Basis of Presentation

6 Months Ended

Jun. 30, 2011

Basis of Presentation

Basis of Presentation

1.     Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Maui Land & 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 material respects with those applied in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and pursuant to the instructions to Form 10-Q and Article 8 promulgated by Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes to financial statements required by GAAP for complete financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all normal and recurring adjustments necessary to fairly present the Company’s financial position, results of operations and cash flows for the interim periods ended June 30, 2011 and 2010. The condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2010.

LIQUIDITY

The Company reported net income of $10.0 million for the six months ended June 30, 2011. Included in net income for the first six months of 2011 was a $15.1 million gain recognized from the 2010 sale of the Kapalua Bay Course (Bay Course). The Company reported negative cash flows used in operations of $5.4 million for the first six months of 2011 and had an excess of current liabilities over current assets of $7.1 million and a stockholders’ deficiency of $15.0 million at June 30, 2011. The Company had $14.1 million available to borrow under its revolving line of credit as of June 30, 2011.

The Company has two primary credit facilities that have financial covenants requiring among other things, a minimum of $4 million in liquidity, a maximum of $175 million in liabilities, and a limitation on new indebtedness. Failure to satisfy the minimum liquidity covenants or to otherwise default under one credit agreement could result in a default under both credit agreements resulting in all outstanding borrowings becoming immediately due and payable. The Company has pledged a significant portion of its real estate holdings as security for borrowings under these credit facilities.

The Company’s ability to continue to meet its financial covenants is highly dependent on selling real estate assets in a difficult market.  If the Company is unable to meet its financial covenants resulting in the borrowings becoming immediately due, the Company would not have sufficient liquidity to repay such outstanding borrowings. In addition, the Company is subject to several commitments and contingencies that could negatively impact its future cash flows, including commitments of up to $35 million related to its investment in Kapalua Bay Holdings, LLC (Bay Holdings) to purchase the spa, beach club improvements and the sundry store (the “Amenities”) from Kapalua Bay, LLC (Kapalua Bay), whom Bay Holdings is the sole member, its ongoing dispute with the Ladies Professional Golf Association (LPGA), a U.S. Equal Employment Opportunity Commission (EEOC) lawsuit against the Company’s discontinued agricultural subsidiary, a lawsuit against the Company and other parties relating to the sale of residences at Kapalua Bay, and funding requirements related to the Company’s defined benefit pension plans. These matters are further described in Notes 10 and 14.

The aforementioned circumstances raise substantial 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 achieve its initiatives discussed below in order to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern and do not include any adjustments that might result should the Company be unable to continue as a going concern.

In response to these circumstances, the Company continues to undertake several financial and strategic initiatives to reduce cash commitments and to further reduce its debt, including the sale of real estate assets and cost reduction efforts. In December 2010 and February 2011, the Company restructured its debt with Wells Fargo Bank, National Association and American AgCredit, FLCA, which resulted in reducing the interest rates on the credit facilities and extending the maturities from March 2011 to May 2013. In June 2011, the Company sold a 13-acre parcel that was part of its former pineapple cannery facilities in Kahului, Maui for $9.75 million. Proceeds from the sale were used to pay down the Company’s debt and for working capital. In addition, as required by the terms of its credit agreements, the Company set aside approximately $4.1 million from the sales proceeds for payment and settlement of certain legacy costs (as defined). The Company is currently in discussions with Kapalua Bay and its lenders to negotiate the terms of the purchase and sale agreement for the Amenities, including the purchase and payment terms, and even whether the Company will be required to purchase the Amenities.

RECLASSIFICATIONS

Revenues, costs and expenses in the accompanying condensed consolidated 2010 statement of operations have been reclassified to conform to the presentation adopted by the Company on December 31, 2010.  The current presentation reflects changes in the Company’s business and sources of revenues due to the cessation of all pineapple operations and the increased emphasis of leasing activities.  The change in presentation did not have an effect on total operating revenues, total operating costs and expenses, and net loss.