**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

### ** **

### **FORM 10-K**

 

**x****     ****ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**For the Fiscal Year Ended December 31,2009**

 

**OR**

 

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

 

**Commission File Number 1-9145**

** **

**MLMACADAMIA ORCHARDS, L.P.**

(Exact Name of registrantas specified in its charter)

 

| **DELAWARE**                                                    | ** ** | **99-0248088**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |       | (I.R.S. Employer  Identification No.) |

 

| **26-238  Hawaii Belt Road, HILO, HAWAII** | ** ** | **96720**  |
|--------------------------------------------|------------|------------|
| (Address of  principal executive offices)  |       | (Zip Code) |

 

Registrant’s telephonenumber, including area code:**(808) 969-8057**

 

Registrant’s website: **www.mlmacadamia.com**

 

SECURITIES REGISTEREDPURSUANT TO SECTION 12(b) OF THE ACT: 

 
| **Title of Each Class**                                                      | ** ** | **Name of Each Exchange on Which Registered** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------|
| Depositary Units  Representing Class A Limited Partners’ Interests |       | OTC                                           |

 

SECURITIES REGISTEREDPURSUANT TO SECTION 12(g) OF THE ACT: **NONE**

 

Indicate by check mark if theregistrant is a well-known seasoned issuer as defined in Rule 405 of theSecurities Act Yes o No x

 

Indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 of 15(d) ofthe Act.  Yes o  No x

 

Indicate by checkmark whether the registrant has submitted electronically and posted on itcorporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the precedingtwelve months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.  Yes x  No o

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this 10-K or anyamendment to this 10-K.  x

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer or a smaller reportingcompany.  See the definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company”  in Rule 12b-2 of the Exchange Act.

 
| Large accelerated filer o |   | Accelerated filer o         |
|---------------------------|--------|-----------------------------|
|                      |   |                        |
| Non-accelerated filer o   |   | Smaller reporting company x |

 

Indicate by check mark whether the Registrant is a shell company asdefined by Rule 12b-2 of the Securities Exchange Act of 1934.  Yes o  No x

 

As of March 12, 2010, 7,500,000 shares of the registrant’s Class AUnits were outstanding, and the aggregate market value of such Units held bynon-affiliates was $17,250,000 (based on the closing price on that date of$2.30 per Unit).

 

 

 

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**PART I**

 

**Item 1. BUSINESS OF THE PARTNERSHIP**

** **

**(a) GeneralDescription of the Business**

** **

ML Macadamia Orchards, L.P. (the “Partnership”) is amaster limited partnership, organized under the laws of the State of Delawarein 1986.  The Partnership is engaged inthe business of growing and farming macadamia nuts in the State of Hawaii.  The Partnership believes that it is one ofthe world’s largest growers of macadamia nuts. The Partnership owns or leases approximately 4,190 tree acres ofmacadamia nut orchards in three locations within a 50-mile radius on the islandof Hawaii.  (“Tree acres” are acres ofthe Partnership’s owned or leased lands utilized for macadamia nutorchards.  “Gross acres” includes areasnot utilized for orchards.)  In addition,the Partnership farms approximately 1,980 tree acres of macadamia nut orchardsfor other orchard owners under farming contracts.

 

ThePartnership commenced operations in June 1986, following its acquisitionof 2,423 tree acres of macadamia nut orchards from subsidiaries of C. Brewerand Company, Ltd. (“CBCL”).  In December 1986and October 1989, the Partnership acquired 266 and 1,260 additional treeacres of macadamia nut orchards from subsidiaries of CBCL.  In September 1991 the Partnershipacquired 78 tree acres of macadamia nut orchards from CBCL.  On May 1, 2000, the Partnership acquired142 tree acres of macadamia nut orchards and its macadamia farming operationsfrom subsidiaries of CBCL.  In April 2006,the Partnership acquired approximately 21 tree acres of macadamia nut orchardsfrom J. W. A. Buyers.  The farmingoperations consist of farming contracts, farming equipment, vehicles, a huskingplant, irrigation well, office buildings, garages and warehouses, officefurniture and equipment and material inventories related to macadamiafarming.  The Partnership’s assets andoperations are located on the island of Hawaii.

 

ThePartnership is managed by its general partner, ML Resources, Inc. (“MLR”or the “Managing Partner”), which is a wholly owned subsidiary of thePartnership.

 

During 2006 the Partnership sold all of its macadamianut production to Mauna Loa Macadamia Nut Corporation (“Mauna Loa”) under fournut purchase contracts.  Three of thesenut purchase contracts representing approximately 16 million field pounds perannum, expired on December 31, 2006 and the fourth contract representingapproximately 6.3 million field pounds per annum expires on December 31,2011. In lieu of renegotiating the expired nut purchase contracts with MaunaLoa, the Partnership executed nut purchase contracts with three otherprocessors; Hamakua Macadamia Nut Company, Inc. (“Hamakua”), MacFarms ofHawaii, LLC (“MacFarms”) and Purdyco International, Ltd. dba Island Princess (“IslandPrincess”) beginning January 1, 2007. The nut purchase contracts with Island Princess, Hamakua and MacFarmswere terminated on October 31, 2008, June 10, 2009 and December 22,2009, respectively.  The details of thePartnership’s nut purchase contracts are discussed in Item 1 (c), *Owned Orchard Segment*on page 3.

 

On December 22, 2009, the Partnership and MaunaLoa executed an addendum to the June 1, 2006 nut purchase contract whichprovides that all of the macadamia nuts harvested by the Partnership will besold to Mauna Loa in 2010 and 2011 at a nut purchase price of $0.73 per poundon a WIS SK/DIS basis.  As Mauna Loa willbe sole customer for the Partnership’s production additional risks areinherent.  Refer to Item 1A. Risk Factors- Market and customers for additional information.

 

**(b) FinancialInformation about Industry Segments**

 

Information concerning industry segments is set forthin Note 3 to the Notes to Consolidated Financial Statements filed herewith.

 

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**(c) NarrativeDescription of the Business**

 

**Owned-OrchardSegment**

 

The Partnership’saverage annual nut production has been between 20.5 and 22.0 million fieldpounds.  In 2009, the Partnership soldmacadamia nuts from its orchards to Mauna Loa and MacFarms under nut purchasecontracts and related addendums which provided for the sale of approximately 21to 27 million field pounds.  On December 22,2009, the Partnership and Mauna Loa executed an addendum to the June 1,2006 nut purchase contract which provides that all of the macadamia nutsharvested by the Partnership in 2010 and 2011, estimated to be between 19 to 21million pounds wet in shell each year, will be sold to Mauna Loa.

 

During 2008, thePartnership sold macadamia nuts from its orchards to Mauna Loa, MacFarms andIsland Princess under nut purchase contracts and related addendums.  The Partnership attempted to sell and delivermacadamia nuts to Hamakua under the terms of its nut purchase contract, butHamakua refused to accept delivery of any macadamia nuts from the Partnershipduring 2008.  Despite Hamakua’s refusalto take delivery, the Partnership was able to sell all of its 2008 nutproduction.

 

During 2007, the Partnership sold macadamia nuts from its orchards toMauna Loa, MacFarms and Island Princess under nut purchase contracts.  Hamakua did not purchase any of thePartnership’s 2007 production and instead processed the Partnership’s macadamianuts into kernel for the Partnership to sell in the wholesale market.  The Partnership was unable to sell all of itsproduction in 2007 and all of it kernel inventory in 2008 and 2007, whichresulted in $335,000 and $2.0 million of kernel and unsold nuts at December 31,2008 and 2007, respectively.  During 2009and 2008, the Partnership sold or discarded its entire inventory balance thatwas held as of December 31, 2008 and 2007, respectively.

 

# ***Nut Purchase Contracts.***  During 2009, thePartnership had nut purchase contracts with: Mauna Loa, MacFarms (terminated December 22,2009) and Hamakua (terminated June 10, 2009), as detailed below.  Nut purchase contracts require the buyer topurchase a quantity of macadamia nuts. Nuts from the field are weighed after they are husked, which leaves thenut still in its hard shell, referred to as wet-in-shell.  Orchard to orchard and year to year,wet-in-shell nuts have varying moisture and saleable kernel contents,accordingly, each nut purchase contract has a standard wet-in-shell moisture of20% (“WIS”) and a standard saleable kernel / dry-in-shell of 30% (“SK/DIS”) towhich the delivered field pounds are adjusted to determine the pounds for whichthe Partnership is paid.  If the moisturecontent is above the 20% standard, then the pounds of nuts paid for will beless than the pounds actually delivered. Conversely, if the moisture content is below the 20% standard, then thepounds of nuts paid for will be greater than the pounds of nuts actuallydelivered.  If the SK/DIS recovery isabove the 30% standard, then the number of pounds paid for will be greater thanthe actual pounds delivered.  Conversely,if the SK/DIS recovery is below the 30% standard, then the number of poundspaid for will be less than the actual pounds delivered.  Transfer of ownership for the nuts from thePartnership to the purchaser is at the time of delivery to the purchaser’sprocessing plant.

 

# ***On June 1, 2006, the Partnership executed a contractwith Mauna Loa for the annual delivery of approximately 6.3 million pounds ofwet-in-shell nuts, effective January 1, 2006 and expiring December 31,2011.  The contract provided for a nutprice of $0.74 per WIS pound in 2006 and $0.75 per WIS SK/DIS pound in2007.  The purchase price increasesannually by $0.01 per WIS SK/DIS pound, except 2008, until it reaches $0.78 perWIS SK/DIS pound in 2011.  On July 9,2008 an addendum to the June 1, 2006 nut purchase contract was executedwith Mauna Loa for the delivery of an additional 9.0 million field pounds ofnuts during the period July 21, 2008 through June 30, 2009 at apurchase price of $0.60 per pound on a WIS SK/DIS basis.  The addendum provided for an additional 3.0million pounds to be delivered if mutually agreed on the same basis as theadditional 9.0 million pounds.  On November 3,200,8 it was agreed that any additional pounds over the 9.0 million poundsdelivered until December 31, 2008, would have a nut purchase price of$0.63 instead of $0.60 per pound on a WIS SK/DIS basis.  On March 23, 2009, the parties executedan amendment to the June 1, 2006 contract for the delivery of an***

 

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# ***additional 9.0 to 15.0 million wet-in-shell pounds at apurchase price of $0.63 per pound on a WIS SK/DIS basis for nuts deliveredthrough December 31, 2009***.On December 22,2009, the Partnership and Mauna Loa executed an addendum to the June 1,2006 nut purchase contract which provides that all of the macadamia nutsharvested by the Partnership, estimated to be between 19 to 21 millionwet-in-shell pounds, in 2010 and 2011 will be sold to Mauna Loa at a nutpurchase price of $0.73 per pound on a WIS SK/DIS basis.

 

# ***On December 16, 2004, the Partnership executed a nutpurchase contract with Hamakua for the annual delivery of 6.0 millionwet-in-shell pounds, effective January 1, 2007, and with 2.0 million fieldpounds expiring in each year ending December 31, 2008, December 31,2010, and December 31, 2012, respectively. The contract provided for aminimum price of $0.75 per WIS pound and a maximum price of $0.95 per WISSK/DIS. The pricing formula included a fixed component of $0.85 per WIS poundand a second component based on Hamakua’s average selling price for bulkkernel.  In February 2007, thecontract was amended to allow the Partnership, at its option, to have Hamakuaprocess macadamia nuts into kernel for a fee in lieu of selling the nuts toHamakua.  The Partnership exercised thisoption solely for the calendar year 2007. The contract required Hamakua to purchase approximately 6.0 millionfield pounds of nuts during 2008, approximately 4.0 million field pounds ofnuts per annum in the years 2009-2010, and 2.0 million field pounds of nuts perannum in the years 2011-2012.  Hamakuarefused to accept delivery of any macadamia nuts during 2008 and 2009.  The Hamakua nut purchase contract wasterminated in connection with the settlement of litigation brought by thePartnership against Hamakua which resulted in the Partnership receiving asettlement payment of $324,000 during the first quarter of 2009.  This nut purchase agreement was terminated onJune 10, 2009.***

 

On January 5, 2006,the Partnership executed a nut purchase contract with Island Princess for theannual delivery of approximately 2.0 million field pounds, effective January 1,2007 and expiring on December 31, 2011. The nut price was determined every six months by mutual agreement basedon the prevailing market price for kernel from Hawaii and Australia.  The effective price for January – June 2007was $0.608 and July – December 2007 was $0.494 per WIS SK/DISpound.  The effective price for January –June 2008 was $0.494 and July – December 2008 was $0.55, per WISSK/DIS pound.  This nut purchaseagreement was terminated October 31, 2008 by mutual agreement.

 

On January 6, 2006,the Partnership executed a nut purchase contract with MacFarms for the annualdelivery of 5.0 to 6.0 million field pounds per annum, effective January 1,2007 and expiring on December 31, 2011. The nut price was determined every six months by mutual agreement basedon the prevailing market price for kernel from Hawaii and Australia.  The effective price for January – June 2007was $0.608 and July – December 2007 was $0.494, per WIS SK/DISpound.  The effective price for January –June 2008 was $0.494 and July – December 2008 was $0.55, per WISSK/DIS pound.  The effective price for January –June 2009 was $0.615 and July – December 2009 was $0.63 per WISSK/DIS pound. In connection with the orchard purchased from J.W.A. Buyers in April 2006,the Partnership agreed to sell approximately 100,000 field pounds harvestedfrom this orchard to MacFarms for $0.98 per WIS SK/DIS pound through January 6,2007.  The Partnership terminated thisnut purchase contract on December 22, 2009 due to the failure of MacFarmsto perform its obligations under the Agreement.

 

**Competition.** In addition to the State of Hawaii, mature macadamia nut orchards arelocated in Australia, Africa, and Central/South America.  For the 2009 crop, Hawaii supplied 19% of theworld crop, and Australia, the world’s largest producer, supplied 37%.  The Partnership supplies about 30% of theHawaii crop from orchards it owns or leases and the orchards it farms forothers supply about 15% of the Hawaii crop to processors on Hawaii.    All of the Partnership’s production hashistorically only been sold to Hawaii processors as shipping the crop toprocessors outside of Hawaii has not been required nor cost effective.  The processors have the ability to purchasenuts from other local farmers and kernel from local and foreign processors tosatisfy their requirements.  Nuts thatare not purchased by the local processors would need to be processed intokernel for future sale or sold to a foreign buyer.  This was the case in 2007 and 2008 when thePartnership was not able to sell all of its production and had unsold nuts heldin inventory and nuts it had processed into kernel, which the Partnershipeventually sold or inventoried for future sale.

 

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# ***MacadamiaFarming Segment***

 

The Partnershipfarms 4,190 tree acres of macadamia orchards, which it owns or leases, as wellas macadamia orchards owned by other growers (approximately 1,980 acres during2009, and 2,008 acres in 2008 and 2007) under farming contracts.

 

All orchards arelocated in three separate regions on the island of Hawaii (“Keaau”, “Ka’u” and “MaunaKea”).  Because each region has differentterrain and weather conditions, farming methods vary somewhat among the threelocations.

 

***FarmingContracts. ***The Partnership currently providesservices under approximately fifteen farming contracts.  Services under these contracts includecultivation, weed and pest control, fertilization, pruning and hedging,replanting, harvesting, and husking.  Thefarming contracts provide for the Partnership to be reimbursed for all directfarming costs, collect a pro-rata share of indirect costs and overheads, andcharge a fee for these services, either as a fixed fee per acre farmed, or as apercent of reimbursed costs, ranging from 5% to 20%.  Approximately 115 acres are farmed underyear-to-year contracts, contracts for approximately 70 acres expire June 30,2013, contracts for approximately 635 acres expire June 30, 2016,contracts for approximately 410 acres expire July 31, 2029, contracts forapproximately 280 acres expire June 30, 2033, and contracts forapproximately 470 acres expire September 30, 2080.  Each owner is responsible for the sale of thenuts from their orchards and the Partnership will arrange for the nuts to bedelivered to the purchaser of the nuts at the owner’s cost.

 

***OrchardMaintenance***.  Maintenance of an orchard is essential tomacadamia nut farming.  Pruning andhedging of trees is necessary to allow space for mechanical harvesting andcultivating equipment to operate safely and efficiently and to remove deadbranches.  Where mechanical equipment isused, the orchard floor must be maintained in a condition that will permit itsoperation.  Soil and gravel are used torepair mud holes and other surface irregularities caused by soil erosion fromheavy rain and by farming equipment. Pruning and surface maintenance are usually performed between harvestseasons.

 

Orchard managementalso requires the proper selection and application of fertilizers, pesticides(to control rodents, insects and fungi) and herbicides (to control weeds).  Insects, rodents and fungi, as well as wildpigs, if not controlled, can cause losses to nut production.

 

***Harvesting*****.**  The harvestperiod begins in the late summer and runs through the following spring.  Mature nuts fall from the trees and areharvested using mechanized harvesting equipment when the orchard floor is levelenough to permit its use.  Nuts areharvested by hand when the orchard floor is too uneven to permit mechanicalharvesting, when the nut drop is very light and when nuts remain on the groundafter mechanical harvesting.  At Keaau,Ka’u and Mauna Kea, seasonal labor for hand harvesting and other operations isgenerally available from nearby Hilo, adjacent communities and foreign laborsources.

 

Mechanicalharvesting is less costly than hand harvesting, however, mechanical harvestingis possible only where the orchard floor is relatively flat.  Approximately 70% of the orchards in Ka’u,59% in Keaau and 94% in Mauna Kea are mechanically harvested.  The remaining acres are too uneven formechanical harvesting and must be harvested by hand.

 

During the harvestseason, the nuts are collected every six to ten weeks depending uponconditions.  Nut quality deteriorates ifthey remain on the ground too long.  Theharvested nuts are then transported to husking facilities, which are located inKa’u and Keaau.  The Keaau huskingfacility is owned and operated by Mauna Loa and the Ka’u husking facility isowned and operated by the Partnership. Nuts harvested in the Mauna Kea region are transported to the huskingfacility in Keaau.  At the huskingfacility, the outer husk is removed and the nuts, still in their shell, areweighed and sampled to determine moisture content.  Kernel quality is determined from samplestaken.  The final adjustments under thenut purchase contracts are made to determine the appropriate payment for thenuts.  Title to the nuts passes to thebuyer after delivery to the buyer’s processing plant.  Further processing of the nuts is done by thebuyers at this time.

 

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#### ***StabilizationPayments***

 

In December 1986, the Partnership leased a266-acre orchard that was several years younger than other orchards of thePartnership.  Because of the relativeimmaturity of the newer orchard, its productivity (and therefore its cash flow)was expected to be correspondingly lower for the first several years than forthe other older orchards.

 

Accordingly, the lessorof this orchard Ka’u Agribusiness Company, Inc. (“KACI”), agreed to makecash stabilization payments to the Partnership for each year through 1993 inwhich the cash flow (as defined) from this orchard fell short of the targetcash flow level, which approximated $507,000. Stabilization payments for any given year were limited to the lesser ofthe amount of the shortfall or a maximum payment amount.  For the years from 1987 through 1993,inclusive, the Partnership received a total of $1,628,000 (including a 4%Hawaii general excise tax) in stabilization payments under this agreement.

 

The Partnership accountedfor stabilization payments (net of the 4% Hawaii general excise tax) as areduction in the cost basis of the orchards acquired.  As such, these payments are being reflectedin the Partnership’s net income ratably through 2019 as a reduction to thedepreciation expense reported for this orchard.

 

In return, thePartnership is obligated to pay the lessor (the Olson Trust which purchasedKACI’s interest) 100% of any year’s cash flow from this orchard in excess ofthe target cash flow as additional percentage rent until the aggregate amountof the additional percentage rent paid equals 150% of the total amount ofstabilization payments previously received. Thereafter, the Partnership isobligated to pay the seller 50% of this orchard’s cash flow in excess of thetarget cash flow as additional incentive rent. No additional rent was due in 2009, 2008 or 2007.

 

**Loan Agreement.**

 

On June 30, 2009,the Partnership and the General Partner entered into a Third Amended andRestated Credit Agreement with American Ag Credit, PCA. This agreementsuperseded the Second Amended and Restated Credit Agreement dated July 8,2008, as amended and restated.  Theagreement provides for a revolving line of credit in the maximum amount of $5.0million which expires on June 29, 2010. There was no balance on the revolving line of credit as of December 31,2009 and the Partnership had $5.0 million available to draw.  Advances under the revolving credit facilitybear interest at the base rate unless the Partnership elects to convert therate to a fixed rate in accordance with the provisions above.  At December 31, 2009, interest onrevolving advances was 4.25% per annum. The agreement also provides for a 10-year, $4.0 million term loan whichmatures on May 1, 2010.  The$400,000 balance of the term loan as of December 31, 2009 was paid off on January 15,2010.  When paid off $230,000 of the termloan bore interest at a fixed rate of 6.87% per annum and $170,000 of the termloan bore interest at 3.0%, equal to LIBOR plus 2.75%.

 

Also on June 30,2009, the Partnership executed a $600,000 four year term loan with AmericanAgCredit, PCA maturing on June 29, 2013 requiring equal monthly paymentswith a fixed interest rate of 7.5% per annum. As of December 31, 2009, the balance on this term loan was$525,000.  On January 15, 2010, thePartnership paid off this term loan.

 

The loans are secured byall personal property assets of the Partnership and all of the real propertyowned by the Partnership.  Subject tocertain exceptions, the loan agreement restricts the Partnership’s ability tochange its capital structure, to make certain investments, loans or advances,to incur indebtedness, create liens, sell assets, or take certain otheractions.  The Partnership is alsoprohibited from making any 

 

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payments or otherdistributions in respect of any Partnership interest in the Partnership or toacquire a Partnership interest or to make any payments or contributions to anypartner except for reasonably equivalent value. The Partnership is required to maintain its tangible net worth as of thelast day of each fiscal quarter, commencing June 30, 2009 at $41,068,000,which shall be increased dollar for dollar by the amount of positiveconsolidated net income achieved by the Partnership commencing January 1,2009 and thereafter.  The Partnership isrequired to have consolidated EBITDA of not less than $1.5 million at the endof each quarter on a rolling four quarter period commencing as of September 30,2009.  The Partnership may not terminatethe Addendum to the Purchase Contract with Mauna Loa prior to June 30,2010, without the prior written consent of the Lender.  As of December 31, 2009, the Partnershipwas in compliance with this loan agreement.

 

On March 11, 2010,the Partnership executed a commitment letter with American AgCredit, PCA (“Lender”)agreeing to an extension and amendment of the Revolving Line of Credit Facility(“Line-of-Credit”).  The extension of theLOC will be effect June 29, 2010 for a two-year period in the amount of$3.5 million.  The commitment by Lendermay be withdrawn if (i) a condition described in the commitment lettercannot be satisfied, (ii) the Partnership failed to perform any material obligationsunder the commitment letter, (iii) there is filed against the Partnershipor any member thereof, a petition in bankruptcy or insolvency or forreorganization or the appointment of a receiver, trustee or liquidator, (iv) achange that has occurred that has a Material Adverse Effect on the financialcondition of the Partnership, or (v) the macadamia orchards owned by thePartnership have suffered any material damage or destruction and the same isnot restored to the satisfaction of Lender prior to Closing Date, and thatlender has terminated its commitment hereunder by reason thereof.  The Partnership is required to provide yearend and interim financial information, pro-forma financial information, allpublic filings and disclosures evidence of receipt of all necessary governmentapprovals, required certifications and such legal opinions as may be reasonablyrequired by Lender.  The Partnership willbe required to maintain a four quarter EBITDA of not less that $1.5 million forthe four quarters ended June 30, 2010 and thereafter, and to maintain aminimum tangible net worth amount of $41.0 million that shall be increaseddollar for dollar by the amount of positive consolidated net income achieved bythe Partnership, beginning January 1, 2009 and thereafter.  The Partnership believes that it will be ableto satisfy all of the conditions set forth by Lender.  For further information, see Note 7 to theConsolidated Financial Statements of the Partnership.

 

# ***Employees.***  Asof December 31, 2009, the Partnership employed 249 people, of which 170were seasonal employees.  Of the total,21 are in farming supervision and management, 214 in production, maintenanceand agricultural operations, and 14 in accounting and administration.

# *** ***

With the May 2000acquisition, the Partnership agreed to the assumption of two bargainingagreements with the ILWU Local 142. These agreements cover all production, maintenance and agriculturalemployees of the Ka’u Orchard Division, the Keaau Orchard Division and theMauna Kea Orchard Division.  These laborcontracts became effective May 1, 1997 and expired on April 30, 2002,but were extended until April 30, 2005. The parties agreed to a three-year contract, which expired on April 30,2008 and was extended for a 60-day period. On June 30, 2008 the parties agreed to a one-year contract and on May 27,2009 the parties agreed to a two-year contract which is effective May 27,2009 through May 31, 2011. Although, the Partnership believes thatrelations with its employees and the ILWU are generally very good, there is noassurance that the Partnership will be able to extend this agreement on termssatisfactory to it when the current agreement expires.

 

#### ***Item1A.  Risk Factors***

#### *** ***

Before deciding topurchase, hold or sell our units, you should carefully consider the risksdescribed below in addition to the other cautionary statements and risksdescribed elsewhere, and the other information contained, in this Annual Reporton Form 10-K.  The risks anduncertainties described below are not the only ones we face.  Additional risks and uncertainties notpresently known to us or that we currently deem immaterial may also affect ourbusiness.  If any of these known or unknownrisks or uncertainties actually occurs with material adverse effects on thePartnership, our business, financial condition and results of operations couldbe seriously harmed.

 

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As discussedbelow, macadamia nut trees are subject to damage or destruction from diseases,pests, floods, droughts, windstorms, hurricanes, volcanic activity and othernatural causes. Partnership tree replacements for all orchards from all causeswere 0.4% in 2009, 0.1% in 2008, and 0.4% in 2007. Both crop and tree insuranceare in place to help protect the Partnership against significant andcatastrophic losses.

 

***Diseasesand Pests.***  Macadamia trees are susceptible to variousdiseases and pests which can affect the health of the trees and resultant nutproduction.  There are several types offungal diseases, which can affect flower and nut development.  One of these is Phytophthora capsici, whichaffects the macadamia flowers and developing nuts, and another, Botrytiscinerea, causes senescence of the macadamia blossom before pollination iscompleted.  These types of fungal diseaseare generally controllable with fungicides. Historically, these fungi have infested the reproductive plant parts atorchards located in Keaau and Mauna Kea during periods of persistent inclementweather.

 

Tree losses may occur dueto a problem known as “Macadamia Quick Decline” (“MQD”).  Research at the University of Hawaiiindicates that this affliction is due to Phytophthora capsici which isassociated with high moisture and poor drainage conditions.  Both the Keaau and Mauna Kea Orchards areareas with high moisture conditions, and may be more susceptible to the MQDproblem.  Afflicted trees in theseregions are replaced with cultivars that are intolerant to MQD.  The Partnership’s Keaau orchards experiencedtree replacement of 0.9% in 2009, 0.2% in 2008 and 1.1% in 2007.

 

Macadamia trees andproduction may also be affected by insects and other pests.  The Southern Green Stink Bug disfigures themature kernel and contributes to a historical loss of nuts of 1.2%.  Two natural enemies, a wasp and a fly,effectively keep nut losses at acceptable levels.  An insect known as the Koa Seed Worm (“KSW”)causes fully sized nuts to fall that have not completed kerneldevelopment.  The affect of the KSWcontribute to an average loss of nuts of 4.0%. The Tropical Nut Borer Beetle (“TNB”) bores through the mature macadamiashell and feeds on the kernel.  Nutdamage caused by the TNB resulted in about 0.2% loss in 2009.  Damages caused by each insect may fluctuatewhen unfavorable environmental conditions affect the natural enemy population.

 

Natural enemies arerelied upon to manage insects that contribute to nut loss.  Without these natural enemies, greater lossesare possible.  Pesticides may beavailable to manage these economic insect pests when treatment costs and nutloss justify its use, and when its use does not disrupt the natural enemypopulation.

 

Honey bees are placed inthe orchards to supplement other insect pollinators during the flowerseason.  In late 2008, the HawaiiDepartment of Agriculture identified the Varroa mite on feral honey bees nearthe port of Hilo, Hawaii.  This mite isan ectoparasite that attaches to the body of honey bees and weakens it whichcan result in destroying bee hives and colonies.  The apiaries that place hives in themacadamia nut orchards must manage this pest with miticide to maintain healthybee colonies and avoid the development of pest resistance to the miticide.

 

***Rainstormsand Floods. ***The Partnership’s orchards are located inareas on the island of Hawaii that are susceptible to heavy rainstorms.  In November 2000, the Ka’u region wasaffected by flooding.  This floodingresulted in some nut loss and expected 2000 harvesting being deferred to2001.  Since the flood in 2000 heavy rainin the Ka’u region has not produced flooding of any consequence.

 

***Windstorms***. Some of the Partnership’s orchards are located in areas on the island ofHawaii that are susceptible to windstorms. Twenty-five major windstorms have occurred on the island of Hawaii since1961, and four of those caused material losses to Partnership orchards.  Most of the Partnership’s orchards aresurrounded by windbreak trees, which provide limited protection.  Younger trees that have not developedextensive root systems are particularly vulnerable to windstorms.

 

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***Insurance. ***The Partnership obtains tree insurance each year undera federally subsidized program.  The treeinsurance for 2010 provides coverage up to a maximum of approximately $12.3million against catastrophic loss of trees due to wind, fire or volcanicactivity.  Crop insurance was purchasedfor the 2009-2010 crop year and provides coverage up to a maximum ofapproximately $9.3 million against loss of nuts due to wind, fire, volcanicactivity, earthquake, adverse weather, wildlife damage and failure ofirrigation water supplies.

 

***Volcanoes*****.**  ThePartnership’s orchards are located on the island of Hawaii, where there are twoactive volcanoes.  To date, no lava flowsfrom either volcano have affected or threatened the orchards.

 

***Rainfall*****.**  Theproductivity of orchards depends in large part on moisture conditions.  Inadequate rainfall can reduce nut yieldssignificantly, while excessive rain without adequate drainage can foster diseaseand hamper harvesting operations.  Whilerainfall at the orchards located in the Keaau and Mauna Kea areas has generallybeen adequate, the orchards located in the Ka’u area generally receive lessrainfall and, as a result, a portion of the Ka’u orchards is presentlyirrigated.  Irrigation can mitigate theeffects of a drought, but it cannot completely protect a macadamia nut cropfrom the effect of a drought.  Recordedrainfall at each of the three locations of the Partnership’s orchards for thepast five years is shown below:

 
| **Year** | ** ** | **Ka’u** | ** ** | **Keaau**   | ** ** | **Mauna Kea** |
|----------|------------|---------------|------------|-------------|------------|---------------|
| 2005     |       | 34.7”    |       | 133.8” |       | 171.8”   |
| 2006     |       | 70.9”    |       | 138.7” |       | 178.3”   |
| 2007     |       | 37.8”    |       | 126.7” |       | 158.3”   |
| 2008     |       | 44.7”    |       | 136.2” |       | 125.4”   |
| 2009     |       | 43.0”    |       | 132.8” |       | 147.0”   |

 

During 2009, the Ka’u, Keaau and Mauna Kea areas recorded100%, 110% and 120%, respectively, of the normal average annual rainfall intheir area of the island.

 

***Water Supply for Irrigation***. With the May 2000 acquisition of the farming business, thePartnership acquired an irrigation well (the “Sisal Well”), which supplieswater to the Partnership’s orchards in Ka’u which were purchased in June 1986and 1989.  The Sisal Well is situated onland owned by Mauna Kea Agribusiness Company, Inc. (“MKACI”).  On May 1, 2000, the Partnership enteredinto a license agreement with MKACI, which allows the Partnership necessaryaccess to maintain and operate the Sisal Well, as well as the use of roads toaccess, maintain and operate the Partnership’s macadamia orchards.  Annual rent for the license agreement is OneDollar.  The license agreement terminateson the earlier of the termination of the May 1, 2000 lease betweenPartnership and KACI, or June 30, 2045.

 

Prior to the May 2000 acquisition, thePartnership and KACI were parties to a water agreement to which KACI agreed tosupply water to those portions of the June 1986 Orchards and October 1986Orchards located at Ka’u and which had been irrigated historically.

 

If the amount of water provided by the Sisal Wellbecomes insufficient to irrigate the above named orchards, the Partnership mayconsider increasing the capacity of the Sisal Well, drilling an alternativewell into the historical source which provides water to the Sisal Well orobtaining water from other sources.

 

On a historicalbasis, the quantity of water available from the Sisal Well has been generallysufficient to irrigate these orchards in accordance with prudent farmingpractices.  The irrigated portion of theKa’u II Orchards is expected to need greater quantities of water as theorchards mature.  The Partnershipanticipates that the amount of water available from the Sisal well will begenerally sufficient, assuming average levels of rainfall, to irrigate theirrigated orchards in accordance with prudent farming practices for the nextseveral years.  If no irrigation water isavailable to the Irrigated Orchards, then, based on historical average rainfalllevels, diminished yields of macadamia nut production can be expected.

 

9

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***Employees.*** Our farming operations require a large number of workers, many on aseasonal basis.  The labor market on theisland of Hawaii is very competitive and most of our employees are unionizedunder contracts which expire in May 2011. In previous years, we have obtained the services of foreign workers,which we have not continued.  In theevent that we are not able to obtain and retain both permanent and seasonalworkers to conduct our farming operations, or in the event that we are not ableto maintain satisfactory relationships with our unionized workers, ourfinancial results could be negatively impacted.

 

***KeyPersonnel*****. **Certain key personnel are critical to ourbusiness.  Our future operating resultsdepend substantially upon the continued service of our key personnel.  Our future operating results also depend insignificant part upon our ability to attract and retain qualified management,technical and support personnel.  Wecannot ensure success in attracting or retaining qualified personnel.  There may be only a limited number of personswith the requisite skills and relevant industry experience to serve in thosepositions and it may become increasingly difficult for us to hire personnelover time.  Our business, financialcondition and results of operations could be materially adversely affected bythe loss of any of our key employees, by the failure of any key employee toperform in his or her current position, or by our inability to attract andretain skilled employees.

 

***Environmental.*** Various federal, state, and local environmental laws, ordinances andregulations regulate our properties and our farming operations and could makeus liable for costs of removing or cleaning up hazardous or toxic substanceson, under, or in property that we currently own, lease or that we previouslyowned or leased or upon which we currently or previously conducted farmingoperations.  These laws could imposeliabilities without regard to whether we knew of, or were responsible for, thepresence of hazardous or toxic substances. The presence of hazardous or toxic substances, or the failure toproperly clean up such substances when present, could jeopardize our ability touse or sell certain real property, use it as collateral or result in fines orclean up costs.  Future environmentallaws could impact our farming operations or increase our cost of goods.

 

***Marketand customers******.***** **A decline in worldwidemacadamia nut prices may adversely affect the price the Partnership may be ableto obtain under future nut purchase contracts. There are a limited number of customers available to purchase thePartnership’s nut production.  As of December 22,2009, the Partnership has one nut purchase contract calling for the purchase ofall of its production, approximately 19 to 21 million wet-in-shell pounds duringcalendar years 2010 and 2011.  If thePartnership’s customer is unable to perform under the contract or if theirpurchase of product should change from Hawaii-based to foreign sourced kernel,it would have a material adverse impact on our business as there are virtuallyno replacement customers for the Partnership’s production.  As the Partnership has a sole customer forall of its production, that customer has the ability to negatively impact thefinancial condition of the Partnership if it did not pay or negotiate anextension or new contract at the termination of the current contract.  From the Partnership’s inception in 1986through 2006 Mauna Loa was the Partnership’s sole customer.   The nut purchase contract requires the buyer to makenut payments in accordance with Hershey’s standard payment terms.  During certain parts of the year, if paymentsare not received, as the contract require, available cash resources could bedepleted.

 

***NutPurchase Agreements.***  The Partnership had threecontracts in 2009.  The terms of thecontracts varied from two to six years, contained fixed and market determinedprices and 30-day payment terms.  ThePartnership relies upon the financial ability of the buyers of the Partnership’snuts to abide by the payment terms of the nut purchase agreements.  If any or all of the buyers were unable topay for the macadamia nuts delivered by the Partnership to them it could resultin the Partnership’s available cash resources being depleted.  If any or all buyers were late in payment thePartnership would stop the delivery of macadamia nuts to the buyer.  The Partnership would need to negotiate a nutpurchase agreement with another buyer which might not be at the same terms orprice.  It is also possible that thePartnership might not be able to find a buyer for the nuts.

 

10

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In2008 and 2009 Hamakua refused to accept delivery of macadamia nuts from thePartnership as required by the nut purchase agreement. The Hamakua nut purchasecontract was terminated in connection with the settlement of litigation broughtby the Partnership against Hamakua which resulted in the Partnership receivinga settlement payment of $324,000 in the first quarter of 2009.  The nut purchase agreement was terminated on June 10,2009.

 

ThePartnership terminated its nut purchase contract with MacFarms on December 22,2009 due to the failure of MacFarms to perform its obligations under theAgreement.

 

OnJuly 9, 2008, the Partnership and Mauna Loa agreed to an addendum to theirnut purchase agreement where Mauna Loa agreed to purchase an additional 9.0million to 12.0 million field pounds of macadamia nuts during the period July 21,2008 through June 30, 2009.  ThePartnership and Mauna Loa agreed to an addendum to their nut purchase agreementwhere Mauna Loa agreed to purchase an additional 9.0 to 15.0 million fieldpounds of macadamia nuts during the period July 1, 2009 through June 30,2010.  On December 22, 2009 thePartnership and Mauna Loa executed an addendum to the June 1, 2006 nutpurchase contract which provides that all of the macadamia nuts harvested bythe Partnership, estimated to be between 19 to 21 million wet-in-shell pounds,in 2010 and 2011 will be sold to Mauna Loa.

 

As of December 31,2009 the Partnership had only one nut purchase contract under which it willsell it’s entire production for the calendar years 2010 and 2011.  The agreement is a fixed price contract.  Fixed price contracts can be disadvantageousbecause the Partnership may not be able to pass on unexpected cost increases asthey arise but, they provide protection against adverse decline in marketprices.

 

The Partnership’sability to renew its credit agreements is highly dependent upon the existenceof its nut purchase agreements with Mauna Loa. Accordingly, the cancellation of the nut purchase agreement with MaunaLoa in the future would significantly affect the Partnership’s ability tosecure the necessary funds to finance its current working capital needs.

 

***LoanAgreement Restrictions.***  ThePartnership relies on external loan financing, currently being provided by aCredit Agreement with American Ag Credit Capital Markets through a revolvingline of credit and a term note.  Thisloan contains various terms and conditions, including financial ratios,covenants and is secured by all of the real personal property of thePartnership and fee property assets.  Theterm loan was scheduled to mature in May 2010; however, the Partnershippaid off the loan on January 15, 2010. The revolving line of credit matures on June 29, 2010.  This Credit Agreement prohibits distributionsto partners without prior consent of the lender.  On multiple occasions during the last severalyears, the Partnership has failed to comply with various covenants or financialratios under its loan agreements, but has been able to obtain waivers ormodifications of the agreement to avoid a default.  If the Partnership is unable to meet theterms and conditions of its lending arrangements or is unable to obtain waiversor modifications of such lending arrangements, it could be in default of itsloan agreements and in which event the lenders would be able to accelerate theobligations and realize on the collateral securing the indebtedness.  There is no assurance that the Partnershipwill be able to comply with or obtain waivers of covenants and conditions inthe future.  Furthermore, Partners willnot receive distributions while they are prohibited by the Partnership’sborrowing arrangements unless approved by the lender.

 

***Significantinfluence over our affairs may be exercised by principal Class “A” unitholders. ***As of March 11, 2010, thesignificant Class “A” unit holders are Fred and Mary Wilkie Ebrahimi(approximately 38.5% beneficial ownership). Effective October 1, 2009 Bradford C. Nelson was elected as adirector of the Partnership.  Mr. Nelsonhas been Chief Financial Officer of Seemorgh Investments, Inc., a companyowned by Mr. Fred Ebrahimi, since January 2007 and has served as anofficer and director of a group of companies in the United States of American,Europe and Asia owned by the Ebrahimi family since 2002.

 

11

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***Holdersof Class “A” units of the Partnership have limited voting rights.*** Our unit holders have limited voting rights on matter affecting thePartnership’s business, which may have a negative effect on the price at whichthe Partnership’s units trade.  Inparticular, the unit holders did not elect the directors of the generalpartner.  Furthermore, if unit holdersare not satisfied with the performance of the directors they may find itdifficult to remove any or all of the directors as the Partnership Agreementrequires a vote of at least 66 2/3% of the outstanding units to remove theGeneral Partner.

 

***Taxrisks to Class “A” unit holders.***  Theanticipated after-tax benefit of an investment in the Partnership’s unitsdepends largely on the treatment of the Partnership as a partnership forfederal income tax purposes, as well as the Partnership not being subject to amaterial amount of entity-level taxation by individual states.  If the Partnership were to be treated as acorporation for federal income tax purposes or become subject to additionalamounts of entity-level taxation for state tax purposes, then the Partnership’scash available for distribution to unit holders could materially decline.

 

The tax liabilityof unit holders could exceed their distributions or proceeds from sales of Class “A”units.  Because the unit holders willgenerally be treated as partners to whom the Partnership will allocate taxableincome, which can differ in amount than the cash distributed, the unit holderswill be required to pay any federal income tax and, in some cases, state andlocal income taxes on their allocable share of the Partnership’s income.

 

Tax gain or losson the disposition of the Partnership’s Class “A” units could be more orless than expected.  If a unit holderdisposes of his units, the unit holder will recognize a gain or loss equal tothe difference between the amount realized and the unit holder’s taxbasis.  Because distributions in excessof a unit holder’s allocable share of the Partnership’s net taxable incomedecrease the unit holder’s tax basis in the unit holder’s units, the amount, ifany, of such prior excess distributions with respect to the units sold will, ineffect, become taxable income, if the units sold are at a price greater thanthe unit holder’s tax basis, even if the price received is less than the unitholder’s original cost.

 

As a result ofinvesting in the Partnership’s Class “A” units, a unit holder may becomesubject to state and local taxes and return filing requirements in the stateswhere the Partnership owns property and conducts business.

 

Ownership of thePartnership’s Class “A” units raises issues for tax-exempt entities andother investors.

 

**Item1B.  Unresolved staff comments. **None

 

**AvailableInformation. **The Partnership files annual, quarterlyand current reports and other information with the Commission.  These filings are available free of chargethrough the Partnership’s Internet website at www.mlmacadamia.com as soon asreasonably practicable after the Partnership electronically files such materialwith, or furnishes it to, the Commission. The Partnership’s corporate governance guidelines, board committeecharters and code of conduct are also available on the website, free ofcharge.  Any unit holder, who so requestsmay obtain a printed copy of these documents from the Partnership, bycontacting the Partnership at 808-969-8057, or in writing at 26-238 Hawaii BeltRoad, Hilo, Hawaii 96720.

 

**ITEM2.  PROPERTIES**

 

***Location.*** The Partnership owns or leases approximately 4,190 tree acres ofmacadamia orchards on the island of Hawaii. The orchards are located in three areas: Ka’u, Keaau and Mauna Kea.  The Ka’u area is located in the south part ofthe island about fifty miles from Hilo. The Keaau area is located six miles south of Hilo on the east side ofthe island, and the Mauna Kea area is located three miles north of Hilo on theeast side of the island.

 

12

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The majority ofmacadamia nut trees grown in the State of Hawaii are grown on the island ofHawaii in volcanic soil that permits drainage during heavy rainfall.  While the orchards are located approximatelywithin a 50-mile radius, the climate and other conditions that affect thegrowing of macadamia nuts are different. These differences are the result of prevailing wind patterns and islandtopography, which produce a variety of microclimates throughout the island.

 

***Ageand Density*****.**  The productivity of macadamia nut orchardsdepends on several factors including, among others, the age of the trees, thenumber of trees planted per acre, soil condition, climate, rainfall and/orirrigation.  Assuming adequate moisture,the most significant characteristic affecting yields is maturity.  The trees in a macadamia nut orchardgenerally begin to produce nuts at a commercially acceptable level at aroundnine years of age.  Thereafter, nutyields increase gradually until the trees reach maturity at approximately 15years of age, after which the nut yield remains relatively constant except forvariances produced by rainfall, cultivation practices, pest infestation anddisease.

 

Macadamia orchards normally reach peak production after fifteento eighteen years of age.  All of the4,190 tree acres of macadamia orchards owned or leased by the Partnership areover twenty years of age.  Up to 2% oftrees are lost to various causes each year and are replaced as determined bymanagement.

 

***Rainfall*****.**  Macadamia trees grow best in climates withsubstantial and evenly distributed rainfall (or equivalent irrigation) and insoil that provides good drainage. Inadequate rainfall can significantly reduce nut yields, while excessiverain without adequate drainage can impede healthy tree growth, promote thegrowth of harmful fungal diseases and produce mud holes that require repair ofthe orchard floor.

 

At Keaau, normal rainfall is adequate without irrigation, and thevolcanic soil provides good drainage. However, short droughts and occasional flooding have occurred.  At Mauna Kea, normal rainfall is adequatewithout irrigation and the volcanic soil provides adequate drainage.  In the event of a very long drought,production at Keaau and Mauna Kea might be affected.  At Ka’u, located on the drier side of theisland, the rainfall averages are substantially less than at Keaau,particularly at the lower elevations. Approximately 652 acres at the lower elevations of Ka’u are irrigated toprovide for additional water when required. Under extremely dry conditions at Ka’u, such as a prolonged drought,irrigation is not sufficient, and production will be adversely affected.

 

13

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***Orchards. ***The following table lists each of the orchards, theyear acquired, tree acres, tenure, and lease rents:

 
| ** **             | ** ** | ** **      | ** ** | **Tree**  | ** ** | ** **       | ** ** | **Lease**      | ** ** | **Min. Rent** | ** ** |
|------------------------|------------|-----------------|------------|-----------|------------|------------------|------------|----------------|------------|---------------|------------|
| **Orchard**            | ** ** | **Acquired**    | ** ** | **Acres** | ** ** | **Tenure**       | ** ** | **Expiration** | ** ** | **per Annum** | ** ** |
|                   |       |            |       |      |       |             |       |           |       |          |       |
| Keaau I                |       | June 1986  |       | 1,467     |       | Fee simple       |       |           |       |          |       |
| Ka’u I            |       | June 1986  |       | 456       |       | Fee simple       |       |           |       |          |       |
| "                 |       | June 1986  |       | 500       |       | Leasehold (1)(4) |       | 2019           |       | $             | 25,000     |   |
| Ka’u Green Shoe I |       | Dec. 1986  |       | 266       |       | Leasehold (1)(5) |       | 2019           |       | $             | 5,586      |   |
| Keaau II               |       | Oct. 1989  |       | 220       |       | Fee simple       |       |           |       |          |       |
| Ka’u II           |       | Oct. 1989  |       | 327       |       | Leasehold (2)(6) |       | 2034           |       | $             | 24,945     |   |
| "                 |       | Oct. 1989  |       | 175       |       | Leasehold (1)(7) |       | 2028           |       | $             | 17,314     |   |
| "                 |       | Oct. 1989  |       | 26        |       | Leasehold (3)(7) |       | 2029           |       | $             | 2,915      |   |
| "                 |       | Oct. 1989  |       | 186       |       | Leasehold (1)(7) |       | 2031           |       | $             | 18,585     |   |
| Mauna Kea              |       | Oct. 1989  |       | 326       |       | Leasehold (2)(6) |       | 2034           |       | $             | 24,453     |   |
| Keaau Lot 10           |       | Sept. 1991      |       | 78        |       | Fee simple       |       |           |       |          |       |
| Ka’u O            |       | May 2000   |       | 142       |       | Leasehold (1)(8) |       | 2045           |       | $             | 10,224     |   |
| Ka’u 715/716      |       | April 2006 |       | 21        |       | Fee Simple       |       |           |       |          |       |
| Total acres            |       |            |       | 4,190     |       |             |       |           |       |          |       |

 

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(1)   Lease of land only; trees may be removed attermination of lease.

(2)   Lease of land only; lessor may purchase trees fromlessee at any time after June 30, 2019 for fair market value.  The minimum lease payments will be adjustedto a fair market lease rate in 2019 and 2029. At the end of the lease term, the lessor will be required to repurchasethe trees at fair market value if they do not offer to extend the leases at thethen current fair market lease rate.  Ifthe Partnership does not accept the offer to extend the lease, the lease willexpire and the lessor will not be required to repurchase the trees which willthen revert to them.  In allcircumstances, the ownership of trees will revert to the lessor after 99 years.

(3)   Lease of land; trees revert to lessor upon terminationof lease.

(4)   Additional rental payment if USDA farm price for nutsis greater than $0.50 per pound ($521 for each $0.01)

(5)   Additional rental payment if USDA farm price for nutsis greater than $0.20 per pound ($291 for each $0.01)

(6)   Additional rental payment if USDA farm price for nutsis greater than $0.65 per pound ($376 for each $0.01)

(7)   Additional rental payment if USDA farm price for nutsis greater than $0.70 per pound ($30 to $265 for each $0.01)

(8)   Additional rental payment if USDA farm price for nutsis greater than $0.72 per pound ($265 for each $0.01)

 

In addition to the minimum annual lease payment amount, all the leasesrequire the Partnership to pay various expenses with respect to the leasedpremises as well as an additional rental payment based on the USDA farm priceper pound of macadamia nuts sold in Hawaii.

 

With respect to the Ka’u Green Shoe I Orchard, the lease requires thePartnership to pay the Olson Trust, the seller and lessor, additional rentequal to 100% of any year’s cash flow generated by such orchard in excess of atarget level of $507,000 until the aggregate amount paid equals 150% of theaggregate amount of the stabilization payments previously received by thePartnership.  Thereafter, the Partnershipis required, with respect to any year prior to the expiration of the lease, topay as additional rent, 50% of the cash flow generated by such orchard for suchyear in excess of a target level of $507,000 of cash flow.  For additional information, see “StabilizationPayments” on page 6.

 

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**ITEM3.  LEGAL PROCEEDINGS AND SETTLEMENT**

 

Certain claimshave been filed against the Partnership arising out of our businessactions.  In the opinion of managementsuch claims would not have a material adverse effect upon our results ofoperations or financial position.

 

**ITEM4.  SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

No matters weresubmitted during the fourth quarter of the fiscal year covered by this reportto a vote of security holders.

 

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**PART II**

 

**ITEM5.  MARKET FOR REGISTRANT’S CLASS AUNITS AND RELATED UNITHOLDER MATTERS**

 

The Partnership’s Class ADepositary Units are listed for trading on the OTC (symbol = NNUT).  There were 3,616 registered holders of Class ADepositary Units on December 31, 2009.

 

Distributionsdeclared and high and low sales prices of the Class A Depositary Units,based on New York Stock Exchange (“NYSE”) daily composite transactions through November 24,2008, are shown.  Distributions declaredand high and low bid prices on the OTC on and after November 25, 2008, areshown in the table below:

 
| ** ** | ** ** | ** **        | ** ** | **Distribution** | ** ** | **High** | ** ** | **Low** | ** ** |
|------------|------------|-------------------|------------|------------------|------------|----------|------------|---------|------------|
|       |       |              |       |             |       |     |       |    |       |
| **2009**:  |       | 4th Quarter       |       | $                | 0.000      |     | 2.50       |    | 2.05       |   |
|       |       | 3rd Quarter       |       | 0.000            |       | 2.50     |       | 2.00    |       |
|       |       | 2nd Quarter       |       | 0.000            |       | 2.50     |       | 1.71    |       |
|       |       | 1st Quarter       |       | 0.000            |       | 2.49     |       | 1.65    |       |
|       |       |              |       |             |       |     |       |    |       |
| **2008**:  |       | 4th Quarter (OTC) |       | $                | 0.000      |     | 2.48       |    | 1.55       |   |
|       |       | 4th Quarter  |       | $                | 0.000      |     | 3.38       |    | 1.78       |   |
|       |       | 3rd Quarter       |       | 0.000            |       | 3.89     |       | 3.31    |       |
|       |       | 2nd Quarter       |       | 0.000            |       | 4.37     |       | 3.20    |       |
|       |       | 1st Quarter       |       | 0.000            |       | 3.90     |       | 3.16    |       |

 

The bid quotationson the over-the-counter market reflect inter-dealer prices, without retailmark-up, mark-down or commission and may not necessarily represent actualtransactions.

 

**Stock Performance Chart**

 

The following chart compares the Partnership’s total return to (i) theRussell 2000 (a small business index) and (ii) a peer group index composedof publicly traded limited partnerships with either similar capitalization orin commodity based markets (other than gas and oil) or both.

 

**COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN***

Among ML Macadamia Orchards, LP., The Russell 2000 Index

And A Peer Group

 

 

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* $100 invested on 12/31/04 in stock or index, including reinvestmentof dividends. Fiscal year ending December 31.

 

The peer group index is composed of the following issuers Cedar FairLP, Plum Creek Timber Company, Pope Resources Depositary Receipts of LimitedPartner Units, and Terra Nitrogen Company LP.

 

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**Restrictions on Cash Distributions**

 

Cash distributions to partners are prohibitedunder the Partnership’s Credit Agreement with American AgCredit CapitalMarkets, unless approved by the lender.

 

**ITEM 6. SELECTED FINANCIAL DATA**

 

(In thousands,except per pound and per unit data)

 
| ** **                                                 | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Financial:                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Total revenue                                              |       | $        | 16,418     |     | $          | 17,536   |       | $        | 11,330     |     | $          | 17,072 |   | $ | 17,378 |   |
| Net cash provided (used) by operating activities (1)       |       | 2,553    |       | 2,774    |       | (3,942   | )          | 8,241    |       | 1,913    |       |
| Income (loss) before taxes                                 |       | 257      |       | 117      |       | (4,008   | )          | 904      |       | 900      |       |
| Net income (loss)                                          |       | 195      |       | 68       |       | (3,965   | )          | 804      |       | 771      |       |
| Distributions declared                                     |       | —   |       | —   |       | 1,350    |       | 1,500    |       | 1,500    |       |
| Total working capital                                      |       | 2,568    |       | 1,065    |       | (199     | )          | 3,882    |       | 3,429    |       |
| Total assets                                               |       | 47,131   |       | 47,647   |       | 50,788   |       | 53,963   |       | 58,046   |       |
| Long-term debt, non current                                |       | 375      |       | 400      |       | 800      |       | 1,200    |       | 1,600    |       |
| Total partners’ capital                               |       | 43,526   |       | 43,179   |       | 43,312   |       | 48,623   |       | 49,389   |       |
| Class A limited partners’ capital                |       | 43,560   |       | 43,365   |       | 43,297   |       | 48,612   |       | 49,308   |       |
| Net cash flow as defined in the partnership agreement  (2) |       | 1,679    |       | 1,618    |       | (2,437   | )          | 2,323    |       | 2,501    |       |
|                                                       |       |     |       |     |       |     |       |     |       |     |       |
| Per Class A Unit (3):                                 |       |     |       |     |       |     |       |     |       |     |       |
| Net income (loss)                                          |       | 0.03     |       | 0.01     |       | (0.53    | )          | 0.11     |       | 0.10     |       |
| Net cash flow as defined in the partnership agreement  (2) |       | 0.22     |       | 0.22     |       | (0.32    | )          | 0.31     |       | 0.33     |       |
| Distributions                                              |       | 0.00     |       | 0.00     |       | 0.18     |       | 0.20     |       | 0.20     |       |
| Partners’ capital                                     |       | 5.81     |       | 5.78     |       | 5.77     |       | 6.48     |       | 6.57     |       |
|                                                            |            |          |            |          |            |          |            |          |            |          |            |  |  |  |  |  |

 

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(1)          See “Statements of Cash Flows” in the consolidatedfinancial statements for method of calculation.

(2)          See Footnote 5 in the notes to consolidated financialstatements for method of calculation.

(3)          7,500,000 Class A Units were authorized, issuedand outstanding for all periods presented.

 

In 2007, the Partnership was unable to sell all of its production whichmaterially affects the comparability of the financial data for 2007 with theother years as set forth in the table above. Refer to Item 7. Management’s Discussion and Analysis of the FinancialCondition and Results of Operations, Owned-Orchard Segment — Nut Revenue ,andOwned-Orchard Segment — Cost of Goods Sold.

 

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Contractual obligationsas of December 31, 2009 for the Partnership are detailed in the following:

 

Payments Due by Period

 
| **Contractual  obligations** | ** ** | **Total** | ** ** | **Less Than 1 Year** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **More Than 5  Years** | ** ** |
|------------------------------|------------|-----------|------------|----------------------|------------|---------------|------------|---------------|------------|------------------------|------------|
| Long-term  debt and interest |       | $         | 1,002,000  |                 | $          | 576,000       |       | $             | 336,000    |                   | $          | 90,000 |   | $ | — |   |
| Operating  leases            |       | 2,757,000 |       | 165,000              |       | 270,000       |       | 258,000       |       | 2,064,000              |       |
| Total                        |       | $         | 3,759,000  |                 | $          | 741,000       |       | $             | 606,000    |                   | $          | 348,000 |   | $ | 2,064,000 |   |

 
| **ITEM 7.** | **MANAGEMENT’S DISCUSSION AND  ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|-------------------------------------------------------------------------------------------------|

 

This discussion should beread in conjunction with the consolidated financial statements and the relatednotes included elsewhere in this report.

 

# ***Results of operations — 2009, 2008and 2007***

 

## ***Owned-Orchard Segment - Production and Yields***

 

Production and yield data for the nine orchards are summarized below(expressed in field pounds):

 
| ** **                                | ** ** | ** **      | ** ** | ** **  | ** ** | **2009**       | ** ** | **Average Yield per Acre** | ** ** |
|-------------------------------------------|------------|-----------------|------------|-------------|------------|----------------|------------|----------------------------|------------|
| **Orchard**                               | ** ** | **Acquired**    | ** ** | **Acreage** | ** ** | **Production** | ** ** | **2009**                   | ** ** | **2008** | ** ** | **2007** | ** ** |
| Keaau I                                   |       | June 1986  |       | 1,467       |       | 5,864,255      |       | 3,997                      |       | 3,957 |   | 3,619 |   |
| Keaau II                                  |       | Oct. 1989  |       | 220         |       | 456,877        |       | 2,077                      |       | 2,652 |   | 2,611 |   |
| Keaau Lot 10                              |       | Sept. 1991      |       | 78          |       | 167,938        |       | 2,153                      |       | 2,820 |   | 2,489 |   |
| Ka’u I                               |       | June 1986  |       | 956         |       | 6,374,907      |       | 6,668                      |       | 7,085 |   | 5,716 |   |
| Ka’u Green Shoe I                    |       | Dec. 1986  |       | 266         |       | 1,682,820      |       | 6,326                      |       | 5,775 |   | 7,149 |   |
| Ka’u II                              |       | Oct. 1989  |       | 714         |       | 4,243,390      |       | 5,943                      |       | 5,747 |   | 5,831 |   |
| Ka’u O                               |       | May 2000   |       | 142         |       | 724,209        |       | 5,100                      |       | 6,774 |   | 5,687 |   |
| Ka’u 715/716                         |       | April 2006 |       | 21          |       | 120,535        |       | 5,740                      |       | 5,045 |   | 6,145 |   |
| Mauna Kea                                 |       | Oct. 1989  |       | 326         |       | 1,013,182      |       | 3,108                      |       | 4,892 |   | 4,142 |   |
| Totals (except yields which are averages) |       |            |       | 4,190       |       | 20,648,113     |       | 4,928                      |       | 5,175 |   | 4,748 |   |

 

The Partnership reportson a calendar year basis, though the natural crop year generally begins in August andruns through April.

 

Production in 2009 was4.8% lower than 2008 and 3.8% higher than 2007. Production in 2008 was 8.8% higher than 2007 and 2% higher than 2006.Significant factors affecting the crop were as follows:

 

1.  Adequate rainfall during the spring andsummer of 2006 provided for a return to normal production in the spring of2007.  Good rainfall distribution betweenOctober 2006 and April 2007 had a positive effect on the fall 2007nut production.

 

2.  Adequate moisture distributed in the summerand fall of 2007 supported the late nut-sets in June and July of 2007that lead to a normal spring 2008 production. Cool night temperatures in the fall of 2007 stimulated early flower andnut-set development that continued through mid-summer 2008.  This event was supported by equally goodrainfall distribution, soil moisture and nut production.

 

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3.  An extended flowering period in the latespring and early summer of 2006 contributed to above average production in thespring of 2007 at Keaau.  Flowers thatnormally bloom in mid-to-late December did not develop until early February 2007.  This late development had a negative impacton the fall 2007 nut production and affected the production in the spring2008.  This late flower development andnut-set contributed to above normal production in spring 2008.  Heavy rains from late January to mid-February 2008affected flower pollination and nut-set. This combined with a flower season that ended early in April 2008contributed to lower than expected nut production in the fall of 2008.

 

4.  Nut delivery limitations by Hamakua, whichwas under agreement to contract process nut production into roasted kernels forthe Partnership, contributed to reduced harvesting activity and lower thanexpected nut production in the fall of 2007.

 

5.  The abbreviated flower season in 2008substantially reduced nut production in spring 2009.  Inclement weather at Keaau in February 2009to April 2009 contributed to poor pollination and nut-set that resulted ina fall of 2009 production that was 4% less than the fall of 2008 production,and is expected to impact the spring 2010 nut production.

 

The Ka’u Green Shoe Iorchard and the Mauna Kea orchard are fully mature.  As a result, the yields from these orchardsare expected to produce on average with the Partnership’s mature orchards.  At full maturity under favorable growing conditions,a macadamia orchard can produce between 4,500 and 7,500 WIS pounds of macadamianuts per acre each year at Ka’u and between 2,500 and 6,000 WIS pounds ofmacadamia nuts per acre each year at Keaau and Mauna Kea.

*** ***

***Owned-OrchardSegment - Nut Revenue***

 

Macadamia nut revenuesdepend on the number of producing acres, yield per acre and the nut purchaseprice.  The following table presents thecomparison of revenues for the years ended December 31, 2009, 2008 and2007 (in 000’s except per pound information):

 

Macadamia NutSales For the year

Ended December 31,2009, 2008 and 2007

 
| ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2009-2008** | ** ** | **2008-2007** | ** ** |
|---------------------------------|------------|------------|------------|------------|------------|------------|------------|---------------|------------|---------------|------------|
| ** **                      | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **Change**    | ** ** | **Change**    | ** ** |
| Field pounds delivered          |       | 20,648     |       | 21,684     |       | 19,894     |       | - 5           | %          | + 9           | %          |
| Pounds contract processed       |       | —     |       | —     |       | (5,584     | )          | —        |       | —        |       |
| Contract adjustments            |       | (2,750     | )          | (3,612     | )          | (3,166     | )          | - 24          | %          | + 14          | %          |
| WIS @ 20% SK/DIS @ 30%          |       |       |       |       |       |       |       |          |       |          |       |
| Contract pounds sold            |       | 17,898     |       | 18,072     |       | 11,144     |       | - 1           | %          | + 62          | %          |
| Average nut price ($/per pound) |       | $          | 0.6687     |       | $          | 0.6310     |       | $             | 0.6251     |          | + 6        | % | + 1 | % |
| Net nut sales                   |       | $          | 11,968     |       | $          | 11,404     |       | $             | 6,966      |          | + 5        | % | + 64 | % |
| Prior year nut price adjustment |       | —     |       | —     |       | 8          |       |          |       |          |       |
| Kernel sales                    |       | 199        |       | 2,011      |       | 577        |       | - 90          | %          | + 249         | %          |
| Total nut sales                 |       | $          | 12,167     |       | $          | 13,415     |       | $             | 7,551      |          | - 9        | % | + 78 | % |

 

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The information in the foregoing chart for 2007 is notdirectly comparable in all circumstances to the information for 2008 and2009.  To prevent its unsold productionfrom deteriorating, in 2007, the Partnership engaged a processor to processapproximately 5,584,000 pounds of nuts so that these nuts could be maintainedin inventory by the Partnership for subsequent sale.  In 2008, approximately $2,000,000 of thesenuts were sold.  Thus, although theproduction of field pounds in 2007 was only approximately 9% less than 2008,this event significantly reduced total nut sales in 2007 and increased thetotal nut sales in 2008.  In previousyears, the Partnership sold all of its nuts to processors in the year in whichthey were produced.  Approximately453,000 pounds of kernel inventory were sold in 2008 compared to 116,000 poundsin 2007.  In 2009, approximately 72,500pounds of kernel inventory were sold and approximately 52,000 pounds of kernelinventory were determined to be unsalable and were written off.

*** ***

***Owned-Orchard Segment - Cost ofGoods Sold***

 

Agricultural unitcosts depend on the operating expenses required to maintain the orchards and toharvest the crop as well as on the quantity of nuts actually harvested.

 

The Partnership’s unit costs (expressed in dollars per WIS SK/DISpound) are calculated by dividing all agricultural costs for each orchard(including lease rent, property tax, tree insurance and depreciation) by thenumber of pounds of macadamia nuts produced by that orchard and are summarizedbelow ($/lb.):

 
| ** **             | ** ** | ** **      | ** ** | **Cost per pound** | ** ** |
|------------------------|------------|-----------------|------------|--------------------|------------|
| **Orchard**            | ** ** | **Acquired**    | ** ** | **2009**           | ** ** | **2008** | ** ** | **2007** | ** ** |
| Keaau I                |       | June 1986  |       | 0.6957             |       | 0.6550 |   | 0.8416 |   |
| Keaau II               |       | Oct. 1989  |       | 1.2049             |       | 0.8879 |   | 1.0148 |   |
| Keaau Lot 10           |       | Sept. 1991      |       | 0.9134             |       | 0.6026 |   | 0.7349 |   |
| Ka’u I            |       | June 1986  |       | 0.5306             |       | 0.5437 |   | 0.7434 |   |
| Ka’u Green Shoe I |       | Dec. 1986  |       | 0.4209             |       | 0.3946 |   | 0.4006 |   |
| Ka’u II           |       | Oct. 1989  |       | 0.4513             |       | 0.4625 |   | 0.4973 |   |
| Ka’u O            |       | May 2000   |       | 0.4647             |       | 0.4170 |   | 0.4856 |   |
| Ka’u 715/716      |       | April 2006 |       | 0.3344             |       | 0.3110 |   | 0.3170 |   |
| Mauna Kea              |       | Oct. 1989  |       | 1.0124             |       | 0.7156 |   | 0.8660 |   |
|                   |       |            |       |               |       |   |   |   |   |
| All Orchards           |       |            |       | 0.5836             |       | 0.5610 |   | 0.6847 |   |

 

Cost of goods sold was $159,000 lower in 2009 than 2008. Cost of goodssold was $1.4 million higher in 2008 than 2007 and cost of goods sold was $1.6million lower in 2007 than 2006.  Thecost per pound in 2009 was 4.0% higher than 2008. The cost per pound in 2008was 18.0% lower than 2007, and the cost per pound in 2007 was 10.8% higher than2006. The lower cost of goods sold in 2009 compared to 2008 is the result oflower production and no nut-in-shell cost of sale in 2009.  The higher cost of goods sold in 2008 ascompared to 2007 are primarily the result of the Partnership selling all of the2008 production compared to 2007 when 5.9 million field pounds were processedinto kernel; the increase in production by 1.8 million field pounds and the$104,000 write off of tree inventory in 2008 compared to no tree inventorywrite off in 2007. The lower cost of goods sold in 2007 was not indicative ofthe actual production costs as 5.9 million field pounds were processed into kernelthat was sold or inventoried by the Partnership as nut-in-shell.  The kernel and nut-in-shell were included asinventory at December 31, 2007. Additionally, 1.3 million fewer field pounds were produced in 2007compared to 2006.  The absolute farmingcosts for 2007 were $294,000 lower (not including the additional cost ofprocessing related to kernel production from WIS nuts) when compared to 2006which was a result of lower cultivation, harvesting, rent and depreciationoffset by higher crop and tree insurance costs. The lower cost per pound in 2008 is a result of higher production andhigher recovery under the terms of the nut purchase agreements.  The lower cost of goods in 2007 is a resultfewer sold macadamia nuts compared to 2006. The higher cost per pound in 2007 is a result of lower production, lowerrecovery under the terms of the nut purchase contracts and the write down tomarket of the inventory of kernel and nut-in-shell owned by the Partnership at December 31,2007.  The inventory write down to thelower of cost or market was $945,000 in 2007.

 

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### ***Farming Segment - Farming ServiceRevenue***

 

As a result of theacquisition of the farming operation in 2000, the Partnership acquiredapproximately twenty farming contracts (now fifteen contracts) to farmmacadamia orchards owned by other growers. These contracts cover macadamiaorchards in the same three locations on the island of Hawaii where thePartnership owns orchards.  The farmingcontracts provide for the Partnership to be reimbursed for all direct farmingcosts (cultivation, irrigation and harvesting), collect a pro-rata share ofindirect costs and overheads, and charge a management fee or fixed fee.  The management fee is based on the number ofacres farmed or on a percentage of total costs billed.  Revenues from farming services were $4.3million in 2009, $4.1 million in 2008, and $3.8 million in 2007. The 2009farming service revenues were $100,000 higher compared to 2008.  The 2008 farming service revenues were$300,000 higher compared to 2007.  ThePartnership farms approximately 1,980 acres under farming contracts.Approximately 115 acres are year-to-year contracts, contracts for approximately70 acres expire June 30, 2013, contracts for approximately 635 acresexpire June 30, 2016, contracts for approximately 410 acres expire July 31,2029, contracts for approximately 280 acres expire June 30, 2033, andcontracts for approximately 470 acres expire September 30, 2080.

*** ***

***FarmingSegment - Cost of Services Sold***

 

The cost of services sold relating to the farmingcontracts was $3.8 million in 2009, $3.8 million in 2008, and $3.4 million in2007.  These costs were all reimbursed tothe Partnership under the terms of the farming contracts.

## *** ***

## ***General and Administrative Costs***

 

General andadministrative expenses are comprised of pro-rata management costs, accountingand reporting costs, directors’ fees, office expenses, legal expenses andliability insurance.

 

General andadministrative costs for 2009 were $17,000 higher than 2008.  General and administrative costs for 2008were $653,000 lower than for 2007 which is attributed to lower legal andaccounting costs related to the termination of the effort to acquire MacFarms.

## *** ***

## ***Interest Income and Expense***

 

The Partnership recorded interest expense of $98,000 in 2009, $289,000in 2008, and $179,000 in 2007.  Theinterest relates to (1) the long-term loan used to acquire the farmingoperations, (2) capitalized equipment leases, (3) an equipmentfinancing loan, (4) interest expense on a revolving line of credit and (5) insurancefinancing costs. The decrease in interest expense in 2009 compared with 2008 isattributable to lower outstanding balance on the revolving line of credit in2009.

 

The Partnership funds its working capital needs through funds on handand, when needed, from short-term borrowings, generating interest expense inthe process.  Net interest income orexpense, therefore, is partly a function of any balance carried over from theprior year, the amount and timing of cash generated and distributions paid toinvestors in the current year, as well as the current level of interestrates.  Interest was earned in the amountof $5,000 in 2009, $14,000 in 2008, and $49,000 in 2007.

*** ***

***Other Income***

 

Other income of $498,000 was recorded in 2009 and includes $157,000 incrop insurance proceeds, $317,000, net of general excise tax, in proceeds fromthe settlement with Hamakua Macadamia Nut Company, Inc., $17,000 indistributions from American AgCredit, PCA and $7,000 from the gain on sale offarm equipment. Other income of $896,000 was recorded in 2008 of which $883,000was from crop insurance and $13,000 from a distribution from American AgCredit.Other income of $13,000 was recorded in 2007 for a distribution from AmericanAgCredit.

 

21

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***Inflation and Taxes***

 

In general, prices paid to macadamia nut farmers fluctuateindependently of inflation.  Macadamianut prices are influenced strongly by prices for finished macadamia products,which depend on competition and consumer acceptance.  Farming costs, particularly labor andmaterials, and general and administrative costs do generally reflectinflationary trends.

 

The Partnership issubject to a gross income tax as a result of its election to continue to betaxed as a partnership rather than to be taxed as a corporation, as allowed bythe Taxpayer Relief Act of 1997.  Thistax is calculated at 3.5% on partnership gross income (net revenues less costof goods sold) beginning in 1998.  Thegross income tax expense (benefit) was $62,000 in 2009, $49,000 in 2008 and($43,000) in 2007.

# *** ***

# ***Liquidity and CapitalResources***

 

The Partnershiprecorded net income of $195,000 and had cash flows from operations of $2.6million during 2009 and had working capital of $2.6 million at December 31,2009.  Net cash provided by operationswas $2.6 million in 2009 compared to net cash provided by operations of $2.8million in 2008.  The decrease of$200,000 is the net result of less crop insurance proceeds, less interest paidand the settlement proceeds received from Hamakua Macadamia Nut Company, Inc.in 2009. The Partnership recorded net income of $68,000 and had cash flows fromoperations of $2.8 million during 2008 and had working capital of $1.1 millionat December 31, 2008.  Net cashprovided by operations was $2.8 million in 2008 compared to $3.9 million netcash used in 2007.  The significantincrease of $6.5 million is a result of more pounds of nuts sold, a higherselling price per pound for the nuts sold, fewer pounds of nuts processed intokernel from WIS nuts, sales of the nut-in-shell inventory and sales of amajority of the kernel inventory.

 

At December 31,2009 the Partnership’s working capital was $2.6 million and its current ratiowas 2.45 to 1, compared to working capital of $1.1 million and a current ratioof 1.44 to 1 at December 31, 2008 and negative working capital of $199,000and a current ratio of 0.96 to 1 at December 31, 2007.

 

In 2009, the increase in working capital comparedto 2008 was primarily due to the reduction of short-term borrowing, cropinsurance receipt and the settlement received from Hamakua Macadamia NutCorporation.  In 2008, the increase inworking capital compared to 2007 was the result of higher revenue, lowergeneral and administrative costs, and higher other income offset by highercosts of goods sold, higher interest cost and higher income tax.   The Partnership was in compliance with theterms and conditions of the Credit Agreement at December 31, 2007 exceptfor the restricted payment covenant, minimum tangible net worth covenant, andthe debt coverage ratio covenant.  On March 14,2008, the lender provided a waiver and amendment to the loan covenants for theyear ended December 2007.  EffectiveMarch 14, 2008, the amended agreement reduced the maximum borrowing on therevolving line of credit from $5.0 million to $4.5 million, established aquarterly covenant based upon EBITDA, prohibited declaration and payment offurther restricted payments in 2008, established a minimum tangible net worthof $41.0 million effective December 31, 2008 and required the Partnershipto provide additional security in the form of a mortgage or deed of trust onreal property.  On July 8, 2008, thePartnership executed a Second Amended and Restated Credit Agreement withAmerican AgCredit Capital Markets.  TheSecond Amended and Restated Credit Agreement increased the maximum borrowing onthe revolving line of credit from $4.5 million to $6.0 million, and allowed nopayments of distributions to partners through June 30, 2009.  On June 30, 2009, the Partnershipexecuted a Third Amended and Restated Credit Agreement with American AgCredit,PCA which replaced the prior credit agreement and provides the Partnership witha $5.0 million revolving line of credit. The new Agreement continues the terms and conditions of the SecondAmended and Restated Credit Agreement with the exception of changes to theminimum tangible net worth and minimum consolidated EBITDA financial covenants.  The minimum tangible net worth amount isrequired to be $41,068,000 and shall be increased dollar for dollar by theamounts of positive consolidated net income of the Partnership beginning thefirst day of fiscal year 2009 and thereafter. The Partnership is required to have consolidated EBITDA of not less than$1.5 million at the end of each quarter on a rolling four quarter periodcommencing as of September 30, 2009.

 

22

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On March 11, 2010, the Partnership executed a commitment letterwith American AgCredit, PCA (“Lender”) agreeing to an extension and amendmentof the Revolving Line of Credit Facility (“Line-of-Credit”).  The extension of the LOC will be effect June 29,2010 for a two-year period in the amount of $3.5 million.  The commitment by Lender may be withdrawn if (i) acondition described in the commitment letter cannot be satisfied, (ii) thePartnership fails to perform any material obligations under the commitmentletter, (iii) there is filed against the Partnership or any memberthereof, a petition in bankruptcy or insolvency or for reorganization or theappointment of a receiver, trustee or liquidator, (iv) a change that hasoccurred that has a Material Adverse Effect on the financial condition of thePartnership, or (v) the macadamia orchards owned by the Partnership havesuffered any material damage or destruction and the same is not restored to thesatisfaction of Lender prior to Closing Date, and that lender has terminatedits commitment hereunder by reason thereof. The Partnership is required to provide year end and interim financialinformation, pro-forma financial information, all public filings anddisclosures evidence of receipt of all necessary government approvals, requiredcertifications and such legal opinions as may be reasonably required byLender.  The Partnership will be requiredto maintain a four quarter EBITDA of not less that $1.5 million for the fourquarters ended June 30, 2010 and thereafter, and to maintain a minimumtangible net worth amount of $41.0 million that shall be increased dollar fordollar by the amount of positive consolidated net income achieved by thePartnership, beginning January 1, 2009 and thereafter.  The Partnership believes that it will be ableto satisfy all of the conditions set forth by Lender.  For further information see “Descriptionof Business” “Loan Agreement”.

 

Capitalexpenditures in 2009, 2008 and 2007 were $694,000, $125,000, and $226,000,respectively.  The increase in 2009 wasattributed to the acquisition of more farming equipment and vehicles than 2008.The decrease in 2008 was attributed to the acquisition of less farmingequipment, vehicles and computers than 2007. Capital expenditures planned for 2010 are about $350,000 for normalreplacement of farming equipment, and are expected to be financed internally.

 

Macadamia nut farming is seasonal, with production peaking late in thefall.  However, farming operationscontinue year round. As a result, additional working capital is required formuch of the year. The Partnership meets its working capital needs with cash onhand, and when necessary, through short-term borrowings under a $5.0 millionrevolving line of credit. The line of credit was obtained on May 2, 2000and expires June 29, 2010.  At December 31,2009, the Partnership had a cash balance of $1.2 million and no drawings on theline of credit.  At December 31,2008, the Partnership had a cash balance of $207,000 and line of creditdrawings outstanding of $900,000.

 

As a Limited Partnership, we expect to pay regular cash distributionsto the Partnership’s unit holders if the cash flow from operations, as definedin the Management Agreement, exceeds the operating and capital resource needsof the Partnership, as determined by management and the terms of our borrowingagreements permit us to do so.  Cashdistributions would be paid from operating cash flow and / or otherresources.  In December 2007, thePartnership declared a distribution of $0.03 per Class A unit (a total of$225,000), which was paid February 15, 2008 to the unit holders of recordas of December 31, 2007.  Nosubsequent distributions have been made because of borrowing agreementrestrictions.

 

It is the opinion of management that the Partnership has adequate cashon hand and borrowing capacity available to meet anticipated working capitalneeds for operations as presently conducted.

*** ***

***Critical Accounting Policies and Estimates***

 

Management hasidentified the following critical accounting policies that affect thePartnership’s more significant judgments and estimates used in the preparationof the Partnership’s consolidated financial statements.  The preparation of the Partnership’sconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires the Partnership’s

 

23

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management to makeestimates and judgments that affect the reported amounts of assets andliabilities, revenues and expenses, and related disclosures of contingentassets and liabilities.  On an on-goingbasis, management evaluates those estimates, including those related to assetimpairment, accruals for self-insurance, compensation and related benefits, revenuerecognition, allowance for doubtful accounts, contingencies andlitigation.  The Partnership states theseaccounting policies in the notes to the consolidated financial statements andin relevant sections in this discussion and analysis.  These estimates are based on the informationthat is currently available to the Partnership and on various other assumptionsthat management believes to be reasonable under the circumstances.  Actual results could materially differ fromthose estimates.

 

The Partnershipbelieves that the following critical accounting policies affect significantjudgments and estimates used in the preparation of the consolidated financialstatements:

 

The Partnershipmaintains an accrual for workers’ compensation claims to the extent that thePartnership’s current insurance policies will not cover such claims.  This accrual is included in other accruedliabilities in the accompanying consolidated balance sheets.  Management determines the adequacy of theaccrual by periodically evaluating the historical experience and projectedtrends related to outstanding and potential workers’ compensation claims.  If such information indicates that theaccrual is over or understated, the Partnership will adjust the assumptionsutilized in the methodologies and reduce or provide for additional accrual asappropriate.

 

Retirement andSeverance Benefits:  The Partnershipsponsors a non-contributory defined benefit pension plan for regular unionemployees and a severance plan for intermittent union employees.  Several statistical and other factors whichattempt to anticipate future events are used in calculating the expense andliabilities related to these plans. These factors include assumptions about the discount rate, expectedreturn on plan assets, withdrawal and mortality rates and the rate of increasein compensation levels.  The actuarialassumptions used by the Partnership may differ materially from actual resultsdue to changing market and economic conditions, higher or lower withdrawalrates or longer or shorter mortality of participants.  These differences may impact the amount ofretirement and severance benefit expense recorded by the Partnership in futureperiods.

 

The Partnershipreviews long-lived assets held and used, or held for sale for impairmentwhenever events or circumstances indicate that the carrying amount of an assetmay not be recoverable.  If an evaluationis required, the estimated undiscounted future cash flows associated with theasset are compared to the asset’s carrying amount to determine if an impairmentcharge is required.  All long-livedassets for which management has committed to a plan of disposal are reported atthe lower of carrying amount or fair value. Changes in projected cash flows generated by an asset based on newevents or circumstances may indicate a change in fair value and require a newevaluation of recoverability of the asset.

 

The Partnershipreviews the inventory held at year end and values it based on the lower ofaverage cost or market.

 

The Partnershiprecognizes revenue under all of its fixed price contracts using the bestinformation available to the Partnership at the time it files its quarterly andannual consolidated financial statements. Additional information can be found in section (c) under theheading Nut Purchase Contracts on page 3.

 

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**ITEM7A.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

The Partnership is exposed to market risks resulting from changes ininterest rates.  The interest rates onthe Partnership’s Credit Agreement, which are based on LIBOR (Farm CreditDiscount Note Rate and the Farm Credit Medium Term Note Rate), are adjustedperiodically based on the Partnership’s election to fix interest rates forperiods ranging from between three months and five years.  As of December 31, 2009, a one percentincrease or decrease in the applicable rate under the Credit agreement wouldresult in an interest expense fluctuation of approximately $1,000 perannum.  The exposure to the interest ratemarket risk was eliminated on January 15, 2010 when the Partnership paidoff the debt.

 

From time to time, the Partnership is exposed to market risks resultingfrom changes in the market price of macadamia kernel if it does not have nutpurchase contracts or if those contracts set the purchase price based upon amarket rate.  The exposure to the marketprice risk was eliminated on December 22, 2009 (for the period January 1,2010 through December 31, 2011) when the Partnership executed an amendmentto its Nut Purchase Agreement with Mauna Loa, whereby all the Partnership’snuts will be sold to Mauna Loa for the calendar years 2010 and 2011 at a fixedprice.

 

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**ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS**

 

**Index to ConsolidatedFinancial Statements**

 
| ** **                                                                                                     | **Page**   |
|----------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                     | **Number** |
| ** **                                                                                                     | ** ** |
| Report  of Independent Registered Public Accounting Firm                                                       | 27         |
|                                                                                                           |       |
| Consolidated  Balance Sheets, December 31, 2009 and 2008                                                  | 28         |
|                                                                                                           |       |
| Consolidated  Income Statements, for the Years Ended December 31, 2009, 2008 and 2007                     | 29         |
|                                                                                                           |       |
| Consolidated  Statements of Partners’ Capital, for the Years Ended December 31, 2009,  2008 and 2007 | 30         |
|                                                                                                           |       |
| Consolidated  Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and  2007              | 31         |
|                                                                                                           |       |
| Notes to Consolidated Financial Statements                                                                     | 32         |

 

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**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

To the Partners

ML Macadamia Orchards,L.P.

 

Inour opinion, the accompanying consolidated balance sheets and the relatedconsolidated statements of income, partners’ capital, and cash flows, presentfairly, in all material respects, the financial position of ML MacadamiaOrchards, L.P. and its subsidiary (the “Partnership”) at December 31, 2009and 2008, and the results of their operations and their cash flows for each ofthe years in the three-year period ended December 31, 2009 in conformitywith accounting principles generally accepted in the United States ofAmerica.  These consolidated financialstatements are the responsibility of the Partnership’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.  We conducted our audits of these statementsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audits to obtain reasonable assuranceabout whether the consolidated financial statements are free of materialmisstatement.  The Partnership is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting.  Ouraudits included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of thePartnership’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis,evidence supporting the amounts and disclosures in the consolidated financialstatements, assessing the accounting principles used and significant estimatesmade by management, as well as, evaluating the overall consolidated financialstatement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

 

 

/s/Accuity LLP

 

Honolulu, Hawaii

March 16, 2010

 

27

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**ML Macadamia Orchards, L.P.**

**Consolidated Balance Sheets**

(in thousands)

 
| ** **                                                                                               | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                               | ** ** | **2009**              | ** ** | **2008** | ** ** |
| **Assets**                                                                                               |       |                  |       |   |   |
| Current assets                                                                                           |       |                  |       |   |   |
| Cash and cash equivalents                                                                                |       | $                     | 1,243      |   | $ | 207 |   |
| Accounts receivable                                                                                      |       | 2,551                 |       | 2,625 |   |
| Inventory of kernel                                                                                      |       | —                |       | 335 |   |
| Inventory of farming supplies                                                                            |       | 136                   |       | 158 |   |
| Other current assets                                                                                     |       | 409                   |       | 278 |   |
| Total current assets                                                                                     |       | 4,339                 |       | 3,603 |   |
| Land, orchards and equipment, net                                                                        |       | 42,465                |       | 43,725 |   |
| Goodwill                                                                                                 |       | 306                   |       | 306 |   |
| Intangible assets, net                                                                                   |       | 21                    |       | 13 |   |
| Total assets                                                                                             |       | $                     | 47,131     |   | $ | 47,647 |   |
|                                                                                                     |       |                  |       |   |   |
| **Liabilities and partners’  capital**                                                              |       |                  |       |   |   |
| Current liabilities                                                                                      |       |                  |       |   |   |
| Current portion of long-term debt                                                                        |       | $                     | 550        |   | $ | 421 |   |
| Short-term borrowings                                                                                    |       | —                |       | 900 |   |
| Accounts payable                                                                                         |       | 295                   |       | 414 |   |
| Accrued payroll and benefits                                                                             |       | 643                   |       | 780 |   |
| Other current liabilities                                                                                |       | 283                   |       | 23 |   |
| Total current liabilities                                                                                |       | 1,771                 |       | 2,538 |   |
| Non-current benefits                                                                                     |       | 369                   |       | 402 |   |
| Long-term debt                                                                                           |       | 375                   |       | 400 |   |
| Deferred income tax liability                                                                            |       | 1,090                 |       | 1,128 |   |
| Total liabilities                                                                                        |       | 3,605                 |       | 4,468 |   |
| Commitments and contingencies                                                                            |       |                  |       |   |   |
| Partners’ capital                                                                                   |       |                  |       |   |   |
| General partner                                                                                          |       | 81                    |       | 81 |   |
| Class A limited partners, no par or assigned  value, 7,500 units authorized, issued and outstanding |       | 43,560                |       | 43,365 |   |
| Accumulated other comprehensive loss                                                                     |       | (115                  | )          | (267 | ) |
| Total partners’ capital                                                                             |       | 43,526                |       | 43,179 |   |
| Total liabilities and partners’ capital                                                             |       | $                     | 47,131     |   | $ | 47,647 |   |

 

***See accompanying notes to consolidated financial statements.***

 

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**ML Macadamia Orchards, L.P.**

**Consolidated Income Statements**

(in thousands, except per unit data)

 
| ** **                                                                     | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Macadamia nut sales                                                            |       | $        | 12,167     |     | $          | 13,414   |       | $ | 7,551 |   |
| Contract farming revenue                                                       |       | 4,251    |       | 4,122    |       | 3,779    |       |
| Total revenues                                                                 |       | 16,418   |       | 17,536   |       | 11,330   |       |
| Cost of goods and services sold                                                |       |     |       |     |       |     |       |
| Costs of macadamia nut sales                                                   |       | 10,803   |       | 12,326   |       | 9,231    |       |
| Costs of contract farming services                                             |       | 3,837    |       | 3,805    |       | 3,429    |       |
| Total cost of goods and services sold                                          |       | 14,640   |       | 16,131   |       | 12,660   |       |
| Gross income (loss)                                                            |       | 1,778    |       | 1,405    |       | (1,330   | )          |
| General and administrative expenses                                            |       |     |       |     |       |     |       |
| Other                                                                          |       | 1,926    |       | 1,909    |       | 2,561    |       |
| Total general and administrative expenses                                      |       | 1,926    |       | 1,909    |       | 2,561    |       |
| Operating loss                                                                 |       | (148     | )          | (504     | )          | (3,891   | )          |
| Interest expense                                                               |       | (98      | )          | (289     | )          | (179     | )          |
| Interest income                                                                |       | 5        |       | 14       |       | 49       |       |
| Other income                                                                   |       | 498      |       | 896      |       | 13       |       |
| Income (loss) before tax                                                       |       | 257      |       | 117      |       | (4,008   | )          |
| Income tax credit (expense)                                                    |       | (62      | )          | (49      | )          | 43       |       |
| Net income (loss)                                                              |       | $        | 195        |     | $          | 68       |       | $ | (3,965 | ) |
|                                                                           |       |     |       |     |       |     |       |
| Net cash flow (as defined in the Partnership  Agreement)                       |       | $        | 1,679      |     | $          | 1,618    |       | $ | (2,437 | ) |
|                                                                           |       |     |       |     |       |     |       |
| Net income (loss) per Class A Unit                                        |       | $        | 0.03       |     | $          | 0.01     |       | $ | (0.53 | ) |
|                                                                           |       |     |       |     |       |     |       |
| Net cash flow per Class A Unit (as defined in the  Partnership Agreement) |       | $        | 0.22       |     | $          | 0.22     |       | $ | (0.32 | ) |
|                                                                           |       |     |       |     |       |     |       |
| Cash distributions per Class A Unit                                       |       | $        | 0.00       |     | $          | 0.00     |       | $ | 0.18 |   |
|                                                                           |       |     |       |     |       |     |       |
| Class A Units outstanding                                                 |       | 7,500    |       | 7,500    |       | 7,500    |       |

 

***See accompanying notes to consolidated financial statements.***

 

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**ML Macadamia Orchards, L.P.**

**Consolidated Statements ofPartners’ Capital**

(in thousands)

 
| ** **                                     | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                           |       |     |       |     |       |     |       |
| Partners’ capital at beginning of period: |       |     |       |     |       |     |       |
| General partner                                |       | $        | 81         |     | $          | 81       |       | $ | 81 |   |
| Class A limited partners                  |       | 43,365   |       | 43,297   |       | 48,612   |       |
| Accumulated other comprehensive loss           |       |     |       |     |       |     |       |
| Change in pension and severance obligations    |       | (267     | )          | (66      | )          | (70      | )          |
|                                           |       | 43,179   |       | 43,312   |       | 48,623   |       |
|                                           |       |     |       |     |       |     |       |
| Allocation of net income (loss):               |       |     |       |     |       |     |       |
| General partner                                |       | —   |       | —   |       | —   |       |
| Class A limited partners                  |       | 195      |       | 68       |       | (3,965   | )          |
|                                           |       | 195      |       | 68       |       | (3,965   | )          |
|                                           |       |     |       |     |       |     |       |
| Cash distributions paid and / or declared:     |       |     |       |     |       |     |       |
| General partner                                |       | —   |       | —   |       | —   |       |
| Class A limited partners                  |       | —   |       | —   |       | 1,350    |       |
|                                           |       | —   |       | —   |       | 1,350    |       |
|                                           |       |     |       |     |       |     |       |
| Accumulated other comprehensive loss           |       |     |       |     |       |     |       |
| Pension and severance obligations              |       | 152      |       | (201     | )          | 4        |       |
|                                           |       | 152      |       | (201     | )          | 4        |       |
|                                           |       |     |       |     |       |     |       |
| Partners’ capital at end of period:       |       |     |       |     |       |     |       |
| General partner                                |       | 81       |       | 81       |       | 81       |       |
| Class A limited partners                  |       | 43,560   |       | 43,365   |       | 43,297   |       |
| Accumulated other comprehensive loss           |       | (115     | )          | (267     | )          | (66      | )          |
|                                           |       | $        | 43,526     |     | $          | 43,179   |       | $ | 43,312 |   |

 

***See accompanying notes to consolidated financial statements.***

 

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**ML Macadamia Orchards, L.P.**

**Consolidated Statements of CashFlows**

(in thousands)

 
| ** **                                                                                          | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cash flows from operating activities:                                                               |       |     |       |     |       |     |       |
| Cash received for goods and services                                                                |       | $        | 16,983     |     | $          | 18,082   |       | $ | 11,756 |   |
| Cash paid to suppliers and employees                                                                |       | (14,247  | )          | (15,033  | )          | (15,576  | )          |
| Income tax paid                                                                                     |       | (90      | )          | —   |       | —   |       |
| Interest received                                                                                   |       | 5        |       | 14       |       | 49       |       |
| Interest paid                                                                                       |       | (98      | )          | (289     | )          | (171     | )          |
| Net cash provided by (used in) operating activities                                                 |       | 2,553    |       | 2,774    |       | (3,942   | )          |
|                                                                                                |       |     |       |     |       |     |       |
| Cash flows from investing activities:                                                               |       |     |       |     |       |     |       |
| Proceeds from sale of equipment                                                                     |       | 7        |       | —   |       | —   |       |
| Capital expenditures                                                                                |       | (694     | )          | (100     | )          | (226     | )          |
| Net cash used in investing activities                                                               |       | (687     | )          | (100     | )          | (226     | )          |
|                                                                                                |       |     |       |     |       |     |       |
| Cash flows from financing activities:                                                               |       |     |       |     |       |     |       |
| Proceeds from drawings on line of credit                                                            |       | 2,200    |       | 2,900    |       | 4,000    |       |
| Proceeds from long term borrowing                                                                   |       | 600      |       | —   |       | —   |       |
| Loan fees paid                                                                                      |       | (34      | )          | (21      | )          | —   |       |
| Repayment of long term debt                                                                         |       | (475     | )          | (400     | )          | (400     | )          |
| Repayment of line of credit                                                                         |       | (3,100   | )          | (5,000   | )          | (1,000   | )          |
| Capital lease payments                                                                              |       | (21      | )          | (4       | )          | —   |       |
| Cash distributions paid                                                                             |       | —   |       | (225     | )          | (1,500   | )          |
| Net cash provided by (used in) financing activities                                                 |       | (830     | )          | (2,750   | )          | 1,100    |       |
|                                                                                                |       |     |       |     |       |     |       |
| Net increase (decrease) in cash                                                                     |       | 1,036    |       | (76      | )          | (3,068   | )          |
| Cash and cash equivalents at beginning of period                                                    |       | 207      |       | 283      |       | 3,351    |       |
| Cash and cash equivalents at end of period                                                          |       | $        | 1,243      |     | $          | 207      |       | $ | 283 |   |
|                                                                                                |       |     |       |     |       |     |       |
| Reconciliation of net income (loss) to net cash                                                     |       |     |       |     |       |     |       |
| Provided by (used in) operating activities:                                                         |       |     |       |     |       |     |       |
| Net income (loss)                                                                                   |       | $        | 195        |     | $          | 68       |       | $ | (3,965 | ) |
| Adjustments to reconcile net income (loss) to net cash  provided by (used in) operating activities: |       |     |       |     |       |     |       |
| Depreciation and amortization                                                                       |       | 1,980    |       | 1,956    |       | 1,926    |       |
| Inventory write-off                                                                                 |       | 136      |       | 172      |       | 945      |       |
| Gain on sale of capital assets                                                                      |       | (7       | )          | —   |       | —   |       |
| Pension expense                                                                                     |       | 113      |       | 71       |       | 29       |       |
| Deferred income tax credit                                                                          |       | (38      | )          | (41      | )          | (39      | )          |
| (Increase) decrease in accounts receivable                                                          |       | 74       |       | (350     | )          | 413      |       |
| (Increase) decrease in inventories                                                                  |       | 221      |       | 1,539    |       | (2,877   | )          |
| Increase in other current assets                                                                    |       | (50      | )          | (106     | )          | (74      | )          |
| Increase (decrease) in accounts payable                                                             |       | (119     | )          | (217     | )          | 225      |       |
| Decrease in accrued payroll and benefits                                                            |       | (137     | )          | (268     | )          | (110     | )          |
| Increase (decrease) in current liabilities                                                          |       | 260      |       | (50      | )          | (415     | )          |
| Decrease in non-current benefits payable                                                            |       | (75      | )          | —   |       | —   |       |
| Total adjustments                                                                                   |       | 2,358    |       | 2,706    |       | 23       |       |
| Net cash provided by (used in) operating activities                                                 |       | $        | 2,553      |     | $          | 2,774    |       | $ | (3,942 | ) |
|                                                                                                |       |     |       |     |       |     |       |
| Supplemental schedule of noncash financing activities Distributions  declared but not paid          |       | $        | —     |     | $          | —   |       | $ | 225 |   |

 

***See accompanying notes to consolidated financial statements.***

 

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**MLMacadamia Orchards, L.P.**

 

# ***Notes to Consolidated FinancialStatements***

 

**(1) OPERATIONSAND OWNERSHIP**

 

MLMacadamia Orchards,L.P. (the “Partnership”) owns and farms 4,190 tree acres of macadamia orchardson the island of Hawaii. Once the nuts are harvested, the Partnership sellsthem to other entities in Hawaii, which process the nuts and market thefinished products.  The Partnership farmsapproximately 1,980 acres of macadamia orchards in Hawaii for other orchard ownersin exchange for a fee.

 

The Partnership is owned 99% by limitedpartners and 1% by the managing general partner, ML Resources, Inc. (“MLR”).  On January 6, 2005, the stock of MLR waspurchased by the Partnership for $750,000 in cash.  The transaction was accounted for as an assetpurchase as opposed to a business combination since MLR had no substantiveoperations and its principal purpose was to own and hold 75,757 general partnerunits of the Partnership.  Theacquisition of the general partner units held by MLR results in the Class Alimited partners effectively owning 100% of the Partnership.

 

Limited partner interests are represented by Class AUnits, which are evidenced by depositary receipts that trade publicly on theOTCQX platform.

 

**Liquidity. **The Partnership recorded net income of$195,000, generated operating cash flow of $2.6 million during 2009 and hadworking capital of $2.6 million at December 31, 2009.  The financial results for 2009 were due tothe Partnership selling all of the macadamia nut production at higher prices,the sale of kernel inventory, lower cost of goods sold, lower interest expense,crop insurance proceeds and proceeds from the settlement with Hamakua MacadamiaNut Company, Inc (“Hamakua”).  The cropinsurance proceeds and settlement proceeds from Hamakua are reflected as cashreceived for goods and services in the consolidated statement of cash flows,and was used to service the Partnership’s line of credit.  The Partnership recorded net income of$68,000 generated operating cash flow of $2.8 million during 2008 and hadworking capital of $1.1 million at December 31, 2008.  The financial results for 2008 were due tothe Partnership selling all of macadamia nut production at higher prices, theselling of a large portion of the kernel inventory and all of the nut-in-shellinventory, lower cost of goods sold on a per pound of production and cropinsurance proceeds.  The Partnership hasaccess to working capital through its line of credit and other borrowingopportunities, if necessary.  However,management feels that the Partnership will be able to generate sufficient cashflows from operations to meet current obligations and debt servicerequirements.

 

**(2) SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

**(a) Cash and Cash Equivalents. **Cash and cash equivalents includeunrestricted demand deposits with banks and all highly liquid deposits with anoriginal maturity of less than three months. The cash equivalents are not protected by federal deposit insurance.

 

**(b) Allowance for Doubtful Accounts. **The Partnership reviews the accountsreceivable to determine the adequacy of this allowance by regularly reviewingspecific account payment history and circumstances, the accounts receivableaging, and historical write-off rates. If customer payment timeframes were to deteriorate, allowances fordoubtful accounts would be required. There was no allowance for doubtfulaccounts at December 31, 2009 or 2008.

 

**(c) Financial Instruments. **The fair value of the line of credit anda portion of the long-term financial instruments approximates the carryingvalue as they have variable interest rates. The remaining portion of the long-term financial instrument has a fixedrate and the fair value compared to carrying value is disclosed.

 

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**(d) Consolidation.**  The consolidated financial statements includethe accounts of the Partnership and MLR. All significant intercompany balances and transactions, includingmanagement fees and distributions, have been eliminated.

 

**(e) Farming Costs.** The Partnership considers each orchardto be a separate cost center, which includes the depreciation/amortization ofcapitalized costs associated with each orchard’s acquisition and/or developmentand maintenance and harvesting costs directly attributable to eachorchard.  In accordance with industrypractice in Hawaii, orchard maintenance and harvesting costs for commerciallyproducing macadamia orchards are charged against earnings in the year that thecosts are incurred.

 

However, the timing andmanner in which farming costs are recognized in the Partnership’s consolidatedfinancial statements over the course of the year is based on a standard costsystem.  For interim financial reportingpurposes, farming costs are recognized as expense based on a standard cost toproduce a pound of macadamia nuts. Management calculates a standard cost per pound for each orchard basedon the estimated annual costs to farm each orchard and anticipated annualproduction from each orchard.  The amountof farming costs recognized as expense throughout the year is calculated bymultiplying each orchard’s standard cost by actual production from thatorchard.  The difference between actualfarming costs incurred and the amount of farming costs recognized as expense isrecorded as either an increase or decrease in deferred farming costs, which isreported as an asset in the consolidated balance sheets.  Deferred farming costs accumulate throughoutthe year, typically peaking mid-way through the third quarter, since nutproduction is lowest during the first and second quarters of the year.  Deferred farming costs are expensed over theremainder of the year since nut production is highest at the end of the thirdquarter through year end.

 

Management evaluates thevalidity of each orchard’s standard cost on a monthly basis based on actualproduction and farming costs incurred, as well as any known events that mightsignificantly affect forecasted annual production and farming costs for theremainder of the year.

 

**(f) Inventory.**

 

**SupplyInventory.**  Supplies inventory is relieved on an averagecost basis to cost of farming expense as used. There was no write down of supplies inventory in 2009.  In 2008, the Partnership wrote off $104,000of tree inventory as some trees in the nursery had grown too large to be usedin the orchard operations.

 

**Nut andKernel Inventory. **Nut and kernel inventory is recorded atthe lower of cost or market, and is relieved on an average cost basis to costof goods sold as the product is sold. The Partnership had no nut and kernel inventory at December 31,2009.  At December 31, 2008 kernelinventory was valued at $335,000.  At December 31,2007 nut and kernel inventory was valued at $946,000 and $1,024,000,respectively.  In 2009, kernel inventorywas written off for spoilage in the amount of $136,000.  Inventory was written down to market andwritten off for spoilage in 2008 in the amount of $68,000.  Inventory was written down to market in 2007in the amount of $945,000.  The inventoryamounts written off and written down were reflected in costs of goods sold inthe respective year.

 

**(g) Land, Orchards and Equipment. **Land, orchards and equipment are reportedat cost, net of accumulated depreciation and amortization.  Net farming costs for any “developing”orchards are capitalized on the consolidated balance sheets until revenues fromthat orchard exceed expenses for that orchard (or nine years after planting, ifearlier).  Developing orchardshistorically do not reach commercial viability until about 12 years of age.

 

Depreciation of orchards and other equipment is reported on astraight-line basis over the estimated useful lives of the assets (40 years fororchards and between 5 and 12 years for other equipment).  A 5% residual value is assumed for orchards.  The macadamia orchards acquired in 1986situated on leased land are being amortized on a straight-line basis over theterms of the leases (approximately 33 years from the

 

33

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inception of the Partnership) with no residual valueassumed.  The macadamia orchards acquiredin 1989 situated on leased land are being amortized on a straight-line basisover a 40 year period (the terms of these leases exceed 40 years) with noresidual value assumed.  For income taxreporting, depreciation is calculated under the straight line and decliningbalance methods over Alternative Depreciation System recovery periods.

 

Repairs and maintenance costs are expensed unless they exceed$5,000 and extend the useful life beyond the depreciable life.

 

The Partnershipreviews long-lived assets held and used, or held for sale for impairmentwhenever events or circumstances indicate that the carrying amount of an assetmay not be recoverable.  If an evaluationis required, the estimated undiscounted future cash flows associated with theasset are compared to the asset’s carrying amount to determine if an impairmentcharge is required.  If an impairmentcharge is required the Partnership would write the assets down to fairvalue.  All long-lived assets for whichmanagement has committed to a plan of disposal are reported at the lower ofcarrying amount or fair value as determined by quoted market price or a presentvalue technique.  Changes in projectedcash flows generated by an asset based on new events or circumstances mayindicate a change in fair value and require a new evaluation of recoverabilityof the asset.

 

**(h) **Goodwill and Other Intangible Assets.

** **

Goodwill and otherindefinite-lived intangible assets are not amortized but are reviewed forimpairment at least annually and if a triggering event were to occur in aninterim period.  The Partnership’s annualimpairment testing is performed in the 4th quarter each year.  The goodwill is allocated to the farmingreporting unit.  Goodwill impairment isdetermined using a two-step process for each reporting unit.  The first step of the impairment test is usedto identify potential impairment by comparing the fair value of a reportingunit to the book value, including goodwill. This evaluation utilizes a discounted cash flow analysis and multipleanalyses of the historical and forecasted operating results of the Partnership’sreporting unit.  If the fair value of areporting unit exceeds its book value, goodwill of the reporting unit is notconsidered impaired, and the second step of the impairment test is notrequired.  If the book value of areporting unit exceeds its fair value, the second step of the impairment testis performed to measure the amount of impairment loss, if any.  The second step of the impairment testcompares the implied fair value of the reporting unit’s goodwill with the bookvalue of the goodwill.  If the book valueof the reporting unit’s goodwill exceeds the implied fair value of thatgoodwill, an impairment loss is recognized in an amount equal to thatexcess.  The implied fair value ofgoodwill is determined in the same manner as the amount of goodwill recognizedin a business combination.

 

**(i)  General ExciseTaxes. **The Partnership records Hawaii general excise taxeswhen goods and services are sold on a gross basis as components of revenues andexpenses.  For the years ended December 31,2009, 2008 and 2007, Hawaii general excise taxes charged or passed on tocustomers and reflected in revenues and expenses amounted to $90,000, $79,000,and $72,000, respectively.

 

**(j) IncomeTaxes.**  The accompanying income statements do notinclude a provision for corporate income taxes, as the income of thePartnership is not taxed directly; rather, the Partnership’s tax attributes areincluded in the individual tax returns of its partners.  Neither the Partnership’s financial reportingincome nor the cash distributions to unit holders can be used as a substitutefor the detailed tax calculations which the Partnership must perform annuallyfor its partners.

 

The Partnership is subject to a gross income tax as aresult of its election to continue to be taxed as a partnership rather than tobe taxed as a corporation, as allowed by the Taxpayer Relief Act of 1997.  This tax is calculated at 3.5% on partnershipgross income (net revenues less cost of goods sold) beginning in 1998.

 

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Deferred tax liabilitiesare recognized for the future tax consequences attributable to differences betweenthe financial reporting and tax reporting basis of assets and liabilities.

 

The Partnership evaluatesuncertain income tax positions utilizing a recognition threshold andmeasurement attribute for the financial statement recognition and measurement ofa tax position taken or expected to be taken in a tax return.  At December 31, 2009, managementbelieves there were no uncertain income tax positions.  The five tax years in the period ended December 31,2009 remain open for federal purposes.

 

**(k) Revenue. **Macadamianut sales are recognized when nuts are delivered to the buyer.  Contract farming revenue and administrativeservices revenues are recognized in the period that such services arecompleted, that is upon the incurrence of direct labor or equipment hoursincurred on behalf of an orchard owner. The Partnership is paid for its services based upon a “time andmaterials” basis plus a percentage fee or fixed fee based upon each farmingcontract’s terms. Contract farming includes the regular maintenance of theowners’ orchards as well as harvesting of their nuts.  The Partnership provides these services on acontinuing basis throughout the year.

 

**(l)  Pension Benefit and IntermittentSeverance Costs.**  The funded status of the Partnership’sdefined benefit pension plan and intermittent severance plan is recognized inthe consolidated balance sheets.  Thefunded status is measured as the difference between fair value of the planassets and the benefit obligation at December 31, the measurementdate.  The benefit obligation representsthe actuarial present value of benefits expected to be paid upon terminationbased on estimated future compensation levels. An overfunded plan, with the fair value of plan assets exceeding thebenefit obligation, is recorded as a prepaid pension asset equal to thisexcess.  An underfunded plan, with thebenefit obligation exceeding the fair value of plan assets, is recorded as aretirement benefit obligation equal to this excess.  The actuarial method used for financialaccounting purposes is the projected unit credit method.

 

**(m)  Estimates. **The preparation of consolidated financial statementsin conformity with generally accepted accounting principles requires managementto make estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the dateof the consolidated financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could materially differ from those estimates.

 

**(n) Net Consolidated Income (Loss) Per Class AUnit.**  In 2009, 2008 and 2007 consolidated netincome (loss) per Class A Unit was calculated by dividing 100% ofPartnership’s consolidated net income (loss) by the average number of Class AUnits outstanding for the period.

 

**(o)  Accumulated Other ComprehensiveLoss. **Accumulated other comprehensive loss represents thechange in Partners’ capital from transactions and other events andcircumstances arising from non-unit holder sources.  Accumulated other comprehensive loss consistsof deferred pension and intermittent severance gains or losses.  At December 31, 2009 and 2008, ourConsolidated Balance Sheets reflected Accumulated Other Comprehensive Loss inthe amount of $115,000 and $267,000, respectively, in deferred pension andintermittent severance loss.

 

**(p)  Reclassifications.** Certain balances have been reclassified to conform to the current andprior year presentation.  Thesereclassifications had no impact on net income (loss) previously reported.

 

**(q)  Adoption of New AccountingStandards. **In December 2008, the FinancialAccounting Standards Board (“FASB”) issued a staff position that requires thedisclosure of more information about investment allocation decisions, major categoriesof plan assets, including concentrations of risk and fair value measurements,and the fair value techniques and inputs used to measure plan assets.  This staff position was adopted during thefourth quarter of 2009, and did not have a material impact on the consolidatedfinancial statements.

 

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In August 2009, the FASB issued an accountingstandard update, which provides additional guidance on the measurement ofliabilities at fair value.  In the absenceof a quoted price in an active market for an identical liability at themeasurement date companies are required to apply approaches that use the quotedprice of an investment in the identical liability or similar liabilities tradedas assets or other valuation techniques consistent with the fair-valuemeasurement principles issued by the FASB. This accounting standard update was adopted during the fourth quarter of2009, and did not have a material impact on the consolidated financialstatements.

 

**(r)  Recently Issued AccountingStandards. **In January 2010, the FASB issued anaccounting standard update that requires (1) a reporting entity mustdisclose separately the amounts of significant transfers in and out of Level 1and Level 2 fair value measurements and describe the reasons for the transfers;(2) in the reconciliation for fair value measurements using significantunobservable inputs, a reporting entity should present separately informationabout purchases, sales, issuances, and settlements, and (3) a reportingentity should provide disclosures about the valuation techniques and inputsused to measure fair value for both recurring and nonrecurring fair valuemeasurements.  These disclosurerequirements are effective for interim and annual reporting periods beginningafter December 15, 2009, except for the disclosures about purchases,sales, issuances, and settlements in the roll forward of activity in Level 3fair value measurements.  Thosedisclosures are effective for fiscal years beginning after December 15,2010, and for interim periods within those fiscal years.  We do not believe the adoption of thisaccounting standard will have a material impact on the consolidated financialstatements.

 

**(3) SEGMENT INFORMATION**

 

The Partnership has two reportable segments, the owned-orchard segmentand the farming segment, which are organized on the basis of revenues andassets.  The owned-orchard segmentderives its revenues from the sale of macadamia nuts grown in orchards owned orleased by the Partnership.  The farmingsegment derives its revenues from the farming of macadamia orchards owned byother growers.  It also farms thoseorchards owned by the Partnership.

 

Managementevaluates the performance of each segment on the basis of operatingincome.  The Partnership accounts forintersegment sales and transfers at cost and such transactions are eliminatedin consolidation.

 

The Partnership’sreportable segments are distinct business enterprises that offer differentproducts or services.

 

**(1) Revenues from the owned-orchard segment** are subject to long-term nut purchase contracts andtend to vary from year to year due to changes in the calculated nut price perpound and pounds produced.

 

**(a) Nut Purchase Contracts.** The Partnership had three nut purchase contracts in 2009 with: MaunaLoa, Hamakua (terminated June 10, 2009), and MacFarms (terminated December 22,2009), as detailed in the following paragraphs.

 

# ***On June 1, 2006, the Partnership executed a contractwith Mauna Loa for the annual delivery of approximately 6.3 million fieldpounds, effective January 1, 2006 and expiring December 31,2011.  The contract provides for a nutprice of $0.74 per WIS SK/DIS pound in 2006 and $0.75 per WIS SK/DIS pound in2007.  The purchase price will increaseannually by $0.01 per WIS pound, except 2008, until it reaches $0.78 per WISSK/DIS pound in 2011.  On July 9,2008 an addendum to the June 1, 2006 nut purchase contract was executedwith Mauna Loa for the delivery of an additional 9.0 million pounds of WIS nutsduring the period July 21, 2008 through June 30, 2009 at a purchaseprice of $0.60 per pound on WIS SK/DIS basis. The addendum provided for an additional 3.0 million pounds to bedelivered if mutually agreed on the same basis as the additional 9.0 millionpounds.  On November 3, 2008, it wasagreed that any additional pounds over the 9.0 million pounds delivered until December 31,2008 would***

 

36

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# ***have a nut purchase price of $0.63 instead of $0.60 perpound on a WIS SK/DIS basis.  On March 23,2009, the parties executed an amendment to the June 1, 2006 for thedelivery of an additional 9.0 to 15.0 million pounds at a purchase price of$0.63 per pound on a WIS SK/DIS basis. On December 22, 2009, the Partnership and Mauna Loa executed anaddendum to the June 1, 2006 nut purchase contract which provides that allof the macadamia nuts harvested by the Partnership,*** estimated to be between 19 to 21 millionwet-in-shell pounds, in calendar years 2010 and 2011 will besold to Mauna Loa at a nut purchase price of $0.73 per pound on a WIS SK/DISbasis.

# *** ***

# ***On December 16, 2004, a nut purchase contract withHamakua for the annual delivery of 6.0 million field pounds, effective January 1,2007, and  with 2.0 million field pounds expiringDecember 31, 2008, December 31, 2010, and December 31, 2012,respectively. The contract provides for a minimum price of $0.75 per WIS SK/DISpound and a maximum price of $0.95 per WIS SK/DIS pound. The pricing formulaincluded a fixed component of $0.85 per WIS pound and a second component basedon Hamakua’s average selling price for bulk kernel.  In February 2007, the contract wasamended to allow the Partnership, at its option, to have Hamakua processnuts-in-shell into kernel for a fee in lieu of selling the nuts toHamakua.  The Partnership exercised thisoption solely for the calendar year 2007. The contract continues to require that Hamakua purchase approximately 6.0million field pounds of nuts in 2008, approximately 4.0 million field pounds ofnuts in the years 2009-2010, and 2.0 million field pounds of nuts in the years2011-2012.  Hamakua refused to accept anynut deliveries in 2008 and 2009.  The nutpurchase agreement was terminated on June 10, 2009.***

# *** ***

On January 6, 2006,the Partnership executed a contract with MacFarms for the annual delivery ofbetween 5.0 and 6.0 million field pounds, effective January 1, 2007.  The nut price will be determined every sixmonths by mutual agreement based on prevailing market price for kernel fromHawaii and Australia.  The effectiveprice for January — June 2009 was $0.615 per WIS SK/DIS pound and July —December 2009 was $0.63 per WIS SK/DIS pound.  The effective price for January — June 2008was $0.494 per WIS SK/DIS pound and July — December 2008 was $0.55per WIS SK/DIS pound.  The effectiveprice for January — June 2007 was $0.608 per WIS SK/DIS pound and July —December 2007was $0.494 per WIS SK/DIS pound.  ThePartnership terminated this nut purchase contract on December 22, 2009 dueto the failure of MacFarms to perform its obligations under the agreement.

 

**(b) Husking Activities. **Husking activities for the Keaau andMauna Kea orchards are performed at Mauna Loa’s Keaau facility.  Operation of the Keaau husking facility whichhad been performed by the Partnership was transferred to Mauna Loa in July of2006.  Payments or reimbursements made toMauna Loa were $488,000 in 2009, $528,000 in 2008, and $453,000 in 2007 forhusking as the contracts agree that the Partnership will deliver husked nuts.

 

**(c) Stabilization Payments.**  In December 1986, thePartnership acquired a 266-acre orchard that was several years younger than itsother orchards.  Because of the relativeimmaturity of the newer orchard, its productivity (and therefore its cash flow)was expected to be correspondingly lower for the first several years than forthe other older orchards.

 

Accordingly, the seller of this orchard (KACI) agreedto make cash stabilization payments to the Partnership for each year through1993 in which the cash flow (as defined) from this orchard fell short of atarget cash flow level of $507,000. Stabilization payments for a given year were limited to the lesser ofthe amount of the shortfall or a maximum payment amount.

 

The Partnership accounted for the $1.2 million instabilization payments (net of general excise tax) as a reduction in the costbasis of this orchard.  As a result, thepayments will be reflected in the Partnership’s net consolidated income (loss)ratably through 2019 as a reduction to depreciation for this orchard.

 

In return, the Partnership is obligated to pay theowner 100% of any year’s cash flow from this orchard in excess of the targetcash flow as additional percentage rent until the aggregate amount ofadditional percentage rent equals 150% of the total amount of stabilizationpayments previously received. 

 

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Thereafter, the Partnership is obligated to pay theowner 50% of this orchard’s cash flow in excess of the target cash flow as additionalincentive rent.  No additional rent wasdue for 2009, 2008 or 2007.

 

**(d) Cash Flow Warranty Payments**.  In October 1989,the Partnership acquired 1,040 acres of orchards that were several yearsyounger on average than the Partnership’s other orchards.  Their productivity (and therefore their cashflow) was expected to be lower for the first several years than for thePartnership’s older orchards.

 

Accordingly, the sellers of these orchards(subsidiaries of CBCL) agreed to make cash flow warranty payments to thePartnership for each year through 1994 in which the cash flow (as defined) fromthese orchards fell short of a cash flow target level.  Warranty payments for any year were limitedto the lesser of the amount of the shortfall or a maximum payment amount.

 

The Partnership accounted for the $13.8 millionreceived in cash flow warranty payments as reductions in the cost basis of theorchards.  As a result, these paymentswill be reflected in the Partnership’s net consolidated income (loss) ratably through2030 as reductions to depreciation for these orchards.

 

**(2) The farming segment’s revenues** are based on long-term farming contracts whichgenerate a farming profit based on a percentage of farming cost or based on afixed fee per acre and tend to be less variable than revenues from theowned-orchard segment.

 

The following is asummary of each reportable segment’s operating income and the segment’s assetsas of and for the years ended December 31, 2009, 2008 and 2007.

 

Segment Reporting for the Year ended December 31,2009 (in thousands)

 
| ** **                              | ** ** | **Owned**    | ** ** | **Contract** | ** ** | **Intersegment** | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|--------------|------------|--------------|------------|------------------|------------|------------|------------|
| ** **                              | ** ** | **Orchards** | ** ** | **Farming**  | ** ** | **Elimination**  | ** ** | **Total**  | ** ** |
| Revenues                                |       | $            | 12,167     |         | $          | 12,832           |       | $          | (8,581     | ) | $ | 16,418 |   |
| Composition of Intersegment revenues    |       | —       |       | 8,581        |       | —           |       | 8,581      |       |
| Operating income (loss)                 |       | (561         | )          | 413          |       | —           |       | (148       | )          |
| Depreciation expense                    |       | 1,788        |       | 166          |       | —           |       | 1,954      |       |
| Segment assets                          |       | 41,390       |       | 5,741        |       | —           |       | 47,131     |       |
| Expenditures for property and equipment |       | 694          |       | —       |       | —           |       | 694        |       |
|                                         |            |              |            |              |            |                  |            |            |            |  |  |  |  |

 

Segment Reporting for the Year ended December 31,2008 (in thousands)

 
| ** **                              | ** ** | **Owned**    | ** ** | **Contract** | ** ** | **Intersegment** | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|--------------|------------|--------------|------------|------------------|------------|------------|------------|
| ** **                              | ** ** | **Orchards** | ** ** | **Farming**  | ** ** | **Elimination**  | ** ** | **Total**  | ** ** |
|                                    |       |         |       |         |       |             |       |       |       |
| Revenues                                |       | $            | 13,414     |         | $          | 11,157           |       | $          | (7,035     | ) | $ | 17,536 |   |
| Composition of Intersegment revenues    |       | —       |       | 7,035        |       | —           |       | 7,035      |       |
| Operating income (loss)                 |       | (992         | )          | 488          |       | —           |       | (504       | )          |
| Depreciation expense                    |       | 1,811        |       | 129          |       | —           |       | 1,940      |       |
| Segment assets                          |       | 41,767       |       | 5,880        |       | —           |       | 47,647     |       |
| Expenditures for property and equipment |       | 125          |       | —       |       | —           |       | 125        |       |
|                                         |            |              |            |              |            |                  |            |            |            |  |  |  |  |

 

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Segment Reporting for the Year ended December 31,2007 (in thousands)

 
| ** **                              | ** ** | **Owned**    | ** ** | **Contract** | ** ** | **Intersegment** | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|--------------|------------|--------------|------------|------------------|------------|------------|------------|
| ** **                              | ** ** | **Orchards** | ** ** | **Farming**  | ** ** | **Elimination**  | ** ** | **Total**  | ** ** |
|                                    |       |         |       |         |       |             |       |       |       |
| Revenues                                |       | $            | 7,551      |         | $          | 10,492           |       | $          | (6,713     | ) | $ | 11,330 |   |
| Composition of Intersegment revenues    |       | —       |       | 6,713        |       | —           |       | 6,713      |       |
| Operating income (loss)                 |       | (4,407       | )          | 516          |       | —           |       | (3,891     | )          |
| Depreciation expense                    |       | 1,801        |       | 119          |       | —           |       | 1,920      |       |
| Segment assets                          |       | 44,306       |       | 6,482        |       | —           |       | 50,788     |       |
| Expenditures for property and equipment |       | 152          |       | 74           |       | —           |       | 226        |       |
|                                         |            |              |            |              |            |                  |            |            |            |  |  |  |  |

 

**4)RELATED PARTY TRANSACTIONS**

 

**(a) ManagementCosts and Fee.**  On January 6, 2005 the Partnershippurchased the stock of its managing partner, MLR. As a result of thetransaction, MLR’s operations have been included in the Partnership’sconsolidated financial statements beginning with the first quarter of2005.  The Partnership Agreement providesthe managing general partner reimbursement of administrative costs (whichconsist primarily of compensation costs, board of directors fees, insurancecosts and office expenses) incurred under the agreement as well as a managementfee equal to two percent of the Partnership’s operating cash flow (as defined).

 

In addition to a management fee, the managing generalpartner is entitled, under the existing Partnership Agreement, to receive anannual incentive fee equal to 0.5% of the aggregate fair market value (asdefined) of the Class A Units for the preceding calendar year providedthat net cash flow (as defined) for the preceding calendar year exceedsspecified levels.  No incentive fee wasearned in 2009, 2008, or 2007.

 

**(b) Management Services Contract. **The Partnership provides administrative services to D.Buyers Enterprises, LLC (“DBE”) for which it was compensated $19,000, $73,000,and $100,000 in 2009, 2008 and 2007, respectively.

 

**(c) Office Lease. **Since September 2001, the Partnership has leasedapproximately 4000 square feet of office space in Hilo for its accounting stafffrom DBE, which was the owner of the General Partner until January 2005.   The lease amount was $60,000 in 2009,$80,000 in 2008 and $90,000 in 2007.

 

**(5) CASH FLOW PERFORMANCE**

 

Cash flow performance(based on definitions used in the Partnership Agreement) for the past threeyears is shown below (000’s):

 
| ** **                                               | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Gross revenues (including interest and other income)     |       | $        | 16,921     |     | $          | 18,446   |       | $ | 11,392 |   |
| Less:                                                    |       |     |       |     |       |     |       |
| Farming costs                                            |       | 12,686   |       | 14,191   |       | 10,740   |       |
| Administrative costs                                     |       | 1,900    |       | 1,895    |       | 2,553    |       |
| Income tax (credit) expense                              |       | 62       |       | 49       |       | (43      | )          |
| Payments of principal and interest                       |       | 594      |       | 693      |       | 579      |       |
| Net cash flow (as defined in the Partnership  Agreement) |       | $        | 1,679      |     | $          | 1,618    |       | $ | (2,437 | ) |

 

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All of net cashflow in 2009, 2008 and 2007 was allocated to Class A Units. This cash flowmeasure is used to determine the management fee paid annually to the generalpartner and forms the basis of distributable cash per unit.  No management fee was recorded in 2009, 2008and 2007 as the Partnership purchased the stock of the managing partner MLR in January 2005and the management fee was eliminated in consolidation.

 

**(6) LAND,ORCHARDS AND EQUIPMENT**

 

Land, orchards andequipment, stated at cost, consisted of the following at December 31, 2009and 2008 (000’s):

 
| ** **                                      | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|
| Land                                            |       | $        | 8,255      |     | $          | 8,255 |   |
| Improvements                                    |       | 1,953    |       | 1,953    |       |
| Machinery  and equipment                        |       | 4,849    |       | 4,453    |       |
| Irrigation  well and equipment                  |       | 1,184    |       | 1,184    |       |
| Producing  orchards                             |       | 67,631   |       | 67,631   |       |
| Capital  leases                                 |       | 186      |       | 186      |       |
| Construction  work-in-progress                  |       | 62       |       | —   |       |
| Land,  orchards and equipment (gross)           |       | 84,120   |       | 83,662   |       |
| Less  accumulated depreciation and amortization |       | 41,655   |       | 39,937   |       |
| Land,  orchards and equipment (net)             |       | $        | 42,465     |     | $          | 43,725 |   |

 

Depreciation expense was recorded for $2.0 million, $1.9 million, and$1.9 million in 2009, 2008 and 2007, respectively. The Partnership’s interestin trees situated on certain leased macadamia orchard properties are subject torepurchase at the option of the lessors. Such repurchase options grant the lessors the right to purchase all or aportion of these trees after June 30, 2019, at fair market value, asdefined in the respective farming lease agreements.  If the repurchase options are not exercisedprior to expiration of the lease agreements and the lessors do not offer toextend the lease agreements at the then current market lease rates, the lessorsare required to repurchase these trees at fair market value at leaseexpiration.  The lessors will be releasedfrom their repurchase obligation in the event that the Partnership declines toaccept an extension offer from the lessors at fair market lease rates.

 

**(7) SHORT-TERMAND LONG-TERM CREDIT**

 

AtDecember 31, 2009 and 2008, the Partnership’s long-term debt comprises(000’s):

 
| ** **       | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------|------------|----------|------------|----------|------------|
| Term  debt       |       | $        | 925        |     | $          | 800 |   |
| Current  portion |       | 550      |       | 400      |       |
| Long-term  debt  |       | $        | 375        |     | $          | 400 |   |

 

On May 2,2000, the Partnership entered into a credit agreement with Pacific Coast FarmCredit Services, ACA (currently American AgCredit, PCA) comprised of a $5million revolving line of credit and a $4 million promissory note.  On June 30, 2009, the Partnershipexecuted a term loan promissory note for $600,000 with American AgCredit, PCA.

 

The line of creditexpires on June 29, 2010.  Drawingson the line of credit bear interest at the prime lending rate.  From and after the first anniversary date,the Partnership is required to pay a facility fee of 0.30% to 0.375% per annum,depending on certain financial ratios on the daily unused portion ofcredit.  The Partnership, at its option,may make prepayments without penalty.

 

40

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There were nodrawings outstanding on the line of credit as of December 31, 2009.  There was $900,000 in drawings on the line ofcredit as of December 31, 2008, with interest at 4.00%.

 

At December 31,2009, the outstanding balance on the $4 million promissory note amounted to$400,000.  The note was scheduled tomature in 2010 and bears interest at rates ranging from 3.0% to 6.87%.  The Partnership paid off the balance of thepromissory note on January 15, 2010.

 

At December 31,2009, the outstanding balance on the $600,000 term loan was $525,000. The termloan bears fixed interest as 7.5% per annum and was scheduled to mature on July 1,2013.  The Partnership paid off thebalance of the term loan on January 15, 2010.

 

The estimated fairvalues of the Partnership’s financial instruments has been determined using anestimated market rate of 6.00% in 2009 and 2008 with similar terms andremaining maturities to that of the current financial instruments.  The Partnership has not considered the lenderfees in determining the estimated fair value.

 

The estimated fairvalues of the Partnership’s financial instrument are as follows (000’s):

 
| ** **      | ** ** | **2009**     | ** ** | **2008**  | ** ** |
|-----------------|------------|--------------|------------|-----------|------------|
| ** **      | ** ** | **Carrying** | ** ** | **Fair**  | ** ** | **Carrying** | ** ** | **Fair** | ** ** |
| ** **      | ** ** | **Amount**   | ** ** | **Value** | ** ** | **Amount** | ** ** | **Value** | ** ** |
| Long-term  debt |       | $            | 925        |      | $          | 884 |   | $ | 800 |   | $ | 740 |   |
|                 |            |              |            |           |            |  |  |  |  |  |  |  |  |

 

Of the total$925,000 outstanding at December 31, 2009, $170,000 has a variableinterest rate.  The remaining $755,000and $460,000 outstanding at December 31, 2009 and 2008, respectively, haveinterest rates that are fixed over the remaining life of the debt.

 

Both the revolvingcredit loan and the term debt are collateralized by all personal and realproperty assets of the Partnership.  Thecredit agreement contains certain restrictions associated with partnerdistributions, further indebtedness, sales of assets, and maintenance ofcertain financial minimums.  Significantrestrictive financial covenants consist of the following:

 

1.                       No restricted payments shall be declaredor made through June 30, 2010 without prior lender approval.

2.                       Minimum tangible net worth as ofDecember 31, 2009 shall not be below $41,068,000 and shall be increaseddollar for dollar by the amount of positive Consolidated Net Income achieved bythe Partnership, beginning January 1, 2009 and thereafter.

3.                       The minimum quarterly consolidated EBITDAamount shall not be less than $1,500,000 for each rolling four-quarter periodbeginning with the four quarters ended September 30, 2009 and each rollingfour-quarter period thereafter.

4.                       The Addendum to Nut Purchase Agreementwith Mauna Loa shall not be terminated prior to June 30, 2010 withoutwritten consent of Lender.

 

At December 31, 2009, the Partnership’s working capital was $2.6million and its current ratio was 2.45 to 1. At December 31, 2008, the Partnership’s working capital was $1.1million and its current ratio was 1.42 to 1. At December 31, 2007, the Partnership’s working capital wasnegative $199,000 and its current ratio was 0.96 to 1.  The Partnership was incompliance with the terms and conditions of the Credit Agreement at December 31,2007 except for the restricted payment covenant, minimum tangible net worthcovenant, and the debt coverage ratio covenant. On March 14, 2008, the lender provided a waiver and amendment tothe loan covenants for the year ended December 31, 2007.  Effective March 14, 2008, the amendedagreement reduced the maximum borrowing on the revolving line of credit from$5.0

 

41

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million to $4.5 million, established aquarterly covenant based upon EBITDA, prohibits the declaration and paying offurther restricted payments in 2008, established a minimum tangible net worthof $39.0 million effective December 31, 2008 and required the Partnershipto provide additional security in the form of a mortgage or deed of trust onreal property.  On July 8, 2008, thePartnership executed a Second Amended and Restated Credit Agreement withAmerican AgCredit Capital Markets.  TheSecond Amended and Restated Credit Agreement increased the maximum borrowing onthe revolving line of credit from $4.5 million to $6.0 million, allowed nodeclaration and related payments of cash distributions to partners through June 30,2009 and provided restrictive covenants as shown above.  The Partnership was in compliance with theterms and conditions of the Second Amended and Restated Credit Agreement at December 31,2008.  On March 25, 2009, AmericanAgCredit Capital Markets provided the Partnership with a commitment to amendthe current credit agreement, which would extend the revolving line of creditfor an additional year.  The commitmentwould reduce the revolving line of credit from $6.0 million to $5.0 million,increase the interest rate by 25 basis points per annum, increase the fixedrate by 50 basis points per annum and maintain all other terms andconditions.  On June 30, 2009, thePartnership executed a Third Amended and Restated Credit Agreement withAmerican AgCredit, PCA which replaced the prior credit agreement and providesthe Partnership with a $5.0 million revolving line of credit.  The new Agreement continues the terms andconditions of the Second Amended and Restated Credit Agreement with theexception of changes to the minimum tangible net worth and minimum EBITDAfinancial covenants.  The minimumtangible net worth amount is required to be $41.068 million and shall beincreased dollar for dollar by the amounts of positive consolidated net incomeof the Partnership beginning the first day of the fiscal year 2009 andthereafter.  The Partnership is requiredto have consolidated EBITDA of not less than $1.5 million at the end of eachquarter on a rolling four quarter period commencing as of September 30,2009.  The Partnership was in compliancewith the terms and conditions of the Third Amended and Restated CreditAgreement at December 31, 2009.

 

**Capitaland Operating Leases.**The Partnership had no capital leases as of December 31,2009.  The Partnership had capital leasesof $21,000 as of December 31, 2008. The Partnership has operating leasesfor equipment and land.

 

**LandLeases.**ThePartnership leases the land underlying 1,948 acres of its orchards underlong-term operating leases which expire through dates ending 2045.  Operating leases provide for changes inminimum rent based on fair value at certain points in time.  Each of the land leases provides foradditional lease payments based on USDA-reported macadamia nut price levels.  Those contingent lease payments totaled$23,000 in 2009, $15,000 in 2008, and $24,000 in 2007.  Total lease rent for all land operatingleases was $165,000 in 2009, $136,000 in 2008, and $161,000 in 2007.

 

**EquipmentOperating Leases. **The Partnership leases equipment for thefarming operation to include vehicles, blower sweepers and harvester.  The operating lease terms range from three tofive years.  The operating lease cost was$104,000, $151,000, and $217,000 in 2009, 2008 and 2007, respectively.

 

Contractual obligationsas of December 31, 2009 for the Partnership are detailed in the followingtable (000’s):

 
| **Contractual  Obligations** | ** ** | **Total** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **2014** | ** ** | **Remaining** | ** ** |
|------------------------------|------------|-----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|---------------|------------|
| Long-term  debt and interest |       | $         | 1,002      |     | $          | 576      |       | $        | 174        |     | $          | 162      |       | $             | 90         |   | $ | — |   | $ | — |   |
| Operating  leases            |       | 2,757     |       | 165      |       | 138      |       | 132      |       | 129      |       | 129      |       | 2,064         |       |
| Total                        |       | $         | 3,759      |     | $          | 741      |       | $        | 312        |     | $          | 294      |       | $             | 219        |   | $ | 129 |   | $ | 2,064 |   |

 

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**(8) GROSSINCOME TAXES**

 

The components of grossincome tax expense (credit) for the years ended December 31, 2009, 2008and 2007 were as follows (000’s):

 
| ** **                        | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Currently payable                 |       | $        | 100        |     | $          | 90       |       | $ | (5 | ) |
| Deferred                          |       | (38      | )          | (41      | )          | (38      | )          |
| Gross income tax expense (credit) |       | $        | 62         |     | $          | 49       |       | $ | (43 | ) |

 

The provision (credit)for income taxes equates to the 3.5% federal tax rate applied to gross income(net revenues less cost of goods sold) for the years ended December 31,2009, 2008 and 2007.

 

The components of the netdeferred tax liability reported on the consolidated balance sheets as of December 31,2009 and 2008 are as follows (000’s):

 
| ** **                     | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Deferred tax assets:           |       |     |       |     |       |
| Intangible assets              |       | $        | 115        |     | $          | 115 |   |
| Inventory                      |       | 27       |       | 27       |       |
| Gross deferred tax assets      |       | 142      |       | 142      |       |
| Deferred tax liabilities:      |       |     |       |     |       |
| Land, orchards, and equipment  |       | (1,225   | )          | (1,263   | )          |
| Other                          |       | (7       | )          | (7       | )          |
| Gross deferred tax liabilities |       | (1,232   | )          | (1,270   | )          |
| Net deferred tax liabilities   |       | $        | (1,090     | )        | $          | (1,128 | ) |

 

**(9) PENSIONPLAN**

 

The Partnershipestablished a defined benefit pension plan in conjunction with the acquisitionof farming operations on May 1, 2000. The plan covers employees that are members of a union bargainingunit.  The projected benefit obligationincludes the obligation for the employees of their previous employer thatbecame Partnership employees.

 

The followingreconciles the changes in the pension benefit obligation and plan assets forthe years ended December 31, 2009, 2008, and 2007 to the funded status ofthe plan and the amounts recognized in the consolidated balance sheets at December 31,2009, 2008, and 2007 (000’s):

 
| ** **                                                         | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Change  in projected benefit obligation:                           |       |     |       |     |       |     |       |
| Projected  benefit obligation at beginning of year                 |       | $        | 627        |     | $          | 529      |       | $ | 490 |   |
| Service  cost                                                      |       | 61       |       | 57       |       | 60       |       |
| Interest  cost                                                     |       | 37       |       | 31       |       | 28       |       |
| Actuarial  (gain) loss                                             |       | (14      | )          | 31       |       | (33      | )          |
| Benefits  paid                                                     |       | (20      | )          | (21      | )          | (16      | )          |
|                                                               |       |     |       |     |       |     |       |
| Projected  benefit obligation at end of year                       |       | 691      |       | 627      |       | 529      |       |
|                                                               |       |     |       |     |       |     |       |
| Change  in plan assets:                                            |       |     |       |     |       |     |       |
| Fair  value of plan assets at beginning of year                    |       | 543      |       | 505      |       | 422      |       |
| Actual  return (loss) on plan assets                               |       | 166      |       | (141     | )          | (1       | )          |
| Employer  contribution                                             |       | 100      |       | 200      |       | 100      |       |
| Benefits  paid                                                     |       | (20      | )          | (21      | )          | (16      | )          |
| Fair  value of plan assets at end of year                          |       | 789      |       | 543      |       | 505      |       |
|                                                               |       |     |       |     |       |     |       |
| Funded  status                                                     |       | 98       |       | (84      | )          | (24      | )          |
| Unrecognized  prior service cost                                   |       | —   |       | —   |       | —   |       |
| Unrecognized  net actuarial loss                                   |       | —   |       | —   |       | —   |       |
| Amount  recognized in consolidated balance sheets                  |       | $        | 98         |     | $          | (84      | )          | $ | (24 | ) |
|                                                               |       |     |       |     |       |     |       |
| Amounts recognized in the consolidated balance  sheets consist of: |       |     |       |     |       |     |       |
|                                                               |       |     |       |     |       |     |       |
| Prepaid pension cost (current)                                     |       | 98       |       | —   |       | —   |       |
| Accrued pension liability (current)                                |       | —   |       | (84      | )          | (24      | )          |
| Net amount recognized                                              |       | $        | 98         |     | $          | (84      | )          | $ | (24 | ) |

 

43

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The amountsrecognized in accumulated other comprehensive loss at December 31, 2009and 2008 were as follows (000’s):

 
| ** **          | ** ** | **2009** | ** ** | **2008** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Net  actuarial loss |       | $        | 72         |     | $          | 222 |   |
| Prior  service cost |       | 36       |       | 42       |       |
|                |       | $        | 108        |     | $          | 264 |   |

 

The estimated netactuarial gain and prior service cost that will be amortized from accumulatedother comprehensive loss into net periodic benefit cost for the year ending December 31,2010 is $7,000.

 

The accumulated benefit obligation of the pension planas of December 31, 2009 and 2008 was approximately $614,000 and $568,000,respectively.

 

The components of net periodic pension cost for theyears ended December 31, 2009, 2008 and 2007 were as follows (000’s):

 
| ** **                                                 | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Service  cost                                              |       | $        | 61         |     | $          | 57       |       | $ | 60 |   |
| Interest  cost                                             |       | 37       |       | 31       |       | 28       |       |
| Expected  return on plan assets                            |       | (44      | )          | (47      | )          | (40      | )          |
| Amortization  of net actuarial loss and prior service cost |       | 23       |       | 7        |       | 7        |       |
|                                                       |       |     |       |     |       |     |       |
| Net  periodic pension cost                                 |       | $        | 77         |     | $          | 48       |       | $ | 55 |   |

 

The amounts recognized in accumulated othercomprehensive loss for the years ended December 31, 2009, 2008 and 2007were as follows (000’s):

 
| Net  loss (gain)                                                              |   | (150 | )      | 218 |   | 8   |   |
|-------------------------------------------------------------------------------|--------|------|--------|-----|--------|-----|--------|
| Prior  service credit                                                         |   | (13  | )      | (14 | )      | (14 | )      |
| Amortization  of prior service cost                                           |   | 7    |   | 7   |   | 7   |   |
| Total  recognized in accumulated other comprehensive loss                     |   | (156 | )      | 211 |   | 1   |   |
| Total  recognized in net periodic pension cost and other comprehensive income |   | $    | (79    | )   | $      | 259 |   | $ | 56 |   |
|                                                                               |        |      |        |     |        |     |        |  |  |  |

 

The weightedaverage actuarial assumptions used to determine the pension benefit obligationsat December 31, 2009, 2008 and 2007 and the net periodic pension cost forthe years then ended are as follows:

 
| ** **                     | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Pension  benefit obligation:   |       |     |       |     |       |     |       |
| Discount  rate                 |       | 6.00     | %          | 6.00     | %          | 6.00     | %          |
| Compensation  increases        |       | 2.00     | %          | 2.00     | %          | 2.00     | %          |
| Net  periodic pension cost:    |       |     |       |     |       |     |       |
| Discount  rate                 |       | 6.25     | %          | 6.00     | %          | 6.00     | %          |
| Compensation  increases        |       | 2.00     | %          | 2.00     | %          | 2.00     | %          |
| Return  on assets for the year |       | 6.80     | %          | 8.50     | %          | 8.50     | %          |

 

44

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The discount ratewas determined based on an analysis of future cash flow projections of pensionplans with similar characteristics and provisions.

 

The expectedlong-term rate of return on plan assets was based primarily on historicalreturns as adjusted for the plan’s current investment allocation strategy.

 

The Partnership employsan investment strategy whereby the assets in our portfolio are evaluated tomaintain the desired target asset mix. The funds are invested in stock mutual funds, fixed income mutual fundsand money market funds.  Stock mutualfunds primarily include investments in large-cap, mid-cap and small-capcompanies primarily located in the United States.  Fixed income securities include bonds,debentures and other fixed income securities. The actual asset mix is evaluatedon a quarterly basis and adjusted if required to maintain the desired targetmix.  Therefore, the actual assetallocation does not vary significantly from the targeted asset allocation.

 

The plan’s assetallocation percentages at December 31, 2009 and 2008 were as follows:

 
| ** **                 | ** ** | **Target** | ** ** | **Actual** | ** ** | **Actual** | ** ** |
|----------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                 | ** ** | **2009**   | ** ** | **2009**   | ** ** | **2008**   | ** ** |
| Pooled  fixed income funds |       | 15-25      | %          | 19         | %          | 21         | %          |
| Money  market funds        |       | 15-25      | %          | 15         | %          | 24         | %          |
| Stock  mutual funds        |       | 50-70      | %          | 66         | %          | 55         | %          |
| Total                      |       | 100        | %          | 100        | %          | 100        | %          |

 

Thefair values of the Partnership’s pension plan assets at December 31, 2009,by asset category are as follows:

 
| ** **            | ** ** | ** ** | ** ** | **Fair Value Measurements at December 31, 2009**       | ** ** |
|-----------------------|------------|------------|------------|-------------------------------------------------------------|------------|
| ** **            | ** ** | ** ** | ** ** | **Quoted Prices in  Active Markets  for Identical  Assets** | ** ** | **Significant  Observable  Inputs** | ** ** | **Significant  Unobservable  Inputs** | ** ** |
| **Asset  Category**   | ** ** | **Total**  | ** ** | **(Level 1)**                                               | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
| Money  market funds   |       | $          | 116        |                                                        | $          | — |   | $ | 116 |   | $ | — |   |
| Stock  mutual funds   |       | $          | 524        |                                                        | $          | — |   | $ | 524 |   | $ | — |   |
| Pooled  fixed income: |       | $          | 149        |                                                        | $          | — |   | $ | 149 |   | $ | — |   |
| Total                 |       | $          | 789        |                                                        | $          | — |   | $ | 789 |   | $ | — |   |

 

The Partnershipexpects to contribute approximately $100,000 to the plan in 2010.

 

The followingpension benefit payments, which reflect expected future services, asappropriate, are expected to be paid:

 
| **Years Ending December 31,** |   |    |   |
|------------------------------------|--------|---------|--------|
|                               |   |    |   |
| 2010                               |   | $       | 19,582 |   |
| 2011                               |   | 20,588  |   |
| 2012                               |   | 30,158  |   |
| 2013                               |   | 33,824  |   |
| 2014                               |   | 38,152  |   |
| 2015-2019                          |   | 358,104 |   |
|                                    |        |         |        |  |

 

45

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**(10) UNION BARGAINING UNIT INTERMITTENT EMPLOYEES SEVERANCE PLAN**

 

The Partnershipprovides a severance plan, since the acquisition of the farming operations on May 1,2000, that covers union members that are not part of the defined benefitpension plan and are classified as intermittent employees per the bargainingunion agreement.  The severance planprovides for the payment of 8 days of pay for each year worked (upon the completionof 3 years of continuous service) if the employee becomes physically ormentally incapacitated, is part of a Partnership mass layoff, or reaches theage of 60 and is terminated or voluntarily terminates.  The Partnership accounts for the benefit bydetermining the present value of the future benefits based upon an actuarialanalysis. The projected benefit obligation includes the obligation for theemployees of their previous employer that became Partnership employees.

 

The followingreconciles the changes in the severance benefit obligation and plan assets forthe years ended December 31, 2009, 2008 and 2007 to the funded status ofthe plan and the amounts recognized in the consolidated balance sheets at December 31,2009, 2008 and 2007 (000’s).

 
| ** **                                     | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                           |       |     |       |     |       |     |       |
| Change in Severance  Obligation                |       |     |       |     |       |     |       |
|                                           |       |     |       |     |       |     |       |
| Severance obligation at beginning of year      |       | $        | 315        |     | $          | 305      |       | $ | 335 |   |
| Service cost                                   |       | 15       |       | 16       |       | 18       |       |
| Interest cost                                  |       | 19       |       | 19       |       | 19       |       |
| Actuarial (gain) or loss                       |       | 4        |       | (11      | )          | (5       | )          |
| Benefits paid                                  |       | (27      | )          | (14      | )          | (62      | )          |
| Severance obligation at end of year            |       | $        | 326        |     | $          | 315      |       | $ | 305 |   |
|                                           |       |     |       |     |       |     |       |
| Change in Plan Assets                          |       |     |       |     |       |     |       |
|                                           |       |     |       |     |       |     |       |
| Fair value of plan assets at beginning of year |       | $        | 0          |     | $          | 0        |       | $ | 0 |   |
| Employer contributions                         |       | 27       |       | 14       |       | 62       |       |
| Benefits paid                                  |       | (27      | )          | (14      | )          | (62      | )          |
| Fair value of plan assets at end of year       |       | $        | 0          |     | $          | 0        |       | $ | 0 |   |
|                                           |       |     |       |     |       |     |       |
| Funded Status                                  |       |     |       |     |       |     |       |
|                                           |       |     |       |     |       |     |       |
| Benefit obligation                             |       | $        | (326       | )        | $          | (315     | )          | $ | (305 | ) |
| Unrecognized net actuarial loss                |       | 6        |       | 2        |       | 13       |       |
| Accrued benefit cost                           |       | $        | (320       | )        | $          | (313     | )          | $ | (292 | ) |

 
| ** **                                     | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                           |       |     |       |     |       |     |       |
| Components of Net Periodic  Cost               |       |     |       |     |       |     |       |
|                                           |       |     |       |     |       |     |       |
| Service cost                                   |       | $        | 15         |     | $          | 16       |       | $ | 18 |   |
| Interest cost                                  |       | 19       |       | 19       |       | 19       |       |
| Recognized net loss                            |       | —   |       | —   |       | —   |       |
| Net periodic cost                              |       | $        | 34         |     | $          | 35       |       | $ | 37 |   |
|                                           |       |     |       |     |       |     |       |
| Reconciliation of  Severance Liability         |       |     |       |     |       |     |       |
|                                           |       |     |       |     |       |     |       |
| (a) Accrued severance beginning of year   |       | $        | (313       | )        | $          | (292     | )          | $ | (317 | ) |
| (b) Contributions during fiscal year      |       | 27       |       | 14       |       | 62       |       |
| (c) Net periodic pension cost             |       | (34      | )          | (35      | )          | (37      | )          |
| (d) Accrued severance cost at end of year |       | $        | (320       | )        | $          | (313     | )          | $ | (292 | ) |
|                                           |       |     |       |     |       |     |       |
| Weighted Average  Assumptions                  |       |     |       |     |       |     |       |
|                                           |       |     |       |     |       |     |       |
| Discount rate                                  |       | 5.73     | %          | 6.64     | %          | 6.53     | %          |
| Expected return on plan assets                 |       | 0.00     | %          | 0.00     | %          | 0.00     | %          |
| Rate of compensation increase                  |       | 1.65     | %          | 1.65     | %          | 1.65     | %          |

 

46

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The discount ratewas determined based on an analysis of interest rates for high-quality,long-term corporate debt.  This analysiscreated a yield curve of annualized individual discount rates for period fromone to thirty years.  The discount rateused to determine the severance benefit obligation as of the balance sheet dateis the rate in effect at the measurement date. The same rate is also used to determine the net periodic cost for thefiscal year.

 

The amountsrecognized in accumulated other comprehensive loss at December 31, 2009and 2008 were as follows (000’s):

 
| ** **          | ** ** | **2009** | ** ** | **2008** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Net  actuarial loss |       | $        | 6          |     | $          | 3 |   |
|                     |            |          |            |          |            |  |  |

 

There will be noestimated net actuarial loss that will be amortized from accumulated othercomprehensive loss into net periodic benefit cost for the year ending December 31,2010.

 

As discussed inNote 14, the Partnership initially recorded its liability for the severanceplan in 2006 following its determination that such obligation had not properlybeen accounted for as part of prior purchase price allocations.

 

**(11)  EMPLOYEES SAVINGS PLAN**

 

The Partnershipsponsors a 401(k) plan, which allows participating employees to contributeup to an amount not to exceed the employee’s covered compensation for the planyear reduced by required withholdings, subject to annual limits.  The plan provides for the Partnership to makematching contributions up to 50% of the first 4% of salary deferred byemployees.  During the years ended December 31,2009, 2008 and 2007, Partnership matching contributions were $33,000, $33,000,and $34,000, respectively.

 

**(12)  SALARIED DEFINED CONTRIBUTION PLAN**

 

The Partnershipsponsors a defined contribution plan for its non-bargaining unit employees.This plan provides for the Partnership to make annual contributions to the 401(k) planon behalf of participating employees. Contributions are based upon age, length of service, and other criteriaon an annual basis, subject to annual limits. During the years ended December 31, 2009, 2008, and 2007Partnership contributions were $112,000, $106,000, and $115,000, respectively.

 

47

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**(13)QUARTERLY OPERATING RESULTS (Unaudited)**

 

The followingchart summarizes unaudited quarterly operating results for the years ended December 31,2009, 2008, and 2007 (000’s omitted except per unit data):

 
| ** ** | ** ** | ** **       | ** ** | ** **   | ** ** | **Gross Income** | ** ** | **Net Income** | ** ** | **Net Income (Loss)**     | ** ** |
|------------|------------|------------------|------------|--------------|------------|------------------|------------|----------------|------------|---------------------------|------------|
| ** ** | ** ** | ** **       | ** ** | **Revenues** | ** ** | **(Loss)**       | ** ** | **(Loss)**     | ** ** | **per Class A Unit** | ** ** |
| 2009       |       | 1st  Quarter     |       | $            | 2,971      |             | $          | 562            |       | $                         | 432        |   | $ | 0.06 |   |
|       |       | 2nd Quarter |       | 1,025        |       | 113              |       | (291           | )          | (0.04                     | )          |
|       |       | 3rd Quarter |       | 5,691        |       | 436              |       | (42            | )          | (0.01                     | )          |
|       |       | 4th Quarter |       | 6,731        |       | 667              |       | 96             |       | 0.02                      |       |
|       |       |             |       |         |       |             |       |           |       |                      |       |
| 2008       |       | 1st  Quarter     |       | $            | 3,644      |             | $          | 251            |       | $                         | (246       | ) | $ | (0.04 | ) |
|       |       | 2nd  Quarter     |       | 1,603        |       | 54               |       | (398           | )          | (0.05                     | )          |
|       |       | 3rd  Quarter     |       | 5,761        |       | 574              |       | 886            |       | 0.12                      |       |
|       |       | 4th  Quarter     |       | 6,528        |       | 526              |       | (174           | )          | (0.02                     | )          |
|       |       |             |       |         |       |             |       |           |       |                      |       |
| 2007       |       | 1st Quarter |       | $            | 3,365      |             | $          | 790            |       | $                         | 346        |   | $ | 0.05 |   |
|       |       | 2nd Quarter |       | 1,225        |       | 100              |       | (356           | )          | (0.05                     | )          |
|       |       | 3rd Quarter |       | 2,776        |       | 499              |       | (436           | )          | (0.06                     | )          |
|       |       | 4th Quarter |       | 3,964        |       | (2,719           | )          | (3,519         | )          | (0.47                     | )          |

 

**(14)CONCENTRATION RISKS**

 

**Marketand customers. **There are a limited number ofcustomers available to purchase the Partnership’s nut production.  If our customers are unable to perform undertheir contracts or if their purchase of product should change from Hawaii-basedto foreign sourced kernel, it would have a material adverse impact on ourbusiness as there are virtually no replacement customers for the Partnership’sproduction.  If the market for thePartnership’s inventory was to decline the Partnership would have to sell at aprice lower than the current market price and if no buyers were available theinventory could become unsalable and have to be disposed.

 

**NutPurchase Agreements.**  The Partnership had four contracts beginning January 1,2007.  One of those contracts terminatedin 2008 and two were terminated in 2009. The terms of the contracts varied from two to six years, contained fixedand market determined prices and 30-day payment terms.  The Partnership relies upon the financialability of the buyers of the Partnership’s nuts to abide by the payment termsof the nut purchase agreements.  If anyor all of the buyers were unable to pay for the macadamia nuts delivered by thePartnership to them it could result in the Partnership’s available cashresources being depleted.  If any or allbuyers were late in payment the Partnership would need to negotiate a nutpurchase agreement with another buyer which might not be at the same terms orprice.  It is also possible that thePartnership might not be able to find a buyer for the nuts.  There were a significant number of Hawaiimacadamia growers that were unable to find a processor to purchase and processtheir crop in 2007 due to the depressed market.

 

The Partnershiphas one nut purchase contract with Mauna Loa for calendar years 2010 and2011.  The agreement is a fixed pricecontract.  Fixed price contracts can bedisadvantageous because the Partnership may not be able to pass on unexpectedcost increases as they arise.

 

The Partnership’sability to renew its credit agreements is highly dependent upon the existenceof its nut purchase agreements with Mauna Loa. Accordingly, the cancellation of the nut purchase agreement with MaunaLoa in the future would significantly affect the Partnership’s ability tosecure the necessary funds to finance its current working capital needs.

 

**Employees.* ***As of December 31, 2009, thePartnership employed 249 people, of which 170 were seasonal employees.  Of the total, 21 are in farming supervisionand management, 214 in production, maintenance and agricultural operations, and14 in accounting and administration.

 

With the May 2000acquisition, the Partnership agreed to the assumption of two bargainingagreements with the ILWU Local 142. These agreements cover all production, maintenance and agriculturalemployees of the Ka’u Orchard Division, the Keaau Orchard Division and theMauna Kea Orchard Division.  These laborcontracts became effective May 1, 1997 and expired on April 30, 2002,but were extended until April 30, 2005. The parties agreed to a three-year contract, which expired on April 30,

 

48

----

 

2008 and wasextended for a 60-day period.  On June 30,2008, the parties agreed to a one-year contract and on May 27, 2009, theparties agreed to a two-year contract which is effective May 27, 2009through May 31, 2011.  Although, thePartnership believes that relations with its employees and the ILWU aregenerally very good, there is uncertainty with respect to the ultimate outcomeof the bargaining unit negotiations when the current agreement expires.

 

***Subsequent Events***

 

***Debt retirement***

 

On January 15, 2010, the Partnership paid off the remaining debtowed to American AgCredit, PCA.  As of December 31,2009, the Partnership owed $925,000 of which $550,000 was current and $375,000was long-term.  The Partnership has arevolving line-of-credit agreement with American AgCredit, PCA through June 29,2010 for $5.0 million and a commitment for a two year amendment to theagreement through June 29, 2012 in the amount of $3.5 million.

# *** ***

**ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

During the fiscal yearsended December 31, 2007, 2008, and 2009, there were no reportable eventsas defined in Item 304(a)(1)(v) of Regulation S-K.

 

**ITEM 9A.  CONTROLS AND PROCEDURES**

 

**(a)****         ****Evaluation of Disclosure Controlsand Procedures**

 

ThePartnership’s management has evaluated, under the supervision and with theparticipation of the Partnership’s Chief Executive Officer and the ChiefFinancial Officer, the effectiveness of the design and operation of thePartnership’s disclosure controls and procedures (as defined in Rule 13a-15(e) ofthe Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as ofthe end of the period covered by this annual report.  Based upon that evaluation, the ChiefExecutive Officer and Chief Financial Officer have concluded that, as of theevaluation date, the Partnership’s disclosure controls and procedures wereeffective as of the end of the period covered by this annual report.

 

**(b)****         ****Management’s Annual Report onInternal Control Over Financial Reporting**

 

ThePartnership’s management is responsible for establishing and maintaining anadequate system of internal control over financial reporting.  Internal control over financial reporting isa process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of consolidated financial statementsfor external purposes in accordance with accounting principles generallyaccepted in the United States of America. A partnership’s internal control over financial reporting includes thosepolicies and procedures that (i) pertain to the maintenance of recordsthat, in reasonable detail , accurately and fairly reflect the transactions anddispositions of the assets of the partnership; (ii) provide reasonableassurance that transactions are recorded as necessary to permit preparation ofconsolidated financial statements in accordance with accounting principlesgenerally accepted in the United States of America, and that receipts andexpenditures of the partnership are being made only in accordance withauthorizations of management and directors of the partnership; and (iii) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the partnership’s assets that could have amaterial effect on the consolidated financial statements.

 

Becauseof its inherent limitations, a system of internal control over financialreporting can provide only reasonable assurance and may not prevent or detectmisstatements.  Therefore, even thosesystems determined to be effective can provide only reasonable assurance withrespect to consolidated financial statement preparation and presentation.  Further, because of changes in conditions,effectiveness of internal control over financial reporting may vary over time.

 

49

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Managementof the Partnership conducted an evaluation of the effectiveness of thePartnership’s internal control over financial reporting based on the *Internal Control-Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission.  Based on that evaluation, the Partnership’smanagement concluded that its internal control over financial reporting waseffective as of December 31, 2009.

 

Thisannual report does not include an attestation report of the Partnership’sregistered public accounting firm regarding internal control over financialreporting.  Management’s report was notsubject to attestation by the Partnership’s registered public accounting firmpursuant to temporary rules of the Securities and Exchange Commission thatpermit the Partnership to provide only management’s report in this annualreport.

 

**(c)****         ****Changes in Internal Control OverFinancial Reporting**

 

Therehave been no significant changes to the Partnership’s internal control overfinancial reporting during the fourth quarter of 2009 that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

50

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**PART III**

 

**ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**

 

The Partnership has noofficers or directors. Instead, the officers and directors of the ManagingPartner perform all management functions for the Partnership.  Each director of the Managing Partner isappointed for a term of one year.  TheBoard of Directors has no Chairman but the Chairman of the Audit Committee isdesignated as the Lead Independent Director. The Lead Independent Director has the qualifications of being independent,financially literate and is a financial expert. Additionally, the Lead Independent Director has the business leadershipexperience that allows him to work with all the Board members to providedirection, control and evaluation of the operations of the Partnership.

 

The Board of Directors iscomprised of members whose skill sets provide various knowledge of business ingeneral (local, state and global), management of business, specializedknowledge of the Partnership’s business, knowledge and relationships within thelocal political arena and the ability to make a constructive contribution tothe guidance of the direction of the Partnership.  The Board of Directors administers its riskoversight function through the Audit Committee. The Audit Committee meets quarterly with management and the Partnership’sindependent auditors where the financial, environmental, legal and operationalrisks are presented and discussed.  TheAudit Committee submits its report to the Board of Directors on a quarterlybasis for full Board review.   Eachofficer of the Managing Partner is elected by the Board of Directors of theManaging Partner and is subject to removal by that board at any time.

 

## **A.**            Identificationof Directors

## ** **

*John K. Kai. *44 years old;director of the Managing Partner since June 2004; member of the Audit,Nominating, Compensation and Corporate Governance Committees since March 2005;president of Pinnacle Investment Group, LLC; president of Pinnacle Media Group,LLC; branch manager and investment representative of Commonwealth FinancialNetwork.

 

*James S. Kendrick. *62 years old;director of Managing Partner since June 2005; Executive at Mauna LoaMacadamia Nut Corporation from 1991 to 1998.

 

*E. Alan Kennett. *66 years old;director of Managing Partner since June 2005; member of the Audit,Nominating, Compensation and Corporate Governance Committees of ManagingPartner: President and CEO of Gay and Robinson Sugar Company, Inc.

 

*Jeffrey M. Kissel. *60 years old;director of Managing Partner since June 2005; member of the AuditCommittee since June 2005 and chairman since March 2006; member ofthe Nominating, Compensation and Corporate Governance Committees of theManaging Partner; President of The Gas Company, LLC since December 2007;President and CEO of Safe Renewables Corporation from October 2006 until December 2007;from 2003 to 2005 was CFO for Earth Tech, Inc.; held various positionsduring 1997 until 2003 with URS Corporation including vice president ofbudgeting and planning and CFO.

 

*BradfordC. Nelson.*  43 years old; director of the ManagingPartner since October 2009; Chief Financial Officer and a Director ofSeemorgh Investments, Inc.

 

*Dennis J.Simonis.* 53 years old; director of Managing Partnersince August 2002; President and Chief Operating Officer of ManagingPartner from August 2001 until December 2004, Chief Financial Officerfrom June 2001 to August 2001, and Chief Executive Officer since December 2004.Chief Financial Officer of DBE from August 2001, and President of DBE fromOctober, 2005 through April 2009.

 

*Scott C.Wallace.*  54 years old; director of Managing Partner since June 2007; President and CEO ofFruit Patch since July 2009.  GlobalVice President, Sales and Marketing of SVP Worldwide from July 2006 to July 2009.  Chairman, President and Chief ExecutiveOfficer of Gardenburger, Inc from January 2001 to July 2006.

 

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**B.  Identification of Executive Officers of theManaging Partner**

 

*Dennis J.Simonis. *53 years old; president of Managing Partner since August 2001;and chief executive officer since December 2004. Formerly executive vicepresident and chief operating officer of Mauna Loa and Chief Financial Officerand President of DBE.

 

*RandolphH. Cabral. *57**years old;senior vice president and orchard manager of Managing Partner since May 2000.Formerly senior vice president and orchard manager of KACI.

 

*Wayne W.Roumagoux*.  63 years old; chief financial officer ofManaging Partner since August 2001.

 

**C.  Identification of Certain SignificantEmployees**

 

Not applicable

 

# ***D.  Family Relationships***

# *** ***

Not applicable

 

**E**.  **Business Experience of Current Directors and Executive Officers**

 

***CurrentDirectors of the Managing Partner.***

 

*John K. Kai.*  Mr. Kaihas served as a director since June 2004. Mr. Kai is president of Pinnacle Investment Group, LLC and PinnacleMedia Group, LLC, and branch manager and investment representative ofCommonwealth Financial Network.  Mr. Kaiwas the resident manager of the Hilo office of Paine Webber, Inc. and waswith Merrill Lynch prior to Paine Webber, Inc.  Mr. Kai is a graduate of Sacramento CityCollege and attended the University of the Pacific from 1983 to 1985.  Mr. Kai served on the Board of Regentsof the University of Hawaii and was a director of the Research Corporation ofthe University of Hawaii, the Hawaii Island Portuguese Chamber of Commerce andhas served on several nonprofit boards in Hawaii.  Mr. Kai has experience and knowledge ofglobal economics, equity markets, securities, financial instruments and isactive in local and state government issues. He resides in Hilo, Hawaii.

 

*JamesS. Kendrick.   *Mr. Kendrickhas over 36 years of experience in the food processing industry and iscurrently a consultant to various food companies.  Mr. Kendrick held executive positions atMauna Loa Macadamia Nut Corporation from 1991 to 1998, including Executive VicePresident of Operations and President. Between 1978 and 1983, he was the Manager of the Honolulu Dole Pineapplecannery.  Mr. Kendrick worked for KraftFoods as an engineer.  He is a graduateof Northern Illinois University and Cornell’s Executive DevelopmentProgram.  Mr. Kendrick provides ahigh degree of general manufacturing acumen and extensive macadamia growing,processing and marketing experience and expertise to the Partnership.  He currently resides in Naples, Florida.

 

*E. AlanKennett. *Mr. Kennett has workedin various executive capacities in the agriculture sector for over 40 years andcurrently is the President and Chief Executive Officer of Gay and RobinsonSugar Company, Inc. on Kauai, Hawaii. He held various positions in the Hawaii sugar industry with C. Brewerand Co., Ltd. between 1976 and 1994. Prior to 1976, Mr. Kennett managed sugar operations in Africa, theUnited Kingdom and the West Indies.  Heis a graduate of Walton Technical College and the Liverpool College ofTechnology and completed Cornell’s Executive Development Program.  Mr. Kennett has been active in numerousHawaii non-profit organizations and has written several technical papers.  He possesses an in-depth knowledge ofagricultural practices and management, particularly those in the state ofHawaii.  He currently resides inKaumakani, Kauai, Hawaii.

 

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*JeffreyM. Kissel. *Mr. Kisselhas been the President of The Gas Company, since December 2007. He was thePresident and Chief Executive Officer of Safe Renewables Corporation, anestablished marketer and producer of “Biodiesel” or “B100”, a substitute forconventional petroleum diesel, located in Houston, Texas.  He was the Chief Financial Officer for EarthTech Inc. from 2003 to 2005, a $1.5 billion global engineering and constructioncompany specializing in water treatment, and has held various financialexecutive positions in publicly traded companies since 1974.  From 1997 to 2003, Mr. Kissel wasemployed by URS Corporation as a vice president of planning and budgeting, andserved as Chief Financial Officer for several URS Corporation divisions.  Mr. Kissel was President and principalshareholder of Hawaiian Communications between 1992 and 1997.  Prior to 1992 he worked with Tesoro, AON andChallenger Petroleum in the energy industry. Mr. Kissel possesses a broad range of general management experiencein both private and public companies and has a high level of financialexpertise.  He has a B.B.A. and M.B.A.from the University of Hawaii and currently resides in Honolulu, Hawaii.

* *

*BradfordC. Nelson*.  Mr. Nelson has served as a Director ofthe Managing Partner since October of 2009.  He is the Chief Financial Officer and aDirector of Seemorgh Investments, Inc., an entity owned by Mr. FredEbrahimi, the Partnership’s largest unitholder currently owning about 38.4% ofthe Partnership’s Class A units. Seemorgh manages all aspects of Mr. Ebrahimi’s finance and realestate holdings, including a large project in India called QuarkCity.  Mr. Nelson is a CPA and has served as anofficer of other private and public companies in Colorado from 1994 until 2001,when he joined Mr. Ebrahimi’s companies. He received his BSBA in Finance in 1989 and his Masters in Accountancyin 1991 from the University of Denver.  Mr. Nelsoncontributes global financial management experience and expertise and providesdirect representation for the unit holders as he is an employee of thePartnership’s largest unit holder.  Heresides in Thornton, Colorado.

 

*Dennis J.Simonis*.  Mr. Simonis has served as a directorsince August 2002, president of the Managing Partner since August 2001,chief executive officer since December 2004, and was formerly theexecutive vice president and chief financial officer. From 1993 to 2001, Mr. Simonisserved in various capacities at Mauna Loa, including executive vice presidentand chief operating officer.  He servesas an officer of the Hawaii Macadamia Nut Association and has served on severalnonprofit boards in Hawaii. He served from 1985-1993 as a vice president ofTheo H. Davies & Co., Ltd. and worked as a senior auditor for PriceWaterhouse between 1979 and 1985. Mr. Simonis has over 15 years ofexecutive management experience within the Hawaii macadamia industry andpossesses financial expertise and experience. Mr. Simonis graduated magna cum laude with a B.S. in Accountingfrom Carroll College in Waukesha, Wisconsin and earned his C.P.A. certificatein 1983. He resides in Hilo, Hawaii.

 

*Scott C.Wallace.*  Mr. Wallace has served as a directorsince June 2007.  He has beenPresident and CEO of Fruit Patch since July 2009.  Fruit Patch is one of the largest processor/marketersof fresh fruit in the United States specializing in peaches, plums, nectarines,grapes, and specialty fruits. Mr. Wallace has been involved with consumerproducts, general management, marketing, sales, processing, manufacturing, anddistribution for his entire career.  Mr. Wallacehas spent over 25 years in progressively more senior management positions inthe consumer goods industry.  Prior tojoining SVP Worldwide, he was Chairman, President and Chief Executive Officerof Gardenburger, Inc. until taking the company private in 2006.  Previously, he was president and ChiefExecutive Officer of Mauna Loa Macadamia Nut Corporation until 2000.  He has also served in management capacitieswith SVP Worldwide (2006 through 2009), Jacobs Suchard (1988 through 1994),Eastman Kodak Company (1985 through 1988) and Procter & Gamble (1978through 1985).  Mr. Wallace providesthe Board of Directors broad general management and executive level sales andmarketing expertise.  Mr. Wallacereceived his Bachelor of Arts in International Business Management andMarketing from San Francisco State University.

 

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***ExecutiveOfficers Who Do Not Serve as Directors.***

 

*RandolphH. Cabral. *Mr. Cabral has served as senior vicepresident and orchard manager of the Managing Partner since May 2000.  Mr. Cabral was previously employed at Ka’uAgribusiness Company, Inc., from 1989 until the Partnership’s acquisitionof Ka’u Agribusiness’ macadamia business in 2000.  He served as senior vice president from 1998to 2000, as vice president from 1996 to 1998, and as orchard manager from1989.  From 1983 to 1989, Mr. Cabralserved as orchard manager with Mauna Loa Macadamia Nut Corporation.  Mr. Cabral has an A.S. in GeneralAgriculture from the University of Hawaii. He resides in Hilo, Hawaii.

 

*Wayne W. Roumagoux.*   Mr. Roumagoux has served as chieffinancial officer of the Managing Partner since August 2001.  Mr. Roumagoux has been controller of thePartnership since May 2001.  From1989 to 2001, Mr. Roumagoux was controller for Inlet Fisheries, Inc.  He was controller for NBI, Inc’s Alaskaoperation and for Sheffield Hotels, Inc. during the late 1970’s and 1980’s.  Mr. Roumagoux worked as a senior auditorfor KPMG between 1976 and 1978.  He has aM.S. in accounting from Eastern Washington State University in Cheney,Washington.  He resides in Volcano,Hawaii.

 

**Board Meetings and Committees;Special Meeting Attendance.**  During 2009,four meetings of the Board of Directors were held.  Each director attended at least 75% of themeetings of the Board and of all committees of the Board on which he servedduring 2009.  The Partnership does nothave a policy with respect to Board members attendance at special meetings ofpartners.

 

**Executive Session. **The executivesession, a meeting of non-management directors, is presided over by JeffreyKissel who can be communicated with by e-mail at jeffreykissel@gmail.com.

 

**Audit Committee. **Effective March 2,2006, Jeffrey Kissel was appointed chairman of the Audit Committee.  The members of the Audit Committee andCorporate Governance Committee in 2009 were Jeffrey Kissel, Alan Kennett, JohnKai and David McClain (resigned from the Board June 30, 2009).  The Board of Directors has determined thateach member of the Audit Committee is independent in accordance with NYSE rules andeach member is financially literate, and Mr. Kissel qualifies as afinancial expert.  The Partnership hasadopted standards for independence and said standards are in the Partnership’s CorporateGovernance Guidelines at the Partnership’s website www.mlmacadamia.com.  The Audit Committee met four times in 2009 toreview and approve accounting, internal control and reporting issues, relatedparty transactions and other matters that could involve a conflict ofinterest.  All members were in attendanceat each quarterly meeting.

 

The Audit Committee has discussed with the independent registeredpublic accountants, Accuity, the matters required to be discussed by Statementon Auditing Standards No. 114 (The Auditor’s Communication With ThoseCharged With Governance), as may be modified or supplemented, as amended and asrequired by S-X Rule 2-07.

 

The Audit Committee has discussed with Accuity their independence andwhether Accuity’s provision on non-audit related services is compatible withmaintaining the Accuity’s independence from management and the Partnership andhas received from Accuity the written disclosures and the letter required bythe Independence Standards Board Standard No. 1, as may be modified orsupplemented, including written materials addressing the internal qualitycontrol procedures of Accuity.

 

Audit Committee meetings were conducted so as to encouragecommunication among the members of the Audit Committee, management, and thePartnership’s independent auditors. Among other things, the Audit Committee discusses with the Partnership’sindependent auditors the overall scope and plans for their respective audits,and the results of such audits.  TheAudit Committee separately met with Accuity’s representatives, with and withoutmanagement present.

 

The Audit Committee has reviewed and discussed the audited financialstatements for the year ended December 31, 2009 with management and theindependent auditors of the Partnership. Based upon the above-mentioned reviews and discussions the AuditCommittee has recommended to the Board that the audited financial statements beincluded in the Partnership’s Annual Report on Form 10-K for the yearended December 31, 2009.

 

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**Audit Committee Charter.  **The AuditCommittee Charter is available by request or on the Partnership’s website atwww.mlmacadamia.com .

 

**Audit Committee Pre-Approval Policy.  **The Audit Committee Pre-Approval Policy is available by request or onthe Partnership’s website.

 

**Ethics. **The “Code ofBusiness Conduct and Ethics”, which applies to principal executive officers,principal financial officer, principal accounting officer or controller orpersons performing similar functions and all employees of the Partnership, isavailable by request or on the Partnership’s website.

 

**Corporate Governance Guidelines.**  The Corporate Governance Guidelines areavailable by request or on the Partnership’s website.

 

**NominatingCommittee. **The Partnership formeda Nominating Committee and the charter was adopted in May 2005.  The members of the Nominating Committee areindependent under Section 15A(a) of the Exchange Act.  Unit Holders may recommend candidates for theBoard of Directors by submitting such recommendation in writing toPartnership.  The members of theNominating Committee are Mr. John Kai, Mr. Jeffrey Kissel and Mr. E.Alan Kennett.  The minimum qualificationsrequired for a Director of the Partnership, whether submitted by the NominatingCommittee or a Unit Holder, are (1) professional qualification, (2) numberof other boards on which the candidate serves, (3) other business andprofessional commitments, (4) the need of the Board of Directors forhaving certain skills and experience, and (5) the diversity of thedirectors then comprising the Board.  TheNominating Committee shall evaluate a candidate based upon the qualificationsdescribed above, based upon a written resume and then the CEO and NominatingCommittee will interview the candidate. The Nominating Committee shall determine whether or not to recommend thecandidate to the Board of Directors.  TheNominating Committee Charter is available by request or on the Partnership’swebsite.

 

**CompensationCommittee. **The Partnership formeda Compensation Committee and the charter was adopted in May 2005.  The members of the Compensation Committee areindependent under Section 15A(a) of the Exchange Act. TheCompensation Committee Charter is available by request or on the Partnership’swebsite.  The members of the CompensationCommittee are Mr. John Kai, Mr. Jeffrey Kissel and Mr. E. AlanKennett.  The Compensation Committeedetermines the executive and director compensation based upon the Partnership’sfinancial performance, the executive’s performance and the marketconditions.  The Compensation Committeerecommends the level of compensation for the executive officers to the Board ofDirectors for its determination.  TheCompensation Committee is solely responsible for the recommendation ofexecutive officers salary, bonus and benefit compensation.  The Compensation Committee has not utilizedcompensation consultants in determining or recommending the amount or form ofexecutive or director compensation.  TheCEO/President provides recommendations to the Compensation Committee for thoseexecutive officers which report directly to him.

 

**Compensation Committee Interlocksand Insider Participation.**  The members ofthe Compensation Committee during 2009 were Messrs. McClain (resigned June 30,2009), Kai, Kissel and Kennett.  Nomember of the Compensation Committee was an officer or employee or formerofficer for the Partnership or the General Partner or had any relationshiprequiring disclosure under Item 404 of Regulation S-K.

 

**F.**              Section 16Disclosure

 

Under Section 16 ofthe Securities Exchange Act of 1934, as amended (the “Exchange Act”), eachdirector and certain officers of ML Resources, Inc., the managing generalpartner of Registrant (a “Reporting Person”), are required to report theirownership and changes in ownership of Class A Depositary Units to theSecurities and Exchange commission, and Registrant.  Based on reporting forms submitted toRegistrant, no Reporting Person has failed to file on a timely basis reportsrequired by Section 16(a) of the Exchange Act during 2009.

 

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**ITEM 11.  EXECUTIVE COMPENSATION**

 

**A.  Compensation Discussion and Analysis**

 

As a publicly tradedlimited partnership we operate under our limited partnership agreement.  ML Resources, Inc., as our generalpartner, directs, controls and manages all of our activities.  The general partner is a wholly ownedsubsidiary of the Partnership and has no employees and receives no fees fromthe partnership.  All costs of managingthe Partnership are reimbursed by the Partnership, as provided in Section 4.5of the Partnership Agreement.  The boardof directors of the general partner has a compensation committee comprised ofindependent directors and sets the compensation philosophy and structure forexecutive officers of the Partnership. Compensation arrangements, including salaries, incentives and otherbenefits are recommended by the compensation committee and approved by theboard of directors of the general partner. Executive officers are:

 

Dennis J. Simonis —President and Chief Executive Officer

Randolph H. Cabral— Senior Vice President Operations

Wayne W. Roumagoux— Vice President and Chief Financial Officer

 

**Overview of CompensationPhilosophy and Programs**

 

Our executivecompensation programs are designed and administered by the Board of Directorsof the Managing Partner.  Through theexecution of its charter, our Compensation Committee recommends to the Board ofDirectors, all of the forms of compensation for our named executive officers,including base salary, bonus plan and defined contribution plan and relatedgoals.  Executive compensation isdetermined by the Compensation Committee and approved by the Board of Directorsbased upon the Partnership’s financial performance, the personal performance ofthe executive and by market conditions. It is the Compensation Committee’s intention to set totals for theexecutive officers for cash compensation sufficiently high enough to attractand retain a strong motivated leadership team. The Board of Directors has the discretion to terminate or modifyincentive plans and adjust or disapprove executive bonus payouts.  The Board of Directors can approvediscretionary incentives based upon individual performance in their area ofresponsibility.

 

***Elementsof Compensation***

 

The Partnership has a payfor performance philosophy and programs that are designed to be aligned withthe interests of the business as well as its unit holders.  A significant portion of total direct compensationof senior management is dependent on actual performance measured against shortterm goals which are approved annually by the Board of Directors.  The Partnership offers no stock-options norequity-based incentives of long-term deferred compensation.

 

The elements oftotal compensation for executive officers include:

 

Base compensation —to provide a fixed level of compensation for performing day-to-dayresponsibilities, competency, and for attraction and retention when combinedwith the Partnership’s short-term incentive program.

 

Short-termincentive — to provide a competitive, performance based cash award based onpre-determined Partnership goals that measure the execution of the businessstrategy over a one-year period.

 

Benefits — toprovide security pertaining to health and welfare risks in a flexible manner tomeet individual needs.

 

Savings plan — toprovide the opportunity to save additional funds for retirement or otherfinancial goals by way of a Partnership sponsored 401-K plan.

 

Definedcontribution plan — to provide a competitive retirement benefit.

 

Employmentagreements — to provide specific total compensation terms in situations ofinvoluntary termination or change in control.

 

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**Base Salary**

 

Base salaries forexecutive officers reflect a balance of market conditions, role, individualcompetency and attraction and retention considerations.  Increases in base pay for executive officersare based primarily on individual performance and competitive considerations.

 

**Short-term Incentive Plan**

 

The short-term executiveincentive plan is performance based.  Theprogram provides for incentives based upon net consolidated income (loss) andcash flow (as defined by the Partnership Agreement) from the operating plan,which are approved by the Board of Directors, with guideline rates establishedbetween 20% and 35% of the employee’s base salary.  No bonus will be earned if the Partnershipperformance is below 75% of the required net income (loss) and cash flow (asdefined by the Partnership Agreement). If the bonus performance measures are exceeded then the percentageincrease is determined and the bonus is increased by that percentage.  The bonus is limited to a maximum of 200% ofthe target bonus and bonuses to all executives and non-executives cannot exceed15% of Partnership’s cash flow.  Thebonus compensation level and related payment requires Board of Directorapproval.

 

The short-termnon-executive incentive plan is performance based.  The program provides for incentives basedupon net consolidated income (loss) and cash flow (as defined by thePartnership Agreement) from the operating plan, which are approved by the Boardof Directors, with guideline rates established between 3% and 6% of theemployee’s base salary.  No bonus will beearned if the Partnership performance is below 75% of the required net income(loss) and cash flow (as defined by the Partnership Agreement).  If the bonus performance measures areexceeded then the percentage increase is determined and the bonus is increasedby that percentage.  The bonus is limitedto a maximum of 200% of the target bonus and bonuses to all executives andnon-executives cannot exceed 15% of Partnership’s cash flow.  The bonus compensation level and relatedpayment requires Board of Director approval.

 

**Savings Plan**

 

The Partnership sponsorsa 401(k) plan, which allows employees, except employees who are includedin a unit of employees covered by a collective bargaining agreement, tocontribute up to an amount not to exceed the employee’s covered compensationfor the plan year reduced by required withholdings, subject to annuallimitations.  The plan provides for thePartnership to make matching contributions up to 50% of the first 4% of salarydeferred by employees.

 

**Defined Contribution Plan**

 

The defined contributionplan is provided in lieu of a retirement plan and is based upon standardguidelines for all employees, except employees who are included in a unit ofemployees covered by a collective bargaining agreement.  The defined contribution and the relatedpayment, requires annual approval by the Board of Directors.

 

**Employment and SeveranceAgreements**

 

The agreements providethat the Partnership shall employ each individual for a minimum term oftwenty-four (24) months (principal executive officer) or eighteen (18) months(principal financial officer and named executive officer) on a rollingbasis.  Thus, the employment agreementsshall always have twenty-four (24) or eighteen (18) months to run based uponthe employee.  Either the Partnership orthe employee has the right to terminate the employment agreement such that theemployment agreement shall terminate at the end of either twenty-four (24) oreighteen (18) months based upon which employment agreement is terminated.  All current benefits provided by thePartnership shall remain in effect.  Theemployment agreement provides for severance should the employees be terminatedWithout Cause or if they should resign for Good Reason as defined in theagreements.  The agreements includelimited covenants for not to compete and for non-disclosure of confidentialinformation.

 

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The total severance whichwould be payable under the agreements is the equivalent of 24 months of basepay or $490,000 for Dennis J. Simonis, President and CEO, and 18 months of basepay or $274,000 for Randolph H. Cabral, Senior Vice President Operations and$240,000 for Wayne W. Roumagoux, Vice President and Chief Financial Officer.

 

The Partnership iscommitted to maximizing unit holder value, and dedicated to attracting andretaining the necessary talent to accomplish this objective.  The compensation philosophy is designed todirectly align the interests of unit holders and employees through compensationprograms that will reward employees for performance that builds long-term unitholder value.

 

**Summary Compensation Table**

 
| ** **                       | ** ** | **Annual Compensation** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------|------------|-------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                       | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | **Board**  | ** ** | **Defined** | ** ** | **Other** | ** ** | ** ** | ** ** |
| **Name  and Principal Position** | ** ** | **Year**                | ** ** | **Salary** | ** ** | **Bonus**  | ** ** | **Fees**   | ** ** | **Contribution** | ** ** | **(a)** | ** ** | **Total** | ** ** |
| Dennis  J. Simonis               |       | 2009                    |       | 260,000    |       | 145,000    |       | 20,000     |       | 18,202 |   | 4,900 |   | 448,102 |   |
| President  and chief             |       | 2008                    |       | 260,000    |       |       | (b)        | 19,000     |       | 12,530 |   | 4,900 |   | 296,430 |   |
| executive  officer               |       | 2007                    |       | 260,000    |       | —     |       | 19,000     |       | 12,100 |   | 4,900 |   | 296,000 |   |
|                             |       |                    |       |       |       |       |       |       |       |   |   |   |   |   |   |
| Randolph  H. Cabral              |       | 2009                    |       | 137,000    |       | 56,400     |       | —     |       | 12,681 |   | 5,600 |   | 211,681 |   |
| Senior  vice president           |       | 2008                    |       | 137,000    |       |       | (b)        | —     |       | 12,955 |   | 5,600 |   | 155,555 |   |
|                             |       | 2007                    |       | 137,000    |       | —     |       | —     |       | 16,800 |   | 5,600 |   | 159,400 |   |
|                             |       |                    |       |       |       |       |       |       |       |   |   |   |   |   |   |
| Wayne  Roumagoux                 |       | 2009                    |       | 120,000    |       | 44,000     |       | —     |       | 6,327 |   | 3,900 |   | 174,227 |   |
| Chief  financial officer         |       | 2008                    |       | 120,000    |       |       | (b)        | —     |       | 6,555 |   | 3,900 |   | 130,455 |   |
|                             |       | 2007                    |       | 120,000    |       | —     |       | —     |       | 7,500 |   | 3,900 |   | 131,400 |   |

 

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(a)  The amount inthis column is the cost for an automobile provided by the Partnership.

(b)  2008 bonus wasearned but waived by executive management.

 

**B.  No Option, SAR, Long-term Incentive orPension Plans**

 

Neither the Managing Partnernor the Partnership presently has option plans, SAR plans, or long-termincentive plans.  All salaried employeesparticipate in a defined contribution plan and other benefit plans administeredby the Partnership.  The officers of theManaging Partner are employees of the Partnership, which does not have adefined benefit plan for non-bargaining employees. As such, neither theManaging Partner nor the Partnership are responsible for making any payments onthe retirement of any of its present executive officers.

 

**C.  Employment Contracts and TerminationAgreements**

** **

The Managing Partner has employment agreements withits executive officers.  Refer to Item11A Executive Compensation, Employment and Severance Agreements.

 

**D. Compensation of Executive Officers**

 

Executive compensation is reviewed and determined bythe Compensation Committee and recommended to the Board of Directors which hasapproval responsibility.  The executiveofficers are:  Mr. Simonis, who hasserved as its chief executive officer and president since December 2004,president since August 2001 and chief financial officer from May 2001until August of 2001; Mr. Cabral, has served as senior vice presidentand orchard manager since May 2000 and Mr. Roumagoux, has served aschief financial officer since August of 2001.  These officers’ salary and guideline bonuspercentage are administered under the salary policies established and approvedby the Board.  Any bonus payments areapproved by 

 

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the Managing Partner’s Board of Directors annually,based on the overall performance of the Partnership as evidenced by its netconsolidated income (loss) and cash flow for the year.  Performance in both categories is measuredrelative to the original Partnership operating budget approved by the ManagingPartner’s Board of Directors at the beginning of each year.  The Board of Directors can approvediscretionary incentives.

 

**E.  RiskAssociated with Compensation Practices**

 

ML Macadamia Orchards, L. P. employs all personsnecessary for the operation of our business, and in our opinion, ourcompensation policies and practices for all persons necessary for the operationof our business do not create risks that are reasonably likely to have amaterial adverse effect on our business, financial position, results ofoperations or cash flow.

 

**Compensation Committee Report**

 

The Compensation Committee, during fiscal 2009, wascomprised of four directors, Mr. Kissel, Mr. Kai, Mr. Kennettand Dr. McClain (resigned June 30, 2009), each of whom the Board ofDirectors has determined meets the criteria for independence under MLR’s governanceguidelines and the New York Stock Exchange rules.

 

The Compensation Committee has discussed the aboveCompensation Discussion and Analysis for the fiscal year 2009 withmanagement.  Based on this review anddiscussion, the Compensation Committee recommended to its Board of Directorsthat this Compensation Discussion and Analysis be included in this annualreport on Form 10-K for the fiscal year 2009.

 

**E.  Director Compensation**

 

Directors of the Managing Partner presently receive aquarterly retainer of $3,750 and a meeting fee of $1,000 per meeting.  Members of the Managing Partner’s Audit andConflicts Committee receive a meeting fee of $1,000 per meeting with thechairman of the Audit Committee receiving an additional $750 per meeting.  There are no other agreements orarrangements, including no stock or stock option plans, between the ManagingPartner and its directors.

 
| ** **                     | ** ** | **Annual Compensation**      | ** ** | ** ** | ** ** |
|--------------------------------|------------|------------------------------|------------|------------|------------|
| **Name  of Director**          | ** ** | **Year**                     | ** ** | **Fees**   | ** ** | **Meeting** | ** ** | **Audit Chair** | ** ** | **Total** | ** ** |
| John  K. Kai                   |       | 2009                         |       | 15,000     |       | 10,000 |   | — |   | 25,000 |   |
| James  S. Kendrick             |       | 2009                         |       | 15,000     |       | 5,000 |   | — |   | 20,000 |   |
| E.  Alan Kennett               |       | 2009                         |       | 15,000     |       | 9,000 |   | — |   | 24,000 |   |
| Jeffrey  M. Kissel             |       | 2009                         |       | 15,000     |       | 10,000 |   | 3,750 |   | 28,750 |   |
| David  McClain                 |       | 2009                         |       | 7,500      |       | 4,000 |   | — |   | 11,500 |   |
| Bradford  C. Nelson            |       | 2009                         |       | 3,750      |       | 1,000 |   | — |   | 4,750 |   |
| Dennis  J. Simonis             |       | 2009                         |       | 15,000     |       | 5,000 |   | — |   | 20,000 |   |
| Scott  C. Wallace              |       | 2009                         |       | 15,000     |       | 5,000 |   | — |   | 20,000 |   |
|                           |       |                         |       |       |       |   |   |   |   |   |   |
| ** **                     | ** ** | **Annual Compensation** | ** ** | ** ** | ** ** |
| **Name of Director** | ** ** | **Year**                     | ** ** | **Fees**   | ** ** | **Meeting** | ** ** | **Audit Chair** | ** ** | **Total** | ** ** |
| John  K. Kai                   |       | 2008                         |       | 15,000     |       | 7,000 |   | — |   | 22,000 |   |
| James  S. Kendrick             |       | 2008                         |       | 15,000     |       | 4,000 |   | — |   | 19,000 |   |
| E.  Alan Kennett               |       | 2008                         |       | 15,000     |       | 8,000 |   | — |   | 23,000 |   |
| Jeffrey  M. Kissel             |       | 2008                         |       | 15,000     |       | 8,000 |   | 3,000 |   | 26,000 |   |
| David  McClain                 |       | 2008                         |       | 15,000     |       | 8,000 |   | — |   | 23,000 |   |
| Dennis  J. Simonis             |       | 2008                         |       | 15,000     |       | 4,000 |   | — |   | 19,000 |   |
| Scott  C. Wallace              |       | 2008                         |       | 15,000     |       | 4,000 |   | — |   | 19,000 |   |

 

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**ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED UNIT HOLDER MATTERS**

 

As of December 31, 2009, and subsequent to that dateto the date of this report, the Managing Partner did not own any Class AUnits; and no director or executive officer of the Managing Partner owned morethan 1% of the Class A Units.

 

The table below setsforth certain information concerning those persons known by the Partnership orthe Managing Partner to be the beneficial owner of more than 5% of the Class AUnits as of March 11, 2010.

 
| ** **                            | ** ** | ** **       | ** ** | **Percent**      | ** ** |
|---------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                            | ** ** | **Class A** | ** ** | **of**           | ** ** |
| **Name  of**                          | ** ** | **Units**        | ** ** | **Class A** | ** ** |
| **Beneficial  Owner**                 | ** ** | **Owned**        | ** ** | **Units**        | ** ** |
|                                  |       |             |       |             |       |
| Farhad Fred and Mary Wilkie  Ebrahimi |       | 2,884,378        |       | 38.5             | %          |
| Husband  and Wife                     |       |             |       |             |       |
| 283  Columbine Street, Suite 117 |       |             |       |             |       |
| Denver,  CO 80206                     |       |             |       |             |       |
|                                  |       |             |       |             |       |
| Barry W. Blank                        |       | 582,250          |       | 7.8              | %          |
| 2777  Paradise Road                   |       |             |       |             |       |
| Las  Vegas, NV 89019                  |       |             |       |             |       |

 

The table below setsforth certain information as to the Class A Units beneficially owned bythe directors of the Managing Partner, and all directors and executive officersof the Managing Partner as a group, as of December 31, 2009.

 
| **Name  of Beneficial Owner**                                | ** ** | **Class A Units Owned** | ** ** | **Percent of Class A Units** | ** ** |
|--------------------------------------------------------------|------------|------------------------------|------------|-----------------------------------|------------|
| Randolph H. Cabral                                           |       | 100                          |       | *                                 |       |
| John K. Kai                                                  |       | 100                          |       | *                                 |       |
| James S. Kendrick                                            |       | 1,500                        |       | *                                 |       |
| E. Alan Kennett                                              |       | —                       |       | *                                 |       |
| Jeffrey M. Kissel                                            |       | 3,239                        |       | *                                 |       |
| David McClain                                                |       | —                       |       | *                                 |       |
| Dennis J. Simonis                                            |       | 1,000                        |       | *                                 |       |
| Brad Nelson                                                  |       | 5,186                        |       | *                                 |       |
| Wayne W. Roumagoux                                           |       | —                       |       | *                                 |       |
| All directors and  executive officers as a group (8 persons) |       | 11,125                       |       | 0.15                              | %          |

 

----

*Less than 1%

 

**ITEM13.  CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS, AND DIRECTOR INDEPENDENCE**

 

**(a) General**

 

Set forth below aretransactions after January 1, 2009 and any currently proposedtransactions, in which the Partnership was or is to be a participant where theamount involved exceeds $120,000, and in which any related person had or willhave a direct or indirect material interest:

 

60

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***Relationshipswith DBE***

 

Since September 2001, the Partnership has leasedapproximately 4,000 s.f. of office space in Hilo on a month-to-month basis forits executive and accounting staff from DBE and paid $60,000 in 2009 and isrequired to pay $60,000 in future years. The Partnership provides administrative services to DBE for which it wascompensated $19,000 in 2009, $73,000 in 2008, and $100,000 in 2007.  Mr. Simonis is President and a Directorof ML Resources, Inc. and was President of DBE from August 21, 2006through April 15 2009, but has no direct or indirect ownership interest insuch company and receives no economic benefit from these transactions.

 

**(b)  Review, Approval orRatification of Transactions with Related Persons.**

 

The Partnership has no writtenpolicy or procedures for the review and approval of transactions with relatedpersons.  However, its internalprocedures require that transactions with related persons are disclosed to theAudit Committee.  The Audit Committeereviews each transaction to ensure that it is arms-length and then makes adecision on the transaction’s appropriateness.

 

***Director Independence***

 

The Board of Directors hasdetermined that each member of the Board of Directors is independent inaccordance with NYSE rules except for Dennis J. Simonis.  The other members of the Board of DirectorsJohn K. Kai, James S. Kendrick, E. Alan Kennett, Jeffrey M. Kissel, Scott C.Wallace and Brad Nelson are independent under the NYSE independence standards.

 

**ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES**

 

**Pre-Approval Policies and Procedures. **Under the Sarbanes-Oxley Act of 2002, all audit andnon-audit services performed by our auditors must be approved in advance by ourBoard to assure that such services do not impair the auditors’ independencefrom the Partnership.  In accordance withits policies and procedures, our Board pre-approved the audit and non-auditservice performed by our auditors for our consolidated financial statements asof and for the years ended December 31, 2009, 2008 and 2007.

 

**Audit Fees.  **Feesbilled by the Independent Registered Public Accounting Firm (Accuity LLP)during 2009 and 2008 for the audit of the Partnership’s consolidated financialstatements included on Form 10-K and review of consolidated financialstatements included on Form 10-Q amounted to $112,000 and $86,000,respectively.  The audit fees for theaudit of the Partnership’s annual consolidated financial statements and reviewof consolidated financial statements included in the Partnership’s Form 10-Kfor the year ended December 31, 2009, were approved by the Partnership’saudit committee.

 

**Audit Related Fees.** Audit related fees billed by the IndependentRegistered Public Accounting Firm (Accuity LLP) during 2007 amounted to$10,000, for work performed related to the review of the Partnership’s ProxyStatement in the attempted acquisition of MacFarms.  There were no audit related fees for2008.   Audit related fees billed during2009 for work performed related to the review of the Partnership’s internalcontrol testing amounted to $34,000. Audit related fees were approved by the Partnership’s audit committee.

 

**Tax Fees. **The Partnership’s audit committeepre-approves the fees paid to its Independent Registered Public Accounting Firmfor the preparation of K-1’s for its unit holders and the Partnership’s taxreturns.  The fees paid to PWC, anIndependent Registered Public Accounting Firm, during 2009, 2008 and 2007 fortax preparation and related support services amounted to $219,000, $274,000,and $264,000, respectively.  The tax feeswere approved by the Partnership’s audit committee.

 

61

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### **PART IV**

### ** **

**ITEM 15.  EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENTSCHEDULES**

 

**A.****           ****List of Documents Filed as a Part ofthis Report**

 

1.               *Consolidated FinancialStatements. *See Index to Consolidated FinancialStatements at page 26 of this Form 10-K.

 

2.               *Consolidated Financial StatementSchedules*.  None required.

 

3.               *Exhibits*

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                    |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                                                                                                                                                                                                                         |
| 2.1                 |       | Amended and Restated  Agreement and Plan of Merger, effective as of December 18, 1997, between  Registrant and C. Brewer Homes, Inc. (a)                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                               |
| 2.2                 |       | Asset Purchase  Agreement including Exhibits dated March 14, 2000 (g)                                                                                                                                                                                                                                         |
|                |       |                                                                                                                                                                                                                                                                                                               |
| 3.2                 |       | Form of  Class A Certificate of Limited Partnership as filed with the Secretary  of State of Delaware. (c)                                                                                                                                                                                               |
|                |       |                                                                                                                                                                                                                                                                                                               |
| 3.3                 |       | Certificate of Limited  Partnership of Registrant as filed with the Secretary of State of Delaware.  (c)                                                                                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                               |
| 4.1                 |       | Depositary Agreement  between Registrant, Manufacturers Hanover Trust Company as Depositary and  Mauna Loa Resources Inc. as attorney-in-fact of the limited partners of  Registrant. (c)                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                               |
| 4.2                 |       | Form of Depositary  Receipt. (c)                                                                                                                                                                                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                                               |
| 5.1                 |       | Legal Opinion of  Counsel dated May 1, 2000 (g)                                                                                                                                                                                                                                                               |
|                |       |                                                                                                                                                                                                                                                                                                               |
| 10.2                |       | Macadamia Nut Purchase  Contract between Mauna Loa and Registrant dated December 22, 1986. (b)                                                                                                                                                                                                                |
|                |       |                                                                                                                                                                                                                                                                                                               |
| 10.3                |       | Macadamia Nut Purchase  Contract between Mauna Loa and Registrant dated as of October 1, 1989.  (b)                                                                                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                               |
| 10.4                |       | Contribution Agreement  among Mauna Loa Orchards, L.P. (“MLO”), Ka’u Agribusiness Co., Inc.  (“KACI”), Mauna Kea Agribusiness Co., Inc. (“MKACI”), Mauna Kea  Macadamia Orchards, Inc. (“MKMO”) and Mauna Loa dated as of July 1,  1989. (b) |
|                |       |                                                                                                                                                                                                                                                                                                               |
| 10.5                |       | Lease between the  Trustees of the Estate of Bernice Pauahi Bishop (“Trustees of the Bishop  Estate”) and Mauna Loa. (c)                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                               |
| 10.6                |       | Lease between KACI and  Registrant. (d)                                                                                                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                               |
| 10.7                |       | MLO/MLMO Conveyance  Agreement between MLO and Registrant dated as of October 1, 1989. (b)                                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                                               |
| 10.8                |       | Butcher/MLMO  Contribution Agreement between Howard Butcher III (“Butcher”) and Registrant  dated as of October 1, 1989. (b)                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                                               |
| 10.9                |       | Farming Lease between  KACI and MLO dated as of July 1, 1989. (b)                                                                                                                                                                                                                                             |

 

62

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| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                           |
| 10.11               |       | Farming Lease between  MKACI and MLO dated as of July 1, 1989. (b)                                                                                                                                        |
|                |       |                                                                                                                                                                                                           |
| 10.12               |       | Water Agreement, as  amended, between KACI and Registrant dated as of October 1, 1989. (b)                                                                                                                |
|                |       |                                                                                                                                                                                                           |
| 10.13               |       | Cash Flow Warranty  Agreement among KACI, MKACI and Registrant dated as of July 1, 1989. (b)                                                                                                              |
|                |       |                                                                                                                                                                                                           |
| 10.14               |       | Guarantee Agreement  between Mauna Loa and Registrant dated as of October 1, 1989. (b)                                                                                                                    |
|                |       |                                                                                                                                                                                                           |
| 10.15               |       | Agreement of  Indemnification between CBCL and each director of the Managing Partner. (b)                                                                                                                      |
|                |       |                                                                                                                                                                                                           |
| 10.16               |       | Indemnification  Agreement (Title) among Mauna Loa, KACI and MKACI in favor of Registrant. (b)                                                                                                                 |
|                |       |                                                                                                                                                                                                           |
| 10.17               |       | Indemnification  Agreement (Subdivision) among Mauna Loa, KACI and MKACI in favor of  Registrant. (b)                                                                                                          |
|                |       |                                                                                                                                                                                                           |
| 10.18               |       | Deed between MLO and  Registrant relating to 14% undivided interest in 220 tree acres of macadamia  orchard properties located in the Keaau area of the island of Hawaii (“Keaau  II Orchards”). (b) |
|                |       |                                                                                                                                                                                                           |
| 10.19               |       | Bill of Sale between  MLO and Registrant relating to 14% undivided interest in Keaau II Orchards.  (b)                                                                                                         |
|                |       |                                                                                                                                                                                                           |
| 10.20               |       | Deed between Butcher and  Registrant relating to 86% undivided interest in Keaau II Orchards. (b)                                                                                                              |
|                |       |                                                                                                                                                                                                           |
| 10.21               |       | Bill of Sale between  Butcher and Registrant relating to 86% undivided interest in Keaau II  Orchards. (b)                                                                                                     |
|                |       |                                                                                                                                                                                                           |
| 10.22               |       | Assignment of Partial  Interest in Lease No. 15,020 and consent from MLO to Registrant. (b)                                                                                                               |
|                |       |                                                                                                                                                                                                           |
| 10.23               |       | Assignment of Partial  Interest in Lease No. 16,859 and consent from MLO to Registrant. (b)                                                                                                               |
|                |       |                                                                                                                                                                                                           |
| 10.24               |       | Assignment of Partial  Interest in Lease No. 20,397 and consent from MLO to Registrant. (b)                                                                                                               |
|                |       |                                                                                                                                                                                                           |
| 10.25               |       | Assignment of Lease  from MLO to Registrant relating to Lease from the Trustees of the Bishop  Estate. (b)                                                                                                     |
|                |       |                                                                                                                                                                                                           |
| 10.26               |       | Assignment from MLO to  Registrant relating to certain orchards. (b)                                                                                                                                           |
|                |       |                                                                                                                                                                                                           |
| 10.27               |       | Lease from the Trustees  of the Bishop Estate to MLO. (b)                                                                                                                                                      |
|                |       |                                                                                                                                                                                                           |
| 10.28               |       | Lease No. 15,020  from the Trustees of the Bishop Estate to MLO. (b)                                                                                                                                      |
|                |       |                                                                                                                                                                                                           |
| 10.29               |       | Form of Amendments  to Lease No. 15,020 from the Trustees of the Bishop Estate. (b)                                                                                                                  |
|                |       |                                                                                                                                                                                                           |
| 10.30               |       | Lease No. 16,859  from the Trustees of the Bishop Estate to the Hawaiian Agricultural Company  (a predecessor of KACI). (b)                                                                               |

 

63

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| **Exhibit  Number** | ** ** | **Description**                                                                                                                                     |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                |
| 10.31               |       | Form of Amendments  to Lease No. 16,859 from the Trustees of the Bishop Estate. (b)                                                       |
|                |       |                                                                                                                                                |
| 10.32               |       | Lease No. 20,397  from the Trustees of the Bishop Estate to CBCL. (b)                                                                          |
|                |       |                                                                                                                                                |
| 10.33               |       | Form of Amendments  to Lease No. 20,397 from the Trustees of the Bishop Estate to CBCL. (b)                                               |
|                |       |                                                                                                                                                |
| 10.34               |       | Lease from Richard L.  Hughes to Mauna Loa. (b)                                                                                                     |
|                |       |                                                                                                                                                |
| 10.35               |       | Lease from the Trustees  of the Bishop Estate to Mauna Loa. (b)                                                                                     |
|                |       |                                                                                                                                                |
| 10.36               |       | Co-ownership and  Partition Agreement between KACI and MLO. (b)                                                                                     |
|                |       |                                                                                                                                                |
| 10.37               |       | Co-ownership and  Partition Agreement among Mauna Loa, KACI and MLO.(b)                                                                             |
|                |       |                                                                                                                                                |
| 10.38               |       | Co-ownership and  Partition Agreement between KACI and MLO relating to Lease Nos. 15,020 and  16,859. (b)                                           |
|                |       |                                                                                                                                                |
| 10.39               |       | Co-ownership and  Partition Agreement between MKACI and MLO. (b)                                                                                    |
|                |       |                                                                                                                                                |
| 10.40               |       | Macadamia Nut Purchase  Contract between Mauna Loa and Keaau Macadamia X Corporation (“Keaau Lot 10”)  dated September 15, 1983. (e) |
|                |       |                                                                                                                                                |
| 10.41               |       | Assignment of Owner’s  Interest in Macadamia Nut Purchase Contract and Farming Contract between  Keaau Lot 10 and Registrant. (e)              |
|                |       |                                                                                                                                                |
| 10.42               |       | Warranty Deed between  Keaau Lot 10 and Registrant. (e)                                                                                             |
|                |       |                                                                                                                                                |
| 10.43               |       | Amended and Restated June 1986  Farming Contract, effective January 1, 1998, between Registrant and  KACI. (f)                            |
|                |       |                                                                                                                                                |
| 10.44               |       | Amended and Restated  December 1986 Farming Contract, effective January 1, 1998, between  Registrant and KACI. (f)                        |
|                |       |                                                                                                                                                |
| 10.45               |       | Amended and Restated  1989 Farming Contract, effective January 1, 1998, among Registrant, KACI  and MKACI. (f)                                 |
|                |       |                                                                                                                                                |
| 10.46               |       | Amended and Restated  Farming Contract for the Keaau Lot 10 Orchard, effective January 1,  1998, between Registrant and KACI. (f)         |
|                |       |                                                                                                                                                |
| 10.47               |       | Restated Kaiwiki  Orchards Farming lease between Registrant and MKACI dated February 26,  1997. (f)                                            |
|                |       |                                                                                                                                                |
| 10.48               |       | Credit Agreement  between Registrant and Pacific Coast Farm Credit Services, PCA dated  May 1, 2000 (g)                                        |
|                |       |                                                                                                                                                |
| 10.49               |       | Security Agreement  between Registrant and Pacific Coast Farm Credit Services, PCA dated  May 1, 2000 (g)                                      |
|                |       |                                                                                                                                                |
| 10.50               |       | Orchards Farming Lease  between Registrant and Ka’u Agribusiness Co., Inc. (g)                                                            |
|                |       |                                                                                                                                                |
| 10.51               |       | Macadamia Nut Purchase  Contract between Mauna Loa and the Partnership dated July 1, 2003 for  Keaau Lot X nuts. (h)                           |

 

64

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| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                             |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                        |
| 10.52               |       | Macadamia Nut Purchase  Contract between Hamakua Macadamia Nut Company, Inc. and the Partnership  dated December 16, 2004 effective January 1, 2007. (i)     |
|                |       |                                                                                                                                                                        |
| 10.53               |       | Jim Case resignation  letter from Audit Committee dated March 7, 2005. (i)                                                                                             |
|                |       |                                                                                                                                                                        |
| 10.54               |       | Macadamia Nut Purchase  Contract between Purdyco International, Ltd. and the Partnership dated  January 5, 2006 effective January 1, 2007. (j)                    |
|                |       |                                                                                                                                                                        |
| 10.55               |       | Macadamia Nut Purchase  Contract between Mac Farms of Hawaii, LLC and the Partnership dated  January 6, 2006 effective January 1, 2007. (j)                       |
|                |       |                                                                                                                                                                        |
| 10.56               |       | Macadamia Nut Purchase  Contracts between Mauna Loa Macadamia Nut Corporation and the Partnership  dated June 1, 2006 effective January 1, 2006. (k)              |
|                |       |                                                                                                                                                                        |
| 10.57               |       | Macadamia Nut Purchase  Contract between Mauna Loa Macadamia Nut Corporation and the Partnership  dated June 1, 2006 effective January 1, 2006. (k)               |
|                |       |                                                                                                                                                                        |
| 10.58               |       | Definitive Acquisition  Agreement between ML Macadamia Orchards, L.P. and Mac Farms of Hawaii, LLC  and Kupua Orchards Estates, LLC, dated May 24, 2007. (l)           |
|                |       |                                                                                                                                                                        |
| 10.59               |       | Termination of  Acquisition Agreement between ML Macadamia Orchards, L.P. and Mac Farms of  Hawaii, LLC and Kupua Orchards Estates, LLC, dated December 11, 2007.  (m) |
|                |       |                                                                                                                                                                        |
| 10.60               |       | Amended and Restated  Credit Agreement dated March 10, 2008. (n)                                                                                                       |
|                |       |                                                                                                                                                                        |
| 10.61               |       | Fourth Amendment and  Restated Credit Agreement dated March 14, 2008. (o)                                                                                              |
|                |       |                                                                                                                                                                        |
| 10.62               |       | Fifth Amendment and  Restated Credit Agreement dated May 1, 2008. (p)                                                                                                  |
|                |       |                                                                                                                                                                        |
| 10.63               |       | Second Amended and  Restated Credit Agreement dated July 8, 2008. (q)                                                                                                  |
|                |       |                                                                                                                                                                        |
| 10.64               |       | Addendum to Mauna Loa  Macadamia Nut Purchase Agreement dated July 9, 2008. (r)                                                                                        |
|                |       |                                                                                                                                                                        |
| 10.65               |       | Addendum  to Mauna Loa Macadamia Nut Purchase Agreement dated March 23, 2009. (s)                                                                                      |
|                |       |                                                                                                                                                                        |
| 10.66               |       | Commitment  Letter to extend Revolving Line of Credit Maturity Date dated March 25,  2009 (t)                                                                          |
|                |       |                                                                                                                                                                        |
| 10.67               |       | First  Amendment to Revolving Loan Promissory Note dated June 30, 2009 (u)                                                                                             |
|                |       |                                                                                                                                                                        |
| 10.68               |       | Term  Loan Promissory Note dated June 30, 2009 (v)                                                                                                                     |
|                |       |                                                                                                                                                                        |
| 10.69               |       | Third  Amended and Restated Credit Agreement dated June 30, 2009 (w)                                                                                                   |
|                |       |                                                                                                                                                                        |
| 10.70               |       | Third  Supplemental Security Agreement dated June 30, 2009 (x)                                                                                                         |
|                |       |                                                                                                                                                                        |
| 10.71               |       | Addendum  to Mauna Loa Macadamia Nut Purchase Agreement dated December 22, 3009  (y)                                                                                   |
|                |       |                                                                                                                                                                        |
| 11.1                |       | Statement re:  Computation of Net Income per Class A Unit                                                                                                              |
|                |       |                                                                                                                                                                        |
| 31.1                |       | Form of  Rule 13a - 14(a) [Section 302] Certification — Chief Executive  Officer                                                                   |
|                |       |                                                                                                                                                                        |
| 31.2                |       | Form of  Rule 13a - 14(a) [Section 302] Certification — Chief Financial  Officer                                                                   |
|                |       |                                                                                                                                                                        |
| 32.1                |       | Certification pursuant  to 18 U.S.C. Section 1350 As adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 — Chief Executive Officer            |
|                |       |                                                                                                                                                                        |
| 32.2                |       | Certification pursuant  to 18 U.S.C. Section 1350 As adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 — Chief Financial Officer            |

 

65

----

 

----

| (a)    | Incorporated by  reference to Appendix A of Registrant’s Registration Statement under the  Securities Act on Form S-4, Registration Statement No. 333-46271,  filed February 13, 1998.                                                          |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                |
| (b)    | Incorporated by  reference to the corresponding Exhibit previously filed as an  Exhibit to Registrant’s Registration Statement under the Securities Act  on Form S-1, Registration Statement No. 33-30659, filed October 20,  1989.   |
|   |                                                                                                                                                                                                                                                                |
| (c)    | Incorporated by  reference to the corresponding Exhibit previously filed as an  Exhibit to Registrant’s Registration Statement under the Securities Act  on Form S-1, Registration Statement No. 33-4903, filed June 5,  1986.        |
|   |                                                                                                                                                                                                                                                                |
| (d)    | Incorporated by  reference to the corresponding Exhibit previously filed as an  Exhibit to Registrant’s Annual Report on Form 10-K, Commission  filed No. 1-9145, for the year ended December 31, 1986, filed  March 27, 1987.   |
|   |                                                                                                                                                                                                                                                                |
| (e)    | Incorporated by  reference to the corresponding Exhibit previously filed as an  Exhibit to Registrant’s Annual Report on Form 10-K, Commission  filed No. 1-9145, for the year ended December 31, 1991, filed  March 27, 1992.   |
|   |                                                                                                                                                                                                                                                                |
| (f)    | Incorporated by  reference to the corresponding Exhibit previously filed as an  Exhibit to Registrant’s Registration Statement under the Securities Act  on Form S-4, Registration Statement No. 333-46271, filed  February 13, 1998. |
|   |                                                                                                                                                                                                                                                                |
| (g)    | Incorporated by  reference to the corresponding Exhibit previously filed as an  Exhibit to Registrant’s Form 8-K, Commission filed  No. 001-09145, filed May 8, 2000.                                                                 |
|   |                                                                                                                                                                                                                                                                |
| (h)    | Incorporated by  reference to the corresponding Exhibit previously filed as an  Exhibit to Registrant’s Form 10-K, Commission filed  No. 001-09145, filed March 17, 2004.                                                             |
|   |                                                                                                                                                                                                                                                                |
| (i)    | Incorporated by  reference to the corresponding Exhibit previously filed as an  Exhibit to Registrant’s Form 10-K/A, Commission filed  No. 001-9145, filed June 1, 2005.                                                              |
|   |                                                                                                                                                                                                                                                                |
| (j)    | Incorporated by  reference to the corresponding Exhibit previously filed as an Exhibit to  Registrant’s Form 8-K, Commission filed No. 001-09145, filed  January 9, 2006.                                                             |
|   |                                                                                                                                                                                                                                                                |
| (k)    | Incorporated by  reference to the corresponding Exhibit previously filed as  Exhibit to Registrant’s Form 8-K, Commission filed  No. 001-09145, filed June 5, 2006.                                                                   |
|   |                                                                                                                                                                                                                                                                |
| (l)    | Incorporated by  reference to the corresponding Exhibit previously filed as  Exhibit to Registrant’s Form 8-K, Commission filed  No. 001-09145, filed May 31, 2007.                                                                   |
|   |                                                                                                                                                                                                                                                                |
| (m)    | Incorporated by  reference to the corresponding Exhibit previously filed as Exhibit to  Registrant’s Form 8-K, Commission filed No. 001-09145, filed  December 14, 2007.                                                              |
|   |                                                                                                                                                                                                                                                                |
| (n)    | Incorporated by  reference to the corresponding Exhibit previously filed as  Exhibit to Registrant’s Form 8-K, Commission filed  No. 001-09145, filed March 17, 2008.                                                                 |
|   |                                                                                                                                                                                                                                                                |
| (o)    | Incorporated by  reference to the corresponding Exhibit previously filed as  Exhibit to Registrant’s Form 8-K, Commission filed  No. 001-09124, filed March 20, 2008.                                                                 |
|   |                                                                                                                                                                                                                                                                |
| (p)    | Incorporated by  reference to the corresponding Exhibit previously filed as  Exhibit to Registrant’s Form 8-K, Commission filed  No. 001-09145, filed May 1, 2008.                                                                    |

 

66

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| (q)    | Incorporated by  reference to the corresponding Exhibit previously filed as  Exhibit to Registrant’s Form 8-K, Commission filed  No. 001-09145, filed July 9, 2008.      |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                   |
| (r)    | Incorporated by  reference to the corresponding Exhibit previously filed as  Exhibit to Registrant’s Form 8-K, commission filed  No. 001-09145, filed July 9, 2008.      |
|   |                                                                                                                                                                                                   |
| (s)    | Incorporated by  reference to the corresponding Exhibit previously filed as  Exhibit to Registrant’s Form 8-K, Commission filed  No. 001-09145, filed March 30, 2009.    |
|   |                                                                                                                                                                                                   |
| (t)    | Incorporated by  reference to the corresponding Exhibit previously filed as  Exhibit to Registrant’s Form 8-K, commission filed  No. 001-09145, filed March 30, 2009.    |
|   |                                                                                                                                                                                                   |
| (u)    | Incorporated by  reference to the corresponding Exhibit previously filed as  Exhibit to Registrant’s Form 8-K, Commission filed  No. 001-09145, filed July10, 2009.           |
|   |                                                                                                                                                                                                   |
| (v)    | Incorporated by  reference to the corresponding Exhibit previously filed as  Exhibit to Registrant’s Form 8-K, commission filed  No. 001-09145, filed July 10, 2009.     |
|   |                                                                                                                                                                                                   |
| (w)    | Incorporated by  reference to the corresponding Exhibit previously filed as  Exhibit to Registrant’s Form 8-K, Commission filed  No. 001-09145, filed July10, 2009.           |
|   |                                                                                                                                                                                                   |
| (x)    | Incorporated by  reference to the corresponding Exhibit previously filed as  Exhibit to Registrant’s Form 8-K, commission filed  No. 001-09145, filed July 10, 2009.     |
|   |                                                                                                                                                                                                   |
| (y)    | Incorporated by  reference to the corresponding Exhibit previously filed as  Exhibit to Registrant’s Form 8-K, commission filed  No. 001-09145, filed December 24, 2009. |

 

67

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
|   | **ML MACADAMIA ORCHARDS, L.P.** |
|--------|---------------------------------|
|   | (Registrant)                    |
|   |                            |
|   | By:                             | **ML RESOURCES, INC.** |
|   | (Managing  General Partner)     |
|   |                            |
|   | By:                             | /s/ Dennis J. Simonis |
|   | Dennis  J. Simonis              |
|   | Principal  Executive Officer    |
|   | (and  Duly Authorized Officer)  |
|   |                            |
|   | By:                             | /s/ Wayne W. Roumagoux |
|   | Wayne  W. Roumagoux             |
|   | Principal  Accounting Officer   |
|   | Principal  Financial Officer    |

 

Dated :  March 15, 2010

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities indicated and on thedate set forth above.

 

**ML RESOURCES, INC.**

 
| **Signature** | ** **         | **Title** |
|---------------|--------------------|-----------|
|          |               |      |
| s/s           | Dennis J. Simonis  |      | President and Chief  Executive Officer |
|          | Dennis J. Simonis  |      | Principal Executive  Officer |
|          |               |      | Director |
|          |               |      |   |
| s/s           | Wayne W. Roumagoux |      | Chief Financial Officer |
|          | Wayne W. Roumagoux |      | Principal Accounting  Officer |
|          |               |      |   |
| s/s           | John Kai           |      | Director |
|          | John Kai           |      |   |
|          |               |      |   |
| s/s           | James S. Kendrick  |      | Director |
|          | James S. Kendrick  |      |   |
|          |               |      |   |
| s/s           | E. Alan Kennett    |      | Director |
|          | E. Alan Kennett    |      |   |
|          |               |      |   |
| s/s           | Jeffrey M. Kissel  |      | Director |
|          | Jeffrey M. Kissel  |      |   |
|          |               |      |   |
| s/s           | Bradford C. Nelson |      | Director |
|          | Bradford C. Nelson |      |   |
|          |               |      |   |
| s/s           | Scott C. Wallace   |      | Director |
|          | Scott C. Wallace   |      |   |

 

68

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**EXHIBIT INDEX**

 
| **Exhibit** | ** ** | ** **                                                                                                                                                       |
|-------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **  | ** ** | ** **                                                                                                                                                       |
| 11.1        |       | Statement re:  Computation of Net Income per Class A Unit                                                                                                   |
| 31.1        |       | Form of  Rule 13a - 14(a) [Section 302] Certification — Chief Executive  Officer                                                        |
| 31.2        |       | Form of  Rule 13a - 14(a) [Section 302] Certification — Chief Financial  Officer                                                        |
| 32.1        |       | Certification pursuant  to 18 U.S.C. Section 1350 As adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 — Chief Executive Officer |
| 32.2        |       | Certification pursuant  to 18 U.S.C. Section 1350 As adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 — Chief Financial Officer |

 

69

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