ("LCP") for development of 
up to 3,300 homes (up to 2,500 on Warner Mesa and up to 900 on the Bolsa 
Chica lowlands, which were subsequently sold as discussed below) was approved 
by the Orange County Board of Supervisors in December 1994 and by the 
California Coastal Commission (the "Coastal Commission") in January 1996.

     On February 14, 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, 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.

     A lawsuit (the California Environmental Quality Act lawsuit, the "CEQA 
Lawsuit") challenging the approvals of the Board of Supervisors was filed in 
January 1995.  After remanding the matter to the Board of Supervisors for 
additional processing and findings, in January 1997 the court entered a 
judgment in favor of the Company.  Plaintiffs in the CEQA Lawsuit appealed the 
trial court's decision and on June 16, 1998, the California Court of Appeal 
ruled in the Company's favor by affirming the trial court's earlier decision 
that the Board of Supervisor's approval of the LCP was in compliance with 
CEQA.  With this decision, the Court of Appeal rejected the contentions of the 
plaintiffs by concluding that the final Environmental Impact Report ("EIR") 
adequately considered the alternatives for treatment of archeological sites 
and that the County's efforts complied with the requirements for involving 
the federal government in the EIR process.  In addition, the Court of Appeal 
reversed the trial court's award of attorney fees and costs to the Company's 
opponents because certain aspects of the trial court's decision erred on the 
merits and the project opponents did not accomplish anything meaningful in 
the CEQA Lawsuit.

     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 Warner Mesa ("Warner Pond") and development of any homes in the Bolsa 
Chica lowlands.  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 density from 2,500 homes 
to no more than 1,235 homes on Warner Mesa.  The Orange County Board of 
Supervisors subsequently accepted the Coastal Commission's suggested 
modifications.  However, in February 1998, the trial court ruled that the 
Coastal Commission should not have narrowed the scope of public comments 
during the Coastal Commission's October 1997 hearing, and in March 1998 the 
trial court ordered the Coastal Commission to hold a third hearing on the 
LCP.  In May 1998, the Company appealed the trial court's latest decision, and 
there are numerous other appeals pending with respect to the Coastal Act 
Lawsuit.

     On October 14, 1998, the Court of Appeal completed its hearing on the 
first set of appeals, which relates to the trial court's August 1997 
decision.  The Court of Appeal normally renders its decision within the 90 day 
period following such a hearing.  Opponents of the Warner Mesa project 
appealed the trial court's decision on the basis that the trial court should 
have reversed the Coastal Commission's January 1996 approval allowing 
relocation of certain raptor habitat.  The Company also appealed the trial 
court's decisions which reversed the Coastal Commission's January 1996 
approval (a) allowing Warner Pond to be filled and (b) allowing residential 
development in lowlands.  A hearing date for the Company's appeal of the trial 
court's March 1998 decision on the LCP (the "Second Appeal") has not yet been 
scheduled by the Court of Appeal.  In the event that the Company prevails on 
all of the relevant issues raised in the first set of appeals, it would not 
be necessary for the Company to pursue its Second Appeal.  If the Company 
pursues and is successful in the Second Appeal, it would be allowed to 
complete the processing of secondary permits and commence infrastructure 
construction for up to 1,235 homes on Warner Mesa.  If the Company does not 
prevail in the first set of appeals with respect to affirmation of the trial 
court's decision allowing relocation of raptor habitat, then the Coastal 
Commission would be required to hold a third public hearing.


                                       8

<PAGE>

     While the Company is unable to predict exactly when these litigation 
delays will end, it hopes to start infrastructure construction sometime in 
1999.  The Company does not believe that the litigation process will 
permanently prevent it from developing the planned community at Warner Mesa; 
however, there can be no assurance in that regard or that further delays will 
not result.

     Upon completion of the Company's Recapitalization as discussed in Note 2, 
the Company applied the principles required by Fresh-Start Reporting and the 
carrying value of land held for development (Warner Mesa) was adjusted to 
fair value as of September 2, 1997, after consideration of the October 9, 
1997 Coastal Commission action discussed above.  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 fair 
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.

NOTE 6 - BANK DEBT

     During the first quarter of 1997, the Company fully repaid the 
outstanding loan balance of approximately $7.1 million under a letter of 
credit and reimbursement agreement with Nomura Asset Capital Corporation.  A 
prepayment of $.6 million was made in January in connection with a sale of 
Rancho San Pasqual lots, and the remaining balance was repaid upon the sale 
of the Bolsa Chica lowlands.

     Cash payments for interest on bank debt were approximately $.1 million 
for the eight-month period ended September 2, 1997.

NOTE 7 - 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 is 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 $279 million as of 
September 2, 1997 have been reduced by approximately $79 million, resulting 
in remaining available NOLs of approximately $200 million as of September 2, 
1997 after reflecting the tentative settlement with the IRS discussed below.  
As reduced, the Company's NOL carryovers will be fully deductible against 
post-reorganization income provided there is not a second ownership change as 
discussed below, and subject to the general rules regarding expiration of 
NOLs.  The NOLs available as of September 30, 1998 are approximately $199 
million after reflecting the tentative settlement with the IRS discussed 
below.

     If the Company were to experience another ownership change within two 
years of the September 2, 1997 effective date of the Recapitalization, as the 
result of a 50 percentage point change in ownership, the second ownership 
change would not qualify for Section 382(l)(5) treatment and the use of all 
remaining NOLs would be disallowed.  Pursuant to Section 382(l)(5)(D), the 
Section 382 Limitation from and after the second ownership change would be 
zero, and thus would 


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<PAGE>

eliminate the availability of any remaining unused portion of the $200 million 
of NOLs which existed as of September 2, 1997.

     The Internal Revenue Service ("IRS") has 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 Company disagreed with the 
positions taken by the IRS and filed protests with the IRS to contest the 
proposed adjustments.  The Company estimates that, if upheld, the adjustments 
could result in federal tax liability, before interest, of approximately $17 
million (net of amounts which may be payable by former affiliates pursuant to 
tax sharing agreements).  The IRS proposed adjustments, if upheld, could also 
result in a disallowance of up to $132 million of available NOL 
carryforwards, of which none are recognized after consideration of the 
valuation allowance, as of September 30, 1998.

     The Company has reached a tentative settlement agreement with the IRS 
with respect to the proposed adjustments described above.  As a result of 
this agreement, the Company expects to pay approximately $744,000 (which 
includes $280,000 of tax and $464,000 of interest through November 1998), net 
of the Company's refund claim for 1992 NOL carry backs of approximately $1.6 
million, in full settlement of such claims.  Under this agreement 
approximately $10 million of the Company's NOL carryforward will be 
disallowed.  The Company expects to carry back NOLs of $8.1 million from 1992 
to 1991 in connection with its refund claim.  There can be no assurance that 
the agreement with the IRS will be completed or that the refund will be 
received.  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.

     Cash payments for federal, state and local income taxes were approximately 
$.2 million for the eight-month period ended September 2, 1997 and approximately
$.1 million for the three and nine months ended September 30, 1998.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

  GUARANTEES OF COMMERCIAL PROJECT DEBT

     The Company guaranteed approximately $286.8 million of the commercial 
development business' project loans from various banks for construction of 
commercial projects.  On April 30, 1998, upon completion of the sale of the 
commercial development business, all of these guarantees were assumed by KDC, 
which fully indemnified the Company against any and all liability with 
respect to these guarantees.  In addition, the Company was released from the 
substantial majority of these guarantees by the various banks, although the 
Company has not been released by one bank from a remaining guarantee of 
approximately $22.7 million.  KDC has fully indemnified the Company against 
any and all liability with respect to such guarantee, and has obtained a 
letter of credit in favor of the Company in the amount of $1.1 million to 
secure any related obligation.


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<PAGE>

ITEM 2 -         MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

          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; (ii) single-family residential 
construction in Southern California; and (iii) providing residential real 
estate development services to third parties.  Once the residential land owned 
by the Company is entitled, the Company may 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 April 30, 1998, the Company sold 
its commercial development business as further described in Note 4 to the 
Company's Financial Statements, and accordingly the financial statements have 
been reclassified to present the commercial development business as discontinued
operations.  The Company's immediate strategic goals are to (i) successfully 
appeal the trial court's decisions which reversed the California Coastal 
Commission's (the "Coastal Commission") approval of the Warner Mesa project, 
as further discussed in Note 5 to the Company's Financial Statements; 
(ii) complete the permitting for development of Warner Mesa; and (iii) 
commence infrastructure construction on Warner Mesa as soon as possible; 
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 substantial majority of the Company's assets is residential land 
which has required significant investments before the land could be sold to 
homebuilders or developed in joint ventures.  Prior to the adoption of 
Fresh-Start Reporting, the relatively high book value of these assets 
resulted in sales approximating break-even.  Pursuant to Fresh Start 
Reporting, implementation of the Recapitalization through the prepackaged 
plan resulted in a write-down of Warner Mesa to fair value (which will reduce 
future costs of sales) and therefore, upon favorable completion of the 
litigation and entitlement processes, the Company expects to begin generating 
profits from the Warner Mesa project.  However, with the March 1998 court 
decision which ordered a third hearing before the Coastal Commission to 
approve the LCP, the Company is faced with further delays in implementing its 
plans for residential development on Warner Mesa.  Furthermore, due to the 
uncertainties associated with the litigation appeals process, the Company is 
unable to predict the length of such delays at this time.

     Real estate held for development or sale and land held for development 
(real estate properties) are carried at fair value as of September 2, 1997, 
following adoption of Fresh-Start Reporting as discussed in Note 2, as 
adjusted by subsequent activity.  The Company's real estate properties are 
subject to a number of uncertainties which can affect the fair 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 demand for housing generally 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.  
Recently, the strengthened economy of California has resulted in improvement 
in the real estate market, and the number of potential purchasers interested 
in Southern California residential properties appears to have increased, 
resulting in improving 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.

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.  Except for the gain on 
disposition of the commercial development business in 1998, the Company 
expects to report losses or insignificant income until such time as sales can 
commence at Warner Mesa.  Historically, sources of capital have included bank 
lines of credit, specific property financings, asset sales and available 
internal funds.

     The Company completed the sale of its commercial development business 
for $33.3 million on April 30, 1998 as further described in Note 4 to the 
Company's Financial Statements, which provided substantial liquidity to fund 
project development costs for Warner Mesa and general and administrative 
expenses.  

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<PAGE>

FINANCIAL CONDITION

  SEPTEMBER 30, 1998 COMPARED WITH DECEMBER 31, 1997

     The $24.6 million increase in cash and cash equivalents primarily 
reflects the $33.3 million in proceeds from the sale of the commercial 
development business which was completed on April 30, 1998, along with net 
proceeds from the sales of 35 lots at Rancho San Pasqual, and an industrial 
building in Naples, Florida, partially offset by spending for project 
development costs for Warner Mesa and general and administrative expenses, as 
well as other activity presented in the Statements of Cash Flows.

     The $3.0 million increase in land held for development reflects 
investment in the Warner Mesa project during the first nine months of 1998.

     The $2.8 million decrease in Reorganization value in excess of amounts 
allocated to net assets primarily reflects a credit resulting from the income 
tax provision recorded for the gain on sale of the commercial development 
business, pursuant to Fresh-Start Reporting, as discussed in Note 2.

     The $19.3 million decrease in discontinued operations reflects completion 
of the sale of the commercial development business on April 30, 1998.

     The $1.6 million decrease in accounts payable and accrued liabilities 
primarily reflects the payment of accrued expenses.

RESULTS OF OPERATIONS

     The nature of the Company's business is such that individual transactions 
often cause significant fluctuations in operating results from year to year.  
In addition, the Company's completion of the Recapitalization has significantly 
deleveraged its capital structure.  Furthermore, the restatement of assets and 
liabilities to reflect fair value as of September 2, 1997 under Fresh-Start 
Reporting will reduce future costs of sales for Warner Mesa, while increasing 
interest and amortization expense related to discounted liabilities and 
Reorganization value in excess of amounts allocated to net assets.

  THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THE THREE MONTHS ENDED 
  SEPTEMBER 30, 1997

     The absence of revenues and related costs of sales in the 1998 period as 
compared to revenues of $2.1 million and related costs of sales of $2.0 million 
in the 1997 period reflect the second quarter 1998 completion of phase I lot 
sales at Rancho San Pasqual.  As a result of litigation delays with respect to 
the Warner Mesa project (see Note 5), the Company does not currently expect 
to report any revenues until the third quarter of 1999, when home sales are 
expected to commence at the Company's 112 home project in phase II at Rancho 
San Pasqual.

     General and administrative expenses in the third quarter of 1997 include 
approximately $1.7 million of non-recurring costs incurred in connection with 
the exchange offer for the Company's subordinated debentures.

     The decrease in interest expense primarily reflects the absence in the 
third quarter of 1998 of interest on the subordinated debentures after they 
were cancelled on September 2, 1997, the effective date of the Recapitalization.
The $.3 million of noncash interest expense in the third quarter of 1998 
reflects interest expense on (i) discounted liabilities under Fresh-Start 
Reporting and (ii) capital contribution notes due to a partnership.

     Other income, net of $.2 million for the three months ended September 30, 
1998 primarily reflects interest income, partially offset by period costs on 
the Warner Mesa project.  The $.2 million in other expense, net for the three 
months ended September 30, 1997 primarily reflects non-recurring professional 
fees.

     The benefit for income taxes for the three months ended September 30, 1997 
has been offset by a corresponding valuation allowance.


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<PAGE>

  NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THE NINE MONTHS ENDED 
  SEPTEMBER 30, 1997

     The decrease in revenues from $35.5 million in the 1997 period to 
$2.1 million in the 1998 period and the decrease in the related costs of 
sales from $35.0 million in the 1997 period to $1.8 million in the 1998 
period reflect the 1997 sales of the Bolsa Chica lowlands to the State of 
California for $25 million, lots at Rancho San Pasqual for $7.1 million and 
the $3.1 million sale of a build-to-suit project in Signal Hill, California, 
compared with the $1.7 million sale of the remaining 35 phase I residential 
lots at Rancho San Pasqual and the $.4 million sale of an industrial building 
in Naples, Florida in the first nine months of 1998.  As a result of litigation 
delays with respect to the Warner Mesa project (see Note 5), the Company does 
not currently expect to report any revenues until the third quarter of 1999, 
when home sales are expected to commence at the Company's 112 home project in 
phase II at Rancho San Pasqual.

     General and administrative expenses in the first nine months of 1997 
include approximately $2.8 million of non-recurring costs incurred in 
connection with the exchange offer for the Company's subordinated debentures.

     The decrease in interest expense primarily reflects the absence in the 
first nine months of 1998 of (i) interest on the subordinated debentures 
after they were cancelled on September 2, 1997, the effective date of the 
Recapitalization, and (ii) interest on bank debt which was repaid in February 
1997.  The $1.0 million of noncash interest expense in the first nine months 
of 1998 reflects interest expense on (i) discounted liabilities under 
Fresh-Start Reporting and (ii) capital contribution notes due to a partnership.

     Other income, net of $.7 million for the nine months ended September 30, 
1998 primarily reflects interest income, partially offset by amortization of 
Reorganization value in excess of amounts allocated to net assets.  The 
$3.7 million in other income, net for the nine months ended September 30, 1997 
primarily reflects nonrecurring income from (i) the sale of a minority interest 
in a privately held company and (ii) gains recognized in connection with the 
settlement of certain claims.

     The benefit for income taxes for the nine months ended September 30, 1997 
has been offset by a corresponding valuation allowance.

ITEM 3 -         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     None.

YEAR 2000 COMPLIANCE

     The Year 2000 issue is the result of computer programs being written 
using two digits rather than four to define the applicable year.  Any computer 
programs that have time-sensitive software may recognize a date using "00" as 
the year 1900 rather than the year 2000.  This could result in a system 
failure or miscalculations causing disruptions of operations, including, 
among other things, a temporary inability to process transactions or engage 
in similar normal business activities.

     The Company has completed its accounting software conversion to programs 
that are Year 2000 compliant at a nominal cost.  The Company is conducting 
formal communications with all of its significant suppliers to determine the 
extent to which those third parties' failure to remediate their own Year 2000 
issue may pose problems for the Company.  There can be no guarantee that the 
systems of other companies on which the Company's systems rely will be timely 
converted and would not have an adverse effect on the Company's systems.

     The Company anticipates completing its third party inquiries regarding 
Year 2000 compliance and executing any actions required, including changing 
suppliers if necessary, within six months, but not later than June 30, 1999, 
which is prior to any anticipated impact on its operating systems.  The total 
cost of the Year 2000 project will be expensed as incurred and is not expected 
to have a material adverse effect on the Company's results of operations.


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<PAGE>

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     Certain of the foregoing information as well as certain information set 
forth in Part II of this report under the heading "Legal Proceedings" is 
forward looking in nature and involves risks and uncertainties that could 
significantly impact the ability of the Company to achieve its currently 
anticipated goals and objectives.  These risks and uncertainties include, but 
are not limited to litigation or appeals of regulatory approvals (including 
pending appeals of the trial court decisions in the Coastal Act Lawsuit 
related to the Company's principal asset, Warner Mesa), injunctions 
prohibiting implementation of approved development plans pending the outcome 
of litigation, 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 demand for 
housing generally 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.  Other 
significant risks and uncertainties are discussed in the Company's Annual 
Report on Form 10-K for the year ended December 31, 1997.

                          PART II - OTHER INFORMATION

ITEM 1 -         LEGAL PROCEEDINGS

     See Note 5 of "Notes to Financial Statements" included herein, and 
"Item 1 - Business - Corporate Indemnification Matters" and "Item 3 - Legal 
Proceedings" in the Company's Annual Report on Form 10-K for the year ended 
December 31, 1997.

     On October 30, 1998 the Company's motion was granted in San Diego 
Superior Court settling the construction defect lawsuit against Signal 
Landmark, the Company's subsidiary, regarding homes in Coronado, California.  
The details of the case are more fully described in "Item 3 - Legal 
Proceedings" in the Company's Annual Report on Form 10-K for the year ended 
December 31, 1997.  The Company's insurance carriers will pay the settlement, 
and additional contributions from sub-contractors are expected to reimburse 
the Company's required deductible and share of attorney fees, resulting in no 
cost to the Company.


ITEM 6 -         EXHIBITS AND REPORTS ON FORM 8-K

        (a)  Exhibits:

        27.1    Financial Data Schedule.

        (b)     Reports on Form 8-K:

                None.


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<PAGE>

                                   SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.


                                       CALIFORNIA COASTAL COMMUNITIES, INC.



Date November 12, 1998                 By /s/ Sandra G. Sciutto
     -----------------                    ---------------------------------
                                          SANDRA G. SCIUTTO
                                          Senior Vice President and
                                          Chief Financial Officer


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