BREWER C HOMES INC, 10-K, 1998-07-14

BREWER C HOMES INC
10-K, 1998-07-14
OPERATIVE BUILDERS

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
------------------------
FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED MARCH 31, 1998

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER 0-22948
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C. BREWER HOMES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 99-0145055
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) no.)

255-A EAST WAIKO ROAD
WAILUKU, HAWAII 96793
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code: (808) 242-6833

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

CLASS A COMMON STOCK
(Title of class)
------------------------

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 disclosure of delinquent files pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /

The aggregate market value of the Company's Common Stock held by
non-affiliates on June 17, 1998 was $13,447,498. For purposes of this
calculation (a) directors, officers and persons believed to be beneficial owners
of more than 10% of the voting power of the Company's Common Stock were excluded
in the determination of non-affiliates and (b) the value of each share of Class
B Common Stock (which has three times the voting power of a share of Class A
Common Stock and upon sale is automatically converted into a share of Class A
Common Stock) was assumed to be the closing sale price per share of Class A
Common Stock as quoted on Nasdaq on June 17, 1998.

The number of shares outstanding of each of the registrant's classes of
common stock on June 17, 1998, excluding 4,335 shares of Class B Common Stock
held in treasury and not deemed outstanding, was as follows:

CLASS A COMMON STOCK (PAR VALUE $.01 PER SHARE) 3,993,749 shares
CLASS B COMMON STOCK (PAR VALUE $.01 PER SHARE) 4,337,916 shares

DOCUMENTS INCORPORATED BY REFERENCE

Definitive Proxy Statement relating to the Company's 1998 Annual Meeting of
Stockholders to be filed hereafter (incorporated into Part III hereof).

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PART I

ITEM 1. BUSINESS.

GENERAL

C. Brewer Homes, Inc. ("the Company"), a Delaware corporation, is a land
developer and homebuilder in the State of Hawaii with land holdings and
operations on the islands of Maui, Kauai, and Hawaii. The Company's executive
offices are located at 255-A East Waiko Road, Wailuku, Maui, Hawaii 96793, and
its telephone number is (808) 242-6833.

The Company was initially incorporated in the State of Hawaii in October
1970 and for more than 20 years operated as the wholly owned real estate
development and investment subsidiary of C. Brewer and Company, Limited
("CBCL"). During this period, the Company developed expertise in obtaining
entitlements and in selling land, mainly to developers for commercial projects,
golf courses, residential developments and agricultural subdivisions. Pursuant
to a restructuring and distribution (the "Restructuring", described below under
"THE RESTRUCTURING"), effected immediately prior to the consummation of the
Company's initial public offering of Class A Common Stock in December 1993, all
of the 5,750,000 outstanding shares of the Class B Common Stock of the Company
were distributed by CBCL to Buyco, which in turn distributed such stock to its
then 74 stockholders. The Company changed its state of incorporation to Delaware
in 1994.

THE MERGER

Pursuant to the Amended and Restated Agreement and Plan of Merger effective
as of December 18, 1997 (the "Merger Agreement"), between the Company and Mauna
Loa Macadamia Partners, L.P. (the "Partnership"), the Company had agreed to be
merged with and into the Partnership, with the stockholders of the Company to
receive 0.667 Class A Units of the Partnership for each share of the Company's
Common Stock. The Merger Agreement was subject to a number of conditions,
including that the Merger be approved by the stockholders of the Company and by
the Class A Unitholders of the Partnership. Stockholders of the Company approved
the Merger at a special meeting of stockholders held on June 26, 1998. However,
at the meeting of the Unitholders held on the same date, the Merger was not
approved by the Unitholders. Accordingly, by action of the Company's Board of
Directors, the Merger Agreement has been terminated in accordance with its
terms. The only obligations of the Company remaining under the terminated Merger
Agreement are the obligation to return documents to the Partnership and the
obligation to share in certain costs relating to the printing and mailing of the
joint proxy statement/ prospectus and related Registration Statement on Form
S-4, the Company's share of which is estimated to be approximately $120,000. As
a result of these developments, the Company will review its strategic
alternatives for addressing its capital and liquidity requirements while
continuing to operate as a Delaware corporation engaged in the business of the
development and sale of land and homes.

CURRENT BUSINESS

As of March 31, 1998, the Company owned approximately 2,796 acres of land on
the islands of Maui, Kauai, and Hawaii, including approximately 2,206 acres of
land entitled for its intended use and approximately 590 acres of unentitled
land. In addition, subject to certain exceptions, the Company will have the
ability until December 2013 to purchase approximately 1,957 acres of additional
unentitled land through a land purchase option granted to the Company by CBCL in
connection with the Restructuring.

Approximately 989 acres of the lands owned by the Company have the
entitlements necessary to build approximately 3,582 residential units and
approximately 1,187 acres have entitlements for approximately 52 lots.
Approximately 2,527 of the Company' entitled residential units are located on
the island of Maui. The Company also has entitlements for approximately 30 acres
designated for commercial use. In the

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opinion of management of the Company, its properties are adequately covered by
insurance provided by it or through CBCL.

From late 1993 through early 1997, the Company's business strategy was
focused primarily on the construction and sale of homes. In early 1997, the
Company expanded its business strategy to include the development and sale of
lots and parcels of land, which had been the Company's primary business strategy
prior to late 1993, and to act as its own general contractor for the
construction of homes for its residential development at Kaimana.

The Company is presently selling homes in two developments on the island of
Maui and offering homesites in one development on the island of Kauai. The
Company has no immediate plans to build homes on its other lands and has now
shifted its focus to selling its lands to other builders, developers, or
investors. The Company may also participate in joint ventures with other
builders, developers, or investors. The Company intends to evaluate, on a
case-by-case basis, whether to sell, develop, or enter into joint ventures with
respect to its properties based on the capital requirements of each project, the
availability of financing, market conditions, pricing and other factors.

The entitled lands initially offered by the Company for sale to other
builders and developers were the Nanea and Makai Residential projects, comprised
of 47 acres on which could be constructed a total of 406 residential units, and
the Makai Commercial project, comprised of 20 acres. In December 1997, the
Company entered into an agreement for the sale of Nanea for $2.2 million to an
unrelated third party, and the sale was closed on March 24, 1998, with $800,000
of the sales proceeds set aside in an escrow account to fund certain
infrastructure improvements at Kehalani that the County of Maui requires the
Company to complete. Approximately $1.3 million of the proceeds from the sale
were paid to the lenders under the Company's master credit facility. In
addition, in September 1997, the Company entered into an agreement to sell the
unentitled land comprising its Iao II project to an unrelated third party for
$2.0 million, which sale closed on April 16, 1998, with approximately $1.9
million of the proceeds paid to the lenders under the Company's master credit
facility.

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SUMMARY OF PROJECTS. The following table presents information relating to
the Company's projects at March 31, 1998.

<TABLE>
<CAPTION>
SUBJECT TO
PENDING
CONTRACTS AT
ACTUAL OR ESTIMATED
APPROXIMATE ESTIMATED ANTICIPATED 3/31/98(3) PRICE RANGE
PRODUCT REMAINING REMAINING DATE OF INITIAL ------------- OF REMAINING
LOCATION TYPE(1) ACRES UNITS CLOSINGS(2) UNITS ACRES UNITS ($000S)
-------- --------- ----------- --------- --------------- ----- ----- -------------

CURRENT HOMEBUILDING ACTIVITY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kaimana.......................... Maui SF 8 48 1995 28 -- 182-262
Iao Parkside(4).................. Maui SF 6 109 1993 4 -- 99-150
----- --------- ----- -----
Subtotal..................... 14 157 32 --
----- --------- ----- -----

ENTITLED FOR RESIDENTIAL/
COMMERCIAL
Kehalani(5)
Makai Residential(6)........... Maui P 31 326 1999 -- -- --
Makai Commercial(6)............ Maui P 20 -- -- -- -- --
Mauka Phase I.................. Maui SF/MF/L 160 639 2000 -- -- 120-325
Mauka Phase II................. Maui SF/MF/L 279 805 2003 -- -- 190-360
Piihana.......................... Maui SF/MF 79 600 2002 -- -- --
Puueo I(7)....................... Hawaii SF/MF/L/P 321 800 1999 -- -- 85-150
Kulaimano Phase I................ Hawaii L/P 11 11 1998 -- -- 50-325
Kulaimano Phase II............... Hawaii SF/L/P 104 244 2002 -- -- --
----- --------- ----- -----
Subtotal..................... 1,005 3,425 -- --
----- --------- ----- -----

ENTITLED FOR AGRICULTURAL--
RESIDENTIAL(8)
Kalihiwai Ridge II(9)............ Kauai P 15 3 1991 -- -- 196-248
Kalihiwai Ridge III(10).......... Kauai P 1,127 48 2001 -- -- --
Kaiwiki.......................... Hawaii P 45 1 1995 -- -- 345
----- --------- ----- -----
Subtotal..................... 1,187 52 -- --
----- --------- ----- -----

UNENTITLED(11)
Puueo II......................... Hawaii SF/L 164 -- -- -- -- --
Wainaku.......................... Hawaii SF/MF/L 121 -- -- -- -- --
Kaumana Mauka.................... Hawaii P 75 -- -- -- -- --
Kaumana(12)...................... Hawaii P 202 -- -- -- -- --
Iao II(13)....................... Maui P 28 -- -- -- 28 --
----- --------- ----- -----
Subtotal..................... 590 -- -- 28
----- --------- ----- -----
Total........................ 2,796(14) 3,634 32 28
----- --------- ----- -----
----- --------- ----- -----
</TABLE>

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(1) SF = Single-family units; MF = Multi-family units; P = Parcels; L = Lots.

(2) Calendar year. Dates of initial closings or the Company's anticipated
closing based on planning estimates and forecasts at March 31, 1998.

(3) Refers to sales contracts that had not yet closed as of March 31, 1998;
because such contracts are subject to numerous contingencies, no assurance
can be given that they will result in actual closings. See, however, Note
13 below.

(4) Represents 100% of the project by Iao Partners, a joint venture
partnership, (in which the Company has a 50% interest) between the Company
and Schuler Homes, Inc.

(5) The Kehalani master-planned community includes approximately 107 acres
planned for roads, schools, community recreation center, parks, and open
space.

(6) The Company is currently offering to sell the land comprising its Makai
Residential and Makai Commercial projects.

(7) The zoning for Puueo I includes up to 10 acres for neighborhood commercial
use.

(8) The agricultural zoning for these properties allows for the development of
small acreage agricultural homesites.

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(9) Kalihiwai Ridge II acreage does not include a 58 acre lake lot owned by the
Company that it plans to convey to the Kalihiwai Ridge Homeowners
Association or Kilauea Agronomics, a subsidiary of CBCL.

(10) The Company has entered into an exclusive listing agreement for the sale
of the Kalihiwai Ridge III project, which may be sold in parcels or in
bulk.

(11) The land for these projects is not currently entitled for residential
development. Based on the Company's current planning estimates, the
unentitled land for the Puueo II and Wainaku projects could represent up
to approximately 900 residential units.

(12) Kaumana represents the Company's 55% undivided ownership of this 368-acre
parcel of land. The other 45% is owned by Mauna Kea Agribusiness Company,
Inc., an affiliate of CBCL.

(13) On September 12, 1997, the Company entered into an agreement to sell the
land comprising the Iao II project to another unrelated developer for $2.0
million. The sale closed on April 16, 1998. See "CURRENT BUSINESS" above.

(14) Does not include approximately 647 acres of land that the Company
currently owns but is obligated to reconvey to CBCL and/ or its affiliates
under the Asset Exchange Agreement and Contribution Agreement entered into
in connection with the Restructuring.

CURRENT HOMEBUILDING ACTIVITY. The Company is presently building and
selling homes on the island of Maui at its Kaimana project and at its 50% joint
venture Iao Parkside project. During 1997 the Company completed the sale of the
last of the 30 homes built at its Halemalu project.

Kaimana is a 179-unit single-family residential project, which is part of
the Company's Kehalani master-planned community on the island of Maui. The
Kehalani development is expected to consist of approximately 2,100 homes,
including the homes that had been planned for Nanea and the Makai Residential
Parcels, ranging from affordably priced multi-family condominiums to
executive-quality single-family homes. In November 1994, the Company began
selling single-family homes at Kaimana and delivered the first homes in March
1995. Through March 31, 1998, 131 home sales had closed at Kaimana. The Company
is completing the construction of the remaining homes at Kaimana, acting as its
own general contractor.

Iao Parkside is a 28-acre, 480-unit low-rise garden condominium project
being constructed and sold through a 50% joint venture partnership with Schuler
Homes, Inc. This project is targeted at first-time buyers under Hawaii's
affordable housing policy (See "HAWAII'S AFFORDABLE HOUSING REQUIREMENTS"). The
joint venture partnership began accepting reservations at this project in March
1993 and executing sales contracts in July 1993. Through March 31, 1998, 372
home sales had closed. In an effort to stimulate homes sales, the joint venture
partnership has reduced sales prices. As a result, during the quarter ended
December 31, 1997, the joint venture partnership recognized an asset impairment
loss related to this project.

ENTITLED RESIDENTIAL/COMMERCIAL LANDS. The Company has landholdings,
identified in the foregoing table and described below, which are entitled for
residential and commercial development. In light of the economy in Hawaii and
the generally unfavorable market for new housing in the State, the Company's
current strategy is to offer certain of its entitled lands for sale to other
builders, developers, and investors. It has no immediate plans to build homes on
the remainder of these lands, but may offer these lands for sale to other
builders, developers, or investors (with or without installing additional
infrastructure) or it may hold these lands for future development.

The portions of the Kehalani master-planned community that have been
entitled for residential development (in addition to the Kaimana project, and
the project referred to as Nanea, which has been sold to an unrelated third
party) include Makai Residential, Mauka Phase I and Mauka Phase II. In addition,
20 acres of Kehalani have been entitled for commercial development. The Company
is currently evaluating whether it will install infrastructure needed for the
construction of homes at Mauka Phase I, defer such installation or offer to sell
these parcels (and the parcels comprising of Mauka Phase II) to other builders,
developers, or investors.

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The Company has received entitlements for its Piihana project located on 79
acres on the island of Maui near the Company's Iao Parkside project. The Piihana
project is located at the base of the West Maui Mountains, one mile northwest of
the Wailuku business district. The entitlements allow up to 600 residential
units. The Company has no immediate plans to develop this project.

The Company's Puueo I project is an 800-home master-planned community
located on 321 acres on the island of Hawaii, adjacent to the capital city of
Hilo. The County Council has approved the Company's change of zoning application
for this project to residential with ten acres designed for neighborhood
commercial use. In light of current market conditions, the Company will evaluate
this project before proceeding with any homebuilding activities.

ENTITLED AGRICULTURAL-RESIDENTIAL LANDS. The Company's Kalihiwai Ridge II
project on the island of Kauai is currently offering the last three
rural/agricultural homesites for sale. In addition, the Company has entered into
an exclusive listing agreement for the sale of the adjacent land at Kalihiwai
Ridge III.

UNENTITLED LANDS. In April 1998, the Company sold the unentitled land
holdings comprising its Iao II project to an unrelated third party. The Company
intends to seek entitlements for its Puueo II and Wainaku projects. The Company
estimates that the Puueo II and Wainaku projects could contain up to
approximately 900 residential units.

REFINANCING REQUIREMENTS.

In July 1997 the Company entered into an agreement (the "Master Facility
Agreement") with its lenders, Bank of Hawaii and City Bank (the "Lenders") to
consolidate and restructure previous revolving loan agreements. The Company was
indebted under the Master Facility Agreement to the Lenders as of March 31, 1998
in the principal amount of approximately $21.9 million. As of June 30, 1998, the
amount outstanding under the Company's credit facility was approximately $20.0
million. By a First Amendment to Master Facility Agreement dated March 25, 1998,
the maturity of the Company's credit facility was extended from May 31, 1998 to
December 1, 1998. In July 1998, the Company received a commitment letter from
the Lenders pursuant to which, subject to the terms and conditions set forth
therein, the Lenders have agreed to amend the Master Facility Agreement to
extend the maturity date from December 1, 1998 to June 30, 1999. Management of
the Company intends to negotiate an extension of the Master Facility Agreement
pursuant to the foregoing commitment letter and to endeavor to implement a plan
of operation that will allow the Company to reduce the debt and to extend or
refinance the remaining balance thereof when it becomes due. There can be no
assurance, however, that a substantial reduction of the Company's indebtedness
or a refinancing thereof on satisfactory terms will be achieved. Failure to
substantially reduce, extend, or refinance such indebtedness would have a
material adverse affect on the Company.

THE RESTRUCTURING

Until 1993, the Company was a wholly owned subsidiary of CBCL. In the 1993
Restructuring, 5,750,000 shares of the Company's Class B Common Stock were
distributed to Buyco by CBCL and then distributed by Buyco to its stockholders
(the "spin-off"). CBCL also transferred to the Company's CBCL's entire inventory
of entitled land, as well as certain unentitled land, and granted the Company an
option/ right of first refusal to purchase approximately 1,982 additional acres
of unentitled land, together with certain other assets. The Company then
completed a public offering of 2,500,000 shares of Class A Common Stock. The
Class A Common Stock is identical to the Class B Common Stock except that the
Class B Common Stock is entitled to three votes per share, while the Class A
Common Stock is entitled to one vote per share and Class B Common Stock converts
to Class A Common Stock each time a share is sold or transferred. All holders of
Class B Common Stock were stockholders of Buyco at the time of the spin-off. As
of April 30, 1998, the Class B Common Stock represented about 55% of the
outstanding stock, and about 78.6% of the voting power, of the Company.

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As part of the Restructuring, CBCL and its subsidiaries transferred to the
Company CBCL's entire inventory of entitled land (approximately 731 acres) and
certain unentitled land (approximately 725 acres) at historical cost.
Furthermore, CBCL granted the Company an option to purchase up to approximately
1,982 additional acres of unentitled land on the islands of Maui and Hawaii at
fair market value at the time of exercise of the option. See "RELATIONSHIPS WITH
C. BREWER AND COMPANY, LIMITED."

Of the land transferred to the Company by CBCL, the transfer of
approximately 656 acres (principally comprising the Company's land on the island
of Maui) was effected as a contribution to capital. The transfer of the balance
of the land, consisting of approximately 800 acres on the island of Hawaii, was
effected as an exchange for approximately 11 acres of unentitled land located on
the island of Kauai and 18,130 acres of unentitled land located on the island of
Hawaii owned by the Company (on which land the Company believes residential and
commercial development are not feasible within the next 20 years based on the
Company's estimate of the time necessary to obtain the required entitlements and
complete the necessary infrastructure). The Company also transferred to CBCL all
of the capital stock of Kilauea Irrigation Co., Inc.

In connection with the Restructuring, the Company and CBCL entered into a
number of agreements for the purpose of defining their ongoing relationship,
including certain tax and other indemnification arrangements. These agreements
were not the result of negotiations between independent parties. There can be no
assurance that each of such agreements is, or all of them taken as a whole are,
on terms comparable to those that would have resulted from negotiations between
unaffiliated parties. The ongoing relationship between the Company and CBCL,
including the amendment of any of the agreements between the Company and CBCL,
could result in conflicts of interest between the Company and CBCL. Such
conflicts of interest will be resolved by a committee of the Board of Directors
of the Company comprised of two directors who are not officers or employees of
the Company or any of its affiliates, including CBCL ("Outside Directors"), and
one employee-director. See "RELATIONSHIPS WITH C. BREWER AND COMPANY, LIMITED."

Prior to the Restructuring, CBCL was indebted to The Prudential Insurance
Company of America ("Prudential") in the aggregate amount of approximately $54
million and, in addition, CBCL had a line of credit in the amount of $21.5
million with First Hawaiian Bank and SeaFirst Bank (together, the "Bank Group").
All of such debt was guaranteed by the Company. Subsequently, CBCL refinanced
the line of credit with First Hawaiian Bank as the sole lender. In connection
with the Restructuring, Prudential and the Bank Group agreed to release the
Company from all such guarantees. In connection with such release, the Company
issued an unsecured $25 million term note payable to CBCL (the "CBCL Note"). The
principal amount of the CBCL Note was determined as a result of negotiations
between the Company and CBCL and after consideration of a number of factors,
including the market value of the properties being transferred and the necessity
of pledging the CBCL Note to Prudential and First Hawaiian Bank in connection
with their release of the Company's guarantees. In September 1995, as a result
of obtaining new loan facilities, the Company paid off the remaining principal
balance of $19.3 million plus interest accrued and payable on the CBCL Note.

Buyco obtained a ruling from the Internal Revenue Service (the "IRS") that
the distribution of the shares of Class B Common Stock to the Buyco stockholders
as part of the Restructuring qualified as a tax-free "spin-off" under Section
355 of the Internal Revenue Code, and accordingly no taxable gain or loss was
recognized by the Company, Buyco, or CBCL upon such distribution. The IRS ruling
does not cover all tax aspects of the Restructuring, and certain transactions
undertaken prior to or as part of the Restructuring could give rise to
substantial federal and state income taxes for CBCL and the Company. CBCL and
its affiliated companies (other than the Company) have agreed to indemnify the
Company against all such taxes, as well as against all taxes arising from
operations of members of the Buyco affiliated group (other than taxes arising
from the Company's operations during 1993 and after) and intercompany
transactions between members of the group prior to the Restructuring. To the
extent that any taxes for periods through the Restructuring are assessed against
the Company, and CBCL and its affiliated

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companies (other than the Company) are unable to satisfy their indemnity
obligations, there could be a material adverse effect on the Company.

THE HAWAII ECONOMY

The Company presently conducts all of its business in the State of Hawaii,
primarily on the island of Maui and also on the islands of Kauai and Hawaii. In
addition, all of the Company's operations on Maui are concentrated in central
Maui. Although the State of Hawaii was one of the country's fastest growing
economies in the late 1980's, Hawaii has experienced a dramatic slowdown in the
1990's. After adjusting for inflation, Hawaii's gross state product grew 0.9% in
1992, 0.4% in 1993, 0.0% in 1994, 0.5% in 1995 and 0.9% in 1996, and is
estimated to have grown 1.1% in 1997, after having grown by a total of 18.9%
between 1986 and 1990 and at an average annual rate of 4.1% between 1959
(Statehood) and 1995, in each case according to the State of Hawaii Department
of Business, Economic Development and Tourism. Hawaii's economy and many of its
major industries, such as tourism, are affected by the economies of Asia.
Recently, several Asian countries have experienced economic problems such as
currency devaluation and slow growth, and these problems may lead to adverse
effects on Hawaii's tourism industry. The stagnant condition of the Hawaii
economy has adversely affected the Hawaii real estate market, and in turn the
results of the Company's operations.

THE HAWAII LAND ENTITLEMENT AND DEVELOPMENT PROCESS

Much of the developable land in the State of Hawaii, particularly on the
islands of Maui, Kauai, and Hawaii, has historically not been supported by
adequate public infrastructure (e.g., roads, water, electricity, sewage,
drainage, and other facilities) necessary for development. As a result,
developers are generally required to provide such improvements, the cost of
which creates difficulty in profitably pricing their homes. Infrastructure
constraints also limit the speed at which new properties could be developed,
independent of environmental and other land use considerations. The total
investment in infrastructure for a large master-planned community in Hawaii can
be substantial.

The Company's planned residential and commercial projects are long-term in
duration. In Hawaii, it can take in excess of ten years from the decision to
develop unentitled land until the property is sold, depending on the nature of
the governmental approval process, the project's size, the state of the economy
and the physical characteristics of the site. In addition, before planned
projects can generate any revenue, significant capital expenditures and carrying
costs are required for, among other things, compliance with governmental land
use and environmental requirements, land development, and installation of
infrastructure.

The entitlement process required to develop property in Hawaii involves
numerous state and county discretionary regulatory approvals. Conversion of an
unentitled parcel of land to residential zoning usually requires the following
approvals: adoption of or amendment to the County Community Plan to reflect the
desired general land use; approval by the State Land Use Commission to
reclassify the parcel to an urban designation; County Council approval to rezone
the property to the specific use desired; and, if the parcel is located in the
Coastal Zone Management area, the granting of a Special Management Area Permit
by the County Planning Commission. In obtaining the necessary land entitlements
at the state and county levels, the Company obtains approvals from these
authorities for related matters, including density, provisions for affordable
housing, roads, utilities, and the dedication of acreage for schools, parks, and
other purposes. County approval is typically obtained after state approval.
Subsequent to county approval of entitlements, subdivision approvals and
building permits must be obtained. The entitlement process is complicated by the
conditions, restrictions and exactions that are placed on these approvals, such
as requirements for construction of infrastructure improvements, payment of
impact fees, restrictions on the permitted uses of the land and provisions of
affordable housing.

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The development process for a planned residential project entails a range of
activities, including architectural design, civil engineering, grading raw land,
constructing public infrastructure such as streets, utilities and public
facilities, and finishing individual homesites. The Company intends to design
and control the construction and installation by third parties, including
contractors and subcontractors, of all infrastructure in its planned projects.
As part of its planned projects, the Company intends to contract with third
parties to construct or develop community facilities including schools,
libraries, community centers, parks or other essential and/or recreational
facilities. The Company may also contribute or donate land for such use. The
Company believes that phased development of its projects will provide
flexibility to react to changing market conditions and to create stable and
attractive neighborhoods.

The climates and geology of Hawaii present certain risks of natural
disasters. For example, certain of the Company's projects are located on the
island of Hawaii, where the Kilauea volcano is currently active, and hurricanes
have caused substantial damage in recent years, particularly on Kauai in 1992.
To the extent that hurricanes, severe storms, volcanic eruptions or other
natural disasters occur, the Company's business may be adversely affected.

THE HOMEBUILDING INDUSTRY

Historically, most sectors of the homebuilding industry have been cyclical
and have been significantly affected by changes in general economic conditions,
levels of consumer confidence and income, housing demand, interest rates,
unemployment rates, and the availability of financing. Homebuilders such as the
Company are subject to various risks including competitive overbuilding,
environmental risks, cost overruns, lack of public infrastructure, changes in
government regulation, availability and cost of capital, and increases in real
estate taxes and other local government fees.

The Company is also subject to certain risks associated with the
availability and cost of materials and labor, delays in construction schedules,
and cost overruns. For example, homebuilders nationwide have experienced
significant volatility in the cost of lumber, with lumber prices varying by as
much as 50% over a several month period. The Company's developments are also
susceptible to delays caused by strikes or other events involving construction
trade unions. Environmental regulations can also have an adverse impact on the
availability and price of certain raw materials such as lumber. In addition, the
Company's operations are susceptible to delays caused by weather disturbances,
international events affecting the shipping industry and the transportation of
building materials necessary for the Company's business, and other factors not
within a developer's control.

CONSTRUCTION

In the past, all construction activities for the Company were typically
performed by experienced general contractors who entered into fixed-price
contracts for the construction of infrastructure and homes for specific
residential developments. However, beginning in fiscal year 1998, the Company
began operating as its own general contractor for the construction of homes at
its Kaimana project. As a result, the Company is subject to the risks inherent
in establishing a new line of business. The general contractor manages the
construction process, coordinates the activities of all subcontractors,
suppliers and inspectors, and follows plans prepared by consulting architects
and engineers who are retained by the Company and whose designs are responsive
to the local market conditions. Engineering, site preparation and environmental
impact analysis work is contracted to independent firms that are familiar with
local requirements.

The Company employs a number of individuals with experience in land
development and building construction, including architectural design,
construction, marketing and finance. These skills are collectively applied
toward each development opportunity to arrive at a product that incorporates the
recommendations of key staff, as well as outside consultants. Company management
makes all significant product design and building decisions and monitors the
construction of each project relative to the budget,

9
<PAGE>
timing, and quality standards established by the Company. Projects under
construction are inspected regularly by employees and professional consultants
to ensure product quality.

Construction time for the Company's homes depends on the time of year,
availability of labor, materials and supplies and other factors. See "GOVERNMENT
REGULATION AND ENVIRONMENTAL MATTERS." Materials and supplies are generally
secured by independent contractors, subcontractors, and suppliers from customary
trade sources. Construction time for multi-family homes generally ranges from
five to nine months, and construction time for detached single-family homes
generally ranges from two to four months. Construction time for land development
depends on the size, nature, and ultimate use of the property.

The Company is not presently experiencing any serious labor or material
shortages. However, in the past, the Hawaii construction industry has
experienced serious labor and material shortages. Delays in development of
property due to these shortages or to inclement weather conditions could have an
adverse effect upon the Company's operations. In addition, the Company's
operations are susceptible to delays caused by strikes, weather disturbances,
and international events affecting the shipping industry and the transportation
of materials to Hawaii.

The Company generally provides a limited warranty of workmanship and
materials with respect to each of its homes. The Company typically requires
contractors to provide a one-year warranty on materials and workmanship, and to
convey any extended warranties with respect to structural components to the
homeowner. However, to the extent that warranty claims are not covered by the
Company's contractors or subcontractors, the Company has established an
allowance to cover warranty expenses. The Company's historical experience is
that such warranty expenses generally fall within the allowance established
although no assurance can be given that this will be the experience in the
future.

PRODUCT LINES

The Company offers for sale a variety of properties tailored to meet the
specific demands of the demographic and socio-economic markets it serves. These
products range from larger parcels of unentitled and entitled land, to lot
sales, to the sale of finished homes. The Company also plans to sell or develop
the commercial areas designated in certain of its projects. The particular
product line selected by the Company is dependent on a number of factors,
including the Company's analysis of market demand, the cost of acquiring and
developing the underlying parcels of land, the size and category of competing
products generally available in the area, the demographic and economic
characteristics of the specific market, and general economic conditions.

The Company's current properties offered for sale allow builders to target
entry-level and first-time move-up buyers. The Company believes that it is
positioned to meet the changing needs of the market as a result of its intent to
develop land for sale in phases suitable to meet current demand and through its
ability to modify its plans as marketing circumstances change.

The Company believes that providing amenities for new home communities
enhances the inherent value of the communities and the desirability of the
Company's property in the market. These amenities are designed to create a
family-oriented environment and an enhanced lifestyle. By developing property in
close proximity to schools, parks, shopping and community recreation centers,
the Company believes it offers its customers uniquely attractive housing
opportunities.

MARKETING AND SALES

The Company maintains its own real estate brokerage operation. Marketing
programs and materials are developed with the assistance of consultants in
graphics, advertising, copy writing and public relations. The Company advertises
and promotes its products in local print media, including newspapers and
magazines.

10
<PAGE>
The Company is currently using three model homes at Kaimana to promote this
subdivision at its Kehalani project. The Company sells its products both through
its own sales force and in conjunction with cooperating brokerages. The Company
has negotiated an exclusive sales arrangement with a broker for its Kalihiwai
Ridge II and Kalihiwai Ridge III projects. The Company's joint venture
partnership, Iao Partners, has entered into an exclusive sales arrangement with
its joint venture partner, SHI, for the sale of homes at the Iao Parkside
project.

The Company seeks to price its homes competitively and to market its homes
in advance of construction, in an effort to minimize levels of unsold inventory.
The Company accomplishes these pre-sales by publishing a pre-sale advertisement
and entering into pre-construction sales contracts with the purchasers. The
sales contracts generally provide for requisite mortgage approval within a
specified period, and the Company attempts to minimize cancellations by
requiring a cash deposit and assessing the financial qualifications of potential
home buyers. The Company's sales contracts are typically subject to cancellation
by the purchaser under specified circumstances, such as the failure to obtain
financing.

The Company believes that the rate of new home sales continues to be
negatively effected by a lack of confidence in Hawaii's economy by prospective
home buyers. If new home sales rates continue at their current levels or decline
further, the Company's financial results will continue to be adversely affected.
In response to current market conditions, the Company has provided, and may
provide in the future, certain sales incentives to stimulate buyer interest. In
addition, the Company has in the past, and may in the future, lower sales prices
to encourage buyers to purchase homes. As a result, the Company's gross margin
as a percentage of sales on residential homes has declined, and may decline in
the future.

CUSTOMER FINANCING

Virtually all home buyers utilize long-term mortgage financing to purchase
their homes and lenders generally make loans only to borrowers who satisfy such
lender's income and other requirements. Although mortgage financing for
qualified home buyers is currently available, there can be no assurance that
mortgage financing will remain readily available to the Company's customers due
to generally negative economic conditions in Hawaii, the restricted ability of
banks and savings and loan institutions to finance the purchase of homes by home
buyers, and other factors. In particular, during periods of high interest rates,
it is generally more difficult for people to qualify for mortgage loans due to
the higher payments associated with higher interest rates. Moreover,
restrictions on the deductibility of mortgage interest for federal income tax
purposes could adversely affect the Company's operations.

The Company has, from time to time, provided medium-term mortgage financing
to its customers in conjunction with the sales of land and residential lots. The
Company generally requires a down payment of 20% to 25% of the sales price on a
Company-financed transaction for lots and land parcels. The Company reviews each
loan application on the merits of each applicant. Consideration is given to,
among other factors, the applicant's monthly debt payments-to-income ratio, the
applicant's liquid assets, net worth, and credit payment history. The Company
currently offers mortgage financing to purchasers of lots at its Kalihiwai Ridge
II project and, on a limited basis, a second mortgage of up to 20% of the
selling price for certain homes at its Kaimana project. The Company may continue
to provide customer mortgage financing for future land and home sales.

COMPETITION AND MARKET FACTORS

The land development and homebuilding industries are highly competitive. The
Company competes for financing, raw materials and skilled labor. Moreover, the
Company competes for land and residential sales with numerous large and small
developers, including some developers with greater financial and other resources
than the Company, government built or subsidized housing units, individual
resales of existing homes and condominiums, and available rental housing.

11
<PAGE>
The real estate industry is cyclical and affected by consumer confidence
levels, prevailing economic conditions generally, and by interest rates and
unemployment levels in particular. The Company believes that the general
slowdown in Hawaii's economy, including increases in the unemployment rate, has
caused a decline in Hawaii's home sales rates, which has increased the
competition for home buyers among Hawaii's homebuilders and developers. Various
other factors affect the housing industry and demand for new homes, including
the availability of labor and materials and the costs thereof, changes in costs
associated with home ownership such as changes in property taxes and energy
costs, changes in consumer preferences, demographic trends and the availability
of and changes in mortgage financing programs.

HAWAII'S AFFORDABLE HOUSING REQUIREMENTS

Governmental agencies in Hawaii have implemented formal and informal
policies at both the state and county levels to increase the supply of low- and
moderate-income housing. As a condition to classifying land for urban
development, the Hawaii State Land Use Commission and the County Councils for
each county in Hawaii have determined, on a project-by-project basis,
requirements for the provision by residential developers of "affordable"
housing, most often at the time of entitlement proceedings before those bodies.
Generally, the State of Hawaii has required developers of residential projects
to offer for sale to eligible buyers a portion (typically 50% to 60%) of the
total number of units in the project at prices that are affordable to buyers
whose incomes range up to 140% of the local median income. Counties in Hawaii
have generally supported this policy and often have imposed requirements that
may be more restrictive than that imposed by the State. For purposes of
determining whether a home is "affordable," the Hawaii State Land Use Commission
and the counties assess whether a purchaser is able to satisfy certain specified
income criteria. Margins on "affordable" homes could decline if interest rates
rise, since affordable home price levels vary inversely with interest rates.

Generally, homes sold under government-imposed price limitations must first
be offered to owner-occupants. If, after 180 days, such homes have not been
purchased by qualified purchasers or by the State or county, they may then be
sold to any other purchaser at the affordable price. In addition, to ensure that
homes sold pursuant to "affordable" housing requirements remain "affordable" to
other eligible buyers and to prevent speculation, State and local governments
typically impose transfer restrictions on purchasers of "affordable" homes.
These restrictions generally provide that if a home is to be sold or transferred
within a one-to-ten-year period following its original sale, the government has
the option to purchase the home on a formula price basis.

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

Changes in federal income tax laws and state and local property tax laws may
affect demand for and, therefore, the value, of developable real property. In
addition, various federal, state and local authorities regulate the manner in
which the Company conducts its sales activities and other dealings with its
customers. Approvals may be required for sales literature and contract forms,
among others. The Company is also subject to a number of laws imposing
disclosure requirements with respect to its developments. For example, the
Federal Consumer Credit Protection Act requires that, among other things,
certain disclosures be made to purchasers about finance charges in credit
transactions.

The Company is subject to local, state and federal statutes, ordinances,
rules and regulations protecting health and safety, archeological preservation
laws, and environmental laws, including laws protecting endangered species. The
particular laws which apply to any given project vary greatly according to the
site, the site's environmental condition, and the present and former uses of the
site. Environmental laws (i) may cause the Company to incur substantial
compliance, mitigation and other costs, (ii) may prohibit or severely restrict
development in certain environmentally sensitive areas, and (iii) may delay
completion of the Company's projects. Some of the properties held for
development by the Company were used for large agricultural operations, which
involved the use of pesticides and other agricultural chemicals. Although
environmental laws have not had a material adverse effect on the Company to
date, and

12
<PAGE>
management is not currently aware of any environmental compliance issues that
are expected to have a material adverse effect on the Company, no assurance can
be given that such laws will not have a material adverse effect on the Company's
operations in the future.

RESTRICTIONS ON LAND USE AND DEVELOPMENT

The Company is subject to local, state and federal statutes, ordinances,
rules and regulations affecting land use and building design. Approximately 590
acres of the Company's existing supply of land and the approximately 1,957 acres
currently subject to the option granted to the Company by CBCL are not fully
entitled. Before developing any of its unentitled land, the Company will be
required to obtain a variety of regulatory approvals from state and local
governmental authorities relating to such matters as permitted land uses and
levels of density, the installation of utilities, and the dedication of acreage
for open space, parks, schools, and other community purposes. After these
entitlements are granted, subdivision approvals and building permits must be
obtained. Changes in circumstances or in applicable law may require amended or
additional approvals. Based on the Company's experience, it may take over ten
years from the decision to develop unentitled land until the sale of an entitled
parcel. The Company may incur substantial costs in connection with the land use
approval process. In addition to costs and fees required in connection with
various applications, counties may assess "impact fees" based on governmental
assessment of the effects of the Company's projects on existing communities,
including such things as infrastructure, transportation, waste disposal,
education, and air quality. The Company is subject to risks associated with
changes in governmental regulations and increases in property taxes and other
governmental fees.

INSURANCE

CBCL has agreed to continue to provide the Company with insurance coverage
under certain of CBCL's policies and self-insurance programs. The insurance
provided by CBCL includes property damage, builders' risks, general and
automobile liability, workers' compensation, blanket crime, and fiduciary
liability. The Company may elect to obtain its own insurance coverage in the
future and may, in such event, terminate the insurance coverage from CBCL after
giving proper notice thereof. The Company is required to reimburse CBCL for the
Company's share of the premiums for such coverage.

In addition, subsequent to Hurricane Iniki in September 1992, many of the
insurance companies doing business in Hawaii have restricted, curtailed, or
suspended the issuance of homeowners' insurance policies on single-family and
multi-family homes. This has had the effect of both reducing the availability of
hurricane insurance and, in general, increasing the cost of such insurance.
Mortgage financing for a new home is conditioned on, among other things, the
availability of adequate homeowners' insurance. There can be no assurance that
homeowners' insurance will be available or affordable to prospective purchasers
of the Company's homes. Long-term restrictions on or unavailability of
homeowners' insurance could have a material adverse effect on the Company's
business. Although the price and availability of insurance have not had a
material adverse effect on the Company's business, no assurance can be given
that such price and availability of insurance will not have a material adverse
effect on the Company's business in the future.

TITLE TO PROPERTIES

As a result of title uncertainties with respect to certain of its
properties, the Company is sometimes unable to obtain a title insurance policy,
delivery of which is typically a condition to obtaining financing for a project
or selling a parcel of land. The Company believes that this condition exists
with respect to approximately one acre of its 79 acres of land at its Piihana
project. In order to cure title defects and obtain appropriate title insurance,
the Company has initiated, or intends to initiate, legal actions to "quiet
title" to such parcels in its name. The process of prosecuting actions through
the quiet title process can be lengthy and could have the effect of delaying the
Company's planned development of particular projects and increasing their cost.
No assurance can be given that the Company will prevail in its current or
intended title actions or will otherwise be able to obtain insurable title to
such properties. Based on

13
<PAGE>
currently available information, the Company believes that none of these
property title matters will have a material adverse effect on its business.

RELATIONSHIPS WITH C. BREWER AND COMPANY, LIMITED

In connection with the Restructuring in 1993, the Company and CBCL entered
into a number of agreements for the purpose of defining their ongoing
relationship. These agreements were not the result of negotiations between
independent parties. There can be no assurance that each of such agreements is,
or that all of the agreements taken as a whole are, on terms comparable to those
that would have resulted from negotiations between unaffiliated parties.
Additional or modified agreements, arrangements, and transactions may be entered
into by the Company, CBCL, and/or its affiliates in the future.

Set forth below are summaries of certain agreements, arrangements, and
transactions among the Company, CBCL, and certain of its affiliates. Also set
forth below is a description of the guaranty provided by CBCL to the Lenders in
connection with a portion of the indebtedness under the Master Credit Agreement.
The discussions with respect to such agreements are qualified in their entirety
by reference to the agreements as filed with the Securities and Exchange
Commission.

INTERCOMPANY AGREEMENT. The Intercompany Agreement between the Company,
CBCL, and certain of CBCL's affiliates provides:

(a) CBCL shall make available to the Company, at the Company's request,
various management services to the Company, including human resources and
risk management. The Company currently pays $2,500 per month to CBCL for
such services. In addition, CBCL shall be reimbursed for any out-of-pocket
expenses incurred in connection with providing the services, as well as for
extraordinary services. The provisions for such services were formally
extended through July 31, 1998 and are currently under consideration for
further extension. CBCL makes no representations or warranties with respect
to such services, except that CBCL agrees to perform such services with the
same degree of care, skill and prudence customarily exercised in its own
operations. CBCL is not liable for any losses or damages suffered in respect
to such services performed, other than losses or damages arising from CBCL's
intentional or negligent failure to perform or its negligence in the
performance of such services.

(b) CBCL and the Company grant each other access to certain records and
information in its possession. Each party was required to retain all such
information in its possession until December 1996, (other than tax returns
and related documents, which may be requested to be retained for a longer
period), and thereafter each party is required to give the other party prior
notice of any planned disposition of such information.

(c) CBCL shall maintain insurance coverage for the Company under
insurance policies issued to CBCL, for which the Company shall pay a
premium, subject to renegotiation annually. The insurance includes property
damage, builders' risk, general and automobile liability, blanket crime and
fiduciary liability. Risks not covered under such policies or programs are
borne by the Company. Either party may terminate the insurance coverage, in
whole but not in part, on 120 days' prior written notice. If the Company
terminates the insurance coverage, the Company will nonetheless be obligated
to pay the then current annual premium. If CBCL terminates the insurance
coverage, the Company will receive a pro-rata refund on the premium paid.

(d) CBCL grants to the Company in perpetuity (subject to the conditions
described below) an exclusive royalty-free right and license to use the
trade name, trademark, and service mark "C. Brewer" as the distinctive
portion of the Company's name and in connection with the development and
sale of real estate. The Company may sublicense the trademark and may change
the form and manner of the trademark, in each case subject to the prior
written approval of CBCL, which shall not be unreasonably withheld. As a
condition of the trademark license, the Company will establish

14
<PAGE>
and maintain quality control standards, policies, and procedures acceptable
to CBCL. The trademark license may be terminated by CBCL only on an uncured
material breach of the provisions relating to the trademark license or on
the insolvency or liquidation of the Company.

(e) CBCL and their affiliated companies (other than the Company) will
pay all federal and state income taxes and other taxes accruing to the
affiliated group of corporations prior to the Restructuring and pay all
taxes arising from the Restructuring (including any taxes resulting from the
transfer of assets to CBCL and its affiliates pursuant to the
Restructuring); provided that the Company shall pay all taxes associated
with the Company's operations accruing after the Restructuring and certain
fees and conveyance taxes arising from the transfer of assets from the
Company to affiliates of CBCL as part of the Restructuring.

ASSET EXCHANGE AGREEMENT AND CONTRIBUTION AGREEMENT. The Company, CBCL, and
certain of CBCL's subsidiaries, in December 1993, entered into an Asset Exchange
Agreement (the "Asset Exchange Agreement") and a Contribution Agreement (the
"Contribution Agreement"), which together provided for the principal corporate
transactions required to effect the Restructuring, including the transfer to the
Company of CBCL's inventory of entitled land and certain unentitled land at
CBCL's historical cost basis, the transfer by the Company to CBCL of certain
unentitled, undeveloped land as well as the stock of Kilauea Irrigation Co.,
Inc., and the allocation between the Company and CBCL of certain liabilities.
The Asset Exchange Agreement contains representations by the parties thereto
regarding each company's ownership of the real property being transferred by it
in connection with the Restructuring. The Contribution Agreement contains
representations by CBCL and certain of its subsidiaries regarding their
ownership of the real property being contributed by them to the Company in
connection with the Restructuring.

Subject to certain exceptions, these agreements provide for assumptions of
obligations and liabilities and cross-indemnities designed to allocate financial
responsibility for general corporate liabilities and income taxes. The
liabilities assumed by the Company include certain liabilities specifically
assumed by the Company arising out of or in connection with the real property
transferred by the Company to CBCL. Liabilities assumed by CBCL include
liabilities primarily arising out of or in connection with real property
transferred to the Company by CBCL and to CBCL by the Company in the
Restructuring, including environmental liabilities and liabilities for any
deferred or rollback taxes with respect to such property. Both the Asset
Exchange Agreement and the Contribution Agreement include procedures for notice
and payment of indemnification claims and provide that a party required to
indemnify another party for a claim or suit brought by a third party may elect
to assume the defense of such claim. Any indemnification payments will be
adjusted to reflect the receipt of insurance proceeds and the effect of federal,
state and local taxes. In addition, to the extent that CBCL or any affiliate of
CBCL defaults in the making of any indemnification payments owed to the Company
and such default is not cured, the Company may offset against such defaulted
amounts any payments owed by it to CBCL pursuant to the CBCL Land Option at a
rate of $1.20 for every $1.00 of unpaid indemnification obligation.

CBCL LAND OPTION. The Company, CBCL, and certain subsidiaries of CBCL are
parties to the CBCL Land Option which provides, among other things, that for 20
years from December 1993, the Company will have the option to purchase up to
approximately 1,982 acres of currently unentitled land in the State of Hawaii
from CBCL at its fair market value (less a discount of 3.5%, representing
customary selling costs avoided by CBCL) at the time of exercise of the option.
The Company will undertake an appraisal of such property at the time of exercise
of the option and will not be required to purchase any property at a price above
such appraisal (less a discount of 3.5%, representing customary selling costs
avoided by CBCL). In the event the Company and CBCL are unable to agree on a
fair market value, the fair market value will be determined by a three-party
appraisal procedure set forth in the CBCL Land Option.

15
<PAGE>
If, prior to the Company' exercise of the CBCL Land Option, CBCL desires to
sell such property, the Company has a right of first offer and a right of first
refusal prior to the sale of such property to a third party upon the same terms
as those available to a third party. CBCL is restricted from developing or
causing to be developed any of its properties for residential use until December
15, 2003. However, CBCL retains the right (i) to subdivide its properties, (ii)
subject to the option and right of first refusal, to sell its properties, and
(iii) subject to the option and right of first refusal, to hold direct and
indirect interests in entities that are engaged in planning or construction of
such properties, provided that neither CBCL nor any of its subsidiaries controls
any such entity or is actively involved in the development of such residential
real estate.

To date, the Company has purchased 18 acres of land pursuant to the CBCL
Land Option, all of which it has since resold, and CBCL has, with the Company's
consent, sold 7 acres of land covered by the option to a third party. As of
March 31, 1998, the property subject to the CBCL Land Option is described in the
following table. All such land is unentitled.

<TABLE>
<CAPTION>
APPROXIMATE
PROPERTY LOCATION ACREAGE
- ---------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Waiolani II........................................................... Maui 56
Iao III............................................................... Maui 80
Wailuku II............................................................ Maui 511
Maalaea............................................................... Maui 261
Paukukalo............................................................. Maui 5
Papaikou Point........................................................ Hawaii 107
Kukui Point........................................................... Hawaii 102
Pepeekeo Point........................................................ Hawaii 812
Papaikou.............................................................. Hawaii 23
-----
Total............................................................... 1,957
-----
-----
</TABLE>

GUARANTY BY CBCL OF A PORTION OF HOMES CREDIT FACILITY. The Master Facility
Agreement between the Company and the Lenders provides for a maximum outstanding
principal balance of approximately $31.4 million and includes: (i) four
individual commercial mortgage loans in the aggregate amount of approximately
$21.4 million with per annum interest rates ranging from the Bank of Hawaii's
base rate (the "Base Rate") plus 1% to the Base Rate plus 2%, (ii) a revolving
line of credit for borrowing up to $6 million for working capital purposes with
a per annum interest rate at the Base Rate plus .5% (the "Working Capital Line
of Credit"), and (iii) a revolving line of credit for borrowing up to $4 million
for home construction at the Company's Kaimana and Halemalu projects with a per
annum interest rate at the Base Rate plus 1%. On March 31, 1998, the Base Rate
was 8.5%. CBCL currently guarantees the indebtedness of the Company under the
Working Capital Line of Credit, and the Company's obligation to repay any
amounts advanced under such guaranty is secured by a first mortgage lien on the
Kalihiwai Ridge III property.

The indebtedness under the Master Facility Agreement currently matures on
December 1, 1998, but the Lenders have committed to extend the maturity to June
30, 1999 and to require that only 50% of the proceeds of any sales of the
Company's unencumbered lands be applied to reduce the indebtedness. The Lender's
commitment is subject to several conditions, including but not limited to
adjustment of the interest rates on all credit facilities under the Master
Facility Agreement, other than the working capital line, to 1.5% above the Base
Rate, extension of the CBCL guarantee and the payment of certain fees. CBCL has
agreed to extend its guarantee and the Company intends to negotiate with its
Lenders to finalize the terms on which its credit facilities are extended
pursuant to this commitment.

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<PAGE>
BONDS AND OTHER OBLIGATIONS

The Company is frequently required, in connection with the development of
its projects, to obtain performance, maintenance, and other bonds. The amount of
these bonds outstanding at any time varies in accordance with the Company's
pending development activities. In the event any such obligations are drawn upon
because of the Company's failure to build the specific project, the Company
would be obligated to reimburse the issuing surety or bank. At March 31, 1998,
there were approximately $6.2 million in outstanding bonds for such purposes.

EMPLOYEES

The Company currently employs 14 people full-time, of whom eight are
executive, accounting and administrative personnel, five are project management
and land development personnel, and one is a sales person. This compares with a
work force of 40 full-time employees as of March 31, 1995. Although none of the
Company's employees are covered by collective bargaining agreements, certain of
the subcontractors engaged by the company (acting as its own general contractor
in connection with the Kaimana project) are represented by labor unions or are
subject to collective bargaining arrangements. The Company believes that its
relations with its employees are good.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following are the names and respective ages as of March 31, 1998 of the
executive officers of the Company who are elected by and serve at the discretion
of the Board of Directors:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Seth A. Bakes............ 44 President and Chief Executive Officer
Edward T. Foley.......... 46 Executive Vice President and Chief Financial Officer
B. Eben Dale............. 52 Vice President, Hawaii Operations/Legal and Corporate Secretary
</TABLE>

Seth A. Bakes has been President and Chief Executive Officer and a Director
of the Company since January 1997. From August 1995 to January 1997, he was
Managing Director of Del Amo Financial Center. From March 1986 to August 1995,
he was Vice President--Finance and then a Development Partner with Winger
Development Company, a California real estate developer. Mr. Bakes has a masters
degree in Business Administration from the Amos Tuck School of Business
Administration at Dartmouth College.

Edward T. Foley has been the Company's Executive Vice President and Chief
Financial Officer since January 1997. From April 1994 to December 1996, he was
Senior Vice President and Chief Financial Officer of the Company. From June 1990
to June 1993, he was Vice President and Corporate Controller of Castle & Cooke
Properties, Inc., a large real estate developer in Hawaii and California. From
June 1985 to June 1990, he was Assistant Corporate Controller of Dole Food
Company, Inc. Pursuant to the terms of a release and separation agreement dated
August 13, 1997, as amended, Mr. Foley's employment by the Company is expected
to terminate during July 1998. However, subject to the terms and conditions
specified in a consultant agreement dated August 13, 1997, as amended, Mr. Foley
will provide limited consulting services for six months following his separation
from the Company as an employee.

B. Eben Dale has been the Company's Vice President, Hawaii Operations/Legal
and Corporate Secretary since August 1993. From August 1991 through July 1993,
he was the Company's Vice President, Ka'u Projects/Legal and from October 1989
to July 1991, he was Manager, Ka'u Projects/Legal. From January 1987 through
September 1989, he was the Company's Manager, Legal and Property Control. From
November 1984 to December 1986, he was Staff Attorney and Manager, Property
Planning and Control, and from September 1982 to October 1984, he was Staff
Attorney. Pursuant to a letter agreement effective as of December 1, 1997
between the Company, Mr. Dale and Ka'u Agribusiness Company, Inc. ("Ka'u"),

17
<PAGE>
Mr. Dale is currently serving the Company only in the capacity of Corporate
Secretary. The Company is receiving reimbursement from Ka'u for whom Mr. Dale is
performing services, in an amount equal to approximately 85% of Mr. Dale's
compensation and related benefits.

ITEM 2. PROPERTIES.

On the island of Maui, the Company rents 2,500 square feet of office space
on a month-to-month basis pursuant to a lease with a subsidiary of CBCL. The
Company believes that the rent it pays to CBCL is no more favorable than that
which would be paid to a third party for comparable space.

On the island of Hawaii, the Company leased approximately 645 square feet of
office space. This lease will expire in January 1999. In March 1998, the Company
sublet this office space for the remaining term of the lease.

ITEM 3. LEGAL PROCEEDINGS.

MERGER LITIGATION. Waterside Partners, which became a limited partner of
Mauna Loa Macadamia Partners, L.P. (the "Partnership") in October 1997, filed a
derivative action on behalf of the Partnership in the Court of Chancery of the
State of Delaware (Civil Action No. 16121-NC) on January 5, 1998, naming the
Partnership, the Managing Partner, the five directors of the Managing Partner,
the Company, and CBCL as defendants. The plaintiff alleges that J.W.A. Buyers
owns a majority of the shares of Buyco (and by reason thereof is purported to
control CBCL, Mauna Loa, and the Managing Partner), owns 19.5% of the Company
and is the Chairman of the Board of the Company, CBCL and the Managing Partner;
that defendant Kent T. Lucien is a director of both the Company and the Managing
Partner, as well as an officer of CBCL, Mauna Loa and the Managing Partner; that
the Partnership has farming contracts with CBCL's affiliates; and that the
Partnership sells its macadamia nuts to Mauna Loa. The complaint asserts that
the Partnership has had consistent and improving operating results over the past
few years, but that the Company lost money in 1996 and 1997, may not be able to
obtain new credit facilities when its current credit facilities mature, and will
likely be required to file bankruptcy proceedings if it is unable to secure new
capital. The complaint further alleges that J.W.A. Buyers determined to use the
Partnership to salvage his investment in the Company; that the Merger is unfair
to the Partnership and serves no legitimate business purpose; and that the
conversion ratio is not justified by the income of the two parties, their
respective balance sheets or their future prospects. The suit finally asserts
that J.W.A. Buyers and the remaining directors of the Managing Partner have
breached their fiduciary duties to the Partnership, and that the Company has
knowingly aided and abetted these alleged breaches of fiduciary duty. The
complaint requests that (i) the Court enjoin the Merger; (ii) in the event it is
consummated, the Merger be rescinded and set aside; (iii) the defendants account
to the Partnership in an unspecified amount for its damages and any profits they
may obtain as a result of the Merger; and (iv) the plaintiff be awarded its
costs, including experts' and attorneys' fees. Plaintiff has commenced discovery
with a request for production of documents.

The defendants have filed motions to dismiss the suit upon the grounds,
among others, that negotiations were handled on both sides by independent
negotiating committees; that both sides utilized independent financial advisors;
and that neither Buyers nor Buyco nor CBCL nor Mauna Loa nor the Managing
Partner nor the directors of the Managing Partner controls the Unitholders and
that the Unitholders would be afforded the opportunity to vote upon the question
of whether or not they wish the Merger to proceed. By order dated June 8, 1998,
the Delaware Court of Chancery denied plaintiff's request that discovery in the
case be expedited and that a hearing be scheduled on its motion for preliminary
injunction. The Company has filed a motion to dismiss it from the lawsuit on the
ground that the recent termination of the Merger Agreement renders this lawsuit
moot. There can be no assurance, however, that an early disposition of the suit
will be achieved and, if not, substantial costs may be incurred by the Company
in connection with this suit.

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<PAGE>
HFDC PROJECT. In November 1993, the Hawaii State Housing Finance and
Development Corporation ("HFDC") approved the preliminary selection of the
Company as the developer of a 530-home project located in Lahaina, Maui. In
September 1994, the Company began marketing the homes and received reservations
for 75 of the first 83 homes being offered. However, just prior to the sale of
the land to the Company by HFDC, litigation was commenced against HFDC on behalf
of certain native Hawaiian interests asserting claims to the land and seeking to
recover damages from the State of Hawaii. Although the Company is not a party to
this litigation, it is currently unable to proceed with the project, primarily
due to HFDC's inability to convey clear title to the land to the Company in
light of the litigation. The Company is currently pursuing a claim for recovery
from HFDC of costs expended by the Company for this project. However, at this
time the Company cannot reliably estimate the amount, if any, to be recovered.

OTHER LITIGATION. The Company is involved in routine litigation arising in
the ordinary course of business. Such matters, if decided adversely to the
Company, would not, in the opinion of management, have a material adverse effect
on the financial condition of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.

No matters were submitted during the fourth quarter of fiscal year 1998 to a
vote of security-holders through the solicitation of proxies or otherwise.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

PRICE RANGE OF CLASS A COMMON STOCK

The Company's Class A Common Stock has been quoted on the Nasdaq National
Market under the symbol "CBHI" since December 14, 1993. The following table
shows the high and low closing sales prices for the Class A Common Stock of the
Company for the periods indicated, as reported by the Nasdaq National Market:

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Quarter ended June 30, 1996................................................ $ 4.500 $ 2.750
Quarter ended September 30, 1996........................................... 3.500 2.750
Quarter ended December 31, 1996............................................ 3.250 1.625
Quarter ended March 31, 1997............................................... 3.750 1.625
Quarter ended June 30, 1997................................................ 2.750 2.000
Quarter ended September 30, 1997........................................... 2.688 2.000
Quarter ended December 31, 1997............................................ 3.125 1.563
Quarter ended March 31, 1998............................................... 2.250 2.000

Quarter ended June 30, 1998................................................ $ 2.438 $ 1.500
</TABLE>

The closing sale price of the Company's Class A Common Stock as reported on
the Nasdaq National Market on June 30, 1998 was $1.500 per share. There is no
established public trading market for the Company's Class B Common Stock. As of
June 17, 1998, there were approximately 68 holders of record of the Company's
Class A Common Stock and approximately 76 holders of record of the Company's
Class B Common Stock.

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<PAGE>
Certain requirements must be met for the Company's Class A Common Stock to
continue to qualify for quotation on the Nasdaq National Market. Meeting some of
these requirements, such as the minimum bid price of the Company's shares and
the aggregate market value of its "public float," is beyond the control of the
Company and there can be no assurances that such requirements will continue to
be met.

DIVIDENDS

The Company has not declared nor paid any cash dividends on its Class A
Common Stock or Class B Common Stock since the IPO. The Company anticipates that
all earnings in the foreseeable future will be retained to finance the
continuing development of its business and does not anticipate paying cash
dividends on its Class A Common Stock or Class B Common Stock in the foreseeable
future. The payment of any future dividends will be at the discretion of the
Company's Board of Directors and will depend upon, among other things, future
earnings, the success of the Company's business activities, capital
requirements, the general financial condition of the Company, and general
business conditions.

RECENT SALES OF UNREGISTERED SECURITIES

Between March 31, 1997 and April 1, 1998, the Registrant issued the
following securities which were not registered under the Securities Act of 1933
(the "Securities Act"): the Registrant granted stock options to five
non-employee directors under its 1993 Stock Option/Stock Issuance Plan covering
an aggregate of 25,000 shares of the Registrant's Class A Common Stock, at an
exercise price $2.4375 per share. Each option will become exercisable in 18
equal and successive monthly installments over the optionee's period of Board
service with the first such installment to commence upon the completion of six
months of Board service measured from the grant date.

The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, or Regulation D promulgated thereunder,
or Rule 701 promulgated under Section 3(b) of the Securities Act, as
transactions by an issuer not involving any public offering or transactions
pursuant to compensatory benefit plans and contracts relating to compensation as
provided under Rule 701.

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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data of the Company are qualified by
reference to and should be read in conjunction with the financial statements,
related notes thereto and other financial data included elsewhere herein. These
historical results are not necessarily indicative of the results to be expected
in the future.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT EARNINGS (LOSS) PER COMMON SHARE)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME (LOSS) DATA
Property sales....................................... $ 17,582 $ 14,907 $ 7,820 $ 17,066 $ 30,347
Cost of property sales............................... 16,277 13,216 5,413 11,829 17,447
----------- ----------- ----------- ----------- -----------
Gross income....................................... 1,305 1,691 2,407 5,237 12,900
General and administrative expenses.................. 1,901 2,681 2,926 3,304 2,610
Asset impairment losses.............................. -- 3,537 1,325 -- --
Relocation charge.................................... -- -- 700 -- --
----------- ----------- ----------- ----------- -----------
Operating income (loss)............................ (596) (4,527) (2,544) 1,933 10,290
Merger transaction costs............................. (644) -- -- -- --
Equity in earnings (losses) of Iao Partners.......... (543) 137 712 1,340 2,137
Interest income (expense)--net....................... (278) (14) 135 (236) 42
Other income (expense)--net.......................... 56 (238) (691) (162) 106
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes (benefit)........ (2,005) (4,642) (2,388) 2,875 12,575
Income taxes (benefit)............................... (782) (1,671) (921) 1,120 4,865
----------- ----------- ----------- ----------- -----------
Net income (loss).................................. $ (1,223) $ (2,971) $ (1,467) $ 1,755 $ 7,710
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average number of common shares
outstanding........................................ 8,332 8,332 8,333 8,336
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings (loss) per common share..................... $ (0.15) $ (0.36) $ (0.18) $ 0.21
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
PRO FORMA DATA (1)
Income before income taxes........................... 11,082
Income taxes......................................... 4,283
-----------
Net income........................................... 6,799
-----------
-----------
Weighted average number of common shares
outstanding........................................ 6,506
-----------
-----------
Pro forma earnings per common share.................. $ 1.05
-----------
-----------
BALANCE SHEET
Real estate developments............................. $ 31,209 $ 34,230 $ 36,606 $ 27,424 $ 15,352
Total assets......................................... 37,211 39,925 45,925 49,293 47,576
Notes payable........................................ 21,889 24,969 27,395 22,125 25,000
Stockholders' equity................................. 7,493 8,716 11,687 13,178 11,451
</TABLE>

- ------------------------
(1) Pro forma to give effect to the Restructuring, including (i) the transfer by
CBCL to the Company of certain land suitable for residential development and
the transfer by the Company to CBCL of non-strategic unentitled land and
other assets, (ii) the assumption of $25 million of indebtedness from CBCL
evidenced by the CBCL Note, and (iii) the recognition of additional revenue
for development and management services provided to CBCL. See "ITEM 1.
BUSINESS--THE RESTRUCTURING." Earnings per common share are not considered
relevant for the periods prior to the Restructuring in December 1993. For
purposes of the Pro Forma Data, calculations assume such transactions were
effected as of the beginning of the fiscal year ended March 31, 1994.

21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

Except for the historical financial information contained herein, the
following discussion and analysis may contain "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
include declarations regarding the intent, belief or current expectations of the
Company and its management. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
a number of risks and uncertainties. The Company's actual results could differ
materially from those indicated by such forward-looking statements. Among the
important factors that could cause actual results to differ materially from
those indicated by such forward-looking statements are: (i) risks associated
with the Company's working capital position and the repayment or refinancing of
its existing indebtedness; (ii) risks associated with asset impairments; (iii)
variability in quarterly operating results; (iv) risks associated with the
concentration of the Company's business in Hawaii; (v) risks associated with the
lack of adequate public infrastructure in Hawaii; (vi) risks associated with the
long-term nature of planned residential projects, high capital investment and
carrying costs; (vii) risks associated with the entitlement process for
development of property in Hawaii; (viii) risk of natural disasters, including
hurricanes, volcanos, and drought (and the impact of drought on the availability
of water for domestic consumption and irrigation); (ix) risks associated with
the recent commencement of general contractor activities; (x) risks associated
with the homebuilding industry; (xi) the rate of new home sales; (xii) effects
of interest rate increases and the availability of mortgage financing; (xiii)
risks associated with environmental and conservation matters; (xiv) increased
land acquisition costs; (xv) risks associated with competition; (xvi)
restrictions on land use and development; (xvii) risks associated with the
availability of homeowners' insurance in Hawaii; (xviii) risks associated with
the inability to obtain policies of insurance assuring the Company of good and
marketable title to certain parcels of land; (xix) risks associated with
obtaining performance, maintenance and other bonds; (xx) effects of increases in
unemployment in Hawaii; and (xxi) other risks identified from time to time in
the Company's reports and registration statements filed with the Securities and
Exchange Commission.

The following discussion of results of operations and financial condition
should be read in conjunction with ITEM 6.--SELECTED FINANCIAL DATA and ITEM
8.--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

OVERVIEW

The Company, which was a subsidiary of CBCL until December 1993, had
historically performed the land entitlement, development and marketing functions
for CBCL. From late 1993 through early 1997, the Company's business strategy was
focused primarily on the construction and sale of homes. In early 1997, the
Company expanded its business strategy to include the development and sale of
lots and parcels of land, which had been the Company's primary business strategy
prior to late 1993, and to act as its own general contractor for the
construction of homes for its residential development at Kaimana. The Company is
presently selling homes in two developments on the island of Maui and offering
homesites in one development on the island of Kauai. In view of current market
conditions and its capital condition, however, the Company has no immediate
plans to build homes on its other lands and has now shifted its focus to selling
its lands to other builders, developers, or investors. The lands offered for
sale to other builders and developers during the Company's 1998 fiscal year
included the Nanea and Makai Residential projects, comprised of 47 acres on
which could be constructed a total of 406 residential units, and the Makai
Commercial project, comprised of 20 acres. In fiscal year 1998, the Company
closed the sale of Nanea for $2.2 million, and the Makai Residential and Makai
Commercial projects on the island of Maui, along with the Kalihiwai Ridge II
project on the island of Kauai, continue to be offered for sale to other
builders and developers. In September 1997, the Company entered an agreement to
sell the unentitled land holdings comprising its Iao II project to an unrelated
third party for $2.0 million, which sale closed on

22
<PAGE>
April 16, 1998, with approximately $1.9 million of the proceeds paid to the
lenders under the Company's master credit facility.

The Company is presently building and selling homes on the island of Maui at
its Kaimana development and at its 50% joint venture Iao Parkside development,
and, during 1997, completed the sale of the last of the 30 homes built at its
Halemalu project.

Kaimana is a 179-unit single-family residential project, which is part of
the Company's Kehalani master-planned community on the island of Maui. The
Kehalani development is expected to consist of a total of approximately 2,100
homes, including the homes that had been planned for Nanea and the Makai
Residential Parcels, ranging from affordably priced multi-family condominiums to
executive-quality single-family homes. In November 1994, the Company began
selling single-family homes at Kaimana and delivered the first homes in March
1995. Through March 31, 1998, 131 home sales had closed at Kaimana. The Company
currently plans to complete construction and sale of the remaining homes at the
Kaimana project, acting as its own general contractor.

In fiscal year 1993, the Company sold approximately 28 acres of land to its
50% joint venture partner, Schuler Homes, Inc. ("SHI"), who subsequently
contributed this land to the Iao Parkside partnership ("Iao Partners"). As a
result, the Company deferred 50% of the revenue and costs relating to the sale.
Through March 31, 1998, the Company has recognized approximately $6.8 million of
the deferred income from this sale. At March 31, 1998, the Company had deferred
income of approximately $848,000 related to this sale that will be recognized as
home sales at the Iao Parkside project are closed.

Iao Parkside is a 28-acre, 480-unit low-rise garden condominium project
being constructed and sold through Iao Partners, the 50% joint venture
partnership with SHI. This project is targeted at first-time buyers under
Hawaii's affordable housing policy. Iao Partners began accepting reservations at
this project in March 1993 and executing sales contracts in July 1993. Through
March 31, 1998, 372 home sales had closed. The joint venture partnership has
reduced sales prices in an effort to stimulate home sales. As a result, during
the fiscal year 1998, the Iao Partners recognized an asset impairment loss of
$984,000 related to this project.

Except as indicated above with respect to the recognition of deferred income
relating to the Iao Parkside land sold to SHI, the Company generally records a
sale and recognizes income when a closing occurs and title passes to the
purchaser. To the extent that the Company provides mortgage financing to a
purchaser, minimum down payment and continuing investment criteria required by
generally accepted accounting principles must be met before sales are recorded
and income is recognized. The Company currently offers mortgage financing only
to purchasers of lots at its Kalihiwai Ridge II project and, on a limited basis,
a second mortgage of up to 20% of the selling price for certain homes at its
Kaimana project. The Company may continue to provide customer mortgage financing
for future land and home sales.

RESULTS OF OPERATION

GENERAL. The Company had a loss before income taxes benefit of $2,005,000
in fiscal year 1998 of which $1,285,000 was related to (i) costs incurred in
connection with the proposed merger with Mauna Loa Macadamia Partners, L.P. and
(ii) asset impairment losses related to the Company's Iao Parkside joint
venture. Without these merger costs and asset impairment losses, the Company's
loss before income tax benefit for fiscal year 1998 was $720,000. In fiscal year
1997, the Company had a loss before income tax benefit of $4,642,000 of which
$3,537,000 was related to the recognition of asset impairment losses at the
Company's Kaimana and Iao II projects in addition to remnant costs associated
with certain other developments.

PROPERTY SALES. The Company's property sales consist of home sale closings
and land sales. The Company's revenue from property sales for the fiscal year
ended March 31, 1998 was $17.6 million compared to $14.9 million for the fiscal
year ended March 31, 1997. This increase was the result of a

23
<PAGE>
greater number of home sale closings in fiscal year 1998 compared to fiscal year
1997 along with the sale of the Company's 16 acre Nanea subdivision at Kehalani
for $2.2 million in fiscal year 1998. At the Kaimana subdivision at Kehalani,
the Company closed 64 single-family home sales at an average price of $208,000
in fiscal year 1998 compared to 36 home sale closings at an average price of
$240,000 in fiscal year 1997. At the Halemalu subdivision at Kehalani
subdivision, the Company closed the remaining three home sales at an average
price of $211,000 in fiscal year 1998 compared to 27 home sale closings at an
average sales price of $205,000 in the prior fiscal year. On the island of
Kauai, the Company sold 23 acres of land for a total of $991,000 in fiscal year
1998 compared to 12 acres of land sales in fiscal year 1997 for a total of
$410,000. During fiscal year 1998, the Company recognized $230,000 of revenue
compared to $300,000 recognized in the prior fiscal year related to the deferred
gain on the fiscal year 1993 land sale to SHI, which property had subsequently
been contributed by SHI to the Iao Partners 50%-owned joint venture. In
addition, the Company sold 18 acres of land on the island of Hawaii for $255,000
in the 1998 fiscal year while no sales of land occurred in fiscal year 1997.

The Company's revenue from property sales for the fiscal year ended March
31, 1997 was $14.9 million compared to $7.8 million in the fiscal year ended
March 31, 1996. This increase was primarily the result of higher home sale
closings in fiscal year 1997 as compared to fiscal year 1996. At Kaimana, the
Company closed 36 single-family homes sales at an average price of $240,000 in
fiscal year 1997 compared to 22 home sale closings at an average price of
$259,000 in fiscal year 1996. At Halemalu, the Company closed 27 homes at an
average price of $205,000 in fiscal year 1997 compared to no home sale closing
in the prior year. On the island of Kauai, the Company sold 12 acres of land for
a total of $410,000 in fiscal year 1997 compared to 8 acres of land sold in
fiscal year 1996 for a total of $340,000 in revenue. During fiscal year 1997,
the Company recognized $300,000 of revenue compared to $500,000 recognized in
the previous fiscal year related to the deferred gain on the land sale to SHI.
In addition, the Company had no sales of land on the island of Hawaii in fiscal
year 1997 while 49 acres of land on the island of Hawaii were sold in fiscal
year 1996 for approximately $1.0 million.

COST OF PROPERTY SALES. Cost of property sales for fiscal year 1998 was
$16.3 million compared to $13.2 million in fiscal year 1997. The increase in
cost of property sales in fiscal year 1998 compared to fiscal year 1997 was
principally due to higher property sales. Cost of property sales as a percentage
of property sales increased from 89% in fiscal year 1997 to 93% in fiscal year
1998. This increase was primarily the result of lower home sales prices in
fiscal year 1998 compared to the previous fiscal year.

Cost of property sales for fiscal year 1997 increased to $13.2 million
compared to $5.4 million in fiscal year 1996. The increase in cost of property
sales in fiscal year 1997 compared to fiscal year 1996 was primarily
attributable to higher property sales. As a percentage of property sales, cost
of property sales increased from 69% in fiscal year 1996 to 89% in fiscal year
1997. This increase primarily resulted from lower home sales prices in fiscal
year 1997.

ASSET IMPAIRMENT LOSSES. During the fourth quarter of fiscal year 1996, the
Company adopted Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." This accounting pronouncement requires that long-lived assets,
including homebuilding inventories, be reviewed for impairment and, if
circumstances indicate that the carrying amount of the asset may not be
recoverable, an impairment loss should be recognized.

In fiscal year 1997, the Company decided to lower the selling prices of
units at the Kaimana project because of market pressures. The Company determined
that certain costs related to Kaimana would not be recovered and, accordingly,
recognized an asset impairment loss of $2.2 million based on the estimated
discounted cash flows for the project using the revised selling prices. In
addition, the Company contemplated the sale of its Iao II land, which property
was sold in April 1998. The carrying cost of the Iao II land parcel was reduced
to the estimated sales price, resulting in an asset impairment loss of $1.1
million. The

24
<PAGE>
Company also recognized an asset impairment loss of $237,000 related to remnant
costs associated with certain other developments.

In November 1993, the Hawaii State Housing and Finance Development
Corporation ("HFDC") approved the preliminary selection of the Company as the
developer of Village I of the Villages at Leiali'i located in Lahaina, Maui. In
September 1994, the HFDC gave final approval to the terms of the financing and
development agreements. The Company then began marketing the homes and received
reservations for 75 of the first 83 homes being offered. However, just prior to
the sale of the land to the Company by HFDC, litigation was commenced against
the HFDC by the Office of Hawaiian Affairs and by certain other native Hawaiian
interests challenging the HFDC's right to sell the land and seeking, among other
things, an injunction preventing the sale of the land.

Although the Company is not a party to this litigation, it is currently
unable to proceed with the project, due to HFDC's inability to convey clear
title to the land. In April 1996, the Circuit Court of Hawaii denied a request
by HFDC for partial summary judgment, further delaying the project. In view of
the litigation and other facts and circumstances regarding the Leiali'i project,
the Company believes that the asset has been impaired as defined under SFAS 121
and, consequently, recognized an asset impairment loss, assuming no value to the
asset, of $1.3 million in fiscal year 1996.

The Company is pursuing a claim for the recovery from HFDC of costs expended
by the Company for Village I of the Villages at Leiali'i project, which
includes, but is not limited to, the costs written off as discussed above. The
claim is based on the inability of the HFDC to convey clear title to the Village
I land to the Company. The Company cannot, at this time, reliably estimate the
amount, if any, to be recovered.

RELOCATION CHARGE. During the fourth quarter of fiscal year 1996, the
Company recorded a pre-tax special charge of $700,000 for costs related to the
relocation of the Company's headquarters from the island of Oahu to the island
of Maui and a related corporate workforce reduction.

GENERAL AND ADMINISTRATION EXPENSES. General and administrative expenses
declined from $2.7 million in fiscal year 1997 to $1.9 million in fiscal year
1998. The decrease in general and administrative expenses in fiscal year 1998
versus fiscal year 1997 was primarily attributable to lower payroll and related
benefit costs in conjunction with a continued reduction in workforce. The
general and administrative expenses include charges from CBCL primarily for risk
management and human resources services provided to the Company, offset by the
Company's charges to CBCL for certain land entitlement, development (including
planning and engineering) and management services. Net charges to CBCL for such
services were approximately $11,000 for fiscal year 1998 compared to
approximately $34,000 for fiscal year 1997. The decrease was primarily due to
reduced management services provided to CBCL in fiscal year 1998 by the Company.

General and administrative expenses for fiscal year 1997 declined 7% to $2.7
million from $2.9 million in fiscal year 1996. The decrease in general and
administrative expenses in fiscal year 1997 as compared to fiscal year 1996 was
primarily attributable to reduced payroll and benefit costs due to a corporate
workforce reduction.

MERGER TRANSACTION COSTS. On December 18, 1997, the Company and Mauna Loa
Macadamia Partners, L.P. (the "Partnership") entered into an Agreement and Plan
of Merger (the "Merger Agreement"), pursuant to which the Company would have
been merged with and into the Partnership with the Partnership surviving the
merger as a Delaware limited partnership (the "Merger"). Consummation of the
Merger was subject to several conditions, including obtaining the requisite
approval thereof by the stockholders of the Company and the unitholders of the
Partnership. By reason of the failure of the unitholders of the Partnership to
approve the Merger, the Merger Agreement was terminated by the Company on June
26, 1998.

25
<PAGE>
During fiscal year 1998, the Company recognized $644,000 in merger
transaction costs. The Company estimates that it will recognize an additional
$300,000 in merger related costs in the first quarter of fiscal year 1999,
consisting of professional fees and the Company's share of certain proxy
printing and mailing costs.

EQUITY IN EARNINGS (LOSSES) OF IAO PARTNERS. The Company and SHI entered
into a joint venture partnership agreement in October 1992 (which was
subsequently amended in October 1993) in connection with acquisition by SHI of
the Iao Parkside property from the Company. SHI contributed the Iao Parkside
property and $25,000 to the joint venture partnership and the Company
contributed $25,000. Each partner has a 50% interest in the joint venture
partnership which is engaged in the development and sale of 480 "affordable"
multi-family condominium homes on approximately 28 acres.

The joint venture partnership has reduced sales prices in an effort to
stimulate home sales. As a result, during fiscal year 1998, the joint venture
partnership recognized an asset impairment loss of $984,000 related to this
project, of which the Company's 50% share was $492,000. In addition, during
fiscal year 1998, the Company recognized, as an expense, $149,000 of costs
related to its investment in Iao Partners as a result of certain County fees and
assessments which, in accordance with the partnership agreement, were the
responsibility of the Company, but were deemed by the Company to have no value.

Equity in earnings from the Iao Parkside joint venture, before asset
impairment loss and recognition of the County fees and assessments discussed
above, was $98,000 for the fiscal year ended 1998 compared to $137,000 for the
fiscal year ended 1997. This represents the Company's share of income from the
closing of 24 unit sales at the Iao Parkside project in fiscal year 1998
compared to 36 unit sales closed in fiscal year 1997. To date, 372 home sales
have been closed at the Iao Parkside project.

In fiscal year 1997, the Company recognized $137,000 in equity earnings
versus $712,000 in fiscal year 1996 related to its 50% share of Iao Partners.
This represented the closing of 36 multi-family home sales in fiscal year 1997
compared to 60 multi-family home sales closed in fiscal year 1996.

INTEREST INCOME (EXPENSE)--NET. Interest income (expense)--net consists of
interest earned from the temporary investment of cash balances in
investment-grade, short-term, interest-bearing securities, and interest revenue
associated with purchase money mortgage notes owned by the Company, offset by
interest expense incurred which is not capitalized. Interest expense--net for
fiscal year 1998 was $278,000 compared to interest expense--net of $14,000 in
fiscal year 1997. Interest expense--net for fiscal year 1998 increased over
fiscal year 1997 primarily as a result of less interest being capitalized to
real estate projects.

Interest expense--net in fiscal year 1997 was $14,000 which compares to
interest income--net of $135,000 in fiscal year 1996. Interest income--net for
fiscal year 1997 declined over fiscal year 1996 primarily as a result of lower
interest income due to reduced cash balances.

OTHER INCOME (EXPENSE)--NET. Other income (expense)--net consists of
miscellaneous income and expense items including certain marketing and
advertising expenses. Other income--net was $56,000 for fiscal year 1998
compared to other expense--net of $238,000 for fiscal year 1997 primarily due to
the sales commission earned by the Company from a certain land sale made by a
CBCL subsidiary in fiscal year 1998.

Other expense--net for fiscal year 1997 decreased to $238,000 from $691,000
in fiscal year 1996, primarily due to lower marketing and advertising expense.

DEFERRED REVENUE AND BACKLOG

The Company deferred 50% of the revenue from the land sold to SHI at its Iao
Parkside project. As of March 31, 1998, the Company had a total of $980,000 in
deferred revenue that will be recognized as the homes in this project are sold
to unrelated third parties.

26
<PAGE>
At March 31, 1998, the Company's sales backlog totaled $8.3 million and
included a 28 acre land parcel on the island of Maui with a sales value of $2.0
million. At Kaimana, 28 homes were in backlog with an aggregate sales value of
$5.8 million. At Iao Parkside, four homes were in backlog with an aggregate
sales value of $500,000. The backlog at Iao Parkside represents 100% of the
joint venture's pending sales. The financial results of this joint venture
partnership are not consolidated into the Company's results, but instead are
accounted for by the equity method. Accordingly, the Company will not recognize
the revenue from such contracts, but will recognize 50% of the financial results
of this joint venture partnership.

It is the Company's practice to include a sale in backlog at the contract
price upon execution of a pre-construction sales contract and receipt of money
on deposit. The Company's sales contracts are typically subject to cancellation
by the purchaser under specified circumstances such as the failure to obtain
financing. As a result, no assurances can be given that the homes which
presently comprise backlog will result in actual closings nor can assurances be
given as to when such closings may occur. In addition, the Company believes that
home sales rates at its projects continue to be adversely affected by various
factors, including uncertainty of prospective home buyers resulting from a
downturn in the Hawaii economy.

LIQUIDITY AND FINANCIAL CONDITION

The Company generally requires capital to plan projects, obtain
entitlements, acquire and develop land, construct homes, and for working capital
purposes. Prior to the Company's restructuring and initial public offering, the
Company used internally generated funds and funds from CBCL for working capital
and development purposes, including planning, entitling, engineering, site
preparation, construction of roads, water and sewer lines, as well as the
construction and marketing of its lots and parcels of land. In December 1993,
the Company completed the Restructuring, in connection with which it issued an
unsecured $25 million term note payable to CBCL, and consummated its initial
public offering of Class A Common Stock, which resulted in net proceeds to the
Company of $27.4 million. The note to CBCL was paid off from the proceeds of new
bank facilities in 1995. The Company has not issued any additional shares of
Class A Common Stock, except upon conversion of shares of Class B Common Stock,
since the initial public offering.

The Company currently has both short and long-term capital requirements,
including those relating to its Kehalani master planned community. The Company
intends to fund its capital requirements through a combination of internally
generated funds, bank and/or other financing. The Company further intends to
rely primarily on bank financing for its home construction requirements. The
Company also plans to seek additional financing, a portion of the proceeds from
which will be used to fund necessary development work at its Kehalani
master-planned community. As a result, the Company's business and earnings are
substantially dependent on its ability to obtain financing on acceptable terms.

At the present time, the Company's ability to generate funds internally is
limited by the slow down in the sale of its new homes and decline in its sale
prices. The Company is addressing this issue, in part, by a shift in the focus
of its business to sell land parcels to other builders, developers, or
investors, thus permitting it to realize the value of its properties at an
earlier time and with less capital investment. However, virtually all funds
generated by such sales are required to be applied to reduce the Company's debt
to the Lenders. The proposed Merger with the Partnership was intended to address
the capital requirements of the Company's business, but the Company will need to
address these requirements in other ways now that the proposed Merger has been
terminated.

As of March 31, 1998, the Company was indebted to the Lenders in the
principal amount of approximately $21.9 million, the principal amount of which
indebtedness was reduced to $20.0 million as of June 30, 1998. This indebtedness
currently matures on December 1, 1998, but the Lenders have issued a commitment
to extend the maturity to June 30, 1999. Management intends to negotiate the
extension pursuant to this commitment and to conduct its operations in a manner
that will permit the Company to reduce the principal amount of such indebtedness
by June 30, 1999, but it is probable that a substantial

27
<PAGE>
portion of such indebtedness will remain outstanding at that time. If the
Company by that time is unable to obtain a further extension of the maturity of
such indebtedness, or a refinancing thereof, it may be required to further
reduce its work force, curtail operations, sell properties at less than optimum
prices or take other measures which would likely have material adverse effects
on its operating results and financial condition. There can be no assurance that
an extension of the Master Facility Agreement past June 30, 1999, or a
refinancing of the Company's indebtedness on satisfactory terms, will be
achieved.

NEW ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board (the "FASB") issued
the Statement of Financial Accounting Standards (the "SFAS") No. 130, REPORTING
COMPREHENSIVE INCOME, the provisions of which are effective for fiscal years
beginning after December 15, 1997. This Statement requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The future adoption of this
pronouncement is not expected to have a material effect on the Company's
presentation of its results of operation.

In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, the provisions of which are effective for
fiscal years beginning after December 15, 1997. This Statement establishes
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company has not determined the impact that the adoption of this
new accounting standard will have on its financial statement disclosures.

INFLATION

The Company may be adversely affected during periods of high inflation
primarily because of the impact of higher interest rates, which may
significantly impair the ability of customers to obtain permanent mortgage
financing. In addition, inflation also increases the Company's construction and
financing costs. Price increases for affordable homes are based on annual
increases, if any, in local median income levels. In the last three years,
inflation has not had a material effect on the Company.

YEAR 2000 ISSUE

Although the Company believes that its products and systems are Year 2000
compliant, the Company utilizes third-party equipment and software that may not
be Year 2000 compliant. Failure of such third-party equipment or software to
operate properly with regard to the Year 2000 and thereafter could require the
Company to incur unanticipated expenses to remedy any problems, which could have
a material adverse effect on the Company's business, operating results and
financial condition.

CERTAIN FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS

In addition to other information contained in this Annual Report on Form
10-K, the following are important factors that should be considered in
evaluating the Company and its business.

In view of the termination of the proposed merger with Mauna Loa Macadamia
Partners, L.P., the Company will continue to be confronted with liquidity
difficulties and working capital shortages. There can be no assurance that the
Company will be able to develop and implement business strategies that will
allow it to improve its liquidity and working capital position.

28
<PAGE>
The Company has landholdings which are entitled for residential and
commercial development. In light of the stagnant economy in Hawaii, the
generally unfavorable market for new housing in the State, and the high capital
costs associated with homebuilding, the Company's current strategy is to offer
certain of its entitled lands for sale to other builders, developers, or
investors. There can be no assurance that such sales will be made at favorable
prices or at all. The Company has no immediate plans to build homes on the
remainder of these lands, but may offer these lands for sale to other builders,
developers, or investors with or without installing additional infrastructure,
or hold these lands for future development, which could include selected
homebuilding activities as well as joint ventures with other developers. The
decision to further develop these lands will depend on numerous factors,
including the Company's working capital position, the availability of financing
on satisfactory terms and market conditions.

Although the Company has been holding, entitling, developing, marketing and
selling land for over 25 years, its homebuilding operations began only in late
1993, after which time it became the principal focus of its activities with
total closings of 649 home sales (includes home sales by the Iao Partners joint
venture with SHI) through March 31, 1998. As a result of establishing its
homebuilding line of business, the Company's cost of property sales as a
percentage of property sales increased substantially over that period and
therefore its gross margin declined as compared to periods prior to the
commencement of home building activities. Two changes in the Company's
operations implemented in fiscal year 1998--a change in focus to parcel and lot
sales rather than home sales, and a change to act as its own general contractor
in building homes--are expected to have a significant effect on its future
results. As a result of these changes, and as a result of the effects of
required accounting adjustments, the Company's historical financial performance
is not likely to be a meaningful indicator of future results.

During the fourth quarter of fiscal year 1996, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Application of SFAS No.121 required the recording of asset impairment losses of
approximately $3.5 million in fiscal year 1997 and approximately $1.3 million in
fiscal year 1996. There can be no assurance that asset impairment losses will
not be required to be recorded in future periods, with a concomitant adverse
effect on the Company's results of operations.

The Company has observed a reduction in the price and rate of new home sales
since 1993, which the Company believes to be the result of increases in Hawaii
unemployment rates and the general lack of confidence in the Hawaii economy by
prospective home buyers. These conditions have increased competition for
homebuyers among Hawaii's homebuilders. In response to prevailing market
conditions, the Company has provided, and may provide in the future, certain
price reductions and other sales incentives to encourage buyer interest. As a
result, the Company's gross margin as a percentage of sales on residential homes
has declined, and may decline in the future. A continuation of the economic
stagnation that Hawaii has experienced in the last few years, or an economic
downturn in Hawaii, could continue to have a material adverse effect on the
Company's business.

29
<PAGE>
Historically, most sectors of the land development and homebuilding industry
have been cyclical and have been significantly affected by changes in general
economic conditions, levels of consumer confidence and income, housing demand,
interest rates and the availability of financing. In addition, the Company is
subject to various risks relating to overbuilding, the cost and availability of
materials and labor, competition, environmental risks, delays in schedules for
the construction of infrastructure and homes caused by strikes, adverse weather,
including drought and related impacts to the availability of water (for domestic
consumption and irrigation), the availability and cost of capital, cost
overruns, lack of public infrastructure (such as roads, water, utilities,
sewage, drainage, and other facilities), changes in government regulation and
increases in real estate taxes and other government fees, and other factors not
within a developer's control. In addition, due to the Company's location in
Hawaii, it is particularly susceptible to delays caused by strikes affecting the
shipping and transportation of building materials necessary for the Company's
homebuilding business.

The Company has experienced, and expects to continue to experience,
significant variability in sales and net income on a quarterly basis. Factors
that may contribute to the variability of the Company's results include: (i) the
timing of home closings and land sales; (ii) the condition of the real estate
markets and the economy in general in Hawaii; (iii) the cyclical nature of the
homebuilding industry and changes in prevailing interest rates; (iv) costs of
materials and labor; and (v) delays in construction schedules caused by the
timing of inspections and approvals by regulatory agencies, including zoning
approvals and receipt of entitlements, the completion of necessary public
infrastructure, the timing of utility hookups, and adverse weather.

The Company in the past entered into fixed-price contracts with experienced
general contractors for the construction of infrastructure and homes for its
residential developments. In fiscal year 1998, the Company began operating as
its own general contractor for the remaining homes being built at Kaimana. To
the extent it engages in homebuilding activity, the Company is and will be
subject to the risks that formerly were assumed by the general contractors with
whom the Company contracted. These risks include the risk of cost overruns and
warranty claims (including long-term claims arising out of latent defects) that
otherwise would be the responsibility of a third-party general contractor, the
risk that the Company's ability to act as its own general contractor may be
subject to limitations and restrictions arising out of the terms of its credit
facilities, the risks associated with utilizing subcontractors without recourse
for their failures to perform against a third-party general contractor, the
difficulty of securing bondings and the risk inherent in the need to retain a
licensed managing employee in order to retain the Corporation's general
contractor's license.

The Company is also subject to certain risks associated with the
availability and cost of materials and labor, delays in construction schedules
and cost overruns. For example, homebuilders nationwide have experienced
significant volatility in the cost of lumber, with lumber prices varying by as
much as 50% over a several month period. The Hawaii residential construction
industry has experienced serious labor and material shortages in the past.
Delays in construction of homes due to these shortages or to inclement weather
conditions could have an adverse effect upon the Company's homebuilding
operations. The Company's developments are also susceptible to delays caused by
strikes or other events involving construction trade unions. Environmental
regulations can also have an adverse impact on the availability and price of
certain raw materials such as lumber. In addition, the Company's operations are
susceptible to delays caused by weather disturbances, international events
affecting the shipping industry and the transportation of building materials
necessary for the Company's business, and other factors not within a developer's
control.

Substantially all home buyers utilize long-term mortgage financing to
purchase their homes and lenders generally make loans only to borrowers who
satisfy the lenders' income and other requirements. Accordingly, the Company's
homebuilding activities are dependent upon the availability of mortgage
financing for first-time homebuyers as well as move-up homebuyers who need to
sell existing homes. In addition, changes in law relating to the deductibility
of mortgage interest for federal income tax purposes could adversely affect the
Company's business by reducing the advantages of home ownership.

30
<PAGE>
Although mortgage financing for qualified home buyers is currently available
at low interest rates, there can be no assurance that mortgage financing will
remain readily available to the Company's customers due to general economic
conditions, the restrictions on the ability of banks and savings and loan
institutions to finance the purchase of homes by home buyers, and other factors.
In the event of increases in interest rates, it will generally be more difficult
for people to qualify for mortgage loans due to the higher payments associated
with higher interest rates. In addition, increases in interest rates will
increase the Company costs because it has substantial borrowings on which the
interest rate is variable. If the availability of mortgage loans becomes
restricted, or if mortgage interest rates increase significantly, thereby
affecting the ability of prospective buyers to finance home purchases and the
Company's borrowing costs, the Company's financial results and financial
conditions will be adversely affected.

Much of the land in the State of Hawaii, particularly on the islands of
Maui, Kauai, and Hawaii, has historically not been supported by adequate public
infrastructure (E.G., roads, water utilities, sewage, drainage, and other
facilities) necessary for residential development. The total investment in
infrastructure for a large residential community in Hawaii can be substantial
and there can be no assurance that the prices at which parcels, lots or homes
may eventually be sold by the Company will be sufficient to result in a profit,
or even to recover the investment made in such infrastructure and related
carrying costs.

The Company's planned residential projects and commercial/industrial
developments are long-term in duration. In Hawaii it can take in excess of ten
years from the decision to develop unentitled land until the property is sold or
commercial space is leased, depending on the nature of the governmental approval
process, the project's size, the state of the economy and the physical
characteristics of the site. In addition, before planned residential projects
and other developed properties can generate any revenue, significant development
expenditures and carrying costs are required for, among other things, compliance
with governmental land use and environmental requirements, land development, and
installation of infrastructure. Because of changing economic and market
conditions, competition, and other factors, there can be no assurance that the
price that may eventually be obtained when a parcel, lot or home is sold will be
adequate to cover the capital investments that have been made in entitling and
improving the property and related carrying costs, and to generate a
satisfactory return on the investment.

The Company is subject to local, state and federal statutes, ordinances,
rules and regulations affecting land use and building design. As of March 31,
1998, approximately 590 acres of the Company's existing supply of land and all
of the approximately 1,957 remaining acres subject to the option granted to the
Company by CBCL are not fully entitled for their intended purposes. Before
developing any of its unentitled land, the Company will be required to obtain a
variety of regulatory approvals from state and local governmental authorities.
The entitlement process for development of property in Hawaii involves numerous
state and county discretionary regulatory approvals. Conversion of an unentitled
parcel of land to residential zoning usually requires the following approvals:
adoption of or amendment to the County Community Plan to reflect the desired
general land use; approval by the State Land Use Commission to reclassify the
parcel to an urban designation; County Council approval to rezone the property
to the specific use desired; and, if the parcel is located in the Coastal Zone
Management area, the granting of a Special Management Area Permit by the County
Planning Commission. In obtaining the necessary land entitlements at the state
and county levels, the Company obtains approvals from these authorities for
related matters, including density, provisions for affordable housing, roads,
utilities, and the dedication of acreage for schools, parks, and other purposes.
County approval is typically obtained after state approval. Subsequent to county
approval of entitlements, subdivision approvals and building permits must be
obtained. The entitlement process is complicated by the conditions,
restrictions, and exactions that are placed on these approvals, such as
requirements for construction of infrastructure improvements, payment of impact
fees, restrictions on the permitted uses of the land, and provisions for
affordable housing. If the Company is unable to obtain necessary entitlements or
if the cost of obtaining such entitlements is excessive relative to the prices
at which it may sell parcels, lots or homes, the Company's results of operations
and financial condition will be adversely affected.

31
<PAGE>
The climate and geology of Hawaii present certain risks of natural
disasters. In September 1992, for example, even though Hurricane Iniki did not
damage the Company's projects, it caused a delay in the construction of roads
and utilities at the Company's Kalihiwai Ridge project on the island of Kauai as
construction resources were directed to civil recovery projects for the
community. In addition, certain of the Company's projects are located on the
island of Hawaii, where there is volcanic activity. To the extent that
hurricanes, severe storms, volcanic eruptions, drought, or other natural
disasters occur, the Company's results of operations and financial condition may
be adversely affected.

Mortgage financing for a new home is conditioned, among other things, on the
availability of adequate homeowners' (including hurricane) insurance and the
cost of such insurance is considered by financial institutions in determining
whether applicants qualify for a mortgage loan. There can be no assurance that
homeowners' and hurricane insurance will be available or affordable to
prospective purchasers of homes. The unavailability or high cost of homeowners'
insurance could have a material adverse effect on the Company's business.

The Company is subject to local, state and federal statutes, ordinances,
rules and regulations protecting health and safety, archeological preservation
laws and environmental laws, including laws protecting endangered species.
Environmental laws (i) may cause the Company to incur substantial compliance,
mitigation and other costs, (ii) may prohibit or severely restrict development
in certain environmentally sensitive areas, and (iii) may delay completion of
the Company's projects. Some of the properties held for development by the
Company were formerly sites of large agricultural operations, which involved the
use of pesticides and other agricultural chemicals. Although management is not
currently aware of any environmental compliance issues that are expected to have
a material adverse effect on the Company, no assurance can be given that such
laws will not have a material adverse effect on the Company's operations in the
future.

The land development and home building industries are highly competitive.
The Company competes for land and residential sales, financing, raw materials,
and skilled labor. The Company competes for home sales, as well as for sales of
parcels and lots entitled for residential use, on the basis of a number of
interrelated factors, including location, reputation, amenities, design,
quality, and price. Moreover, the Company competes for land and residential
sales with numerous large and small developers (including some developers with
greater financial and other resources than the Company), government built or
subsidized housing units, individual resales of existing homes and condominiums,
and available rental housing.

As a result of title uncertainties with respect to certain of its
properties, the Company is sometimes unable to obtain a title insurance policy,
delivery of which is typically a condition to obtaining financing for a project
or selling a parcel of land. The Company believes that this condition exists
with respect to approximately one acre of its 79 acres of land at its Piihana
project. In order to cure title defects and obtain appropriate title insurance,
the Company has initiated, or intends to initiate, "quiet title" actions to
obtain clear title to such parcels in its name. The process of prosecuting
actions to the quiet title process can be lengthy and could have the effect of
delaying the Company's planned development of particular projects and increasing
their cost. No assurance can be given that the Company will prevail in its
current or intended title actions or will otherwise be able to obtain insurable
title to such properties.

The Company is frequently required, in connection with the development of
its projects, to obtain performance, maintenance, and other bonds. The amount of
these bonds outstanding at any time varies in accordance with the Company's
pending development activities. In the event any such obligations are drawn upon
because of the Company's failure to install required infrastructure, the Company
would be obligated to reimburse the issuing surety or bank, which could have a
material adverse effect on the Company's financial condition and results of
operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

Not applicable.

32
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
C. Brewer Homes, Inc.--

Report of Independent Accountants..................................................................... 34

Statements of Loss for the years ended March 31, 1998, March 31, 1997, and March 31, 1996............. 35

Balance Sheets as of March 31, 1998 and March 31, 1997................................................ 36

Statements of Cash Flow for the years ended March 31, 1998, March 31, 1997, and March 31, 1996........ 37

Notes to Financial Statements......................................................................... 38 - 49

Iao Partners--

Report of Independent Accountants..................................................................... 50

Statements of Income (Loss) for the years ended March 31, 1998, March 31, 1997, and March 31, 1996.... 51

Balance Sheets as of March 31, 1998 and March 31, 1997................................................ 52

Statements of Cash Flow for the years ended March 31, 1998, March 31, 1997, and March 31, 1996........ 53

Notes to Financial Statements......................................................................... 54 - 55
</TABLE>

33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders of C. Brewer Homes, Inc.

We have audited the financial statements and the financial statement
schedules of C. Brewer Homes, Inc. as listed in Item 14(a) of this Form 10-K.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of C. Brewer Homes, Inc. as of
March 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended March 31, 1998 in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.

PricewaterhouseCoopers LLP

Honolulu, Hawaii
July 2, 1998

34
<PAGE>
C. BREWER HOMES, INC.

STATEMENTS OF LOSS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Property sales................................................................... $ 17,582 $ 14,907 $ 7,820
Cost of property sales........................................................... 16,277 13,216 5,413
--------- --------- ---------
Gross income................................................................... 1,305 1,691 2,407
General and administrative expenses.............................................. 1,901 2,681 2,926
Asset impairment losses.......................................................... -- 3,537 1,325
Relocation charge................................................................ -- -- 700
--------- --------- ---------
Operating loss................................................................. (596) (4,527) (2,544)
Merger transaction costs......................................................... (644) -- --
Equity in earnings (losses) of Iao Partners...................................... (543) 137 712
Interest income (expense)--net................................................... (278) (14) 135
Other income (expense)--net...................................................... 56 (238) (691)
--------- --------- ---------
Loss before income tax benefit................................................. (2,005) (4,642) (2,388)
Income tax benefit............................................................... (782) (1,671) (921)
--------- --------- ---------
Net loss....................................................................... $ (1,223) $ (2,971) $ (1,467)
--------- --------- ---------
--------- --------- ---------
Loss per common share............................................................ $ (0.15) $ (0.36) $ (0.18)
--------- --------- ---------
--------- --------- ---------
Weighted average number of common shares outstanding............................. 8,332 8,332 8,333
--------- --------- ---------
--------- --------- ---------
</TABLE>

The accompanying notes are an integral part of the financial statements.

35
<PAGE>
C. BREWER HOMES, INC.

BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS

Cash and cash equivalents................................................................. $ 219 $ 147
Restricted cash........................................................................... 800 --
Mortgage notes receivable................................................................. 887 794
Real estate developments.................................................................. 31,209 34,230
Investment in Iao Partners, net of deferred land gain..................................... 2,995 3,347
Property and equipment--net............................................................... 116 172
Income taxes receivable................................................................... 436 856
Other assets.............................................................................. 549 379
---------- ----------
Total assets............................................................................ $ 37,211 $ 39,925
---------- ----------
---------- ----------

LIABILITIES AND STOCKHOLDERS' EQUITY

Notes payable to banks.................................................................... $ 21,889 $ 24,939
Accounts payable.......................................................................... 2,387 469
Accrued expenses.......................................................................... 3,873 3,821
Deferred income taxes..................................................................... 1,524 1,761
Other liabilities......................................................................... 45 219
---------- ----------
Total liabilities....................................................................... 29,718 31,209
---------- ----------
Commitments and contingencies
Stockholders' equity
Class A Common Stock, $.01 par value, one vote per share, 3,668,344 shares issued and
outstanding at March 31, 1998 and 3,087,200 shares issued and outstanding at March 31,
1997.................................................................................. 37 31
Class B Common Stock, $.01 par value, three votes per share, 4,667,656 shares issued and
outstanding at March 31, 1998 and 5,248,800 shares issued and outstanding at March 31,
1997.................................................................................. 47 53
Additional paid-in capital.............................................................. 27,370 27,370
Retained deficit........................................................................ (19,937) (18,714)
Treasury stock, at cost, 4,335 shares................................................... (24) (24)
---------- ----------
Total stockholders' equity............................................................ 7,493 8,716
---------- ----------
Total liabilities and stockholders' equity............................................ $ 37,211 $ 39,925
---------- ----------
---------- ----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

36
<PAGE>
C. BREWER HOMES, INC.

STATEMENTS OF CASH FLOW

(IN THOUSANDS)

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities
Net loss.................................................................... $ (1,223) $ (2,971) $ (1,467)
Adjustments to net loss
Depreciation.............................................................. 30 60 49
Deferred income taxes..................................................... (237) (420) (485)
Equity in earnings (losses) of Iao Partners............................... 543 (137) (712)
Amortization of deferred land gain........................................ (191) (274) (458)
Changes in operating assets and liabilities
Restricted cash........................................................... (800) -- --
Mortgage notes receivable................................................. (93) 1,842 (63)
Real estate developments.................................................. 3,021 2,376 (9,182)
Income taxes receivable................................................... 420 (781) (75)
Other assets.............................................................. (170) 51 744
Accounts payable.......................................................... 1,918 (233) (6,199)
Income taxes payable...................................................... -- -- (167)
Accrued expenses.......................................................... 52 44 473
Other liabilities......................................................... (174) 36 (769)
---------- ---------- ----------
Cash flow from (used in) operating activities........................... 3,096 (407) (18,311)
---------- ---------- ----------
Investing activities
Capital expenditures........................................................ -- (70) (45)
Other....................................................................... 26 -- 11
---------- ---------- ----------
Cash flow from (used in) investing activities........................... 26 (70) ( 34)
---------- ---------- ----------
Financing activities
Loan proceeds............................................................... 12,396 11,306 32,714
Loan payments............................................................... (15,446) (13,762) (27,444)
Purchase of treasury stock.................................................. -- -- (24)
---------- ---------- ----------
Cash flow from (used in) financing activities........................... (3,050) (2,456) 5,246
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents.............................. 72 (2,933) (13,099)
Cash and cash equivalents at beginning of year................................ 147 3,080 16,179
---------- ---------- ----------
Cash and cash equivalents at end of year...................................... $ 219 $ 147 $ 3,080
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

37
<PAGE>
C. BREWER HOMES, INC.

NOTES TO FINANCIAL STATEMENTS

1. OPERATIONS, BASIS OF OPERATING AND RESTRUCTURING

C. Brewer Homes, Inc. (the "Company") is a land developer and homebuilder in
the State of Hawaii with operations on the islands of Maui, Kauai and Hawaii.

In December 1993, the Company completed an initial public offering ("IPO")
of 2,586,000 shares of its Class A Common Stock resulting in proceeds to the
Company, after deducting commissions and offering expenses, of $27.4 million.

Before the IPO, the Company was a wholly owned subsidiary of C. Brewer and
Company, Limited ("CBCL"), a wholly owned subsidiary of Buyco, Inc. ("Buyco").
Pursuant to a restructuring in connection with the IPO, all of the Company's
5,750,000 outstanding shares of Class B Common Stock were distributed by CBCL to
Buyco, which in turn distributed such stock to its stockholders on a pro-rata
basis. In connection with the restructuring of the Company in December 1993,
CBCL transferred to the Company its inventory of entitled land and granted the
Company an option to purchase up to approximately 1,982 additional acres of
unentitled land. The Company transferred to CBCL certain unentitled land,
undeveloped land and all of the stock of a water irrigation company on the
island of Kauai. The Company recognized the acquisition of such land for
financial statement purposes at CBCL's cost basis. Additionally, as part of the
restructuring, the Company issued an unsecured $25 million term note payable to
CBCL.

In connection with the restructuring, the Company entered into various
agreements with CBCL defining their ongoing relationship, including a
Contribution Agreement, an Intercompany Agreement, a Development and Management
Service Agreement, an Asset Exchange Agreement and an Option/Right of First
Refusal Agreement.

2. PROPOSED MERGER

On December 18, 1997, the Company and Mauna Loa Macadamia Partners, L.P.
(the "Partnership") entered into an Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which the Company would have been merged with and into
the Partnership with the Partnership surviving the merger as a Delaware limited
partnership (the "Merger"). Consummation of the Merger was subject to several
conditions, including obtaining the requisite approval thereof by the
stockholders of the Company and the unitholders of the Partnership. By reason of
the failure of the unitholders of the Partnership to approve the Merger, the
Merger Agreement was terminated by the Company on June 26, 1998. During fiscal
year 1998, the Company recognized $644,000 in merger transaction costs. The
Company estimates that it will recognize an additional $300,000 in merger
related costs in the first quarter of fiscal year 1999, consisting of
professional fees and the Company's share of certain proxy printing and mailing
costs.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

YEAR END

The Company's fiscal year ends on March 31.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include time deposits with maturities of less than
three months at time of purchase.

38
<PAGE>
C. BREWER HOMES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REAL ESTATE DEVELOPMENTS

Real estate developments are stated at cost and include undeveloped land,
partially improved land, finished lot and home construction costs. Costs are
amortized to cost of property sales as closings occur. Costs are allocated under
the relative sales value method, the specific identification method or the area
method, where deemed appropriate by the nature of the costs and/or the project.

REVENUE AND PROFIT RECOGNITION

Revenue from the sale of real estate is generally recognized when closings
occur, required down payments are received, and other criteria for sale and
profit recognition are satisfied in accordance with generally accepted
accounting principles. The revenue and cost for property sold prior to
substantial completion of site improvements is deferred and recognized
proportionate to the percentage of completion of the project. In addition, the
cost recovery method is used for profit recognition where appropriate. Gains on
sales of property to non-controlled affiliates are recognized currently. For
real estate sales to affiliates, income is deferred to the extent of the
Company's proportionate ownership interest in the affiliate.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation of
$194,000 and $164,000 at March 31, 1998, and March 31, 1997, respectively.
Depreciation is computed principally by the straight-line method over estimated
useful lives. The costs and accumulated depreciation of property and equipment
retired or otherwise disposed of are removed from the accounts and any gain or
loss is recognized in the year of disposition.

INVESTMENTS

Investments are recorded under the equity method of accounting. Investments
are carried at cost plus equity in undistributed earnings or losses.

INCOME TAXES

The provision for income taxes was determined using the liability approach
provided for by Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax basis of assets and liabilities and are measured by applying enacted tax
rates in effect for the year in which the differences are expected to reverse.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of financial instruments are reasonable estimates of
their fair values, as such financial instruments are near maturity or bear
interest at a current market rate.

ASSET IMPAIRMENT

In fiscal year 1996, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed

39
<PAGE>
C. BREWER HOMES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Of." SFAS No. 121 requires that long-lived assets held and used by the Company
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. If it is
determined that the carrying amount of an asset may not be recoverable, the
Company is required to recognize an asset impairment loss.

The Company's determination as to the recoverability of long-lived assets is
based, in part, on estimates of future cash flows expected to be generated or
realized from such assets.

STOCK-BASED COMPENSATION

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." This standard encourages a
fair-value method of accounting for employee stock options or similar equity
instruments, but allows continued use of the intrinsic value based method of
accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company follows the accounting
provisions set forth in APB No. 25 and has adopted the disclosure-only
provisions required by SFAS No. 123.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

EARNINGS (LOSS) PER COMMON SHARE

The Company computed its earnings (loss) per share for all periods presented
under the provisions of Statement of Financial Accounting Standards (SFAS) No.
128, Earnings Per Share, which was required to be implemented for financial
statements for periods ending after December 15, 1997. The adoption of this
statement had no impact on the Company's reported earnings (loss) per share.

Earnings (loss) per common share was computed using the net income (loss)
and weighted average number of common shares, as reported on the statement of
income (loss). Options to purchase 204,000 common shares at prices ranging from
$2.0625 to $12.75 at March 31, 1998 were not dilutive to earnings (loss) per
common share.

RECLASSIFICATIONS

Certain balances in the 1997 financial statements have been reclassified to
conform with the 1998 financial statement presentation. These reclassifications
had no effect on the net loss previously reported.

4. RESTRICTED CASH

Restricted cash includes funds held in escrow for infrastructure
improvements at the Company's Kehalani project in conjunction with the sale of
the Company's Nanea project during fiscal year 1998.

40
<PAGE>
C. BREWER HOMES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. MORTGAGE NOTES RECEIVABLE

Mortgage notes receivable bear interest at an annual rate of 8.5% to 9.5%
and are collateralized by real property. The weighted average interest rate of
mortgage notes receivable was approximately 9.1% at March 31, 1998 and March 31,
1997.

During fiscal year 1997, pursuant to a decree of foreclosure, the Company
reacquired certain property it had sold in fiscal year 1993 which was subject to
a mortgage note receivable. As a result, the Company reclassified approximately
$1.4 million from mortgage notes receivable to real estate developments in
fiscal year 1997.

6. REAL ESTATE DEVELOPMENTS

Real estate developments were as follows (in thousands):

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Finished projects....................................................... $ 8,823 $ 9,146
Development projects in progress........................................ 16,932 16,725
Land held for future development........................................ 5,454 8,359
--------- ---------
$ 31,209 $ 34,230
--------- ---------
--------- ---------
</TABLE>

Development projects in progress consist principally of land, land
improvement costs and construction costs for projects which are in various
stages of development but not ready for sale.

In fiscal year 1998, as part of the Company's shift in focus to selling its
lands to other builders and developers, the Company closed the sale of its Nanea
subdivision of its Kehalani master planned community for $2.2 million to an
unrelated third party. In conjunction with the sale, $800,000 of the sale
proceeds were set aside in an escrow account to fund certain infrastructure
improvements at Kehalani that the County of Maui requires the Company to
complete.

In fiscal year 1997, the Company determined that certain costs related to
the Kaimana subdivision of Kehalani would not be recovered and, accordingly,
recognized an asset impairment loss of $2.2 million. Also in fiscal year 1997,
the Company planned of the sale at its Iao II land, which land was sold in April
1998. The carrying cost of the Iao II land parcel was reduced at that time to
the estimated sales price, resulting in an asset impairment loss of $1.1
million. The Company also recognized an asset impairment loss of $237,000
related to remnant costs associated with certain developments.

The Company was selected by the Hawaii State Housing and Finance Development
Corporation (HFDC) as the developer for Village I of the Villages at Leiali'i.
Because of litigation by third parties against the HFDC regarding claims to this
state-owned land, the Company is not able to proceed with the project. In view
of the litigation and other facts and circumstances regarding the Leiali'i
project, the Company believes that the capitalized development costs have been
impaired as defined under SFAS No. 121 and, consequently, wrote off
approximately $1.3 million of the capitalized costs related to this project in
fiscal year 1996.

7. INVESTMENT IN IAO PARTNERS, NET OF DEFERRED LAND GAIN

During fiscal year 1993, the Company sold land to Schuler Homes, Inc.
("SHI"), an unrelated entity, for $8.0 million. SHI subsequently contributed the
land to a joint venture partnership, Iao Partners, which

41
<PAGE>
C. BREWER HOMES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. INVESTMENT IN IAO PARTNERS, NET OF DEFERRED LAND GAIN (CONTINUED)
is owned 50% by both the Company and SHI. The Company recognized 50% of the
income on the original sale in fiscal year 1993 and deferred the remainder of
the income, which income represented the Company's proportionate interest in Iao
Partners. The deferred income will be recognized as the property is developed
and homes are sold to unrelated third parties. To date, 372 multi-family homes
have been sold at the Iao Parkside Project. The deferred income amounted to
$848,000 at March 31, 1998 and $1,047,000 at March 31, 1997.

Iao Partners is engaged in the development and sale of 480 condominium
homes. The construction of the project and the day-to-day activities of the
joint venture partnership are managed by SHI. Under the partnership agreement,
SHI realizes 70% of any favorable budget variance relating specifically to
building construction costs.

The joint venture partnership has reduced sales prices in an effort to
stimulate home sales. As a result, during fiscal year 1998, the joint venture
partnership recognized an asset impairment loss of $984,000 related to this
project of which the Company's 50% share was $492,000. In addition, during
fiscal year 1998, the Company recognized, as an expense, $149,000 of costs
related to its investment in Iao Partners as a result of certain County fees and
assessments which, in accordance with the partnership agreement, were the
responsibility of the Company, but were deemed by the Company to have no value.

8. DEBT

NOTES PAYABLE TO BANKS

On August 31, 1995, the Company entered into two secured revolving loan
agreements (an infrastructure loan agreement and a building loan agreement,
collectively referred to as the "Revolving Loan Agreements") with the Bank of
Hawaii and City Bank (the "Lenders") which provided for a maximum outstanding
balance of $35 million and which were scheduled to expire in September 1998. On
September 5, 1996, the Company entered into two modification agreements (the
"First Loan Modification Agreements") with the Lenders which amended the terms
and conditions of the Revolving Loan Agreements to allow advances not to exceed
an aggregate of $4 million for working capital purposes. All advances made under
the First Loan Modification Agreements for working capital purposes together
with all accrued and unpaid interest were due and payable in full on April 30,
1997. The First Loan Modification Agreements also required the Company to remit
to the Lenders 100% of the net proceeds from the sale of each home at the
Company's Kehalani project. Pursuant to the First Loan Modification Agreements,
and in addition to the collateral already held by the Lenders, CBCL delivered a
guaranty of payment for the Company's indebtedness related to the working
capital advances. The Company's obligation to repay any amounts paid by CBCL
under such guaranty was secured by a first mortgage lien in favor of CBCL on the
Company's Kalihiwai Ridge III property located on the island of Kauai.

On July 25, 1997, the Company and the Lenders entered into an agreement to
consolidate and restructure the Revolving Loan Agreements, as modified by the
First Loan Modification Agreements (the "Master Facility Agreement"). The Master
Facility Agreement provides for a maximum outstanding principal balance of
approximately $31.4 million and includes: (i) four individual commercial
mortgage loans in the aggregate amount of approximately $21.4 million with per
annum interest rates ranging from the Bank of Hawaii's base rate (the "Base
Rate") plus 1% to the Base Rate plus 2%, (ii) a revolving line of credit for
borrowing up to $6 million for working capital purposes with a per annum
interest rate at the Base Rate plus .5% (the "Working Capital Line of Credit"),
and (iii) a revolving line of credit for

42
<PAGE>
C. BREWER HOMES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. DEBT (CONTINUED)
borrowing of up to $4 million for home construction at the Company's Kaimana and
Halemalu projects with a per annum interest rate at the Base Rate plus 1%.
Pursuant to the terms of the Master Facility Agreement, and in addition to a
first mortgage lien already held by the Lenders on the Company's Kehalani
property on the island of Maui, the Company executed in favor of the Lenders a
first mortgage on its Puueo I and Puueo II properties on the island of Hawaii.
In addition, CBCL delivered a guaranty for payment of the Working Capital Line
of Credit. The Company's obligations to repay any amounts paid by CBCL under
such guaranty is secured by a first mortgage lien on the Company's Kalihiwai
Ridge III property.

On March 25, 1998, the Company executed a First Amendment to the Master
Facility Agreement with its Lenders. The Loan Amendment extends the maturity of
the existing Master Facility Agreement from May 31, 1998 to December 1, 1998. In
addition, the Loan Agreement amends, among other things, provisions in the
Master Facility Agreement relating to the allocation of the net sales proceeds
from the sale of the homes at its Kaimana subdivision between the commercial
mortgage loans and the working capital line of credit portions of the Master
Facility Agreement. The Loan Amendment also specifies the manner in which the
net sales proceeds from the sales of the Nanea subdivision of the Kehalani
master planned community and the Iao II parcel will be applied, including
amounts to be set aside for certain infrastructure improvements at Kehalani.

In July 1998, the Company received a commitment letter from the Lenders
pursuant to which, subject to the terms and conditions set forth therein, the
Lenders have agreed to amend the existing Master Facility Agreement to extend
the maturity date from December 1, 1998 to June 30, 1999.

NOTE PAYABLE TO C. BREWER AND COMPANY, LIMITED

Pursuant to a restructuring in connection with the initial public offering
in fiscal year 1994, the Company issued an unsecured $25 million term note
payable to CBCL. The loan had an interest rate of 9.32% per annum and was repaid
in fiscal year 1996.

INTEREST INCURRED

Total interest incurred was as follows (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest capitalized to real estate developments................. $ 2,277 $ 2,296 $ 2,245
Interest expense................................................. 374 141 203
--------- --------- ---------
Total interest incurred...................................... $ 2,651 $ 2,437 $ 2,448
--------- --------- ---------
--------- --------- ---------
Interest paid.................................................... $ 2,425 $ 1,760 $ 2,820
--------- --------- ---------
--------- --------- ---------
</TABLE>

43
<PAGE>
C. BREWER HOMES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9. INCOME TAXES

The components of income tax benefit and tax refunds for the last three
fiscal years were as follows (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current......................................................... $ (436) $ (856) $ (76)
Deferred........................................................ (346) (815) (845)
--------- --------- ---------
$ (782) $ (1,671) $ (921)
--------- --------- ---------
--------- --------- ---------
Refunds......................................................... $ (963) $ (473) $ (193)
--------- --------- ---------
--------- --------- ---------
</TABLE>

The Company's reported income tax benefit varied from the benefit calculated
using the U.S. federal statutory income tax rate for the last three fiscal years
as follows (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Benefit computed at U.S. federal statutory income tax rate........ $ (702) $ (1,624) $ (836)
State tax benefit, net of federal income tax impact............... (78) (181) (92)
Other............................................................. (2) 134 7
--------- --------- ---------
$ (782) $ (1,671) $ (921)
--------- --------- ---------
--------- --------- ---------
</TABLE>

The sources of deferred tax assets (liabilities) and the tax effect are as
follows (in thousands):

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Basis difference in property............................................. $ (1,085) $ (1,107)
Expenses deducted in different period for tax return purposes............ (699) (362)
Revenue recognized in different period for tax return purposes........... (1,525) (1,382)
Benefit of operating loss carry forwards................................. 941 --
Expenses not currently deductible for tax return purposes................ 811 1,925
Other.................................................................... 33 (835)
--------- ---------
$ (1,524) $ (1,761)
--------- ---------
--------- ---------
</TABLE>

Total deferred tax assets and deferred tax liabilities were as follows (in
thousands):

<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets...................................................... $ 844 $ 542
Deferred tax liabilities................................................. (2,368) (2,303)
--------- ---------
$ (1,524) $ (1,761)
--------- ---------
--------- ---------
</TABLE>

The Company has net operating loss carryforwards amounting to $2,411,000 at
March 31, 1998 that expire in 2013.

44
<PAGE>
C. BREWER HOMES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. RETIREMENT PLANS

Substantially all employees of the Company are eligible to participate in a
qualified 401(k) plan sponsored by CBCL. The terms of the plan provide for the
Company to partially match tax deferred employee contributions. The cost of this
plan was not significant.

11. STOCKHOLDERS' EQUITY

Authorized capital at March 31, 1998 consisted of 20,000,000 of $.01 par
value Class A Common Stock entitled to one vote per share, 5,750,000 shares of
$.01 par value Class B Common Stock entitled to three votes per share, and
1,000,000 shares of $.01 par value Preferred Stock issuable in series. At March
31, 1998, there were 825,000 shares of Class A Common Stock reserved for
issuance under the Company's 1993 Stock Option/Stock Issuance Plan. There were
no shares of Preferred Stock outstanding.

Changes in stockholders' equity were as follows (in thousands):

<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
COMMON COMMON PAID-IN RETAINED TREASURY
STOCK STOCK CAPITAL DEFICIT STOCK TOTAL
------- --------- ----------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1995..................................... $ 26 $ 58 $27,370 $(14,276) $ -- $13,178
Net loss.................................................. -- -- -- (1,467) -- (1,467)
Purchase of 4,335 shares of Treasury Stock................ -- -- -- -- (24) (24)
Conversion of Class B Common Stock to Class A Common
Stock................................................... 1 (1) -- -- -- --
------- --- ----------- -------- --- -------
Balance, March 31, 1996..................................... 27 57 27,370 (15,743) (24) 11,687
Net loss.................................................. -- -- -- (2,971) -- (2,971)
Conversion of Class B Common Stock to Class A Common
Stock................................................... 4 (4) -- -- -- --
------- --- ----------- -------- --- -------
Balance, March 31, 1997..................................... 31 53 27,370 (18,714) (24) 8,716
Net loss.................................................. -- -- -- (1,223) -- (1,223)
Conversion of Class B Common
Stock to Class A Common
Stock................................................... 6 (6) -- -- -- --
------- --- ----------- -------- --- -------
Balance March 31, 1998...................................... $ 37 $ 47 $27,370 $(19,937) $ (24) $ 7,493
------- --- ----------- -------- --- -------
------- --- ----------- -------- --- -------
</TABLE>

12. STOCK OPTIONS

The Company's 1993 Stock Option/Stock Issuance Plan (the "Plan") is divided
into three components: the discretionary option grant program, the stock
issuance program and the automatic stock option grant program. The discretionary
option grant program provides for the grant of options to purchase shares of the
Company's Class A Common Stock to key employees (including officers and
directors) and consultants of the Company or its parent or subsidiary
corporations. Under the stock issuance program, such individuals may be issued
shares of the Company's Class A Common Stock either through a purchase of such
shares or as a bonus tied to performance of services or the Company's attainment
of financial objectives. The automatic option grant program provides for the
automatic grant of options to non-employee members of the Board of Directors.
The Company has authorized 825,000 shares of Class A

45
<PAGE>
C. BREWER HOMES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

12. STOCK OPTIONS (CONTINUED)
Common Stock under the Plan. Stock options granted under the Plan may be
exercised for up to ten years from the date of grant.

Options currently expire no later than ten years from the grant date and
generally vest over a period of six months to five years. Proceeds received by
the Company from exercises are credited to common stock and additional paid-in
capital. A summary of the Company's stock option activity and related
information is as follows:

<TABLE>
<CAPTION>
NUMBER OF AVERAGE PRICE
SHARES PER SHARE
--------- -------------
<S> <C> <C>
Outstanding at March 31, 1995........... 525,250 $11.82
Granted............................. 50,000 5.21
Canceled............................ (48,000) 11.22
--------- ------
Outstanding at March 31, 1996........... 527,250 11.24
Granted............................. 147,500 3.45
Canceled............................ (50,250) 12.00
--------- ------
Outstanding at March 31, 1997........... 624,500 9.34
Granted............................. 25,000 2.44
Canceled............................ (445,500) 10.23
--------- ------
Outstanding at March 31, 1998........... 204,000 $ 6.57
--------- ------
--------- ------
Options exercisable at:
March 31, 1996...................... 237,233 $11.82
March 31, 1997...................... 341,056 $10.89
March 31, 1998...................... 134,071 $ 8.74
</TABLE>

The range of exercise prices for options outstanding at March 31, 1998 was
$2.0625 to $12.75.

The following tables summarize information about options outstanding at
March 31, 1998.

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------------
RANGE OF EXERCISE AVERAGE PRICE PER
PRICES NUMBER OF SHARES SHARE
- ------------------ ---------------- -----------------
<S> <C> <C>
$ 2.065 -- $ 5.375 115,000 $ 2.88
$ 9.750 -- $ 9.938 30,000 $ 9.78
$12.000 -- $12.750 59,000 $12.13
------- ------
204,000 $ 6.57
------- ------
------- ------
</TABLE>

<TABLE>
<CAPTION>
EXERCISABLE OPTIONS
------------------------------------
RANGE OF EXERCISE AVERAGE PRICE PER
PRICES NUMBER OF SHARES SHARE
- ------------------ ---------------- -----------------
<S> <C> <C>
$ 2.065 -- $ 5.375 46,113 $ 3.75
$ 9.750 -- $ 9.938 28,958 $ 9.79
$12.000 -- $12.750 59,000 $12.13
------- ------
134,071 $ 8.74
------- ------
------- ------
</TABLE>

46
<PAGE>
C. BREWER HOMES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

12. STOCK OPTIONS (CONTINUED)
These options will expire if not exercised at specific dates ranging from
December 2003 to August 2007. No options were exercised during the three-year
period ended March 31, 1998.

The Company has adopted the disclosure-only provision of SFAS No. 123.
Accordingly, no compensation cost has been recognized in the results of
operations for stock options granted. Had compensation cost for stock options
been determined based on their fair value at the date of grant consistent with
the method of accounting prescribed by SFAS No. 123, the Company's net loss and
loss per common share would have increased by $26,000 or no per common share
impact, by $59,000 or $0.01 per common share, and by $25,000 or no per common
share impact in fiscal years 1998, 1997 and 1996, respectively.

The fair value of options granted during fiscal 1998, 1997 and 1996 has been
estimated using the Black-Scholes pricing model. The following average
assumptions were used in determining fair value:

<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Expected life (in years)......................................... 8.00 8.75 7.33
Risk-free interest rate.......................................... 5.53% 5.51% 5.51%
Volatility factor................................................ 0.5670 0.4852 0.4852
Dividend yield................................................... None None None
</TABLE>

The weighted average fair value of options granted during fiscal 1998, 1997
and 1996 were $1.06, $0.90 and $0.51, respectively.

13. OFFICE SPACE

In fiscal year 1996, the Company moved its corporate office from Honolulu to
the island of Maui. The cost of the relocation and a related workforce reduction
of $700,000 has been reflected in the Statement of Loss for fiscal year 1996.

14. RELATED PARTY TRANSACTIONS

The Company has acquired the majority of its property for development from
CBCL and recognized such acquisitions at CBCL's cost basis. No such acquisitions
were made during the last three fiscal years.

In fiscal years 1998 and 1997, CBCL charged the Company for services related
to risk management and human resources. In fiscal year 1996, CBCL charged the
Company for various corporate services including legal, tax, accounting, risk
management, and human resources. These allocations were generally

47
<PAGE>
C. BREWER HOMES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

14. RELATED PARTY TRANSACTIONS (CONTINUED)
based on actual costs incurred and estimates of time devoted to supporting the
Company. The allocations for the last three fiscal years were as follows (in
thousands):

During fiscal years 1998, 1997 and 1996 the Company leased various office
space from CBCL or its affiliates under short-term or month-to-month leases.
Rents paid to CBCL or its affiliates under these leases were as follows (in
thousands):

15. COMMITMENTS AND CONTINGENCIES

The Company is frequently required, in connection with the development of
its projects, to obtain performance, maintenance and other bonds. The amount of
these bonds outstanding at any time varies in accordance with the Company's
pending development activities. In the event any such obligations are drawn upon
because of the Company's failure to develop the specific project, the Company
would be obligated to reimburse the issuing surety or bank. At March 31, 1998,
there were approximately $6.2 million in outstanding bonds for such purposes.

In connection with the Merger, a limited partner of the Partnership,
Waterside Partners, filed a derivative action on behalf of the Partnership in
the Court of Chancery of the State of Delaware (Civil Action No. 16121-NC) on
January 5, 1998, naming the Partnership, the Managing Partner, the five
directors of the Managing Partner, the Company, and CBCL as defendants. The
Delaware Court of Chancery denied the plaintiff's request that discovery in the
case be expedited and that a hearing be scheduled on its motion for preliminary
injunction. The Company has filed a motion to dismiss it from the lawsuit on the
ground that the recent termination of the Merger Agreement renders this lawsuit
moot. There can be no assurance, however, that an early disposition of the suit
will be achieved and, if not, substantial costs may be incurred by the Company
in connection with this suit.

There are various claims and lawsuits pending against the Company involving
complaints which are normal and reasonably foreseeable in light of the Company's
business. In the opinion of management, the resolution of these claims will not
have a material adverse effect on the business, operating results, or financial
position of the Company.

48
<PAGE>
C. BREWER HOMES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

16. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table presents quarterly financial data (in thousands, except
earnings (loss) per common share):

<TABLE>
<CAPTION>
EARNINGS
(LOSS) PER
PROPERTY NET INCOME COMMON
SALES GROSS MARGIN (LOSS) SHARE
-------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
1998
First Quarter......................... $ 624 $ 11 $ (240) $(.03)
Second Quarter........................ 6,111 459 (94) (.01)
Third Quarter......................... 4,531 219 (945) (.11)
Fourth Quarter........................ 6,316 616 56 --
-------- ------ ---------- -----
Year................................ $ 17,582 $1,305 $(1,223) $(.15)
-------- ------ ---------- -----
-------- ------ ---------- -----

1997
First Quarter......................... $ 2,423 $ 357 $ (265) $(.03)
Second Quarter........................ 5,321 534 (82) (.01)
Third Quarter......................... 5,321 678 82 .01
Fourth Quarter........................ 1,842 122 (2,706) (.33)
-------- ------ ---------- -----
Year................................ $ 14,907 $1,691 $(2,971) $(.36)
-------- ------ ---------- -----
-------- ------ ---------- -----
</TABLE>

49
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of
Iao Partners:

We have audited the accompanying balance sheet of Iao Partners as of March
31, 1998, and the related statements of income (loss) and cash flows for the
year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Iao Partners as of March 31,
1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.

PricewaterhouseCoopers LLP

Honolulu, Hawaii
July 2, 1998

50
<PAGE>
IAO PARTNERS

STATEMENTS OF INCOME (LOSS)

(IN THOUSANDS)

<TABLE>
<CAPTION>
1998 1997 1996
--------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Sales of residential real estate............................... $ 3,076 $ 4,656 $ 7,830
Cost of residential real estate sold........................... 3,037 4,499 6,521
--------- ----------- -----------
Gross profit................................................. 39 157 1,309
Interest income................................................ 226 127 122
General and administrative expenses............................ (17) (9) (6)
Asset impairment loss.......................................... (984) -- --
--------- ----------- -----------
Net income (loss)............................................ $ (736) $ 275 $ 1,425
--------- ----------- -----------
--------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

51
<PAGE>
IAO PARTNERS

BALANCE SHEETS

(IN THOUSANDS)

<TABLE>
<CAPTION>
1998 1997
--------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS

Cash and cash equivalents................................................ $ 374 $ 1,397
Notes receivable......................................................... 395 325
Due from Schuler Homes, Inc.............................................. 18 44
Real estate inventory.................................................... 8,544 10,175
Equipment................................................................ 1 1
--------- -----------
Total assets........................................................... $ 9,332 $ 11,942
--------- -----------
--------- -----------

LIABILITIES AND PARTNERS' CAPITAL

Accounts payable......................................................... $ 10 $ 10
Deposit.................................................................. 12 12
Deferred revenue......................................................... 151 118
--------- -----------
Total liabilities...................................................... 173 140
--------- -----------
Partners' capital........................................................ 10,978 13,464
Due from C. Brewer Homes, Inc............................................ (1,819) (1,662)
--------- -----------
Net partners' capital.................................................. 9,159 11,802
--------- -----------
Total liabilities and partners' capital................................ $ 9,332 $ 11,942
--------- -----------
--------- -----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

52
<PAGE>
IAO PARTNERS

STATEMENTS OF CASH FLOW

(IN THOUSANDS)

<TABLE>
<CAPTION>
1998 1997 1996
--------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Operating activities
Net income (loss)........................................... $ (736) $ 275 $ 1,425
Changes in operating assets and liabilities
Real estate inventory..................................... 1,631 2,301 (949)
Notes receivable.......................................... (70) (325) --
Accounts payable.......................................... -- (47) 34
Deposit................................................... -- 12 --
Deferred revenue.......................................... 33 118 --
--------- ----------- -----------
Cash flow from operating activities..................... 858 2,334 510
--------- ----------- -----------
Financing activities
Due from C. Brewer Homes, Inc............................... (157) (140) (194)
Due from Schuler Homes, Inc................................. 26 (44) --
Cash advances from (to) Schuler Homes, Inc.................. -- (761) 761
Capital distributions to Schuler Homes, Inc................. (1,750) -- (4,000)
--------- ----------- -----------
Cash flow used in financing activities.................... (1,881) (945) (3,433)
--------- ----------- -----------
Increase (decrease) in cash and cash equivalents.............. (1,023) 1,389 (2,923)
Cash and cash equivalents at beginning of period.............. 1,397 8 2,931
--------- ----------- -----------
Cash and cash equivalents at end of period.................... $ 374 $ 1,397 $ 8
--------- ----------- -----------
--------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

53
<PAGE>
IAO PARTNERS

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

Iao Partners is a joint venture partnership formed in October 1992 between
C. Brewer Homes, Inc. ("the Company") and Schuler Homes, Inc. ("SHI") with each
owning a 50% interest in the partnership. Iao Partners is engaged in the
development and sale of 480 condominium homes known as Iao Parkside and located
in Wailuku, Maui. The construction of the project and the day-to-day activities
of the joint venture partnership are managed by SHI. The partnership shall
continue until the earlier of (a) the tenth anniversary of the closing date or
(b) the sale of all Iao Parkside units, unless further extended for a period not
to exceed one year or sooner terminated for other causes.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include time deposits with maturities of less than
three months at the time of purchase.

REAL ESTATE INVENTORY

Real estate inventory is stated at cost and includes undeveloped land,
partially improved land, finished lots and home construction costs. Costs are
amortized to cost of residential real estate sold as closings occur. Costs are
allocated under the relative sales value method, the specific identification
method or the area method, where deemed appropriate by the nature of the costs.

REVENUE AND PROFIT RECOGNITION

Revenue from the sale of real estate is recognized when closings have
occurred, required payments are received and other criteria for sale and profit
recognition are satisfied in accordance with generally accepted accounting
principles. All profits or losses of Iao Partners shall be allocated to the
partners in proportion of their respective 50% interest. However, under the
partnership agreement, any profits attributable to the amount by which the
building construction costs are less than $24.15 million, shall be allocated 70%
to SHI and 30% to the Company. If and to the extent that the partnership is
required to pay a sewer capacity assessment fee, the costs of such sewer
assessment fee shall be allocated 25% to SHI and 75% to the Company.

INCOME TAXES

Income for tax reporting purposes accrues to the individual partners and,
accordingly, no provision for income taxes is reflected in the financial
statements.

USE OF ESTIMATES

3. ASSET IMPAIRMENT LOSS

The Partnership has adopted Statement of Financial Accounting Standard
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed of." SFAS No. 121 requires that long-lived

54
<PAGE>
IAO PARTNERS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. ASSET IMPAIRMENT LOSS (CONTINUED)
assets held and used by the Partnership be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be fully recoverable. If it is determined that the carrying amount of an
asset may not be recoverable, the Partnership is required to recognize an asset
impairment loss.

In accordance with SFAS No. 121, the Partnership recognized an asset
impairment loss of $984,000 in fiscal year 1998. The joint venture recognized
the asset impairment loss primarily as a result of reducing sales prices in an
effort to stimulate home sales. The amount of the impairment loss was determined
by comparing estimated future cash flows, discounted to present value, to the
carrying value of the project.

4. RELATED PARTY TRANSACTION

DUE FROM C. BREWER HOMES, INC.

As part of the construction of the Iao Parkside project, the partnership
also agreed with the Company to finance the construction of an extension of Eha
street beyond the Iao Parkside project site. The principal, interest, loan fees
and any other related costs incurred attributable to the Eha street extension is
an obligation of the Company and a receivable of Iao Partners from the Company.
Prior to the final distribution, the Company shall reimburse the partnership for
the Eha construction loan balance out of the Company's share of partnership net
profits or if such share is insufficient, from the Company's own funds.

ORIGINAL ACQUISITION OF LAND

During fiscal year 1993, the Company and SHI entered into an agreement
wherein SHI agreed to purchase the Iao Parkside property (approximately 28
acres) from the Company for $8 million. SHI subsequently contributed the land to
the partnership for the purpose of developing the property as a residential
project consisting of approximately 480 condominiums units.

5. PARTNER'S CAPITAL

Changes in partners' capital were as follows (in thousands, information for
fiscal years 1996 and 1997 is unaudited):

<TABLE>
<S> <C>
Balance March 31, 1995............................................. $ 15,763
Net income....................................................... 1,425
Capital distribution to SHI...................................... (4,000)
---------
Balance March 31, 1996............................................. 13,188
Net income....................................................... 275
---------
Balance March 31, 1997............................................. 13,463
Net loss......................................................... (736)
Capital distribution to SHI...................................... (1,750)
---------
Balance March 31, 1998............................................. $ 10,977
---------
---------
</TABLE>

Capital distributions to SHI represents partial distributions of SHI's $8.0
million land capital account. Such distributions were consented to by the
Company in accordance with the amended partnership agreement.

55
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

The registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders, which, when filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, will be incorporated by reference in this Annual Report on
Form 10-K pursuant to General Instruction G(3) of Form 10-K, provides the
information required under Part III (Items 10, 11, 12 and 13), except for the
information with respect to the registrant's executive officers, which is
included in "Item 1. Business--Executive Officers of the Registrant."

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K.

3. (A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
1. The financial statements are included in Item 8...................................................... 33-55
2. The following financial statements schedules are included in this Report:
Schedule III--Real Estate and Accumulated Depreciation............................................. 63
Schedule IV--Mortgage Loans on Real Estate......................................................... 64
</TABLE>

Information required by other schedules has either been incorporated in the
financial statements and accompanying notes, or is not applicable to the
Company.

(b) REPORTS ON FORM 8-K.

No reports on Form 8-K were filed during the quarter ended March 31, 1998.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated October 21, 1994, between C. Brewer
Homes, Inc., a Hawaii corporation, and C. Brewer Homes, Inc., a Delaware
corporation. (Incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K dated October 21, 1994.)

3.1 Restated Certificate of Incorporation of the Registrant. (Incorporated by
reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K
dated October 21, 1994.)

3.2 Bylaws of the Registrant.

4.1 Specimen of Class A Common Stock Certificate. (Incorporated by reference
to Exhibit 4.1 of the Registrant's registration statement under the
Securities Act on Form S-1, Registration Statement No. 33-68924.)

4.2 Restated Certificate of Incorporation of the Registrant. (Incorporated by
reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K
dated October 21, 1994.)

4.3 Section 1 of Bylaws of Registrant. See Exhibit 3.2

4.4 Amended and Restated Declaration of Registration Rights. (Incorporated by
reference to Exhibit 4.1 of the Registrant's registration statement
under the Securities Act on Form S-3, Registration Statement No.
33-88310.)
</TABLE>

56
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.1 Form of Indemnification Agreement. (Incorporated by reference to Exhibit
10.1 of the Registrant's Quarterly Report on Form 10-Q dated September
30, 1994.)

+10.2 1993 Stock Option/Stock Issuance Plan. (Incorporated by reference to
Exhibit 99.1 of the Registrant's registration statement under the
Securities Act on Form S-8, Registration Statement No. 33-75230.)

+10.3 Form of Automatic Option Grant Agreement. (Incorporated by reference to
Exhibit 10.3 of the Registrant's Registration statement under the
Securities Act on Form S-1, Registration Statement No. 33-68924.)

+10.4 Form of Employee Benefits Allocation Agreement. (Incorporated by reference
to Exhibit 10.4 of the Registrant's registration statement under the
Securities Act on Form S-1, Registration Statement No. 33-68924.)

+10.5 C. Brewer and Company, Limited Pension Plan for Salaried, Non-Bargaining
Unit Employees and Hilo Coast Processing Company Pension Plan for
Salaried, Non-Bargaining Unit Employees (Defined Benefit Plan).
(Incorporated by reference to Exhibit 10.5 of the Registrant's
registration statement under the Securities Act on Form S-1,
Registration Statement No. 33-68924.)

+10.6 C. Brewer Homes, Inc. Performance Incentive Plan. (Incorporated by
reference to Exhibit 10.6 of the Registrant's registration statement
under the Securities Act on Form S-1, Registration Statement No.
33-68924.)

10.7 Form of Intercompany Agreement. (Incorporated by reference to Exhibit 10.7
of the Registrant's registration statement under the Securities Act on
Form S-1, Registration Statement No. 33-68924.)

10.8 Form of Asset Exchange Agreement. (Incorporated by reference to Exhibit
10.8 of the Registrant's registration statement under the Securities Act
on Form S-1, Registration Statement No. 33-68924.)

10.9 Form of Option/Right of First Refusal Agreement. (Incorporated by
reference to Exhibit 10.9 of the Registrant's registration statement
under the Securities Act on Form S-1, Registration Statement No.
33-68924.)

10.10 Form of Development and Management Services Agreement. (Incorporated by
reference to Exhibit 10.10 of the Registrant's registration statement
under the Securities Act on Form S-1, Registration Statement No.
33-68924.)

10.12 Manager's Revocable License (Lease) of premises located at 90 Waiko Road,
Maui, Hawaii dated February 8, 1993. (Incorporated by reference to
Exhibit 10.12 of the Registrant's registration statement under the
Securities Act on Form S-1, Registration Statement No. 33-68924.)

10.13 Central Maui Source Development Agreement dated July 28, 1975.
(Incorporated by reference to Exhibit 10.13 of the Registrant's
registration statement under the Securities Act on Form S-1,
Registration Statement No. 33-68924.)

10.14 Partnership Agreement between the Registrant and Schuler Homes, Inc. dated
as of October 15, 1992. (Incorporated by reference to Exhibit 10.14 of
the Registrant's registration statement under the Securities Act on Form
S-1, Registration Statement No. 33-68924.)
</TABLE>

57
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.17 Memorandum of Agreement among the Registrant, Schuler Homes, Inc. and Maui
County dated June 11, 1992. (Incorporated by reference to Exhibit 10.17
of the Registrant's registration statement under the Securities Act on
Form S-1, Registration Statement No. 33-68924.)

10.23 Sublease of premises located at 888 Kalanianaole Avenue, Hilo, Hawaii,
dated as of October 1, 1993. (Incorporated by reference to Exhibit 10.23
of the Registrant's registration statement under the Securities Act on
Form S-1, Registration Statement No. 33-68924.)

+10.32 Form of Notice of Grant to be generally used in connection with the 1993
Stock Option/ Stock Issuance Plan. (Incorporated by reference to Exhibit
99.2 of the Registrant's registration statement under the Securities Act
on Form S-8, Registration Statement No. 33-75230.)

+10.33 Form of Stock Option Agreement to be generally used in connection with the
1993 Stock Option/Stock Issuance Plan. (Incorporated by reference to
Exhibit 99.2 of the Registrant's registration statement under the
Securities Act on Form S-8, Registration Statement No. 33-75230.)

+10.34 Addendum to Stock Option Agreement (Financial Assistance). (Incorporated
by reference to Exhibit 99.2 of the Registrant's registration statement
under the Securities Act on Form S-8, Registration Statement No.
33-75230.)

+10.35 Addendum to Stock Option Agreement (Limited Stock Appreciation Right).
(Incorporated by reference to Exhibit 99.2 of the Registrant's
registration statement under the Securities Act on Form S-8,
Registration Statement No. 33-75230.)

+10.36 Addendum of Stock Option Agreement (Special Tax Elections). (Incorporated
by reference to Exhibit 99.2 of the Registrant's registration statement
under the Securities Act on Form S-8, Registration Statement No.
33-75230.)

+10.37 Form of Stock Issuance Agreement to be generally used in connection with
the 1993 Stock Option/Stock Issuance Plan. (Incorporated by reference to
Exhibit 99.2 of the Registrant's registration statement under the
Securities Act on Form S-8, Registration Statement No. 3-75230.)

10.39 Commercial Lease and Deposit Receipt dated as of January 18, 1995 between
George Hotniansky, et al. and the Registrant. (Incorporated by reference
to Exhibit 10.39 of the Registrant's registration statement on Form 10-K
dated June 28, 1995.)

10.40 Revolving Loan Agreement (Infrastructure) between the Registrant and Bank
of Hawaii dated as of August 31, 1995. (Incorporated by reference to
Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q dated
September 30, 1995.)

10.41 Revolving Loan Agreement (Building) between the Registrant and Bank of
Hawaii dated as of August 31, 1995. (Incorporated by reference to
Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q dated
September 30, 1995.)

10.42 Form of Revolving Note (Infrastructure) between the Registrant and Bank of
Hawaii dated as of August 31, 1995. (Incorporated by reference to
Exhibit 10.3 of the Registrant's Quarterly Report on Form 10-Q dated
September 30, 1995.)

10.43 Form of Revolving Note (Building) between the Registrant and Bank of
Hawaii dated as of August 31, 1995. (Incorporated by reference to
Exhibit 10.3 of the Registrant's Quarterly Report on Form 10-Q dated
September 30, 1995.)
</TABLE>

58
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.44 First Mortgage, Security Agreement and Financing Statement between the
Registrant and Bank of Hawaii dated as of August 31, 1995. (Incorporated
by reference to Exhibit 10.4 of the Registrant's Quarterly Report on
Form 10-Q dated September 30, 1995.)

10.45 UCC-1 Financing Statement between the Registrant and Bank of Hawaii dated
as of August 31, 1995. (Incorporated by reference to Exhibit 10.5 of the
Registrant's Quarterly Report on Form 10-Q dated September 30, 1995.)

10.46 Hazardous Materials Indemnity Agreement between the Registrant and Bank of
Hawaii dated as of August 31, 1995. (Incorporated by reference to
Exhibit 10.6 of the Registrant's Quarterly Report on Form 10-Q dated
September 30, 1995.)

10.48 First Loan Modification Agreement (Infrastructure Facility) between the
Registrant and Bank of Hawaii dated as of September 5, 1996.
(Incorporated by reference to Exhibit 10.48 of the Registrant's
Quarterly Report on Form 10-Q dated November 14, 1996.)

10.49 First Loan Modification Agreement (Building Facility) between the
Registrant and Bank of Hawaii dated as of September 5, 1996.
(Incorporated by reference to Exhibit 10.49 of the Registrant's
Quarterly Report on Form 10-Q dated November 14, 1996.)

10.50 Amendment to First Mortgage, Security Agreement and Financing Statement
between the Registrant and Bank of Hawaii dated as of September 5, 1996.
(Incorporated by reference to Exhibit 10.50 of the Registrant's
Quarterly Report on Form 10-Q dated November 4, 1996.)

10.51 Guaranty between C. Brewer and Company, Limited and Bank of Hawaii dated
as of September 5, 1996. (Incorporated by reference to Exhibit 10.51 of
the Registrant's Quarterly Report on Form 10-Q dated November 14, 1996.)

10.52 Corporate Resolution Re: Guaranty to Bank of Hawaii from Board of
Directors of C. Brewer and Company, Limited dated as of September 5,
1996. (Incorporated by reference to Exhibit 10.52 of the Registrant's
Quarterly Report on Form 10-Q dated November 14, 1996.)

10.53 Agreement to Guaranty between the Registrant and C. Brewer and Company,
Limited dated as of September 5, 1996. (Incorporated by reference to
Exhibit 10.53 of the Registrant's Quarterly Report on Form 10-Q dated
November 14, 1996.)

10.54 Release and Separation Agreement, dated January 15, 1997, between the
Registrant and B.G. Moynahan. (Incorporated by reference to Exhibit
10.54 of the Registrant's Current Report on Form 8-K dated January 31,
1997.)

+10.56 Letter dated January 7, 1997 from the Registrant to Seth A. Bakes
regarding terms of employment.

+10.57 Letter dated January 16, 1997 from Seth A. Bakes to the Registrant
regarding terms of employment.

10.58 Master Facility Agreement (Consolidated and Restructured) between the
Registrant and Bank of Hawaii dated as of July 25, 1997.

10.59 Second Amendment to First Mortgage, Security Agreement and Financing
Statement between the Registrant and Bank of Hawaii dated as of July 25,
1997.

10.60 Hazardous Materials Indemnity Agreement and Amendment between the
Registrant and Bank of Hawaii dated as of July 25, 1997.
</TABLE>

59
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.61 Guaranty between C. Brewer and Company, Limited and Bank of Hawaii dated
as of July 25, 1997.

+10.62 Release and Separation Agreement, dated August 13, 1997, between the
Registrant and Edward T. Foley.

+10.63 Consultant Agreement, dated August 14, 1997, between the Registrant and
Edward T. Foley.

10.64 Purchase and Sale Agreement, dated September 12, 1997, between the
Registrant and Stanford S. Carr Development Corporation regarding the
Iao II parcel and Eha Street extension.

10.66 Purchase and Sales Agreement, dated December 15, 1997, between the
Registrant and Jesse E. Spencer regarding the Nanea at Kehalani
subdivision.

10.67 Amendment dated February 11, 1998, to Purchase and Sale Agreement between
the Registrant and Stanford S. Carr Development Corporation regarding
the Iao II parcel and Eha Street extension.

10.68 First Amendment to Master Facility Agreement, dated March 25, 1998, but
effective as of March 23, 1998, between the Registrant and Bank of
Hawaii.

10.69 Assignment of Account by and between the Registrant and Bank of Hawaii
dated March 23, 1998.

10.70 Letter dated March 23, 1998, to Gene Tsuji of Bank of Hawaii, Construction
& Income Property Loan Department regarding Extension of Guaranty by C.
Brewer and Company, Limited.

+10.88 Letter Agreement effective as of December 1, 1997 between the Registrant,
Eben Dale and Ka'u Agribusiness Co., Inc.

+10.89 Letter Agreement dated April 8, 1998 between the Registrant and Edward T.
Foley amending Release and Separation Agreement and Consultant
Agreement.

10.90 Form of $4,000,000.00 Revolving Note by the Registrant in favor of Bank of
Hawaii dated July 25, 1997. (Included as Exhibit A to Exhibit 10.58).

10.91 Form of $9,000,000.00 Promissory Note by the Registrant in favor of Bank
of Hawaii dated July 25, 1997. (Included as Exhibit B to Exhibit 10.58).

10.92 Form of $6,000,000.00 Promissory Note by the Registrant in favor of Bank
of Hawaii dated July 25, 1997. (Included as Exhibit C to Exhibit 10.58).

10.93 Form of $3,200,000.00 Promissory Note by the Registrant in favor of Bank
of Hawaii dated July 25, 1997. (Included as Exhibit D to Exhibit 10.58).

10.94 Form of $4,620,000.00 Promissory Note by the Registrant in favor of Bank
of Hawaii dated July 25, 1997. (Included as Exhibit E to Exhibit 10.58).

10.95 Form of $4,623,408.00 Promissory Note by the Registrant in favor of Bank
of Hawaii dated July 25, 1997. (Included as Exhibit F to Exhibit 10.58).

10.96 The Registrant, Assignor, in favor of Bank of Hawaii, Assignee, dated
August 31, 1995. (Included as Exhibit J to Exhibit 10.58).

10.97 Form of Assignment of Sales Contracts, Escrow Deposits and Escrow
Agreement by the Registrant, Assignor, in favor of Bank of Hawaii,
Assignee, dated July 25, 1997. (Included as Exhibit J to Exhibit 10.58).
</TABLE>

60
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.98 Agreement and Plan of Merger, dated December 18, 1997, between the
Registrant, a Delaware corporation, and Mauna Loa Macadamia Partners,
L.P., a Delaware limited partnership. (Incorporated by reference to
Exhibit 2.3 of the Registrant's Current Report on Form 8-K dated
December 31, 1997).

*10.99 Letter dated June 29, 1998, from the Registrant to C. Brewer and Company,
Limited regarding guarantor's consent to extend the maturity under
Registrant's Master Facility Agreement.

*10.100 Commitment Letter dated July 2, 1998 to the Registrant from Bank of
Hawaii.

*11.1 Statement Regarding Computation of Loss Per Common Share.

*27.1 Financial Data Schedule
</TABLE>

- ------------------------

* Filed herewith

+ Management contract or compensatory plan or arrangement

61
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<S> <C> <C>
C. BREWER HOMES, INC.

By: /s/ SETH A. BAKES
-----------------------------------------
Seth A. Bakes
PRESIDENT AND CHIEF EXECUTIVE
OFFICER AND DIRECTOR
</TABLE>

Dated: July 14, 1998

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.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
/s/ JOHN W.A. BUYERS
- ------------------------------ Chairman of the Board July 14, 1998
John W.A. Buyers

President and Chief
/s/ SETH A. BAKES Executive Officer and
- ------------------------------ Director (principal July 14, 1998
Seth A. Bakes executive officer)

Executive Vice President
/s/ EDWARD T. FOLEY and Chief Financial
- ------------------------------ Officer (principal July 14, 1998
Edward T. Foley financial and principal
accounting officer)

/s/ KENT T. LUCIEN
- ------------------------------ Director July 14, 1998
Kent T. Lucien

/s/ CLINTON R. CHURCHILL
- ------------------------------ Director July 14, 1998
Clinton R. Churchill

/s/ DAVID A. HEENAN
- ------------------------------ Director July 14, 1998
David A. Heenan

/s/ PAUL C.T. LOO
- ------------------------------ Director July 14, 1998
Paul C.T. Loo
</TABLE>

62
<PAGE>
C. BREWER HOMES, INC SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (3)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED SUBSEQUENT
INITIAL COST TO TO ACQUISITION
COMPANY -----------------------------
--------------------- CARRYING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COSTS
- -------------------------------------------- -------- ------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
March 31, 1998
Iao I (available for sale)................ None $ -- -$- $ 256 $--
Kalihiwai Ridge II (available for sale)... None 416 -- 539 --
Waiolani II (future development).......... None -- -- 1,175
Kehalani (in progress).................... Mortgage 1,257 -- 11,284 4,437
Kaimana at Kehalani (available for
sale)................................... None 85 -- 3,990 762
Iao II (available for sale) (4)........... Mortgage 605 -- 969 371
Kalihiwai III (available for sale)........ Mortgage 906 -- 382 --
Hilo Land (future development)............ Mortgage 1,117 -- 858 --
Other land held for future development.... None 377 -- 691 --
------ ----- ------------ -------
$4,763 -$- $20,144 $5,570
------ ----- ------------ -------
------ ----- ------------ -------
March 31, 1997
Iao I (available for sale)................ None $ -- -$- $ 245 $--
Kalihiwai Ridge II (available for sale)... None 416 -- 1,470 --
Waiolani II (future development).......... None -- -- 1,175 --
Kehalani (in progress).................... Mortgage 1,257 -- 15,609 2,906
Kaimana at Kehalani (available for
sale)................................... None 85 -- 7,030 1,725
Halemalu at Kehalani (available for
sale)................................... None -- -- 290 22
Iao II (future development)............... None 605 -- 1,266 371
Kalihiwai III (future development)........ None 906 -- 222 --
Hilo Land (future development)............ None 1,117 -- 751 --
Other land held for future development.... None 377 -- 681 --
------ ----- ------------ -------
$4,763 -$- $28,739 $5,024
------ ----- ------------ -------
------ ----- ------------ -------
March 31, 1996
Iao I (available for sale)................ None $ -- -$- $ 233 $--
Kalihiwai Ridge II (available for sale)... None 416 -- 1,723 --
Waiolani II (future development).......... None -- -- 1,401 --
Kehalani (in progress).................... Mortgage 1,257 -- 11,956 1,266
Kaimana at Kehalani (available for
sale)................................... None 85 -- 8,904 1,467
Halemalu at Kehalani (available for
sale)................................... None -- -- 1,471 91
Iao II (future development)............... None 605 -- 1,963 371
Kalihiwai III (future development)........ None 906 -- 194 --
Hilo Land (future development)............ None 1,117 -- 700 --
Other land held for future development.... None 377 -- 644 --
------ ----- ------------ -------
$4,763 -$- $29,189 $3,195
------ ----- ------------ -------
------ ----- ------------ -------
- -------------------------------------------------------------------------------------------------------------

GROSS AMOUNT AT WHICH CARRIED
AT CLOSE OF PERIOD
------------------------------- DATE OF DATE
DESCRIPTION LAND IMPROVEMENTS TOTAL(1) CONSTRUCTION ACQUIRED
- -------------------------------------------- ------ ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C>
March 31, 1998
Iao I (available for sale)................ $ -- $ 256 $ 256 N/A N/A
Kalihiwai Ridge II (available for sale)... 22 539 561 05/04/92 01/16/91
Waiolani II (future development).......... 1,175 1,175 N/A N/A
Kehalani (in progress).................... 1,211 15,721 16,932 N/A N/A
Kaimana at Kehalani (available for
sale)................................... 21 4,752 4,773 06/01/94 12/15/93
Iao II (available for sale) (4)........... 605 1,340 1,945 N/A Various
Kalihiwai III (available for sale)........ 906 382 1,288 N/A Various
Hilo Land (future development)............ 2,363 858 3,221 N/A Various
Other land held for future development.... 367 691 1,058 N/A Various
------ ------------ --------
$5,495 $25,714 $31,209
------ ------------ --------
------ ------------ --------
March 31, 1997
Iao I (available for sale)................ $ -- $ 245 $ 245 N/A N/A
Kalihiwai Ridge II (available for sale)... 58 1,469 1,527 05/04/92 01/16/91
Waiolani II (future development).......... -- 1,175 1,175 N/A N/A
Kehalani (in progress).................... 1,116 15,609 16,725 N/A N/A
Kaimana at Kehalani (available for
sale)................................... 52 7,030 7,082 06/01/94 12/15/93
Halemalu at Kehalani (available for
sale)................................... 1 290 291 10/01/95 12/15/93
Iao II (future development)............... 605 1,266 1,871 N/A Various
Kalihiwai III (future development)........ 906 221 1,127 N/A Various
Hilo Land (future development)............ 2,387 752 3,139 N/A Various
Other land held for future development.... 367 681 1,048 N/A Various
------ ------------ --------
$5,492 $28,738 $34,230
------ ------------ --------
------ ------------ --------
March 31, 1996
Iao I (available for sale)................ $ -- $ 233 $ 233 N/A N/A
Kalihiwai Ridge II (available for sale)... 71 1,723 1,794 05/04/92 01/16/91
Waiolani II (future development).......... -- 1,401 1,401 N/A N/A
Kehalani (in progress).................... 1,253 13,222 14,475 N/A N/A
Kaimana at Kehalani (available for
sale)................................... 70 10,371 10,441 06/01/94 12/15/93
Halemalu at Kehalani (available for
sale)................................... 4 1,562 1,566 10/01/95 12/15/93
Iao II (future development)............... 605 2,334 2,939 N/A Various
Kalihiwai III (future development)........ 906 194 1,100 N/A Various
Hilo Land (future development)............ 944 700 1,644 N/A Various
Other land held for future development.... 369 644 1,013 N/A Various
------ ------------ --------
$4,222 $32,384 $36,606
------ ------------ --------
------ ------------ --------
- -------------------------------------------------------------------------------------------------------------
</TABLE>

N/A = Not applicable
(1) A reconciliation of total amount at which real estate was carried to the
amount at the beginning of the year is as follows:

<TABLE>
<CAPTION>
MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at beginning of year...................... $34,230 $36,606 $27,424
Additions during the year:
Acquisitions from entities under common
control...................................... -- 1,443 --
Improvements.................................. 12,250 11,858 15,237
-------------- -------------- --------------
Total additions............................. 12,250 13,301 15,237
-------------- -------------- --------------
Deductions during the year:
Transfers to entities under common control, at
cost.........................................
Cost of real estate sold...................... 15,271 12,140 4,894
Other asset impairment loss................... -- 3,537 1,251
-------------- -------------- --------------
Total deductions............................ 15,271 15,677 6,145
-------------- -------------- --------------
Balance at close of year........................ $31,209 $34,230 $36,606
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

(2) The cost of real estate for federal income tax purposes approximates the
financial statement carrying value.
(3) The real estate included on this Schedule III is non-depreciable property
for financial statement purposes.
(4) On September 12, 1997, the Company entered into an agreement to sell the
land comprising the Iao II project to an unrelated third party for $2.0
million. The sale closed on April 16, 1998.

63
<PAGE>
SCHEDULE IV

C. BREWER HOMES, INC.
MORTGAGE LOANS ON REAL ESTATE
(IN THOUSANDS)

<TABLE>
<CAPTION>
FINAL PERIODIC FACE CARRYING
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF AMOUNT OF DELINQUENT
DESCRIPTION RATE DATE TERMS(1) LIENS MORTGAGE MORTGAGE(2)(3) MORTGAGES
- ----------------------------------- -------- -------- -------- ----- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1998
First mortgage on land:
Foy-Kalihiwai.................... 9.50% (4) $ 3.0 None $ 455 $ 240 $--
Schuster-Wailea.................. 9.50% 06/15/13 0.4 None 41 37 --
M 10-Wilder Road................. 9.25% 04/01/00 14.5 None 263 284 --
Rosendahl-Kaiwiki................ 8.50% 04/15/99 1.2 None 146 136 --
Lane-Kalihiwai................... 8.50% 11/18/99 0.6 None 80 80 --
Upson-Kalihiwai.................. 9.50% 02/13/01 0.9 None 184 110 --
------ ----------
$ 887 $--
------ ----------
------ ----------
March 31, 1997
First mortgage on land:
Foy-Kalihiwai.................... 9.5% 04/15/96 $ 3.9 None $ 455 $ 365 $--
Schuster-Wailea.................. 9.5% 08/15/96 0.4 None 41 39 --
M 10-Wilder Road................. 9.3% 04/01/00 14.5 None 263 255 --
Rosendahl-Kaiwiki................ 8.5% 04/15/99 1.2 None 146 135 --
------ ----------
$ 794 $--
------ ----------
------ ----------
March 31, 1996
First mortgage on land:
Foy-Kalihiwai.................... 8.5% 04/15/96 $ 3.9 None $ 455 $ 371 $--
Fergerstrom-Kaumana.............. 9.0% 06/01/96 0.9 None 105 99 --
Takebayashi-Opea Peleau.......... 9.0% 07/01/96 1.9 None 206 195 --
Schuster-Wailea.................. 9.0% 08/15/96 0.4 None 41 39 --
Coffman-Piha..................... 9.0% 09/01/96 0.7 None 75 71 --
KCC-Kaumana...................... 10.0% 12/23/94 N/A None 1,450 1,443 1,443
Johnston-Naalehu................. 9.3% 09/20/99 0.4 None 46 44 --
M 10-Wilder Road................. 9.3% 04/01/00 14.5 None 263 241 --
Rosendahl-Kaiwiki................ 8.5% 04/15/99 1.2 None 146 133 --
------ ----------
$2,636 $1,443
------ ----------
------ ----------
</TABLE>

N/A = Not applicable.

(1) Level monthly principal payment, except for semi-annual principal payment
for M 10-Wilder Road mortgage loan.

(2) A reconciliation of the total amount at which mortgage loans were carried to
the amount at the beginning of the year is as follows:

<TABLE>
<CAPTION>
MARCH 31, MARCH 31, MARCH 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Balance at beginning of year....... $794 2$,636 2$,573
Additions during the year:
New mortgage loans given on real
estate sales................... 190 -- 497
Loan repurchase.................. -- -- --
----- ------ ------
Total additions................ 190 -- 497
----- ------ ------
Deductions during the year:
Collections of principal......... 97 1,842 434
Cost of mortgages sold........... -- -- --
----- ------ ------
Total deductions............... 97 1,842 434
----- ------ ------
Balance at end of year............. $887 $794 2$,636
----- ------ ------
----- ------ ------
</TABLE>

(3) The cost of mortgage loans for federal tax purposes approximates the
financial statement carrying value.

(4) Subsequent to March 31, 1998, the Company sold this note without recourse to
an unrelated third party for approximately $236,000 in cash.

<PAGE>
EXHIBIT 10.99

C. BREWER HOMES, INC.
255-A E. WAIKO ROAD
WAILUKU, MAUI, HAWAII 96793

June 29, 1998

Mr. Kent Lucien
Executive Vice President
C. Brewer and Company, Limited
Wainaku Executive Center
Hawaii Belt Road
Hilo, HI 96720

Dear Kent:

C. Brewer Homes, Inc. ("Homes") has obtained Bank of Hawaii's agreement to
extend the maturity date of Homes' existing Master Facility Agreement from
December 1, 1998 to June 30, 1999, and it is anticipated that City Bank, as the
sole participant in the Master Facility Agreement, will agree to the extension.

On the consent by City Bank to the extension, Bank of Hawaii will prepare
for Homes' execution an Amendment to the Master Facility Agreement which
formally documents the extension of the maturity date.

C. Brewer and Company, Limited ("CBCL"), as the guarantor of Homes'
obligations under the Working Capital Line of Credit issued under the Master
Facility Agreement, will be required to consent to the extension of the maturity
date and to acknowledge CBCL's continuing liability as the guarantor of the
Working Capital Line of Credit.(1)

- ------------------------

(1) The Amendment to Master Facility Agreement extending the maturity date to
December 1, 1998 contained the following language (it is anticipated that
similar language will be used):

SECTION 7. AGREEMENT BY GUARANTOR. The Guarantor hereby: (a) consents to
the foregoing First Amendment to Master Facility Agreement; (b) agrees
that none of the foregoing shall affect or release the Guarantor from any
of its obligations under the Guaranty; and (c) specifically acknowledges
and confirms that the Guaranty shall apply to the note evidencing the
Working Capital LOC, the Master Facility Agreement and the Collateral
Documents, as modified by this First Modification of Master Facility
Agreement.
<PAGE>
If CBCL consents to the extension of the maturity date and is prepared to
execute a consent and acknowledgement similar to that described above, I would
appreciate it if you could execute and return a copy of this letter to us.

Thank you for your assistance on this matter.

Very truly yours,

[SIGNATURE]

Seth A. Bakes
President and Chief Executive Officer

APPROVED AND ACCEPTED

C. BREWER AND COMPANY, LIMITED

By: /s/ KENT T. LUCIEN
-------------------------
Kent T. Lucien
Executive Vice President

<PAGE>
EXHIBIT 10.100

[BANK OF HAWAII LETTERHEAD]

July 2, 1998

C. Brewer Homes, Inc.
255 East Waiko Road
Wailuku, Hawaii 96793

Re: Credit Facilities Made Available to C. Brewer Homes, Inc.
From the Bank of Hawaii
------------------------------------------------------------------

Gentlemen:

The Bank of Hawaii made available to you six credit facilities (the "Credit
Facilities") more particularly described in the Master Facility Agreement dated
July 25, 1997, as amended (the "Facility Agreement"). Capitalized terms used but
not defined in this letter have the same meaning given to them in the Facility
Agreement.

This letter confirms the Bank of Hawaii's agreement to extend the Maturity
Date of the Credit Facilities from December 1, 1998 to June 30, 1999 and to
share sales proceeds from unencumbered properties on a 50/50 basis, subject to
adjustment of the interest rate on all Credit Facilities, except for the Working
Capital LOC, to a floating rate equal to one and one-half percentage points
(1.5) above the Base Rate, the payment of certain fees, the extension of C.
Brewer and Company, Limited's Guaranty of the Working Capital LOC and commitment
terms and conditions similar in form to those terms and conditions set forth in
Section IX of the commitment letter for the Credit Facilities dated June 25,
1997.

While the Bank will review any further request for modifications to certain
provisions in the Facility Agreement, we can give no assurance that such
modifications will be approved by us and/or our participant in the Credit
Facilities.

Very truly yours,
BANK OF HAWAII

By /s/ GENE H. TSUJI
-----------------------------------------
Gene H. Tsuji
Its Assistant Vice President

<PAGE>
EXHIBIT 11.1

C. BREWER HOMES, INC.
STATEMENT REGARDING COMPUTATION OF LOSS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------
MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Class A common shares........................................... 3,668 3,087 2,700
Class B common shares........................................... 4,664 5,245 5,633(1)
------- ------- -------
Weighted average number of common shares outstanding............ 8,332 8,332 8,333
------- ------- -------
------- ------- -------
Net loss........................................................ $ (1,223) $ (2,971) $ (1,467)
------- ------- -------
------- ------- -------
Loss per common share........................................... $ (0.15) $ (0.36) $ (0.18)
------- ------- -------
------- ------- -------
</TABLE>

- ------------------------

(1) Weighted average number of Class B common shares for fiscal year ended March
31, 1996 was computed as follows (in thousands, except for days):

<TABLE>
<S> <C>
5,632 shares issued and outstanding for the entire fiscal year...... 5,632
4 shares treasury stock repurchased on July 26, 1995................ 1
---------
116/366 days issued and outstanding............................. 5,633
---------
---------
</TABLE>

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1019
<SECURITIES> 0
<RECEIVABLES> 887
<ALLOWANCES> 0
<INVENTORY> 31209
<CURRENT-ASSETS> 33664
<PP&E> 310
<DEPRECIATION> 194
<TOTAL-ASSETS> 37211
<CURRENT-LIABILITIES> 28194
<BONDS> 0
0
0
<COMMON> 84
<OTHER-SE> 7409
<TOTAL-LIABILITY-AND-EQUITY> 37211
<SALES> 17582
<TOTAL-REVENUES> 17582
<CGS> 16277
<TOTAL-COSTS> 16277
<OTHER-EXPENSES> 1901
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 374
<INCOME-PRETAX> (2005)
<INCOME-TAX> (782)
<INCOME-CONTINUING> (1223)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1223)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)

</TABLE>