UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

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

(Amendment No. 2)

For the Fiscal Year Ended December 31, 2006

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

Commission File Number 1-9145

ML MACADAMIA ORCHARDS, L.P.

(Exact Name of registrant as specified in its charter)

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

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

Registrant’s telephone number, including area code: (808) 969-8057

Registrant’s website: www.mlmacadamia.com

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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

Yes o No x

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

Yes o No x

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Act). Large accelerated filer o Accelerated filer o Non-accelerated filer x

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

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

EXPLANATORY NOTE

This Amendment No. 2 on Form 10-K/A to the Partnership’s Annual Report in Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission on April 16, 2007 is filed to amend and revise the disclosure relating to the Partnership’s covenant compliance with the Credit Agreement with American AgCredit Capital Markets.

In connection with the issuance of the Form 10-K, dated April 16, 2007, the Partnership determined it was in compliance with the covenants at December 31, 2006. Subsequently, the Partnership determined that it was in compliance with all debt covenants except for minimum tangible net worth. The Partnership was less than 0.4% below the required amount. 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. Had the lender not waived this violation the Partnership would have been restricted in its ability to pay distributions to the limited partners. The Partnership on receiving the waiver filed an amended Form 10-K/A dated August 16, 2007, amending the notes to the 2006 financial statements, to disclose the non-compliance and receipt of the waiver without the consent of its independent registered public accounting firm. This Form 10-K/A (Amendment No. 2) reflects the revised disclosure for the covenant violation and subsequent waiver and the filing of the revised consolidated financial statements of the Partnership.

This Form 10-K/A (Amendment No.2) has not been updated except as required to reflect the effects described above. This amendment includes changes to Part II, Items 5, 7, and 8 as indicated below. Except as identified in the prior sentence, no other items included in the original Form 10-K have been amended, and as such items remain in effect as of the filing date of the original Form 10-K. Additionally, this Form 10-K/A (Amendment No.2) does not purport to provide an update or a discussion of any other developments at the Partnership subsequent to the original filing.

Part II, Item 5. Market for Registrant’s Class A Units and Related Unitholder Matters

Restrictions on Cash Distribution is revised from:

To:

would have been restricted in its ability to pay distributions to the limited partners and all obligations and indebtedness, at the lender’s option, would be accelerated and become immediately due and payable.

Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources the third paragraph is revised from:

The Partnership was in compliance with the terms and conditions of the Credit Agreement at December 31, 2006 and December 31, 2005.

To:

The Partnership was in compliance with all debt covenants at December 31, 2005. In connection with the issuance of the financials included in the 10-K, dated April 16, 2007, the Partnership determined it was in compliance with the covenants at December 31, 2006. Subsequently, the Partnership determined that it was in compliance with all debt covenants except for minimum tangible net worth. The Partnership was less that 0.4% below the required amount. 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. Had the lender not waived this violation the Partnership would have been restricted in its ability to pay distributions to the limited partners and all obligations and indebtedness, at the lender’s option, would be accelerated and become immediately due and payable.

Notes to Consolidated Financial Statements (7) Short-Term and Long-Term Credit the last paragraph last sentence is revised from:

The Partnership was in compliance with all covenants of the Credit Agreement at December 31, 2006 and December 31, 2005.

To:

In order to preserve the nature and character of the disclosures as originally filed, except to make the revisions described above, no attempt has been made in this Amendment to modify or update disclosures as presented in the Partnership’s Annual Report for events that occurred subsequent to its original filing on April 16, 2007. Accordingly, this Amendment should be read in conjunction with the Partnership’s subsequent filings with the Commission.

PART II

ITEM 5. MARKET FOR REGISTRANT’S CLASS A UNITS AND RELATED UNITHOLDER MATTERS

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

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

		Distribution		High	Low
2006:	4th Quarter	$	0.050	6.55	5.35
	3rd Quarter	0.050		5.61	5.25
	2nd Quarter	0.050		5.99	5.30
	1st Quarter	0.050		6.00	5.65

2005:	4th Quarter	$	0.050	6.09	5.60
	3rd Quarter	0.050		6.19	5.30
	2nd Quarter	0.050		6.19	5.45
	1st Quarter	0.050		6.26	5.45

Restrictions on Cash Distributions

In connection with the Partnership’s Credit Agreement with American AgCredit Capital Markets, cash distributions to partners are restricted unless the Partnership is in compliance with specified terms and conditions of the Credit Agreement, including restrictions on further indebtedness, sales of assets, and maintenance of certain financial ratios. In connection with the Partnership’s Credit Agreement with American AgCredit Capital Markets, cash distributions to partners are restricted unless the Partnership is in compliance with specified terms and conditions of the Credit Agreement, including restrictions on further indebtedness, sales of assets, and maintenance of certain financial ratios. The credit agreements with American AgCredit, PCA, contain various financial covenants. The Partnership was in compliance with all debt covenants at December 31, 2005. In connection with the issuance of the financials included in the 10-K, dated April 16, 2007, the Partnership determined it was in compliance with the covenants at December 31, 2006. Subsequently, the Partnership determined that it was in compliance with all debt covenants except for minimum tangible net worth. The Partnership was less that 0.4% below the required amount. 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. Had the lender not waived this violation the Partnership would have been restricted in its ability to pay distributions to the limited partners and all obligations indebtedness, at the lender’s option, would be accelerated and become immediately due and payable.

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

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

Results of operations – 2006, 2005, 2004

Owned-Orchard Segment - Production and Yields

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

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

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

Production in 2006 was 1.6% lower than 2005 and 11.6% greater than 2004. Production in 2005 was 14.6% greater than 2004 and 2.4% greater than 2003. Production in 2004 was 10.7% lower than 2003 and 11.5% lower than 2002. Significant factors affecting the crop were as follows:

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

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

3. The Ka’u region recorded above average rainfall in 2004. The rainfall replenished the soil moisture and improved yields in the region for the spring of 2005.

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

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

6. A late and abbreviated flower season in the Keaau and Mauna Kea regions resulted in lower production in the fall of 2005 and the spring of 2006. Cool night temperatures from November 2005

through May 2006 contributed to an early and extended flower/nut set season that had a positive effect on the fall 2006 production despite the occurrence of a light-moderate flower disease in March 2006. The extended flowering period will also have a positive effect on the spring 2007 nut production

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

Owned-Orchard Segment - Nut Revenue

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

For the twelve months

Ended December 31, 2006

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

The following table presents the comparison of information to derive the Owned-Orchard Segment nut revenue using the 2005 contracts for all information therefore implied for 2006 and actual for 2005 and 2004. The implied 2006 is used so that the comparisons are presented on an equivalent basis.

			��					2006		2005
	Implied			Actual		Actual		vs		vs
	2006			2005		2004		2005		2004
Trees acres harvested	4,190			4,169		4,169		+ 01	%	—
Average yield (WIS lbs./acre)	5,058			5,207		4,541		- 03	%	+ 15	%
Nuts harvested (000’s WIS lbs.)	21,194			21,707		18,933		- 02	%	+ 15	%
Nut price ($/WIS lbs. @ 25%)	0.6093			0.5550		0.4972		+ 10	%	+ 12	%
Gross nut sales ($000)	$	12,913		$	12,048	$	9,414	+ 07	%	+ 28	%
Prior year nut price settlement	343			576		—
2003 early harvest settlement	—			—		—
2004 Mac Farms settlement	—			60		—
Recorded nut sales ($000s)	$	13,256		$	12,684	$	9,414

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

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

In 2005 and 2004 the net-back component of the nut purchase price was not determined in a timely manner by Mauna Loa. The Partnership used information provided by Mauna Loa to determine the nut purchase price for each of the years. After Mauna Loa provided the final net-back component the Partnership determine the final nut purchase price and recognized the additional revenue at the time it became known.

The following table sets forth the manner in which the nut purchase price per pound was determined for 2005 and 2004 ($/lb.). This table does not include 2006 as the contracts were renegotiated in 2006 and there is no available net-back component:

	2005	2004
USDA price - two years prior (a)	0.5391	0.5666
USDA price – one year prior (a)	0.5769	0.5391
USDA price – two year trailing average	0.5580	0.5528

Gross revenues	2.1093	1.3929
Less allocable processing, packaging, marketing, sales and advertising costs	1.4268	0.8515
Less 20% capital charge	0.1365	0.1083
Net-back component	0.5460	0.4331

USDA price – two year trailing average	0.5580	0.5528
Net-back component	0.5460	0.4331
Average of USDA two year trailing average price and net-back component	0.5520	0.4929
Plus Hawaii general excise tax (0.5%)	0.0028	0.0025
Net purchase price (b) (c) (d) (e)	0.5548	0.4954

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

(b) The nut purchase price for the 1986 and 1989 orchards was the same for 1999 and all previous years. With the change of ownership of Mauna Loa in 2000, a quality conversion factor in the nut purchase contracts was initiated. The effect was to cause a slightly different price of $0.4951 for the 1989 orchards in 2004, and $0.5542 in 2005.

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

(d) The nut purchase contract for the Ka’u O orchards purchased in May 2000 uses only the two-year trailing USDA average to determine its nut price, which was $0.6912 in 2006, $0.5610 in 2005 and $0.5560 in 2004.

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

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

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

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

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

Owned-Orchard Segment - Cost of Goods Sold

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

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

		Cost per pound
Orchard	Acquired	2006	2005	2004
Keaau I	June 1986	0.5646	0.5866	0.5767
Keaau II	Oct. 1989	0.6985	0.6501	0.5545
Keaau Lot 10	Sept. 1991	0.4095	0.3836	0.4491
Ka’u I	June 1986	0.5193	0.4289	0.5211
Ka’u Green Shoe I	Dec. 1986	0.3278	0.2769	0.3409
Ka’u II	Oct. 1989	0.4420	0.4112	0.3938
Ka’u O	May 2000	0.4829	0.4226	0.4226
Ka’u 715/716	April 2006	0.2952	—	—
Mauna Kea	Oct. 1989	0.5649	0.7119	0.4976

All Orchards		0.5130	0.5062	0.4582

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

Farming Segment - Farming Service Revenue

As a result of the acquisition of the farming operation in 2000, the Partnership acquired approximately twenty farming contracts (now seventeen contracts) to farm macadamia orchards owned by other growers.

These contracts cover macadamia orchards in the same three locations on the island of Hawaii where the Partnership owns orchards. The farming contracts provide the Partnership to be reimbursed for all direct farming costs (cultivation, irrigation and harvesting), collect a pro-rata share of indirect costs and overheads, and charge a management fee or fixed fee. The management fee is based on the number of acres farmed or on a percentage of total costs billed. Revenues from farming services were $3.8 million in 2006, $4.7 million in 2005, and $4.3 million in 2004. The 2006 farming service revenues were less than 2005 because of the termination of three farming contracts, the purchase of the macadamia orchard which previously had been farmed under contract and the timing of the harvest at the end of the year which resulted is harvesting occurring in the spring of 2007 for some of the orchards under contract. The 2005 farming service revenues were less than anticipated because of a windstorm which destroyed a large percentage of trees in three contract orchards. The 2004 farming service revenues were less than expected because of the late drop of nuts in the fall crop. Three farming service contracts terminated on December 31, 2005 which reduces the number of farming service contracts to about seventeen totaling about 2,039 acres. The farming service revenue in 2005 for these three contracts was about $492,000 with management fees of about $70,000. Additionally, the Partnership purchased about 21 acres which was under farming contract bringing the total acres under farming contract to about 2,008. Approximately 150 acres of are year-to-year contracts, approximately 635 acres expire March 31, 2009, approximately 70 acres expire June 30, 2013, approximately 410 acres expire July 31, 2029, approximately 280 acres expire June 30, 2033 and approximately 470 acres expire September 30, 2080.

Farming Segment - Cost of Services Sold

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

General and Administrative Costs

General and administrative expenses are comprised of accounting and reporting costs, reimbursements to the Managing Partner for directors’ fees, office expenses and liability insurance. In addition, general and administrative costs are also incurred in connection with the farming operations. Previous to the May 2000 acquisition, general and administration costs relating to the Partnership’s orchards were included in the Partnership’s farming expenses.

General and administrative costs for 2006 were $247,000 higher than for 2005 which is attributed to increased legal costs and proxy statement for the 2006 special meeting, legal costs related to the potential acquisition of Mac Farms of Hawaii, LLC and higher costs associated with Sarbanes Oxley implementation. General and administrative costs for 2005 were $48,000 lower than for 2004, which is attributed to lower legal costs, offset by higher costs associated with Sarbanes Oxley preparation and accounting. In 2004 legal costs of $464,000 were related to the lawsuit, initiated and settled, to prevent Mauna Loa from acquiring MacFarms of Hawaii, LLC.

A management fee based on Partnership cash flow is payable annually to the Managing Partner. The amount paid was $9,000 in 2004. There was no management fee in 2006 and 2005 as the Partnership acquired MLR, the managing partner and the fees are eliminated in consolidation.

Interest Income and Expense

The Partnership recorded interest expense of $204,000 in 2006, $237,000 in 2005, and $182,000 in 2004. This was due to (1) the long-term loan used to acquire the farming operations, (2) the assumption of several capitalized equipment leases, and (3) interest expense on a revolving line of credit.

The Partnership funds its working capital needs through funds on hand and, when needed, from short-term borrowings, generating interest expense in the process. Net interest income or expense, therefore, is partly a function of any balance carried over from the prior year, the amount and timing of cash generated

and distributions paid to investors in the current year, as well as the current level of interest rates. Interest was earned in the amount of $17,000 in 2006, $5,000 in 2005 and $11,000 in 2004.

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

Inflation and Taxes

In general, prices paid to macadamia nut farmers fluctuate independently of inflation. Macadamia nut prices are influenced strongly by prices for finished macadamia products, which depend on competition and consumer acceptance. Farming costs, particularly labor and materials, and general and administrative costs do generally reflect inflationary trends.

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

Liquidity and Capital Resources

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

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

The Partnership was in compliance with the terms and conditions of the Credit Agreement at December 31, 2005. In connection with the issuance of the financials included in the 10-K, dated April 16, 2007, the Partnership determined they were in compliance with the covenants at December 31, 2006. Subsequently, the Partnership determined that it was in compliance with all debt covenants except for minimum tangible net worth. The Partnership was less that 0.4% below the required amount. 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. Had the lender not waived this violation the Partnership would have been restricted in its ability to pay distributions to the limited partners and all obligations and indebtedness, at the lender’s option, would be accelerated and become immediately due and payable.

Capital expenditures in 2006, 2005 and 2004 were $509,000, $83,000, and $172,000, respectively. The increase in 2006 was attributed to the purchase of 21 tree acres of macadamia orchards for $440,000, computers, a vehicle and upgrades to operating machinery. The decrease in 2005 was the result of fewer computer purchases and modifications to farming equipment than 2004. Capital expenditures in 2004 were the result of purchases of expiring leases. Capital expenditures planned for 2007 are about $500,000 and are expected to be financed by way of new equipment leases, either capital or operating leases.

Macadamia nut farming is seasonal, with production peaking late in the fall. However, farming operations continue year round. 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 when necessary, through short-term borrowings under a $5.0 million revolving line of credit. The line of credit was obtained on May 2, 2000 and expires May 1, 2008. At December 31, 2006 the Partnership had a cash balance of $3,351,000 and no line of credit drawings outstanding. At December 31, 2005 the Partnership had a cash balance of $378,000 and line of credit drawings outstanding of $2,900,000. The cash balance was $196,000 at the end of 2004, and the line of credit drawings were $2,200,000 at December 31, 2004.

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

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

Critical Accounting Policies and Estimates

Management has identified the following critical accounting policies that affect the Partnership’s more significant judgments and estimates used in the preparation of the Partnership’s financial statements. The preparation of the Partnership’s financial statements in conformity with accounting principles generally accepted in the United States of America requires the Partnership’s management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, management evaluates those estimates, including those related to asset impairment, accruals for self-insurance, compensation and related benefits, revenue recognition, allowance for doubtful accounts, contingencies and litigation. The Partnership states these accounting policies in the notes to the financial statements and in relevant sections in this discussion and analysis. These estimates are based on the information that is currently available to the Partnership and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could vary from those estimates.

The Partnership believes that the following critical accounting policies affect significant judgments and estimates used in the preparation of it financial statements:

The Partnership maintains an accrual for workers compensation claims to the extent that the Partnership’s current insurance policies will not cover such claims. This accrual is included in other accrued liabilities in the accompanying balance sheet. Management determines the adequacy of the accrual by periodically evaluating the historical experience and projected trends related to outstanding and potential workers compensation claims. If such information indicates that the accrual is over or understated, the Partnership will adjust the assumptions utilized in the methodologies and reduce or provide for additional accrual as appropriate.

Retirement and Severance Benefits: The Partnership sponsors a non-contributory defined benefit pension plan for regular union employees and a severance plan for intermittent union employees. Several statistical and other factors which attempt to anticipate future events are used in calculating the expense

and liabilities related to this plan. These factors include assumptions about the discount rate, expected return on plan assets, withdrawal and mortality rates and the rate of increase in compensation levels. The actuarial assumptions used by the Partnership may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter mortality of participants. These differences may impact the amount of retirement and severance benefit expense recorded by the Partnership in future periods.

The Partnership reviews long-lived assets held and used, or held for sale for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation is required, the estimated undiscounted future cash flows associated with the asset are compared to the asset’s carrying amount to determine if an impairment charge is required. All long-lived assets for which management has committed to a plan of disposal are reported at the lower of carrying amount or fair value. Changes in projected cash flows generated by an asset based on new events or circumstances may indicate a change in fair value and require a new evaluation of recoverability of the asset.

��

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

The Partnership recognizes revenue under all of its fixed price contracts using the best information available to the Partnership at the time it files its quarterly and annual financial statements. Additional information can be found in section (c) under the heading Nut Purchase Contracts on page 3.

Legal Proceedings

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

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets, December 31, 2006 and 2005

Consolidated Income Statements, for the Years Ended December 31, 2006, 2005 and 2004

Consolidated Statements of Partners’ Capital, for the Years Ended December 31, 2006, 2005 and 2004

Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners

ML Macadamia Orchards, L.P.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, partners’ capital, and cash flows, present fairly, in all material respects, the financial position of ML Macadamia Orchards, L.P. and its subsidiary at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Orange County, California

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

ML Macadamia Orchards, L.P.

Consolidated Balance Sheets

(in thousands)

	December 31,
	2006			2005
Assets
Current assets
Cash and cash equivalents	$	3,351		$	378
Accounts receivable	2,688			8,433
Inventory of farming supplies	272			270
Other current assets	98			178
Total current assets	6,409			9,259
Land, orchards and equipment, net	47,232			48,722
Goodwill	306			—
Intangible assets, net	16			65
Total assets	$	53,963		$	58,046

Liabilities and partners’ capital
Current liabilities
Current portion of long-term debt	$	400		$	434
Short-term borrowings	—			2,900
Accounts payable	406			770
Cash distributions payable	375			375
Accrued payroll and benefits	858			935
Other current liabilities	488			416
Total current liabilities	2,527			5,830
Non-current benefits	405			—
Long-term debt	1,200			1,600
Deferred income tax liability	1,208			1,227
Total liabilities	5,340			8,657
Commitments and contingencies
Partners’ capital
General partner	81			81
Class A limited partners, no par or assigned value, 7,500 units issued and outstanding	48,612			49,308
Accumulated other comprehensive loss	(70		)	—
Total partners’ capital	48,623			49,389
Total liabilities and partners’ capital	$	53,963		$	58,046

See accompanying notes to consolidated financial statements.

ML Macadamia Orchards, L.P.

Consolidated Income Statements

(in thousands, except per unit data)

	2006			2005			2004
Macadamia nut sales	$	13,256		$	12,684		$	9,414
Contract farming revenue	3,816			4,694			4,251
Total revenues	17,072			17,378			13,665
Cost of goods and services sold
Costs of macadamia nut sales	10,871			10,202			9,667
Costs of contract farming services	3,474			4,274			3,860
Total cost of goods and services sold	14,345			14,476			13,527
Gross income	2,727			2,902			138
General and administrative expenses
Costs expensed under management agreement with related party	—			—			177
Legal fees - related party	196			32			495
Other	1,646			1,563			971
Total general and administrative expenses	1,842			1,595			1,643
Extinguishment of management agreement	—			(326		)	—
Operating income (loss)	885			981			(1,505		)
Interest expense	(204		)	(237		)	(182		)
Interest income	17			5			11
Other income	206			151			32
Income (loss) before tax	904			900			(1,644		)
Income tax expense	(100		)	(129		)	(5		)
Net income (loss)	$	804		$	771		$	(1,649	)

Net cash flow (as defined in the Partnership Agreement)	$	2,323		$	2,501		$	466

Net income (loss) per Class A Unit	$	0.11		$	0.10		$	(0.22	)

Net cash flow per Class A Unit (as defined in the Partnership Agreement)	$	0.31		$	0.33		$	0.06

Cash distributions per Class A Unit	$	0.20		$	0.20		$	0.20

Class A Units outstanding	7,500			7,500			7,500

See accompanying notes to consolidated financial statements.

ML Macadamia Orchards, L.P.

Consolidated Statements of Partners’ Capital

(in thousands)

	2006			2005			2004

Partners’ capital at beginning of period:
General partner	$	81		$	505		$	537
Class A limited partners	49,308			50,037			53,169
	49,389			50,542			53,706

Acquisition of ML Resources, Inc.	—			(424		)	—
	—			(424		)	—

Allocation of net income (loss):
General partner	—			—			(17		)
Class A limited partners	804			771			(1,632		)
	804			771			(1,649		)

Cash distributions paid and / or declared:
General partner	—			—			15
Class A limited partners	1,500			1,500			1,500
	1,500			1,500			1,515

Partners’ capital at end of period:
General partner	81			81			505
Class A limited partners	48,612			49,308			50,037
Accumulated other comprehensive loss Change in pension and severance obligations	(70		)	—			—
	$	48,623		$	49,389		$	50,542

See accompanying notes to consolidated financial statements.

ML Macadamia Orchards, L.P.

Consolidated Statements of Cash Flows

(in thousands)

	2006			2005			2004
Cash flows from operating activities:
Cash received for goods and services	$	23,001		$	16,795		$	13,947
Cash paid to suppliers and employees	(14,463		)	(14,568		)	(13,393		)
Income tax paid	(118		)	(82		)	(15		)
Interest received	17			5			11
Interest paid	(196		)	(237		)	(182		)
Net cash provided by operating activities	8,241			1,913			368

Cash flows from investing activities:
Proceeds from sale of equipment	75			14			—
Capital expenditures	(509		)	(83		)	(172		)
Net cash used in investing activities	(434		)	(69		)	(172		)

Cash flows from financing activities:
Proceeds from drawings on line of credit	5,800			8,800			5,400
Repayment of long term debt	(400		)	(400		)	(400		)
Repayment of line of credit	(8,700		)	(8,100		)	(3,600		)
Loan cost	—			—			(20		)
Acquisition of general partner’s units	—			(424		)	—
Capital lease payments	(34		)	(35		)	(52		)
Cash distributions paid	(1,500		)	(1,503		)	(1,364		)
Net cash provided by (used in) financing activities	(4,834		)	(1,662		)	(36		)

Net increase in cash	2,973			182			160
Cash and cash equivalents at beginning of period	378			196			36
Cash and cash equivalents at end of period	$	3,351		$	378		$	196

Reconciliation of net income (loss) to net cash provided by operating activities:
Net income (loss)	$	804		$	771		$	(1,649	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	1,953			2,165			2,571
Gain on sale of capital assets	(21		)	—			—
(Increase) decrease in accounts receivable	5,745			(1,341		)	(566		)
Deferred income tax expense (credit)	(19		)	20			(7		)
Increase in inventories	(2		)	(125		)	(4		)
(Increase) decrease in other current assets	80			(25		)	(10		)
Increase in other assets	—			(32		)	(7		)
Increase (decrease) in accounts payable	(364		)	32			245
Increase (decrease) in accrued payroll	(106		)	62			26
Increase (decrease) in current liabilities	72			386			(231		)
Increase in non-current benefits payable	99			—			—
Total adjustments	7,437			1,142			2,017
Net cash provided by operating activities	$	8,241		$	1,913		$	368

Supplemental schedule of noncash financing activities Distributions declared but not paid	$	375		$	375		$	379

See accompanying notes to consolidated financial statements.

ML Macadamia Orchards, L.P.

Notes to Consolidated Financial Statements

(1) OPERATIONS AND OWNERSHIP

ML Macadamia Orchards, L.P. (the “Partnership”) owns and farms 4,190 tree acres of macadamia orchards on the island of Hawaii. Once the nuts are harvested, the Partnership sells them to another entity, which processes and markets the finished products. The Partnership farms approximately 2,008 additional acres of macadamia orchards on Hawaii for other orchard owners.

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

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

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

Limited partner interests are represented by Class A Units, which are evidenced by depositary receipts that trade publicly and are listed on the New York Stock Exchange.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

(c) Consolidation. The consolidated financial statements include the accounts of the Partnership, and from 2005, ML Resources, Inc. All significant intercompany balances and transactions, including management fees and distributions, have been eliminated.

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

However, the timing and manner in which farming costs are recognized in the Partnership’s financial statements over the course of the year is based on a standard cost system. For interim financial reporting purposes, farming costs are recognized as expense based on a standard cost to produce a pound of macadamia nuts. Management calculates a standard cost per pound for each orchard based on the estimated annual costs to farm each orchard and anticipated annual production from each orchard. The amount of farming costs recognized as expense throughout the year is calculated by multiplying each orchard’s standard cost by actual production from that orchard. The difference between actual farming costs incurred and the amount of farming costs recognized as expense is recorded as either an increase or decrease in deferred farming costs, which is reported as an asset in the balance sheet. Deferred farming costs accumulate throughout the year, typically peaking mid-way through the third quarter, since nut production is lowest during the first and second quarters of the year. Deferred farming costs are expensed over the remainder of the year since nut production is highest at the end of the third quarter through year end.

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

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

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

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

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

The Partnership reviews long-lived assets held and used, or held for sale for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation is required, the estimated undiscounted future cash flows associated with the asset are compared to the asset’s carrying amount to determine if an impairment charge is required. If an impairment charge is required the Partnership would write the assets down to fair value. All long-lived assets for which management has committed to a plan of disposal are reported at the lower of carrying amount or fair value as determined by quoted market price or a present value technique. Changes in projected cash flows generated by an asset based on new events or circumstances may indicate a change in fair value and require a new evaluation of recoverability of the asset.

(g) Goodwill and Other Intangible Assets

Under SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), goodwill and other indefinite-lived intangible assets are not amortized but are reviewed for impairment at least annually and if a triggering event were to occur in an interim period. The Partnership’s annual impairment testing is performed in the 4^th quarter each year. The goodwill is allocated to the farming reporting unit. Goodwill impairment is determined using a two-step process for each reporting unit. The first step of the impairment test is used to identify potential impairment by comparing the fair value of a reporting unit to the book value, including goodwill. This evaluation utilizes a discounted cash flow analysis and multiple analyses of the historical and forecasted operating results of the Partnership’s reporting unit. If the fair value of a reporting unit exceeds its book value, goodwill of the reporting unit is not considered impaired, and the second step of the impairment test is not required. If the book value of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any. The second step of the impairment test compares the implied fair value of the reporting unit’s goodwill with the book value of the goodwill. If the book value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.

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

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

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

(j) Pension Benefit and Intermittent Severance Costs. The actuarial method used for financial accounting purposes is the projected unit credit method.

(k) Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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

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

(n) Recent Accounting Pronouncements. In September 2006, the FASB issued Statement No. 157. This statement provides a single definition of fair value, a framework for measuring fair value, and expanded disclosures concerning fair value. Previously, different definitions of fair value were contained in various accounting pronouncements creating inconsistencies in measurement and disclosures. Statement No. 157 applies under those previously issued pronouncements that prescribe fair value as the relevant measure of value. This pronouncement is effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of Statement No. 157 to have a material impact on our financial position, results of operations, or cash flows.

In September 2006, the FASB issued Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, (an amendment of FASB Statements No. 87, 88, 106. and 132R (“Statement No. 158”), that requires an employer to recognize in its statement of financial position an asset for a plan’s over funded status or a liability for a plan’s under funded status, measure a plan’s asset and its obligations that determine it funded status as of the end of the employer’s fiscal year (with limited exceptions), and recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. We adopted the recognition provisions of Statement No. 158 in our December 31, 2006 financial statements. The incremental affects of applying Statement No. 158 related to Partnership’s defined pension plan and intermittent severance plan as of December 31, 2006, were as follows:

Increase in pension obligation	$	68,000
Increase in intermittent severance obligation	18,000
Decrease in prepaid pension obligation	7,000
	$	93,000

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

(3) SEGMENT INFORMATION

The Partnership has 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 its revenues from the sale of macadamia nuts grown in orchards owned or leased by the Partnership. The farming segment derives its revenues from the farming of macadamia orchards owned by other growers. It also farms those orchards owned by the Partnership.

Management evaluates the performance of each segment on the basis of operating income. The Partnership accounts for intersegment sales and transfers at cost and such transactions are eliminated in consolidation.

The Partnership’s reportable segments are distinct business enterprises that offer different products or services.

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

(a) Nut Purchase Contracts. The Partnership is a party to two nut purchase contracts signed June 1, 2006, with an effective date of January 1, 2006, with Mauna Loa which were negotiated in 2006. The

two contracts cover all nuts produced by the orchards acquired in June 1986, December 1986, and October 1989. Of the two contracts, one for approximately 15 million pounds expired December 31, 2006 and has a nut purchase price for 2006 of $0.75 per pound wet-in-shell (WIS) at 20% moisture and 30% saleable kernel recovery (SK) to dry-in-shell (DIS). Two other contracts, of approximately 1 million pounds, also expired December 31, 2006, one with a nut purchase price of $0.60 per pound WIS 25% adjusted for trash and the other with a nut purchase price based on a two-year trailing average USDA price at WIS 25%. The last contract for about 5 million pounds expires December 31, 2011 and has a nut purchase price for 2006 of $0.74 per pound WIS at 20% moisture and 30% SK/DIS. The purchase price increases by $0.01 each year except 2008 until it reaches $0.78 per pound in 2011. The purchase contract for the macadamia nut orchard purchased in April 2006 is with Mac Farms and accounts for about 100,000 pounds and has a nut purchase price of $0.98 per pound WIS 20% moisture and 30% SK/DIS.

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

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

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

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

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

Accordingly, the seller of this orchard (KACI) agreed to make cash stabilization payments to the Partnership for each year through 1993 in which the cash flow (as defined) from this orchard fell short of a target cash flow level of $507,000. Stabilization payments for a given year were limited to the lesser of the amount of the shortfall or a maximum payment amount.

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

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

Thereafter, the Partnership is obligated to pay KACI 50% of this orchard’s cash flow in excess of the target cash flow as additional incentive rent. Additional rent of $62,000 was due for 2006 and no additional rent was due in 2004, or 2005.

(d) Cash Flow Warranty Payments. In October 1989, the Partnership acquired 1,040 acres of orchards that were several years younger on average than the Partnership’s other orchards. Their productivity (and therefore their cash flow) was expected to be lower 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 year through 1994 in which the cash flow (as defined) from these orchards fell short of a cash flow target level. Warranty payments for any year were limited to the lesser of the amount of the shortfall or a maximum payment amount.

The Partnership accounted for the $13.8 million received in cash flow warranty payments as reductions in the cost basis of the orchards. As a result, these payments will be reflected in the Partnership’s net income ratably through 2030 as reductions to depreciation for these orchards.

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

The following is a summary of each reportable segment’s operating income and the segment’s assets as of and for the period ended December 31, 2006, 2005 and 2004.

Segment Reporting for 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 (loss)	222		663		—			885
Depreciation expense	1,737		216		—			1,953
Segment assets	48,731		5,232		—			53,963
Expenditures for property and equipment	479		30		—			509

Segment Reporting for the Year ended December 31, 2005 (in thousands)

	Owned		Contract		Intersegment
	Orchards		Farming		Elimination			Total

Revenues	$	12,684	$	12,131	$	(7,437	)	$	17,378
Composition of Intersegment revenues	—		7,437		—			7,437
Operating income (loss)	377		604		—			981
Depreciation expense	1,949		216		—			2,165
Segment assets	52,206		5,840		—			58,046
Expenditures for property and equipment	51		32		—			83

Segment Reporting for the Year ended December 31, 2004 (in thousands)

	Owned			Contract		Intersegment
	Orchards			Farming		Elimination			Total

Revenues	$	9,414		$	9,502	$	(5,251	)	$	13,665
Composition of Intersegment revenues	—			5,251		—			5,251
Operating income (loss)	(1,684		)	179		—			(1,505		)
Depreciation expense	1,671			900		—			2,571
Segment assets	52,984			5,454		—			58,438
Expenditures for property and equipment	76			96		—			172

(4) RELATED PARTY TRANSACTIONS

(a) Management Costs and Fee. On January 6, 2005 the Partnership purchased the stock of its managing partner, MLR. As a result of the transaction, MLR’s operations have been included in the Partnership’s consolidated financial statements beginning with the first quarter of 2005. The Partnership Agreement provides the managing general partner reimbursement of administrative costs (which consist primarily of compensation costs, board of directors fees, insurance costs and office expenses) incurred under the agreement as well as a management fee equal to two percent of the Partnership’s operating cash flow (as defined) in 2004. The management fee is eliminated in consolidation in 2005 and 2006. Those reimbursable costs totaled $168,000 in 2004. The managing general partner earned a management fee of $9,000 in 2004.

In addition to a management fee, the managing general partner is entitled, under the existing Partnership Agreement, to receive an annual incentive fee equal to 0.5% of the aggregate fair market value (as defined) of the Class A Units for the preceding calendar year provided that net cash flow (as defined) for the preceding calendar year exceeds specified levels. No incentive fee was earned in 2006, 2005 and 2004.

(b) Legal Services. The Partnership paid $196,000, $134,000, and $495,000 in legal fees in 2006, 2005 and 2004, respectively. A former Director of the Partnership is a former partner and currently of counsel to one of the law firms used by the Partnership. The Partnership paid said law firm $196,000 in 2006, $32,000 of the $134,000 in 2005 and $495,000 in 2004.

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

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

(5) CASH FLOW PERFORMANCE

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

	2006		2005		2004
Gross revenues (including interest and other income)	$	17,295	$	17,534	$	13,708
Less:
Farming costs	12,391		12,311		10,951
Administrative costs	1,842		1,595		1,643
Extinguishment of management agreement	—		326		—
Income tax expense	100		129		5
Payments of principal and interest	639		672		634
Operating cash flow	2,323		2,501		475
Less:
Management fee	0		0		9
Net cash flow (as defined in the Partnership Agreement)	$	2,323	$	2,501	$	466

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

(6) LAND, ORCHARDS AND EQUIPMENT

Land, orchards and equipment, stated at cost, consisted of the following at December 31, 2006 and 2005 (000’s):

	2006		2005

Land	$	8,255	$	8,168
Improvements	1,850		1,929
Machinery and equipment	4,266		4,252
Irrigation well and equipment	1,184		1,155
Producing orchards	67,631		67,267
Capital leases	161		161

Land, orchards and equipment (gross)	83,347		82,932

Less accumulated depreciation and amortization	36,115		34,210

Land, orchards and equipment (net)	$	47,232	$	48,722

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

(7) SHORT-TERM AND LONG-TERM CREDIT

At December 31, 2006 and 2005, the Partnership’s long-term debt comprises (000’s):

	2006		2005

Term debt	$	1,600	$	2,000
Other	—		34
	1,600		2,034

Current portion	400		434
	$	1,200	$	1,600

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

The line of credit expires on May 1, 2008. Drawings on 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 of credit. The Partnership, at its option, may make prepayments without penalty.

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

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

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

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

	2006				2005
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Long-term debt	$	1,600	$	1,312	$	1,150	$	1,004

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

Both the revolving credit loan and the term debt are collateralized by all personal property assets of the Partnership. The credit agreement contains certain restrictions associated with partner distributions, further indebtedness, sales of assets, and maintenance of certain financial minimums. Significant restrictive financial covenants consist of the following:

1. Minimum working capital of $2.5 million.

2. Minimum current ratio of 1.5 to 1.

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

4. Minimum tangible net worth of $49.9 million (reduced by the amount of allowed cash distributions over net income).

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

6. Minimum debt coverage ratio of 2.5 to 1.

At December 31, 2006, the Partnership’s working capital was $3.9 million and its current ratio 2.54 to 1. The Partnership was in compliance with all covenants of the Credit Agreement at December 31, 2005. In connection with the issuance of the financials included in the 10-K, dated April 16, 2007, the Partnership determined they were in compliance with the covenants at December 31, 2006. Subsequently, the Partnership determined that it was in compliance with all debt covenants except for minimum tangible net worth. The Partnership was less that 0.4% below the required amount. 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. Had the lender not waived this violation the Partnership would have been restricted in its ability to pay distributions to the limited partners and all obligations and indebtedness, at the lender’s option, would be accelerated and become immediately due and payable.

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

Land Leases. The partnership leases the land underlying 1,948 acres of its orchards under long-term operating leases which expire through dates ending 2045. Operating leases provide for changes in minimum rent based on fair value at certain points in time. Each of the land leases provides for additional lease payments based on USDA-reported macadamia nut price levels. Those contingent lease payments totaled $18,000 in 2004, $19,000 in 2005, and $115,000 in 2006. Total lease rent for all land operating leases was $150,000 in 2004, $147,000 in 2005, and $256,000 in 2006.

Equipment Operating Leases. The Partnership leases equipment for the farming operation to include vehicles, blower sweepers and harvester. The operating lease cost was $206,000, $249,000 and $285,000 in 2006, 2005 and 2004, respectively.

Contractual obligations for the year ended December 31, 2006 for the Partnership are detailed in the following (000’s):

	Total		2007		2008		2009		2010		2011		Remaining
Contractual Obligations
Long-Term Debt and Interest	$	1,792	$	487	$	461	$	435	$	409	$	—	$	—
Operating Leases	3,453		337		275		191		146		126		2,378
Total	$	5,245	$	824	$	736	$	626	$	555	$	126	$	2,378

(8) INCOME TAXES

The components of income tax expense for the years ended December 31, 2006, 2005 and 2004 were as follows (000’s):

	2006			2005		2004
Currently payable	$	119		$	109	$	12
Deferred	(19		)	20		(7		)
	$	100		$	129	$	5

The provision 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, 2006, 2005 and 2004.

The components of the net deferred tax liability reported on the balance sheet as of December 31, 2006 and 2005 are as follows (000’s):

	2006			2005
Deferred tax liabilities:
Financial statement bases of land, orchards, inventory and equipment is greater than tax bases	$	719		$	717
Financial statement bases of capitalized leases, long- term debt on capitalized leases and interest expense on capitalized leases is greater than tax bases	(4		)	(4		)
Excess of tax depreciation over financial statement depreciation	493			514
	$	1,208		$	1,227

(9) PENSION PLAN

The Company established a defined benefit pension plan in conjunction with the acquisition of farming operations on May 1, 2000. The plan covers employees that are members of a union bargaining unit. The projected benefit obligation includes the obligation for the employees of their previous employer that became Company employees.

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

	2006			2005			2004
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	518		$	411		$	357
Service cost	59			57			56
Interest cost	28			23			21
Actuarial (gain) loss	(80		)	35			(12		)
Benefits paid	(35		)	(8		)	(11		)
Projected benefit obligation at end of year	490			518			411

Change in plan assets:
Fair value of plan assets at beginning of year	258			205			169
Actual return on plan assets	31			10			3
Employer contribution	168			51			44
Benefits paid	(35		)	(8		)	(11		)
Fair value of plan assets at end of year	422			258			205

Funded status	(68		)	(261		)	(206		)
Unrecognized prior service cost	—			62			69
Unrecognized net actuarial loss (gain)	—			89			44
Amount recognized in balance sheet	$	(68	)	$	(110	)	$	(93	)

Amounts recognized in the balance sheets consist of:

Accrued pension liability (current)	(68		)	(152		)	(103		)
Intangible asset	—			42			10
Net amount recognized	$	(68	)	$	(110	)	$	(93	)

The amounts recognized in accumulated other comprehensive loss at December 31, 2006 was as follows:

	2006

Net actuarial gain	$	(4	)
Prior service cost	56
	$	52

The estimated net actuarial gain and prior service cost that will be amortized from accumulated other comprehensive loss into net periodic benefit cost for the year ending December 31, 2007 is $7,000.

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

The computation of the prepaid pension obligation at December 31, 2006 and required minimum liability and additional minimum liability at December 31, 2005 are shown below:

	2006			2005

Accumulated benefit obligation	$	(415	)	$	(410	)
Fair value of plan assets	422			258
Required prepaid pension obligation (minimum liability)	$	7		$	(152	)
Liability recognized for accrued benefit costs	—			110

Prepaid pension obligation (additional minimum liability)	$	7		$	(42	)

The components of net periodic pension cost for the years ended December 31, 2006, December 31, 2005 and December 31, 2004 were as follows:

	2006			2005			2004

Service cost	$	59		$	57		$	56
Interest cost	28			23			21
Expected return on plan assets	(23		)	(19		)	(15		)
Amortization of net actuarial loss and prior service cost	9			7			7

Net periodic pension cost	$	73		$	68		$	69

The weighted average actuarial assumptions used to determine the pension benefit obligations at December 31, 2006, 2005 and 2004 and the net periodic pension cost for the years then ended are as follows:

	2006		2005		2004

Pension benefit obligation:
Discount rate	5.90	%	5.50	%	5.75	%
Compensation increases	2.00	%	2.00	%	2.00	%

Net periodic pension cost:
Discount rate	5.90	%	5.75	%	6.00	%
Compensation increases	2.00	%	2.00	%	2.00	%
Return on assets for the year	8.50	%	8.50	%	8.50	%

The expected long-term rate of return on plan assets was based primarily on historical returns as adjusted for the plan’s current investment allocation strategy.

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

The plan’s asset allocation percentages at December 31, 2006 and 2005 were as follows:

	2006		2005

Pooled fixed income funds	23.00	%	21.00	%
Money market funds	10.00	%	16.00	%
Stock mutual funds	67.00	%	63.00	%
Total	100.00	%	100.00	%

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

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

Years Ending December 31,

2007	$	8,372
2008	11,073
2009	12,168
2010	17,546
2011	17,201
2012-2016	145,551

(10) UNION BARGAINING UNIT INTERMITTENT EMPLOYEES SEVERANCE PLAN

The Partnership provides 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 benefit pension plan and are classified as intermittent employees per the bargaining union agreement. The severance plan provides for the payment of 8 days of pay for each year worked (upon the completion of 3 years of continuous serve) if the employee becomes physically or mentally incapacitated, is part of a Partnership mass layoff, or reaches the age of 60 and is terminated or voluntarily terminates. The Partnership accounts for the benefit by determining the present value of the future benefits based upon an actuarial analysis. The projected benefit obligation includes the obligation for the employees of their previous employer that became Company employees.

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

Change in Severance Obligation

	2006			2005			2004

Severance obligation at beginning of year	$	376		$	384		$	363
Service cost	23			24			24
Interest cost	20			21			21
Actuarial (gain) loss	(36		)	(14		)	9
Benefits paid	(48		)	(39		)	(33		)
Severance obligation at end of year	$	335		$	376		$	384

Change in Plan Assets

	2006			2005			2004

Fair value of plan assets at of year	$	0		$	0		$	0
Employer contributions	48			39			33
Benefits paid	(48		)	(39		)	(33		)
Fair value of plan assets at end of year	$	0		$	0		$	0

Funded Status

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

As of December 31, 2006, the accrued benefit cost of $317,000 was recorded in accrued liabilities - current portion $27,000, representing amounts to be paid in 2007, non-current liabilities $290,000 and the unrecognized actuarial gain of $18,000 was recorded in accumulated other comprehensive income. On adoption of SFAS 158 the Partnership recorded an adjustment to other comprehensive income of $18,000 for the under funded status of the severance benefit plan at December 31, 2006.

Components of Net Periodic Cost

Service cost	$	23	$	24	$	24
Interest cost	20		21		21
Recognized net (gain) loss	1		3		2
Net periodic cost (credit)	$	44	$	48	$	47

Reconciliation of Severance Liability

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

Weighted Average Assumptions

Discount rate	5.87	%	5.78	%	5.74	%
Expected return on plan assets	0.00	%	0.00	%	0.00	%
Rate of compensation increase	1.65	%	1.65	%	1.65	%

As discussed in Note 14, the Partnership initially recorded its liability for the severance plan in 2006 following its determination that such obligation had not properly been accounted for as part of prior year purchase price allocations. The Partnership has provided disclosures for those years for comparative purposes. As disclosed above, benefit costs in 2004 and 2005 did not differ materially form contribution amounts expensed in such years.

(11) EMPLOYEES SAVINGS PLAN

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

(12) SALARIED DEFINED CONTRIBUTION PLAN

The Partnership sponsors a defined contribution plan for its non-bargaining unit employees. This plan provides for the Partnership to make annual contributions to the 401(k) plan on behalf of participating employees. Contributions are based upon age, length of service, and other criteria on an annual basis, subject to annual limits. During the years ended December 31, 2006, 2005, and 2004 Partnership contributions were $106,000, $96,000 and $98,000, respectively.

(13) QUARTERLY OPERATING RESULTS (Unaudited)

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

			Gross Income			Net Income			Net Income (Loss)
	Revenues		(Loss)			(Loss)			per Class A Unit
2006
1st Quarter	$	1,523	$	272		$	(100	)	$	(0.01	)
2^nd Quarter	1,288		444			(27		)	0.00
3^rd Quarter	5,487		437			85			0.01
4^th Quarter	8,774		1,574			846			0.11

2005
1st Quarter	$	3,056	$	627		$	(27	)	$	0.00
2nd Quarter	1,501		218			26			0.00
3rd Quarter	3,737		608			118			0.02
4th Quarter	9,084		1,449			654			0.09

2004
1^st Quarter	$	2,052	$	208		$	(95	)	$	(0.01	)
2^nd Quarter	787		140			(161		)	(0.02		)
3^rd Quarter	3,275		(67		)	(817		)	(0.11		)
4^th Quarter	7,551		(143		)	(576		)	(0.08		)

(14) CBCL ACQUISITION ADJUSTMENTS

During 2006, the Partnership concluded it should have recorded certain employee severance and vacation benefits in connection with its allocation of the purchase price of the macadamia farming operation from CBCL on May 1, 2000. The Partnership has re-evaluated and revised the original purchase price allocation and accordingly has recorded in 2006, goodwill of $306,000 and a corresponding liability for the fair value of such benefits as of the acquisition date. The changes 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 of Income. Prior year financial statements were not materially impacted by this matter.

SIGNATURES

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

	ML MACADAMIA ORCHARDS, L.P.
	(Registrant)

	By:	ML RESOURCES, INC.
	(Managing General Partner)

	By:	/s/ Dennis J. Simonis
	Dennis J. Simonis
	Principal Executive Officer
Dated : November 13, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and on the date set forth above.

ML RESOURCES, INC.

Signature		Title

/s/	Dennis J. Simonis	President and Chief Executive Officer
	Dennis J. Simonis	Principal Executive Officer
		Director

/s/	Wayne W. Roumagoux	Chief Financial Officer
	Wayne W. Roumagoux	(Principal Accounting Officer)


/s/	John Kai	Director
	John Kai

/s/	James S. Kendrick	Director
	James S. Kendrick

/s/	E. Alan Kennett	Director
	E. Alan Kennett

/s/	Jeffrey M. Kissel	Director
	Jeffrey M. Kissel

/s/	Dr. David McClain	Director
	Dr. David McClain

EXHIBIT INDEX

Exhibit Number		Description

2.1		Amended and Restated Agreement and Plan of Merger, effective as of December 18, 1997, between Registrant and C. Brewer Homes, Inc. (a)

2.2		Asset Purchase Agreement including Exhibits dated March 14, 2000 (g)

3.2		Form of Class A Certificate of Limited Partnership as filed with the Secretary of State of Delaware. (c)

3.3		Certificate of Limited Partnership of Registrant as filed with the Secretary of State of Delaware. (c)

4.1		Depositary Agreement between Registrant, Manufacturers Hanover Trust Company as Depositary and Mauna Loa Resources Inc. as attorney-in-fact of the limited partners of Registrant. (c)

4.2		Form of Depositary Receipt. (c)

5.1		Legal Opinion of Counsel dated May 1, 2000 (g)

10.2		Macadamia Nut Purchase Contract between Mauna Loa and Registrant dated December 22, 1986. (b)

10.3		Macadamia Nut Purchase Contract between Mauna Loa and Registrant dated as of October 1, 1989. (b)

10.4		Contribution Agreement among Mauna Loa Orchards, L.P. (“MLO”), Ka’u Agribusiness Co., Inc. (“KACI”), Mauna Kea Agribusiness Co., Inc. (“MKACI”), Mauna Kea Macadamia Orchards, Inc. (“MKMO”) and Mauna Loa dated as of July 1, 1989. (b)

10.5		Lease between the Trustees of the Estate of Bernice Pauahi Bishop (“Trustees of the Bishop Estate”) and Mauna Loa. (c)

10.6		Lease between KACI and Registrant. (d)

10.7		MLO/MLMO Conveyance Agreement between MLO and Registrant dated as of October 1, 1989. (b)

10.8		Butcher/MLMO Contribution Agreement between Howard Butcher III (“Butcher”) and Registrant dated as of October 1, 1989. (b)

10.9		Farming Lease between KACI and MLO dated as of July 1, 1989. (b)

10.11		Farming Lease between MKACI and MLO dated as of July 1, 1989. (b)

10.12		Water Agreement, as amended, between KACI and Registrant dated as of October 1, 1989. (b)

10.13		Cash Flow Warranty Agreement among KACI, MKACI and Registrant dated as of July 1, 1989. (b)

Exhibit Number		Description

10.14		Guarantee Agreement between Mauna Loa and Registrant dated as of October 1, 1989. (b)

10.15		Agreement of Indemnification between CBCL and each director of the Managing Partner. (b)

10.16		Indemnification Agreement (Title) among Mauna Loa, KACI and MKACI in favor of Registrant. (b)

10.17		Indemnification Agreement (Subdivision) among Mauna Loa, KACI and MKACI in favor of Registrant. (b)

10.18		Deed between MLO and Registrant relating to 14% undivided interest in 220 tree acres of macadamia orchard properties located in the Keaau area of the island of Hawaii (“Keaau II Orchards”). (b)

10.19		Bill of Sale between MLO and Registrant relating to 14% undivided interest in Keaau II Orchards. (b)

10.20		Deed between Butcher and Registrant relating to 86% undivided interest in Keaau II Orchards. (b)

10.21		Bill of Sale between Butcher and Registrant relating to 86% undivided interest in Keaau II Orchards. (b)

10.22		Assignment of Partial Interest in Lease No. 15,020 and consent from MLO to Registrant. (b)

10.23		Assignment of Partial Interest in Lease No. 16,859 and consent from MLO to Registrant. (b)

10.24		Assignment of Partial Interest in Lease No. 20,397 and consent from MLO to Registrant. (b)

10.25		Assignment of Lease from MLO to Registrant relating to Lease from the Trustees of the Bishop Estate. (b)

10.26		Assignment from MLO to Registrant relating to certain orchards. (b)

10.27		Lease from the Trustees of the Bishop Estate to MLO. (b)

10.28		Lease No. 15,020 from the Trustees of the Bishop Estate to MLO. (b)

10.29		Form of Amendments to Lease No. 15,020 from the Trustees of the Bishop Estate. (b)

10.30		Lease No. 16,859 from the Trustees of the Bishop Estate to the Hawaiian Agricultural Company (a predecessor of KACI). (b)

10.31		Form of Amendments to Lease No. 16,859 from the Trustees of the Bishop Estate. (b)

10.32		Lease No. 20,397 from the Trustees of the Bishop Estate to CBCL. (b)

Exhibit Number		Description

10.33		Form of Amendments to Lease No. 20,397 from the Trustees of the Bishop Estate to CBCL. (b)

10.34		Lease from Richard L. Hughes to Mauna Loa. (b)

10.35		Lease from the Trustees of the Bishop Estate to Mauna Loa. (b)

10.36		Co-ownership and Partition Agreement between KACI and MLO. (b)

10.37		Co-ownership and Partition Agreement among Mauna Loa, KACI and MLO.(b)

10.38		Co-ownership and Partition Agreement between KACI and MLO relating to Lease Nos. 15,020 and 16,859. (b)

10.39		Co-ownership and Partition Agreement between MKACI and MLO. (b)

10.40		Macadamia Nut Purchase Contract between Mauna Loa and Keaau Macadamia X Corporation (“Keaau Lot 10”) dated September 15, 1983. (e)

10.41		Assignment of Owner’s Interest in Macadamia Nut Purchase Contract and Farming Contract between Keaau Lot 10 and Registrant. (e)

10.42		Warranty Deed between Keaau Lot 10 and Registrant. (e)

10.43		Amended and Restated June 1986 Farming Contract, effective January 1, 1998, between Registrant and KACI. (f)

10.44		Amended and Restated December 1986 Farming Contract, effective January 1, 1998, between Registrant and KACI. (f)

10.45		Amended and Restated 1989 Farming Contract, effective January 1, 1998, among Registrant, KACI and MKACI. (f)

10.46		Amended and Restated Farming Contract for the Keaau Lot 10 Orchard, effective January 1, 1998, between Registrant and KACI. (f)

10.47		Restated Kaiwiki Orchards Farming lease between Registrant and MKACI dated February 26, 1997. (f)

10.48		Credit Agreement between Registrant and Pacific Coast Farm Credit Services, PCA dated May 1, 2000 (g)

10.49		Security Agreement between Registrant and Pacific Coast Farm Credit Services, PCA dated May 1, 2000 (g)

10.50		Orchards Farming Lease between Registrant and Ka’u Agribusiness Co., Inc. (g)

10.51		Macadamia Nut Purchase Contract between Mauna Loa and the Partnership dated July 1, 2003 for Keaau Lot X nuts. (h)

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

10.53		Jim Case resignation letter from Audit Committee dated March 7, 2005. (i)

Exhibit Number		Description

10.54		Macadamia Nut Purchase Contract between Purdyco International, Ltd. and the Partnership dated January 5, 2006 effective January 1, 2007. (j)

10.55		Macadamia Nut Purchase Contract between Mac Farms of Hawaii, LLC and the Partnership dated January 6, 2006 effective January 1, 2007. (j)

10.56		Macadamia Nut Purchase Contracts between Mauna Loa Macadamia Nut Corporation and the Partnership dated June 1, 2006 effective January 1, 2006. (k)

10.57		Macadamia Nut Purchase Contract between Mauna Loa Macadamia Nut Corporation and the Partnership dated June 1, 2006 effective January 1, 2006. (k)

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

(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.

Royal Hawaiian Orchards (NNUTU) Inactive 10-K/A2006 FY Annual report (amended)

FORM 10-K/A

PART II

Results of operations – 2006, 2005, 2004

Owned-Orchard Segment - Production and Yields

Owned-Orchard Segment - Nut Revenue

Owned-Orchard Segment - Cost of Goods Sold

Farming Segment - Farming Service Revenue

General and Administrative Costs

Interest Income and Expense

Liquidity and Capital Resources

Notes to Consolidated Financial Statements

(a) Nut Purchase Contracts. The Partnership is a party to two nut purchase contracts signed June 1, 2006, with an effective date of January 1, 2006, with Mauna Loa which were negotiated in 2006. The