Kaanapali Land LLC 10-Q for FY2024 Q3
Kaanapali Land LLC (KANP)
About this 10-Q
Kaanapali Land LLC filed this 10-Q on November 12, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $402K
- down 73.8% from $1.53M a year earlier
- Net loss
- $321K
- compared with net income of $280K a year earlier
- Diluted EPS
- -$0.17
- compared with $0.15 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
[
For the quarterly period
ended
or
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______ to __________
Commission
file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
Registrant's telephone number, including area
code:
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol(s) |
Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such a shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer,""smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] | |||
| [ X ] | Smaller reporting company | [ |
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| Emerging growth company | ||||||
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ]
As of November 12, 2024, the registrant had Common Shares and 52,000 Class C Shares outstanding. Shares represent membership interests in the Company.
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| Part I FINANCIAL INFORMATION | ||||
| Item 1. | Financial Statements | 4 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 26 | ||
| Item 4. | Controls and Procedures | 26 | ||
| Part II OTHER INFORMATION | ||||
| Item 1. | Legal Proceedings | 27 | ||
| Item 1A. | Risk Factors | 27 | ||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 27 | ||
| Item 3. | Defaults Upon Senior Securities | 27 | ||
| Item 4. | Mine Safety Disclosures | 27 | ||
| Item 5. | Other Information | 27 | ||
| Item 6. | Exhibits | 28 | ||
| SIGNATURES | 29 | |||
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Part I. Financial Information
Item 1. Financial Statements
KAANAPALI LAND, LLC
Condensed Consolidated Balance Sheets
September 30, 2024 and December 31, 2023
(Dollars in Thousands, except share data)
(Unaudited)
|
September 30, 2024 |
December 31, 2023 | ||||
| Assets | |||||
| Cash and cash equivalents | $ | $ | |||
| Property, net | |||||
| Retirement plan investments | |||||
| Other assets | |||||
| Total assets | $ | $ | |||
| Liabilities | |||||
| Accounts payable and accrued expenses | $ | $ | |||
| Deposits and deferred gains | |||||
| Deferred income taxes | |||||
| Other liabilities | |||||
| Total liabilities | |||||
| Commitments and contingencies (Note 6) | |||||
| Equity | |||||
|
Common equity, at 9/30/2024 and 12/31/2023 Shares authorized – Common shares unlimited, Class C shares ;Common shares issued and outstanding at 9/30/2024 and 12/31/2023, Class C shares issued and outstanding at 9/30/2024 and 12/31/2023 |
|||||
| Additional paid-in capital | |||||
| Accumulated earnings | |||||
| Total shareholders’ equity | |||||
| Total liabilities and shareholders’ equity | $ | $ | |||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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KAANAPALI LAND, LLC
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2024 and 2023
(Unaudited)
(Dollars in Thousands, except per share data)
|
Three Months Ended September 30, |
Nine Months Ended September 30, | ||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||
| Revenues: | |||||||||||
| Sales | $ | $ | $ | $ | |||||||
| Interest and other income | |||||||||||
| Crop insurance proceeds | |||||||||||
| Total revenues | |||||||||||
| Cost and expenses: | |||||||||||
| Cost of sales | |||||||||||
|
Selling, general and administrative |
( | ||||||||||
| Excise tax expense | |||||||||||
|
Depreciation and amortization |
|||||||||||
| Total cost and expenses | |||||||||||
|
Operating income (loss) before other income and income taxes |
( |
( |
( |
||||||||
| Other income: | |||||||||||
| Insurance proceeds | |||||||||||
|
Income (loss) before income taxes |
( |
( |
|||||||||
| Income tax benefit (expense) | |||||||||||
| Net income (loss) | $ | ( |
$ | $ | $ | ||||||
|
Net income (loss) per share - basic and diluted |
$ | $ | $ | $ | |||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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KAANAPALI LAND, LLC
Condensed Consolidated Statements of Equity
Three and Nine Months Ended September 30, 2024
(Unaudited)
(Dollars in Thousands)
|
Common Equity |
Additional Paid-In Capital |
Accumulated (Deficit) Earnings |
Total Shareholders’ Equity | |||||||||
|
Balance December 31, 2023 |
$ | $ | $ | $ | ||||||||
|
Distribution for retirement plan contribution for employees of affiliates under common control |
( |
( | ||||||||||
| Net loss | ( |
( | ||||||||||
|
Balance March 31, 2024 |
||||||||||||
| Net income | ||||||||||||
|
Balance June 30, 2024 |
||||||||||||
| Net loss | ( |
( | ||||||||||
|
Balance September 30, 2024 |
$ | $ | $ | $ | ||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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KAANAPALI LAND, LLC
Condensed Consolidated Statements of Equity
Three and Nine Months Ended September 30, 2023
(Unaudited)
(Dollars in Thousands)
|
Common Equity |
Additional Paid-In Capital |
Accumulated (Deficit) Earnings |
Total Shareholders’ Equity | |||||||||
|
Balance December 31, 2022 |
$ | $ | $ | $ | ||||||||
| Net loss | ( |
( | ||||||||||
|
Balance March 31, 2023 |
||||||||||||
| Net income | ||||||||||||
|
Balance June 30, 2023 |
||||||||||||
| Net income | ||||||||||||
|
Balance September 30, 2023 |
$ | $ | $ | $ | ||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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KAANAPALI LAND, LLC
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2024 and 2023
(Unaudited)
(Dollars in Thousands)
| 2024 | 2023 | ||||
| Net cash provided by (used in) operating activities | $ | ( |
$ | ||
| Net cash provided by (used in) investing activities: | |||||
| Property additions | ( |
( | |||
| Property disposals | |||||
| Receivable due to sewer line installation | ( | ||||
| Proceeds from insurance | |||||
| ( | |||||
| Net cash used in financing activities: | |||||
|
Distribution for retirement plan contribution for employees of affiliates under common control |
( |
||||
| ( |
|||||
| Net increase (decrease) in cash and cash equivalents | ( |
||||
| Cash and cash equivalents at beginning of period | |||||
| Cash and cash equivalents at end of period | $ | $ | |||
The accompanying notes are an integral part of the condensed consolidated financial statements.
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KAANAPALI LAND, LLC
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Dollars in Thousands)
(1) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Kaanapali Land, LLC (“Kaanapali Land”) and all of its subsidiaries and its predecessors (collectively, the “Company”).
The Company's continuing operations are in two business segments - Agriculture and Property. The Agriculture segment primarily engages in farming, harvesting and milling operations relating to coffee orchards and also cultivates, harvests and sells bananas and citrus fruits, and engages in certain ranching operations. The Property segment primarily develops land for sale and negotiates bulk sales of undeveloped land. The Property and Agriculture segments operate exclusively in the State of Hawaii. For further information on the Company’s business segments see Note 8.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements, and therefore, should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”). These unaudited condensed consolidated financial statements include all normal and recurring adjustments considered necessary for a fair presentation of the financial position and results of operations and cash flows for interim periods in accordance with U.S. GAAP.
A description of the Company’s significant accounting policies is included in Note 1 to the Notes to the Consolidated Financial Statements included in the 2023 Form 10-K. Except as noted below, there were no material changes in the Company’s significant accounting policies during the three and nine months ended September 30, 2024.
Property
The Company's significant
property holdings are on the island of Maui and consist of approximately
9
Inventory of land held for sale, if any, is carried at the lower of cost or fair market value, less costs to sell, which is based on current and foreseeable market conditions, discussions with real estate brokers and review of historical land sale activity fair value hierarchy (Levels 2 and 3). The Company has determined that none of its properties currently meet held for sale criteria. Land is currently utilized for commercial specialty coffee farming operations which also support the Company's land development program, as well as farming bananas, citrus and other farm products and ranching operations. Additionally, miscellaneous parcels of land have been leased or licensed to third parties on a short term basis prior to the Lahaina wildfire, as discussed below.
Beginning on August 8,
2023, a wildfire occurred due east of historic Lahaina town in Maui. The fire spread rapidly due to extreme wind conditions caused
in part by Hurricane Dora which traveled 800 miles offshore west of Maui. The fires caused multiple fatalities, widespread damage to
Lahaina town and the surrounding area including the Company’s 19-acre Pioneer Mill site. The Company’s offices and
coffee mill were located on the site as well as various other structures, including a building which was leased to an unrelated
third party and used to operate a coffee store. The Company also utilized portions of the property for short term license agreements
with third parties that generated income for the Company. Although no employees were injured in the fire, the Company’s
offices and coffee store building were destroyed. Additionally, most of the personal property of the licensees and the coffee mill
was destroyed. The widespread destruction is likely to cause disruptions in the Company’s development plans. The damage to the
coffee mill has disrupted operations and prevented the Company from processing and selling the 2023 and 2024 year coffee crop. It is
also likely that the fires and devastation caused thereby will adversely affect the long-term Maui economy and businesses operated
on Maui. Maui hotel occupancy and average daily rates has declined significantly during 2024 as the Lahaina wildfire continues to
disrupt tourism. Clean up of Lahaina town, including the Pioneer Mill Site, has commenced by U.S. Army Corps of Engineers
(“USACE”) contractors. Access to the property remains restricted, and such restrictions are expected to continue while
the clean-up of Lahaina town continues, estimated by USACE to be completed in the first quarter of 2025. The Company has initiated
claims with its insurance carriers. In October 2023, the Company received an initial, unallocated advance payment of $
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.
Provisions for impairment losses related to long-lived assets, if any, are recognized when expected future cash flows are less than the carrying values of the assets. If indicators of impairment are present, the Company evaluates the carrying value of the related long-lived assets in relation to the future undiscounted cash flows of the underlying operations or anticipated sales proceeds. The Company adjusts the net book value of property to fair value if the sum of the expected undiscounted future cash flow or sales proceeds is less than book value. Assets held for sale are recorded at the lower of the carrying value of the asset or fair value less costs to sell.
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As a result of the fires, the Company performed an impairment evaluation of its asset groups to determine if provisions for impairment losses should be recognized. Based on the evaluation and continued monitoring, the Company concluded a provision for impairment should not be recognized for the current period. The Company will continue to monitor and evaluate the indicators for evidence of impairment in future periods. There can be no assurance that future impairment testing will not indicate that impairment has occurred and that a provision for impairment will be required.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Operating results for the nine months ended September 30, 2024 are not necessarily indicative of the results that may be achieved for the full year ending December 31, 2024 or in any other future periods.
Cash and Cash Equivalents
The Company considers as
cash equivalents all investments with maturities of three months or less when purchased. Included in this balance as of September 30,
2024 is a money market fund for $
Revenue Recognition
Revenue from real property sales is recognized at the time of closing when control of the property transfers to the buyer. After closing of the sale transaction, the Company has no remaining performance obligation.
Other revenues are recognized when control of goods or services transfers to the customers, in the amount that the Company expects to receive for the transfer of goods or provision of services.
Revenue recognition standards require entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange. The revenue recognition standards have implications for all revenues, excluding those that are under the specific scope of other accounting standards.
11
The Company’s revenues that were subject to revenue recognition standards were as follows (in thousands):
|
Three Months Ended September 30, |
Nine Months Ended September 30, | ||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||
| Sales of real estate | $ | $ | $ | $ | |||||||
| Coffee and other sales | |||||||||||
| Total | $ | $ | $ | $ | |||||||
The revenue recognition standards require the use of a five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
Lease Accounting
The Company’s lease arrangements,
both as lessor and as lessee, are short-term leases. The Company leases land to tenants under operating leases, and the Company leases
property, primarily office and storage space, from lessors under operating leases. During the three and nine months ended September 30,
2024, the Company recognized $
Recently Issued Accounting Pronouncements
In October 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-06 (“ASU 2023-06”), Disclosure Improvements - Codification Amendment in Response to the SEC’s Disclosure Update and Simplification Initiative. This ASU modified the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations. The amendments to the various topics should be applied prospectively, and the effective date will be determined for each individual disclosure based on the effective date of the SEC’s removal of the related disclosure. If the SEC has not removed the applicable requirements from Regulation S-X or Regulation S-K by June 30, 2027, then this ASU will not become effective. Early adoption is prohibited. While the Company is currently evaluating the effect that implementation of this update will have on its consolidated financial statements, no significant impact is anticipated.
In November 2023, the FASB issued ASU No. 2023-07 (“ASU 2023-07”), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments in the ASU enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. Early adoption is permitted. While the Company is currently evaluating the effect that implementation of this update will have on its consolidated financial statements, no significant impact is anticipated.
12
In December 2023, the FASB issued ASU No. 2023-09 (“ASU 2023-09”), Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, on a prospective basis. Early adoption is permitted. While the Company is currently evaluating the effect that implementation of this update will have on its consolidated financial statements, no significant impact is anticipated.
(2) Land Development
In September 2014, Kaanapali Land
Management Corp. (“KLMC”), pursuant to a property and option purchase agreement (“Purchase Agreement”) with Newport
Hospital Corporation (“NHC”), sold a parcel of approximately 14.9 acres in West Maui. The Purchase Agreement included an Infrastructure
Improvement Agreement (as subsequently amended) which commits KLMC to fund up to $
On June 3, 2024, KLMC entered into a property
sale agreement (“PVM Sales Agreement”) with an unrelated third party for the sale of several parcels of land, aggregating
approximately 241 acres (the “PVM land parcels”) within Pu’ukoli’i Village Mauka located near the Kaanapali resort
area, north of Lahaina, Hawaii. Pursuant to the PVM Sales Agreement, the base sales price for the PVM land parcels is $
13
On June 13, 2024, Pioneer Mill
Company, LLC. (“PMC”), entered into a property sale agreement (“PMC Sales Agreement”) with an unrelated third
party for the sale of four parcels of land, aggregating approximately 20 acres (the “PMS land parcels”) located in Lahaina,
Hawaii. Pursuant to the PMC Sales Agreement, the sales price for the PMS land parcels is $
(3) Retirement Plan Investments
Prior to June 1, 2022, the Company participated in a defined benefit pension plan (the “Pension Plan”) that covered substantially all of its eligible employees. The Pension Plan was sponsored and maintained by Kaanapali Land in conjunction with other plans providing benefits to employees of Kaanapali Land and its affiliates.
Pacific Trail Holdings LLC, the
manager of the Company, adopted a plan to freeze the benefit accruals under and close participation in the Pension Plan and terminate
the Pension Plan on June 1, 2022. Effective February 7, 2022, the fair value hierarchy 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 lump sum benefits totaling approximately
$
On September 8, 2023, the Company
transferred $
14
The Company maintains a nonqualified
deferred compensation arrangement (the "Rabbi Trust") which provides certain former directors of Amfac Hawaii, LLC (now known
as KLC Land Company, LLC, a direct subsidiary of Kaanapali Land through which the Company conducts substantially all of its operations)
and their spouses with pension benefits. The deferred compensation liability of $
(4) Income Taxes
The Company's taxes for 2020 and more recent years remain open to examinations by tax authorities, subject to possible utilization of loss carryforwards from earlier years. Notwithstanding the foregoing, all net operating losses (“NOL”) generated and not yet utilized are subject to adjustment by the Internal Revenue Service (“IRS”). The Company believes adequate provisions for income tax have been recorded for all years, although there can be no assurance that such provisions will be adequate. To the extent that there is a shortfall, any such shortfall for which the Company is liable could adversely and materially affect the Company’s results of operations.
The Tax Cuts and Jobs Act of 2017 is a comprehensive tax reform bill containing a number of other provisions that either currently or in the future could impact the Company, particularly the effect of certain limitations effective for the tax year 2018 and forward (prior losses remain subject to the prior 20 year carryforward period) on the use of federal NOL carryforwards, which will generally be limited to being used to offset 80% of future annual taxable income.
(5) Transactions with Affiliates
An affiliated insurance agency,
JMB Insurance Agency, Inc., which has some degree of common ownership with the Company, earns insurance brokerage commissions in connection
with providing the placement of insurance coverage for certain of the properties and operations of the Company. Commissions paid for the
three and nine months ended September 30, 2024 were $
The Company reimburses its affiliates
for general overhead expense and for direct expenses incurred on its behalf, including salaries and salary-related expenses incurred in
connection with the management of the Company's operations. Generally, the entity that employs the person providing the services receives
the reimbursement. Substantially all of such reimbursable amounts were incurred by JMB Realty Corporation or its affiliates, 900FMS, LLC,
900Work, LLC, and JMB Financial Advisors, LLC, all of which have some degree of common ownership with the Company. The total costs recorded
in cost of sales and selling, general and administrative expenses in the consolidated statement of operations for the three and nine months
ended September 30, 2024 and 2023 were $
The Company maintains a suspense
account within the QRP pending allocation to the employees of certain affiliates, all of which have some degree of common ownership with
the Company and were concluded as eligible participants per ERISA requirements for QRPs. The total allocation of $
15
(6) Commitments and Contingencies
Material legal proceedings of the Company are described below. Unless otherwise noted, the parties adverse to the Company in the legal proceedings described below have not made a claim for damages in a liquidated amount and/or the Company believes that it would be speculative to attempt to determine the Company's exposure relative thereto, and as a consequence believes that an estimate of the range of potential loss cannot be made.
A subsidiary of the Company, D/C
Distribution Corporation (“D/C”) was substantially without assets and was unable to obtain additional sources of capital to
satisfy its liabilities, and therefore filed with the United States Bankruptcy Court, Northern District of Illinois, its voluntary petition
for liquidation under Chapter 7 of Title 11, United States Bankruptcy Code in July 2007, Case No. 07-12776. Such filing was not expected
to have a material adverse effect on the Company as D/C was substantially without assets at the time of the filing. Kaanapali Land filed
claims in the D/C bankruptcy that aggregated approximately $
At the time of the filing of the bankruptcy petition, Kaanapali Land, as successor by merger to other entities, and D/C had been named as defendants in personal injury actions allegedly based on exposure to asbestos. While there were relatively few cases that name Kaanapali Land, there were a substantial number of cases that were pending against D/C on the U.S. mainland (primarily in California). Cases against Kaanapali Land (hereafter, “Kaanapali Land asbestos cases”) were allegedly based on its prior business operations in Hawaii and cases against D/C were allegedly based on sale of asbestos-containing products by D/C's prior distribution business operations primarily in California. Each entity defending these cases believes that it has meritorious defenses against these actions, but can give no assurances as to the ultimate outcome of these cases. The defense of these cases had a material adverse effect on the financial condition of D/C as it has been forced to file a voluntary petition for liquidation as discussed above. Kaanapali Land does not believe that it has liability, directly or indirectly, for D/C's obligations in those cases. Kaanapali Land does not presently believe that the cases in which it is named will result in any material liability to Kaanapali Land; however, there can be no assurance in that regard.
On January 21, 2020, certain asbestos claimants filed a Stay Relief Motion (“motion to lift stay”) in connection with the D/C proceeding. The motion to lift stay sought the entry of an order, among other things, modifying the automatic stay in the D/C bankruptcy to permit those claimants to prosecute various lawsuits in state courts against D/C and to recover on any judgment or settlement solely from any available insurance coverage. Various oppositions to the motion to lift stay were filed, and the matter was heard and taken under advisement in April 2020. On July 21, 2020, the bankruptcy court issued an order granting the motion to lift stay to permit the movants to pursue their claims and to recover any judgment or settlement from and to the extent of any available insurance coverage of D/C only.
Certain asbestos-related proofs claims in the bankruptcy case were withdrawn in connection with the closing of the case. A court hearing was held on March 29, 2023 in which the court awarded the trustee’s compensation and expenses and therefore D/C no longer has any assets. On June 6, 2023, the bankruptcy trustee filed a final account and application to close the D/C bankruptcy and on June 14, 2023, the D/C bankruptcy court closed the case and the trustee was discharged. Due to the closing of the case, the Company derecognized a related contingent liability. The derecognition of the contingent liability is included as a reduction of selling, general and administrative expenses and resulted in a credit in expenses on the Company’s consolidated statement of operations for the nine months ended September 30, 2023. However, personal injury claimants may in the future assert asbestos-related claims against D/C.
16
The Company has received notice from Hawaii’s Department of Land and Natural Resources (“DLNR”) that DLNR on a periodic basis would inspect all significant dams and reservoirs in Hawaii, including those maintained by the Company on Maui in connection with its agricultural operations. A series of such inspections have taken place over the period from 2006 through the most recent inspections that occurred in July 2024. To date, the DLNR has cited certain deficiencies concerning two of the Company’s reservoirs relating to dam and reservoir safety standards established by the State of Hawaii. These deficiencies include, among other things, vegetative overgrowth, erosion of slopes, uncertainty of inflow control, spillway capacity, and freeboard, and uncertainty of structural stability under certain loading and seismic conditions. The Company does not expect that additional deficiencies will be cited as a result of the most recent inspection. The Company has taken certain corrective actions, including lowering the reservoir operating level, as well as updating plans to address emergency events and basic operations and maintenance. In 2018, the Company contracted with an engineering firm to develop plans to address certain DLNR cited deficiencies on one of the Company’s reservoirs. Remediation plans for addressing all deficiencies have been submitted to DLNR. In 2012, the State of Hawaii issued new Hawaii Administrative Rules for Dams and Reservoirs which require dam owners to obtain from DLNR Certificates of Impoundment (“permits”) to operate and maintain dams or reservoirs. Obtaining such permits requires owners to completely resolve all cited deficiencies. Therefore, the process may involve further analysis of dam and reservoir safety requirements, which will involve continuing engagement with specialized engineering consultants, and ultimately could result in significant and costly improvements which may be material to the Company.
The DLNR categorizes the reservoirs as "high hazard" under State of Hawaii administrative rules and state statutes concerning dam and reservoir safety. This classification, which bears upon government oversight and reporting requirements, may increase the cost of managing and maintaining these reservoirs materially. The Company does not believe that this classification is warranted for either of the reservoirs and has initiated a dialogue with DLNR in that regard. In April 2008, the Company received further correspondence from DLNR that included the assessment by their consultants of the potential losses that result from the failure of these reservoirs. In April 2009, the Company filed a written response to DLNR to correct certain factual errors in its report and to request further analysis on whether such "high hazard" classifications are warranted. It is unlikely that the “high hazard” designation will be changed.
On August 5, 2024, NHC served KLMC with a Demand for Arbitration administrated by Dispute Prevention and Resolution, Inc. (“DPR”), relating to the Infrastructure Improvement Agreement and NHC’s development of the site. NHC alleges, among other things, that KLMC wrongfully caused significant delays, increased costs and related damages to NHC with respect to NHC’s planning and construction of the infrastructure improvements required of NHC under the Infrastructure Improvement Agreement (as subsequently amended). NHC seeks judgment for declaratory relief that the Infrastructure Improvement Agreement between NHC and KLMC is void; in the alternative, for reformation of the Infrastructure Improvement Agreement; for award of damages in an amount to be proven at arbitration; for attorneys’ fees and costs; for prejudgment and post-judgment interest on any monetary award; and for such other and further relief as the arbitrator deems appropriate. On October 25, 2024, KLMC filed an Answering Statement to NHC’s Demand for Arbitration and KLMC’s counterclaim against NHC. On November 5, 2024, DPR confirmed the assignment of a mutually agreed upon arbitrator. A Schedule for the arbitration hearing has not been set. The pre-arbitration discovery process is ongoing. KLMC will continue to vigorously defend. However, there can be no assurance that the eventual outcome of the arbitration will not result in any material liability or have a material impact on business and financial results for KLMC.
17
Other than as described above, the Company is not involved in any material pending legal proceedings, other than ordinary routine litigation incidental to its business. The Company and/or certain of its affiliates have been named as defendants in several pending lawsuits. While it is impossible to predict the outcome of such routine litigation that is now pending (or threatened) and for which the potential liability is not covered by insurance, the Company is of the opinion that the ultimate liability from any of this litigation will not materially adversely affect the Company's consolidated results of operations or its financial condition.
The Company often seeks
insurance recoveries under its policies for costs incurred or expected to be incurred for losses or claims under which the policies
might apply. As a result of the Lahaina wildfire, in October 2023, the Company received an initial, unallocated advance payment of
$
KLMC is a party to an agreement
with the State of Hawaii for the development of the Lahaina Bypass Highway. Approximately 2.4 miles of this two lane state highway have
been completed. Construction to extend the southern terminus was completed mid-2018. The northern portion of the Lahaina Bypass Highway,
which extends to KLMC’s lands, is in the early stage of planning. Under certain circumstances, which have not yet occurred, KLMC
remains committed for approximately $
These potential commitments have not been reflected in the accompanying condensed consolidated financial statements. While the completion of the Lahaina Bypass Highway would add value to KLMC’s lands north of the town of Lahaina, there can be no assurance that it will be completed or when any future phases will be undertaken.
The following tables set forth the computation of net income (loss) per share - basic and diluted:
|
Three Months Ended September 30, |
Nine Months Ended September 30, | ||||||||||
| (Amounts in thousands, except per share amounts) | |||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||
| Numerator: | |||||||||||
|
Net income (loss) attributable to stockholders |
$ | ( |
$ | $ | $ | ||||||
| Denominator: | |||||||||||
|
Number of weighted average share outstanding |
|||||||||||
| - basic and diluted | |||||||||||
| Net income (loss) per share, | |||||||||||
| - basic and diluted | $ | ) | $ | $ | $ | ||||||
18
(8) Business Segment Information
As described in Note 1, the Company operates in two business segments. Total revenues and operating profit by business segment are presented in the tables below.
Total revenues by business segment includes primarily (i) sales, all of which are to unaffiliated customers, and (ii) interest income that is earned from outside sources on assets which are included in the individual industry segment's identifiable assets.
Operating income (loss) is comprised of total revenue less cost of sales and operating expenses. In computing operating income (loss), none of the following items have been added or deducted: general corporate revenues and expenses, interest expense and income taxes.
|
Three Months Ended September 30, |
Nine Months Ended September 30, | ||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||
| Revenues: | |||||||||||
| Property | $ | $ | $ | $ | |||||||
| Agriculture | |||||||||||
| Corporate | |||||||||||
| $ | $ | $ | $ | ||||||||
| Operating income (loss): | |||||||||||
| Property | $ | ( |
$ | ( |
$ | $ | ( | ||||
| Agriculture | ( |
||||||||||
| Operating income (loss) | ( |
( |
( |
( | |||||||
| Corporate | ( |
( |
( |
||||||||
|
Operating income (loss) before income taxes |
$ | ( |
$ | ( |
$ | ( |
$ | ||||
The Company’s Property segment consists primarily of revenue received from land sales and lease and licensing agreements.
The Company’s Agriculture segment consists primarily of coffee operations and licensing agreements.
The Company’s Corporate segment consists primarily of interest earned on investments.
The Company is exploring alternative agricultural operations, but there can be no assurance that replacement operations at any level will result.
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
General
Unless the context indicates otherwise, references in this report to “Kaanapali Land” mean Kaanapali Land, LLC, and references to the “Company” mean Kaanapali Land and all of its subsidiaries and its predecessors.
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. These statements include expectations concerning, among other things, the Company’s land development plans, strategy and initiatives, the expected outcome of the legal proceedings, and the impact of macroeconomic conditions. 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, natural events, including the Lahaina wildfire discussed below, the effect of geopolitical, economic and market conditions in Hawaii and globally, including the rate of inflation, changes to fiscal and monetary policy, interest rate and currency fluctuations, pressure on the global banking system, competitive market conditions, uncertainties and costs related to the imposition of conditions on receipt of governmental approvals and costs of material and labor, actual versus projected timing of events, and the factors described in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”), this report and any other periodic reports the Company files with the U.S. Securities and Exchange Commission (the “SEC), all of which may cause such actual results to differ materially from what is expressed or forecast in this report.
Lahaina Wildfire
Beginning on August 8, 2023, a wildfire occurred due east of historic Lahaina town in Maui. The fire spread rapidly due to extreme wind conditions caused in part by Hurricane Dora which traveled 800 miles offshore west of Maui. The fires caused multiple fatalities, widespread damage to Lahaina town and the surrounding area including the Company’s 19-acre Pioneer Mill site. The Company’s offices and coffee mill were located on the site as well as various other structures, including a building which was leased to an unrelated third party and used to operate a coffee store. The Company also utilized portions of the property for short term license agreements with third parties that generated income for the Company. Although no employees were injured in the fire, the Company’s offices and coffee store building were destroyed. Additionally, most of the personal property of the licensees and the coffee mill was destroyed. The widespread destruction is likely to cause disruptions in the Company’s development plans. The damage to the coffee mill has disrupted operations and prevented the Company from processing and selling the 2023 and 2024 year coffee crop. It is also likely that the fires and devastation caused thereby will adversely affect the long-term Maui economy and businesses operated on Maui. Maui hotel occupancy and average daily rates has declined significantly during 2024 as the Lahaina wildfire continues to disrupt tourism. Clean up of Lahaina town, including the Pioneer Mill Site, has commenced by U.S. Army Corps of Engineers (“USACE”) contractors. Access to the property remains restricted, and such restrictions are expected to continue while the clean-up of Lahaina town continues, estimated by USACE to be completed in the first quarter of 2025. The Company has initiated claims with its insurance carriers, and in October 2023, the Company received an initial, unallocated advance payment of $1 million, in June 2024, the Company received approximately $4.9 million, and in August 2024 received approximately $1.1 million from its insurance carrier. Although the Company currently expects that the Company’s insurance coverage will compensate the Company for the majority of its losses incurred in connection with the fire and related
20
devastation, including the costs of its structures and equipment lost in the fire, the loss in revenue from the lack of coffee sales, and the loss of income from the licensees, there can be no assurances the Company will be fully compensated for such losses. The Company could experience losses in excess of its insured limits, and further, claims for certain losses could be denied or subject to deductibles or exclusions under its insurance policies. The Company has relocated its offices to temporary office facilities located on its lands in Kaanapali and is in the planning stages of relocating its coffee mill to its farm in Kaanapali. Recovery efforts continue.
Inflation and Interest Rates
High rates of inflation adversely affect real estate development generally because of their impact on interest rates. However, high rates of inflation may permit the Company to increase the prices that it charges in connection with land sales, subject to a slowdown in sales and increase in home construction costs and to general economic conditions affecting the real estate industry and local market factors.
High interest rates not only increase the cost of borrowed funds to the Company, but can also have a significant effect on the affordability of permanent mortgage financing to prospective purchasers.
Water Use Permits
By letters dated October 28, 2022, the State of Hawaii Commission on Water Resource Management (“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 Company has submitted such applications for permits. In response to the Company’s applications for permits, the Company received letters dated July 19, 2024 from CWRM requesting additional information for both of the Company’s ground water and surface water applications. Such responses were due within 30 days of the date of the letters. The Company obtained an extension for its responses to the letters and such responses were subsequently submitted. The permits, when or if granted and subject to various conditions, would preserve the Company’s existing water uses as of August 6, 2022. 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 development 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 timely or at all, there could be negative impacts on the west Maui real estate market as a whole and on 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 has engaged with CWRM to address the alleged violations and to seek clarification of the issues. While the Company does not believe that such issues, when and if addressed by the Company will prove material in cost, there can be no assurances of same.
21
Pension Plan
Pacific Trail Holdings LLC, the manager of the Company, adopted a plan to freeze the benefit accruals under and close participation in the Company’s former Pension Plan (the “Pension Plan”) and terminated the Pension Plan on or about June 1, 2022. The Company paid lump sum benefits totaling approximately $0.42 million to Pension Plan participants during October 2022, thereby settling all Pension Plan liabilities. The remaining assets of the terminated Pension Plan of approximately $14.5 million reverted to the Company on September 15, 2023.
The Company transferred $5 million, which was approximately 25% of the Pension Plan assets to a qualified replacement plan (“QRP”). The Company’s contribution to the QRP enabled the Company to reduce the excise tax due as a result of the Pension Plan termination from 50% to 20% of the amount reverted to the Company. Such assets are maintained in a suspense account within the QRP pending allocation to plan participants. The assets will be allocated to the participants in the QRP who were participants in the terminated Pension Plan and the employees of certain affiliates of the Company and were concluded as eligible participants per the Employee Retirement Income Security Act (“ERISA”) required for QRPs. Such allocations are planned to be allocated ratably over a period not to exceed seven years to comply with regulatory requirements. On February 26, 2024, approximately $1 million was allocated to the participants in the QRP.
The Company paid the 20% excise tax of approximately $2.9 million in October 2023. The funds freed up cash to better prepare the Company for tightening credit markets and are available for, among other things, working capital requirements, including future operating expenses, the Company’s obligations for engineering, planning, regulatory and development costs, drainage and utilities, and potential environmental remediation costs on existing properties.
Land Development
In September 2014, Kaanapali Land Management Corp. (“KLMC”), pursuant to a property and option purchase agreement (“Purchase Agreement”) with Newport Hospital Corporation (“NHC”), sold a parcel of approximately 14.9 acres in West Maui. The Purchase Agreement included an Infrastructure Improvement Agreement (as subsequently amended) which 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 off-site 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 relation to such sewer line improvement, KLMC entered into a contract for $1.1 million to install the sewer line. KLMC has paid $1.1 million on the contract which has been recorded as a receivable, less KLMC’s sewer line commitment of $0.2 million. In accordance with the Infrastructure Improvement Agreement, the receivable accrues interest of 6.5% and is secured by the 14.9 acre property. Due to the receipt of a Demand for Arbitration, discussed below, as of September 30, 2024, the Company recorded a $1 million credit loss reserve on its receivable with NHC based on its evaluation of the probability of default that exists at NHC. The amount of the credit loss reserve represents the entire receivable amount and interest incurred as of September 30, 2024. In conjunction with the Infrastructure Improvement 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, development of the site could be delayed. 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.
22
On August 5, 2024, NHC served KLMC with a Demand for Arbitration, administrated by Dispute Prevention and Resolution, Inc. (“DPR”), relating to the Infrastructure Improvement Agreement and NHC’s development of the site. NHC alleges, among other things, that KLMC wrongfully caused significant delays, increased costs and related damages to NHC with respect to NHC’s planning and construction of the infrastructure improvements required of NHC under the Infrastructure Improvement Agreement (as subsequently amended). NHC seeks judgment for declaratory relief that the Infrastructure Improvement Agreement between NHC and KLMC is void; in the alternative, for reformation of the Infrastructure Improvement Agreement; for award of damages in an amount to be proven at arbitration; for attorneys’ fees and costs; for prejudgment and post-judgment interest on any monetary award; and for such other and further relief as the arbitrator deems appropriate. On October 25, 2024, KLMC filed an Answering Statement to NHC’s Demand for Arbitration and KLMC’s counterclaim against NHC. On November 5, 2024, DPR confirmed the assignment of a mutually agreed upon arbitrator. A schedule for the arbitration hearing has not been set. The pre-arbitration discovery process is ongoing. KLMC will continue to vigorously defend. However, there can be no assurance that the eventual outcome of the arbitration will not result in any material liability or a material impact on business and financial results for KLMC.
On June 3, 2024, KLMC entered into a property sale agreement (“PVM Sales Agreement”) with an unrelated third party for the sale of several parcels of land, aggregating approximately 241 acres (the “PVM land parcels”) within Pu’ukoli’i Village Mauka located near the Kaanapali resort area, north of Lahaina, Hawaii. Pursuant to the PVM Sales Agreement, the base sales price for the PVM land parcels is $29.9 million, and the closing of the sale of the PVM land parcels is subject to the due diligence period of one hundred days, subject to a one-time 60-day extension. On September 16, 2024, the developer executed the 60 day extension in accordance with the terms of the PVM Sales Agreement. In addition, the developer has the right to terminate the PVM Sales Agreement on or before the expiration of the extended due diligence period. Accordingly, there can be no assurance the sale of the PVM land parcels will be completed under the existing or any other terms of the PVM Sales Agreement, if at all.
If the PVM Sales Agreement is terminated prior to the closing of the sale, the Company will continue with its planning 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. At this time, the Company is uncertain whether the Lahaina wildfire and resulting devastation might delay approvals from the County of Maui. 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 installed 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 (see discussion above).
On June 13, 2024, Pioneer Mill Company, LLC. (“PMC”), entered into a property sale agreement (“PMC Sales Agreement”) with an unrelated third party for the sale of four parcels of land, aggregating approximately 20 acres (the “PMS land parcels”) located in Lahaina, Hawaii. Pursuant to the PMC Sales Agreement, the sales price for the PMS land parcels is $20 million, and the closing of the sale of the PMS land parcels is subject to the due diligence period. On August 12, 2024, pursuant to an amendment to the PMC Sales Agreement, the due diligence period was extended to October 2, 2024. On October 2, 2024, pursuant to a Second Amendment to the PMC Sales Agreement, the due diligence period was extended to November 1, 2024. On October 31, 2024, pursuant to a Third Amendment to the PMC Sales Agreement, the PMC Sales Agreement was modified to extend the deadline for the Developer to deliver the Notice to Proceed to November 29, 2024. The developer has the right to terminate the PMC Sales Agreement depending on various factors. As the PMC Sales Agreement is subject to certain conditions, there can be no assurance that the sale of the PMS land parcels will be completed under the existing or any other terms of the PMC Sales Agreement, if at all.
23
The Company is in the planning stages for the development of a 295-acre parcel in the region mauka of Kaanapali Coffee Farms (“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 of Maui (the “County”) for subdivision approval. The Company has been working with the County to resolve certain of the County’s comments relating to the subdivision. The Company’s understanding is that all outstanding comments from the County have been resolved verbally with County staff. The final approval letter is pending and additional efforts are being made to secure the approval. Upon final subdivision approval of all phases 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 plans to 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. At this time, the Company is uncertain whether the Lahaina wildfire and resulting devastation may negatively impact the marketability of the lots in the first phase of the development. Therefore, there can be no assurance the Company will be able to meet such timeline, that the subdivision will ultimately be approved or that the lots will sell for prices deemed advantageous by the Company.
Comparison of Results of Operations
Reference is made to the notes to the condensed consolidated financial statements for additional discussion of items addressing comparability between years.
The decrease in retirement plan investments as of September 30, 2024 as compared to December 31, 2023, is primarily due to the QRP allocation that was made to plan participants during the first quarter of 2024.
The decrease in other assets as of September 30, 2024 as compared to December 31, 2023, is primarily due to recording a credit loss reserve related to the Demand for Arbitration from the Newport Hospital Corporation during the second quarter of 2024.
The increase in accounts payable and accrued expenses at September 30, 2024 as compared to December 31, 2023 is primarily due to payables related to payroll.
The decrease in deposits and deferred gains as of September 30, 2024 as compared to December 31, 2023 is primarily due to the recognition of an insurance advance during 2024 to purchase mill replacement equipment.
The decrease in sales for the three and nine months ended September 30, 2024 as compared to the three and nine months ended September 30, 2023 is primarily due to the reduction of coffee sales as a result of the Lahaina wildfire.
The increase in selling, general and administrative expenses for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 is due to the derecognition of a contingent liability related to the D/C Distribution bankruptcy case during second quarter 2023.
The decrease in excise tax expense for the three and nine months ended September 30, 2024 as compared to the three and nine months ended September 30, 2023 is primarily due to the excise taxes paid on in 2023 related to the terminated Pension Plan.
24
The increase in insurance proceeds for the three and nine months ended September 30, 2024 as compared to the three and nine months ended September 30, 2023 is due to the recognition of an insurance advance during the first quarter of 2024 to purchase mill replacement equipment as well as approximately $6 million received from the Company’s insurance carriers as a result of the Lahaina wildfire.
See also the notes to the condensed consolidated financial statements for additional discussion of items addressing comparability between the three and nine months ended September 30, 2024 and 2023.
Liquidity and Capital Resources
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. Proceeds from land sales are the Company's only source of significant cash proceeds 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.
The Company had cash and cash equivalents of approximately $25 million and $26 million as of September 30, 2024 and December 31, 2023, respectively, which is available for, among other things, working capital requirements, including future operating expenses, the rebuilding of the coffee mill and replacement of equipment and structures destroyed in the Lahaina wildfire, 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. The Company does not anticipate making any distributions for the foreseeable future.
The Company’s liquidity is influenced by many factors, including the coverage and timing of insurance proceeds, the impact of the Lahaina wildfire (including on the marketability of property), coffee sales, and completion of property sales on acceptable terms, if at all. Although the Company believes that it has sufficient liquidity to fund its operations and capital needs 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.
Cash Flows
Net cash flows provided by investing activities for the nine months ended September 30, 2024 were approximately $0.7 million and was due to insurance proceeds received related to the Lahaina wildfire offset by the cost of installation of a sewer line, costs of purchasing coffee mill replacement equipment, as well as, costs of project planning and engineering, primarily relating to KCF Mauka and Puukollii Village Mauka. Net cash flows used in financing activities for the nine months ended September 30, 2024 were approximately $0.8 million and was due to retirement plan investments allocated to participants in the QRP who are employees of certain affiliates of the Company.
25
Critical Accounting Estimates
The discussion and analysis of the Company's financial condition and results of operations are based upon the Company's unaudited condensed consolidated interim financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these unaudited interim 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.
Certain accounting policies involve significant judgments and estimates by management, and the Company considers these accounting policies to be critical accounting policies. There have been no material changes to the critical accounting polices disclosed in 2023 Form 10-K, except as described in Note 1 to the condensed consolidated financial statements.
Recently Adopted Accounting Pronouncements
For a description of recently issued accounting pronouncements, see Note 1 to the condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable as the Company is a smaller reporting company as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Item 4. Controls and Procedures
Disclosure controls and procedures. The principal executive officer/principal financial officer of the Company has evaluated the effectiveness of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) of the Exchange Act as of the end of the period covered by this report. Based on such evaluation, the principal executive officer/principal financial officer has concluded that the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed was recorded, processed, summarized and reported within the time periods specified in the applicable rules and form of the Securities and Exchange Commission.
Internal control over financial reporting. There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the third quarter of 2024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
26
Part II. Other Information
Item 1. Legal Proceedings
The information set forth in Note 6, “Commitments and Contingencies,” of the Notes to the Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, is incorporated herein by reference.
Item 1A. Risk Factors
In addition to the other information set up in this Quarterly Report on Form 10-Q, you should consider the factors discussed in Part 1, Item 1A of our 2023 Annual Report on Form 10-K. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
.
27
Item 6. Exhibits
28
SIGNATURES
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 the undersigned thereunto duly authorized.
| KAANAPALI LAND, LLC | ||
| By: |
Pacific Trail Holdings, LLC (sole member) | |
| /s/ Richard Helland | ||
| By: | Richard Helland, Vice President | |
| Date: | November 12, 2024 | |
| /s/ Richard Helland | ||
| By: |
Richard Helland, Vice President and Principal Accounting Officer | |
| Date: | November 12, 2024 | |
29
Exhibit 31.1
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Exchange Act Rule 13a-14(a) / 15d-14(a) as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
I, Stephen A. Lovelette, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q for the period ending September 30, 2024 of Kaanapali Land, LLC; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |
| 5. | I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |
| Date: | November 12, 2024 | ||
| /s/ Stephen A. Lovelette | |||
|
President, Chief Executive Officer and Chief Financial Officer |
Exhibit 32.1
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to the Sarbanes-Oxley Act of 2002
The following statement is provided by the undersigned with respect to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed pursuant to any provision of the Securities Exchange Act of 1934 or any other securities law:
The undersigned hereby certifies that the foregoing Report on Form 10-Q fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Kaanapali Land, LLC.
Date: November 12, 2024
| By: | /s/ Stephen A. Lovelette | |
|
Stephen A. Lovelette President, Chief Executive Officer and Chief Financial Officer |
Exhibit 10.3
