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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

### **FORM 10-K**

### ** **

| **x**      | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**         |       |
|------------|-------------------------------------------------------------------------------------------------------------|------------|
| ** ** | ** **                                                                                                  | ** ** |
| ** ** | **For the  Fiscal Year Ended  December 31,  2008**                                                | ** ** |
| ** ** | ** **                                                                                                  | ** ** |
| ** ** | **OR**                                                                                                      | ** ** |
| ** ** | ** **                                                                                                  | ** ** |
| **o**      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE****SECURITIES  EXCHANGE ACT OF 1934** | ** ** |

 

**CommissionFile Number  1-9145**

 

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

(Exact Name ofregistrant as specified in its charter)

 

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

 

Registrant’stelephone number, including area code:  ** (808) 969-8057**

 

Registrant’swebsite:  **www.mlmacadamia.com**

 

SECURITIESREGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

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

 

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

 

Indicateby check mark if the registrant is a well-known seasoned issuer as defined in Rule 405of the Securities Act

Yeso  No x

 

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13of 15(d) of the Act.

Yeso  No x

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe 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 tosuch filing requirements for the past 90 days.  Yes x   No o

 

Indicate by check mark if disclosure ofdelinquent filers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part IIIof this 10-K or any amendment to this 10-K. x

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer ora smaller reporting company.  Seethe  definitions of “large acceleratedfiler,” “accelerated filer,” and “smaller reporting company”  in Rule 12b-2 of the Exchange Act.  Large accelerated filer o  Accelerated filer o  Non-accelerated filer  x Smaller reportingcompany o

 

Indicate by check mark whether the Registrantis a shell company as defined by Rule 12b-2 of the Securities Exchange Actof 1934.  Yes o  No x

 

As of March 20, 2009, 7,500,000 shares ofthe registrant’s Class A Units were outstanding, and the aggregate marketvalue of such Units held by non-affiliates was $14,250,000 (based on theclosing price on that date of $1.90 per Unit).

 

 

 

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**PART I**

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**Item 1. BUSINESS OF THE PARTNERSHIP**

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**(a) GeneralDescription of the Business**

** **

ML Macadamia Orchards, L.P. (the “Partnership”) is a master limitedpartnership, organized under the laws of the State of Delaware.  The Partnership is engaged in the business ofgrowing and farming macadamia nuts in the State of Hawaii.  The Partnership believes that it is one ofthe world’s largest growers of macadamia nuts. The Partnership owns or leases approximately 4,190 tree acres ofmacadamia nut orchards in three locations within a 50-mile radius on the islandof Hawaii.  (“Tree acres” are acres ofthe Partnership’s owned or leased lands utilized for macadamia nutorchards.  “Gross acres” includes areasnot utilized for orchards.)  In addition,the Partnership farms approximately 2,000 tree acres of macadamia nut orchardsfor other orchard owners under farming contracts.

 

The Partnership commenced operations in June 1986,following its acquisition 2,423 tree acres of macadamia nut orchards fromsubsidiaries of C. Brewer and Company, Ltd. (“CBCL”).  In December 1986 and October 1989,the Partnership acquired 266 and 1,260 additional tree acres of macadamia nutorchards from subsidiaries of CBCL.  In September 1991the Partnership acquired 78 tree acres of macadamia nut orchards fromCBCL.  On May 1, 2000, thePartnership acquired 142 tree acres of macadamia nut orchards and its macadamiafarming operations from subsidiaries of CBCL. In April 2006 the Partnership acquired approximately 21 tree acresof macadamia nut orchards from J.W. A. Buyers. The farming operations consist of farming contracts, farming equipment,vehicles, a husking plant, irrigation well, office buildings, garages andwarehouses, office furniture and equipment and material inventories related tomacadamia farming.  All the assets andoperations are located on the island of Hawaii.

 

The Partnership is managed by its general partner, MLResources, Inc. (“MLR” or the “Managing Partner”), which is a wholly ownedsubsidiary of the Partnership.

 

During 2006 the Partnership sold all of its macadamia nut production toMauna Loa Macadamia Nut Corporation (“Mauna Loa”) under four nut purchasecontracts.  Three of these nut purchasecontracts representing approximately 16 million field pounds per annum, expiredon December 31, 2006 and the fourth contract representing approximately6.3 million field pounds per annum expires December 31, 2011. In lieu ofrenegotiating the expired nut purchase contracts with Mauna Loa, thePartnership executed nut purchase contracts with three other processors;Hamakua Macadamia Nut Company, Inc. (“Hamakua”), MacFarms of Hawaii, LLC (“MacFarms”)and Purdyco International, Ltd. dba Island Princess (“Island Princess”)beginning January 1, 2007.  On October 31,2008 the nut purchase contract with Island Princess was terminated and subjectto certain conditions, the Partnership has agreed to terminate the Hamakuacontract as of June 10, 2009. The details of the Partnership’s nutpurchase contracts are discussed in Item 1 (c), *OwnedOrchard Segment*on page 3.

 

Ownership of Class A Units confers nodirect or indirect interest in CBCL, DBE, Mauna Loa, Hamakua, MacFarms orIsland Princess, or any of their affiliated entities.

 

** (b) Financial Information about IndustrySegments**

 

The response to this section of Item 1 incorporates byreference Note 3 to the Notes to Consolidated Financial Statements.

 

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**(c) Narrative Description ofthe Business**

 

**Owned-Orchard Segment**

 

The Partnership’s averageannual nut production has been between 20.5 and 22.0 million field pounds.  The four nut purchase contracts, which werein effect during 2008 provided for the sale of between 18 and 19 million fieldpounds.  For 2009, the Partnership hasnut purchase contracts providing for the sale of approximately 21 to 27 millionfield pounds.  The Partnership must findother buyers or a processor to purchase or process nut production not committedand purchased under purchase contracts.

 

During 2008 thePartnership sold macadamia nuts from its orchards to Mauna Loa, MacFarms andIsland Princess under nut purchase contracts and related addendums.  The Partnership attempted to sell and delivermacadamia nuts to Hamakua under the terms of its nut purchase contract, but Hamakuarefused to accept delivery of any macadamia nuts from the Partnership during2008.  Despite Hamakua’s refusal to takedelivery, the Partnership was able to sell all of its 2008 nut production.

 

During 2007 thePartnership sold macadamia nuts from its orchards to Mauna Loa, MacFarms andIsland Princess under nut purchase contracts. Hamakua did not purchase any of the Partnership’s 2007 production andinstead processed the Partnership’s macadamia nuts into kernel for thePartnership to sell in the wholesale market. The Partnership was unable to sell all of its production in 2007 and had$2.0 million of kernel and unsold nuts at December 31, 2007 carryinginventory into a subsequent year for the first time since its inception.  During 2008 the Partnership sold $2.0 millionof this inventory.

 

During 2006 thePartnership sold all of its macadamia nut production to Mauna Loa under fournut purchase contracts.  Mauna Loaprocesses and markets the nuts under the **Mauna Loa****â** brand name and is believed to be one of the largestprocessors and marketers of macadamia nuts in the world.  The Partnership was Mauna Loa’s largestsingle supplier of macadamia nuts in 2006.

 

# ***Nut Purchase Contracts.***  During 2008 thePartnership had four nut purchase contracts with: Mauna Loa, MacFarms, IslandPrincess (terminated October 31, 2008) and Hamakua (to be terminated), asdetailed below.  Nut purchase contractsrequire the buyer to purchase a quantity of macadamia nuts.  Nuts from the field are weighed after theyare husked, which leaves the nut still in its hard shell, referred to aswet-in-shell.  Orchard to orchard andyear to year, wet-in-shell nuts have varying moisture and saleable kernelcontents, accordingly, each nut purchase contract has a standard wet-in-shellmoisture of 20% (“WIS”) and a standard saleable kernel / dry-in-shell of 30% (“SK/DIS)to which the delivered field pounds are adjusted to determine the pounds forwhich the Partnership is paid.  If themoisture content is above the 20% standard, then the pounds of nuts paid forwill be less than the pounds actually delivered.  Conversely, if the moisture content is belowthe 20% standard, then the pounds of nuts paid for will be greater than thepounds of nuts actually delivered.  Ifthe SK/DIS recovery is above the 30% standard, then the number of pounds paidfor will be greater than the actual pounds delivered.  Conversely, if the SK/DIS recovery is belowthe 30% standard, then the number of pounds paid for will be less than theactual pounds delivered.  Transfer ofownership for the nuts from the Partnership to the purchaser is at the time ofdelivery to the purchaser’s processing plant.

# *** ***

# ***On June 1, 2006, the Partnershipexecuted a contract with Mauna Loa for the annual delivery of approximately 6.3million pounds of wet-in-shell nuts, effective January 1, 2006 andexpiring December 31, 2011.  Thecontract provided for a nut price of $0.74 per WIS pound in 2006 and $0.75 perWIS SK/DIS pound in 2007.  The purchaseprice will increase annually by $0.01 per WIS SK/DIS pound, except 2008, untilit reaches $0.78 per WIS SK/DIS pound in 2011. On July 9, 2008 an addendum to the June 1, 2006 nut purchasecontract was executed with Mauna Loa for the delivery of an additional 9.0million pounds of field nuts during the period July 21, 2008 through June 30,2009 at a purchase price of $0.60 per pound on a WIS SK/DIS basis.  The addendum provided for an additional 3.0million pounds to be delivered if mutually agreed on the same basis as theadditional 9.0 million pounds.  On November 3,2008 it was agreed that any additional pounds over the 9.0 million poundsdelivered until December 31, 2008 would have a nut purchase price of $0.63instead of $0.60 per pound on a WIS SK/DIS basis.  On March 23, 2009 the parties executedan amendment to the June 1, 2006 contract for the delivery of anadditional 9.0 to 15.0 million wet-in-shell pounds at a purchase price of $0.63per pound on a WIS SK/DIS basis.***

 

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# ***On December 16, 2004, the Partnership executed a nutpurchase contract with Hamakua for the annual delivery of 6.0 millionwet-in-shell pounds, effective January 1, 2007, and with 2.0 million fieldpounds expiring in each year ending December 31, 2008, December 31,2010, and December 31, 2012, respectively. The contract provides for aminimum price of $0.75 per WIS pound and a maximum price of $0.95 per WISSK/DIS. The pricing formula included a fixed component of $0.85 per WIS poundand a second component based on Hamakua’s average selling price for bulkkernel.  In February 2007, thecontract was amended to allow the Partnership, at its option, to have Hamakuaprocess macadamia nuts into kernel for a fee in lieu of selling the nuts toHamakua.  The Partnership exercised thisoption solely for the calendar year 2007. The contract required Hamakua to purchase approximately 6.0 millionfield pounds of nuts during 2008, approximately 4.0 million field pounds ofnuts per annum in the years 2009-2010, and 2.0 million field pounds of nuts perannum in the years 2011-2012.  Hamakuarefused to accept delivery of any macadamia nuts during 2008.  Subject to the satisfaction of certainconditions the parties have agreed to terminate the contract as of June 10,2009 and the Partnership does not expect any additional nuts will be purchasedthereunder.  See Item 3. Legal Proceedingpage 13 for additional information.***

# *** ***

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

 

On January 6, 2006,the Partnership executed a nut purchase contract with MacFarms for the annualdelivery of between 5.0 and 6.0 million field pounds per annum, effective January 1,2007 and expiring on December 31, 2011. The nut price is determined every six months by mutual agreement basedon the prevailing market price for kernel from Hawaii and Australia.  The effective price for January — June 2007was $0.608 and July — December 2007 was $0.494, per WIS SK/DISpound.  The effective price for January —June 2008 was $0.494 and July — December 2008 was $0.55, per WISSK/DIS pound.  In connection with theorchard purchased from J.W.A. Buyers in April 2006, the Partnership agreedto sell approximately 100,000 field pounds harvested from this orchard toMacFarms for $0.98 per WIS SK/DIS pound through January 6, 2007.

 

**Competition.** In addition to the State of Hawaii, mature macadamia nut orchards arelocated in Australia, Africa, and Central/South America.  For the 2008 crop, Hawaii supplied 18% of theworld crop, and Australia, the world’s largest producer, supplied 39%.  The Partnership supplies about 30% of theHawaii crop from orchards it owns or leases and the orchards it farms forothers supply about 15% of the Hawaii crop to processors on Hawaii.    All of the Partnership’s production hashistorically only been sold to Hawaii processors as shipping the crop toprocessors outside of Hawaii has not been required nor cost effective.  The processors have the ability to purchasenuts from other local farmers and kernel from local and foreign processors tosatisfy their requirements.  Nuts thatare not purchased by the local processors would need to be processed intokernel for future sale or sold to a foreign buyer.  This was the case in 2007 when thePartnership was not able to sell all of its production and had unsold nuts heldin inventory and nuts it had processed into kernel, which the Partnershipeventually sold or inventoried for future sale.

 

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# ***Macadamia Farming Segment***

# *** ***

The Partnership farms4,190 acres of macadamia orchards, owned or leased and macadamia orchards ownedby other growers (approximately 2,008 acres during 2008 and 2007, and 2,029acres during 2006) under farming contracts.

 

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

 

***FarmingContracts. ***The Partnership currently providesservices under approximately seventeen farming contracts.  Services under these contracts includecultivation, weed and pest control, fertilization, pruning and hedging,replanting, harvesting, and husking.  Thefarming contracts provide for the Partnership to be reimbursed for all directfarming costs, collect a pro-rata share of indirect costs and overheads, andcharge a fee for these services, either as a fixed fee per acre farmed, or as apercent of reimbursed costs, ranging from 5% to 20%.  Approximately 150 acres are farmed underyear-to-year contracts, contracts for approximately 70 acres expire June 30,2013, contracts for approximately 635 acres expire June 30, 2016,contracts for approximately 410 acres expire July 31, 2029, contracts forapproximately 280 acres expire June 30, 2033, contracts for approximately610 acres expire September 30, 2078, and contracts for approximately 480acres expire September 30, 2080. Each owner is responsible for the sale of the nuts from their orchardsand the Partnership will arrange for the nuts to be delivered to the purchaserof the nuts at the owner’s cost.

 

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

 

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

 

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

 

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

 

During the harvestseason, the nuts are collected every six to ten weeks.  Nut quality deteriorates if they remain onthe ground too long.  The harvested nutsare then transported to husking facilities, which are located in Ka’u andKeaau.  The Keaau husking facility isowned and operated by Mauna Loa, and the Ka’u husking facility is owned andoperated by the Partnership.  Nuts harvestedin the 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.  Kernelquality is determined from samples taken. The final adjustments under the nut purchase contracts are made todetermine the appropriate payment for the nuts. Title to the nuts passes to buyer after delivery to the buyer’sprocessing plant.  Further processing ofthe nuts is done by the buyers at this time.

 

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#### ***StabilizationPayments***

#### *** ***

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

 

Accordingly, the lessor of this orchard Ka’u Agribusiness Company, Inc.(“KACI”), agreed to make cash stabilization payments to the Partnership foreach year through 1993 in which the cash flow (as defined) from this orchard fellshort of the target cash flow level, which approximated $507,000.  Stabilization payments for any given yearwere limited to the lesser of the amount of the shortfall or a maximum paymentamount.  For the years from 1987 through1993, inclusive, the Partnership received a total of $1,628,000 (including a 4%Hawaii general excise tax) in stabilization payments under this agreement.

 

The Partnership accounted for stabilization payments (net of the 4%Hawaii general excise tax) as a reduction in the cost basis of the orchardsacquired.  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 the lessor (the OlsonTrust who purchased KACI’s interest) 100% of any year’s cash flow from thisorchard in excess of the target cash flow as additional percentage rent untilthe aggregate amount of the additional percentage rent paid equals 150% of thetotal amount of stabilization payments previously received. Thereafter, thePartnership is obligated to pay the seller 50% of this orchard’s cash flow inexcess of the target cash flow as additional incentive rent.  No additional rent was due in 2008 or2007.  Additional rent of $62,000 waspaid in 2006.

 

**Loan Agreement.**

 

On July 8, 2008, thePartnership and the General Partner entered into a Second Amended and RestatedCredit Agreement with American Ag Credit, PCA, as successor-in-interest of thePacific Coast Farm Credit Services, PCA (“Lender”).  This agreement superseded the CreditAgreement dated May 1, 2000, as amended and restated.  The agreement provides for a revolving lineof credit in the maximum amount of $6,000,000 and a term loan.  As of December 31, 2008, the balance ofthe revolving line of credit was $900,000 and the balance of the term loan was$800,000.  The revolving line of creditmatures on June 30, 2009 and the term loan matures on May 1,2010.  Interest is payablequarterly.  A principal payment of$400,000 is due on May 1, 2009 on the term loan.  At this time, $340,000 of the term loan bearsinterest at a fixed rate of 5.1435% per annum, which rate expires on May 1,2009, at which time the term loan would bear interest at the base rate, whichis Wall Street Journal prime plus .75%. The Partnership has a right to convert the interest rate on all or partof the loan to a fixed rate by providing notice to the Lender, in which eventthat fixed rate shall be equal to Libor plus 2.75% for the period selected.  $460,000 of the term loan bears interest at afixed rate of 6.87% per annum, which rate expires on May 1, 2010.  Advances under the revolving credit facilitybear interest at the base rate unless the Partnership elects to convert therate to a fixed rate in accordance with the provisions above.  At this time, interest on revolving advancesis currently at 4.0% per annum.

 

The loans are secured byall personal property assets of the Partnership and all of the real propertyowned by the Partnership.  Subject tocertain exceptions, the loan agreement restricts the Partnership’s ability tochange its capital structure, to make certain investments, loans or advances,to incur indebtedness, create liens, sell assets, or take certain otheractions.  The Partnership is alsoprohibited from making any payments or other distributions in respect of anyPartnership interest in the Partnership or to acquire a Partnership interest orto make any payments or contributions to any partner except for reasonably equivalentvalue.  The Partnership is required tomaintain its tangible net worth as of the last day of each fiscal quarter,commencing September 30, 2008 at $41,000,000, which shall be increaseddollar for dollar by the amount of positive consolidated net income achieved bythe Partnership commencing October 1, 

 

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2008 and thereafter.  The Partnership also must maintain consolidatedEBITDA of not less than $600,000 for the quarter ended September 30, 2008,$1,150,000 for the four quarters ended December 31, 2008 and not less than$1,200,000 for the four quarters ended March 31, 2009 and thereafter.  The Partnership may not terminate theAddendum to the Purchase Contract with Mauna Loa prior to June 30, 2009,without the prior written consent of the Lender.  As of December 31, 2008, the Partnershipwas in compliance with this loan agreement. For further information, see Note 7 to the Consolidated FinancialStatements of the Partnership.

 

On March 25, 2009, the Lender provided the Partnership with acommitment to amend the Credit Agreement to extend the revolving line of creditfor an additional year on the same terms and conditions as provided in theSecond Amended and Restated Credit Agreement. The commitment Agreement would reduce the revolving line of credit to$5,000,000, increase the interest rate by 25 basis points per annum, increasethe fixed rate by 50 basis points per annum but maintain other terms andconditions.  The commitment isconditioned upon no material adverse affect on the financial condition of thePartnership, no material damage or destruction to the orchards owned by thePartnership and the payment of a fee of $25,000 plus normal reimbursableexpenses.  The Partnership intends tosatisfy these conditions and extend the line of credit.  There are no assurances that the Partnershipwill be able to continue to comply with the terms of the loan agreement or willbe able to extend the terms of this loan agreement after June, 2010.

 

# ***Employees.***  Asof December 31, 2008, the Partnership employed 227 people, of which 149were seasonal employees.  Of the total,21 are in farming supervision and management, 193 in production, maintenanceand agricultural operations, and 13 in accounting and administration.

# *** ***

With the May 2000acquisition, the Partnership agreed to the assumption of two bargainingagreements with the ILWU Local 142. These agreements cover all production, maintenance and agriculturalemployees of the Ka’u Orchard Division, the Keaau Orchard Division and theMauna Kea Orchard Division.  These laborcontracts became effective May 1, 1997 and expired on April 30, 2002,but were extended until April 30, 2005. The parties agreed to a three-year contract, which expired on April 30,2008 and was extended for a 60-day period. On June 30, 2008 the parties agreed to a one-year contract, whichwill expire on June 30, 2009. Although, the Partnership believes that relations with its employees andthe ILWU are generally very good, there is uncertainty with respect to theultimate outcome of the bargaining unit negotiations when the current agreementexpires.

 

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

#### *** ***

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

 

Macadamia nut trees aresubject to damage or destruction from diseases, pests, floods, droughts,windstorms, hurricanes, volcanic activity and other natural causes. Partnershiptree replacements for all orchards from all causes were 0.1% in 2008, 0.4% in2007, and 0.5% in 2006. Both crop and tree insurance are in place to protectthe Partnership against significant and catastrophic losses.

 

***Diseases and Pests.***  Macadamiatrees are susceptible to various diseases and pests which can affect the healthof the trees and resultant nut production. There are several types of fungal diseases, which can affect flower andnut development.  One of these isPhytophthora capsici, which affects the macadamia flowers and developing nuts,and another Botrytis cinerea, causes senescence of the macadamia blossom beforepollination is completed.  These types offungal disease are generally controllable with fungicides.  Historically, these fungi have infested thereproductive plant parts at orchards located in Keaau and Mauna Kea duringperiods of persistent inclement weather.

 

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Tree losses may occur due to a problem known as “Macadamia QuickDecline” (“MQD”).  Research at theUniversity of Hawaii indicates that this affliction is due to Phytophthoraacapsici which is associated with high moisture and poor drainageconditions.  Both the Keaau and Mauna KeaOrchards are areas with high moisture conditions, and may be more susceptibleto the MQD problem.  Afflicted trees inthese regions are replaced with cultivars that are intolerant to MQD.  The Partnership’s Keaau orchards experiencedtree replacement of 0.2% in 2008, 1.1% in 2007, and 1.0% in 2006.

 

Macadamia trees and production may also be affected by insects andother pests.  The Southern Green StinkBug disfigures the mature kernel and contributes to a historical loss of nutsof 1.2%.  Two natural enemies, a wasp anda fly, effectively keep nut losses at acceptable levels.  An insect known as the Koa Seed Worm (“KSW”)causes fully sized nuts to fall that have not completed kerneldevelopment.  The affect of the KSWcontribute to an average loss of nuts of 4.0%. The Tropical Nut Borer Beetle (“TNB”) bores through the mature macadamiashell and feeds on the kernel.  Nutdamage caused by the TNB resulted in about 1.0% loss in 2008.  Damages caused by each insect may fluctuatewhen unfavorable environmental conditions affect the natural enemy population.

 

Natural enemies are relied upon to manage insects that contribute tonut loss.  Without these biocontrol agents,greater losses are possible.  Pesticidesare available to manage these economic insect pests when treatment costs andnut loss justify its use, and when its use does not disrupt the natural enemypopulation.

 

Honey bees are placed in the orchards to supplement other insectpollinators during the flower season.  Inlate 2008, the Hawaii Department of Agriculture identified the Varroa mite onferal honey bees near the port of Hilo, Hawaii. This mite is an ectoparasite that attaches to the body of honey bees andweakens it which can result in destroying bee hives and colonies.  The apiaries that place hives in themacadamia nut orchards must manage this pest with miticide to maintain healthybee colonies and avoid the development of pest resistance to the miticide.

 

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

 

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

 

***Insurance. ***The Partnership obtains tree insuranceeach year under a federally subsidized program. The tree insurance for 2009 provides coverage up to a maximum ofapproximately $12.5 million against catastrophic loss of trees due to wind,fire or volcanic activity.  Cropinsurance was purchased for the 2008-2009 crop year and provides coverage up toa maximum of approximately $11.7 million against loss of nuts due to wind,fire, volcanic activity, earthquake, adverse weather, wildlife damage andfailure of irrigation water supplies.

 

***Volcanoes*****.**  The orchardsare located on the island of Hawaii, where there are two active volcanoes.  To date, no lava flows from either volcanohave affected or threatened the orchards.

 

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***Rainfall*****.**  Theproductivity of orchards depends in large part on moisture conditions.  Inadequate rainfall can reduce nut yieldssignificantly, while excessive rain without adequate drainage can fosterdisease and hamper harvesting operations. While rainfall at the orchards located in the Keaau and Mauna Kea areashas generally been adequate, the orchards located in the Ka’u area generallyreceive less rainfall and, as a result, a portion of the Ka’u orchards ispresently irrigated.  Irrigation canmitigate the effects of a drought, but it cannot completely protect a macadamianut crop from the effect of a drought. Recorded rainfall at each of the three locations of the Partnership’sorchards for the past five years is shown below:

 
| **Year** | ** ** | **Ka’u** | ** ** | **Keaau**   | ** ** | **Mauna Kea** | ** ** |
|----------|------------|---------------|------------|-------------|------------|--------------------|------------|
| 2004     |       | 54.9”    |       | 142.7” |       | 151.5”        |       |
| 2005     |       | 34.7”    |       | 133.8” |       | 171.8”        |       |
| 2006     |       | 70.9”    |       | 138.7” |       | 178.3”        |       |
| 2007     |       | 37.8”    |       | 126.7” |       | 158.3”        |       |
| 2008     |       | 44.7”    |       | 136.2” |       | 125.4”        |       |

 

During 2008 the Ka’u, Keaau and Mauna Kea areasrecorded 100%, 101% and 85%, respectively, of the normal average annual rainfallin their area of the island.

 

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

 

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

 

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

 

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

 

***Employees.*** Our farming operations require a large number of workers, many on aseasonal basis.  The labor market on theisland of Hawaii is very competitive and most of our employees are unionizedunder contracts which expire in June 2009. In previous years, we have obtained the services of foreign workers,which we have not continued.  In theevent that we are not able to obtain and retain both permanent and seasonalworkers to conduct our farming operations, or in the event that we are not ableto maintain satisfactory relationships with our unionized workers, ourfinancial results could be negatively impacted.

 

***KeyPersonnel*****. **Certain key personnel are critical to ourbusiness.  Our future operating resultsdepend substantially upon the continued service of our key personnel who arenot bound by employment or non-competition agreements.  Our future operating results also depend insignificant part upon our ability to attract and retain qualified management,technical and support personnel.  Wecannot ensure success in attracting or retaining qualified personnel.  There may be only a limited number of personswith the 

 

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requisite skills andrelevant industry experience to serve in those positions and it may becomeincreasingly difficult for us to hire personnel over time.  Our business, financial condition and resultsof operations could be materially adversely affected by the loss of any of ourkey employees, by the failure of any key employee to perform in his or hercurrent position, or by our inability to attract and retain skilled employees.

 

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

 

***Marketand customers.***** **A decline in worldwide macadamia nut prices mayadversely affect the price the Partnership may be able to obtain under futurenut purchase contracts.  There are alimited number of customers available to purchase the Partnership’s nutproduction.  As of March 23, 2009,the Partnership has nut purchase contracts calling for the purchase ofapproximately 21.0 to 27.0 million field pounds of its production during 2009(not including the Hamakua contract which is expected to be terminated in June 2009).  Accordingly, the Partnership must find buyersfor the production in 2009 which exceeds that amount.  If the Partnership is not able to obtain nutpurchase contracts for our production or our customers are unable to performunder their contracts or if their purchase of product should change fromHawaii-based to foreign sourced kernel, it would have a material adverse impacton our business as there are virtually no replacement customers for thePartnership’s production.  If the marketfor the Partnership’s inventory were to decline the Partnership would have tosell at a price lower than the current market price.  If no buyers were available the inventorycould become unsalable and have to be discarded.

 

***NutPurchase Agreements.***  The Partnership had fourcontracts in 2008.  The terms of thecontracts varied from two to six years, contained fixed and market determinedprices and 30-day payment terms.  ThePartnership relies upon the financial ability of the buyers of the Partnership’snuts to abide by the payment terms of the nut purchase agreements.  If any or all of the buyers were unable topay for the macadamia nuts delivered by the Partnership to them it could resultin the Partnership’s available cash resources being depleted.  If any or all buyers were late in payment thePartnership would stop the delivery of macadamia nuts to the buyer.  The Partnership would need to negotiate a nutpurchase agreement with another buyer which might not be at the same terms orprice.  It is also possible that thePartnership might not be able to find a buyer for the nuts.  In 2008 Hamakua refused to accept delivery ofmacadamia nuts from the Partnership as required by the nut purchaseagreement.  The Partnership and Mauna Loaagreed to an addendum to their nut purchase agreement where Mauna Loa agreed topurchase an additional 9.0 million to 12.0 million field pounds of macadamianuts during the period July 21, 2008 through June 30, 2009.  The Partnership and Mauna Loa agreed to anaddendum to their nut purchase agreement where Mauna Loa agreed to purchase anadditional 9.0 to 15.0 million field pounds of macadamia nuts during the periodJuly 1, 2009 through June 30, 2010. The Partnership and Island Princess terminated their nut purchaseagreement on October 31, 2008 by mutual agreement and subject to certainconditions.  The Partnership has agreedto terminate the Hamakua contract in June 2009 and does not expect futurepurchases under it.

 

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

 

Most of the Partnership’snut purchase agreements are fixed price contracts.  Fixed price contracts can be disadvantageousbecause the Partnership may not be able to pass on unexpected cost increases asthey arise.

 

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** **

**Loan Agreement Restrictions.**  The Partnership relies on external loanfinancing, currently being provided by a Credit Agreement with American AgCredit Capital Markets through a revolving line of credit and a term note.  This loan contains various terms andconditions, including financial ratios, covenants and is secured by all of thereal personal property of the Partnership and fee property assets.  The term loan matures in May 2010 andthe revolving line of credit matures on June 30, 2009, although acommitment to extend this line of credit for one year was obtained from thelender on March 25, 2009.  See “Descriptionof Business” - “Loan Agreement.”  ThisCredit Agreement prohibits distributions to partners.  On multiple occasions during the last severalyears, the Partnership has failed to comply with various covenants or financialratios under its loan agreements, but has been able to obtain waivers ormodifications of the agreement to avoid a default.  If the Partnership is unable to meet theterms and conditions of its lending arrangements or is unable to obtain waiversor modifications of such lending arrangements, it could be in default of itsloan agreements and in which event the lenders would be able to accelerate theobligations and realize on the collateral securing the indebtedness.  There is no assurance that the Partnershipwill be able to comply with or obtain waivers of covenants and conditions in thefuture.  Furthermore, Partners will notreceive distributions while they are prohibited by the Partnership’s borrowingarrangements.

 

**Item1B.  Unresolved staff comments. **None

 

**AvailableInformation. **ThePartnership files annual, quarterly and current reports and other informationwith the Commission.  These filings areavailable free of charge through the Partnership’s Internet website atwww.mlmacadamia.com as soon as reasonably practicable after the Partnershipelectronically files such material with, or furnishes it to, theCommission.  The Partnership’s corporategovernance guidelines, board committee charters and code of conduct are alsoavailable on the website, free of charge. Any unit holder, who so requests may obtain a printed copy of these documentsfrom the Partnership, by contacting the Partnership at 808-969-8057, or inwriting at 26-238 Hawaii Belt Road, Hilo, Hawaii 96720.

 

**ITEM2.  PROPERTIES**

 

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

 

 

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

 

***Ageand Density*.**  Theproductivity of macadamia nut orchards depends on several factors including,among others, the age of the trees, the number of trees planted per acre, soilcondition, climate, rainfall and/or irrigation. Assuming adequate moisture, the most significant characteristic affectingyields is maturity.  The trees in amacadamia nut orchard generally begin to produce nuts at a commerciallyacceptable level at around nine years of age. Thereafter, nut yields increase gradually until the trees reach maturityat approximately 15 years of age, after which the nut yield remains relativelyconstant except for variances produced by rainfall, cultivation practices, pestinfestation and disease.

 

Macadamia orchards normally reach peakproduction after fifteen to eighteen years of age.  All of the 4,190 tree acres of macadamiaorchards owned or leased by the Partnership are over twenty years of age.  About 2% of trees are lost to various causeseach year and are replaced.

 

***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.

 

***Orchards. ***The following tablelists each of the orchards, the year acquired, tree acres, tenure, and leaserents:

 
| ** **             | ** ** | ** **      | ** ** | **Tree**  | ** ** | ** **        | ** ** | **Lease**      | ** ** | **Min. Rent** | ** ** |
|------------------------|------------|-----------------|------------|-----------|------------|-------------------|------------|----------------|------------|--------------------|------------|
| **Orchard**            | ** ** | **Acquired**    | ** ** | **Acres** | ** ** | **Tenure**        | ** ** | **Expiration** | ** ** | **per Annum** | ** ** |
|                   |       |            |       |      |       |              |       |           |       |               |       |
| Keaau I                |       | June 1986  |       | 1,467     |       | Fee  simple       |       |           |       |               |       |
| Ka’u I            |       | June 1986  |       | 456       |       | Fee  simple       |       |           |       |               |       |
| ”                 |       | June 1986  |       | 500       |       | Leasehold  (1)(4) |       | 2019           |       | $                  | 25,000     |   |
| Ka’u Green Shoe I |       | Dec. 1986  |       | 266       |       | Leasehold  (1)(5) |       | 2019           |       | $                  | 5,586      |   |
| Keaau II               |       | Oct. 1989  |       | 220       |       | Fee  simple       |       |           |       |               |       |
| Ka’u II           |       | Oct. 1989  |       | 327       |       | Leasehold  (2)(6) |       | 2034           |       | $                  | 23,544     |   |
| ”                 |       | Oct. 1989  |       | 175       |       | Leasehold  (1)(7) |       | 2028           |       | $                  | 17,314     |   |
| ”                 |       | Oct. 1989  |       | 26        |       | Leasehold  (3)(7) |       | 2029           |       | $                  | 2,041      |   |
| ”                 |       | Oct. 1989  |       | 186       |       | Leasehold  (1)(7) |       | 2031           |       | $                  | 18,585     |   |
| Mauna Kea              |       | Oct. 1989  |       | 326       |       | Leasehold  (2)(6) |       | 2034           |       | $                  | 23,508     |   |
| Keaau Lot 10           |       | Sept.  1991     |       | 78        |       | Fee  simple       |       |           |       |               |       |
| Ka’u O            |       | May 2000   |       | 142       |       | Leasehold  (1)(8) |       | 2045           |       | $                  | 10,224     |   |
| Ka’u 715/716      |       | April 2006 |       | 21        |       | Fee  Simple       |       |           |       |               |       |
| Total acres            |       |            |       | 4,190     |       |              |       |           |       |               |       |

 

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

(2)                                  Leaseof land only; lessor may purchase trees from lessee at any time after June 30,2019 for fair market value.  The minimumlease payments will be adjusted to a fair market lease rate in 2019 and2029.  At the end of the lease term, thelessor will be required to repurchase the trees at fair market value if they donot offer to extend the leases at the then current fair market lease rate.  If the Partnership does not accept the offerto extend the lease, the lease will expire and the lessor will not be requiredto repurchase the trees which will then revert to them.  In all circumstances, the ownership of treeswill revert to the lessor after 99 years.

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

(4)                                  Additionalrental payment if USDA farm price for nuts is greater than $0.50 per pound($521 for each $0.01)

(5)                                  Additionalrental payment if USDA farm price for nuts is greater than $0.20 per pound($291 for each $0.01)

(6)                                  Additionalrental payment if USDA farm price for nuts is greater than $0.65 per pound($376 for each $0.01)

(7)                                  Additionalrental payment if USDA farm price for nuts is greater than $0.70 per pound ($30to $265 for each $0.01)

(8)                                  Additionalrental payment if USDA farm price for nuts is greater than $0.72 per pound($265 for each $0.01)

 

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

 

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

 

**ITEM3.  LEGAL PROCEEDINGS AND SETTLEMENT**

 

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

 

On January 30,2008, the Partnership filed a complaint in the Circuit Court for the ThirdCircuit, State of Hawaii against Hamakua, alleging breach of its nut purchasecontract   The suit alleges that Hamakuafailed to process approximately 3 million WIS pounds in 2007 and seeks damagesin excess of $1.2 million dollars as a result of such 2007 breach.  The suit further alleges that Hamakua failedto deliver the entire quantity of kernel it was supposed to deliver from nutsthe Partnership delivered to Hamakua. Lastly, the suit alleges that Hamakua has refused to purchase nuts inthe years 2008 through 2012 as required by the Nut Purchase Contract andrequests the Court to compel Hamakua to perform the contract and purchase thePartnership’s nuts delivered pursuant to the contract or, in the alternative,pay damages according to evidence to be submitted to the court.  On March 10, 2009, the parties agreed tosettle all legal claims in exchange for Hamakua making a cash payment to the Partnershipin the amount of $330,000.  The nutpurchase contract between the parties will be terminated on June 10, 2009and no further nuts will be required to be purchased, if Hamakua meets certainconditions.  If the conditions are notmet by Hamakua then the Partnership has the right to terminate the settlementand reinstate its claim.

 

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

 

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

 

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### **PART II**

### ** **

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

 

The Partnership’s Class ADepositary Units are listed for trading on the OTC (symbol = NNUT).  There were 5,679 registered holders of Class ADepositary Units on December 31, 2008.

 

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

 
| ** **      | ** **        | **Distribution** | ** ** | **High** | ** ** | **Low** | ** ** |
|-----------------|-------------------|------------------|------------|----------|------------|---------|------------|
|            |              |             |       |     |       |    |       |
| **2008: ** | 4th Quarter (OTC) |             | $          | 0.000    |       | 2.48    |       | 1.55 |   |
|            | 4th Quarter       |             | $          | 0.000    |       | 3.38    |       | 1.78 |   |
|            | 3rd Quarter       |             | 0.000      |     | 3.89       |    | 3.31       |   |
|            | 2nd Quarter       |             | 0.000      |     | 4.37       |    | 3.20       |   |
|            | 1st Quarter       |             | 0.000      |     | 3.90       |    | 3.16       |   |
|            |              |             |       |     |       |    |       |   |
| **2007: ** | 4th Quarter       |             | $          | 0.030    |       | 4.88    |       | 3.47 |   |
|            | 3rd Quarter       |             | 0.050      |     | 5.15       |    | 4.50       |   |
|            | 2nd Quarter       |             | 0.050      |     | 5.60       |    | 5.02       |   |
|            | 1st Quarter       |             | 0.050      |     | 6.20       |    | 5.53       |   |

 

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

 

**Stock Performance Chart**

 

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

 

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

**Among ML Macadamia Orchards, L.P., The Russell2000 Index**

**And A Peer Group**

 

 

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

 

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**Restrictions on Cash Distributions**

 

In connection with the Partnership’s CreditAgreement with American AgCredit Capital Markets as amended, cash distributionsto partners are prohibited.  Althoughthis agreement expires on June 30, 2009 under a commitment issued by thislender on March 25, 2009 to extend this loan for one year, thisrestriction would remain in place, if this loan is extended.

 

**ITEM 6. SELECTED FINANCIAL DATA**

 

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

 
| ** **                                                | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Financial:                                                |       |     |       |     |       |     |       |     |       |     |       |
| Total revenue                                             |       | $        | 17,536     |     | $          | 11,330   |       | $        | 17,072     |     | $          | 17,378 |   | $ | 13,665 |   |
| Net cash provided (used) by operating activities (1)      |       | 2,774    |       | (3,942   | )          | 8,241    |       | 1,913    |       | 368      |       |
| Income (loss) before taxes                                |       | 117      |       | (4,008   | )          | 904      |       | 900      |       | (1,644   | )          |
| Net income (loss)                                         |       | 68       |       | (3,965   | )          | 804      |       | 771      |       | (1,649   | )          |
| Distributions declared                                    |       | —   |       | 1,350    |       | 1,500    |       | 1,500    |       | 1,515    |       |
| Total working capital                                     |       | 1,065    |       | (199     | )          | 3,882    |       | 3,429    |       | 2,931    |       |
| Total assets                                              |       | 47,647   |       | 50,788   |       | 53,963   |       | 58,046   |       | 58,438   |       |
| Long-term debt, non current                               |       | 400      |       | 800      |       | 1,200    |       | 1,600    |       | 2,034    |       |
| Total partners’ capital                              |       | 43,178   |       | 43,312   |       | 48,623   |       | 49,389   |       | 50,542   |       |
| Class A limited partners’ capital               |       | 43,364   |       | 43,297   |       | 48,612   |       | 49,308   |       | 50,037   |       |
| Net cash flow as defined in the partnership agreement (2) |       | 1,618    |       | (2,437   | )          | 2,323    |       | 2,501    |       | 466      |       |
|                                                      |       |     |       |     |       |     |       |     |       |     |       |
| Per Class A Unit (3):                                |       |     |       |     |       |     |       |     |       |     |       |
| Net income (loss)                                         |       | 0.01     |       | (0.53    | )          | 0.11     |       | 0.10     |       | (0.22    | )          |
| Net cash flow as defined in the partnership agreement (2) |       | 0.22     |       | (0.32    | )          | 0.31     |       | 0.33     |       | 0.06     |       |
| Distributions                                             |       | 0.00     |       | 0.18     |       | 0.20     |       | 0.20     |       | 0.20     |       |
| Partners’ capital                                    |       | 5.78     |       | 5.77     |       | 6.48     |       | 6.57     |       | 6.67     |       |
|                                                           |            |          |            |          |            |          |            |          |            |          |            |  |  |  |  |  |

 

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

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

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

 

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Contractual obligationsas of December 31, 2008 for the Partnership are detailed in the following:

 
| ** **                       | ** ** | **Payments Due by Period** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| **Contractual obligations** | ** ** | **Total**                                 | ** ** | **Less Than 1 Year** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **More Than 5  Years** | ** ** |
| Line-of-credit                   |       | $                                         | 900,000    |   | $ | 900,000 |   | $ | — |   | $ | — |   | $ | — |   |
| Long-term debt  and interest     |       | 840,000                                   |       | 432,000 |   | 408,000 |   | — |   | — |   |
| Operating leases                 |       | 3,015,000                                 |       | 207,000 |   | 297,000 |   | 260,000 |   | 2,251,000 |   |
| Capital leases                   |       | 23,000                                    |       | 23,000 |   | — |   | — |   | — |   |
| Total                            |       | $                                         | 4,778,000  |   | $ | 1,562,000 |   | $ | 705,000 |   | $ | 260,000 |   | $ | 2,251,000 |   |

 

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

 

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

 

# ***Results of operations — 2008, 2007and 2006***

# *** ***

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

## ** **

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

 
| ** **                                | ** ** | ** **      | ** ** | ** **  | ** ** | **2008**       | ** ** | **Average Yield per Acre** | ** ** |
|-------------------------------------------|------------|-----------------|------------|-------------|------------|----------------|------------|-------------------------------------------|------------|
| **Orchard**                               | ** ** | **Acquired**    | ** ** | **Acreage** | ** ** | **Production** | ** ** | **2008**                                  | ** ** | **2007** | ** ** | **2006** | ** ** |
| Keaau I                                   |       | June 1986  |       | 1,467       |       | 5,804,780      |       | 3,957                                     |       | 3,619 |   | 4,530 |   |
| Keaau II                                  |       | Oct. 1989  |       | 220         |       | 583,383        |       | 2,652                                     |       | 2,611 |   | 2,856 |   |
| Keaau Lot 10                              |       | Sept.  1991     |       | 78          |       | 219,927        |       | 2,820                                     |       | 2,489 |   | 3,589 |   |
| Ka’u I                               |       | June 1986  |       | 956         |       | 6,773,227      |       | 7,085                                     |       | 5,716 |   | 5,590 |   |
| Ka’u Green Shoe I                    |       | Dec. 1986  |       | 266         |       | 1,536,181      |       | 5,775                                     |       | 7,149 |   | 7,461 |   |
| Ka’u II                              |       | Oct. 1989  |       | 714         |       | 4,103,582      |       | 5,747                                     |       | 5,831 |   | 5,487 |   |
| Ka’u O                               |       | May 2000   |       | 142         |       | 961,897        |       | 6,774                                     |       | 5,687 |   | 4,958 |   |
| Ka’u 715/716                         |       | April 2006 |       | 21          |       | 105,939        |       | 5,045                                     |       | 6,145 |   | 5,138 |   |
| Mauna Kea                                 |       | Oct. 1989  |       | 326         |       | 1,594,909      |       | 4,892                                     |       | 4,142 |   | 4,852 |   |
| Totals (except yields which are averages) |       |            |       | 4,190       |       | 21,683,825     |       | 5,175                                     |       | 4,748 |   | 5,058 |   |

 

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

 

Production in 2008 was8.8% higher than 2007 and 2% higher than 2006. Production in 2007 was 6.1%lower than 2006 and 8.8% lower than 2005. Significant factors affecting thecrop were as follows:

 

1. The Ka’u regionrecorded below average rainfall in 2005. The shortfall during the early springto fall of 2005 reduced yields in the spring of 2006. Above average rainfallfrom November 2005 through February 2006 contributed a positiveeffect on the fall 2006 production.

 

2. Adequaterainfall during the spring and summer of 2006 provided for a return to normalproduction in the spring of 2007. Good rainfall distribution between October 2006and April 2007 had a positive effect on the fall 2007 nut production.

 

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3. Adequate moisturedistributed in the summer and fall of 2007 supported the late nut-sets in June andJuly of 2007 that lead to a normal spring 2008 production. Cool nighttemperatures in the fall of 2007 stimulated early flower and jut-setdevelopment that continued through mid-summer 2008. This event was supported byequally good rainfall distribution, soil moisture and nut production.

 

4. A late andabbreviated flower season in the Keaau and Mauna Kea regions resulted in lowerproduction in the fall of 2005 and the spring of 2006. Cool night temperaturesfrom November 2005 through May 2006 contributed to an early andextended flower/nut set season that had a positive effect on the fall 2006production despite the occurrence of a light-moderate flower disease in March 2006.The extended flowering period also contributed to above average production inthe spring of 2007 at Keaau. Flowers that normally bloom in mid-to-late December didnot develop until early February 2007. This late development had anegative impact on the fall 2007 nut production and will also affect theproduction in the spring of 2008. This late flower development and nut-setcontributed to above normal production in spring 2008. Heavy rains from late January tomid-February 2008 affected flower pollination and nut-set. This combinedwith a flower season that ended early in April contributed to lower thanexpected nut production in the fall of 2008.

 

5. Nut deliveryrestrictions by Hamakua under agreement to contract process nut production intoroasted kernels for the Partnership contributed to reduced harvesting activityand lower than expected nut production in the fall of 2007.

 

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

 

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

 

Macadamia nut revenuesdepend on the number of producing acres, yield per acre and the nut purchaseprice. The following table presents the comparison of revenues for the yearsended December 31, 2008, 2007 and 2006 (in 000’s except per poundinformation):

 

Macadamia NutSales For the year

Ended December 31,2008, 2007 and 2006

 
| ** **                       | ** ** | **WIS @ 20%**    | ** ** | **WIS @ 20%**    | ** ** | **WIS @ 20%**    | ** ** | ** **    | ** ** | ** **    | ** ** |
|----------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|---------------|------------|---------------|------------|
| ** **                       | ** ** | **SK/DIS @ 30%** | ** ** | **SK/DIS @ 30%** | ** ** | **SK/DIS @ 30%** | ** ** | **2008-2007** | ** ** | **2007-2006** | ** ** |
| ** **                       | ** ** | **2008**                   | ** ** | **2007**                   | ** ** | **2006**                   | ** ** | **Change**    | ** ** | **Change**    | ** ** |
| Field pounds  delivered          |       | 21,684                     |       | 19,894                     |       | 21,362                     |       | + 9           | %          | - 7           | %          |
| Pounds contract  processed       |       | —                     |       | (5,584                     | )          | —                     |       | —        |       | —        |       |
| Contract  adjustments            |       | (3,612                     | )          | (3,166                     | )          | (3,990                     | )          | + 14          | %          | - 21          | %          |
| Contract pounds  sold            |       | 18,072                     |       | 11,144                     |       | 17,372                     |       | + 62          | %          | - 36          | %          |
| Average nut  price ($/per pound) |       | $                          | 0.6310     |                       | $          | 0.6251                     |       | $             | 0.7433     |          | + 1        | % | - 16 | % |
| Net nut sales                    |       | $                          | 11,404     |                       | $          | 6,966                      |       | $             | 12,913     |          | + 64       | % | - 46 | % |
| Prior year nut  price adjustment |       | —                     |       | 8                          |       | 343                        |       |          |       |          |       |
| Kernel sales                     |       | 2,011                      |       | 577                        |       | —                     |       | + 249         | %          | —        |       |
| Total nut sales                  |       | $                          | 13,415     |                       | $          | 7,551                      |       | $             | 13,256     |          | + 78       | % | - 43 | % |

 

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The information in the foregoing chart for 2007 is notdirectly comparable in all circumstances to the information for 2006 and 2008. Toprevent its unsold nut inventory from deteriorating, in 2007, the Partnershipengaged a processor to process approximately 5,584,000 pounds of nuts so thatthese nuts could be maintained in inventory by the Partnership for subsequentsale. In 2008, approximately $2,000,000 of these nuts were sold. Thus, althoughthe production of field pounds in 2007 was only approximately 9% less than2008, this event significantly reduced total nut sales in 2007 and increasedthe total nut sales in 2008. In previous years, the Partnership sold all of itsnuts to processors in the year in which they were produced. Approximately 453,000pounds of kernel inventory were sold in 2008 compared to 116,000 pounds in2007.

 

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

 

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

 

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

 
| ** **             | ** ** | ** **      | ** ** | **Cost per pound** | ** ** |
|------------------------|------------|-----------------|------------|------------------------------|------------|
| **Orchard**            | ** ** | **Acquired**    | ** ** | **2008**                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| Keaau I                |       | June 1986  |       | 0.7151                       |       | 0.8416 |   | 0.7391 |   |
| Keaau II               |       | Oct. 1989  |       | 0.9592                       |       | 1.0148 |   | 0.7997 |   |
| Keaau Lot 10           |       | Sept.  1991     |       | 0.6651                       |       | 0.7349 |   | 0.4387 |   |
| Ka’u I            |       | June 1986  |       | 0.6001                       |       | 0.7434 |   | 0.6522 |   |
| Ka’u Green Shoe I |       | Dec. 1986  |       | 0.4335                       |       | 0.4006 |   | 0.4166 |   |
| Ka’u II           |       | Oct. 1989  |       | 0.5040                       |       | 0.4973 |   | 0.4907 |   |
| Ka’u O            |       | May 2000   |       | 0.4540                       |       | 0.4856 |   | 0.4829 |   |
| Ka’u 715/716      |       | April 2006 |       | 0.3412                       |       | 0.3170 |   | 0.3001 |   |
| Mauna Kea              |       | Oct. 1989  |       | 0.7810                       |       | 0.8660 |   | 0.6743 |   |
|                   |       |            |       |                         |       |   |   |   |   |
| All Orchards           |       |            |       | 0.6143                       |       | 0.6847 |   | 0.6177 |   |

 

Cost of goods sold was $1.4 million higher in 2008 than 2007. Cost ofgoods sold was $1.6 million lower in 2007 than 2006, and cost of goods sold was$669,000 higher in 2006 than 2005. The cost per pound in 2008 was 3.7% lowerthan 2007. The cost per pound in 2007 was 3.6% higher than 2006, and the costper pound in 2006 was 1.3% higher than 2005. The higher cost of goods sold in2008 as compared to 2007 are primarily the result of the Partnership sellingall of the 2008 production compared to 2007 when 5.9 million field pounds wereprocessed into kernel; the increase in production by 1.8 million field poundsand the $104,000 write off of tree inventory in 2008 compared to no treeinventory write off in 2007. The lower cost of goods sold in 2007 was notindicative of the actual production costs as 5.9 million field pounds wereprocessed into kernel that was sold or inventoried by the Partnership asnut-in-shell. The kernel and nut-in-shell were included as inventory at December 31,2007. Additionally, 1.3 million fewer field pounds were produced in 2007compared to 2006. The absolute farming costs for 2007 were $294,000 lower (notincluding the additional cost of processing related to kernel production fromWIS nuts) when compared to 2006 which was a result of lower cultivation,harvesting, rent and depreciation offset by higher crop and tree insurancecosts. The lower cost per pound in 2008 is a result of higher production andhigher recovery under the terms of the nut purchase agreements. The lower costof goods in 2007 is a result fewer sold macadamia nuts compared to 2006. Thehigher cost per pound in 2007 is a result of lower production, lower recoveryunder the terms of the nut purchase contracts and the write down to market ofthe inventory of kernel and nut-in-shell owned by the Partnership at December 31,2007. The inventory write down to the lower of cost or market was $945,000 asof December 31, 2007. The higher cost of goods sold in 2006 were theresults of higher harvesting costs, cultivation costs, land lease costs, andhigher insurance costs offset by lower depreciation.

 

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

### ** **

As a result of theacquisition of the farming operation in 2000, the Partnership acquiredapproximately twenty farming contracts (now seventeen contracts) to farmmacadamia orchards owned by other growers. These contracts cover macadamiaorchards in the same three locations on the island of Hawaii where thePartnership owns orchards. The farming contracts provide for the Partnership tobe reimbursed for all direct farming costs (cultivation, irrigation andharvesting), collect a pro-rata share of indirect costs and overheads, andcharge a management fee or fixed fee. The management fee is based on the numberof acres farmed or on a percentage of total costs billed. Revenues from farmingservices were $4.1 million in 2008, $3.8 million in 2007, and $3.8 million in2006. The 2008 farming service revenues were $300,000 higher compared to 2007. The2007 farming service revenues were equivalent to 2006. The Partnershippurchased about 21 acres which were under farming contract bringing the totalacres under farming contract to about 2,008. Approximately 150 acres areyear-to-year contracts, contracts for approximately 70 acres expire June 30,2013, contracts for approximately 635 acres expire June 30, 2016,contracts for approximately 410 acres expire July 31, 2029, contracts forapproximately 280 acres expire June 30, 2033, contracts for approximately610 acres expire September 30, 2078, and contracts for approximately 480acres expire September 30, 2080.

 

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

 

The cost of services sold relating to the farmingcontracts was $3.8 million in 2008, $3.4 million in 2007, and $3.5 million in2006. These costs were all reimbursed to the Partnership under the terms of thefarming contracts.

 

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

## ** **

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

 

General andadministrative costs for 2008 were $653,000 lower than 2007 which is attributedto lower legal and accounting costs related to the termination of the effort toacquire Mac Farms. General and administrative costs for 2007 were $719,000higher than for 2006 which is attributed to increased legal and accountingcosts related to the Partnership’s effort to acquire Mac Farms, higheractuarial costs for intermittent pension costs, offset by lower Sarbanes-Oxleyimplementation costs.

 

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

## ** **

The Partnership recorded interest expense of $289,000 in 2008, $179,000in 2007, and $204,000 in 2006. This was due to (1) the long-term loan usedto acquire the farming operations, (2) the assumption of severalcapitalized equipment leases, and (3) interest expense on a revolving lineof credit.

 

The Partnership funds its working capital needs through funds on handand, when needed, from short-term borrowings, generating interest expense inthe process. Net interest income or expense, therefore, is partly a function ofany balance carried over from the prior year, the amount and timing of cashgenerated and distributions paid to investors in the current year, as well asthe current level of interest rates. Interest was earned in the amount of$14,000 in 2008, $49,000 in 2007, and $17,000 in 2006.

 

***Other Income***

 

Other income of $896,000 was recorded in 2008 of which $883,000 wasfrom crop insurance and $13,000 from a distribution from American AgCredit. Otherincome of $13,000 was recorded in 2007 for a distribution from AmericanAgCredit. Other income of $206,000 was recorded in 2006 of which $169,000 wasfrom crop insurance.

 

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***Inflationand Taxes***

 

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

 

The Partnership 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 expense (benefit) was$49,000 in 2008, ($43,000) in 2007 and $100,000 in 2006.

 

# ***Liquidity and CapitalResources***

# *** ***

The Partnershiprecorded net income of $68,000 and had cash flows from operations of $2.8 millionduring 2008 and had working capital of $1.1 million at December 31,2008.  Net cash provided by operationswas $2.8 million in 2008 compared to $3.9 million net cash used in 2007.  The significant increase of $6.5 million is aresult of more pounds of nuts sold, a higher selling price per pound for thenuts sold, fewer pounds of nuts processed into kernel from WIS nuts, sales ofthe nut-in-shell inventory and sales of a majority of the kernelinventory.  The Partnership incurred anet loss of $4.0 million and had negative cash flows from operations of $3.9million during 2007 and had a working capital deficit of approximately $199,000at December 31, 2007.  Net cash usedby operations was $3.9 million in 2007 compared to net cash provided byoperations of $8.2 million in 2006.  Thesignificant decrease of $12.1 million is a result of the fewer pounds of nutssold, a lower selling price per pound for the nuts sold, processing related tothe production of kernel from WIS nuts, increase in inventory of kernel andnut-in-shell and associated costs, the change in payment term under the MaunaLoa contracts from quarterly to monthly, and costs for the attemptedacquisition of Mac Farms.

 

At December 31,2008 the Partnership’s working capital was $1.1 million and its current ratiowas 1.44 to 1, compared to working capital of a negative $199,000 and a currentratio of 0.96 to 1 at December 31, 2007 and working capital of $3.9 million and a currentratio was 2.54 to 1 at December 31, 2006, compared to $3.4 million and1.59 to 1 in 2005.

 

In 2008 the increase in working capital compared to 2007 was the resultof higher revenue, lower general and administrative costs, and higher otherincome offset by higher costs of goods sold, higher interest cost and higherincome tax.  In 2007 the decrease inworking capital compared to 2006 was the result of higher costs of goods, lowerrevenue, higher general and administrative costs, and lower other income offsetby higher interest income, and lower income tax.  The Partnership was in compliance with theterms and conditions of the Credit Agreement at December 31, 2006 exceptfor minimum tangible net worth.  On July 5,2007, the lender provided a waiver to the loan covenant for the year ended December 31,2006 and retroactively amended the minimum tangible net worth covenant.  The Partnership was in compliance with theterms and conditions of the Credit Agreement at December 31, 2007 exceptfor the restricted payment covenant, minimum tangible net worth covenant, andthe debt coverage ratio covenant.  On March 14,2008, the lender provided a waiver and amendment to the loan covenants for theyear ended December 2007.  EffectiveMarch 14, 2008 the amended agreement reduced the maximum borrowing on therevolving line of credit from $5.0 million to $4.5 million, established aquarterly covenant based upon EBITDA, prohibited declaration and payment offurther restricted payments in 2008, establishes a minimum tangible net worthof $41.0 million effective December 31, 2008 and required the Partnershipto provide additional security in the form of a mortgage or deed of trust onreal property.  On July 8, 2008 thePartnership executed a Second Amended and Restated Credit Agreement withAmerican AgCredit Capital Markets.  TheSecond Amended and Restated Credit Agreement increased the maximum borrowing onthe revolving line of credit from $4.5 million to $6.0 million, and allowed nopayments of distributions to partners through June 30, 2009.  On March 25, 2009 American AgCreditCapital Markets provided the Partnership with a commitment to amend the currentcredit agreement, which would extend the revolving line of credit for anadditional year.  The commitment wouldreduce the revolving line of credit from $6.0 million to $5.0 million, increasethe interest rate by 25 basis points per annum, increase the fixed rate by 50basis points per annum and maintain all other terms and conditions. For furtherinformation see “Description of Business” “Loan Agreement”.

 

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Capitalexpenditures in 2008, 2007 and 2006 were $125,000, $226,000, and $509,000,respectively.  The decrease in 2008 wasattributed to the acquisition of less farming equipment, vehicles and computersthan 2007. The decrease in 2007 was attributed to the increase in farmingequipment, computers and roofs offset by no land purchase in 2007.  The increase in 2006 was attributed to thepurchase of 21 tree acres of macadamia orchards for $440,000, computers, avehicle and upgrades to operating machinery. Capital expenditures planned for 2009 are about $800,000 for normalreplacement of farming equipment, and are expected to be financed by way of newequipment leases, either capital or operating leases.

 

Macadamia nutfarming is seasonal, with production peaking late in the fall.  However, farming operations continue yearround. As a result, additional working capital is required for much of the year.The Partnership meets its working capital needs with cash on hand, and whennecessary, through short-term borrowings under a $6.0 million revolving line ofcredit. The line of credit was obtained on May 2, 2000 and expires June 30,2009.  At December 31, 2008 thePartnership had a cash balance of $102,000 and line of credit drawingsoutstanding of $900,000 and $5.1 million available on the line of credit.  At December 31, 2007 the Partnership hada cash balance of $283,000 and line of credit drawings outstanding of $3.0million.  In 2007 the Partnership hadinventory of kernel and nuts of $2.0 million which were funded by borrowingfrom the line of credit.

 

As a LimitedPartnership, we expect to pay regular cash distributions to the Partnership’sunit holders if the cash flow from operations, as defined in the ManagementAgreement, exceeds the operating and capital resource needs of the Partnership,as determined by management and the terms of our borrowing agreements permit usto do so.  Cash distributions would bepaid from operating cash flow and / or other resources.  In December 2007, the Partnershipdeclared a distribution of $0.03 per Class A unit (a total of $225,000),which was paid February 15, 2008 to the unit holders of record as of December 31,2007.  No subsequent distributions havebeen made because of borrowing  agreementrestrictions.

 

It is the opinionof management that the Partnership has adequate cash on hand and borrowingcapacity available to meet anticipated working capital needs for operations aspresently conducted. The nut purchase contracts require the buyers to make nutpayments 30 days after the delivery of the nuts to 15 days after the end of themonth in which the nuts were delivered. During certain parts of the year, if payments are not received, as thecontracts require, available cash resources could be depleted.

 

***Critical Accounting Policies and Estimates***

 

Management hasidentified the following critical accounting policies that affect thePartnership’s more significant judgments and estimates used in the preparationof the Partnership’s consolidated financial statements.  The preparation of the Partnership’sconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires the Partnership’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 consolidated financial statementsand in relevant sections in this discussion and analysis.  These estimates are based on the informationthat is currently available to the Partnership and on various other assumptionsthat management believes to be reasonable under the circumstances.  Actual results could materially differ fromthose estimates.

 

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

 

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

 

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

 

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

 

The Partnershipreviews the inventory held at year end and values it based the lower of averagecost or market.

 

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

 

***UnitHolder Demand Letter*.** On December 24, 2008, the Partnership received a letter from a unitholder alleging that the officers and directors of the General Partner actedultra vires, breached their fiduciary duty and the Partnership Agreement andwasted assets of the Partnership in the attempt to acquire Mac Farms.  The letter demands that the General Partnerinvestigate the alleged wrongdoing and take appropriate actions, if warranted.  The directors of the General Partner haveappointed a Special Committee comprised of independent parties to investigatethe allegations.

 

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

 

The Partnership isexposed to market risks resulting from changes in interest rates.  The interest rates on the Partnership’sCredit Agreement, which are based on LIBOR (Farm Credit Discount Note Rate andthe Farm Credit Medium Term Note Rate), are adjusted periodically based on thePartnership’s election to fix interest rates for periods ranging from betweenthree months and five years.  As of December 31,2008, a one percent increase or decrease in the applicable rate under theCredit agreement will result in an interest expense fluctuation of approximately$13,000 per annum.

 

The Partnership isexposed to market risks resulting from changes in the market price of macadamiakernel.  Pricing for two of its nutpurchase contracts is adjusted every six months based upon the prevailingmarket price of macadamia kernel from Australia and Hawaii.  The market price nut purchase contracts forthe first half of 2008 saw no change in pricing.  During the first half of 2008 there was anincrease in the global macadamia prices. The market price nut purchase contracts for the second half of 2008increased $0.056 per pound at 20% WIS and 30% SK/DIS.  The increase in global macadamia pricescontinued to increase for the remainder of 2008 which resulted in the marketprice nut purchase contract increasing by $0.065 to $0.615 per pound at 20% WISand 30% SK/DIS for the period January 1, 2009 to June 30, 2009.  During the first half of 2007 there was adecrease in global macadamia prices. A $0.25 increase or decrease in the kernelprice would affect the price received by the Partnership by $0.038 per pound at20% WIS and 30% SK/DIS.  The market pricenut purchase contracts for the second half of 2007 reflected a decrease inkernel price of $0.75, resulting in a price decrease of $0.114 per WIS pound ondeliveries under these contracts.

 

The Partnership has two bargaining agreements with the ILWU Local142.  Both agreements are for a one-yearperiod expiring June 30, 2009.

 

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**ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS**

 

**Index to ConsolidatedFinancial Statements**

** **
| ** **                                                                                                    | ** ** | **Page**   |
|---------------------------------------------------------------------------------------------------------------|------------|------------|
| ** **                                                                                                    | ** ** | **Number** |
|                                                                                                          |       |       |
| Report of Independent Registered Public Accounting  Firm                                                      |       | 24         |
|                                                                                                          |       |       |
| Report of Prior Independent Registered Public  Accounting Firm                                                |       | 25         |
|                                                                                                          |       |       |
| Consolidated  Balance Sheets, December 31, 2008 and 2007                                                 |       | 26         |
|                                                                                                          |       |       |
| Consolidated Income Statements, for the Years Ended  December 31, 2008, 2007 and 2006                    |       | 27         |
|                                                                                                          |       |       |
| Consolidated Statements of Partners’ Capital, for the  Years Ended December 31, 2008, 2007 and 2006 |       | 28         |
|                                                                                                          |       |       |
| Consolidated Statements of Cash Flows for the Years  Ended December 31, 2008, 2007 and 2006              |       | 29         |
|                                                                                                          |       |       |
| Notes to Consolidated Financial Statements                                                                    |       | 30         |

 

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Partners

ML Macadamia Orchards, L.P.

 

In our opinion, the accompanying consolidatedbalance sheet and the related consolidated statements of income, partners’capital, and cash flows, present fairly, in all material respects, the financialposition of ML Macadamia Orchards, L.P. and its subsidiary (the “Partnership”)at December 31, 2008 and 2007, and the results of their operations andtheir cash flows for each of the years then ended in conformity with accountingprinciples generally accepted in the United States of America.  These consolidated financial statements arethe responsibility of the Partnership’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.  We conducted our audits of these statementsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audits to obtain reasonable assuranceabout whether the consolidated financial statements are free of materialmisstatement.  The Partnership is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting.  Ouraudit included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of thePartnership’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the consolidatedfinancial statements, assessing the accounting principles used and significantestimates made by management, and evaluating the overall consolidated financialstatement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

 

The consolidated statements of income,partners’ capital and cash flows for the year ended December 31, 2006 wereaudited by another independent registered public accounting firm, whose reportdated April 16, 2007, except as to the disclosure regarding thePartnership’s debt covenant violation and waiver included in Note 7, which isas of November 9, 2007, expressed an unqualified opinion on thosestatements.

 

 
| /s/ Accuity LLP     |   |
|---------------------|--------|
|                |   |
| Honolulu, Hawaii    |   |
| March 27, 2009 |   |

 

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Partners

ML Macadamia Orchards, L.P.

 

In our opinion, the accompanying consolidatedstatements of income, partners’ capital, and cash flows, present fairly, in allmaterial respects, the results of operations and cash flows of ML MacadamiaOrchards, L.P. and its subsidiary (the “Partnership”) for the year ended December 31,2006 in conformity with accounting principles generally accepted in the UnitedStates of America.  These consolidatedfinancial statements are the responsibility of the Partnership’smanagement.  Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudit.  We conducted our audit of thesestatements in accordance with the standards of the Public Company AccountingOversight Board (United States).  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of materialmisstatement.  An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in theconsolidated financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overallconsolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

 
| /s/ PricewaterhouseCoopers  LLP |   |
|---------------------------------|--------|
|                            |   |
| Honolulu, Hawaii                |   |

April 16, 2007, except as to the disclosure regarding thePartnership’s debt covenant violation and waiver included in Note 7, which isas of November 9, 2007.

 

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**MLMacadamia Orchards, L.P.**

**Consolidated Balance Sheets**

(inthousands)

 
| ** **                                                                                               | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                               | ** ** | **2008**              | ** ** | **2007** | ** ** |
| **Assets**                                                                                               |       |                  |       |   |   |
| Current assets                                                                                           |       |                  |       |   |   |
| Cash and cash equivalents                                                                                |       | $                     | 207        |   | $ | 283 |   |
| Accounts receivable                                                                                      |       | 2,625                 |       | 2,275 |   |
| Inventory of kernel                                                                                      |       | 335                   |       | 1,024 |   |
| Inventory of nuts                                                                                        |       | —                |       | 946 |   |
| Inventory of farming supplies                                                                            |       | 158                   |       | 234 |   |
| Other current assets                                                                                     |       | 278                   |       | 172 |   |
| Total current assets                                                                                     |       | 3,603                 |       | 4,934 |   |
| Land, orchards and equipment, net                                                                        |       | 43,725                |       | 45,540 |   |
| Goodwill                                                                                                 |       | 306                   |       | 306 |   |
| Intangible assets, net                                                                                   |       | 13                    |       | 8 |   |
| Total assets                                                                                             |       | $                     | 47,647     |   | $ | 50,788 |   |
|                                                                                                     |       |                  |       |   |   |
| **Liabilities and partners’ capital**                                                               |       |                  |       |   |   |
| Current liabilities                                                                                      |       |                  |       |   |   |
| Current portion of long-term debt                                                                        |       | $                     | 421        |   | $ | 400 |   |
| Short-term borrowings                                                                                    |       | 900                   |       | 3,000 |   |
| Accounts payable                                                                                         |       | 414                   |       | 631 |   |
| Cash distributions payable                                                                               |       | —                |       | 225 |   |
| Accrued payroll and benefits                                                                             |       | 780                   |       | 804 |   |
| Other current liabilities                                                                                |       | 23                    |       | 73 |   |
| Total current liabilities                                                                                |       | 2,538                 |       | 5,133 |   |
| Non-current benefits                                                                                     |       | 402                   |       | 374 |   |
| Long-term debt                                                                                           |       | 400                   |       | 800 |   |
| Deferred income tax liability                                                                            |       | 1,128                 |       | 1,169 |   |
| Total liabilities                                                                                        |       | 4,468                 |       | 7,476 |   |
| Commitments and contingencies                                                                            |       |                  |       |   |   |
| Partners’ capital                                                                                   |       |                  |       |   |   |
| General partner                                                                                          |       | 81                    |       | 81 |   |
| Class A limited partners, no par or assigned value, 7,500 units  authorized, issued and outstanding |       | 43,365                |       | 43,297 |   |
| Accumulated other comprehensive loss                                                                     |       | (267                  | )          | (66 | ) |
| Total partners’ capital                                                                             |       | 43,179                |       | 43,312 |   |
| Total liabilities and partners’ capital                                                             |       | $                     | 47,647     |   | $ | 50,788 |   |

 

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

 

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

**Consolidated Income Statements**

(in thousands, except per unit data)

 
| ** **                                                                     | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Macadamia nut sales                                                  |       | $        | 13,414     |     | $          | 7,551    |       | $ | 13,256 |   |
| Contract farming revenue                                             |       | 4,122    |       | 3,779    |       | 3,816    |       |
| Total revenues                                                                 |       | 17,536   |       | 11,330   |       | 17,072   |       |
| Cost of goods and services sold                                                |       |     |       |     |       |     |       |
| Costs of macadamia nut sales                                                   |       | 12,326   |       | 9,231    |       | 10,871   |       |
| Costs of contract farming services                                             |       | 3,805    |       | 3,429    |       | 3,474    |       |
| Total cost of goods and services sold                                          |       | 16,131   |       | 12,660   |       | 14,345   |       |
| Gross income (loss)                                                            |       | 1,405    |       | (1,330   | )          | 2,727    |       |
| General and administrative expenses                                            |       |     |       |     |       |     |       |
| Legal fees - related party                                                     |       | —   |       | —   |       | 196      |       |
| Other                                                                          |       | 1,909    |       | 2,561    |       | 1,646    |       |
| Total general and administrative expenses                                      |       | 1,909    |       | 2,561    |       | 1,842    |       |
| Operating income (loss)                                                        |       | (504     | )          | (3,891   | )          | 885      |       |
| Interest expense                                                               |       | (289     | )          | (179     | )          | (204     | )          |
| Interest income                                                                |       | 14       |       | 49       |       | 17       |       |
| Other income                                                                   |       | 896      |       | 13       |       | 206      |       |
| Income (loss) before tax                                                       |       | 117      |       | (4,008   | )          | 904      |       |
| Income tax credit (expense)                                                    |       | (49      | )          | 43       |       | (100     | )          |
| Net income (loss)                                                              |       | $        | 68         |     | $          | (3,965   | )          | $ | 804 |   |
|                                                                           |       |     |       |     |       |     |       |
| Net cash flow (as defined in the Partnership Agreement)                        |       | $        | 1,618      |     | $          | (2,437   | )          | $ | 2,323 |   |
|                                                                           |       |     |       |     |       |     |       |
| Net income (loss) per Class A Unit                                        |       | $        | 0.01       |     | $          | (0.53    | )          | $ | 0.11 |   |
|                                                                           |       |     |       |     |       |     |       |
| Net cash flow per Class A Unit (as defined in the Partnership  Agreement) |       | $        | 0.22       |     | $          | (0.32    | )          | $ | 0.31 |   |
|                                                                           |       |     |       |     |       |     |       |
| Cash distributions per Class A Unit                                       |       | $        | 0.00       |     | $          | 0.18     |       | $ | 0.20 |   |
|                                                                           |       |     |       |     |       |     |       |
| Class A Units outstanding                                                 |       | 7,500    |       | 7,500    |       | 7,500    |       |

 

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

 

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**MLMacadamia Orchards, L.P.**

**Consolidated Statements of Partners’ Capital**

(inthousands)

 
| ** **                                                                        | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                              |       |     |       |     |       |     |       |
| Partners’ capital at beginning of period:                                    |       |     |       |     |       |     |       |
| General partner                                                                   |       | $        | 81         |     | $          | 81       |       | $ | 81 |   |
| Class A limited partners                                                     |       | 43,297   |       | 48,612   |       | 49,308   |       |
| Accumulated other comprehensive loss Change in pension and severance  obligations |       | (66      | )          | (70      | )          | —   |       |
|                                                                              |       | 43,312   |       | 48,623   |       | 49,389   |       |
|                                                                              |       |     |       |     |       |     |       |
| Allocation of net income (loss):                                                  |       |     |       |     |       |     |       |
| General partner                                                                   |       | —   |       | —   |       | —   |       |
| Class A limited partners                                                     |       | 68       |       | (3,965   | )          | 804      |       |
|                                                                              |       | 68       |       | (3,965   | )          | 804      |       |
|                                                                              |       |     |       |     |       |     |       |
| Cash distributions paid and / or declared:                                        |       |     |       |     |       |     |       |
| General partner                                                                   |       | —   |       | —   |       | —   |       |
| Class A limited partners                                                     |       | —   |       | 1,350    |       | 1,500    |       |
|                                                                              |       | —   |       | 1,350    |       | 1,500    |       |
|                                                                              |       |     |       |     |       |     |       |
| Accumulated other comprehensive loss Pension and severance obligations            |       | (201     | )          | 4        |       | (70      | )          |
|                                                                              |       | (201     | )          | 4        |       | (70      | )          |
|                                                                              |       |     |       |     |       |     |       |
| Partners’ capital at end of period:                                          |       |     |       |     |       |     |       |
| General partner                                                                   |       | 81       |       | 81       |       | 81       |       |
| Class A limited partners                                                     |       | 43,365   |       | 43,297   |       | 48,612   |       |
| Accumulated other comprehensive loss                                              |       | (267     | )          | (66      | )          | (70      | )          |
|                                                                              |       | $        | 43,179     |     | $          | 43,312   |       | $ | 48,623 |   |

 

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

 

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**MLMacadamia Orchards, L.P.**

**Consolidated Statements of Cash Flows**

(inthousands)

 
| ** **                                                                                          | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cash flows from operating activities:                                                               |       |     |       |     |       |     |       |
| Cash received for goods and services                                                                |       | $        | 18,082     |     | $          | 11,756   |       | $ | 23,001 |   |
| Cash paid to suppliers and employees                                                                |       | (15,033  | )          | (15,576  | )          | (14,463  | )          |
| Income tax refunded (paid)                                                                          |       | —   |       | —   |       | (118     | )          |
| Interest received                                                                                   |       | 14       |       | 49       |       | 17       |       |
| Interest paid                                                                                       |       | (289     | )          | (171     | )          | (196     | )          |
| Net cash provided by (used in) operating activities                                                 |       | 2,774    |       | (3,942   | )          | 8,241    |       |
|                                                                                                |       |     |       |     |       |     |       |
| Cash flows from investing activities:                                                               |       |     |       |     |       |     |       |
| Proceeds from sale of equipment                                                                     |       | —   |       | —   |       | 75       |       |
| Capital expenditures                                                                                |       | (100     | )          | (226     | )          | (509     | )          |
| Net cash used in investing activities                                                               |       | (100     | )          | (226     | )          | (434     | )          |
|                                                                                                |       |     |       |     |       |     |       |
| Cash flows from financing activities:                                                               |       |     |       |     |       |     |       |
| Proceeds from drawings on line of credit                                                            |       | 2,900    |       | 4,000    |       | 5,800    |       |
| Loan fees paid                                                                                      |       | (21      | )          | —   |       | —   |       |
| Repayment of long term debt                                                                         |       | (400     | )          | (400     | )          | (400     | )          |
| Repayment of line of credit                                                                         |       | (5,000   | )          | (1,000   | )          | (8,700   | )          |
| Capital lease payments                                                                              |       | (4       | )          | —   |       | (34      | )          |
| Cash distributions paid                                                                             |       | (225     | )          | (1,500   | )          | (1,500   | )          |
| Net cash provided by (used in) financing activities                                                 |       | (2,750   | )          | 1,100    |       | (4,834   | )          |
|                                                                                                |       |     |       |     |       |     |       |
| Net increase (decrease) in cash                                                                     |       | (76      | )          | (3,068   | )          | 2,973    |       |
| Cash and cash equivalents at beginning of period                                                    |       | 283      |       | 3,351    |       | 378      |       |
| Cash and cash equivalents at end of period                                                          |       | $        | 207        |     | $          | 283      |       | $ | 3,351 |   |
|                                                                                                |       |     |       |     |       |     |       |
| Reconciliation of net income (loss) to net cash Provided by (used in)  operating activities:        |       |     |       |     |       |     |       |
| Net income (loss)                                                                                   |       | $        | 68         |     | $          | (3,965   | )          | $ | 804 |   |
| Adjustments to reconcile net income (loss) to net cash provided by  (used in) operating activities: |       |     |       |     |       |     |       |
| Depreciation and amortization                                                                       |       | 1,956    |       | 1,926    |       | 1,953    |       |
| Inventory write-off                                                                                 |       | 172      |       | 945      |       | —   |       |
| Gain on sale of capital assets                                                                      |       | —   |       | —   |       | (21      | )          |
| Pension expense                                                                                     |       | 71       |       | 29       |       | —   |       |
| (Increase) decrease in accounts receivable                                                          |       | (350     | )          | 413      |       | 5,745    |       |
| Deferred income tax expense (credit)                                                                |       | (41      | )          | (39      | )          | (19      | )          |
| Increase (decrease) in inventories                                                                  |       | 1,539    |       | (2,877   | )          | (2       | )          |
| (Increase) decrease in other current assets                                                         |       | (106     | )          | (74      | )          | 80       |       |
| Increase (decrease) in accounts payable                                                             |       | (217     | )          | 225      |       | (364     | )          |
| Increase (decrease) in accrued payroll                                                              |       | (268     | )          | (110     | )          | (106     | )          |
| Increase (decrease) in current liabilities                                                          |       | (50      | )          | (415     | )          | 72       |       |
| Increase (decrease) in non-current benefits payable                                                 |       | —   |       | —   |       | 99       |       |
| Total adjustments                                                                                   |       | 2,706    |       | 23       |       | 7,437    |       |
| Net cash provided by (used in) operating activities                                                 |       | $        | 2,774      |     | $          | (3,942   | )          | $ | 8,241 |   |
|                                                                                                |       |     |       |     |       |     |       |
| Supplemental schedule of noncash financing activities Distributions  declared but not paid          |       | $        | —     |     | $          | 225      |       | $ | 375 |   |
|                                                                                                     |            |          |            |          |            |          |            |  |  |  |  |  |  |

 

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

 

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

 

# ***Notes to Consolidated FinancialStatements***

# *** ***

**(1) OPERATIONS AND OWNERSHIP**

 

ML MacadamiaOrchards, L.P. (the “Partnership”) owns and farms 4,190 tree acres of macadamiaorchards on the island of Hawaii. Once the nuts are harvested, the Partnershipsells them to other entities in Hawaii, which process the nuts and market thefinished products.  The Partnership farmsapproximately 2,008 acres of macadamia orchards in Hawaii for other orchardowners in exchange for a fee.

 

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

 

Limited partner interests are represented by Class A Units, whichare evidenced by depositary receipts that trade publicly on the OTCQX platform.

 

**Liquidity. **The Partnership recorded net income of$68,000 generated operating cash flow of $2.8 million during 2008 and hadworking capital of $1.1 million at December 31, 2008.  The financial results for 2008 were due tothe Partnership selling all of macadamia nut production at higher prices, theselling of a large portion of the kernel inventory and all of the nut-in-shellinventory, lower cost of goods sold on a per pound of production and cropinsurance proceeds.  The crop insuranceproceeds are reflected as cash received for goods and services in theconsolidated statement of cash flows, and was used to service the Partnership’sline of credit.  The Partnership incurreda net loss of $4.0 million and had negative cash flows from operations of $3.9million during 2007 and had a working capital deficit of approximately $199,000at December 31, 2007.  The adversefinancial results for 2007 were due to a significant decrease in market pricesfor macadamia nuts in Hawaii, nonperformance by a major customer on a nutpurchase contract and acquisition costs related to the attempted acquisition ofMac Farms of Hawaii LLC.  The Partnershiphas access to working capital through its line of credit and other borrowingopportunities, if necessary.  However,management feels that the Partnership will be able to generate sufficient cashflows from operations to meet current obligations and debt servicerequirements.

 

**(2) SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES**

 

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

 

**(b)  Allowance for Doubtful Accounts. **The Partnership reviews theaccounts receivable to determine the adequacy of this allowance by regularlyreviewing specific account payment history and circumstances, the accountsreceivable aging, and historical write-off rates.  If customer payment timeframes were todeteriorate, allowances for doubtful accounts would be required.  There was no allowance for doubtful accountsat December 31, 2008 and 2007.

 

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

 

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

 

**(e) Farming Costs.** ThePartnership considers each orchard to be a separate cost center, which includesthe depreciation/amortization of capitalized costs associated with each orchard’sacquisition and /or development and maintenance and harvesting costs directlyattributable to each orchard.  Inaccordance with industry practice in Hawaii, orchard maintenance and harvestingcosts for commercially producing macadamia orchards are charged againstearnings in the year that the costs are incurred.

 

However, the timing and manner in which farming costs are recognized inthe Partnership’s consolidated financial statements over the course of the yearis based on a standard cost system.  Forinterim financial reporting purposes, farming costs are recognized as expensebased on a standard cost to produce a pound of macadamia nuts.  Management calculates a standard cost perpound for each orchard based on the estimated annual costs to farm each orchardand anticipated annual production from each orchard.  The amount of farming costs recognized asexpense throughout the year is calculated by multiplying each orchard’sstandard cost by actual production from that orchard.  The difference between actual farming costsincurred and the amount of farming costs recognized as expense is recorded aseither an increase or decrease in deferred farming costs, which is reported asan asset in the consolidated balance sheets. Deferred farming costs accumulate throughout the year, typically peakingmid-way through the third quarter, since nut production is lowest during thefirst and second quarters of the year. Deferred farming costs are expensed over the remainder of the year sincenut production is highest at the end of the third quarter through year end.

 

Management evaluates the validity of each orchard’s standard cost on amonthly basis based on actual production and farming costs incurred, as well asany known events that might significantly affect forecasted annual productionand farming costs for the remainder of the year.

 

**(f)  Inventory**

 

**SupplyInventory.**  Suppliesinventory is relieved on an average cost basis to cost of farming expense as used.  In 2008 the Partnership wrote off $104,000 oftree inventory as the trees had grown too large to be used in the orchardoperations.

 

**Nut andKernel Inventory. **Nutand kernel inventory is relieved on an average cost basis to cost of goods soldas the product is sold.  Kernel inventoryis recorded at the lower of cost or market, and was valued at $335,000 at December 31,2008.  Nut and kernel inventory isrecorded at the lower of cost or market, and was valued at December 31,2007 at $946,000 and $1,024,000, respectively. Inventory was written down to market and written off for spoilage in2008 in the amount of $68,000.  Thisamount was reflected in cost of goods sold. Inventory was written down to market in 2007 in the amount of$945,000.  This amount was reflected incosts of goods sold.  If the market forthe Partnership’s inventory was to decline the Partnership would have to sellat a price lower than the current market price and if no buyers were availablethe inventory could become unsalable and have to be disposed.

 

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

 

Depreciationof orchards and other equipment is reported on a straight-line basis over theestimated useful lives of the assets (40 years for orchards and between 5 and12 years for other equipment).  A 5%residual value is assumed for orchards. The macadamia orchards acquired in 1986 situated on leased land arebeing amortized on a straight-line basis over the terms of the leases(approximately 33 years from the inception of the Partnership) with no residualvalue assumed.  The macadamia orchardsacquired in 1989 situated on leased land are being amortized on a straight-linebasis over a 40 year period (the terms of these leases exceed 40 years) with noresidual value assumed.  For income taxreporting, depreciation is calculated under the straight line and decliningbalance methods over Alternative Depreciation System recovery periods.

 

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

 

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

 

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

** **

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

 

**(i)  General Excise Taxes. **The Partnership recordsHawaii general excise taxes when goods and services are sold on a gross basisas components of revenues and expenses. For the years ended December 31, 2008, 2007 and 2006, Hawaiigeneral excise taxes charged or passed on to customers and reflected inrevenues and expenses amounted to $79,000, $72,000, and $88,000, respectively.

 

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

 

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

 

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Deferred tax liabilities are recognized for the futuretax consequences attributable to differences between the financial reportingand tax reporting basis of assets and liabilities.

 

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

 

**(l)  Pension Benefit and IntermittentSeverance Costs.**  The actuarial method used for financialaccounting purposes is the projected unit credit method.

 

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

 

**(n) Net Consolidated Income (Loss) Per Class AUnit.**  In 2008, 2007 and 2006 consolidated netincome (loss) per Class A Unit is calculated by dividing 100% ofPartnership’s consolidated net income (loss) by the average number of Class AUnits outstanding for the period.

 

**(o)  Accumulated Other ComprehensiveLoss. **Accumulated other comprehensive loss represents thechange in Partners’ capital from transactions and other events andcircumstances arising from non-unit holder sources.  Accumulated other comprehensive loss consistsof deferred pension and intermittent severance gains or losses.  At December 31, 2008 and 2007, ourConsolidated Balance Sheets reflected Accumulated Other Comprehensive Loss inthe amount of $267,000 and $66,000, respectively, in deferred pension andintermittent severance loss.

 

**(p)  Reclassifications.** Certain balances have been reclassified to conform to the current yearpresentation.  These reclassificationshad no impact on net income (loss) previously reported.

 

**(q)  Recent Accounting Pronouncements. **In September 2006, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 157, Fair ValueMeasurements.  This statement provides asingle definition of fair value, a framework for measuring fair value, andexpanded disclosures concerning fair value. Previously, different definitions of fair value were contained invarious accounting pronouncements creating inconsistencies in measurement anddisclosures.  SFAS No. 157 appliesunder those previously issued pronouncements that prescribe fair value as therelevant measure of value.  Delayedapplication of this pronouncement is permitted for nonfinancial assets and nonfinancialliabilities, except for items that are recognized or disclosed at fair value inthe financial statements on a recurring basis (at least annually), until fiscalyears beginning after November 15, 2008 and is required to be adopted bythe Partnership in its first quarter of fiscal 2009.  The Partnership has not determined theimpact, if any, the adoption of SFAS No. 157, will have on its financialposition and results of operations, but does not believe that the impact willbe material.

 

In December 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS132(R)-1, Employers’ Disclosure About Postretirement Benefit Plan Assets, whichamends SFAS No. 132(R), Employers’ Disclosures About Pensions and OtherPostretirement Benefits, to require more detailed disclosures about thePartnership’s plan assets, including investment strategies, major categories ofplan assets, concentrations of risk within plan assets, and valuationtechniques used to measure the fair value of plan assets consistent with thefair value hierarchy model described in SFAS No. 157, as noted above.  The Partnership will be required to complywith the disclosure requirements of FSP 132(R)-1 for its 2009 financialstatements and expects to provide increased disclosures.

 

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**(3) SEGMENTINFORMATION**

 

The Partnershiphas two reportable segments, the owned-orchard segment and the farming segment,which are organized on the basis of revenues and assets.  The owned-orchard segment derives itsrevenues from the sale of macadamia nuts grown in orchards owned or leased bythe Partnership.  The farming segmentderives its revenues from the farming of macadamia orchards owned by othergrowers.  It also farms those orchardsowned by the Partnership.

 

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

 

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

 

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

 

**(a) Nut Purchase Contracts.** The Partnership has four nut purchasecontracts with: Mauna Loa, Hamakua, Island Princess (terminated October 31,2008) and MacFarms, as detailed in the following paragraphs.

 

# ***On June 1, 2006, the Partnership executed a contractwith Mauna Loa for the annual delivery of approximately 6.3 million fieldpounds, effective January 1, 2006 and expiring December 31,2011.  The contract provides for a nutprice of $0.74 per WIS SK/DIS pound in 2006 and $0.75 per WIS SK/DIS pound in2007.  The purchase price will increaseannually by $0.01 per WIS pound, except 2008, until it reaches $0.78 per WISSK/DIS pound in 2011.  On July 9,2008 an addendum to the June 1, 2006 nut purchase contract was executedwith Mauna Loa for the delivery of an additional 9.0 million pounds of WIS nutsduring the period July 21, 2008 through June 30, 2009 at a purchaseprice of $0.60 per pound on WIS SK/DIS basis. The addendum provided for an additional 3.0 million pounds to bedelivered if mutually agreed on the same basis as the additional 9.0 millionpounds.  On November 3, 2008 it wasagreed that any additional pounds over the 9.0 million pounds delivered until December 31,2008 would have a nut purchase price of $0.63 instead of $0.60 per pound on aWIS SK/DIS basis.  On March 23, 2009the parties executed an amendment to the June 1, 2006 for the delivery ofan additional 9.0 to 15.0 million pounds at a purchase price of $0.63 per poundon a WIS SK/DIS basis.***

# *** ***

# ***On December 16, 2004, a nut purchase contract withHamakua for the annual delivery of 6.0 million field pounds, effective January 1,2007, and  with 2.0 million field poundsexpiring December 31, 2008, December 31, 2010, and December 31,2012, respectively. The contract provides for a minimum price of $0.75 per WISSK/DIS pound and a maximum price of $0.95 per WIS SK/DIS pound. The pricingformula included a fixed component of $0.85 per WIS pound and a secondcomponent based on Hamakua’s average selling price for bulk kernel.  In February 2007, the contract wasamended to allow the Partnership, at its option, to have Hamakua processnuts-in-shell into kernel for a fee in lieu of selling the nuts toHamakua.  The Partnership exercised thisoption solely for the calendar year 2007. The contract continues to require that Hamakua purchase approximately6.0 million field pounds of nuts in 2008, approximately 4.0 million fieldpounds of nuts in the years 2009-2010, and 2.0 million field pounds of nuts inthe years 2011-2012.  Hamakua refused toaccept any nut deliveries in 2008.***

 

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On January 5, 2006, the Partnership executed a contract withIsland Princess for the annual delivery of approximately 2.2 million fieldpounds, effective January 1, 2007 and expiring on December 31,2011.  The nut price is determined everysix months by mutual agreement based on prevailing market price for kernel fromHawaii and Australia.  The effectiveprice for January – June 2007 was $0.608 per WIS SK/DIS pound and July –December 2007 was $0.494 per WIS SK/DIS pound.  The effective price for January – June 2008is $0.494 per WIS SK/DIS pound and July – December 2008 is $0.55 perWIS SK/DIS pound.  The Partnership andIsland Princess terminated this nut purchase agreement October 31, 2008 bymutual consent.

 

On January 6, 2006, the Partnership executed a contract with MacFarms for the annual delivery of between 5.0 and 6.0 million field pounds,effective January 1, 2007.  The nutprice will be determined every six months by mutual agreement based onprevailing market price for kernel from Hawaii and Australia.  The effective price for January – June 2009is $0.615 per WIS SK/DIS pound.  Theeffective price for January – June 2008 was $0.494 per WIS SK/DISpound and July – December 2008 was $0.55 per WIS SK/DIS pound.  The effective price for January – June 2007was $0.608 per WIS SK/DIS pound and July –December 2007 was $0.494per WIS SK/DIS pound.

 

**(b) Husking Activities. **Huskingactivities for the Keaau and Mauna Kea orchards are performed at Mauna Loa’sKeaau facility.  Operation of the Keaauhusking facility which had been performed by the Partnership was transferred toMauna Loa in July of 2006.  Paymentsor reimbursements made to Mauna Loa were $528,000 in 2008, $453,000 in 2007,and $559,000 in 2006 for husking as the contracts agree that the Partnershipwill deliver husked nuts.

 

**(c)  Stabilization Payments.**  In December 1986, the Partnershipacquired a 266-acre orchard that was several years younger than its otherorchards.  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) agreed to make cashstabilization payments to the Partnership for each year through 1993 in whichthe cash flow (as defined) from this orchard fell short of a target cash flowlevel of $507,000.  Stabilizationpayments for a given year were limited to the lesser of the amount of theshortfall or a maximum payment amount.

 

The Partnership accounted for the $1.2 million in stabilizationpayments (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 consolidated income (loss) ratablythrough 2019 as a reduction to depreciation for this orchard.

 

In return, the Partnership is obligated to pay the owner 100% of anyyear’s cash flow from this orchard in excess of the target cash flow asadditional percentage rent until the aggregate amount of additional percentagerent equals 150% of the total amount of stabilization payments previouslyreceived.  Thereafter, the Partnership isobligated to pay the owner 50% of this orchard’s cash flow in excess of thetarget cash flow as additional incentive rent. No additional rent was due for 2008 or 2007.  Additional rent of $62,000 was due for 2006.

 

**(d)  Cash Flow Warranty Payments**.  In October 1989, the Partnershipacquired 1,040 acres of orchards that were several years younger on averagethan the Partnership’s other orchards. Their productivity (and therefore their cash flow) was expected to belower for the first 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 the Partnership for each yearthrough 1994 in which the cash flow (as defined) from these orchards fell shortof a cash flow target level.  Warrantypayments for any year were limited to the lesser of the amount of the shortfallor a maximum payment amount.

 

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The Partnership accounted for the $13.8 million received in cash flowwarranty payments as reductions in the cost basis of the orchards.  As a result, these payments will be reflectedin the Partnership’s net consolidated income (loss) ratably through 2030 asreductions to depreciation for these orchards.

 

**(2) The farming segment’s revenues** are based on long-term farmingcontracts which generate a farming profit based on a percentage of farming costor based on a fixed fee per acre and tend to be less variable than revenuesfrom the owned-orchard segment.

 

The following is asummary of each reportable segment’s operating income and the segment’s assetsas of and for the years ended December 31, 2008, 2007 and 2006.

 

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

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

 

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

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

 

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Segment Reportingfor the Year ended December 31, 2006 (in thousands)

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

 

**(4) RELATED PARTY TRANSACTIONS**

 

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

 

In addition to a management fee, the managing general partner isentitled, under the existing Partnership Agreement, to receive an annualincentive fee equal to 0.5% of the aggregate fair market value (as defined) ofthe Class A Units for the preceding calendar year provided that net cashflow (as defined) for the preceding calendar year exceeds specifiedlevels.  No incentive fee was earned in2008, 2007 or 2006.

 

**(b) Legal Services. **The Partnership paid$266,000, $442,000, and $196,000 in legal fees in 2008, 2007 and 2006,respectively.  A former Director of thePartnership is a former partner and currently of counsel to one of the lawfirms used by the Partnership.  ThePartnership paid said law firm $196,000 in 2006.

 

**(c) Management Services Contract. **The Partnership provides administrative services to D.Buyers Enterprises, LLC (“DBE”) for which it was compensated $73,000, $100,000,and $103,000 in 2008, 2007 and 2006, respectively.

 

**(d) Office Lease. **Since September 2001, the Partnership has leasedapproximately 4000 square feet of office space in Hilo for its accounting stafffrom DBE, which was the owner of the General Partner until January 2005.   The lease amount was $80,000 in 2008 and$90,000 in 2007 and 2006.

 

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**(5) CASH FLOW PERFORMANCE**

 

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

 
| ** **                                              | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Gross revenues (including interest and other income)    |       | $        | 18,446     |     | $          | 11,392   |       | $ | 17,295 |   |
| Less:                                                   |       |     |       |     |       |     |       |
| Farming costs                                           |       | 14,191   |       | 10,740   |       | 12,391   |       |
| Administrative costs                                    |       | 1,895    |       | 2,553    |       | 1,842    |       |
| Income tax (credit) expense                             |       | 49       |       | (43      | )          | 100      |       |
| Payments of principal and interest                      |       | 693      |       | 579      |       | 639      |       |
| Net cash flow (as defined in the Partnership Agreement) |       | $        | 1,618      |     | $          | (2,437   | )          | $ | 2,323 |   |

 

All of net cashflow in 2008, 2007 and 2006 was allocated to Class A Units. This cash flowmeasure is used to determine the management fee paid annually to the generalpartner and forms the basis of distributable cash per unit.  No management fee was recorded in 2008, 2007and 2006 as the Partnership purchased the stock of the managing partner MLR in January 2005and the management fee was eliminated in consolidation.

 

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

 

Land, orchards andequipment, stated at cost, consisted of the following at December 31, 2008and 2007 (000’s):

 
| ** **                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|
| Land                                            |       | $        | 8,255      |     | $          | 8,255 |   |
| Improvements                                    |       | 1,953    |       | 1,953    |       |
| Machinery and  equipment                        |       | 4,453    |       | 4,361    |       |
| Irrigation well  and equipment                  |       | 1,184    |       | 1,184    |       |
| Producing  orchards                             |       | 67,631   |       | 67,631   |       |
| Capital leases                                  |       | 185      |       | 161      |       |
|                                            |       |     |       |     |       |
| Land, orchards  and equipment (gross)           |       | 83,661   |       | 83,545   |       |
|                                            |       |     |       |     |       |
| Less accumulated  depreciation and amortization |       | 39,937   |       | 38,005   |       |
|                                            |       |     |       |     |       |
| Land, orchards  and equipment (net)             |       | $        | 43,724     |     | $          | 45,540 |   |

 

Deprecation expense was recorded for $1.9 million, $1.9 million, and$2.0 million in 2008, 2007 and 2006, respectively. The Partnership’s interestin trees situated on certain leased macadamia orchard properties are subject torepurchase at the option of the lessors. Such repurchase options grant the lessors the right to purchase all or aportion of these trees after June 30, 2019, at fair market value, asdefined in the respective farming lease agreements.  If the repurchase options are not exercisedprior to expiration of the lease agreements and the lessors do not offer toextend the lease agreements at the then current market lease rates, the lessorsare required to repurchase these trees at fair market value at leaseexpiration.  The lessors will be releasedfrom their repurchase obligation in the event that the Partnership declines toaccept an extension offer from the lessors at fair market lease rates.

 

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

 

AtDecember 31, 2008 and 2007, the Partnership’s long-term debt comprises(000’s):

 
| ** **      | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------|------------|----------|------------|----------|------------|
|            |       |     |       |     |       |
| Term debt       |       | $        | 800        |     | $          | 1,200 |   |
|            |       |     |       |     |       |
| Current portion |       | 400      |       | 400      |       |
|            |       |     |       |     |       |
| Long-term debt  |       | $        | 400        |     | $          | 800 |   |

 

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

 

The line of creditexpires on June 30, 2009.  Drawingson the line of credit bear interest at the prime lending rate.  From and after the first anniversary date,the Partnership is required to pay a facility fee of 0.30% to 0.375% per annum,depending on certain financial ratios on the daily unused portion ofcredit.  The Partnership, at its option,may make prepayments without penalty.

 

There was $900,000in drawings on the line of credit as of December 31, 2008, with interestat 4.00%, and $3.0 million in drawings on the line of credit as of December 31,2007, with interest at 7.25%.

 

At December 31,2008, the outstanding balance on the promissory note amounted to $800,000.  The note is scheduled to mature in 2010 andbears interest at rates ranging from 5.14% to 6.87%.  Principal payments are due annually on May 2in the amount of $400,000.

 

The estimated fairvalues of the Partnership’s financial instrument has been determined byestimated market price of 6.00% in 2008 and 7.00% in 2007 using a life equal tothat remaining on the current financial instrument.  The Partnership has not considered the lenderfees in determining the estimated fair value.

 

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

 
| ** **     | ** ** | **2008**     | ** ** | **2007**  | ** ** |
|----------------|------------|--------------|------------|-----------|------------|
| ** **     | ** ** | **Carrying** | ** ** | **Fair**  | ** ** | **Carrying** | ** ** | **Fair** | ** ** |
| ** **     | ** ** | **Amount**   | ** ** | **Value** | ** ** | **Amount** | ** ** | **Value** | ** ** |
| Long-term debt |       | $            | 800        |      | $          | 740 |   | $ | 1,200 |   | $ | 1,119 |   |
|                |            |              |            |           |            |  |  |  |  |  |  |  |  |

 

Of the total$800,000 in 2008 the long-term debt of $340,000 has a fixed rate for one-thirdof a year.  The $460,000 and $690,000 in2008 and 2007, respectively, have interest rates that are fixed over theremaining life of the debt.

 

Both the revolvingcredit loan and the term debt are collateralized by all personal propertyassets of the Partnership.  The creditagreement contains certain restrictions associated with partner distributions,further indebtedness, sales of assets, and maintenance of certain financialminimums.  Significant restrictivefinancial covenants consist of the following:

 

1.               No restrictedpayments shall be declared or made through June 30, 2009.

2.               Minimum tangiblenet worth as of December 31, 2008 shall not be below $41.0 million andshall be increased dollar for dollar by the amount of positive Consolidated NetIncome achieved by the Partnership, beginning October 1, 2008 andthereafter.

 

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3.               The minimumquarterly consolidated EBITDA amount shall not be less than the amount setforth as follows:

 
| For the three  quarters ended September 30, 2008 |   | $ | 600,000   |   |
|-------------------------------------------------------|--------|---|-----------|--------|
| For the four  quarters ended December 31, 2008   |   | $ | 1,150,000 |   |
| For the four  quarters ended March 31, 2009      |   | $ | 1.200,000 |   |
| For the four  quarters ended June 30, 2009       |   | $ | 1,200,000 |   |

 

4.               The Addendum to NutPurchase Agreement with Mauna Loa shall not be terminated prior to June 30,2009 without written consent of Lender.

 

At December 31, 2008, the Partnership’s working capital was $1.1million and its current ratio was 1.42 to 1. At December 31, 2007, the Partnership’s working capital wasnegative $199,000 and its current ratio was 0.96 to 1.  On July 5, 2007, the lender provided a waiver to the loan covenantfor the year ended December 31, 2006 and retroactively amended the minimumtangible net worth covenant.  Had thelender not waived this violation the Partnership would have been restricted inits ability to pay distributions to the limited partners and all obligationsand indebtedness, at the lender’s option, could have been accelerated andbecome due and payable.  The Partnershipwas in compliance with the terms and conditions of the Credit Agreement at December 31,2007 except for the restricted payment covenant, minimum tangible net worthcovenant, and the debt coverage ratio covenant. On March 14, 2008, the lender provided a waiver and amendment tothe loan covenants for the year ended December 2007.  Effective March 14, 2008 the amendedagreement reduced the maximum borrowing on the revolving line of credit from$5.0 million to $4.5 million, established a quarterly covenant based uponEBITDA, prohibits the declaration and paying of further restricted payments in2008, established a minimum tangible net worth of $39.0 million effective December 31,2008 and required the Partnership to provide additional security in the form ofa mortgage or deed of trust on real property. On July 8, 2008 the Partnership executed a Second Amended andRestated Credit Agreement with American AgCredit Capital Markets.  The Second Amended and Restated CreditAgreement increased the maximum borrowing on the revolving line of credit from$4.5 million to $6.0 million, allowed no declaration and related payments ofcash distributions to partners through June 30, 2009 and providedrestrictive covenants as shown above. The Partnership was in compliance with the terms and conditions of theSecond Amended and Restated Credit Agreement at December 31, 2008.

 

**Capitaland Operating Leases.**The Partnership has capital leases of$21,000 as of December 31, 2008. The Partnership had no capital leases as of December 31, 2007. ThePartnership has operating leases for equipment and land.

 

**LandLeases.**The partnership leases the land underlying 1,948acres of its orchards under long-term operating leases which expire throughdates ending 2045.  Operating leasesprovide for changes in minimum rent based on fair value at certain points intime.  Each of the land leases providesfor additional lease payments based on USDA-reported macadamia nut pricelevels.  Those contingent lease paymentstotaled $15,000 in 2008, $24,000 in 2007, and $115,000 in 2006.  Total lease rent for all land operatingleases was $136,000 in 2008, $161,000 in 2007, and $256,000 in 2006.

 

**EquipmentOperating Leases. **ThePartnership leases equipment for the farming operation to include vehicles,blower sweepers and harvester.  Theoperating lease terms range from three to five years.  The operating lease cost was $151,000,$217,000, and $206,000 in 2008, 2007 and 2006, respectively.

 

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Contractual obligationsas of December 31, 2008 for the Partnership are detailed in the followingtable (000’s):

 
| **Contractual Obligations** | ** ** | **Total** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **Remaining** | ** ** |
|----------------------------------|------------|-----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|---------------|------------|
| Line-of-credit                   |       | $         | 900        |     | $          | 900      |       | $        | —     |     | $          | —   |       | $             | —     |   | $ | — |   | $ | — |   |
| Long-term debt  and interest     |       | 840       |       | 432      |       | 408      |       | —   |       | —   |       | —   |       | —        |       |
| Capital lease                    |       | 23        |       | 23       |       | —   |       | —   |       | —   |       | —   |       | —        |       |
| Operating leases                 |       | 3,015     |       | 207      |       | 162      |       | 135      |       | 134      |       | 126      |       | 2,251         |       |
| Total                            |       | $         | 4,778      |     | $          | 1,562    |       | $        | 570        |     | $          | 135      |       | $             | 134        |   | $ | 126 |   | $ | 2,251 |   |

 

**(8) GROSSINCOME TAXES**

 

The components of grossincome tax expense (credit) for the years ended December 31, 2008, 2007and 2006 were as follows (000’s):

 
| ** **        | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------|------------|----------|------------|----------|------------|----------|------------|
| Currently payable |       | $        | 90         |     | $          | (5       | )          | $ | 119 |   |
| Deferred          |       | (41      | )          | (38      | )          | (19      | )          |
|              |       | $        | 49         |     | $          | (43      | )          | $ | 100 |   |

 

The provision (credit)for income taxes equates to the 3.5% federal tax rate applied to gross income(net revenues less cost of goods sold) for the years ended December 31,2008, 2007 and 2006.

 

The components of the netdeferred tax liability reported on the consolidated balance sheets as of December 31,2008 and 2007 are as follows (000’s):

 
| ** **                     | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Deferred tax assets:           |       |     |       |     |       |
| Intangible assets              |       | $        | 115        |     | $          | 115 |   |
| Inventory                      |       | 27       |       | 27       |       |
| Gross deferred tax assets      |       | 142      |       | 142      |       |
| Deferred tax liabilities:      |       |     |       |     |       |
| Land, orchards, and equipment  |       | (1,263   | )          | (1,304   | )          |
| Other                          |       | (7       | )          | (7       | )          |
| Gross deferred tax liabilities |       | (1,270   | )          | (1,311   | )          |
| Net deferred tax liabilities   |       | $        | (1,128     | )        | $          | (1,169 | ) |

 

**(9) PENSIONPLAN**

 

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

 

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The followingreconciles the changes in the pension benefit obligation and plan assets forthe years ended December 31, 2008, 2007, and 2006 to the funded status ofthe plan and the amounts recognized in the consolidated balance sheets at December 31,2008, 2007, and 2006 (000’s):

 
| ** **                                                         | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Change in  projected benefit obligation:                           |       |     |       |     |       |     |       |
| Projected  benefit obligation at beginning of year                 |       | $        | 529        |     | $          | 490      |       | $ | 518 |   |
| Service cost                                                       |       | 57       |       | 60       |       | 59       |       |
| Interest cost                                                      |       | 31       |       | 28       |       | 28       |       |
| Actuarial (gain)  loss                                             |       | 31       |       | (33      | )          | (80      | )          |
| Benefits paid                                                      |       | (21      | )          | (16      | )          | (35      | )          |
|                                                               |       |     |       |     |       |     |       |
| Projected  benefit obligation at end of year                       |       | 627      |       | 529      |       | 490      |       |
|                                                               |       |     |       |     |       |     |       |
| Change in plan  assets:                                            |       |     |       |     |       |     |       |
| Fair value of  plan assets at beginning of year                    |       | 505      |       | 422      |       | 258      |       |
| Actual return  (loss) on plan assets                               |       | (141     | )          | (1       | )          | 31       |       |
| Employer  contribution                                             |       | 200      |       | 100      |       | 168      |       |
| Benefits paid                                                      |       | (21      | )          | (16      | )          | (35      | )          |
| Fair value of  plan assets at end of year                          |       | 543      |       | 505      |       | 422      |       |
|                                                               |       |     |       |     |       |     |       |
| Funded status                                                      |       | (84      | )          | (24      | )          | (68      | )          |
| Unrecognized  prior service cost                                   |       | —   |       | —   |       | —   |       |
| Unrecognized net  actuarial loss                                   |       | —   |       | —   |       | —   |       |
| Amount  recognized in consolidated balance sheets                  |       | $        | (84        | )        | $          | (24      | )          | $ | (68 | ) |
|                                                               |       |     |       |     |       |     |       |
| Amounts  recognized in the consolidated balance sheets consist of: |       |     |       |     |       |     |       |
|                                                               |       |     |       |     |       |     |       |
| Accrued pension  liability (current)                               |       | (84      | )          | (24      | )          | (68      | )          |
| Intangible asset                                                   |       | —_  |       | —   |       | —   |       |
| Net amount  recognized                                             |       | $        | (84        | )        | $          | (24      | )          | $ | (68 | ) |

 

The amountsrecognized in accumulated other comprehensive loss at December 31, 2008and 2007 were as follows (000’s):

 
| ** **          | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Net actuarial  loss |       | $        | 222        |     | $          | 4 |   |
| Prior service  cost |       | 42       |       | 49       |       |
|                |       | $        | 264        |     | $          | 53 |   |

 

The estimated netactuarial gain and prior service cost that will be amortized from accumulatedother comprehensive loss into net periodic benefit cost for the year ending December 31,2009 is $23,000.

 

Prior to the adoption of SFAS No. 158, Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans — An Amendment of FASBStatements No. 87, 88, 106, and 132R, the plan was over funded by $7,000.

 

The accumulated benefit obligation of the pension plan as of December 31,2008 and 2007 was approximately $568,000 and $489,000, respectively.

 

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The components of net periodic pension cost for the years ended December 31,2008, 2007 and 2006 were as follows (000’s):

 
| ** **                                                 | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Service cost                                               |       | $        | 57         |     | $          | 60       |       | $ | 59 |   |
| Interest cost                                              |       | 31       |       | 28       |       | 28       |       |
| Expected return  on plan assets                            |       | (47      | )          | (40      | )          | (23      | )          |
| Amortization of net  actuarial loss and prior service cost |       | 7        |       | 7        |       | 9        |       |
|                                                       |       |     |       |     |       |     |       |
| Net periodic  pension cost                                 |       | $        | 48         |     | $          | 55       |       | $ | 73 |   |

 

The weightedaverage actuarial assumptions used to determine the pension benefit obligationsat December 31, 2008, 2007 and 2006 and the net periodic pension cost forthe years then ended are as follows:

 
| ** **                     | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Pension benefit  obligation:   |       |     |       |     |       |     |       |
| Discount rate                  |       | 6.00     | %          | 6.00     | %          | 5.90     | %          |
| Compensation  increases        |       | 2.00     | %          | 2.00     | %          | 2.00     | %          |
|                           |       |     |       |     |       |     |       |
| Net periodic  pension cost:    |       |     |       |     |       |     |       |
| Discount rate                  |       | 6.00     | %          | 6.00     | %          | 5.90     | %          |
| Compensation  increases        |       | 2.00     | %          | 2.00     | %          | 2.00     | %          |
| Return on assets  for the year |       | 8.50     | %          | 8.50     | %          | 8.50     | %          |

 

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

 

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

 

The Partnership employsan investment strategy whereby the assets in our portfolio are evaluated tomaintain the desired target asset mix. The funds are invested in stock mutual funds, fixed income mutual fundsand money market funds.  The actual assetmix is evaluated on a quarterly basis and adjusted if required to maintain thedesired target mix.  Therefore, theactual asset allocation does not vary significantly from the targeted assetallocation.

 

The plan’s assetallocation percentages at December 31, 2008 and 2007 were as follows:

 
| ** **                 | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|
| Pooled fixed income  funds |       | 21.00    | %          | 21.00    | %          |
| Money market  funds        |       | 24.00    | %          | 18.00    | %          |
| Stock mutual  funds        |       | 55.00    | %          | 61.00    | %          |
| Total                      |       | 100.00   | %          | 100.00   | %          |

 

The Partnershipexpects to contribute approximately $100,000 to the plan in 2009.

 

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

 
| **Years Ending December 31,** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|
|                                         |       |       |       |
| 2009                                         |       | $          | 19,316     |   |
| 2010                                         |       | 19,524     |       |
| 2011                                         |       | 19,715     |       |
| 2012                                         |       | 19,887     |       |
| 2013                                         |       | 20,032     |       |
| 2014-2018                                    |       | 101,162    |       |
|                                              |            |            |            |  |

 

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

 

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

 

The followingreconciles the changes in the severance benefit obligation and plan assets forthe years ended December 31, 2008, 2007 and 2006 to the funded status ofthe plan and the amounts recognized in the consolidated balance sheets at December 31,2008, 2007 and 2006 (000’s).

 
| ** **                                      | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Change in Severance Obligation                  |       |       |       |       |       |       |       |
| Severance  obligation at beginning of year      |       | $          | 305        |       | $          | 335        |       | $ | 376 |   |
| Service cost                                    |       | 16         |       | 18         |       | 23         |       |
| Interest cost                                   |       | 19         |       | 19         |       | 20         |       |
| Actuarial gain                                  |       | (11        | )          | (5         | )          | (36        | )          |
| Benefits paid                                   |       | (14        | )          | (62        | )          | (48        | )          |
| Severance  obligation at end of year            |       | $          | 315        |       | $          | 305        |       | $ | 335 |   |
| ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006**   | ** ** |
| Change in Plan  Assets                          |       |       |       |       |       |       |       |
| Fair value of  plan assets at beginning of year |       | $          | 0          |       | $          | 0          |       | $ | 0 |   |
| Employer  contributions                         |       | 14         |       | 62         |       | 48         |       |
| Benefits paid                                   |       | (14        | )          | (62        | )          | (48        | )          |
| Fair value of  plan assets at end of year       |       | $          | 0          |       | $          | 0          |       | $ | 0 |   |
|                                            |       |       |       |       |       |       |       |
| Funded Status                                   |       |       |       |       |       |       |       |
|                                            |       |       |       |       |       |       |       |
| Benefit  obligation                             |       | $          | (315       | )          | $          | (305       | )          | $ | (335 | ) |
| Unrecognized net  actuarial loss                |       | 3          |       | 13         |       | 18         |       |
| Accrued benefit  cost                           |       | $          | (312       | )          | $          | (292       | )          | $ | (317 | ) |
|                                            |       |       |       |       |       |       |       |
| Components of  Net Periodic Cost                |       |       |       |       |       |       |       |
|                                            |       |       |       |       |       |       |       |
| Service cost                                    |       | $          | 16         |       | $          | 18         |       | $ | 23 |   |
| Interest cost                                   |       | 19         |       | 19         |       | 20         |       |
| Recognized net  loss                            |       | —     |       | —     |       | 1          |       |
| Net periodic  cost                              |       | $          | 35         |       | $          | 37         |       | $ | 44 |   |
|                                            |       |       |       |       |       |       |       |
| Reconciliation  of Severance Liability          |       |       |       |       |       |       |       |
|                                            |       |       |       |       |       |       |       |
| (a) Accrued  severance beginning of year   |       | $          | (292       | )          | $          | (317       | )          | $ | (321 | ) |
| (b) Contributions  during fiscal year      |       | 14         |       | 62         |       | 48         |       |
| (c) Net  periodic pension cost             |       | (35        | )          | (37        | )          | (44        | )          |
| (d) Accrued  severance cost at end of year |       | $          | (313       | )          | $          | (292       | )          | $ | (317 | ) |
|                                            |       |       |       |       |       |       |       |
| Weighted Average  Assumptions                   |       |       |       |       |       |       |       |
|                                            |       |       |       |       |       |       |       |
| Discount rate                                   |       | 6.64       | %          | 6.53       | %          | 5.87       | %          |
| Expected return  on plan assets                 |       | 0.00       | %          | 0.00       | %          | 0.00       | %          |
| Rate of  compensation increase                  |       | 1.65       | %          | 1.65       | %          | 1.65       | %          |
|                                                 |            |            |            |            |            |            |            |  |  |  |  |  |  |  |  |  |

 

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

 

The amountsrecognized in accumulated other comprehensive loss at December 31, 2008and 2007 were as follows (000’s):

 
| ** **          | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Net actuarial  loss |       | $        | 3          |     | $          | 13 |   |
|                     |            |          |            |          |            |  |  |

 

There will be noestimated net actuarial loss that will be amortized from accumulated othercomprehensive loss into net periodic benefit cost for the year ending December 31,2009.

 

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

 

**(11)  EMPLOYEES SAVINGS PLAN**

 

The Partnershipsponsors a 401(k) plan, which allows participating employees to contributeup to an amount not to exceed the employee’s covered compensation for the planyear reduced by required withholdings, subject to annual limits.  The plan provides for the Partnership to makematching contributions up to 50% of the first 4% of salary deferred by employees.  During the years ended December 31,2008, 2007 and 2006, Partnership matching contributions were $33,000, $34,000,and $32,000, respectively.

 

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**(12)  SALARIED DEFINED CONTRIBUTION PLAN**

 

The Partnershipsponsors a defined contribution plan for its non-bargaining unit employees.This plan provides for the Partnership to make annual contributions to the 401(k) planon behalf of participating employees.  Contributions are based upon age, length ofservice, and other criteria on an annual basis, subject to annual limits.  During the years ended December 31,2008, 2007, and 2006 Partnership contributions were $106,000, $115,000, and$106,000, respectively.

 

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

 

The following chart summarizes unaudited quarterly operating resultsfor the years ended December 31, 2008, 2007, and 2006 (000’s omittedexcept per unit data):

 
| ** **       | ** ** | ** **   | ** ** | **Gross Income** | ** ** | **Net Income** | ** ** | **Net Income (Loss)**     | ** ** |
|------------------|------------|--------------|------------|-----------------------|------------|---------------------|------------|-------------------------------------|------------|
| ** **       | ** ** | **Revenues** | ** ** | **(Loss)**            | ** ** | **(Loss)**          | ** ** | **per Class A Unit** | ** ** |
| 2008             |       |         |       |                  |       |                |       |                                |       |
| 1st Quarter |       | $            | 3,644      |                  | $          | 251                 |       | $                                   | (246       | ) | $ | (0.04 | ) |
| 2nd Quarter |       | 1,603        |       | 54                    |       | (398                | )          | (0.05                               | )          |
| 3rd Quarter |       | 5,761        |       | 574                   |       | 886                 |       | 0.12                                |       |
| 4th Quarter |       | 6,528        |       | 526                   |       | (174                | )          | (0.02                               | )          |
|             |       |         |       |                  |       |                |       |                                |       |
| 2007             |       |         |       |                  |       |                |       |                                |       |
| 1st Quarter |       | $            | 3,365      |                  | $          | 790                 |       | $                                   | 346        |   | $ | 0.05 |   |
| 2nd Quarter |       | 1,225        |       | 100                   |       | (356                | )          | (0.05                               | )          |
| 3rd Quarter |       | 2,776        |       | 499                   |       | (436                | )          | (0.06                               | )          |
| 4th Quarter |       | 3,964        |       | (2,719                | )          | (3,519              | )          | (0.47                               | )          |
|             |       |         |       |                  |       |                |       |                                |       |
| 2006             |       |         |       |                  |       |                |       |                                |       |
| 1st Quarter |       | $            | 1,523      |                  | $          | 272                 |       | $                                   | (100       | ) | $ | (0.01 | ) |
| 2nd Quarter |       | 1,288        |       | 444                   |       | (27                 | )          | 0.00                                |       |
| 3rd Quarter |       | 5,487        |       | 437                   |       | 85                  |       | 0.01                                |       |
| 4th Quarter |       | 8,774        |       | 1,574                 |       | 846                 |       | 0.11                                |       |

** **

**(14)  CBCLACQUISITION ADJUSTMENTS**

** **

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

 

**(15)****          CONCENTRATIONRISKS**

 

**Marketand customers. **Adecline in worldwide macadamia nut prices would adversely affect the price paidunder the nut purchase contracts with Mac Farms, as the contract price isdetermined based upon the prevailing world market price of macadamia nut kernelfor each six-month period January through June, and July to December throughoutthe contract term.  Even though thePartnership increased its customers from one to four in 2007 there are alimited number of customers available to purchase the Partnership’s nutproduction.  If our customers are unableto perform under their contracts or if their purchase of product should changefrom Hawaii-based to foreign sourced kernel, it would have a material adverseimpact on our business as there are virtually no replacement customers for thePartnership’s production.  If the marketfor the Partnership’s inventory was to decline the Partnership would have tosell at a price lower than the current market price and if no buyers wereavailable the inventory could become unsalable and have to be disposed.

 

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**NutPurchase Agreements.** The Partnership had four contracts beginning January 1, 2007.  The terms of the contracts vary from two tosix years, contain fixed and market determined prices and 30-day paymentterms.  The Partnership relies upon thefinancial ability of the buyers of the Partnership’s nuts to abide by thepayment terms of the nut purchase agreements. If any or all of the buyers were unable to pay for the macadamia nutsdelivered by the Partnership to them it could result in the Partnership’savailable cash resources being depleted. If any or all buyers were late in payment the Partnership would stop thedelivery of macadamia nuts to the buyer.  The Partnership would need to negotiate a nutpurchase agreement with another buyer which might not be at the same terms orprice.  It is also possible that thePartnership might not be able to find a buyer for the nuts.  There were a significant number of Hawaiimacadamia growers that were unable to find a processor to purchase and processtheir crop in 2007 due to the depressed market.

 

**Employees.* ***Asof December 31, 2008, the Partnership employed 227 people, of which 149were seasonal employees.  Of the total,21 are in farming supervision and management, 193 in production, maintenanceand agricultural operations, and 13 in accounting and administration.

 

With the May 2000acquisition, the Partnership agreed to the assumption of two bargainingagreements with the ILWU Local 142. These agreements cover all production, maintenance and agriculturalemployees of the Ka’u Orchard Division, the Keaau Orchard Division and theMauna Kea Orchard Division.  These laborcontracts became effective May 1, 1997 and expired on April 30, 2002,but were extended until April 30, 2005. The parties agreed to a three-year contract, which expired on April 30,2008 and was extended for a 60-day period. On June 30, 2008 the parties agreed to a one-year contract, whichwill expire on June 30, 2009. Although, the Partnership believes that relations with its employees andthe ILWU are generally very good, there is uncertainty with respect to theultimate outcome of the bargaining unit negotiations when the current agreementexpires.

 

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

** **

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

 

PwC’s report on thePartnership’s consolidated financial statements as of and for the fiscal yearended December 31, 2006 did not contain an adverse opinion or a disclaimerof opinion, and was not qualified or modified as to uncertainty, audit scope,or accounting principle.

 

Accuity’s report on thePartnership’s consolidated financial statements as of and for the fiscal yearended December 31, 2007 did not contain an adverse opinion or a disclaimerof opinion, and was not qualified or modified as to uncertainty, audit scope,or accounting principle.

 

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During the fiscal yearsended December 31, 2005 and 2006 and through April 16, 2007, therewere no disagreements with PwC on any matters of accounting principles orpractices, financial statement disclosure or auditing scope or procedure which,if not resolved to the satisfaction of PwC, would have caused PwC to make areference thereto in connection with its reports on the financial statementsfor such years.

 

During the fiscal yearsended December 31, 2005 and 2006 and through April 16, 2007, thePartnership did not consult with Accuity regarding either (1) theapplication of accounting principles to a specified transaction, eithercompleted or proposed, or the type of audit opinion that might be rendered onthe Partnership’s consolidated financial statements or (2) the subjectmatter of the disagreement or reportable event as defined in Item 304(a)(1)(iv) and(v).

 

During the fiscal yearsended December 31, 2006, 2007 and 2008, there were no reportable events asdefined in Item 304(a)(1)(v) of Regulation S-K.

 

**ITEM 9A.  CONTROLS AND PROCEDURES**

 

**(a)****         ****Evaluation of Disclosure Controls and Procedures**

 

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

 

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

 

ThePartnership’s management is responsible for establishing and maintaining anadequate system of internal control over financial reporting.  Internal control over financial reporting isa process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of consolidated financial statementsfor external purposes in accordance with generally accepted accountingprinciples.  A partnership’s internalcontrol over financial reporting includes those policies and procedures that (i) pertainto the maintenance of records that, in reasonable detail , accurately andfairly reflect the transactions and dispositions of the assets of thepartnership; (ii) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of consolidated financialstatements in accordance with generally accepted accounting principles, andthat receipts and expenditures of the partnership are being made only inaccordance with authorizations of management and directors of the partnership;and (iii) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use, or disposition of the partnership’sassets that could have a material effect on the consolidated financialstatements.

 

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

 

Managementof the Partnership conducted an evaluation of the effectiveness of thePartnership’s internal control over financial reporting base on the *Internal Control-Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission.  Based on that evaluation, the Partnership’smanagement concluded that its internal control over financial reporting waseffective as of December 31, 2008.

 

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

 

**(c)****         ****Changes in Internal Control Over Financial Reporting**

 

Therehave been no significant changes to the Partnership’s internal control overfinancial reporting during the fourth quarter of 2008 that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

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**PART III**

** **

**ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATEGOVERNANCE**

** **

The Partnership presentlyhas no officers or directors. Instead, the officers and directors of theManaging Partner perform all management functions for the Partnership.  Each director of the Managing Partner isappointed for a term of one year and until his successor is duly appointed andqualified.  Each officer of the ManagingPartner is elected by the Board of Directors of the Managing Partner and issubject to removal by that board at any time.

 

## **A.**            Identification ofDirectors

## ** **

*John K. Kai. *43 years old; director of the ManagingPartner since June 2004; member of the Audit, Nominating, Compensation andCorporate Governance Committees since March 2005; president of PinnacleInvestment Group, LLC; president of Pinnacle Media Group, LLC; branch managerand investment representative of Commonwealth Financial Network.

 

*James S. Kendrick.  61* years old; director of Managing Partnersince June 2005; Executive at Mauna Loa Macadamia Nut Corporation from1991 to 1998.

 

*E. Alan Kennett. *65 years old; director of Managing Partnersince June 2005; member of the Audit, Nominating, Compensation and CorporateGovernance Committees of Managing Partner: President and CEO of Gay andRobinson Sugar Company, Inc.

 

*Jeffrey M. Kissel. *59 years old; director of Managing Partnersince June 2005; member of the Audit Committee since June 2005 andchairman since March 2006; member of the Nominating, compensation andCorporate Governance Committees of the Managing Partner; President of The GasCompany, LLC since December 2007; President and CEO of Safe RenewablesCorporation from October 2006 until December 2007; from 2003 to 2005was CFO for Earth Tech, Inc.; held various positions during 1997 until2003 with URS Corporation including vice president of budgeting and planningand CFO.

 

*DavidMcClain.*  62 years old;director since September 2000 and member of the Audit, Nominating,Compensation and Corporate Governance Committees of Managing Partner; Presidentof the 10-campus University of Hawai’i System (UH) since March 2006;  served as Interim President from August 2004and Vice President of Academic Affairs of UH from July 2003.

 

*Dennis J.Simonis.* 52 years old;director of Managing Partner since August 2002; President and ChiefOperating Officer of Managing Partner from August 2001 until December 2004,Chief Financial Officer from June 2001 to August 2001, and ChiefExecutive Officer since December 2004. Chief Financial Officer of DBE fromAugust 2001, and President of DBE from October, 2005.

 

*Scott C.Wallace.*  53 yearsold:  director of Managing Partner since June 2007;Global Vice President, Sales and Marketing of SVP Worldwide since July 2006.  Chairman, President and Chief ExecutiveOfficer of Gardenburger, Inc from January 2001 to July 2006.

 

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

 

*Dennis J.Simonis.  52* years old;president of Managing Partner since August 2001; and chief executiveofficer since December 2004; president of D. Buyers Enterprises, LLC.Formerly executive vice president and chief operating officer of Mauna Loa.

 

*RandolphH. Cabral.  56*yearsold; senior vice president and orchard manager of Managing Partner since May 2000.Formerly senior vice president and orchard manager of KACI.

 

*Wayne W.Roumagoux*.  62 yearsold; chief financial officer of Managing Partner since August 2001;controller of DBE.

 

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**C.  Identification of Certain SignificantEmployees**

 

Not applicable

 

# ***D. Family Relationships***

# *** ***

Not applicable

 

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

 

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

 

*John K. Kai.*  Mr. Kai has served as a director since June 2004.  Mr. Kai is president of PinnacleInvestment Group, LLC and Pinnacle Media Group, LLC, and branch manager andinvestment representative of Commonwealth Financial Network.  Mr. Kai was the resident manager of theHilo office of Paine Webber, Inc. and was with Merrill Lynch prior toPaine Webber, Inc.  Mr. Kai isa graduate of Sacramento City College and attended the University of thePacific from 1983 to 1985.  Mr. Kaiserved on the Board of Regents of the University of Hawaii and was a directorof the Research Corporation of the University of Hawaii, the Hawaii IslandPortuguese Chamber of Commerce and has served on several nonprofit boards inHawaii.  He resides in Hilo, Hawaii.

 

*JamesS. Kendrick. *Mr. Kendrick has over 36 years ofexperience in the food processing industry and is currently a consultant tovarious food companies.  Mr. Kendrickheld executive positions at Mauna Loa Macadamia Nut Corporation from 1991 to1998, including Executive Vice President of Operations and President.  Between 1978 and 1983, he was the Manager ofthe Honolulu Dole Pineapple cannery.  Mr. Kendrickworked for Kraft Foods as an engineer. He is a graduate of Northern Illinois University and Cornell’s ExecutiveDevelopment Program.  He has been activein the Hawaii Macadamia Nut Association and currently resides in Naples,Florida.

 

*E. AlanKennett. *Mr. Kennett has worked in variousexecutive capacities in the agriculture sector for over 40 years and currentlyis the President and Chief Executive Officer of Gay and Robinson Sugar Company, Inc.on Kauai, Hawaii.  He held variouspositions in the Hawaii sugar industry with C. Brewer and Co., Ltd. Between1976 and 1994.  Prior to 1976, Mr. Kennettmanaged sugar operations in Africa, the United Kingdom and the WestIndies.  He is a graduate of WaltonTechnical College and the Liverpool College of Technology and Completed Cornell’sExecutive Development Program.  Mr. Kennetthas been active in numerous Hawaii non-profit organizations and written severaltechnical papers.  He currently residesin Kaumakani, Kauai, Hawaii.

 

*JeffreyM. Kissel. *Mr. Kissel is the President of The GasCompany, since December 2007. He was the President and Chief ExecutiveOfficer of Safe Renewables Corporation, an established marketer and producer of“Biodiesel” or “B100”, a substitute for conventional petroleum diesel, locatedin Houston, Texas.  He was the ChiefFinancial Officer for Earth Tech Inc. from 2003 to 2005, a $1.5 billion globalengineering and construction company specializing in water treatment, and hasheld various financial executive positions in publicly traded companies since1974.  From 1997 to 2003, Mr. Kisselwas employed by URS Corporation as a vice president of planning and budgeting,and served as Chief Financial Officer for several URS Corporationdivisions.  Mr. Kissel was Presidentand principal shareholder of Hawaiian Communications between 1992 and1997.  Prior to 1992 he worked withTesoro, AON and Challenger Petroleum in the energy industry.  He has a B.B.A. and M.B.A. from theUniversity of Hawaii and currently resides in California and Hawaii.

 

*David McClain.* Dr. McClainwas appointed as the President of the 10-campus University of Hawai’i Systemeffective March 2006, having served as Interim President from August 15,2004, and Vice President for Academic Affairs of the UH System from July 1,2003.  From 2000 until 2003 he was theDean of the College of Business Administration at the University of Hawaii at Mānoa,as well as First Hawaiian Bank Distinguished Professor of Leadership andManagement; he was also Interim Vice 

 

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President for Research ofthe University of Hawaii System from February to September 2003.  Dr. McClain was Dean and First HawaiianBank Professor of Leadership and Management at University of Hawaii’s ShidlerCollege of Business from 2000 until 2003. Dr. McClain joined the University of Hawaii at Manoa in 1991 as theHenry A. Walker, Jr. Distinguished Professor of Business Enterprise andProfessor of Financial Economics and Institutions.   Dr. McClain is a director of FirstInsurance Company, and serves as a member of several nonprofit boards inHawaii. He earned a Ph.D. in Economics from the Massachusetts Institute ofTechnology in 1974 and a BA in Economics and Mathematics from the University ofKansas in 1968.  Dr. McClain hastaught at Massachusetts Institute of Technology’s Sloan School of Managementand at Boston University, where he chaired the Department of Finance andEconomics. He also served as Senior Staff Economist, Council of EconomicAdvisors to President Jimmy Carter, and headed international economicinformation services for Data Resources, Inc.  He resides in Honolulu, Hawaii.

 

*Dennis J.Simonis*.  Mr. Simonishas served as a director since August 2002, president of the ManagingPartner since August 2001, chief executive officer since December 2004,and was formerly the executive vice president and chief financial officer. From1993 to 2001, Mr. Simonis served in various capacities at Mauna Loa,including executive vice president and chief operating officer.  He serves as an officer of the HawaiiMacadamia Nut Association and has served on several nonprofit boards in Hawaii.He served from 1985-1993 as a vice president of Theo H. Davies & Co.,Ltd. and worked as a senior auditor for Price Waterhouse between 1979 and 1985.Mr. Simonis graduated magna cum laude with a B.S. in Accounting fromCarroll College in Waukesha, Wisconsin and earned his C.P.A. certificate in1983. He resides in Hilo, Hawaii.

 

*Scott C.Wallace.*  Mr. Wallacehas served as a director since June 2007. He is currently Global Vice President, Sales and Marketing of SVPWorldwide Since July 2006.  SVPWorldwide is the world’s largest sewing machine manufacturer and marketer, ownsthe Singer, Husqvarna, Viking and Pfaff brands and operates in 190countries.  Mr. Wallace has beeninvolved with consumer products, general management, marketing, sales,processing, manufacturing, and distribution for his entire career.  Mr. Wallace has spent over 25 years inprogressively more senior management positions in the consumer goods industry.  Prior to joining SVP Worldwide, he wasChairman, President and Chief Executive Officer of Gardenburger, Inc.until taking the company private in 2006. Previously, he was president and Chief Executive Officer of Mauna LoaMacadamia Nut Corporation until selling the business in 2000.  He has also served in management capacitieswith Jacobs Suchard (1988 through 1994), Eastman Kodak Company (1985 through1988) and Procter & Gamble (1978 through 1985).  Mr. Wallace received his Bachelor ofArts in International Business Management and Marketing from San FranciscoState University.

 

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

 

*RandolphH. Cabral. *Mr. Cabralhas served as senior vice president and orchard manager of the Managing Partnersince May 2000.  Mr. Cabral waspreviously employed at Ka’u Agribusiness Company, Inc., from 1989 untilthe Partnership’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 GeneralAgriculture from the University of Hawaii. He resides in Hilo, Hawaii.

 

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

 

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**Board Meetings and Committees;Special Meeting Attendance.** During 2008, four meetings of the Board of Directors were held.  Each director attended at least 75% of themeetings of the Board and of all committees of the Board on which he servedduring 2008.  The Partnership does nothave a policy with respect to Board members attendance at special meetings ofpartners.  All seven Directors attendedlast year’s special meeting.

 

**Executive Session. **The executive session, a meeting ofnon-management directors, is presided over by David McClain who can be communicatedwith by e-mail at dmcclain46@aol.com.

 

**Audit Committee. **Effective March 2, 2006, Jeffrey Kisselwas appointed chairman of the Audit Committee. At the May 5, 2006 Board of Directors meeting Alan Kennett wasappointed a member of the Audit Committee. At the June 12, 2006 Board of Directors meeting Mr. James Caseresigned as a Director and Mr. Russell Case was appointed a Director.  At the November 30, 2006 Board ofDirectors meeting Mr. Russell Case resigned as a Director.  The members of the Audit Committee andCorporate Governance Committee are Dr. David McClain, Jeffrey Kissel, AlanKennett and John Kai.  The Board ofDirectors has determined that each member of the Audit Committee is independentin accordance with NYSE rules and each member is financially literate, andMr. Kissel qualifies as a financial expert.  The Partnership has adopted standards forindependence and said standards are in the Partnership’s Corporate GovernanceGuidelines at the Partnership’s website www.mlmacadamia.com.  The Audit Committee met four times in 2008 toreview and approve accounting, internal control and reporting issues, relatedparty transactions and other matters that could involve a conflict ofinterest.  All members were in attendanceat each quarterly meeting.

 

The Audit Committee has discussed with the independent registeredpublic accountants, Accuity, the matters required to be discussed by Statementon Auditing Standards No. 61 (Communication with Audit Committees), as maybe modified or supplemented, as amended and as required by S-X Rule 2-07.

 

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

 

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

 

The Audit Committee has reviewed and discussed the audited financialstatements for the year ended December 31, 2008 with management and theindependent auditors of the Partnership. Based upon the above-mentioned reviews and discussions the AuditCommittee has recommended to the Board that the audited financial statements beincluded in the Partnership’s Annual Report on Form 10-K for the yearended December 31, 2008.

 

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

 

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

 

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

 

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

 

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

** **

**CompensationCommittee. **The Partnership formeda Compensation Committee and the charter was adopted in May 2005.  The members of the Compensation Committee areindependent under Section 15A(a) of the Exchange Act. TheCompensation Committee Charter is available by request or on the Partnership’swebsite.  The members of the CompensationCommittee are Dr. David McClain, Mr. John Kai, Mr. JeffreyKissel and Mr. E. Alan Kennett.  TheCompensation Committee determine the executive and director compensation basedupon the Partnership’s financial performance, the executive’s performance andthe market conditions.  The CompensationCommittee recommends the level of compensation for the executive officers tothe Board of Directors for its determination. The Compensation Committee is solely responsible for the recommendationof executive officers salary, bonus and benefit compensation.  The Compensation Committee has not utilizedcompensation consultants in determining or recommending the amount or form ofexecutive or director compensation.  TheCEO/President provides recommendations to the Compensation Committee for thoseexecutive officers which report directly to him.

** **

**Compensation Committee Interlocksand Insider Participation.** The members of the Compensation Committee during 2008 were Messrs. McClain,Kai, Kissel and Kennett.  No member ofthe Compensation Committee was an officer or employee or former officer for thePartnership or the General Partner or had any relationship requiring disclosureunder Item 404 of Regulation S-K.

 

**F.**              Section 16Disclosure

** **

Under Section 16 ofthe Securities Exchange Act of 1934, as amended (the “Exchange Act”), eachdirector and certain officers of ML Resources, Inc., the managing generalpartner of Registrant (a “Reporting Person”), are required to report theirownership and changes in ownership of Class A Depositary Units to theSecurities and Exchange commission, and Registrant.  Based on reporting forms submitted toRegistrant, no Reporting Person has failed to file on a timely basis reportsrequired by Section 16(a) of the Exchange Act during 2008.

 

**ITEM11.  EXECUTIVE COMPENSATION**

 

**A.  Compensation Discussion and Analysis**

 

The Partnership ismanaged by the managing general partner. All costs of managing the Partnership are reimbursed by the Partnership,as provided in Section 4.5 of the Partnership Agreement.  The following table reflects the aggregatecompensation for services in all capacities paid by the Managing Partner to itsexecutive officers for the years ended December 31, 2008, 2007 and, 2006.There were no long-term compensation awards, stock awards, option awards, orother payouts during those years.

 

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**Overview of CompensationPhilosophy and Programs**

 

Our executive compensationprograms are designed and administered by the Board of Directors of theManaging Partner.  Through the executionof its charter, our Compensation Committee recommends, to the Board ofDirector, all of the forms of compensation for our named executive officers,including base salary, bonus plan and defined contribution plan and relatedgoals.  Executive compensation isdetermined by the Compensation Committee and approved by the Board of Directorsbased upon the Partnership’s financial performance, the personal performance ofthe executive and by market conditions. It is the Compensation Committee’s intention to set totals for theexecutive officers for cash compensation sufficiently high enough to attractand retain a strong motivated leadership team. The Board of Directors has the discretion to terminate or not allow anexecutive bonus plan.  The Board ofDirectors waived payment of the executive bonus for 2008.

 

The executive bonus planis performance based.  The programprovides for incentives based upon net consolidated income (loss) and cash flow(as defined by the Partnership Agreement) from the operating plan, which areapproved by the Board of Directors, with guideline rates established between20% and 35% of the employee’s base salary. No bonus will be earned if the Partnership performance is below 75% ofthe required net income (loss) and cash flow (as defined by the PartnershipAgreement).  At 75% of the target theexecutive can earn 75% of his target bonus. Once this threshold is reached the bonus increases to 100% of the targetif the performance measures are satisfied. If the bonus performance measures are exceeded then the percentageincrease is determined and the bonus is increased by that percentage.  The bonus is limited to a maximum of 200% ofthe target bonus and bonuses to all executives cannot exceed 15% of Partnership’scash flow.  The bonus compensation leveland related payment requires Board of Director approval.

 

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

 

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

 

**Summary Compensation Table**

 
| ** **                                     | ** ** | **Annual Compensation** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|
| ** **                                     | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | **Board** | ** ** | **Defined** | ** ** | **Other** | ** ** | ** ** | ** ** |
| **Name and Principal Position** | ** ** | **Year**                     | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **Fees** | ** ** | **Contribution** | ** ** | **(a)** | ** ** | **Total** | ** ** |
| Dennis J.  Simonis                             |       | 2008                         |       | 260,000 |   | — |   | 19,000 |   | 12,530 |   | 4,900 |   | 296,430 |   |
| President and  chief executive                 |       | 2007                         |       | 260,000 |   | — |   | 19,000 |   | 12,100 |   | 4,900 |   | 296,000 |   |
| officer                                        |       | 2006                         |       | 237,000 |   | 125,600 |   | 21,000 |   | 12,100 |   | 4,900 |   | 400,600 |   |
|                                           |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Randolph H.  Cabral                            |       | 2008                         |       | 137,000 |   | — |   | — |   | 12,955 |   | 5,600 |   | 155,555 |   |
| Senior vice  president                         |       | 2007                         |       | 137,000 |   | — |   | — |   | 16,800 |   | 5,600 |   | 159,400 |   |
|                                           |       | 2006                         |       | 132,000 |   | 50,000 |   | — |   | 16,800 |   | 4,200 |   | 203,000 |   |
|                                           |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Wayne Roumagoux                                |       | 2008                         |       | 120,000 |   | — |   | — |   | 6,555 |   | 3,900 |   | 130,455 |   |
| Chief financial  officer                       |       | 2007                         |       | 120,000 |   | — |   | — |   | 7,500 |   | 3,900 |   | 131,400 |   |
|                                           |       | 2006                         |       | 116,000 |   | 35,100 |   | — |   | 7,500 |   | 3,900 |   | 162,500 |   |

 

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

 

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

 

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

 

**C.  NoEmployment Contracts or Termination Agreements**

** **

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 of basesalary as severance pay in the event of termination without just cause.

 

**D. Compensation of Executive Officers**

 

Executive compensation is reviewed and determined bythe Compensation Committee and recommended to the Board of Directors which hasapproval responsibility.  Mr. Simonishas served as its chief executive officer and president since December 2004,president since August 2001 and chief financial officer from May 2001until August of 2001; Mr. Cabral, who has served as senior vicepresident and orchard manager since May 2000 and Mr. Roumagoux, whohas served as chief financial officer since August of 2001.  These officers’ salary and guideline bonuspercentage are administered under the salary policies established and approvedby the Board.  Any bonus payments are approvedby the Managing Partner’s Board of Directors annually, based on the overallperformance of the Partnership as evidenced by its net consolidated income(loss) 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. The Compensation Committee has discussed the Compensation Discussion andAnalysis with the executive officers and has determined that it accuratelydescribes the compensation programs of the Partnership.

 

**E.  Director Compensation**

 

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

 
| ** **                     | ** ** | **Annual Compensation** | ** ** |
|--------------------------------|------------|------------------------------|------------|
| **Name of Director** | ** ** | **Year**                     | ** ** | **Fees** | ** ** | **Meeting** | ** ** | **Audit  Chair** | ** ** | **Total** | ** ** |
| John K. Kai                    |       | 2008                         |       | 15,000 |   | 7,000 |   | — |   | 22,000 |   |
| James S.  Kendrick             |       | 2008                         |       | 15,000 |   | 4,000 |   | — |   | 19,000 |   |
| E. Alan Kennett                |       | 2008                         |       | 15,000 |   | 8,000 |   | — |   | 23,000 |   |
| Jeffrey M.  Kissel (Chairman)  |       | 2008                         |       | 15,000 |   | 8,000 |   | 3,000 |   | 26,000 |   |
| David McClain                  |       | 2008                         |       | 15,000 |   | 8,000 |   | — |   | 23,000 |   |
| Dennis J.  Simonis             |       | 2008                         |       | 15,000 |   | 4,000 |   | — |   | 19,000 |   |
| Scott C. Wallace               |       | 2008                         |       | 15,000 |   | 4,000 |   | — |   | 19,000 |   |
|                           |       |                         |       |   |   |   |   |   |   |   |   |
| ** **                     | ** ** | **Annual Compensation** | ** ** |
| **Name of Director** | ** ** | **Year**                     | ** ** | **Fees** | ** ** | **Meeting** | ** ** | **Audit  Chair** | ** ** | **Total** | ** ** |
| John K. Kai                    |       | 2007                         |       | 15,000 |   | 8,000 |   | — |   | 23,000 |   |
| James S.  Kendrick             |       | 2007                         |       | 15,000 |   | 4,000 |   | — |   | 19,000 |   |
| E. Alan Kennett                |       | 2007                         |       | 15,000 |   | 8,000 |   | — |   | 23,000 |   |
| Jeffrey M.  Kissel (Chairman)  |       | 2007                         |       | 15,000 |   | 8,000 |   | 3,000 |   | 26,000 |   |
| David McClain                  |       | 2007                         |       | 15,000 |   | 8,000 |   | — |   | 23,000 |   |
| Dennis J.  Simonis             |       | 2007                         |       | 15,000 |   | 4,000 |   | — |   | 19,000 |   |
| Scott C. Wallace               |       | 2007                         |       | 11,250 |   | 3,000 |   | — |   | 14,250 |   |

 

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

 

As of December 31, 2008, and subsequent to thatdate to the date of this report, (i) one person (including any “group” asthat term is used in Section 13(d)(3) of the Securities Exchange Actof 1934) is known by the Partnership or the Managing Partner to be thebeneficial owner of more than 5% of the Class A Units; (ii) theManaging Partner did not own any Class A Units; and (iii) no directoror executive officer of the Managing Partner owned more than 1% of the Class AUnits.

 

The table below setsforth certain information as to the Class A Units beneficially owned bythe beneficial owner of more than 5% of the Class A Units as of March 11,2009.

 
| ** **                            | ** ** | ** **       | ** ** | **Percent**      | ** ** |
|---------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                            | ** ** | **Class A** | ** ** | **of**           | ** ** |
| **Name of**                      | ** ** | **Units**        | ** ** | **Class A** | ** ** |
| **Beneficial Owner**             | ** ** | **Owned**        | ** ** | **Units**        | ** ** |
|                                  |       |             |       |             |       |
| Farhad Fred and Mary  Wilkie Ebrahimi |       | 2,564,376        |       | 34.              | %          |
| Husband and Wife                      |       |             |       |             |       |
| 283 Columbine  Street, Suite 117 |       |             |       |             |       |
| Denver, Co 80206                      |       |             |       |             |       |

 

The table below setsforth certain information as to the Class A Units beneficially owned bythe directors of the Managing Partner, and all directors and executive officersof the Managing Partner as a group, as of December 31, 2008.

 
| ** **                                                   | ** ** | ** **       | ** ** | **Percent**      | ** ** |
|--------------------------------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                   | ** ** | **Class A** | ** ** | **of**           | ** ** |
| **Name of**                                             | ** ** | **Units**        | ** ** | **Class A** | ** ** |
| **Beneficial Owner**                                    | ** ** | **Owned**        | ** ** | **Units**        | ** ** |
|                                                         |       |             |       |             |       |
| Randolph H.  Cabral                                          |       | 100              |       | *                |       |
| John K. Kai                                                  |       | 100              |       | *                |       |
| James S.  Kendrick                                           |       | 1,500            |       | *                |       |
| E. Alan Kennett                                              |       | —           |       | *                |       |
| Jeffrey M.  Kissel                                           |       | 3,239            |       | *                |       |
| David McClain                                                |       | —           |       | *                |       |
| Dennis J.  Simonis                                           |       | 1,000            |       | *                |       |
| Wayne W.  Roumagoux                                          |       | —           |       | *                |       |
| All directors  and executive officers as a group (8 persons) |       | 5,939            |       | 0.08             | %          |

 

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*Less than 1%

 

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**ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE**

 

**(a) General**

 

Set forth below aretransactions after January 1, 2008 and any currently proposedtransactions, in which the Partnership was or is to be a participant where theamount involved exceeds $120,000, and in which any related person had or willhave a direct or indirect material interest:

 

***Relationshipswith  DBE***

 

Since September 2001, the Partnership has leasedapproximately 4,000 s.f. of office space in Hilo on a month-to-month basis forits executive and accounting staff from DBE and paid $80,000 in 2008 and isrequired to pay $60,000 in future years. The Partnership provides administrative services to DBE for which it wascompensated $73,000 in 2008, $100,000 in 2007, and $103,000 in 2006.

 

The Partnership performed farming for a DBEcompany.  In 2008 the farming contractwas terminated as the orchard was sold. In 2007 the amount billed was $1,000 and was paid in full at December 31,2007.  In 2006 the amount billed was$21,000 of which $3,000 was due at December 31, 2006.  The Partnership Agreement requires that theprice and terms of any such transactions be no less favorable than thoseavailable in comparable transactions between unrelated parties.

 

Mr. Simonis is President and a Director of MLResources, Inc. and President of DBE, but has no direct or indirectownership interest in such company and receives no economic benefit from thesetransactions.

 

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

 

The Partnership has nowritten policy or procedures for the review and approval of transactions withrelated persons.  However, its internalprocedures require that transactions with related persons are disclosed to theAudit Committee.  The Audit Committeereviews each transaction to ensure that it is arms-length and then makes a decisionon the transaction’s appropriateness.

 

***Director Independence***

 

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

 

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

 

**Pre-Approval Policies and Procedures. **Under the Sarbanes-Oxley Act of 2002, all audit andnon-audit services performed by our auditors must be approved in advance by ourBoard to assure that such services do not impair the auditors’ independencefrom the Partnership.  In accordance withits policies and procedures, our Board pre-approved the audit and non-auditservice performed by our auditors for our consolidated financial statements asof and for the years ended December 31, 2008, 2007 and 2006.

 

**Audit Fees.  **Feesbilled by the Independent Registered Public Accounting Firm (Accuity LLP)during 2008 for the audit of the Partnership’s consolidated financial statementon Form 10-K and the review of the Partnership’s Form 10-Q were$21,000 and $43,000 for 2008 and 2007, respectively.  Fees billed by the Independent RegisteredPublic Accounting Firm (Accuity LLP) during 2007 for the audit of thePartnership’s consolidated financial statements included on Form 10-K andreview of consolidated financial statements included on Form 10-Q amountedto $27,000.  The audit fees for the auditof the Partnership’s annual consolidated financial statements and review ofconsolidated financial statements included in the Partnership’s Form 10-Qfor the year ended December 31, 2008, were approved by the Partnership’saudit committee.

 

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

 

**Tax Fees. **The Partnership’s audit committeepre-approves the fees paid to its Independent Registered Public Accounting Firmfor the preparation of K-1’s for its unit holders and the Partnership’s taxreturns.  The fees paid to PwC, anIndependent Registered Public Accounting Firm, during 2008, 2007 and 2006 fortax preparation and related support services amounted to $274,000, $264,000,and $225,000, respectively.  The tax feeswere approved by the Partnership’s audit committee.

 

### **PART IV**

### ** **

**ITEM15.  EXHIBITS AND CONSOLIDATED FINANCIALSTATEMENT SCHEDULES**

 

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

 

1.               *Consolidated FinancialStatements. *See Index to Consolidated FinancialStatements at page 25 of this Form 10-K.

 

2.               *Consolidated Financial StatementSchedules*.  None required.

 

3.               *Exhibits*

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

 

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| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                                                                                                                     |
| 10.5                |       | Lease between the  Trustees of the Estate of Bernice Pauahi Bishop (“Trustees of the Bishop  Estate”) and Mauna Loa. (c)                                                                             |
|                |       |                                                                                                                                                                                                           |
| 10.6                |       | Lease between KACI and  Registrant. (d)                                                                                                                                                                        |
|                |       |                                                                                                                                                                                                           |
| 10.7                |       | MLO/MLMO Conveyance  Agreement between MLO and Registrant dated as of October 1, 1989. (b)                                                                                                                |
|                |       |                                                                                                                                                                                                           |
| 10.8                |       | Butcher/MLMO  Contribution Agreement between Howard Butcher III (“Butcher”) and Registrant  dated as of October 1, 1989. (b)                                                                    |
|                |       |                                                                                                                                                                                                           |
| 10.9                |       | Farming Lease between  KACI and MLO dated as of July 1, 1989. (b)                                                                                                                                         |
|                |       |                                                                                                                                                                                                           |
| 10.11               |       | Farming Lease between  MKACI and MLO dated as of July 1, 1989. (b)                                                                                                                                        |
|                |       |                                                                                                                                                                                                           |
| 10.12               |       | Water Agreement, as  amended, between KACI and Registrant dated as of October 1, 1989. (b)                                                                                                                |
|                |       |                                                                                                                                                                                                           |
| 10.13               |       | Cash Flow Warranty  Agreement among KACI, MKACI and Registrant dated as of July 1, 1989. (b)                                                                                                              |
|                |       |                                                                                                                                                                                                           |
| 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)                                                                                                               |

 

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| **Exhibit  Number** | ** ** | **Description**                                                                                                                                     |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                                                          |
| 10.24               |       | Assignment of Partial  Interest in Lease No. 20,397 and consent from MLO to Registrant. (b)                                                    |
|                |       |                                                                                                                                                |
| 10.25               |       | Assignment of Lease  from MLO to Registrant relating to Lease from the Trustees of the Bishop  Estate. (b)                                          |
|                |       |                                                                                                                                                |
| 10.26               |       | Assignment from MLO to  Registrant relating to certain orchards. (b)                                                                                |
|                |       |                                                                                                                                                |
| 10.27               |       | Lease from the Trustees  of the Bishop Estate to MLO. (b)                                                                                           |
|                |       |                                                                                                                                                |
| 10.28               |       | Lease No. 15,020  from the Trustees of the Bishop Estate to MLO. (b)                                                                           |
|                |       |                                                                                                                                                |
| 10.29               |       | Form of Amendments  to Lease No. 15,020 from the Trustees of the Bishop Estate. (b)                                                       |
|                |       |                                                                                                                                                |
| 10.30               |       | Lease No. 16,859  from the Trustees of the Bishop Estate to the Hawaiian Agricultural Company  (a predecessor of KACI). (b)                    |
|                |       |                                                                                                                                                |
| 10.31               |       | Form of Amendments  to Lease No. 16,859 from the Trustees of the Bishop Estate. (b)                                                       |
|                |       |                                                                                                                                                |
| 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)                                 |

 

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| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.46               |       | Amended and Restated  Farming Contract for the Keaau Lot 10 Orchard, effective January 1,  1998, between Registrant and KACI. (f)                                                                                                                                                                                                                                                                                                                                                               |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.47               |       | Restated Kaiwiki  Orchards Farming lease between Registrant and MKACI dated February 26,  1997. (f)                                                                                                                                                                                                                                                                                                                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.48               |       | Credit Agreement  between Registrant and Pacific Coast Farm Credit Services, PCA dated  May 1, 2000 (g)                                                                                                                                                                                                                                                                                                                                                                                              |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.49               |       | Security Agreement  between Registrant and Pacific Coast Farm Credit Services, PCA dated  May 1, 2000 (g)                                                                                                                                                                                                                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.50               |       | Orchards Farming Lease  between Registrant and Ka’u Agribusiness Co., Inc. (g)                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.51               |       | Macadamia Nut Purchase  Contract between Mauna Loa and the Partnership dated July 1, 2003 for  Keaau Lot X nuts. (h)                                                                                                                                                                                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.52               |       | Macadamia Nut Purchase  Contract between Hamakua Macadamia Nut Company, Inc. and the Partnership  dated December 16, 2004 effective January 1, 2007. (i)                                                                                                                                                                                                                                                                                                                                   |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.53               |       | Jim Case resignation  letter from Audit Committee dated March 7, 2005. (i)                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.54               |       | Macadamia Nut Purchase  Contract between Purdyco International, Ltd. and the Partnership dated January 5,  2006 effective January 1, 2007. (j)                                                                                                                                                                                                                                                                                                                                                  |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.55               |       | Macadamia Nut Purchase  Contract between Mac Farms of Hawaii, LLC and the Partnership dated  January 6, 2006 effective January 1, 2007. (j)                                                                                                                                                                                                                                                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.56               |       | Macadamia Nut Purchase  Contracts between Mauna Loa Macadamia Nut Corporation and the Partnership  dated June 1, 2006 effective January 1, 2006. (k)                                                                                                                                                                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.57 10.58  10.59  |       | Macadamia Nut Purchase  Contract between Mauna Loa Macadamia Nut Corporation and the Partnership  dated June 1, 2006 effective January 1, 2006. (k)Definitive  Acquisition Agreement between ML Macadamia Orchards, L.P. and Mac Farms of  Hawaii, LLC and Kupua Orchards Estates, LLC, dated May 24, 2007.  (l)Termination of Acquisition Agreement between ML Macadamia Orchards, L.P.  and Mac Farms of Hawaii, LLC and Kupua Orchards Estates, LLC, dated  December 11, 2007. (m) |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.60               |       | Amended and Restated  Credit Agreement dated March 10, 2008. (n)                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.61               |       | Fourth Amendment and  Restated Credit Agreement dated March 14, 2008. (o)                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.62               |       | Fifth Amendment and  Restated Credit Agreement dated May 1, 2008. (p)                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.63               |       | Second Amended and  Restated Credit Agreement dated July 8, 2008. (q)                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.64               |       | Addendum to Mauna Loa  Macadamia Nut Purchase Agreement dated July 9, 2008. (r)                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 11.1                |       | Statement re: Computation  of Net Income per Class A Unit                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 31.1                |       | Form of  Rule 13a - 14(a) [Section 302] Certification – Chief Executive  Officer                                                                                                                                                                                                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 31.2                |       | Form of  Rule 13a - 14(a) [Section 302] Certification – Chief Financial  Officer                                                                                                                                                                                                                                                                                                                                                                                                 |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 32.1                |       | Certification pursuant to  18 U.S.C. Section 1350 As adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 – Chief Executive Officer                                                                                                                                                                                                                                                                                                                                          |
|                |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 32.2                |       | Certification pursuant  to 18 U.S.C. Section 1350 As adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 – Chief Financial Officer                                                                                                                                                                                                                                                                                                                                          |

 

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----

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

 

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**SIGNATURES**

 

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

 
|                         | **ML MACADAMIA ORCHARDS, L.P.** |
|------------------------------|---------------------------------|
|                         | (Registrant)                    |
|                         |                            |
|                         | By:                             | **ML RESOURCES, INC.** |
|                         |                            | (Managing  General Partner) |
|                         |                            |   |
|                         | By:                             | /s/ Dennis J. Simonis |
|                         |                            | Dennis  J. Simonis |
|                         |                            | Principal Executive  Officer |
| Dated : March 27,  2009 |                            |   |

 

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

 

**ML RESOURCES, INC.**

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

 

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**EXHIBIT INDEX**

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

 

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