Table of Contents

** **

 

** **

**UNITED STATES**

**SECURITIESAND 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 June 30, 2010**

 

**OR**

 

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

 

**Commissionfile number 001-06510**

 

**MAUILAND & PINEAPPLE COMPANY, 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 August 3, 2010** |
|----------------------------|------------|-------------------------------------------------------|
| Common Stock, no par value |       | 18,813,668 shares                                     |

 

 

 

----

Table ofContents

 

**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 and Comprehensive Loss, Three Months  Ended June 30, 2010 and 2009   | 3        |
|                                                                                                                       |     |
| Condensed Consolidated Statements of Operations and  Comprehensive Loss, Six Months Ended June 30, 2010 and 2009      | 4        |
|                                                                                                                       |     |
| Condensed  Consolidated Balance Sheets, June 30, 2010 and December 31, 2009                                      | 5        |
|                                                                                                                       |     |
| Condensed Consolidated Statements of Stockholders’  Equity (Deficiency), Six Months Ended June 30, 2010 and 2009 | 6        |
|                                                                                                                       |     |
| Condensed  Consolidated Statements of Cash Flows, Six Months Ended June 30, 2010  and 2009                            | 7        |
|                                                                                                                       |     |
| Notes to  Condensed Consolidated Financial Statements                                                                      | 8        |
|                                                                                                                       |     |
| Item 2. Management’s Discussion and Analysis of Financial  Condition and Results of Operations                   | 19       |
|                                                                                                                       |     |
| Forward-Looking Statements and Risks                                                                                       | 28       |
|                                                                                                                       |     |
| Item 4. Controls and Procedures                                                                                       | 29       |
|                                                                                                                       |     |
| PART II.  OTHER INFORMATION                                                                                           | 30       |
|                                                                                                                       |     |
| Item 1A.  Risk Factors                                                                                                | 30       |
|                                                                                                                       |     |
| Item 6.  Exhibits                                                                                                     | 30       |
|                                                                                                                       |     |
| Signature                                                                                                                  | 31       |
|                                                                                                                       |     |
| EXHIBIT INDEX                                                                                                         |     |
|                                                                                                                       |     |
| Exhibit 3.1                                                                                                           |     |
| Exhibit 3.2                                                                                                           |     |
| Exhibit 31.1                                                                                                          |     |
| Exhibit 31.2                                                                                                          |     |
| Exhibit 32.1                                                                                                          |     |

 

2

----

Tableof Contents

 

**PART I FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

 

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

 

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ANDCOMPREHENSIVE LOSS**

 

**(UNAUDITED)**

 
| ** **                                                            | ** ** | **Three Months Ended,**  | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                            | ** ** | **6/30/2010**            | ** ** | **6/30/2009** | ** ** |
| ** **                                                            | ** ** | **(in thousands except** | ** ** |
| ** **                                                            | ** ** | **share amounts)**       | ** ** |
|                                                                  |       |                     |       |   |   |
| OPERATING  REVENUES                                                   |       |                     |       |   |   |
| Product  revenues                                                     |       | $                        | 2,602      |   | $ | 3,086 |   |
| Service  revenues                                                     |       | 5,722                    |       | 5,663 |   |
|                                                                  |       |                     |       |   |   |
| Total  Operating Revenues                                             |       | 8,324                    |       | 8,749 |   |
|                                                                  |       |                     |       |   |   |
| OPERATING  COSTS AND EXPENSES                                         |       |                     |       |   |   |
| Cost  of product revenues                                             |       | 841                      |       | 1,125 |   |
| Cost  of service revenues                                             |       | 7,468                    |       | 9,058 |   |
| Selling  and marketing                                                |       | 393                      |       | 1,152 |   |
| General  and administrative                                           |       | 1,363                    |       | 6,627 |   |
| Impairment  charges (Note 8)                                          |       | —                   |       | 14,286 |   |
|                                                                  |       |                     |       |   |   |
| Total  Operating Costs and Expenses                                   |       | 10,065                   |       | 32,248 |   |
|                                                                  |       |                     |       |   |   |
| Operating  Loss                                                       |       | (1,741                   | )          | (23,499 | ) |
|                                                                  |       |                     |       |   |   |
| Equity  in losses of affiliates (Note 11)                             |       | —                   |       | (23,273 | ) |
| Interest  expense                                                     |       | (2,543                   | )          | (3,067 | ) |
| Interest  income                                                      |       | 15                       |       | 195 |   |
|                                                                  |       |                     |       |   |   |
| Loss  from Continuing Operations Before Income Taxes                  |       | (4,269                   | )          | (49,644 | ) |
| Income  Tax Expense                                                   |       | —                   |       | 415 |   |
|                                                                  |       |                     |       |   |   |
| Loss  from Continuing Operations                                      |       | (4,269                   | )          | (50,059 | ) |
|                                                                  |       |                     |       |   |   |
| Loss  from Discontinued Operations (Note 7) net of income taxes of $0 |       | (318                     | )          | (4,160 | ) |
|                                                                  |       |                     |       |   |   |
| NET  LOSS                                                             |       | (4,587                   | )          | (54,219 | ) |
| Pension  Benefit Adjustment net of income taxes of $0                 |       | (807                     | )          | — |   |
|                                                                  |       |                     |       |   |   |
| COMPREHENSIVE  LOSS                                                   |       | $                        | (5,394     | ) | $ | (54,219 | ) |
|                                                                  |       |                     |       |   |   |
| LOSS  PER COMMON SHARE—BASIC AND DILUTED                         |       |                     |       |   |   |
| Continuing  Operations                                                |       | $                        | (0.53      | ) | $ | (6.23 | ) |
| Discontinued  Operations                                              |       | (0.04                    | )          | (0.52 | ) |
| Net  Loss                                                             |       | $                        | (0.57      | ) | $ | (6.75 | ) |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

3

----

Table of Contents

 

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

 

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ANDCOMPREHENSIVE LOSS**

 

**(UNAUDITED)**

 
| ** **                                                                     | ** ** | **Six Months Ended,**    | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                     | ** ** | **6/30/2010**            | ** ** | **6/30/2009** | ** ** |
| ** **                                                                     | ** ** | **(in thousands except** | ** ** |
| ** **                                                                     | ** ** | **share amounts)**       | ** ** |
|                                                                           |       |                     |       |   |   |
| OPERATING  REVENUES                                                            |       |                     |       |   |   |
| Product  revenues                                                              |       | $                        | 7,566      |   | $ | 6,791 |   |
| Service  revenues                                                              |       | 11,467                   |       | 12,666 |   |
|                                                                           |       |                     |       |   |   |
| Total  Operating Revenues                                                      |       | 19,033                   |       | 19,457 |   |
|                                                                           |       |                     |       |   |   |
| OPERATING  COSTS AND EXPENSES                                                  |       |                     |       |   |   |
| Cost  of product revenues                                                      |       | 2,048                    |       | 2,572 |   |
| Cost  of service revenues                                                      |       | 14,789                   |       | 18,886 |   |
| Selling  and marketing                                                         |       | 1,530                    |       | 2,404 |   |
| General  and administrative                                                    |       | 3,255                    |       | 12,679 |   |
| Impairment  charges (Note 8)                                                   |       | —                   |       | 14,286 |   |
|                                                                           |       |                     |       |   |   |
| Total  Operating Costs and Expenses                                            |       | 21,622                   |       | 50,827 |   |
|                                                                           |       |                     |       |   |   |
| Operating  Loss                                                                |       | (2,589                   | )          | (31,370 | ) |
|                                                                           |       |                     |       |   |   |
| Equity  in losses of affiliates (Note 11)                                      |       | —                   |       | (24,403 | ) |
| Interest  expense                                                              |       | (5,886                   | )          | (4,543 | ) |
| Interest  income                                                               |       | 25                       |       | 378 |   |
|                                                                           |       |                     |       |   |   |
| Loss  from Continuing Operations Before Income Taxes                           |       | (8,450                   | )          | (59,938 | ) |
| Income  Tax Expense                                                            |       | 85                       |       | 800 |   |
|                                                                           |       |                     |       |   |   |
| Loss  from Continuing Operations                                               |       | (8,535                   | )          | (60,738 | ) |
|                                                                           |       |                     |       |   |   |
| Income  (Loss) from Discontinued Operations (Note 7) net of income taxes of $0 |       | 1,243                    |       | (6,704 | ) |
|                                                                           |       |                     |       |   |   |
| NET  LOSS                                                                      |       | (7,292                   | )          | (67,442 | ) |
| Pension  Benefit Adjustment net of income taxes of $0                          |       | 615                      |       | — |   |
|                                                                           |       |                     |       |   |   |
| COMPREHENSIVE  LOSS                                                            |       | $                        | (6,677     | ) | $ | (67,442 | ) |
|                                                                           |       |                     |       |   |   |
| EARNINGS  (LOSS) PER COMMON SHARE—BASIC AND DILUTED                       |       |                     |       |   |   |
| Continuing  Operations                                                         |       | $                        | (1.06      | ) | $ | (7.57 | ) |
| Discontinued  Operations                                                       |       | 0.16                     |       | (0.83 | ) |
| Net  Loss                                                                      |       | $                        | (0.90      | ) | $ | (8.40 | ) |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

4

----

Tableof Contents

 

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

 

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 

**(UNAUDITED)**

 
| ** **                                                                                                            | ** ** | **6/30/2010**      | ** ** | **12/31/2009** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------|------------|
| ** **                                                                                                            | ** ** | **(in thousands)** | ** ** |
|                                                                                                                  |       |               |       |           |       |
| ASSETS                                                                                                                |       |               |       |           |       |
|                                                                                                                  |       |               |       |           |       |
| CURRENT  ASSETS                                                                                                       |       |               |       |           |       |
| Cash  and cash equivalents                                                                                            |       | $                  | 1,333      |           | $          | 1,881 |   |
| Accounts  receivable, less allowance of $868 and $452 for doubtful accounts                                           |       | 2,356              |       | 3,684          |       |
| Refundable  income taxes                                                                                              |       | —             |       | 4,331          |       |
| Inventories                                                                                                           |       | 3,083              |       | 3,387          |       |
| Prepaid  expenses and other assets                                                                                    |       | 1,624              |       | 377            |       |
| Assets  held for sale                                                                                                 |       | 13,487             |       | 15,227         |       |
| Total  Current Assets                                                                                                 |       | 21,883             |       | 28,887         |       |
|                                                                                                                  |       |               |       |           |       |
| PROPERTY                                                                                                              |       | 147,693            |       | 144,903        |       |
| Accumulated  depreciation                                                                                             |       | (64,058            | )          | (60,189        | )          |
| Net  Property                                                                                                         |       | 83,635             |       | 84,714         |       |
|                                                                                                                  |       |               |       |           |       |
| OTHER  ASSETS                                                                                                         |       | 13,876             |       | 14,447         |       |
|                                                                                                                  |       |               |       |           |       |
| TOTAL                                                                                                                 |       | $                  | 119,394    |           | $          | 128,048 |   |
|                                                                                                                  |       |               |       |           |       |
| LIABILITIES &  STOCKHOLDERS’ DEFICIENCY                                                                 |       |               |       |           |       |
|                                                                                                                  |       |               |       |           |       |
| CURRENT  LIABILITIES                                                                                                  |       |               |       |           |       |
| Current  portion of long-term debt and capital lease obligations                                                      |       | $                  | 63,956     |           | $          | 1,817 |   |
| Trade  accounts payable                                                                                               |       | 5,613              |       | 6,581          |       |
| Payroll  and employee benefits                                                                                        |       | 3,571              |       | 4,947          |       |
| Income  taxes payable                                                                                                 |       | 3,916              |       | 2,626          |       |
| Other  accrued liabilities                                                                                            |       | 13,333             |       | 12,072         |       |
| Total  Current Liabilities                                                                                            |       | 90,389             |       | 28,043         |       |
| LONG-TERM  LIABILITIES                                                                                                |       |               |       |           |       |
| Long-term  debt and capital lease obligations                                                                         |       | 36,206             |       | 94,824         |       |
| Accrued  retirement benefits                                                                                          |       | 24,073             |       | 28,076         |       |
| Plantation  Golf Course (PGC) deferred credit (Note 10)                                                               |       | 45,409             |       | 46,338         |       |
| Other  noncurrent liabilities                                                                                         |       | 6,585              |       | 7,708          |       |
| Total  Long-Term Liabilities                                                                                          |       | 112,273            |       | 176,946        |       |
| COMMITMENTS  AND CONTINGENCIES (Note 17)                                                                              |       |               |       |           |       |
| STOCKHOLDERS’  DEFICIENCY                                                                                        |       |               |       |           |       |
| Common  stock—no par value, 43,000,000 shares authorized, 8,112,266 and 8,087,334  shares issued and outstanding |       | 35,707             |       | 35,437         |       |
| Additional  paid in capital                                                                                           |       | 9,099              |       | 9,019          |       |
| Accumulated  deficit                                                                                                  |       | (124,015           | )          | (116,723       | )          |
| Accumulated  other comprehensive loss                                                                                 |       | (4,059             | )          | (4,674         | )          |
| Stockholders’  Deficiency                                                                                        |       | (83,268            | )          | (76,941        | )          |
| TOTAL                                                                                                                 |       | $                  | 119,394    |           | $          | 128,048 |   |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

5

----

Table of Contents

 

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

 

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

 

**(UNAUDITED)**

 

**For the SixMonths Ended June 30, 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, 2010         |       | 8,087            |       | $           | 35,437     |             | $          | 9,019             |       | $                 | (116,723   | )          | $          | (4,674 | ) | $ | (76,941 | ) |
| ** **                             | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
| Pension  benefits adjustment (Note 13) |       |             |       |        |       |             |       |              |       | 615               |       | 615        |       |
| Share-based  compensation expense      |       |             |       |        |       | 428              |       |              |       |              |       | 428        |       |
| Vested  restricted stock issued        |       | 42               |       | 348         |       | (348             | )          |              |       |              |       | —     |       |
| Shares  cancelled to pay tax liability |       | (17              | )          | (78         | )          |             |       |              |       |              |       | (78        | )          |
| Net  loss                              |       |             |       |        |       |             |       | (7,292            | )          |              |       | (7,292     | )          |
| ** **                             | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
| Balance,  June 30, 2010           |       | 8,112            |       | $           | 35,707     |             | $          | 9,099             |       | $                 | (124,015   | )          | $          | (4,059 | ) | $ | (83,268 | ) |
| ** **                             | ** ** | ** **       | ** ** | ** **  | ** ** | ** **       | ** ** | ** **        | ** ** | ** **        | ** ** | ** ** | ** ** |
| Balance,  January 1, 2009         |       | 8,021            |       | $           | 34,791     |             | $          | 8,363             |       | $                 | 6,558      |       | $          | (18,024 | ) | $ | 31,688 |   |
|                                   |       |             |       |        |       |             |       |              |       |              |       |       |       |
| Share-based  compensation expense      |       |             |       |        |       | 969              |       |              |       |              |       | 969        |       |
| Vested  restricted stock issued        |       | 37               |       | 428         |       | (428             | )          |              |       |              |       | —     |       |
| Shares  cancelled to pay tax liability |       | (11              | )          | (95         | )          |             |       |              |       |              |       | (95        | )          |
| Net  loss                              |       |             |       |        |       |             |       | (67,442           | )          |              |       | (67,442    | )          |
|                                   |       |             |       |        |       |             |       |              |       |              |       |       |       |
| Balance,  June 30, 2009           |       | 8,047            |       | $           | 35,124     |             | $          | 8,904             |       | $                 | (60,884    | )          | $          | (18,024 | ) | $ | (34,880 | ) |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

6

----

Tableof Contents

 

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

 

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

**(UNAUDITED)**

 
| ** **                                                | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------|------------|----------------------|------------|
| ** **                                                | ** ** | **6/30/10**          | ** ** | **6/30/09** | ** ** |
| ** **                                                | ** ** | **(in thousands)**   | ** ** |
|                                                      |       |                 |       |   |   |
| NET  CASH USED IN OPERATING ACTIVITIES                    |       | $                    | (2,091     | ) | $ | (15,138 | ) |
|                                                      |       |                 |       |   |   |
| INVESTING  ACTIVITIES                                     |       |                 |       |   |   |
| Purchases  of property                                    |       | (2,321               | )          | (547 | ) |
| Proceeds  from disposals of property                      |       | 3,091                |       | 195 |   |
| Other                                                     |       | (280                 | )          | 1,575 |   |
|                                                      |       |                 |       |   |   |
| NET  CASH PROVIDED BY INVESTING ACTIVITIES                |       | 490                  |       | 1,223 |   |
|                                                      |       |                 |       |   |   |
| FINANCING  ACTIVITIES                                     |       |                 |       |   |   |
| Proceeds  from long-term debt                             |       | 11,000               |       | 6,600 |   |
| Payments  of long-term debt and capital lease obligations |       | (8,888               | )          | (51,237 | ) |
| Net  proceeds from PGC (Note 10)                          |       | —               |       | 48,520 |   |
| Reduction  of PGC deferred credit                         |       | (929                 | )          | (952 | ) |
| Debt  issuance cost and other                             |       | (130                 | )          | (1,187 | ) |
|                                                      |       |                 |       |   |   |
| NET  CASH PROVIDED BY FINANCING ACTIVITIES                |       | 1,053                |       | 1,744 |   |
|                                                      |       |                 |       |   |   |
| NET  DECREASE IN CASH AND CASH EQUIVALENTS                |       | (548                 | )          | (12,171 | ) |
|                                                      |       |                 |       |   |   |
| CASH  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD         |       | 1,881                |       | 13,668 |   |
|                                                      |       |                 |       |   |   |
| CASH  AND CASH EQUIVALENTS AT END OF PERIOD               |       | $                    | 1,333      |   | $ | 1,497 |   |

 

Supplemental Disclosures of Cash Flow Information—Interest (net ofamounts capitalized) of $4,038,000 and $5,032,000 was paid during the sixmonths ended June 30, 2010 and 2009, respectively. Income taxes of$5,536,000 and $291,000 were refunded during the six months ended June 30,2010 and 2009, respectively.

 

SupplementalNon-Cash Investing and Financing Activities—

 

·                  Property acquired undercapital leases was $697,000 during the six months ended June 30, 2009.

·                  A capital lease obligationof $289,000 and the related asset acquired thereunder were transferred to athird party during the six months ended June 30, 2010.

·                  Amounts included in tradeaccounts payable for additions to property and for other investing activitiestotaled $1,638,000 and $1,124,000 at June 30, 2010 and 2009, respectively.

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

7

----

Table of Contents

 

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

 

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

 

**(UNAUDITED)**

 

**1.****                                     ****Basis of Presentation**

 

The accompanying unauditedcondensed consolidated financial statements have been prepared by MauiLand & Pineapple Company, Inc. (together with its subsidiaries,the “Company”) in accordance with U.S. generally accepted accounting principles(GAAP) for interim financial information that are consistent in all materialrespects with those applied in the Company’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2009, and pursuant to theinstructions to Form 10-Q and Article 8 promulgated byRegulation S-X of the Securities and Exchange Commission (the “SEC”).Accordingly, they do not include all of the information and notes to financialstatements required by GAAP for complete financial statements. In the opinionof management, the accompanying condensed consolidated financial statementscontain all normal and recurring adjustments necessary to fairly present theCompany’s financial position, results of operations and cash flows for theinterim periods ended June 30, 2010 and 2009. The financial statements andnotes should be read in conjunction with the consolidated financial statementsand notes thereto included in the Company’s Form 10-K for the fiscal yearended December 31, 2009.

 

LIQUIDITY

 

At June 30, 2010 the Company had $1.3million in cash and cash equivalents. The Company incurred a loss from continuing operations of $8.5 millionand had negative cash flows from operations of $2.1 million for the six monthsended June 30, 2010. Reflected in the negative cash flow from operationswas $5.5 million of income taxes refunded in the quarter ended March 31,2010. The Company had an excess of current liabilities over current assets of$68.5 million and had a stockholders’ deficiency of $83.3 million at June 30,2010.

 

At June 30, 2010 the Company had $100.2 millionof total debt including capital leases. The Company has pledged a significant portion of its real estateholdings as security for borrowings under its credit facilities.  In addition, both of the revolving lines ofcredit have financial covenants requiring among other things, a minimum of $8million in liquidity and a limitation on new indebtedness.  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 million senior secured convertible notes, which notes were redeemed bythe Company in full as of August 3, 2010. Defaults under the creditagreements could result in all outstanding borrowings becoming immediately dueand payable.

 

The Company’s cash outlook for the nexttwelve months and its ability to make the required debt repayments inMarch 2011 and to continue to meet its financial covenants is highlydependent on selling certain real estate assets in a difficult market and itsability to raise additional equity capital and to refinance its existing debt.If the Company is unable to meet its financial covenants resulting in theborrowings 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 is subject to several commitments and contingencies thatcould negatively impact its future cash flows, including commitments related toits investment in Kapalua Bay Holdings, LLC (Bay Holdings), its ongoing disputewith the Ladies Professional Golf Association (LPGA), and a legal dispute witha former grower related to the Company’s discontinued agriculturaloperations.  These matters are furtherdescribed in Note 17.

 

The aforementioned circumstances raisesubstantial doubt about the Company’s ability to continue as a going concern.There can be no assurance that the Company will be able to successfully achieveits initiatives discussed below in order to continue as a going concern. Theaccompanying condensed consolidated financial statements have been preparedassuming the Company will continue as a going concern and do not include anyadjustments that might result should the Company be unable to continue as agoing concern.

 

In response to these circumstances, theCompany continues to undertake several financial and strategic initiatives toreduce cash commitments, to generate cash flow from a variety of sources and tofurther reduce its debt, including the sale of several real estate assets.  The Company is actively working with itslenders to extend the maturity dates and modify other terms of its credit agreements.

 

In the first half of 2010, the Companyconcluded the sales of a 128-acre parcel and a two acre parcel that includedits former administrative office building resulting in total cash proceeds (netof selling costs) of $3.3 million.

 

8

----

Tableof Contents

 

In May, 2010, the Company’s shareholdersauthorized an additional 20 million shares of the Company’s common stock; andin June 2010, the Company initiated a rights offering for up to $40million of its common stock with the intent to utilize the proceeds from theoffering to repurchase up to all of its $40 million of outstanding seniorsecured convertible notes.

 

On July 29, 2010, the rights offeringconcluded and the Company received gross subscription proceeds of $40 millionand issued 10,389,610 shares of common stock. As of August 3, 2010, the Company repurchased all $40 million ofits outstanding senior secured convertible notes for $35.2 million (see Note6).

 

**2.****                                     ****Use of Estimates**

 

The Company’s reports for interim periods utilize numerous estimates ofgeneral and administrative expenses and other costs for the full year. Futureactual amounts may differ from the estimates. Amounts in the interim reportsare not necessarily indicative of results for the full year.

 

**3.****                                     ****Inventories**

 

Inventories as of June 30,2010 and December 31, 2009 were as follows:

 
| ** **                          | ** ** | **6/30/10**        | ** ** | **12/31/09** | ** ** |
|-------------------------------------|------------|--------------------|------------|--------------|------------|
| ** **                          | ** ** | **(in thousands)** | ** ** |
| Real estate                         |       | $                  | 1,721      |         | $          | 1,721 |   |
| Merchandise, materials and supplies |       | 1,362              |       | 1,666        |       |
| Total Inventories                   |       | $                  | 3,083      |         | $          | 3,387 |   |

 

**4.****                                     ****Average Common Shares Outstanding Used to Compute Earnings Per Share**

 
| ** **            | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **            | ** ** | **2010**                                            | ** ** | **2009**                                          | ** ** | **2010** | ** ** | **2009** | ** ** |
|                  |       |                                                |       |                                              |       |   |   |   |   |
| Basic  and diluted    |       | 8,093,326                                           |       | 8,034,162                                         |       | 8,086,243 |   | 8,027,346 |   |
| Potentially  dilutive |       | 1,333,333                                           |       | 1,338,980                                         |       | 1,333,333 |   | 1,333,639 |   |

 

Basic earnings (loss) per share is computedby dividing net income or loss by the weighted-average number of common sharesoutstanding. Diluted earnings (loss) per share is computed similar to basicearnings (loss) per share except that the denominator is increased to includethe number of additional common shares that would have been outstanding if thedilutive potential common shares from share-based compensation arrangements hadbeen issued.

 

Potentially dilutive shares arise fromnon-qualified stock options to purchase common stock, non-vested restrictedstock and common stock issuable upon assumed conversion of convertible debt.The treasury stock method is applied to determine the number of potentiallydilutive shares for nonvested restricted stock and stock options assuming thatthe shares of nonvested restricted stock are issued for an amount based on thegrant date market price of the shares and that the outstanding stock optionsare exercised. Convertible debt is assumed to be converted by applying theif-converted method. These amounts were excluded for all periods presentedbecause the effect would be anti-dilutive.

 

**5.****                                     ****Financing Arrangements**

 

Long-term debt and capital lease obligationsat June 30, 2010 and December 31, 2009 consisted of the following:

** **
| ** **                                    | ** ** | **6/30/2010**       | ** ** | **12/31/2009** | ** ** |
|-----------------------------------------------|------------|---------------------|------------|----------------|------------|
| ** **                                    | ** ** | **(in  thousands)** | ** ** |
| Revolving  loans, 5.5%                        |       | $                   | 63,500     |           | $          | 59,900 |   |
| Senior  Secured Convertible Notes, 5.875%     |       | 36,022              |       | 34,324         |       |
| Capital  lease obligations                    |       | 640                 |       | 2,417          |       |
| Total                                         |       | 100,162             |       | 96,641         |       |
| Less  current portion                         |       | 63,956              |       | 1,817          |       |
| Long-term  debt and capital lease obligations |       | $                   | 36,206     |           | $          | 94,824 |   |

 

9

----

Tableof Contents

 

In November 2007, the Company entered into a $90 millionrevolving line of credit secured by approximately 1,437 acres of the Company’sWest Maui land. All outstanding principal and accrued interest was scheduled tobe due on November 13, 2009. In March 2009, the Company sold thePlantation Golf Course (PGC) for $50 million (see Note 10), which wasincluded in the collateral securing the line of credit agreement. Inconsideration for release of the PGC from the collateral, $45 million ofthe sales proceeds were applied to partially repay outstanding borrowings andthe credit limit under this facility was reduced to $45 million. Inconjunction with the PGC sale, the Company amended the line of credit agreementto extend the maturity date to March 13, 2010.

 

In October 2009, the line of creditagreement was amended and restated. The agreement principally increases thesecured revolving line of credit from $45 million to $50 million,extends the maturity date of the credit agreement from March 2010 to March 2011,and re-sets financial covenants. As amended, the agreement provides thatinterest on loan draws accrue interest based on the LIBOR market index orapplicable LIBOR rate, plus 4.25%, subject to a minimum interest rate of 5.5%.The financial covenants include a minimum liquidity (as defined in theagreement) of $8 million and maximum total liabilities of$240 million. There are no commitment fees on the unused portion of therevolving facility and interest is due monthly. The line of credit agreementcontains various representations, warranties, affirmative, negative andfinancial covenants and events of default customary for financings of thistype.

 

The Company has a $25 million revolvingloan that is secured by certain parcels of the Company’s real property on Mauithat matures in March 2011 (as amended). Commitment fees of 0.40% arepayable on the unused portion of the revolving facility. The financialcovenants include a minimum liquidity (as defined in the agreement) of$8 million, maximum total liabilities of $240 million, andlimitations on capital expenditures. As amended, the agreement provides thatinterest on loan draws accrue interest based on the LIBOR market index orapplicable LIBOR rate, plus 4.25%, subject to a minimum interest rate of 5.5%.

 

On July 28, 2008, the Company concludeda securities purchase agreement with certain institutional accredited investorsand issued an aggregate of $40 million in principal amount of seniorsecured convertible notes (the “convertible notes”), bearing 5.875% interestper annum payable quarterly in cash in arrears. The convertible notes were convertible, at any time following theirissuance, into shares of common stock of the Company at an initial conversionprice of $33.50 per share, which is equal to an initial conversion rate of29.8507 shares per $1,000 principal amount of the convertible notes. On thethird anniversary of the closing, each holder of the convertible notes had theright to require the Company to redeem all or any portion of such convertiblenote at a redemption price equal to 100% of the principal amount of theconvertible note being redeemed, plus accrued and unpaid interest thereon.  The convertible notes were redeemed in full asof August 3, 2010 (see Note 6).

 

**6.****                                     ****Rights Offering**

 

In June 2010, the Company initiated a rights offering for up to$40 million of its common stock with the intent to utilize the proceeds fromthe offering to repurchase up to all of its $40 million of outstanding seniorsecured convertible notes. In accordance with the terms of the offering, eachshareholder received one non-transferable subscription right for each share ofcommon stock owned as of the close of business on July 7, 2010, the recorddate. Each subscription right entitled the shareholder to purchaseapproximately 1.23 shares of common stock at a subscription price of $3.85 pershare. Shareholders who fully exercised all of their initial subscriptionrights were entitled to purchase any unsubscribed shares at the samesubscription price per share, on a pro rata basis.

 

In conjunction with the rights offering, the Company entered intoagreements with holders of its senior secured convertible notes to repurchasetheir notes at 88% of face value. The Company also paid to these holders alock-up fee of 2% of face value in exchange for their agreement not to transfertheir Notes for a 47-day period. In the event the Company did not raisesufficient capital through the rights offering to retire the notes or wasunable to complete the rights offering in the 47-day period, the Company wouldforgo the 2% lock-up fee. As of June 30, 2010, the Company had enteredinto agreements to repurchase $32.5 million of the notes.

 

The rights offering concluded on July 29, 2010 and the Companyreceived gross subscription proceeds of $40 million and issued 10,389,610shares of common stock. As of August 3, 2010, the Company repurchased all$40 million of its outstanding senior secured convertible notes for $35.2million.

 

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

 

The Company ceased all operations in itsAgriculture segment as of the end of 2009. The Company’s Agriculture segmentoperating results and the loss on sale of the assets are reported asdiscontinued operations and prior period operating results have beenreclassified for comparability.  Incomefrom discontinued operations for the six months ended June 30, 

 

10

----

Table of Contents

 

2010 includes a credit of $2.3 million representing the gain fromsettlement of the Company’s post-retirement life insurance plans (Note13).  Revenues and income (loss) beforeincome taxes for the discontinued operations were as follows:

 
| ** **                                  | ** ** | **Three  Months Ended** | ** ** | **Six  Months Ended** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **June 30,**       | ** ** | **June 30,**     | ** ** |
| ** **                                  | ** ** | **2010**                | ** ** | **2009**              | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                  | ** ** | **(in  thousands)**     | ** ** | **(in  thousands)**   | ** ** |
|                                        |       |                    |       |                  |       |   |   |   |   |
| Revenues                                    |       | $                       | —     |                  | $          | 4,525 |   | $ | — |   | $ | 9,414 |   |
|                                        |       |                    |       |                  |       |   |   |   |   |
| Income  (Loss) from Discontinued Operations |       | $                       | (318       | )                     | $          | (4,160 | ) | $ | 1,243 |   | $ | (6,704 | ) |

 

**8.****                                     ****Impairment Charges**

 

In the second quarter of 2009, the Companywrote off $14.2 million of deferred development costs. Due to changingmarket conditions, several project development plans were written off becausethe projects as designed were no longer feasible. In addition, projects thatwere no longer compatible with the Company’s future real estate developmentexpectations were abandoned and all related predevelopment costs were writtenoff.  Also in the second quarter of 2009,the Company recorded a charge of $1.9 million representing the adjustmentof its real estate held for sale to its estimated fair value less cost to sell.The impairment related to the Company’s Kahului property on which improvementsfor the fresh fruit processing plant were constructed and the impairment chargeis recorded in discontinued operations.

 

**9.****                                     ****Recently Issued Accounting Pronouncements**

 

InJune 2009, the Financial Accounting Standards Board (FASB) issued guidanceto revise the approach to determine when a variable interest entity (VIE)should be consolidated.  The new consolidation model for VIEs considerswhether the Company has the power to direct the activities that mostsignificantly impact the VIE’s economic performance and shares in the significantrisks and rewards of the entity.  The guidance requires companies tocontinually reassess VIEs to determine if consolidation is appropriate andprovide additional disclosures.  The guidance was effective for theCompany beginning January 1, 2010.  The adoption of this standard didnot have a material effect on the Company’s consolidated financial statementsas the Company does not currently have any VIEs.

 

InJanuary 2010, the FASB issued guidance to improve disclosures about fairvalue measurements.  The Company must provide additional disclosuresregarding transfers in and out of levels 1 and 2, and activity in level 3 fairvalue measurements.  The guidance also provides clarification regardinglevels of disaggregation and disclosures about inputs and valuation techniquesfor both recurring and nonrecurring fair value measurements that fall in eitherlevel 2 or level 3.  The additional disclosure requirements were effectivefor the Company beginning January 1, 2010, except for the additionaldisclosures regarding the roll forward of activity in Level 3 fair valuemeasurements, which will be effective January 1, 2011.

 

**10.****                              ****Assets Held for Sale and Real Estate Sales**

 

At June 30, 2010, assets held for saleincluded the Company’s property in Kahului, Maui (25 acres).  These assets include the site of the formercorporate office and the former agriculture processing facilities.  In April 2010, the Company sold the landand building that was previously its administrative offices in Kahului, Mauiand recognized a gain of $1.0 million, which is included in general andadministrative expenses.

 

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

 

In March 2009, the Company sold the land,improvements, structures and fixtures comprising the Plantation Golf Course(PGC) for $50 million in cash. Concurrent with the closing of the sale,the Company entered into an agreement (Ground Lease) to leaseback the PGC foran initial period of two years for an annual net rental payment of$4 million, payable monthly in advance. The Ground Lease requires theCompany to replace the irrigation system at the PGC at its own cost andexpense, subject to a cap of $5 million. Because of the Company’s continuinginvolvement associated with the obligation to replace the irrigation system,the sale and leaseback of the PGC has been accounted for as a financingtransaction and, accordingly, the net proceeds received have been recorded as anon-current liability in the condensed consolidated balance sheets and no gainwill be recognized until the irrigation system replacement project has beencompleted. Expected date of completion is September 2010.

 

11

----

Table of Contents

 

**11.****                              ****Investments in Affiliates**

 

KAPALUA BAY HOLDINGS, LLC

 

As a result of the 2009losses incurred by Bay Holdings, the Company’s carrying value of its investmentin Bay Holdings and its $3.6 million loan due from Bay Holdings werewritten down to zero in 2009. The Company does not expect to recover anyamounts from its investment in Bay Holdings, has recorded its estimated shareof its completion and recourse guarantees for its potential estimated liabilityand it has no further obligation to fund losses. The Company will not recognizeany additional equity in the earnings (losses) of Bay Holdings until theCompany’s income attributable to Bay Holdings exceeds its accumulated losses.  The Company had made cash contributions toBay Holdings of $53.2 million and an uncollateralized 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 reflect a change inforecasted sales revenue on the unsold whole and fractional units thatsubstantially reduces expected margins for those remaining units.

 

Construction of the sixresidential buildings comprised of 146 residences was complete by year-end2009, however, the Company’s and the other members’ completion guaranty to thelenders will remain in place until the cost for all construction work has beensettled and paid. The Company has no funding commitments relating to BayHoldings beyond this amount.

 

Pursuant to previousagreements, the Company has a commitment to purchase the spa, beach clubimprovements and the sundry store (the “Amenities”) from Bay Holdings at actualconstruction costs of approximately $35 million.  The Company is in discussions with the othermembers of Bay Holdings to negotiate the terms of the purchase agreementincluding the purchase price and payment terms, and is discussing whether theCompany will even be required to purchase the Amenities.

 

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 Holdingscould borrow, including amounts previously funded under the amended loanagreement was approximately $354.5 million. In December 2009, BayHoldings further amended the amended loan agreement to extend the maturity dateof the principal payment of $45.7 million that was previously due inFebruary 2010 to December 2010. Bay Holdings’ failure to repayamounts when due could result in all of its outstanding borrowings under theamended loan agreement becoming immediately due and payable. Bay Holdings’ability to make the December 2010 debt payment as scheduled is dependenton its ability to generate sufficient cash flows from fractional and whole unitclosings. Bay Holdings is currently in negotiations with the lenders torestructure the terms of the amended loan agreement to provide availablefunding until the project is completely sold out.

 

12

----

Tableof Contents

 

Summarized operating information for BayHoldings for the three months and six months ended June 30, 2010 and 2009is as follows:

 
| ** **         | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **         | ** ** | **2010**                                            | ** ** | **2009**                                          | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **         | ** ** | **(in thousands)**                             | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Revenues           |       | $                                                   | (2,227     | )                                                 | $          | (7,269 | ) | $ | 7,268 |   | $ | (12,688 | ) |
| Expenses           |       | 6,954                                               |       | (3,030                                            | )          | 20,317 |   | (6,915 | ) |
| Net  Income (Loss) |       | $                                                   | (9,181     | )                                                 | $          | (4,239 | ) | $ | (13,049 | ) | $ | (5,773 | ) |

 

Negative revenues and expense resulted fromincreasing the allowance for defaults, as sales of the pre-sold units werepreviously recognized on the percentage-of-completion method.

 

**12.****                              ****Share-Based Compensation**

 

The total compensation expense recognized forshare-based compensation was $428,000 and $969,000 for the six months ended June 30,2010 and 2009, respectively, and $182,000 and $755,000 for the three monthsended June 30, 2010 and 2009, respectively. The total tax benefit(expense) related thereto was $-0- for the six months ended June 30, 2010and 2009, and for the three months ended June 30, 2010 and 2009.Subsequent to issuance of the condensed consolidated financial statements forthe quarter ending June 30, 2009, management determined that the $272,000and $379,000 previously reported as the total tax benefit related toshare-based compensation for the three and six month periods ending June 30,2009 were incorrect.  Accordingly, thetotal tax benefit has been restated to $-0- for these periods. Recognized stockcompensation was reduced for estimated forfeitures prior to vesting primarilybased on historical annual forfeiture rates of approximately 4.3% and 3.6%, asof June 30, 2010 and 2009, respectively. Estimated forfeitures will bereassessed in subsequent periods and may change based on new facts andcircumstances.

 

*StockOptions*

 

A summary of stock option award activity asof and for the six months ended June 30, 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                     |       | (97,000    | )          | $            | 29.90      |           | $          | 11.05            |       |          |       |   |   |
| Outstanding  at June 30, 2010          |       | 169,500    |       | $            | 27.58      |           | $          | 10.39            |       | 5.1           |       | $ | — |   |
| Exercisable  at June 30, 2010          |       | 114,000    |       | $            | 30.94      |           | $          | 11.32            |       | 4.3           |       | $ | — |   |
| Expected  to Vest at June 30, 2010 (2) |       | 40,109     |       | $            | 20.66      |           | $          | 8.47             |       | 6.8           |       | $ | — |   |

 

----

(1)                                  Forin-the-money options

(2)                                  Optionsexpected to vest reflect estimated forfeitures

 

Additional stock option information for thesix months ended June 30, 2010 and 2009 is as follows:

 

13

----

Table of Contents

 
| ** **                                                                    | ** ** | **2010** | ** ** | **2009** | ** ** |
|-------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Weighted  Average Grant-Date Fair Value For Options Granted During the Period |       | $        | —     |     | $          | 3.11 |   |
| 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)                         |       | 177      |       | 1,081    |       |
|                                                                               |            |          |            |          |            |  |  |

 

For the six months ended June 30, 2009, thefair value of the Company’s stock options awarded was estimated using theBlack-Scholes option pricing model and the following weighted averageassumptions (there were no stock option awards granted in the first six monthsof 2010):

 
| ** **                        | ** ** | **2009** | ** ** |
|-----------------------------------|------------|----------|------------|
| Expected Life of Options in Years |       | 6.5      |       |
| Expected Volatility               |       | 46.1     | %          |
| Risk-free interest rate           |       | 2.4      | %          |
| Expected dividend yield           |       | —   |       |

 

As of June 30, 2010, there was $287,000of total unrecognized compensation expense for awards granted under the stockoption plans that is expected to be recognized over a weighted average periodof 1.5 years.

 

*RestrictedStock*

 

In the first six months of 2010, 3,000 sharesof restricted stock that vest as service requirements are met were granted tocertain directors; and 26,875 shares (net of shares withheld for payment ofincome taxes) of restricted stock vested as directors’ and management servicerequirements were met.

 

A summary of the activity for restrictedstock awards as of and for the six months ended June 30, 2010 is presentedbelow:

 
| ** **                                   | ** ** | ** ** | ** ** | **Weighted**   | ** ** |
|----------------------------------------------|------------|------------|------------|----------------|------------|
| ** **                                   | ** ** | ** ** | ** ** | **Average**    | ** ** |
| ** **                                   | ** ** | ** ** | ** ** | **Grant-Date** | ** ** |
| ** **                                   | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Nonvested  balance at December 31, 2009 |       | 448,301    |       | $              | 8.25       |   |
| Granted                                      |       | 3,000      |       | $              | 4.98       |   |
| Vested                                       |       | (26,875    | )          | $              | 8.57       |   |
| Forfeited  or Cancelled                      |       | (98,918    | )          | $              | 7.59       |   |
| Nonvested  balance at June 30, 2010     |       | 325,508    |       | $              | 9.46       |   |

 

14

----

Tableof Contents

 

**13.****                              ****Components of Net Periodic Benefit Cost**

 

The net periodic benefitcosts for pension and other post-retirement benefits for the three months andsix months ended June 30, 2010 and 2009 were as follows:

 
| ** **                            | ** ** | **Three Months**        | ** ** | **Six Months**          | ** ** |
|---------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                            | ** ** | **Ended June 30,** | ** ** | **Ended June 30,** | ** ** |
| ** **                            | ** ** | **2010**                | ** ** | **2009**                | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                            | ** ** | **(in thousands)**      | ** ** |
| **Pension Benefits**                  |       |                    |       |                    |       |   |   |   |   |
| Service  cost                         |       | $                       | 30         |                    | $          | 378 |   | $ | 60 |   | $ | 756 |   |
| Interest  cost                        |       | 883                     |       | 905                     |       | 1,745 |   | 1,811 |   |
| Expected  return on plan assets       |       | (700                    | )          | (622                    | )          | (1,410 | ) | (1,245 | ) |
| Amortization  of prior service cost   |       | 1                       |       | 11                      |       | 2 |   | 22 |   |
| Amortization  of transition liability |       | 2                       |       | 4                       |       | 4 |   | 8 |   |
| Recognized  actuarial loss            |       | 207                     |       | 484                     |       | 367 |   | 968 |   |
|                                  |       |                    |       |                    |       |   |   |   |   |
| Net  expense                          |       | $                       | 423        |                    | $          | 1,160 |   | $ | 768 |   | $ | 2,320 |   |
|                                  |       |                    |       |                    |       |   |   |   |   |
| **Other Benefits**                    |       |                    |       |                    |       |   |   |   |   |
| Service  cost                         |       | $                       | —     |                    | $          | 54 |   | $ | 33 |   | $ | 109 |   |
| Interest  cost                        |       | 41                      |       | 200                     |       | 65 |   | 399 |   |
| Amortization  of prior service cost   |       | (10                     | )          | —                  |       | (39 | ) | — |   |
| Recognized  actuarial gain            |       | (226                    | )          | (120                    | )          | (424 | ) | (241 | ) |
| Recognized  gain due to curtailment   |       | —                  |       | —                  |       | (576 | ) |   |   |
| Recognized  gain due to settlement    |       | —                  |       | —                  |       | (2,683 | ) |   |   |
|                                  |       |                    |       |                    |       |   |   |   |   |
| Net  expense (credit)                 |       | $                       | (195       | )                       | $          | 134 |   | $ | (3,624 | ) | $ | 267 |   |

 

In January 2010, the Company terminatedits postretirement life insurance plan and recorded a settlement gain of $2.7million of which $2.3 million was recorded to discontinued operations and$345,000 was recorded as a credit to general and administrative expense.  In February 2010, the Company terminatedits postretirement medical coverage for non-bargaining retirees and recorded acurtailment gain of $576,000 as a credit to general and administrative expense.

 

In 2010, minimum required contributions tothe Company’s defined benefit pension plans are expected to be$1.7 million. To date in 2010, the Company has made pension plancontributions totaling $992,000 and has failed to pay a 2010 plan yearquarterly contribution of approximately $394,000.  On June 25, 2010, the Preservation ofAccess to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (the “2010Relief Act”) was signed into law.  TheCompany’s expected plan contributions in 2010 includes the deferral of pensionplan contributions provided for by the 2010 Relief Act with regard to planyears 2009 and 2010.  The Company will berequired to pay interest to the pension plans for all contributions that havebeen deferred. The Company expects to contribute $190,000 to its otherpost-retirement benefit plans in 2010.

 

**14.****                              ****Fair Value Measurements**

 

In its ongoing business operations, the Company’sprimary market risk exposure with regard to financial instruments is due tochanges in interest rates. The Company manages this risk by monitoring interestrates and future cash requirements and evaluating opportunities to refinanceborrowings at various maturities and interest rates. The Company also utilizesinterest rate swaps or other derivatives to reduce risks associated withchanges 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.

 

Level 3: Unobservable inputsthat are not corroborated by market data.

 

15

----

Table of Contents

 

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, with changes in fair valuerecognized currently in interest expense.

 

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 was to convert variable-rate interest, which was previously tiedto 1-, 2-, 3- and 6-month LIBOR terms, to an average fixed-rate interest ofapproximately 2.9%, before applicable interest rate spreads. The transactionswere not designated as hedges, and, accordingly, the gains and losses resultingfrom the change in fair value from these interest rate swaps were recognizedcurrently in interest expense. The interest rate swap agreements expired inJanuary 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** | ** ** | **6/30/10**                                             | ** ** | **12/31/09** | ** ** |
| ** **                                        | ** ** | ** **                  | ** ** | **(in  thousands)**                                     | ** ** |
| Interest  rate swap agreements                    |       | Other current liabilities   |       | $                                                       | —     |   | $ | 63 |   |
| Derivative  liability related to convertible debt |       | Other current liabilities   |       | 12                                                      |       | 489 |   |
|                                                   |            |                             |            |                                                         |            |  |  |  |  |

 

----

(1)                                  Fair valuemeasurements derived using significant other inputs (Level 2).

 
| ** **                                        | ** ** | **Location  of gain or**     | ** ** | **Amount  of gain or (loss)  recognized on derivative** | ** ** | **Amount  of gain or (loss)  recognized on derivative** | ** ** |
|---------------------------------------------------|------------|------------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                        | ** ** | **(loss)  recognized in**    | ** ** | **Three  Months Ended**                                 | ** ** | **Six  Months Ended**                                   | ** ** |
| **Derivatives not designated as  hedges:**        | ** ** | **statement  of operations** | ** ** | **6/30/10**                                             | ** ** | **6/30/09**                                             | ** ** | **6/30/10** | ** ** | **6/30/09** | ** ** |
| ** **                                        | ** ** | ** **                   | ** ** | **(in  thousands)**                                     | ** ** | **(in  thousands)**                                     | ** ** |
| Interest  rate swap agreements                    |       | Interest expense             |       | $                                                       | —     |                                                    | $          | 258 |   | $ | 63 |   | $ | 487 |   |
| Derivative  liability related to convertible debt |       | Interest expense             |       | 654                                                     |       | 46                                                      |       | 477 |   | 1,424 |   |
|                                                   |            |                              |            |                                                         |            |                                                         |            |  |  |  |  |  |  |  |  |

 

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 June 30, 2010 and December 31, 2009 was $99,522,000 and$94,224,000, respectively, and the fair value was $97,971,000 and $94,312,000,respectively.

 

**15.****                              ****Income Taxes**

 

The effective tax rate for 2010 and 2009 reflectsthe recognition of expected federal alternative minimum tax liabilities andinterim period tax benefits and changes to the tax valuation allowance.

 

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 June 30, 2010, the Company had aliability of $984,000 for unrecognized tax benefits and interest thereon of$1.7 million. At June 30, 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.

 

16

----

Table of Contents

 

**16.****                              ****Operating Segment Information**

 
| ** **                                      | ** ** | **Three Months**        | ** ** | **Six Months**          | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                      | ** ** | **Ended June 30,** | ** ** | **Ended June 30,** | ** ** |
| ** **                                      | ** ** | **2010**                | ** ** | **2009**                | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                      | ** ** | **(in thousands)**      | ** ** | **(in thousands)**      | ** ** |
| Operating  Revenues                             |       |                    |       |                    |       |   |   |   |   |
| Community  Development                          |       | $                       | 2,775      |                    | $          | 1,810 |   | $ | 6,628 |   | $ | 3,787 |   |
| Resort                                          |       | 5,449                   |       | 6,713                   |       | 12,303 |   | 15,333 |   |
| Other                                           |       | 100                     |       | 226                     |       | 102 |   | 337 |   |
| Total  Operating Revenues                       |       | $                       | 8,324      |                    | $          | 8,749 |   | $ | 19,033 |   | $ | 19,457 |   |
|                                            |       |                    |       |                    |       |   |   |   |   |
| Operating  Income (Loss)                        |       |                    |       |                    |       |   |   |   |   |
| Community  Development                          |       | $                       | (70        | )                       | $          | (40,990 | ) | $ | 736 |   | $ | (44,215 | ) |
| Resort                                          |       | (2,654                  | )          | (4,611                  | )          | (5,178 | ) | (8,768 | ) |
| Other  (1)                                      |       | 983                     |       | (1,171                  | )          | 1,853 |   | (2,790 | ) |
| Total  Operating Loss (2)                       |       | (1,741                  | )          | (46,772                 | )          | (2,589 | ) | (55,773 | ) |
| Interest  Expense                               |       | (2,528                  | )          | (2,872                  | )          | (5,861 | ) | (4,165 | ) |
| Income  Tax Expense                             |       | —                  |       | (415                    | )          | (85 | ) | (800 | ) |
| Loss  from Continuing Operations                |       | (4,269                  | )          | (50,059                 | )          | (8,535 | ) | (60,738 | ) |
| Income  (Loss) from Discontinued Operations (1) |       | (318                    | )          | (4,160                  | )          | 1,243 |   | (6,704 | ) |
| Net  Loss                                       |       | $                       | (4,587     | )                       | $          | (54,219 | ) | $ | (7,292 | ) | $ | (67,442 | ) |

 

----

(1) Other operating income and incomefrom discontinued operations for the first six months of 2010 include creditsof $750,000 and $2.3 million, respectively, representing gains from theelimination of non-bargaining retiree medical insurance benefits and thetermination of the Company’s retiree life insurance plan in January 2010.

 

(2) Includes equity in losses ofaffiliates.

 

**17.****                              ****Commitments and Contingencies**

 

*LPGA*

 

The Company had a contractual obligation to the LPGA to sponsor anannual golf tournament for five years beginning in October 2008. The costof such a tournament, including the production and the purse is significant andthe Company was seeking a title sponsor to defray part of the cost. InJune 2009, the Company announced that due to a lack of a title sponsor, itwas unable to hold the 2009 LPGA event that was scheduled for October. This hasresulted in a dispute with the LPGA, which can be resolved by mediationand if necessary by binding arbitration. By agreement between the parties,mediation has been suspended through November 2010 and, inMarch 2010, the Company paid $700,000 to the LPGA of which 50% will beapplied towards sponsorship of an event if the parties are able to structure afuture event. The Company is not able to estimate the losses that may beincurred if the Company is not able to further perform under the agreement and,accordingly, no additional provision for losses relating to this dispute hasbeen recorded in the condensed consolidated financial statements. Anunfavorable judgment against the Company could have a material negative impactto the Company’s financial condition including its ability to comply with itsdebt covenants.

 

*Discontinued Operations*

 

The Company has various unsettled contractual obligations with regardto its now terminated Agriculture segment operations and has recorded its bestestimate of the potential loss of $3.5 million, which is included in otheraccrued liabilities in the condensed consolidated balance sheet at June 30,2010.

 

On September 1, 2009, M. Yamamura and Sons, Inc. (Yamamura)filed a lawsuit against the Company, which alleges that the Company materiallybreached its planting agreement with Yamamura by not providing a plantingschedule for 2009 and by asking Yamamura to cease planting pineapple for theCompany until further notice. The lawsuit further alleges that the Companyunilaterally restricted and impaired the value of Yamamura’s benefits under thePlanting Agreement. The Company intends to vigorously defend the lawsuit, buthas recorded an immaterial amount as the low end of the range of its estimateof the potential exposure under the lawsuit.

 

17

----

Table of Contents

 

Pursuant to a 1999 settlement agreement with the County of Maui, theCompany and several chemical manufacturers have agreed that untilDecember 1, 2039, they will pay for 90% of the capital cost to installfiltration systems in any future water wells if the presence of a nematocidecommonly known as DBCP exceeds specified levels, and for the ongoingmaintenance and operating cost for filtration systems on existing and futurewells. The Company estimated its share of the cost to operate and maintain thefiltration systems for the existing wells and its share of the cost of a letterof credit used to secure its obligations, and recorded a liability of $250,000in 1999. The Company recognized an additional liability and expense of $262,000since 1999; and paid $368,000 for its share of the cost of the letter of creditsecuring its obligation and the capital costs to install a filtration systemfor an existing well. In March 2010, the Company was advised by the Countyof Maui that it intends to drill an exploratory water well on State of Hawaiilands that are directly above property that the Company previously used toplant pineapple.  Management believesthat the potential for contamination is low because the proposed well site isabove the land where agricultural chemicals were used.  Accordingly, a reserve for costs relating tothe future well has not been recorded because the Company is not able toreasonably estimate the amount of its estimated potential liability (if any).

 

*Investments in Affiliates*

 

Pursuant to a previous agreement, the Company was committed to purchasefrom Bay Holdings certain Amenities (see Note 11) upon their completion in 2009at the actual construction cost of approximately $35 million. The Companyis currently in discussions with the other members of Bay Holdings to negotiatethe terms of the purchase agreement including the purchase and payment terms,and is discussing whether the Company will even be required to purchase theAmenities.

 

Pursuant to loan agreements of certain equity investments, the Companyand the other members of the respective joint ventures have guaranteed tolenders each investor’s pro rata share of costs and losses that may be incurredby the lender as a result of the occurrence of specified triggering events.These guarantees do not include full payment of the loans. At June 30,2010, the Company has recognized the estimated fair value of its obligationsunder these agreements.

 

*Other*

 

In connection with the PGC sale and leaseback, the Company is obligatedto replace the irrigation system prior to the end of the two-year leasebackterm or March 2011. The replacement costs are capped at $5 millionunder the terms of the agreement.  TheCompany has incurred approximately $3 million of replacement costs through June 30,2010 and expects to incur an additional $600,000 to finish the project by the September 2010expected completion date (see Note 10).

 

In connection with a Honolua Ridge Phase II lot sale in 2007, theCompany deferred the recognition of $4.3 million of revenues because ofcontingencies that could result in the Company becoming obligated to repurchasethe lot from the buyer. The buy-back provision will expire inNovember 2010.

 

In February 2010, the Company received notification from theInternal Revenue Service proposing changes to the Company’s employment taxwithholdings. The Company currently does not expect the impact of the ultimateresolution of the matter to be material and has recorded an immaterial amountas the low end of the range of its estimated potential exposure.

 

In addition to the matters noted above, there are various other claimsand legal actions pending against the Company. In the opinion of management,after consultation with legal counsel, the resolution of these other matters isnot expected to have a material adverse effect on the Company’s financialposition or results of operations. The Company, as an investor in variousaffiliates (partnerships, limited liability companies), may under specificcircumstances be called upon to make additional capital contributions.

 

18

----

Tableof Contents

 

**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 are alandholding company.  Our principalsubsidiary is Kapalua Land Company, Ltd., the operator and developer ofKapalua Resort, a master-planned community in West Maui. Our reportableoperating segments are Resort and Community Development.  In December 2009, all of our Agriculturesegment operations were ceased and the segment is reported as discontinuedoperations.

 

*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. InDecember 2009, we entered into agreements to transfer the operations ofThe Kapalua Villas and Kapalua Adventures operations to third parties, fromwhich we receive lease and 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 11 to condensed consolidated financialstatements). Bay Holdings demolished the Kapalua Bay Hotel and the adjacentshops in order to develop new whole and fractional residential units, anocean-side spa, and a beach club at that location. Construction wassubstantially complete in June 2009 and includes 84 whole ownership unitsand 744 fractional units of which 23 whole ownership and 135 fractional unitsclosed escrow through the end of the second 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 postponed the start of construction of newdevelopment projects until economic conditions improve. However, we expect tocontinue engaging in planning, permitting and entitlement activities for ourdevelopment projects, and we intend to proceed with construction and sales ofthe following projects, among others, when internal and external factorspermit:

 

·                  Kapalua Mauka:  As presently planned, this project iscomprised of 640 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. 

 

19

----

Table of Contents

 

The Village will also include apartments, condominiums and otherresort-related facilities. The first phase of the commercial component openedin 2006, which included approximately 12,000 square feet of commercial/retailspace.

 

·                  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 the MauiCounty 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.

 

*Discontinued Operations*

 

The Agriculture segment primarily included growing, packing, andmarketing of fresh pineapple. Our pineapple was sold under the brand names *Maui Gold*® and *Hawaiian Gold*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 royaltypayments based upon sales volume from such third parties, which amounts areexpected to be immaterial.

 

***Current Developments***

 

Forthe second quarter of 2010, we reported a net loss of $4.6 million and for thefirst six months of 2010, we reported a net loss of $7.3 million.  Cash used in operating activities for thefirst six months of 2010 was $2.1 million and includes the receipt of $5.5million in tax refunds.  These resultsreflect improved operating performance and overhead cost reductions, and $3.4million of gains due to the termination of certain post-retirementbenefits.  In December 2009, weceased our pineapple operations, as well as our Kapalua Villas, KapaluaAdventures, security and shuttle operations.

 

·                    In April 2010, John P.Durkin resigned and Tim T. Esaki was appointed to fill the position of ChiefFinancial Officer.

 

·                    At our Annual Meeting in May 2010,our shareholders voted to reduce the size of and to declassify our Board ofDirectors.  Stephen M. Case, Walter H.Haruki, David A. Heenan, Kent T. Lucien, Duncan MacNaughton, Arthur C. Tokinand Fred E. Trotter III were elected to our board for a one-year term.  The shareholders also voted to authorize anadditional 20,000,000 shares of MLP common stock.

 

·                    On June 30, 2010, we filedwith the Securities and Exchange Commission a final prospectus for thedistribution to our shareholders of subscription rights to purchase up to10,389,610 shares of our common stock at $3.85 per share.  The rights offering expired on July 29,2010 and resulted in gross proceeds of $40 million, of which $35.2 million wasused to repay $40 million of senior secured convertible notes.

 

**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 no significantchanges in our critical accounting policies during the first six months of2010.

 

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.

 

20

----

Tableof Contents

 

**RESULTS OFOPERATIONS**

 

***Three Months Ended June 30, 2010 compared to Three Months Ended June 30,2009***

 

**CONSOLIDATED**

 
| ** **                          | ** ** | **Three  Months Ended June 30,**    | ** ** | ** ** | ** ** |
|-------------------------------------|------------|------------------------------------------|------------|------------|------------|
| ** **                          | ** ** | **2010**                                 | ** ** | **2009**   | ** ** | **change** | ** ** |
| ** **                          | ** ** | **(in  millions, except share amounts)** | ** ** |
|                                |       |                                     |       |       |       |   |   |
| *Consolidated Revenues*             |       | $                                        | 8.3        |       | $          | 8.7 |   | $ | (0.4 | ) |
|                                |       |                                     |       |       |       |   |   |
| *Loss From Continuing Operations*   |       | $                                        | (4.3       | )          | $          | (50.0 | ) | $ | 45.7 |   |
|                                |       |                                     |       |       |       |   |   |
| *Loss From Discontinued Operations* |       | $                                        | (0.3       | )          | $          | (4.2 | ) | $ | 3.9 |   |
|                                |       |                                     |       |       |       |   |   |
| *Net Loss*                          |       | $                                        | (4.6       | )          | $          | (54.2 | ) | $ | 49.6 |   |
|                                |       |                                     |       |       |       |   |   |
| *Net Loss Per Common Share*         |       | $                                        | (0.57      | )          | $          | (6.75 | ) | $ | 6.18 |   |

 

Wereported a net loss of $4.6 million ($0.57 per share) for the second quarter of2010 compared to a net loss of $54.2 million ($6.75 per share) for the secondquarter of 2009. The loss for the second quarter of 2009 included a charge of$21.3 million for the decrease in value of our investment in Bay Holdings;charges of $14.2 million for the write off of development plans that are nolonger considered feasible due to changes in market conditions; and a charge of$1.9 million representing an adjustment to estimated fair value less cost tosell of certain real estate that we have classified as held for sale (includedin loss from discontinued operations).

 

*General and Administrative*

 

Consolidated general and administrative expenses were $1.4 million forthe second quarter of 2010 compared to $6.6 million for the second quarter of2009.

 

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

 
| ** **                                 | ** ** | **Three  Months Ended** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|-------------------------|------------|------------|------------|
| ** **                                 | ** ** | **June 30,**       | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **2010**                | ** ** | **2009**   | ** ** | **change** | ** ** |
| ** **                                 | ** ** | **(in  millions)**      | ** ** |
| Pension  and other post retirement expense |       | $                       | 0.3        |       | $          | 1.3 |   | $ | (1.0 | ) |
| Salaries,  wages and stock compensation    |       | 0.9                     |       | 1.4        |       | (0.5 | ) |
| Employee  severance expense                |       | —                  |       | 0.7        |       | (0.7 | ) |
| (Gain)  loss on asset disposal             |       | (1.0                    | )          | 2.1        |       | (3.1 | ) |
| Other                                      |       | 1.2                     |       | 1.1        |       | 0.1 |   |
|                                       |       |                    |       |       |       |   |   |
| Total                                      |       | $                       | 1.4        |       | $          | 6.6 |   | $ | (5.2 | ) |

 

The reduction in pension and other post retirement expense was due tothe non-bargaining unit pension plan being frozen at the end of 2009, thepostretirement health benefit for non-bargaining retirees being terminated inFebruary 2010, and the postretirement life insurance plan for retireesbeing terminated in January 2010.

 

The decrease in salaries, wages, and stock compensation expense reflectstaffing reductions and attrition in all operating segments and in corporateservices.  As of June 30, 2010, wehad 220 employees compared to 647 employees as of June 2009.  Severance expense in the second quarter of2009 includes amounts related to the termination of our former President andChief Executive Officer in May 2009.

 

Gain on asset disposal in2010 includes the gain of $1.0 million from the sale of our formeradministrative offices in Kahului, Maui. Loss on disposal of assets for 2009 includes a charge of $1.9 millionfor the settlement payment and forfeiture of a deposit where we were obligatedto purchase certain real estate at Kapalua Resort.

 

21

----

Table of Contents

 

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.

 

*Interest Expense*

 

Interest expense was $2.5 million for the second quarter of 2010compared to $3.1 million for the second quarter of 2009.  Included in interest expense for the secondquarter of 2010 and 2009 are net charges of $206,000 and $736,000,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 is a credit of $258,000 for the second quarter of 2009,representing the change in fair value of certain interest rate swapagreements.  These swap agreementsexpired in January 2010.  In thesecond quarter of 2010 our average borrowings were approximately $900,000 lowerthan the second quarter of 2009. Our effective interest rate on borrowings was5.7% in the second quarter of 2010 compared to 6.5% in the second quarter of2009.

 

**RESORT**

 
| ** **                   | ** ** | **Three  Months Ended June 30,** | ** ** | ** ** | ** ** |
|------------------------------|------------|---------------------------------------|------------|------------|------------|
| ** **                   | ** ** | **2010**                              | ** ** | **2009**   | ** ** | **change** | ** ** |
| ** **                   | ** ** | **(in  millions)**                    | ** ** |
|                         |       |                                  |       |       |       |   |   |
| *Revenues*                   |       | $                                     | 5.4        |       | $          | 6.7 |   | $ | (1.3 | ) |
| *% of consolidated revenues* | * *   | *65*                                  | *%*        | *77*       | *%*        |   |   |
| * *                     | * *   | * *                              | * *   | * *   | * *   | * * | * * |
| *Operating Loss*             |       | $                                     | (2.7       | )          | $          | (4.6 | ) | $ | 1.9 |   |

 

Resort segment revenues decreased from $6.7 million in the secondquarter of 2009 to $5.4 million for the second quarter of 2010, or 19%,primarily reflecting the absence of revenues from The Kapalua Villas andKapalua Adventures in 2010 as these operations were leased to third parties tooperate in December 2009.  We arenow receiving lease and license income related to these operations that isreflected in the Community Development segment results.  Partially offsetting the decrease in Resortoperations revenues from The Kapalua Villas and Kapalua Adventures was anincrease in revenues from our golf operations and from the Kapalua Spa.  The Kapalua Spa began operating in July 2009.The Resort segment reported an operating loss of $2.7 million for thesecond quarter of 2010, compared to an operating loss of $4.6 million forthe second quarter of 2009. The improved results reflect better results fromour golf and spa operations and general cost reductions throughout the Resortsegment operations.  The results reportedby the Company’s operating segments include allocations of corporate andadministrative overhead charges.  Visitorcounts to Maui for the second quarter of 2010 increased over the same period ayear ago, which also contributed to the improved results.

 

*Golf and Retail*

 

Revenues from golf operations increased by approximately 4% in thesecond quarter of 2010 compared to the second quarter of 2009, primarily from a6% 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 second quarterof 2010 were approximately 13% lower than the second quarter of 2009, primarilyreflecting the reduced spending by guests and a reduction in retail and foodand beverage space with the closure of the Kapalua Adventures retail and caféin December 2009 and the closure of our tennis retail area inNovember 2009.

 

**COMMUNITYDEVELOPMENT**

 
| ** **                   | ** ** | **Three  Months Ended June 30,** | ** ** | ** ** | ** ** |
|------------------------------|------------|---------------------------------------|------------|------------|------------|
| ** **                   | ** ** | **2010**                              | ** ** | **2009**   | ** ** | **change** | ** ** |
| ** **                   | ** ** | **(in  millions)**                    | ** ** |
|                         |       |                                  |       |       |       |   |   |
| *Revenues*                   |       | $                                     | 2.8        |       | $          | 1.8 |   | $ | 1.0 |   |
| *% of consolidated revenues* | * *   | *34*                                  | *%*        | *21*       | *%*        |   |   |
| * *                     | * *   | * *                              | * *   | * *   | * *   | * * | * * |
| *Operating Loss*             |       | $                                     | (0.1       | )          | $          | (41.0 | ) | $ | 40.9 |   |

 

22

----

Table of Contents

 

The Community Development segment reported an operating loss of $70,000for the second quarter of 2010 compared to an operating loss of$41.0 million for the second quarter of 2009. Revenues from this operatingsegment were $2.8 million for the second quarter of 2010 compared to$1.8 million for the second quarter of 2009. Increased revenues reflectlease and license agreements that were put in place in December 2009 andincreased commission income from the sale of real estate.  The operating loss for the second quarter of2009 included a charge of $21.3 million representing impairment of ourinvestment in Bay Holdings and a charge of $14.2 million for the write offof project development plans that were no longer feasible as designed due tochanging market conditions. In 2010, we did not recognize any additional lossesfrom this investment as the carrying value of our investment and our loan toBay Holdings have been written down to zero and we have no further obligationto fund losses (Note 11 to condensed consolidated financial statements).

 

*Real Estate Inventory Sales*

 

There were no sales of real estate inventories in the second quartersof 2010 or 2009.

 

**DISCONTINUEDOPERATIONS**

 
| ** **                                              | ** ** | **Three  Months Ended June 30,** | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------|------------|------------|------------|
| ** **                                              | ** ** | **2010**                              | ** ** | **2009**   | ** ** | **change** | ** ** |
| ** **                                              | ** ** | **(in  millions)**                    | ** ** |
|                                                    |       |                                  |       |       |       |   |   |
| *Loss From Discontinued Operations Before Income Taxes* |       | $                                     | (0.3       | )          | $          | (4.2 | ) | $ | 3.9 |   |
|                                                         |            |                                       |            |            |            |  |  |  |  |  |

 

Asof the end of 2009, we ceased all of our agricultural operations (Note 7 tocondensed consolidated financial statements) and we are reporting theseoperating results as discontinued operations with prior period amounts restatedfor comparability.

 

***Six Months Ended June 30, 2010 compared to Six Months Ended June 30,2009***

 

**CONSOLIDATED**

 

 

 
| ** **                                   | ** ** | **Six  Months Ended June 30,**      | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------------------------------------|------------|------------|------------|
| ** **                                   | ** ** | **2010**                                 | ** ** | **2009**   | ** ** | **change** | ** ** |
| ** **                                   | ** ** | **(in  millions, except share amounts)** | ** ** |
|                                         |       |                                     |       |       |       |   |   |
| *Consolidated Revenues*                      |       | $                                        | 19.0       |       | $          | 19.5 |   | $ | (0.5 | ) |
|                                         |       |                                     |       |       |       |   |   |
| *Loss From Continuing Operations*            |       | $                                        | (8.5       | )          | $          | (60.7 | ) | $ | 52.2 |   |
|                                         |       |                                     |       |       |       |   |   |
| *Income (Loss) From Discontinued Operations* |       | $                                        | 1.2        |       | $          | (6.7 | ) | $ | 7.9 |   |
|                                         |       |                                     |       |       |       |   |   |
| *Net Loss*                                   |       | $                                        | (7.3       | )          | $          | (67.4 | ) | $ | 60.1 |   |
|                                         |       |                                     |       |       |       |   |   |
| *Net Loss Per Common Share*                  |       | $                                        | (0.90      | )          | $          | (8.40 | ) | $ | 7.50 |   |

 

We reported a net loss of $7.3 million ($0.90 per share) for the firstsix months of 2010 compared to a net loss of $67.4 million ($8.40 per share)for the first six months of 2009.  Netloss for the first six months of 2010 includes a credit of $3.4 millionrepresenting the gain recognized from the curtailment of our postretirementmedical plan and settlement of our postretirement life insurance plan (Note 13to condensed consolidated financial statements) and pre-tax profits of $2.5million from the sale of real estate inventory and our former administrativeoffices in Kahului.  The loss for thefirst six months of 2009 reflects charges totaling $24.4 millionattributable to our investment in Bay Holdings, including an impairment chargeof $21.3 million in June 2009 due to an other-than-temporary decreasein value of our investment; a charge of $14.2 million for the write off ofdevelopment plans that are no longer considered feasible because of changingmarket conditions; and a $1.9 million impairment charge to real estateheld for sale (included in loss from discontinued operations).

 

23

----

Table ofContents

 

*General and Administrative*

 

Consolidated general and administrative expenses were $3.3 million forthe first six months of 2010 compared to $12.7 million for the first six monthsof 2009.

 

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

 
| ** **                                 | ** ** | **Six  Months Ended** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|-----------------------|------------|------------|------------|
| ** **                                 | ** ** | **June 30,**     | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **2010**              | ** ** | **2009**   | ** ** | **change** | ** ** |
| ** **                                 | ** ** | **(in  millions)**    | ** ** |
| Pension  and other post retirement expense |       | $                     | (0.5       | )          | $          | 2.6 |   | $ | (3.1 | ) |
| Salaries,  wages and stock compensation    |       | 1.9                   |       | 3.1        |       | (1.2 | ) |
| Employee  severance expense                |       | 0.1                   |       | 1.5        |       | (1.4 | ) |
| Professional  services                     |       | 1.0                   |       | 1.4        |       | (0.4 | ) |
| (Gain)  loss on asset disposal             |       | (1.0                  | )          | 2.1        |       | (3.1 | ) |
| Other                                      |       | 1.8                   |       | 2.0        |       | (0.2 | ) |
|                                       |       |                  |       |       |       |   |   |
| Total                                      |       | $                     | 3.3        |       | $          | 12.7 |   | $ | (9.4 | ) |

 

In the first six months of 2010, we recognized a credit of $3.4 millionthat primarily represented the curtailment and settlement gains as a result ofthe termination 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 2010 (Note 13 to condensed consolidated financialstatements).

 

The decrease in salaries, wages, and stock compensation expense reflectstaffing reductions and attrition in all operating segments and in corporateservices.  Staff reductions took placethroughout 2009, and further attrition continued in 2010.  As of June 30, 2010, we had 220employees compared to 647 employees as of June 2009. Severance expense inthe first six months of 2009 was due to the termination of approximately 100employees from our work force in March and severance related to thetermination of our former President and Chief Executive Officer in May 2009.

 

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

 

Gain on asset disposal in 2010 includes the gain of $1.0 million fromthe sale of our former administrative offices in Kahului, Maui.  Loss on disposal of assets for 2009 includesa charge of $1.9 million for the settlement payment and forfeiture of a depositwhere we were obligated to purchase certain real estate at Kapalua Resort.

 

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.

 

*Interest Expense*

 

Interest expense was $5.9 million for the first six months of 2010compared to $4.5 million for the first six months of 2009.  Included in interest expense for the firstsix months of 2010 and 2009 are net charges of $1,223,000 and $119,000,respectively, representing the decrease 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 $487,000 for the first six monthsof 2010 and 2009, respectively, representing the change in fair value ofcertain interest rate swap agreements. These swap agreements expired in January 2010.  In the first six months of 2010 our averageborrowings were approximately $9.8 million lower than the first six months of2009. Our effective interest rate on borrowings was 5.8% in the first sixmonths of 2010 compared to 5.6% in the first six months of 2009.

 

24

----

Table of Contents

 

**RESORT**

 
| ** **                   | ** ** | **Six  Months Ended June 30,** | ** ** | ** ** | ** ** |
|------------------------------|------------|-------------------------------------|------------|------------|------------|
| ** **                   | ** ** | **2010**                            | ** ** | **2009**   | ** ** | **change** | ** ** |
| ** **                   | ** ** | **(in  millions)**                  | ** ** |
|                         |       |                                |       |       |       |   |   |
| *Revenues*                   |       | $                                   | 12.3       |       | $          | 15.3 |   | $ | (3.0 | ) |
| *% of consolidated revenues* | * *   | *65*                                | *%*        | *78*       | *%*        |   |   |
|                         |       |                                |       |       |       |   |   |
| *Operating Loss*             |       | $                                   | (5.2       | )          | $          | (8.8 | ) | $ | 3.6 |   |

 

Resort segment revenues decreased from $15.3 million in the first sixmonths of 2009 to $12.3 million for the first six months 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 related tothese operations that is reflected in the Community Development segmentresults. Increase in revenues from our golf operations and from the Kapalua Spapartially offset reductions from the operations that we no longer operate. TheResort segment reported an operating loss of $5.2 million for the firstsix months of 2010, compared to an operating loss of $8.8 million for thefirst six months of 2009. The improved results reflect better results from ourgolf and spa operations and general cost reductions throughout the Resortsegment operations.  The results reportedby the Company’s operating segments include allocations of corporate andadministrative overhead charges.  Visitorcounts to Maui for the first six months of 2010 increased over the same perioda year ago, which also contributed to the improved results.

 

*Golf and Retail*

 

Revenues from golf operations increased by approximately 7% in thefirst six months of 2010 compared to the first six months of 2009, primarilyfrom an 8% increase in paid rounds of golf partially offset by a 3% decrease inaverage greens and cart fees per paid round. Resort retail sales for the firstsix months of 2010 were approximately 14% lower than the first six months of2009, primarily reflecting the reduced spending by guests and a reduction inretail and food and beverage space with the closure of the Kapalua Adventuresretail area and café in December 2009 and the closure of our tennis retailarea in November 2009.

 

**COMMUNITYDEVELOPMENT**

 
| ** **                   | ** ** | **Six  Months Ended June 30,** | ** ** | ** ** | ** ** |
|------------------------------|------------|-------------------------------------|------------|------------|------------|
| ** **                   | ** ** | **2010**                            | ** ** | **2009**   | ** ** | **change** | ** ** |
| ** **                   | ** ** | **(in  millions)**                  | ** ** |
|                         |       |                                |       |       |       |   |   |
| *Revenues*                   |       | $                                   | 6.6        |       | $          | 3.8 |   | $ | 2.8 |   |
| *% of consolidated revenues* | * *   | *35*                                | *%*        | *19*       | *%*        |   |   |
|                         |       |                                |       |       |       |   |   |
| *Operating Profit (Loss)*    |       | $                                   | 0.7        |       | $          | (44.2 | ) | $ | 44.9 |   |

 

The Community Development segment reported an operating profit of$736,000 for the first six months of 2010 compared to an operating loss of$44.2 million for the first six months of 2009. Revenues from thisoperating segment were $6.6 million for the first six months of 2010 comparedto $3.8 million for the first six months of 2009.  Increased revenues reflect lease and licenseagreements that were put in place in December 2009 and increasedcommission income from the sale of real estate. The operating loss for thefirst six months of 2009 included a charge of $21.3 million representingimpairment of our investment in Bay Holdings and a charge of $14.2 millionfor the write off of project development plans that were no longer feasible asdesigned due to changing market conditions. In 2010, we did not recognize anyadditional losses from this investment as the carrying value of our investmentand our loan to Bay Holdings have been written down to zero and we have nofurther obligation to fund losses (Note 11 to condensed consolidated financialstatements).

 

*Real Estate Sales*

 

In the first six months of 2010, we sold approximately 128 acres ofland in Upcountry Maui and recognized revenues of $1.7 million and pre-taxprofit of approximately $1.5 million. There were no real estate sales in the first six months of 2009.

 

25

----

Table of Contents

 

**DISCONTINUEDOPERATIONS**

 
| ** **                                                        | ** ** | **Six  Months Ended June 30,** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------|------------|------------|------------|
| ** **                                                        | ** ** | **2010**                            | ** ** | **2009**   | ** ** | **change** | ** ** |
| ** **                                                        | ** ** | **(in  millions)**                  | ** ** |
|                                                              |       |                                |       |       |       |   |   |
| *Income (Loss) From Discontinued Operations Before Income  Taxes* |       | $                                   | 1.2        |       | $          | (6.7 | ) | $ | 7.9 |   |
|                                                                   |            |                                     |            |            |            |  |  |  |  |  |

 

Asof the end of 2009, we ceased all of our agricultural operations (Note 7 tocondensed consolidated financial statements) and we are reporting theseoperating results as discontinued operations with prior period amounts restatedfor comparability.  Income from discontinuedoperations for the first six months of 2010 includes a credit of $2.3 millionrepresenting the pineapple operations gain from terminating our postretirementlife insurance plan in January 2010 (Note 13 to condensed consolidatedfinancial statements).

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

*Debt Position*

 

AtJune 30, 2010, our total debt, including capital leases, was$100.2 million, compared to $96.6 million at December 31, 2009.The increase in outstanding debt in the first six months of 2010 was primarilydue to expenditures related to (1) our $40 million rights offering thatwas mailed to the shareholders in early July and (2) note purchaseagreements with certain holders of our senior secured convertible notes.  In addition, negative net cash flows fromoperating activities of $2.1 million and accretion on the carrying value of oursenior secured convertible notes contributed to the increased debt balance. At June 30,2010, we had approximately $10.4 million available under existing lines ofcredit and $1.3 million in cash and cash equivalents; an excess of currentliabilities over current assets of $68.5 million, and a deficiency instockholders’ equity (total liabilities exceeded total assets) of $83.3million.

 

Includedin current liabilities are $63.5 million of borrowings outstanding under agreementsthat are scheduled to mature in March 2011, with financial covenantsrequiring among other things, a minimum of $8 million in liquidity and alimitation on new indebtedness.  Inaddition, as of June 30, 2010, we had $40 million of outstanding convertiblenotes, which notes we redeemed in full as of August 3, 2010.  Failure to satisfy the minimum liquiditycovenants or to otherwise default under one credit agreement could result in adefault under both credit agreements. Defaults under the credit agreementscould result in all outstanding borrowings becoming immediately due andpayable.

 

*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 financial covenantsis highly dependent on selling certain real estate assets in a difficultmarket, our ability to raise additional equity capital and to refinance ourexisting debt. If we are unable to meet our financial covenants resulting inthe borrowings becoming immediately due, or are unable to restructure ourcredit agreements to extend the maturity date beyond March 2011, we wouldnot have sufficient liquidity to repay such outstanding borrowings. Inaddition, we have a commitment to purchase the spa, beach club improvements andthe sundry store, referred to as the Amenities, from Bay Holdings at actualconstruction costs of approximately $35 million. We do not currently havethe cash resources to complete the purchase. We are in discussions with the other members of Bay Holdings tonegotiate the terms of the purchase agreement including the purchase price andpayment terms, and are discussing whether we will even be required to purchasethe Amenities.  In June 2009, weannounced that due to a lack of a title sponsor, we were unable to hold the2009 LPGA event that was scheduled for October. This has resulted in a disputewith the LPGA, which can be resolved by mediation and if necessary by bindingarbitration. By agreement between the parties, mediation has been suspendedthrough November 2010 and we paid $700,000 of which 50% will be appliedtowards sponsorship of an event if the parties are able to structure a futureevent. In addition, in September 2009, 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 benefits under the agreement.We are also subject to other commitments and contingencies that couldnegatively impact our future cash flows. These matters are further described in Note 17 to our condensedconsolidated financial statements.  Thesecircumstances raise substantial doubt about our ability to continue as a goingconcern. There can be no assurance that we will be able to successfully achieveour initiatives discussed below in order to continue as a going concern. Ourcondensed consolidated financial statements do not include any adjustments thatmight result should we be unable to continue as a going concern.

 

26

----

Table of Contents

 

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 six months of 2010, we concludedthe sale of two properties that resulted in total cash proceeds (net of sellingcosts) of $3.3 million. On July 29, 2010, our $40 million rights offeringto issue up to 10,389,610 shares of common stock expired and we received grosssubscription proceeds of $40 million. Pursuant to purchase agreements withholders of our senior secured convertible notes that held in the aggregate $40million of the principal amount of these notes, as of August 3, 2010, wepaid $35.2 million to redeem the notes. In addition, we have taken severalother actions to reduce cash outflows, as well as measures to reduce operatingexpenses. In the February 2010, we terminated our postretirement medicalinsurance plan for non-bargaining retirees and in January we increased thepercentage of medical insurance that active employees are paying for currentmedical insurance coverage.  We alsoterminated our retiree life insurance plan in January 2010 in an effort toreduce our cash outflows. We are actively in the process of attempting to sellseveral selected real estate assets to provide additional liquidity and tofurther reduce debt.  In addition, we areworking with our lenders to extend the maturity date of 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 the project.Lehman’s commitment under the loan agreement was approximately 78% of thetotal. 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 could borrow an aggregate ofapproximately $354.5 million, including amounts previously funded underthe original construction loan agreement (Note 11 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 thematurity of the loan from March 2010 to March 2011, reduced theminimum liquidity requirement from $10 million to $8 million, placeslimitations on new indebtedness and capital expenditures, requires that totalliabilities be no greater than $240 million and increases the interest rate by75 to 200 basis points, subject to a minimum interest rate of 5.5%. As of June 30,2010, 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 fromMarch 2010 to March 2011, reduced the minimum liquidity requirementfrom $10 million to $8 million, requires that total liabilities be no greaterthan $240 million and limits additional indebtedness and capitalexpenditures.  Interest on outstandingamounts are at a LIBOR market index or the LIBOR rate, plus 4.25%.  As of June 30, 2010, we had$39.6 million outstanding or encumbered to secure letters of credit, and$10.4 million available under this line.

 

*Private Placement of Convertible Notes*

 

On July 28, 2008, we issued $40 million in aggregateprincipal amount of senior secured convertible notes, bearing 5.875% interestper annum payable quarterly in cash in arrears beginning October 15, 2008.As of June 30, 2010, we had $40.5 million in principal and accruedbut unpaid interest outstanding under the convertible notes.  As of August 3, 2010, we redeemed all ofthe outstanding senior secured convertible notes for $35.2 million.  We paid an additional aggregate sum of$800,000 in connection with entering into the purchase agreements to redeem thenotes.

 

As of June 30, 2010, we were in compliance with all of thecovenants under our outstanding debt arrangements.

 

*Operating Cash Flows*

 

In the first six months of 2010, consolidated net cash used inoperating activities was $2.1 million compared to net cash used in operatingactivities of $15.1 million for the first six months of 2009. Operating cashflows for the first six months of 2010 included expenditures of $973,000related to the extinguishment of our $40 million senior secured convertiblenotes. The improved cash flows from operating activities reflect improvedoperating performance, continued implementation of cost reduction measures inall of our operations, and income tax refunds of $5.5 million.  In addition, we sold 128 acres of land in thefirst six months of 2010 and received net cash proceeds of $1.5 million.

 

27

----

Tableof Contents

 

*Investing Cash Flows*

 

Cash provided by investing activities in the first six months of 2010include $1.7 million from the sale of our former administrative offices and thetwo acre parcel underlying those buildings, and $1.2 million from the sale ofexcess machinery and equipment.

 

*Financing Cash Flows*

 

In the first six months of 2009, financing cashflows included $48.5 million in cash received from the sale of the PlantationCourse, which was accounted for as a financing transaction because of theleaseback arrangement and other continuing involvement with the property.  In addition, $51.2 million of long-term debtwas repaid.

 

*Future Cash Inflows and Outflows*

 

Our plans for 2010 includethe possible sale of certain operating and non-operating real estateassets.  There can be no assurance thatwe will be able to sell any of our real estate assets.

 

On July 29, 2010, our$40 million rights offering expired generating $40 million of grossproceeds.  Pursuant to purchaseagreements with holders of our senior secured convertible notes that held inthe aggregate $40 million of principal amount of these notes, $35.2 million ofproceeds were used to redeem the notes. We plan to use the remaining proceeds for general corporate purposes.

 

In 2010, minimum required contributions to our defined benefit pensionplans are expected to be $1.7 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$992,000 of contributions to our pension plans, but have failed to pay aquarterly 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 underthe terms of the agreement of which approximately $3 million have been incurredthrough June 30, 2010, and we expect to incur an additional $600,000 inorder to complete this project. In addition, our annual net rental paymentunder 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 indiscussions with 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.

 

**FORWARD-LOOKINGSTATEMENTS AND RISKS**

 

This and other reports filed by us with the Securities and Exchange Commission,or SEC, contain forward-looking statements intended to qualify for the safeharbor from liability established by the Private Securities Litigation ReformAct of 1995. These statements relate to future events or our future financialperformance and involve known and unknown risks, uncertainties and otherfactors that may cause our actual results, levels of activity, performance orachievements to differ materially from any future results, levels of activity,performance or achievements expressed or implied by these forward-lookingstatements. These statements can be identified by the fact that they do notrelate strictly to historical or current facts. They contain words such as “may,”“will,” “project,” “might,” “expect,” “believe,” “anticipate,” “intend,” “could,”“would,” “estimate,” “continue” or “pursue,” or the negative or 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 withthe terms of our indebtedness, including the financial covenants set forththerein;

 

28

----

Tableof Contents

 

·                  general economic factors,including the current economic recession, tightening credit markets, decliningdemand for real estate, and declining expenditures within the tourism industryon Maui;

 

·                  the satisfaction of certainclosing conditions set forth in the amended construction loan agreement andcertain related agreements relating to the construction of the Residences atKapalua Bay project;

 

·                  the ability and willingnessof our lenders to comply with the terms of their lending agreements with us;

 

·                  increased fuel and travelcosts, and reductions in airline passenger capacity to Maui;

 

·                  dependence on third partiesand actual or potential lack of control over joint venture relationships;

 

·                  recoverability fromoperations of real estate development deferred costs;

 

·                  timing of approvals andconditions of future real estate entitlement applications;

 

·                  impact of current and futurelocal, state and national government regulations, including Maui Countyaffordable housing legislation;

 

·                  future cost of compliancewith environmental laws;

 

·                  effects of weatherconditions and natural disasters;

 

·                  our ability to maintain thelisting of our common stock on the New York Stock Exchange;

 

·                  availability of capital onterms favorable to us, or at all;

 

·                  our ability to raise capitalthrough the sale of selected real property assets; and

 

·                  our ability to refinance orreduce 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 Financial Conditionand Results of Operations” and “Risk Factors” in this Quarterly Report onForm 10-Q, as well as other factors described from time to time in ourreports 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.

 

**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 the desiredcontrol objectives, and our management necessarily was required to apply itsjudgment in evaluating the cost-benefit relationship of possible controls andprocedures.

 

29

----

Table of Contents

 

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 Executive Officerand 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 six months ended June 30, 2010that has materially affected or is reasonably likely to materially affect ourinternal control over financial reporting.

 

**PART II OTHER INFORMATION**

 

**Item 1A.  Risk Factors**

 

Potential risks and uncertainties include, among other things, thosefactors discussed 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, 2009and the section entitled “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” in this Quarterly Report onForm 10-Q. Readers should carefully review those risks, as well asadditional risks described below and in other documents we file from time totime with the SEC. We undertake no obligation to publicly release the resultsof any revisions to any forward-looking statements to reflect anticipated orunanticipated events or circumstances occurring after the date of suchstatements.

 

**If we do not meet the continuedlisting requirements of the New York Stock Exchange (NYSE), our common stockmay be delisted.**

 

Our common stock iscurrently listed on the NYSE. On January 11, 2010 we received notificationfrom the NYSE that we are no longer in compliance with the NYSE’s continuedlisting standards because our average market capitalization was less than $50million over a 30 trading-day period and our most recently reportedshareholders’ equity was less than $50 million.

 

Under applicable NYSEprocedures, we had 45 days from receipt of the notification to submit a plan tothe NYSE to demonstrate our ability to achieve compliance with the continuedlisting standards within 18 months. We submitted such a plan to the NYSE onFebruary 22, 2010 and the NYSE has accepted the plan. With acceptance ofthe plan, we have 18 months from the original notification date in which tocomply with the average market capitalization standard, subject to compliancewith the NYSE’s other continued listing requirements and subject to quarterlyreviews by the NYSE to monitor our progress against the plan. During this time,our common stock will continue to be listed on the NYSE.

 

Among the other NYSEcontinued listing standards, a company is subject to delisting if averageglobal market capitalization over a consecutive 30 trading-day period is lessthan $15 million, regardless of stockholders’ equity or if a company’s averagecommon stock prices is less than $1.00 for more than 30 consecutive tradingdays. As of July 15, 2010, our closing stock price was $3.53 per share andour average global market capitalization over the previous consecutive 30trading-day period ended on July 15, 2010 was approximately $33.0 million.

 

In the future, we may not beable to meet the continued listing requirements of the NYSE, in response towhich, the NYSE may take action to delist our common stock. In such event, ifwe are unable to regain compliance with the NYSE’s continued listing standardswithin the required time frames, our common stock would be delisted, whichwould violate the provisions of our $50 million line of credit and our $40million senior secured convertible notes and could result in these debtsbecoming immediately due. In addition, delisting could negatively impact us by,among other things, reducing the liquidity and market price of our commonstock, reducing the number of investors willing to hold or acquire our commonstock, decreasing the amount of news and analyst coverage for us, and limitingour ability to issue additional securities or obtain additional financing inthe future, and might negatively impact our reputation and, as a consequence,our business.

 

**Item 6.  Exhibits**

 
| 3.1    |   | Restated  Articles of Association as of May 13, 2010.                                                                                                                                            |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                  |
| 3.2    |   | Bylaws,  Amended as of May 13, 2010.                                                                                                                                                             |
|   |   |                                                                                                                                                                                                  |
| 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. |

 

30

----

Tableof Contents

 

**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. |
|----------------------|----------|----------------------------------------------------|
|                 |     |                                               |
|                 |     |                                               |
| August 4,  2010 |     | /s/  Tim T. Esaki                                  |
| Date                 |     | Tim  T. Esaki                                      |
| * *             | * * | *Chief Financial Officer*                          |
|                 |     | (Principal  Financial Officer)                     |

 

31

----

Tableof Contents

 

**EXHIBIT INDEX**

 
| **Exhibit Number** | ** ** | **Description**                                                                                                                                                                                          |
|-------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **              | ** ** | ** **                                                                                                                                                                                               |
| 3.1                     |       | Restated  Articles of Association as of May 13, 2010.(1)                                                                                                                                            |
|                    |       |                                                                                                                                                                                                     |
| 3.2                     |       | Bylaws,  Amended as of May 13, 2010.(1)                                                                                                                                                             |
|                    |       |                                                                                                                                                                                                     |
| 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) |

 

----

(1)                                  Filed herewith.

 

(2)                                  Furnishedherewith and not “filed” for purposes of Section 18 of the SecuritiesExchange Act of 1934, as amended.

 

----