Contracts Payable to Land Trust

12 Months Ended

Mar. 31, 2016

Note 6 - Contracts Payable to Land Trust

To assist in its acquisition and development of real estate projects the Company sells ULFs to investors. Through the ULF program an investor receives a warranty deed to an undivided fractional interest in a property and then contributes the deed to a land trust (the “Trust”) in exchange for a beneficial interest in the land trust. Concurrent with the transfer of the ULF, the investor enters into a joint development agreement with the Company. Concurrently the investor also appoints CAG as the holder of the power of direction in the Trust. The arrangement also provides for the appointment of an independent third party as trustee to manage the Trust and for the trustee and to take direction from CAG. Upon completion and sale of the improvements on the property, the land trust receives a fixed sum from the Company, the trustee distributes the proceeds to the ULF investor and re- conveys the deed covering the property back to the Company and cancels the beneficial interest in the land trust. If the land is not sold within 30 months of the transfer of the deed to the beneficiary of the Trust, the Company is required to increase the fixed sum by 1% per month.

The Company has created 4,320 ULFs related to Lulana Gardens and 2,800 ULFs related to Ho’olei Villages. The ULFs represent a deeded interest in a designated percentage of one or more of the Lulana Gardens townhomes or the Ho’olei Village lots in Phase 1 in exchange for a payment of $9,600 to the Company. As of March 31, 2016, the land on which the townhomes are being built is owned 95.85% by the Aina Lea Trust No. 1 and 4.15% directly by Aina Le’a. Aina Le’a owns 42.73% of the Trust.

Pursuant to the ULF arrangement, the Company is obligated to immediately pay to the Trust a one-time lump sum lease payment of $500 within 90 days of purchase of ULF and an additional $12,000 upon the sale of the townhouse or lot. All lease payments have been made to investors totaling $2,299,500 through March 31, 2016. As a result of construction delays during the course of the zoning litigation, the Company has not paid the $12,000 at or prior to the end of 30 months from the date of the transfer of the deed. Accordingly, the Company has accrued a penalty interest of 1% per month is due on the $9,600 original investment as required. Additionally, the Company could be removed as developer of Trust No. 1 of the Project 32 months after the last deed was delivered to the Trust. As of March 31, 2016, the last deed was delivered to the Trust on October 1, 2012. No additional deeds were to be transferred to the Trust, and as such, the Company could be removed as developer of Trust No. 1 of the Project effective April 2016. The Company has not received any notices from the Trust and does not expect to be removed as the developer. Additionally, all deeds were contributed to Trust No. 2 in November 2015.

The Joint Development Agreement related to the ULFs provides that after 30 months from the recordation date, the Company could be compelled to repay the principal portion of the obligation ($9,100 per ULF) without further obligation to the Trust. Accordingly, the Company has classified as a current liability the principal related to the ULFs that have or will exceed 30 months from recordation amounting to $26,171,600 and $25,625,600 as of March 31, 2016 and March 31, 2015, respectively. No demands for payment have been made by the Trustee and management plans to make payments from the sales of the improved properties.

The Company accretes interest on the ULF proceeds over a 32-month period. Accreted interest costs on the ULFs for the periods ended March 31, 2016 and 2015 were $2,559,104 and $2,647,551, respectively. As of March 31, 2016 and 2015, the Company owes principal of $27,541,672 and$27,496,329, respectively, and interest of $11,668,502 and $9,109,398, respectively. If the Company repurchases the ULF before the 32-month period has expired, the full accreted interest for the 32-month period must be paid. The unaccreted interest as of March 31, 2016 and 2015 is $2,131 and $142,990, respectively.

Certain ULF contracts totaling $2,496,000 at March 31, 2016 and 2015, respectively provide for the Company to repay the ULF holders in Singapore dollars. Exchange gains (losses) for the years ended March 31, 2016 and 2015 of ($44,843) and $225,571, respectively, were recorded based at applicable exchange rates.

In March 2012, the Company entered into an arrangement with the power of interest in the Trust which governs how the proceeds from sales are to be distributed. Under the arrangement, as sales proceeds are received into escrow, the Company is to receive directly from escrow, prior to any payments being made to the Trust, the pro-rata share of the sales proceeds represented by the beneficial interests held by the Company. Based on the arrangement, the Company has netted the carrying value of its beneficial interests against the contract payable due to the Trust. The gross amounts of the beneficial interests and contracts payable to land trust and the resulting net amount are disclosed below:

	March 31, 2016			March 31, 2015
Contracts payable to land trust	$	61,367,974		$	58,763,527
Beneficial Interest held		(22,157,800	)		(22,157,800	)
Contracts payable to land trust, net	$	39,210,174		$	36,605,727

Aina Le'a Inc. 10-K