**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

### **FORM10-K**

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

 

**For theFiscal Year Ended  December 31, 2006**

**OR**

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

 

**CommissionFile Number  1-9145**

**MLMACADAMIA ORCHARDS, L.P.**

(Exact Name of registrantas specified in its charter)

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

 

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

 

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

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

 

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

Indicate by check mark if the registrant is a well-known seasoned issueras defined in Rule 405 of the Securities Act Yes o  No x

Indicate by check mark if the registrant is not required to file reportspursuant to Section 13 of 15(d) of the Act. Yes o  No x

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding twelve months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.   Yes x   No o

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

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer or a non-accelerated filer (as defined in Rule12b-2 of the Act).  Large acceleratedfiler o  Accelerated filer o  Non-accelerated filer  x

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

As of April 11, 2007, 7,500,000 shares of the registrant’s Class A Unitswere outstanding, and the aggregate market value of such Units held bynon-affiliates was $41,925,000 (based on the closing price on that date of$5.59 per Unit).

 

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**PART I**

**Item 1.  BUSINESS OF THEPARTNERSHIP**

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

ML Macadamia Orchards,L.P. (the “Partnership”) is a publicly traded partnership, organized under thelaws of the State of Delaware, and engaged in the business of growing andfarming macadamia nuts in Hawaii.  ThePartnership believes that it is one of the world’s largest growers of macadamianuts.  The Partnership owns or leasesapproximately 4,190 tree acres of macadamia nut orchards in three locationswithin a 50-mile radius on the island of Hawaii.  (“Tree acres” are acres of the Partnership’sowned or leased lands utilized for macadamia nut orchards.  “Gross acres” includes areas not utilized fororchards.)  The Partnership sold all ofits macadamia nut production to Mauna Loa Macadamia Nut Corporation (“Mauna Loa”)under four nut purchase contracts.  Threeof the nut purchase contracts with Mauna Loa, totaling approximately 16 millionpounds, expired December 31, 2006 and the other contract totaling approximately5 million pounds expires December 31, 2011.

The Partnership hasexecuted nut purchase agreements with Hamakua Macadamia Nut Company, Inc. (“Hamakua”),MacFarms of Hawaii, LLC (“MacFarms”) and Purdyco International, Ltd. dba IslandPrincess (“Island Princess”) beginning January 1, 2007.  The contracts call for Hamakua to purchaseabout 6 million field pounds, Mac Farms to purchase about 5.0 to 6.0 millionfield pounds, and Island Princess to purchase about 2.2 million field pounds.  Additional information can be found insection (c) under the heading Nut Purchase Contracts on page 3.

The Partnership farms itsown orchards and approximately 2,008 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, all of thestock of the Managing Partner was purchased by D. Buyers Enterprises, LLC (“DBE”)from C. Brewer and Company, Ltd (“CBCL”). On January 6, 2005, the stock of ML Resources, Inc. was purchased fromDBE by the Partnership for $750,000.

Ownershipof Class A Units confers no direct or indirect interest in CBCL, DBE or any oftheir affiliated entities, or in Mauna Loa, or Hamakua, MacFarms, or IslandPrincess.

The Partnership commenced operations in June 1986, following itsacquisition of interests in approximately 2,423 tree acres of macadamia nutorchards from subsidiaries of CBCL.  InDecember 1986 and October 1989, respectively, the Partnership acquired fromsubsidiaries of CBCL interests in approximately 266 and 1,260 additional treeacres of macadamia orchards.  InSeptember 1991 the Partnership acquired approximately 78 tree acres ofproducing macadamia orchards.  In April2006 the Partnership acquired approximately 21 tree acres of producingmacadamia orchards.

On May 1, 2000, the Partnership purchased 142 acres of macadamiaorchards and the macadamia farming operations from subsidiaries of CBCL.  The farming operations consist of farmingcontracts, farming equipment, vehicles, a husking plant, irrigation well,office buildings, garages and warehouses, office furniture and equipment andmaterial inventories related to macadamia farming.  All the assets and operations are located onthe island of Hawaii.

As reported on Form 8-Kfiled October 20, 2006, the Partnership signed a non-binding letter of intentto purchase substantially all of the assets of MacFarms of Hawaii, LLC (“MacFarms”)and lease the 3,912 acre macadamia orchard owned by Kapua Orchard Estates, LLC(“Kapua”), an affiliate of MacFarms.  Thetransaction will require approval by a majority of units and, if approved, isexpected to close approximately July 31, 2007. The proxy statement is expected to be mailed to unit holders in May ofthis year.

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MacFarms owns the secondlargest macadamia nut processing facility in Hawaii and markets macadamia nutsbut industrially and under the brand names MacFarms®, Kona Select® and HulaPrincess®.  Kapua owns the largestcontiguous macadamia orchard in the world.

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

The response to thissection of Item 1 incorporates by reference Note 4 of the Notes to theFinancial Statements.

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

**Owned-orchard Segment**

The Partnership sold all of the macadamia nuts fromits orchards to Mauna Loa under four nut purchase contracts in 2006.  Mauna Loa processes and markets the nutsunder the **Mauna Loa****â**brand name and is believed to be one of the largest processors and marketers ofmacadamia nuts in the world.  The Partnershipwas Mauna Loa’s largest single supplier of macadamia nuts in 2006.  Mauna Loa was a subsidiary of CBCL until itssale in September 2000 to The Shansby Group. In December 2004 Mauna Loa was purchased from the Shansby Group by TheHershey Company.  On May 1, 2000, thePartnership began farming its own macadamia orchards.  Prior to that date, subsidiaries of CBCLperformed the farming activities for the Partnership under long-term farmingcontracts.

# ***Nut Purchase Contracts.**** *ThePartnership is a party to two nut purchase contracts signed June 1, 2006, withan effective date of January 1, 2006, with Mauna Loa which were negotiated in2006.  The two contracts cover all nutsproduced by the orchards acquired in June 1986, December 1986, and October1989.  Of the two contracts, one forapproximately 15 million pounds expired December 31, 2006 and has a nutpurchase price for 2006 of $0.75 per pound wet-in-shell (WIS) at 20% moistureand 30% saleable kernel recovery (SK) to dry-in-shell (DIS).  Two other contracts, of approximately 1million pounds, also expired December 31, 2006, one with a nut purchase priceof $0.60 per pound WIS 25% adjusted for trash and the other with a nut purchaseprice based on a two-year trailing average USDA price at WIS 25%.  The last contract for about 5 million poundsexpires December 31, 2011 and has a nut purchase price for 2006 of $0.74 perpound WIS at 20% moisture and 30% SK/DIS. The purchase price increases by $0.01 each year except 2008 until itreaches $0.78 per pound in 2011.  Thepurchase contract for the macadamia nut orchard purchased in April 2006 is withMacFarms of Hawaii, LLC and accounts for about 100,000 pounds; has a nutpurchase price of $0.98 per pound WIS 20% moisture and 30% SK/DIS and expiresJanuary 6, 2007.

# On December 16, 2004, a new nut purchase contract wassigned with Hamakua Macadamia Nut Company (“Hamakua”) for the annual deliveryof six million WIS pounds, starting January 1, 2007. The contract provides fora minimum price of $0.75 per pounds and a maximum price of $0.95 per pound. Thepricing formula includes a fixed component of $0.85 and a second componentbased on Hamakua’s average selling price for bulk kernel.  In February 2007, the Partnership negotiatedan amendment to the contract which provides the Partnership an option to havethe nut-in-shell processed into kernel for a fee in lieu of selling the nuts toHamakua.

On January 5, 2006, a newnut purchase contract was signed with Purdyco International, Ltd. dba IslandPrincess (“Island Princess”) for the annual delivery of approximately twomillion WIS pounds, effective January 1, 2007. The nut price will be determined every six months by mutual agreementbased on prevailing market price for kernel from Hawaii and Australia.  The effective price for January – June 2007is $0.608 at 20% moisture and 30% SK/DIS recovery.

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On January 6, 2006, a newnut purchase contract was signed with MacFarms of Hawaii, LLC (“MacFarms”) forthe annual delivery of between four and one-half million and five and one-halfmillion WIS pounds, effective January 1, 2007. The nut price will be determined every six months by mutual agreementbased on prevailing market price for kernel from Hawaii and Australia.  The effective price for January – June 2007is $0.608 at 20% moisture and 30% SK/DIS recovery.

**Competition.**  In addition to the State of Hawaii, maturemacadamia nut orchards are located in Australia, Africa, and CentralAmerica.  For the 2006 crop, Hawaii wasexpected to supply 22% of the world crop, and Australia, the world’s largestproducer, was expected to supply 39%.  Ageneral decline in macadamia nut prices could also adversely affect thePartnership’s revenues.

# **Macadamia Farming Segment**

Since the May 2000purchase of the macadamia farming operations, the Partnership farms its own4,190 acres of macadamia orchards and approximately 2,008 additional acres ofmacadamia orchards owned by other growers. Three of the farming contracts comprising approximately 465 acres terminatedDecember 31, 2005 reducing the total acres covered by farming contracts for2006 to 2,029 acres.  In April of 2006the Partnership purchased a 21-acre macadamia orchard that was previouslyfarmed under contract by the Partnership, thereby reducing the total acrescovered by farming contracts to about 2,008 acres.

All the orchardsare located in three separate regions on the island of Hawaii (“Keaau”, “Ka’u”and “Mauna Kea”).  Because each regionhas different terrain and weather conditions, farming methods vary somewhatamong the three locations.

***FarmingContracts. ***ThePartnership currently services approximately seventeen farming contracts whichwere assigned to 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%.  Approximately150 acres are year-to-year contracts, approximately 635 acres expire March 31,2009, approximately 70 acres expire June 30, 2013, approximately 410 acresexpire July 31, 2029, approximately 280 acres expire June 30, 2033 andapproximately 470 acres expire September 30, 2080.

***OrchardMaintenance***. Maintenance of an orchard is essential to macadamia nut farming.  Pruning and hedging of trees is necessary toallow space for mechanical harvesting and cultivating equipment to operatesafely 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 managementalso requires the proper selection and application of fertilizers, pesticides(to control rodents, insects and fungi) and herbicides (to control weeds).  Insects, rodents and fungi, as well as wildpigs, if not controlled, can cause losses to nut production.

***Harvesting*.**  The 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, adjacent communities and foreign labor sources.

Mechanical harvesting is less costly than handharvesting, but mechanical harvesting is possible only where the orchard flooris relatively flat.  Approximately 70% ofthe orchards in Ka’u, 59% in Keaau and 94% in Mauna Kea are currentlymechanically harvested.  The remainingacres are too uneven for mechanical harvesting and must be harvested by hand.

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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 and operated by Mauna Loa, and the Ka’u husking facility is owned andoperated by the Partnership.  Nutsharvested in the Mauna Kea region are transported to the husking facility inKeaau.  At the husking facility, theouter husk is removed and the nuts, still in their shell, are weighed andsampled to determine moisture content. Kernel quality is determined from samples taken.  Title to the nuts husked in Keaau passes tobuyer after weighing.  Title to the nutshusked at Ka’u pass to buyer after delivery to the buyer’s processingplant.  The nuts are then moved to adrying 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 limited packaging.  The plant also includes separate warehouses,a machine shop, storage facilities, husking facilities, nut drying facilities,a generator and a 10,000 square foot chocolate processing plant.  None of these processing facilities are ownedby the Partnership.

At Mauna Loa’s plant in Keaau, the harvested nuts passby conveyors over metal screens, blowers and rock separators that removeextraneous material from the in-husk nuts. The husks are then split and removedby pressing the nuts between steel roller bars and a rubber pad.  At this stage, the nut kernels are stillencased in their hard round shells and roughly 20% of their weight isattributable to moisture content.  Atthis point, the nuts are referred to as wet-in-shell (commonly abbreviated “WIS”).  The WIS weight of the nuts is used todetermine payments to be made by Mauna Loa under the Nut PurchaseContracts.  Approximately 20% of the WISweight of the nuts will become dry salable kernels when all further processingis completed.

After the nuts are weighed, the moisture content ofthe nuts is reduced by blowing warm air over them, which produces dry-in-shell(“DIS”) nuts. Metal rollers are used to crack the nuts and remove theshell.  Mechanical and optical equipment,as well as hand sorting, are used to separate the salable kernels from unusablenuts and pieces of broken shell.

The dry nut kernels are roasted and then sorted intoretail and commercial grades.  At thisstage, some of the nuts are bulk-packed and sent to various co-packers on theU.S. mainland for packaging.  At MaunaLoa’s plant in Keaau the nuts may be salted, or covered with chocolate or oneof several coatings, and finally packaged, labeled and readied for shipment.

#### **StabilizationPayments**

In December 1986, thePartnership 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, theseller of this orchard Ka’u Agribusiness Company, Inc. (“KACI”) agreed to makecash stabilization payments to the Partnership for each year through 1993 inwhich the cash flow (as defined) from this orchard fell short of the targetcash flow level, which 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.

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

In return, thePartnership is obligated to pay the seller (the Olson Trust who purchased KACI’sinterest) 100% of any year’s cash flow from this orchard in excess of thetarget cash flow as additional percentage rent until the aggregate amount ofthe additional percentage rent paid equals 150% of the total amount ofstabilization payments previously received. Thereafter, the Partnership isobligated to pay the seller 50% of this orchard’s cash flow in excess of thetarget cash flow as additional incentive rent. Additional rent of $62,000 was paid in 2006.  No additional rent was due in 2004 or 2005.

#### **Item1A.  Risks Involved in OperatingMacadamia Orchards**

Before deciding to purchase, hold or sell our units,you should carefully consider the risks described below in addition to theother cautionary statements and risks described elsewhere, and the otherinformation contained, in this Annual Report on Form 10-K.  The risks and uncertainties described beloware not the only ones we face. Additional risks and uncertainties not presently known to us or that wecurrently deem immaterial may also affect our business.  If any of these known or unknown risks oruncertainties actually occurs with material adverse effects on the Partnership,our business, financial condition and results of operations could be seriouslyharmed.

Macadamia nut trees are subject to damage ordestruction from diseases, pests, floods, droughts, windstorms, hurricanes,volcanic activity and other natural causes. Partnership tree replacements forall orchards from all causes were 0.6% in 2004, 0.2% in 2005, and 0.5% in 2006.Both crop and tree insurance are in place to protect the Partnership againstmaterial losses.

***Diseasesand Pests***.  ThePartnership’s Keaau orchards experienced tree replacements of 1.4% in 2004,0.6% in 2005, and 1.0% in 2006.  Othermacadamia growers in the vicinity have also experienced losses due to a problemknown as “Macadamia Quick Decline” (“MQD”). Based upon research by the University of Hawaii and other experts, it isbelieved that the situation is due to fungi associated with high moistureconditions and poor drainage conditions. It is also believed that a particular variety of macadamia nut tree (cv.HAES 333) is most susceptible to MQD. Approximately 9% of the trees in the Partnership’s orchards have thevariety HAES 333 with most of these trees located at the drier Ka’u regionwhere the incidence of MQD is benign. Another tree variety (cv. HAES 344) has also been identified as beingsomewhat more susceptible to MQD than other commercial varieties and thiscultivar represents approximately 45% of the trees in the Partnership’sorchards.  Both the Keaau and Mauna Keaorchards are areas with high moisture conditions, and may be more susceptibleto the MQD problem.  Afflicted trees inthese regions are replaced with cultivars that are tolerant to MQD.

There are also twotypes of fungal diseases, which can affect nut production but are not fatal tothe trees themselves.  One of these isPhytophthora, which affects the macadamia flowers and developing nuts, and theother, Botrytis cinerea, causes senescence of the macadamia blossom beforepollination is completed.  These types offungal disease are generally controllable with fungicides.  Historically, these fungi have attacked theorchards located in Keaau during periods of persistent inclement weather.  A light infestation of Phytophthora occurredin late January-early February 2001 and a light-moderate infestation occurredin March 2006.

***Rainstormsand Floods. ***ThePartnership’s orchards are located in areas on the island of Hawaii that aresusceptible to heavy rainstorms.  InNovember 2000 the Ka’u region was affected by flooding.  This flooding resulted in expected 2000harvesting being done in 2001.  Since theflood in 2000 heavy rain in the Ka’u region has not produced flooding of anyconsequence.

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***Windstorms***.  Some of the Partnership’s orchards arelocated in areas on the island of Hawaii that are susceptible towindstorms.  Twenty-five major windstormshave occurred on the island of Hawaii since 1961, and four of those causedmaterial losses to Partnership orchards. Most of the Partnership’s orchards are surrounded by windbreak trees, whichprovide limited protection.  Youngertrees that have not developed extensive root systems are particularlyvulnerable to windstorms.

***Insurance. ***The Partnership secures tree insurance each year undera federally subsidized program.  The treeinsurance for 2007 provides coverage up to a maximum of approximately $19.8million against loss of trees due to wind, fire or volcanic activity.  Crop insurance was purchased for the2006-2007 crop year and provides coverage up to a maximum of approximately$11.0 million against loss of nuts due to wind, fire, volcanic activity,earthquake, adverse weather, wildlife damage and failure of irrigation watersupplies.

***Volcanoes*.**  The orchards are located on the island ofHawaii, where there are two active volcanoes. To date, no lava flows from either volcano have affected or threatenedthe orchards.

***Rainfall*.**  The productivity of orchards depends in largepart on moisture conditions.  Inadequaterainfall can reduce nut yields significantly, while excessive rain withoutadequate drainage can 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 threelocations of the Partnership’s orchards for the past five years is shown below:
| **Year** | ** ** | **Ka’u** | ** ** | **Keaau**   | ** ** | **Mauna Kea** | ** ** |
|----------|------------|---------------|------------|-------------|------------|--------------------|------------|
| 2002     |       | 58.5”    |       | 139.4” |       | 156.1”        |       |
| 2003     |       | 22.8”    |       | 94.8”  |       | 117.4”        |       |
| 2004     |       | 54.9”    |       | 142.7” |       | 151.5”        |       |
| 2005     |       | 34.7”    |       | 133.8” |       | 171.8”        |       |
| 2006     |       | 70.9”    |       | 138.7” |       | 178.3”        |       |

 

During 2006 the Ka’u, Keaau and Mauna Kea areasrecorded 156%, 102% and 120% of the normal average annual rainfall in theirarea of the island, respectively.

#### **WaterSupply for Irrigation**

With the May 2000 acquisition, the Partnershipacquired an irrigation well (the “Sisal Well”), which supplies water to thePartnership’s orchards in Ka’u which were purchased in June 1986 and 1989.  The Sisal Well is situated on land owned byMauna Kea Agribusiness Company, Inc. (“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 the termination ofthe May 1, 2000 lease between Partnership and KACI, or June 30, 2045.

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 1986 Orchardsand October 1986 Orchards located at Ka’u and which had been irrigatedhistorically.

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

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On a historical basis, the quantity of water availablefrom the Sisal Well has been generally sufficient to irrigate these orchards inaccordance with prudent farming practices. The irrigated portion of the Ka’u II Orchards is expected to needgreater quantities of water as the orchards mature.  The Partnership anticipates that the amountof water available from the Sisal well will be generally sufficient, assumingaverage levels of rainfall, to irrigate the irrigated orchards in accordancewith prudent farming practices for the next several years.  If no irrigation water is available to theIrrigated Orchards, then, based on historical average rainfall levels,diminished yields of macadamia nut production can be expected.

**Market and customers. **A general decline in worldmacadamia nut prices would adversely affect the price paid under the nutpurchase contracts with Mac Farms and Island Princess, as the contract price isdetermined based upon the prevailing world market price of macadamia nut kernelfor each six-month period January through June and July to December throughoutthe contract term.  Even though thePartnership will increase it customers from one to four in 2007 there are alimited number of customers available to purchase the Partnership’s nutproduction.  If our customers’ were to beunable to perform under their contract or if their purchase of product shouldchange from Hawaii-based to foreign sourced kernel, it would have a materialadverse impact on our business as there are virtually no replacement customersfor the Partnership’s production.

**Nut Purchase Agreements.**  The Partnership has four contracts beginningJanuary 1, 2007.  The terms of thecontracts vary from two to six years, fixed prices and market determined pricesand 30 day payment terms.  ThePartnership relies upon the financial ability of the buyers of the Partnership’snuts to abide by the payment terms of the nut purchase agreements.  If any or all of the buyers were unable topay for the macadamia nuts delivered by the Partnership to them it could resultin the Partnership’s available cash resources being depleted.  If any or all buyers were late in payment thePartnership would stop the delivery of macadamia nuts to the buyer.  The Partnership would need to negotiate a nutpurchase agreement with another buyer which might not be at the same terms orprice.  It is also possible that thePartnership might not be able to find a buyer for the nuts.  There are a significant number of Hawaii macadamiagrowers that were unable to find a processor to purchase and process their cropin 2006 due to the currently depressed market.

# **Employees**

As of December 31, 2006,the Partnership employed 215 people, of which 136 were seasonal employees.  Of the total, 20 are in farming supervisionand management, 182 in production, maintenance and agricultural operations, and13 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, butwere extended until April 30, 2005.  Theparties have agreed to a three-year contract, which will expire on April 30,2008. The Partnership believes that relations with its employees and the ILWUare generally very good.

The Partnershipemploys foreign contract labor to supplement hand harvesters during the peakharvesting season.  If the Partnershipwas unable to employ contract laborers it might have to lengthen the timebetween harvest rounds which could result in a lower quality of nuts producedand a lower effective price.

Certain keypersonnel are critical to our business. Our future operating results depend substantially upon the continuedservice of our key personnel who are not bound by employment or non-competitionagreements.  Our future operating resultsalso depend in significant part upon our ability to attract and retainqualified management, technical and support personnel.  We cannot ensure success in attracting orretaining qualified personnel.  There maybe only a limited number of persons with the requisite skills and relevantindustry experience to serve in those positions and it may become increasinglydifficult for us to

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hire personnelover time.  Our business, financialcondition and results of operations could be materially adversely affected bythe loss of any of our key employees, by the failure of any key employee toperform in his or her current position, or by our inability to attract andretain skilled employees.

**Item1B.  Unresolved staff comments. **None

**Available Information. **The Partnership filesannual, quarterly and current reports and other information with theCommission.  These filings are availablefree of charge through the Partnership’s Internet website atwww.mlmacadamia.com as soon as reasonably practicable after the Partnershipelectronically files such material with, or furnishes it to, theCommission.  Any unit holder, who sorequests may obtain a printed copy of these documents from the Partnership, bycontacting the Partnership at 808-969-8057, or in writing at 26-238 Hawaii BeltRoad, Hilo, Hawaii 96720.

**ITEM 2. PROPERTIES**

***Location.***  The Partnership owns or leases approximately4,190 tree acres of macadamia orchards on the island of Hawaii.  The orchards are located in three areas: Ka’u,Keaau and Mauna Kea.  The Ka’u area islocated in the south part of the island about fifty miles from Hilo.  The Keaau area is located six miles south ofHilo on the east side of the island, and the Mauna Kea area is located threemiles north of Hilo on the east side of the island.

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

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***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 and/orirrigation.  Assuming adequate moisture,the most significant characteristic affecting yields is maturity.  The trees in a macadamia nut orchardgenerally begin to produce nuts at a commercially acceptable level at aroundnine years of age.  Thereafter, nutyields increase gradually until the trees reach maturity at approximately 15years of age, after which the nut yield remains relatively constant except forvariances produced by rainfall, cultivation practices, pest infestation anddisease.

Macadamiaorchards normally reach peak production after fifteen to eighteen years ofage.  All of the 4,190 tree acres ofmacadamia orchards owned or leased by the Partnership are over twenty years ofage.  About 2% of trees are lost tovarious causes each 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 rainfall is adequate without irrigation, and the volcanic soil providesgood drainage.  However, short droughtsand occasional flooding have occurred. At Mauna Kea, normal rainfall is adequate without irrigation and thevolcanic soil provides adequate drainage. In the event of a very long drought, production at Keaau and Mauna Keamight be affected.  At Ka’u, located onthe drier side of the island, the rainfall averages are substantially less thanat 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.

***Orchards. ***The following tablelists each of the orchards, the year acquired, tree acres, tenure, and leaserents:
| ** **             | ** ** | ** **   | ** ** | **Tree**  | ** ** | ** **    | ** ** | **Lease**      | ** ** | **Min. Rent** | ** ** |
|------------------------|------------|--------------|------------|-----------|------------|---------------|------------|----------------|------------|--------------------|------------|
| **Orchard**            | ** ** | **Acquired** | ** ** | **Acres** | ** ** | **Tenure**    | ** ** | **Expiration** | ** ** | **per Annum** | ** ** |
|                   |       |         |       |      |       |          |       |           |       |               |       |
| Keaau I                |       | June 1986    |       | 1,467     |       | Fee simple    |       |           |       |               |       |
| Ka’u I            |       | June 1986    |       | 456       |       | Fee simple    |       |           |       |               |       |
| “                 |       | June 1986    |       | 500       |       | Leasehold (1) |       | 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     |   |
| Ka’u 715/716      |       | April 2006   |       | 21        |       | Fee Simple    |       |           |       |               |       |
| Total acres            |       |         |       | 4,190     |       |          |       |           |       |               |       |

 

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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 additionalinformation concerning farming leases, see Item 13, page 54.

10

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In addition to theminimum annual lease payment amount, all the leases require the Partnership topay various expenses with respect to the leased premises as well as anadditional rental payment based on the USDA farm price per pound of macadamianuts sold in Hawaii.

With respect to the Ka’uGreen Shoe I Orchard, the lease requires the Partnership to pay the OlsonTrust, the seller and lessor, additional rent equal to 100% of any year’s cashflow generated by such orchard in excess of a target level of $507,000 untilthe aggregate amount paid equals 150% of the aggregate amount of thestabilization payments previously received by the Partnership.  Thereafter, the Partnership is required, withrespect to any year prior to the expiration of the lease, to pay as additionalrent, 50% of the cash flow generated by such orchard for such year in excess ofa target level of $507,000 of cash flow. For additional information, see “Stabilization Payments” on page 5.

**ITEM3.  LEGAL PROCEEDINGS AND SETTLEMENT**

In 2004 the Partnershipand several independent growers filed suit against Mauna Loa Macadamia NutCorporation alleging that the proposed acquisition by Mauna Loa Macadamia NutCorporation (“Mauna Loa”) of the assets of Mauna Loa’s major competitor,MacFarms would give Mauna Loa a monopoly over the supply and processing ofwet-in-shell macadamia nuts on the Island of Hawaii.  An agreement was reached, October 1, 2004,whereby Mauna Loa terminated its agreement to acquire the assets of MacFarmsand the Partnership and all others caused their lawsuits to be dismissed.

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

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

11

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### **PART II**

**ITEM 5.  MARKET FOR REGISTRANT’S CLASS A UNITS AND RELATEDUNITHOLDER MATTERS**

The Partnership’sClass A Depositary Units are listed for trading on the New York Stock Exchange(symbol = NUT).  There were 1,010registered holders of Class A Depositary Units on December 31, 2006.

Distributions declared and high and low sales pricesof the Class A Depositary Units, based on New York Stock Exchange dailycomposite transactions, are shown in the table below:
|           | ** ** | ** **  | ** ** | **Distribution** | ** ** | **High** | ** ** | **Low** | ** ** |
|-----------|------------|-------------|------------|------------------|------------|----------|------------|---------|------------|
| **2006:** |       | 4th Quarter |       | $                | 0.050      |     | 6.55       |    | 5.35       |   |
|           |       | 3rd Quarter |       | 0.050            |       | 5.61     |       | 5.25    |       |
|           |       | 2nd Quarter |       | 0.050            |       | 5.99     |       | 5.30    |       |
|           |       | 1st Quarter |       | 0.050            |       | 6.00     |       | 5.65    |       |
|      |       |        |       |             |       |     |       |    |       |
| **2005:** |       | 4th Quarter |       | $                | 0.050      |     | 6.09       |    | 5.60       |   |
|           |       | 3rd Quarter |       | 0.050            |       | 6.19     |       | 5.30    |       |
|           |       | 2nd Quarter |       | 0.050            |       | 6.19     |       | 5.45    |       |
|           |       | 1st Quarter |       | 0.050            |       | 6.26     |       | 5.45    |       |

 

**Restrictions on Cash Distributions**

Inconnection with the Partnership’s Credit Agreement with American AgCreditCapital Markets, cash distributions to partners are restricted unless thePartnership is in compliance with specified terms and conditions of the CreditAgreement, 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, 2006 and December 31, 2005.

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**ITEM 6.****          SELECTEDFINANCIAL DATA**

(In thousands, except perpound and per unit data)
| ** **                                                 | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Financial:                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Total  revenue                                             |       | $        | 17,072     |     | $          | 17,378   |       | $        | 13,665     |     | $          | 15,426 |   | $ | 14,556 |   |
| Net  cash provided by operating activities (1)             |       | 8,241    |       | 1,913    |       | 368      |       | 2,262    |       | 2,166    |       |
| Income  (loss) before taxes                                |       | 904      |       | 900      |       | (1,644   | )          | 111      |       | (447     | )          |
| Net  income (loss)                                         |       | 804      |       | 771      |       | (1,649   | )          | 69       |       | (480     | )          |
| Distributions  declared                                    |       | 1,500    |       | 1,500    |       | 1,515    |       | 1,212    |       | 1,515    |       |
| Total  working capital                                     |       | 3,882    |       | 3,429    |       | 2,931    |       | 4,165    |       | 3,220    |       |
| Total  assets                                              |       | 53,963   |       | 58,046   |       | 58,438   |       | 60,069   |       | 61,803   |       |
| Long-term  debt, non current                               |       | 1,200    |       | 1,600    |       | 2,034    |       | 2,468    |       | 2,920    |       |
| Total  partners’ capital                              |       | 48,623   |       | 49,389   |       | 50,542   |       | 53,706   |       | 54,849   |       |
| Class  A limited partners’ capital                    |       | 48,612   |       | 49,308   |       | 50,037   |       | 53,169   |       | 54,300   |       |
| Net  cash flow as defined in the partnership agreement (2) |       | 2,323    |       | 2,501    |       | 466      |       | 2,157    |       | 1,592    |       |
|                                                       |       |     |       |     |       |     |       |     |       |     |       |
| Operations:                                                |       |     |       |     |       |     |       |     |       |     |       |
| Acres  harvested                                           |       | 4,190    |       | 4,169    |       | 4,169    |       | 4,169    |       | 4,169    |       |
| Macadamia  nuts harvested (lbs.) (3)                       |       | 21,194   |       | 21,707   |       | 18,933   |       | 21,196   |       | 21,404   |       |
| Net  price $/lb. (3)(4)                                    |       | $        | 0.6093     |     | $          | 0.5550   |       | $        | 0.4972     |     | $          | 0.4857 |   | $ | 0.4748 |   |
|                                                       |       |     |       |     |       |     |       |     |       |     |       |
| Per  Class A Unit (5):                                     |       |     |       |     |       |     |       |     |       |     |       |
| Net  income (loss)                                         |       | 0.11     |       | 0.10     |       | (0.22    | )          | 0.01     |       | (0.06    | )          |
| Net  cash flow as defined in the partnership agreement (2) |       | 0.31     |       | 0.33     |       | 0.06     |       | 0.28     |       | 0.21     |       |
| Distributions                                              |       | 0.20     |       | 0.20     |       | 0.20     |       | 0.16     |       | 0.20     |       |
| Partners’ capital                                     |       | 6.48     |       | 6.57     |       | 6.67     |       | 7.09     |       | 7.24     |       |

 

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(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 were issued and outstandingfor all periods presented.

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Contractual obligationsas of December 31, 2006 for the Partnership are detailed in the following:
| ** **                   | ** ** | ** ** | ** ** | **Payments**     | ** ** | **Due by** | ** ** | **Period** | ** ** | ** **        | ** ** |
|------------------------------|------------|------------|------------|------------------|------------|-----------------|------------|------------|------------|-------------------|------------|
| Contractual Obligations      |       | Total      |       | Less Than 1 Year |       | 1-3 Years       |       | 3-5 Years  |       | More Than 5 Years |       |
| Long-Term Debt and  Interest |       | $          | 1,792,000  |             | $          | 487,000         |       | $          | 896,000    |              | $          | 409,000 |   | $ | — |   |
| Operating Leases             |       | 3,453,000  |       | 337,000          |       | 466,000         |       | 272,000    |       | 2,378,000         |       |
| Total                        |       | $          | 5,245,000  |             | $          | 824,000         |       | $          | 1,362,000  |              | $          | 681,000 |   | $ | 2,378,000 |   |

 

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

**  CONDITIONAND RESULTS OF OPERATIONS**

This discussionshould be read in conjunction with the financial statements and the relatednotes included elsewhere in this report.

# ***Results of operations – 2006,2005, 2004***

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

Production and yield datafor the eight orchards are summarized below (expressed in wet-in-shell poundsat 25% moisture):
| ** **                                | ** ** | ** **   | ** ** | ** **  | ** ** | **2006**       | ** ** | **Average Yield per Acre** | ** ** |
|-------------------------------------------|------------|--------------|------------|-------------|------------|----------------|------------|-------------------------------------------|------------|
| **Orchard**                               | ** ** | **Acquired** | ** ** | **Acreage** | ** ** | **Production** | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Keaau  I                                  |       | June  1986   |       | 1,467       |       | 6,645,746      |       | 4,530                                     |       | 3,953 |   | 3,880 |   |
| Keaau  II                                 |       | Oct.  1989   |       | 220         |       | 628,416        |       | 2,856                                     |       | 2,758 |   | 2,729 |   |
| Keaau  Lot 10                             |       | Sept.  1991  |       | 78          |       | 279,961        |       | 3,589                                     |       | 3,168 |   | 3,221 |   |
| Ka’u  I                              |       | June  1986   |       | 956         |       | 5,343,929      |       | 5,590                                     |       | 7,948 |   | 5,353 |   |
| Ka’u  Green Shoe I                   |       | Dec.  1986   |       | 266         |       | 1,984,649      |       | 7,461                                     |       | 6,399 |   | 6,632 |   |
| Ka’u  II                             |       | Oct.  1989   |       | 714         |       | 3,917,556      |       | 5,487                                     |       | 4,957 |   | 5,067 |   |
| Ka’u  O                              |       | May  2000    |       | 142         |       | 703,974        |       | 4,958                                     |       | 5,655 |   | 4,464 |   |
| Ka’u  715/716                        |       | April  2006  |       | 21          |       | 107,904        |       | 5,138                                     |       |   |   |   |   |
| Mauna  Kea                                |       | Oct.  1989   |       | 326         |       | 1,581,635      |       | 4,852                                     |       | 4,327 |   | 3,851 |   |
| Totals (except yields which are averages) |       |         |       | 4,190       |       | 21,193,770     |       | 5,058                                     |       | 5,207 |   | 4,541 |   |

The Partnership reportson a calendar year basis, though the natural crop year generally begins inAugust and runs through April.  2006production is reported on the 2005 contract basis for comparative purposes.  On page 15, production for 2006 is reportedunder the contracts effective for 2006 and compared to 2005 and 2004production.

Production in 2006 was1.6% lower than 2005 and 11.6% greater than 2004.  Production in 2005 was 14.6% greater than2004 and 2.4% greater than 2003. Production in 2004 was 10.7% lower than 2003and 11.5% lower than 2002. Significant factors affecting the crop were asfollows:

1.     The drought in the Ka’u orchards in 2003affected the nut set, development and production for the spring of 2004.

2.     The above average rainfall in the Keaau andMauna Kea orchards negatively impacted the pollination and nut set in 2004.

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3.     The Ka’u region recorded above averagerainfall in 2004.  The rainfallreplenished the soil moisture and improved yields in the region for the springof 2005.

4.     The maturation of the crop was delayed bythe weather conditions which resulted in less production in the fall of 2004and improved yields in the spring of 2005.

5.     The Ka’u region recorded below averagerainfall in 2005.  The shortfall duringthe early spring to fall of 2005 reduced yields in the spring of 2006.  Above average rainfall from November 2005through February 2006 contributed a positive effect on the fall 2006production.

6.     A late and abbreviated flower season in theKeaau and Mauna Kea regions resulted in lower production in the fall of 2005and the spring of 2006.  Cool nighttemperatures from November 2005 through May 2006 contributed to an early andextended flower/nut set season that had a positive effect on the fall 2006production despite the occurrence of a light-moderate flower disease in March2006.  The extended flowering period willalso have a positive effect on the spring 2007 nut production

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

## ***Owned-Orchard Segment - Nut Revenue***

Macadamia nut revenues depend on the number ofproducing acres, yields per acre and the nut purchase price.  The impact of these factors is summarized inthe following table using 2006 actual contracts and implied as if using oldcontracts for 2006 compared to actual for 2005. The implied 2006 is presented for the purpose of comparing the newcontracts on equivalent terms with prior year, such that contract poundsdelivered and nut price are on an equal basis:

For the twelve months

Ended December 31, 2006
| ** **                                    | ** ** | **Actual Contracts**  | ** ** | ** **              | ** ** | ** **              | ** ** | ** **              | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|-------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                    | ** ** | **WIS @ 20%**    | ** ** | **Implied**             | ** ** | **Actual**              | ** ** | **2006-2005**           | ** ** |
| ** **                                    | ** ** | **SK/DIS @ 30%** | ** ** | **WIS @ 25%** | ** ** | **WIS @ 25%** | ** ** | **Change**              | ** ** |
| ** **                                    | ** ** | **2006**                   | ** ** | **2006**                | ** ** | **2005**                | ** ** | **WIS @ 25%** | ** ** |
| Field pounds delivered  (000’s)          |       | 21,362                     |       | 21,362                  |       | 21,636                  |       | -1                      | %          |
| Trash adjustment  (000’s)                |       | (785                       | )          | 68                      |       | (276                    | )          | + 125                   | %          |
| Quality adjustment  SK/DIS (000’s)       |       | (2,642                     | )          | (804                    | )          | (644                    | )          | -25                     | %          |
| Moisture adjustment WIS  (000’s)         |       | (563                       | )          | 568                     |       | 991                     |       | -43                     | %          |
| Contract pounds  delivered (000’s)       |       | 17,372                     |       | 21,194                  |       | 21,707                  |       | -2                      | %          |
| Nut price ($/per pound)                       |       | $                          | 0.7433     |                    | $          | 0.6093                  |       | $                       | 0.5550     |   | +10 | % |
| Net nut sales ($000’s)                   |       | $                          | 12,913     |                    | $          | 12,913                  |       | $                       | 12,048     |   | +7 | % |
| 2004/2005 nut price  adjustment ($000’s) |       | $                          | 343        |                    | $          | 343                     |       | $                       | 636        |   |   |   |
| Total nut sales ($000’s)                 |       | $                          | 13,256     |                    | $          | 13,256                  |       | $                       | 12,684     |   | +5 | % |

 

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The following table presentsthe comparison of information to derive the Owned-Orchard Segment nut revenueusing the 2005 contracts for all information therefore implied for 2006 andactual for 2005 and 2004.  The implied2006 is used so that the comparisons are presented on an equivalent basis.
| ** **                            | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------|------------|-------------|------------|------------|------------|------------|------------|----------|------------|----------|------------|
| ** **                            | ** ** | **Implied** | ** ** | **Actual** | ** ** | **Actual** | ** ** | **vs**   | ** ** | **vs**   | ** ** |
| ** **                            | ** ** | **2006**    | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Trees  acres harvested                |       | 4,190       |       | 4,169      |       | 4,169      |       | +01      | %          | —   |       |
| Average  yield (WIS lbs./acre)        |       | 5,058       |       | 5,207      |       | 4,541      |       | -03      | %          | +  15    | %          |
| Nuts  harvested (000’s WIS lbs.) |       | 21,194      |       | 21,707     |       | 18,933     |       | -02      | %          | +  15    | %          |
| Nut  price ($/WIS lbs. @ 25%)         |       | 0.6093      |       | 0.5550     |       | 0.4972     |       | +10      | %          | +  12    | %          |
| Gross  nut sales ($000)               |       | $           | 12,913     |       | $          | 12,048     |       | $        | 9,414      |     | +07        | % | +  28 | % |
| Prior  year nut price settlement      |       | 343         |       | 576        |       | —     |       |     |       |     |       |
| 2003  early harvest settlement        |       | —      |       | —     |       | —     |       |     |       |     |       |
| 2004  Mac Farms settlement            |       | —      |       | 60         |       | —     |       |     |       |     |       |
| Recorded nut sales ($000s)            |       | $           | 13,256     |       | $          | 12,684     |       | $        | 9,414      |     |       |   |   |   |

 

The 2006 analysisof average yields, nuts harvested and nut price is based upon the contractswhich were in effect prior to January 1, 2006 and therefore are impliedresults.  The 2006 gross nut sales, prioryear price settlement and recorded nut sales are actual results.  Based upon the 2005 and earlier contracts thefollowing would apply.  Under three ofthe nut purchase contracts with Mauna Loa, the price for nuts delivered isbased 50% on the two-year trailing average of USDA published macadamia nutprices and 50% on a “netback component”. The netback component is determined by subtracting from Mauna Loa’sgross revenues from the sale of macadamia products (i) allocable processing,packaging, marketing, selling and advertising costs and (ii) a 20% capitalcharge on the difference between those aggregate gross revenues and aggregateallocable costs.

In mid-December 2004, Mauna Loa notified thePartnership that it would be unable to accept deliveries over a five-day periodduring the height of the harvest season. The Partnership advised Mauna Loa thatthis was unacceptable for both financial and operational reasons andarrangements would be made to deliver the nuts to another processor. Afteralternative deliveries had been committed to, Mauna Loa notified thePartnership that it was willing to accept delivery. As a result of thealternative commitment, the Partnership delivered approximately 240,000 poundsof nuts to Mac Farms of Hawaii at a price of 93 cents per pound over a two-dayperiod. In late December, Mauna Loa notified the Partnership that it intendedto deduct $118,000 from future nut payments as damages. The Partnershipnotified Mauna Loa that the deduction was a violation of our various contractsand the Partnership would consider termination of the contracts if suchdeduction were made. Mauna Loa has since withdrawn their notice of deduction,but the Partnership reserved $118,000 in 2004. A settlement was reached with Mauna Loa whereby the Partnership paidMauna Loa approximately $58,000.  As aresult the Partnership recorded $60,000 of nut revenue in 2005 from the 2004reserve.

In 2005 and 2004 thenet-back component of the nut purchase price was not determined in a timelymanner by Mauna Loa.  The Partnershipused information provided by Mauna Loa to determine the nut purchase price foreach of the years.  After Mauna Loaprovided the final net-back component the Partnership determine the final nutpurchase price and recognized the additional revenue at the time it becameknown.

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The following table setsforth the manner in which the nut purchase price per pound was determined for2005 and 2004 ($/lb.).  This table doesnot include 2006 as the contracts were renegotiated in 2006 and there is noavailable net-back component:
|                                                                               | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| USDA price - two years prior (a)                                              |       | 0.5391   |       | 0.5666   |       |
| USDA price – one year prior (a)                                          |       | 0.5769   |       | 0.5391   |       |
| USDA price – two year trailing average                                   |       | 0.5580   |       | 0.5528   |       |
|                                                                          |       |     |       |     |       |
| Gross revenues                                                                |       | 2.1093   |       | 1.3929   |       |
| Less allocable processing, packaging, marketing, sales and advertising  costs |       | 1.4268   |       | 0.8515   |       |
| Less 20% capital charge                                                       |       | 0.1365   |       | 0.1083   |       |
| Net-back component                                                            |       | 0.5460   |       | 0.4331   |       |
|                                                                          |       |     |       |     |       |
| USDA price – two year trailing average                                   |       | 0.5580   |       | 0.5528   |       |
| Net-back component                                                            |       | 0.5460   |       | 0.4331   |       |
| Average of USDA two year trailing average price and net-back component        |       | 0.5520   |       | 0.4929   |       |
| Plus Hawaii general excise tax (0.5%)                                         |       | 0.0028   |       | 0.0025   |       |
| Net  purchase price (b) (c) (d) (e)                                           |       | 0.5548   |       | 0.4954   |       |

 

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(a)          Mauna Loa’s ownpurchases comprise a substantial portion of nut purchases reported to theUSDA.  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)         The nut purchase pricefor the 1986 and 1989 orchards was the same for 1999 and all previousyears.  With the change of ownership ofMauna Loa in 2000, a quality conversion factor in the nut purchase contractswas initiated.  The effect was to cause aslightly different price of $0.4951 for the 1989 orchards in 2004, and $0.5542in 2005.

(c)          The nut purchasecontract covering nut production from the 78 acre Keaau Lot 10 orchard acquiredin September 1991 defines the “two-year trailing average” provision slightlydifferently from the 1986 and 1989 nut purchase contracts, and thus results ina different nut price.  This was ineffect for the first six months of 2003. A new contract was negotiated with a fixed price for all nuts withunusables in a range of 10% to 13%.  Thenut price for this orchard was $0.6000 in 2006, 2005 and 2004. This orchardaccounts for less than 2% of the Partnership’s macadamia nut production.

(d)         The nut purchase contractfor the Ka’u O orchards purchased in May 2000 uses only the two-year trailingUSDA average to determine its nut price, which was $0.6912 in 2006, $0.5610 in2005 and $0.5560 in 2004.

(e)          Mauna Loa has providedthe final 2004 audited nut price to the Partnership resulting in an additional$576,000 paid in 2005.

(f)            Mauna Loa has providedthe final 2005 audited nut price to the Partnership resulting in an additional$343,000 paid in 2006.

17

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The 2005 average nutprice from all orchards increased 12% from 2004 before 2004 adjustmentsrealized in 2005. If the 2004 nut price was adjusted by those adjustments theaverage nut price increase for 2005 compared to 2004 would be 5%.  The USDA portion increased 1% in 2005 anddecreased 2% in 2004. The netback increased 26% in 2005 compared to 2004 andincreased 10% in 2004 compared to 2003. The current netback price reflects theoperating performance of Mauna Loa.

The USDA publishedprice for the 2004-2005 crop year was $0.7018 per pound (WIS at 25% moisture),which is 22% higher than the 2003-2004 crop year of $0.5769.

In 2006 fivecontracts were in place:  1) the 1986contracts were replaced with a fixed price contract - $0.75 per pound at WIS20% moisture and 30% SK/DIS;  2) the 1989contracts were replaced with a fixed price contract - $0.74 per pound at WIS20% moisture and 30% SK/DIS;  3)  the Lot 10Z contract remained effective -$0.60 @ WIS 25% adjusted for trash; 4)  the Ka’u “O” contract remainedeffective which uses a two-year trailing average USDA price which was $0.6912and;  5) the macadamia nut orchard purchased April 2006 has a fixed price contractof $0.98 per pound at WIS 20% moisture and 30% SK/DIS.

## ***Owned-Orchard Segment - Cost of Goods Sold***

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

The Partnership’s unitcosts (expressed in dollars per wet-in-shell pound at 25% moisture) arecalculated by dividing all agricultural costs for each orchard (including leaserent, property tax, tree insurance and depreciation) by the number of pounds ofmacadamia nuts produced by that orchard and are summarized below ($/lb.):
|                        | ** ** | ** **   | ** ** | **Cost per pound** | ** ** | ** ** | ** ** |
|------------------------|------------|--------------|------------|--------------------|------------|------------|------------|
| **Orchard**            | ** ** | **Acquired** | ** ** | **2006**           | ** ** | **2005**   | ** ** | **2004** | ** ** |
| Keaau I                |       | June 1986    |       | 0.5646             |       | 0.5866     |       | 0.5767 |   |
| Keaau II               |       | Oct. 1989    |       | 0.6985             |       | 0.6501     |       | 0.5545 |   |
| Keaau Lot 10           |       | Sept. 1991   |       | 0.4095             |       | 0.3836     |       | 0.4491 |   |
| Ka’u I            |       | June 1986    |       | 0.5193             |       | 0.4289     |       | 0.5211 |   |
| Ka’u Green Shoe I |       | Dec. 1986    |       | 0.3278             |       | 0.2769     |       | 0.3409 |   |
| Ka’u II           |       | Oct. 1989    |       | 0.4420             |       | 0.4112     |       | 0.3938 |   |
| Ka’u O            |       | May 2000     |       | 0.4829             |       | 0.4226     |       | 0.4226 |   |
| Ka’u 715/716      |       | April 2006   |       | 0.2952             |       | —     |       | — |   |
| Mauna Kea              |       | Oct. 1989    |       | 0.5649             |       | 0.7119     |       | 0.4976 |   |
|                   |       |         |       |               |       |       |       |   |   |
| All Orchards           |       |         |       | 0.5130             |       | 0.5062     |       | 0.4582 |   |

 

Cost of goods sold was$669,000 higher in 2006 than 2005 and $535,000 higher in 2005 than in2004.  The cost per pound in 2006 was 1.3%higher than 2005 and 10.5% higher in 2005 than 2004.  The higher production costs in 2006 were theresults of higher harvesting costs, cultivation costs, land lease costs,  and higher insurance costs offset by lowerdepreciation.  The higher productioncosts in 2005 were the results of higher harvesting and husking costs becauseof more pounds handled.  The lowerproduction costs in 2004 compared to 2005 and 2006 were the result of lowerharvesting costs, cultivation costs, land lease costs and insurance costs.

18

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### ***Farming Segment - Farming Service Revenue***

As a result of theacquisition of the farming operation in 2000, the Partnership acquiredapproximately twenty farming contracts (now seventeen contracts) to farmmacadamia orchards owned by other growers. These contracts cover macadamiaorchards in the same three locations on the island of Hawaii where thePartnership owns orchards.  The farmingcontracts provide the Partnership to be reimbursed for all direct farming costs(cultivation, irrigation and harvesting), collect a pro-rata share of indirectcosts and overheads, and charge a management fee or fixed fee.  The management fee is based on the number ofacres farmed or on a percentage of total costs billed.  Revenues from farming services were $3.8 millionin 2006, $4.7 million in 2005, and $4.3 million in 2004. The 2006 farmingservice revenues were less than 2005 because of the termination of threefarming contracts, the purchase of the macadamia orchard which previously hadbeen farmed under contract and the timing of the harvest at the end of the yearwhich resulted is harvesting occurring in the spring of 2007 for some of theorchards under contract. The 2005 farming service revenues were less thananticipated because of a windstorm which destroyed a large percentage of treesin three contract orchards.  The 2004farming service revenues were less than expected because of the late drop ofnuts in the fall crop.  Three farmingservice contracts terminated on December 31, 2005 which reduces the number offarming service contracts to about seventeen totaling about 2,039 acres.  The farming service revenue in 2005 for thesethree contracts was about $492,000 with management fees of about $70,000.  Additionally, the Partnership purchased about21 acres which was under farming contract bringing the total acres underfarming contract to about 2,008. Approximately 150 acres of are year-to-year contracts, approximately 635acres expire March 31, 2009, approximately 70 acres expire June 30, 2013,approximately 410 acres expire July 31, 2029, approximately 280 acres expireJune 30, 2033 and approximately 470 acres expire September 30, 2080.

***Farming Segment - Cost of Services Sold***

The cost ofservices sold relating to the farming contracts was $3.5 million in 2006, $4.3million in 2005 and $3.9 million in 2004. These costs were all reimbursed to the Partnership.

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

General andadministrative expenses are comprised of accounting and reporting costs,reimbursements to the Managing Partner for directors’ fees, office expenses andliability insurance.  In addition,general and administrative costs are also incurred in connection with thefarming operations.  Previous to the May2000 acquisition, general and administration costs relating to the Partnership’sorchards were included in the Partnership’s farming expenses.

General andadministrative costs for 2006 were $247,000 higher than for 2005 which isattributed to increased legal costs and proxy statement for the 2006 specialmeeting, legal costs related to the potential acquisition of Mac Farms of Hawaii, LLC and higher costs associated withSarbanes Oxley implementation.  Generaland administrative costs for 2005 were $48,000 lower than for 2004, which isattributed to lower legal costs, offset by higher costs associated withSarbanes Oxley preparation and accounting. In 2004 legal costs of $464,000 were related to the lawsuit, initiatedand settled, to prevent Mauna Loa from acquiring MacFarms of Hawaii, LLC.

A management feebased on Partnership cash flow is payable annually to the ManagingPartner.  The amount paid was $9,000 in2004.  There was no management fee in2006 and 2005 as the Partnership acquired MLR, the managing partner and thefees are eliminated in consolidation.

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

The Partnership recorded interest expense of $204,000in 2006, $237,000 in 2005, and $182,000 in 2004.  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 itsworking capital needs through funds on hand and, when needed, from short-termborrowings, generating interest expense in the process.  Net interest income or expense, therefore, ispartly a function of any balance carried over from the prior year, the amountand timing of cash generated and distributions paid to investors in the currentyear, as well as the current level of interest rates.  Interest was earned in the amount of $17,000in 2006, $5,000 in 2005 and $11,000 in 2004.

19

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Other income of $206,000was recorded in 2006 of which $169,000 was from crop insurance.  Other income of $151,000 was recorded in 2005of which $147,000 was from crop insurance. Other income of $32,000 was recorded in 2004 from crop insurance.

***Inflation and Taxes***

In general, prices paidto macadamia nut farmers fluctuate independently of inflation.  Macadamia nut prices are influenced stronglyby prices for finished macadamia products, which depend on competition andconsumer acceptance.  Farming costs,particularly labor and materials, and general and administrative costs dogenerally reflect inflationary trends.

The Partnership issubject to a gross income tax as a result of its election to continue to betaxed as a partnership rather than to be taxed as a corporation, as allowed bythe Taxpayer Relief Act of 1997.  Thistax is calculated at 3.5% on partnership gross income (net revenues less costof goods sold) beginning in 1998.  Thegross income tax was $100,000 in 2006, $129,000 in 2005, and $5,000 in 2004.

# ***Liquidityand Capital Resources***

Net cash providedby operations was $8.2 million in 2006 compared to $1.9 million in 2005.  The significant increase of $6.3 million is aresult of the payment terms of the nut purchase contracts changing fromquarterly to 30 days from date of delivery. Net cash provided by operations was $1.9 million in 2005, an increase ofapproximately $1.6 million compared to 2004. Net cash provided by operations in 2004 was $368,000.

AtDecember 31, 2006 the Partnership’s working capital was $3.9 million and itscurrent ratio was 2.54 to 1, compared to $3.4 million and 1.59 to 1 in2005.  In 2005 the Partnership’s workingcapital was $3.4 million and its current ratio 1.59 to 1, compared to $2.9million and 1.63 to 1 in 2004.  In 2004the Partnership’s working capital was $2.9 million and its current ratio was1.63 to 1, compared to $4.2 million and 2.55 to 1 in 2003.  In 2006 the increase in working capitalcompared to 2005 was the result of lower cost of goods sold, interest expense,income taxes, higher interest income and other income offset by higher generaland administrative costs.  In 2005 theincrease in working capital compared to 2004 was result of higher revenue andlower general and administrative costs. In 2004 the decrease in working capital compared to 2003 was a result oflower revenue and higher general and administrative costs.

ThePartnership was in compliance with the terms and conditions of the CreditAgreement at December 31, 2006 and December 31, 2005.

Capitalexpenditures in 2006, 2005 and 2004 were $509,000, $83,000, and $172,000,respectively.    The increase in 2006 wasattributed to the purchase of 21 tree acres of macadamia orchards for $440,000,computers, a vehicle and upgrades to operating machinery.  The decrease in 2005 was the result of fewercomputer purchases and modifications to farming equipment than 2004. Capitalexpenditures in 2004 were the result of purchases of expiring leases.  Capital expenditures planned for 2007 areabout $500,000 and are expected to be financed by way of new equipment leases,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 revolving lineof credit. The line of credit was obtained on May 2, 2000 and expires May 1,2008.  At December 31, 2006 thePartnership had a cash balance of $3,351,000 and no line of credit drawingsoutstanding.  At December 31, 2005 thePartnership had a cash balance of $378,000 and line of credit drawingsoutstanding of $2,900,000.  The cashbalance was $196,000 at the end of 2004, and the line of credit drawings were$2,200,000 at December 31, 2004.

20

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As a Limited Partnership,we expect to pay regular cash distributions to the Partnership’s unit holdersif the cash flow from operations, as defined in the Management Agreement,exceeds the operating and capital resource needs of the Partnership, asdetermined by management.  These cashdistributions are expected to be paid from operating cash flow and / or otherresources.  The Partnership has declaredand paid cash distributions for 83 consecutive quarters.  In December, 2006, the Partnership declared adistribution of $0.05 per Class A unit (a total of $375,000), which was paidFebruary 15, 2007 to the unit holders of record as of December 29, 2006.

It is the opinionof management that the Partnership has adequate cash on hand and borrowingcapacity available to meet anticipated working capital needs for operations as presentlyconducted. The nut purchase contracts require the buyers to make nut payments30 days after the delivery of the nuts to 15 days after the end of the month inwhich the nuts were delivered.  Duringcertain parts of the year, if payments are not received, as the contractsrequire, available cash resources could be depleted.

***Critical Accounting Policies and Estimates***

Management hasidentified the following critical accounting policies that affect thePartnership’s more significant judgments and estimates used in the preparationof the Partnership’s financial statements. The preparation of the Partnership’s financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires the Partnership’s management to make estimates and judgments thataffect the reported amounts of assets and liabilities, revenues and expenses,and related disclosures of contingent assets and liabilities.  On an on-going basis, management evaluatesthose estimates, including those related to asset impairment, accruals forself-insurance, compensation and related benefits, revenue recognition,allowance for doubtful accounts, contingencies and litigation.  The Partnership states these accountingpolicies in the notes to the financial statements and in relevant sections inthis discussion and analysis.  Theseestimates are based on the information that is currently available to thePartnership and on various other assumptions that management believes to bereasonable under the circumstances. Actual results could vary from those estimates.

The Partnershipbelieves that the following critical accounting policies affect significantjudgments and estimates used in the preparation of it financial statements:

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

Retirement andSeverance Benefits:  The Partnershipsponsors a non-contributory defined benefit pension plan for regular unionemployees and a severance plan for intermittent union employees.  Several statistical and other factors whichattempt to anticipate future events are used in calculating the expense andliabilities related to 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 and severance benefit expenserecorded by the Partnership in future periods.

21

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

The Partnershiphas replaced three of the nut purchase contracts it had with Mauna Loa with twocontracts signed June 1, 2006, effective January 1, 2006.  The first of the contracts is a fixed pricecontract at $0.75 per pound at WIS 20% moisture and 30% SK/DIS, terminatingDecember 31, 2006, and accounts for about 15 million pounds of nuts.  The second contract is a fixed price contractat $0.74 per pound a WIS 20% moisture and 30% SK/DIS, terminating December 31,2011, and accounts for about 6 million pounds of nuts.  The second contract increases by $0.01 perpound each year except 2008 until it reaches $0.78 per pound in 2011.

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

**LegalProceedings**

In 2004 the Partnership and several independentgrowers filed suit against Mauna Loa alleging that the proposed acquisition byMauna Loa of the assets of Mauna Loa’s major competitor, MacFarms, would giveMauna Loa a monopoly over the supply and processing of wet-in-shell macadamianuts on the Island of Hawaii.  Anagreement was reached October 1, 2004, whereby Mauna Loa terminated itsagreement to acquire the assets of MacFarms and the Partnership and all otherscaused their lawsuits to be dismissed.

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

The Partnership isexposed to market risks resulting from changes in interest rates.  The interest rates on the Partnership’sCredit Agreement, which are based on LIBOR (Farm Credit Discount Note Rate andthe Farm Credit Medium Term Note Rate), are adjusted periodically based on thePartnership’s election to fix interest rates for periods ranging from betweenthree months and five years.  As ofDecember 31, 2006, a one percent increase or decrease in the applicable rateunder the Credit agreement will result in an interest expense fluctuation ofapproximately $12,000.

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**ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS**

Index toConsolidated Financial Statements
| Report of Independent  Registered Public Accounting Firm                                                  |   |   |
|-----------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                      |   |   |
| Consolidated  Balance Sheets, December 31, 2006 and 2005                                                  |   |   |
|                                                                                                      |   |   |
| Consolidated Income  Statements, for the Years Ended December 31, 2006, 2005 and 2004                     |   |   |
|                                                                                                      |   |   |
| Consolidated  Statements of Partners’ Capital, for the Years Ended December 31, 2006, 2005  and 2004 |   |   |
|                                                                                                      |   |   |
| Consolidated  Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004               |   |   |
|                                                                                                      |   |   |
| Notes to  Consolidated Financial Statements                                                               |   |   |

 

23

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**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

To the Partners

ML Macadamia Orchards,L.P.

Inour opinion, the accompanying consolidated balance sheets and the relatedconsolidated statements of income, partners’ capital, and cash flows, presentfairly, in all material respects, the financial position of ML MacadamiaOrchards, L.P. and its subsidiary at December 31, 2006 and 2005, and theresults of their operations and their cash flows for each of the three years inthe period ended December 31, 2006 in conformity with accounting principlesgenerally accepted in the United States of America.  These financial statements are theresponsibility of the Partnership’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.  Weconducted our audits of these statements in accordance with the standards ofthe Public Company Accounting Oversight Board (United States).  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluatingthe overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopersLLP

Honolulu, HawaiiApril 16, 2007

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**ML Macadamia Orchards, L.P.****Consolidated Balance Sheets**(in thousands)
| ** **                                                                              | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                              | ** ** | **2006**              | ** ** | **2005** | ** ** |
| **Assets**                                                                              | ** ** | ** **            | ** ** | ** ** | ** ** |
| Current  assets                                                                         |       |                  |       |   |   |
| Cash and cash equivalents                                                               |       | $                     | 3,351      |   | $ | 378 |   |
| Accounts receivable                                                                     |       | 2,688                 |       | 8,433 |   |
| Inventory of farming supplies                                                           |       | 272                   |       | 270 |   |
| Other current assets                                                                    |       | 98                    |       | 178 |   |
| Total current assets                                                                    |       | 6,409                 |       | 9,259 |   |
| Land,  orchards and equipment, net                                                      |       | 47,232                |       | 48,722 |   |
| Goodwill                                                                                |       | 306                   |       | — |   |
| Intangible  assets, net                                                                 |       | 16                    |       | 65 |   |
| Total assets                                                                            |       | $                     | 53,963     |   | $ | 58,046 |   |
|                                                                                    |       |                  |       |   |   |
| **Liabilities  and partners’ capital**                                             | ** ** | ** **            | ** ** | ** ** | ** ** |
| Current  liabilities                                                                    |       |                  |       |   |   |
| Current portion of long-term debt                                                       |       | $                     | 400        |   | $ | 434 |   |
| Short-term borrowings                                                                   |       | —                |       | 2,900 |   |
| Accounts payable                                                                        |       | 406                   |       | 770 |   |
| Cash distributions payable                                                              |       | 375                   |       | 375 |   |
| Accrued payroll and benefits                                                            |       | 858                   |       | 935 |   |
| Other current liabilities                                                               |       | 488                   |       | 416 |   |
| Total current liabilities                                                               |       | 2,527                 |       | 5,830 |   |
| Non-current  benefits                                                                   |       | 405                   |       | — |   |
| Long-term  debt                                                                         |       | 1,200                 |       | 1,600 |   |
| Deferred  income tax liability                                                          |       | 1,208                 |       | 1,227 |   |
| Total liabilities                                                                       |       | 5,340                 |       | 8,657 |   |
| Commitments  and contingencies                                                          |       |                  |       |   |   |
| Partners’  capital                                                                 |       |                  |       |   |   |
| General partner                                                                         |       | 81                    |       | 81 |   |
| Class A limited partners, no par or assigned value, 7,500 units issued  and outstanding |       | 48,612                |       | 49,308 |   |
| Accumulated other comprehensive loss                                                    |       | (70                   | )          | — |   |
| Total partners’ capital                                                            |       | 48,623                |       | 49,389 |   |
| Total  liabilities and partners’ capital                                           |       | $                     | 53,963     |   | $ | 58,046 |   |

 

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

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**MLMacadamia Orchards, L.P.**

**Consolidated Income Statements**

(in thousands, except per unit data)
| ** **                                                                | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Macadamia nut sales                                                       |       | $        | 13,256     |     | $          | 12,684   |       | $ | 9,414 |   |
| Contract farming revenue                                                  |       | 3,816    |       | 4,694    |       | 4,251    |       |
| Total revenues                                                            |       | 17,072   |       | 17,378   |       | 13,665   |       |
| Cost of goods and services sold                                           |       |     |       |     |       |     |       |
| Costs of macadamia nut sales                                              |       | 10,871   |       | 10,202   |       | 9,667    |       |
| Costs of contract farming  services                                       |       | 3,474    |       | 4,274    |       | 3,860    |       |
| Total cost of goods and  services sold                                    |       | 14,345   |       | 14,476   |       | 13,527   |       |
| Gross income                                                              |       | 2,727    |       | 2,902    |       | 138      |       |
| General and administrative expenses                                       |       |     |       |     |       |     |       |
| Costs expensed under  management agreement with related party             |       | —   |       | —   |       | 177      |       |
| Legal fees - related party                                                |       | 196      |       | 32       |       | 495      |       |
| Other                                                                     |       | 1,646    |       | 1,563    |       | 971      |       |
| Total general and  administrative expenses                                |       | 1,842    |       | 1,595    |       | 1,643    |       |
| Extinguishment of management agreement                                    |       | —   |       | (326     | )          | —   |       |
| Operating income (loss)                                                   |       | 885      |       | 981      |       | (1,505   | )          |
| Interest expense                                                          |       | (204     | )          | (237     | )          | (182     | )          |
| Interest income                                                           |       | 17       |       | 5        |       | 11       |       |
| Other income                                                              |       | 206      |       | 151      |       | 32       |       |
| Income (loss) before tax                                                  |       | 904      |       | 900      |       | (1,644   | )          |
| Income tax expense                                                        |       | (100     | )          | (129     | )          | (5       | )          |
| Net income (loss)                                                         |       | $        | 804        |     | $          | 771      |       | $ | (1,649 | ) |
|                                                                      |       |     |       |     |       |     |       |
| Net cash flow (as defined in the Partnership Agreement)                   |       | $        | 2,323      |     | $          | 2,501    |       | $ | 466 |   |
|                                                                      |       |     |       |     |       |     |       |
| Net income (loss) per Class A Unit                                        |       | $        | 0.11       |     | $          | 0.10     |       | $ | (0.22 | ) |
|                                                                      |       |     |       |     |       |     |       |
| Net cash flow per Class A Unit (as defined in the Partnership  Agreement) |       | $        | 0.31       |     | $          | 0.33     |       | $ | 0.06 |   |
|                                                                      |       |     |       |     |       |     |       |
| Cash distributions per Class A Unit                                       |       | $        | 0.20       |     | $          | 0.20     |       | $ | 0.20 |   |
|                                                                      |       |     |       |     |       |     |       |
| Class A Units outstanding                                                 |       | 7,500    |       | 7,500    |       | 7,500    |       |

 

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

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**MLMacadamia Orchards, L.P.**

**Consolidated Statements of Partners’ Capital**

(in thousands)
| ** **                                                                        | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                              |       |     |       |     |       |     |       |
| Partners’ capital at beginning of period:                                    |       |     |       |     |       |     |       |
| General partner                                                                   |       | $        | 81         |     | $          | 505      |       | $ | 537 |   |
| Class A limited partners                                                          |       | 49,308   |       | 50,037   |       | 53,169   |       |
|                                                                              |       | 49,389   |       | 50,542   |       | 53,706   |       |
|                                                                              |       |     |       |     |       |     |       |
| Acquisition of ML Resources, Inc.                                                 |       | —   |       | (424     | )          | —   |       |
|                                                                              |       | —   |       | (424     | )          | —   |       |
|                                                                              |       |     |       |     |       |     |       |
| Allocation of net income (loss):                                                  |       |     |       |     |       |     |       |
| General partner                                                                   |       | —   |       | —   |       | (17      | )          |
| Class A limited partners                                                          |       | 804      |       | 771      |       | (1,632   | )          |
|                                                                              |       | 804      |       | 771      |       | (1,649   | )          |
|                                                                              |       |     |       |     |       |     |       |
| Cash distributions paid and / or declared:                                        |       |     |       |     |       |     |       |
| General partner                                                                   |       | —   |       | —   |       | 15       |       |
| Class A limited partners                                                          |       | 1,500    |       | 1,500    |       | 1,500    |       |
|                                                                              |       | 1,500    |       | 1,500    |       | 1,515    |       |
|                                                                              |       |     |       |     |       |     |       |
| Partners’ capital at end of period:                                          |       |     |       |     |       |     |       |
| General partner                                                                   |       | 81       |       | 81       |       | 505      |       |
| Class A limited partners                                                          |       | 48,612   |       | 49,308   |       | 50,037   |       |
| Accumulated other  comprehensive loss Change in pension and severance obligations |       | (70      | )          | —   |       | —   |       |
|                                                                              |       | $        | 48,623     |     | $          | 49,389   |       | $ | 50,542 |   |

 

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

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**MLMacadamia Orchards, L.P.**

**Consolidated Statements of Cash Flows**

(in thousands)
| ** **                                                                                 | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cash flows from operating activities:                                                      |       |     |       |     |       |     |       |
| Cash received for goods and  services                                                      |       | $        | 23,001     |     | $          | 16,795   |       | $ | 13,947 |   |
| Cash paid to suppliers and  employees                                                      |       | (14,463  | )          | (14,568  | )          | (13,393  | )          |
| Income tax paid                                                                            |       | (118     | )          | (82      | )          | (15      | )          |
| Interest received                                                                          |       | 17       |       | 5        |       | 11       |       |
| Interest paid                                                                              |       | (196     | )          | (237     | )          | (182     | )          |
| Net cash provided by operating activities                                                  |       | 8,241    |       | 1,913    |       | 368      |       |
|                                                                                       |       |     |       |     |       |     |       |
| Cash flows from investing activities:                                                      |       |     |       |     |       |     |       |
| Proceeds from sale of  equipment                                                           |       | 75       |       | 14       |       | —   |       |
| Capital expenditures                                                                       |       | (509     | )          | (83      | )          | (172     | )          |
| Net cash used in investing activities                                                      |       | (434     | )          | (69      | )          | (172     | )          |
|                                                                                       |       |     |       |     |       |     |       |
| Cash flows from financing activities:                                                      |       |     |       |     |       |     |       |
| Proceeds from drawings on line  of credit                                                  |       | 5,800    |       | 8,800    |       | 5,400    |       |
| Repayment of long term debt                                                                |       | (400     | )          | (400     | )          | (400     | )          |
| Repayment of line of credit                                                                |       | (8,700   | )          | (8,100   | )          | (3,600   | )          |
| Loan cost                                                                                  |       | —   |       | —   |       | (20      | )          |
| Acquisition of general  partner’s units                                               |       | —   |       | (424     | )          | —   |       |
| Capital lease payments                                                                     |       | (34      | )          | (35      | )          | (52      | )          |
| Cash distributions paid                                                                    |       | (1,500   | )          | (1,503   | )          | (1,364   | )          |
| Net cash provided by (used in) financing activities                                        |       | (4,834   | )          | (1,662   | )          | (36      | )          |
|                                                                                       |       |     |       |     |       |     |       |
| Net increase in cash                                                                       |       | 2,973    |       | 182      |       | 160      |       |
| Cash and cash equivalents at beginning of period                                           |       | 378      |       | 196      |       | 36       |       |
| Cash and cash equivalents at end of period                                                 |       | $        | 3,351      |     | $          | 378      |       | $ | 196 |   |
|                                                                                       |       |     |       |     |       |     |       |
| Reconciliation of net income (loss) to net cash provided by operating  activities:         |       |     |       |     |       |     |       |
| Net income (loss)                                                                          |       | $        | 804        |     | $          | 771      |       | $ | (1,649 | ) |
| Adjustments to reconcile net  income (loss) to net cash provided by operating activities:  |       |     |       |     |       |     |       |
| Depreciation and amortization                                                              |       | 1,953    |       | 2,165    |       | 2,571    |       |
| Gain on sale of capital assets                                                             |       | (21      | )          | —   |       | —   |       |
| (Increase) decrease in  accounts receivable                                                |       | 5,745    |       | (1,341   | )          | (566     | )          |
| Deferred income tax expense  (credit)                                                      |       | (19      | )          | 20       |       | (7       | )          |
| Increase in inventories                                                                    |       | (2       | )          | (125     | )          | (4       | )          |
| (Increase) decrease in other  current assets                                               |       | 80       |       | (25      | )          | (10      | )          |
| Increase in other assets                                                                   |       | —   |       | (32      | )          | (7       | )          |
| Increase (decrease) in  accounts payable                                                   |       | (364     | )          | 32       |       | 245      |       |
| Increase (decrease) in accrued  payroll                                                    |       | (106     | )          | 62       |       | 26       |       |
| Increase (decrease) in current  liabilities                                                |       | 72       |       | 386      |       | (231     | )          |
| Increase in non-current  benefits payable                                                  |       | 99       |       | —   |       | —   |       |
| Total adjustments                                                                          |       | 7,437    |       | 1,142    |       | 2,017    |       |
| Net cash provided by operating activities                                                  |       | $        | 8,241      |     | $          | 1,913    |       | $ | 368 |   |
|                                                                                       |       |     |       |     |       |     |       |
| Supplemental schedule of noncash financing activities  Distributions declared but not paid |       | $        | 375        |     | $          | 375      |       | $ | 379 |   |

 

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

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**MLMacadamia Orchards, L.P.**

# **Notes toConsolidated Financial Statements**

**(1)OPERATIONS AND OWNERSHIP**

ML Macadamia Orchards, L.P. (the “Partnership”) owns and farms4,190 tree acres of macadamia orchards on the island of Hawaii. Once the nutsare harvested, the Partnership sells them to another entity, which processesand markets the finished products.  ThePartnership farms approximately 2,008 additional acres of macadamia orchards onHawaii for other orchard owners.

ThePartnership is owned 99% by limited partners and 1% by the managing generalpartner, ML Resources, Inc. (“MLR”).  OnJanuary 6, 2005, the stock of ML Resources, Inc. was purchased by thePartnership for $750,000 in cash.  Thetransaction was accounted for as an asset purchase as opposed to a businesscombination since MLR had no substantive operations and its principal purposewas to own and hold 75,757 general partner units of the Partnership.  The acquisition of the general partner unitsheld by MLR results in the Class A limited partners effectively owning 100% ofthe Partnership.

The purchase price was allocated between the acquired general partnerunits and the extinguishment of the management contract between MLR and thePartnership.  The fair value of thegeneral partner units at the date of acquisition was determined to be $424,000which was recorded as a reduction in partners’ capital.  The fair value of the general partner unitswas determined based on the quoted market value of Class A limited partnerunits.  No discounts for lack ofmarketability or premiums for control preferences were applied in determiningthe fair value of the general partner units. The remaining $326,000 representing the extinguishment of the managementcontract was charged to expense.

As a result of thetransaction, MLR’s operations have been included in the Partnership’sconsolidated financial statements beginning with the first quarter of 2005.

Limited partnerinterests are represented by Class A Units, which are evidenced by depositaryreceipts that trade publicly and are listed on the New York Stock Exchange.

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

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

**(b)  Financial Instruments. **The fair value of the lineof credit and a portion of the long-term financial instruments is approximatelythe carrying value as they have variable interest rates.  The remaining portion of the long-termfinancial instrument has a fixed rate and the fair value compared to carryingvalue is disclosed.

**(c)  Consolidation.**  The consolidated financial statements includethe accounts of the Partnership, and from 2005, ML Resources, Inc.  All significant intercompany balances andtransactions, including management fees and distributions, have beeneliminated.

**(d) Farming Costs.**The Partnership considers each orchard to be a separate cost center, whichincludes the depreciation/amortization of capitalized costs associated witheach orchard’s acquisition and /or development and maintenance and harvestingcosts directly attributable to each orchard. In accordance with industry practice in Hawaii, orchard maintenance andharvesting costs for commercially producing macadamia orchards are chargedagainst earnings in the year that the costs are incurred.

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However, the timing andmanner in which farming costs are recognized in the Partnership’s financialstatements over the course of the year is based on a standard cost system.  For interim financial reporting purposes,farming costs are recognized as expense based on a standard cost to produce apound of macadamia nuts.  Managementcalculates a standard cost per pound for each orchard based on the estimatedannual costs to farm each orchard and anticipated annual production from eachorchard.  The amount of farming costsrecognized as expense throughout the year is calculated by multiplying eachorchard’s standard cost by actual production from that orchard.  The difference between actual farming costsincurred and the amount of farming costs recognized as expense is recorded aseither an increase or decrease in deferred farming costs, which is reported asan asset in the balance sheet.  Deferredfarming costs accumulate throughout the year, typically peaking mid-way throughthe third quarter, since nut production is lowest during the first and secondquarters of the year.  Deferred farmingcosts are expensed over the remainder of the year since nut production ishighest at the end of the third quarter through year end.

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

**(e)  Inventory.**  Supplies inventory is relieved on an averagecost basis to cost of farming expense as used.

**(f)  Land, Orchards and Equipment. **Land, orchards andequipment are reported at cost, net of accumulated depreciation andamortization.  Net farming costs for any “developing”orchards are capitalized on the balance sheet until revenues from that orchardexceed expenses for that orchard (or nine years after planting, ifearlier).  Developing orchardshistorically do not reach commercial viability until about 12 years of age.

Depreciation of orchards and other equipment is reported on astraight-line basis over the estimated useful lives of the assets (40 years fororchards and between 5 and 12 years for other equipment).  A 5% residual value is assumed 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 and declining balancemethods over Alternative Depreciation System recovery periods.

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

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

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**(g) **Goodwill and OtherIntangible Assets

Under SFAS No. 142,Goodwill and Other Intangible Assets (“SFAS No. 142”), goodwill and otherindefinite-lived intangible assets are not amortized but are reviewed forimpairment at least annually and if a triggering event were to occur in aninterim period.  The Partnership’s annualimpairment testing is performed in the 4th quarter each year.  The goodwill is allocated to the farmingreporting unit.  Goodwill impairment isdetermined using a two-step process for each reporting unit.  The first step of the impairment test is usedto identify potential impairment by comparing the fair value of a reportingunit to the book value, including goodwill. This evaluation utilizes a discounted cash flow analysis and multipleanalyses of the historical and forecasted operating results of the Partnership’sreporting unit.  If the fair value of areporting unit exceeds its book value, goodwill of the reporting unit is notconsidered impaired, and the second step of the impairment test is notrequired.  If the book value of areporting unit exceeds its fair value, the second step of the impairment testis performed to measure the amount of impairment loss, if any.  The second step of the impairment testcompares the implied fair value of the reporting unit’s goodwill with the bookvalue of the goodwill.  If the book valueof the reporting unit’s goodwill exceeds the implied fair value of thatgoodwill, an impairment loss is recognized in an amount equal to thatexcess.  The implied fair value ofgoodwill is determined in the same manner as the amount of goodwill recognizedin a business combination.

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

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

Deferred tax liabilitiesare recognized for the future tax consequences attributable to differencesbetween the financial reporting and tax reporting basis of assets andliabilities.

**(i)Revenue. **Macadamia nut sales are recognized when nuts aredelivered to the buyer.  Contract farmingrevenue and administrative services revenues are recognized in the period thatsuch services are completed, that is upon the incurrence of direct labor orequipment hours incurred on behalf of an orchard owner.  The Partnership is paid for its servicesbased upon a “time and materials” basis plus a percentage fee or fixed feebased upon each farming contract’s terms. Contract farming includes the regularmaintenance of the owners’ orchards as well as harvesting of their nuts.  The Partnership provides these services on acontinuing basis throughout the year.

**(j)  Pension Benefit and Intermittent SeveranceCosts.**  The actuarial method used for financialaccounting purposes is the projected unit credit method.

**(k)  Estimates. **Thepreparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

**(l) NetIncome Per Class A Unit.**  In 2006 and 2005 net income perClass A Unit is calculated by dividing 100% of Partnership net income by theaverage number of Class A Units outstanding for the period.  In 2004 net income per Class A Unit iscalculated by dividing 99% of the Partnership net income by the average numberof Class A Units outstanding for the period.

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**(m)  Accumulated Comprehensive Income. **Accumulated comprehensive income represents the changein Partners’ capital from transactions and other events and circumstancesarising from non-unitholder sources. Accumulated comprehensive income consists of deferred pension andintermittent severance gains or losses. As of December 31, 2006, our Consolidated Balance Sheet reflectedAccumulated Other Comprehensive Loss in the amount of $70,000 in deferredpension and intermittent severance loss.

**(n)  Recent Accounting Pronouncements. **In September 2006, the FASB issued Statement No.157.  This statement provides a singledefinition of fair value, a framework for measuring fair value, and expandeddisclosures concerning fair value. Previously, different definitions of fair value were contained invarious accounting pronouncements creating inconsistencies in measurement anddisclosures.  Statement No. 157 appliesunder those previously issued pronouncements that prescribe fair value as therelevant measure of value.  Thispronouncement is effective for fiscal years beginning after November 15,2007.  We do not expect the adoption ofStatement No. 157 to have a material impact on our financial position, resultsof operations, or cash flows.

In September 2006,the FASB issued Statement No. 158, *Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans,* (anamendment of FASB Statements No. 87, 88, 106. and 132R (“Statement No. 158”),that requires an employer to recognize in its statement of financial positionan asset for a plan’s over funded status or a liability for a plan’s underfunded status, measure a plan’s asset and its obligations that determine itfunded status as of the end of the employer’s fiscal year (with limitedexceptions), and recognize changes in the funded status of a defined benefitpostretirement plan in the year in which the changes occur.  We adopted the recognition provisions ofStatement No. 158 in our December 31, 2006 financial statements.  The incremental affects of applying StatementNo. 158 related to Partnership’s defined pension plan and intermittentseverance plan as of December 31, 2006, were as follows:
| Increase in pension  obligation                |   | $      | 68,000 |   |
|------------------------------------------------|--------|--------|--------|--------|
| Increase in  intermittent severance obligation |   | 18,000 |   |
| Decrease in  prepaid pension obligation        |   | 7,000  |   |
|                                           |   | $      | 93,000 |   |

 

The adoption onSFAS No. 158 had no effect on the net income or cash flows of the Partnership.

**(3) SEGMENT INFORMATION**

The Partnership has tworeportable segments, the owned-orchard segment and the farming segment, whichare organized on the basis of revenues and assets.  The owned-orchard segment derives itsrevenues from the sale of macadamia nuts grown in orchards owned or leased bythe Partnership.  The farming segmentderives its revenues from the farming of macadamia orchards owned by other growers.  It also farms those orchards owned by thePartnership.

Management evaluates theperformance of each segment on the basis of operating income.  The Partnership accounts for intersegmentsales and transfers at cost and such transactions are eliminated inconsolidation.

The Partnership’s reportablesegments are distinct business enterprises that offer different products orservices.

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

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# ***(a)  Nut Purchase Contracts.***  The Partnership is a party to two nutpurchase contracts signed June 1, 2006, with an effective date of January 1,2006, with Mauna Loa which were negotiated in 2006.  The two contracts cover all nuts produced bythe orchards acquired in June 1986, December 1986, and October 1989.  Of the two contracts, one for approximately15 million pounds expired December 31, 2006 and has a nut purchase price for2006 of $0.75 per pound wet-in-shell (WIS) at 20% moisture and 30% saleablekernel recovery (SK) to dry-in-shell (DIS). Two other contracts, of approximately 1 million pounds, also expiredDecember 31, 2006, one with a nut purchase price of $0.60 per pound WIS 25%adjusted for trash and the other with a nut purchase price based on a two-yeartrailing average USDA price at WIS 25%. The last contract for about 5 million pounds expires December 31, 2011and has a nut purchase price for 2006 of $0.74 per pound WIS at 20% moistureand 30% SK/DIS.  The purchase priceincreases by $0.01 each year except 2008 until it reaches $0.78 per pound in2011.  The purchase contract for themacadamia nut orchard purchased in April 2006 is with Mac Farms and accountsfor about 100,000 pounds and has a nut purchase price of $0.98 per pound WIS20% moisture and 30% SK/DIS.

# On December 16, 2004, a new nut purchase contract wassigned with Hamakua for the annual delivery of six million WIS pounds, startingJanuary 1, 2007. The contract provides for a minimum price of 75 cents perpounds and a maximum price of 95 cents per pound. The pricing formula includesa fixed component of 85 cents and a second component based on Hamakua’s averageselling price for bulk kernel.  InFebruary 2007, the Partnership negotiated an amendment to the contract whichprovides the Partnership an option to have nut-in-shell processed into kernelfor a fee in lieu of selling the nuts to Hamakua.

On January 5, 2006, a newnut purchase contract was signed with Island Princess for the annual deliveryof approximately two million WIS pounds, effective January 1, 2007.  The nut price will be determined every sixmonths by mutual agreement based on prevailing market price for kernel fromHawaii and Australia.  The effectiveprice for January — June 2007 is $0.608 at 20% moisture and 30% SK/DISrecovery.

On January 6, 2006, a newnut purchase contract was signed with MacFarms for the annual delivery ofbetween four and one-half million and five and one-half million WIS pounds,effective January 1, 2007.  The nut pricewill be determined every six months by mutual agreement based on prevailingmarket price for kernel from Hawaii and Australia.  The effective price for January — June 2007is $0.608 at 20% moisture and 30% SK/DIS recovery.

**(b)  Husking Activities  **Husking activities for theKeaau and Mauna Kea orchards are performed at Mauna Loa’s Keaau facility.  Operation of the Keaau husking facility whichhad been performed by the Partnership was transferred to Mauna Loa in July of2006.  Payments or reimbursements made toMauna Loa were $440,000 in 2004, $603,000 in 2005, and $559,000 in 2006 forhusking as the contracts agree that the Partnership will deliver husked nuts.

**(c) Stabilization Payments.**  In December 1986, the Partnership acquired a266-acre orchard that was 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 the $1.2 million instabilization payments (net of general excise tax) as a reduction in the costbasis of this orchard.  As a result, thepayments will be reflected in the Partnership’s net income ratably through 2019as a reduction 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.

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Thereafter, the Partnership is obligated to pay KACI50% of this orchard’s cash flow in excess of the target cash flow as additionalincentive rent.  Additional rent of$62,000 was due for 2006 and no additional rent was due in 2004, or 2005.

**(d)  CashFlow Warranty Payments**. In October 1989, the Partnership acquired 1,040 acres of orchards thatwere 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 the $13.8 millionreceived in cash flow warranty payments as reductions in the cost basis of theorchards.  As a result, these paymentswill be reflected in the Partnership’s net income ratably through 2030 asreductions to depreciation for these orchards.

**(2)  The farming segment’s revenues**are based on long-term farming contracts which generate a farming profit basedon a percentage of farming cost or based on a fixed fee per acre and tend to beless variable than revenues from the owned-orchard segment.

The following is asummary of each reportable segment’s operating income and the segment’s assetsas of and for the period ended December 31, 2006, 2005 and 2004.

Segment Reporting for theYear ended December 31, 2006 (in thousands)
|                                         | ** ** | **Owned**    | ** ** | **Contract** | ** ** | **Intersegment** | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|--------------|------------|--------------|------------|------------------|------------|------------|------------|
| ** **                              | ** ** | **Orchards** | ** ** | **Farming**  | ** ** | **Elimination**  | ** ** | **Total**  | ** ** |
| Revenues                                |       | $            | 13,256     |         | $          | 14,533           |       | $          | (10,717    | ) | $ | 17,072 |   |
| Composition of Intersegment revenues    |       | —       |       | 10,717       |       | —           |       | 10,717     |       |
| Operating income (loss)                 |       | 222          |       | 663          |       | —           |       | 885        |       |
| Depreciation expense                    |       | 1,737        |       | 216          |       | —           |       | 1,953      |       |
| Segment assets                          |       | 48,731       |       | 5,232        |       | —           |       | 53,963     |       |
| Expenditures for property and equipment |       | 479          |       | 30           |       | —           |       | 509        |       |
|                                         |            |              |            |              |            |                  |            |            |            |  |  |  |  |

 

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Segment Reporting for theYear ended December 31, 2005 (in thousands)
|                                          | ** ** | **Owned**    | ** ** | **Contract** | ** ** | **Intersegment** | ** ** | ** ** | ** ** |
|------------------------------------------|------------|--------------|------------|--------------|------------|------------------|------------|------------|------------|
| ** **                               | ** ** | **Orchards** | ** ** | **Farming**  | ** ** | **Elimination**  | ** ** | **Total**  | ** ** |
|                                     |       |         |       |         |       |             |       |       |       |
| Revenues                                 |       | $            | 12,684     |         | $          | 12,131           |       | $          | (7,437     | ) | $ | 17,378 |   |
| Composition of Intersegment revenues     |       | —       |       | 7,437        |       | —           |       | 7,437      |       |
| Operating income (loss)                  |       | 377          |       | 604          |       | —           |       | 981        |       |
| Depreciation expense                     |       | 1,949        |       | 216          |       | —           |       | 2,165      |       |
| Segment assets                           |       | 52,206       |       | 5,840        |       | —           |       | 58,046     |       |
| Expenditures  for property and equipment |       | 51           |       | 32           |       | —           |       | 83         |       |
|                                          |            |              |            |              |            |                  |            |            |            |  |  |  |  |

Segment Reportingfor the Year ended December 31, 2004 (in thousands)
|                                         | ** ** | **Owned**    | ** ** | **Contract** | ** ** | **Intersegment** | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|--------------|------------|--------------|------------|------------------|------------|------------|------------|
| ** **                              | ** ** | **Orchards** | ** ** | **Farming**  | ** ** | **Elimination**  | ** ** | **Total**  | ** ** |
|                                    |       |         |       |         |       |             |       |       |       |
| Revenues                                |       | $            | 9,414      |         | $          | 9,502            |       | $          | (5,251     | ) | $ | 13,665 |   |
| Composition of Intersegment 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        |       |
|                                         |            |              |            |              |            |                  |            |            |            |  |  |  |  |

 

**(4)RELATED PARTY TRANSACTIONS**

**(a) Management Costs and Fee.**  On January 6, 2005 the Partnership purchasedthe stock of its managing partner, MLR. As a result of the transaction, MLR’soperations have been included in the Partnership’s consolidated financial statementsbeginning with the first quarter of 2005. 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) in 2004.  The management fee is eliminated inconsolidation in 2005 and 2006. Those reimbursable costs totaled $168,000 in2004.  The managing general partnerearned a management fee of $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 in2006, 2005 and 2004.

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**(b) LegalServices. **The Partnershippaid $196,000, $134,000, and $495,000 in legal fees in 2006, 2005 and 2004,respectively.  A former Director of thePartnership is a former partner and currently of counsel to one of the lawfirms used by the Partnership.  ThePartnership paid said law firm $196,000 in 2006, $32,000 of the $134,000 in2005 and $495,000 in 2004.

**(c) Management Services Contract. **The Partnership provides administrative services to D.Buyers Enterprises, LLC (“DBE”) for which it was compensated $104,000 in 2004and, $102,000 in 2005.  DBE owned thestock of the Partnership’s general partner until January 2005.

**(d) Office Lease. **SinceSeptember 2001, the Partnership has leased approximately 4000 square feet ofoffice space in Hilo for its accounting staff from DBE, which was the owner ofthe General Partner until January 2005.  The lease amount was $90,000 in 2005 and 2004.

**(5) CASH FLOW PERFORMANCE**

Cash flow performance(based on definitions used in the Partnership Agreement) for the past threeyears is shown below (000’s):
| ** **                                               | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Gross revenues (including interest and other income)     |       | $        | 17,295     |     | $          | 17,534   |       | $ | 13,708 |   |
| Less:                                                    |       |     |       |     |       |     |       |
| Farming costs                                            |       | 12,391   |       | 12,311   |       | 10,951   |       |
| Administrative costs                                     |       | 1,842    |       | 1,595    |       | 1,643    |       |
| Extinguishment of management agreement                   |       | -        |       | 326      |       | -        |       |
| Income tax expense                                       |       | 100      |       | 129      |       | 5        |       |
| Payments of principal and  interest                      |       | 639      |       | 672      |       | 634      |       |
| Operating cash flow                                      |       | 2,323    |       | 2,501    |       | 475      |       |
| Less:                                                    |       |     |       |     |       |     |       |
| Management fee                                           |       | 0        |       | 0        |       | 9        |       |
| Net  cash flow (as defined in the Partnership Agreement) |       | $        | 2,323      |     | $          | 2,501    |       | $ | 466 |   |

 

All of net cashflow in 2006 and 2005, and $451,000 in 2004 was allocated to Class A Units.This cash flow measure is used to determine the management fee paid annually tothe general partner and forms the basis of distributable cash per unit.  No management fee is recorded in 2006 and2005 as the Partnership purchased the stock of the managing partner MLR inJanuary 2005 and the management fee is eliminated in consolidation.

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

Land, orchards andequipment, stated at cost, consisted of the following at December 31, 2006 and2005 (000’s):
|                                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|
| Land                                            |       | $        | 8,255      |     | $          | 8,168 |   |
| Improvements                                    |       | 1,850    |       | 1,929    |       |
| Machinery and equipment                         |       | 4,266    |       | 4,252    |       |
| Irrigation well and  equipment                  |       | 1,184    |       | 1,155    |       |
| Producing orchards                              |       | 67,631   |       | 67,267   |       |
| Capital leases                                  |       | 161      |       | 161      |       |
| Land, orchards and  equipment (gross)           |       | 83,347   |       | 82,932   |       |
| Less accumulated  depreciation and amortization |       | 36,115   |       | 34,210   |       |
| Land, orchards and equipment (net)              |       | $        | 47,232     |     | $          | 48,722 |   |

 

The Partnership’s interestin trees situated on certain leased macadamia orchard properties are subject torepurchase at the option of the lessors. Such repurchase options grant the lessors the right to purchase all or aportion of these trees after June 30, 2019, at fair market value, as defined inthe respective farming lease agreements. If the repurchase options are not exercised prior to expiration of thelease agreements and the lessors do not offer to extend the lease agreements atthe then current market lease rates, the lessors are required to repurchasethese trees at fair market value at lease expiration.  The lessors will be released from theirrepurchase obligation in the event that the Partnership declines to accept anextension offer from the lessors at fair market lease rates.

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

At December 31, 2006 and 2005, thePartnership’s long-term debt comprises (000’s):
|                 | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------|------------|----------|------------|----------|------------|
| Term debt       |       | $        | 1,600      |     | $          | 2,000 |   |
| Other           |       | —   |       | 34       |       |
|            |       | 1,600    |       | 2,034    |       |
| Current portion |       | 400      |       | 434      |       |
|            |       | $        | 1,200      |     | $          | 1,600 |   |

 

On May 2, 2000 thePartnership entered into a credit agreement with Pacific Coast Farm CreditServices, ACA (currently American AgCredit Capital Markets) comprised of a $5million revolving line of credit and a $4 million promissory note.

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 ratios on the daily unused portion ofcredit.  The Partnership, at its option,may make prepayments without penalty.

There were no drawingsoutstanding on the line of credit at December 31, 2006 and drawings outstandingat December 31, 2005 amounted to $2,900,000, with interest at 7.50%.

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At December 31, 2006, theoutstanding balance on the promissory note amounted to $1.6 million.  The note is scheduled to mature in 2010 andbears interest at rates ranging from 6.37% to 7.50%.  Principal payments are due annually on May 2in the amount of $400,000.

The estimated fair valuesof the Partnership’s financial instrument has been determined by estimatedmarket price of 6.75% in 2005 and 7.00% in 2006 using a life equal to thatremaining on the current financial instrument. The Partnership has not considered the lender fees in determining theestimated fair value.

The estimated fair valuesof the Partnership’s financial instrument are as follows (000’s):
|                | ** ** | **2006**     | ** ** | **2005**  | ** ** |
|----------------|------------|--------------|------------|-----------|------------|
| ** **     | ** ** | **Carrying** | ** ** | **Fair**  | ** ** | **Carrying** | ** ** | **Fair** | ** ** |
| ** **     | ** ** | **Amount**   | ** ** | **Value** | ** ** | **Amount** | ** ** | **Value** | ** ** |
| Long-term debt |       | $            | 1,600      |      | $          | 1,312 |   | $ | 1,150 |   | $ | 1,004 |   |
|                |            |              |            |           |            |  |  |  |  |  |  |  |  |

 

Of the total $1.6 millionin 2006 the long-term debt of $680,000 has a fixed interest rate for one andone-third years.  Of the total $2.0million in 2005 the long—term debt of $850,000 has short-term fixed rates thatapproximate fair value. The $920,000 and $1,150,000 in 2006 and 2005,respectively, have interest rates that are fixed over the remaining life of thedebt.

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.               Minimum workingcapital of $2.5 million.

2.               Minimum currentratio of 1.5 to 1.

3.               Cumulative cashdistributions beginning January 1, 2000 cannot exceed the total of cumulativenet cash flow beginning January 1, 2004 plus a base amount of $3.3 million.

4.               Minimum tangiblenet worth of $49.9 million (reduced by the amount of allowed cash distributionsover net income).

5.               Maximum ratio offunded debt to capitalization of 20%.

6.               Minimum debtcoverage ratio of 2.5 to 1.

At December 31, 2006, thePartnership’s working capital was $3.9 million and its current ratio 2.54 to 1.The Partnership was in compliance with all covenants of the Credit Agreement atDecember 31, 2006 and December 31, 2005

**Capital and Operating Leases.**ThePartnership has no capital leases as of December 31, 2006 and had $34,000 incapital leases as of December 31, 2005. The Partnership has operating leasesfor equipment and operating leases for land. The operating leases for equipment are four to five year leases.

**LandLeases.**The partnership leases the land underlying 1,948acres of its orchards under long-term operating leases which expire throughdates ending 2045.  Operating leasesprovide for changes in minimum rent based on fair value at certain points intime.  Each of the land leases providesfor additional lease payments based on USDA-reported macadamia nut pricelevels.  Those contingent lease paymentstotaled $18,000 in 2004, $19,000 in 2005, and $115,000 in 2006.  Total lease rent for all land operatingleases was $150,000 in 2004, $147,000 in 2005, and $256,000 in 2006.

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**EquipmentOperating Leases. **The Partnershipleases equipment for the farming operation to include vehicles, blower sweepersand harvester.  The operating lease costwas $206,000, $249,000 and $285,000 in 2006, 2005 and 2004, respectively.

Contractual obligationsfor the year ended December 31, 2006 for the Partnership are detailed in thefollowing (000’s):
| ** **                   | ** ** | **Total** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **Remaining** | ** ** |
|------------------------------|------------|-----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|---------------|------------|
| Contractual Obligations      |       |      |       |     |       |     |       |     |       |     |       |     |       |          |       |
| Long-Term Debt and  Interest |       | $         | 1,792      |     | $          | 487      |       | $        | 461        |     | $          | 435      |       | $             | 409        |   | $ | — |   | $ | — |   |
| Operating Leases             |       | 3,453     |       | 337      |       | 275      |       | 191      |       | 146      |       | 126      |       | 2,378         |       |
| Total                        |       | $         | 5,245      |     | $          | 824      |       | $        | 736        |     | $          | 626      |       | $             | 555        |   | $ | 126 |   | $ | 2,378 |   |

 

**(8)INCOME TAXES**

The components ofincome tax expense for the years ended December 31, 2006, 2005 and 2004 were asfollows (000’s):
|                   | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------|------------|----------|------------|----------|------------|----------|------------|
| Currently payable |       | $        | 119        |     | $          | 109      |       | $ | 12 |   |
| Deferred          |       | (19      | )          | 20       |       | (7       | )          |
|              |       | $        | 100        |     | $          | 129      |       | $ | 5 |   |

 

The provision forincome taxes equates to the 3.5% federal tax rate applied to gross income (netrevenues less cost of goods sold) for the years ended December 31, 2006, 2005and 2004.

The components ofthe net deferred tax liability reported on the balance sheet as of December 31,2006 and 2005 are as follows (000’s):
|                                                                                                                                                               | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax liabilities:                                                                                                                                     |       |     |       |     |       |
| Financial statement bases of  land, orchards, inventory and equipment is greater than tax bases                                                               |       | $        | 719        |     | $          | 717 |   |
| Financial statement bases of  capitalized leases, long- term debt on capitalized leases and interest  expense on capitalized leases is greater than tax bases |       | (4       | )          | (4       | )          |
| Excess of tax depreciation  over financial statement depreciation                                                                                             |       | 493      |       | 514      |       |
|                                                                                                                                                          |       | $        | 1,208      |     | $          | 1,227 |   |

 

**(9)PENSION PLAN**

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

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The followingreconciles the changes in the pension benefit obligation and plan assets forthe years ended December 31, 2006, 2005, 2004 to the funded status of the planand the amounts recognized in the balance sheets at December 31, 2006, 2005,2004 (000’s).
| ** **                                            | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Change in projected  benefit obligation:              |       |     |       |     |       |     |       |
| Projected  benefit obligation at beginning of year    |       | $        | 518        |     | $          | 411      |       | $ | 357 |   |
| Service cost                                          |       | 59       |       | 57       |       | 56       |       |
| Interest cost                                         |       | 28       |       | 23       |       | 21       |       |
| Actuarial (gain)  loss                                |       | (80      | )          | 35       |       | (12      | )          |
| Benefits paid                                         |       | (35      | )          | (8       | )          | (11      | )          |
|                                                  |       |     |       |     |       |     |       |
| Projected benefit  obligation at end of year          |       | 490      |       | 518      |       | 411      |       |
| Change in plan assets:                                |       |     |       |     |       |     |       |
| Fair value of  plan assets at beginning of year       |       | 258      |       | 205      |       | 169      |       |
| Actual return on  plan assets                         |       | 31       |       | 10       |       | 3        |       |
| Employer  contribution                                |       | 168      |       | 51       |       | 44       |       |
| Benefits paid                                         |       | (35      | )          | (8       | )          | (11      | )          |
|                                                  |       |     |       |     |       |     |       |
| Fair value of  plan assets at end of year             |       | 422      |       | 258      |       | 205      |       |
| Funded status                                         |       | (68      | )          | (261     | )          | (206     | )          |
| Unrecognized  prior service cost                      |       | —   |       | 62       |       | 69       |       |
| Unrecognized net  actuarial loss (gain)               |       | —   |       | 89       |       | 44       |       |
|                                                  |       |     |       |     |       |     |       |
| Amount  recognized in balance sheet                   |       | $        | (68        | )        | $          | (110     | )          | $ | (93 | ) |
| Amounts recognized in  the balance sheets consist of: |       |     |       |     |       |     |       |
| Accrued pension  liability (current)                  |       | (68      | )          | (152     | )          | (103     | )          |
| Intangible asset                                      |       | —   |       | 42       |       | 10       |       |
|                                                  |       |     |       |     |       |     |       |
| Net amount recognized                                 |       | $        | (68        | )        | $          | (110     | )          | $ | (93 | ) |

 

The amountsrecognized in accumulated other comprehensive loss at December 31, 2006 was asfollows:

|                     | ** ** | **2006** | ** ** |
|---------------------|------------|----------|------------|
| Net actuarial  gain |       | $        | (4         | ) |
| Prior service  cost |       | 56       |       |
|                |       | $        | 52         |   |

 

The estimated netactuarial gain and prior service cost that will be amortized from accumulatedother comprehensive loss into net periodic benefit cost for the year endingDecember 31, 2007 is $7,000.

Prior to theadoption of Statement No. 158, the plan was over funded by $7,000.

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The computation ofthe prepaid pension obligation at December 31, 2006 and required minimumliability and additional minimum liability at December 31, 2005 are shownbelow:
|                                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|
| Accumulated  benefit obligation                            |       | $        | (415       | )        | $          | (410 | ) |
| Fair value of  plan assets                                 |       | 422      |       | 258      |       |
| Required prepaid  pension obligation (minimum liability)   |       | $        | 7          |     | $          | (152 | ) |
| Liability  recognized for accrued benefit costs            |       | —   |       | 110      |       |
| Prepaid pension  obligation (additional minimum liability) |       | $        | 7          |     | $          | (42 | ) |

 

The components ofnet periodic pension cost for the years ended December 31, 2006, December 31,2005 and December 31, 2004 were as follows:
|                                                            | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Service cost                                               |       | $        | 59         |     | $          | 57       |       | $ | 56 |   |
| Interest cost                                              |       | 28       |       | 23       |       | 21       |       |
| Expected return  on plan assets                            |       | (23      | )          | (19      | )          | (15      | )          |
| Amortization of  net actuarial loss and prior service cost |       | 9        |       | 7        |       | 7        |       |
| Net periodic pension  cost                                 |       | $        | 73         |     | $          | 68       |       | $ | 69 |   |

 

The weightedaverage actuarial assumptions used to determine the pension benefit obligationsat December 31, 2006, 2005 and 2004 and the net periodic pension cost for theyears then ended are as follows:
|                                | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Pension benefit  obligation:   |       |     |       |     |       |     |       |
| Discount rate                  |       | 5.90     | %          | 5.50     | %          | 5.75     | %          |
| Compensation increases         |       | 2.00     | %          | 2.00     | %          | 2.00     | %          |
| Net periodic  pension cost:    |       |     |       |     |       |     |       |
| Discount rate                  |       | 5.90     | %          | 5.75     | %          | 6.00     | %          |
| Compensation increases         |       | 2.00     | %          | 2.00     | %          | 2.00     | %          |
| Return on assets  for the year |       | 8.50     | %          | 8.50     | %          | 8.50     | %          |

 

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

The Partnership employsan investment strategy whereby the assets in our portfolio are evaluated tomaintain the desired target asset mix. The funds are invested in stock mutual funds, fixed income mutual fundsand money market funds.  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.

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The plan’s asset allocationpercentages at December 31, 2006 and 2005 were as follows:
|                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|
| Pooled fixed  income funds |       | 23.00    | %          | 21.00    | %          |
| Money market  funds        |       | 10.00    | %          | 16.00    | %          |
| Stock mutual  funds        |       | 67.00    | %          | 63.00    | %          |
| Total                      |       | 100.00   | %          | 100.00   | %          |

 

The Partnershipexpects to contribute approximately $100,000 to the plan in 2007.

The followingpension benefit payments, which reflect expected future services, asappropriate, are expected to be paid:
| Years Ending December 31, | ** ** | ** ** | ** ** |
|------------------------------------------|------------|------------|------------|
| 2007                                     |       | $          | 8,372      |   |
| 2008                                     |       | 11,073     |       |
| 2009                                     |       | 12,168     |       |
| 2010                                     |       | 17,546     |       |
| 2011                                     |       | 17,201     |       |
| 2012-2016                                |       | 145,551    |       |
|                                          |            |            |            |  |

 

**(10)  UNION BARGAINING UNIT INTERMITTENT EMPLOYEESSEVERANCE PLAN**

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

The followingreconciles the changes in the severance benefit obligation and plan assets forthe years ended December 31, 2006, 2005, 2004 to the funded status of the planand the amounts recognized in the balance sheets at December 31, 2006, 2005,2004 (000’s).

| Change in Severance Obligation | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                          |       |     |       |     |       |     |       |
| Severance  obligation at beginning of year    |       | $        | 376        |     | $          | 384      |       | $ | 363 |   |
| Service cost                                  |       | 23       |       | 24       |       | 24       |       |
| Interest cost                                 |       | 20       |       | 21       |       | 21       |       |
| Actuarial (gain)  loss                        |       | (36      | )          | (14      | )          | 9        |       |
| Benefits paid                                 |       | (48      | )          | (39      | )          | (33      | )          |
| Severance  obligation at end of year          |       | $        | 335        |     | $          | 376      |       | $ | 384 |   |

 

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| **Change in Plan Assets**  | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                      |       |     |       |     |       |     |       |
| Fair value of  plan assets at of year     |       | $        | 0          |     | $          | 0        |       | $ | 0 |   |
| Employer  contributions                   |       | 48       |       | 39       |       | 33       |       |
| Benefits paid                             |       | (48      | )          | (39      | )          | (33      | )          |
| Fair value of plan  assets at end of year |       | $        | 0          |     | $          | 0        |       | $ | 0 |   |

 
| **Funded Status**           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|------------|------------|------------|------------|
|                             |       |       |       |       |       |       |       |
| Benefit  obligation              |       | ($335      | )          | ($376      | )          | ($384      | )          |
| Unrecognized net  actuarial loss |       | 18         |       | 55         |       | 72         |       |
| Prepaid (accrued)  benefit cost  |       | ($317      | )          | ($321      | )          | ($312      | )          |

 

As of December 31, 2006,the accrued benefit cost of $317,000 was recorded in accrued liabilities - currentportion $27,000, representing amounts to be paid in 2007, non-currentliabilities $290,000 and the unrecognized actuarial gain of $18,000 wasrecorded in accumulated other comprehensive income. On adoption of SFAS 158 thePartnership recorded an adjustment to other comprehensive income of $18,000 forthe under funded status of the severance benefit plan at December 31, 2006.
| **Components of Net Periodic Cost** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
|                                                    |       |       |       |       |       |       |       |
| Service cost                                            |       | $          | 23         |       | $          | 24         |       | $ | 24 |   |
| Interest cost                                           |       | 20         |       | 21         |       | 21         |       |
| Recognized net  (gain) loss                             |       | 1          |       | 3          |       | 2          |       |
| Net periodic cost  (credit)                             |       | $          | 44         |       | $          | 48         |       | $ | 47 |   |

 
| **Reconciliation of Severance Liability** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| (a) Accrued  severance beginning of year                 |       | ($321      | )          | ($312      | )          | ($298      | )          |
| (b)  Contributions during fiscal year                    |       | 48         |       | 39         |       | 33         |       |
| (c) Net periodic  pension cost                           |       | (44        | )          | (48        | )          | (47        | )          |
| (d) Accrued  severance cost at end of year               |       | ($317      | )          | ($321      | )          | ($312      | )          |

 
| **Weighted Average Assumptions** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
|                                       |       |       |       |       |       |       |       |
| Discount rate                              |       | 5.87       | %          | 5.78       | %          | 5.74       | %          |
| Expected return  on plan assets            |       | 0.00       | %          | 0.00       | %          | 0.00       | %          |
| Rate of compensation  increase             |       | 1.65       | %          | 1.65       | %          | 1.65       | %          |

 

As discussed inNote 14, the Partnership initially recorded its liability for the severanceplan in 2006 following its determination that such obligation had not properlybeen accounted for as part of prior year purchase price allocation.  The Partnership has provided disclosures forthose years for comparative purposes.  Asdisclosed above, benefit costs in 2004 and 2005 did not differ materially fromcontribution amounts expensed in such years.

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**(11)  EMPLOYEES SAVINGS PLAN**

The Partnershipsponsors a 401(k) plan, which allows participating employees to contribute upto 25% of their salary, subject to annual limits.  The plan provides for the Partnership to makematching contributions up to 50% of the first 4% of salary deferred byemployees.  During the years endedDecember 31, 2006, 2005 and 2004, Partnership matching contributions were$32,000, $29,000 and $27,000, respectively.

**(12)  SALARIED DEFINED CONTRIBUTION PLAN**

The Partnershipsponsors a defined contribution plan for its non-bargaining unit employees.This plan provides for the Partnership to make annual contributions to the401(k) plan on behalf of participating employees.  Contributions are based upon age, length ofservice, and other criteria on an annual basis, subject to annual limits.  During the years ended December 31, 2006,2005, and 2004 Partnership contributions were $106,000, $96,000 and $98,000,respectively.

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

The followingchart summarizes unaudited quarterly operating results for the years endedDecember 31, 2006, 2005, and 2004 (000’s omitted except per unit data):

|                  | ** ** | ** **   | ** ** | **Gross Income** | ** ** | **Net Income** | ** ** | **Net Income (Loss)**     | ** ** |
|------------------|------------|--------------|------------|-----------------------|------------|---------------------|------------|-------------------------------------|------------|
| ** **       | ** ** | **Revenues** | ** ** | **(Loss)**            | ** ** | **(Loss)**          | ** ** | **per Class A Unit** | ** ** |
| 2006             | ** ** | ** **   | ** ** | ** **            | ** ** | ** **          | ** ** | ** **                          | ** ** |
| 1st Quarter      |       | $            | 1,523      |                  | $          | 272                 |       | $                                   | (100       | ) | $ | (0.01 | ) |
| 2nd Quarter |       | 1,288        |       | 444                   |       | (27                 | )          | 0.00                                |       |
| 3rd Quarter |       | 5,487        |       | 437                   |       | 85                  |       | 0.01                                |       |
| 4th Quarter |       | 8,774        |       | 1,574                 |       | 846                 |       | 0.11                                |       |
|             |       |         |       |                  |       |                |       |                                |       |
| 2005             |       |         |       |                  |       |                |       |                                |       |
| 1st Quarter      |       | $            | 3,056      |                  | $          | 627                 |       | $                                   | (27        | ) | $ | 0.00 |   |
| 2nd Quarter      |       | 1,501        |       | 218                   |       | 26                  |       | 0.00                                |       |
| 3rd Quarter      |       | 3,737        |       | 608                   |       | 118                 |       | 0.02                                |       |
| 4th Quarter      |       | 9,084        |       | 1,449                 |       | 654                 |       | 0.09                                |       |
|             |       |         |       |                  |       |                |       |                                |       |
| 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                               | )          |

 

**(14)  CBCL ACQUISITIONADJUSTMENTS**

During 2006, thePartnership concluded it should have recorded certain employee severance andvacation benefits in connection with its allocation of the purchase price ofthe macadamia farming operation from CBCL on May 1, 2000.  The Partnership has re-evaluated and revisedthe original purchase price allocation and accordingly has recorded in 2006,goodwill of $306,000 and a corresponding liability for the fair value of suchbenefits as of the acquisition date.  Thechanges in the liability for the period from May 1, 2000 to December 31, 2005of $159,000 have been included in the 2006 Consolidated Statement of Income.Prior year financial statements were not materially impacted by this matter.

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

On March 23, 2007, theAudit Committee of ML Macadamia Orchards, L. P. (“Partnership”) recommended andthe Board of Directors approved the appointment of Accuity LLP (“Accuity”) asthe independent registered public accounting firm for the Partnership,effective upon the completion of the services of PricewaterhouseCoopers LLP (“PwC”)related to the Partnership’s financial statements as of and for the year endedDecember 31, 2006 and the Partnership’s Form 10-K for the year ended December31, 2006.  Such procedures were completedon April 16, 2007 and PwC’s dismissal became effective on such date.

PwC’s reports on thePartnership’s financial statements as of and for the fiscal years endedDecember 31, 2005, and 2006 did not contain an adverse opinion or a disclaimerof opinion, and were not qualified or modified as to uncertainty, audit scope,or accounting principle.

During the fiscal yearsended December 31, 2005, and 2006 and through April 16, 2007, there were nodisagreements with PwC on any matters of accounting principles or practices,financial statement disclosure or auditing scope or procedure which, if notresolved to the satisfaction of PwC, would have caused PwC to make a referencethereto in connection with its reports on the financial statements for suchyears.

During the fiscal yearsended December 31, 2005 and 2006 and through April 16, 2007, there were noreportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

**ITEM 9A.  CONTROLS AND PROCEDURES**

(a)          As of the end of the period covered by this report (the “EvaluationDate”), the Partnership carried out an evaluation, under the supervision andwith the participation of management, including the Chief Executive Officer andthe Chief Financial Officer, of the effectiveness of the design and operationof the Partnership’s disclosure controls and procedures (as defined in Rule13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).  Based upon that evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that, as of theEvaluation Date, the Partnership’s disclosure controls and procedures wereeffective.  The Partnership’s disclosurecontrols and procedures are designed to ensure that information required to bedisclosed by the Partnership in the reports that it files or submits under theExchange Act is (i) recorded, processed, summarized and reported within thetime periods specified in the applicable SEC’s rules and forms, and (ii)accumulated and communicated to the Partnership’s management, including theChief Executive Officer and Chief Financial Officer to allow timely decisionsregarding required disclosure.

**ITEM 9B.  OTHER EVENTS**

None

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**PARTIII**

**ITEM10.  DIRECTORS, EXECUTIVE OFFICERS ANDCORPORATE GOVERNANCE**

The Partnershippresently has no officers or directors. Instead, the officers and directors ofthe Managing Partner perform all management functions for the Partnership.  Each director of the Managing Partner isappointed for a term of one year and until his successor is duly appointed andqualified.  Each officer of the Managing Partneris elected by the Board of Directors of the Managing Partner and is subject toremoval by that board at any time.

## **A.****            Identification ofDirectors**

*John K. Kai.  41* years old; director of the Managing Partnersince June 2004; member of the Audit, Nominating, Compensation and CorporateGovernance Committees since March 2005; president of Pinnacle Investment Group,LLC; president of Pinnacle Media Group, LLC; branch manager and investmentrepresentative of Commonwealth Financial Network.

*James S. Kendrick. *59 years old; director of Managing Partnersince June 2005; Executive at Mauna Loa Macadamia Nut Corporation from 1991 to1998.

*E. Alan Kennett. *63 years old; director of Managing Partnersince June 2005; member of the Audit, Nominating, Compensation and CorporateGovernance Committees of Managing Partner: President and CEO of Gay andRobinson Sugar Company, Inc.

*Jeffrey M. Kissel. *57 years old; director of Managing Partnersince June 2005; member of the Audit Committee since June 2005 and chairman sinceMarch 2006; member of the Nominating, compensation and Corporate GovernanceCommittees of the Managing Partner: President and CEO of Safe RenewablesCorporation: from 2003 to 2005 was CFO for Earth Tech, Inc.; held variouspositions during 1997 until 2003 with URS Corporation including vice presidentof budgeting and planning and CFO.

*DavidMcClain.*  60 years old;director since September 2000 and member of the Audit, Nominating, Compensationand Corporate Governance Committees of Managing Partner; President of the10-campus University of Hawai’i System (UH) since March 2006;  served as Interim President from August 2004and Vice President of Academic Affairs of UH from July 2003.

*Dennis J.Simonis.* 50 years old;director of Managing Partner since August 2002; President and Chief OperatingOfficer of Managing Partner from August 2001 until December 2004, ChiefFinancial Officer from June 2001 to August 2001, and Chief Executive Officersince December 2004. Chief Financial Officer of DBE from August 2001, andPresident of DBE from October, 2005.

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

*Dennis J.Simonis.  50* years old;president of Managing Partner since August 2001; and chief executive officersince December 2004; president of D. Buyers Enterprises, LLC. Formerlyexecutive vice president and chief operating officer of Mauna Loa.

*RandolphH. Cabral.  54*yearsold; senior vice president and orchard manager of Managing Partner since May2000. Formerly senior vice president and orchard manager of KACI.

*Wayne W.Roumagoux*.  60 yearsold; chief financial officer of Managing Partner since August 2001; controllerof DBE.

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

Not applicable

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# **D.  Family Relationships**

Not applicable

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

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

*John K. Kai.*  Mr.Kai has served as a director since June 2004. Mr. Kai is president of Pinnacle Investment Group, LLC and PinnacleMedia Group, LLC, and branch manager and investment representative ofCommonwealth Financial Network.  Mr. Kaiwas the resident manager of the Hilo office of Paine Webber, Inc. and was withMerrill Lynch prior to Paine Webber, Inc. Mr. Kai is a graduate of Sacramento City College and attended theUniversity of the Pacific from 1983 to 1985. Mr. Kai served on the Board of Regents of the University of Hawaii andwas a director of the Research Corporation of the University of Hawaii, theHawaii Island Portuguese Chamber of Commerce and has served on severalnonprofit boards in Hawaii.  He residesin Hilo, Hawaii.

*James S. Kendrick. *Mr. Kendrick has over 36 years of experience in the food processingindustry and is currently a consultant to various food companies.  Mr. Kendrick held executive positions atMauna Loa Macadamia Nut Corporation from 1991 to 1998, including Executive VicePresident of Operations and President. Between 1978 and 1983, he was the Manager of the Honolulu Dole Pineapplecannery.  Mr. Kendrick worked for KraftFoods as an engineer.  He is a graduateof Northern Illinois University and Cornell’s Executive DevelopmentProgram.  He has been active in theHawaii Macadamia Nut Association and currently resides in Naples, Florida.

*E. Alan Kennett. *Mr. Kennett has worked in various executive capacities in theagriculture sector for over 40 years and currently is the President and ChiefExecutive Officer of Gay and Robinson Sugar Company, Inc. on Kauai,Hawaii.  He held various positions in theHawaii sugar industry with C. Brewer and Co., Ltd. Between 1976 and 1994.  Prior to 1976, Mr. Kennett managed sugaroperations in Africa, the United Kingdom and the West Indies.  He is a graduate of Walton Technical Collegeand the Liverpool College of Technology and Completed Cornell’s ExecutiveDevelopment Program.  Mr. Kennett hasbeen active in numerous Hawaii non-profit organizations and written severaltechnical papers.  He currently residesin Kaumakani, Kauai, Hawaii.

*Jeffrey M. Kissel. *Mr. Kissel is the President and Chief Executive Officer of SafeRenewables Corporation, an established marketer and producer of “Biodiesel” or “B100”,a substitute for conventional petroleum diesel, located in Houston, Texas.  He was the Chief Financial Officer for EarthTech Inc. from 2003 to 2005, a $1.5 billion global engineering and constructioncompany specializing in water treatment, and has held various financialexecutive positions in publicly traded companies since 1974.  From 1997 to 2003, Mr. Kissel was employed byURS Corporation as a vice president of planning and budgeting, and served asChief Financial Officer for several URS Corporation divisions.  Mr. Kissel was President and principalshareholder of Hawaiian Communications between 1992 and 1997.  Prior to 1992 he worked with Tesoro, AON andChallenger Petroleum in the energy industry. He has a B.B.A. and M.B.A. from the University of Hawaii and currentlyresides in California and Hawaii.

*David McClain.* Dr. McClain wasappointed as the President of the 10-campus University of Hawai’i Systemeffective March 2006, having served as Interim President from August 15, 2004,and Vice President for Academic Affairs of the UH System from July 1,2003.  From 2000 until 2003 he was theDean of the College of Business Administration at the University of Hawaii atMnoa, as well 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 of Hawaiiat Manoa in 1991 as the Henry A. Walker, Jr. Distinguished Professor ofBusiness Enterprise and Professor of Financial Economics and Institutions.   Dr. McClain is a director of First InsuranceCompany, and serves as a member of several nonprofit boards in Hawaii. He

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earned a Ph.D. in Economics from the MassachusettsInstitute of Technology in 1974 and a BA in Economics and Mathematics from theUniversity of Kansas in 1968.  Dr.McClain has taught at Massachusetts Institute of Technology’s Sloan School ofManagement and at Boston University, where he chaired the Department of Financeand Economics. He also served as Senior Staff Economist, Council of EconomicAdvisors to President Jimmy Carter, and headed international economic informationservices for Data Resources, Inc.  Heresides in Honolulu, Hawaii.

*Dennis J. Simonis*.  Mr. Simonis has served as a director sinceAugust 2002, president of the Managing Partner since August 2001, chiefexecutive officer since December 2004, and was formerly the executive vicepresident and chief financial officer. From 1993 to 2001, Mr. Simonis served invarious capacities at Mauna Loa, including executive vice president and chiefoperating officer.  He serves as anofficer of the Hawaii Macadamia Nut Association and has served on severalnonprofit boards in Hawaii. He served from 1985-1993 as a vice president ofTheo H. Davies & Co., Ltd. and worked as a senior auditor for PriceWaterhouse between 1979 and 1985. Mr. Simonis graduated magna cum laude with aB.S. in Accounting from Carroll College in Waukesha, Wisconsin and earned hisC.P.A. certificate in 1983. He resides in Hilo, Hawaii.

***Executive Officers Who Do Not Serve as Directors.***

*RandolphH. Cabral. *Mr. Cabralhas served as senior vice president and orchard manager of the Managing Partnersince May 2000.  Mr. Cabral waspreviously employed at Ka’u Agribusiness Company, Inc., from 1989 until thePartnership’s acquisition of Ka’u Agribusiness’ macadamia business in2000.  He served as senior vice presidentfrom 1998 to 2000, as vice president from 1996 to 1998, and as orchard managerfrom 1989.  From 1983 to 1989, Mr. Cabralserved as orchard manager with Mauna Loa Macadamia Nut Corporation.  Mr. Cabral has an AS in General Agriculturefrom the University of Hawaii.  Heresides in Hilo, Hawaii.

*Wayne W. Roumagoux.*   Mr. Roumagoux has served aschief financial officer of the Managing Partner since August 2001.  Mr. Roumagoux has been controller of thePartnership since May 2001.  From 1989 to2001 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 auditor forKPMG between 1976 and 1978.  He has aM.S. in accounting from Eastern Washington State University in Cheney,Washington.  He resides in Volcano,Hawaii.

**Executive Session. **The executive session, a meeting of non-management directors, ispresided over by David McClain who can be communicated with by e-mail atdmcclain46@aol.com.

**Audit Committee. **Effective March 2, 2006, Jeffrey Kissel was appointed chairman of theAudit Committee.  At the May 5, 2006Board of Directors meeting Alan Kennett was appointed a member of the AuditCommittee.  At the June 12, 2006 Board ofDirectors meeting Mr. James Case resigned as a Director and Mr. Russell Casewas appointed a Director.  At theNovember 30, 2006 Board of Directors meeting Mr. Russell Case resigned as aDirector.  The members of the AuditCommittee and Corporate Governance Committee are Dr. David McClain, JeffreyKissel, Alan Kennett and John Kai.  TheBoard of Directors has determined that each member of the Audit Committee isindependent in accordance with SEC Rule 10-A-3 and New York Stock Exchange independencestandards, and each member is financially literate, and Mr. Kissel qualifies asa financial expert.  The Partnership hasadopted standards for independence and said standards are in the Partnership’sCorporate Governance Guidelines at the Partnership’s websitewww.mlmacadamia.com.  The Audit Committeemet four times in 2006 to review and approve accounting, internal control andreporting issues, related party transactions and other matters that couldinvolve a conflict of interest.  Allmembers were in attendance at each quarterly meeting.

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The Audit Committee has discussed with theindependent registered public accountants, PricewaterhouseCoopers (“PwC”), thematters required to be discussed by Statement on Auditing Standards No. 61(Communication with Audit Committees), as may be modified or supplemented, asamended and as required by S-X Rule 2-07.

The Audit Committee has discussed with PwC,their independence and whether the Pwc’s provision on non-audit relatedservices is compatible with maintaining the PwC’s independence from managementand the Partnership and has received from PwC the written disclosures and theletter required by the Independence Standards Board Standard No. 1, as may bemodified or supplemented, including written materials addressing the internalquality control procedures of PwC.

During the fiscal 2006, the Audit Committeehad four meetings to discuss amongst other things the quarterly results of thePartnership.  The meetings were conductedso as to encourage communication among the members of the Audit Committee,management, and the Partnership’s independent auditors.  Among other things, the Audit Committeediscusses with the Partnership’s independent auditors the overall scope andplans for their respective audits, and the results of such audits.  The Audit Committee separately met withPricewaterhouseCoopers representatives, with and without management present.

The Audit Committee has reviewed anddiscussed the audited financial statements for the year ended December 31, 2006with management and the independent auditors of the Partnership.  Based upon the above-mentions reviews anddiscussions the Audit Committee has recommended to the Board that the auditedfinancial statements be included in the Partnership’s Annual Report on Form10-K for the year ended December 31, 2006.

**Audit Committee Charter.  **The Audit Committee Charter is available by request or on thePartnership’s website at www.mlmacadamia.com .

**Audit Committee Pre-Approval Policy.  **The AuditCommittee Pre-Approval Policy is available by request or on the Partnership’swebsite.

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

**Corporate Governance Guidelines.**  TheCorporate Governance Guidelines are available by request or on the Partnership’swebsite.

**NominatingCommittee.**  ThePartnership formed a Nominating Committee and the charter was adopted in May2005.  The members of the NominatingCommittee are independent under Section 15A(a) of the Exchange Act.  Unit Holders may recommend candidates for theBoard of Directors by submitting such recommendation in writing toPartnership.  The minimum qualificationsrequired for a Director of the Partnership, whether submitted by the NominatingCommittee or a Unit Holder, are (1) professional qualification, (2) number ofother boards on which the candidate serves, (3) other business and professionalcommitments, (4) the need of the Board of Directors for having certain skillsand experience, and (5) the diversity of the directors then comprising theBoard.  The Nominating Committee shallevaluate a candidate based upon the qualifications described above, based upona written resume and then the CEO and Nominating Committee will interview thecandidate.  The Nominating Committeeshall determine whether or not to recommend the candidate to the Board ofDirectors.  The Nominating CommitteeCharter is available by request or on the Partnership’s website.

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**CompensationCommittee.**  ThePartnership formed a Compensation Committee and the charter was adopted in May2005.  The members of the CompensationCommittee are independent under Section 15A(a) of the Exchange Act. TheCompensation Committee Charter is available by request or on the Partnership’swebsite.

**F.****              Section 16 Disclosure**

Under Section 16of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), eachdirector and certain officers of ML Resources, Inc., the managing generalpartner of Registrant (a “Reporting Person”), are required to report their ownershipand changes in ownership of Class A Depositary Units to the Securities andExchange commission, the New York Stock Exchange and Registrant.  Based on reporting forms submitted toRegistrant, no Reporting Person has failed to file on a timely basis reportsrequired by Section 16(a) of the Exchange Act during 2006.

**ITEM 11.  EXECUTIVE COMPENSATION**

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

The Partnership ismanaged by the managing general partner. All costs of managing the Partnership are reimbursed by the Partnership,as provided in Section 4.5 of the Partnership Agreement.  The following table reflects the aggregatecompensation for services in all capacities paid by the Managing Partner to itsexecutive officers for the years ended December 31, 2006, 2005 and, 2004. Therewere no long- term compensation awards, stock awards, option awards, or otherpayouts during those years.

Overview ofCompensation Philosophy and Programs

Our executivecompensation programs are designed and administered by the Board of Directorsof the Partnership.  Through theexecution of its charter, our Compensation Committee recommends, to the Boardof Director, all of the forms of compensation for our named executive officers,including base salary, bonus plan and defined contribution plan and relatedgoals.

The executivebonus plan is performance based.  Theprogram provides for incentives based upon net income and cash flow (as definedby the Partnership Agreement), which are approved by the Board of Directorsbased upon operating plan for the year, with guideline rates establishedbetween 20% and 35%.  The bonus islimited to a maximum of 200% of the guideline not to exceed 15% of Partnership’scash flow.  The bonus compensation leveland related payment requires Board of Director approval.

The definedcontribution plan is provided in lieu of a retirement plan and is based uponstandard guidelines for all employees including executives.  The defined contribution and the relatedpayment, requires annual approval by the Board of Directors.

The Partnership iscommitted to maximizing unit holder value, and dedicated to attracting andretaining the necessary talent to accomplish this objective.  The compensation philosophy is designed todirectly align the interests of unit holders and employees through compensationprograms that will reward employees for performance that builds long-term unitholder value.
| Name and Principal Position | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **       | ** ** |
|--------------------------------------------|------------|------------|------------|------------------------------|------------|------------|------------|------------|------------|------------------|------------|
| ** **                                 | ** ** | ** ** | ** ** | ** **                   | ** ** | ** ** | ** ** | **Board**  | ** ** | **Defined**      | ** ** | **Other** | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **Year**   | ** ** | **Salary**                   | ** ** | **Bonus**  | ** ** | **Fees**   | ** ** | **Contribution** | ** ** | **(a)** | ** ** | **Total** | ** ** |
| Dennis J. Simonis                          |       |       |       |                         |       |       |       |       |       |             |       |   |   |   |   |
| President and chief                        |       | 2006       |       | 237,000                      |       | 125,600    |       | 21,000     |       | 12,100           |       | 4,900 |   | 400,600 |   |
| executive officer                          |       | 2005       |       | 225,000                      |       | 134,800    |       | 19,000     |       | 11,500           |       | 4,500 |   | 394,800 |   |
|                                            |       | 2004       |       | 171,000                      |       | -          |       | 15,750     |       | 12,300           |       | 3,700 |   | 202,750 |   |
|                                       |       |       |       |                         |       |       |       |       |       |             |       |   |   |   |   |
| Randolph H. Cabral                         |       | 2006       |       | 132,000                      |       | 50,000     |       | -          |       | 16,800           |       | 4,200 |   | 203,000 |   |
| Senior vice president                      |       | 2005       |       | 125,000                      |       | 53,500     |       | -          |       | 13,400           |       | 4,200 |   | 196,100 |   |
|                                            |       | 2004       |       | 111,000                      |       | -          |       | -          |       | 12,600           |       | 4,400 |   | 128,000 |   |
|                                       |       |       |       |                         |       |       |       |       |       |             |       |   |   |   |   |
| Wayne Roumagoux                            |       | 2006       |       | 116,000                      |       | 35,100     |       | -          |       | 7,500            |       | 3,900 |   | 162,500 |   |
| Chief financial officer                    |       | 2005       |       | 110,000                      |       | 37,700     |       | -          |       | 5,200            |       | 1,800 |   | 154,700 |   |
|                                            |       | 2004       |       | 92,000                       |       | -          |       | -          |       | 5,200            |       | - |   | 97,200 |   |

 

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(a)  The amount in this column is the cost for anautomobile provided by the Partnership.

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**B.  NoOption, SAR, Long-term Incentive or Pension Plans**

Neither the Managing Partner nor the Partnership presently has optionplans, SAR plans, or long-term incentive plans. All salaried employees participate in defined contribution plan andother benefit plans administered by the Partnership.  The officers of the Managing Partner areemployees of the Partnership, which does not have a defined benefit plan fornon-bargaining employees. As such, neither the Managing Partner nor thePartnership are responsible for making any payments on the retirement of any ofits present executive officers.

**C.  No Employment Contracts or TerminationAgreements**

The ManagingPartner does not have any employment or severance agreements with any of itspresent executive officers. The president of the Partnership has an agreement,which provides for twelve months of severance pay in the event of terminationwithout just cause.

**D. Compensation of Executive Officers**

Executivecompensation is reviewed and determined by the Compensation Committee andrecommended to the Board of Directors which has approval responsibility.  Mr. Simonis has served as its chief executiveofficer and president since December 2004, president since August 2001 andchief financial officer from May 2001 until August of 2001; Mr. Cabral, who hasserved as senior vice president and orchard manager since May 2000 and Mr.Roumagoux, who has served as chief financial officer since August of 2001.  These officers’ salary and guideline bonuspercentage are administered under the salary policies established and approvedby the Board.  Any bonus payments areapproved by the Managing Partner’s Board of Directors annually, based on theoverall performance of the Partnership as evidenced by its net income and cashflow for the year.  Performance in bothcategories is measured relative to the original Partnership operating budgetapproved by the Managing Partner’s Board of Directors at the beginning of eachyear.

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**E.  Director Compensation**

Directors of the ManagingPartner presently receive a quarterly retainer of $3,750 and a meeting fee of$1,000 per meeting.  Members of theManaging Partner’s Audit and Conflicts Committee receive a meeting fee of$1,000 per meeting with the chairman of the Audit Committee receiving anadditional $750 per meeting.  There areno other agreements or arrangements, including no stock or stock option plans,between the Managing Partner and its directors.
| **Name of Director** | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | ** **  | ** ** | ** **       | ** ** |
|--------------------------------|------------|------------|------------|------------------------------|------------|-------------|------------|------------------|------------|
| ** **                     | ** ** | **Year**   | ** ** | **Fees**                     | ** ** | **Meeting** | ** ** | **Audit  Chair** | ** ** | **Total** | ** ** |
| John K. Kai                    |       | 2006       |       | 15,000                       |       | 10,000      |       |             |       | 25,000 |   |
| James S. Kendrick              |       | 2006       |       | 15,000                       |       | 6,000       |       |             |       | 21,000 |   |
| E. Alan Kennett                |       | 2006       |       | 15,000                       |       | 8,000       |       |             |       | 23,000 |   |
| Jeffrey M. Kissel  (Chairman)  |       | 2006       |       | 15,000                       |       | 10,000      |       | 1,500            |       | 26,500 |   |
| David McClain                  |       | 2006       |       | 15,000                       |       | 10,000      |       | 1,500            |       | 26,500 |   |
| Dennis J. Simonis              |       | 2006       |       | 15,000                       |       | 6,000       |       |             |       | 21,000 |   |
| James Case*                    |       | 2006       |       | 7,500                        |       | 4,000       |       |             |       | 11,500 |   |
| Russell Case**                 |       | 2006       |       | 7,500                        |       | 1,000       |       |             |       | 8,500 |   |

 

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*      James Caseresigned as a Director effective June 12, 2006.

**   Russell Caseresigned as a Director effective November 30, 2006.

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**F.  Stock Performance Chart**

The following chartcompares the Partnership’s total return to (i) the Russell 2000 (a smallbusiness index) and (ii) a peer group index composed of publicly traded limitedpartnerships with either similar capitalization or in commodity based markets(other than gas and oil) or both.

**ITEM 12.****       SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNIT HOLDERMATTERS**

As of December 31, 2006, and subsequent to that dateto the date of this report, (i) two persons (including any “group” as that termis used in Section 13(d)(3) of the Securities Exchange Act of 1934) is known bythe Partnership or the Managing Partner to be the beneficial owner of more than5% of the Class A Units; (ii) the Managing Partner did not own any Class AUnits; and (iii) no director or executive officer of the Managing Partner ownedmore than 1% of the Class A Units.

Thetable below sets forth certain information as to the Class A Units beneficiallyowned by the beneficial owner of more than 5% of the Class A Units as ofDecember 31, 2006.
|                                        | ** ** | ** **       | ** ** | **Percent**      | ** ** |
|----------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                             | ** ** | **Class A** | ** ** | **of**           | ** ** |
| **Name of**                       | ** ** | **Units**        | ** ** | **Class A** | ** ** |
| **Beneficial Owner**              | ** ** | **Owned**        | ** ** | **Units**        | ** ** |
| Ebrahimi Family  Group                 |       | 686,400          |       | 9.2              | %          |
| Berggruen  Holdings North America, Ltd |       | 380,000          |       | 5.1              | %          |

 

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Thetable below sets forth certain information as to the Class A Units beneficiallyowned by the directors of the Managing Partner, and all directors and executiveofficers of the Managing Partner as a group, as of December 31, 2006.
|                                                              | ** ** | ** **       | ** ** | **Percent**      | ** ** |
|--------------------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                   | ** ** | **Class A** | ** ** | **of**           | ** ** |
| **Name of**                                             | ** ** | **Units**        | ** ** | **Class A** | ** ** |
| **Beneficial Owner**                                    | ** ** | **Owned**        | ** ** | **Units**        | ** ** |
| Randolph H.  Cabral                                          |       | 100              |       | *                |       |
| John K. Kai                                                  |       | 100              |       | *                |       |
| James S.  Kendrick                                           |       | 1,500            |       | *                |       |
| E. Alan Kennett                                              |       | —           |       | *                |       |
| Jeffrey M.  Kissel                                           |       | 2,020            |       | *                |       |
| David McClain                                                |       | —           |       | *                |       |
| Dennis J.  Simonis                                           |       | —           |       | *                |       |
| Wayne W.  Roumagoux                                          |       | —           |       | *                |       |
| All directors and  executive officers as a group (8 persons) |       | 3,720            |       | 0.05             | %          |

 

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*Less than 1%

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

**1*.  General***

TheManaging Partner makes all decisions relating to the management of thePartnership.  The Managing Partner, assuch, has the duty to act in good faith and to manage the Partnership in amanner that is fair and reasonable to all unit holders. CBCL owned all of thecapital stock of the Managing Partner until August 1, 2001, at which point thestock was sold to D. Buyers Enterprises, LLC (DBE).  The Partnership purchased the ManagingPartner interest from DBE in January, 2005.

**2.  *Farming Leases***

Atthe time of the Partnership’s acquisition of the interests in the October 1989Orchards, MLO assigned to the Partnership all of MLO’s rights and obligationsunder three 45-year farming leases relating to 327 tree acres of the Ka’u IIOrchards and all of the Mauna Kea Orchards. The farming leases permit the Partnership to conduct macadamia nutfarming operations 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.

ThePartnership acquired its interests in the trees situated on such leasedmacadamia orchard properties subject to repurchase options retained by theAgribusiness Companies.  The repurchaseoptions grant the Agribusiness Companies the continuing right to repurchase allor any portion of such trees after June 30, 2019 at a price equal to the then currentfair market value of the trees, according to their value as producing macadamianut trees, as determined by mutual agreement between the Partnership, on theone hand, and either KACI or MKACI, as the case may be, on the other hand.  If mutual agreement cannot be

54

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reached,the then 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 totheir value as producing macadamia nut trees, assuming that the owner thereofhas rights to farm and harvest such trees and has ongoing arrangements withrespect to land leases, farming and nut purchases of the same type as thePartnership has immediately prior to such time.

Atthe end of the 45-year lease terms of such leases, the Agribusiness Companieswill be required to repurchase such trees at their then current fair marketvalue as orchards if such entities do not offer to extend such farming leasesat the then current fair market lease rates. The then current fair market leaserate and the then current market value of the trees for such purposes will bedetermined through mutual agreement between the Partnership, on the one hand,and either KACI or MKACI, as the case may be, on the other hand or, if mutualagreement cannot be obtained, by appraisal, in each case in the mannerdescribed above.  Such repurchaseobligations will apply with respect to the expiration of each extension of thelease terms of such leases until such leases have been in effect for a total of99 years, at which time the leases will expire and the ownership interests insuch trees will revert back to the Agribusiness Companies.

Inthe event that the Partnership decides not to accept an offer to extend theleases at the then current fair lease rates upon the expiration of the leasesor any extension thereof (or does not assign the leases to a third party whoelects to accept such offer), the leases will expire, the AgribusinessCompanies will not be required to repurchase the trees covered thereby andownership of such trees will revert back to the Agribusiness Companies (and inany event ownership of such trees will revert back to the AgribusinessCompanies after 99 years).

Asdescribed above, the farming leases provide for determinations of the fairmarket lease rate to be paid by the Partnership under the farming leases andthe fair market value of the Partnership’s trees situated on property coveredby such leases by mutual agreement between the Partnership, on the one hand,and with KACI or MKACI, as the case may be, on the other hand, or, if mutualagreement cannot be reached, by appraisal.

**3. *Nut Purchase Contracts***

The Partnership is aparty to two nut purchase contracts signed June 1, 2006, with an effective dateof January 1, 2006, with Mauna Loa which were negotiated in 2006.  The two contracts cover all nuts produced bythe orchards acquired in June 1986, December 1986, and October 1989.  Of the two contracts, one for approximately15 million pounds expired December 31, 2006 and has a nut purchase price for2006 of $0.75 per pound wet-in-shell (WIS) at 20% moisture and 30% saleablekernel recovery (SK) to dry-in-shell (DIS). Two other contracts, of approximately 1 million pounds, also expiredDecember 31, 2006, one with a nut purchase price of $0.60 per pound WIS 25%adjusted for trash and the other with a nut purchase price based on a two-yeartrailing average USDA price at WIS 25%. The last contract for about 5 million pounds expires December 31, 2011and has a nut purchase price for 2006 of $0.74 per pound WIS at 20% moistureand 30% SK/DIS.  The purchase priceincreases by $0.01 each year except 2008 until it reaches $0.78 per pound in2011.  The purchase contract for themacadamia nut orchard purchased in April 2006 is with Mac Farms and accountsfor about 100,000 pounds and has a nut purchase price of $0.98 per pound WIS20% moisture and 30% SK/DIS.

On December 16, 2004, anew nut purchase contract was signed with Hamakua for the annual delivery ofsix million WIS pounds, starting January 1, 2007. The contract provides for aminimum price of 75 cents per pounds and a maximum price of 95 cents per pound.The pricing formula includes a fixed component of 85 cents and a secondcomponent based on Hamakua’s average selling price for bulk kernel.  In February 2007, the Partnership negotiatedan amendment to the contract which provides the Partnership an option to havenut-in-shell processed in kernel for a fee in lieu of selling the nuts toHamakua.

55

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On January 5, 2006, a newnut purchase contract was signed with dba Island Princess for the annualdelivery of approximately two million WIS pounds, effective January 1,2007.  The nut price will be determinedevery six months by mutual agreement based on prevailing market price forkernel from Hawaii and Australia.  Theeffective price for January – June 2007 is $0.608 at 20% moisture and 30%SK/DIS recovery.

On January 6, 2006, a newnut purchase contract was signed with MacFarms for the annual delivery ofbetween four and one-half million and five and one-half million WIS pounds,effective January 1, 2007.  The nut pricewill be determined every six months by mutual agreement based on prevailingmarket price for kernel from Hawaii and Australia.  The effective price for January – June 2007is $0.608 at 20% moisture and 30% SK/DIS recovery.

**4.  *Farming Contracts***

Prior to thePartnership’s acquisition of the macadamia farming operations on May 1, 2000,the Partnership was a party to four farming contracts with the Ka’u and MaunaKea Agribusiness Companies (“Agribusiness Companies”), that together coveredall farming, harvesting and husking activities for the orchards acquired inJune 1986, December 1986, October 1989 and September 1991, respectively. On May1, 2000, the Partnership acquired the macadamia farming operations from theAgribusiness Companies.

The contractsprovided the Agribusiness Companies with reimbursement of their direct andindirect costs incurred under these contracts. Husking activities for the Keaau and Mauna Kea orchards are performed atMauna Loa’s Keaau facility.  Payments andreimbursements made to Mauna Loa were $440,000 in 2004, $603,000 in 2005, and$559,000 in 2006.

***5*****. *****Legal******* ***Fees***

The Partnership paid $196,000, $134,000, and $495,000 in legal fees in2006, 2005 and 2004, respectively.  Aformer Director of the Partnership is a former partner and currently of counselto one of the law firms used by the Partnership and said firm was paid $196,000in legal fees in 2006, $32,000 in legal fees in 2005, and $495,000 in 2004 in2003.  The additional legal fees were forservices related to the special meeting and Mac Farms of Hawaii, LLC potentialacquisition in 2006 and legal suit to prevent Mauna Loa from acquiring theassets of MacFarms of Hawaii, LLC in 2004.

**6.  *Management Fee***

Under the terms ofthe Partnership Agreement, the Partnership reimburses the Managing Partner forall expenses incurred by it in the conduct of Partnership business, includingany expenses reasonably allocated to the Managing Partner or to the Partnershipas well as a management fee equal to 2% of the Partnership’s operating cashflow (as defined in the Partnership Agreement). Management cost reimbursements under the Partnership Agreement were$168,000 in 2004.  The management fee was$9,000 in 2004.  There was no managementfee in 2006 or 2005 as it is eliminated in consolidation.

***7.  Relationships with CBCLand  DBE***

Since September2001, the Partnership has leased approximately 4,000 s.f. of office space inHilo for its executive and accounting staff through the General Partner, whichwas owned by DBE until January 2005. The Partnership Agreement requires thatthe price and terms of any such transactions be no less favorable than thoseavailable in comparable transactions between unrelated parties.  The Partnership provides administrativeservices to DBE for which it was compensated $104,000 in 2004, $102,000 in2005, and $103,000 in 2006.

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

56

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The Partnershipperforms farming for a DBE company.  Thisfarming is treated in the same manner as all other farming contracts.  In 2004 the amount billed was $15,000 ofwhich $9,000 was due at December 31, 2004. In 2005 the amount billed was $16,000 of which $3,000 was due atDecember 31, 2005.  In 2006 the amountbilled was $21,000 of which $3,000 was due at December 31, 2006.

**8.  *Director Independence***

The Board of Directors has determined that each member of the Board ofDirectors is independent in accordance with SEC Rule 10-A-3 and New York StockExchange independence standards except for Dennis J. Simonis.  The other members of the Board of DirectorsJohn K. Kai, James S. Kendrick, E. Alan Kennett, Jeffrey M. Kissel, and DavidMcClain are independent under the independence standards applicable to theregistrant.

**ITEM14.  PRINCIPAL ACCOUNTING FEES ANDSERVICES**

**AuditFees.**Fees paidto the Independent Registered Public Accounting Firm during 2006, 2005 and 2004for the audit of the Partnership’s annual financial statements and review offinancial statements included in the Partnership’s Form 10-Q amounted to$68,000, $94,000, and $68,000, respectively. The audit fees for the audit of the Partnership’s annual financialstatements and review of financial statements included in the Partnership’sForm 10-Q for the years ended December 31, 2006, 2005 and 2004, which wereapproved by Partnership’s audit committee amounted to $68,000, $65,200 and$61,000, respectively.

**AuditRelated Fees.** Audit related fees paid to the IndependentRegistered Public Accounting Firm during 2006, 2005 and 2004 amounted to$18,000, $23,000, and $11,000, respectively.

**TaxFees. **Fees paid to the Independent Registered Public AccountingFirm during 2006, 2005 and 2004 for tax preparation and related supportservices amounted to $225,000, $250,000, and $256,000, respectively.

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### **PART IV**

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

**A.****            List of Documents Filedas a Part of this Report**

1.               *Financial Statements. *See Index to Financial Statements at page 23 of thisForm 10-K.

2.               *Financial Statement Schedules*. None required.

3.   *Exhibits*.  See Exhibit Index at page 62 of this Form10-K.

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

On October 20,2000, the Partnership filed a report on Form 8-K announcing that on September29, 2000, CBCL had sold all its stock in Mauna Loa Macadamia Nut Corporation toThe Shansby Group, a San Francisco based equity partnership.

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

On February 17,2004, the Partnership 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 and six months ended June 30, 2003.

On February 17,2004, the Partnership 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 and nine months ended September 30, 2003.

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

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

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

On August 11,2004, the Partnership 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 and six months ended June 30, 2004

On August 12,2004, the Partnership 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 and six months ended June 30, 2004 andthe potential of a lawsuit against Mauna Loa Macadamia Nut Corporation andMacFarms of Hawaii, LLC.

58

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On October 7,2004, the Partnership filed a “Regulation FD Disclosure” on Form 8-K, whichincluded a copy of a press release issued by the Partnership announcing thesettlement 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, whichincluded a copy of a press release issued by the Partnership setting forth theresults 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, whichincluded a copy of a press release issued by the Partnership announcing theresignation of Mr. John W. A. Buyers as Chief Executive Officer of the generalpartner of the Partnership, ML Resources, Inc.; the agreement by the Partnership to purchase ML Resources, Inc.; theappointment of Dennis J. Simonis as Chief Executive Officer of the generalpartner of the Partnership; and the agreement with Hamakua Macadamia NutCompany, Inc. with the Partnership to purchase 6,000,000 pounds of nuts peryear starting in 2007 and ending in 2012.

On March 16, 2005,the Partnership filed a “Regulation FD Disclosure” on Form 8-K, which includeda copy of a press release issued by the Partnership setting forth the 1st quarter 2005 distribution.

On March 16, 2005,the Partnership filed a “Regulation FD Disclosure” on Form 8-K/A, whichincluded a copy of a press release issued by the Partnership setting forth thecorrections to the press release for the 1st quarter distribution.

On May 6, 2005,the Partnership filed a “Regulation FD Disclosure” on Form 8-K, which includeda copy of a press release issued by the Partnership setting forth the resultsof operations for the 1st quarter ended March 31, 2005.

On August 10,2005, the Partnership 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 and six months ended June 30, 2005.

On November 7,2005, the Partnership 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 and nine months ended September 30, 2005.

On January 9,2006, the Partnership filed a “Regulation FD Disclosure” on Form 8-K, whichincluded a copy of a press release and nut purchase agreements with Mac Farmsof Hawaii, LLC and Purdyco International, Ltd..

On March 10, 2006,the Partnership filed a “Regulation FD Disclosure” on Form 8-K, which includeda copy of a press release issued by the Partnership setting forth the resultsof operations for the year ended December 31, 2005 and the 1st quarter 2006 distribution.

On May 9, 2006,the Partnership filed a “Regulation FD Disclosure” on Form 8-K, which includeda copy of a press release issued by the Partnership setting forth the resultsof operations for the quarter ended March 31, 2006.

On June 5, 2006,the Partnership filed a “Regulation FD Disclosure” on Form 8-K, which includeda copy of a press release and nut purchase agreements with Mauna Loa MacadamiaNut Corporation.

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On June 15, 2006,the Partnership filed a “Regulation FD Disclosure” on Form 8-K, which includeda copy of a press release issued by the Partnership setting forth theresignation of James Case as a Director, the appointment of Russell Case as aDirector and the 2nd quarter 2006 distribution.

On August 9, 2006,the Partnership filed a “Regulation FD Disclosure” on Form 8-K, which includeda copy of a press release issued by the Partnership setting forth the resultsfor the quarter and six-months ended June 30, 2006.

On October 20,2006, the Partnership filed a “Regulation FD Disclosure” on Form 8-K, whichincluded a copy of a press release issued by the Partnership setting forth thenon-binding Letter of Intent to purchase Mac Farms of Hawaii, LLC and lease3,912 acres of macadamia orchards from Kapua Orchards Estates, LLC an associateof Mac Farms of Hawaii, LLC.

On November 7,2006, the Partnership filed a “Regulation FD Disclosure” on Form 8-K, whichincluded a copy of a press release issued by the Partnership setting forth theresults for the quarter and nine-months ended September 30, 2006.

On December 6,2006, the Partnership filed a “Regulation FD Disclosure” on Form 8-K, whichincluded a copy of a press release issued by the Partnership setting forth theresignation of Russell Case as a Director and the 4th quarter distribution.

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**SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, 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 : April 12, 2007 |   |                            |                        |   |
|                        |        |                                 |                             |        |  |  |  |

 

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

**ML RESOURCES, INC.**
| Signature | ** **          | **Title** |
|-----------|---------------------|-----------|
|      |                |      |   |   |
| /s/       | Dennis J.  Simonis  |      |   | President and Chief Executive Officer |
|      | Dennis J.  Simonis  |      | Principal Executive Officer |
|      |                |      | Director |
|      |                |      |   |
| /s/       | Wayne W.  Roumagoux |      |   | Chief Financial Officer |
|      | Wayne W.  Roumagoux |      | (Principal Accounting Officer) |
|      |                |      |   |
| /s/       | John Kai            |      |   | Director |
|      | John Kai            |      |   |
|      |                |      |   |
| /s/       | James S.  Kendrick  |      |   | Director |
|      | James S.  Kendrick  |      |   |
|      |                |      |   |
| /s/       | E. Alan Kennett     |      |   | Director |
|      | E. Alan Kennett     |      |   |
|      |                |      |   |
| /s/       | Jeffrey M.  Kissel  |      |   | Director |
|      | Jeffrey M.  Kissel  |      |   |
|      |                |      |   |
| /s/       | Dr. David  McClain  |      |   | Director |
|      | Dr. David  McClain  |      |   |   |
|           |                     |           |  |  |  |  |  |

 

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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)                                                                                                                                                                                                                             |
|            |       |                                                                                                                                                                                                                                                                                          |
| 10.11           |       | Farming Lease between MKACI and MLO dated as of July  1, 1989. (b)                                                                                                                                                                                                                            |
|            |       |                                                                                                                                                                                                                                                                                          |
| 10.12           |       | Water Agreement, as amended, between KACI and  Registrant dated as of October 1, 1989. (b)                                                                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                          |
| 10.13           |       | Cash Flow Warranty Agreement among KACI, MKACI and  Registrant dated as of July 1, 1989. (b)                                                                                                                                                                                                  |

 

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| Exhibit  Number | ** ** | **Description**                                                                                                                                                                                               |
|-----------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                                                                          |
| 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)                                                                                    |
|            |       |                                                                                                                                                                                                          |
| 10.31           |       | Form of Amendments to Lease No. 16,859 from the  Trustees of the Bishop Estate. (b)                                                                                                                           |

 

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| Exhibit  Number | ** ** | **Description**                                                                                                                                          |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                     |
| 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)                                      |
|            |       |                                                                                                                                                     |
| 10.52           |       | Macadamia Nut Purchase Contract between Hamakua  Macadamia Nut Company, Inc. and the Partnership dated December 16, 2004  effective January 1, 2007. (i) |

 

64

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| Exhibit  Number | ** ** | **Description**                                                                                                                                        |
|-----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                   |
| 10.53           |       | Jim Case resignation letter from Audit Committee  dated March 7, 2005. (i)                                                                             |
|            |       |                                                                                                                                                   |
| 10.54           |       | Macadamia Nut Purchase Contract between Purdyco  International, Ltd. and the Partnership dated January 5, 2006 effective  January 1, 2007. (j)         |
|            |       |                                                                                                                                                   |
| 10.55           |       | Macadamia Nut Purchase Contract between Mac Farms of  Hawaii, LLC and the Partnership dated January 6, 2006 effective January 1,  2007. (j)            |
|            |       |                                                                                                                                                   |
| 10.56           |       | Macadamia Nut Purchase Contracts between Mauna Loa  Macadamia Nut Corporation and the Partnership dated June 1, 2006 effective  January 1, 2006. (k)   |
|            |       |                                                                                                                                                   |
| 10.57           |       | Macadamia Nut Purchase Contract between Mauna Loa  Macadamia Nut Corporation and the Partnership dated June 1, 2006 effective  January 1, 2006. (k)    |
|            |       |                                                                                                                                                   |
| 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 A ofRegistrant’s Registration Statement under the Securities Act on Form S-4,Registration Statement No. 333-46271, filed February 13, 1998.

(b)         Incorporated by reference to the correspondingExhibit previously filed as an Exhibit to Registrant’s Registration Statementunder 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, RegistrationStatement No. 33-4903, filed June 5, 1986.

(d)         Incorporated by reference to the correspondingExhibit previously filed as an Exhibit to Registrant’s Annual Report on Form10-K, Commission filed No. 1-9145, for the year ended December 31, 1986, filedMarch 27, 1987.

(e)          Incorporated by reference to thecorresponding Exhibit previously filed as an Exhibit to Registrant’s AnnualReport on Form 10-K, Commission filed No. 1-9145, for the year ended December31, 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, RegistrationStatement No. 333-46271, filed February 13, 1998.

(g)         Incorporated by reference to the correspondingExhibit previously filed as an Exhibit to Registrant’s Form 8-K, Commissionfiled No. 001-09145, filed May 8, 2000.

(h)         Incorporated by reference to the correspondingExhibit previously filed as an Exhibit to Registrant’s Form 10-K, Commissionfiled No. 001-09145, filed March 17, 2004.

(i)             Incorporated by reference to thecorresponding Exhibit previously filed as an Exhibit to Registrant’s Form10-K/A, Commission filed No. 001-9145, filed June 1, 2005.

65

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(j)             Incorporated by reference to thecorresponding Exhibit previously filed as an Exhibit to Registrant’s Form 8-K,Commission filed No. 001-09145, filed January 9, 2006.

(k)          Incorporated by reference to thecorresponding Exhibit previously filed as Exhibit to Registrant’s Form 8-K,Commission filed No. 001-09145, filed June 5, 2006.

66

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