840216--3/30/2010--CALIFORNIA_COASTAL_COMMUNITIES

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Factors may affect our future results (Cautionary Statements Under the Private Securities Litigation Reform Act of 1995). We filed for protection under Chapter 11 of the Bankruptcy Code. Our cash flow from operations may not provide sufficient liquidity during the remainder of the Chapter 11 Cases. Our liquidity position imposes significant challenges to our ability to continue operations. During the pendency of the Chapter 11 Cases, our financial results may be unstable and may not reflect historical trends. We may not be able to obtain confirmation of a Chapter 11 plan of reorganization submitted for Bankruptcy Court approval. The Chapter 11 Cases have consumed and will consume a substantial portion of the time and attention of our corporate management and will impact how our business is conducted, which may have an adverse effect on our business and results of operations. Our employees are facing considerable distractions and uncertainty due to the Chapter 11 Cases. The Bankruptcy Court may impose significant operating and financial restrictions on us, compliance or non-compliance with which could have a material adverse effect on our liquidity and operations. Trading in our securities during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks. Risks of trading in an over-the-counter market. The homebuilding industry has undergone a significant and sustained downturn which has, and could continue to, materially and adversely affect our business, liquidity 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 2008 and remained difficult in 2009, which adversely affected the availability of credit for home purchasers and reduced the number of potential mortgage customers. 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. Current credit market conditions present uncertainty as to our ability to secure additional financing, if needed, and the terms of such financing if it is available, and as to our ability to achieve positive cash flow from operations required to satisfy our obligations. Our results of operations are subject to significant changes in the cost of raw materials and other components of our houses and labor that are dependent on or impacted by increases in energy costs. Changes in laws or other events that adversely affect liquidity in the secondary mortgage market could hurt our business. We may be unable to obtain suitable bonding for the development of our communities. In the ordinary course of business, we are required to obtain performance bonds, the unavailability of which could adversely affect our results of operations and/or cash flows. The homebuilding industry is highly competitive and, with more limited resources than many of our competitors, we may not be able to compete effectively. We are subject to current credit market risks. 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; or if buyers are concerned about our bankruptcy, new home prices decline, interest rates increase or there is a further downturn in the economy. Tax law changes could make home ownership more expensive or less attractive. Mortgage defaults by homebuyers who financed homes using non-traditional financing products are increasing the number of homes available for resale. 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. Our controlling stockholders are able to exercise significant influence over us. Our stock price is volatile and could further decline. 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. Our net operating loss carryforwards could be substantially limited if we experience an ownership change as defined in the Internal Revenue Code. 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. Errors in estimates and judgments that affect decisions about how we operate and on the reported amounts of assets, liabilities, revenues and expenses could have a material impact on us. 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--3/30/2010--CALIFORNIA_COASTAL_COMMUNITIES_INC