Liquidity and Capital Resources

Macadamia nut farming is seasonal, with production and harvesting activities peaking in the fall and winter.  However, farming operations and cultivation activities continue year round. In general, a significant amount of working capital is required for much of the harvesting season.

The Partnership has a master Credit Agreement with American AgCredit, PCA comprised of a $6.0 million revolving line of credit which matures on June 30, 2009 and a 10-year, $4.0 million term loan which matures on May 1, 2010.  At March 31, 2009, the Partnership had a balance of $800,000 outstanding on its term loan and no drawings under the revolving credit facility.  At March 31, 2009, $6.0 million was available under the revolving credit facility.  At March 31, 2008, the Partnership had a balance of $1.2 million on its term loan and $3.8 million outstanding on its revolving credit facility.

At March 31, 2009 the Partnership had a cash balance of $563,000 compared to $601,000 at March 31, 2008.  Cash flows provided by operating activities were $1.3 million for the three months ended March 31, 2009 compared to $233,000 cash flows used in operations for the three months ended March 31, 2008.  The improvement in operating cash flows was attributable to cash received on the increased nut sales in December 2008, compared to less cash received in the first quarter 2008 due to lower nut sales December 2007.  The $330,000 legal claims settlement from Hamakua also contributed to the improved operating cash flows in the first quarter 2009.  Cash paid for operating expense and interest was also less in the first quarter of 2009 compared with the same period in 2008.

At March 31, 2009 the Partnership had working capital of $2 million and a current ratio of 2.56 to 1 compared to a working capital of $1,000 and a current ratio of 1.00 to 1 at March 31, 2008. The increase in working capital was primarily due to no short-term borrowings outstanding at March 31, 2009 compared to $3.8 million in short-term borrowings outstanding at March 31, 2008.

Management anticipates draws on the revolving line of credit as necessary to fund working capital needs arising from the normal seasonal requirements of macadamia nut farming, and management also believes that the credit facility with American AgCredit, PCA when it is renewed will provide the Partnership with adequate borrowing capacity to meet anticipated working capital needs during 2009 for operations as presently conducted and the addendum to the nut purchase contract with Mauna Loa Macadamia Nut Corporation will positively impact the Partnership’s cash flow from operations in 2009.  The Partnership’s nut purchase contracts require all purchasers to make nut payments 30 days after the date of delivery.  The addendum to the Mauna Loa nut purchase contract requires payment within normal Mauna Loa terms.  During certain parts of the year, if payments are not received as the contracts require, available cash resources could be depleted.

Liquidity and Capital Resources

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

At December 31, 2008 the Partnership’s working capital was $1.1 million and its current ratio was 1.44 to 1, compared to working capital of a negative $199,000 and a current ratio of 0.96 to 1 at December 31, 2007 and working capital of $3.9 million and a current ratio was 2.54 to 1 at December 31, 2006, compared to $3.4 million and 1.59 to 1 in 2005.

In 2008 the increase in working capital compared to 2007 was the result of higher revenue, lower general and administrative costs, and higher other income offset by higher costs of goods sold, higher interest cost and higher income tax.  In 2007 the decrease in working capital compared to 2006 was the result of higher costs of goods, lower revenue, higher general and administrative costs, and lower other income offset by higher interest income, and lower income tax.  The Partnership was in compliance with the terms and conditions of the Credit Agreement at December 31, 2006 except for minimum tangible net worth.  On July 5, 2007, the lender provided a waiver to the loan covenant for the year ended December 31, 2006 and retroactively amended the minimum tangible net worth covenant.  The Partnership was in compliance with the terms and conditions of the Credit Agreement at December 31, 2007 except for the restricted payment covenant, minimum tangible net worth covenant, and the debt coverage ratio covenant.  On March 14, 2008, the lender provided a waiver and amendment to the loan covenants for the year ended December 2007.  Effective March 14, 2008 the amended agreement reduced the maximum borrowing on the revolving line of credit from $5.0 million to $4.5 million, established a quarterly covenant based upon EBITDA, prohibited declaration and payment of further restricted payments in 2008, establishes a minimum tangible net worth of $41.0 million effective December 31, 2008 and required the Partnership to provide additional security in the form of a mortgage or deed of trust on real property.  On July 8, 2008 the Partnership executed a Second Amended and Restated Credit Agreement with American AgCredit Capital Markets.  The Second Amended and Restated Credit Agreement increased the maximum borrowing on the revolving line of credit from $4.5 million to $6.0 million, and allowed no payments of distributions to partners through June 30, 2009.  On March 25, 2009 American AgCredit Capital Markets provided the Partnership with a commitment to amend the current credit agreement, which would extend the revolving line of credit for an additional year.  The commitment would reduce the revolving line of credit from $6.0 million to $5.0 million, increase the interest rate by 25 basis points per annum, increase the fixed rate by 50 basis points per annum and maintain all other terms and conditions. For further information see “Description of Business” “Loan Agreement”.

20

Liquidity and Capital
Resources

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

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

In 2008 the increase in working capital compared to 2007 was the result
of higher revenue, lower general and administrative costs, and higher other
income offset by higher costs of goods sold, higher interest cost and higher
income tax.  In 2007 the decrease in
working capital compared to 2006 was the result of higher costs of goods, lower
revenue, higher general and administrative costs, and lower other income offset
by higher interest income, and lower income tax.  The Partnership was in compliance with the
terms and conditions of the Credit Agreement at December 31, 2006 except
for minimum tangible net worth.  On July 5,
2007, the lender provided a waiver to the loan covenant for the year ended December 31,
2006 and retroactively amended the minimum tangible net worth covenant.  The Partnership was in compliance with the
terms and conditions of the Credit Agreement at December 31, 2007 except
for the restricted payment covenant, minimum tangible net worth covenant, and
the debt coverage ratio covenant.  On March 14,
2008, the lender provided a waiver and amendment to the loan covenants for the
year ended December 2007.  Effective
March 14, 2008 the amended agreement reduced the maximum borrowing on the
revolving line of credit from $5.0 million to $4.5 million, established a
quarterly covenant based upon EBITDA, prohibited declaration and payment of
further restricted payments in 2008, establishes a minimum tangible net worth
of $41.0 million effective December 31, 2008 and required the Partnership
to provide additional security in the form of a mortgage or deed of trust on
real property.  On July 8, 2008 the
Partnership executed a Second Amended and Restated Credit Agreement with
American AgCredit Capital Markets.  The
Second Amended and Restated Credit Agreement increased the maximum borrowing on
the revolving line of credit from $4.5 million to $6.0 million, and allowed no
payments of distributions to partners through June 30, 2009.  On March 25, 2009 American AgCredit
Capital Markets provided the Partnership with a commitment to amend the current
credit agreement, which would extend the revolving line of credit for an
additional year.  The commitment would
reduce the revolving line of credit from $6.0 million to $5.0 million, increase
the interest rate by 25 basis points per annum, increase the fixed rate by 50
basis points per annum and maintain all other terms and conditions. For further
information see “Description of Business” “Loan Agreement”.

20

Liquidity and Capital Resources

Macadamia nut farming is seasonal, with production normally peaking in the fall and winter, however, farming operations continue year round. In general, a significant amount of working capital is required for much of the harvesting season.

The Partnership has a master Credit Agreement with American AgCredit, PCA comprised of a $6 million revolving line of credit and a 10-year, $4 million term loan.  The Credit Agreement contains certain restrictions which are discussed in Part II — Item 2, below.

At September 30, 2008, the Partnership had a cash balance of $735,000 compared to $120,000 at September 30, 2007.  Cash flows provided by operating activities for the nine-month periods ended September 30, 2008 was $492,000 compared to $3.4 million used in operations for the nine-month period ended September 30, 2007.  Cash flows provided by operating activities for the three-month period ended September 30, 2008 was $1.2 million compared to $1.8 million used in operations for the same period in 2007.  The improvement in operating cash flows was attributable to cash received on the increased nut production in 2008.  The improvement in operating cash flows was attributable to the implementation of cost-cutting measures and the sale of nut inventory on hand at the end of 2007.  However, due to net cash outflows from operations during the first half of 2008 and 2007, the Partnership has had to deplete its cash reserves and draw on its revolving credit facility to make distributions to unit holders, acquire capital assets, and make debt service payments on the term loan.

At September 30, 2008 the Partnership had working capital of $971,000 and a current ratio of 1.18 to 1 compared to a working capital of $3.2 million and a current ratio of 1.85 to 1 at September 30, 2007.  The deterioration in working capital was primarily attributable to the $3.7 million in short-term borrowings outstanding at September 30, 2008 compared to $1.9 million in short-term borrowings outstanding at September 30, 2007.

At September 30, 2008, the Partnership had $4.5 million in outstanding debt, comprised of $800,000 under the 10-year term loan and $3.7 million in drawings on the revolving line of credit.

Management anticipates additional draws on the revolving line of credit as necessary to fund working capital needs arising from the normal seasonal requirements of macadamia nut farming, however believes that the amended credit facility with American AgCredit, PCA will provide the Partnership with adequate borrowing capacity to meet anticipated working capital needs for

15

Liquidity and Capital Resources

Macadamia nut farming is seasonal, with production normally peaking in the fall and winter, however, farming operations continue year round.  In general, a significant amount of working capital is required for much of the harvesting season.

At June 30, 2008, the Partnership had a master Credit Agreement with American AgCredit, PCA comprised of a $4.5 million revolving line of credit and a 10-year, $4.0 million term loan.  On July 8, 2008 the Partnership signed a Second Amended and Restated Credit Agreement with American AgCredit, PCA which replaced the extended credit agreement.  The Second Amended and Restated Credit Agreement provides the Partnership with a $6.0 million revolving line of credit and left the 10-year, $4.0 million term loan unchanged.  The Credit Agreement contains certain restrictions, which are discussed in Part II – Item 2 below.

At June 30, 2008, the Partnership had a cash balance of $79,000 compared to $495,000 at June 30, 2007.  Cash flows used in operating activities for the six-month periods ended June 30, 2008 and 2007 totaled $740,000 and $1.6 million, respectively.  Cash flows used in operating activities for the three-month periods ended June 30, 2008 and 2007 totaled $517,000 and $2.3 million, respectively.  The improvement in operating cash flows was attributable to the implementation of cost-cutting measures and the sale of nut inventory on hand at the end of 2007.  However, due to net cash outflows from operations during the first half of 2008 and 2007, the Partnership has had to deplete its cash reserves and draw on its revolving credit facility to make distributions to unit holders, acquire capital assets, and make debt service payments on the term loan.

At June 30, 2008 the Partnership had a working capital deficit of $317,000 and a current ratio of 0.95 to 1 compared to positive working capital of $3.6 million and a current ratio of 3.48 to 1 at June 30, 2007.  The deterioration in working capital was attributable to the $4.2 million in short-term borrowings outstanding at June 30, 2008 compared to no short-term borrowings outstanding at June 30, 2007.

15

Liquidity and Capital Resources

Macadamia nut farming is seasonal, with production peaking in the fall and winter.  However, farming operations continue year round. In general, a significant amount of working capital is required for much of the harvesting season.

The Partnership has a master Credit Agreement with American AgCredit, PCA comprised of a $4.5 million revolving line of credit and a 10-year, $4 million term loan.  The Credit Agreement contains certain restrictions, which are further discussed in Part II – Item 2 below.

At March 31, 2008 the Partnership had a cash balance of $601,000 compared to $3.6 million at March 31, 2007.  Cash flows used in operating activities totaled $233,000 for the three months ended March 31, 2008 and cash flows provided by operating activities totaled $731,000 for the three months ended March 31, 2007, which were used to pay distributions to unit holders and operating expenses.  At March 31, 2008 the Partnership’s working capital was $1,000 and its current ratio 1.00 to 1.  The ratio decrease from $4.2 million and 3.32 to 1 at March 31, 2007, primarily due to a decrease in cash offset by an increase in deferred farming costs.

At March 31, 2008, the Partnership had a balance of $1.2 million outstanding on its term loan and no capital lease obligations. At March 31, 2007, the Partnership had $1.6 million in outstanding long-term debt.

The Partnership anticipates borrowing from the revolving line of credit as necessary to fund working capital needs arising from the normal seasonal requirements of macadamia nut farming.  The revolving line of credit facility expired on May 1, 2008.  American AgCredit, PCA extended the revolving line of credit facility for 60 days while the parties try to reach agreement on the terms of a new debt facility.  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.  If the Partnership is unable to reach an agreement with our current lender for a new debt facility available cash resources could be depleted.  Also, the Partnership’s nut purchase contracts require all purchasers to make nut payments 30 days after the date of delivery.  During certain parts of the year, if payments are not received as the contracts require, available cash resources could be depleted.

Liquidity and Capital Resources

The Partnership incurred a net loss of $4.0 million and had negative cash flows from operations of $3.9 million during 2007 and had a working capital deficit of approximately $199,000 at December 31, 2007.  Net cash used by operations was $3.9 million in 2007 compared to net cash provided by operations of $8.2 million in 2006.  The significant decrease of $12.1 million is a result of the fewer pounds of nuts sold, a lower selling price per pound for the nuts sold, processing related to the production of kernel from WIS nuts, increase in inventory of kernel and nut-in-shell and associated costs, and costs for the attempted acquisition of MacFarms.  Net cash provided by operations was $8.2 million in 2006, an increase of approximately $6.3 million compared to 2005 which was 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 in 2005 was $1.9 million.

At December 31, 2007 the Partnership’s working capital was a negative $199,000 and its current ratio was 0.96 to 1, compared to $3.9 million and 2.54 to 1 in 2006.  In 2006 the Partnership’s working capital was $3.9 million and its current ratio 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 was 1.59 to 1, compared to $2.9 million and 1.63 to 1 in 2004.  In 2007 the decrease in working capital compared to 2006 was the result of higher costs of goods, lower revenue, higher general and administrative costs, and lower other income offset by higher interest income, and lower income tax.  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.  The Partnership was in compliance with the terms and conditions of the Credit Agreement at December 31, 2006 except for minimum tangible net worth.  On July 5, 2007, the lender provided a waiver to the loan

20

Liquidity and Capital
Resources

The Partnership
incurred a net loss of $4.0 million and had negative cash flows from operations
of $3.9 million during 2007 and had a working capital deficit of approximately
$199,000 at December 31, 2007.  Net
cash used by operations was $3.9 million in 2007 compared to net cash provided
by operations of $8.2 million in 2006. 
The significant decrease of $12.1 million is a result of the fewer
pounds of nuts sold, a lower selling price per pound for the nuts sold,
processing related to the production of kernel from WIS nuts, increase in
inventory of kernel and nut-in-shell and associated costs, and costs for the
attempted acquisition of MacFarms.  Net
cash provided by operations was $8.2 million in 2006, an increase of
approximately $6.3 million compared to 2005 which was 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 in 2005 was $1.9 million.

At December 31, 2007
the Partnership’s working capital was a negative $199,000 and its current ratio
was 0.96 to 1, compared to $3.9 million and 2.54 to 1 in 2006.  In 2006 the Partnership’s working capital was
$3.9 million and its current ratio 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 was 1.59 to 1, compared
to $2.9 million and 1.63 to 1 in 2004. 
In 2007 the decrease in working capital compared to 2006 was the result
of higher costs of goods, lower revenue, higher general and administrative
costs, and lower other income offset by higher interest income, and lower income
tax.  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.  The Partnership was in compliance with the
terms and conditions of the Credit Agreement at December 31, 2006 except
for minimum tangible net worth.  On July 5,
2007, the lender provided a waiver to the loan

20

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.

11

Liquidity and Capital Resources

Macadamia nut farming is seasonal, with production peaking in the fall and winter. However, farming operations continue year round. In general, a significant amount of working capital is required for much of the harvest season.

The Partnership has a master Credit Agreement with American AgCredit, PCA comprised of a $5 million revolving line of credit and a 10-year, $4 million term loan. The Credit Agreement contains certain restrictions which are discussed in Part II — Item 2, below.

At September 30, 2007 the Partnership had a cash balance of $120,000. For the nine-month period ended September 30, 2007, cash flows used by operating activities totaled a $3.4 million which were used to pay distributions to unit holders and repay debt. At September 30, 2007 the Partnership’s working capital was $3.2 million and its current ratio 1.85 to 1, compared to $2.9 million and 2.83 to 1 at September 30, 2006. The improvement in the Partnership’s working capital position and liquidity were primarily due to an increase in accounts receivable, inventory, and deferred farming costs, offset by a decrease in cash and increases in accounts payable and line-of-credit borrowing.

For the three months ended September 30, 2007 net cash used by operations was $1.8 million compared to net cash provided by operation for the three months ended September 30, 2006 of $1.0 million. For the nine months ended September 30, 2007 net cash used by operations was $3.4 compared to net cash provided of $5.0 million at September 30, 2006. The change in the payment terms from quarter to monthly, in the nut purchase contracts January 2006 resulted in a one-time increase in cash and decrease in accounts receivable during the nine-month period ended September 30, 2006 of $5.7 million.

At September 30, 2007, the Partnership had $1.2 million in outstanding long-term debt, comprised of $1.2 million under the 10-year term loan and $1.9 million drawn on the line-of-credit.

The Partnership anticipates borrowing from the revolving line of credit as necessary to fund working capital needs arising from the normal seasonal requirements of macadamia nut farming. 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. However, the Partnership’s nut purchase contracts require all purchasers to make nut payments 30 days after the date of delivery. During certain parts of the year, if payments are not received as the contracts require, available cash resources could be depleted.

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 all debt covenants at December 31, 2005.  At December 31, 2006 the Partnership was in compliance with all debt covenants except for minimum tangible net worth.  The Partnership was less than 0.4% below the required amount.  The lender has provided a waiver to the loan covenant for the year ended December 31, 2006.  Had the lender not waived this violation the Partnership would have been restricted in its ability to pay distributions to the limited partners.

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.

5

Liquidity and Capital Resources

Macadamia nut farming is seasonal, with production normally peaking in the fall and winter, however, farming operations continue year round.  In general, a significant amount of working capital is required for much of the harvesting season.

The Partnership has a master Credit Agreement with American AgCredit, PCA comprised of a $5 million revolving line of credit and a 10-year, $4 million term loan.  The Credit Agreement contains certain restrictions, which are discussed in Part II – Item 2 below.

14

At June 30, 2007, the Partnership had a cash balance of $495,000 with no borrowings on its line of credit.  At June 30, 2006, the Partnership had a cash balance of $909,000 and $1 million outstanding on the line of credit.  For the six-month period ended June 30, 2007, cash used by operating activities was $1.6 million, which were used to pay distributions to unit holders, acquire capital assets and repay debt.  For the six-month period ended June 30, 2006, cash flows from operating activities totaled $4.0 million, which were used to pay distributions to unit holders, purchase a macadamia nut orchard of approximately 20 acres and repay debt.  At June 30, 2007 the Partnership’s working capital was $3.6 million and its current ratio 3.48 to 1, compared to $2.7 million and 2.09 to 1 at June 30, 2006, primarily due to a decrease in cash, increase in accounts receivable, and a decrease in line-of-credit borrowing.

For the three months ended June 30, 2007 net cash used by operations was $2.3 million compared to net cash used by operations for the three months ended June 30, 2006 of $356,000.  For the six months ended June 30, 2007 net cash used by operations was $1.6 million compared to $4.0 million at June 30, 2006.

At June 30, 2007, the Partnership had $1.2 million in outstanding debt, comprised of $1.2 million under the 10-year term loan with no drawings on the revolving line of credit.

The Partnership anticipates borrowing from the revolving line of credit as necessary to fund working capital needs arising from the normal seasonal requirements of macadamia nut farming.  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.  However, the Partnership’s nut purchase contracts require all purchasers to make nut payments 30 days after the date of delivery.  During certain parts of the year, if payments are not received as the contracts require, available cash resources could be depleted.

Liquidity and Capital Resources

Macadamia nut farming is seasonal, with production peaking in the fall and winter.  However, farming operations continue year round. In general, a significant amount of working capital is required for much of the harvesting season.

12

The Partnership has a master Credit Agreement with American AgCredit, PCA comprised of a $5 million revolving line of credit and a 10-year, $4 million term loan.  The Credit Agreement contains certain restrictions, which are further discussed in Part II — Item 2 below.

At March 31, 2007 the Partnership had a cash balance of $3.6 million compared to $1.5 million at March 31, 2006.  Cash flows from operating activities totaled $731,000 and $4.4 million at March 31, 2007 and 2006, respectively, which were used to pay distributions to unit holders and operating expenses.  At March 31, 2007 the Partnership’s working capital was $4.2 million and its current ratio 3.32 to 1.  The ratio improved from $3.4 million and 2.95 to 1 at March 31, 2006, primarily due to an increase in cash offset by a decrease in deferred faming costs.

At March 31, 2007, the Partnership had a balance of $1.6 million outstanding on its term loan and no capital lease obligations. At March 31, 2006, the Partnership had $2.0 million in outstanding long-term debt, of which $2.0 million related to the term loan, and $25,000 related to capital lease obligations.

The Partnership anticipates borrowing from the revolving line of credit as necessary to fund working capital needs arising from the normal seasonal requirements of macadamia nut farming.  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.  However, the Partnership’s nut purchase contracts require all purchasers to make nut payments 30 days after the date of delivery.  During certain parts of the year, if payments are not received as the contracts require, available cash resources could be depleted.

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, 2006 and December 31, 2005.

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.

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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.

Liquidity and Capital Resources

Macadamia nut farming is seasonal, with production peaking in the fall and winter.  However, farming operations continue year round. In general, a significant amount of working capital is required for much of the harvest season.

The Partnership has a master Credit Agreement with American AgCredit, PCA comprised of a $5 million revolving line of credit and a 10-year, $4 million term loan.  The Credit Agreement contains certain restrictions which are discussed in Part II – Item 2, below.

At September 30, 2006 the Partnership had a cash balance of $502,000.  For the nine-month period ended September 30, 2006, cash flows from operating activities totaled $5.0 million which were used to pay distributions to unit holders, acquire a 20-acre macadamia nut orchard and repay debt.  At September 30, 2006 the Partnership’s working capital was $2.9 million and its current ratio 2.83 to 1, compared to $2.7 million and 1.63 to 1 at September 30, 2005.  The improvement in the Partnership’s working capital position and liquidity were primarily due to an increase in cash and repayment of outstanding balance on the revolving line of credit, offset by decreases in accounts receivable and deferred farming costs.

For the three months ended September 30, 2006 net cash provided by operations was $1.0 million compared to net cash used by operation for the three months ended September 30, 2005 of $1.8 million.  For the nine months ended September 30, 2006 net cash provided by operations was $5.0 compared to $1.7 million at September 30, 2005.

At September 30, 2006, the Partnership had $1.6 million in outstanding long-term debt, comprised of $1.6 million under the 10-year term loan and $6,000 related to capital leases.

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The Partnership anticipates borrowing from the revolving line of credit during the last two months of the year to fund working capital needs arising from the normal seasonal requirements of macadamia nut farming.  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.  However, the Partnership’s nut purchase contracts with Mauna Loa require Mauna Loa to make nut payments 30 days after the end of each month.  During certain parts of the year, if payments are not received as the contracts require, available cash resources could be depleted.

Liquidity and Capital Resources

Macadamia nut farming is seasonal, with production normally peaking in the fall and winter, however, farming operations continue year round. In general, a significant amount of working capital is required for much of the harvesting season.

The Partnership has a master Credit Agreement with American AgCredit, PCA comprised of a $5 million revolving line of credit and a 10-year, $4 million term loan. The Credit Agreement contains certain restrictions, which are discussed in Part II – Item 2 below.

At June 30, 2006, the Partnership had a cash balance of $909,000. For the six-month period ended June 30, 2006, cash flows from operating activities totaled $4.0 million, which were used to pay distributions to unit holders, purchase a macadamia nut orchard of approximately 20 acres and repay debt. At June 30, 2006 the Partnership’s working capital was $2.7 million and its current ratio 2.09 to 1, compared to $2.5 million and 2.48 to 1 at June 30, 2005, primarily due to an increase in cash, decrease in accounts receivable, an increase in line of credit borrowing and deferred farming costs.

For the three months ended June 30, 2006 net cash used by operations was $356,000 compared to net cash provided by operations for the three months ended June 30, 2005 of $661,000. For the six months ended June 30, 2006 net cash provided by operations was $4.0 million compared to $3.5

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million at June 30, 2005. The changes in weather have resulted in a maturation pattern that has affected nut production such that the annual production should approximate historical trends even though the spring production is less than normal.

At June 30, 2006, the Partnership had $2.6 million in outstanding debt, comprised of $1.6 million under the 10-year term loan, $1.0 million in drawings on the revolving line of credit and $16,000 related to capital lease obligations.

The Partnership anticipates borrowing from the revolving line of credit as necessary to fund working capital needs arising from the normal seasonal requirements of macadamia nut farming. 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. However, the Partnership’s nut purchase contracts with Mauna Loa require Mauna Loa to make nut payments 30 days after the end of each month. During certain parts of the year, if payments are not received as the contracts require, available cash resources could be depleted.