**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

### **FORM10-K**

### ** **

| **ý**                                            | ** ** | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**     |
|-------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|
|                                                  |       |                                                                                           |
| For the Fiscal Year Ended  **December 31, 2004** |
|                                                  |       |                                                                                           |
| **OR**                                                |
|                                                  |       |                                                                                           |
| **o**                                                 | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                  |       |                                                                                           |
| **Commission File Number 1-9145**                     |

 

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

(Exact Name of registrant as specified in itscharter)

 
| **DELAWARE**                                                    |   | **99-0248088**                       |
|-----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation  or organization) |   | (I.R.S. Employer Identification No.) |
|                                                            |   |                                 |
| **26-238 Hawaii Belt Drive HILO, HAWAII**                       |   | **96720**                            |
| (Address of principal executive offices)                        |   | (Zip Code)                           |

 
|   | Registrant’s telephone number, including area code: | **(808) 969-8057**      |
|--------|----------------------------------------------------------|-------------------------|
|   | Registrant’s website:                               | **www.mlmacadamia.com** |

 

SECURITIES REGISTERED PURSUANT TO SECTION12(b) OF THE ACT:

 

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

 

SECURITIES REGISTERED PURSUANT TO SECTION12(g) OF THE ACT: **NONE**

 

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  ý  No  o

 

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

 

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

 

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

 

 

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**PART I**

 

**ITEM 1.  BUSINESS OF THE PARTNERSHIP**

 

**(a) GeneralDescription of the Business**

 

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

 

Ownership of Class A Unitsconfers no direct or indirect interest in CBCL, DBE or any of their affiliatedentities, or in Mauna Loa.

 

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

 

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

 

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

 

The response to this section of Item 1 incorporates byreference Note 4 of the Notes to the Financial Statements.

 

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

 

**Owned-orchardSegment**

** **

The Partnership currently sells all of the macadamia nuts from itsorchards to Mauna Loa under long-term nut purchase contracts.  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.  ThePartnership is Mauna Loa’s largest single supplier of macadamia nuts.  Mauna Loa was a subsidiary of CBCL until itssale in September 2000 to The Shansby Group. In December 2004 Mauna Loa was purchased by Hershey FoodCorporation.  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.

 

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# ***Nut Purchase Contracts.***  The Partnership is a party to fivenut purchase contracts with Mauna Loa. They cover all nuts produced by the orchards acquired in June 1986,December 1986, October 1989, September 1991 and May 2000, respectively.  The 1986 contracts expire in 2006, while the1989 contract expires in 2019 and also provides for the exclusion of unusablenuts from those purchased by Mauna Loa. The first three contracts are identical in all other material respects.  The fourth contract was acquired by assignmentwith the orchard purchase in September 1991 and expired on June 30, 2003.Effective July 1, 2003 the fourth contract was renegotiated with an expirationdate of December 31, 2006. The fourth contract is a set price contract ($0.60cents per pound at WIS 25%) with an adjustment for trash and spoilage outsidethe range of 10% to 13%.  The first threecontracts use a pricing formula based 50% on a two-year trailing average of themacadamia nut price published annually by the United States Department of Agricultureand 50% on Mauna Loa’s “netback component.” The netback component is calculated by subtracting Mauna Loa’sprocessing and marketing costs per pound and a “capital charge” of 20% from itsnut revenues per pound.  The fifthcontract expires in 2006.  Its pricingformula is based 100% on the two-year trailing average of USDA reportedprices.  The first three nut purchasecontracts may be terminated by Mauna Loa upon thirty days’ notice if theManaging Partner is involuntarily removed as the managing general partner andreplaced by a person or entity not affiliated with Mauna Loa.  The fifth contract may be terminated at anytime by mutual agreement in writing.  OnDecember 16, 2004, a new nut purchase contract was signed with HamakuaMacadamia Nut Company (“Hamakua”) for the delivery of six million WIS pounds,effective January 1, 2007. The contract provides for a minimum price of 79cents per pounds and a maximum price of 99 cents per pound. The pricing formulaincludes a fixed component of 85 cents and a second component based on Hamakua’saverage selling price for bulk kernel. Refer to Exhibit 10.52 on page 57.

 

#### ***Competition. ***Because the Partnership’s revenues from nut sales aretied to a formula dependent in large part upon Mauna Loa’s market performance,the Partnership bears certain risks associated with Mauna Loa’s marketing ofthe nuts, including the possibility of increased future competition. Subsequentto the sale of Mauna Loa to The Shansby Group in September 2000, thePartnership no longer has access to the operational and marketing strategiesand financial results of Mauna Loa, as it is no longer a related entity.

#### *** ***

Mauna Loa considers its primary competition to be other premium nutproducts, except in Hawaii where its products compete with those of othermacadamia nut producers and other food and non-food tourist items.  As a premium nut, macadamia nuts compete withcashews, almonds and pistachios.

 

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

 

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

 

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

 

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

 

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Mauna Loa also sells macadamia products as ingredient nuts, through itsvisitor centers and mail order sales.

 

In addition to the State of Hawaii, mature macadamianut orchards are located in Australia, Africa, and Central America.  For the 2005 crop, Hawaii was expected tosupply 25% of the world crop, and Australia, the world’s largest producer, wasexpected to supply 40%.

 

A general decline in nut prices would adversely affect the prices whichMauna Loa could charge for its macadamia nut products and could have a negativeeffect on its profitability.  Since thepurchase price for the Partnership’s nuts under all but one of its nut purchasecontracts is based in part on nut prices reported by the industry and in parton the marketing success of Mauna Loa, a general decline in macadamia nutprices could also adversely affect the Partnership’s revenues.

 

# ***MacadamiaFarming Segment***

 

Since the May 2000 purchase of the macadamia farming operations, thePartnership farms its own 4,169 acres of macadamia orchards and approximately2,505 additional acres of macadamia orchards owned by other growers.

 

All the orchards are located in three separate regions on the island ofHawaii (“Keaau”, “Ka’u” and “Mauna Kea”). Because each region has different terrain and weather conditions,farming methods vary somewhat among the three locations.

 

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

 

The Partnership currently services approximately twenty additionalfarming contracts which were assigned to the Partnership with the May 2000acquisition.  Services under thesecontracts include cultivation, weed and pest control, fertilization, pruningand hedging, replanting, harvesting, and husking.  These contracts also provide a management feeto the Partnership, which is based as either a fixed fee per acre farmed, or asa percent of reimbursed costs, ranging from 5% to 20%.

 

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

 

Orchard management also requires the proper selection and applicationof fertilizers, pesticides (to control rodents, insects and fungi) andherbicides (to control weeds).  Insects,rodents and fungi, as well as wild pigs, if not controlled, can cause losses tonut 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 its use.  Nuts are harvested by hand when the orchardfloor is too uneven to permit mechanical harvesting, when the nut drop is verylight and when nuts remain after harvesting. At Keaau, Ka’u and Mauna Kea, seasonal labor for hand harvesting andother operations is generally available from nearby Hilo and adjacent communities.

 

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Mechanical harvesting is less costly than hand harvesting, butmechanical harvesting is possible only where the orchard floor is relativelyflat.  Approximately 70% of the orchardsin Ka’u, 59% in Keaau and 94% in Mauna Kea are currently mechanicallyharvested.  The remaining acres are toouneven for mechanical harvesting and must be harvested by hand.

 

During the harvest season, the nuts are collected every six to tenweeks.  Nuts suffer loss in quality ifthey remain on the ground too long.  Theharvested nuts are then transported to the husking facilities, which arelocated in Ka’u and Keaau.  The Keaauhusking facility is owned by Mauna Loa, and the Ka’u husking facility is ownedby the Partnership.  Nuts harvested inthe Mauna Kea region are transported to the husking facility in Keaau.  At the husking facility, the outer husk isremoved and the nuts, still in their shell, are weighed and sampled todetermine moisture content and kernel quality.  Title to the nuts husked in Keaau passes toMauna Loa after weighing.  Title to thenuts husked at Ka’u pass to Mauna Loa after delivery to the Mauna Loaprocessing plant in Keaau.  The nuts arethen moved to a drying facility.

 

***Processing*.**  The nuts purchased by Mauna Loa from thePartnership and from the other orchards farmed by the Partnership are primarilyprocessed at Mauna Loa’s processing plant located adjacent to the orchardslocated in the Keaau area.  The plant wasbuilt in 1966 and is presently capable of handling approximately 210,000 poundsof dry-in-shell (commonly abbreviated “DIS”) nuts per day.  Processing at the plant includes drying,cracking, roasting, inspecting and 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 pass by conveyorsover metal screens, blowers and rock separators that remove extraneous materialfrom the in-husk nuts. The husks are then split and removed by pressing thenuts 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 of the nuts is reducedby blowing warm air over them, which produces DIS nuts. Metal rollers are usedto crack the nuts and remove the shell. Mechanical and optical equipment, as well as hand sorting, are used toseparate the salable kernels from unusable nuts and pieces of broken shell.

 

The dry nut kernels are roasted and then sorted into retail andcommercial grades.  At this stage, someof the nuts are bulk-packed and sent to various co-packers on the U.S. mainlandfor packaging.  At Mauna Loa’s plant inKeaau the nuts may be salted, or covered with chocolate or one of severalcoatings, and finally packaged, labeled and readied for shipment.

 

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

#### *** ***

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

 

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

 

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1987 through 1993, inclusive, the Partnership receiveda total of $1,628,000 (including a 4% Hawaii general excise tax) instabilization payments under this agreement.

 

The Partnership accounted for stabilization payments(net of the 4% Hawaii general excise tax) as a reduction in the cost basis ofthe orchard.  As such, these payments arebeing reflected in the Partnership’s net income ratably through 2019 as areduction to the depreciation expense reported for this orchard.

 

In return, the Partnership is obligated to pay theseller 100% of any year’s cash flow from this orchard in excess of the targetcash flow as additional percentage rent until the aggregate amount of theadditional percentage rent paid equals 150% of the total amount ofstabilization payments previously received. Thereafter, the Partnership isobligated to pay the seller 50% of this orchard’s cash flow in excess of thetarget cash flow as additional incentive rent. No additional rent was due in 2002, 2003, or 2004.

 

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

#### *** ***

Macadamia nut trees are subject to damage or destruction from diseases,pests, floods, droughts, windstorms, hurricanes, volcanic activity and othernatural causes. Partnership tree replacements for all orchards from all causeswere 0.9% in 2002, 0.6% in 2003, and 0.6% in 2004. Both crop and tree insuranceare in place to protect the Partnership against material losses.

 

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

 

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

 

***Rainstorms and Floods. ***The Partnership’sorchards are located in areas on the island of Hawaii that are susceptible toheavy rainstorms.  In November 2000 theKa’u region was affected by flooding. This flooding resulted in expected 2000 harvesting being done in2001.  Since the flood in 2000 heavy rainin the Ka’u region has not produced flooding of any consequence.

 

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

 

***Insurance. ***The Partnership securestree insurance each year under a federally subsidized program.  The tree insurance for 2004 provides coverageup to a maximum of approximately $23.7 million against loss of trees due towind, fire or volcanic activity. Crop insurance was purchased for the 2004-2005crop year and provides coverage up to a maximum of approximately $9.1 millionagainst loss of nuts due to wind, fire, volcanic activity, earthquake, adverseweather, wildlife damage and failure of irrigation water supplies.

 

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***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 three locationsof the Partnership’s orchards for the past five years is shown below:

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

 

During 2004 the Ka’u, Keaau and Mauna Kea areasrecorded 127%, 106% and 102% of the normal average annual rainfall in theirarea of the island, respectively.

 

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

 

With the May 2000 acquisition, the Partnership acquired an irrigationwell (the “Sisal Well”), which supplies water to the Partnership’s orchards inKa’u which were purchased in June 1986 and 1989.  The Sisal Well is situated on land owned byMKACI.  On May 1, 2000 the Partnershipentered into a license agreement with MKACI, which allows the Partnershipnecessary access to maintain and operate the Sisal Well, as well as the use ofroads to access, maintain and operate the Partnership’s macadamiaorchards.  Annual rent for the licenseagreement is one dollar.  The licenseagreement terminates on the earlier of June 30, 2045, or at the termination ofthe May 1, 2000 lease between Partnership and KACI.

 

Prior to the May 2000 acquisition, the Partnership andKACI were parties to a water agreement to which KACI agreed to supply water tothose portions of the June 1986 Orchards and October 1986 Orchards located atKa’u and which had been irrigated historically.

 

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

 

On a historical basis, the quantity of water available from the SisalWell has been generally sufficient to irrigate these orchards in accordancewith prudent farming practices.  Theirrigated portion of the Ka’u II Orchards is expected to need greaterquantities of water as the orchards mature. The Managing Partner anticipates that the amount of water available fromthe Sisal well will be generally sufficient, assuming average levels ofrainfall, to irrigate the irrigated orchards in accordance with prudent farmingpractices for the next several years.  Ifno irrigation water is available to the Irrigated Orchards, then, based onhistorical average rainfall levels, diminished yields of macadamia nutproduction can be expected.

 

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# ***Employees***

# *** ***

As of December 31, 2004, the Partnership employed 259 people, of which176 were seasonal employees.  Of thetotal, 21 are in farming supervision and management, 226 in production,maintenance and agricultural operations, and 12 in accounting andadministration.

 

With the May 2000 acquisition, the Partnership agreed to the assumptionof three bargaining agreements with the ILWU Local 142.  These agreements cover all production,maintenance and agricultural employees of the Ka’u Orchard Division, of theKeaau Orchard Division and of the Mauna Kea Orchard Division.  These labor contracts became effective May 1,1997 and expired on April 30, 2002.  Theparties have recently agreed to a new three-year contract, which will expire onApril 30, 2005. The Partnership believes that relations with its employees andthe ILWU are generally very good.

 

**Available Information. **ThePartnership files annual, quarterly and current reports and other informationwith the Commission.  These filings areavailable free of charge through its Internet website at www.mlmacadamia.com assoon as reasonably practicable after the Partnership electronically files suchmaterial with, or furnishes it to, the Commission.  Any Unit holder, who so requests may obtain aprinted copy of these documents from the Partnership, by contacting thePartnership at 808-969-8057, or in writing at 26-238 Hawaii Belt Road, Hilo,Hawaii 96720.

 

**ITEM 2.  PROPERTIES**

 

***Location.***  The Partnership owns or leases approximately4,169 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 of macadamia nut trees grown in the State of Hawaii aregrown on the island of Hawaii in volcanic soil that permits drainage duringheavy rainfall.  While the orchards arelocated approximately within a 50-mile radius, the climate and other conditionsthat affect the growing of macadamia nuts are different.  These differences are the result ofprevailing wind patterns and island topography, which produce a variety ofmicroclimates throughout the island.

 

***Age and Density*.**  The productivity of macadamia nut orchardsdepends on several factors including, among others, the age of the trees, thenumber of trees planted per acre, soil condition, climate, rainfall and/orirrigation.  The most significantcharacteristic affecting yields is maturity. The trees in a macadamia nut orchard generally begin to produce nuts ata commercially acceptable level at around nine years of age.  Thereafter, nut yields increase graduallyuntil the trees reach maturity, after which the nut yield remains relativelyconstant except for variances produced by rainfall, cultivation practices, pestinfestation and disease.

 

Macadamia orchards normally reach peak productionafter fifteen to eighteen years of age. All of the 4,169 tree acres of macadamia orchards owned or leased by thePartnership are over nineteen years of age. About 2% of trees are lost to various causes each year and are replaced.

 

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

 

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

 

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

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

 

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

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

(3)                                  Lease of land; treesrevert to lessor upon termination of lease.

 

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

 

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

 

With respect to the Ka’u Green Shoe I Orchard, thelease requires the Partnership to pay KACI, the seller and lessor, additionalrent equal to 100% of any year’s cash flow generated by such orchard in excessof a target level of $507,000 until the aggregate amount paid equals 150% ofthe aggregate amount of the stabilization payments previously received by thePartnership.  Thereafter, the Partnershipis required, with respect to any year prior to the expiration of the lease, topay as additional rent, 50% of the cash flow generated by such orchard for suchyear in excess of a target level of $507,000 of cash flow.  For additional information, see “StabilizationPayments” on page 5.

 

**ITEM 3.  LEGAL PROCEEDINGS ANDSETTLEMENT**

 

As reported on August13, 2004, in the Quarterly Report on Form 10-Q of ML Macadamia Orchards, L.P.(the “Partnership”) for its fiscal quarter ended June 30, 2004, the Partnershipand several independent growers filed suit against Mauna Loa Macadamia NutCorporation in the Circuit Court of the Third Judicial Circuit of the State ofHawaii in Hilo, alleging that the proposed acquisition by Mauna Loa MacadamiaNut Corporation (“Mauna Loa”) of the assets of Mauna Loa’s major competitor,MacFarms of Hawaii, LLC (“MacFarms”), would give Mauna Loa a monopoly over thesupply and processing of wet-in-shell macadamia nuts on the Island of Hawaii,which in turn would give Mauna Loa monopoly power over the growers and otherprocessors on the Island of Hawaii and consumers of macadamia nuts in Hawaiiand on the mainland United States. Hamakua Macadamia Nut Company, Inc.  (“Hamakua”)

 

10

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subsequently filed its own lawsuit against MaunaLoa, which was then consolidated with the Partnership’s case.

 

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

 

**ITEM 4.  SUBMISSION OF MATTERS TOA VOTE OF SECURITY HOLDERS**

 

No matters were submitted during the fourth quarter ofthe fiscal year covered by this report to a vote of security holders.

 

11

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### **PART II**

### ** **

**ITEM 5.****               MARKET FORREGISTRANT’S CLASS A UNITS AND RELATED UNITHOLDER MATTERS**

 

The Partnership’s Class A Depositary Units are listedfor trading on the New York Stock Exchange (symbol = NUT).  There were 1,170 registered holders of ClassA Depositary Units on December 31, 2004.

 

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

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

 

**Restrictions on Cash Distributions**

 

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

 

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**ITEM 6.****               SELECTED FINANCIALDATA**(In thousands, except per pound and per unit data)

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

 

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(1)          See “Statements of CashFlows” in the financial statements for method of calculation.

(2)          See Footnote 5 in thenotes to financial statements for method of calculation.

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

(4)          Weighted average for allorchards.

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

 

13

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Contractual obligations for the Partnership are detailed in thefollowing:

 
| **Contractual Obligations**                                                     | ** ** | **Total** | ** ** | **Payments  Less Than 1  Year** | ** ** | **Due by  1-3 Years** | ** ** | **Period  3-5 Years** | ** ** | **More Than 5  Years** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------|------------|---------------------------------|------------|-----------------------|------------|-----------------------|------------|------------------------|------------|
| Long-Term Debt                                                                  |       | 2,400,000 |       | 400,000                         |       | 800,000               |       | 800,000               |       | 400,000                |       |
| Capital Lease Obligations                                                       |       | 69,000    |       | 35,000                          |       | 34,000                |       | —                |       | —                 |       |
| Operating Leases                                                                |       | 4,102,000 |       | 348,000                         |       | 682,000               |       | 443,000               |       | 2,629,000              |       |
| Purchase Obligations                                                            |       | —    |       | —                          |       | —                |       | —                |       | —                 |       |
| Other Long-Term Liabilities off The  Registrant’s Balance Sheet under GAAP |       | —    |       | —                          |       | —                |       | —                |       | —                 |       |
| Total                                                                           |       | 6,571,000 |       | 703,000                         |       | 1,516,000             |       | 1,243,000             |       | 3,029,000              |       |

 

**ITEM 7.****            MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

This discussion should be read in conjunction with the financialstatements and the related notes included elsewhere in this report.

 

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

 

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

 

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

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

 

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

 

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Production in 2004 was10.7% lower than 2003 and 11.5% lower than 2002. Production in 2003 was 1.0%lower than 2002 and 7.9% lower than 2001. Significant factors affecting thecrop were as follows:

 

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.

 

3.  The Ka’u region recorded above averagerainfall in 2004.  The rainfallreplenished the soil moisture and is expected to improve yields in the regionfor the spring of 2005.

 

4.  The maturation of the crop was delayed by theweather conditions which resulted in less production in the fall of 2004 and isexpected to improve yields in the spring of 2005.

 

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

 

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

 

Macadamia nut revenues depend on the number of producing acres, yieldsper acre and the nut purchase price.  Theimpact of these factors is summarized in the following table:

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

 

Under three of the nut purchase contracts with Mauna Loa, the price fornuts delivered is based 50% on the two-year trailing average of USDA publishedmacadamia nut prices and 50% on a “netback component”.  The netback component is determined bysubtracting from Mauna Loa’s gross revenues from the sale of macadamia products(i) allocable processing, packaging, marketing, selling and advertising costsand (ii) a 20% capital charge on the difference between those aggregate grossrevenues and aggregate allocable costs.

 

In mid December, Mauna Loa notified the Partnershipthat it would be unable to accept deliveries over a five-day period during theheight of the harvest season. The Partnership advised Mauna Loa that this was

 

15

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unacceptable for both financial and operational reasonsand arrangements 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 has reserved $118,000 for this unresolved dispute.

 

The following table sets forth the manner in which thenut purchase price per pound was determined for 2004, 2003 and 2002 ($/lb.):

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

 

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(a)          Mauna Loa’s own purchases comprise asubstantial portion of nut purchases reported to the USDA.  Therefore, the USDA price component of thepurchase price is, to a substantial degree, the average price that Mauna Loahas paid to purchase macadamia nuts from the Partnership and from third partiesduring the previous two years.

 

(b)         The nut purchase price for the 1986 and 1989orchards was the same for 1999 and all previous years.  With the change of ownership of Mauna Loa in2000, a quality conversion factor in the nut purchase contracts wasinitiated.  The effect was to cause aslightly different price of $0.4644 for the 1989 orchards in 2002, $0.4808 in2003 and $0.4951 in 2004.  An earlyharvest round was requested by Mauna Loa in 2003 resulting in a payment of$150,000 over the contract price.  Withthis payment the 2003 price was $0.4883.

 

(c)          The nut purchase contract covering nutproduction from the 78 acre Keaau Lot 10 orchard acquired in September 1991defines the “two-year trailing average” provision slightly differently from the1986 and 1989 nut purchase contracts, and thus, results in a different nutprice.  This was in affect for the firstsix months of 2003.  A new contract wasnegotiated with a fixed price for all nuts with unusables

 

16

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in a range of 10% to 13%.  Thenut price for this orchard was $0.6000 in 2004, $0.5923 in 2003, and $0.4920 in2002.  This orchard accounts for lessthan 2% of the Partnership’s macadamia nut production.

 

(d)         The nut purchase contract for the Ka’u Oorchards purchased in May 2000 uses only the two-year trailing USDA average todetermine its nut price, which was $0.5560 in 2004, $0.5660 in 2003 and $0.5940in 2002.

 

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

 

The 2004 average nut price from all orchards increased3% from 2003.  The 2003 average nut pricefrom all orchards increased 2% from 2002. The USDA portion decreased 2% in 2004, 5% in 2003 and 4% in 2002. Thenetback increased 10% in 2004 compared to 2003 and increased 18% in 2003compared to 2002. The current netback price reflects the operating performanceof Mauna Loa.

 

The USDA published price for the 2003-2004 crop yearwas $0.5769 per pound (WIS at 25% moisture), which is 7% higher than the2002-03 crop year of $0.5391, and 2% higher than the 2001-2002 price of$0.5666.  The USDA two-year trailingaverage, which affects the Partnership’s 2004 nut price, will be $0.5580, a 1%increase over the 2003 two-year average.

 

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

 

Agricultural unit costs depend on the operating expenses required tomaintain the orchards and to harvest the crop as well as on the quantity ofnuts actually harvested.

 

The Partnership’s unit costs (expressed in dollars perwet-in-shell pound at 25% moisture) are calculated by dividing all agriculturalcosts for each orchard (including lease rent, property tax, tree insurance anddepreciation) by the number of pounds of macadamia nuts produced by thatorchard and are summarized below ($/lb.):

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

 

Cost of goods sold was $704,000 lower in 2004 than in2003, and $612,000 higher in 2003 than in 2002, but the cost per pound was10.4% higher in 2004 than 2003 and was the same in 2003 compared to 2002.  The lower production costs in 2004 were aresult of lower harvesting and husking costs because of fewer

 

17

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

 

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

### ** **

As a result of the acquisition of the farmingoperation in 2000, the Partnership acquired approximately 20 farming contractsto farm macadamia orchards owned by other growers. These contracts covermacadamia orchards in the same three locations on the island of Hawaii wherethe Partnership owns orchards.  Thefarming contracts provide the Partnership to be reimbursed for all directfarming costs (cultivation, irrigation and harvesting), collect a pro-ratashare of indirect costs and overheads, and charge a management fee.  The management fee is based on the number ofacres farmed or on a percentage of total costs billed.  Revenues from farming services were $4.3million in 2004, $5.0 million in 2003, and $4.2 million for 2002. The 2004farming service revenues were less that expected because of the late drop ofnuts in the fall crop.  The 2003 farmingservice revenues were greater than anticipated because of the timing ofharvesting. The 2002 farming service revenues were less than anticipatedbecause of the termination of farming contracts related to 155 tree acres tothird parties.  Also, in 2002 one of themajor farming contracts requested longer harvest intervals for their orchards.

 

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

 

The cost of services sold relating to the farmingcontracts was $3.9 million in 2004, $4.5 million in 2003 and $3.8 million for2002.  These costs were all reimbursed tothe Partnership.

 

## ***Generaland Administrative Costs***

## ** **

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

 

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

 

A management fee based on Partnership cash flow ispayable annually to the Managing Partner. The amount paid was $9,000 in 2004, $44,000 in 2003, and $32,000 for2002.

 

## ***InterestIncome and Expense***

## ** **

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

 

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

 

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

 

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

 

***Inflation and Taxes***

 

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

 

The Partnership is subject to a gross income tax as aresult of its election to continue to be taxed as a partnership rather than tobe taxed as a corporation, as allowed by the Taxpayer Relief Act of 1997.  This tax is calculated at 3.5% on partnershipgross income (net revenues less cost of goods sold) beginning in 1998.  The gross income tax was $5,000 in 2004,$42,000 in 2003, and $33,000 in 2002.

 

# ***Liquidity and Capital Resources***

 

Net cash provided by operation was $368,000 in 2004 a decrease ofapproximately $2.0 million compared to 2003. Net cash provided by operations was $2.3 million in 2003 an increase ofapproximately $100,000 over 2002.  Netcash provided by operations was $2.2 million in 2002.

 

At December 31, 2004 thePartnership’s working capital was $2.9 million and it current ratio was 1.63 to1, compared to $4.2 million and 2.55 to 1 in 2003.  In 2003 the Partnership’s working capital was$4.2 million and its current ratio was 2.55 to 1, compared to $3.2 million and2.14 to 1 in 2002.  In 2004 the decreasein working capital compared to 2003 was a result of lower revenue and highergeneral and administrative costs.  In2003 the increase in working capital compared to 2002 was a result of higherrevenue, higher interest and other income, lower general and administrativecosts, and lower interest costs.  In 2002payment by Mauna Loa resulted in liabilities being paid without incurring shortterm debt.  The Partnership was in compliance with theterms and conditions of the Credit Agreement at December 31, 2004 except forits Debt Coverage Ratio.  The lender hasprovided a waiver to the loan covenants for the fourth quarter 2004.

 

Capital expenditures in 2004, 2003 and 2002 were$172,000, $20,000 and $93,000, respectively. The increase in 2004 was the result of purchases by the Partnership ofexpiring leases.  Capital expendituresplanned for 2005 are less than $500,000 and are expected to be financed by wayof new equipment leases, either capital or operating leases.

 

Macadamia nut farming is seasonal, with productionpeaking late in the fall.  However,farming operations continue year round. As a result, additional working capitalis required for much of the year. The Partnership meets its working capitalneeds with cash on hand, and when necessary, through short-term borrowingsunder a $5.0 million revolving line of credit. The line of credit was obtainedon May 2, 2000 and expires May 1, 2008. At December 31, 2004 the Partnership had a cash balance of $196,000 andline of credit drawings outstanding of $2,200,000.  At December 31, 2003 the Partnership had acash balance of $36,000 and line of credit drawings outstanding of$400,000.  The cash balance was $31,000at the end of 2002, and the line of credit drawings were $800,000 at December31, 2002.

 

It is the opinion of management that the Partnership has adequate cashon hand and borrowing capacity available to meet anticipated working capitalneeds for operations as presently conducted. However, with the September 2000 sale of Mauna Loa, the managing partnerno longer has control over the timing of nut payments to the Partnership. Thenut purchase contracts require Mauna Loa to make nut payments 30 days after theend of each quarter.  During certainparts of the year, if payments are not received, as the contracts require,available cash resources could be depleted.

 

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***Critical AccountingPolicies and Estimates***

 

Management has identified the following criticalaccounting policies that affect the Partnership’s more significant judgmentsand estimates used in the preparation of the Partnership’s financialstatements.  The preparation of thePartnership’s financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires the Partnership’smanagement to make estimates and judgments that affect the reported amounts ofassets and liabilities, revenues and expenses, and related disclosures ofcontingent assets and liabilities.  On anon-going basis, management evaluates those estimates, including those relatedto asset impairment, accruals for self-insurance, compensation and relatedbenefits, revenue recognition, allowance for doubtful accounts, contingenciesand litigation.  The Partnership statesthese accounting policies in the notes to the financial statements and inrelevant sections in this discussion and analysis.  These estimates are based on the informationthat is currently available to the Partnership and on various other assumptionsthat management believes to be reasonable under the circumstances.  Actual results could vary from those estimates.

 

The Partnership believes that the following critical accountingpolicies affect significant judgments and estimates used in the preparation ofit financial statements:

 

The Partnership maintains an allowance for doubtful accounts forestimated losses resulting from the failure of its customers to make requiredpayments, which results in bad debt expense. Management determines the adequacy of this allowance by continuallyevaluating individual customer receivables, considering the customer’s financialcondition, credit history and current economic conditions.  If the financial condition of customers wereto deteriorate, or if a customer refuses to pay or disputes any such payment,additional allowances may be required.

 

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

 

Retirement Benefits:  ThePartnership sponsors a non-contributory defined benefit pension plan for unionemployees.  Several statistical and otherfactors which attempt to anticipate future events are used in calculating theexpense and liabilities related to this plan. These factors include assumptions about the discount rate, expectedreturn on plan assets, withdrawal and mortality rates and the rate of increasein compensation levels.  The actuarialassumptions used by the Partnership may differ materially from actual resultsdue to changing market and economic conditions, higher or lower withdrawalrates or longer or shorter mortality of participants.  These differences may impact the amount ofretirement benefit expense recorded by the Partnership in future periods.

 

The Partnership reviews long-lived assets held and used, or held forsale for impairment annually or whenever events or circumstances indicate thatthe carrying amount of an asset may not be recoverable.  If an evaluation is required, the estimatedundiscounted future cash flows associated with the asset are compared to theasset’s carrying amount to determine if an impairment charge is required.  All long-lived assets for which managementhas committed to a plan of disposal are reported at the lower of carryingamount or fair value.  Changes inprojected cash flows generated by an asset based on new events or circumstancesmay indicate a change in fair value and require a new evaluation ofrecoverability of the asset.

 

20

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**Recently Issued Accounting Pronouncement**

 

The Partnership has applied the revised disclosure provisions of SFASNo. 132, “Employers’ Disclosure about Pensions and other PostretirementBenefits”.  The revisions to SFAS No. 132were issued in December 2003, and require additional disclosures about theassets, obligations, cash flows and net periodic benefit cost of definedbenefit pension plans and other defined benefit postretirement plans.  The disclosures that are required by SFAS No.132 are included in Note (9).

 

**Legal Proceedings**

 

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

 

On October 1, 2004, the Partnership, the independent growers andHamakua entered into an agreement with Mauna Loa whereby Mauna Loa terminatedits agreement to acquire the assets of MacFarms and the Partnership, theindependent growers and Hamakua caused their lawsuits to be dismissed.

 

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

 

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

 

**ITEM 7B. CONTROLS AND PROCEDURES**

 

(a) Under the supervision and with the participation of management,including our principal executive officer and principal financial officer, weconducted an evaluation of our disclosure controls and procedures, as such termis defined under Rule 13a-14(c) promulgated under the Securities Exchange Actof 1934, as amended (the “Exchange Act”), within 90 days of the filing date ofthis report.  Based on their evaluation,our principal executive officer and principal financial officer concluded thatthe Partnership’s disclosure procedures are effective.

 

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

 

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**ITEM 8.  FINANCIAL STATEMENTS**

 

**Indexto Financial Statements**

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

 

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**REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

 

To the Partners

ML Macadamia Orchards, L.P.

 

Inour opinion, the accompanying balance sheets and the related income statements,statements of partners’ capital, and statements of cash flows, present fairly,in all material respects, the financial position of ML Macadamia Orchards, L.P.at December 31, 2004 and 2003, and the results of its operations and its cashflows for each of the three years in the period ended December 31, 2004 inconformity with accounting principles generally accepted in the United Statesof America.  These financial statementsare the responsibility of the Partnership’s management.  Our responsibility is to express an opinionon these financial statements based on our audits.  We conducted our audits of these statementsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

PricewaterhouseCoopersLLP

 

Honolulu, Hawaii

March 17, 2005

 

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**ML Macadamia Orchards, L.P.Balance Sheets**(in thousands)

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

 

***Seeaccompanying notes to financial statements.***

 

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**ML Macadamia Orchards, L.P.Income Statements**(in thousands,except per unit data)

 
| ** **                                                   | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Macadamia nut sales                                          |       | $        | 9,414      |     | $          | 10,459   |       | $ | 10,336 |   |
| Contract farming revenue                                     |       | 4,251    |       | 4,967    |       | 4,220    |       |
| Total revenues                                               |       | 13,665   |       | 15,426   |       | 14,556   |       |
| Cost of goods and services sold                              |       |     |       |     |       |     |       |
| Costs expensed for farming and  services                     |       | 10,956   |       | 11,660   |       | 11,048   |       |
| Depreciation and amortization                                |       | 2,571    |       | 2,563    |       | 2,556    |       |
| Total cost of goods and  services sold                       |       | 13,527   |       | 14,223   |       | 13,604   |       |
| Gross income                                                 |       | 138      |       | 1,203    |       | 952      |       |
| General and administrative  expenses                         |       |     |       |     |       |     |       |
| Costs expensed under management  contract with related party |       | 177      |       | 204      |       | 217      |       |
| Legal fees paid to related  party                            |       | 495      |       | 33       |       | 28       |       |
| Other                                                        |       | 971      |       | 924      |       | 1,002    |       |
| Total general and  administrative expenses                   |       | 1,643    |       | 1,161    |       | 1,247    |       |
| Operating income (loss)                                      |       | (1,505   | )          | 42       |       | (295     | )          |
| Interest expense                                             |       | (182     | )          | (203     | )          | (307     | )          |
| Interest income                                              |       | 11       |       | 12       |       | 46       |       |
| Other income                                                 |       | 32       |       | 260      |       | 109      |       |
| Income (loss) before tax                                     |       | (1,644   | )          | 111      |       | (447     | )          |
| Income tax expense                                           |       | (5       | )          | (42      | )          | (33      | )          |
| Net income (loss)                                            |       | $        | (1,649     | )        | $          | 69       |       | $ | (480 | ) |
|                                                         |       |     |       |     |       |     |       |
| Net cash flow (as defined in  the Partnership Agreement)     |       | $        | 466        |     | $          | 2,157    |       | $ | 1,592 |   |
|                                                         |       |     |       |     |       |     |       |
| Net income (loss) per Class A  Unit                          |       | $        | (0.22      | )        | $          | 0.01     |       | $ | (0.06 | ) |
|                                                         |       |     |       |     |       |     |       |
| Net cash flow per Class A Unit                               |       | $        | 0.06       |     | $          | 0.28     |       | $ | 0.21 |   |
|                                                         |       |     |       |     |       |     |       |
| Cash distributions per Class A  Unit                         |       | $        | 0.20       |     | $          | 0.16     |       | $ | 0.20 |   |
|                                                         |       |     |       |     |       |     |       |
| Class A Units outstanding                                    |       | 7,500    |       | 7,500    |       | 7,500    |       |

 

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

 

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**ML Macadamia Orchards, L.P.Statements of Partners’ Capital**(in thousands)

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

 

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

 

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**ML Macadamia Orchards, L.P.Statements of Cash Flows**(in thousands)

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

 

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

 

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

 

# ***Notesto Financial Statements***

 

**(1) OPERATIONS AND OWNERSHIP**

 

ML Macadamia Orchards, L.P. (the “Partnership”) ownsand farms 4,169 tree acres of macadamia orchards on the island of Hawaii. Oncethe nuts are harvested, the Partnership sells them to another entity, whichprocesses and markets the finished products. The Partnership farms approximately 2,505 additional acres of macadamiaorchards on Hawaii for other orchard owners.

 

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

 

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

 

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

 

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

 

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

 

**(c)****      FarmingCosts.**  In accordance with industrypractice in Hawaii, orchard maintenance and harvesting costs for commerciallyproducing macadamia orchards are charged against earnings in the year that thecosts are incurred.

 

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

 

Depreciation of orchards and other equipment 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 method over AlternativeDepreciation System recovery periods.

 

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**(e)****   IncomeTaxes.**  The accompanying incomestatements do not include a provision for corporate income taxes, as the incomeof the Partnership is not taxed directly; rather, the Partnership’s taxattributes are included 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 liabilities are recognized for the future tax consequencesattributable to differences between the financial reporting and tax reportingbasis of assets and liabilities.

 

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

 

**(g)****   Pension BenefitCosts.**  The actuarial method used forfinancial accounting purposes is the projected unit credit method.

 

**(h)****   Estimates. **The preparation of financial statementsin conformity with generally accepted accounting principles requires managementto make estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the dateof the financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ from those estimates.

 

**(i)****    Net Income PerClass A Unit.**  Net income per Class AUnit is calculated by dividing 99% of Partnership net income by the averagenumber of Class A Units outstanding for the period.

 

**(3) SEGMENT INFORMATION**

 

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

 

Management evaluates the performance of each segment on the basis ofoperating income.  The Partnershipaccounts for inter segment sales and transfers at cost.  Such inter segment sales and transfers areeliminated in consolidation.

 

The Partnership’s reportable segments are distinct business enterprisesthat offer different products or services. Revenues from the owned-orchard segment are subject to long-term nutpurchase contracts and tend to vary from year to year due to changes in thecalculated nut price per pound and pounds produced.  The farming segment’s revenues are based onlong-term farming contracts which generate a farming profit based on apercentage of farming cost or based on a fixed fee per acre and tend to be lessvariable than revenues from the owned-orchard segment.

 

29

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The following is a summary of each reportable segment’s operatingincome and the segment’s assets as of and for the period ended December 31,2004, 2003 and 2002.

 

Segment Reporting for the Year ended December31, 2004

(in thousands)

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

 

Segment Reporting for the Year ended December31, 2003

(in thousands)

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

 

30

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Segment Reporting for the Year ended December31, 2002

(in thousands)

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

 

**(4) RELATED PARTY TRANSACTIONS**

 

**(a) Nut Purchase Contracts.**  The Partnership is a party to five nutpurchase contracts with Mauna Loa Macadamia Nut Corporation (“Mauna Loa”).  ML Resources, Inc, the Partnership’s generalpartner was purchased by DBE August 1, 2001. The five nut purchase contractscover all nuts produced by the orchards acquired in June 1986, December 1986,October 1989, September 1991, and May 2000 respectively.  The first two contracts run for 20 years,while the third contract runs for 30 years and also provides for the exclusionof unusable nuts from those purchased by Mauna Loa.  The first three contracts are identical inall other material respects.  The fourthcontract was acquired by assignment with the purchase of the September 1991orchard and expired June 30, 2003.  A newcontract was negotiated and replaces the fourth contract.  The new fourth contract has a fixed nut priceof $0.60 per wet in shell (WIS) @25% pound with adjustment if usable nutsdeduction is less than 10% or greater than 13%. The fifth contract was acquired by assignment with the purchase of theMay 2000 orchards and expires in 2006. The fifth contract is similar to the first three contracts and alsoprovides for the exclusion of unusable nuts. The first three contracts use a pricing formula based 50% on a two-yeartrailing average of the macadamia nut price published annually by the U.S.Department of Agriculture (“USDA”) and 50% on Mauna Loa’s “netback component”.The netback component is calculated by subtracting Mauna Loa’s processing andmarketing costs per pound and a “capital charge” of 20% from its nut revenuesper pound. The fifth contract uses only the USDA two-year trailing average todetermine its nut price.  The nut pricepaid to the Partnership under the first two contracts was $0.4655 for 2002,$0.4816 in 2003, and $0.4954 in 2004. The average nut price paid to the Partnership under the third contractwas $0.4610 for 2002, $0.4789 in 2003, and $0.4945 in 2004. The average nutprice paid to the Partnership under the fourth nut price contract was $0.4920for 2002, $0.6000 for 2003, and $0.6000 in 2004.  The nut price paid to the Partnership underthe fifth contract was $0.5940 in 2002, $0.5660 for 2003, and $0.5560 in 2004.

 

**(b) Husking Activities  **Huskingactivities for the Keaau and Mauna Kea orchards are performed at Mauna Loa’sKeaau facility.  The Partnership hasexercised its option to continue leasing the husking facility from Mauna Loathrough December 31, 2006. Reimbursements made to Mauna Loa were $531,000 in 2002, $522,000 in2003, and $440,000 in 2004.

 

**(c) Management Costs and Fee.**  The Partnership Agreement provides themanaging general partner reimbursement of administrative costs (which consistprimarily of compensation costs, board of directors fees, insurance costs andoffice expenses) incurred under the agreement as well as a management fee equalto two percent of the Partnership’s operating cash flow (as defined).  Those reimbursable costs

 

31

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

 

In addition to a management fee, the managing generalpartner is entitled, under the existing Partnership Agreement, to receive anannual incentive fee equal to 0.5% of the aggregate fair market value (asdefined) of the Class A Units for the preceding calendar year provided that netcash flow (as defined) for the preceding calendar year exceeds specifiedlevels.  No incentive fee was earned in2002, 2003 or 2004.

 

**(d) Stabilization Payments.**  In December 1986, the Partnership acquired 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 stabilization payments(net of general excise tax) as a reduction in the cost basis of thisorchard.  As a result, the payments willbe reflected in the Partnership’s net income ratably through 2019 as areduction to depreciation for this orchard.

 

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

 

**(e) Cash Flow Warranty Payments.**  In October 1989, the Partnership acquired1,040 acres of orchards that were several years younger on average than thePartnership’s other orchards.  Theirproductivity (and therefore their cash flow) was expected to be lower for thefirst several years than for the Partnership’s older orchards.

 

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

 

The Partnership accounted for cash flow warrantypayments as reductions in the cost basis of the orchards.  As a result, these payments will be reflectedin the Partnership’s net income ratably through 2030 as reductions todepreciation for these orchards.

 

**(f) Legal Services. **The Partnership paid $495,000 in legal fees in 2004.  A Director of the Partnership is a formerpartner and currently of counsel to the law firm used by the Partnership.

 

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

 

**(h) Office Lease. **Since September 2001, the Partnership has leasedapproximately 4000 square feet of office space in Hilo for its accounting staffthrough the General Partner, which is owned by DBE.

 

32

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**(5) CASH FLOW PERFORMANCE**

 

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

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

 

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

 

Land, orchards and equipment, stated at cost, consistedof the following at December 31, 2004 and 2003 (000’s):

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

 

ThePartnership’s interest in trees situated on certain leased macadamia orchardproperties are subject to repurchase at the option of the lessors.  Such repurchase options grant the lessors theright to purchase all or a portion of these trees after June 30, 2019, at fairmarket value, as defined in the respective farming lease agreements.  If the repurchase options are not exercisedprior to expiration of the lease agreements and the lessors do not offer toextend the lease agreements at the then current market lease rates, the lessorsare required to repurchase these trees at fair market value at leaseexpiration.  The lessors will be releasedfrom their repurchase obligation in the event that the Partnership declines toaccept an extension offer from the lessors at fair market lease rates.

 

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

 

AtDecember 31, 2004 and 2003, the Partnership’s long-term debt comprises (000’s):

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

 

**Credit Agreement.** On May 2, 2000 the Partnership entered into anew credit agreement with Pacific Coast Farm Credit Services, ACA (currentlyAmerican AgCredit Capital Markets) comprised of a $5 million revolving line ofcredit and a $4 million promissory note.

 

The line of credit expires on May 1, 2008.  Drawings on the line of credit bear interestat the prime lending rate.  From andafter the first anniversary date, the Partnership is required to pay a facilityfee of 0.30% to 0.375% per annum, depending on certain financial rations on thedaily unused portion of credit.  ThePartnership, at its option, may make prepayments without penalty.

 

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

 

At December 31, 2004, the outstanding balance on the promissory noteamounted to $2.4 million.  The note isscheduled to mature in 2010 and bears interest at rates ranging from 3.67% to7.77%.  Principal payments are dueannually on May 2 in the amount of $400,000.

 

Both the revolving credit loan and the term debt are collateralized byall personal property assets of the Partnership.  The credit agreement contains certainrestrictions associated with partner distributions, further indebtedness, salesof assets, and maintenance of certain financial minimums.  Significant restrictive financial covenantsconsist of the following:

1.     Minimumworking capital of $2.5 million.

2.     Minimumcurrent ratio of 1.5 to 1.

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

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

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

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

 

At December 31, 2004, the Partnership’s working capital was $2.9million and its current ratio 1.63 to 1. The Partnership was in compliance with all covenants of the CreditAgreement at December 31, 2004 except the debt coverage ratio which was waivedby the lender for the fourth quarter 2004. Had the lender not waived the restriction the Partnership would have beenrestricted in its ability to pay distributions to the limited partners.

 

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**Capital and Operating Leases.**The Partnershiphas capital and operating leases for equipment and operating leases forland.  The capital and operating leasesfor equipment are four to five year leases. Operating leases have been entered into by the Partnership during thelast two years for equipment to allow the Partnership the ability to ensure ithas the most technologically current equipment available.

 

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

 

Contractual obligations for the Partnership are detailed in thefollowing(000’s):

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

 

**(8) INCOME TAXES**

 

The components of income tax expense for the yearsended December 31, 2004, 2003 and 2002 were as follows (000’s):

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

 

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

 

The components of the net deferred tax liabilityreported on the balance sheet as of December 31, 2004 and 2003 are as follows(000’s):

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

 

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**(9) PENSION PLAN**

 

The Company established a pension plan in conjunction with theacquisition of farming operations on May 1, 2000.  The plan covers employees that are members ofa union bargaining unit and the projected benefit obligation was assumed fromthe previous employer.

 

The Company’s funding policy is to contribute an amount to the plansufficient to meet the minimum funding requirements set forth in the EmployeeRetirement Income Security Act of 1974.

 

The components of net pension cost for the years ended December 31,2004, 2003, and 2002 were as follows (000’s):

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

 

The following reconciles the changes in the pension benefit obligationand plan assets for the years ended December 31, 2004, 2003, 2002 to the fundedstatus of the plan and the amounts recognized in the balance sheets at December31, 2004, 2003, 2002. (000’s)

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

 

36

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Amountsrecognized in the balance sheets consist of:

 
| Accrued pension liability |   | (103   | )      | (72    | )      | (39    | )      |
|---------------------------|--------|--------|--------|--------|--------|--------|--------|
| Intangible asset          |   | 10     |   | 4      |   | — |   |
|                      |   |   |   |   |   |   |   |
| Net amount recognized     |   | $      | (93    | )      | $      | (68    | )      | $ | (39 | ) |
|                           |        |        |        |        |        |        |        |  |  |  |

 

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

 

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

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

 

Theadditional minimum liability at December 31, 2003 was $4,000.  There was no additional minimum liability atDecember 31, 2002 because the liability recognized for accrued benefit costexceeded the required minimum liability. The additional minimum liability was recognized by the establishment ofan intangible asset.

 

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

 

The weighted average actuarial assumptions used todetermine the pension benefit obligations at December 31, 2004, 2003 and 2002and the net periodic pension cost for the years then ended are as follows:

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

 

The expected long-term rate of return on plan assetswas based primarily on historical returns as adjusted for the plan’s currentinvestment allocation strategy.

 

37

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The Partnership employs an investment strategy whereby the assets inour portfolio are evaluated to maintain the desired target asset mix.  The funds are invested in stock mutual funds,fixed income mutual funds and money market funds.  Evaluation of the actual asset mix isevaluated on a quarterly basis and adjusted if required to maintain the desiredtarget mix.  Therefore, the actual assetallocation does not vary significantly from the targeted asset allocation

 

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

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

 

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

 

The following pension benefit payments, which reflectexpected future services, as appropriate, are expected to be paid:

 

Years Ending December 31,

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

 

**(10) EMPLOYEES SAVINGS PLAN**

 

The Partnership sponsors a 401(k) plan, which allowsparticipating employees to contribute up to 25% of their salary, subject toannual limits.  The plan provides for thePartnership to make matching contributions up to 50% of the first 4% of salarydeferred by employees.  During the yearsended December 31, 2004, 2003 and 2002, Partnership matching contributions were$27,000, $26,000 and $28,000, respectively.

 

**(11) SALARIED BASIC CONTRIBUTION PLAN**

 

The Partnership sponsors a basic contribution plan forits non-bargaining unit employees. This plan provides for the Partnership tomake annual contributions to the 401(k) plan on behalf of participatingemployees.  Contributions are based uponage, length of service, and other criteria on an annual basis, subject toannual limits.  During the years endedDecember 31, 2004, 2003, and 2002 basic contributions were $98,000, $77,000 and$68,000, respectively.

 

38

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

 

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

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

 

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

 

None

 

**ITEM 9A.  CONTROLS AND PROCEDURES**

 

(a) Under the supervision and with the participation of management,including our principal executive officer and principal financial officer, weconducted an evaluation of our disclosure controls and procedures, as such termis defined under Rule 13a-14(c) promulgated under the Securities Exchange Actof 1934, as amended (the “Exchange Act”), within 90 days of the filing date ofthis report.  Based on their evaluation,our principal executive officer and principal financial officer concluded thatthe Partnership’s disclosure procedures are effective.

 

(b)  There have been nosignificant changes (including corrective actions with regard to significantdeficiencies or material weaknesses) in our internal controls or in otherfactors that could significantly affect these controls subsequent to the dateof the evaluation referenced in paragraph (a) above.

 

39

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**PARTIII**

 

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

 

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

 

## **A.**    Identification of Directors

 

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

 

*James H. Case.* 84 years old; director of Managing Partner since 1986: member of Auditand Conflicts Committee from 1986 through March 7, 2005; of counsel to the lawfirm of Carlsmith Ball; not an employee, officer, or director of any CBCL orDBE affiliate other than the Managing Partner.

 

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

 

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

 

*Dennis J. Simonis.* 48 years old; director of Managing Partnersince August 2002; President and Chief Operating Officer of Managing Partnerfrom August 2001 until December 2004, Chief Financial Officer from June 2001 toAugust, and Chief Executive Officer since December 2004. Executive VicePresident and Chief Financial Officer of DBE since August 2001.

 

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

 

**B.  Identification of ExecutiveOfficers of the Managing Partner**

 

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

 

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

 

*Randolph H. Cabral.  52*years old; senior vice president and orchard manager of Managing Partner sinceMay 2000; not otherwise an employee, officer, or director of any CBCLaffiliate. Formerly senior vice president and orchard manager of KACI.

 

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

 

40

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**C.****    Identificationof Certain Significant Employees**

 

Not applicable

 

# ***D.  Family Relationships***

# *** ***

Not applicable

 

**E.  Business Experience ofCurrent Directors and Executive Officers**

 

***Current Directors of the Managing Partner.***

 

*John W. A. Buyers.*****Mr.Buyers has been chairman of ML Resources since July 1992.  He has been chairman of the board of CBCLsince 1982.  He was the past presidentand chief executive officer of CBCL with services from 1982 to 2002.  After service in the U.S. Marine Corps, Mr.Buyers attended Princeton University where he graduated *cum laude*in 1952.  He later received an M.A. inIndustrial Management from the Massachusetts Institute of Technology as a SloanFellow.  He is a director of FirstHawaiian Bank, and Outrigger Enterprises, Inc. He is also a director of John B. Sanfilippo & Sons, Inc., a nut andmarketing company located in Elk Grove Village, Illinois and the Hawaii IslandEconomic Development Board.  He is amember of the U.S. Chamber of Commerce Committee on Food and Agriculture inWashington, D.C.  He resides in Honomu,Hawaii.

 

*James H. Case*. Mr. Case is of counsel to the Hawaii law firm of Carlsmith Ball.  Mr. Case graduated with an A.B. from WilliamsCollege and received a J.D. from Harvard Law School. He became associated withthe Carlsmith law firm in 1951 and became a partner in 1959.  He has served on the boards of directors ofHamakua Sugar Company, Inc., Paauilo, Hawaii, InterIsland Resorts, Ltd.,Honolulu, Hawaii, Pacific Club, Honolulu, Hawaii, Central Union Church,Honolulu, Hawaii, Hanahauoli School, Honolulu, Hawaii, and Arcadia RetirementResidence, Honolulu, Hawaii.  He residesin Honolulu, Hawaii.

 

*Ralph C. Hook, Jr*.  Dr. Hook joined the faculty of the College ofBusiness Administration at the University of Hawaii in 1968 as Dean of theCollege of Business Administration.  In1974, he returned to teaching as Professor of Marketing in the College ofBusiness Administration.  He became aProfessor Emeritus of Marketing in June 1995. Dr. Hook received a bachelor’s and master’s degrees from the Universityof Missouri at Columbia and a Ph.D. in Marketing from the University of Texasat Austin.  He has been a member of theboard of Hook Brothers Corporation since 1983. He resides in Honolulu, Hawaii.

 

*David McClain.* Dr. McClain was appointed asthe Interim President of the 10-campus University of Hawai’i System effectiveAugust 15, 2004, and served as Vice President for Academic Affairs of the UHSystem from July 1, 2003.  From 2000 until2003 he was the Dean of the College of Business Administration at theUniversity of Hawaii at Mnoa,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 Insurance Company, and serves as a member ofseveral nonprofit boards in Hawaii. He earned a Ph.D. in Economics from theMassachusetts Institute of Technology in 1974 and a BA in Economics andMathematics from the University of Kansas in 1968.  Dr. McClain has taught at MassachusettsInstitute of Technology’s Sloan School of Management and at Boston University,where he chaired the Department of Finance and Economics. He also served asSenior Staff Economist, Council of Economic Advisors to President Jimmy Carter,and headed international economic information services for Data Resources,Inc.  He resides in Honolulu, Hawaii.

 

41

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*Dennis J. Simonis*.  Mr. Simonis has served as a 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.

 

*John K.Kai.*  Mr. Kai has served as a director since June2004.  Mr. Kai is president of PinnacleInvestment Group, LLC and Pinnacle Media Group, LLC, and branch manager andinvestment representative of Linsco / Private Ledger.  Mr. Kai was the resident manager of the Hilooffice of Paine Webber, Inc. and was with Merrill Lynch prior.  Mr. Kai is a graduate of Sacramento CityCollege and attended the University of the Pacific from 1983 to 1985.  Mr. Kai serves on the Board of Regents of theUniversity of Hawaii and is a director of the Research Corporation of theUniversity of Hawaii, the Hawaii Island Portuguese Chamber of Commerce and hasserved on several nonprofit boards in Hawaii. He resides in Hilo, Hawaii.

 

***Executive Officers Who Do Not Serve asDirectors.***

 

*Randolph H. Cabral. *Mr.Cabral has served as senior vice president and orchard manager of the ManagingPartner since 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.

 

*WayneW. Roumagoux.*   Mr. Roumagoux has served as chief financialofficer 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.

 

**AuditCommittee. **Effective March 7, 2005, James Case resignedfrom the Audit Committee.  At the March9, 2005 Board of Directors meeting Dr. David McClain was appointed chairman andJohn Kai was appointed a member of the Audit Committee.  The Audit Committee of ML Resources, Inc. iscomprised of three members, Chairman Dr. David McClain, Dr. Ralph Hook and JohnKai.  The members of the CompensationCommittee, Nominating Committee and Corporate Governance Committee are JamesCase, Dr. David McClain, Dr. Ralph Hook and John Kai.  The Board of Directors has determined thateach member of the Audit Committee is independent in accordance with SEC Rule10-A-3 and each member is financially literate, though none qualifies as afinancial expert.  The company hasattempted to attract a financial expert to serve on the committee, but has beenunable to retain a qualified individual due to professional and geographiclimitations.  The Audit Committee metfour times in 2004 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.

 

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

 

42

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**AuditCommittee Pre-Approval Policy.  **The Audit Committee Pre-Approval Policy isavailable by request or on the Partnership’s website at www.mlmacadamia.com .

 

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

 

**NominatingCommittee. **The Partnership does not have a Nominating CommitteeCharter.  The Audit Committee serves asthe Nominating Committee.  Informationpertaining to the members of the Audit Committee members is included under theheading Audit Committee on the preceding page. The decision to incorporate the functions of the Compensation Committeeand Nominating Committee into the Audit Committee was recently decided by theBoard.  The Partnership is in the processof updating the Audit Committee Charter at this time.

 

**F.**     Section16 Disclosure

 

Under Section 16 of the Securities Exchange Act of1934, as amended (the “Exchange Act”), each director and certain officers of MLResources, Inc., the managing general partner of Registrant (a “ReportingPerson”), are required to report their ownership and changes in ownership ofClass A Depositary Units to the Securities and Exchange commission, the New YorkStock Exchange and Registrant.  Based onreporting forms submitted to Registrant, no Reporting Person has failed to fileon a timely basis reports required by Section 16(a) of the Exchange Act during2000, except that Randolph Cabral, who became senior vice president on May 1,2000, and who owns 100 Class A Units, did not file a Form 3 until October 4,2000;  and Wayne Roumagoux, who becameprincipal accounting officer on August 1, 2001, and owns no shares, did notfile a Form 3 until February 4, 2002.

 

**ITEM 11. EXECUTIVE COMPENSATION**

 

**A.****    SummaryCompensation Table**

 

The Partnership is managed by the managing generalpartner.  All costs of managing thePartnership are reimbursed by the Partnership, as provided in Section 4.5 ofthe Partnership Agreement.  The followingtable reflects the aggregate compensation for services in all capacities paidby the Managing Partner to its executive officers for the years ended December31, 2004, 2003 and, 2002. There were no long- term compensation awards orpayouts during those years.

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

 

43

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----

*****Mr.Buyers resigned as chief executive officer December 2004 and was given aseverance of $50,000.  Mr. Simonis wasappointed chief executive officer December 2004.

 

**B.  No Option, SAR, Long-termIncentive or Pension Plans**

 

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

 

**C.  No Employment Contracts or TerminationAgreements**

 

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

 

**D. Compensation of Executive Officers**

 

The Audit Committee of the Managing Partner serves ascompensation committee.  The onlyexecutive officers of the Managing Partner (employed by the Partnership) areMr. Buyers, who has been compensated since June of 2002 through December 2004when he resigned as chief executive officer; Mr. Simonis, who has served as itschief executive officer and president since December 2004, president sinceAugust 2001 and chief financial officer from May 2001 until August of 2001; Mr.Cabral, who has served as senior vice president and orchard manager since May2000 and Mr. Roumagoux, who has served as chief financial officer since Augustof 2001.  These officers’ salary andguideline bonus percentage are administered under the salary policies of DBEand approved by the Board.  Any bonuspayments are approved by the Managing Partner’s Board of Directors annually,based on the overall performance of the Partnership as evidenced by its netincome and cash flow for the year. Performance in both categories is measured relative to the originalPartnership operating budget approved by the Managing Partner’s Board ofDirectors at the beginning of each year.

 

**E.  Director Compensation**

 

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

 

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**F.  StockPerformance Chart**

 

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

 

 

**ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

As of December 31, 2004, and subsequent to that dateto the date of this report, (i) one person (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.

 

The table below sets forth certain information as to the Class A Unitsbeneficially owned by the beneficial owner of more than 5% of the Class A Unitsas of December 31, 2004.

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

 

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The table below sets forth certain information as to the Class A Unitsbeneficially owned by the directors of the Managing Partner, and all directorsand executive officers of the Managing Partner as a group, as of December 31,2004.

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

 

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*Less than 1%

 

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

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

 

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

 

**ITEM 13.  CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONS**

 

**1*.  General***

 

The Managing Partner makes all decisions relating to the management ofthe Partnership.  The Managing Partner,as such, 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 January 2006. Certain officers and directors of CBCL who are ex-officers andex-directors of the Managing Partner are substantial shareholders of CBCL. Themajority owner of DBE is also the chairman of CBCL.  As a result of these relationships, certainconflicts of interest could arise with respect to the administration of andallocation of costs under the Partnership Agreement and in situations describedbelow, among others.

 

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

 

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**2.  *FarmingLeases***

 

At the time of the Partnership’s acquisition of the interests in theOctober 1989 Orchards, MLO assigned to the Partnership all of MLO’s rights andobligations under three 45-year farming leases relating to 327 tree acres ofthe Ka’u II Orchards and all of the Mauna Kea Orchards.  The farming leases permit the Partnership toconduct macadamia nut farming operations on such macadamia orchardproperties.  The farming leases providefor fixed minimum annual lease payments to be paid to either KACI or MKACI(collectively, the “Agribusiness Companies”), as the case may be.  Such annual rental payments are subject toincrease after ten years, twenty years and thirty years based on then currentfair market lease rates.  The thencurrent fair market lease rate will be determined by mutual agreement betweenthe Partnership, on the one hand, and either KACI or MKACI, as the case may be,on the other hand. If mutual agreement cannot be reached, the then current fairmarket lease rate will be determined by appraisal.  Whether determined by mutual agreement or byappraisal, the then current fair market lease rate will be determined as a fairmarket lease rate for use of such premises as macadamia orchards.

 

The Partnership acquired its interests in the trees situated on suchleased macadamia orchard properties subject to repurchase options retained bythe Agribusiness Companies.  Therepurchase options grant the Agribusiness Companies the continuing right to repurchaseall or any portion of such trees after June 30, 2019 at a price equal to thethen current fair market value of the trees, according to their value asproducing macadamia nut trees, as determined by mutual agreement between thePartnership, on the one hand, and either KACI or MKACI, as the case may be, onthe other hand.  If mutual agreementcannot be reached, the then current fair market value will be determined byappraisal.  Whether determined by mutualagreement or by appraisal, the fair market value of such trees will bedetermined according to their value as producing macadamia nut trees, assumingthat the owner thereof has rights to farm and harvest such trees and hasongoing arrangements with respect to land leases, farming and nut purchases ofthe same type as the Partnership has immediately prior to such time.

 

At the end of the 45-year lease terms of such leases, the AgribusinessCompanies will be required to repurchase such trees at their then current fairmarket value as orchards if such entities do not offer to extend such farmingleases at the then current fair market lease rates. The then current fairmarket lease rate and the then current market value of the trees for suchpurposes will be determined through mutual agreement between the Partnership,on the one hand, and either KACI or MKACI, as the case may be, on the otherhand or, if mutual agreement cannot be obtained, by appraisal, in each case inthe manner described above.  Suchrepurchase obligations will apply with respect to the expiration of eachextension of the lease terms of such leases until such leases have been ineffect for a total of 99 years, at which time the leases will expire and theownership interests in such trees will revert back to the Agribusiness Companies.

 

In the event that the Partnership decides not to accept an offer toextend the leases at the then current fair lease rates upon the expiration ofthe leases or any extension thereof (or does not assign the leases to a thirdparty who elects to accept such offer), the leases will expire, theAgribusiness Companies will not be required to repurchase the trees coveredthereby and ownership of such trees will revert back to the AgribusinessCompanies (and in any event ownership of such trees will revert back to theAgribusiness Companies after 99 years).

 

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

 

47

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

 

The Partnership is a party to five nut purchase contracts with MaunaLoa Macadamia Nut Corporation (“Mauna Loa”). The five nut purchase contracts cover all nuts produced by the orchardsacquired in June 1986, December 1986, October 1989, September 1991, and May2000 respectively.  The first twocontracts run for 20 years, while the third contract runs for 30 years and alsoprovides for the exclusion of unusable nuts from those purchased by MaunaLoa.  The first three contracts areidentical in all other material respects. The fourth contract was acquired by assignment with the purchase of theSeptember 1991 orchard and expired in June 2003.  The fourth contract was renegotiated with afixed price adjusted for unusables outside the range of 10% to 13%.  The fourth contract expires December 31,2006.  The fifth contract was acquired byassignment with the purchase of the May 2000 orchards and expires in 2006.  The fifth contract is similar to the firstthree contracts and also provides for the exclusion of unusable nuts.  The first four contracts use a pricingformula based 50% on a two-year trailing average of the macadamia nut pricepublished annually by the U.S. Department of Agriculture (“USDA”) and 50% onMauna Loa’s “netback component”. The netback component is calculated bysubtracting Mauna Loa’s processing and marketing costs per pound and a “capitalcharge” of 20% from its nut revenues per pound. The fifth contract uses onlythe USDA two-year trailing average to determine its nut price.  The nut price paid to the Partnership underthe first two contracts was $0.4655 for 2002, $0.4816 in 2003, and $0.4954 in2004.  The average nut price paid to thePartnership under the third contract was $0.4610 for 2002, $0.4789 in 2003 and$0.4945 in 2004. The average nut price paid to the Partnership under the fourthnut price contract was $0.4920 for 2002, $0.5923 in 2003, and was $0.6000 in2004.  The nut price paid to the Partnershipunder the fifth contract was $0.5940 for 2002, $0.5660 in 2003, and was $0.5560in 2004.  On December 16, 2004, a new nutpurchase contract was signed with Hamakua Macadamia Nut Company (“Hamakua”) forthe delivery of six million pounds, effective January 1, 2007. The contractprovides for a minimum price of 79 cents per pounds and a maximum of 99 centsper pound. The pricing formula includes a fixed component of 85 cents and asecond component based on Hamakua’s average selling price for bulk kernel.  Refer to Exhibit 10.52 on page 57.

 

**4.  *Farming Contracts***

 

Prior to the Partnership’s acquisition of themacadamia farming operations on May 1, 2000, the Partnership was a party tofour farming contracts with the 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 contracts provided the Agribusiness Companies withreimbursement of their direct and indirect costs incurred under thesecontracts.  Husking activities for theKeaau and Mauna Kea orchards are performed at Mauna Loa’s Keaau facility.  Reimbursements made to Mauna Loa were$531,000 in 2002, $522,000 in 2003, and $440,000 in 2004.

 

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

 

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

 

**6.  *Management Fee***

 

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

 

48

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

 

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

 

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

 

Mr. Case performs legal work for CBCL, and some of itssubsidiaries.  He is also a director ofML Resources, Inc. and performs legal work for the Partnership.

 

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

 

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

 

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

 

**ITEM 14. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES AND SERVICES**

 

**Audit Fees.**Fees paid to theIndependent Registered Public Accounting Firm during 2004, 2003 and 2002 forthe audit of the Partnership’s annual financial statements and review offinancial statements included in the Partnership’s Form 10-Q amounted to$68,000, $56,000 and $54,500, 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, 2004, 2003 and 2002, which wereapproved by Partnership’s audit committee amounted to $61,000, $58,000 and$56,000, respectively.

 

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

 

**Tax Fees. **Feespaid to the Independent Registered Public Accounting Firm during 2004, 2003 and2002 for tax preparation and related support services amounted to $256,000,$229,000 and $208,000, respectively.

 

**All Other Fees. **None

 

49

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### **PART IV**

### ** **

**ITEM 15.  EXHIBITS, FINANCIALSTATEMENT SCHEDULES AND REPORTS ON FORM 8-K**

 

**A.****    Listof Documents Filed as a Part of this Report**

 

1.     *Financial Statements. *SeeIndex to Financial Statements at page 21 of this Form 10-K.

 

2.     *Financial Statement Schedules*.  None required.

 

3.     *Exhibits*.  See ExhibitIndex at page 53 of this Form 10-K.

 

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

 

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

 

On May 13, 2003, the Partnership filed a “Regulation FD Disclosure” onForm 8-K, which included a copy of a press release issued by the Partnershipsetting forth the results of operations for the quarter ended March 31, 2003.

 

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

 

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

 

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

 

On May 11, 2004, the Partnership filed a “Regulation FD Disclosure” onForm 8-K, which included a copy of a press release issued by the Partnershipsetting forth the results of operations for the quarter ended March 31, 2004.

 

On June 7, 2004, the Partnership filed a “Regulation FD Disclosure” onForm 8-K, which included a copy of a press release issued by the Partnershipsetting forth the second quarter distribution and appointment of John Kai asDirector.

 

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

 

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

 

50

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

 

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

 

On December 20, 2004, the Partnership filed a “Regulation FD Disclosure”on Form 8-K, which included a copy of a press release issued by the Partnershipannouncing the resignation of Mr. John W. A. Buyers as Chief Executive Officerof the general partner of the Partnership, ML Resources, Inc.;  the agreement by the Partnership to purchaseML Resources, Inc.; the appointment of Dennis J. Simonis as Chief ExecutiveOfficer of the general partner of the Partnership; and the agreement withHamakua Macadamia Nut Company, Inc. with the Partnership to purchase 6,000,000pounds of nuts per year starting in 2007 and ending in 2012.

 

51

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**SIGNATURES**

 

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

 
|                   | **ML MACADAMIA ORCHARDS, L.P.** |
|------------------------|---------------------------------|
|                   | (Registrant)                    |   |
|                   |                            |
|                   | By:                             | **ML RESOURCES, INC.** |
|                   | (Managing General Partner)      |   |
|                   |                            |
|                   | By:                             | /s/ Dennis J. Simonis |   |
|                   |                            | Dennis J. Simonis |   |
|                   |                            | Principal Executive Officer |   |
|                   |                            |
| Dated : March 23, 2005 |                            |
|                        |                                 |  |  |  |

 

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

 

**ML RESOURCES, INC.**

 
| **Signature** | ** **             | ** ** | **Title** |
|---------------|------------------------|------------|-----------|
|          |                   |       |      |
| s/s           | J. W. A. Buyers        |       |      | Chairman of the Board of Directors |
|          | J. W. A. Buyers        |       |      | Director |
|          |                   |       |      |   |
| s/s           | Dennis J. Simonis      |       |      | President and Chief Executive Officer |
|          | Dennis J. Simonis      |       |      | Principal Executive Officer |
|          |                   |       |      | Director |
|          |                   |       |      |   |
| s/s           | Wayne W. Roumagoux     |       |      | Chief Financial Officer |
|          | Wayne W. Roumagoux     |       |      | (Principal Accounting Officer) |
|          |                   |       |      |   |
| s/s           | James H. Case          |       |      | Director |
|          | James H. Case          |       |      |   |
|          |                   |       |      |   |
| s/s           | Dr. Ralph C. Hook, Jr. |       |      | Director |
|          | Dr. Ralph C. Hook, Jr. |       |      |   |
|          |                   |       |      |   |
| s/s           | Dr. David McClain      |       |      | Director |
|          | Dr. David McClain      |       |      |   |
|          |                   |       |      |   |
| s/s           | John Kai               |       |      | Director |
|          | John Kai               |       |      |   |

 

52

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**EXHIBIT INDEX**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                               |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                                                                          |
| 2.1                 |       | Amended and Restated  Agreement and Plan of Merger, effective as of December 18, 1997, between  Registrant and C. Brewer Homes, Inc. (a)                                                                                                                                                      |
|                |       |                                                                                                                                                                                                                                                                                          |
| 2.2                 |       | Asset Purchase  Agreement including Exhibits dated March 14, 2000 (g)                                                                                                                                                                                                                         |
|                |       |                                                                                                                                                                                                                                                                                          |
| 3.2                 |       | Form of Class A Certificate of Limited Partnership as filed with the  Secretary of State of Delaware. (c)                                                                                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                          |
| 3.3                 |       | Certificate of Limited Partnership of Registrant as filed with the  Secretary of State of Delaware. (c)                                                                                                                                                                                       |
|                |       |                                                                                                                                                                                                                                                                                          |
| 4.1                 |       | Depositary Agreement between Registrant, Manufacturers Hanover Trust  Company as Depositary and Mauna Loa Resources Inc. as attorney-in-fact of the  limited partners of Registrant. (c)                                                                                                      |
|                |       |                                                                                                                                                                                                                                                                                          |
| 4.2                 |       | Form of Depositary Receipt. (c)                                                                                                                                                                                                                                                               |
|                |       |                                                                                                                                                                                                                                                                                          |
| 5.1                 |       | Legal Opinion of Counsel dated May 1, 2000 (g)                                                                                                                                                                                                                                                |
|                |       |                                                                                                                                                                                                                                                                                          |
| 10.2                |       | Macadamia Nut Purchase Contract between Mauna Loa and Registrant  dated December 22, 1986. (b)                                                                                                                                                                                                |
|                |       |                                                                                                                                                                                                                                                                                          |
| 10.3                |       | Macadamia Nut Purchase Contract between Mauna Loa and Registrant  dated as of October 1, 1989. (b)                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                          |
| 10.4                |       | Contribution Agreement among Mauna Loa Orchards, L.P. (“MLO”), Ka’u  Agribusiness Co., Inc. (“KACI”), Mauna Kea Agribusiness Co., Inc. (“MKACI”),  Mauna Kea Macadamia Orchards, Inc. (“MKMO”) and Mauna Loa dated as of  July 1, 1989. (b) |
|                |       |                                                                                                                                                                                                                                                                                          |
| 10.5                |       | Lease between the Trustees of the Estate of Bernice Pauahi Bishop  (“Trustees of the Bishop Estate”) and Mauna Loa. (c)                                                                                                                                                             |
|                |       |                                                                                                                                                                                                                                                                                          |
| 10.6                |       | Lease between KACI and Registrant. (d)                                                                                                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                                                                                                          |
| 10.7                |       | MLO/MLMO Conveyance Agreement between MLO and Registrant dated as of  October 1, 1989. (b)                                                                                                                                                                                                    |
|                |       |                                                                                                                                                                                                                                                                                          |
| 10.8                |       | Butcher/MLMO Contribution Agreement between Howard Butcher III  (“Butcher”) and Registrant dated as of October 1, 1989. (b)                                                                                                                                                         |
|                |       |                                                                                                                                                                                                                                                                                          |
| 10.9                |       | Farming Lease between KACI and MLO dated as of July 1, 1989. (b)                                                                                                                                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                          |
| 10.10               |       | Farming Lease between MKACI and MKMO dated as of July 1, 1989. (b)                                                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                          |
| 10.11               |       | Farming Lease between MKACI and MLO dated as of July 1, 1989. (b)                                                                                                                                                                                                                             |
|                |       |                                                                                                                                                                                                                                                                                          |
| 10.12               |       | Water Agreement, as amended, between KACI and Registrant dated as of  October 1, 1989. (b)                                                                                                                                                                                                    |

 

53

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

 

54

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

 

55

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| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                   |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                                                                        |
| 10.52               |       | Macadamia Nut Purchase Contract between Hamakua Macadamia Nut  Company, Inc. and the Partnership dated December 16, 2004 effective January  1, 2007.              |
|                |       |                                                                                                                                                              |
| 10.53               |       | Jim Case resignation letter from Audit Committee dated March 7, 2005.                                                                                             |
|                |       |                                                                                                                                                              |
| 11.1                |       | Statement re: Computation of Net Income per Class A Unit.                                                                                                         |
|                |       |                                                                                                                                                              |
| 31.1                |       | Form of Rule 13a-14(a) [Section 302] Certification – Chief Executive  Officer                                                                                |
|                |       |                                                                                                                                                              |
| 31.2                |       | Form of Rule 13a-14(a) [Section 302] Certification – Chief Financial  Officer                                                                                |
|                |       |                                                                                                                                                              |
| 32.1                |       | Certification pursuant to 18 U.S.C. Section 1350 As adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002  – Chief Executive  Officer |
|                |       |                                                                                                                                                              |
| 32.2                |       | Certification pursuant to 18 U.S.C. Section 1350 As adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002  – Chief Financial  Officer |

 

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(a)   Incorporated byreference to Appendix A of Registrant’s Registration Statement under theSecurities Act on Form S-4, Registration Statement No. 333-46271, filedFebruary 13, 1998.

 

(b)   Incorporated byreference to the corresponding Exhibit previously filed as an Exhibit toRegistrant’s Registration Statement under the Securities Act on Form S-1,Registration Statement No. 33-30659, filed October 20, 1989.

 

(c)   Incorporated byreference to the corresponding Exhibit previously filed as an Exhibit toRegistrant’s Registration Statement under the Securities Act on Form S-1,Registration Statement No. 33-4903, filed June 5, 1986.

 

(d)   Incorporated byreference to the corresponding Exhibit previously filed as an Exhibit toRegistrant’s Annual Report on Form 10-K, Commission filed No. 1-9145, for theyear ended December 31, 1986, filed March 27, 1987.

 

(e)   Incorporated byreference to the corresponding Exhibit previously filed as an Exhibit toRegistrant’s Annual Report on Form 10-K, Commission filed No. 1-9145, for theyear ended December 31, 1991, filed March 27, 1992.

 

(f)    Incorporated byreference to the corresponding Exhibit previously filed as an Exhibit toRegistrant’s Registration Statement under the Securities Act on Form S-4,Registration Statement No. 333-46271, filed February 13, 1998.

 

(g)   Incorporated byreference to the corresponding Exhibit previously filed as an Exhibit toRegistrant’s Form 8-K, Commission filed No. 001-09145, filed May 8, 2000.

 

(h)   Incorporated byreference to the corresponding Exhibit previously filed as an Exhibit toRegistrant’s Form 10-K, Commission filed No. 001-09145, filed March 17, 2004.

 

56

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