840216--3/13/2008--CALIFORNIA_COASTAL_COMMUNITIES

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Factors may affect our future results (Cautionary Statements Under the Private Securities Litigation Reform Act of 1995). The homebuilding industry is experiencing a significant and sustained downturn that may continue for an indefinite period of time and adversely affect our business and results of operations. Our strategies in responding to the adverse conditions in the homebuilding industry may not be successful. Market conditions in mortgage industries deteriorated significantly in 2007, which adversely affected the availability of credit for home purchasers, reduced the number of potential mortgage customers. Further tightening of mortgage lending or mortgage financing requirements could adversely affect the availability of credit for purchasers of our homes and thereby reduce our sales. We have incurred a significant amount of debt, and we may incur significant additional debt, which could prevent us from fulfilling our obligations and harm our financial health. Failure to comply with the covenants and conditions imposed by the agreements governing our indebtedness could restrict future borrowing or cause our debt to become immediately due and payable. Our homebuilding operations lack geographic diversification. Our business is cyclical and downward changes in economic conditions generally or in the market regions where we operate could further decrease demand and pricing for new homes in these areas. Inflation may result in increased costs that we may not be able to recoup if demand declines. Severe weather conditions and natural disasters could delay deliveries, increase costs and decrease demand for new homes in affected areas. When mortgage-financing costs are high, or as credit quality declines, customers may be unwilling or unable to purchase our homes. Some homebuyers may cancel their home purchases because the required deposits are small and generally refundable, if new home prices decline, interest rates increase or there is a downturn in the economy. Competition for homebuyers, labor and materials could reduce our deliveries or decrease our profitability. Slow or no growth initiatives have been or may be adopted in regions where we operate, which could adversely affect our ability to build or timely build in these areas. We may not be able to acquire land suitable for residential homebuilding at reasonable prices, which could increase our costs and reduce our revenues, earnings and margins. We are subject to substantial legal and regulatory requirements regarding the development of land, the homebuilding process and protection of the environment, and compliance with federal, state and local regulations related to our business could have substantial costs both in time and money, and some regulations could prohibit or restrict some homebuilding projects. Changing market conditions may adversely impact our ability to sell homes at expected prices, which could reduce our margins. Home prices and sales activity in the particular markets and regions in which we do business impact our results of operations because our business is concentrated in these markets. Product liability litigation and warranty claims that arise in the ordinary course of business may be costly, which could adversely affect our business. We could be hurt by the loss of key management personnel. An earthquake or other natural disaster, terrorist act or nuclear accident could adversely affect our business. Quarterly results may fluctuate and may not be indicative of future quarterly performance. If any taxing authorities are successful in asserting tax positions that are contrary to our positions, our income tax provision and other tax reserves may be insufficient. Changes in accounting principles, interpretations and practices may affect our reported revenues, earnings and results of operations. Future terrorist attacks against the United States or increased domestic or international instability could have an adverse effect on our operations. Insurance coverages and terms and conditions. Our failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and the price of our common stock.

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840216--3/13/2008--CALIFORNIA_COASTAL_COMMUNITIES_INC