The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes to those statements contained elsewhere in this annual report.

Overview of the Company

The Company operates as a landholding and operating parent company for its principal subsidiaries, including Maui Pineapple Company, Ltd. and Kapalua Land Company, Ltd. Our reportable segments are Agriculture, Resort and Community Development.

The Agriculture segment primarily includes growing, packing, and marketing of fresh premium pineapple. Our fresh pineapple is sold under the brand names Maui Gold® and Hawaiian GoldTM. We also grow and market fresh organic pineapple. Through most of 2007, we also processed (canned) our pineapple, which we sold under buyers' private labels and to the United States government (Note 7 to consolidated financial statements).

The Resort segment includes our ongoing operations at the Kapalua Resort. These operations include two championship golf courses, a tennis facility, a vacation rental program, and several retail outlets. In late December 2007, our new Kapalua Adventure Center opened and in January 2008 our Mountain Outpost began operations. In March 2009, we entered into a sale and purchase agreement to sell The Plantation Golf Course for $50 million (Note 21 to consolidated financial statements).

The Community Development segment includes our real estate entitlement, development, construction, sales and leasing activities. This segment also includes the operations of Kapalua Realty Company, a general brokerage real estate company, and Public Utilities Commission-regulated water and sewage transmission operations located within the Kapalua Resort. Beginning August 31, 2004, the Community Development segment includes our investment in Bay Holdings (Note 4 to consolidated financial statements).

Current Developments

In 2008, all of our business segments were negatively affected by the global recession, the resulting uncertainty in the local, national and world economies, and the continuing turmoil in the financial and credit markets. Uncertainty about current global economic conditions caused consumers to postpone spending in response to tighter credit, negative financial news and declines in income or asset values, which negatively impacted all three of our operating segments. The economic turmoil and higher transportation costs resulted in reduced visitor counts to Maui and to the State of Hawaii, which negatively affected our Resort segment, and also resulted in slower sales of, and increased potential default rates on the residential units at Kapalua Bay, which negatively affected our Community Development segment. In our pineapple operations, high energy prices increased the cost of fertilizers, packaging and other materials, increased the cost of transporting fruit to markets, and increased the cost of transporting fruit, equipment and employees between our locations, all of which negatively impacted our Agriculture segment. In July 2008, we announced the reduction of 274 positions affecting jobs throughout our Company, primarily in the pineapple operations. We continued throughout the remainder of the year to seek additional areas to reduce cost and, in March 2009, we began to implement staff and salary reductions affecting nearly all employees.

In 2008, we incurred an operating loss of $71.6 million and negative cash flow from operations of $51.8 million. In addition at the end of 2008, $77.8 million of borrowings under our revolving line of credit was scheduled to become due in November 2009. In March 2009, we amended both our $90 million revolving line of credit and our $25 million revolving loan agreements in order to be in compliance with all covenants effective December 31, 2008. Also in March 2009, we sold the Plantation Golf Course ("PGC") for $50 million (see Note 21 to consolidated financial statements), which was included in the collateral securing the line of credit agreement. In consideration for release of the PGC from the collateral, $45 million of the sales proceeds were applied to partially repay outstanding borrowings and the credit limit under this facility was reduced to $45 million. In conjunction with the PGC sale, we amended our line of credit agreement to extend the maturity date to March 2010 and all financial covenants, except for the minimum liquidity and maximum indebtedness requirements were eliminated. The financial covenants in our $25 million revolving loan agreement were suspended through 2009, except for a minimum liquidity requirement and maximum indebtedness limitation, and the maturity of this loan was accelerated to March 2010 (previously June 2011). As a result of these amendments, $57.8 million of the remaining outstanding borrowings as of March 30, 2009, will become due in March 2010. We are currently in discussions with both lenders to restructure our line of credit and revolving loan agreements to extend the maturity dates beyond 2010, and to increase the amounts available under the line of credit agreement based, in part, on a re-appraisal of the properties securing the line of credit and by providing additional properties as collateral under the agreement. We also plan to sell selected real estate assets in 2009 to provide additional liquidity.

In September 2008, Lehman Brothers Holdings, Inc., the lead lender in the syndicated construction loan for our Residences at Kapalua Bay project filed a bankruptcy petition under Chapter 11 of the U.S. Bankruptcy Code. Avoiding the stoppage of construction work on this project was a high priority to us as we worked with Lehman, other lenders and the bankruptcy courts to resolve the funding shortfall. The members of Bay Holdings agreed to advance funds to the joint venture, which when combined with funding received from the other lenders in the loan syndicate, were sufficient to pay the minimum progress payments due to the contractor. Construction of the project continued uninterrupted and on February 11, 2009, Bay Holdings entered into an amended and restated construction loan agreement that we believe will be sufficient to complete construction of the project. The interim and amended financing arrangement increased costs and are expected to result in significantly reduced returns to us from the project.

The following is a summary of other material business developments in 2008. For more discussion about business developments in 2008, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in this annual report.

Development Projects. While sales at the Residences at Kapalua Bay project have continued throughout 2008 and early in 2009, based on potential for an increase in default rates because of the current economic environment, Bay Holdings significantly increased the allowance for default reserves and we recorded fourth quarter equity in losses of affiliates from the joint venture of $7.5 million. In the fourth quarter of 2008, we recorded an impairment charge of $37.8 million related to this investment due to the increased cost from the restructured financing arrangements and slower sell out of the project than originally forecasted (Note 4 to consolidated financial statements). In addition, due to uncertainty as to when the real estate markets will rebound and our cash flow constraints, we have delayed the start of construction of new development projects and have written off deferred project costs that we do not believe can be recovered. This resulted in a total pre-tax charge of $10.6 million in 2008 (Note 3 to consolidated financial statements).

Management Changes. Effective January 1, 2009, Warren H. Haruki was appointed to the position of Chairman of our Board of Directors and Robert I. Webber was appointed to the positions of President and Chief Executive Officer. In November 2008, David C. Cole resigned from his position of Chairman, President and CEO effective as of December 31, 2008.

Board Appointment and Annual Meeting. In December 2008, our Board of Directors approved an amendment to our Bylaws to increase the Class I Directors to four and appointed Stephen M. Case to the fill the new Class I Director position. At our annual meeting in May 2008, our shareholders re-elected John H. Agee, Warren H. Haruki and Duncan MacNaughton as Class III Directors.

Ladies Professional Golf Association (LPGA). In October 2008, we held the inaugural LPGA Kapalua Classic, a full field tournament on the Bay Course and Morgan Pressel, Kapalua Resort's official touring professional, won the tournament with a dramatic final putt on the 18th green.

Convertible Notes. In July 2008, we issued $40 million in senior secured convertible notes. A portion of the proceeds were used to repay other debt and the remainder was used to fund operations, capital expenditures and development projects (Note 5 to consolidated financial statements).

New Operations. In June 2008, we entered into an agreement with WTS International, Inc. to perform pre-opening services and to operate the spa that will be located adjacent to the condominiums currently being constructed by Bay Holdings. We expect to open the spa by mid-2009. Also in June, Merriman's Kapalua, a fine dining restaurant opened under a long-term lease with us, in a newly renovated location on Kapalua Bay. The site of the former Bay Club had been closed since August 2004.

New York Stock Exchange (NYSE). In April 2008, our common stock stopped trading on AMEX and began trading on the NYSE.

Interest Rate Agreements. In January 2008, we entered into interest rate swap agreements for approximately two years that converted $55 million of variable-rate debt to fixed-rate debt based on a 2-year LIBOR rate.

Sales of Non-Core Property. In 2008, we sold approximately 111 acres of Upcountry Maui land in three land sales transactions for a total of $4.4 million in revenues. These properties primarily consisted of land that was deemed unsuitable for precision cultivation of pineapple and were also not suitable for creating new holistic development communities.

RESULTS OF OPERATIONS

Comparison of Years Ended December 31, 2008 and 2007

CONSOLIDATED

                                               Year Ended December 31,
                                                2008              2007        change
                                              (in millions, except share amounts)
  Consolidated Revenues                      $       78.8      $     154.1   $  (75.3 )
  Net Income (Loss)                          $      (79.4 )    $       8.0   $  (87.4 )
  Basic Earnings (Loss) Per Common Share     $      (9.98 )    $      1.03   $ (11.01 )

We reported a net loss of $79.4 million for 2008 compared to net income of $8.0 million for 2007. For 2008, basic earnings (loss) per common share was $(9.98) compared to $1.03 for 2007. Consolidated revenues of $78.8 million were $75.3 million or 49% lower in 2008 compared to 2007. The reduction in 2008 revenues was primarily due to a $56.7 million decrease in the Community Development segment revenues, as a result of lower real estate sales in 2008 caused by, among other things, the global economic recession, declining availability of credit and worsening consumer confidence, and to a $19.7 million decrease in Agriculture segment revenues, primarily as a result of cessation of producing and selling solid-packed pineapple products in 2007. Operating losses from all of

our business segments and, impairment charges of $48.4 million in the Community Development segment, were primarily responsible for the net loss in 2008.

In 2008, we recognized $4.4 million in revenues from the sale of real estate compared to $59.6 million in revenues from real estate sales, including the land underlying the Ritz-Carlton, Kapalua hotel in 2007.

     General and Administrative

    In 2008, general and administrative expenses increased by 11% to
$42.1 million compared to $38.0 million for 2007. The major components of the
difference in general and administrative expenses were asset write offs and
severance, as follows:

                                                  Year ended December 31,
                                                  2008              2007        change
                                                            (in millions)
 Salaries and wages                             $       8.9       $      10.0    $ (1.1 )
 Employee incentives and stock compensation             2.5               6.6      (4.1 )
 Professional and other outside services                6.7               7.7      (1.0 )
 Depreciation and asset write offs                      8.6               1.8       6.8
 Employee severance expense                             4.1               0.3       3.8
 Other (net)                                           11.3              11.6      (0.3 )

 Total                                          $      42.1       $      38.0    $  4.1

General and administrative salaries and wages were lower in 2008 compared to 2007 due to a reduction in the number of employees across all business segments and corporate services as we reduced the size of our workforce during the second half of 2008 in response to weak economic conditions and operating losses, in particular from our Agriculture segment. Increase in employee severance expense in 2008 reflects the reduction in force as well as termination payments pursuant to management changes.

The decrease in employee incentives and stock compensation was primarily due to restricted stock vesting in 2007 for certain officers and a payment in 2007 of $1.1 million to David C. Cole, our former Chairman, President & CEO because of an amendment to Mr. Cole's stock option agreement with the Company that reduced the value of his stock options. The stock option agreement was amended to eliminate adverse tax consequences to our former Chairman imposed by section 409A of the Internal Revenue Code.

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

The increase in depreciation and asset write offs primarily reflects the continued restructuring of the Agriculture segment that resulted in additional asset write offs in 2008 and a reduction of the estimated useful lives of certain assets, which increased depreciation charges. The Kapalua Resort and other operations recorded asset write off charges in 2008 primarily for excess equipment.

Other includes insurance, pensions and other benefits, charitable contributions, etc.

General and administrative expenses are incurred at the corporate level and at the operating segment level. All general and administrative expenses incurred at the corporate level are allocated to the operating segments. Such allocations are consistent with our management's evaluation of services provided to the operating segments.

Interest expense was $2,436,000 for 2008 compared to $2,647,000 for 2007. In 2008 and 2007, $343,000 and $1,165,000, respectively, of interest was capitalized to construction projects. Interest expense for 2008 includes a charge of $1,160,000 representing the change in the estimated fair value of the swap agreements entered into in January 2008 (see Note 6 to consolidated financial statements). Interest expense for 2008 also includes a net credit of $6,152,000 representing the change in the estimated fair value of the derivative liability that was bifurcated from our $40 million convertible notes, less interest accretion of $1,230,000 on the carrying value of the convertible note (see Notes 5 and 6 to consolidated financial statements). Our effective interest rate on borrowings was 4.7% for 2008 compared to 7.5% for 2007. The decrease in interest expense was due primarily to higher average borrowings in 2008, being offset by lower average interest rates and the fair value credit adjustment for the convertible notes of $7.4 million.

AGRICULTURE

                                           Year Ended December 31,
                                             2008            2007       change
                                                     (in millions)
          Revenues                        $      27.8     $      47.5   $ (19.7 )
            % of consolidated revenues             35 %            31 %
          Operating Loss                  $     (30.4 )   $     (26.6 ) $  (3.8 )

The Agriculture segment produced an operating loss of $30.4 million for 2008 compared to an operating loss of $26.6 million for 2007. Revenues for 2008 were $27.8 million or 41% lower than revenues for 2007, primarily due to a reduction in sales of processed products. In 2008, continued losses reflect processing plant and logistical issues that affected the quality of our fresh product, increased costs of operations and employee severance costs as we further reduced the size of our Agriculture workforce in the second half of 2008. The increased loss also reflects increased depreciation charges as we adjusted the estimated useful life of assets and asset write offs. The operating loss for 2007 includes net charges totaling approximately $8.5 million related to the restructuring of our pineapple operations. In addition, the operating losses in 2008 and 2007 reflect the time-related constraints to restructuring our pineapple operations, such as the growing period of our pineapple crop.

In, 2007, we ceased the production of substantially all solid-packed pineapple products (Note 7 to consolidated financial statements). With the cessation of solid-pack canned products, we began to focus our business on the sale of fresh premium pineapple.

The case volume of fresh pineapple sales decreased by approximately 12% in 2008 compared to 2007, and revenue per case was lower by approximately 3% in 2008 compared to 2007. Lower case sales volume and pricing in 2008 were due to delayed ripening of the fruit early in 2008 and product quality and distribution issues that prevented us from achieving optimum pricing and resulted in the disposal of a significant volume of product.

The Agriculture segment cost of sales was lower by approximately 23% in 2008 compared to 2007, largely as a result of the lower sales volume of fresh and processed product, partially offset by increased per unit cost of sales. Per unit cost of sales increased in 2008 because all fruit growing costs are now allocated to the fresh fruit product line, because of lower production volumes and fixed costs, and due to disposal of fruit as a result of quality problems and distribution logistics. Juice is accounted

for as a by-product and the cost of the product includes the additional direct factory cost of processing fruit that is not suitable to be sold as fresh fruit product into juice.

Shipping and marketing cost decreased by 27% in 2008 compared to 2007 because of lower volume of sales and lower average per unit shipping costs. Although higher fuel charges have increased transportation costs, we were able to reduce our average shipping cost in 2008 by shipping a greater percentage of products to the mainland United States by ocean freight rather than air freight, which is more costly.

RESORT

                                           Year Ended December 31,
                                             2008            2007       change
                                                     (in millions)
          Revenues                        $      37.4     $      35.8    $  1.6
            % of consolidated revenues             47 %            23 %
          Operating Loss                  $     (19.7 )   $     (11.7 )  $ (8.0 )

The Resort segment reported an operating loss of $19.7 million for 2008 compared to an operating loss of $11.7 million for 2007. Resort segment revenues were $37.4 million for 2008 or 5% higher compared to revenues for 2007 largely reflecting our Adventure Center and Mountain Outpost operations that began in December 2007 and early in 2008. The increased operating loss was primarily due to increased operating costs, in particular for the new operations, a lower revenue base in our golf operations with the closure of the Village Course in 2007, the cost of hosting the LPGA tournament in October 2008 without a sponsor, and higher administrative costs.

In 2008, financial results for the Resort segment were sharply affected by the reduction in visitor counts due to the economic recession in the United States and elsewhere that has resulted in inability or hesitation to travel, reduced airline passenger capacity to Hawaii caused by airline closures, and the high cost of energy through most of the year that affected the cost of traveling. Maui and the State of Hawaii experienced approximately a 15% and 11%, respectively, decreases in visitor counts in 2008 compared to 2007.

Results for 2007 were negatively affected by the closure of the 548-room Ritz-Carlton, Kapalua hotel in July 2007 for extensive renovations. The hotel partially re-opened in December 2007. Closure of the back-nine of the Bay Course for a comprehensive re-seeding of the greens in August 2007 also had a negative impact on Resort operating results. The Bay Course re-opened in December 2007, but the renovation continued in 2008 and will continue in 2009 on the final greens without a course closure.

Revenues from golf operations decreased by 8% and paid rounds of golf decreased by approximately 17% for 2008 compared to 2007. Average green and cart fees increased by approximately 10% in 2008 compared to 2007. Resort retail sales for 2008 were approximately 11% higher than sales for 2007, reflecting increased food service sales from the Honolua Store after renovations were completed in May 2008 and revenues from the Adventure Center café and retail operations that opened at the end of December 2007.

Revenues from the Kapalua Villas were approximately 10% lower in 2008 compared to 2007, reflecting an 11% decrease in occupied rooms partially offset by a 1% higher average room rate. There were approximately 3% fewer rooms available in 2008, partially reflecting units under renovation under our Kapalua Gold program to upgrade and standardize the units in our rental program.

COMMUNITY DEVELOPMENT

                                           Year Ended December 31,
                                             2008            2007       change
                                                     (in millions)
          Revenues                        $       11.4     $     68.1   $ (56.7 )
            % of consolidated revenues              14 %           44 %
          Operating Profit (Loss)         $      (40.0 )   $     53.1   $ (93.1 )

The Community Development segment reported an operating loss of $40.0 million for 2008 compared to operating profit of $53.1 million for 2007. Revenues from this operating segment were $11.4 million for 2008 compared to revenues of $68.1 million for 2007. In 2008, the operating loss includes a charge of $37.8 million representing impairment of our investment in Bay Holdings (Note 4 to consolidated financial statements) and a charge of $10.6 million for the write off of development plans and other project costs that are not expected to be realized due to the delay of the start of construction of new development projects in the fourth quarter of 2008 caused by, among other things, the economic recession, a worsening credit market, reduced demand for real estate, and declining consumer confidence (Note 3 to consolidated financial statements). In 2007, revenues and operating profit include our sale of the land underlying the Ritz-Carlton, Kapalua hotel in March 2007, which resulted in revenues and operating profit of approximately $25 million (Note 4 to consolidated financial statements).

Our equity in the income of Bay Holdings was $18.9 million (excluding the effect of the $37.8 million impairment charge discussed above) for 2008 compared to $16.8 million in 2007. In the fourth quarter of 2008, Bay Holdings has significantly increased the allowance for default reserves and we recorded equity in losses from affiliates from this joint venture of $7.5 million. While sales of the project have continued in 2008 and early 2009, estimated default rates were based on changes and uncertainties in the global economy. We expect default rates to increase as a result of, among other things, the economic recession, a worsening credit market, reduced demand for real estate, and declining consumer confidence. In 2007, the joint venture began to recognize revenues and profits on the percentage-of-completion method from the whole and fractional residential condominiums. The percentage-of-completion of the six residential buildings in this project ranged from 83% to 98% as of the end of 2008. In connection with profit recognition under the percentage-of-completion method, we began to recognize a proportionate amount of the unrealized appreciation of the fair value of the land and other non-monetary contributions and other deferred costs related to the joint venture.

Our total real estate sales in 2008 produced $4.4 million in revenues compared to $59.6 million in revenues in 2007, including the $25 million sale of land underlying the Ritz-Carlton, Kapalua hotel.

In 2008, we sold approximately 111 acres of Upcountry Maui property in three land sales transactions and recognized revenues of $4.4 million and pretax gains of approximately $4.1 million. In 2007, we sold approximately 683 acres of Upcountry Maui property in five land sales transactions and recognized revenues of $19.9 million and a pre-tax gain of approximately $19.5 million from non-core land sales. The land sold in 2008 and 2007 had previously been earmarked as "non-core" to our strategic plans.

In 2007, we closed escrow on eight Honolua Ridge Phase II lots and recognized revenues of $14.7 million. Our Honolua Ridge Phase II subdivision consists of 25 agricultural-zoned lots, which began selling in August 2005. There were no sales in 2008 and one lot remains in inventory at the end of 2008.

Real estate development and sales are cyclical and depend on a number of factors (see the risk factor entitled "Real estate investments are subject to numerous risks and we are negatively impacted by the downturn in the real estate market" under Risk Factors in Item 1A above). Results for one period are therefore not necessarily indicative of future performance trends for this segment.

Comparison of Years Ended December 31, 2007 and 2006

CONSOLIDATED

. . .