AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________.
Commission file number: 33-55254-34.
MAUI USA INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 87-0485322
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
505 FRONT STREET, SUITE 233, LAHAINA, MAUI, HAWAII 96761
(Address of principal executive offices) (Zip Code)
<PAGE>
Issuer's telephone number: (808) 667-0647
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: CLASS A COMMON
STOCK
Indicate by check mark whether the issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes x No
Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [ x ]
Issuer's revenues for its most recent fiscal year: $ 60,897
Aggregate market value of voting stock held by non-affiliates: NONE
As of March 25, 1997, 8,000,000 shares of Class A Common Stock and
2,000,000 shares of Class B Common Stock of the issuer were outstanding.
<PAGE>
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES.
Maui USA Inc. (the "Company") was incorporated under the name Ethical
Corporation in Nevada on March 14, 1990. Until the middle of 1994, the
Company had no ongoing operational activities, assets or liabilities, and was
an inactive corporation filing reports with the Securities and Exchange
Commission. The Company's capital structure consisted of one class of stock
designated as Class A Common Stock.
In the middle of 1994, the Company appointed new directors and
officers and undertook to make investments in development activities,
principally involving real estate, on the island of Maui, Hawaii. Effective
August 2, 1994, the Company changed its name from Ethical Corporation to Maui
USA Inc. and authorized the issuance of a second class of stock, designated as
Class B Common Stock. Class A Common Stock and Class B Common Stock are
identical except that each share of Class B Common Stock has five (5) votes
while each share of Class A Common Stock has one (1) vote.
The Company has been pursuing the development of three adjoining
parcels of land (collectively, the "Kahana Ridge Property"), totalling
approximately sixty acres, located on the Kahana Ridge in West Maui. The
Company acquired 50 acres of such property (the "3521 Property") pursuant to
an acquisition agreement (the "3521 Agreement"), dated August 8, 1994, as
amended, with 3521 Corp. ("3521"). The 3521 Property was owned by the
development division of 3521. The Company acquired ten acres of such property
(the "Uhina Property") pursuant to an acquisition agreement (the "Uhina
Agreement"), dated August 8, 1994, as amended, with Uhina Corp. ("Uhina").
Both 3521 and Uhina are affiliates of the Company. See "Certain Relationships
and Related Transactions" below.
The Kahana Ridge Property is situated on a hillside overlooking the
Pacific Ocean and the islands of Molokai and Lanai. The Company is in the
process of developing the Kahana Ridge Property into single-family residential
lots and anticipates that the project will be completed in July 1997. After
the dedication of a portion of the Kahana Ridge Property for park areas,
multi-family apartments and other required set asides, this site will provide
for approximately 232 such lots. The Company anticipates that each lot will
retail for $149,000 to $200,000, which falls within the mid-range of prices in
Maui's housing market. If the anticipated prices are realized, the aggregate
sale value of the lots will be approximately $42,100,000.
The Company expects that the primary market for the single-family
residential lots will be comprised of Maui residents who currently live in the
West Maui area, and the secondary market will be comprised of Maui residents
who work in the West Maui area, but currently live in other areas due to the
lack of available mid-priced housing in West Maui.
The 3521 Property is currently zoned for single-family residential
housing. The County of Maui has approved construction plans for mass grading,
infrastructure and a water tank and waterline for the 3521 Property, and has
granted all required permits and approvals necessary for such construction.
During 1996, the Company obtained zoning approval for the residential
<PAGE>
development of the Uhina Property which was integrated into the construction
of the 3521 Property.
The Company presently has $6.1 million in outstanding commitments
related to an $11.5 million fixed-price contract with Fletcher Pacific
Construction Company ("Fletcher") for infrastructure (primarily utilities,
sewage and roadways) and mass grading on the Kahana Ridge Property. In
connection with the contracts, the Company entered into an escrow agreement,
dated August 18, 1994, whereby the Company placed $2 million into escrow, of
which $8,700 remained in escrow as of December 31, 1996, and an escrow
agreement dated July 25, 1996, whereby the Company placed $4 million into
escrow, of which $1.8 million remained in escrow as of December 31, 1996. The
Company estimates that the mass grading and infrastructure construction will
be substantially completed by July 1997.
On September 20, 1995, the Company entered into a $2.3 million
contract with Goodfellow Bros., Inc. ("Goodfellow") for the construction of a
one-million gallon water storage tank in the Alealoa reservoir area and a 16-
inch gauge transmission pipeline to the site of the Kahana Ridge Property. The
Company established an escrow account of $1.2 million with Citibank N.A. in
connection with such contract. 3521 has signed an agreement with the County
of Maui Water Supply Board (the "County"). Subsequently, the Company became a
party to that agreement and, pursuant thereto, will pay approximately 50% of
the cost of the construction under such contract and will have rights to a
proportionate amount of the water produced thereunder.
The marketing rights to the Kahana Ridge Property are held by Maui
Pacific Realty Partners, Inc. ("Maui Pacific Realty"), a Hawaii corporation
and a wholly-owned subsidiary of the Company, pursuant to an agreement between
the Company and Maui Pacific Realty. Myron O. Kirkeby is a director and
officer of the Company and is President of Maui Pacific Realty. See "Certain
Relationships and Related Transactions" below.
In July 1996, the Company entered into an agreement with an investor
whereby the Company received $8 million in financing in the form of a mortgage
note (the "Loan Agreement"). A portion of the proceeds was used to repay a
$7.5 million loan from the Bank of Bermuda. The remaining $4.1 million Bank
of Bermuda loan is subordinate to the $8 million mortgage note and a fixed
price contract with the general contractor of the Project. The Company also
used $4 million of the proceeds to fund the general contractor's escrow
account for construction of the Kahana Ridge Project. The remaining proceeds
were used to pay professional and administrative fees, and to provide
additional working capital to the Company.
Management is currently in discussions with financial institutions and
institutional investors for the private placement of $18 million in 5 year
convertible debt of the Company.
Pursuant to a letter agreement, dated January 14, 1997, the Company
acquired, subject to certain conditions, the right to purchase 11,000,000
shares in Moomin Valley Corporation ("Moomin Valley") for cash. Moomin Valley
was founded to develop and operate a Moomin theme park on the Hawaiian island
of Maui, named Moomin Valley Tropical Plantation, based on the popular Finish
cartoon characters of the same name. Moomin Valley entered into a letter
<PAGE>
agreement, dated as of May 23, 1996, for the lease and purchase option of an
existing Maui agricultural theme park called Maui Tropical Plantation. No
development has yet occurred with respect to the proposed theme park.
ITEM 3. LEGAL PROCEEDINGS.
As of December 31, 1996, to the knowledge of the Company, its officers
and directors, neither the Company nor any of its officers and directors was a
party to any material legal proceeding or litigation which would impact the
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to the Company's security holders for a vote
during the fiscal year ending December 31, 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
There currently is no public trading market for the Company's $.001
par value common stock nor has there been a trading market for the Company's
common stock since its inception.
As of March 25, 1997, there were 388 record holders of the Company's
Class A Common Stock and 3 record holders of the Company's Class B Common
Stock. The Company has not previously declared or paid any dividends on its
common stock and does not anticipate declaring any dividends in the
foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Company is continuing with its development of 232 single-family
residential lots on three adjoining parcels of land, totaling approximately
sixty acres, located on the Kahana Ridge in West Maui (the "Project"). The
expected completion date for development of the Project is July 1997. Costs
incurred during the year ended December 31, 1996 relate to development of the
infrastructure of the Project and resulted in a significant increase
(approximately $6.8 million) in Land Under Development (as set forth on the
Company's audited consolidated balance sheet).
In July 1996, the Company entered into an agreement with an investor
whereby the Company received $8 million in financing in the form of a mortgage
note (the "Loan Agreement"). A portion of the proceeds was used to repay a
$7.5 million loan from the Bank of Bermuda. The remaining $4.1 million Bank
of Bermuda loan is subordinate to the $8 million mortgage note and a fixed
price contract with the general contractor of the Project. The Company also
used $4 million of the proceeds to fund the general contractor's escrow
account for construction of the Kahana Ridge Project. The remaining proceeds
were used to pay professional and administrative fees, and to provide
additional working capital to the Company.
In connection with the Loan Agreement, the Company entered into a
subordination and indemnity agreement with the general contractor of the
<PAGE>
Project whereby the general contractor agreed to subordinate all liens,
rights, obligations and claims to the lien of the Loan Agreement. In
addition, the construction contract provides that the general contractor will
not suspend work or terminate the contract on account of non-payment and will
look solely to the $4 million initially deposited into escrow and the sales
proceeds from the sale of lots for payment of the contract.
The Loan Agreement provides that the net sales proceeds from the sale
of each unit shall be paid directly to the investor and the general contractor
of the Project until such time as the sums due to the investor and the general
contractor have been paid in full. If payment in full is not achieved by
September 30, 1997, the Company will use conventional real estate borrowing on
fully completed and marketable lots to refinance the remaining debt. However,
there is no guarantee that conventional financing will be available for the
Project.
Management is currently in discussions with financial institutions and
institutional investors for the private placement of $18 million in 5 year
convertible debt of the Company.
ITEM 7. FINANCIAL STATEMENTS.
See index to Financial Statements attached hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS.
The following table shows the age and positions held by the Company's
directors and officers. Harvey Elman was appointed a director of the Company
in 1996. All other directors and officers were appointed by resolution of the
former sole director of the Company on July 29, 1994, who resigned
simultaneously therewith. The directors will serve until the next annual
meeting of the Company's stockholders. The officers will continue in their
respective positions until the next annual meeting of the board of directors
(or until their earlier death, resignation or removal from office).
<PAGE>
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Maurice Joyal 56 Chairman and Secretary
Myron O. Kirkeby 63 Director, President, Chief Executive
Officer and Treasurer
J.J. Elkin 56 Director
David A. Williams 55 Director
Harvey Elman 56 Director
</TABLE>
<PAGE>
There are no family relationships among the Company's directors and
executive officers.
Maurice Joyal has served as President of 3521 since prior to 1991.
Mr. Joyal also serves as a director of 3521 and of Puuhale Hillside, Inc. He
began serving as President and director of Isleinvest in January 1996, before
which he served as a director of that company. Both 3521 and Isleinvest are
affiliates of the Company.
Myron O. Kirkeby has served as President and Chairman of Maui Pacific
Realty Partners, Inc. ("Maui Pacific Realty") since prior to 1991. Maui
Pacific Realty's operations includes real estate brokerage, consulting and
development. Maui Pacific Realty is a wholly owned subsidiary of the Company.
J.J. Elkin served as Chairman and Chief Executive Officer of Emtech
Ltd. from 1993 through 1995. He has served as President of each of MRE and
3521 since prior to 1991. Mr. Elkin began serving as Chairman and Chief
Executive Officer of Isleinvest in January 1996, before which he served as
President of that company, and currently serves as Vice President, Secretary
and Treasurer of 3521. MRE is an affiliate of the Company, as are Isleinvest
and 3521.
David A. Williams has served as Chairman of the Board of Beutel,
Goodman & Co. Ltd. ("Beutel") (an investment counseling firm) since April 1,
1994 and continues in this position at present. Mr. Williams served as
President of Beutel for three years prior to his service as Chairman, and as
Vice President of Beutel prior to 1991. Mr. Williams has also served as
director of Phoenix, Duff & Phelps (an investment management firm and a
reporting company under the Exchange Act) since November 15, 1993.
Harvey Elman has served as a director of Maui USA since 1996. He has
served as President of Landmark Properties Inc. since 1985. His experience
also includes domestic overseas service with Citibank N.A., employment as a
senior real estate credit officer with a Canadian chartered bank and
membership on the board of directors of various financial and property lending
companies.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
<PAGE>
<TABLE>
Summary Compensation Table
<CAPTION> Long Term Compensation
Annual Compensation Awards Payouts
Securities
Name and Other Annual Restricted Underlying LTIP All Other
Principal Bonus Compen- Stock Award(s) Options/ Payouts Compen-
Position Year Salary ($) ($) sation ($) ($) SARs (#) ($) sation ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Myron O. 1996 $150,000 0 0 0 0 0 0
Kirkeby, Chief
Executive
Officer,
President,
Treasurer and
Director
</TABLE>
<PAGE>
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
<TABLE>
<CAPTION>
Number of Securities Percent of Total
Underlying Options/ SARs Granted
Options/SARs to Employees in Exercise or Base
Name Granted (#) Fiscal Year Price ($/Sh) Expiration Date
<S> <C> <C> <C> <C>
Myron O. 300,000 100% 5 9/30/99
Kirkeby
</TABLE>
Myron O. Kirkeby was the only officer or director of the Company who
received any form of cash or non-cash compensation for the 1996 fiscal year,
as summarized above. The officers and directors of the Company's predecessor,
Ethical Corporation, did not receive any form of compensation for their
services. Other than with respect to Mr. Kirkeby, the Company has made no
arrangements regarding remuneration of its officers or directors, and there
are no agreements or understandings with respect to the amount of remuneration
that officers and directors may be expected to receive in the future, if any.
No present prediction or representation can be made as to the compensation or
other remuneration which may ultimately be paid to the Company's management
connection with any future development activities which the Company may
pursue, or in the event that new management is appointed. At such a future
time, contracts may be negotiated with management requiring the payment of
annual salaries or other forms of compensation which cannot presently be
anticipated.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of December 31, 1996, information
regarding the beneficial ownership of shares by each person known by the
Company to own five percent or more of the outstanding Class A shares or Class
B shares, by each of the directors and officers and by the directors and
officers as a group.
<PAGE>
<TABLE>
<CAPTION>
TYPE OF NAME AND ADDRESS OF AMOUNT OF PERCENT OF
CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
<S> <C> <C> <C>
Class A J.J. Elkin 6,500,000<F1> 81.0
Common Stock "The Pillars"
8 Odyssey Drive
Smith's
Bermuda
Class A Myron O. Kirkeby 500,000 6.3
Common Stock c/o Maui USA, Inc.
505 Front Street
Suite 233
Lahaina, Maui, HI 96765
Class A John G. Marshall 450,000 5.6
Common Stock 38 Mizzentop
Longford Road
Warwick, Bermuda, WK 06
Class B J.J. Elkin 1,750,000<F2> 88.0
Common Stock "The Pillars"
8 Odyssey Drive
Smith's
Bermuda
Class B David A. Williams<F3> 250,000 50.0
Common Stock c/o Roxborough
Holdings Limited
One First Canadian
Place - Suite 6250
Toronto, Ontario Canada M5X 1C7
Class A All Directors and Officers as a Group 6,999,100 87.5
Common Stock
Class B All Directors and Officers as a Group 2,000,000 100.0
Common Stock
<FN>
<F1> Includes 5,089,900 Class A shares held of record by Isleinvest and 1,410,100 Class A shares held of record by 3521,
both of which companies are controlled by J.J. Elkin.
<F2> Includes 1,740,000 Class B shares held of record by Isleinvest and 10,000 Class B shares held of record by 3521.
<F3> David A. Williams is a director of the Company.
</FN>
</TABLE>
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Under the terms of the 3521 Agreement, the Company exchanged 10,000
Class B shares and 1,410,000 Class A shares for land and development costs
having a carrying value on the books and records of 3521 of $10,170,024.
Additionally, the Company assumed from 3521 a demand note payable to the Bank
of Bermuda in the amount of $7,500,000, bearing interest at the London
Interbank Offer Rate (LIBOR) plus 2%, and secured by a first mortgage on the
Kahana Ridge Property and on certain assets of 3521, and guaranteed by MRE
Corp. ("MRE"). The Company is obligated to pay a commitment fee of 2.5% per
year on the outstanding balance of the note. Payment of the note is
guaranteed by MRE Corp., which is wholly-owned by J.J. Elkin, a director of
the Company, who also beneficially owns interests in the Company, Isleinvest,
3521 and Uhina. The Company also assumed certain liabilities of 3521
aggregating $549,416, as well as the rights and obligations of 3521 under
various construction and other contracts relating to the development of the
3521 Property. The Company recorded a payable to affiliate liability in the
amount of $1,755,459 relating primarily to land development costs and
organizational costs incurred in connection with the transfer of the 3521
Property. Closing of the 3521 Agreement and transfer of the demand note to
the Company are conditioned upon the approval of the Bank of Bermuda. See
"Management's Discussion and Analysis or Plan of Operation."
Under the terms of the Uhina Agreement, the Company exchanged 750,000
Class B shares for property having a carrying value on the books and records
of Uhina of $1,500,000. The Company did not assume any liabilities under the
Uhina Agreement. The Uhina land assets were conveyed to the Company on
October 26, 1994.
For accounting purposes, the August 8, 1994 transactions with 3521 and
with Uhina were accounted for as a reverse acquisition, as if the real estate
development division of 3521 and Uhina jointly acquired the Company, because
J.J. Elkin, who controls both 3521 and Uhina, owned a majority of the common
shares of the Company immediately after the 3521 Agreement and the Uhina
Agreement were concluded (58.5% of the 2,410,100 Class A shares and 100% of
the 760,000 Class B shares outstanding at August 8, 1994).
Simultaneous with the execution of the Uhina Agreement, Uhina assigned
its right thereunder to receive 750,000 Class B shares of the Company to
Sentasha S.A., a company controlled by J.J. Elkin. Simultaneous with the
assignment by Uhina, Sentasha S.A. assigned such rights to Roxborough Holdings
Limited, a company controlled by David A. Williams, who is a director of the
Company.
Under the terms and conditions of an acquisition agreement dated
September 20, 1994, as amended, with Myron O. Kirkeby, Chief Executive
Officer, President, Treasurer and director of the Company, the Company
exchanged 500,000 Class A shares for $500 and 2,500 shares of Maui Pacific
Realty. The 2,500 shares of Maui Pacific Realty transferred from Mr. Kirkeby
to the Company represented 50% of the outstanding stock of Maui Pacific Realty
and Mr. Kirkeby's entire ownership interest therein. On November 29, 1995,
the Company acquired the remaining 2,500 outstanding shares of Maui Pacific
Realty from William Moffett. Pursuant to such acquisition, Maui Pacific
<PAGE>
Realty became a wholly-owned subsidiary of the Company. The marketing rights
to the Kahana Ridge Property are held by Maui Pacific Realty pursuant to an
agreement between the Company and Maui Pacific Realty.
On September 21, 1994, Isleinvest subscribed for 5,089,900 Class A
shares and 1,240,000 Class B shares of the Company. The purchase price in the
amount of $3,900,000 was satisfied by a non-interest bearing demand promissory
note which was paid in full in December 1994. The 5,089,900 Class A shares
and 1,240,000 Class B shares together represent 63% of the eligible votes of
the common stock of the Company at December 31, 1994.
As of December 31, 1996, J.J. Elkin beneficially owned approximately
81% of the outstanding Class A shares and 88% of the outstanding Class B
shares of the Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3.1 Articles of Incorporation, as amended through August 1, 1994
(incorporated by reference to Exhibit 2.1 of the Company's Form
10-KSB for the annual period ended December 31, 1994).*
3.2 By-Laws, as amended through July 29, 1994 (incorporated by
reference to Exhibit 2.2 of the Company's Form 10-KSB for the
annual period ended December 31, 1994).*
10.1 Acquisition Agreement, dated as of August 8, 1994, between the
Company and 3521 (incorporated by reference to Exhibit 2.1 of
the Company's Form 10-QSB for the quarterly period ended June
30, 1994).*
10.2 Acquisition Agreement, dated August 8, 1994, between the Company
and Uhina (incorporated by reference to Exhibit 2.2 of the
Company's Form 10-QSB for the quarterly period ended June 30,
1994).*
10.3 Amendment to Acquisition Agreement, dated as of August 8, 1994,
amending Acquisition Agreement, dated August 8, 1994, between
the Company and Uhina (incorporated by reference to Exhibit 6.3
of the Company's Form 10-KSB for the annual period ended
December 31, 1994).*
10.4 Amendment to Acquisition Agreement, dated September 21, 1994,
amending Acquisition Agreement, dated August 8, 1994, between
the Company and 3521 (incorporated by reference to Exhibit 10.1
of the Company's Form 8-K dated October 3, 1994).*
10.5 Supplement to Amended Acquisition Agreement, dated October 10,
1994, between the Company and 3521 (incorporated by reference to
Exhibit 6.5 of the Company's Form 10-KSB for the annual period
ended December 31, 1994).*
10.6 Assignment and Assumption Agreement, dated September 20, 1994,
between 3521 and the Company (incorporated by reference to
Exhibit 6.6 of the Company's Form 10-KSB for the annual period
ended December 31, 1994).*
10.7 Consent to Assignment of Contracts and Assumption, dated
September 20, 1994, between Fletcher and the Company
(incorporated by reference to Exhibit 6.7 of the Company's Form
<PAGE>
10-KSB for the annual period ended December 31, 1994).*
10.8 Assignment and Assumption Agreement, dated September 20, 1994,
between Uhina and the Company (incorporated by reference to
Exhibit 6.8 of the Company's Form 10-KSB for the annual period
ended December 31, 1994).*
10.9 Agreement, dated September 20, 1994, between the Company and
Myron O. Kirkeby (incorporated by reference to Exhibit 6.9 of
the Company's Form 10-KSB for the annual period ended December
31, 1994).*
10.10 Amendment to Agreement, dated October 10, 1994, between the
Company and Myron O. Kirkeby; Transfer of Stock of Maui Pacific
Realty Partners, Inc. by Myron O. Kirkeby to the Company, dated
October 10, 1994 (both of which are incorporated by reference to
Exhibit 6.10 of the Company's Form 10-KSB for the annual period
ended December 31, 1994).*
10.11 Stock Option Agreement, dated February 14, 1995, between the
Company and Myron O. Kirkeby.*
10.12 Agreement Concerning the Construction of a One Million Gallon
Storage Tank and Appurtenances, dated March 30, 1995, between
the County and 3521.*
10.13 Agreement, dated September 20, 1995, between the Company and
Goodfellow.*
10.14 Escrow Agreement, dated September 28, 1995, between Citibank
N.A. Escrow, the Company and Goodfellow.*
10.15 Agreement to Increase Size of Water Main, dated October 5, 1995,
by and between 3521 and the County.*
10.16 Release of Mortgage, dated December 19, 1995, by The Bank of
Bermuda Limited.*
10.17 Water Storage and Waterline Development Agreement, dated
December 20, 1995, by and between 3521, the Company, Maui Land
and Pineapple Company, Inc. ("Maui Land and Pineapple"), the
County and Goodfellow.*
10.18 Supplement to Water Storage and Waterline Agreement, dated
December 20, 1995, by and between 3521 and the Company.*
10.19 Right of Entry Agreement for the Construction of Offsite Drains
and Siltation Basin and for the Post-Construction Delivery of
Easement, dated December 22, 1995, by and between the Company,
3521, and Maui Land and Pineapple.*
10.20 Warranty Deed and Mortgage Assumption, dated December 29, 1995,
between 3521 and the Company.*
* Incorporated by reference to Maui USA Inc.'s Annual Report on Form
10-KSB for the year ended December 31, 1995.
(b) Reports on Form 8-K.
No current reports on Form 8-K were filed during the fiscal
quarter ended December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the issuer has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MAUI USA, INC.
Date: March 28, 1997 By: /s/ Myron O. Kirkeby
MYRON O. KIRKEBY
President, Chief Executive Officer,
Treasurer, and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 By: /s/ Maurice M. Joyal
MAURICE M. JOYAL
Chairman and Director
Date: March 28, 1997 By: /s/ Myron O. Kirkeby
MYRON O. KIRKEBY
President, Chief Executive Officer,
Treasurer, and Director
Date: March 28, 1997 By: /s/ J.J. Elkin
J.J. ELKIN
Director
Date: March 28, 1997 By: /s/ David A. Williams
DAVID A. WILLIAMS
Director
<PAGE>
INDEX TO FINANCIAL
STATEMENTS AND EXHIBITS
Sequential
Page No.
Report of Independent Accountants and Financial Statements
-- Report of Independent Accountants
and Financial Statements -- December 31, 1996 and 1995.
-- Report of Independent Accountants.
-- Balance Sheet.
-- Statement of Operations.
-- Statement of Cash Flows.
-- Statement of Stockholders' Equity.
-- Notes to Financial Statements.
Exhibits
3.1 Articles of Incorporation, as amended through August 1,
1994 (incorporated by reference to Exhibit 2.1 of the
Company's Form 10-KSB for the annual period ended December
31, 1994).*
3.2 By-Laws, as amended through July 29, 1994 (incorporated by
reference to Exhibit 2.2 of the Company's Form 10-KSB for
the annual period ended December 31, 1994).*
10.1 Acquisition Agreement, dated as of August 8, 1994, between
the Company and 3521 (incorporated by reference to Exhibit
2.1 of the Company's Form 10-QSB for the quarterly period
ended June 30, 1994).*
10.2 Acquisition Agreement, dated August 8, 1994, between the
Company and Uhina (incorporated by reference to Exhibit
2.2 of the Company's Form 10-QSB for the quarterly period
ended June 30, 1994).*
10.3 Amendment to Acquisition Agreement, dated as of August 8,
1994, amending Acquisition Agreement, dated August 8,
1994, between the Company and Uhina (incorporated by
reference to Exhibit 6.3 of the Company's Form 10-KSB for
the annual period ended December 31, 1994).*
10.4 Amendment to Acquisition Agreement, dated September 21,
1994, amending Acquisition Agreement, dated August 8,
1994, between the Company and 3521 (incorporated by
reference to Exhibit 10.1 of the Company's Form 8-K dated
October 3, 1994).*
10.5 Supplement to Amended Acquisition Agreement, dated October
10, 1994, between the Company and 3521 (incorporated by
reference to Exhibit 6.5 of the Company's Form 10-KSB for
the annual period ended December 31, 1994).*
10.6 Assignment and Assumption Agreement, dated September 20,
1994, between 3521 and the Company (incorporated by
reference to Exhibit 6.6 of the Company's Form 10-KSB for
the annual period ended December 31, 1994).*
10.7 Consent to Assignment of Contracts and Assumption, dated
September 20, 1994, between Fletcher and the Company
<PAGE>
(incorporated by reference to Exhibit 6.7 of the Company's
Form 10-KSB for the annual period ended December 31,
1994).*
10.8 Assignment and Assumption Agreement, dated September 20,
1994, between Uhina and the Company (incorporated by
reference to Exhibit 6.8 of the Company's Form 10-KSB for
the annual period ended December 31, 1994).*
10.9 Agreement, dated September 20, 1994, between the Company
and Myron O. Kirkeby (incorporated by reference to Exhibit
6.9 of the Company's Form 10-KSB for the annual period
ended December 31, 1994).*
10.10 Amendment to Agreement, dated October 10, 1994, between
the Company and Myron O. Kirkeby; Transfer of Stock of
Maui Pacific Realty Partners, Inc. by Myron O. Kirkeby to
the Company, dated October 10, 1994 (both of which are
incorporated by reference to Exhibit 6.10 of the Company's
Form 10-KSB for the annual period ended December 31,
1994).*
10.11 Stock Option Agreement, dated February 14, 1995, between
the Company and Myron O. Kirkeby.*
10.12 Agreement Concerning the Construction of a One Million
Gallon Storage Tank and Appurtenances, dated March 30,
1995, between the County and 3521.*
10.13 Agreement, dated September 20, 1995, between the Company
and Goodfellow.*
10.14 Escrow Agreement, dated September 28, 1995, between
Citibank N.A. Escrow, the Company and Goodfellow.*
10.15 Agreement to Increase Size of Water Main, dated October 5,
1995, by and between 3521 and the County.*
10.16 Release of Mortgage, dated December 19, 1995, by The Bank
of Bermuda Limited.*
10.17 Water Storage and Waterline Development Agreement, dated
December 20, 1995, by and between 3521, the Company, Maui
Land and Pineapple Company, Inc. ("Maui Land and
Pineapple"), the County and Goodfellow.*
10.18 Supplement to Water Storage and Waterline Agreement, dated
December 20, 1995, by and between 3521 and the Company.*
10.19 Right of Entry Agreement for the Construction of Offsite
Drains and Siltation Basin and for the Post-Construction
Delivery of Easement, dated December 22, 1995, by and
between the Company, 3521, and Maui Land and Pineapple.*
10.20 Warranty Deed and Mortgage Assumption, dated December 29,
1995, between 3521 and the Company.*
* Incorporated by reference to Maui USA Inc.'s Annual Report on Form
10-KSB for the year ended December 31, 1995.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Maui USA Inc.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Maui USA Inc. and its subsidiary at December 31, 1996 and 1995,
and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Honolulu, Hawaii
February 28, 1997
<PAGE>
<TABLE>
MAUI USA INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Cash (including restricted cash of $1,846,840
and $1,142,872) $ 1,916,104 $ 1,202,656
Land under development 22,082,317 15,278,255
Furniture and equipment, net 12,268 16,626
Other 52,475 74,393
Total assets $ 24,063,164 $ 16,571,930
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,542,343 $ 615,926
Notes payable 12,119,459 7,500,000
Accrued interest payable 1,045,479 --
Payable to affiliates 4,004,828 2,990,845
Total liabilities $ 18,712,109 $ 11,106,771
Stockholders' equity
Common Stock
Class A, $.001 par value;
authorized - 25,000,000
shares, outstanding -
8,000,000 shares 8,000 8,000
Class B, $.001 par value;
authorized - 5,000,000
shares, outstanding -
2,000,000 shares 2,000 2,000
Additional paid-in capital 5,556,149 5,556,149
Accumulated deficit (215,094) (100,990)
Total stockholders' equity 5,351,055 5,465,159
Commitments and contingencies (Note 8) -- --
Total liabilities and stockholders' equity $ 24,063,164 $ 16,571,930
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
MAUI USA INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
<S> <C> <C>
Interest income $ 60,897 $ 39,810
General and administrative expenses (175,001) (97,431)
Net loss $ (114,104) $ (57,621)
Loss per common share
Primary $ (0.011) $ (0.006)
Weighted average number of
common shares outstanding 10,000,000 10,000,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
MAUI USA INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net loss $ (114,104) $ (57,621)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation of furniture and equipment 4,358 4,359
Amortization of goodwill 12,516 1,043
Changes in assets and liabilities
Decrease (increase) in other assets 9,402 (5,973)
Increase in accounts payable 926,417 116,566
Increase in accrued interest payable 1,045,479 --
Net increase in payable to affiliates 1,013,983 2,264,482
Net cash provided by operating activities 2,898,051 2,322,856
Cash flows used in investing activities
Costs of land under development (6,804,062) (2,684,368)
Purchase of furniture and equipment -- (5,629)
Net cash used in investing activities (6,804,062) (2,689,997)
Cash flows from financing activities
Proceeds from issuance of note payable 8,000,000 --
Repayment of note payable (3,380,541) --
Net cash provided by financing activities 4,619,459 --
Net increase (decrease) in cash 713,448 (367,141)
Cash at beginning of year (including restricted cash
of $1,142,872 and $1,209,368) 1,202,656 1,569,797
Cash at end of year (including restricted cash
of $1,846,840 and $1,142,872) $ 1,916,104 $1,202,656
Statement of cash flows - Supplemental disclosures
Selected noncash activities were as follows
Noncash investing and financing activities
in connection with acquisition
Assets acquired $ -- $ 63,000
Liabilities assumed -- 63,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
MAUI USA INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<CAPTION>
Common Stock
Accumulated
Shares Amount Common Stock Deficit Total
<S> <C> <C> <C> <C> <C>
December 31, 1994 10,000,000 $ 10,000 $ 5,556,149 $ (43,369) $5,522,780
Net loss - - - (57,621) (57,621)
December 31, 1995 10,000,000 10,000 5,556,149 (100,990) 5,465,159
Net Loss - - - (114,104) (114,104)
December 31, 1996 10,000,000 $ 10,000 $ 5,556,149 $ (215,094) $5,351,055
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MAUI USA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. NATURE OF BUSINESS AND ORGANIZATION
Effective August 2, 1994, Maui USA Inc. (the Company) changed its name
from Ethical Corporation (a company incorporated in the State of Nevada in
March 1990) and authorized a second class of common stock (Class B). At the
time of its name change the Company had no ongoing operational activities, no
assets or liabilities and was an inactive company (shell) registered with the
Securities and Exchange Commission. Maui USA Inc. was organized for the
purpose of investing in development activities, principally real estate, on
the island of Maui, State of Hawaii.
The Company's capital structure consists of Class A and Class B common
stock which are identical except that each share of Class B stock has five (5)
votes while each share of Class A stock has one (1) vote.
As of December 31, 1996, J.J. Elkin beneficially owned approximately 81%
of the outstanding Class A shares and 88% of the outstanding Class B shares of
the Company.
Under the terms and conditions of an acquisition agreement dated August
8, 1994, as amended, with 3521 Corp. (a wholly-owned subsidiary of MRE Corp.,
a Liberian company owned solely by J.J. Elkin), the Company exchanged
1,410,100 Class A and 10,000 Class B shares for 50 acres of undeveloped land
in Kahana, Maui (the Project), including the assumption of a $7.5 million debt
secured by a first mortgage on the Project and certain assets of 3521 Corp.,
in favor of the Bank of Bermuda (the Bank).
Under the terms and conditions of an acquisition agreement dated August
8, 1994, as amended, with Uhina Corp. (a company incorporated in the State of
Hawaii and owned solely by J.J. Elkin) (Uhina), the Company acquired an
additional 10 acres of undeveloped land adjacent to the Project. The Company
recorded the land at $1.5 million, the carrying cost of the land by Uhina at
the date of transfer. During 1996, the Company obtained zoning approval for
the development of this 10-acre parcel.
The Project is zoned for single-family residential housing. Construction
plans for mass grading, infrastructure and a water line have been approved by
the County of Maui.
Closing of the foregoing agreement between the Company and 3521 Corp.
regarding the transfer of land and assumption of debt were conditional upon
approval of the Bank and removal of a $7.6 million lien against the property
in favor of the Bank. During 1995, the Bank approved the transfer of the land
and removed the lien. Subsequently, during 1996, the Bank approved the final
transfer of the note payable in conjunction with a paydown of principal.
On July 25, 1996, the Company entered into an agreement (the Agreement)
with an investor whereby the Company received $8 million in financing in the
form of a mortgage loan. In connection with the Agreement, the Company paid
<PAGE>
$3.75 million ($3.38 million and $370,000 applied to principal and interest,
respectively) related to the $7.5 million loan from the Bank. The remaining
Bank loan is subordinate to the $8 million mortgage note and fixed price
contract with the general contractor of the Project (see Note 8). The Company
also used $4 million of the proceeds of the mortgage loan to fund the general
contractor's escrow account for construction of the Kahana Ridge Project. The
remaining mortgage loan proceeds were used to pay professional and
administrative fees in connection with the financing and to provide additional
working capital to the Company.
In connection with the Agreement, the Company entered into a
subordination and indemnity agreement with the general contractor of the
Project whereby the general contractor agreed to subordinate all liens,
rights, obligations and claims to the lien of the investor's mortgage loan.
FINANCING, WORKING CAPITAL AND LIQUIDITY: During 1996, the Company
obtained the funds necessary to complete the Project from financing proceeds
and a completion guarantee received from the general contractor of the
Project. Upon completion of the lot development, expected in July 1997, the
Company will begin lot sales. The first $100,000 of proceeds from each lot
sale will be paid to the investor; the next $50,000 of proceeds will be paid
to the general contractor of the Project; and the remainder will be paid to
the investor until the mortgage loan is repaid in full. Management expects
working capital shortfalls for the Company's general and administrative
expenses as well as monthly interest only debt service required on the Bank
loan will continue to be funded by advances from affiliates until such time as
proceeds from lot sales support these ongoing cash requirements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, Maui Pacific. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
MANAGEMENT ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RESTRICTED CASH: Restricted cash represents funds held in an escrow
account with a financial institution pursuant to an escrow agreement (see Note
8).
LAND UNDER DEVELOPMENT: The Company capitalizes all direct costs of
development, certain marketing costs, interest, real property taxes and
insurance related to land under development through the completion date of
construction.
In January 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived
<PAGE>
Assets and for Long-Lived Assets to Be Disposed Of." FAS 121 requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the
sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an impairment loss is
recognized. Measurement of that loss would be based on the fair value of the
asset.
Generally, FAS 121 requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of the
carrying amount or fair value. In connection with the adoption of FAS 121, no
impairment was recognized by the Company.
FURNITURE AND EQUIPMENT: Furniture and equipment are recorded at cost.
Major renewals and betterments are capitalized while maintenance and repairs
are expensed as incurred. Furniture and equipment are depreciated over the
assets' estimated useful lives ranging from 5 to 7 years using the straight-
line method.
INCOME TAXES: The Company uses the asset and liability method of
accounting for income taxes as required by Statement of Financial Accounting
Standards No. 109 (FAS 109), "Accounting for Income Taxes." FAS 109 requires
the recognition of deferred tax liabilities and assets for the expected future
tax consequences of temporary differences between the carrying amounts and the
tax bases of those assets and liabilities. Temporary differences at December
31, 1996 and 1995 were not significant.
At December 31, 1996, the Company had net operating loss carryforwards
aggregating approximately $200,000 for federal and state income tax purposes
which, if unused, will expire beginning in 2007. The Company has recorded a
valuation allowance with respect to net operating losses reflected as a
deferred tax asset due to the uncertainty of their ultimate realization.
STOCK ISSUANCE COSTS: The Company charged against capital the cots
associated with organizing and capitalizing the Company.
BALANCE SHEET CLASSIFICATION: Consistent with industry practice, and the
nature of its most significant assets and liabilities, the Company does not
classify its balance sheet into current or long-term categories.
SUPPLEMENTAL DISCLOSURES FOR STATEMENT OF CASH FLOWS: The Company made
interest payments of $370,000 during the year ended December 31, 1996. No
interest was paid in 1995. The Company made no income tax payments during the
years ended December 31, 1996 and 1995.
ADVERTISING COSTS: Advertising costs are generally charged to operations
in the year incurred and totaled approximately $158,000 and $92,000 for the
years ended December 31, 1996 and 1995, respectively.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying
amounts of the Company's financial instruments, including cash, accounts
payable and payable to affiliates approximate fair value because of the short
maturity of those instruments. The carrying amount of the senior note payable
<PAGE>
to investor approximates fair value based on current rates offered to the
Company for debt of the same terms and maturity. The carrying amount of the
subordinated demand note payable approximates fair value due to its short
maturity.
3. LAND UNDER DEVELOPMENT
Land under development at December 31 is comprised of the following
capitalized costs:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 6,800,000 $ 6,800,000
Architectural and engineering costs 8,647,081 4,104,148
Interest and financing costs 4,029,890 2,510,817
Consulting and professional fees 2,234,746 1,657,118
Other 370,600 206,172
$ 22,082,317 $ 15,278,255
</TABLE>
At December 31, 1996, the Company had 17 interested parties who selected a
Kahana Ridge lot to be purchased and placed the required deposit in an escrow
account.
4. FURNITURE AND EQUIPMENT
Furniture and equipment at December 31 consists of:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Office furniture and equipment $ 21,794 $ 21,794
Less accumulated depreciation (9,526) (5,168)
$ 12,268 $ 16,626
</TABLE>
<PAGE>
5. NOTES PAYABLE (see Note 1)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Senior note payable to investor, secured
by a mortgage on the Project, with
interest at the greater of $3 million
or an amount sufficient to provide
the investor an internal rate of return
of 30% per annum; due July 1998 or out of
sales proceeds $ 8,000,000 $ --
Subordinated demand note payable to bank,
secured by a mortgage on the Project
and certain assets of 3521 Corp., with
interest at the London Interbank Offered
Rate (LIBOR) plus 2% (7.54% at December
31, 1996) and commitment fee of 2.5%
per year on the outstanding balance 4,119,459 7,500,000
$ 12,119,459 $ 7,500,000
</TABLE>
<PAGE>
6. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1996 and 1995, the Company received
net advances from affiliates aggregating approximately $918,000 and
$1,600,000, respectively, for working capital and project financing.
Additionally, interest on the subordinated note payable to bank (see Note 5)
is paid by a related entity and charged to the Company through the payable to
affiliates account.
As of December 31, the payable to affiliates balance consists of:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Non-interest bearing advances from affiliates $ 3,900,693 $ 1,707,493
Non-interest bearing charges for interest
paid by affiliate 104,135 1,283,352
$ 4,004,828 $ 2,990,845
</TABLE>
7. STOCK OPTION AGREEMENT
On February 14, 1995, the Company entered into a stock option agreement
with its president, expiring on September 30, 1999, which provides for the
option to purchase up to 300,000 unissued shares of the Company's Class A
common stock at an exercise price of $5 per share, payable in cash at the
closing of the purchase. No options were exercised during the years ended
December 31, 1996 and 1995.
8. COMMITMENTS AND CONTINGENCIES
The Company has $6.1 million in outstanding commitments related to a
$11.5 million fixed-price contract for mass grading and infrastructure
construction (primarily utilities, sewage and roadways) for the Project. The
company estimates that the mass grading and infrastructure construction will
be substantially completed by July 1997. In connection with this contract,
the Company entered into an agreement dated July 25, 1996 whereby the Company
placed $4 million into escrow, of which approximately $1.8 million remained in
escrow as of December 31, 1996.
The fixed price contract provides that the general contractor will not
suspend work or terminate the contract on account of non-payment and will look
solely to the $4 million initially deposited into escrow and the sales
proceeds of $50,000 per lot for payment of the contract. Interest shall
accrue on all unpaid amounts at the First Hawaiian Bank prime rate in effect
at the time payment became due.
