Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

** **

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

 

**For thequarterly period ended March 31, 2010**

 

**OR**

 

**o****              TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**Commissionfile number 001-06510**

 

**MAUI LAND & PINEAPPLECOMPANY, INC.**

(Exact name of registrant asspecified in its charter)

 

| **HAWAII**                                                      | ** ** | **99-0107542**                     |
|-----------------------------------------------------------------|------------|------------------------------------|
| (State or other jurisdiction  of incorporation or organization) |       | (IRS Employer  Identification No.) |

 

**870HALIIMAILE ROAD, MAKAWAO, MAUI, HAWAII 96768-9768**

(Address of principalexecutive offices)

 

Registrant’s telephonenumber, including area code: **(808) 877-3351**

 

**NONE**

(Former name, former addressand former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding12 months (or for such shorter period that the registrant was required tosubmit and post such files).  Yes o  No o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definitions of “large accelerated filer,” “accelerated filer,”and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer o |   | Accelerated filer o         |
|--------------------------------|--------|----------------------------------|
|                           |   |                             |
| Non-accelerated filer o   |   | Smaller reporting company x |

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date.

 

| **Class**                  | ** ** | **Outstanding at May 3,  2010** |
|----------------------------|------------|------------------------------------------------|
| Common Stock, no par value |       | 8,432,916 shares                               |

 

 

 

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Table of Contents

 

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

**ANDSUBSIDIARIES**

 

**TABLE OFCONTENTS**

 
| ** **                                                                                                                     | **Page** |
|--------------------------------------------------------------------------------------------------------------------------------|----------|
| PART I. FINANCIAL INFORMATION                                                                                             | 3        |
|                                                                                                                           |     |
| Item 1. Financial Statements  (unaudited)                                                                                 | 3        |
|                                                                                                                           |     |
| Condensed Consolidated  Statements of Operations, Three Months Ended March 31, 2010 and 2009                              | 3        |
|                                                                                                                           |     |
| Condensed Consolidated  Balance Sheets, March 31, 2010 and December 31, 2009                                         | 4        |
|                                                                                                                           |     |
| Condensed Consolidated  Statements of Stockholders’ Equity (Deficiency), Three Months Ended  March 31, 2010 and 2009 | 5        |
|                                                                                                                           |     |
| Condensed Consolidated  Statements of Cash Flows, Three Months Ended March 31, 2010 and 2009                              | 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 and Risks                                                                                          | 23       |
|                                                                                                                           |     |
| Item 4. Controls  and Procedures                                                                                          | 24       |
|                                                                                                                           |     |
| PART II. OTHER  INFORMATION                                                                                               | 24       |
|                                                                                                                           |     |
| Item 1A. Risk Factors                                                                                                     | 24       |
|                                                                                                                           |     |
| Item 6. Exhibits                                                                                                          | 25       |
|                                                                                                                           |     |
| Signature                                                                                                                      | 26       |
|                                                                                                                           |     |
| EXHIBIT INDEX                                                                                                                  | 27       |
|                                                                                                                           |     |
| Exhibit 31.1                                                                                                              |     |
| Exhibit 31.2                                                                                                              |     |
| Exhibit 32.1                                                                                                              |     |

 

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Table of Contents

 

**PART I FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

 

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

 

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 

**(UNAUDITED)**

 
| ** **                                                                     | ** ** | **Three Months Ended,**  | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                     | ** ** | **3/31/2010**            | ** ** | **3/31/2009** | ** ** |
| ** **                                                                     | ** ** | **(in thousands except** | ** ** |
| ** **                                                                     | ** ** | **share amounts)**       | ** ** |
| OPERATING REVENUES                                                             |       |                     |       |   |   |
| Product revenues                                                               |       | $                        | 4,964      |   | $ | 3,705 |   |
| Service revenues                                                               |       | 5,745                    |       | 7,003 |   |
|                                                                           |       |                     |       |   |   |
| Total Operating  Revenues                                                      |       | 10,709                   |       | 10,708 |   |
|                                                                           |       |                     |       |   |   |
| OPERATING COSTS AND  EXPENSES                                                  |       |                     |       |   |   |
| Cost of product  revenues                                                      |       | 1,207                    |       | 1,447 |   |
| Cost of service  revenues                                                      |       | 7,321                    |       | 9,828 |   |
| Selling and marketing                                                          |       | 1,137                    |       | 1,252 |   |
| General and  administrative (Note 12)                                          |       | 1,892                    |       | 6,052 |   |
|                                                                           |       |                     |       |   |   |
| Total Operating Costs  and Expenses                                            |       | 11,557                   |       | 18,579 |   |
|                                                                           |       |                     |       |   |   |
| Operating Loss                                                                 |       | (848                     | )          | (7,871 | ) |
|                                                                           |       |                     |       |   |   |
| Equity in losses of  affiliates (Note 10)                                      |       | —                   |       | (1,130 | ) |
| Interest expense                                                               |       | (3,343                   | )          | (1,476 | ) |
| Interest income                                                                |       | 10                       |       | 183 |   |
|                                                                           |       |                     |       |   |   |
| Loss from Continuing  Operations Before Income Taxes                           |       | (4,181                   | )          | (10,294 | ) |
| Income Tax Expense                                                             |       | 85                       |       | 385 |   |
|                                                                           |       |                     |       |   |   |
| Loss from Continuing  Operations                                               |       | (4,266                   | )          | (10,679 | ) |
|                                                                           |       |                     |       |   |   |
| Income (Loss) from  Discontinued Operations (Note 7) net of income taxes of $0 |       | 1,561                    |       | (2,544 | ) |
|                                                                           |       |                     |       |   |   |
| NET LOSS                                                                       |       | (2,705                   | )          | (13,223 | ) |
| Pension Benefit  Adjustment net of income taxes of $0                          |       | 1,422                    |       | — |   |
| COMPREHENSIVE LOSS                                                             |       | $                        | (1,283     | ) | $ | (13,223 | ) |
|                                                                           |       |                     |       |   |   |   |   |
| LOSS PER COMMON SHARE                                                          |       |                     |       |   |   |
| —BASIC AND DILUTED                                                        |       |                     |       |   |   |
| Continuing Operations                                                          |       | $                        | (0.53      | ) | $ | (1.33 | ) |
| Discontinued Operations                                                        |       | 0.20                     |       | (0.32 | ) |
| Net Loss                                                                       |       | $                        | (0.33      | ) | $ | (1.65 | ) |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

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

 

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 

**(UNAUDITED)**

** **
| ** **                                                                                                            | ** ** | **3/31/2010**      | ** ** | **12/31/2009** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------|------------|
| ** **                                                                                                            | ** ** | **(in thousands)** | ** ** |
| ASSETS                                                                                                                |       |               |       |           |       |
|                                                                                                                  |       |               |       |           |       |
| CURRENT  ASSETS                                                                                                       |       |               |       |           |       |
| Cash  and cash equivalents                                                                                            |       | $                  | 795        |           | $          | 1,881 |   |
| Accounts  receivable, less allowance                                                                                  |       | 2,691              |       | 3,684          |       |
| Refundable  income taxes                                                                                              |       | —             |       | 4,331          |       |
| Inventories                                                                                                           |       | 3,142              |       | 3,387          |       |
| Prepaid  expenses and other assets                                                                                    |       | 811                |       | 377            |       |
| Assets  held for sale                                                                                                 |       | 14,156             |       | 15,227         |       |
| Total  Current Assets                                                                                                 |       | 21,595             |       | 28,887         |       |
|                                                                                                                  |       |               |       |           |       |
| PROPERTY                                                                                                              |       | 146,147            |       | 144,903        |       |
| Accumulated  depreciation                                                                                             |       | (61,891            | )          | (60,189        | )          |
|                                                                                                                  |       |               |       |           |       |
| Net  Property                                                                                                         |       | 84,256             |       | 84,714         |       |
|                                                                                                                  |       |               |       |           |       |
| OTHER  ASSETS                                                                                                         |       | 14,071             |       | 14,447         |       |
|                                                                                                                  |       |               |       |           |       |
| TOTAL                                                                                                                 |       | $                  | 119,922    |           | $          | 128,048 |   |
|                                                                                                                  |       |               |       |           |       |   |   |
| LIABILITIES &  STOCKHOLDERS’ EQUITY                                                                     |       |               |       |           |       |
|                                                                                                                  |       |               |       |           |       |
| CURRENT  LIABILITIES                                                                                                  |       |               |       |           |       |
| Current  portion of long-term debt and capital lease obligations                                                      |       | $                  | 58,654     |           | $          | 1,817 |   |
| Trade  accounts payable                                                                                               |       | 5,951              |       | 6,581          |       |
| Payroll  and employee benefits                                                                                        |       | 3,871              |       | 4,947          |       |
| Income  taxes payable                                                                                                 |       | 3,916              |       | 2,626          |       |
| Other  accrued liabilities                                                                                            |       | 12,962             |       | 12,072         |       |
| Total  Current Liabilities                                                                                            |       | 85,354             |       | 28,043         |       |
|                                                                                                                  |       |               |       |           |       |
| LONG-TERM  LIABILITIES                                                                                                |       |               |       |           |       |
| Long-term  debt and capital lease obligations                                                                         |       | 35,447             |       | 94,824         |       |
| Accrued  retirement benefits                                                                                          |       | 23,643             |       | 28,076         |       |
| Plantation  Golf Course (PGC) deferred credit (Note 9)                                                                |       | 45,883             |       | 46,338         |       |
| Other  noncurrent liabilities                                                                                         |       | 7,626              |       | 7,708          |       |
| Total  Long-Term Liabilities                                                                                          |       | 112,599            |       | 176,946        |       |
|                                                                                                                  |       |               |       |           |       |
| COMMITMENTS  AND CONTINGENCIES (Note 16)                                                                              |       |               |       |           |       |
|                                                                                                                  |       |               |       |           |       |
| STOCKHOLDERS’  DEFICIENCY                                                                                        |       |               |       |           |       |
| Common  stock—no par value, 23,000,000 shares authorized, 8,101,433 and 8,087,334  shares issued and outstanding |       | 35,586             |       | 35,437         |       |
| Additional  paid in capital                                                                                           |       | 9,063              |       | 9,019          |       |
| Accumulated  deficit                                                                                                  |       | (119,428           | )          | (116,723       | )          |
| Accumulated  other comprehensive loss                                                                                 |       | (3,252             | )          | (4,674         | )          |
| Stockholders’  Deficiency                                                                                        |       | (78,031            | )          | (76,941        | )          |
| TOTAL                                                                                                                 |       | $                  | 119,922    |           | $          | 128,048 |   |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

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

 

**CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(DEFICIENCY)**

 

**(UNAUDITED)**

 

**For theThree Months Ended March 31, 2010 and 2009**

 

**(inthousands)**

 
| ** **                             | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | **Retained**      | ** ** | **Accumulated**   | ** ** | ** ** | ** ** |
|----------------------------------------|------------|------------------|------------|-------------|------------|------------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                             | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional**   | ** ** | **Earnings**      | ** ** | **Other**         | ** ** | ** ** | ** ** |
| ** **                             | ** ** | **Common Stock** | ** ** | **Paid in** | ** ** | **(Accumulated** | ** ** | **Comprehensive** | ** ** | ** **        | ** ** |
| ** **                             | ** ** | **Shares**       | ** ** | **Amount**  | ** ** | **Capital**      | ** ** | **Deficit)**      | ** ** | **Income (Loss)** | ** ** | **Total**  | ** ** |
| ** **                             | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
| Balance,  January 1, 2009         |       | 8,021            |       | $           | 34,791     |             | $          | 8,363             |       | $                 | 6,558      |       | $          | (18,024 | ) | $ | 31,688 |   |
| Share-based  compensation expense      |       |             |       |        |       | 213              |       |              |       |              |       | 213        |       |
| Vested  restricted stock issued        |       | 3                |       | 77          |       | (77              | )          |              |       |              |       |       |       |
| Net  loss                              |       |             |       |        |       |             |       | (13,223           | )          |              |       | (13,223    | )          |
| Balance,  March 31, 2009          |       | 8,024            |       | $           | 34,868     |             | $          | 8,499             |       | $                 | (6,665     | )          | $          | (18,024 | ) | $ | 18,678 |   |
|                                   |       |             |       |        |       |             |       |              |       |              |       |       |       |
| Balance,  January 1, 2010         |       | 8,087            |       | $           | 35,437     |             | $          | 9,019             |       | $                 | (116,723   | )          | $          | (4,674 | ) | $ | (76,941 | ) |
|                                   |       |             |       |        |       |             |       |              |       |              |       |       |       |   |   |   |   |   |
| Pension  benefits adjustment (Note 12) |       |             |       |        |       |             |       |              |       | 1,422             |       | 1,422      |       |
| Share-based  compensation expense      |       |             |       |        |       | 245              |       |              |       |              |       | 245        |       |
| Vested  restricted stock issued        |       | 23               |       | 201         |       | (201             | )          |              |       |              |       | —     |       |
| Shares  cancelled to pay tax liability |       | (9               | )          | (52         | )          |             |       |              |       |              |       | (52        | )          |
| Net  loss                              |       |             |       |        |       |             |       | (2,705            | )          |              |       | (2,705     | )          |
| Balance,  March 31, 2010          |       | 8,101            |       | $           | 35,586     |             | $          | 9,063             |       | $                 | (119,428   | )          | $          | (3,252 | ) | $ | (78,031 | ) |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

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

 

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

**(UNAUDITED)**

 
| ** **                                                | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|
| ** **                                                | ** ** | **3/31/10**            | ** ** | **3/31/09** | ** ** |
| ** **                                                | ** ** | **(in thousands)**     | ** ** |
| ** **                                                | ** ** | ** **             | ** ** |
| NET  CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES      |       | $                      | 3,251      |   | $ | (9,896 | ) |
|                                                      |       |                   |       |   |   |   |   |
| INVESTING  ACTIVITIES                                     |       |                   |       |   |   |
|                                                      |       |                   |       |   |   |
| Purchases  of property                                    |       | (1,517                 | )          | (241 | ) |
| Proceeds  from disposals of property                      |       | 1,162                  |       | — |   |
| Payments  for other assets                                |       | (473                   | )          | (497 | ) |
|                                                      |       |                   |       |   |   |
| NET  CASH USED IN INVESTING ACTIVITIES                    |       | (828                   | )          | (738 | ) |
|                                                      |       |                   |       |   |   |
| FINANCING  ACTIVITIES                                     |       |                   |       |   |   |
| Proceeds  from long-term debt                             |       | 4,400                  |       | — |   |
| Payments  of long-term debt and capital lease obligations |       | (7,402                 | )          | (48,115 | ) |
| Net  proceeds from PGC (Note 9)                           |       | —                 |       | 48,520 |   |
| Reduction  of PGC deferred credit                         |       | (455                   | )          | — |   |
| Debt  issuance cost and other                             |       | (52                    | )          | (380 | ) |
|                                                      |       |                   |       |   |   |
| NET  CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES      |       | (3,509                 | )          | 25 |   |
|                                                      |       |                   |       |   |   |
| NET  DECREASE IN CASH AND CASH EQUIVALENTS                |       | (1,086                 | )          | (10,609 | ) |
|                                                      |       |                   |       |   |   |
| CASH  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD         |       | 1,881                  |       | 13,668 |   |
|                                                      |       |                   |       |   |   |
| CASH  AND CASH EQUIVALENTS AT END OF PERIOD               |       | $                      | 795        |   | $ | 3,059 |   |

 

Supplemental Disclosures of Cash Flow Information—Interest (net ofamounts capitalized) of $2,061,000 and $2,312,000 was paid during the threemonths ended March 31, 2010 and 2009, respectively. Income taxes of$5,535,000 and $291,000 were refunded during the three months ended March 31,2010 and 2009, respectively.

 

Supplemental Non-Cash Investing and Financing Activities—

 

·                  Property acquired undercapital leases was $322,000 during the three months ended March 31, 2009.

·                  A capital lease obligationof $376,000 and the related asset acquired thereunder were transferred to athird party during the three months ended March 31, 2010.

·                  Amounts included in tradeaccounts payable for additions to property and for other investing activitiestotaled $1,218,000 and $1,419,000 at March 31, 2010 and 2009,respectively.

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

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

 

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**(UNAUDITED)**

 

**1.**             The accompanying unaudited condensed consolidatedfinancial statements have been prepared by Maui Land & PineappleCompany, Inc. (together with its subsidiaries, the “Company”) inaccordance with U.S. generally accepted accounting principles (GAAP) forinterim financial information that are consistent in all material respects withthose applied in the Company’s Annual Report on Form 10-K for the fiscalyear ended December 31, 2009, and pursuant to the instructions to Form 10-Qand Article 8 promulgated by Regulation S-X of the Securities and ExchangeCommission (the “SEC”). Accordingly, they do not include all of the informationand notes to financial statements required by GAAP for complete financialstatements. In the opinion of management, the accompanying condensedconsolidated financial statements contain all normal and recurring adjustmentsnecessary to fairly present the financial position, results of operations andcash flows for the interim periods ended March 31, 2010 and 2009. Thefinancial statements and notes should be read in conjunction with theconsolidated financial statements and notes thereto included in the Company’s Form 10-Kfor the fiscal year ended December 31, 2009.

 

LIQUIDITY

 

At March 31, 2010, the Company hadamounts outstanding under borrowing agreements of approximately$93 million; and approximately $16.1 million available under existinglines of credit and $795,000 in cash and cash equivalents.  The Company incurred a loss from continuingoperations of $4.3 million for the first quarter of 2010, had an excess of currentliabilities over current assets of $63.8 million, and had a stockholders’deficiency of $78.0 million.

 

Included in current liabilities is $57.8million outstanding on the Company’s $75 million available credit that maturesin March 2011. This credit is comprised of two revolving creditagreements, both of which have financial covenants requiring among otherthings, a minimum of $8 million in liquidity and a limitation on newindebtedness.  In addition, the Companyhas $40 million of outstanding convertible notes that may be redeemed byholders as early as July 2011. Failure to satisfy the minimum liquiditycovenants or to otherwise default under one credit agreement could result in adefault under both credit agreements as well as a default under the $40 millionsenior secured convertible notes. Defaults under the credit agreements couldresult in all outstanding borrowings becoming immediately due and payable. Ifthe Company defaults under the senior secured convertible notes, the holders ofsuch notes may require the Company to redeem the notes, in which case theCompany would also be required to pay a redemption premium equal to 115%multiplied by (i) the principal and accrued and unpaid interest under thenote, or (ii) the highest closing sale price of the Company’s common stockduring the period between the event of default and delivery of redemptionnotice multiplied by the number of shares of the Company’s common stock intowhich a note is then convertible.

 

The Company’s cash outlook for the next twelvemonths and its ability to make the required debt repayments in March 2011and to continue to meet its financial covenants is highly dependent on sellingcertain real estate assets in a difficult market and its ability to raiseadditional equity capital.If the Company is unable to meet its financial covenants resulting inthe borrowings becoming immediately due, or is unable to restructure its creditagreements to extend the maturity date beyond March 2011, the Companywould not have sufficient liquidity to repay such outstanding borrowings. Inaddition, the Company has a commitment to purchase the spa, beach clubimprovements and the sundry store (the “Amenities”) from Kapalua Bay Holdings,LLC (Bay Holdings) at actual construction costs of approximately$35 million.  The Company is indiscussions with the other members of Bay Holdings to negotiate the terms ofthe purchase agreement including the purchase price and payment terms, and isdiscussing whether the Company will even be required to purchase the Amenities.In June 2009, theCompany announced that due to a lack of a title sponsor, the Company was unableto hold the 2009 Ladies Professional Golf Association (LPGA) event that wasscheduled for October. This has resulted in a dispute with the LPGA, which canbe resolved by mediation and if necessary by binding arbitration. By agreementbetween the parties, mediation has been suspended through November 2010and the Company paid $700,000 of which 50% will be applied towards sponsorshipof an event if the parties are able to structure a future event. In addition,in September 2009, M. Yamamura and Sons, Inc. (“Yamamura”) filed alawsuit against the Company which alleges that the Company materially breachedthe Maui Gold Pineapple Planting and Fruit Purchase Agreement (the “PlantingAgreement”) by not providing a planting schedule for 2009 and by askingYamamura to cease planting pineapple for the Company, and that the Companyunilaterally restricted and impaired the value of Yamamura’s benefits under thePlanting Agreement. The Company is also subject to othercommitments and contingencies that could negatively impact its future cashflows. These matters are further described in Note 16.  These circumstances raise substantial doubtabout the Company’s ability to continue as a going concern. There can be noassurance that the Company will be able to successfully achieve its initiativesdiscussed below in order to continue as a going concern. The accompanyingcondensed consolidated financial statements do not include any adjustments thatmight result should the Company be unable to continue as a going concern.

 

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In response to these circumstances, theCompany continues to undertake several financial and strategic initiatives toreduce cash commitments and generate cash flow from a variety of sources,including the sale of several real estate assets. In the first quarter of 2010,the Company concluded the sale of a 128-acre parcel that resulted in total cashproceeds (net of selling costs) of $1.5 million.  The Company is actively in the process ofattempting to sell several selected real estate assets to provide additionalliquidity and to further reduce its debt. The Company is attempting to raise capital in an equity financingtransaction, which can be used to retire outstanding debt and to meet workingcapital needs. In addition, the Company is actively working with its lenders toextend the maturity date of its credit agreements.

 

**2.**             The Company’s reports forinterim periods utilize numerous estimates of general and administrativeexpenses and other costs for the full year. Future actual amounts may differfrom the estimates. Amounts in the interim reports are not necessarilyindicative of results for the full year.

 

**3.**             The effective tax rate for2010 and 2009 reflects the recognition of expected federal alternative minimumtax liabilities and interim period tax benefits and additions to the taxvaluation allowance.

 

**4.**             Accounts and notesreceivable are reflected net of allowance for doubtful accounts of $728,000 and$452,000 at March 31, 2010 and December 31, 2009, respectively.

 

**5.**             Inventories as of March 31,2010 and December 31, 2009 were as follows:

 
| ** **                          | ** ** | **3/31/10**        | ** ** | **12/31/09** | ** ** |
|-------------------------------------|------------|--------------------|------------|--------------|------------|
| ** **                          | ** ** | **(in thousands)** | ** ** |
| Real estate                         |       | $                  | 1,721      |         | $          | 1,721 |   |
| Merchandise, materials and supplies |       | 1,421              |       | 1,666        |       |
| Total Inventories                   |       | $                  | 3,142      |         | $          | 3,387 |   |

 

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

** **
| ** **           | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------|------------|---------------------------------------|------------|
| ** **           | ** ** | **2010**                              | ** ** | **2009** | ** ** |
|                 |       |                                  |       |   |   |
| Basic and Diluted    |       | 8,079,081                             |       | 8,020,454 |   |
| Potentially Dilutive |       | 1,335,629                             |       | 1,333,540 |   |

 

Basic earnings (loss) per share is computed by dividing net income orloss by the weighted-average number of common shares outstanding. Dilutedearnings (loss) per share is computed similar to basic earnings (loss) pershare except that the denominator is increased to include the number ofadditional common shares that would have been outstanding if the dilutivepotential common shares from share-based compensation arrangements had beenissued.

 

Potentially dilutive shares arise from non-qualified stock options topurchase common stock, non-vested restricted stock and common stock issuableupon assumed conversion of convertible debt. The treasury stock method isapplied to determine the number of potentially dilutive shares for nonvestedrestricted stock and stock options assuming that the shares of nonvestedrestricted stock are issued for an amount based on the grant date market priceof the shares and that the outstanding stock options are exercised. Convertibledebt is assumed to be converted by applying the if-converted method. Theseamounts were excluded because the effect would be anti-dilutive.

 

**7.****            ****DiscontinuedOperations**

 

The Company ceased all operations in its Agriculture segment as of theend of 2009. The Company’s Agriculture segment operating results and the losson sale of the assets are reported as discontinued operations and prior periodoperating results have been reclassified for comparability.  Income from discontinued operations for thethree months ended March 31, 2010 includes a credit of $2.3 millionrepresenting the gain from settlement of the Company’s post-retirement life insuranceplans (Note 12).  Revenues and income(loss) before income taxes for the discontinued operations were as follows:

 
| ** **                                  | ** ** | **Three  Months Ended** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|
| ** **                                  | ** ** | **March 31,**      | ** ** |
| ** **                                  | ** ** | **2010**                | ** ** | **2009** | ** ** |
| ** **                                  | ** ** | **(in  thousands)**     | ** ** |
|                                        |       |                    |       |   |   |
| Revenues                                    |       | $                       | —     |   | $ | 4,889 |   |
|                                        |       |                    |       |   |   |
| Income (Loss) from Discontinued  Operations |       | $                       | 1,561      |   | $ | (2,544 | ) |

 

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**8.****            ****RecentlyIssued Accounting Pronouncements**

 

In June 2009, the FinancialAccounting Standards Board (FASB) issued guidance to revise the approach todetermine when a variable interest entity (VIE) should be consolidated. The new consolidation model for VIEs considers whether the Company has thepower to direct the activities that most significantly impact the VIE’seconomic performance and shares in the significant risks and rewards of theentity.  The guidance requires companies to continually reassess VIEs todetermine if consolidation is appropriate and provide additionaldisclosures.  The guidance is effective for the Company beginning January 1,2010.  The adoption of this standard did not have a material effect on theCompany’s consolidated financial statements as the Company does not currentlyhave any VIEs.

 

In January 2010, the FASB issuedguidance to improve disclosures about fair value measurements.  TheCompany must provide additional disclosures regarding transfers in and out oflevels 1 and 2, and activity in level 3 fair value measurements.  Theguidance also provides clarification regarding levels of disaggregation anddisclosures about inputs and valuation techniques for both recurring andnonrecurring fair value measurements that fall in either level 2 or level3.  The additional disclosure requirements are effective for the Companybeginning January 1, 2010, except for the additional disclosures regardingthe roll forward of activity in Level 3 fair value measurements, which will beeffective January 1, 2011.

 

**9.****            ****Real EstateSales**

 

On March 27, 2009, the Company sold theland, improvements, structures and fixtures comprising the Plantation GolfCourse (PGC) for $50 million in cash. Concurrent with the closing of thesale, the Company entered into an agreement (Ground Lease) to leaseback the PGCfor an initial period of two years for an annual net rental payment of$4 million, payable monthly in advance. The Company also entered into anagreement to leaseback the portion of the Plantation Clubhouse comprising theretail shop for a period of five years, which will commence when the GroundLease expires or is otherwise terminated. The Ground Lease requires the Companyto replace the irrigation system at the PGC at its own cost and expense,subject to a cap of $5 million. Because of the Company’s continuing involvementassociated with the obligation to replace the irrigation system, the sale andleaseback of the PGC has been accounted for as a financing transaction and,accordingly, the net proceeds received have been recorded as a non-currentliability on the consolidated balance sheet and no gain will be recognizeduntil the irrigation system replacement project has been completed. Expecteddate of completion is December 2010. In consideration for the release ofthe PGC from the collateral for the Company’s $90 million revolving lineof credit with Wells Fargo Bank and certain other lenders, upon closing of thesale, $45 million of the net proceeds were used to partially repayborrowings under this line and the credit limit available under this facilitywas reduced to $45 million.

 

In March 2010, the Company sold realestate land inventory, and recognized revenues of $1.7 million and pre-taxprofit of $1.5 million.

 

**10.****         ****Investmentsin Affiliates**

 

KAPALUA BAY HOLDINGS, LLC

 

As a result of the 2009 losses incurred by BayHoldings, the Company’s carrying value of its investment in Bay Holdings andits $3.6 million loan due from Bay Holdings were written down to zero in2009 and, accordingly, the Company does not expect to recover any amounts fromits investment in Bay Holdings. In addition, the Company has recorded itsestimated share of its completion and recourse guarantees for its potentialestimated liability and it has no further obligation to fund losses. TheCompany will not recognize any additional equity in the earnings (losses) ofBay Holdings until the recognized income attributable to Bay Holdings exceedsthe accumulated losses.  The Company hadmade cash contributions to Bay Holdings of $53.2 million and anuncollateralized loan of $3.6 million that accrued interest at 16%.

 

In June 2009, theCompany recorded an impairment charge of $21.3 million to reflect whatmanagement believed to be an impairment in the carrying value of its investmentin Bay Holdings.  In September 2009,Bay Holdings recorded impairment charges totaling $208.8 million to reflect animpairment of the carrying value of its real estate inventories (whole andfractional condominium units) held for sale; and for the year 2009, BayHoldings incurred total losses of $256.2 million.  The impairment charges reflected higherdefault rates on actual whole and fractional unit closings than was anticipatedonce construction was completed in June 2009, and also reflects a changein forecasted sales revenue on the unsold whole and fractional units that substantiallyreduces expected margins for those remaining units.

 

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Construction of the six residential buildings comprisedof 146 residences was complete by year-end 2009, however, the Company’s and theother members’ completion guaranty to the lenders will remain in place untilthe cost for all construction work has been settled and paid. The Company hasno funding commitments relating to Bay Holdings beyond this amount.

 

In July 2006, Bay Holdings entered intoa syndicated construction loan agreement with Lehman BrothersHoldings Inc. (Lehman) for the lesser of $370 million or 61.6% of thetotal projected cost of the project. Lehman’s commitment under the loanagreement was approximately 78% of the total. The loan was collateralized bythe project assets, including the fee simple interest in the land owned by BayHoldings, the adjacent spa parcel owned by the Company, and all of the salescontracts. On September 15, 2008, Lehman filed a petition underChapter 11 of the U.S. Bankruptcy Code with the United States BankruptcyCourt, and on February 11, 2009, Bay Holdings, Lehman, other lenders underthe loan agreement, Swedbank and MH Kapalua Venture, LLC, an affiliate ofMarriott, entered into an Amended and Restated Construction Loan Agreement.Pursuant to the amended loan agreement, the aggregate amount that Bay Holdingsmay borrow, including amounts previously funded under the amended loanagreement is approximately $354.5 million. In December 2009, Bay Holdings further amendedthe amended loan agreement to extend the maturity date of the principal paymentof $45.7 million that was previously due in February 2010 to December 2010.Bay Holdings’ failure to repay amounts when due could result in all of itsoutstanding borrowings under the amended loan agreement becoming immediatelydue and payable. Bay Holdings’ ability to make the December 2010 debtpayment as scheduled is dependent on its ability to generate sufficient cashflows from fractional and whole unit closings. Bay Holdings is currently innegotiations with the lenders to restructure the terms of the amended loanagreement to provide available funding until the project is completely soldout.

 

Summarized operating information for BayHoldings for the three months ended March 31, 2010 and 2009  is as follows:

 
| ** ** | ** ** | **Three  Months Ended March 31,** | ** ** |
|------------|------------|----------------------------------------|------------|
| ** ** | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| ** ** | ** ** | **(in  thousands)**                    | ** ** |
| ** ** | ** ** | ** **                             | ** ** |
| Revenues   |       | $                                      | 9,495      |   | $ | 21,738 |   |
|       |       |                                   |       |   |   |   |   |
| Expenses   |       | 13,363                                 |       | 23,272 |   |
|       |       |                                   |       |   |   |
| Net Loss   |       | $                                      | (3,868     | ) | $ | (1,534 | ) |

 

**11.****         ****Share-BasedCompensation**

 

The total compensation expense recognized forshare-based compensation was $245,000 and $213,000 for the three months ended March 31,2010 and 2009, respectively. The total tax benefit (expense) related theretowas $-0- and $(6,000) for the three months ended March 31, 2010 and 2009,respectively. Recognized stock compensation was reduced for estimatedforfeitures prior to vesting primarily based on historical annual forfeiturerates of approximately 4.3% and 4.7%, as of March 31, 2010 and 2009,respectively. Estimated forfeitures will be reassessed in subsequent periodsand may change based on new facts and circumstances.

 

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*StockOptions*

 

A summary of stock option award activity asof and for the three months ended March 31, 2010 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, 2009       |       | 266,500    |       | $            | 29.20      |           |       |             |       |              |       |   |
| Granted                                      |       | —     |       | $            | —     |           | $          | —           |       |              |       |   |   |
| Exercised                                    |       | —     |       | $            | —     |           | $          | —           |       |              |       |   |   |
| Forfeited  or Cancelled                      |       | (32,500    | )          | $            | 39.71      |           | $          | 15.34            |       |              |       |   |   |
| Outstanding  at March 31, 2010          |       | 234,000    |       | $            | 26.86      |           | $          | 9.98             |       | 4.7               |       | $ | 26 |   |
| Exercisable  at March 31, 2010          |       | 154,500    |       | $            | 31.26      |           | $          | 11.13            |       | 3.3               |       | $ | 5 |   |
| Expected  to Vest at March 31, 2010 (2) |       | 58,400     |       | $            | 18.29      |           | $          | 7.73             |       | 7.4               |       | $ | 15 |   |

 

----

(1)           For in-the-money options

(2)           Options expected to vestreflect estimated forfeitures

 

Additional stock option information for thethree months ended March 31, 2010 and 2009 is as follows:

 
| ** **                                            | ** ** | **2010** | ** ** | **2009** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|
| Weighted  Average Grant-Date Fair Value               |       |     |       |     |       |
| For  Options Granted During the Period                |       | $        | —     |     | $          | 2.48 |   |
| Intrinsic  Value of Options Exercised $(000)          |       | —   |       | —   |       |
| Cash  Received From Option Exercises $(000)           |       | —   |       | —   |       |
| Tax  Benefit From Option Exercises $(000)             |       | —   |       | —   |       |
| Fair  Value of Shares Vested During the Period $(000) |       | 95       |       | 254      |       |
|                                                       |            |          |            |          |            |  |  |

 

For the three months ended March 31,2009, the fair value of the Company’s stock options awarded was estimated usingthe Black-Scholes option pricing model and the following weighted averageassumptions (there were no stock option awards in the first three months of2010):

 
| ** **                        | ** ** | **2009** | ** ** |
|-----------------------------------|------------|----------|------------|
| Expected Life of Options in Years |       | 6.5      |       |
| Expected Volatility               |       | 44.6     | %          |
| Risk-free interest rate           |       | 2.6      | %          |
| Expected dividend yield           |       | —   |       |

 

As of March 31, 2010, there was $400,000of total unrecognized compensation expense for awards granted under the stockoption plans that is expected to be recognized over a weighted average periodof 1.8 years.

 

*RestrictedStock*

 

In the first three months of 2010, 14,583shares (net of shares withheld for payment of income taxes) of restricted stockvested as directors’ and management service requirements were met.

 

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A summary of the activity for restrictedstock awards as of and for the three months ended March 31, 2010 ispresented below:

 
| ** **                                   | ** ** | ** ** | ** ** | **Weighted**   | ** ** |
|----------------------------------------------|------------|------------|------------|----------------|------------|
| ** **                                   | ** ** | ** ** | ** ** | **Average**    | ** ** |
| ** **                                   | ** ** | ** ** | ** ** | **Grant-Date** | ** ** |
| ** **                                   | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Nonvested  balance at December 31, 2009 |       | 448,301    |       | $              | 8.25       |   |
| Granted                                      |       | —     |       | $              | —     |   |
| Vested                                       |       | (14,583    | )          | $              | 9.41       |   |
| Forfeited  or Cancelled                      |       | (19,601    | )          | $              | 7.33       |   |
| Nonvested  balance at March 31, 2010    |       | 414,117    |       | $              | 9.10       |   |

 

**12.****         ****Componentsof Net Periodic Benefit Cost**

 

The net periodic benefit costs for pensionand other post-retirement benefits for the three months ended March 31,2010 and 2009 were as follows:

 
| ** **                             | ** ** | **Pension  Benefits** | ** ** | **Other  Benefits** | ** ** |
|----------------------------------------|------------|-----------------------|------------|---------------------|------------|
| ** **                             | ** ** | **2010**              | ** ** | **2009**            | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                             | ** ** | **(in  thousands)**   | ** ** |
|                                   |       |                  |       |                |       |   |   |   |   |
| Service cost                           |       | $                     | 30         |                | $          | 378 |   | $ | 33 |   | $ | 54 |   |
| Interest cost                          |       | 862                   |       | 905                 |       | 24 |   | 200 |   |
| Expected return on plan  assets        |       | (710                  | )          | (622                | )          | — |   | — |   |
| Amortization of prior  service cost    |       | 1                     |       | 11                  |       | (29 | ) | — |   |
| Amortization of transition  obligation |       | 2                     |       | 4                   |       | — |   | — |   |
| Amortization of actuarial  loss (gain) |       | 160                   |       | 484                 |       | (198 | ) | (120 | ) |
| Recognized gain due to  curtailment    |       | —                |       | —              |       | (576 | ) | — |   |
| Recognized gain due to  settlement     |       | —                |       | —              |       | (2,683 | ) | — |   |
| Net expense (credit)                   |       | $                     | 345        |                | $          | 1,160 |   | $ | (3,429 | ) | $ | 134 |   |

 

In the first quarter of 2010, the Companyterminated its postretirement life insurance plan and recorded a settlementgain of $2.7 million of which $2.3 million was recorded to discontinuedoperations and $345,000 was recorded as a credit to general and administrativeexpense.  Also in the first quarter of2010, the Company terminated its postretirement medical coverage fornon-bargaining retirees and recorded a curtailment gain of $576,000 as a creditto general and administrative expense.

 

In 2010, minimum required contributions tothe Company’s defined benefit pension plans are expected to be$2.1 million. To date in 2010, the Company has made pension plancontributions totaling $819,000 and has failed to pay a quarterly contributiondue in April 2010 of $455,000. The Company will be required to pay interest to the pension plans forcontributions that have been deferred. The Company expects to contribute $190,000 to its other post-retirementbenefit plans in 2010.

 

**13.****         ****Fair ValueMeasurements**

 

In its ongoing business operations, theCompany’s primary market risk exposure with regard to financial instruments isdue to changes in interest rates. The Company manages this risk by monitoringinterest rates and future cash requirements and evaluating opportunities torefinance borrowings at various maturities and interest rates. The Company alsoutilizes interest rate swaps or other derivatives to reduce risks associatedwith changes in interest rates.

 

GAAP requires that assetsand liabilities carried at fair value be classified and disclosed in one of thefollowing three categories:

 

Level 1: Quoted marketprices in active markets for identical assets or liabilities.

 

Level 2: Observablemarket based inputs or unobservable inputs that are corroborated by marketdata.

 

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Level 3: Unobservableinputs that are not corroborated by market data.

 

In July 2008, the Company issued$40 million in senior secured notes that are convertible into the Company’scommon stock. The conversion features related to the notes gave rise to aderivative liability carried at fair value.

 

In January 2008, the Company enteredinto interest rate swap agreements to reduce future cash flow variability forapproximately two years on $55 million of variable rate debt. The effectof the agreements is to convert variable-rate interest, which was previouslytied to 1-, 2-, 3- and 6-month LIBOR terms, to an average fixed-rate interestof approximately 2.9%, before applicable interest rate spreads. Thetransactions were not designated as hedges, and, accordingly, the gains andlosses resulting from the change in fair value from these interest rate swapsare recognized currently in interest expense. The interest rate swap agreementsexpired in January 2010.

 

Information regarding assets and liabilitiesmeasured at fair value on a recurring basis is as follows:

 
| ** **                                        | ** ** | ** **                  | ** ** | **Fair  Value****(1) ****of Liability   Derivatives as of** | ** ** |
|---------------------------------------------------|------------|-----------------------------|------------|------------------------------------------------------------------|------------|
| **Derivatives not designated as  hedges:**        | ** ** | **Balance  Sheet Location** | ** ** | **3/31/10**                                                      | ** ** | **12/31/09** | ** ** |
| ** **                                        | ** ** | ** **                  | ** ** | **(in  thousands)**                                              | ** ** |
| Interest  rate swap agreements                    |       | Other current liabilities   |       | $                                                                | —     |   | $ | 63 |   |
| Derivative  liability related to convertible debt |       | Other current liabilities   |       | 666                                                              |       | 489 |   |
|                                                   |            |                             |            |                                                                  |            |  |  |  |  |

 

----

(1)           Fair value measurementsderived using significant other inputs (Level 2).

 
| ** **                                        | ** ** | **Location  of gain or**     | ** ** | **Amount  of gain or (loss)   recognized on derivative** | ** ** |
|---------------------------------------------------|------------|------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                        | ** ** | **(loss)  recognized in**    | ** ** | **Three  Months Ended**                                  | ** ** |
| **Derivatives not designated as  hedges:**        | ** ** | **statement  of operations** | ** ** | **3/31/10**                                              | ** ** | **3/31/09** | ** ** |
| ** **                                        | ** ** | ** **                   | ** ** | **(in  thousands)**                                      | ** ** |
| Interest  rate swap agreements                    |       | Interest expense             |       | $                                                        | 63         |   | $ | 230 |   |
| Derivative  liability related to convertible debt |       | Interest expense             |       | (177                                                     | )          | 1,379 |   |
|                                                   |            |                              |            |                                                          |            |  |  |  |  |

 

Except as indicated below, the carryingamount of the Company’s other financial instruments approximates fair value.

 

*Long-TermDebt:*

 

The fair value of long-term debt wasestimated based on rates currently available to the Company for debt withsimilar terms and remaining maturities. The carrying amount of long-term debtat March 31, 2010 and December 31, 2009 was $92,962,000 and $94,224,000,respectively, and the fair value was $92,733,000 and $94,312,000, respectively.

 

**14.****         ****IncomeTaxes**

 

The Company uses a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. Interestaccrued related to unrecognized tax benefits is recognized as interest expenseand penalties are recognized in general and administrative expense in theCompany’s consolidated statement of operations; and such amounts are includedin income taxes payable on the Company’s consolidated balance sheet.

 

At March 31, 2010, the Company had aliability of $984,000 for unrecognized tax benefits and interest thereon of$1.7 million. At March 31, 2010, $13.6 million of unrecognizedtax benefits represented taxes on revenues for which the timing of thetaxability is uncertain and the liability for such taxes has been recognized asdeferred tax liabilities. The acceleration of the recognition of such incomewould not affect the estimated annual effective tax rate, but would acceleratethe payment of income taxes to earlier periods and would result in additionalinterest expense.

 

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**15.****         ****OperatingSegment Information**

 
| ** **                                      | ** ** | **Three Months**    | ** ** |
|-------------------------------------------------|------------|---------------------|------------|
| ** **                                      | ** ** | **Ended March 31,** | ** ** |
| ** **                                      | ** ** | **2010**            | ** ** | **2009** | ** ** |
| ** **                                      | ** ** | **(in thousands)**  | ** ** |
| Operating  Revenues                             |       |                |       |   |   |
| Community  Development                          |       | $                   | 3,853      |   | $ | 1,977 |   |
| Resort                                          |       | 6,854               |       | 8,620 |   |
| Other                                           |       | 2                   |       | 111 |   |
| Total  Operating Revenues                       |       | $                   | 10,709     |   | $ | 10,708 |   |
|                                            |       |                |       |   |   |
| Operating  Income (Loss)                        |       |                |       |   |   |
| Community  Development                          |       | $                   | 806        |   | $ | (3,225 | ) |
| Resort                                          |       | (2,524              | )          | (4,157 | ) |
| Other (1)                                       |       | 870                 |       | (1,619 | ) |
| Total  Operating Loss                           |       | (848                | )          | (9,001 | ) |
| Interest  Expense, net                          |       | (3,343              | )          | (1,476 | ) |
| Interest  Income                                |       | 10                  |       | 183 |   |
| Income Tax  Expense                             |       | (85                 | )          | (385 | ) |
|                                            |       |                |       |   |   |
| Loss from  Continuing Operations                |       | (4,266              | )          | (10,679 | ) |
|                                            |       |                |       |   |   |
| Income (Loss)  from Discontinued Operations (1) |       | 1,561               |       | (2,544 | ) |
| Net Loss                                        |       | $                   | (2,705     | ) | $ | (13,223 | ) |

 

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(1) Other operating income and incomefrom discontinued operations for 2010 include credits of $750,000 and $2.3million, respectively, representing gains from the elimination ofnon-bargaining retiree medical insurance benefits and the termination of theCompany’s retiree life insurance plan in the first quarter of 2010.

 

**16.****         ****Commitmentsand Contingencies**

 

The Company had acontractual obligation to the LPGA to sponsor an annual golf tournamentfor five years beginning in October 2008. The cost of such a tournament,including the production and the purse is significant and the Company wasseeking a title sponsor to defray part of the cost. In June 2009, theCompany announced that due to a lack of a title sponsor, it was unable to holdthe 2009 LPGA event that was scheduled for October. This has resulted in adispute with the LPGA, which can be resolved by mediation and if necessaryby binding arbitration. By agreement between the parties, mediation has beensuspended through November 2010 and, in March 2010, the Company paid$700,000 to the LPGA of which 50% will be applied towards sponsorship of anevent if the parties are able to structure a future event. The Company is notable to estimate the losses that may be incurred if the Company is not able tofurther perform under the agreement and, accordingly, no additional provisionfor losses relating to this dispute has been recorded in the consolidatedfinancial statements. Due to the liquidity situation of the Company, a judgmentagainst the Company could have a material negative impact to the Company’sability to maintain minimum liquidity required in its debt covenants.

 

The Company hasvarious unsettled contractual obligations with regard to its now terminatedAgriculture segment operations and has recorded its best estimate of thepotential loss of $3.5 million, which is included in other accruedliabilities in the consolidated balance sheet at March 31, 2010.

 

On September 1,2009, Yamamura filed a lawsuit against the Company, which alleges that theCompany materially breached its Planting Agreement with Yamamura by notproviding a planting schedule for 2009 and by asking Yamamura to cease plantingpineapple for the Company until further notice. The lawsuit further allegesthat the Company unilaterally restricted and impaired the value of Yamamura’sbenefits under the Planting Agreement. The Company intends to vigorously defendthe lawsuit, but has recorded an immaterial amount as the low end of the rangeof its potential exposure under the lawsuit.

 

Pursuant to aprevious agreement, the Company was committed to purchase from Bay Holdingscertain Amenities (see Note 1) upon their completion in 2009 at the actualconstruction cost of approximately $35 million. The Company is currentlyin discussions with the other members of Bay Holdings to negotiate the terms ofthe purchase agreement including the purchase and payment terms, and isdiscussing whether the Company will even be required to purchase the Amenities.

 

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Pursuant to loanagreements of certain equity investments, the Company and the other members ofthe respective joint ventures have guaranteed to lenders each investors prorata share of costs and losses that may be incurred by the lender as a resultof the occurrence of specified triggering events. These guarantees do notinclude full payment of the loans. At March 31, 2010, the Company hasrecognized the estimated fair value of its obligations under these agreements.

 

In connection withthe PGC sale and leaseback, the Company is obligated to replace the irrigationsystem prior to the end of the two-year leaseback term. The replacement costsare capped at $5 million under the terms of the agreement (seeNote 9).

 

In connection witha Honolua Ridge Phase II lot sale in 2007, the Company deferred therecognition of $4.3 million of revenues because of contingencies thatcould result in the Company becoming obligated to repurchase the lot from thebuyer. The buy-back provision will expire in November 2010.

 

In February 2010,the Company received notification from the Internal Revenue Service proposingchanges to the Company’s employment tax withholdings. The Company currentlydoes not expect the impact of the ultimate resolution of the matter to bematerial and has recorded an immaterial amount as the low end of the range ofits potential exposure.

 

Pursuant to a 1999settlement agreement with the County of Maui, the Company and several chemicalmanufacturers have agreed that until December 1, 2039, they will pay for90% of the capital cost to install filtration systems in any future water wellsif the presence of a nematocide commonly known as DBCP exceeds specifiedlevels, and for the ongoing maintenance and operating cost for filtrationsystems on existing and future wells. The Company estimated its share of thecost to operate and maintain the filtration systems for the existing wells andits share of the cost of a letter of credit used to secure its obligations, andrecorded a liability of $250,000 in 1999. The Company recognized an additionalliability and expense of $258,000 since 1999; and paid $363,000 for its shareof the cost of the letter of credit securing its obligation and the capitalcosts to install a filtration system for an existing well. In March 2010,the Company was advised by the County of Maui that it intends to drill anexploratory water well on State of Hawaii lands that are directly aboveproperty that the Company previously used to plant pineapple.  Management believes that the potential forcontamination is low because the proposed well site is above the land whereagricultural chemicals were used. Accordingly, a reserve for costs relating to the future well has not beenrecorded because the Company is not able to reasonably estimate the amount ofliability (if any).

 

In addition to thematters noted above, there are various other claims and legal actions pendingagainst the Company. In the opinion of management, after consultation withlegal counsel, the resolution of these other matters is not expected to have amaterial adverse effect on the Company’s financial position or results ofoperations. The Company, as an investor in various affiliates (partnerships,limited liability companies), may under specific circumstances be called uponto make additional capital contributions.

 

At March 31,2010, the Company had commitments under other signed contracts totaling$2.2 million which primarily relate to real estate development projects,and are payable through 2012.

 

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**Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

The following discussion and analysis of our financial condition andresults of operations should be read in conjunction with our auditedconsolidated financial statements and related notes included in our AnnualReport on Form 10-K for the year ended December 31, 2009 and theunaudited condensed consolidated financial statements and related notesincluded in this Quarterly Report on Form 10-Q. Depending upon thecontext, the terms the “Company,” “we,” “our,” and “us,” refers to either MauiLand & Pineapple Company, Inc. alone, or the Company and itssubsidiaries.

 

***Overview of the Company***

 

Maui Land & Pineapple Company, Inc. is a Hawaiicorporation and the successor to a business organized in 1909. We operate as alandholding and operating parent company. Our principal subsidiary is Kapalua Land Company, Ltd., theoperator and developer of Kapalua Resort, a master-planned community in WestMaui. Our reportable operating segments are Resort and CommunityDevelopment.  In December 2009, allof our Agriculture segment operations were ceased and the segment is reportedas discontinued operations.

 

*Resort*

 

The Kapalua Resort is part of approximately 21,800 acres owned by us inWest Maui, most of which remains as open space. The Kapalua Resort borders theocean with five white sand beaches and includes The Ritz-Carlton, Kapaluahotel, the Ritz-Carlton Club and Residences at Kapalua Bay, the Kapalua Spa,eight residential subdivisions, two championship golf courses (The Bay and ThePlantation), a ten-court tennis facility, several restaurants, and over 800condominiums, single-family homes and residential lots. We operate KapaluaResort’s two golf courses, the tennis facility, and several retail shops. Priorto mid-December 2009, our Resort operations also included a vacationrental program (The Kapalua Villas) and Kapalua Adventures, which is comprisedof zip-lines stretching over scenic ravines in the West Maui mountains, a highropes challenge course, a climbing wall and other activities. In December 2009,we entered into agreements to transfer the operations of The Kapalua Villas andthe Kapalua Adventures operations to third parties, from which we receive leaseand license income.

 

*Community Development*

 

The Community Development segment includes our real estate entitlement,development, construction, sales, leasing, and conservation activities. Ourprojects are focused primarily on the luxury real estate market in andsurrounding the Kapalua Resort and affordable and moderately priced residentialand mixed use projects in West Maui and Upcountry Maui. This segment alsoincludes the operations of Kapalua Realty Company, our general brokerage realestate company located within the Resort, and Kapalua Water Company and KapaluaWaste Treatment Company, our Public Utilities Commission-regulated water andsewage operations that service the Kapalua Resort and adjacent communities.

 

The Community Development segment also includes our 51% equity interestin Bay Holdings, the limited liability company that purchased the Kapalua BayHotel in August 2004 (Note 10 to condensed consolidated financialstatements). Bay Holdings demolished the Kapalua Bay Hotel and the adjacentshops in order to develop new whole and fractional residential units, an ocean-sidespa, and a beach club at that location. Construction was substantially completein June 2009 and includes 84 whole ownership units and 744 fractionalunits of which 21 whole ownership and 109 fractional units closed escrowthrough the end of the first quarter of 2010.

 

We have approximately 1,600 acres of land in Maui that are at variousstages in the land entitlement process. We must obtain appropriate entitlementsfor land that we intend to develop or use for construction. Securing properland entitlements is a process that requires obtaining county, state andfederal approvals, which can take several years to complete, if completed atall, and entails a variety of risks.

 

At the end of 2008, we halted the start of construction of newdevelopment projects, and to date, we have not resumed construction of ourdevelopment projects because of the current economic climate and cash flowconstraints. However, we expect to continue engaging in planning, permittingand entitlement activities for our development projects, and we intend toproceed with construction and sales of the following projects, among others,when internal and external factors permit:

 

·      Kapalua Mauka:  As presently planned, this project iscomprised of 690 single and multi-family residential units and commercialcomponents, five acres of commercial space and up to 27 holes of golf on atotal of 800 acres.

 

·      The Village at Kapalua:  This is the commercial component of thecentral area of the Kapalua Resort. It is planned to be built in two phases andwill add approximately 30,000 square feet of new commercial/retail space to theKapalua Resort. The Village will also include apartments, condominiums andother resort-related facilities. The first phase of the commercial componentopened in 2006, which included approximately 12,000 square feet ofcommercial/retail space.

 

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·      Pulelehua:  This project is designed to be a newtraditional community for working families in West Maui. It encompasses 312acres and is currently planned to include 13 acres for an elementary school,882 dwelling units, 91 acres of usable open space, and a traditional villagecenter with a mix of residential and neighborhood-serving commercial uses. Weare currently in the process of securing a hearing for the project with theMaui County Council Land Use Committee.

 

·      Hali`imaile Town:  This project is contemplated to be a new townin Upcountry Maui, a holistic traditional community with agriculture,education, and sustainability as core design elements. Community designworkshops were held to involve the Maui community in determining the vision forthis community. The public approval process for any plan to develop this areais expected to take several years and will be subject to urban growth boundarydetermination by the County of Maui as it updates the County General Plan overthe next year.

 

*Agriculture*

 

The Agriculturesegment primarily included growing, packing, and marketing of fresh pineapple.Our pineapple was sold under the brand names *MauiGold®* and *HawaiianGold*TM.  We also grew and marketed fresh organicpineapple. On December 31, 2009, we ceased all agriculture operations andwe entered into agreements with an unrelated party that began to grow andmarket Maui Gold® pineapple as of January 1, 2010. We will receive royalty payments based uponsales volume from such third parties, which amounts are expected to beimmaterial.

 

***Current Developments***

 

Forthe first quarter of 2010, we reported a net loss of $2.7 million and we hadcash provided by operations of $3.3 million. Better operating performance and overhead cost reductions, and $3.4million of gains due to the termination of our post-retirement life insuranceplan and the elimination of medical benefits for non-bargaining retireesresulted in improved financial performance in the first quarter of 2010.  Included in the improved operating cash flowswas the receipt of $5.5 million in tax refunds. In December 2009, we ceased our pineapple operations, as well asour Kapalua Villas, Kapalua Adventures, security and shuttle operations.

 

·      In January 2010, wewere notified by the New York Stock Exchange (NYSE) that we were no longer incompliance with the NYSE continued listing standards because our averagecapitalization was less than $50 million over a 30 trading-day period and ourmost recently reported shareholders’ equity was less than $50 million.  In April 2010, the NYSE accepted our18-month plan to achieve compliance.

 

·      In February 2010, RyanL. Churchill was promoted to our President and Chief Operating Officer, fillinga position that was vacant since May 2009.

 

·      In April 2010, John P. Durkin resigned as ourChief Financial Officer and we appointed Tim T. Esaki to fill the positioneffective as of May 10, 2010.

 

**CriticalAccounting Policies and Estimates**

 

The preparation of consolidated financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires the use of accounting estimates. Changes in these estimates andassumptions are considered reasonably possible and may have a material effecton the consolidated financial statements and thus actual results could differfrom the amounts reported and disclosed herein. Our critical accountingpolicies that require the use of estimates and assumptions were discussed indetail in our most recently filed Form 10-K. There have been nosignificant changes in our critical accounting policies during the firstquarter of 2010.

 

There are no other accounting pronouncements or interpretations thathave been issued but not yet applied by us that we believe will have a materialimpact on our consolidated financial statements.

 

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**RESULTS OFOPERATIONS**

 

***Three Months Ended March 31, 2010 compared to Three Months Ended March 31,2009***

 

**CONSOLIDATED**

 
| ** **                                    | ** ** | **Three  Months Ended March 31,**   | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|------------------------------------------|------------|------------|------------|
| ** **                                    | ** ** | **2010**                                 | ** ** | **2009**   | ** ** | **change** | ** ** |
| ** **                                    | ** ** | **(in  millions, except share amounts)** | ** ** |
|                                          |       |                                     |       |       |       |   |   |
| *Consolidated  Revenues*                      |       | $                                        | 10.7       |       | $          | 10.7 |   | $ | — |   |
|                                          |       |                                     |       |       |       |   |   |
| *Loss  From Continuing Operations*            |       | $                                        | (4.3       | )          | $          | (10.7 | ) | $ | 6.4 |   |
|                                          |       |                                     |       |       |       |   |   |
| *Income  (Loss) From Discontinued Operations* |       | $                                        | 1.6        |       | $          | (2.5 | ) | $ | 4.1 |   |
| * *                                      |       |                                     |       |       |       |   |   |
| *Net  Loss*                                   |       | $                                        | (2.7       | )          | $          | (13.2 | ) | $ | 10.5 |   |
|                                          |       |                                     |       |       |       |   |   |
| *Net  Loss Per Common Share*                  |       | $                                        | (0.33      | )          | $          | (1.65 | ) | $ | 1.32 |   |

 

We reported a net loss of $2.7 million ($0.33 per share) for thefirst quarter of 2010 compared to a net loss of $13.2 million ($1.65 per share)for the first quarter of 2009. Net income for the first quarter of 2010includes a credit of $3.4 million representing the gain recognized from the curtailmentof our postretirement medical plan and settlement of our postretirement lifeinsurance plan (Note 12 to condensed consolidated financial statements). Inaddition, although revenues were approximately the same in the first quarter of2010 and 2009, excluding the credit mentioned above, cost reduction effortsresulted in significantly lower costs and expense in the first quarter of 2010compared to the first quarter of 2009.

 

*General and Administrative*

 

Consolidated general and administrative expenses was $1.9 million forthe first quarter of 2010 compared to $6.1 million for the first quarter of2009.

 

The major components of the difference in general and administrativeexpenses were as follows:

 
| ** **                                 | ** ** | **Three  Months Ended** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|-------------------------|------------|------------|------------|
| ** **                                 | ** ** | **March 31,**      | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **2010**                | ** ** | **2009**   | ** ** | **change** | ** ** |
| ** **                                 | ** ** | **(in  millions)**      | ** ** |
| Pension and other post  retirement expense |       | $                       | (0.8       | )          | $          | 1.3 |   | $ | (2.1 | ) |
| Salaries, wages and  stock compensation    |       | 1.0                     |       | 1.8        |       | (0.8 | ) |
| Employee severance  expense                |       | —                  |       | 0.7        |       | (0.7 | ) |
| Professional services                      |       | 0.6                     |       | 1.0        |       | (0.4 | ) |
| Other                                      |       | 1.1                     |       | 1.3        |       | (0.2 | ) |
|                                       |       |                    |       |       |       |   |   |
| Total                                      |       | $                       | 1.9        |       | $          | 6.1 |   | $ | (4.2 | ) |

 

In the first quarter of 2010, we recognized a credit of $3.4 millionthat primarily represented the curtailment and settlement gains as a result of thetermination of our postretirement life insurance plan for all retirees andelimination of retiree medical insurance benefits for non-bargaining retirees;$2.3 million of the settlement gain for the termination of the life insuranceplan was credited to discontinued operations. In addition, our non-bargainingpension plan was frozen as of January 1, 2010, so there was no servicecost accrued for this plan in the first quarter of 2010 (Note 12 to condensedconsolidated financial statements).

 

The decrease in salaries, wages, employee incentives and stock compensationexpense reflect staffing reductions and attrition in all operating segments andin corporate services.  Staff reductionstook place throughout 2009, and further attrition continued in the firstquarter of 2010.  As of March 31,2010, we had 229 employees compared to 700 employees as of March 2009.Severance expense in the first quarter of 2009 was due to the termination ofapproximately 100 employees from our work force in the first quarter.

 

The decrease in professional and other services reflects a reduction inuse of outside consultants.

 

General and administrative expenses are incurred at the corporate leveland at the operating segment level. All general and administrative expensesincurred at the corporate level are allocated to our operating segments. Suchallocations are made on the basis of our evaluation of services provided to theoperating segments.

 

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*Interest Expense*

 

Interest expense was $3.3 million for the first quarter of 2010compared to $1.5 million for the first quarter of 2009.  Included in interest expense for the firstquarter of 2010 and 2009 is a net charge (credit) of $1,017,000 and $(586,000),respectively, representing the change in the estimated fair value of thederivative liability that was bifurcated from the $40 million convertiblenotes, plus accretion on the carrying value of the notes. Also included ininterest expense are credits of $63,000 and $230,000 for the first quarters of2010 and 2009, respectively, representing the change in fair value of certaininterest rate swap agreements.  Theseswap agreements expired in January 2010. In the first quarter of 2010 our average borrowings were approximately$10.7 million lower than the first quarter of 2009. Our effective interest rateon borrowings was 5.9% in the first quarter of 2010 compared to 4.9% in thefirst quarter of 2009.

 

**RESORT**

 
| ** **                    | ** ** | **Three  Months Ended March 31,** | ** ** | ** ** | ** ** |
|-------------------------------|------------|----------------------------------------|------------|------------|------------|
| ** **                    | ** ** | **2010**                               | ** ** | **2009**   | ** ** | **change** | ** ** |
| ** **                    | ** ** | **(in  millions)**                     | ** ** |
|                          |       |                                   |       |       |       |   |   |
| *Revenues*                    |       | $                                      | 6.9        |       | $          | 8.6 |   | $ | (1.7 | ) |
| *% of  consolidated revenues* | * *   | *64*                                   | *%*        | *80*       | *%*        |   |   |
| * *                      | * *   | * *                               | * *   | * *   | * *   |   | * * |
| *Operating  Loss*             |       | $                                      | (2.5       | )          | $          | (4.2 | ) | $ | 1.7 |   |

 

Resort segment revenues decreased from $8.6 million in the firstquarter of 2009 to $6.9 million for the first quarter of 2010, or 20%,reflecting the absence of revenues from The Kapalua Villas and KapaluaAdventures in 2010 as these operations were leased to third parties to operatein December 2009. We are now receiving lease and license income that isreflected in the Community Development segment results. The Resort segmentreported an operating loss of $2.5 million for the first quarter of 2010,compared to an operating loss of $4.2 million for the first quarter of2009. The improved results reflect better results from our golf operations andgeneral cost reductions throughout the Resort segment operations.  Visitor counts to Kapalua Resort and to Mauifor the first quarter of 2010 increased over the same period a year ago, whichalso contributed to the improved results.

 

*Golf and Retail*

 

Revenues from golf operations increased by approximately 10% in thefirst quarter of 2010 compared to the first quarter of 2009, primarily from a7% increase in paid rounds of golf partially offset by a 3% decrease in averagegreens and cart fees per paid round. Resort retail sales for the first quarterof 2010 were approximately 15% lower than the first quarter of 2009, primarilyreflecting the reduced spending by guest and a reduction in retail and food andbeverage space with the closure of the Kapalua Adventures retail and café in December 2009and the closure of our tennis retail area in November 2009.  Overall occupied rooms at the Kapalua Resortfor the first quarter of 2010 was 7% higher than the first quarter of 2009.

 

**COMMUNITYDEVELOPMENT**

 
| ** **                    | ** ** | **Three  Months Ended March 31,** | ** ** | ** ** | ** ** |
|-------------------------------|------------|----------------------------------------|------------|------------|------------|
| ** **                    | ** ** | **2010**                               | ** ** | **2009**   | ** ** | **change** | ** ** |
| ** **                    | ** ** | **(in  millions)**                     | ** ** |
|                          |       |                                   |       |       |       |   |   |
| *Revenues*                    |       | $                                      | 3.9        |       | $          | 2.0 |   | $ | 1.9 |   |
| *% of  consolidated revenues* | * *   | *36*                                   | *%*        | *18*       | *%*        |   |   |
| * *                      | * *   | * *                               | * *   | * *   | * *   |   | * * |
| *Operating  Profit (Loss)*    |       | $                                      | 0.8        |       | $          | (3.2 | ) | $ | 4.0 |   |

 

The Community Development segment reported an operating profit of$800,000 for the first quarter of 2010 compared to an operating loss of$3.2 million for the first quarter of 2009. Revenues from this operatingsegment were $3.9 million for the first quarter of 2010 compared to$2.0 million for the first quarter of 2009. Increased revenues reflect theland sale in the first quarter of 2010 and higher revenues from lease andlicense agreements that were put in place in December 2009.  Included in the operating loss for the firstquarter of 2009 is $1.1 million representing our equity in the losses of BayHoldings.  In 2010, we did not recognizeany additional losses from this investment as the carrying value of ourinvestment and our loan to Bay Holdings have been written down to zero and wehave no further obligation to fund losses (Note 10 to condensed consolidatedfinancial statements).

 

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*Real Estate Sales*

 

In the first quarter of 2010, we sold approximately 128 acres of landin Upcountry Maui and recognized revenues of $1.7 million and pre-tax profit ofapproximately $1.5 million.  There wereno real estate sales in the first quarter of 2009.

 

**AGRICULTURE**

 
| ** **                                                        | ** ** | **Three  Months Ended March 31,** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------------|------------|------------|------------|
| ** **                                                        | ** ** | **2010**                               | ** ** | **2009**   | ** ** | **change** | ** ** |
| ** **                                                        | ** ** | **(in  millions)**                     | ** ** |
|                                                              |       |                                   |       |       |       |   |   |
| *Income  (Loss) From Discontinued Operations Before Income Taxes* | * *   | $                                      | 1.6        |       | $          | (2.5 | ) | $ | 4.1 |   |
|                                                                   |            |                                        |            |            |            |  |  |  |  |  |

 

Asof the end of 2009, we ceased all of our agricultural operations (Note 7 tocondensed consolidated financial statements) and we are reporting ourAgriculture segment operating results as discontinued operations with priorperiod amounts restated for comparability. Income from discontinued operations for the first quarter of 2010includes a credit of $2.3 million representing the pineapple operations gainfrom first quarter 2010 termination of our postretirement life insurance plan(Note 12 to condensed consolidated financial statements).

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

*Debt Position*

 

AtMarch 31, 2010, our total debt, including capital leases, was$94.1 million, compared to $96.6 million at December 31, 2009.The decrease in outstanding debt in the first quarter of 2010 was primarily dueto payments made as we received approximately $5.5 million in tax refunds andnet cash proceeds of approximately $1.5 million from the sale of real estate.At March 31, 2010, we had approximately $16.1 million available underexisting lines of credit and $795,000 in cash and cash equivalents; an excessof current liabilities over current assets of $63.8 million, and a deficiencyin stockholders’ equity (total liabilities exceeded total assets) of$78.0 million.

 

Includedin current liabilities are $57.8 million of borrowings outstanding underagreements that are scheduled to mature in March 2011, with financialcovenants requiring among other things, a minimum of $8 million in liquidityand a limitation on new indebtedness.  Inaddition, we have $40 million of outstanding convertible notes that may beredeemed by holders as early as July 2011. Failure to satisfy the minimum liquidity covenants or to otherwisedefault under one credit agreement could result in a default under both creditagreements as well as a default under the $40 million senior securedconvertible notes. Defaults under the credit agreements could result in alloutstanding borrowings becoming immediately due and payable. If we defaultunder the senior secured convertible notes, the holders of such notes mayrequire us to redeem the notes, in which case we would also be required to paya redemption premium equal to 115% multiplied by (i) the principal andaccrued and unpaid interest under each note, or (ii) the highest closingsale price of our common stock during the period between the event of defaultand delivery of redemption notice multiplied by the number of shares of ourcommon stock into which a note is then convertible.

 

*Liquidity*

 

Ourcash outlook for the next twelve months and our ability to make the requireddebt repayment in March 2011 and to continue to meet our financialcovenants is highly dependent on selling certain real estate assets in adifficult market and our ability to raise additional equity capital.If we are unable to meet ourfinancial covenants resulting in the borrowings becoming immediately due, orare unable to restructure our credit agreements to extend the maturity datebeyond March 2011, we would not have sufficient liquidity to repay suchoutstanding borrowings. In addition, we have a commitment to purchase the spa,beach club improvements and the sundry store, referred to as the Amenities,from Bay Holdings at actual construction costs of approximately$35 million. We do not currently have the cash resources to complete the purchase.  We are in discussions with the other membersof Bay Holdings to negotiate the terms of the purchase agreement including thepurchase price and payment terms, and are discussing whether we will even berequired to purchase the Amenities.  In June 2009,we announced that due to a lack of a title sponsor, we were unable to hold the2009 Ladies Professional Golf Association (LPGA) event that was scheduled forOctober. This has resulted in a dispute with the LPGA, which can be resolved bymediation and if necessary by binding arbitration. By agreement between theparties, mediation has been suspended through November 2010 and we paid$700,000 of which 50% will be applied towards sponsorship of an event if theparties are able to structure a future event. In addition, in September 2009,M. Yamamura and Sons, Inc. (“Yamamura”) filed a lawsuit against usalleging that we materially breached the Maui Gold Pineapple Planting and FruitPurchase Agreement by not providing a planting schedule for 2009 and by askingYamamura to cease planting pineapple for us, and that we unilaterallyrestricted and impaired the value of Yamamura’s 

 

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benefitsunder the agreement. We are also subject to other commitments and contingenciesthat could negatively impact our future cash flows.  These matters are further described in Note16 to our condensed consolidated financial statements.  These circumstances raise substantial doubtabout our ability to continue as a going concern. There can be no assurancethat we will be able to successfully achieve our initiatives discussed below inorder to continue as a going concern. Our condensed consolidated financialstatements do not include any adjustments that might result should we be unableto continue as a going concern.

 

Inresponse to these circumstances, we continue to undertake several financial andstrategic initiatives to reduce cash commitments and generate cash flow from avariety of sources, including the sale of several real estate assets.  In the first quarter of 2010, we concludedthe sale of one property that resulted in total cash proceeds (net of sellingcosts) of $1.5 million. In addition, we have taken several other actions toreduce cash outflows, as well as measures to reduce operating expenses. In thefirst quarter of 2010, we terminated our postretirement medical insurance planfor non-bargaining retirees and increased the percentage of medical insurancethat active employees are paying for current medical insurance coverage.  We also terminated our retiree life insuranceplan in the first quarter of 2010 in an effort to reduce our cash outflows. Weare actively in the process of attempting to sell several selected real estateassets to provide additional liquidity and to further reduce debt.  We are attempting to raise capital in anequity financing transaction, which may be used to retire certain outstandingdebt and to meet working capital needs. In addition, we are working with our lenders to extend the maturity dateof our credit agreements.

 

*AmendedConstruction Loan Agreement Following Lehman Bankruptcy*

 

In July 2006, Bay Holdings, in which we have a 51% interest,entered into a syndicated construction loan agreement with Lehman, for thelesser of $370 million or 61.6% of the total projected cost of theproject. Lehman’s commitment under the loan agreement was approximately 78% ofthe total. On September 15, 2008, Lehman filed a petition underChapter 11 of the U.S. Bankruptcy Code with the United States BankruptcyCourt. In February 2009, Bay Holdings entered into an amended and restatedconstruction loan agreement with Lehman, Swedbank, MH KapaluaVenture, LLC, an affiliate of Marriott, and certain other syndicatelenders, pursuant to which Bay Holdings may borrow an aggregate ofapproximately $354.5 million, including amounts previously funded underthe original construction loan agreement (Note 10 to condensedconsolidated financial statements).

 

*Revolving Line of Credit with American AgCredit, FLCA*

 

In October 2009, we executed an amendment to our revolving line ofcredit agreement with American AgCredit, FLCA. The amendment extended the maturityof the loan from March 2010 to March 2011, reduced the minimumliquidity requirement from $10 million to $8 million, places limitations on newindebtedness and capital expenditures, requires that total liabilities be nogreater than $240 million and increases the interest rate by 75 to 200 basispoints, subject to a minimum interest rate of 5.5%. As of March 31, 2010,this $25 million line of credit was fully drawn.

 

*Revolving Line of Credit with Wells Fargo and Certain OtherLenders*

 

In October 2009, we executed a restated and amended revolving lineof credit agreement with Wells Fargo Bank and certain other lenders. Therestated and amended credit agreement increased the amount of the revolvingline from $45 million to $50 million, extended the maturity of the loan from March 2010to March 2011, reduced the minimum liquidity requirement from $10 millionto $8 million, requires that total liabilities be no greater than $240 millionand limits additional indebtedness and capital expenditures.  Interest on outstanding amounts are at aLIBOR market index or the LIBOR rate, plus 4.25%.  As of March 31, 2010, we had$33.9 million outstanding or encumbered to secure letters of credit, and$16.1 million available under this line.

 

*Private Placement of Convertible Notes*

 

On July 28, 2008, we issued $40 million in aggregateprincipal amount of convertible notes, bearing 5.875% interest per annumpayable quarterly in cash in arrears beginning October 15, 2008. Theconvertible notes mature on July 15, 2013, subject to earlier conversionor redemption under certain conditions as specified in the notes. As of March 31,2010, we had $40.5 million in principal and accrued but unpaid interestoutstanding under the convertible notes. On July 28, 2011, the convertible note holders have the right torequire the Company to redeem all or any portion of the convertible notes at aredemption price equal to 100% of the principal amount being redeemed, plusaccrued and unpaid interest thereon.

 

As of March 31, 2010, we were in compliance with all of thecovenants under our outstanding debt arrangements.

 

*Operating Cash Flows*

 

In the first three months of 2010, consolidated net cash provided fromoperating activities was $3.3 million compared to net cash used in operatingactivities of $9.9 million for the first three months of 2009. Theimproved cash flows from operating activities primarily reflect income taxrefunds of $5.5 million.  In addition, wesold 128 acres of land in the first quarter of 2010 and received net cashproceeds of $1.5 million; and increased cash flows also reflect improvedperformance and continued implementation of cost reduction measures in all ofour operations.

 

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*Future Cash Inflows and Outflows*

 

Our plans for 2010 includethe possible sale of certain operating and non-operating real estateassets.  We may also seek to raisecapital by conducting an equity financing, which may be used to repayoutstanding indebtedness and provide additional working capital.  There can be no assurance that we will beable to sell any of our real estate assets or consummate an equity financing onacceptable terms, or at all.

 

In 2010, minimum required contributions to our defined benefit pensionplans are expected to be $2.1 million. We may defer contributions to ourpension plans and to the extent that payments are deferred, we would berequired to pay interest on all deferred amounts. To date in 2010, we have made$819,000 of contributions to our pension plans, but have failed to pay thefirst quarterly contribution required for the 2010 plan year. Our net pensionliability and minimum required contribution amounts are calculated based uponan assessment of several variables including employee compensation levels,employee turnover rates, the expected long term rate of return on investments,and other factors that are difficult to ascertain. Any significant changes inany one or more of these variables could materially affect our net pensionliability and required minimum contributions. We expect to contribute $190,000to our other post-retirement benefit plans in 2010.

 

In 2010, capital expenditures and expenditures for deferred developmentcost have been reduced, except for expenditures that are necessary to maintainour operations and standards of quality at the Kapalua Resort. Expendituresplanned for 2010 total approximately $1.0 million, primarily fordevelopment entitlement work.

 

In connection with the PGC sale and leaseback, we are obligated toreplace the irrigation system prior to the end of the two-year leaseback term (March 2011).The replacement costs are capped at $5 million under the terms of theagreement and we expect to incur approximately $3.4 million in 2010. Inaddition, our annual net rental payment under the lease is $4.0 million.

 

We have a commitment to purchase the Amenities from Bay Holdings atactual construction costs of approximately $35 million. We are in discussionswith the members of Bay Holdings to negotiate the terms of the purchaseagreement including the purchase price and payment terms, and are discussingwhether we will even be required to purchase the Amenities.

 

**CONTRACTUALOBLIGATIONS**

 

The following summarizes our contractual obligations as of March 31,2010 (in thousands):

 
| ** **                                      | ** ** | ** ** | ** ** | **Payment  due by period (years)** | ** ** |
|-------------------------------------------------|------------|------------|------------|------------------------------------|------------|
| ** **                                      | ** ** | ** ** | ** ** | **Less**                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Contractual Obligations**                     | ** ** | **Total**  | ** ** | **Than  1**                        | ** ** | **1 - 3** | ** ** | **4 - 5** | ** ** | **After  5** | ** ** |
| Long-term  debt (1)                             |       | $          | 97,800     |                               | $          | 57,800 |   |   |   | $ | 40,000 |   | $ | — |   |
| Capital  lease obligations (including interest) |       | 1,249      |       | 954                                |       | 292 |   | 3 |   | — |   |
| Interest  on long-term debt (2)                 |       | 12,882     |       | 7,418                              |       | 4,772 |   | 692 |   | — |   |
| Operating  leases (3)                           |       | 916        |       | 517                                |       | 390 |   | 9 |   | — |   |
| Purchase  commitments (3)(6)                    |       | 541        |       | 301                                |       | 240 |   | — |   | — |   |
| Other  long-term liabilities (4)(5)             |       | 9,905      |       | 6,761                              |       | 1,640 |   | 939 |   | 565 |   |
|                                            |       |       |       |                               |       |   |   |   |   |   |   |
| Total                                           |       | $          | 123,293    |                               | $          | 73,751 |   | $ | 7,334 |   | $ | 41,643 |   | $ | 565 |   |
|                                                 |            |            |            |                                    |            |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)           Long-term debtas presented above includes convertible notes of $40 million due in July 2013.These notes are included in our March 31, 2010 balance sheet as long-termdebt of $34,323,000 and other current liabilities (derivative liability) of$666,000. The purchasers of the notes have the right to require redemption onthe third anniversary of issuance, but the notes have a stated five year maturity.

 

(2)           Future interestpayments on variable-rate long term debt were calculated assuming that futureinterest rates equal the rates at March 31, 2010.

 

(3)           These operatingleases and purchase commitments are not reflected on the consolidated balance sheetsunder accounting principles generally accepted in the United States of America.

 

(4)           Amounts consistprimarily of payments due under our deferred compensation plan, unfundedpension payments and severance plans. Where pension payments were for lifetime,payments were estimated for five additional years.

 

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(5)           We have notprovided a detailed estimate of the timing of income tax payments amounting to$984,000 due to the uncertainty of when the related tax settlements are due(Note 14 to condensed consolidated financial statements).

 

(6)           We have acommitment to purchase the Amenities from Bay Holdings at actual constructioncosts of approximately $35 million. We are negotiating the terms of thepurchase with the other members of Bay Holdings.  The commitment is not included in the tableabove because the timing and amount of the payment is uncertain.  In addition, we had a contractual obligationwith the Ladies Professional Golf Association. However, no amounts related to our obligations under this contract havebeen included in the table above because the timing and amount of the paymentis uncertain.

 

**FORWARD-LOOKINGSTATEMENTS AND RISKS**

 

This and other reports filed by us with the Securities and ExchangeCommission, or SEC, contain forward-looking statements intended to qualify forthe safe harbor from liability established by the Private Securities LitigationReform Act of 1995. These statements relate to future events or our futurefinancial performance and involve known and unknown risks, uncertainties andother factors that may cause our actual results, levels of activity,performance or achievements to differ materially from any future results,levels of activity, performance or achievements expressed or implied by theseforward-looking statements. These statements can be identified by the fact thatthey do not relate strictly to historical or current facts. They contain wordssuch as “may,” “will,” “project,” “might,” “expect,” “believe,” “anticipate,” “intend,”“could,” “would,” “estimate,” “continue” or “pursue,” or the negative or othervariations thereof or comparable terminology. Actual results could differmaterially from those projected in forward-looking statements as a result ofthe following factors, among others.

 

·      our ability to comply with the terms of ourindebtedness, including the financial covenants set forth therein;

 

·      general economic factors, including the currenteconomic recession, tightening credit markets, declining demand for realestate, and declining expenditures within the tourism industry on Maui;

 

·      the satisfaction of certain closing conditions setforth in the amended construction loan agreement and certain related agreementsrelating to the construction of the Residences at Kapalua Bay project;

 

·      the ability and willingness of our lenders to complywith the terms of their lending agreements with us;

 

·      increased fuel and travel costs, and reductions inairline passenger capacity to Maui;

 

·      dependence on third parties and actual or potentiallack of control over joint venture relationships;

 

·      recoverability from operations of real estatedevelopment deferred costs;

 

·      timing of approvals and conditions of future realestate entitlement applications;

 

·      impact of current and future local, state and nationalgovernment regulations, including Maui County affordable housing legislation;

 

·      future cost of compliance with environmental laws;

 

·      effects of weather conditions and natural disasters;

 

·      our ability to maintain the listing of our commonstock on the New York Stock Exchange;

 

·      availability of capital on terms favorable to us, orat all;

 

·      our ability to raise capital through the sale ofselected real property assets; and

 

·      our ability to refinance or reduce our indebtedness.

 

Such risks and uncertainties also include those risks and uncertaintiesdiscussed in the sections entitled “Business,” “Risk Factors,” and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” inour Annual Report on Form 10-K for the year ended December 31, 2009,and the sections entitled “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and “Risk Factors” in this QuarterlyReport on Form 10-Q, as well as other factors described from time to timein our reports filed with the SEC. Although we believe that our opinions andexpectations reflected in the forward-looking statements are reasonable as ofthe date of this report, we cannot guarantee future results, levels ofactivity, performance or achievements, and our actual results may differsubstantially from the views and expectations set forth in this report. Thus,you should not place undue reliance on any forward-looking statements. Newfactors emerge from time to time, and it is not possible for us to predictwhich factors will arise. In addition, we cannot assess the impact of eachfactor on our business or the extent to which any factor, or combination offactors, may cause actual results to differ materially from those contained inany forward-looking statements. Further, any forward-looking statements speakonly as of the date made and, except as required by law, we undertake noobligation to publicly revise our forward-looking statements to reflect eventsor circumstances that arise after the date of this report.

 

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**Item 4.  Controls and Procedures**

 

We maintain disclosure controls and procedures (as such term is definedin Rules 13a-15(e) and 15d-15(e) under the Securities ExchangeAct of 1934, as amended) that are designed to ensure that information requiredto be disclosed in our Exchange Act reports is recorded, processed, summarizedand reported within the time periods specified in the SEC’s rules andforms, and that such information is accumulated and communicated to ourmanagement, including our Interim Chief Executive Officer and Chief FinancialOfficer, as appropriate, to allow timely decisions regarding requireddisclosure.

 

In designing and evaluating the disclosure controls and procedures, ourmanagement recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving thedesired control objectives, and our management necessarily was required toapply its judgment in evaluating the cost-benefit relationship of possiblecontrols and procedures.

 

As required by Rule 13a-15(b) and 15d-15(b) under theExchange Act, we carried out an evaluation, under the supervision and with theparticipation of our management, including our Interim Chief Executive Officerand Chief Financial Officer, of the effectiveness of the design and operationof our disclosure controls and procedures as of the end of the fiscal quartercovered by this report. Based upon the foregoing, our Interim Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective to provide reasonable assurance that informationrequired to be disclosed by us in our Exchange Act reports is recorded,processed, summarized and reported within the time periods specified inapplicable SEC rules and forms. There has been no change in our internalcontrol over financial reporting during the three months ended March 31,2010 that has materially affected or is reasonably likely to materially affectour internal control over financial reporting.

 

**PART II OTHER INFORMATION**

 

**Item 1A.  Risk Factors**

 

Potential risksand uncertainties 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, 2009 and the sectionentitled “Management’s Discussion and Analysis of Financial Condition andResults of Operations” in this Quarterly Report on Form 10-Q. Readersshould carefully review those risks, as well as additional risks describedbelow and in other documents we file from time to time with the SEC. Weundertake no obligation to publicly release the results of any revisions to anyforward-looking statements to reflect anticipated or unanticipated events orcircumstances occurring after the date of such statements.

 

**If we do not meet the continued listing requirements of theNew York Stock Exchange (NYSE), our common stock may be delisted.**

 

Ourcommon stock is currently listed on the NYSE. On January 11, 2010 wereceived notification from the NYSE that we are no longer in compliance withthe NYSE’s continued listing standards because our average marketcapitalization was less than $50 million over a 30 trading-day period and ourmost recently reported shareholders’ equity was less than $50 million.

 

Underapplicable NYSE procedures, we had 45 days from receipt of the notification tosubmit a plan to the NYSE to demonstrate our ability to achieve compliance withthe continued listing standards within 18 months. We submitted such a plan tothe NYSE on February 22, 2010 and the NYSE has accepted the plan. Withacceptance of the plan, we have 18 months from the original notification datein which to comply with the average market capitalization standard, subject tocompliance with the NYSE’s other continued listing requirements and subject toquarterly reviews by the NYSE to monitor our progress against the plan. Duringthis time, our common stock will continue to be listed on the NYSE.

 

Amongthe other NYSE continued listing standards, a company is subject to delistingif average global market capitalization over a consecutive 30 trading-dayperiod is less than $15 million, regardless of stockholders’ equity or if acompany’s average common stock prices is less than $1.00 for more than 30consecutive trading days. As of April 9, 2010, our closing stock price was$5.56 per share and our average global market capitalization over the previousconsecutive 30 trading-day period ended on April 9, 2010 was approximately$48.5 million.

 

Inthe future, we may not be able to meet the continued listing requirements ofthe NYSE, in response to which, the NYSE may take action to delist our commonstock. In such event, if we are unable to regain compliance with the NYSE’scontinued listing standards within the required time frames, our common stockwould be delisted, which would violate the provisions of our $50 million lineof credit and our $40 million senior secured convertible notes and could resultin these debts becoming immediately due. In addition, delisting couldnegatively impact us by, among other things, reducing the liquidity and marketprice of our common stock, reducing the number of investors willing to hold oracquire our common stock, decreasing the amount of news and analyst coveragefor us, and limiting our ability to issue additional securities or obtainadditional financing in the future, and might negatively impact our reputationand, as a consequence, our business.

 

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**Item 6.  Exhibits**

 
| 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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**SIGNATURE**

 

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

 
|               |     | MAUI  LAND & PINEAPPLE COMPANY, INC. |
|--------------------|----------|----------------------------------------------------|
|               |     |                                               |
|               |     |                                               |
| May 11,  2010 |     | /s/  TIM T. ESAKI                                  |
| Date               |     | Tim  T. Esaki                                      |
| * *           | * * | *Chief Financial Officer*                          |
|               |     | (Principal  Financial Officer)                     |

 

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**EXHIBIT INDEX**

 
| **Exhibit Number** | ** ** | **Description**                                                                                                                                                                                          |
|-------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1                    |       | Certification  of Chief Executive Officer Pursuant to Rule 13a-14(d)/15d-14(a) of  the Securities Exchange Act of 1934.(1)                                                                     |
|                    |       |                                                                                                                                                                                                     |
| 31.2                    |       | Certification  of Chief Financial Officer Pursuant to Rule 13a-14(d)/15d-14(a) of  the Securities Exchange Act of 1934.(1)                                                                     |
|                    |       |                                                                                                                                                                                                     |
| 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.(2) |

 

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(1)           Filed herewith.

 

(2)           Furnished herewith and not “filed”for purposes of Section 18 of the Securities Exchange Act of 1934, asamended.

 

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