All references to "Notes" herein are to Notes to Consolidated Financial Statements contained in this report. Information is not presented on a reportable segment basis in this section because in the Company's judgment such discussion is not material to an understanding of the Company's business.

In addition to historical information, this Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations about its businesses and the markets in which the Company operates. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties or other factors which may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual operating results may be affected by various factors including, without limitation, changes in international, national and Hawaiian economic conditions, continued increases in the rate of inflation, competitive market conditions, uncertainties and costs related to the imposition of conditions on receipt of governmental approvals and costs of material and labor, the effect of the COVID-19 virus and variants, and actual versus projected timing of events all of which may cause such actual results to differ materially from what is expressed or forecast in this report.

Liquidity and Capital Resources

Certain subsidiaries of Kaanapali Land are jointly indebted to Kaanapali Land pursuant to a certain Secured Promissory Note in the principal amount of $70 million dated November 14, 2002, and due September 30, 2029, as extended. Such note had an outstanding balance of principal and accrued interest as of December 31, 2022 and 2021 of approximately $90 million and $91 million, respectively. The interest rate currently is 0.39% per annum and compounds semi-annually. The note, which is prepayable, is secured by substantially all of the remaining real property owned by such subsidiaries, pursuant to a certain Mortgage, Security Agreement and Financing Statement, dated as of November 14, 2002 and placed on record in December 2002. The note has been eliminated in the consolidated financial statements because the obligors are consolidated subsidiaries of Kaanapali Land.





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In addition to such Secured Promissory Note, certain other subsidiaries of Kaanapali Land continue to be liable to Kaanapali Land under certain guarantees (the "Guarantees") that they had previously provided to support certain Senior Indebtedness (as defined in the Plan) and the Certificate of Land Appreciation Notes ("COLA Notes") formerly issued by Amfac/JMB Hawaii, Inc. (as predecessor to KLC Land). Although such Senior Indebtedness and COLA Notes were discharged under the Plan, the Guarantees of the Non-Debtor KLC Subsidiaries were not. Thus, to the extent that the holders of the Senior Indebtedness and COLA Notes did not receive payment on the outstanding balance thereof from distributions made under the Plan, the remaining amounts due thereunder remain obligations of the Non-Debtor KLC Subsidiaries under the Guarantees. Under the Plan, the obligations of the Non-Debtor KLC Subsidiaries under such Guarantees were assigned by the holders of the Senior Indebtedness and COLA Notes to Kaanapali Land on the Plan Effective Date. Kaanapali Land has notified each of the Non-Debtor KLC Subsidiaries that are liable under such Guarantees that their respective guarantee obligations are due and owing and that Kaanapali Land reserves all of its rights and remedies in such regard. Given the financial condition of such Non-Debtor Subsidiaries, however, it is unlikely that Kaanapali Land will realize payments on such Guarantees that are more than a small percentage of the total amounts outstanding thereunder or that in the aggregate will generate any material proceeds to the Company. These Guarantee obligations have been eliminated in the consolidated financial statements because the obligors are consolidated subsidiaries of Kaanapali Land, which is now the sole obligee thereunder.

Those persons and entities that were not affiliated with a predecessor of the Company and were holders of COLAs on the date that the Plan was confirmed by the Bankruptcy Court, and their successors in interest, represent approximately 9.0% of the ownership of the Company.

The Company had cash and cash equivalents of approximately $20 million and $17 million as of December 31, 2022 which is available for, among other things, working capital requirements, including future operating expenses, and the Company's obligations for engineering, planning, regulatory and development costs, drainage and utilities, environmental remediation costs on existing and former properties, potential liabilities resulting from tax audits, and existing and possible future litigation. To the extent the Company is not delayed by certain regulatory agencies, the Company expects the distribution of surplus Pension Plan assets to enhance the Company's liquidity. The Company does not anticipate making any distributions for the foreseeable future.

The primary business of Kaanapali Land is the investment in and development of the Company's assets on the Island of Maui. The various development plans will take many years at significant expense to fully implement. Reference is made to Item 1 - Business, Note 7 of the consolidated financial statements and other footnotes to the consolidated financial statements. Proceeds from land sales are the Company's only source of significant cash proceeds, other than the planned reversion of the pension plan assets, and the Company's ability to meet its liquidity needs is dependent on the timing and amount of such proceeds.

The Company's operations have in recent periods been primarily reliant upon the net proceeds of sales of developed and undeveloped land parcels.





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In September 2014, Kaanapali Land Management Corp. ("KLMC"), pursuant to a property and option purchase agreement with an unrelated third party, closed on the sale of an approximate 14.9 acre parcel in West Maui. The purchase price was $3.3 million, paid in cash at closing. The agreement (as subsequently amended) commits KLMC to fund up to $0.6 million, depending on various factors, for off-site roadway, sewer and electrical improvements that will also provide service to other KLMC properties. KLMC may, at its discretion, design, construct, install, and complete all or portions of the offsite road, sewer and or electrical improvements, in which case, the developer shall pay to KLMC the total costs thereof, less the KLMC committed amount. In this regard, KLMC has entered into a contract to install a sewer line, a portion of which runs adjacent to this property and is subject to the improvements noted above. Although certain offsite construction continues at the site, the commitment remains outstanding as construction of such improvements does not yet trigger such funding. In conjunction with the property and option purchase agreement, the Company retains certain approval rights relating to the uses and designs of the site to ensure the uses and designs are aligned with the Company's planned master development. If such uses result in a dispute with the developer of the site, such dispute could delay the development of the site. The 14.9 acre site is intended to be used for a critical access hospital, skilled nursing facility, assisted living facility, and independent living facility.

During the first quarter of 2006, the Company received final subdivision approval on an approximate 336 acre parcel in the region "mauka" (toward the mountains) from the main highway serving the area. This project, called Kaanapali Coffee Farms, originally consisted of 51 agricultural lots, offered to individual buyers. During the second quarter of 2021, the Company converted an approximate 55 acre cultural resources lot to an agricultural lot. The Company closed on the sale of this lot on March 22, 2022. The purchase price was $5 million, paid in cash at closing. As of December 31, 2022, the Company had sold all the lots at Kaanapali Coffee Farms including one lot in March 2022 and one in December 2021.

The Company is in the planning stages for the development of a 295-acre parcel in KCF Mauka. The parcel is to be comprised of 61 agricultural lots that will be offered to individual buyers. The Company expects to develop the parcel in phases and all phases have been submitted to the County for subdivision approval. The Company is working with the County to resolve certain of the County's comments relating to the subdivision. Upon final subdivision approval and receipt of final plat of the first phase from the County, which requires a bond in the amount of the cost to develop the first phase, the Company can pre-sell the undeveloped lots in the first phase. The Company expects to market the lots in the first phase upon receiving final approvals from the County, subject to various contingencies, including, but not limited to, governmental and market factors and the availability of a bond to secure the first phase of the development. Therefore, there can be no assurance the Company will be able to meet such timetable, that the subdivision will ultimately be approved or that the lots will sell for prices deemed advantageous by the Company.

The Company is in the planning stages for the development of a 241-acre residential development site in the region south of Kaanapali Coffee Farms known as Puukolii Village. The conceptual master plan is comprised of 20 developable parcels planned for 940 units including a mix of affordable and market priced homes, both single and multi-family, mixed use commercial, parks, school, and community facilities. Puukolii Village is fully entitled. In conjunction with the potential development of Puukolii Village and in coordination with the possible development by an unrelated third party of the 14.9 acre site to be used for a critical access hospital, as noted above, the Company entered into a contract to install a sewer line from the Puukolii Village site to the critical care hospital site. The developer of the critical access hospital site is obligated to share in the sewer line cost for the portion of the sewer line fronting the critical care hospital site.





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At its June 14, 2022 meeting, the State of Hawaii Commission on Water Resource Management ("CWRM") unanimously voted to accept Findings of Fact and the Chairperson's recommendation to Designate the Lahaina Aquifer Sector Area as both a Surface Water and Ground Water Management Area including the Honokohau, Honolua, Honokahua, Kahana, Honokowai, Wahikuli, Kahoma, Kaua`ula, Launiupoko, Olowalu, and Ukumehame Groundwater Hydrologic Units, Island of Maui, Hawaii. By accepting the recommendation, CWRM thereby established administrative control over the ground and surface waters in the Lahaina Aquifer Sector Area. The intended purpose of that designation was described by the CWRM staff as serving to "ensure protection and reasonable beneficial use of" those waters. The Lahaina Aquifer Sector includes the Honokowai hydrologic unit from which the Company currently derives almost all of its non-potable water. The designation means that the Company and all users of water in the Lahaina Aquifer Sector Area will be required to apply for water use permits pursuant to a process that will call for the water purveyors (and potentially their end-users) to demonstrate that their existing uses meet the "reasonable beneficial use" standards adopted by CWRM. Applications for permits to use water for future uses likely will be considered only after existing users have completed their applications based on existing uses. One possible result of the designation is a potential inability to secure permits from CWRM for future uses.

By letters dated October 28, 2022, CWRM officially designated all six Aquifer System Areas of the Lahaina Aquifer Sector, Maui, as Ground Water Management Areas, as of August 6, 2022. CWRM notified the Company that by August 5, 2023, the Company would need to apply for ground and surface water use permits to continue the Company's use of certain wells that are integral to the Company's entire operations. The permits, when applied for and granted and subject to various conditions, would preserve the Company's existing water uses as of August 6, 2022. The Company is preparing permit applications to cover its existing uses. The Company cannot provide any assurances that CWRM will approve such permit applications for the amounts of water the Company seeks or impose conditions on such use that might affect the Company's operations. If CWRM should fail to approve the Company's water requests or impose onerous conditions on its use, CWRM's actions could delay the Company's deelopment in substantial and material respects and affect the Company's operations and finances. Further, in the event permits adequate to the Company's plans are not received or not received timely, there could be negative impacts on the west Maui real estate market as a whole and the development and sale of the Company's lands on the Island of Maui, thereby materially and adversely affecting the Company's operations, land sales, land values, results, and financial position.

By letter dated March 13, 2023, CWRM provided the Company a notice of alleged water violation covering the metering and monitoring of certain designated areas with the Honokowai aquifer and hydrologic unit, as well as certain waste conditions CWRM allegedly observed on prior investigations of those certain areas. The Company is reaching out to address the alleged violations with CWRM and to seek clarification of the issues. The Company does not believe that such issues, when and if addressed by Company action, will prove material in cost, but there are no assurances of same.

The Company's Pension Plan (the "Plan") has excess assets of approximately $19 million. On January 15, 2022, Pacific Trail Holdings LLC, the manager of the Company, adopted a plan to freeze the benefit accruals under and close participation in the Plan and terminate the Plan on or about June 1, 2022. Effective February 7, 2022, the Level 1 and Level 2 Plan asset investments were reallocated to a money market fund. Benefit accruals were frozen on March 31, 2022. The Company paid approximately $420 thousand to Plan participants during October 2022, thereby settling all Plan liabilities.



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The Company currently expects to transfer during 2023 at least 25% of the remaining Plan assets to a qualified replacement plan ("QRP") in which 100% of the participants in the terminated Plan remaining employed by the Company would become active participants in the QRP. The QRP is also expected to include the employees of certain affiliates of the Company. Thereafter, remaining assets of the terminated Plan will revert to the Company. Under such circumstances, the Company will be subject to a 20% excise tax includible in the Company's taxable income. There can be no assurances that the Company will be successful in executing such plan or that the Company will not be subject to additional taxes.

Although the Company does not currently believe that it has significant liquidity problems over the near term, should the Company be unable to satisfy its liquidity requirements from its existing resources and future property sales, it will likely pursue alternate financing arrangements. However it cannot be determined at this time what, if any, financing alternatives may be available and at what cost.





Results of Operations

Reference is made to the footnotes to the financial statements for additional discussion of items addressing comparability between years.





2022 Compared to 2021

Property, net decreased at December 31, 2022 as compared to December 31, 2021 due to the sale of a lot during first quarter 2022.

The decrease in other assets at December 31, 2022 as compared to December 31, 2021 is primarily due to a receivable recorded at December 31, 2021 for the insurance recoveries related to the Waipio site received in March 2022.

The decrease in other liabilities at December 31, 2022 as compared to December 31, 2021 is due to the reversal of a contingency reserve pursuant to the settlement payment made in March 2022 related to the Waipio site.

The increase in sales and the related increase in costs of sales for the year ended December 31, 2022 as compared to the year ended December 31, 2021 is primarily due to the sale of the 55 acre agricultural lot during the first quarter 2022.

The increase in selling, general and administrative expenses for the year ended December 31, 2022 as compared to the year ended December 31, 2021 is due to the insurance recoveries related to asbestos claims offset by the adjustment of the loss contingency during first quarter 2021.





2021 Compared to 2020

The decrease in selling, general and administrative expenses for the year ended December 31, 2021 as compared to the year ended December 31, 2020 is due to the adjustment of the loss contingency offset by insurance recoveries related to the Waipio site.

The increase in sales and the related increase in costs of sales for the year ended December 31, 2021 as compared to the year ended December 31, 2020 is primarily due to sale of one lot during 2021, as compared to no lot sales in 2020.





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Critical Estimates and Significant Accounting Policies

The discussion and analysis of the Company's financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that management believes are reasonable under the circumstances; additionally management evaluates these results on an on-going basis. Management's estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Different estimates could be made under different assumptions or conditions, and in any event, actual results may differ from the estimates. The impact of a change in these estimates, assumptions, and judgments could materially affect the amounts reported in the Company's consolidated financial statements.

The Company reviews its property for impairment of value if events or circumstances indicate that the carrying amount of its property may not be recoverable. Such reviews contain uncertainties due to assumptions and judgments considering certain indicators of impairment such as significant changes in asset usage, significant deterioration in the surrounding economy or environmental problems. If such indications are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying value, the Company will adjust the carrying value down to its estimated fair value. Fair value is based on management's estimate of the property's fair value based on discounted projected cash flows. If significant changes occur in future periods, future operating results could be materially impacted.

Prior to the termination of the Plan and settlement of the Plan benefit obligations, pension assumptions were significant inputs to the actuarial models that measured pension benefit obligations and related effects on operations. Two assumptions - discount rate and expected return on assets - were important elements of plan expense and asset/liability measurement. The Company evaluated these critical assumptions at least annually. The Company periodically evaluated other assumptions involving demographic factors such as mortality, and updated the assumptions to reflect experience and expectations for the future. Such assumptions required significant judgment by the Company and its actuaries and therefore actual results in any given year may have differed from actuarial assumptions because of economic and other factors. Reference is made to Note 4 of the consolidated financial statements for further discussion.

Deferred income taxes are accounted for in accordance with FASB ASC Topic 740 - Income Taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Topic 740 requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion of the deferred income tax asset will not be realized. The Company has a deferred tax asset related to federal net operating losses (NOLs) of $10,590, of which $6,953 has been subject to a valuation allowance. Such allowance is subject to assumptions and judgment. If the Company generates taxable income in future years and the Company determines that the valuation allowance is no longer required, the tax benefit for the remaining deferred tax asset will be recognized at that time. Reference is made to Note 5 of the consolidated financial statements for further discussion.





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Material legal proceedings of the Company include Kaanapali Land, as successor by merger to other entities, and D/C having been named as defendants in personal injury actions allegedly based on exposure to asbestos. Cases against Kaanapali Land are allegedly based on its prior business operations in Hawaii and cases against D/C are allegedly based on sale of asbestos-containing products by D/C's prior distribution business operations primarily in California. The Company has recognized loss contingencies related to these claims. Predicting the outcome of such claims and estimating the costs and exposure requires the Company to make estimates, assumptions, and judgments that could result in actual costs to be materially different from such estimates. Reference is made to Note 7 of the consolidated financial statements for further discussion.

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