**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

**(Mark One)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe quarterly period ended JUNE 30, 2007**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Commissionfile number**1-6510**

**MAUI LAND & PINEAPPLE COMPANY, INC.**

(Exact name of registrantas specified in its charter)

| **HAWAII**                                |   | **99-0107542**       |
|-------------------------------------------|--------|----------------------|
| (State or other  jurisdiction             |   | (IRS Employer        |
| of incorporation  or organization)        |   | Identification  No.) |
| **P. O. BOX 187, KAHULUI, MAUI, HAWAII**  |   | **96733-6687**       |
| (Address of  principal executive offices) |   | (Zip Code)           |

 

**(808) 877-3351**

(Registrant’s telephonenumber, including area code)

**NONE**

Former name, formeraddress and former fiscal year, if changed since last report

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

Yes x  No o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and larger accelerated filer” in Rule 12b-2 of the ExchangeAct.

| Large accelerated filer o | Accelerated filer  x | Non-accelerated filer o |
|---------------------------|----------------------|-------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

Yes o  No x

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

| Class                       | ** ** | **Outstanding at July 31, 2007** |
|-----------------------------|------------|---------------------------------------|
| Common Stock, no  par value |       | 8,147,709 shares                      |

 

 

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**MAUILAND & PINEAPPLE COMPANY, INC.AND SUBSIDIARIES**

**TABLEOF CONTENTS**
|                                                                                                                         | ** ** | **Page** |
|-------------------------------------------------------------------------------------------------------------------------|------------|----------|
| PART I. FINANCIAL INFORMATION  (unaudited)                                                                         |       |     |   |
| Item 1. Financial Statements                                                                                            |       |     |   |
| Condensed Consolidated  Balance Sheets,  June 30, 2007 and December 31, 2006                                  |       | 3        |   |
| Condensed Consolidated  Statements of Operations and Retained Earnings,  Three Months Ended June 30, 2007 and 2006 |       | 4        |   |
| Condensed  Consolidated Statements of Operations and Retained Earnings,  Six Months Ended June 30, 2007 and 2006   |       | 5        |   |
| Condensed Consolidated  Statements of Cash Flows,  Six Months Ended June 30, 2007 and 2006                         |       | 6        |   |
| Notes to Condensed Consolidated  Financial Statements                                                                   |       | 7        |   |
| Item 2. Management’s  Discussion and Analysis of Financial Condition and Results of Operations                     |       | 16       |   |
| Forward-Looking Statements                                                                                              |       | 28       |   |
| Item 3. Quantitative and  Qualitative Disclosures About Market Risk                                                     |       | 29       |   |
| Item 4. Controls and Procedures                                                                                         |       | 29       |   |
| PART II. OTHER INFORMATION                                                                                         |       |     |   |
| Item 1A. Risk Factors                                                                                                   |       | 30       |   |
| Item 4. Submission of  Matters to a Vote of Security Holders                                                            |       | 30       |   |
| Item 5. Other  Information                                                                                              |       | 31       |   |
| Item 6. Exhibits                                                                                                        |       | 31       |   |
| Signature                                                                                                               |       | 32       |   |

 

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**PART I   FINANCIALINFORMATION**

**Item 1.**                        FinancialStatements

**MAUI LAND & PINEAPPLE COMPANY, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)**

| ** **                                                                                                    | ** ** | **6/30/07**             | ** ** | **12/31/06** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|--------------|------------|
| ** **                                                                                                    | ** ** | **(in thousands)** | ** ** |
| *ASSETS*                                                                                                      |       |                    |       |         |       |
| Current Assets                                                                                                |       |                    |       |         |       |
| Cash and cash equivalents                                                                                     |       | $                       | 9,204      |         | $          | 1,143 |   |
| Accounts and notes receivable                                                                                 |       | 13,248                  |       | 25,440       |       |
| Inventories                                                                                                   |       | 12,176                  |       | 18,024       |       |
| Other current assets                                                                                          |       | 1,711                   |       | 1,813        |       |
| Total current assets                                                                                          |       | 36,339                  |       | 46,420       |       |
| Property                                                                                                      |       | 234,107                 |       | 260,837      |       |
| Accumulated depreciation                                                                                      |       | (99,707                 | )          | (130,988     | )          |
| Property—net                                                                                             |       | 134,400                 |       | 129,849      |       |
| Other Assets                                                                                                  |       | 54,190                  |       | 43,930       |       |
| Total                                                                                                         |       | $                       | 224,929    |         | $          | 220,199 |   |
| *LIABILITIES AND STOCKHOLDERS’ EQUITY*                                                                   |       |                    |       |         |       |
| Current Liabilities                                                                                           |       |                    |       |         |       |
| Current portion of long-term debt and capital lease  obligations                                              |       | $                       | 1,263      |         | $          | 1,410 |   |
| Trade accounts payable                                                                                        |       | 12,965                  |       | 16,145       |       |
| Income taxes payable                                                                                          |       | 8,322                   |       | 346          |       |
| Other current liabilities                                                                                     |       | 9,001                   |       | 9,516        |       |
| Total current liabilities                                                                                     |       | 31,551                  |       | 27,417       |       |
| Non-Current  Liabilities                                                                                      |       |                    |       |         |       |
| Long-term debt and capital lease obligations                                                                  |       | 16,054                  |       | 49,716       |       |
| Accrued retirement benefits                                                                                   |       | 31,371                  |       | 29,272       |       |
| Other non-current liabilities                                                                                 |       | 13,801                  |       | 12,887       |       |
| Total non-current liabilities                                                                                 |       | 61,226                  |       | 91,875       |       |
| Minority Interest in Subsidiary                                                                               |       | 551                     |       | 538          |       |
| Commitments and  Contingencies (Note 14)                                                                      |       |                    |       |         |       |
| Stockholders’  Equity                                                                                    |       |                    |       |         |       |
| Common stock, no par value—23,000,000 shares  authorized, 7,929,154 and 7,287,779 issued and outstanding |       | 33,189                  |       | 15,168       |       |
| Additional paid-in capital                                                                                    |       | 5,950                   |       | 4,743        |       |
| Retained earnings                                                                                             |       | 94,769                  |       | 82,765       |       |
| Accumulated other comprehensive loss                                                                          |       | (2,307                  | )          | (2,307       | )          |
| Stockholders’ Equity                                                                                     |       | 131,601                 |       | 100,369      |       |
| Total                                                                                                         |       | $                       | 224,929    |         | $          | 220,199 |   |

 

See accompanying Notes to Condensed Consolidated Financial Statements.

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**MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS**

**(UNAUDITED)**

| ** **                                | ** ** | **Three Months Ended**    | ** ** |
|-------------------------------------------|------------|-------------------------------------|------------|
| ** **                                | ** ** | **6/30/07**                         | ** ** | **6/30/06** | ** ** |
| ** **                                | ** ** | **(in thousands**              | ** ** |
| ** **                                | ** ** | **except share amounts)** | ** ** |
| Operating Revenues                        |       |                                |       |   |   |
| Net sales                                 |       | $                                   | 30,332     |   | $ | 22,861 |   |
| Operating income                          |       | 7,983                               |       | 10,632 |   |
| Other income                              |       | 375                                 |       | 88 |   |
| Total Operating  Revenues                 |       | 38,690                              |       | 33,581 |   |
| Operating Costs  and Expenses             |       |                                |       |   |   |
| Cost of sales                             |       | 18,330                              |       | 13,249 |   |
| Operating expenses                        |       | 10,016                              |       | 10,935 |   |
| Shipping and marketing                    |       | 4,170                               |       | 3,296 |   |
| General and administrative                |       | 8,234                               |       | 9,135 |   |
| Pineapple restructuring charges (Note 17) |       | 5,416                               |       | — |   |
| Total Operating Costs  and Expenses       |       | 46,166                              |       | 36,615 |   |
| Operating Loss                            |       | (7,476                              | )          | (3,034 | ) |
| Equity in income (losses) of affiliates   |       | 2,225                               |       | (1,540 | ) |
| Interest expense                          |       | (333                                | )          | — |   |
| Interest income                           |       | 350                                 |       | 511 |   |
| Loss Before  Income Tax Benefit           |       | (5,234                              | )          | (4,063 | ) |
| Income Tax Benefit                        |       | (1,724                              | )          | (1,463 | ) |
| Net Loss                                  |       | (3,510                              | )          | (2,600 | ) |
| Retained Earnings, Beginning of Period    |       | 98,279                              |       | 89,315 |   |
| Retained Earnings, End of Period          |       | $                                   | 94,769     |   | $ | 86,715 |   |
| Earnings Per  Common Share                |       |                                |       |   |   |
| Basic                                     |       | $                                   | (0.44      | ) | $ | (0.36 | ) |
| Diluted                                   |       | $                                   | (0.44      | ) | $ | (0.36 | ) |

 

See accompanying Notes to Condensed Consolidated Financial Statements.

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**MAUI LAND & PINEAPPLE COMPANY, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Continued) AND RETAINED EARNINGS**

**(UNAUDITED)**

 

| ** **                                                                                          | ** ** | **Six Months Ended**      | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                          | ** ** | **6/30/07**                         | ** ** | **6/30/06** | ** ** |
| ** **                                                                                          | ** ** | **(in thousands**              | ** ** |
| ** **                                                                                          | ** ** | **except share amounts)** | ** ** |
| Operating Revenues                                                                                  |       |                                |       |   |   |
| Net sales                                                                                           |       | $                                   | 80,419     |   | $ | 71,822 |   |
| Operating income                                                                                    |       | 18,670                              |       | 20,516 |   |
| Other income                                                                                        |       | 584                                 |       | 195 |   |
| Total Operating  Revenues                                                                           |       | 99,673                              |       | 92,533 |   |
| Operating Costs  and Expenses                                                                       |       |                                |       |   |   |
| Cost of sales                                                                                       |       | 31,516                              |       | 29,080 |   |
| Operating expenses                                                                                  |       | 19,092                              |       | 19,773 |   |
| Shipping and marketing                                                                              |       | 7,318                               |       | 6,873 |   |
| General and administrative                                                                          |       | 19,899                              |       | 18,761 |   |
| Pineapple restructuring charges (Note 17)                                                           |       | 5,416                               |       | — |   |
| Total Operating  Costs and Expenses                                                                 |       | 83,241                              |       | 74,487 |   |
| Operating Income                                                                                    |       | 16,432                              |       | 18,046 |   |
| Equity in income (losses) of affiliates                                                             |       | 4,083                               |       | (1,368 | ) |
| Interest expense                                                                                    |       | (1,044                              | )          | (29 | ) |
| Interest income                                                                                     |       | 641                                 |       | 812 |   |
| Income Before  Income Taxes                                                                         |       | 20,112                              |       | 17,461 |   |
| Income Tax  Expense                                                                                 |       | 7,908                               |       | 6,286 |   |
| Net Income                                                                                          |       | 12,204                              |       | 11,175 |   |
| Retained Earnings, Beginning of Period                                                              |       | 82,765                              |       | 75,540 |   |
| Cumulative impact of change in accounting for  uncertainties in income taxes  (FIN 48—Note 12) |       | (200                                | )          | — |   |
| Retained Earnings, End of Period                                                                    |       | $                                   | 94,769     |   | $ | 86,715 |   |
| Earnings Per  Common Share                                                                          |       |                                |       |   |   |
| Basic                                                                                               |       | $                                   | 1.59       |   | $ | 1.54 |   |
| Diluted                                                                                             |       | $                                   | 1.58       |   | $ | 1.52 |   |

 

See accompanying Notes to Condensed Consolidated Financial Statements.

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**MAUI LAND & PINEAPPLE COMPANY, INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)**

| ** **                                                | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                | ** ** | **6/30/07**                    | ** ** | **6/30/06** | ** ** |
| ** **                                                | ** ** | **(in thousands)**        | ** ** |
| Net Cash Provided  by (Used in) Operating Activities      |       | $                              | 8,129      |   | $ | (2,101 | ) |
| Investing  Activities                                     |       |                           |       |   |   |
| Purchases of property                                     |       | (14,210                        | )          | (22,233 | ) |
| Proceeds from disposal of property                        |       | 37,583                         |       | 16,258 |   |
| Other                                                     |       | (5,596                         | )          | (4,182 | ) |
| Net Cash Provide  by (Used in) Investing Activities       |       | 17,777                         |       | (10,157 | ) |
| Financing  Activities                                     |       |                           |       |   |   |
| Payments of long-term debt and capital lease  obligations |       | (63,361                        | )          | (26,288 | ) |
| Proceeds from long-term debt                              |       | 29,150                         |       | 34,400 |   |
| Stock option exercises                                    |       | 1,422                          |       | — |   |
| Issuance of common stock                                  |       | 14,944                         |       | — |   |
| Net Cash Provided  by (Used in) Financing Activities      |       | (17,845                        | )          | 8,112 |   |
| Net Increase (Decrease) in Cash and Cash Equivalents      |       | 8,061                          |       | (4,146 | ) |
| Cash and Cash Equivalents at Beginning of Period          |       | 1,143                          |       | 7,216 |   |
| Cash and Cash  Equivalents at End of Period               |       | $                              | 9,204      |   | $ | 3,070 |   |

 

Supplemental Disclosures of Cash Flow Information—Interest(net of amounts capitalized) of $995,000 and $29,000 was paid during the sixmonths ended June 30, 2007 and 2006, respectively. Income taxes of$277,000 and $2,381,000 were paid during the six months ended June 30,2007 and 2006, respectively.

Non-Cash Investing Activities—Accounts and notesreceivable at June 30, 2007 includes $2.6 million related to the sale ofpineapple operations equipment, materials and supplies that were sold inconnection with the Company’s restructuring of the pineapple operations. In2006, net cash sales proceeds of $21.9 million were deposited with a qualifiedexchange intermediary for reinvestment on a tax-deferred basis. Amountsincluded in trade accounts payable for additions to property and other assetstotaled $4,087,000 and $4,383,000 at June 30, 2007 and 2006, respectively.

See accompanying Notes to Condensed Consolidated Financial Statements.

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**MAUI LAND & PINEAPPLE COMPANY, INC. ANDSUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

**1.**                 Inthe opinion of management, the accompanying condensed consolidated financialstatements contain all normal and recurring adjustments necessary to fairlypresent the financial position, results of operations and cash flows for theinterim periods ended June 30, 2007 and 2006.

**2.**                 TheCompany’s reports for interim periods utilize numerous estimates of productioncost, general and administrative expenses, and other costs for the full year. Futureactual amounts may differ from the estimates. Amounts in the interim reportsare not necessarily indicative of results for the full year.

**3.**                 Netincome was equal to comprehensive income for the interim periods ended June 30,2007 and 2006.

**4.**                 Theeffective tax rate for 2007 and 2006 differs from the statutory federal rateprimarily because of the state tax provision, state tax credits, and certainnon-deductible expenses.

**5.**                 Accountsand notes receivable are reflected net of allowance for doubtful accounts of$277,000 and $555,000 at June 30, 2007 and December 31, 2006,respectively.

**6.**                 Inventoriesas of June 30, 2007 and December 31, 2006 were as follows:

| ** **                           | ** ** | **6/30/07**             | ** ** | **12/31/06** | ** ** |
|--------------------------------------|------------|-------------------------|------------|--------------|------------|
| ** **                           | ** ** | **(in thousands)** | ** ** |
| Pineapple products                   |       |                    |       |         |       |
| Finished goods                       |       | $                       | 1,664      |         | $          | 1,416 |   |
| Work in progress                     |       | —                  |       | 299          |       |
| Raw materials                        |       | —                  |       | 492          |       |
| Real estate held  for sale           |       | 3,255                   |       | 8,449        |       |
| Merchandise,  materials and supplies |       | 7,257                   |       | 7,368        |       |
| Total Inventories                    |       | $                       | 12,176     |         | $          | 18,024 |   |

 

The Company accounts forthe costs of growing pineapple in accordance with the “annual accrual method,”which has been used by Hawaii’s pineapple and sugarcane growers since the 1950s.Under this method, revenues and costs are determined on the accrual basis, andpineapple production costs incurred during a year are charged to the costs ofcrops harvested during that year. These costs include land preparation andplanting, cultivation, irrigation, crop development, harvesting and hauling tothe central processing facility. They also include certain overhead costs thatare directly related to the growing of pineapple. Accordingly, no costs areassigned to the growing (unharvested) crops. The annual accrual method is themost appropriate method of accounting for the costs of growing pineapplebecause of pineapple’s crop cycle (18 to 48 months) and the uncertainties aboutfruit quality and the number of crops to be harvested from each planting (oneto three crops). AICPA Statement of Position No. 85-3 (SOP), *Accounting by Agricultural Producers and Agricultural Cooperatives*,states that all direct and indirect costs of growing crops should beaccumulated and growing crops should be reported at the lower of cost or market.However, SOP No. 85-3 does not apply to growers of pineapple andsugarcane in tropical regions because tropical agriculture (of which pineappleand sugarcane production in Hawaii are examples) differs greatly fromagriculture in temperate regions of the mainland United States. The Company’sgrowing (unharvested) crops generally consisted of approximately 3,500 to 4,000acres that are expected to yield up to 

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48 tons per acrefor the first crop harvested. The Company’s growing crops are in various stagesof development, and will be harvested principally in the years 2007 through2009.

**7.**                 AverageCommon Shares Outstanding Used to Compute Earnings Per Share

| ** ** | ** ** | **Three Months**       | ** ** | **Six Months**         | ** ** |
|------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** ** | ** ** | **Ended June 30** | ** ** | **Ended June 30** | ** ** |
| ** ** | ** ** | **2007**                    | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| Basic      |       | 7,925,228                   |       | 7,256,800                   |       | 7,674,202 |   | 7,255,806 |   |
| Diluted    |       | 7,925,228                   |       | 7,256,800                   |       | 7,745,694 |   | 7,352,414 |   |

 

In2007 and 2006, diluted shares included common stock equivalents, principallyemployee stock options and restricted stock awards. For the three months ended June 30,2007 and 2006, potentially dilutive common shares of 67,954 and 100,525,respectively, from stock-based compensation arrangements are not included inthe number of diluted common shares because to do so would have an antidilutiveeffect on the earning per share amounts (i.e., decrease loss per common share).

**8.**                 KapaluaBay Holdings, LLC

The Company has a 51% ownership interest in KapaluaBay Holdings, LLC, a Delaware limited liability company (“Bay Holdings”), whichis the sole member of Kapalua Bay LLC, a Delaware limited liability company (“KapaluaBay”). Major operating and financial decisions require approval of all themembers in Bay Holdings and, accordingly, the Company’s investment in BayHoldings is being accounted for using the equity method, rather than beingconsolidated with the Company’s financial statements, because the Company doesnot have a controlling interest in Bay Holdings.

Kapalua Bay is constructing a residential developmenton land that it owns at the site of the former Kapalua Bay Hotel, and a spa onan adjacent parcel of land that is owned by the Company and leased to KapaluaBay. The Kapalua BayHotel closed in April 2006 to prepare for the commencement of sales andmarketing efforts for the whole and fractional condominium units that comprisethe Residences at Kapalua Bay project. In June 2006, Kapalua Bay began toenter into binding sales contracts and, in the second half of 2006, demolitionand construction began.

The Company’s equity in the earnings (losses) of BayHoldings was $4.1 million and ($1.4) million for the six months ended June 30,2007 and 2006, respectively, and $2.2 million and ($1.5) million for the threemonths ended June 30, 2007 and 2006, respectively. Upon formation ofKapalua Bay in 2004, the Company’s non-monetary contributions to Bay Holdings,including a 21-acre land parcel, were valued at $25 million by themembers through arms-length negotiations. The land contribution was recorded bythe Company in its investment carrying value in Bay Holdings at historicalcost, which was nominal, and Kapalua Bay recorded the contribution at its fairmarket value of $25 million. In 2007, Bay Holdings began to recognize profitfrom binding sales contracts on the whole and fractional ownership condominiumson a percentage-of-completion method. Accordingly, in 2007, the Company beganto recognize a proportionate amount of the unrealized appreciation of the fairvalue of the land and other non-monetary contributions to Kapalua Bay and otherdeferred costs related to the joint venture. This resulted in income, net ofdeferred costs, of $1.2 million and $692,000, respectively, for the six monthsand three months ended June 30, 2007, and is included in the Company’sequity in earnings of Bay Holdings.

In July 2006, Kapalua Bay entered into aConstruction Loan Agreement (the “Loan Agreement”) with Lehman BrothersHoldings Inc., a Delaware corporation (“Lehman”), for the lesser of $370million or 61.6% of the total projected cost of the project (the “Loan”). Disbursementsunder the Loan Agreement are contingent upon, among other things, no event ofdefault or material adverse change occurring with respect to Kapalua Bay or theproject. The Loan is not revolving in nature and 

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amounts repaid may not besubsequently advanced. All Loan proceeds disbursed shall be used only for specifiedbudgeted items for which such proceeds were advanced. Lehman is not obligatedto make loan advances exceeding $85 million until sales of residential unitsequals or exceeds $285.0 million. As of June 30, 2007, total loanadvances were $81.7 million and Kapalua Bay had executed approximately $251million in binding sales commitments.

The Loan is collateralized by the project assets,including the fee simple interest in the land owned by Kapalua Bay, theadjacent spa parcel owned by the Company, and all of the sales contracts.

The Company and the other members of the joint venturehave guaranteed to the lender completion of the project and each member’s prorata share of costs and losses incurred by the lender as a result of theoccurrence of specified triggering events during the term of the Loan Agreement.The members’ guarantee to the lender does not include payment in full of theLoan. The Company has recognized a liability of $968,000, representing theestimated fair value of its obligation under this guarantee.

Summarizedoperating statement information for Bay Holdings is as follows:

| ** **        | ** ** | **Three Months**        | ** ** | **Six Months**          | ** ** |
|-------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **        | ** ** | **Ended June 30,** | ** ** | **Ended June 30,** | ** ** |
| ** **        | ** ** | **2007**                     | ** ** | **2006**                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **        | ** ** | **(in thousands)**      | ** ** |
| Revenues          |       | $                            | 24,876     |                         | $          | 435 |   | $ | 44,390 |   | $ | 6,668 |   |
| Expenses          |       | 21,864                       |       | 3,449                        |       | 38,778 |   | 9,351 |   |
| Net Income (Loss) |       | $                            | 3,012      |                         | $          | (3,014 | ) | $ | 5,612 |   | $ | (2,683 | ) |

 

**9.**                 LandSale and Joint Venture Interest

On March 28, 2007, the Company sold the landunderlying the Ritz-Carlton, Kapalua hotel (“Hotel”) to a wholly-owned affiliateof the limited liability company (the “Hotel JV”) that owned the hotel and wasthe lessee under the long-term ground lease with the Company. Approximately 49acres were sold for $25 million in cash at closing and for a 21.4% interest inthe Hotel JV, and the Company recognized a gain of $24.8 million on the sale.

In connection withthe sale of the land, the long-term ground lease was terminated and a SecondAmended and Restated Limited Liability Company Agreement of W2005Kapalua/Gengate Holdings L.L.C. (the “Hotel JV Agreement”) was executed. Pursuantto the Hotel JV Agreement, themembers of and the percentage interests in the Hotel JV are:

(i)             Whitehall StreetGlobal Real Estate Limited Partnership 2005, a Delaware limited partnership (“WhitehallStreet”); 40.4234%;

(ii)         Whitehall Street GlobalEmployee Fund 2005, a Delaware limited partnership (“Whitehall Employee Fund”);10.648%;

(iii)     Gengate Kapalua Holdings GP,LLC, a Delaware limited liability company (“GHGP”); 0%;

(iv)       Gengate Kapalua Holdings, LLC,a Delaware limited liability company (“GKH”); 27.5%;

(v)           MLP RCK LLC, a Hawaiilimited liability company (“MLPC”), whose sole member is the Company; 21.4286%.

Whitehall Street, Whitehall Employee Fund and GKH aredesignated as the Managing Members of the Hotel JV. Major decisions, as suchterm is defined in the Hotel JV Agreement, require the consent of WhitehallStreet or Whitehall Employee Fund, and either GKH or MLPC. Profits and lossesof the Hotel JV will be allocated in proportion to the members’ ownershipinterests, which 

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approximate the estimatedcash distributions to the members. The Company has the ability to exercisesignificant influence, but not control, over operating and financial policiesof the Hotel JV and will account for its investment in the Hotel JV using theequity method. The Hotel JV is not a variable interest entity as defined byFinancial Accounting Standards Board Interpretation No. 46(R), *Consolidation of Variable Interest Entities*.

Pursuant to the Hotel JV Agreement, the Company isdeemed to have contributed $7.5 million as a capital contribution to the HotelJV. The Company’s initial carrying amount of its interest in the Hotel JV hasbeen recorded on its consolidated balance sheet as -0-, whichresulted from the deferral of a portion of the gain on the land sale amountingto $7.5 million that is proportionate to the Company’s interest in the HotelJV.

Pursuant to the Hotel JV Agreement, $4.1 million ofthe Company’s $7.5 million contribution is deemed to have been contributed inlieu of certain future capital calls. Should MLPC fail to make any additionalcapital contributions when called to do so by a Managing Member, certaindilution provisions provide that MLPC’s interest will be reduced by theaggregate amount of the increase in the percentage interests of allcontributing members, but in no event shall MLPC’s percentage interest bereduced below 10%. Any amounts funded by the other members on behalf of MLPCwhich would have otherwise reduced MLPC’s percentage interest below 10% willinstead be treated as member loans to the Hotel JV, with such loans to berepaid directly by the Hotel JV on behalf of MLPC from any amounts that wouldotherwise be payable by the Hotel JV to MLPC.

Concurrentwith the Hotel JV Agreement, the Hotel JV entered into certain loan agreementswith Lehman Brothers Holding Inc. totaling $271.7 million and an amendment toan existing loan agreement of $20 million with Luxury Finance, LLC, a Delawarelimited liability company (collectively, the “Loans”). The Loans areprincipally for the purpose of acquiring the land from the Company, repayingexisting debt, and completing a comprehensive refurbishment of the Hotel. TheCompany is not liable for the repayment of the Loans, but is liable for anyloss suffered by the lenders as a result of the Company’s fraudulent acts,misrepresentation or certain other triggering events, up to 10.71% of the thenoutstanding loan balances. The Company has recognized a liability of $93,000,representing the estimated fair value of its obligations under theseprovisions.

**10.**          Stock-BasedCompensation

The Company accounts for stock compensationarrangements in accordance with Statement of Financial Accounting Standards (“SFAS”)No. 123(R), *Share-Based Payment*.SFAS No. 123(R) requires all share-based payments, including grants ofemployee stock options, to be recognized as compensation expense over theservice period (generally the vesting period) in the consolidated financialstatements based on their fair values. The impact of forfeitures that may occurprior to vesting is also estimated and considered in the amount recognized. SFASNo. 123(R) requires excess tax benefits be reported as a financingcash inflow rather than as a reduction of taxes paid.

The total compensationexpense recognized for stock-based compensation was $2,862,000 and $1,208,000for the six months ended June 30, 2007 and 2006, respectively, and$811,000 and $565,000 for the three months ended June 30, 2007 and 2006,respectively. The total tax benefit related thereto was $757,000 and $435,000for the six months ended June 30, 2007 and 2006, respectively, and$328,000 and $204,000, for the three months ended June 30, 2007 and 2006,respectively. Recognizedstock compensation was reduced for estimated forfeitures prior to vestingprimarily based on historical annual forfeiture rates of approximately 5.2% and5.8%, for the six months ended June 30, 2007 and 2006, respectively. Estimatedforfeitures will be reassessed in subsequent periods and may change based on newfacts and circumstances.

10

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*Stock Options*

In May 2006, the Company’s shareholders approvedthe 2006 Equity and Incentive Award Plan (the “2006 Plan”) and an increase inthe number of shares of common stock authorized under the Articles ofAssociation by 1,000,000 shares, all of which have been reserved for issuanceunder the 2006 Plan. The 2006 Plan provides that the administrator can grantstock options and other equity instruments. The terms of certain grant typesfollow general guidelines, but the term and conditions of each award can varyat the discretion of the administrator. With respect to awards granted tonon-employee directors, the administrator of the 2006 Plan is the Board ofDirectors. The Compensation Committee of the Board is the administrator of the2006 Plan for all other persons, unless the Board assumes authority foradministration. Upon approval of the 2006 Plan, the Company’s Stock andIncentive Compensation Plan of 2003 (the “2003 Plan”) was terminated and nofurther grants will be made under that plan.

The 2003 Plan was approved by the Company’sshareholders in December 2003 and included 500,000 shares of commonstock authorized for issuance. The Company also has stock compensationagreements with its President and Chief Executive Officer under whichnon-qualified stock options (200,000 shares) and restricted stock (100,000shares) were granted in 2003.

Asummary of stock option award activity as of and for the six months ended June 30,2007 is presented below:

| ** **                             | ** ** | ** ** | ** ** | ** **   | ** ** | ** **          | ** ** | **Weighted**          | ** ** | ** **    | ** ** |
|----------------------------------------|------------|------------|------------|--------------|------------|---------------------|------------|-----------------------|------------|---------------|------------|
| ** **                             | ** ** | ** ** | ** ** | **Weighted** | ** ** | **Weighted**        | ** ** | **Average**           | ** ** | **Aggregate** | ** ** |
| ** **                             | ** ** | ** ** | ** ** | **Average**  | ** ** | **Average**         | ** ** | **Remaining**         | ** ** | **Intrinsic** | ** ** |
| ** **                             | ** ** | ** ** | ** ** | **Exercise** | ** ** | **Grant-Date**      | ** ** | **Contractual**       | ** ** | **Value**     | ** ** |
| ** **                             | ** ** | **Shares** | ** ** | **Price**    | ** ** | **Fair Value** | ** ** | **Term (years)** | ** ** | **$(000)(1)** | ** ** |
| Outstanding at  December 31, 2006 |       | 863,500    |       |         | $          | 31.64               |       |                  |       |          |       |   |   |   |   |   |   |   |   |   |
| Granted                                |       | 25,000     |       |         | $          | 31.73               |       |                  |       | $             | 13.36      |   |   |   |   |   |   |   |   |   |   |
| Exercised                              |       | (70,667    | )          |         | $          | 20.13               |       |                  |       |          |       |   |   |   |   |   |   |   |   |   |
| Forfeited or  Cancelled                |       | (30,000    | )          |         | $          | 30.85               |       |                  |       | $             | 15.59      |   |   |   |   |   |   |   |   |   |   |
| Outstanding at  June 30, 2007     |       | 787,833    |       |         | $          | 32.70               |       |                  |       | $             | 13.50      |   |   |   | 7.6 |   |   |   | $ | 2,582 |   |   |
| Exercisable at June 30,  2007     |       | 323,069    |       |         | $          | 28.73               |       |                  |       | $             | 12.53      |   |   |   | 6.2 |   |   |   | $ | 1,482 |   |   |

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       (1) For in the money options

Additionalstock option information for the six months ended June 30, 2007 and 2006follows:

| ** **                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|
| Weighted Average  Grant-Date Fair Value               |       |     |       |     |       |
| For Options Granted During the Period                 |       | $        | 13.36      |     | $          | 16.08 |   |
| Intrinsic Value  of Options Exercised $(000)          |       | $        | 759        |     | —     |   |
| Cash Received  From Option Exercises $(000)           |       | $        | 1,422      |     | —     |   |
| Tax Benefit From  Option Exercises $(000)             |       | $        | —     |     | —     |   |
| Fair Value of Shares  Vested During the Period $(000) |       | $        | 1,128      |     | $          | 802 |   |

 

Forthe six months ended June 30, 2007 and 2006, the fair value of the Company’sstock options awarded to employees was estimated using the Black-Scholes optionpricing model and the following weighted average assumptions:

| ** **                         | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Expected Life of  Options in Years |       | 6.5      |       | 6.2      |       |
| Expected  Volatility               |       | 31.5     | %          | 32.4     | %          |
| Risk-free  interest rate           |       | 4.7      | %          | 4.9      | %          |
| Expected dividend yield            |       | —   |       | —   |       |

 

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As of June 30, 2007,there was $7,105,000 of total unrecognized compensation for awards grantedunder the stock option plans that is expected to be recognized over a weightedaverage period of 1.9 years.

*Restricted Stock*

In the first six months of 2007, 34,000 shares ofrestricted stock were granted to certain directors and officers pursuant to the2006 Plan. The shares will vest subject to achievement of certain performancemeasures. In the first six months of 2007, 4,000 shares of restricted stockvested as directors’ service requirements were met and 49,466 shares granted tocertain officers vested as performance measures were achieved. The weightedaverage grant-date fair value of restricted stock granted during the six monthsended June 30, 2007 and 2006 was $32.34 and $35.94, per share,respectively.

Asummary of the activity for restricted stock awards as of and for the six-monthperiod June 30, 2007 is presented below:

| ** **                                   | ** ** | ** ** | ** ** | **Weighted  Average  Grant-Date** | ** ** |
|----------------------------------------------|------------|------------|------------|-----------------------------------|------------|
| ** **                                   | ** ** | **Shares** | ** ** | **Fair Value**               | ** ** |
| Nonvested balance  at December 31, 2006 |       | 259,271    |       |                              | $          | 33.24 |   |   |
| Granted                                      |       | 34,000     |       |                              | $          | 32.34 |   |   |
| Vested                                       |       | (53,466    | )          |                              | $          | 31.06 |   |   |
| Forfeited or  Cancelled                      |       | (21,250    | )          |                              | $          | 35.60 |   |   |
| Nonvested balance at  June 30, 2007     |       | 218,555    |       |                              | $          | 32.89 |   |   |

 

**11.**          Componentsof Net Periodic Benefit Cost

Thenet periodic costs for pension and other post-retirement benefits for the threemonths and six months ended June 30, 2007 and 2006 were as follows:

| ** **                            | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|---------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                            | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                            | ** ** | **(in thousands)**                         | ** ** |
| **Pension Benefits**                  |       |                                            |       |                                          |       |   |   |   |   |
| Service cost                          |       | $                                               | 435        |                                          | $          | 401 |   | $ | 869 |   | $ | 803 |   |
| Interest cost                         |       | 848                                             |       | 756                                           |       | 1,697 |   | 1,512 |   |
| Expected return  on plan assets       |       | (863                                            | )          | (808                                          | )          | (1,726 | ) | (1,616 | ) |
| Amortization of  prior service cost   |       | 12                                              |       | 6                                             |       | 23 |   | 13 |   |
| Amortization of  transition liability |       | 6                                               |       | 12                                            |       | 12 |   | 24 |   |
| Recognized  actuarial loss            |       | 156                                             |       | 97                                            |       | 312 |   | 195 |   |
| Contractual  termination benefits     |       | 369                                             |       | —                                        |       | 369 |   | — |   |
| Curtailment loss                      |       | 27                                              |       | —                                        |       | 27 |   | — |   |
| Net expense                           |       | $                                               | 990        |                                          | $          | 464 |   | $ | 1,583 |   | $ | 931 |   |
| **Other  Benefits**                   |       |                                            |       |                                          |       |   |   |   |   |
| Service cost                          |       | $                                               | 76         |                                          | $          | 97 |   | $ | 151 |   | $ | 195 |   |
| Interest cost                         |       | 199                                             |       | 238                                           |       | 398 |   | 475 |   |
| Amortization of  prior service cost   |       | (8                                              | )          | (32                                           | )          | (16 | ) | (64 | ) |
| Recognized  actuarial (gain)          |       | (122                                            | )          | (51                                           | )          | (244 | ) | (101 | ) |
| Special  termination benefits         |       | 36                                              |       | —                                        |       | 36 |   | — |   |
| Curtailment  (gain)                   |       | (138                                            | )          | —                                        |       | (138 | ) | — |   |
| Net expense                           |       | $                                               | 43         |                                          | $          | 252 |   | $ | 187 |   | $ | 505 |   |

 

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Effective June 30, 2007, the Company ceased theproduction of substantially all solid-pack pineapple products (see Note 17)resulting in the termination of 73 employees in June 2007 and 45 employeesin July 2007. Contractual termination benefits included the immediatepayment of certain pension benefits. Special termination benefits relate to theenhancement of post-retirement health care benefits. The curtailment loss inpension benefits and curtailment gain in other benefits relate to terminationof 73 employees in June 2007. The Company expects to record a curtailmentgain of $260,000 in other benefits related to 45 employees who wereterminated in July 2007.

During 2007, the Companyexpects to contribute $1.2 million to $2.0 million to its defined benefitpension plans and $719,000 to its other post-retirement benefit plans.

**12.**          IncomeTaxes

The Company’s State of Hawaii income tax returns for2000, 2001 and 2002 are under examination by the Department of Taxation. Thetax auditors’ reports on these examinations have not been issued and theCompany presently cannot predict the outcome of these examinations. The Company’sfederal income tax returns have been reviewed through 2002.

The Company adopted the provisions of FinancialAccounting Standards Board (FASB) Interpretation No. 48, *Accounting for Uncertainty in Income Taxes-an interpretation of FASBStatement No. 109*(FIN 48) on January 1, 2007. Thisinterpretation prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. As of January 1, 2007, the Companyhad unrecognized tax benefits of approximately $2.9 million, and as a result ofthe implementation of FIN 48, the Company increased its liability for thesebenefits by $200,000, which was accounted for as a reduction to the January 1,2007 balance of retained earnings. Approximately $2.2 million of theunrecognized tax benefits represent taxes on revenues for which the timing ofthe taxability is uncertain and the liability for such taxes have beenrecognized as deferred tax liabilities. The acceleration of the recognition ofsuch income would not affect the estimated annual effective tax rate, but wouldaccelerate the payment of income taxes to earlier periods and would result inadditional interest expense.

As of January 1,2007, the Company had recorded a liability of approximately $394,000 forpotential interest expense for uncertain tax issues. In the first six months of2007, the Company recorded $145,000 of additional interest expense forunrecognized tax benefits. The Company recognizes interest accrued related tounrecognized tax benefits as interest expense and penalties in general andadministrative expense in its statement of operations, and such amounts areincluded in income taxes payable on the Company’s balance sheet.

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**13.**          OperatingSegment Information:

| ** **                     | ** ** | **Three Months  Ended June 30** | ** ** | **Six Months  Ended June 30** | ** ** |
|--------------------------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                     | ** ** | **2007**                                       | ** ** | **2006**                                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                     | ** ** | **(in thousands)**                        | ** ** |
| Operating Revenues             |       |                                           |       |                                         |       |   |   |   |   |
| Agriculture                    |       | $                                              | 13,224     |                                         | $          | 14,341 |   | $ | 26,970 |   | $ | 30,264 |   |
| Resort                         |       | 8,911                                          |       | 11,435                                       |       | 20,566 |   | 24,365 |   |
| Community Development          |       | 16,108                                         |       | 7,515                                        |       | 51,342 |   | 37,602 |   |
| Other                          |       | 447                                            |       | 290                                          |       | 795 |   | 302 |   |
| Total Operating Revenues       |       | $                                              | 38,690     |                                         | $          | 33,581 |   | $ | 99,673 |   | $ | 92,533 |   |
| Operating Profit (Loss)        |       |                                           |       |                                         |       |   |   |   |   |
| Agriculture                    |       | $                                              | (10,595    | )                                            | $          | (3,427 | ) | $ | (12,991 | ) | $ | (5,725 | ) |
| Resort                         |       | (2,766                                         | )          | (1,856                                       | )          | (3,670 | ) | (1,426 | ) |
| Community Development          |       | 8,116                                          |       | 708                                          |       | 37,211 |   | 24,071 |   |
| Other                          |       | (6                                             | )          | 1                                            |       | (35 | ) | (242 | ) |
| Total Operating Profit  (Loss) |       | (5,251                                         | )          | (4,574                                       | )          | 20,515 |   | 16,678 |   |
| Interest Expense               |       | (333                                           | )          | —                                       |       | (1,044 | ) | (29 | ) |
| Interest Income                |       | 350                                            |       | 511                                          |       | 641 |   | 812 |   |
| Income Tax (Expense)  Benefit  |       | 1,724                                          |       | 1,463                                        |       | (7,908 | ) | (6,286 | ) |
| Net Income (Loss)              |       | $                                              | (3,510     | )                                            | $          | (2,600 | ) | $ | 12,204 |   | $ | 11,175 |   |

 

**14.**          Commitmentsand Contingencies

Pursuant to a 1999 settlement agreement with theCounty of Maui, the Company and several chemical manufacturers have agreed thatuntil December 1, 2039, they will pay for 90% of the capital cost toinstall filtration systems in any future water wells if the presence of anematocide commonly known as DBCP exceeds specified levels, and for the ongoingmaintenance and operating cost for filtration systems on existing and futurewells. The Company estimated its share of the cost to operate and maintain thefiltration systems for the existing wells and its share of the cost of a letterof credit used to secure its obligations, and as of June 30, 2007, has arecorded liability of $213,000. The Company paid $238,000 in 2005 for its shareof the capital costs to install a filtration system for an existing well. TheCompany is presently not aware of any plans by the County of Maui to installother filtration systems or to drill any water wells in areas affected byagricultural chemicals. Accordingly, a reserve for costs relating to any futurewells has not been recorded because the Company is not able to reasonablyestimate the amount of the liability (if any).

In addition to the matter noted above, there arevarious other claims and legal actions pending against the Company. In theopinion of management, after consultation with legal counsel, the resolution ofthese other matters is not expected to have a material adverse effect on theCompany’s Consolidated Financial Statements.

The Company, as an investor in various affiliates(partnerships, limited liability companies), may under specific circumstancesbe called upon to make additional capital contributions.

At June 30, 2007 the Company had commitmentsunder signed contracts totaling $10.5 million, which primarily relate to realestate development projects.

**15.**          RelatedParty Transactions

In April 2007, of thesale of approximately 181 acres of Upcountry Maui land to the Company’s SeniorVice President/ Corporate Development closed escrow and the Company recognizeda pre-tax gain of $2.8 million. In February 2007, the $4.1 millionsale ($4.0 million pre-tax gain) of approximately 157 acres of UpcountryMaui land to the Company’s Chairman, President and Chief ExecutiveOfficer closed escrow. Prior to the closing of the latter sale, the Companyleased a 3,500 square foot residence that is 

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located on the propertyto the executive for $1,500 per month, which represented the fair market valuebased on an estimate by a third party realtor.

The land sale agreementswere structured in compliance with the Company’s policy for related party realestate sales. Such policy requires an independent appraisal of the propertyvalue, allows for a 3% discount to the sales price in lieu of broker’scommissions, and requires review and approval of the sales price by the AuditCommittee of the Board of Directors. The properties had been previouslydesignated for sale in 2004 as part of the real estate that is considerednon-core to the Company’s operations.

**16.**          PrivatePlacement of Common Stock

On March 12, 2007, the Company entered into aSecurities Purchase Agreement with two accredited investors, Ohana Holdings,LLC and ZG Ventures, LLC, pursuant to which the Company raised approximately$14,900,000 in net proceeds through a private placement of 517,242 shares ofcommon stock at a purchase price of $29.00 per share. Miles R. Gilburne, whowas elected to the Company’s Board of Directors on May 7, 2007, is themanaging member of ZG Ventures, LLC.

In connection with theissuance of the common stock (the “Shares”), the Company entered into aRegistration Rights Agreement with the investors obligating the Company toregister for resale the Shares on a registration statement to be filed with theSecurities and Exchange Commission not later than March 12, 2008, subjectto the exceptions set forth therein. The investors have also been granted “piggy-back”registration rights with respect to the Shares.

**17.**          PineappleOperations Restructuring

On April 30, 2007, the Company’s Board ofDirectors approved a comprehensive plan that would continue to shift thepineapple operations’ focus to fresh fruit sales. As part of this plan, theCompany ceased substantially all canning and processing of solid-pack pineappleproducts effective as of June 30, 2007, although it will continue toprocess a small volume through the end of 2007. The Company will continue toprocess pineapple juice and will extend its fresh fruit line to includeproducts for institutional accounts. The decision to exit from the solid-packoperations was based on the rising costs of fuel, materials and labor, and thecompetitive forces of a global economy that have made the operationunprofitable.

As a result of thediscontinuance of solid-pack pineapple processing, the Company eliminated 120 positionsin its pineapple operations, with 73 employees being terminated in June andthe balance primarily in July 2007. Equipment, material and suppliesrelated to the canning operations were sold or written off in June 2007. TheCompany had entered a non-cancellable long-term purchase commitment for(Champaka) pineapple through mid-2010. This pineapple variety is usedprincipally for canning or juice, and the Company has recorded the estimatedloss on a portion of this purchase commitment as of June 2007. The netcharges recorded in the second quarter of 2007 related to the restructuring ofcanning operations were as follows:

| ** **                                                       | ** ** | **In thousands** | ** ** |
|------------------------------------------------------------------|------------|-----------------------|------------|
| Net loss on disposition  of fixed assets, materials and supplies |       |                  | $          | 2,278 |   |   |
| Loss on purchase supply  contract                                |       |                  | 1,149      |   |   |
| Employee severance                                               |       |                  | 1,695      |   |   |
| Pension and other  postretirement benefits, net (see Note 11)    |       |                  | 294        |   |   |
| Total                                                            |       |                  | $          | 5,416 |   |   |

 

In addition, the reduction in the estimated full yearproduction and sales of processed fruit resulted in an increase in the per unitcost of sales, which under the standard cost method utilized by the Company isrecognized as a charge to current operations of approximately $2.6 million in June 2007.This charge is included in cost of sales for the second quarter of 2007, andwill continue to affect cost of sales for the remainder of 2007.

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**Item 2.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations

The following discussionand analysis of our financial condition and results of operations should beread in conjunction with our audited consolidated financial statements andrelated notes included in our Annual Report on Form 10-K for the yearended December 31, 2006 and the unaudited condensed consolidated financialstatements and related notes included in this Quarterly Report on Form 10-Q.Depending upon the context, the terms the “Company”, “we,” “our,” and “us,”refers to either Maui Land & Pineapple Company, Inc. alone, orthe Company and its subsidiaries.

***Overview of the Company***

Maui Land &Pineapple Company, Inc. is a Hawaii corporation and the successor to abusiness organized in 1909. Principal subsidiaries include Maui PineappleCompany, Ltd. and Kapalua Land Company, Ltd. Our reportable operating segmentsare Agriculture, Resort and Community Development. 

*Agriculture*

The Agriculture segment primarily includes growing,packing and marketing of fresh premium pineapple. In the second quarter of2007, we began to offer a second label fresh pineapple product for the foodservice sector. Prior to June 30, 2007, we packed and canned (processed)pineapple. We will continue to process pineapple juice, but will no longerproduce solid-pack canned pineapple product in the future (see Note 17 toCondensed Consolidated Financial Statements). The fruit grown by us principallyconsists of three types of pineapple, *Maui Gold**®**, Hawaiian Gold*TM, and organic pineapple. 

The fresh fruit market isa year-round business, which requires consistency of supply. Over the past twoyears, we have made significant progress in changing our agronomic practicesand planting schedules to produce a more consistent and predictable supply offruit throughout the year. In addition, we have made significant progress inimplementing improved crop maintenance and agronomic practices that we believewill improve our plant yields (tons of fruit per acre) and fruit quality. 

*Resort*

The Kapalua Resort is part of approximately 22,500acres we own in West Maui, most of which remain as open space. Presently, theKapalua Resort includes approximately 2,575 acres bordering the ocean with fivewhite sand beaches and includes The Ritz-Carlton, Kapalua, eight residentialsubdivisions, two championship golf courses (The Bay and The Plantation), aten-court tennis facility, the first phase of commercial space in the centralarea of the Resort, several restaurants, and over 800 condominiums,single-family homes and residential lots. We operate Kapalua Resort’s two golfcourses, the tennis facility, several retail shops, a vacation rental program(The Kapalua Villas), and provide certain services to the Resort. We currentlyhave approximately 250 units in our Kapalua Villas vacation rental program. 

Several significantrevitalization and renovation initiatives are underway at the Kapalua Resort. In2006, the Kapalua Bay Hotel and the adjacent shops were closed to prepare forthe development residential units, a beach club and spa (see Note 8 toCondensed Consolidated Financial Statements). In July 2007, the RitzCarlton, Kapalua hotel closed for extensive renovation with plans to reopen in December 2007.In August 2007, we expect to begin renovation of nine holes of the Bay(golf) Course in preparation for the Kapalua LPGA Classic golf tournament in October 2008that we announced in July 2007. We are also constructing a mountainactivity center and zip-lines, which are scheduled to open in December 2007.

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*CommunityDevelopment*

The Community Development segment includes our realestate entitlement, development, construction, sales, leasing, and conservationactivities. Our projects are focused primarily on the luxury real estate marketin and surrounding the Kapalua Resort and affordable and moderately pricedresidential and mixed use projects in West Maui and Upcountry Maui. Thissegment also includes the operations of Kapalua Realty Company, our generalbrokerage real estate company located within the Resort, and our PublicUtilities Commission regulated water and sewage operations that service theKapalua Resort and adjacent communities. 

The Community Development segment also includes themanagement of several leases, including the ground lease underlying TheRitz-Carlton, Kapalua (through March 28, 2007). On March 28, 2007, wesold the land underlying the Ritz-Carlton, Kapalua hotel to a wholly-ownedaffiliate of the limited liability company (the Hotel JV) that was the lesseeunder the ground lease for $25 million in cash at closing and a 21.4% interestin the Hotel JV (see Note 9 to Condensed Consolidated Financial Statements). TheCommunity Development segment also includes our 51% equity interest in KapaluaBay Holdings, LLC, the limited liability company that purchased the Kapalua BayHotel in August 2004 (see Note 8 to Condensed Consolidated FinancialStatements). Kapalua Bay Holdings, LLC has demolished the Kapalua Bay Hotel,with approximately 98% of the structure recycled or upcycled, and the adjacentshops in order to develop new whole and fractional residential units, anocean-side spa, and a beach club at that location. As of June 30, 2007,the percentage completion of the six residential buildings ranged fromapproximately 8% to 27%. 

We have approximately 1,500 acres of land in Maui thatare at various stages in the land entitlement process. We must obtainappropriate entitlements for land that we intend to develop or use forconstruction. Securing proper land entitlement is a process that requiresobtaining county, state and federal approvals, which can take several years tocomplete and entails a variety of risks.

The CommunityDevelopment segment is working on a number of real estate development projects,some of which are as follows: 

·       KapaluaMauka is a 690-unit residential, golf and commercial project on 925 acresadjacent to the Kapalua Resort. This project received zoning approval in February 2006.Detailed planning for Kapalua Mauka is currently underway.

·       CentralResort (Village at Kapalua) is projected to include 164 dwelling units andapproximately 44,000 square feet of commercial space. The project is in thedesign development phase.

·       PailoloViews is projected to include approximately 42 affordable housing rental unitsnear the Bay Course at the south edge of the Kapalua Resort. We are presentlyin the design and construction bidding phase of this project.

·       WestMaui Village is project to include approximately 90 affordable units andapproximately 68 market priced units in Napili, near the Kapalua Resort. We arepresently in the design and construction bidding phase of this project.

·       Pulelehuais a proposed “new urbanism” community of approximately 882 units in West Mauithat is planned to include a variety of housing types, mixed commercial andresidential uses, and neighborhood serving commercial uses. Over 50% of thehomes and apartments are intended to be affordable for working families asdefined by the County of Maui. We are presently in the entitlement phase ofthis project. 

·       Hali`imaile Town is aplanned new town in Upcountry Maui that we expect to be a holistic communitywhere sustainable agriculture, education, and green building principles arecore design 

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elements. We arepresently in the conceptual design phase of this project, with entitlementapplications to be submitted in 2007. 

***Current Developments***

In the secondquarter of 2007, some of our significant transactions, events and keyinitiatives included the following: 

·       InApril, we concluded that as of June 30, 2007 we would cease the processingof substantially all solid-pack canned pineapple and focus primarily on premiumfresh pineapple sales. Job fairs and re-employment transition activities wereheld throughout the remainder of the second quarter for the affected employees(see Note 17 to Condensed Consolidated Financial Statements).

·       InApril, we closed escrow on the $2.8 million sale of a non-core land parcel inUpcountry Maui.

·       InMay, our shareholders (i) elected Miles R. Gilburne, and re-elected DavidA. Heenan and Kent T. Lucien as Class Two Directors; and (ii) approvedan amendment to the Articles of Association to authorize an additional14,000,000 shares of common stock.

·       In June, we sold five lotsat Honolua Ridge Phase II, leaving two lots of the original 25 in the phaseremaining in inventory.

**Critical AccountingPolicies and Estimates**

The preparation ofconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires the use ofaccounting estimates. Changes in these estimates and assumptions are consideredreasonably possible and may have a material effect on the consolidatedfinancial statements and thus actual results could differ from the amountsreported and disclosed herein. Our critical accounting policies that requirethe use of estimates and assumptions were discussed in detail in our mostrecently filed Form 10-K and have not changed materially from thatdiscussion, except for FIN 48 which was adopted on January 1, 2007 (seeNote 12 to Condensed Consolidated Financial Statements).

**RESULTS OFOPERATIONS**

***Three Months Ended June 30, 2007 compared toThree Months Ended June 30, 2006***

**CONSOLIDATED**

| ** **                         | ** ** | **Three Months Ended June 30,**                  | ** ** |
|------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                         | ** ** | **    2007    **             | ** ** | **    2006    ** | ** ** | **    change    ** | ** ** |
| ** **                         | ** ** | **(in millions, except per share amounts)** | ** ** |
| *Consolidated  Revenues*           |       |                                                                 | $          | 38.7 |   |   |   | $ | 33.6 |   |   |   | $ | 5.1 |   |   |
| *Net Loss*                         |       |                                                                 | $          | (3.5 | ) |   |   | $ | (2.6 | ) |   |   | $ | (0.9 | ) |   |
| *Basic  Earnings Per Common Share* |       |                                                                 | $          | (0.44 | ) |   |   | $ | (0.36 | ) |   |   | $ | (0.08 | ) |   |

 

We reported a net loss of$3.5 million ($.44 per share) for the second quarter of 2007 compared to a netloss of $2.6 million ($.36 per share) for the second quarter of 2006. Consolidatedrevenues for the second quarter of 2007 were $38.7 million compared to $33.6million for the second quarter of 2006. Increased revenues and operating profitfrom the Community Development segment were offset by increased operatinglosses from the Agriculture and Resort segments, including charges ofapproximately $8 million related to the restructuring of the pineappleoperations (see Note 17 to Condensed Consolidated Financial Statements).

18

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*General andAdministrative*

Consolidated general and administrative expensesdecreased by 10%, or $900,000 to $8.2 million for the second quarter of 2007from $9.1 million for the second quarter of 2006. 

Themajor components of the difference in general and administrative expenses wereas follows:

| ** **                                         | ** ** | **Three Months Ended June 30,** | ** ** |
|----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                         | ** ** | **  2007  **                    | ** ** | **  2006  ** | ** ** | **change** | ** ** |
| ** **                                         | ** ** | **(in millions)**                              | ** ** |
| Salaries &  wages                         |       |                                                | $          | 2.5 |   |   |   | $ | 2.8 |   |   |   | $ | (0.3 | ) |   |
| Employee  incentives & stock compensation |       |                                                | 1.0        |   |   |   | 0.9 |   |   |   | 0.1 |   |   |
| Professional &  other services            |       |                                                | 1.0        |   |   |   | 1.2 |   |   |   | (0.2 | ) |   |
| Depreciation  expense                              |       |                                                | 0.6        |   |   |   | 1.3 |   |   |   | (0.7 | ) |   |
| Other                                              |       |                                                | 3.1        |   |   |   | 2.9 |   |   |   | 0.2 |   |   |
| Total                                              |       |                                                | $          | 8.2 |   |   |   | $ | 9.1 |   |   |   | $ | (0.9 | ) |   |

 

The reduction in salaries and wages for the secondquarter of 2007 compared to the second quarter of 2006 is due primarily toAgriculture re-training charges that are included in the second quarter of 2006.In 2006, some of the Agriculture segment employees were taken out of operationsand retrained for other work as the operations moved toward a lesslabor-intensive process.

The decrease in professional services in the secondquarter of 2007 compared to the second quarter of 2006 primarily reflects areduction of employee recruiting costs in the second quarter of 2007. 

The reduction in depreciation expense charged togeneral and administrative expense is primarily due to acceleration ofdepreciation charges in 2006 for our accounting systems and our fresh fruitpacking facility that were replaced in 2006.

General and administrativeexpenses are incurred at the corporate level and at the operating segment level.All general and administrative expenses incurred at the corporate level areallocated to our operating segments. Such allocations are made on the basis ofour management’s evaluation of service provided to the operating segments.

*Interest Expense*

Interest expense was$333,000 for the second quarter of 2007 compared to -0- for the second quarterof 2006. Interest incurred in the second quarter of 2007 was $763,000, of which$430,000 was capitalized to construction projects. In the second quarter of2006, interest incurred was $488,000, all of which was capitalized toconstruction projects. Our effective interest rate on borrowings was 7.9% inthe second quarter of 2007 compared to 7.4% in the second quarter of 2006. Theincrease in interest expense was due primarily to higher average borrowings inthe second quarter of 2007.

**AGRICULTURE**

| ** **                   | ** ** | **Three Months Ended June 30,** | ** ** |
|------------------------------|------------|-----------------------------------------------------|------------|
| ** **                   | ** ** | **2007**                                            | ** ** | **2006** | ** ** | **change** | ** ** |
| ** **                   | ** ** | **(in millions)**                              | ** ** |
| *Revenues*                   |       | $                                                   | 13.2       |   | $ | 14.3 |   |   | $ | (1.1 | ) |   |
| *% of consolidated revenues* | * *   | *34*                                                | *%*        | *43* | *%* |   |   |   |   |
| *Operating  Loss*            |       | $                                                   | (10.6      | ) | $ | (3.4 | ) |   | $ | (7.2 | ) |   |

 

Revenues for the Agriculture segment in the second quarterof 2007 were $13.2 million or 8% lower than the second quarter of 2006,primarily due to a decrease in processed fruit sales. The Agriculture 

19

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segment produced anoperating loss of $10.6 million for the second quarter of 2007 compared to anoperating loss of $3.4 million for the second quarter of 2006, includingcharges totaling approximately $8 million that were recorded in June 2007related to the restructuring of our pineapple operations. 

Effective as of June 30, 2007, we ceased theproduction of substantially all solid-packed pineapple products (see Note 17 toCondensed Consolidated Financial Statements). With the cessation of solid-packcanned products, we will focus our business on the production and sale of freshpremium pineapple and the processing and sale of pineapple juice. We willcontinue to supply existing sales commitments for solid-packed processedpineapple through approximately the end of 2007, which will liquidate ourexisting inventory. 

Operating losses reportedby the Agriculture segment for the second quarter of 2006 included $1.1 millionof accelerated depreciation charges for assets where the estimated useful liveshave been reduced because of changes in our pineapple operations. In addition,the Agriculture segment recorded charges of $764,000 in the second quarter of2006 related to inventories that were considered obsolete with the change tothe new fresh processing facility that went into operation in June 2006;and $525,000 of charges related to re-training employees.

*Fresh and ProcessedOperations*

The case volume and revenue per case for freshpineapple sales both increased by approximately 1% in the second quarter of2007 compared to the second quarter of 2006. Revenues from fresh pineapplesales increased to approximately 59% of the Agriculture segment net sales forthe second quarter of 2007, compared to approximately 54% for the secondquarter of 2006, reflecting the refocusing of our business on the fresh fruitmarket.

The case volume of processed pineapple sales decreasedby 16% for the second quarter of 2007 as compared to the second quarter of 2006primarily reflecting our strategy to reduce the retail market segments that wewere servicing. The average sales prices for our processed pineapple productsdecreased by approximately 6% for the second quarter of 2007 compared to thesecond quarter of 2006, primarily because we sold relatively more juice in2007, which has a lower sales value than canned fruit. 

Processed pineapple sold to the U. S. Government(primarily to the Department of Agriculture) comprised approximately 30% of ourcase volume of canned pineapple sales in the second quarter of 2007 compared to16% in the second quarter of 2006. 

The Agriculture segment cost of sales was higher byapproximately 32% in the second quarter of 2007 compared to the second quarterof 2006 primarily reflecting higher per unit cost of sales, as a result of thedecision to discontinue processing and selling of solid-pack pineapple. Weannually calculate per unit standard costs that are charged to cost of sales aspineapple product is sold. The standards are based on full year estimates ofproduction and sales and therefore, the change in our operating plans resultedin additional charges to cost of sales for the second quarter of 2007 ofapproximately $2.6 million. Higher per unit cost of sales will continue to bereflected in results for the remainder of the year.

Shipping and marketingcost increased by 9% in the second quarter of 2007 compared to the secondquarter of 2006 primarily because of higher ocean and surface transportationcosts reflecting higher fuel costs.

20

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**RESORT**

| ** **                   | ** ** | **Three Months Ended June 30,** | ** ** |
|------------------------------|------------|-----------------------------------------------------|------------|
| ** **                   | ** ** | **  2007  **                    | ** ** | **  2006  ** | ** ** | **change** | ** ** |
| ** **                   | ** ** | **(in millions)**                              | ** ** |
| *Revenues*                   |       |                                                | $          | 8.9 | * * |   |   | $ | 11.4 | * * |   |   | $ | (2.5 | ) |   |
| *% of consolidated revenues* | * *   | * *                                            | *23*       | *%* | * * | * * | *34* | *%* |   |   |   |   |   |
| *Operating  Loss*            |       |                                                | $          | (2.8 | *)* |   |   | $ | (1.9 | *)* |   |   | $ | (0.9 | ) |   |

 

The Resort segmentreported an operating loss of $2.8 million for the second quarter of 2007compared to an operating loss of $1.9 million for the second quarter of 2006. Resortsegment revenues were $8.9 million or 22% lower for the second quarter of 2007compared to the second quarter of 2006. The closure of the Village Course atthe end of February 2007 and a reduction in retail space between thesecond quarters of 2007 and 2006 were largely responsible for the reduction inrevenues.

*Golf, Retail andVillas*

Revenues from golf operations decreased byapproximately 20% for the second quarter of 2007 compared to the second quarterof 2006. Paid rounds of golf decreased by 26%; however, average green and cartfees increased by approximately 8% in the second quarter of 2007 compared tothe second quarter of 2006. The closure of the Village Course as of the end of February 2007contributed to the decrease in revenues.

Resort retail sales for the second quarter of 2007were approximately 19% lower than the second quarter of 2006. The reduction inrevenues reflects the closure in May 2006 of our Logo Shop, Kids Shop andHome Store comprising approximately 5,800 square feet in the Kapalua Shopsfollowing the closure of the adjacent Kapalua Bay Hotel for the development ofThe Residences at Kapalua Bay. In addition, closure of the Village Course atthe end of February 2007 also had a negative impact on retail sales.

Revenues from the KapaluaVillas were approximately 4% lower in the second quarter of 2007 compared tothe second quarter of 2006, reflecting a 11% decrease in occupied roomspartially offset by a 12% higher average room rate.

**COMMUNITY DEVELOPMENT**

| ** **                   | ** ** | **Three Months Ended June 30,** | ** ** |
|------------------------------|------------|-----------------------------------------------------|------------|
| ** **                   | ** ** | **  2007  **                    | ** ** | **  2006  ** | ** ** | **  change  ** | ** ** |
| ** **                   | ** ** | **(in millions)**                              | ** ** |
| *Revenues*                   |       |                                                | $          | 16.1 | * * |   |   | $ | 7.5 | * * |   |   | $ | 8.6 |   |   |
| *% of consolidated revenues* | * *   | * *                                            | *42*       | *%* | * * | * * | *22* | *%* |   |   |   |   |   |
| *Operating  Profit*          |       |                                                | $          | 8.1 | * * |   |   | $ | 0.7 | * * |   |   | $ | 7.4 |   |   |

 

The Community Developmentsegment reported an operating profit of $8.1 million for the second quarter of2007 compared to $707,000 for the second quarter of 2006. Revenues from thisoperating segment increased by $8.6 million to $16.1 million for the secondquarter of 2007 compared to $7.5 million for the second quarter of 2006. Increasedrevenues and operating profit resulted from sales of lots at Honolua RidgePhase II, the sale of a non-core land parcel, and income from Kapalua BayHoldings LLC.

21

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*Ourequity in the earnings of Kapalua Bay Holdings, LLC was $2.2 million in thesecond quarter of 2007 compared to a loss of $1.5 million in the second quarterof 2006. In 2007, the joint venture began to recognize revenues and profits ona percentage-of-completion method from the whole and fractional residentialcondominiums. Accordingly, in 2007, the Company began to recognize aproportionate amount of the unrealized appreciation of the fair value of theland and other non-monetary contributions to Kapalua Bay and other deferredcosts related to the joint venture. See Note 8 to Condensed ConsolidatedFinancial Statements.*

*Real Estate Sales*

Our Honolua Ridge Phase II subdivision consists of 25agricultural-zoned lots, which began selling in August 2005. Through theend of the second quarter of 2007, 23 lot sales have closed escrow. Revenues of$9.9 million were recognized from the five lot sales that closed escrow in thesecond quarter of 2007. We account for revenues and profit from this project ona percentage-of-completion method and the construction of the infrastructureimprovement for this project was substantially complete in November of2006. At the end of the second quarter of 2006, the percentage of completionwas approximately 69% and we recognized revenues of $5.4 million in the prioryear period.

In the second quarter of2007, we sold approximately 181 acres of Upcountry Maui property and recognizedrevenues and a pre-tax gain of approximately $2.8 million from that land sale(see Note 15 to Condensed Consolidated Financial Statements). The land sold hadpreviously been earmarked as “non-core” to our strategic plans.

***Six Months Ended June 30, 2007 compared to SixMonths Ended June 30, 2006***

**CONSOLIDATED**

| ** **                         | ** ** | **Six Months Ended June 30,**                    | ** ** |
|------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                         | ** ** | **     2007     ** | ** ** | **     2006     ** | ** ** | **     change     ** | ** ** |
| ** **                         | ** ** | **(in millions, except per share amounts)** | ** ** |
| *Consolidated  Revenues*           |       |                                                                 | $          | 99.7 |   |   |   | $ | 92.5 |   |   |   | $ | 7.2 |   |   |
| *Net Income*                       |       |                                                                 | $          | 12.2 |   |   |   | $ | 11.2 |   |   |   | $ | 1.0 |   |   |
| *Basic  Earnings Per Common Share* |       |                                                                 | $          | 1.59 |   |   |   | $ | 1.54 |   |   |   | $ | 0.05 |   |   |

 

We reported net income of$12.2 million ($1.59 per share) for the first six months of 2007 compared tonet income of $11.2 million ($1.54 per share) for the same period in 2006. Consolidatedrevenues for the first six months of 2007 were $99.7 million compared to $92.5million for the first six months of 2006. Increased operating profit from theCommunity Development segment were offset by increased operating losses fromthe Agriculture and Resort segments, and charges of approximately $8 millionrelated to the restructuring of our pineapple operations (see Note 17 toCondensed Consolidated Financial Statements).

*General andAdministrative*

Consolidated general and administrative expensesincreased by 6%, or $1.1 million to $19.9 million for the first six months of2007 from $18.8 million for the first six months of 2006.

22

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Themajor components of the difference in general and administrative expenses wereas follows:

| ** **                                         | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                         | ** ** | **2007**                                          | ** ** | **2006** | ** ** | **change** | ** ** |
| ** **                                         | ** ** | **(in millions)**                            | ** ** |
| Salaries &  wages                         |       | $                                                 | 5.1        |   | $ | 5.5 |   |   | $ | (0.4 | ) |   |
| Employee  incentives & stock compensation |       | 4.3                                               |       | 2.2 |   |   | 2.1 |   |   |
| Professional &  other services            |       | 3.2                                               |       | 2.5 |   |   | 0.7 |   |   |
| Depreciation  expense                              |       | 0.9                                               |       | 2.6 |   |   | (1.7 | ) |   |
| Other                                              |       | 6.4                                               |       | 6.0 |   |   | 0.4 |   |   |
| Total                                              |       | $                                                 | 19.9       |   | $ | 18.8 |   |   | $ | 1.1 |   |   |

 

The reduction in salaries and wages for the first sixmonths of 2007 compared to the first six months of 2006 is due primarily toAgriculture re-training charges that are included in 2006. In 2006, some of theAgriculture segment employees were taken out of operations and retrained for otherwork as the operations moved toward a less labor-intensive process.

The increase in employee incentives and stockcompensation was primarily due to restricted stock vesting in 2007 for certainofficers and a payment of $1.1 million to David C. Cole, our Chairman,President & CEO because of an amendment to Mr. Cole’s stockoption agreement with the Company that reduced the value of the stock options. Thestock option agreement was amended to eliminate adverse tax consequences to ourChairman imposed by section 409A of the Internal Revenue Code.

The increase in professional services primarilyreflects work performed by outside consultants and the external auditors withregard to Sarbanes-Oxley Act of 2002, Section 404 in early 2007, for the2006 fiscal year. Much of the work in this area was delayed because of thecompletion of installation of new accounting systems and the centralization ofthe accounting function late in 2006. Partially offsetting the increase waslower employee recruiting costs in the first six months of 2007 compared to thefirst six months of 2006.

The reduction in depreciation expense charged togeneral and administrative expense is primarily due to acceleration ofdepreciation charges in 2006 for our accounting systems that were replaced in2006 and our fresh fruit packing facility that was also replaced in 2006.

General and administrativeexpenses are incurred at the corporate level and at the operating segment level.All general and administrative expenses incurred at the corporate level areallocated to the operating segments. Such allocations are consistent with ourmanagement’s evaluation of services provided to the operating segments.

*Interest Expense*

Interest expense was $1.0million for the first six months of 2007 compared to $29,000 for the first sixmonths of 2006. Interest incurred in the first six months of 2007 was $1.8million of which $792,000 was capitalized to construction projects. In thefirst six months of 2006, interest incurred was $821,000 of which $792,000 wascapitalized to construction projects. Our effective interest rate on borrowingswas 7.8% for the first six months of 2007 compared to 7.3% for the first sixmonths of 2006. The increase in interest expense was due primarily to higheraverage borrowings in the first six months of 2007.

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**AGRICULTURE**

| ** **                   | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------|------------|---------------------------------------------------|------------|
| ** **                   | ** ** | **2007**                                          | ** ** | **2006** | ** ** | **change** | ** ** |
| ** **                   | ** ** | **(in millions)**                            | ** ** |
| *Revenues*                   |       | $                                                 | 27.0       |   | $ | 30.3 |   |   | $ | (3.3 | ) |   |
| *% of consolidated revenues* | * *   | *27*                                              | *%*        | *33* | *%* |   |   |   |   |
| *Operating  Loss*            |       | $                                                 | (13.0      | ) | $ | (5.7 | ) |   | $ | (7.3 | ) |   |

 

The Agriculture segment produced an operating loss of$13.0 million for the first six months of 2007 compared to an operating loss of$5.7 million for the first six months of 2006. Revenues for the first six monthsof 2007 were $27.0 million or 11% lower than the first six months of 2006,primarily due to a reduction in sales of processed products. The principalreason for the increased operating loss is due to charges totalingapproximately $8 million that were recorded in June 2007 related to therestructuring of our pineapple operations.

Effective as of June 30, 2007, we ceased theproduction of substantially all solid-packed pineapple products (see Note 17 toCondensed Consolidated Financial Statements). With the cessation of solid-packcanned products, we will focus our business on the sale of fresh premiumpineapple and the processing and sale of pineapple juice. We have existingsales commitments for solid-packed processed pineapple through approximatelythe end of 2007.

The first six months of2006 included $2.2 million of accelerated depreciation charges related toassets where the estimated useful lives were reduced because of changes in ourpineapple operations. In addition, the Agriculture segment recorded charges of$764,000 in June 2006 related to inventories that were considered obsoletewith the change to the new fresh processing facility that went into operationin June 2006. In addition, we incurred $973,000 of charges related tore-training employees.

*Fresh and ProcessedOperations*

The case volume of fresh pineapple sales decreased byapproximately 6% in the first six months of 2007 compared to the first sixmonths of 2006. Revenue per case for fresh pineapple sales increased byapproximately 2% in the first six months of 2007 compared to the first six monthsof 2006. Revenues from fresh pineapple sales increased to approximately 51% ofthe Agriculture segment net sales for the first half of 2007, compared toapproximately 48% for the first half of 2006 reflecting the refocusing of ourbusiness on the fresh fruit market.

The case volume of processed pineapple sales decreasedby 16% for the first six months of 2007 as compared to the first six months of2006 primarily reflecting our strategy to reduce the retail market segmentsthat we were servicing. The average sales prices for our processed pineappleproducts decreased by approximately 5% for the first six months of 2007compared to the same period in 2006, primarily because we sold relatively morejuice in 2007, which has a lower sales value, than canned fruit.

Processed pineapple sold to the U.S. Government(primarily to the Department of Agriculture) comprised approximately 40% of ourcase volume of canned pineapple sales in the first six months of 2007 comparedto 31% in the first six months of 2006.

The Agriculture segment cost of sales was higher byapproximately 14% in the first six months of 2007 compared to the same periodof 2006 primarily reflecting higher per unit cost of sales, as a result of thedecision to discontinue processing and selling solid-pack pineapple. Weannually calculate per unit standard costs that are charged to cost of sales asprocessed product is sold. The standards are based on full year estimates ofproduction and sales and therefore, the change in our operating plans resultedin 

24

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additional charges to costof sales for the first half of 2007 of approximately $2.6 million. Higher perunit cost of sales will continue to be reflected in results for the remainderof the year.

Shipping and marketingcosts increased by 9% in the second quarter of 2007 compared to the secondquarter of 2006 primarily because of higher ocean and surface transportationcosts reflecting higher fuel costs.

**RESORT**

| ** **                   | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------|------------|---------------------------------------------------|------------|
| ** **                   | ** ** | **2007**                                          | ** ** | **2006** | ** ** | **change** | ** ** |
| ** **                   | ** ** | **(in millions)**                            | ** ** |
| *Revenues*                   |       | $                                                 | 20.6       |   | $ | 24.4 |   |   | $ | (3.8 | ) |   |
| *% of consolidated revenues* | * *   | *21*                                              | *%*        | *26* | *%* |   |   |   |   |
| *Operating  Loss*            |       | $                                                 | (3.7       | ) | $ | (1.4 | ) |   | $ | (2.3 | ) |   |

 

The Resort segment reported an operating loss of $3.7million for the first six months of 2007 compared to an operating loss of $1.4million for the first six months of 2006. Resort segment revenues were $20.6million or 16% lower for the first six months of 2007 compared to the sameperiod in 2006. The closure of the Village Course at the end of February 2007and a reduction in retail space between the first six months of 2007 and2006 were largely responsible for the reduction in revenues.

Hotel and condominium roomoccupancies at the Kapalua Resort and to a somewhat lesser extent for Maui ingeneral, largely drives resort activity as reflected by increased golf play andmerchandise sales. In early April 2006, the Kapalua Bay Hotel held itsfinal guest night and the hotel was permanently closed, resulting inapproximately 20% fewer rooms available at the Kapalua Resort, and as expected,has negatively affected the number of paid rounds of golf and retail sales.

*Golf, Retail andVillas*

Revenues from golf operations decreased byapproximately 16% for the first six months of 2007 compared to the same periodin 2006. Paid rounds of golf decreased by 18% and average green and cart feesincreased by about 3% in the first six months of 2007 compared to the sameperiod of 2006. The closure of the Village Course as of the end of February 2007contributed to the decrease in paid rounds of golf.

Resort retail sales for the first six months of 2007were approximately 18% lower than the first six months of 2006. Thereduction in revenues reflects the closure in May 2006 of our Logo Shop,Kids Shop and Home Store comprising approximately 5,800 square feet in the KapaluaShops following the closure of the adjacent Kapalua Bay Hotel. In addition,closure of the Village Course at the end of February 2007 also had anegative impact on retail sales.

Revenues from the KapaluaVillas were approximately 10% lower in the first six months of 2007 compared tothe first six months of 2006, reflecting a 15% decrease in occupied roomspartially offset by a 7% higher average room rate. There were approximately 5%fewer rooms available in the first half of 2007 partially reflecting unitsunder renovation under our Kapalua Gold program to upgrade and standardize theunits in our rental program.

25

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**COMMUNITY DEVELOPMENT**

| ** **                   | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------|------------|---------------------------------------------------|------------|
| ** **                   | ** ** | **2007**                                          | ** ** | **2006** | ** ** | **change** | ** ** |
| ** **                   | ** ** | **(in millions)**                            | ** ** |
| *Revenues*                   |       | $                                                 | 51.3       |   | $ | 37.6 |   |   | $ | 13.7 |   |   |
| *% of consolidated revenues* | * *   | *51*                                              | *%*        | *41* | *%* |   |   |   |   |
| *Operating  Profit*          |       | $                                                 | 37.2       |   | $ | 24.1 |   |   | $ | 13.1 |   |   |

 

The Community Development segment reported anoperating profit of $37.2 million for the first six months of 2007compared to $24.1 million for the first six months of 2006. Revenues from thisoperating segment increased by $13.7 million to $51.3 million for the firsthalf of 2007 compared to $37.6 million for the first half of 2006. Increasedrevenues and operating profit primarily resulted from our sale of the landunderlying the Ritz-Carlton, Kapalua hotel in March 2007 (see Note 9 toCondensed Consolidated Financial Statements).

Our equity in the earningsof Kapalua Bay Holdings, LLC was $4.1 million in the first six months of 2007compared to a loss of $1.4 million in the first six months of 2006. In 2007,the joint venture began to recognize revenues and profits on apercentage-of-completion method from the sales of whole and fractionalresidential condominiums. Accordingly, in 2007, the Company began to recognizea proportionate amount of the unrealized appreciation of the fair value of theland and other non-monetary contributions to Kapalua Bay and other deferredcosts related to the joint venture. See Note 8 to Condensed ConsolidatedFinancial Statements.

*Real Estate Sales*

Our Honolua Ridge Phase II subdivision consists of 25agricultural-zoned lots, which began selling in August 2005. Through June 30,2007, 23 lot sales have closed escrow, seven in the first six months of 2007. Revenuesof $14.7 million were recognized in the first six months of 2007. We accountfor revenues and profit from this project on a percentage-of-completion methodand the project was substantially complete in November of 2006. At the endof June 2006, the construction of the infrastructure improvements for thisproject was approximately 69% and we recognized revenues of $11.1 million inthe first six months of 2006.

In the first six months of2007, we sold approximately 338 acres of Upcountry Maui property in two landsales transactions and recognized revenues and pre-tax gains of approximately$6.8 million from those land sales (see Note 15 to Condensed ConsolidatedFinancial Statements). In the first six months of 2006, we recognized revenuesof $22.9 million and a pre-tax gain of $21.5 million from the sale ofapproximately 1,800 acres of Upcountry Maui Land. The properties sold in 2006and 2007 had previously been earmarked as “non-core” to our strategic plans.

**LIQUIDITY ANDCAPITAL RESOURCES**

*Debt Position*

At June 30, 2007, our total debt, includingcapital leases, was $17.3 million, compared to $51.1 million atDecember 31, 2006. All of our revolving credit debt was repaid in thefirst six months of 2007 with cash proceeds from investing and financingactivities, and cash flows provided by operating activities. At June 30,2007, we had available long-term credit lines of $54.7 million.

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*Operating CashFlows*

In thefirst six months of 2007, consolidated net cash provided by operatingactivities was $8.2 million compared to net cash used in operating activitiesof $2.1 million for the first six months of 2006. By operating segment, thesecash flows were approximately as follows:

|                            | ** ** | **Six Months Ended June 30,**                                | ** ** |
|----------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                 | ** ** | **      2007      ** | ** ** | **      2006      ** | ** ** |
| ** **                 | ** ** | **(in millions)**                                                           | ** ** |
| Agriculture                |       |                                                                             | $          | (0.9 | ) |   |   | $ | 0.8 |   |   |
| Resort                     |       |                                                                             | (3.2       | ) |   |   | 4.4 |   |   |
| Community  Development     |       |                                                                             | 13.6       |   |   |   | (5.1 | ) |   |
| Interest, taxes  and other |       |                                                                             | (1.3       | ) |   |   | (2.2 | ) |   |
| Total                      |       |                                                                             | $          | 8.2 |   |   |   | $ | (2.1 | ) |   |

 

The decrease in cash provided by operating activitiesfrom the Agriculture and Resort segments primarily reflects the increasedoperating loss incurred by the operating segment.

Cash flows from operatingactivities in the Community Development segment vary significantly with theamount of new real estate product sold and the amount of construction activityfor real estate inventories. In the first six months of 2007, the closing ofHonolua Ridge Phase II lot sales and the collection on purchase money mortgagesresulted in cash flows from operating activities of approximately $19.8 million.In the first six months of 2006, we closed on three lot sales at Honolua Ridgeand much of these cash receipts were offset by payments for the construction ofthe improvements, which were about 69% complete at the time.

*Real Estate SalesProceeds*

In March 2007, we sold the land underlying theRitz-Carlton, Kapalua hotel and received $25 million in cash at closing. Thecash proceeds were deposited with a qualified exchange intermediary inanticipation of reinvestment on a tax-deferred basis under Section 1031 ofthe Internal Revenue Code. In May 2007, the proceeds were returned to usfrom the exchange intermediary as we were unable to identify satisfactoryreplacement properties.

In the first six months of2007, we sold approximately 338 acres of Upcountry Maui land that wereconsidered non-core to our business, which resulted in net sales proceeds of$6.9 million. We also received $4.5 million from the repayment of a promissorynote from a December 2006 sale of non-core land.

*Private Placementof Stock*

In March 2007, wereceived $14.9 million in net cash proceeds from the private placement of517,242 shares of common stock. See Note 16 to Condensed ConsolidatedFinancial Statements.

*Future Cash Inflowsand Outflows*

Contributions to pension plans and to otherpost-retirement plans are expected to be in the range of $1.2 million to $2.0million in 2007. We expect to make income tax payments in September 2007of up to $7 million with respect to income recognized in 2007 for income taxpurposes. In August 2007, we expect to collect $2.6 million that issecured by a standby letter of credit, for the balance due on the sale ofcertain pineapple processing equipment (see Note 17 to Condensed ConsolidatedFinancial Statements).

Capital expenditures for 2007 are expected to includeapproximately $5 million for completion of construction of a new office areafor our corporate headquarters and support services—accounting, informationtechnology and human resources; and $0.9 million for upgrades to informationsystems. We 

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expect the Agriculturesegment to have capital expenditures of approximately $5.1 million in 2007. TheResort segment capital expenditures for 2007 are expected to be approximately$6.7 million, including $1.3 million for replacement of the greens on theBay Course and $2.6 million for facilities for a new mountain adventureamenity.

Expenditures in 2007 forCommunity Development segment capital projects, deferred development costs andinvestments are expected to be approximately $25.8 million. In addition, weexpect that we may contribute additional cash to Kapalua Bay Holdings, LLC ifcash required for construction exceeds the funds to be released by theconstruction lender (see Note 8 to Condensed Consolidated Financial Statements).In connection with the planning for the various projects, we will analyze thefeasibility of proceeding with each project and may seek project specificnon-recourse financing for some of the capital projects.

**FORWARD-LOOKINGSTATEMENTS**

This and otherreports filed by us, with the Securities and Exchange Commission containforward-looking statements intended to qualify for the safe harbor fromliability established by the Private Securities Litigation Reform Act of 1995. Thesestatements can be identified by the fact that they do not relate strictly tohistorical or current facts. They contain words such as “may,” “will,” “project,”“might,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,”“continue” or “pursue,” or the negative or other variations thereof orcomparable terminology. In particular, they include, among others, statementsrelating to:

·       timingand success of the Residences at Kapalua Bay project;

·       closingof lot sales at the Honolua Ridge agricultural subdivisions;

·       timingand success of the sale of “non-core” properties;

·       timingand success of the Kapalua Resort initiatives to enhance and improve the resortand the Kapalua Villas;

·       expectationsas to the Company’s cash commitments;

·       expectationsas to the Company’s cash flows from operating and investing activities;

·       recoverabilityfrom operations of real estate development deferred costs and the net bookvalue of Agriculture segment assets;

·       impactof current and future local, state and national government regulations,including Maui County affordable housing legislation;

·       shiftingtowards greater levels of fresh fruit production;

·       futurecost of compliance with environmental laws;

·       timingof approvals and conditions of future real estate entitlement applications; and

·       effectof changes in assumptions on net periodic pension and other benefit costs.

In addition, from time to time, we may publishforward-looking statements as to those matters or other aspects of ouranticipated financial performance, business prospects, new products, marketinginitiatives or similar matters.

Any forward-looking statements are made pursuant to thePrivate Securities Litigation Reform Act of 1995 and, as such, speak only as ofthe date made. We undertake no obligation to publicly update any 

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forward-lookingstatements, whether as a result of new information, future events or otherwise.We have based these forward-looking statements on our current expectations andprojections about future events.

We caution the reader thatforward-looking statements involve risks and uncertainties that cannot bepredicted or quantified and, consequently, actual results may differ materiallyfrom those expressed or implied by such forward-looking statements. Such risksand uncertainties include, but are not limited to, the factors discussed in thesections entitled “Business,” “Risk Factors,” and “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” in our Annual Reporton Form 10-K for the year ended December 31, 2006, and the sectionsentitled “Management’s Discussion and Analysis of Financial Condition andResults of Operations” and “Risk Factors” in this Quarterly Report on Form 10-Q,as well as other factors described from time to time in our reports filedwith the SEC.

**Item 3.**                        Quantitativeand Qualitative Disclosures about Market Risk

Our primary market riskexposure with regard to financial instruments is to changes in interest rates. Weattempt to manage this risk by monitoring interest rates and future cashrequirements, and evaluating opportunities to refinance borrowings at variousmaturities and interest rates. There were no material changes to our marketrisk exposure during the first six months of 2007.

**Item 4.**                        Controlsand Procedures

We maintain disclosure controls and procedures (assuch term is defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended) that are designed to ensurethat information required to be disclosed in our Exchange Act reports isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms, and that such information is accumulated andcommunicated to our management, including our Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosure.

In designing and evaluating the disclosure controlsand procedures, our management recognizes that any controls and procedures, nomatter how well designed and operated, can provide only reasonable assurance ofachieving the desired control objectives, and our management necessarily wasrequired to apply its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures.

As required by Rule 13a-15(b) and 15d-15(b) underthe Exchange Act, we carried out an evaluation, under the supervision and withthe participation of our management, including our Chief Executive Officer andChief Financial Officer, of the effectiveness of the design and operation ofour disclosure controls and procedures as of the end of the fiscal quartercovered by this report. Based upon the foregoing, our Chief Executive Officerand Chief Financial Officer concluded that our disclosure controls andprocedures were effective to ensure that information required to be disclosedby us in our Exchange Act reports is recorded, processed, summarized andreported within the time periods specified in applicable SEC rules andforms. There has been no change in our internal control over financialreporting during the second quarter of 2007 that has materially affected or isreasonably likely to materially affect our internal control over financialreporting.

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**PART II   OTHERINFORMATION**

**Item 1A.**                RiskFactors

Potential risks anduncertainties include, among other things, those factors discussed in thesections entitled “Business”, “Risk Factors” and “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” in our Annual Reporton Form 10-K for the year ended December 31, 2006 and thesection entitled “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” in this Quarterly Report on Form 10-Q. Readersshould carefully review those risks, as well as additional risks described inother documents we file from time to time with the Securities and ExchangeCommission. We undertake no obligation to publicly release the results of anyrevisions to any forward-looking statements to reflect anticipated orunanticipated events or circumstances occurring after the date of suchstatements. In the first six months of 2007, there were no material changesfrom the risk factors previously disclosed in our Form 10-K filed forthe year ended December 31, 2006.

**Item 4.**                        Submissionof Matters to a Vote of Security Holders

On May 7, 2007, theannual meeting of our shareholders was held. Proxies for the meeting weresolicited pursuant to Regulation 14A under the Securities Exchange Act of 1934.The number of outstanding shares as of March 14, 2007, the record date ofthe annual meeting, was approximately 8,153,909. The results of the voting wereas follows:

Proposal1:   Election of Class Two Directors for a three-year term:

| ** **        | ** ** | **Shares Voted For** | ** ** | **Shares Withheld** | ** ** |
|-------------------|------------|--------------------------------|------------|--------------------------|------------|
| Miles R. Gilburne |       |                           | 7,623,957  |                     |       |   | 85,316 |   |   |
| David A. Heenan   |       |                           | 7,623,089  |                     |       |   | 86,184 |   |   |
| Kent T. Lucien    |       |                           | 7,622,849  |                     |       |   | 86,424 |   |   |

 

Proposal2:   Ratification of Deloitte & Touche LLP as our independentregistered public accounting firm for the fiscal year 2007:

| Shares voted for:      |   | 7,625,269 |   |
|------------------------|--------|-----------|--------|
| Shares voted  against: |   | 84,004    |   |
| Shares abstained:      |   | -0-       |   |

 

Proposal3:   Approval of amendment to the Articles of Association to authorize anadditional 14,000,000 shares of common stock

| Shares voted for:      |   | 7,384,435 |   |
|------------------------|--------|-----------|--------|
| Shares voted  against: |   | 310,404   |   |
| Shares abstained:      |   | 14,430    |   |

 

There were no broker non-votes on any matter votedupon at the meeting.

The terms of the followingmembers of our Company’s Board of Directors continued after the annualmeeting:  John H. Agee, David C. Cole,Walter A. Dods, Warren H. Haruki, Duncan MacNaughton and Fred E. Trotter III.

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**Item 5.**                        OtherInformation

Effective August 6,2007, the Company granted to Robert I Webber an option to purchase the houseand approximately 3.36 acres that Mr. Webber began leasing from theCompany in July 2007. The agreement is filed herewith as Exhibit 10.1.

**Item 6.**                        Exhibits

Thefollowing exhibits are filed herewith:
| (10)   |   | Material Contracts |
|--------|--------|--------------------|
|   |   | 10.1               |   | Option Agreement dated  August 6, 2007 between Maui Land & Pineapple Company, Inc.  and Robert I. Webber. |
| (31)   |   |               |   | Rule 13a—14(a) Certifications |
|   |   | 31.1               |   | Certification of Chief  Executive Officer Pursuant to Rule 13a-14(d) / 15d-14(a) of  the Securities Exchange Act of 1934. |
|   |   | 31.2               |   | Certification of Chief  Financial Officer Pursuant to Rule 13a-14(d) / 15d-14(a) of  the Securities Exchange Act of 1934. |
| (32)   |   | 32.1               |   | Certification of Chief  Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(b) /  15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.  Section 1350. |
|        |        |                    |  |  |  |

 

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**SIGNATURE**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                     | MAUI LAND &  PINEAPPLE COMPANY, INC.                         |
|---------------------|-----------------------------------------------------------------------|
| August 8, 2007 |                                                                  | /S/ ROBERT  I. WEBBER |
| Date                | Robert I. Webber                                                      |
|                | *Chief Financial Officer/Senior Vice President  Business Development* |
|                | (Principal Financial Officer)                                         |
|                     |                                                                       |  |

 

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**EXHIBITINDEX**
| Exhibit Number | ** ** | **Description**                                                                                                                                                                                       |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                |       | Option Agreement dated  August 6, 2007 between Maui Land & Pineapple Company, Inc.  and Robert I. Webber                                                                           |
| 31.1                |       | Certification of  Chief Executive Officer Pursuant to Rule 13a-14(d) / 15d-14(a) of  the Securities Exchange Act of 1934.                                                              |
| 31.2                |       | Certification of  Chief Financial Officer Pursuant to Rule 13a-14(d) / 15d-14(a) of  the Securities Exchange Act of 1934.                                                              |
| 32.1                |       | Certification of Chief  Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(b) /  15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.  Section 1350. |

 

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