** **

**UNITEDSTATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

### **FORM 10-K/A**

 
| **ý** | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** | ** ** |
|------------|------------|-------------------------------------------------------------------------------------------------|------------|

 

**For the Fiscal Year Ended December 31, 2004**

 

**OR**

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

 

**Commission File Number  1-9145**

 

**ML MACADAMIA ORCHARDS,L.P.**

(Exact Name of registrant as 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 Drive HILO, HAWAII**                         | ** ** | **96720**                            |
| (Address of principal executive offices)                          |       | (Zip Code)                           |
|                                                              |       |                                 |
| Registrant’s telephone number, including area code:          |       | **(808) 969-8057**                   |
|                                                              |       |                                 |
| Registrant’s website:                                        |       | **www.mlmacadamia.com**              |
|                                                              |       |                                 |
| SECURITIES REGISTERED PURSUANT 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                                   |       | New York Stock Exchange                        |
|                                                                       |       |                                           |
| SECURITIES REGISTERED PURSUANT TO SECTION 12(g)  OF THE ACT: **NONE** |

 

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 preceding twelvemonths (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.   Yes  ý     No  o

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this 10-K orany amendment to this 10-K.  o

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Act).  Yes  o   No  ý

 

As of March 14, 2005, 7,500,000 shares of theregistrant’s Class A Units were outstanding, and theaggregate market value of such Units held by non-affiliates was $45,600,000(based on the closing price on that date of $6.08 per Unit).

 

 

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**EXPLANATORY NOTE**

 

ThisAmendment on Form 10-K/A to the Partnership’s Annual Report in Form 10-K forthe year ended December 31, 2004 filed with the Securities and ExchangeCommission on March 24, 2005 is filed to amend and revise the following:

 

The Income Statements – Cost of goods and servicessold is revised such that the classification of costs is consistent with thepresentation and classification of corresponding revenue sources.  This revision does not change the total ofCost of goods and services or total gross margin.  Management Discussion and Analysis has beenrevised to reflect the classification of Cost of goods and services change onpage 17.  Also, we have changed thedescription “Net cash flow per Class A Unit” to “Netcash flow per Class A Unit (as defined in the Partnership Agreement)”;

Item 7B, Delete in entirety;

Notes to Financial Statements (5) -  change the description  “Net cash flow” to “Net cash flow (as definedin the Partnership Agreement)” and addition of additional explanation of basisfor calculation;

Item 9A, Controls and Procedures;

Replace Exhibits 31.1 and 31.2; and

Replace the Exhibits 32.1 and 32.2 CertificationsPursuant to 18 U.S.C. Section 1350, as AdoptedPursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

**PARTI**

** **

**ITEM1.**  BUSINESS OF THE PARTNERSHIP

** **

**(a)General Description of the Business**

 

ML Macadamia Orchards, L.P. (the “Partnership”) is apublicly traded partnership, organized under the laws of the State of Delaware,and engaged in the business of growing and farming macadamia nuts inHawaii.  The Partnership believes that itis one of the world’s largest growers of macadamia nuts.  The Partnership owns or leases approximately4,169 tree acres of macadamia nut orchards in three locations within a 50-mileradius on the island of Hawaii.  (“Treeacres” are acres of the Partnership’s owned or leased lands utilized formacadamia nut orchards.  “Gross acres”includes areas not utilized for orchards.) The Partnership sells all of its macadamia nut production to Mauna LoaMacadamia Nut Corporation (“Mauna Loa”) under long-term nut purchasecontracts.  The Partnership farms its ownorchards and approximately 2,505 additional acres of macadamia orchards forother orchard owners.  The Partnership ismanaged by its general partner, ML Resources, Inc. (“MLR” or the “ManagingPartner”).  On August 1, 2001, allof the stock of the Managing Partner was purchased by D. Buyers Enterprises,LLC (“DBE”).  J.W.A. Buyers is the majorityowner and Member of DBE and the Chairman of the Board of CBCL. . On January 6,2005, the stock of ML Resources, Inc. was purchased from DBE by the Partnershipfor $750,000. Approximately $425,000 of the purchase price will be capitalizedto record the General Partner’s 1% interest in the Partnership and theremainder, attributable to the management contract and fees is expected to beexpensed in the first quarter of 2005.

 

Ownership of Class A Units confers no direct or indirect interest in CBCL, DBEor any of their affiliated entities, or in Mauna Loa.

 

The Partnership commenced operations in June 1986,following its acquisition of interests in approximately 2,423 tree acres ofmacadamia nut orchards from subsidiaries of CBCL.  In December 1986 and October 1989,respectively, the Partnership acquired from subsidiaries of CBCL interests inapproximately 266 and 1,260 additional tree acres of macadamia orchards.  In September 1991 the Partnershipacquired approximately 78 tree acres of producing macadamia orchards.

 

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On May 1, 2000, the Partnership purchased 142 acres ofmacadamia orchards and the macadamia farming operations from subsidiaries ofCBCL.  The farming operations consist offarming contracts, farming equipment, vehicles, a husking plant, irrigationwell, office buildings, garages and warehouses, office furniture and equipmentand material inventories related to macadamia farming.  All the assets and operations are located onthe island of Hawaii.

 

**(b)Financial Information about Industry Segments**

 

The response to this section ofItem 1 incorporates by reference Note 4 of the Notes to the FinancialStatements.

 

**(c)Narrative Description of the Business**

 

**Owned-orchard Segment**

 

The Partnership currentlysells all of the macadamia nuts from its orchards to Mauna Loa under long-termnut purchase contracts.  Mauna Loaprocesses and markets the nuts under the **Mauna Loa****â**brand name and is believed to be one of the largest processors and marketers ofmacadamia nuts in the world.  ThePartnership is Mauna Loa’s largest single supplier of macadamia nuts.  Mauna Loa was a subsidiary of CBCL until itssale in September 2000 to The Shansby Group.  In December 2004 Mauna Loa was purchasedby Hershey Food Corporation.  On May 1,2000, the Partnership began farming its own macadamia orchards.  Prior to that date, subsidiaries of CBCLperformed the farming activities for the Partnership under long-term farmingcontracts.

 

# ***Nut PurchaseContracts.***  ThePartnership is a party to five nut purchase contracts with Mauna Loa.  They cover all nuts produced by the orchardsacquired in June 1986, December 1986, October 1989, September 1991and May 2000, respectively.  The 1986contracts expire in 2006, while the 1989 contract expires in 2019 and alsoprovides for the exclusion of unusable nuts from those purchased by MaunaLoa.  The first three contracts areidentical in all other material respects. The fourth contract was acquired by assignment with the orchard purchasein September 1991 and expired on June 30, 2003. Effective July 1,2003 the fourth contract was renegotiated with an expiration date of December 31,2006. The fourth contract is a set price contract ($0.60 cents per pound at WIS25%) with an adjustment for trash and spoilage outside the range of 10% to 13%.  The first three contracts use a pricingformula based 50% on a two-year trailing average of the macadamia nut pricepublished annually by the United States Department of Agriculture and 50% onMauna Loa’s “netback component.”  Thenetback component is calculated by subtracting Mauna Loa’s processing andmarketing costs per pound and a “capital charge” of 20% from its nut revenuesper pound.  The fifth contract expires in2006.  Its pricing formula is based 100%on the two-year trailing average of USDA reported prices.  The first three nut purchase contracts may beterminated by Mauna Loa upon thirty days’ notice if the Managing Partner isinvoluntarily removed as the managing general partner and replaced by a personor entity not affiliated with Mauna Loa. The fifth contract may be terminated at any time by mutual agreement inwriting.  On December 16, 2004, anew nut purchase contract was signed with Hamakua Macadamia Nut Company (“Hamakua”)for the delivery of six million WIS pounds, effective January 1, 2007. Thecontract provides for a minimum price of 79 cents per pounds and a maximumprice of 99 cents per pound. The pricing formula includes a fixed component of85 cents and a second component based on Hamakua’s average selling price forbulk kernel.  Refer to Exhibit 10.52 onpage 57.

# *** ***

#### ***Competition.***  Becausethe Partnership’s revenues from nut sales are tied to a formula dependent inlarge part upon Mauna Loa’s market performance, the Partnership bears certainrisks associated with Mauna Loa’s marketing of the nuts, including the possibilityof increased future competition. Subsequent to the sale of Mauna Loa to TheShansby Group in September 2000, the Partnership no longer has access tothe operational and marketing strategies and financial results of Mauna Loa, asit is no longer a related entity.

 

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Mauna Loa considers itsprimary competition to be other premium nut products, except in Hawaii whereits products compete with those of other macadamia nut producers and other foodand non-food tourist items.  As a premiumnut, macadamia nuts compete with cashews, almonds and pistachios.

 

Mauna Loa sells macadamia nuts as “retail” nuts and “commercial”nuts and produces and sells various macadamia nut products. These includepristine salted and unsalted roasted macadamia nuts, packages of dicedmacadamia nuts and macadamia oil (for cooking and baking), value-added productssuch as candy-glazed macadamia nuts, chocolate-covered macadamia nuts,chocolate macadamia nut candy bars, honey-roasted macadamia nuts and macadamianut brittle.

 

Macadamia nuts compriseless than 5% of the sales of branded premium nuts sold through massmerchandisers, drug and grocery stores on the U.S. mainland.  Cashews and mixed nuts represent the bulk ofthe dollar sales in this segment, followed by pistachios.  Macadamia nuts are the highest priced of allpremium nuts, and, therefore, they may be sensitive to price competition fromother nuts.

 

The primary market forthe **Mauna Loa****â**brand is the U.S. mainland, where Mauna Loa sells its products through brokersto food stores, club stores, drug store chains, mass merchandisers andcommercial customers.

 

A strong secondary marketfor the**Mauna Loa****â**brand is the state of Hawaii, where Mauna Loa sells through its own directsales force primarily to retailers. Substantial portions of the macadamia nutproducts sold in Hawaii are purchased by visitors as gifts and souvenirs. MaunaLoa believes that it is one of the largest sellers of macadamia products in theState of Hawaii.

 

Mauna Loa also sellsmacadamia products as ingredient nuts, through its visitor centers and mailorder sales.

 

In addition to the Stateof Hawaii, mature macadamia nut orchards are located in Australia, Africa, andCentral America.  For the 2005 crop,Hawaii was expected to supply 25% of the world crop, and Australia, the world’slargest producer, was expected to supply 40%.

 

A general decline in nutprices would adversely affect the prices which Mauna Loa could charge for itsmacadamia nut products and could have a negative effect on itsprofitability.  Since the purchase pricefor the Partnership’s nuts under all but one of its nut purchase contracts isbased in part on nut prices reported by the industry and in part on themarketing success of Mauna Loa, a general decline in macadamia nut prices couldalso adversely affect the Partnership’s revenues.

 

# ***MacadamiaFarming Segment***

# *** ***

Since the May 2000purchase of the macadamia farming operations, the Partnership farms its own4,169 acres of macadamia orchards and approximately 2,505 additional acres ofmacadamia orchards owned by other growers.

 

All the 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.

 

***Farming Contracts.****** ***The Partnership was a party tofour farming contracts with two affiliates of CBCL, Ka’u Agribusiness Company,Inc. (“KACI”) and Mauna Kea Agribusiness Company, Inc. (“MKACI”).  Services under these contracts includedcultivation, weed and pest control, fertilization, pruning and hedging,replanting, harvesting, husking and related services for the Partnership’sorchards.  In return, the Partnershipreimbursed KACI and MKACI for direct and indirect costs incurred in providingsuch services, including an equipment utilization charge and an annual farmingfee.  The contracts were terminated May1, 2000 when the Partnership acquired all the farming assets from KACI andMKACI.

 

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The Partnership currentlyservices approximately twenty additional farming contracts which were assignedto the Partnership with the May 2000 acquisition.  Services under these contracts includecultivation, weed and pest control, fertilization, pruning and hedging,replanting, harvesting, and husking. These contracts also provide a management fee to the Partnership, whichis based as either a fixed fee per acre farmed, or as a percent of reimbursedcosts, ranging from 5% to 20%.

 

***Orchard Maintenance***.  Maintenance of an orchard is essential tomacadamia nut farming.  Pruning and hedgingof trees is necessary to allow space for mechanical harvesting and cultivatingequipment to operate safely and efficiently and to remove dead branches.  Where mechanical equipment is used, theorchard 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 management alsorequires the proper selection and application of fertilizers, pesticides (tocontrol 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 harvest period begins in the late summerand runs through the following spring. Mature nuts fall from the trees and are harvested using mechanizedharvest equipment when the orchard floor is level enough to permit itsuse.  Nuts are harvested by hand when theorchard floor is too uneven to permit mechanical harvesting, when the nut dropis very light and when nuts remain after harvesting.  At Keaau, Ka’u and Mauna Kea, seasonal laborfor hand harvesting and other operations is generally available from nearbyHilo and adjacent communities.

 

Mechanical harvesting isless costly than hand harvesting, but mechanical harvesting is possible onlywhere the orchard floor is relatively flat. Approximately 70% of the orchards in Ka’u, 59% in Keaau and 94% in MaunaKea are currently mechanically harvested. The remaining acres are too uneven for mechanical harvesting and must beharvested by hand.

 

During the harvestseason, the nuts are collected every six to ten weeks.  Nuts suffer loss in quality if they remain onthe ground too long.  The harvested nutsare then transported to the husking facilities, which are located in Ka’u andKeaau.  The Keaau husking facility isowned by Mauna Loa, and the Ka’u husking facility is owned by the Partnership.  Nuts harvested in the Mauna Kea region aretransported to the husking facility in Keaau. At the husking facility, the outer husk is removed and the nuts, stillin their shell, are weighed and sampled to determine moisture content andkernel quality.  Title to the nuts huskedin Keaau passes to Mauna Loa after weighing. Title to the nuts husked at Ka’u pass to Mauna Loa after delivery to theMauna Loa processing plant in Keaau.  Thenuts are then moved to a drying facility.

 

***Processing*.**  The nuts purchased by Mauna Loa from thePartnership and from the other orchards farmed by the Partnership are primarilyprocessed at Mauna Loa’s processing plant located adjacent to the orchardslocated in the Keaau area.  The plant wasbuilt in 1966 and is presently capable of handling approximately 210,000 poundsof dry-in-shell (commonly abbreviated “DIS”) nuts per day.  Processing at the plant includes drying,cracking, roasting, inspecting and limitedpackaging.  The plant also includesseparate warehouses, a machine shop, storagefacilities, husking facilities, nut drying facilities, a generator and a 10,000square foot chocolate processing plant. None of these processing facilities are owned by the Partnership.

 

At Mauna Loa’s plant inKeaau, the harvested nuts pass by conveyors over metal screens, blowers androck separators that remove extraneous material from the in-husk nuts. Thehusks are then split and removed by pressing the nuts between steel roller barsand a rubber pad.  At this stage, the nutkernels are still encased in their hard round shells and roughly 20% of theirweight is attributable to moisture content. At this point, the nuts are referred to as wet-in-shell (commonlyabbreviated “WIS”).  The WIS weight ofthe nuts is used to determine payments to be made by Mauna Loa under the NutPurchase Contracts.

 

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Approximately 20% of theWIS weight of the nuts will become dry salable kernels when all furtherprocessing is completed.

 

After the nuts areweighed, the moisture content of the nuts is reduced by blowing warm air overthem, which produces DIS nuts. Metal rollers are used to crack the nuts andremove the shell.  Mechanical and opticalequipment, as well as hand sorting, are used to separate the salable kernelsfrom unusable nuts and pieces of broken shell.

 

The dry nut kernels areroasted and then sorted into retail and commercial grades.  At this stage, some of the nuts arebulk-packed and sent to various co-packers on the U.S. mainland forpackaging.  At Mauna Loa’s plant in Keaauthe nuts may be salted, or covered with chocolate or one of several coatings,and finally packaged, labeled and readied for shipment.

 

#### ***Stabilization Payments***

 

In December 1986,the Partnership acquired a 266-acre orchard that was several years younger thanother orchards of the Partnership. Because of the relative immaturity of the newer orchard, itsproductivity (and therefore its cash flow) was expected to be correspondinglylower for the first several years than for the 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 thetarget cash flow level, which equaled $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 accounted for stabilization payments(net of the 4% Hawaii general excise tax) as a reduction in the cost basis ofthe orchard.  As such, these payments arebeing reflected in the Partnership’s net income ratably through 2019 as areduction to the depreciation expense reported for this orchard.

 

In return, the Partnership is obligated to pay theseller 100% of any year’s cash flow from this orchard in excess of the targetcash flow as additional percentage rent until the aggregate amount of theadditional 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 2002, 2003, or 2004.

 

#### ***Risks Involved in OperatingMacadamia Orchards***

#### *** ***

Macadamia nut trees aresubject to damage or destruction from diseases, pests, floods, droughts,windstorms, hurricanes, volcanic activity and other natural causes. Partnershiptree replacements for all orchards from all causes were 0.9% in 2002, 0.6% in2003, and 0.6% in 2004. Both crop and tree insurance are in place to protectthe Partnership against material losses.

 

***Diseases and Pests***.  The Partnership’s Keaau orchards experiencedtree replacements of 1.5% in 2002, 1.3% in 2003, and 1.4% in 2004.  Other macadamia growers in the vicinity havealso experienced losses due to a problem known as “Macadamia Quick Decline” (“MQD”).  Based upon research by the University ofHawaii and other experts, it is believed that the situation is due to fungiassociated with high moisture conditions. It is also believed that a particular variety of macadamia nut tree(variety 333) is most susceptible to MQD. Another tree variety (variety 344) has also been identified as beingmore susceptible to MQD than other varieties. Approximately 9% of the Partnership’s orchards are variety 333 and 45%are variety 344.  Both the Keaau andMauna Kea orchards are areas with high moisture conditions, and may be moresusceptible to the MQD problem.  MQD ispresent in the Ka’u orchards, but tree losses to date have been less than 1% inthe Ka’u area.

 

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There are also two types of fungal diseases, which canaffect nut production but are not fatal to the trees themselves.  One of these is Phytophthora, which affectsthe macadamia flowers and nutlets, and the other is Botrytis cinerea.  These types of fungal disease are generallycontrollable with fungicides. Historically, these fungi have attacked the orchards located in Keaau duringperiods of persistent inclement weather. A light infestation of Phytophthora occurred in late January-early February 2001.

 

***Rainstorms and Floods.****** ***The Partnership’s orchards arelocated in areas on the island of Hawaii that are susceptible to heavyrainstorms.  In November 2000 the Ka’uregion was affected by flooding.  Thisflooding resulted in expected 2000 harvesting being done in 2001.  Since the flood in 2000 heavy rain in the Ka’uregion has not produced flooding of any consequence.

 

***Windstorms***.  The Partnership’s orchards are located inareas on the island of Hawaii that are susceptible to windstorms.  Twenty-four major windstorms have occurred onthe island of Hawaii since 1961, and four of those caused material losses toPartnership orchards.  Several of thePartnership’s orchards are surrounded by windbreak trees, which provide limitedprotection.  Younger trees that have notdeveloped extensive root systems are particularly vulnerable to windstorms.

 

***Insurance.****** ***The Partnership secures tree insurance each year undera federally subsidized program.  The treeinsurance for 2004 provides coverage up to a maximum of approximately $23.7million against loss of trees due to wind, fire or volcanic activity. Cropinsurance was purchased for the 2004-2005 crop year and provides coverage up toa maximum of approximately $9.1 million against loss of nuts due to wind, fire,volcanic activity, earthquake, adverse weather, wildlife damage and failure ofirrigation water supplies.

 

***Volcanoes*.** The orchards are located on the island of Hawaii, where there are two activevolcanoes.  To date, no lava flows fromeither volcano have affected or threatened the orchards.

 

***Rainfall*.** The productivity of orchards depends in large part on moistureconditions.  Inadequate rainfall canreduce nut yields significantly, while excessive rain without adequate drainagecan foster disease and hamper harvesting operations.  While rainfall at the orchards located in theKeaau and Mauna Kea areas has generally been adequate, the orchards located inthe Ka’u area generally receive less rainfall and, as a result, a portion ofthe Ka’u orchards is presently irrigated. Irrigation can mitigate the effects of a drought, but it cannotcompletely protect a macadamia nut crop from the effect of a drought.  Recorded rainfall at each of the three locationsof the Partnership’s orchards for the past five years is shown below:

 
| **Year** | ** ** | **Ka’u** | ** ** | **Keaau**              | ** ** | **Mauna Kea** | ** ** |
|----------|------------|---------------|------------|------------------------|------------|---------------|------------|
| 2000     |       | 47.1”    |       | 147.9”            |       | 158.0”   |       |
| 2001     |       | 46.0”    |       | 124.0”            |       | 133.4”   |       |
| 2002     |       | 58.5”    |       | 139.4”            |       | 156.1”   |       |
| 2003     |       | 22.8”    |       |   94.8” |       | 117.4”   |       |
| 2004     |       | 54.9”    |       | 142.7”            |       | 151.5”   |       |

 

During 2004 the Ka’u,Keaau and Mauna Kea areas recorded 127%, 106% and 102% of the normal averageannual rainfall in their area of the island, respectively.

 

#### ***Water Supply for Irrigation***

 

With the May 2000acquisition, the Partnership acquired an irrigation well (the “Sisal Well”),which supplies water to the Partnership’s orchards in Ka’u which were purchasedin June 1986 and 1989.  The SisalWell is situated on land owned by MKACI. On May 1, 2000 the Partnership entered into a license agreement withMKACI, which allows the Partnership necessary access to maintain and operatethe Sisal Well, as well as the use of roads to access, maintain and operate thePartnership’s macadamia orchards.  Annualrent for the license agreement is one dollar. The license agreement terminates on the earlier of June 30, 2045,or at the termination of the May 1, 2000 lease between Partnership and KACI.

 

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Prior to the May 2000acquisition, the Partnership and KACI were parties to a water agreement towhich KACI agreed to supply water to those portions of the June 1986Orchards and October 1986 Orchards located at Ka’u and which had beenirrigated historically.

 

If the amount of waterprovided by the Sisal Well becomes insufficient to irrigate the above namedorchards, the Partnership may consider increasing the capacity of the SisalWell, drilling an alternative well into the historical source which provideswater to the Sisal Well or obtaining water from other sources.

 

On a historical basis,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 Managing Partneranticipates that the amount of water available from the Sisal well will begenerally sufficient, assuming average levels of rainfall, to irrigate the irrigatedorchards in accordance with prudent farming practices for the next severalyears.  If no irrigation water isavailable to the Irrigated Orchards, then, based on historical average rainfalllevels, diminished yields of macadamia nut production can be expected.

 

# ***Employees***

 

As of December 31,2004, the Partnership employed 259 people, of which 176 were seasonalemployees.  Of the total, 21 are infarming supervision and management, 226 in production, maintenance andagricultural operations, and 12 in accounting and administration.

 

With the May 2000acquisition, the Partnership agreed to the assumption of three bargainingagreements with the ILWU Local 142. These agreements cover all production, maintenance and agriculturalemployees of the Ka’u Orchard Division, of the Keaau Orchard Division and ofthe Mauna Kea Orchard Division.  Theselabor contracts became effective May 1, 1997 and expired on April 30,2002.  The parties have recently agreedto a new three-year contract, which will expire on April 30, 2005. ThePartnership believes that relations with its employees and the ILWU are generallyvery good.

 

**Available Information.**** **The Partnershipfiles annual, quarterly and current reports and other information with theCommission.  These filings are availablefree of charge through its Internet website at www.mlmacadamia.com as soon asreasonably practicable after the Partnership electronically files such materialwith, or furnishes it to, the Commission. Any Unit holder, who so requests may obtain a printedcopy of these documents from the Partnership, by contacting the Partnership at808-969-8057, or in writing at 26-238 Hawaii Belt Road, Hilo, Hawaii 96720.

 

**ITEM 2.****  PROPERTIES**

 

***Location.*** The Partnership owns or leases approximately 4,169 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.

 

The majority of macadamianut trees grown in the State of Hawaii are grown on the island of Hawaii involcanic 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.

 

***Age and 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

 

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and/orirrigation.  The most significantcharacteristic affecting yields is maturity. The trees in a macadamia nut orchard generally begin to produce nuts ata commercially acceptable level at around nine years of age.  Thereafter, nut yields increase graduallyuntil the trees reach maturity, after which the nut yield remains relativelyconstant except for variances produced by rainfall, cultivation practices, pestinfestation and disease.

 

Macadamia orchardsnormally reach peak production after fifteen to eighteen years of age.  All of the 4,169 tree acres of macadamiaorchards owned or leased by the Partnership are over nineteen years of age.  About 2% of trees are lost to various causeseach year and are replaced.

 

 

***Rainfall*.** Macadamia trees grow best in climates with substantial and evenlydistributed rainfall (or equivalent irrigation) and in soil that provides gooddrainage.  Inadequate rainfall cansignificantly reduce nut yields, while excessive rain without adequate drainagecan impede healthy tree growth, promote the growth of harmful fungal diseasesand produce mud holes that require repair of the orchard floor.

 

At Keaau, normal rainfallis adequate without irrigation, and the volcanic soil provides gooddrainage.  However, short droughts andoccasional flooding have occurred.  AtMauna Kea, normal rainfall is adequate without irrigation and the volcanic soilprovides adequate drainage.  In the eventof a very long drought, production at Keaau and Mauna Kea might beaffected.  At Ka’u, located on the drierside of the island, 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.

 

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***Orchards.****** ***The following table lists eachof the orchards, the year acquired, tree acres, tenure, and lease rents:

 
| ** **             | ** ** | ** **     | ** ** | **Tree**  | ** ** | ** **    | ** ** | **Lease**      | ** ** | **Min. Rent** | ** ** |
|------------------------|------------|----------------|------------|-----------|------------|---------------|------------|----------------|------------|---------------|------------|
| **Orchard**            | ** ** | **Acquired**   | ** ** | **Acres** | ** ** | **Tenure**    | ** ** | **Expiration** | ** ** | **per Annum** | ** ** |
|                   |       |           |       |      |       |          |       |           |       |          |       |
| Keaau I                |       | June 1986 |       | 1467      |       | Fee simple    |       |           |       |          |       |
| Ka’u I            |       | June 1986 |       | 456       |       | Fee simple    |       |           |       |          |       |
| ”                 |       | June 1986 |       | 500       |       | Leasehold (1) |       | 2019           |       | $             | 25,000     |   |
| Ka’u Green Shoe I |       | Dec. 1986      |       | 266       |       | Leasehold (1) |       | 2019           |       | $             | 5,586      |   |
| Keaau II               |       | Oct. 1989      |       | 220       |       | Fee simple    |       |           |       |          |       |
| Ka’u II           |       | Oct. 1989      |       | 327       |       | Leasehold (2) |       | 2034           |       | $             | 23,544     |   |
| ”                 |       | Oct. 1989      |       | 175       |       | Leasehold (1) |       | 2028           |       | $             | 17,314     |   |
| ”                 |       | Oct. 1989      |       | 26        |       | Leasehold (3) |       | 2029           |       | $             | 2,041      |   |
| ”                 |       | Oct. 1989      |       | 186       |       | Leasehold (1) |       | 2031           |       | $             | 18,585     |   |
| Mauna Kea              |       | Oct. 1989      |       | 326       |       | Leasehold (2) |       | 2034           |       | $             | 23,508     |   |
| Keaau Lot 10           |       | Sept. 1991     |       | 78        |       | Fee simple    |       |           |       |          |       |
| Ka’u O            |       | May 2000       |       | 142       |       | Leasehold (1) |       | 2045           |       | $             | 10,224     |   |
| Total acres            |       |           |       | 4169      |       |          |       |           |       |          |       |

 

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(1)                                  Leaseof land only; trees may be removed at termination of lease.

(2)                                  Leaseof land only; lessor may purchase trees from lessee at any time after June 30,2019.

(3)                                  Leaseof land; trees revert to lessor upon termination of lease.

 

For certain additional information concerning farmingleases, see Item 13, page 47.

 

In addition to the minimum annual lease paymentamount, all the leases require the Partnership to pay various expenses withrespect to the leased premises as well as an additional rental payment based onthe market price per pound of macadamia nuts sold in Hawaii.

 

With respect to the Ka’u Green Shoe I Orchard, thelease requires the Partnership to pay KACI, the seller and lessor, additionalrent equal to 100% of any year’s cash flow generated by such orchard in excessof a target level of $507,000 until the aggregate amount paid equals 150% ofthe aggregate 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 5.

 

**ITEM 3.****  LEGAL PROCEEDINGS ANDSETTLEMENT**

 

As reported on August 13,2004, in the Quarterly Report on Form 10-Q of ML Macadamia Orchards, L.P. (the “Partnership”)for its fiscal quarter ended June 30, 2004, the Partnership and severalindependent growers filed suit against Mauna Loa Macadamia Nut Corporation inthe Circuit Court of the Third Judicial Circuit of the State of Hawaii in Hilo,alleging that the proposed acquisition by Mauna Loa Macadamia Nut Corporation (“MaunaLoa”) of the assets of Mauna Loa’s major competitor, MacFarms of Hawaii, LLC (“MacFarms”),would give Mauna Loa a monopoly over the supply and processing of wet-in-shellmacadamia nuts on the Island of Hawaii, which in turn would give Mauna Loamonopoly power over the growers and other processors on the Island of Hawaiiand consumers of macadamia nuts in Hawaii and on the mainland United States. HamakuaMacadamia Nut Company, Inc.  (“Hamakua”)

 

10

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subsequentlyfiled its own lawsuit against Mauna Loa, which was then consolidated with thePartnership’s case.

 

On October 1, 2004,the Partnership, the independent growers and Hamakua entered into an agreementwith Mauna Loa whereby Mauna Loa terminated its agreement to acquire the assetsof MacFarms and the Partnership, the independent growers and Hamakua causedtheir lawsuits to be dismissed.

 

**ITEM 4.****  SUBMISSION OF MATTERS TO A VOTEOF SECURITY HOLDERS**

 

No matters were submittedduring the fourth quarter of the fiscal year covered by this report to a voteof security holders.

 

11

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### **PARTII**

### ** **

**ITEM 5.****  MARKET FOR REGISTRANT’S CLASS AUNITS AND RELATED UNITHOLDER MATTERS**

 

The Partnership’s Class A Depositary Units are listed for trading on the New YorkStock Exchange (symbol = NUT).  Therewere 1,170 registered holders of Class A DepositaryUnits on December 31, 2004.

 

Distributions declaredand high and low sales prices of the Class ADepositary Units, based on New York Stock Exchange daily compositetransactions, are shown in the table below:

 
| ** ** | ** **  | **Distribution** | ** ** | **High** | ** ** | **Low** | ** ** |
|------------|-------------|------------------|------------|----------|------------|---------|------------|
| **2004:**  | 4th Quarter |             | $          | 0.050    |       | 6.00    |       | 3.80 |   |
|       | 3rd Quarter |             | 0.050      |     | 4.39       |    | 3.80       |   |
|       | 2nd Quarter |             | 0.050      |     | 4.77       |    | 3.85       |   |
|       | 1st Quarter |             | 0.050      |     | 4.75       |    | 3.51       |   |
|       |        |             |       |     |       |    |       |
| **2003:**  | 4th Quarter |             | $          | 0.030    |       | 3.70    |       | 3.28 |   |
|       | 3rd Quarter |             | 0.030      |     | 3.75       |    | 3.39       |   |
|       | 2nd Quarter |             | 0.050      |     | 3.50       |    | 3.16       |   |
|       | 1st Quarter |             | 0.050      |     | 3.52       |    | 3.20       |   |

 

**Restrictions on Cash Distributions**

 

In connection with thePartnership’s Credit Agreement with American AgCredit Capital Markets, cashdistributions to partners are restricted unless the Partnership is incompliance with specified terms and conditions of the Credit Agreement,including restrictions on further indebtedness, sales of assets, andmaintenance of certain financial ratios. The Partnership was in compliance with the terms and conditions of theCredit Agreement at December 31, 2004 except for its debt coverage ratio.The lender has provided a waiver to the loan covenants for this ratio for thefourth quarter 2004.  Had the lender notwaived the restriction the Partnership would have been restricted in itsability to pay distributions to the limited partners.

 

12

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**ITEM 6.****  SELECTED FINANCIAL DATA**

(Inthousands, except per pound and per unit data)

 
| ** **                                     | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Financial:                                     |       |     |       |     |       |     |       |     |       |     |       |
| Total revenue                                  |       | $        | 13,665     |     | $          | 15,426   |       | $        | 14,556     |     | $          | 16,893 |   | $ | 13,758 |   |
| Net cash provided by operating  activities (1) |       | 368      |       | 2,262    |       | 2,166    |       | 2,237    |       | 2,507    |       |
| Income (loss) before taxes                     |       | (1,644   | )          | 111      |       | (447     | )          | 1,112    |       | (360     | )          |
| Net income (loss)                              |       | (1,649   | )          | 69       |       | (480     | )          | 1,010    |       | (398     | )          |
| Distributions declared                         |       | 1,515    |       | 1,212    |       | 1,515    |       | 1,515    |       | 3,523    |       |
| Total working capital                          |       | 2,931    |       | 4,165    |       | 3,220    |       | 3,183    |       | 1,599    |       |
| Total assets                                   |       | 58,438   |       | 60,069   |       | 61,803   |       | 65,329   |       | 65,625   |       |
| Long-term debt                                 |       | 2,034    |       | 2,468    |       | 2,920    |       | 3,402    |       | 3,716    |       |
| Total partners’ capital                   |       | 50,542   |       | 53,706   |       | 54,849   |       | 56,844   |       | 57,349   |       |
| Class A limited partners’  capital        |       | 50,037   |       | 53,169   |       | 54,300   |       | 56,275   |       | 56,775   |       |
| Net cash flow (2)                              |       | 466      |       | 2,157    |       | 1,592    |       | 3,093    |       | 1,824    |       |
|                                           |       |     |       |     |       |     |       |     |       |     |       |
| Operations:                                    |       |     |       |     |       |     |       |     |       |     |       |
| Acres harvested                                |       | 4,169    |       | 4,169    |       | 4,169    |       | 4,169    |       | 4,169    |       |
| Macadamia nuts harvested  (lbs.) (3)           |       | 18,933   |       | 21,196   |       | 21,404   |       | 23,013   |       | 19,255   |       |
| Net price $/lb. (3)(4)                         |       | $        | 0.4972     |     | $          | 0.4857   |       | $        | 0.4748     |     | $          | 0.4830 |   | $ | 0.5125 |   |
|                                           |       |     |       |     |       |     |       |     |       |     |       |
| Per Class A Unit (5):                          |       |     |       |     |       |     |       |     |       |     |       |
| Income (loss) before taxes                     |       | $        | (0.22      | )        | $          | 0.01     |       | $        | (0.06      | )        | $          | 0.15 |   | $ | (0.05 | ) |
| Net income (loss)                              |       | (0.22    | )          | 0.01     |       | (0.06    | )          | 0.13     |       | (0.05    | )          |
| Net cash flow (2)                              |       | 0.06     |       | 0.28     |       | 0.21     |       | 0.41     |       | 0.24     |       |
| Distributions                                  |       | 0.20     |       | 0.16     |       | 0.20     |       | 0.20     |       | 0.465    |       |
| Partners’ capital                         |       | 6.67     |       | 7.09     |       | 7.24     |       | 7.50     |       | 7.57     |       |

 

----

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

(2)          See Footnote 5 in the notes to financial statementsfor method of calculation.

(3)          Wet-in-shell at 25% moisture.

(4)          Weighted average for all orchards.

(5)          7,500,000 Class A Units wereissued and outstanding for all periods presented.

 

13

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Contractual obligationsfor 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                                                                  |       | 2,400,000  |       | 400,000               |       | 800,000       |       | 800,000       |       | 400,000                |       |
| Capital Lease Obligations                                                       |       | 69,000     |       | 35,000                |       | 34,000        |       | —        |       | —                 |       |
| Operating Leases                                                                |       | 4,102,000  |       | 348,000               |       | 682,000       |       | 443,000       |       | 2,629,000              |       |
| Purchase Obligations                                                            |       | —     |       | —                |       | —        |       | —        |       | —                 |       |
| Other Long-Term Liabilities off The Registrant’s  Balance Sheet under GAAP |       | —     |       | —                |       | —        |       | —        |       | —                 |       |
| Total                                                                           |       | 6,571,000  |       | 703,000               |       | 1,516,000     |       | 1,243,000     |       | 3,029,000              |       |

 

**ITEM 7.**** MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

 

This discussion should beread in conjunction with the financial statements and the related notesincluded elsewhere in this report.

 

# ***Resultsof operations – 2004, 2003, 2002***

 

## ***Owned-OrchardSegment - Production and Yields***

 

Production and yield data for the eight orchards aresummarized below (expressed in wet-in-shell pounds at 25% moisture):

 
| ** **                                      | ** ** | ** **     | ** ** | ** **  | ** ** | **2004**       | ** ** | **Average  Yield per Acre** | ** ** |
|-------------------------------------------------|------------|----------------|------------|-------------|------------|----------------|------------|-----------------------------|------------|
| **Orchard**                                     | ** ** | **Acquired**   | ** ** | **Acreage** | ** ** | **Production** | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2002** | ** ** |
| Keaau I                                         |       | June 1986 |       | 1,467       |       | 5,692,221      |       | 3,880                       |       | 4,271 |   | 4,272 |   |
| Keaau II                                        |       | Oct. 1989      |       | 220         |       | 600,381        |       | 2,729                       |       | 2,862 |   | 2,966 |   |
| Keaau Lot 10                                    |       | Sept. 1991     |       | 78          |       | 251,215        |       | 3,221                       |       | 3,255 |   | 3,850 |   |
| Ka’u I                                     |       | June 1986 |       | 956         |       | 5,117,852      |       | 5,353                       |       | 5,886 |   | 6,933 |   |
| Ka’u Green Shoe I                          |       | Dec. 1986      |       | 266         |       | 1,764,237      |       | 6,632                       |       | 7,619 |   | 6,659 |   |
| Ka’u II                                    |       | Oct. 1989      |       | 714         |       | 3,617,893      |       | 5,067                       |       | 5,504 |   | 5,214 |   |
| Ka’u O                                     |       | May 2000       |       | 142         |       | 633,871        |       | 4,464                       |       | 5,252 |   | 5,880 |   |
| Mauna Kea                                       |       | Oct. 1989      |       | 326         |       | 1,255,571      |       | 3,851                       |       | 5,271 |   | 3,762 |   |
| Totals (except yields  which are averages) |       |           |       | 4,169       |       | 18,933,241     |       | 4,541                       |       | 5,084 |   | 5,134 |   |

 

Productionfor the orchards purchased in 1989 and 2000 is net of unusable nuts, as statedin their respective nut purchase agreements. Production for the orchards purchased in 1986 and 1991 includes all nutsdelivered.  The nut purchase contractsfor the 1986 orchards require the purchaser, Mauna Loa Macadamia NutCorporation (“Mauna Loa”), to purchase all of the nuts delivered from theseorchards.  The 1991 contract,renegotiated this year, allows for a set price within a range of unusable of10% to 13%.  The Partnership reports on acalendar year basis, though the natural crop year generally begins in August andruns through April.

 

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Productionin 2004 was 10.7% lower than 2003 and 11.5% lower than 2002. Production in 2003was 1.0% lower than 2002 and 7.9% lower than 2001. Significant factors affectingthe crop were as follows:

 

1.  The droughtin the Ka’u orchards in 2003 affected the nut set, development and productionfor the spring of 2004.

 

2.  The aboveaverage rainfall in the Keaau and Mauna Kea orchards negatively impacted thepollination and nut set in 2004.

 

3.  The Ka’uregion recorded above average rainfall in 2004. The rainfall replenished the soil moisture and is expected to improveyields in the region for the spring of 2005.

 

4.  Thematuration of the crop was delayed by the weather conditions which resulted inless production in the fall of 2004 and is expected to improve yields in thespring of 2005.

 

The Ka’u Green Shoe I orchard and the Mauna Keaorchard are fully mature.  As a result,the yields from these orchards are expected to produce on average with thePartnership’s mature orchards.  At fullmaturity under favorable growing conditions, a macadamia orchard can producebetween 5,500 and 7,500 WIS pounds of macadamia nuts per acre each year at Ka’uand between 4,000 and 6,000 WIS pounds of macadamia nuts per acre each year atKeaau.  All the trees have reached fullmaturity in the Mauna Kea area and it is expected that production willapproximate Keaau levels.

 

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

## ** **

Macadamia nut revenuesdepend on the number of producing acres, yields per acre and the nut purchaseprice.  The impact of these factors issummarized in the following table:

 
| ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------|------------|------------|------------|------------|------------|------------|------------|----------|------------|----------|------------|
| ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **vs**   | ** ** | **vs**   | ** ** |
| ** **                            | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** | **2003** | ** ** | **2002** | ** ** |
| Trees acres harvested                 |       | 4,169      |       | 4,169      |       | 4,169      |       | —   |       | —   |       |
| Average yield (WIS lbs./acre)         |       | 4,541      |       | 5,084      |       | 5,134      |       | -11      | %          | -1       | %          |
| Nuts harvested (000’s WIS  lbs.) |       | 18,933     |       | 21,196     |       | 21,404     |       | -11      | %          | -1       | %          |
| Nut price ($/WIS lbs. @ 25%)          |       | 0.4972     |       | 0.4857     |       | 0.4748     |       | +2       | %          | +2       | %          |
| Gross nut sales ($000)                |       | 9,414      |       | 10,295     |       | 10,162     |       | -9       | %          | +1       | %          |
| 2001 nut price settlement             |       | —     |       | —     |       | 174        |       |     |       |     |       |
| 2002 nut price settlement             |       | —     |       | 14         |       | —     |       |     |       |     |       |
| 2003 early harvest agreement          |       | —     |       | 150        |       | —     |       |     |       |     |       |
| Recorded nut sales ($000s)            |       | 9,414      |       | 10,459     |       | 10,336     |       |     |       |     |       |

 

Under three of the nutpurchase contracts with Mauna Loa, the price for nuts delivered is based 50% onthe two-year trailing average of USDA published macadamia nut prices and 50% ona “netback component”.  The netbackcomponent is determined by subtracting from Mauna Loa’s gross revenues from thesale of macadamia products (i) allocable processing, packaging, marketing,selling and advertising costs and (ii) a 20% capital charge on the differencebetween those aggregate gross revenues and aggregate allocable costs.

 

In mid December, MaunaLoa notified the Partnership that it would be unable to accept deliveries overa five-day period during the height of the harvest season. The Partnershipadvised Mauna Loa that this was

 

15

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unacceptablefor both financial and operational reasons and arrangements would be made todeliver the nuts to another processor. After alternative deliveries had beencommitted to, Mauna Loa notified the Partnership that it was willing to acceptdelivery. As a result of the alternative commitment, the Partnership deliveredapproximately 240,000 pounds of nuts to Mac Farms of Hawaii at a price of 93cents per pound over a two-day period. In late December, Mauna Loa notified thePartnership that it intended to deduct $118,000 from future nut payments asdamages. The Partnership notified Mauna Loa that the deduction was a violationof our various contracts and the Partnership would consider termination of thecontracts if such deduction were made. Mauna Loa has since withdrawn theirnotice of deduction, but the Partnership has reserved $118,000 for thisunresolved dispute.

 

The following table setsforth the manner in which the nut purchase price per pound was determined for2004, 2003 and 2002 ($/lb.):

 
| ** **                                                                     | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| USDA price - two years prior  (a)                                              |       | 0.5666   |       | 0.5601   |       | 0.6227   |       |
| USDA price - one year prior  (a)                                               |       | 0.5391   |       | 0.5666   |       | 0.5601   |       |
| USDA price - two year trailing  average                                        |       | 0.5528   |       | 0.5634   |       | 0.5914   |       |
|                                                                           |       |     |       |     |       |     |       |
| Gross revenues                                                                 |       | 1.3929   |       | 1.4346   |       | 1.5049   |       |
| Less allocable processing,  packaging, marketing, sales and advertising costs  |       | 0.8515   |       | 0.9400   |       | 1.0868   |       |
| Less 20% capital charge                                                        |       | 0.1083   |       | 0.0996   |       | 0.0828   |       |
| Net-back component                                                             |       | 0.4331   |       | 0.3950   |       | 0.3353   |       |
|                                                                           |       |     |       |     |       |     |       |
| USDA price - two year trailing  average                                        |       | 0.5528   |       | 0.5634   |       | 0.5914   |       |
| Net-back component                                                             |       | 0.4331   |       | 0.3950   |       | 0.3353   |       |
| Average of USDA two year  trailing  average price and net-back  component |       | 0.4929   |       | 0.4792   |       | 0.4634   |       |
| Plus Hawaii general excise tax  (0.5%)                                         |       | 0.0025   |       | 0.0024   |       | 0.0019   |       |
| Net purchase price (b) (c) (d)  (e)                                            |       | 0.4954   |       | 0.4816   |       | 0.4653   |       |

 

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(a)          MaunaLoa’s own purchases comprise a substantial portion of nut purchases reported tothe USDA.  Therefore, the USDA pricecomponent of the purchase price is, to a substantial degree, the average pricethat Mauna Loa has paid to purchase macadamia nuts from the Partnership andfrom third parties during the previous two years.

 

(b)         Thenut purchase price for the 1986 and 1989 orchards was the same for 1999 and allprevious years.  With the change ofownership of Mauna Loa in 2000, a quality conversion factor in the nut purchasecontracts was initiated.  The effect wasto cause a slightly different price of $0.4644 for the 1989 orchards in 2002,$0.4808 in 2003 and $0.4951 in 2004.  Anearly harvest round was requested by Mauna Loa in 2003 resulting in a paymentof $150,000 over the contract price. With this payment the 2003 price was $0.4883.

 

(c)          Thenut purchase contract covering nut production from the 78 acre Keaau Lot 10orchard acquired in September 1991 defines the “two-year trailing average”provision slightly differently from the 1986 and 1989 nut purchase contracts,and thus, results in a different nut price. This was in affect for the first six months of 2003.  A new contract was negotiated with a fixedprice for all nuts with unusables

 

16

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in a range of 10% to 13%.  The nut price for this orchard was $0.6000 in2004, $0.5923 in 2003, and $0.4920 in 2002. This orchard accounts for less than 2% of the Partnership’s macadamianut production.

 

(d)         Thenut purchase contract for the Ka’u O orchards purchased in May 2000 uses onlythe two-year trailing USDA average to determine its nut price, which was $0.5560 in 2004, $0.5660 in 2003 and $0.5940 in 2002.

 

(e)          MaunaLoa has not yet provided the final 2004 audited nut price to the Partnership.The price reflected above and in the financial statements is described by MaunaLoa as a “very preliminary” estimate, which when finalized, will be subject toaudit and review by the Partnership

 

The 2004 average nut price from all orchards increased3% from 2003.  The 2003 average nut pricefrom all orchards increased 2% from 2002. The USDA portion decreased 2% in 2004, 5% in 2003 and 4% in 2002. The netbackincreased 10% in 2004 compared to 2003 and increased 18% in 2003 compared to2002. The current netback price reflects the operating performance of MaunaLoa.

 

The USDA published pricefor the 2003-2004 crop year was $0.5769 per pound (WIS at 25% moisture), whichis 7% higher than the 2002-03 crop year of $0.5391, and 2% higher than the 2001-2002price of $0.5666.  The USDA two-yeartrailing average, which affects the Partnership’s 2004 nut price, will be $0.5580,a 1% increase over the 2003 two-year average.

 

## ***Owned-OrchardSegment - Cost of Goods Sold***

## ** **

Agricultural unit costsdepend 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 perwet-in-shell pound at 25% moisture) are calculated by dividing all agriculturalcosts for each orchard (including lease rent, property tax, tree insurance anddepreciation) by the number of pounds of macadamia nuts produced by that orchardand are summarized below ($/lb.):

 
| ** **             | ** ** | ** **     | ** ** | **Cost per  pound** | ** ** |
|------------------------|------------|----------------|------------|---------------------|------------|
| **Orchard**            | ** ** | **Acquired**   | ** ** | **2004**            | ** ** | **2003** | ** ** | **2002** | ** ** |
| Keaau I                |       | June 1986 |       | 0.5767              |       | 0.5453 |   | 0.5097 |   |
| Keaau II               |       | Oct. 1989      |       | 0.5545              |       | 0.6179 |   | 0.5601 |   |
| Keaau Lot 10           |       | Sept. 1991     |       | 0.4491              |       | 0.3461 |   | 0.3745 |   |
| Ka’u I            |       | June 1986 |       | 0.5211              |       | 0.4611 |   | 0.4397 |   |
| Ka’u Green Shoe I |       | Dec. 1986      |       | 0.3409              |       | 0.2533 |   | 0.2817 |   |
| Ka’u II           |       | Oct. 1989      |       | 0.3938              |       | 0.3822 |   | 0.3915 |   |
| Ka’u O            |       | May 2000       |       | 0.4226              |       | 0.3403 |   | 0.3344 |   |
| Mauna Kea              |       | Oct. 1989      |       | 0.7119              |       | 0.4976 |   | 0.7601 |   |
|                   |       |           |       |                |       |   |   |   |   |
| All Orchards           |       |           |       | 0.5062              |       | 0.4582 |   | 0.4559 |   |

 

Cost of goods sold was $255,000 lower in 2004 than in2003, and $70,000 lower in 2003 than in 2002, but the cost per pound was 10.4%higher in 2004 than 2003 and was the same in 2003 compared to 2002.  The lower production costs in 2004 were aresult of lower harvesting and husking costs because of fewer

 

17

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pounds handled. The lower production costs in 2003 were the result of lower productioncosts in Ka’u and Mauna Kea.  The highercosts in 2002 were the result of higher production.

 

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

### ** **

As a result of theacquisition of the farming operation in 2000, the Partnership acquiredapproximately 20 farming contracts to farm macadamia orchards owned by othergrowers. These contracts cover macadamia orchards in the same three locationson the island of Hawaii where the Partnership owns orchards.  The farming contracts provide the Partnershipto be reimbursed for all direct farming costs (cultivation, irrigation andharvesting), collect a pro-rata share of indirect costs and overheads, andcharge a management fee.  The managementfee is based on the number of acres farmed or on a percentage of total costsbilled.  Revenues from farming serviceswere $4.3 million in 2004, $5.0 million in 2003, and $4.2 million for 2002. The2004 farming service revenues were less that expected because of the late dropof nuts in the fall crop.  The 2003farming service revenues were greater than anticipated because of the timing ofharvesting. The 2002 farming service revenues were less than anticipated becauseof the termination of farming contracts related to 155 tree acres to thirdparties.  Also, in 2002 one of the majorfarming contracts requested longer harvest intervals for their orchards.

 

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

 

The cost of services soldrelating to the farming contracts was $3.6 million in 2004, $4.5 million in 2003and $3.8 million for 2002.  These costswere all reimbursed to the Partnership.

 

## ***Generaland Administrative Costs***

## ** **

General and administrative expenses are comprised ofaccounting and reporting costs, reimbursements to the Managing Partner fordirectors’ fees, office expenses and liability insurance, and the managementfee.  In addition, general andadministrative costs are also incurred in connection with the farmingoperations.  Previous to the May 2000acquisition, general and administration costs relating to the Partnership’sorchards were included in the Partnership’s farming expenses.

 

Total general and administrative costs for 2004 were $482,000higher than 2003, which is attributed to higher legal costs.  Legal costs of $464,000 related to thelawsuit, initiated and settled, to prevent Mauna Loa from acquiring MacFarms ofHawaii, LLC.  General and administrativecosts for 2003 were $85,000 lower than in 2002 which wasattributed to lower service costs and orchard management costs.

 

A management fee based on Partnership cash flow ispayable annually to the Managing Partner. The amount paid was $9,000 in 2004, $44,000 in 2003, and $32,000 for 2002.

 

## ***InterestIncome and Expense***

## ** **

The Partnership recordedinterest expense of $182,000 in 2004, $203,000 in 2003, and $307,000 in 2002.  This was due to (1) the long-term loan usedto acquire the farming operations, (2) the assumption of several capitalizedequipment leases, and (3) interest expense on a revolving line of credit.

 

The Partnership funds its working capital needsthrough funds on hand and, when needed, from short-term borrowings, generatinginterest expense in the process.  Netinterest income or expense, therefore, is partly a function of any balancecarried over from the prior year, the amount and timing of cash generated anddistributions paid to investors in the current year, as well as the currentlevel of interest rates.  Interest wasearned in the amount of $11,000 in 2004, $12,000 in 2003 and $46,000 in 2002primarily from charges to Mauna Loa for late payment in 2004.

 

Other income of $32,000 was recorded in 2004 from cropinsurance.  Other income of $260,000 wasrecorded in 2003 with $206,000 from crop insurance and $40,000 from thesettlement of a written off

 

18

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receivable. $109,000 was recorded in 2002 primarilyfrom the early termination of a land and garage lease with CBCL.

 

***Inflation and Taxes***

 

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

 

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.  The gross income tax was $5,000 in 2004, $42,000in 2003, and $33,000 in 2002.

 

# ***Liquidity and Capital Resources***

# *** ***

Net cash provided byoperation was $368,000 in 2004 a decrease of approximately $2.0 millioncompared to 2003.  Net cash provided byoperations was $2.3 million in 2003 an increase of approximately$100,000 over 2002.  Net cash provided byoperations was $2.2 million in 2002.

 

At December 31, 2004the Partnership’s working capital was $2.9 million and it current ratio was 1.63to 1, compared to $4.2 million and 2.55 to 1 in 2003.  In 2003 the Partnership’s working capital was$4.2 million and its current ratio was 2.55 to 1, compared to $3.2 million and 2.14to 1 in 2002.  In 2004 the decrease inworking capital compared to 2003 was a result of lower revenue and highergeneral and administrative costs.  In2003 the increase in working capital compared to 2002 was a result of higherrevenue, higher interest and other income, lower general and administrativecosts, and lower interest costs.  In 2002payment by Mauna Loa resulted in liabilities being paid without incurring shortterm debt.  The Partnership was incompliance with the terms and conditions of the Credit Agreement at December 31,2004 except for its Debt Coverage Ratio. The lender has provided a waiver to the loan covenants for the fourthquarter 2004.

 

Capital expenditures in 2004,2003 and 2002 were $172,000, $20,000 and $93,000, respectively.  The increase in 2004 was the result ofpurchases by the Partnership of expiring leases.  Capital expenditures planned for 2005 areless than $500,000 and are expected to be financed by way of new equipmentleases, either capital or operating leases.

 

Macadamia nut farming isseasonal, with production peaking late in the fall.  However, farming operations continue yearround. As a result, additional working capital is required for much of theyear. The Partnership meets its working capital needs with cash on hand, andwhen necessary, through short-term borrowings under a $5.0 million revolvingline of credit. The line of credit was obtained on May 2, 2000 and expires May1, 2008.  At December 31, 2004 thePartnership had a cash balance of $196,000 and line of credit drawingsoutstanding of $2,200,000.  At December 31,2003 the Partnership had a cash balance of $36,000 and line of credit drawingsoutstanding of $400,000.  The cashbalance was $31,000 at the end of 2002, and the line of credit drawings were $800,000at December 31, 2002.

 

It is the opinion ofmanagement that the Partnership has adequate cash on hand and borrowingcapacity available to meet anticipated working capital needs for operations aspresently conducted.  However, with the September 2000sale of Mauna Loa, the managing partner no longer has control over the timingof nut payments to the Partnership. The nut purchase contracts require MaunaLoa to make nut payments 30 days after the end of each quarter.  During certain parts of the year, if paymentsare not received, as the contracts require, available cash resources could bedepleted.

 

19

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***Critical Accounting Policies and Estimates***

 

Management has identifiedthe following critical accounting policies that affect the Partnership’s moresignificant judgments and estimates used in the preparation of the Partnership’sfinancial statements.  The preparation ofthe Partnership’s financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires the Partnership’s managementto make estimates 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,revenue recognition, allowance for doubtful accounts, contingencies andlitigation.  The Partnership states theseaccounting policies in the notes to the financial statements and in relevantsections in this discussion and analysis. These estimates are based on the information that is currently availableto the Partnership and on various other assumptions that management believes tobe reasonable under the circumstances. Actual results could vary from those estimates.

 

The Partnership believesthat the following critical accounting policies affect significant judgmentsand estimates used in the preparation of it financial statements:

 

The Partnership maintainsan allowance for doubtful accounts for estimated losses resulting from thefailure of its customers to make required payments, which results in bad debtexpense.  Management determines theadequacy of this allowance by continually evaluating individual customerreceivables, considering the customer’s financial condition, credit history andcurrent economic conditions.  If thefinancial condition of customers were to deteriorate, or if a customer refusesto pay or disputes any such payment, additional allowances may be required.

 

The Partnership maintainsan accrual for workers compensation claims to the extent that the Partnership’scurrent insurance policies will not cover such claims.  This accrual is included in other accruedliabilities in the accompanying balance sheet. Management determines the adequacy of the accrual by periodicallyevaluating the historical experience and projected trends related to outstandingand potential workers compensation claims. If such information indicates that the accrual is over or understated,the Partnership will adjust the assumptions utilized in the methodologies andreduce or provide for additional accrual as appropriate.

 

Retirement Benefits:  The Partnership sponsors a non-contributorydefined benefit pension plan for union employees.  Several statistical and other factors whichattempt to anticipate future events are used in calculating the expense andliabilities related to this plan.  Thesefactors include assumptions about the discount rate, expected return on planassets, withdrawal and mortality rates and the rate of increase in compensationlevels.  The actuarial assumptions usedby the Partnership may differ materially from actual results due to changingmarket and economic conditions, higher or lower withdrawal rates or longer orshorter mortality of participants.  Thesedifferences may impact the amount of retirement benefit expense recorded by thePartnership in future periods.

 

The Partnership reviewslong-lived assets held and used, or held for sale for impairment annually orwhenever 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.

 

20

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**RecentlyIssued Accounting Pronouncement**

 

The Partnership hasapplied the revised disclosure provisions of SFAS No. 132, “Employers’Disclosure about Pensions and other Postretirement Benefits”.  The revisions to SFAS No. 132 were issued in December 2003,and require additional disclosures about the assets, obligations, cash flowsand net periodic benefit cost of defined benefit pension plans and otherdefined benefit postretirement plans. The disclosures that are required by SFAS No. 132 are included in Note(9).

 

**LegalProceedings**

 

As reported on August 13,2004, in the Quarterly Report on Form 10-Q of ML Macadamia Orchards, L.P. (the “Partnership”)for its fiscal quarter ended June 30, 2004, the Partnership and severalindependent growers filed suit against Mauna Loa Macadamia Nut Corporation inthe Circuit Court of the Third Judicial Circuit of the State of Hawaii in Hilo,alleging that the proposed acquisition by Mauna Loa Macadamia Nut Corporation (“MaunaLoa”) of the assets of Mauna Loa’s major competitor, MacFarms of Hawaii, LLC (“MacFarms”),would give Mauna Loa a monopoly over the supply and processing of wet-in-shellmacadamia nuts on the Island of Hawaii, which in turn would give Mauna Loamonopoly power over the growers and other processors on the Island of Hawaiiand consumers of macadamia nuts in Hawaii and on the mainland United States.Hamakua Macadamia Nut Company, Inc.  (“Hamakua”) subsequently filed itsown lawsuit against Mauna Loa, which was then consolidated with the Partnership’scase.

 

On October 1, 2004,the Partnership, the independent growers and Hamakua entered into an agreementwith Mauna Loa whereby Mauna Loa terminated its agreement to acquire the assetsof MacFarms and the Partnership, the independent growers and Hamakua causedtheir lawsuits to be dismissed.

 

**ITEM 7A.**** QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

The Partnership is exposed to market risks resultingfrom changes in interest rates.  Theinterest rates on the Partnership’s Credit Agreement, which are based on LIBOR(Farm Credit Discount Note Rate and the Farm Credit Medium Term Note Rate), areadjusted periodically based on the Partnership’s election to fix interest ratesfor periods ranging from between three months and five years.  As of December 31, 2004, a one percentincrease or decrease in the applicable rate under the Credit agreement willresult in an interest expense fluctuation of approximately $20,000.

 

21

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**ITEM8.  FINANCIAL STATEMENTS**

 

**Index to Financial Statements**

 
| Report of Independent  Registered Public Accounting Firm                                         |   |
|--------------------------------------------------------------------------------------------------|--------|
|                                                                                             |   |
| Balance  Sheets, December 31, 2004 and 2003                                                 |   |
|                                                                                             |   |
| Income  Statements, for the Years Ended December 31, 2004, 2003, and 2002                   |   |
|                                                                                             |   |
| Statements of Partners’ Capital,  for the Years Ended December 31, 2004, 2003 and 2002 |   |
|                                                                                             |   |
| Statements of Cash Flows for  the Years Ended December 31, 2004, 2003 and 2002              |   |
|                                                                                             |   |
| Notes to Financial  Statements                                                                   |   |

 

22

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**REPORT****OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Partners

ML Macadamia Orchards,L.P.

 

Inour opinion, the accompanying balance sheets and the related income statements,statements of partners’ capital, and statements of cash flows, present fairly,in all material respects, the financial position of ML Macadamia Orchards, L.P.at December 31, 2004 and 2003, and the results of its operations and itscash flows for each of the three years in the period ended December 31,2004 in conformity with accounting principles generally accepted in the UnitedStates of America.  These financialstatements are the responsibility of the Partnership’s management.  Our responsibility is to express an opinionon these 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 audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

PricewaterhouseCoopersLLP

 

Honolulu, Hawaii

March 17, 2005

 

23

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

**Balance Sheets**

(in thousands)

 
| ** **                                                                              | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                              | ** ** | **2004**              | ** ** | **2003** | ** ** |
| **Assets**                                                                              |       |                  |       |   |   |
| Current assets                                                                          |       |                  |       |   |   |
| Cash and cash equivalents                                                               |       | $                     | 196        |   | $ | 36 |   |
| Accounts receivable                                                                     |       | 7,092                 |       | 6,526 |   |
| Inventory of farming supplies                                                           |       | 145                   |       | 141 |   |
| Other current assets                                                                    |       | 153                   |       | 143 |   |
| Total current assets                                                                    |       | 7,586                 |       | 6,846 |   |
| Land, orchards and equipment,  net                                                      |       | 50,810                |       | 53,201 |   |
| Intangible assets, net                                                                  |       | 42                    |       | 22 |   |
| Total assets                                                                            |       | $                     | 58,438     |   | $ | 60,069 |   |
|                                                                                    |       |                  |       |   |   |
| **Liabilities and partners’  capital**                                             |       |                  |       |   |   |
| Current liabilities                                                                     |       |                  |       |   |   |
| Current portion of long-term  debt                                                      |       | $                     | 435        |   | $ | 453 |   |
| Short-term borrowings                                                                   |       | 2,200                 |       | 400 |   |
| Accounts payable                                                                        |       | 738                   |       | 493 |   |
| Cash distributions payable                                                              |       | 379                   |       | 227 |   |
| Accrued payroll and benefits                                                            |       | 873                   |       | 847 |   |
| Other current liabilities                                                               |       | 30                    |       | 261 |   |
| Total current liabilities                                                               |       | 4,655                 |       | 2,681 |   |
| Long-term debt                                                                          |       | 2,034                 |       | 2,468 |   |
| Deferred income tax liability                                                           |       | 1,207                 |       | 1,214 |   |
| Total liabilities                                                                       |       | 7,896                 |       | 6,363 |   |
| Commitments and contingencies                                                           |       |                  |       |   |   |
| Partners’ capital                                                                  |       |                  |       |   |   |
| General partner                                                                         |       | 505                   |       | 537 |   |
| Class A limited partners, no  par or assigned value, 7,500 units issued and outstanding |       | 50,037                |       | 53,169 |   |
| Total partners’ capital                                                            |       | 50,542                |       | 53,706 |   |
| Total liabilities and partners’  capital                                           |       | $                     | 58,438     |   | $ | 60,069 |   |

 

***See accompanying notes tofinancial statements.***

 

24

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

**Income Statements**

(in thousands, except per unit data)

 
| ** **                                                                | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|---------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Macadamia nut sales                                                       |       | $        | 9,414      |     | $          | 10,459   |       | $ | 10,336 |   |
| Contract farming revenue                                                  |       | 4,251    |       | 4,967    |       | 4,220    |       |
| Total revenues                                                            |       | 13,665   |       | 15,426   |       | 14,556   |       |
| Cost of goods and services  sold                                          |       |     |       |     |       |     |       |
| Costs of macadamia nut sales                                              |       | 9,967    |       | 9,712    |       | 9,782    |       |
| Costs of contract farming  services                                       |       | 3,560    |       | 4,511    |       | 3,822    |       |
| Total cost of goods and  services sold                                    |       | 13,527   |       | 14,223   |       | 13,604   |       |
| Gross income                                                              |       | 138      |       | 1,203    |       | 952      |       |
| General and administrative  expenses                                      |       |     |       |     |       |     |       |
| Costs expensed under  management contract with related party              |       | 177      |       | 204      |       | 217      |       |
| Legal fees paid to related  party                                         |       | 495      |       | 33       |       | 28       |       |
| Other                                                                     |       | 971      |       | 924      |       | 1,002    |       |
| Total general and  administrative expenses                                |       | 1,643    |       | 1,161    |       | 1,247    |       |
| Operating income (loss)                                                   |       | (1,505   | )          | 42       |       | (295     | )          |
| Interest expense                                                          |       | (182     | )          | (203     | )          | (307     | )          |
| Interest income                                                           |       | 11       |       | 12       |       | 46       |       |
| Other income                                                              |       | 32       |       | 260      |       | 109      |       |
| Income (loss) before tax                                                  |       | (1,644   | )          | 111      |       | (447     | )          |
| Income tax expense                                                        |       | (5       | )          | (42      | )          | (33      | )          |
| Net income (loss)                                                         |       | $        | (1,649     | )        | $          | 69       |       | $ | (480 | ) |
|                                                                      |       |     |       |     |       |     |       |
| Net cash flow (as defined in  the Partnership Agreement)                  |       | $        | 466        |     | $          | 2,157    |       | $ | 1,592 |   |
|                                                                      |       |     |       |     |       |     |       |
| Net income (loss) per Class A  Unit                                       |       | $        | (0.22      | )        | $          | 0.01     |       | $ | (0.06 | ) |
|                                                                      |       |     |       |     |       |     |       |
| Net cash flow per Class A Unit  (as defined in the Partnership Agreement) |       | $        | 0.06       |     | $          | 0.28     |       | $ | 0.21 |   |
|                                                                      |       |     |       |     |       |     |       |
| Cash distributions per Class A  Unit                                      |       | $        | 0.20       |     | $          | 0.16     |       | $ | 0.20 |   |
|                                                                      |       |     |       |     |       |     |       |
| Class A Units outstanding                                                 |       | 7,500    |       | 7,500    |       | 7,500    |       |

 

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

 

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

**Statements of Partners****’ Capital**

(in thousands)

 
| ** **                                      | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                            |       |     |       |     |       |     |       |
| Partners’ capital at beginning  of period: |       |     |       |     |       |     |       |
| General partner                                 |       | $        | 537        |     | $          | 549      |       | $ | 569 |   |
| Class A limited partners                        |       | 53,169   |       | 54,300   |       | 56,275   |       |
|                                            |       | 53,706   |       | 54,849   |       | 56,844   |       |
|                                            |       |     |       |     |       |     |       |
| Allocation of net income  (loss):               |       |     |       |     |       |     |       |
| General partner                                 |       | (17      | )          | 1        |       | (5       | )          |
| Class A limited partners                        |       | (1632    | )          | 68       |       | (475     | )          |
|                                            |       | (1,649   | )          | 69       |       | (480     | )          |
|                                            |       |     |       |     |       |     |       |
| Cash distributions:                             |       |     |       |     |       |     |       |
| General partner                                 |       | 15       |       | 13       |       | 15       |       |
| Class A limited partners                        |       | 1,500    |       | 1,199    |       | 1,500    |       |
|                                            |       | 1,515    |       | 1,212    |       | 1,515    |       |
|                                            |       |     |       |     |       |     |       |
| Partners’ capital at end of  period:       |       |     |       |     |       |     |       |
| General partner                                 |       | 505      |       | 537      |       | 549      |       |
| Class A limited partners                        |       | 50,037   |       | 53,169   |       | 54,300   |       |
|                                            |       | $        | 50,542     |     | $          | 53,706   |       | $ | 54,849 |   |

 

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

 

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

**Statements of Cash Flows**

(in thousands)

 
| ** **                                                                                | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cash flows from operating  activities:                                                    |       |     |       |     |       |     |       |
| Cash received for goods and  services                                                     |       | $        | 13,947     |     | $          | 15,433   |       | $ | 15,841 |   |
| Cash paid to suppliers and  employees                                                     |       | (13,408  | )          | (12,973  | )          | (13,414  | )          |
| Interest received                                                                         |       | 11       |       | 5        |       | 46       |       |
| Interest paid                                                                             |       | (182     | )          | (203     | )          | (307     | )          |
| Net cash provided by operating  activities                                                |       | 368      |       | 2,262    |       | 2,166    |       |
|                                                                                      |       |     |       |     |       |     |       |
| Cash flows from investing  activities:                                                    |       |     |       |     |       |     |       |
| Capital expenditures                                                                      |       | (172     | )          | (20      | )          | (93      | )          |
| Net cash used in investing  activities                                                    |       | (172     | )          | (20      | )          | (93      | )          |
|                                                                                      |       |     |       |     |       |     |       |
| Cash flows from financing  activities:                                                    |       |     |       |     |       |     |       |
| Proceeds from drawings on line  of credit                                                 |       | 5,400    |       | 3,800    |       | 8,200    |       |
| Repayment of long term debt                                                               |       | (400     | )          | (400     | )          | (400     | )          |
| Repayment of line of credit                                                               |       | (3,600   | )          | (4,200   | )          | (8,600   | )          |
| Loan cost                                                                                 |       | (20      | )          | —   |       | —   |       |
| Capital lease payments                                                                    |       | (52      | )          | (73      | )          | (84      | )          |
| Cash distributions paid                                                                   |       | (1,364   | )          | (1,364   | )          | (1,515   | )          |
| Net cash provided by (used in)  financing activities                                      |       | (36      | )          | (2,237   | )          | (2,399   | )          |
|                                                                                      |       |     |       |     |       |     |       |
| Net increase (decrease) in  cash                                                          |       | 160      |       | 5        |       | (326     | )          |
| Cash at beginning of period                                                               |       | 36       |       | 31       |       | 357      |       |
| Cash at end of period                                                                     |       | $        | 196        |     | $          | 36       |       | $ | 31 |   |
|                                                                                      |       |     |       |     |       |     |       |
| Reconciliation of net income  (loss) to net cash  provided by  operating activities: |       |     |       |     |       |     |       |
| Net income (loss)                                                                         |       | $        | (1,649     | )        | $          | 69       |       | $ | (480 | ) |
| Adjustments to reconcile net  income (loss) to net cash provided by operating activities: |       |     |       |     |       |     |       |
| Depreciation and amortization                                                             |       | 2,571    |       | 2,563    |       | 2,556    |       |
| (Increase) decrease in  accounts receivable                                               |       | (566     | )          | (869     | )          | 830      |       |
| (Increase) decrease in  inventories                                                       |       | (4       | )          | 17       |       | —   |       |
| (Increase) decrease in other  current assets                                              |       | (10      | )          | 48       |       | (142     | )          |
| (Increase) decrease in other  assets                                                      |       | (7       | )          | —   |       | 48       |       |
| Increase (decrease) in  accounts payable                                                  |       | 245      |       | 93       |       | (66      | )          |
| Increase (decrease) in accrued  payroll                                                   |       | 26       |       | 105      |       | (117     | )          |
| Increase (decrease) in current  liabilities                                               |       | (231     | )          | 240      |       | (465     | )          |
| Deferred income tax expense  (credit)                                                     |       | (7       | )          | (4       | )          | 2        |       |
| Total adjustments                                                                         |       | 2,017    |       | 2,193    |       | 2,646    |       |
| Net cash provided by operating  activities                                                |       | $        | 368        |     | $          | 2,262    |       | $ | 2,166 |   |

 

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

 

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 **ML MacadamiaOrchards, L.P.**

 

# ***Notesto Financial Statements***

 

**(1)OPERATIONS AND OWNERSHIP**

 

ML Macadamia Orchards,L.P. (the “Partnership”) owns and farms 4,169 tree acres of macadamia orchardson the island of Hawaii. Once the nuts are harvested, the Partnership sellsthem to another entity, which processes and markets the finished products.  The Partnership farms approximately 2,505additional acres of macadamia orchards on Hawaii for other orchard owners.

 

The Partnership is owned 99% by limited partners and1% by the managing general partner, ML Resources, Inc. (“MLR”).  On August 1, 2001, all of the stock ofMLR was sold to D. Buyers Enterprises, LLC (“DBE”), an entity whose majorityowner is J.W.A. Buyers, who also serves as the chairman of the board of CBCL.  On January 6, 2005, the stock of MLResources, Inc. was purchased from DBE by the Partnership for $750,000.Approximately $425,000 of the purchase price will be capitalized to record thegeneral partner’s 1% interest in the Partnership and the remainder,attributable to the management contract and fees will be expensed in the firstquarter of 2005.

 

Limited partner interests are represented by Class AUnits, which are evidenced by depositary receipts that trade publicly and arelisted on the New York Stock Exchange. Mauna Loa Orchards, L.P., an affiliate of the general partner until August of2001, held 30,000 Class A Units at December 31, 2001 and sold these unitsin May and June of 2002.

 

**(2)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**(a)****                 Cashand Cash Equivalents. **Cash and cashequivalents include unrestricted demand deposits with banks and all highlyliquid deposits with an original maturity of less than three months.  The cash equivalents are not protected byfederal deposit insurance.

 

**(b)****                 FinancialInstruments. **The fair value of allfinancial instruments approximates the carrying value, as the majority of thefinancial instruments have fairly short durations until maturity, or the marketand risk factors associated with the instruments have not changed.

 

**(c)****                 FarmingCosts.** In accordance with industry practice in Hawaii, orchard maintenanceand harvesting costs for commercially producing macadamia orchards are chargedagainst earnings in the year that the costs are incurred.

 

**(d)****                 Land,Orchards and Equipment. **Land,orchards and equipment are reported at cost, net of accumulated depreciationand amortization.  Net farming costs forany “developing” orchards are capitalized on the balance sheet until revenuesfrom that orchard exceed expenses for that orchard (or nine years afterplanting, if earlier).

 

Depreciation of orchards and other equipment isreported on a straight-line basis over the estimated useful lives of the assets(40 years for orchards and between 5 and 12 years for other equipment).  A 5% residual value is assumed fororchards.  The macadamia orchardsacquired in 1986 situated on leased land are being amortized on a straight-linebasis over the terms of the leases (approximately 33 years from the inceptionof the Partnership) with no residual value assumed.  The macadamia orchards acquired in 1989situated on leased land are being amortized on a straight-line basis over a 40year period (the terms of these leases exceed 40 years) with no residual valueassumed.  For income tax reporting,depreciation is calculated under the straight line method over AlternativeDepreciation System recovery periods.

 

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**(e)****          IncomeTaxes.**  The accompanying income statementsdo not include 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 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.

 

Deferredtax liabilities are recognized for the future tax consequences attributable todifferences between the financial reporting and tax reporting basis of assetsand liabilities.

 

**(f)****           ****Revenue. **Macadamia nut sales are recognized when nuts areharvested and delivered to the buyer. Contract farming revenue and administrative services revenues arerecognized in the period that such services are provided.

 

**(g)****        ****Pension Benefit Costs.**  The actuarialmethod used for financial accounting purposes is the projected unit creditmethod.

 

**(h)****        ****Estimates. **The preparation of 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 financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actual resultscould differ from those estimates.

 

**(i)****           ****Net Income Per Class A Unit.** Net income per Class A Unit is calculated by dividing 99% of Partnershipnet income by the average number of Class A Units outstanding for the period.

 

**(3) SEGMENT INFORMATION**

 

The Partnership has two reportable segments, theowned-orchard segment and the farming segment, which are organized on the basisof revenues and assets.  Theowned-orchard segment derives its revenues from the sale of macadamia nutsgrown in orchards owned or leased by the Partnership.  The farming segment derives its revenues fromthe farming of macadamia orchards owned by other growers.  It also farms those orchards owned by the Partnership.

 

Management evaluates theperformance of each segment on the basis of operating income.  The Partnership accounts for inter segmentsales and transfers at cost.  Such inter segmentsales and transfers are eliminated in consolidation.

 

The Partnership’sreportable segments are distinct business enterprises that offer differentproducts or services.  Revenues from theowned-orchard segment are subject to long-term nut purchase contracts and tendto vary from year to year due to changes in the calculated nut price per poundand pounds produced.  The farming segment’srevenues are based on long-term farming contracts which generate a farmingprofit based on a percentage of farming cost or based on a fixed fee per acreand tend to be less variable than revenues from the owned-orchard segment.

 

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The following is asummary of each reportable segment’s operating income and the segment’s assetsas of and for the period ended December 31, 2004, 2003 and 2002.

 

Segment Reporting for the Year ended December 31, 2004

(in thousands)

 
| ** **                               | ** ** | **Owned**    | ** ** | **Contract** | ** ** | **Inter  segment** | ** ** | ** ** | ** ** |
|------------------------------------------|------------|--------------|------------|--------------|------------|--------------------|------------|------------|------------|
| ** **                               | ** ** | **Orchards** | ** ** | **Farming**  | ** ** | **Elimination**    | ** ** | **Total**  | ** ** |
|                                     |       |         |       |         |       |               |       |       |       |
| Revenues                                 |       | $            | 9,414      |         | $          | 9,502              |       | $          | (5,251     | ) | $ | 13,665 |   |
| Composition of Inter-segment  revenues   |       | —       |       | 5,251        |       | —             |       | 5,251      |       |
| Operating income (loss)                  |       | (1,684       | )          | 179          |       | —             |       | (1,505     | )          |
| Depreciation expense                     |       | 1,671        |       | 900          |       | —             |       | 2,571      |       |
| Segment assets                           |       | 52,984       |       | 5,454        |       | —             |       | 58,438     |       |
| Expenditures for property and  equipment |       | 76           |       | 96           |       | —             |       | 172        |       |
|                                          |            |              |            |              |            |                    |            |            |            |  |  |  |  |

 

Segment Reporting for the Year ended December 31, 2003

(in thousands)

 
| ** **                               | ** ** | **Owned**    | ** ** | **Contract** | ** ** | **Inter  segment** | ** ** | ** ** | ** ** |
|------------------------------------------|------------|--------------|------------|--------------|------------|--------------------|------------|------------|------------|
| ** **                               | ** ** | **Orchards** | ** ** | **Farming**  | ** ** | **Elimination**    | ** ** | **Total**  | ** ** |
|                                     |       |         |       |         |       |               |       |       |       |
| Revenues                                 |       | $            | 10,459     |         | $          | 10,778             |       | $          | (5,811     | ) | $ | 15,426 |   |
| Composition of Inter-segment  revenues   |       | —       |       | 5,811        |       | —             |       | 5,811      |       |
| Operating income (loss)                  |       | (156         | )          | 198          |       | —             |       | 42         |       |
| Depreciation expense                     |       | 1,644        |       | 919          |       | —             |       | 2,563      |       |
| Segment assets                           |       | 55,070       |       | 4,999        |       | —             |       | 60,069     |       |
| Expenditures for property and  equipment |       | —       |       | 20           |       | —             |       | 20         |       |
|                                          |            |              |            |              |            |                    |            |            |            |  |  |  |  |

 

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Segment Reporting for the Year ended December 31, 2002

(in thousands)

 
| ** **                               | ** ** | **Owned**    | ** ** | **Contract** | ** ** | **Inter  segment** | ** ** | ** ** | ** ** |
|------------------------------------------|------------|--------------|------------|--------------|------------|--------------------|------------|------------|------------|
| ** **                               | ** ** | **Orchards** | ** ** | **Farming**  | ** ** | **elimination**    | ** ** | **Total**  | ** ** |
|                                     |       |         |       |         |       |               |       |       |       |
| Revenues                                 |       | $            | 10,336     |         | $          | 9,948              |       | $          | (5,728     | ) | $ | 14,556 |   |
| Composition of Inter segment  revenues   |       | —       |       | 5,728        |       | —             |       | 5,728      |       |
| Operating income (loss)                  |       | (254         | )          | (41          | )          | —             |       | (295       | )          |
| Depreciation expense                     |       | 1,644        |       | 912          |       | —             |       | 2,556      |       |
| Segment assets                           |       | 56,972       |       | 4,831        |       | —             |       | 61,803     |       |
| Expenditures for property and  equipment |       | —       |       | 93           |       | —             |       | 93         |       |
|                                          |            |              |            |              |            |                    |            |            |            |  |  |  |  |

 

**(4)RELATED PARTY TRANSACTIONS**

 

**(a) NutPurchase Contracts.** The Partnership is a party to five nut purchase contracts with Mauna LoaMacadamia Nut Corporation (“Mauna Loa”). ML Resources, Inc, the Partnership’s general partner was purchased byDBE August 1, 2001. The five nut purchase contracts cover all nutsproduced by the orchards acquired in June 1986, December 1986, October 1989,September 1991, and May 2000 respectively. The first two contracts run for 20 years, while the third contract runsfor 30 years and also provides for the exclusion of unusable nuts from thosepurchased by Mauna Loa.  The first threecontracts are identical in all other material respects.  The fourth contract was acquired byassignment with the purchase of the September 1991 orchard and expired June 30,2003.  A new contract was negotiated andreplaces the fourth contract.  The newfourth contract has a fixed nut price of $0.60 per wet in shell (WIS) @25%pound with adjustment if usable nuts deduction is less than 10% or greater than13%.  The fifth contract was acquired byassignment with the purchase of the May 2000 orchards and expires in 2006.  The fifth contract is similar to the firstthree contracts and also provides for the exclusion of unusable nuts.  The first three contracts use a pricingformula based 50% on a two-year trailing average of the macadamia nut pricepublished annually by the U.S. Department of Agriculture (“USDA”) and 50% onMauna Loa’s “netback component”. The netback component is calculated bysubtracting Mauna Loa’s processing and marketing costs per pound and a “capitalcharge” of 20% from its nut revenues per pound. The fifth contract uses onlythe USDA two-year trailing average to determine its nut price.  The nut price paid to the Partnership underthe first two contracts was $0.4655 for 2002, $0.4816 in 2003, and $0.4954 in2004.  The average nut price paid to thePartnership under the third contract was $0.4610 for 2002, $0.4789 in 2003, and$0.4945 in 2004. The average nut price paid to the Partnership under the fourthnut price contract was $0.4920 for 2002, $0.6000 for 2003, and $0.6000 in 2004.  The nut price paid to the Partnership underthe fifth contract was $0.5940 in 2002, $0.5660 for 2003, and $0.5560 in 2004.

 

**(b) HuskingActivities  **Huskingactivities for the Keaau and Mauna Kea orchards are performed at Mauna Loa’s Keaaufacility.  The Partnership has exercisedits option to continue leasing the husking facility from Mauna Loa through December 31,2006. Reimbursements made to Mauna Loa were $531,000 in 2002, $522,000 in 2003,and $440,000 in 2004.

 

**(c)Management Costs and Fee.** The Partnership Agreement provides the managing general partnerreimbursement of administrative costs (which consist primarily of compensationcosts, board of directors fees, insurance costs and office expenses) incurredunder the agreement as well as a management fee equal to two percent of thePartnership’s operating cash flow (as defined). Those reimbursable costs

 

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totaled $180,000 in 2002,$160,000 in 2003, and $168,000 in 2004. The managing general partner earned a management fee of $32,000 in 2002,$44,000 in 2003, and $9,000 in 2004.

 

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 provided that netcash flow (as defined) for the preceding calendar year exceeds specifiedlevels.  No incentive fee was earned in2002, 2003 or 2004.

 

**(d)Stabilization Payments.** In December 1986, the Partnership acquired a 266-acre orchard thatwas several years younger than its other orchards.  Because of the relative immaturity of thenewer orchard, its productivity (and therefore its cash flow) was expected tobe correspondingly lower for the first several years than for the other olderorchards.

 

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 stabilization payments(net of general excise tax) as a reduction in the cost basis of thisorchard.  As a result, the payments willbe reflected in the Partnership’s net income ratably through 2019 as areduction to depreciation for this orchard.

 

In return, the Partnership is obligated to pay KACI100% of any year’s cash flow from this orchard in excess of the target cashflow as additional percentage rent until the aggregate amount of additionalpercentage rent equals 150% of the total amount of stabilization paymentspreviously received.  Thereafter, thePartnership is obligated to pay KACI 50% of this orchard’s cash flow in excessof the target cash flow as additional incentive rent.  No additional rent was due in 2002, 2003, or2004.

 

**(e) CashFlow Warranty Payments**. In October 1989, the Partnership acquired 1,040 acres of orchardsthat were several years younger on average than the Partnership’s otherorchards.  Their productivity (andtherefore their cash flow) was expected to be lower for the first several yearsthan for the Partnership’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 cash flow warrantypayments as reductions in the cost basis of the orchards.  As a result, these payments will be reflectedin the Partnership’s net income ratably through 2030 as reductions todepreciation for these orchards.

 

**(f) Legal Services. **The Partnership paid$495,000 in legal fees in 2004.  A Directorof the Partnership is a former partner and currently of counsel to the law firmused by the Partnership.

 

**(g) Management Services Contract. **The Partnership provides administrative services toDBE for which it was compensated $94,000 in 2002, $98,000 in 2003 and $104,000in 2004.

 

**(h) Office Lease. **Since September 2001,the Partnership has leased approximately 4000 square feet of office space inHilo for its accounting staff through the General Partner, which is owned byDBE.

 

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**(5) CASH FLOW PERFORMANCE**

 

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

 
| ** **                                               | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Gross revenues                                           |       | $        | 13,708     |     | $          | 15,698   |       | $ | 14,711 |   |
| Less:                                                    |       |     |       |     |       |     |       |
| Farming costs                                            |       | 10,956   |       | 11,660   |       | 11,048   |       |
| Administrative costs                                     |       | 1,643    |       | 1,161    |       | 1,248    |       |
| Payments of principal and  interest                      |       | 634      |       | 676      |       | 791      |       |
| Operating cash flow                                      |       | 475      |       | 2,201    |       | 1,624    |       |
| Less:                                                    |       |     |       |     |       |     |       |
| Management fee                                           |       | 9        |       | 44       |       | 32       |       |
| Net cash flow (as defined in  the Partnership Agreement) |       | $        | 466        |     | $          | 2,157    |       | $ | 1,592 |   |

 

This cash flow measure isused to determine the management fee paid annually to the general partner andforms the basis of distributable cash per unit.

 

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

 

Land, orchards andequipment, stated at cost, consisted of the following at December 31, 2004and 2003 (000’s):

 
| ** **                                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|
| Land                                           |       | $        | 8,168      |     | $          | 8,168 |   |
| Improvements                                   |       | 1,074    |       | 1,074    |       |
| Machinery and equipment                        |       | 5,156    |       | 4,878    |       |
| Irrigation well and equipment                  |       | 1,155    |       | 1,155    |       |
| Producing orchards                             |       | 67,267   |       | 67,267   |       |
| Capital leases                                 |       | 161      |       | 286      |       |
|                                           |       |     |       |     |       |
| Land, orchards and equipment (gross)           |       | 82,981   |       | 82,828   |       |
|                                           |       |     |       |     |       |
| Less accumulated depreciation and amortization |       | 32,171   |       | 29,627   |       |
|                                           |       |     |       |     |       |
| Land, orchards and equipment (net)             |       | $        | 50,810     |     | $          | 53,201 |   |

 

ThePartnership’s interest in trees situated on certain leased macadamia orchardproperties are subject to repurchase at the option of the lessors.  Such repurchase options grant the lessors theright to purchase all or a portion of these trees after June 30, 2019, atfair market value, as defined 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.

 

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

 

At December 31, 2004 and 2003, the Partnership’slong-term debt comprises (000’s):

 
| ** **      | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------|------------|----------|------------|----------|------------|
| Term debt       |       | $        | 2,400      |     | $          | 2,800 |   |
| Other           |       | 69       |       | 121      |       |
|            |       | 2,469    |       | 2,921    |       |
| Current portion |       | 435      |       | 453      |       |
|            |       | $        | 2,034      |     | $          | 2,468 |   |

 

**CreditAgreement.** On May 2,2000 the Partnership entered into a new credit agreement with Pacific CoastFarm Credit Services, ACA (currently American AgCredit Capital Markets)comprised of a $5 million revolving line of credit and a $4 million promissorynote.

 

The line of creditexpires on May 1, 2008.  Drawings on theline 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 rations on the daily unused portion ofcredit.  The Partnership, at its option,may make prepayments without penalty.

 

Drawings outstanding onthe line of credit at December 31, 2004 amounted to $2,200,000, withinterest at 5.25%.  Drawings outstandingat December 31, 2003 amounted to $400,000, with interest at 4.25% and at December 31,2002 amounted to $800,000 with interest at 4.25%.

 

At December 31, 2004,the outstanding balance on the promissory note amounted to $2.4 million.  The note is scheduled to mature in 2010 andbears interest at rates ranging from 3.67% to 7.77%.  Principal payments are due annually on May 2in the amount of $400,000.

 

Both the revolving creditloan and the term debt are collateralized by all personal property assets ofthe Partnership.  The credit agreementcontains certain restrictions associated with partner distributions, furtherindebtedness, sales of assets, and maintenance of certain financialminimums.  Significant restrictivefinancial covenants consist of the following:

 

1.               Minimumworking capital of $2.5 million.

2.               Minimumcurrent ratio of 1.5 to 1.

3.               Cumulativecash distributions beginning January 1, 2000 cannot exceed the total ofcumulative net cash flow beginning January 1, 2004 plus a base amount of$3.3 million.

4.               Minimumtangible net worth of $51.8 million (reduced by the amount of allowed cash distributionsover net income).

5.               Maximumratio of funded debt to capitalization of 20%.

6.               Minimumdebt coverage ratio of 2.5 to 1 waived for the fourth quarter 2004.

 

At December 31, 2004,the Partnership’s working capital was $2.9 million and its current ratio 1.63to 1.  The Partnership was in compliancewith all covenants of the Credit Agreement at December 31, 2004 except thedebt coverage ratio which was waived by the lender for the fourth quarter 2004.  Had the lender not waived the restriction thePartnership would have been restricted in its ability to pay distributions tothe limited partners.

 

**Capitaland Operating Leases.**The Partnership has capital andoperating leases for equipment and operating leases for land.  The capital and operating leases forequipment are four to five year leases.

 

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Operating leases havebeen entered into by the Partnership during the last two years for equipment toallow the Partnership the ability to ensure it has the most technologically currentequipment available.

 

**LandLeases.**The partnership leases the land underlying 1,948acres of its orchards under long-term operating leases.  Each of the land leases provides foradditional lease payments based on USDA-reported macadamia nut pricelevels.  Those contingent lease paymentstotaled $16,000 in 2002, $14,000 in 2003, and $18,000 in 2004.  Total lease rent for all operating leases was$142,000 in 2002, $157,000 in 2003, and $150,000 in 2004.

 

Contractual obligationsfor the Partnership are detailed in the following(000’s):

 
| **Contractual Obligations**                                                     | ** ** | **Total** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **Remaining** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|---------------|------------|
| Long-Term Debt                                                                  |       | 2,400     |       | 400      |       | 400      |       | 400      |       | 400      |       | 400      |       | 400           |       |
| Capital Lease Obligations                                                       |       | 69        |       | 35       |       | 34       |       | —   |       | —   |       | —   |       | —        |       |
| Operating Leases                                                                |       | 4,102     |       | 348      |       | 342      |       | 340      |       | 295      |       | 148      |       | 2,629         |       |
| Purchase Obligations                                                            |       | —    |       | —   |       | —   |       | —   |       | —   |       | —   |       | —        |       |
| Other Long-Term Liabilities off The Registrant’s  Balance Sheet under GAAP |       | —    |       | —   |       | —   |       | —   |       | —   |       | —   |       | —        |       |
| Total                                                                           |       | 6,571     |       | 783      |       | 776      |       | 740      |       | 695      |       | 548      |       | 3,029         |       |

 

**(8)INCOME TAXES**

 

The components of incometax expense for the years ended December 31, 2004, 2003 and 2002 were asfollows (000’s):

 
| ** **        | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------|------------|----------|------------|----------|------------|----------|------------|
| Currently payable |       | $        | 12         |     | $          | 46       |       | $ | 35 |   |
| Deferred          |       | (7       | )          | (4       | )          | (2       | )          |
|              |       | $        | 5          |     | $          | 42       |       | $ | 33 |   |

 

The provision for incometaxes equates to the 3.5% federal tax rate applied to gross income for theyears ended December 31, 2004, 2003 and 2002:

 

The components of the netdeferred tax liability reported on the balance sheet as of December 31,2004 and 2003 are as follows (000’s):

 
| ** **                                                                                                                                                    | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax liabilities:                                                                                                                                     |       |     |       |     |       |
| Financial statement bases of  land, orchards, inventory and equipment is greater than tax bases                                                               |       | $        | 658        |     | $          | 671 |   |
| Financial statement bases of  capitalized leases, long- term debt on capitalized leases and interest  expense on capitalized leases is greater than tax bases |       | 38       |       | 21       |       |
| Excess of tax depreciation  over financial statement depreciation                                                                                             |       | 511      |       | 522      |       |
|                                                                                                                                                          |       | $        | 1,207      |     | $          | 1,214 |   |

 

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**(9)PENSION PLAN**

 

The Company established apension plan in conjunction with the acquisition of farming operations on May1, 2000.  The plan covers employees thatare members of a union bargaining unit and the projected benefit obligation wasassumed from the previous employer.

 

The Company’s fundingpolicy is to contribute an amount to the plan sufficient to meet the minimumfunding requirements set forth in the Employee Retirement Income Security Actof 1974.

 

The components of netpension cost for the years ended December 31, 2004, 2003, and 2002 were asfollows (000’s):

 
| ** **                                                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Service cost                                                 |       | $        | 56         |     | $          | 61       |       | $ | 52 |   |
| Interest cost                                                |       | 21       |       | 16       |       | 13       |       |
| Expected return on assets                                    |       | (15      | )          | (12      | )          | (6       | )          |
| Amortization of unrecognized losses and prior service  costs |       | 7        |       | 7        |       | 7        |       |
|                                                         |       | $        | 69         |     | $          | 72       |       | $ | 66 |   |

 

The following reconcilesthe changes in the pension benefit obligation and plan assets for the yearsended December 31, 2004, 2003, 2002 to the funded status of the plan andthe amounts recognized in the balance sheets at December 31, 2004, 2003,2002. (000’s)

 
| ** **                                           | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Change in projected benefit obligation:              |       |     |       |     |       |     |       |
| Projected benefit obligation at beginning of year    |       | $        | 357        |     | $          | 277      |       | $ | 191 |   |
| Service cost                                         |       | 55       |       | 60       |       | 52       |       |
| Interest cost                                        |       | 21       |       | 17       |       | 14       |       |
| Actuarial (gain) or loss                             |       | (11      | )          | 11       |       | 27       |       |
| Benefits paid                                        |       | (11      | )          | (8       | )          | (7       | )          |
|                                                 |       |     |       |     |       |     |       |
| Projected benefit obligation at end of year          |       | 411      |       | 357      |       | 277      |       |
|                                                 |       |     |       |     |       |     |       |
| Change in plan assets:                               |       |     |       |     |       |     |       |
| Fair value of plan assets at beginning of year       |       | 169      |       | 122      |       | 31       |       |
| Actual return on plan assets                         |       | 3        |       | 13       |       | 4        |       |
| Employer contribution                                |       | 44       |       | 42       |       | 94       |       |
| Benefits paid                                        |       | (11      | )          | (8       | )          | (7       | )          |
|                                                 |       |     |       |     |       |     |       |
| Fair value of plan assets at end of year             |       | 205      |       | 169      |       | 122      |       |
|                                                 |       |     |       |     |       |     |       |
| Funded status                                        |       | (206     | )          | (188     | )          | (155     | )          |
| Unrecognized prior service cost                      |       | 69       |       | 75       |       | 82       |       |
| Unrecognized net loss                                |       | 44       |       | 45       |       | 34       |       |
|                                                 |       |     |       |     |       |     |       |
| Net amount recognized                                |       | $        | (93        | )        | $          | (68      | )          | $ | (39 | ) |
|                                                 |       |     |       |     |       |     |       |
| Amounts recognized in the balance sheets consist of: |       |     |       |     |       |     |       |
|                                                 |       |     |       |     |       |     |       |
| Accrued pension liability                            |       | (103     | )          | (72      | )          | (39      | )          |
| Intangible asset                                     |       | 10       |       | 4        |       | —   |       |
|                                                 |       |     |       |     |       |     |       |
| Net amount recognized                                |       | $        | (93        | )        | $          | (68      | )          | $ | (39 | ) |

 

36

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Theaccumulated benefit obligation at December 31, 2004, 2003, and 2001amounted to $308,000, $241,000 and $153,000, respectively.  During 2004, the projected benefitobligation increased by $54,000 and the accumulated benefit obligationincreased by $67,000.  At December 31,2004 the accumulated benefit obligation related to the Partnership’s pensionplan exceeded the fair value of the pension plan assets by $103,000.

 

U.S.pension accounting standards require the recognition of a minimum liabilityequal to the excess, if any, of the accumulated benefit obligation over planassets.  At December 31, 2004, thePartnership recognized an additional minimum liability of $10,000 because theliability recognized for accrued pension cost was less than the minimumliability.  The computation of therequired minimum liability and the additional minimum liability at December 31,2004 is shown below:

 
| ** **                                    | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|
|                                          |       |     |       |     |       |
| Accumulated benefit obligation                |       | $        | 308        |     | $          | 241 |   |
| Fair value of plan assets                     |       | 205      |       | 169      |       |
| Required minimum liability                    |       | 103      |       | 72       |       |
| Liability recognized for accrued benefit cost |       | 93       |       | 68       |       |
|                                          |       |     |       |     |       |
| Additional minimum liability                  |       | $        | 10         |     | $          | 4 |   |

 

Theadditional minimum liability at December 31, 2003 was $4,000.  There was no additional minimum liability at December 31,2002 because the liability recognized for accrued benefit cost exceeded the requiredminimum liability.  The additionalminimum liability was recognized by the establishment of an intangible asset.

 

Experiencegains and losses are amortized over the average future service period ofemployees.

 

The weighted average actuarialassumptions used to determine the pension benefit obligations at December 31,2004, 2003 and 2002 and the net periodic pension cost for the years then endedare as follows:

 
| ** **                    | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Pension benefit obligation:   |       |     |       |     |       |     |       |
| Discount rate                 |       | 5.75     | %          | 6.00     | %          | 6.50     | %          |
| Compensation increases        |       | 2.00     | %          | 2.00     | %          | 2.00     | %          |
|                          |       |     |       |     |       |     |       |
| Net periodic pension cost:    |       |     |       |     |       |     |       |
| Discount rate                 |       | 6.00     | %          | 6.50     | %          | 7.25     | %          |
| Compensation increases        |       | 2.00     | %          | 2.00     | %          | 2.00     | %          |
| Return on assets for the year |       | 8.50     | %          | 8.50     | %          | 9.00     | %          |

 

37

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The expected long-term rate of return on plan assets was basedprimarily on historical returns as adjusted for the plan’s current investmentallocation 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.  Evaluation ofthe actual asset mix is evaluated on a quarterly basis and adjusted if requiredto maintain the desired target mix. Therefore, the actual asset allocation does not vary significantly fromthe targeted asset allocation

 

The plan’s assetallocation percentages at December 31, 2004 and 2003 were as follows:

 
| ** **                | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|
| Pooled fixed income funds |       | 20.00    | %          | 87.80    | %          |
| Money market funds        |       | 20.00    | %          | 12.20    | %          |
| Stock mutual funds        |       | 60.00    | %          | —   |       |
| Total                     |       | 100.00   | %          | 100.00   | %          |

 

The Partnership expectsto contribute approximately $57,000 to the plan in 2005.

 

The following pensionbenefit payments, which reflect expected future services, as appropriate, areexpected to be paid:

 
| **Years Ending December 31,** |   |    |   |
|------------------------------------|--------|---------|--------|
| 2005                               |   | $       | 5,482  |   |
| 2006                               |   | 8,247   |   |
| 2007                               |   | 8,121   |   |
| 2008                               |   | 11,240  |   |
| 2009                               |   | 16,581  |   |
| 2010-2014                          |   | 113,834 |   |
|                                    |        |         |        |  |

 

**(10)  EMPLOYEES SAVINGS PLAN**

 

The Partnership sponsorsa 401(k) plan, which allows participating employees to contribute up to 25% oftheir salary, subject to annual limits. The plan provides for the Partnership to make matching contributions upto 50% of the first 4% of salary deferred by employees.  During the years ended December 31, 2004,2003 and 2002, Partnership matching contributions were $27,000, $26,000 and $28,000,respectively.

 

**(11)  SALARIED BASIC CONTRIBUTION PLAN**

 

The Partnership sponsorsa basic contribution plan for its non-bargaining unit employees. This planprovides for the Partnership to make annual contributions to the 401(k) plan onbehalf of participating employees.  Contributionsare based upon age, length of service, and other criteria on an annual basis,subject to annual limits.  During theyears ended December 31, 2004, 2003, and 2002 basic contributions were $98,000,$77,000 and $68,000, respectively.

 

38

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**(12)QUARTERLY OPERATING RESULTS (Unaudited)**

 

The following chart summarizes unaudited quarterlyoperating results for the years ended December 31, 2004, 2003, and 2002(000’s omitted except per unit data):

 
| ** **  | ** ** | **Net**   | ** ** | **Gross  Income** | ** ** | **Net  Income** | ** ** | **Net  Income (Loss)** | ** ** |
|-------------|------------|-----------|------------|-------------------|------------|-----------------|------------|------------------------|------------|
| ** **  | ** ** | **Sales** | ** ** | **(Loss)**        | ** ** | **(Loss)**      | ** ** | **per Class  A Unit**  | ** ** |
| 2004        |       |      |       |              |       |            |       |                   |       |
| 1st Quarter |       | $         | 2,052      |              | $          | 208             |       | $                      | (95        | ) | $ | (0.01 | ) |
| 2nd Quarter |       | 787       |       | 140               |       | (161            | )          | (0.02                  | )          |
| 3rd Quarter |       | 3,275     |       | (67               | )          | (817            | )          | (0.11                  | )          |
| 4th Quarter |       | 7,551     |       | (143              | )          | (576            | )          | (0.08                  | )          |
|        |       |      |       |              |       |            |       |                   |       |
| 2003        |       |      |       |              |       |            |       |                   |       |
| 1st Quarter |       | $         | 2,305      |              | $          | 215             |       | $                      | (143       | ) | $ | (0.02 | ) |
| 2nd Quarter |       | 1,108     |       | 68                |       | (185            | )          | (0.02                  | )          |
| 3rd Quarter |       | 5,176     |       | 100               |       | (9              | )          | 0.00                   |       |
| 4th Quarter |       | 6,837     |       | 820               |       | 406             |       | 0.05                   |       |
|        |       |      |       |              |       |            |       |                   |       |
| 2002        |       |      |       |              |       |            |       |                   |       |
| 1st Quarter |       | $         | 2,609      |              | $          | 292             |       | $                      | (146       | ) | $ | (0.02 | ) |
| 2nd Quarter |       | 662       |       | 130               |       | (241            | )          | (0.03                  | )          |
| 3rd Quarter |       | 5,089     |       | 542               |       | 43              |       | 0.01                   |       |
| 4th Quarter |       | 6,196     |       | (13               | )          | (136            | )          | (0.02                  | )          |

 

**ITEM 9. CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

** **

None

 

**ITEM 9A.  CONTROLS AND PROCEDURES**

 

(a) As of the end of the period covered by thisAnnual Report on Form 10-K, as amended on Form 10-K/A, we carried out theevaluation required by paragraph (b) of Rules 13a-15 or 15d-15 of theSecurities Exchange Act of 1934, as amended. The Partnership’s management, with the participation of our principal executive officer and principalfinancial officer, has evaluated the effectiveness of the design and operationof our disclosure controls and procedures (as defined under Rule 13a-15(e))under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), asof the end of the period covered by this annual report on Form 10-K, as amendedon Form 10-K/A.  Based on thatevaluation, our principal executive officer and principal financial officerconcluded that the Partnership’s disclosure controls and procedures areeffective and designed to ensure that the information required to be disclosedin our reports filed or submitted under the Securities and Exchange Act of1934, as amended, is recorded, processed, summarized and reported within therequisite time periods specified in the rules and forms of the Securities andExchange Commission.

 

(b)  There have been no significant changes(including corrective actions with regard to significant deficiencies ormaterial weaknesses) in our internal controls or in other factors that couldsignificantly affect these controls subsequent to the date of the evaluationreferenced in paragraph (a) above.

 

39

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**PART III**

** **

**ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OFREGISTRANT**

** **

The Partnership presently has no officers ordirectors. Instead, the officers and directors of the Managing Partner performall management functions for the Partnership. Each director of the Managing Partner is appointed for a term of oneyear and until his successor is duly appointed and qualified.  Each officer of the Managing Partner iselected by the Board of Directors of the Managing Partner and is subject toremoval by that board at any time.

 

## **A.**            Identification ofDirectors

## ** **

*John W. A. Buyers.*  76 years old; owner of Managing Partner from August 2001to January 2005, chairman since 1989 and director of Managing Partnersince 1986; chairman of C. Brewer and Company, Limited; and majority owner ofD. Buyers Enterprises, LLC (“DBE”).

 

*James H. Case.*  84 years old; director of Managing Partnersince 1986: member of Audit and Conflicts Committee from 1986 through March 7,2005; of counsel to the law firm of Carlsmith Ball; not an employee, officer,or director of any CBCL or DBE affiliate other than the Managing Partner.

 

*Ralph C. Hook, Jr.*  81 years old; director and member of Auditand Conflicts Committee of Managing Partner since 1986; not an employee,officer, or director of any CBCL or DBE affiliate other than the ManagingPartner.

 

*David McClain.*  58 years old; director and member of theAudit and Conflicts Committee of Managing Partner since September 2000;not an employee, officer, or director of any CBCL or DBE affiliate other than theManaging Partner.

 

*Dennis J. Simonis.* 48 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, and Chief Executive Officer since December 2004.Executive Vice President and Chief Financial Officer of DBE since August 2001.

 

*John K.Kai. *39 years old; director of the ManagingPartner since June 2004; member of the Audit Committee since March 2005;president of Pinnacle Investment Group, LLC; president of Pinnacle Media Group,LLC; branch manager and investment representative of Linsco / Private Ledger;not an employee, officer, or director of any CBCL or DBE affiliate other thanthe Managing Partner.

 

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

 

*John W. A. Buyers*.  76 years old; chairman of Managing Partnersince 1989 and chief executive officer from 1989 until December 2004.

 

*Dennis J. Simonis. *48 years old; president ofManaging Partner since August 2001; and chief executive officer since December 2004;chief financial officer of D. Buyers Enterprises, LLC; not otherwise anemployee, officer, or director of any CBCL affiliate. Formerly executive vicepresident and chief operating officer of Mauna Loa.

 

*Randolph H. Cabral.  52* years old; senior vicepresident and orchard manager of Managing Partner since May 2000; nototherwise an employee, officer, or director of any CBCL affiliate. Formerlysenior vice president and orchard manager of KACI.

 

*Wayne W. Roumagoux*.  58 years old; chief financial officer ofManaging Partner since August 2001; controller of DBE; not otherwise anemployee, officer, or director of any CBCL affiliate.

 

40

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**C.****            Identification ofCertain Significant Employees**

 

Not applicable

 

# ***D.  Family Relationships***

# *** ***

Not applicable

 

**E.  Business Experience of Current Directors andExecutive Officers**

 

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

 

*John W. A. Buyers.*****Mr. Buyers has been chairman of MLResources since July 1992.  He has beenchairman of the board of CBCL since 1982. He was the past president and chief executive officer of CBCL withservices from 1982 to 2002.  Afterservice in the U.S. Marine Corps, Mr. Buyers attended Princeton Universitywhere he graduated *cum laude* in1952.  He later received an M.A. inIndustrial Management from the Massachusetts Institute of Technology as a SloanFellow.  He is a director of FirstHawaiian Bank, and Outrigger Enterprises, Inc.  He is also a director of John B. Sanfilippo &Sons, Inc., a nut and marketing company located in Elk Grove Village,Illinois and the Hawaii Island Economic Development Board.  He is a member of the U.S. Chamber ofCommerce Committee on Food and Agriculture in Washington, D.C.  He resides in Honomu, Hawaii.

 

*James H. Case*.  Mr. Case is of counsel to the Hawaii lawfirm of Carlsmith Ball.  Mr. Casegraduated with an A.B. from Williams College and received a J.D. from HarvardLaw School. He became associated with the Carlsmith law firm in 1951 and becamea partner in 1959.  He has served on theboards of directors of Hamakua Sugar Company, Inc., Paauilo, Hawaii,InterIsland Resorts, Ltd., Honolulu, Hawaii, Pacific Club, Honolulu, Hawaii,Central Union Church, Honolulu, Hawaii, Hanahauoli School, Honolulu, Hawaii,and Arcadia Retirement Residence, Honolulu, Hawaii.  He resides in Honolulu, Hawaii.

 

*Ralph C. Hook, Jr.*  Dr. Hook joined the faculty of theCollege of Business Administration at the University of Hawaii in 1968 as Deanof the College of Business Administration. In 1974, he returned to teaching as Professor of Marketing in theCollege of Business Administration.  Hebecame a Professor Emeritus of Marketing in June 1995.  Dr. Hook received a bachelor’s andmaster’s degrees from the University of Missouri at Columbia and a Ph.D. inMarketing from the University of Texas at Austin.  He has been a member of the board of HookBrothers Corporation since 1983.  Heresides in Honolulu, Hawaii.

 

*David McClain.* Dr. McClainwas appointed as the Interim President of the 10-campus University ofHawai’i System effective August 15, 2004, and served as Vice President forAcademic Affairs of the UH System from July 1, 2003.  From 2000 until 2003 he was the Dean of theCollege of Business Administration at the University of Hawaii at Manoa, aswell as First Hawaiian Bank Distinguished Professor of Leadership andManagement; he was also Interim Vice President for Research of the Universityof Hawaii System from February to September 2003.  Dr. McClain joined the University ofHawaii at Manoa in 1991 as the Henry A. Walker, Jr. DistinguishedProfessor of Business Enterprise and Professor of Financial Economics andInstitutions.   Dr. McClain is adirector of First Insurance Company, and serves as a member of severalnonprofit boards in Hawaii. He earned a Ph.D. in Economics from theMassachusetts Institute of Technology in 1974 and a BA in Economics andMathematics from the University of Kansas in 1968.  Dr. McClain has taught at MassachusettsInstitute of Technology’s Sloan School of Management and at Boston University,where he chaired the Department of Finance and Economics. He also served asSenior Staff Economist, Council of Economic Advisors to President Jimmy Carter,and headed international economic information services for Data Resources, Inc.  He resides in Honolulu, Hawaii.

 

41

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*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 presidentof Theo H. Davies & Co., Ltd. and worked as a senior auditor for PriceWaterhouse between 1979 and 1985. Mr. Simonis graduated magna cum laudewith a B.S. in Accounting from Carroll College in Waukesha, Wisconsin andearned his C.P.A. certificate in 1983. He resides in Hilo, Hawaii.

 

*John K.Kai.*  Mr. Kai has served as a director since June 2004.  Mr. Kai is president of PinnacleInvestment Group, LLC and Pinnacle Media Group, LLC, and branch manager andinvestment representative of Linsco / Private Ledger.  Mr. Kai was the resident manager of theHilo office of Paine Webber, Inc. and was with Merrill Lynch prior.  Mr. Kai is a graduate of Sacramento CityCollege and attended the University of the Pacific from 1983 to 1985.  Mr. Kai serves on the Board of Regentsof the University of Hawaii and is 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.  He resides in Hilo, Hawaii.

 

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

 

*Randolph H. Cabral.  *Mr. Cabral has servedas senior vice president 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 AS in GeneralAgriculture from the University of Hawaii. He resides in Hilo, Hawaii.

 

*WayneW. 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.

 

**AuditCommittee. **Effective March 7, 2005, James Caseresigned from the Audit Committee.  At theMarch 9, 2005 Board of Directors meeting Dr. David McClain wasappointed chairman and John Kai was appointed a member of the AuditCommittee.  The Audit Committee of MLResources, Inc. is comprised of three members, Chairman Dr. DavidMcClain, Dr. Ralph Hook and John Kai. The members of the Compensation Committee, Nominating Committee andCorporate Governance Committee are James Case, Dr. David McClain, Dr. RalphHook and John Kai.  The Board ofDirectors has determined that each member of the Audit Committee is independentin accordance with SEC Rule 10-A-3 and each member isfinancially literate, though none qualifies as a financial expert.  The company has attempted to attract afinancial expert to serve on the committee, but has been unable to retain aqualified individual due to professional and geographic limitations.  The Audit Committee met four times in 2004 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.

 

**AuditCommittee Charter.  **The Audit Committee Charter is available byrequest or on the Partnership’s website at www.mlmacadamia.com .

 

42

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**AuditCommittee Pre-Approval Policy.   **The Audit Committee Pre-Approval Policy is available by request or onthe Partnership’s website at www.mlmacadamia.com .

 

**Code ofEthics. **The “Code of Business Conduct and Ethics” isavailable by request or on the Partnership’s website at www.mlmacadamia.com .

 

**NominatingCommittee. **The Partnership doesnot have a Nominating Committee Charter. The Audit Committee serves as the Nominating Committee.  Information pertaining to the members of theAudit Committee members is included under the heading Audit Committee on thepreceding page.  The decision toincorporate the functions of the Compensation Committee and NominatingCommittee into the Audit Committee was recently decided by the Board.  The Partnership is in the process of updatingthe Audit Committee Charter at this time.

** **

**F.**              Section 16Disclosure

** **

Under Section 16 of the Securities Exchange Actof 1934, as amended (the “Exchange Act”), each director and certain officers ofML Resources, Inc., the managing general partner of Registrant (a “ReportingPerson”), are required to report their ownership and changes in ownership of Class ADepositary Units to the Securities and Exchange commission, the New York StockExchange and Registrant.  Based on reportingforms submitted to Registrant, no Reporting Person has failed to file on atimely basis reports required by Section 16(a) of the Exchange Actduring 2000, except that Randolph Cabral, who became senior vice president on May 1,2000, and who owns 100 Class A Units, did not file a Form 3 until October 4,2000;  and Wayne Roumagoux, who becameprincipal accounting officer on August 1, 2001, and owns no shares, didnot file a Form 3 until February 4, 2002.

 

**ITEM 11. EXECUTIVE COMPENSATION**

 

**A.****            Summary CompensationTable**

 

The Partnership is managed by the managing generalpartner.  All costs of managing thePartnership are reimbursed by the Partnership, as provided in Section 4.5of the Partnership Agreement.  Thefollowing table reflects the aggregate compensation for services in allcapacities paid by the Managing Partner to its executive officers for the yearsended December 31, 2004, 2003 and, 2002. There were no long- termcompensation awards or payouts during those years.

 
| ** **                              | ** ** | **Annual Compensation** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|
| **Name and Principal Position**         | ** ** | **Year**                | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **Other** | ** ** |
| John W. A.  Buyers                      |       | 2004                    |       | $ | 50,000 |   | $ | — |   | $ | 65,750 |   |
| Chief executive  officer*               |       | 2003                    |       | 50,000 |   | — |   | 15,000 |   |
|                                    |       | 2002                    |       | 27,500 |   | — |   | 15,000 |   |
|                                    |       |                    |       |   |   |   |   |   |   |
| Dennis J.  Simonis                      |       | 2004                    |       | 171,000 |   | — |   | 15,750 |   |
| President and  chief executive officer* |       | 2003                    |       | 164,000 |   | 91,400 |   | 15,000 |   |
|                                    |       | 2002                    |       | 158,600 |   | — |   | 7,500 |   |
|                                    |       |                    |       |   |   |   |   |   |   |
| Randolph H.  Cabral                     |       | 2004                    |       | 111,000 |   | — |   | — |   |
| Senior vice  president                  |       | 2003                    |       | 106,250 |   | 42,300 |   | — |   |
|                                    |       | 2002                    |       | 97,000 |   | — |   | — |   |
|                                    |       |                    |       |   |   |   |   |   |   |
| Wayne W.  Roumagoux                     |       | 2004                    |       | 92,000 |   | — |   | — |   |
| Chief financial  officer                |       | 2003                    |       | 82,000 |   | 26,100 |   | — |   |
|                                    |       | 2002                    |       | 80,900 |   | — |   | — |   |
|                                         |            |                         |            |  |  |  |  |  |  |  |  |  |

 

----

*****Mr. Buyers resigned as chief executiveofficer December 2004 and was given a severance of $50,000.  Mr. Simonis was appointed chiefexecutive officer December 2004.

 

43

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**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 defined contribution plan and other benefit plans, which wereadministered by CBCL for part of the year and are now administered directly bythe 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.  No Employment Contracts or TerminationAgreements**

** **

The Managing Partner does not have any employment orseverance agreements with any of its present executive officers. The presidentof the Partnership has an agreement, which provides for twelve months ofseverance pay in the event of termination without just cause.

 

**D. Compensation of Executive Officers**

 

The Audit Committee of the Managing Partner serves ascompensation committee.  The onlyexecutive officers of the Managing Partner (employed by the Partnership) are Mr. Buyers,who has been compensated since June of 2002 through December 2004when he resigned as chief executive officer; Mr. Simonis, who has servedas its chief executive officer and president since December 2004, presidentsince August 2001 and chief financial officer from May 2001 until August of2001; Mr. Cabral, who has served as senior vice president and orchardmanager since May 2000 and Mr. Roumagoux, who has served as chieffinancial officer since August of 2001. These officers’ salary and guideline bonus percentage are administeredunder the salary policies of DBE and approved by the Board.  Any bonus payments are approved by theManaging Partner’s Board of Directors annually, based on the overallperformance of the Partnership as evidenced by its net income and cash flow forthe year.  Performance in both categoriesis measured relative to the original Partnership operating budget approved bythe Managing Partner’s Board of Directors at the beginning of each year.

 

**E.  Director Compensation**

 

Directors of the Managing Partner presently receive aquarterly retainer of $3,000 and a meeting fee of $750 per meeting.  Members of the Managing Partner’s Audit and ConflictsCommittee receive a meeting fee of $750 per meeting.  There are no other agreements or arrangementsbetween the Managing Partner and its directors.

 

44

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**F.  StockPerformance Chart**

 

The following chart compares the Partnership’s totalreturn to (i) the Russell 2001 (a small business index) and (ii) apeer group index composed of publicly traded limited partnerships with eithersimilar capitalization or in commodity based markets (other than gas and oil)or both.

 

 

**ITEM12.  SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT**

 

As of December 31, 2004, and subsequent to thatdate to the date of this report, (i) one person (including any “group” asthat term is used in Section 13(d)(3) of the Securities Exchange Actof 1934) is known by the Partnership or the Managing Partner to be thebeneficial owner of more than 5% of the Class A Units; (ii) theManaging Partner did not own any Class A Units; and (iii) no directoror executive officer of the Managing Partner owned more than 1% of the Class AUnits.

 

The table below setsforth certain information as to the Class A Units beneficially owned bythe beneficial owner of more than 5% of the Class A Units as of December 31,2004.

 
| **Name of  Beneficial Owner** | ** ** | **Class A  Units  Owned** | ** ** | **Percent  of  Class A  Units** | ** ** |
|-------------------------------|------------|--------------------------------|------------|--------------------------------------|------------|
|                          |       |                           |       |                                 |       |
| Ebrahimi Family  Group        |       | 918,200                        |       | 12                                   | %          |

 

45

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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, 2004.

 
| **Name of  Beneficial Owner**                                | ** ** | **Class A  Units  Owned** | ** ** | **Percent  of  Class A  Units** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------------|------------|
|                                                         |       |                           |       |                                 |       |
| John W. A.  Buyers                                           |       | 4,176                          |       |                                 | *          |
| Randolph H.  Cabral                                          |       | 100                            |       |                                 | *          |
| James H. Case  (1)                                           |       | 8,000                          |       |                                 | *          |
| Ralph C. Hook  (2)                                           |       | 4,000                          |       |                                 | *          |
| David McClain                                                |       | —                         |       |                                 | *          |
| John K. Kai                                                  |       | 100                            |       |                                 | *          |
| Dennis J.  Simonis                                           |       | —                         |       |                                 | *          |
| Wayne W.  Roumagoux                                          |       | —                         |       |                                 | *          |
| All directors  and executive officers as a group (7 persons) |       | 16,376                         |       | 0.2                                  | %          |

 

----

*Less than 1%

 

(1)                    Beneficiallyowned by James H. Case pursuant to a self-directed retirement plan sponsored byCarlsmith Ball, a law firm in which Mr. Case is of counsel, andadministered by Bank of Hawaii Trust.

 

(2)                    Beneficiallyowned by Ralph C. Hook pursuant to the Ralph C. Hook Revocable LivingTrust dated March 1, 1993.

 

In addition, Mauna Loa Orchards L.P. (“MLO”), alimited partnership whose partners are CBCL and certain direct or indirectwholly-owned subsidiaries of CBCL, owned 30,000 Class A Units until May of2002. The units were sold in May and June 2002 at market prices.

 

**ITEM 13.  CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS**

 

**1*.  General***

 

The Managing Partnermakes all decisions relating to the management of the Partnership.  The Managing Partner, as such, has the dutyto act in good faith and to manage the Partnership in a manner that is fair andreasonable to all unit holders. CBCL owned all of the capital stock of theManaging Partner until August 1, 2001, at which point the stock was soldto D. Buyers Enterprises, LLC (DBE).  ThePartnership purchased the Managing Partner interest from DBE January 2006.  Certain officers and directors of CBCL whoare ex-officers and ex-directors of the Managing Partner are substantialshareholders of CBCL. The majority owner of DBE is also the chairman of CBCL.  As a result of these relationships, certainconflicts of interest could arise with respect to the administration of andallocation of costs under the Partnership Agreement and in situations describedbelow, among others.

 

A committee of the Managing Partner’s Board ofDirectors composed of three persons who are independent of CBCL, DBE and theiraffiliates (the “Audit and Conflicts Committee”) reviews, on an annual basis,or more frequently as such committee may deem appropriate, the Managing Partner’smanagement of the Partnership and any conflicts of interest that may havearisen or may arise as a result of the relationships among CBCL or DBE andtheir affiliates, the Managing Partner and the Partnership.  The Partnership Agreement states that, exceptfor one initial member of the Conflicts Committee, no member of the ConflictsCommittee may be an officer, director, employee or shareholder of the ManagingPartner or any of their affiliates.

 

46

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**2.  *Farming Leases***

 

At the time of thePartnership’s acquisition of the interests in the October 1989 Orchards,MLO assigned to the Partnership all of MLO’s rights and obligations under three45-year farming leases relating to 327 tree acres of the Ka’u II Orchardsand all of the Mauna Kea Orchards.  Thefarming leases permit the Partnership to conduct macadamia nut farmingoperations on such macadamia orchard properties.  The farming leases provide for fixed minimumannual lease payments to be paid to either KACI or MKACI (collectively, the “AgribusinessCompanies”), as the case may be.  Suchannual rental payments are subject to increase after ten years, twenty yearsand thirty years based on then current fair market lease rates.  The then current fair market lease rate willbe determined by mutual agreement between the Partnership, on the one hand, andeither KACI or MKACI, as the case may be, on the other hand. If mutualagreement cannot be reached, the then current fair market lease rate will bedetermined by appraisal.  Whetherdetermined by mutual agreement or by appraisal, the then current fair marketlease rate will be determined as a fair market lease rate for use of suchpremises as macadamia orchards.

 

The Partnership acquiredits interests in the trees situated on such leased macadamia orchard propertiessubject to repurchase options retained by the Agribusiness Companies.  The repurchase options grant the AgribusinessCompanies the continuing right to repurchase all or any portion of such treesafter June 30, 2019 at a price equal to the then current fair market valueof the trees, according to their value as producing macadamia nut trees, asdetermined by mutual agreement between the Partnership, on the one hand, andeither KACI or MKACI, as the case may be, on the other hand.  If mutual agreement cannot be reached, thethen current fair market value will be determined by appraisal.  Whether determined by mutual agreement or byappraisal, the fair market value of such trees will be determined according to theirvalue as producing macadamia nut trees, assuming that the owner thereof hasrights to farm and harvest such trees and has ongoing arrangements with respectto land leases, farming and nut purchases of the same type as the Partnershiphas immediately prior to such time.

 

At the end of the 45-yearlease terms of such leases, the Agribusiness Companies will be required torepurchase such trees at their then current fair market value as orchards ifsuch entities do not offer to extend such farming leases at the then currentfair market lease rates. The then current fair market lease rate and the thencurrent market value of the trees for such purposes will be determined throughmutual agreement between the Partnership, on the one hand, and either KACI or MKACI,as the case may be, on the other hand or, if mutual agreement cannot beobtained, by appraisal, in each case in the manner described above.  Such repurchase obligations will apply withrespect to the expiration of each extension of the lease terms of such leasesuntil such leases have been in effect for a total of 99 years, at which timethe leases will expire and the ownership interests in such trees will revertback to the Agribusiness Companies.

 

In the event that thePartnership decides not to accept an offer to extend the leases at the thencurrent fair lease rates upon the expiration of the leases or any extensionthereof (or does not assign the leases to a third party who elects to acceptsuch offer), the leases will expire, the Agribusiness Companies will not berequired to repurchase the trees covered thereby and ownership of such treeswill revert back to the Agribusiness Companies (and in any event ownership ofsuch trees will revert back to the Agribusiness Companies after 99 years).

 

As described above, thefarming leases provide for determinations of the fair market lease rate to bepaid by the Partnership under the farming leases and the fair market value ofthe Partnership’s trees situated on property covered by such leases by mutualagreement between the Partnership, on the one hand, and with KACI or MKACI, asthe case may be, on the other hand, or, if mutual agreement cannot be reached,by appraisal.

 

47

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**3. *****Nut Purchase Contracts***

 

The Partnership is aparty to five nut purchase contracts with Mauna Loa Macadamia Nut Corporation (“MaunaLoa”).  The five nut purchase contractscover all nuts produced by the orchards acquired in June 1986, December 1986,October 1989, September 1991, and May 2000 respectively.  The first two contracts run for 20 years,while the third contract runs for 30 years and also provides for the exclusionof unusable nuts from those purchased by Mauna Loa.  The first three contracts are identical inall other material respects.  The fourthcontract was acquired by assignment with the purchase of the September 1991orchard and expired in June 2003. The fourth contract was renegotiated with a fixed price adjusted forunusables outside the range of 10% to 13%. The fourth contract expires December 31, 2006.  The fifth contract was acquired by assignmentwith the purchase of the May 2000 orchards and expires in 2006.  The fifth contract is similar to the firstthree contracts and also provides for the exclusion of unusable nuts.  The first four contracts use a pricingformula based 50% on a two-year trailing average of the macadamia nut pricepublished annually by the U.S. Department of Agriculture (“USDA”) and 50% onMauna Loa’s “netback component”. The netback component is calculated bysubtracting Mauna Loa’s processing and marketing costs per pound and a “capitalcharge” of 20% from its nut revenues per pound. The fifth contract uses onlythe USDA two-year trailing average to determine its nut price.  The nut price paid to the Partnership underthe first two contracts was $0.4655 for 2002, $0.4816 in 2003, and $0.4954 in2004.  The average nut price paid to thePartnership under the third contract was $0.4610 for 2002, $0.4789 in 2003 and$0.4945 in 2004. The average nut price paid to the Partnership under the fourthnut price contract was $0.4920 for 2002, $0.5923 in 2003, and was $0.6000 in2004.  The nut price paid to thePartnership under the fifth contract was $0.5940 for 2002, $0.5660 in 2003, andwas $0.5560 in 2004.  On December 16,2004, a new nut purchase contract was signed with Hamakua Macadamia Nut Company(“Hamakua”) for the delivery of six million pounds, effective January 1,2007. The contract provides for a minimum price of 79 cents per pounds and amaximum of 99 cents per pound. The pricing formula includes a fixed componentof 85 cents and a second component based on Hamakua’s average selling price forbulk kernel.  Refer to Exhibit 10.52on page 57.

 

**4.  *Farming Contracts***

 

Prior to the Partnership’s acquisition of themacadamia farming operations on May 1, 2000, the Partnership was a partyto four farming contracts with the Agribusiness Companies, that togethercovered all farming, harvesting and husking activities for the orchardsacquired in June 1986, December 1986, October 1989 and September 1991,respectively. On May 1, 2000, the Partnership acquired the macadamiafarming operations from the Agribusiness Companies.

 

The contracts provided the Agribusiness Companies withreimbursement of their direct and indirect costs incurred under thesecontracts.  Husking activities for theKeaau and Mauna Kea orchards are performed at Mauna Loa’s Keaau facility.  Reimbursements made to Mauna Loa were $531,000in 2002, $522,000 in 2003, and $440,000 in 2004.

 

***5*****. *****Legal******* ***Fee***

 

The Partnership paid$495,000 in legal fees in 2004.  ADirector of the Partnership is a former partner and currently of counsel to thelaw firm used by the Partnership.

 

**6.  *Management Fee***

 

Under the terms of the Partnership Agreement, thePartnership reimburses the Managing Partner for all expenses incurred by it inthe conduct of Partnership business, including any expenses reasonablyallocated to the Managing Partner or to the Partnership as well as a managementfee equal to 2% of the Partnership’s operating cash flow (as defined in thePartnership Agreement).  Certainconflicts may arise in connection with the allocation of such expenses amongthe Managing Partner, the Partnership, DBE and its affiliates.  Management cost reimbursements under thePartnership Agreement were $180,000 in

 

48

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2002, $160,000 in 2003, and $168,000 in 2004.  The management fee was $32,000 in 2002, $44,000in 2003, and $9,000 in 2004.

 

***7.  Relationships with CBCL and  DBE***

 

Since September 2001, the Partnership has leasedapproximately 4,000 s.f. of office space in Hilo for it’s executive andaccounting staff through the General Partner, which is owned by DBE. ThePartnership Agreement requires that the price and terms of any suchtransactions be no less favorable than those available in comparabletransactions between unrelated parties. The Partnership provides administrative services to DBE for which it wascompensated $94,000 in 2002, $98,000 in 2003, and $104,000 in 2004.

 

Mr. Case performs legal work for CBCL, and someof its subsidiaries.  He is also adirector of ML Resources, Inc. and performs legal work for thePartnership.

 

Mr. Buyers, Chairman of the Board of Directors ofResources, and a director of ML Resources, Inc., is also Chairman of theBoard of CBCL.

 

Mr. Simonis, President of ML Resources, Inc.,an officer of the Partnership, and a director of ML Resources, Inc., is astockholder of CBCL.

 

The Partnership performs farming for a DBEcompany.  This farming is treated in thesame manner as all other farming contracts. In 2004 the amount billed was $15,000 of which $9,000 was due at December 31,2004.

 

**ITEM 14.  INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMFEES AND SERVICES**

 

**Audit Fees.**Fees paid to the Independent Registered PublicAccounting Firm during 2004, 2003 and 2002 for the audit of the Partnership’s annualfinancial statements and review of financial statements included in thePartnership’s Form 10-Q amounted to $68,000, $56,000 and $54,500,respectively.  The audit fees for theaudit of the Partnership’s annual financial statements and review of financialstatements included in the Partnership’s Form 10-Q for the yearsended December 31, 2004, 2003 and 2002, which were approved by Partnership’saudit committee amounted to $61,000, $58,000 and $56,000, respectively.

 

**Audit Related Fees.** Audit related fees paid to the IndependentRegistered Public Accounting Firm during 2004, 2003 and 2002 amounted to $11,000,$6,000 and $20,500, respectively.

 

**Tax Fees.  **Fees paid to the Independent RegisteredPublic Accounting Firm during 2004, 2003 and 2002 for tax preparation and relatedsupport services amounted to $256,000, $229,000 and $208,000, respectively.

 

**All Other Fees.  **None

 

49

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### **PART IV**

### ** **

**ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES ANDREPORTS ON FORM 8-K**

 

**A.****            List of DocumentsFiled as a Part of this Report**

 

1.               *Financial Statements. *See Index to Financial Statements at page 21 ofthis Form 10-K.

 

2.               *Financial Statement Schedules*. None required.

 

3.               *Exhibits*. See Exhibit Index at page 54 of this Form 10-K.

 

**B.  Reports on Form 8-K**

 

On October 20, 2000,the Partnership filed a report on Form 8-K announcing that on September 29,2000, CBCL had sold all its stock in Mauna Loa Macadamia Nut Corporation to TheShansby Group, a San Francisco based equity partnership.

 

On May 13, 2003, thePartnership filed a “Regulation FD Disclosure” on Form 8-K, whichincluded a copy of a press release issued by the Partnership setting forth theresults of operations for the quarter ended March 31, 2003.

 

On February 17,2004, the Partnership filed a “Regulation FD Disclosure” on Form 8-K,which included a copy of a press release issued by the Partnership settingforth the results of operations for the quarter and six months ended June 30,2003.

 

On February 17,2004, the Partnership filed a “Regulation FD Disclosure” on Form 8-K,which included a copy of a press release issued by the Partnership settingforth the results of operations for the quarter and nine months ended September 30,2003.

 

On March 9, 2004,the Partnership filed a “Regulation FD Disclosure” on Form 8-K,which included a copy of a press release issued by the Partnership settingforth the results of operations for the year ended December 31, 2003.

 

On May 11, 2004, thePartnership filed a “Regulation FD Disclosure” on Form 8-K, whichincluded a copy of a press release issued by the Partnership setting forth theresults of operations for the quarter ended March 31, 2004.

 

On June 7, 2004, thePartnership filed a “Regulation FD Disclosure” on Form 8-K, whichincluded a copy of a press release issued by the Partnership setting forth thesecond quarter distribution and appointment of John Kai as Director.

 

On August 11, 2004,the Partnership filed a “Regulation FD Disclosure” on Form 8-K,which included a copy of a press release issued by the Partnership settingforth the results of operations for the quarter and six months ended June 30,2004

 

On August 12, 2004,the Partnership filed a “Regulation FD Disclosure” on Form 8-K,which included a copy of a press release issued by the Partnership settingforth the results of operations for the quarter and six months ended June 30,2004 and the potential of a lawsuit against Mauna Loa Macadamia Nut Corporationand MacFarms of Hawaii, LLC.

 

50

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On October 7, 2004,the Partnership filed a “Regulation FD Disclosure” on Form 8-K,which included a copy of a press release issued by the Partnership announcingthe settlement of the lawsuit against Mauna Loa Macadamia Nut Corporation andMacFarms of Hawaii, LLC.

 

On November 10,2004, the Partnership filed a “Regulation FD Disclosure” on Form 8-K,which included a copy of a press release issued by the Partnership settingforth the results of operations for the quarter and nine months ended September 30,2004.

 

On December 20,2004, the Partnership filed a “Regulation FD Disclosure” on Form 8-K,which included a copy of a press release issued by the Partnership announcingthe resignation of Mr. John W. A. Buyers as Chief Executive Officer of thegeneral partner of the Partnership, ML Resources, Inc.;  the agreement by the Partnership to purchaseML Resources, Inc.; the appointment of Dennis J. Simonis as ChiefExecutive Officer of the general partner of the Partnership; and the agreementwith Hamakua Macadamia Nut Company, Inc. with the Partnership to purchase6,000,000 pounds of nuts per year starting in 2007 and ending in 2012.

 

51

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the 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    |                  |
| Dated  : May 26, 2005 |   |                            |                  |
|                            |        |                                 |                       |  |

 

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.

 

**MLRESOURCES, INC.**

 
| **Signature** | ** **                        | **Title** |
|---------------|-----------------------------------|-----------|
|          |                              |      |
| s/s           | J. W. A. Buyers                   |      |   | Chairman of the Board  of Directors |
|          | J. W. A. Buyers                   |      | Director |
|          |                              |      |   |
| 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           | James H. Case                     |      |   | Director |
|          | James H. Case                     |      |   |
|          |                              |      |   |
| s/s           | Dr. Ralph C.  Hook, Jr. |      |   | Director |
|          | Dr. Ralph C.  Hook, Jr. |      |   |
|          |                              |      |   |
| s/s           | Dr. David McClain            |      |   | Director |
|          | Dr. David McClain            |      |   |
|          |                              |      |   |
| s/s           | John Kai                          |      |   | Director |
|          | John Kai                          |      |   |

 

52

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**EXHIBIT INDEX**

** **
| **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)                                                                                                                                                                                                                                             |
|                |       |                                                                                                                                                                                                                                                                                                               |
| 10.10               |       | Farming Lease between  MKACI and MKMO dated as of July 1, 1989. (b)                                                                                                                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                               |
| 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)                                                                                                                                                                                                                    |

 

53

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| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                                                                                                                     |
| 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)                                                                               |

 

54

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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)                           |

 

55

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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. |
|                |       |                                                                                                                                                                |
| 10.53               |       | Jim Case resignation  letter from Audit Committee dated March 7, 2005.                                                                                         |
|                |       |                                                                                                                                                                |
| 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    |

 

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(a)          Incorporated by reference to Appendix Aof 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 thecorresponding Exhibit previously filed as an Exhibit to Registrant’sRegistration Statement under the Securities Act on Form S-1,Registration Statement No. 33-30659, filed October 20, 1989.

 

(c)          Incorporated by reference to thecorresponding Exhibit previously filed as an Exhibit to Registrant’sRegistration Statement under the Securities Act on Form S-1,Registration Statement No. 33-4903, filed June 5, 1986.

 

(d)         Incorporated by reference to the correspondingExhibit previously filed as an Exhibit to Registrant’s Annual Reporton Form 10-K, Commission filed No. 1-9145, for the yearended December 31, 1986, filed March 27, 1987.

 

(e)          Incorporated by reference to thecorresponding Exhibit previously filed as an Exhibit to Registrant’sAnnual 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 thecorresponding Exhibit previously filed as an Exhibit to Registrant’sRegistration Statement under the Securities Act on Form S-4,Registration Statement No. 333-46271, filed February 13, 1998.

 

(g)         Incorporated by reference to thecorresponding 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 thecorresponding Exhibit previously filed as an Exhibit to Registrant’s Form 10-K,Commission filed No. 001-09145, filed March 17, 2004.

 

56

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