Item 1A. Risk Factors for risks relating to agriculture. The Company purchases crop insurance annually which reduces certain coffee crop production risks. The Company received crop insurance proceeds in 2023 related to losses sustained to the 2022 coffee crop due to an insured event. The Company received crop insurance proceeds in 2019 related to losses sustained to the 2018 coffee crop due to damage incurred by two named hurricanes. Additionally, acreage under production is reduced annually by required tree pruning of approximately one quarter to one third of total coffee acreage in production.

The coffee is sold as Maui origin “specialty coffee” (as defined by the Specialty Coffee Association) as is most coffee produced in Hawaii. Hawaiian coffees generally command a higher price per pound green than many other specialty coffees produced around the world but there can be no assurance such prices will continue or that coffee prices or yields will be sufficient to cover all costs of production and sales.

In addition to the Company’s commercial coffee farming operations, the Company grows bananas, citrus, and alfalfa. The Company also has approximately 660 acres of fenced pasture for cattle grazing as well as approximately 40 acres of fenced pasture for goat grazing. The Company’s banana operation currently consists of approximately 14 acres. The bananas are sold by the Company to certain customers for distribution on Maui. KLMC also grows and sells various citrus including grapefruit and lemons. These are sold to various local venders to be sold at farmer’s markets on Maui. Although the Company realizes minor amounts of revenue relating to these agricultural operations there are certain property tax advantages with land engaged in active agriculture.

For a description of financial information by segment, please read Note 8 to the attached consolidated financial statements included in Item 8, which information is incorporated herein by reference.

Employees

At March 1, 2024, Kaanapali Land and its subsidiaries employed a total of 23 employees. Certain corporate services are provided by Pacific Trail Holdings, LLC (“Pacific Trail”) and its affiliates. Pacific Trail owns in excess of 80% of the Common Shares of Kaanapali Land. Kaanapali Land reimburses Pacific Trail and its affiliates for these services and related overhead at cost.

Trademarks and Service Marks

The Company maintains a variety of trademarks and service marks that support each of its business segments. These marks are filed in various jurisdictions, including the United States Patent and Trademark Office, the State of Hawaii Department of Commerce and Consumer Affairs and foreign trademark offices. The trademarks and service marks protect, among other things, the use of the term "Kaanapali" and related names in connection with the developments in the vicinity of the Kaanapali Resort area on Maui and the various trade names and service marks obtained in connection with the Company's coffee operations. Certain trademarks, trade names and service marks have also been registered in connection with the Kaanapali Coffee Farms development. Also protected are certain designs and logos associated with the names protected. Certain marks owned by the Company have been licensed to third parties, however, the income there from is not material to the Company's financial results. To the extent deemed advantageous in connection with the Company's ongoing businesses, to satisfy contractual commitments with respect to certain marks or where the Company believes that there are future licensing opportunities with respect to specific marks, the Company intends to maintain such marks to the extent necessary to protect their use relative thereto. The Company also intends to develop and protect appropriate marks in connection with its future land development and agricultural activities.

Market Conditions and Competition

There are a number of factors that historically have negatively impacted Kaanapali Land's property activities, including market conditions, the difficulty in obtaining regulatory approvals, the high cost of required infrastructure and the Company's ability to maintain operating surplus in its other business segment. In addition, the Lahaina wildfire could eventually cause a weakening of the west Maui real estate market, which could negatively ipact the Company. As a result, the planned use of many of the Company's land holdings and the ability to generate cash flow from these land holdings have become long-term in nature, and the Company has found it necessary to sell certain parcels in order to raise cash rather than realize their full economic potential through the entitlement process.

There are several developers, operators, real estate companies and other owners of real estate that compete with the Company in its property business on Maui, many of which have greater resources. The number of competitive properties in a particular market could have a material adverse effect on the Company's success. In addition, many properties previously purchased from the Company by retail buyers are listed for resale and could provide additional competition to the Company in future years. In addition, many properties previously purchased from the Company by retail buyers are listed for resale and provide additional competition to the Company.

Government Regulations and Approvals

The current regulatory approval process for a project can take many years and involves substantial expense. There is no assurance that all necessary approvals and permits will be obtained with respect to the Company's current and future projects. Generally, entitlements are extremely difficult to obtain in Hawaii. Many different agencies at the state and County level are involved in the entitlement process. There is often significant opposition from numerous local groups - including environmental organizations, various community and civic groups, condominium associations and politicians advocating no-growth policies, among others. Certain ordinances adopted by the County of Maui have placed additional requirements on developers, some of which may be difficult or expensive to satisfy. Other proposed ordinances that have not yet passed may place moratoria on new development. It is currently unknown to what extent new legislative initiatives will impact the cost or timing of the Company's planned developments.

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. 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 has submitted such applications for permits. 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 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 are no assurances of same.

Kaanapali Land continues to work toward the necessary entitlements for the Kaanapali 2020 Development Plan. While some of these lands have some form of entitlements, it is anticipated that at least a substantial portion of the land will require state district boundary amendments and Community Plan amendments, as well as rezoning approvals. In January 2009 the Company received approval of revisions to its development plans for the Puukolii Village Mauka parcels. The Kaanapali 2020 Development Plan is recognized within the urban growth areas identified in the growth maps of the Maui County General Plan. The Kaanapali 2020 Development Plan is substantially reliant on such sources to maintain its coffee growing operations and development. Approximately 1,500 acres of the Company's Maui land which is contiguous to Kaanapali 2020 Development Plan land is located toward the top of mountain ridges and in gulches is classified as conservation, which precludes most other use. Approximately 1,500 acres of the Company's Maui land which is contiguous to Kaanapali 2020 land is located toward the top of mountain ridges and in gulches is classified as conservation, which precludes most other use. This conservation land, and other land that will be designated as open space, is an important component of the overall project, allowing for the protection of water and other natural resources, and its existence is expected to influence obtaining the entitlements for the remaining land.

Environmental Matters

The Company is subject to environmental and health safety laws and regulations related to the ownership, operation, development and acquisition of real estate, the destruction that occurred at the Pioneer Mill Site as a result of the Lahaina wildfire, or the operation of former business units. Under those laws and regulations, the Company may be liable for, among other things, the costs of removal or remediation of certain hazardous substances. In addition, the Company may find itself having to defend against personal injury lawsuits based on exposure to substances including asbestos related liabilities. Regarding asbestos related liabilities, Kaanapali Land, as successor to other entities and D/C Distribution Corporation (“D/C”) have been named as defendants in personal injury actions allegedly based on exposure to asbestos. Those laws and regulations often impose liability without regard to fault. With regard to other environmental matters as generally described in the risk factors set forth below, no assurance can be given that those matters will not have a material adverse effect on the Company’s consolidated financial position or results of operations. Reference is made to Item 1A. Risk Factors and Note 7 of the consolidated financial statements included in Item 8 for a description of certain legal proceedings related to environmental conditions. Risk Factors and Note 7 of the consolidated financial statements for a description of certain legal proceedings related to environmental conditions.

Item 1A. Risk Factors

The Company faces numerous risks and uncertainties, including those set forth below. The risks described below are not the only risks that the Company faces. New risk factors emerge from time to time and it is not possible to predict all such risk factors. Risk factors include a number of factors that could negatively impact Kaanapali Land's property activities. Any of the risks described below and potential new risks not yet identified may have a material adverse effect on the Company's business, consolidated financial position or results of operations.

Reference is made to Item 1. Business and Item 3. Legal Proceedings for further discussion of some of the risk factors facing Kaanapali Land, LLC.

Risks Related to Hawaiian Real Estate and Development Markets

The Kaanapali 2020 Development Plan (including, without limitation, Kaanapali Coffee Farms and Puukolii Village Mauka), as well as the Company's other development activities, are, apart from the risks associated with the entitlement process described above, subject to the risks generally incident to the ownership and development of real property. These include the possibility that cash generated from sales will not be sufficient to meet the Company's continuing obligations. This could result from inadequate pricing or declines on asset values or pace of sales of properties or disruptions and delays in the supply of construction material or changes in costs of construction or development; increased and continuing government mandates; adverse changes in Hawaiian economic conditions, such as increased costs resulting from continuing high rates of inflation, and availability of labor, increased costs of marketing and production, restricted availability of financing; adverse changes in local, national and/or international economic conditions (including adverse changes in exchange rates of foreign currencies for U.S. dollars); adverse effects of international political events, such as geopolitical events in Europe, the Middle East, Asia, and Russia’s invasion of Ukraine, additional terrorist activity in the U.S. or abroad that lessen travel, tourism and investment in Hawaii; substantial increase in cost of travel to Hawaii due to the increase in fuel costs or other events in the airline industry that could lessen travel and tourism in Hawaii; the spread of contagious viruses or diseases that could negatively impact commerce generally and travel to Hawaii; the need for unanticipated improvements or unanticipated expenditures in connection with environmental matters; increase in real estate tax rates and other expenses; delays in obtaining permits or approvals for construction or development and adverse changes in laws, governmental rules and fiscal policies; acts of God, including wildfires, earthquakes, volcanic eruptions, floods, droughts, fires, tsunamis, unusually heavy or prolonged rains, and hurricanes; and other factors which are beyond the control of the Company. Because of these risks and others, real estate ownership and development is subject to unexpected increases in costs.

During 2012, the County updated its General Plan which projects general growth of the County over the next few decades. This update included a new component with maps which show directed growth areas. The County recognized the Kaanapali 2020 Development Plan to be within the urban growth limits identified in these directed growth maps. The County of Maui recognized the Kaanapali 2020 Development Plan to be within the urban growth limits identified in these directed growth maps. Development of the Kaanapali 2020 lands in accordance with the Kaanapali 2020 Development Plan will require, in addition to state land use reclassification of some of the land from agriculture to urban, appropriate designation under the County community plan, and the appropriate County zoning designation included in the Maui County General Plan noting it as an urban growth area. Development of the Kaanapali 2020 lands in accordance with the Kaanapali 2020 Development Plan will require, in addition to State Land Use reclassification of some of the land from agriculture to urban, appropriate designation under the County community plan, and the appropriate County zoning designation included in the Maui County General Plan noting it as an urban growth area. In December 2021, the WMCP was updated and became part of the General Plan. The Company is evaluating the effect, if any, the changes to the WMCP will have on its development plans. Obtaining any and all of these approvals can involve a substantial amount of time and expense, and approvals may need to be resubmitted if there is any subsequent, material deviation in current approved plans or significant objections by the responsible government agencies. There are no assurances that the Company can obtain approvals or deviations.

By letters dated October 28, 2022, CWRM officially designated all six Aquifer System Areas of the Lahaina Aquifer Sector, Maui, as Ground Water Management Areas, as of August 6, 2022. CWRM notified the Company that by August 5, 2023, the Company would need to apply for ground and surface water use permits to continue the Company's use of certain wells that are integral to the Company's entire operations. The Company has submitted such applications for permits. 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 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 are no assurances of same.

The Company may, from time to time and to the extent economically advantageous, sell rezoned, undeveloped or partially developed parcels, such as portions of the Kaanapali 2020 Development Plan lands and/or the former Pioneer Mill site. The Company currently intends to develop the balance of its lands for residential, resort, affordable housing, limited commercial and recreational purposes. There can be no assurances that the Company will be successful in such efforts.

Additional increases in interest rates or downturn in the international, national or Hawaiian economy could affect the value of Company's properties and its profitability and sales. A downturn of the economy could have a profound negative effect on the Hawaiian real estate market. However, the Kaanapali resort area has historically enjoyed a significant mainland tourist market in the United States and Canada. A weakening of the Maui real estate market has in the past negatively impacted, and would in the future negatively impact the Company. A weakening of the Maui real estate market has in the past, and would in the future negatively impact the Company.

The Company's real estate activities may be adversely affected by possible changes in tax laws, including changes which may have an adverse effect on resort and residential real estate development. High rates of inflation adversely affect real estate development generally because of their impact on interest rates. High interest rates not only increase the cost of borrowed funds to the Company, but also have a significant effect on the affordability of permanent mortgage financing to prospective purchasers. High interest rates not only increase the cost of borrowed funds to developers, but also have a significant effect on the affordability of permanent mortgage financing to prospective purchasers. 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. There can be no assurance that Hawaiian real estate values will rise, or that, if such values do rise, the Company's properties will benefit.

Risks Relating to Natural Events

The Company's development lands are located in an area that is susceptible to hurricanes and seismic activity. In addition, during certain times of year, heavy rainfall is not uncommon. These events may adversely impact the Company's development activities and infrastructure assets, such as roadways, reservoirs, water courses and drainage ways. Significant events may cause the Company to incur substantial expenditures for investigation and restoration of damaged structures and facilities. Climate change, flooding, drought, fires, wind, prolonged heavy rains, and other natural perils can adversely impact agricultural production and water transmission and storage resources on lands owned or used by the Company.

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 and a building which is 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 current year coffee crop. It is also likely that the fires and devastation caused thereby will adversely affect the Maui economy and businesses operated on Maui. Clean up of Lahaina, 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 approximately 18 months. The Company has initiated claims with its insurance carriers and in October 2023, the Company received an initial, unallocated advance payment of $1 million from its insurance carrier. Notwithstanding the advance, there can be no assurance that the Company’s insurance coverage will fully compensate the Company for its losses incurred in connection with the fire and related devastation, including the costs of its structures and equipment lost in the fire, the loss in revenue from the lack of coffee sales, or the loss of income from the licensees. The Company could experience losses in excess of our insured limits, and further claims for certain losses could be denied or subject to deductibles or exclusions under our 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. Additionally, the Company was able to recover its electronic files which were stored on its servers destroyed in the fire from back up files existing at an offsite location. Recovery efforts continue.

In addition, similar events elsewhere in Hawaii may cause regulatory responses that impact all landowners. For example, as described in Note 7 to the consolidated financial statements included in Item 8, the Company received notice from the Hawaii 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. For example, as described in Note 7 of the consolidated financial statements, the Company received notice from the Hawaii Department of Land and Natural Resources ("DLNR") that DLNR on a periodic basis would inspect all significant dams 12 (table of contents) 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 April 2022. 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. A series of such inspections have taken place over the period from 2006 through the most recent inspections that occurred in July 2021. 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. These deficiencies include, among other things, vegetative overgrowth and roots and stumps left in place, erosion of slopes, uncertainty of inflow control, spillway capacity, freeboard, and uncertainty of structural stability under certain loading and seismic conditions. The Company has taken certain corrective actions, including lowering the reservoir operating level; as well as updating important plans to address emergency events and basic operations and maintenance. Remediation of all cited deficiencies 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 in a material manner.

Risks Relating to Agriculture

The Company remains engaged in farming, harvesting, and milling operations relating to coffee orchards. The Company incurs significant risks relating to the cost of growing and maintaining the coffee trees and producing and selling the coffee. As discussed above, the coffee mill was destroyed in the Lahaina wildfire. The Company is in planning stages of building a new mill at its farm in Kaanapali, which is not expected to be completed in time for the next coffee harvest. The coffee fields were not damaged in the fire. The Company is experiencing rising costs in its farming operations as a result of certain supply chain disruptions, local labor shortages and the recent rise in inflation. The Company is experiencing rising costs in its farming operations as a result of the global supply chain disruptions, local labor shortages and the recent rise in inflation. Such cost increases may negatively impact the Company’s results of operations in the future and may cause disruptions in the Company’s development plans. The Company also incurs the risk that coffee farming could be materially affected because of the adverse effects on coffee yields caused by coffee berry borer (“CBB”), coffee leaf rust (“CLR”) or through regulatory risk, as described below. The Company relies on water sourced from its irrigation systems, which divert water from streams and development tunnels into a network of ditches, tunnels, flumes, siphons and reservoirs. In the event CWRM or any other regulatory body limits the Company’s ability to divert stream waters to its irrigation systems, the result could have a negative impact on the Company’s ability to continue with its agricultural operations and development plans.

Several years ago, CBB, a beetle native to Central Africa and that has existed for some time in Central and South America, was discovered on the islands of Hawaii and Oahu. In 2017 the CBB appeared on the island of Maui. In 2017 the coffee borer appeared on the island of Maui. Effective May 1, 2017, the Hawaii Department of Agriculture (“HDOA”) began restricting the shipping of coffee grown on Maui to other Hawaiian Islands due to the discovery of the CBB on the island. The restriction requires specific treatment and inspection by HDOA Plant Quarantine inspectors before shipping to other islands.

In September 2020, the Company discovered the CBB on its land. The Company has been aware of the possible spread to its crops and has maintained sound management practices. The Company has developed an integrated management program designed to manage all aspects for cultural control of the CBB. Such program has resulted in an increase in the costs of farming the coffee and the CBB may lower the quantity and quality of salable coffee. Such program has resulted in an increase in the costs of farming the coffee and the borer may lower the quantity and quality of salable coffee.

The overall effect of the CBB is to reduce the yield and quality of the coffee bean. Farming methods have been developed to reduce the effect on the islands of Hawaii and Oahu, and the Company has incorporated many of these practices into its integrated management program. While the Company intends to continue to utilize the best practices available, there can be no assurance that the action by the HDOA or the spread of the CBB to its crops will not have a material effect on its coffee operations. While the Company intends to continue to utilize the best practices available, there can be no assurance that the action by the HDOA or the spread of the coffee berry borer to its crops will not have a material effect on its coffee operations.

In October 2020, agriculture officials with HDOA confirmed the presence of CLR on Maui. HDOA also confirmed the presence of CLR on the island of Hawaii in November 2020. The Company found evidence of CLR on its farm in January 2021, which was subsequently confirmed by HDOA. CLR is one of the most devastating diseases of coffee plants. It is established in all of the other major coffee-growing areas of the world but had not previously been found in Hawaii. The HDOA has since discovered CLR in all of the coffee-growing regions of Hawaii. The HDOA has since discovered CLR in all of the coffee-growing regions of Hawaii and is working to determine how CLR may have been introduced to Hawaii.

CLR can cause severe defoliation. Infected leaves drop prematurely, greatly reducing the plant’s photosynthetic capacity and reducing berry growth. Long-term effects of CLR can have a stronger impact by causing dieback, which reduces the number of productive nodes on branches, significantly impacting the following year’s yield. Long-term effects of rust can have a stronger impact by causing dieback, which reduces the number of productive nodes on branches, significantly impacting the following year’s yield.

The Company has implemented an integrated past management program designed to manage all aspects for cultural control of CLR. As with the CBB, such program may result in an increase in the costs of farming the coffee and lower the quantity and quality of salable coffee, and there can be no assurance that CLR will not have a material adverse effect on the Company’s coffee operations. As with the coffee berry borer, such program may result in an increase in the costs of farming the coffee and lower the quantity and quality of salable coffee, and there can be no assurance that CLR will not have a material adverse effect on the Company’s coffee operations.

Risks Relating to Hawaiian, U.S. and World Economies Generally

The Company's businesses will be subject to risks generally confronting the Hawaiian, U.S. and world economies. All of the Company's tangible property is located in Hawaii. As a result, the Company's revenues will be exposed to the risks of investment in Hawaii and to the economic conditions prevalent in the Hawaiian real estate market. While the Hawaiian real estate market is subject to economic cycles that impact tourism and investment (particularly in the United States, Japan and other Pacific Rim countries), it is also influenced by the level of economic development in Hawaii generally and by external and internal political forces.

Adverse macroeconomic conditions continue to cause economic uncertainty and market volatility. Continued high levels of inflation, slower growth or recession, changes to fiscal and monetary policy, higher interest rates, currency fluctuations, ongoing challenges in the supply chain and other adverse macroeconomic conditions, may continue. Such uncertainty and risk may negatively impact the Company’s performance and financial results, including any potential negative impact on the values of its property holdings on Maui and future planned development and sales of parcels of such development, changes in law and/or regulation, and uncertainty regarding government and regulatory policy.

Various factors impact the desire of people to travel, particularly by air. Discretionary income and unemployment throughout the world also impact travel to Hawaii and the market for real estate. Thus, Hawaii is subject to higher risks than other portions of the United States due to its disproportionate reliance on air travel and tourism. The visitor industry is Hawaii's most important source of economic activity, accounting for a significant portion of Gross State Product. For example, the outbreak of the COVID-19 coronavirus materially impacted and limited the travel and tourism industry and a similar event could again trigger a prolonged adverse effect on such economic activity. The outbreak of the COVID-19 coronavirus materially impacted and limited the travel and tourism industry and the duration of the epidemic, which is uncertain, could again trigger a prolonged adverse effect on such economic activity.

Because of the foregoing considerations, the risks associated with the large reliance by Hawaii on a visitor base, both from foreign countries and the United States mainland, will disproportionately impact the Company in future years, as market and visitation cycles play out.

Environmental Risks and Environmental Regulations

The Company is subject to environmental and health safety laws and regulations related to the ownership, operation, development and acquisition of real estate, or the operation of former business units. Under various federal, state and local laws, ordinances and regulations, a current or previous owner, developer or operator of real estate may be liable for the costs of removal or remediation of certain hazardous toxic substances at, on, under or in its property. The costs of such removal or remediation of such substances could be substantial. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the actual release or presence of such hazardous or toxic substances. The presence of such substances may adversely affect the owner's ability to sell or rent such real estate or to borrow using such real estate as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances also may be liable for the costs of removal or remediation of such substances at the disposal or treatment facility, whether or not such facility is owned or operated by such person. Certain environmental laws impose liability for the release of asbestos containing material into the air, pursuant to which third parties may seek recovery from owners or operators of real properties for personal injuries associated with such materials, and prescribe specific methods for the removal and disposal of such materials. The cost of legal counsel and consultants to investigate and defend against these claims is often high and can significantly impact the Company's operating results, even if no liability is ultimately shown. No assurance can be given that the Company will not incur liability in the future for known or unknown conditions and any significant claims may have a material adverse impact on the Company.

Kaanapali Land, as successor by merger to other entities, and D/C have been named as defendants in personal injury actions allegedly based on exposure to asbestos. While there are 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”) are 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. Certain asbestos-related proofs of claims in the bankruptcy case have been withdrawn in connection with closing the bankruptcy. 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 was forced to file a voluntary petition for liquidation. Such bankruptcy case was closed on June 14, 2023. 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. Reference is made to Note 7 to the Company’s consolidated financial statements included in Item 8 for additional discussion. Reference is made to Note 7 of the Company’s consolidated financial statements for additional discussion.

Risks Relating to the Company’s Shares

The Company’s shares are not listed on a major exchange in the United States and are instead traded via the over-the-counter broker-dealer network. Therefore, there may be additional steps and fees when trading the Company’s shares. The Company’s shares have less liquidity, low trading volume, price volatility, and may experience larger spreads between bid price and ask price.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 1C. Cybersecurity

The Company utilizes an affiliated company of Pacific Trail (“IT Provider”), which is a provider of financial services to numerous affiliates of Pacific Trail, which operate in the real estate and financial services industries for its accounting, accounts payable, treasury and related Information Technology (“IT”) and data processing functions. The Company’s financial systems and related controls, procedures, risk management, and including IT systems is integrated with that of the affiliated companies (together the “Affiliated Group”).

Cybersecurity and cybersecurity risk management are important aspects of operations and a focus area for the Affiliated Group. Cybersecurity risks are evaluated on an ongoing basis by the Affiliated Group and its IT Provider, both internally and with the assistance of external firms.

The Company engages a national technology firm in an effort to maintain and continually update its cybersecurity posture and keep current with evolving cybersecurity risks. The IT Provider’s cybersecurity program is examined on a regular basis, and new procedures and tools are adopted on an ongoing basis to address the changing cybersecurity landscape. The IT Provider’s technology team tests the effectiveness of its tools with periodic exercises, including Penetration (PEN) tests. Risk is assessed to identify and manage risks that could affect its ability to provide reliable processing to the Affiliated Group. This process requires IT Provider to identify significant risks based upon the following: (a) management’s internal knowledge of and perceived risks to the IT environment, (b) significant changes to the internal and the third-party vendor IT environments, (c) input received annually from its consultants and external auditors based on its auditor’s review of the IT operating environment, (d) management’s review of Service Organization Controls (SOC) reports received from vendors housing critical applications, (e) regulatory requirements or operating standards that may directly impact the IT environment, and (f) identification of threats and the evaluation of the probability and likelihood of threats. For any significant risks identified, IT Provider’s management is responsible for implementing appropriate measures to monitor and manage these risks, including implementing or revising control procedures, conducting specific consulting projects, and updating systems and processes to ensure compliance,.

As many security threats involve email and social engineering, the IT Provider has a multifaceted security training program for Affiliated Group employees. Cybersecurity training classes are administered at least annually. Testing and assessment of employees’ ability to thwart attacks are performed throughout the year, with training being targeted at areas of users’ weakness.

The Company does not believe that any risks from cybersecurity threats to date, including as a result of any previous cybersecurity incidents of which the Company is aware, have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial conditions, however, there can be no assurance in that regard.

The management of IT Provider is responsible for directing and controlling operations and for establishing, communicating, and monitoring policies and procedures. The key members of management are the President, (who has over 20 years’ experience in his current position) and is responsible for overseeing delivery of the services, and the Chief Information Officer (“CIO”) (who has over 10 years’ experience in his current position) and is responsible for overseeing the IT environment that supports the services. Importance is placed on maintaining sound internal controls and promoting integrity and the ethical values of the Affiliated Group in all personnel. Organizational values and behavioral standards are communicated to all personnel through policy statements and the Employee Handbook. Additionally, the President and CIO are in daily contact with personnel at all levels and reinforce the Affiliated Group’s policies, procedures, and organizational values.

The IT Provider reports to the President and upper level management of the Affiliated Group as part of the risk management process in which IT Provider management identifies significant risks through discussions with Affiliated Group management and develops responses and mitigating actions to address such risks.