<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 June 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.)


             4343 Von Karman Avenue
           Newport Beach, California                           92660
           -------------------------                           -----
   (Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code: (949) 833-3030


     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 August 1, 1998, including
shares to be delivered to former debenture holders upon surrender of their
debenture certificates, was 12,006,378.


<PAGE>


                        CALIFORNIA COASTAL COMMUNITIES, INC.

                                     FORM 10-Q

                        FOR THE QUARTER ENDED JUNE 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 June 30, 1998 . . . . . . . . . . . . . 3

               Statements of Operations -
               Three Months and Six Months Ended June 30, 1997 and 1998. . . 4

               Statements of Cash Flows -
               Six Months Ended June 30, 1997 and 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 4 - Submission of Matters to a Vote of Security Holders . . .14

          Item 5 - Other Information . . . . . . . . . . . . . . . . . . . .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 ,     June 30,
                                                                1997            1998
                                                               ------          ------
<S>                                                       <C>            <C>
     ASSETS

Cash and cash equivalents  . . . . . . . . . . . . . .     $       7.2    $      33.3
Real estate held for development or sale . . . . . . .             4.0           2.4
Land held for development. . . . . . . . . . . . . . .           133.2          135.6
Reorganization value in excess of amounts
   allocated to net assets . . . . . . . . . . . . . .             3.1             .3
Discontinued operations. . . . . . . . . . . . . . . .            19.3           --
Other assets . . . . . . . . . . . . . . . . . . . . .             6.5            7.2
                                                           -----------    -----------

                                                           $     173.3    $     178.8
                                                           -----------    -----------
                                                           -----------    -----------

     LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
     Accounts payable and accrued liabilities. . . . .     $       3.5    $       1.8
     Other liabilities . . . . . . . . . . . . . . . .            29.7           29.5
                                                           -----------    -----------

     Total liabilities . . . . . . . . . . . . . . . .            33.2           31.3
                                                           -----------    -----------


Stockholders' equity:
     Common Stock. . . . . . . . . . . . . . . . . . .              .6             .6
     Capital in excess of par value. . . . . . . . . .           140.0          141.1
     Retained earnings (accumulated deficit) . . . . .             (.5)           5.8
                                                           -----------    -----------

     Total stockholders' equity. . . . . . . . . . . .           140.1          147.5
                                                           -----------    -----------

                                                           $     173.3    $     178.8
                                                           -----------    -----------
                                                           -----------    -----------
</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     Predecessor      Successor
                                                               Company        Company        Company         Company
                                                               -------        -------        -------         -------
                                                             Three Months   Three Months    Six Months      Six Months
                                                                 Ended         Ended          Ended           Ended
                                                             June 30, 1997  June 30, 1998  June 30, 1997  June 30, 1998
                                                             -------------  -------------  -------------  -------------
<S>                                                         <C>            <C>            <C>            <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . .          $  4.5         $  1.7         $ 33.4         $  2.1

Costs of sales . . . . . . . . . . . . . . . . . . . .             4.3            1.7           33.0            1.8
                                                                ------         ------         ------         ------

     Gross operating margin. . . . . . . . . . . . . .              .2           --               .4             .3

General and administrative expenses. . . . . . . . . .             1.8             .8            3.3            1.9
Interest expense . . . . . . . . . . . . . . . . . . .             6.5             .4           12.7             .7
Other expense (income), net. . . . . . . . . . . . . .              .4            (.5)          (3.3)           (.5)
                                                                ------         ------         ------         ------

Loss from continuing operations before
   reorganization costs and income taxes. . . . . . . .           (8.5)           (.7)         (12.3)          (1.8)

Reorganization costs . . . . . . . . . . . . . . . . .              .8           --              1.0           --
                                                                ------         ------         ------         ------

Loss from continuing operations before
   income taxes. . . . . . . . . . . . . . . . . . . .            (9.3)           (.7)         (13.3)          (1.8)

Provision (benefit) for income taxes . . . . . . . . .              .1            (.4)            .2            (.4)
                                                                ------         ------         ------         ------

Loss from continuing operations. . . . . . . . . . . .            (9.4)           (.3)         (13.5)          (1.4)

Discontinued operations:
     Income (loss) from operations, net of
        income taxes of $0, $.2, $0 and $.2,
          respectively . . . . . . . . . . . . . . . .             (.1)           (.6)           (.9)             .5

     Gain on disposition, net of income
          taxes of $3.3. . . . . . . . . . . . . . . .            --              7.2           --              7.2
                                                                ------         ------         ------         ------

Net income (loss). . . . . . . . . . . . . . . . . . .          $ (9.5)        $  6.3         $(14.4)        $  6.3
                                                                ------         ------         ------         ------
                                                                ------         ------         ------         ------

Earnings (loss) per common share - basic and diluted:
     Continuing operations . . . . . . . . . . . . . .             N/A         $ (.02)           N/A         $ (.12)
     Discontinued operations . . . . . . . . . . . . .             N/A            .55            N/A            .65
                                                                               ------                        ------
Earnings (loss) per common share - basic and diluted .             N/A         $  .53            N/A         $  .53
                                                                               ------                        ------
                                                                               ------                        ------
</TABLE>



                See the accompanying notes to financial statements.

                                       4

<PAGE>

                        CALIFORNIA COASTAL COMMUNITIES, INC.

                              STATEMENTS OF CASH FLOWS

                                   (in millions)


<TABLE>
<CAPTION>
                                                                            Predecessor     Successor
                                                                              Company        Company
                                                                              -------        -------
                                                                             Six Months     Six Months
                                                                                Ended          Ended
                                                                            June 30, 1997  June 30, 1998
                                                                            -------------  -------------
<S>                                                                        <C>            <C>
Cash flows from operating activities:
     Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . .         $(14.4)        $  6.3
     Adjustments to reconcile to cash provided (used) by
        operating activities:
          Non-cash interest expense. . . . . . . . . . . . . . . . . .           12.6             .7
          Deferred income taxes. . . . . . . . . . . . . . . . . . . .           --              (.5)
          Gain on sale of discontinued operation . . . . . . . . . . .           --             (7.2)
          Gains on asset sales . . . . . . . . . . . . . . . . . . . .            (.2)           (.3)
          Proceeds from asset sales, net . . . . . . . . . . . . . . .           33.0            2.0
          Investments in real estate held for development or sale. . .           (2.2)           (.1)
          Investments in land held for development . . . . . . . . . .           (2.2)          (2.4)
          Decrease (increase) in other assets. . . . . . . . . . . . .             .7            (.7)
          Decrease in accounts payable, accrued
            and other liabilities. . . . . . . . . . . . . . . . . . .           (7.7)          (2.6)
                                                                               ------         ------

               Cash provided (used) by operating activities
                    of continuing operations . . . . . . . . . . . . .           19.6           (4.8)
                                                                               ------         ------

               Cash used by operating activities of
                   discontinued operations . . . . . . . . . . . . . .          (32.7)         (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. . . . . . . . . . . . .           30.7           24.6
                                                                               ------         ------

Net increase in cash and cash equivalents. . . . . . . . . . . . . . .            9.6           26.1

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

Cash and cash equivalents - end of period. . . . . . . . . . . . . . .         $ 11.7         $ 33.3
                                                                               ------         ------
                                                                               ------         ------
</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 Report 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 three and six months ended June 30, 1997
and cash flows for the six months ended June 30, 1997 include operations prior
to completion of the Recapitalization (referred to as "Predecessor Company").
The results of operations for the three and six months ended June 30, 1998 and
cash flows for the six months ended June 30, 1998 include operations subsequent
to the Company's Recapitalization and are not comparable with prior periods for
the reasons discussed above.

     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

                                       6

<PAGE>

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 has been reduced in the
current period 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 June 30, 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." Earnings per share
is computed using the weighted average number of outstanding shares of the
Successor Company's Common Stock, including the conversion rights of all
Debenture holders which expire on September 2, 1998, for periods commencing
September 2, 1997. For the three months and six months ended June 30, 1998, the
weighted average common shares outstanding were 12.0 million and 11.9 million
shares, respectively. 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,
was appointed as 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 $2.7 million and $4.7
million for the three and six months ended June 30, 1997, respectively, and $.9
million and $28.1 million for the three and six months ended June 30, 1998,
respectively, through the date of sale. The net loss from discontinued
operations for the three month and six month periods ended June 30, 1997 was
$(.1) million and $(.9) million, repectively. Net income (loss) from
discontinued operations for the three month and six month periods ended June 30,
1998, was $(.6) million and $.5 million, respectively, 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.

     The first set of appeals relates to the trial court's August 1997 decision.
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
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. All of these appeals have been consolidated
and will be heard on an expedited basis. However, the Company's recent appeal of
the trial court's March 1998 decision ordering a third hearing on the LCP (the
"Second Appeal") has not been consolidated with the prior appeals. The Company
currently anticipates that a decision on the first set of consolidated appeals
may be rendered during either the fourth quarter of 1998 or the first quarter of
1999; however, various procedural aspects of the appellate process may result in
further delay. In the event that the Company prevails on all of the issues
raised in the first set of appeals, it would not be necessary to pursue its
Second Appeal. The Company would then pursue its secondary permits to commence
infrastructure construction on Warner Mesa. However, if the trial court's
decisions prohibiting the filling of Warner Pond or residential development in
the lowlands are upheld by the Court of Appeal, the Company will continue to
pursue its Second Appeal. A favorable decision in the Second Appeal would then
result in an approved LCP for up to 1,235 homes, upon certification by the
Coastal Commission, which would allow the Company to complete the processing of
secondary permits and commence infrastructure construction on Warner Mesa.

                                       8

<PAGE>

Alternatively, if the trial court's decision allowing relocation of the 
raptor habitat is overturned by the Court of Appeal, the Coastal Commission 
would be required to hold a third public hearing.

     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 completing the Warner Mesa project; 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 three month and six month periods ended June 30, 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, which for September 1997 was 5.45%.

     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 $286 million as of September 2,
1997 have been reduced by approximately $81 million, resulting in remaining
available NOLs of approximately $205 million as of September 2, 1997. As
reduced, and subject to any disallowance resulting from the proposed IRS
adjustments discussed below, 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. Assuming that Section 382(1)(5) applies, the NOLs available
as of June 30, 1998 are approximately $212 million.

     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 

                                       9

<PAGE>

382(l)(5)(D), the Section 382 Limitation from and after the second ownership 
change would be zero, and thus would eliminate the availability of any 
remaining unused portion of the $205 million of NOLs which existed as of 
September 2, 1997.

     If the Company experiences or expects a successive ownership change prior
to the filing of its 1997 tax return, a determination could be made to elect out
of Section 382(l)(5), which would preserve some of the NOL carryovers. The
election out of Section 382(l)(5) would be irrevocable and must be made by the
due date (including any extensions of time) of the Company's 1997 tax return and
would bind the Company without regard to whether or not subsequent ownership
changes (expected or not) occur. If the Company elects out of Section 382(l)(5)
or if the requirements of such section are not met, the general rules of Section
382 would apply.  However, in determining the limitation placed on the Company's
annual use of its net operating losses under those general rules, Section
382(l)(6) provides that the value of the equity of the Company immediately
before the ownership change would be deemed to include the increase in the value
of the Company's equity resulting from any surrender or cancellation of
creditors' claims due to implementation of the Recapitalization. Accordingly,
assuming the Company's post-Recapitalization equity market value of
approximately $140 million, and the long-term tax exempt rate for September 1997
of 5.45%, Section 382(l)(6) would limit the Company's utilization of its NOLs to
approximately $7.6 million per year, plus any built-in gains recognized during
the five year period following the ownership change. In summary, under Section
382(l)(5), the Company would have approximately $205 million of NOLs available
as of September 2, 1997, which the Company has estimated could be fully utilized
over the next ten years (1998-2007), whereas under Section 382(l)(6) only
approximately $76 million of NOLs would be available to the Company during that
time frame, due to the annual limitation described above.

     The Internal Revenue Service ("IRS") has completed its examinations of the
tax returns of the Company and its consolidated subsidiaries, including formerly
affiliated entities, for the years ended December 31, 1989, 1990 and 1991. With
respect to each examination, the IRS has proposed material audit adjustments.
The Company disagrees with the positions taken by the IRS and has filed a
protest with the IRS to vigorously contest the proposed adjustments. After
review of the IRS's 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 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 June 30, 1998. The Company has not determined the extent of
potential accompanying state tax liability adjustments should the proposed IRS
adjustments be upheld. The Company's protest was filed in August 1995 and is
still being considered by the IRS Appeals Division. Management currently
believes that the IRS's positions will not ultimately result in any material
adjustments to the Company's financial statements. The Company is prepared to
pursue all available administrative and judicial appeal procedures with regard
to this matter and the Company is advised that its dispute with the IRS could
take up to five years to resolve.

     Cash payments for federal, state and local income taxes were approximately
$.1 million for the three and six month periods ended June 30, 1997.


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.

                                       10

<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 (formerly known as Bolsa Chica 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 February 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 and capital sources 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 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. 

                                       11

<PAGE>

FINANCIAL CONDITION

     JUNE 30, 1998 COMPARED WITH DECEMBER 31, 1997

     The $26.1 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 $2.4 million increase in land held for development reflects investment
in the Warner Mesa project during the first six months.

     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 on 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 $1.7 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 JUNE 30, 1998 COMPARED WITH THE THREE MONTHS ENDED JUNE
30, 1997

     The decrease in revenues from $4.5 million in the 1997 period to $1.7
million in the 1998 period and the decrease in the related costs of sales from
$4.3 million in the 1997 period to $1.7 million in the 1998 period reflect the
decrease in sales of Rancho San Pasqual lots in the second quarter of 1998 as
compared with the same period of 1997.

     The Company does not currently expect to report any revenues during the
remainder of 1998 due primarily to the litigation delays with respect to the
Warner Mesa project (see Note 5). The Company is completing plans to build homes
on the 112 lots remaining in phase II at Rancho San Pasqual which are expected
to open for sales in 1999.

     General and administrative expenses in the second quarter of 1997 include
approximately $.9 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
second quarter of 1998 of interest on the subordinated debentures after they
were cancelled on September 2, 1997, the effective date of the Recapitalization.
The $.4 million of noncash interest expense in the second 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 $.5 million for the three months ended June 30, 
1998 primarily reflects interest income, partially offset by amortization of 
Reorganization value in excess of amounts allocated to net assets. The $.4 
million in other expense, net for the three months ended June 30, 1997 
primarily reflects non-recurring professional fees.

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

                                       12

<PAGE>

     SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
1997

     The decrease in revenues from $33.4 million in the 1997 period to $2.1 
million in the 1998 period and the decrease in the related costs of sales 
from $33.0 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 $5.1 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 six months of 1998.

     The Company does not currently expect to report any further revenues 
during the remainder of 1998 due primarily to the litigation delays with 
respect to the Warner Mesa project (see Note 5). The Company is completing 
plans to build homes on the 112 lots remaining in phase II at Rancho San 
Pasqual which are expected to open for sales in 1999.

     General and administrative expenses in the first six months of 1997 include
approximately $1.1 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 six 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 $.7 million of noncash interest expense in the first six 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 $.5 million for the six months ended June 30, 1998 
primarily reflects interest income, partially offset by amortization of 
Reorganization value in excess of amounts allocated to net assets. The $3.3 
million in other income, net for the six months ended June 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 six months ended June 30, 1997 has
been offset by a corresponding valuation allowance.


ITEM 3 -       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     None.


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 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.

                                       13

<PAGE>

                            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.

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

     Proposal No. 1:    THE DIRECTOR PROPOSAL.    The Company's director
     proposal recommended election of five directors to a one year term. Set
     forth below is a table of how the votes were cast for each nominee. Such
     votes constituted the affirmative votes for the Director Proposal,
     including all nominees, by the holders of approximately 99.7% of the
     outstanding Common Stock.

<TABLE>
<CAPTION>
     Name                     Votes Cast "For Nominee"      Votes "Withheld"
     ----                     ------------------------      ----------------
<S>                          <C>                           <C>
     Phillip R. Burnaman II         8,680,093                    22,263
     Robert J. Gagalis              8,680,032                    22,324
     Raymond J. Pacini              8,681,740                    20,616
     Thomas W. Sabin, Jr.           8,680,303                    22,053
     J. Thomas Talbot               8,681,083                    21,273
</TABLE>

     Proposal No. 2:  THE AUDITOR PROPOSAL.    The holders of Common Stock cast
     8,113,998 votes for and 10,047 votes against the Company's proposal to
     ratify the appointment of Deloitte & Touche, LLP as the Company's
     independent auditors for the fiscal year ending December 31, 1998 (the
     "Auditor Proposal"). There were 578,311 abstentions and no broker non-votes
     by the holders of shares of Common Stock with respect to the Auditor
     Proposal. Such votes constituted the affirmative vote for the Auditor
     Proposal by the holders of approximately 93.2% of the outstanding Common
     Stock represented in person or by proxy at the Annual Meeting, at which the
     holders of a majority of the outstanding shares were present in person or
     by proxy to constitute a quorum.

ITEM 5 -  OTHER INFORMATION

     Stockholders wishing to bring a proposal before the Registrant's 1999
     Annual Meeting of Stockholders (but not wishing to include such proposal in
     the Registrant's Proxy Statement) must cause written notice of such
     proposal to be received by the Secretary of the Registrant at its principal
     executive offices no later than February 26, 1999.

ITEM 6 -  EXHIBITS AND REPORTS ON FORM 8-K

     (a)    Exhibits:

     10.1 Independent Contractor Consulting Agreement dated as of May 20, 1998,
          among the Registrant, GSSW-REO, L.C., a Texas limited liability
          company, and Thomas W. Sabin, Jr.

     27.1 Financial Data Schedule.

     (b)  Reports on Form 8-K:

          Current Report on Form 8-K dated May 1, 1998 reporting the
          Registrant's name change from "Koll Real Estate Group, Inc." to
          "California Coastal Communities, Inc."

          Current Report on Form 8-K dated June 19, 1998 attaching a press
          release describing the results of the California Court of Appeal's
          ruling in favor of the Registrant with respect to its compliance with
          the California Environmental Quality Act in connection with the
          Registrant's development of its Warner Mesa residential community.

                                       14

<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  August 6, 1998               By     /s/  Sandra G. Sciutto
      --------------                    -------------------------
                                        SANDRA G. SCIUTTO
                                        Senior Vice President and
                                        Chief Financial Officer

                                       15