OPERATIONS AND OWNERSHIP

12 Months Ended

Dec. 31, 2011

OPERATIONS AND OWNERSHIP

OPERATIONS AND OWNERSHIP

(1) OPERATIONS AND OWNERSHIP

ML Macadamia Orchards, L.P. (the “Partnership”) owns or leases and farms 5,070 tree acres of macadamia orchards on the island of Hawaii. Once the nuts are harvested, the Partnership sells them to another entity in Hawaii, which processes the nuts and markets the finished products.  The Partnership farms approximately 1,100 acres of macadamia orchards in Hawaii for other orchard owners in exchange for a fee.

The Partnership is developing its own retail product line which is currently being presented to distributors and retailers for distribution in Europe.  The Partnership has purchased macadamia kernels and packaging materials for the manufacture of the new product line by a co-packer in California.

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 MLR 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.

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

Liquidity.  The Partnership recorded net income of $712,000, generated operating cash flow of $2.3 million during 2011 and had working capital of $1.4 million at December 31, 2011.  The financial results for 2011 were attributable to increased nut sales due to higher annual production from the MLP fields and the Partnership recording full year production from the IASCO orchards.  Higher price per pound received on the IASCO production and lower overall cost per pound on total production contributed to the favorable financial results in 2011.  Higher interest expense was partially offset by higher crop insurance proceeds and increased distribution from American AgCredit, PCA in 2011.  The crop insurance is reflected as cash received for goods and services in the consolidated statement of cash flows and was used for general business purposes.  The Partnership incurred a net loss of $1.5 million and had net cash used by operations of $212,000 during 2010 and had a working capital deficit of approximately $534,000 at December 31, 2010.  The adverse financial results for 2010 were mainly attributable to lower nut sales due to lower production and lower nut recovery from the Ka’u orchards.  The lower contract farming service revenue in 2010, due to the elimination of the IASCO farming contracts was offset by the nut revenue generated by the production from the IASCO orchards acquired by the Partnership in August 2010.  Increased debt, higher interest expense, lower other income, acquisition costs of $211,000, impairment loss of $306,000 offset by $120,000 IASCO bargain price gain also contributed to the adverse financial results in 2010.  The Partnership has access to working capital through its line of credit and other borrowing opportunities, if necessary.  However, management feels that the Partnership will be able to generate sufficient cash flows from operations to meet current obligations and debt service requirements.