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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2012

OR

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

Commission File Number 1-9145

ML MACADAMIA ORCHARDS, L.P.

(Exact Name of registrant as specified in its charter)

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

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 whether the registrant has submitted electronically and posted on it corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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 August 9, 2012, Registrant had 7,500,000 Class A Units issued and outstanding.

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ML MACADAMIA ORCHARDS, L.P.

INDEX

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Item 1.  Unaudited Consolidated Financial Statements

ML Macadamia Orchards, L.P.

Consolidated Balance Sheets

(in thousands)

See accompanying notes to consolidated financial statements

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ML Macadamia Orchards, L.P.

Consolidated Statements of Comprehensive Income (unaudited)

(in thousands, except per unit data)

See accompanying notes to consolidated financial statements.

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ML Macadamia Orchards, L.P.

Consolidated Statements of Partners’ Capital (unaudited)

(in thousands)

See accompanying notes to consolidated financial statements.

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ML Macadamia Orchards, L.P.

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

See accompanying notes to consolidated financial statements.

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ML MACADAMIA ORCHARDS, L.P.

Notes to Consolidated Financial Statements

(1) BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited consolidated financial statements of ML Macadamia Orchards, L.P. and its subsidiaries ML Resources, Inc. and Royal Hawaiian Macadamia Nut, Inc., (“the Partnership”) include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly its financial position as of June 30, 2012 and 2011 and the results of operations, changes in partners’ capital and cash flows for the three and six-month periods ended June 30, 2012 and 2011.  The results of operations for the period ended June 30, 2012 are not necessarily indicative of the results to be expected for the full year or for any future period.

The year-end condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.  These interim consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements filed with the Securities and Exchange Commission in the Partnership’s 2011 Annual Report on Form 10-K.

(2) CONSOLIDATION

The consolidated financial statements include the accounts of the Partnership, ML Resources, Inc. (“MLR”), its General Partner, and Royal Hawaiian Macadamia Nut, Inc. a wholly-owned subsidiary.  All significant intercompany balances and transactions, including management fees and distributions, have been eliminated.

(3) NEW ACCOUNTING STANDARD

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2011-05 (“ASU 2011-05”), Comprehensive Income (Topic 220):  Presentation of Comprehensive Income.  The objective of this update is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income.  ASU 2011-05 requires that all non owner changes in equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements reporting net income and other comprehensive income. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied retroactively. In December 2011, the FASB issued ASU 2011-12: Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which defers certain presentation requirements of ASU 2011-05.  ASU 2011-05 and ASU 2011-12 were adopted during the first quarter of 2012 and do not have a material impact on the consolidated financial statements as it only requires a change in the format of the Partnership’s current presentation. The Partnership’s other comprehensive income is presented in one consecutive statement in conjunction with the Partnership’s statement of comprehensive income.

(4) SUBSCRIPTION RIGHTS OFFERING

On April 4, 2012, the Partnership filed a registration statement on Form S-1 with the Securities and Exchange Commission (“SEC”) related to a proposed subscription rights offering of the Partnership’s Depositary Receipts representing units of limited partnership interests. The Partnership capitalized approximately $310,000 in issuance costs which were to be netted against the proceeds from the rights offering in partners’ capital.  On June 12, 2012, the Partnership decided to suspend the rights offering and filed an application with the SEC to withdraw the previously filed registration statement.  The capitalized issuance costs were expensed to general and administrative expense during the quarter ended June 30, 2012.  Although the registration statement was withdrawn, if the Partnership moves forward with a rights offering in the future, management will reevaluate whether certain issuance costs that were expensed during the quarter ended June 30, 2012 should be recapitalized.

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(5) 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.  The Partnership also farms the orchards it owns and leases.

Management evaluates the performance of each segment on the basis of operating income.  The Partnership accounts for intersegment sales and transfers at cost.  Such intersegment sales and transfers are eliminated in consolidation. The Partnership’s reportable segments are distinct business enterprises that offer different products or services.  Revenues from the owned-orchard segment are subject to nut purchase contracts and tend to vary from year to year due to changes in the prices paid under its various nut contracts.  The farming segment’s revenues are based on farming contracts that generate a farming profit based on a pass through of farming cost plus a fee which is a percentage of farming cost or a fixed amount per acre and tend to be less variable than revenues from the owned-orchard segment.

The following tables summarize each reportable segment’s revenues, operating income (loss), assets and other information as of and for the three and six-month periods ended June 30, 2012 and 2011.  Due to the seasonality of crop patterns and the timing of nut purchase contract fulfillment, interim results are not necessarily indicative of annual performance.

All revenues are from sources within the United States of America.

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(6) DEFERRED FARMING COSTS

Orchard costs (e.g. irrigation, fertilizer, pruning, etc.) related to nuts sold under nut purchase contracts and services provided under farming contracts are expensed to cost of goods sold and cost of services provided based on management’s estimate of the costs incurred to produce macadamia nuts sold during the interim reporting period, with the difference between costs incurred-to-date and costs expensed-to-date reported on the consolidated balance sheet as deferred farming costs.

Deferred farming costs amounted to $3.6 million and $3.7 million at June 30, 2012 and 2011, respectively.

(7) INVENTORY

Inventory of farming supplies amounted to $243,000 and $230,000 at June 30, 2012 and 2011, respectively.  Farming supplies inventory is relieved on an average cost basis to cost of farming expense as used.

Inventory of kernel, ingredients and packaging supplies was recorded at the lower of cost or market, and was valued at $279,000 at June 30, 2012.  There was no kernel and packaging inventory at June 30, 2011.  Kernel and packaging inventory was charged to finished product on an average cost basis as the finished product was manufactured.

In the second quarter, Royal Hawaiian Macadamia Nut, Inc., a subsidiary of the Partnership, commenced production through a co-packer of its “Ono Ono” brand of retail macadamia-based products for sales and distribution in Europe.  Finished goods inventory include the cost of kernel, ingredients, packaging supplies and manufacturing and was valued at $13,000 at June 30, 2012.

(8) GENERAL EXCISE TAXES

The Partnership records Hawaii general excise taxes when goods and services are sold on a gross basis as components of revenues and expenses.  For the three months ended June 30, 2012 and 2011, Hawaii general excise taxes charged or passed on to customers and reflected in revenues and expenses amounted to $6,000 and $4,000, respectively.  For the six months ended June 30, 2012 and 2011, Hawaii general excise taxes charged or passed on to customers and reflected in revenues and expenses amounted to $12,000 and $10,000, respectively.

(9) CREDIT FACILITY - DEBT

On July 12, 2012, the Partnership and American AgCredit, PCA executed the Fifth Amendment to Revolving Loan Promissory Note and Second Amendment to Fourth Amended and Restated Credit Agreement which extends the maturity date of its current $5.0 million revolving credit facility from July 13, 2012 to May 1, 2014.  All other terms and conditions of the revolving credit facility and the term loan under such credit agreement as well as the collateral securing the indebtedness remain unchanged.  Advances under the revolving credit facility bear interest at the base rate of 4% or the prime rate as published in the Wall Street Journal plus 1%, whichever is higher.  The Partnership had $1.5 million and $2.5 million outstanding on the line of credit at June 30, 2012 and 2011, respectively.  At June 30, 2012 and 2011, interest on revolving advances was 4.25% per annum.

In addition to the revolving credit facility, the Partnership has a 10-year $10.5 million term loan with American AgCredit, PCA which was entered into on August 4, 2010.  The term loan matures on July 1, 2020, requires monthly payments over the term and bears fixed interest at 6.5% per annum.  The Partnership had $8.4 million and $9.5 million outstanding on the term loan at June 30, 2012 and 2011, respectively.

The credit agreement with American AgCredit, PCA, contains various financial covenants.  The Partnership was in compliance with all debt covenants at June 30, 2012 and 2011.

The fair value of the line of credit is approximately the carrying value due to the variability of the interest rate and frequency that the interest rate resets.  The 10-year term loan has a fixed rate and has a fair value of approximately $9.1 million compared to a carrying value of $8.4 million as of June 30, 2012.

The estimated fair value of the Partnership’s fixed rate term loan was determined using an estimated market interest rate of 4.25% over a life equal to the remaining maturity.  The Partnership has not considered lender fees in determining the estimated fair value.

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(10) PARTNERS’ CAPITAL

Net income (loss) per Class A Unit is calculated by dividing 100% of Partnership net income (loss) by the average number of Class A Units outstanding for the period.

(11) CASH DISTRIBUTIONS

The credit agreement with American AgCredit, PCA prohibits the declaration and payment of cash distributions without prior approval from the lender. No distributions were declared or paid during the three and six-month periods ended June 30, 2012 or 2011.

(12) PENSION PLAN

The Partnership sponsors a defined benefit pension plan covering employees that are members of a union bargaining unit.  The Partnership’s funding policy is to contribute an amount to the plan sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974.

COMPONENTS OF NET PERIODIC BENEFIT COST

(13) INTERMITTENT SEVERANCE PLAN

The Partnership sponsors a defined intermittent severance benefit plan covering employees that are members of a union bargaining unit and not covered by the defined benefit pension plan.  Payment of the severance benefit is made when covered employees cease employment with the Partnership under certain terms and conditions as defined in the union bargaining agreement.

COMPONENTS OF NET PERIODIC BENEFIT COST

(14) EMPLOYEES

The Partnership has two bargaining agreements with the ILWU Local 142.  These agreements cover all production, maintenance, and agricultural employees of the Ka’u Orchard Division and the Keaau and Mauna Kea Orchard Division.  On June 1, 2011 the Partnership and the ILWU Local 142 agreed to a two-year contract, which is effective June 1, 2011 through May 31, 2013.  The Partnership believes that relations with its employees and the ILWU are good.

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(15) LEGAL PROCEEDINGS

On March 21, 2012, Kaiwiki Orchards, LLC, as the lessor of macadamia orchards consisting of 636 gross acres (326 tree acres) leased to the Partnership, filed a Complaint in the Circuit Court of the Third Circuit, State of Hawaii seeking a declaratory judgment that the Partnership has breached the terms of the lease for failing, inter alia, to exercise “good husbandry” and permitting waste in its agricultural practices on the leased land and that the lease may be terminated by the lessor and seeking damages in an amount to be proven at trial.

The plaintiff has given the Partnership an open ended extension of the time to file a responsive pleading pending the results of settlement discussions between the parties. The Partnership produced approximately 1,000,000 field pounds of macadamia nuts from these leased orchards during 2011.

(16) FIRE DAMAGE

In June and again in July 2012, a wildfire caused widespread damage to agricultural crops in the Ka’u region.  The fire resulted in damage to irrigation pipes and approximately 24 trees acres of the Partnership’s macadamia nut orchards in Ka’u.  The Partnership maintains a comprehensive insurance program to mitigate losses from such events.  The property insurance policy covers loss or damage to the irrigation system and losses associated with business interruption.  This policy has a $25,000 deductible and limits in excess of the estimated loss.  As of June 30, 2012, the Partnership has incurred approximately $10,000 in costs relating to the fire, which were expensed to cost of goods sold in the second quarter 2012.  The irrigation repair could cost as much as $75,000.

The Partnership maintains tree and crop insurance to cover losses relating to its macadamia nut trees and production. The tree insurance policy provides coverage if more than 50% of the trees in designated blocks are destroyed.  The crop insurance policy provides coverage if the production in designated blocks is less than 75% of a ten year moving average.  The full extent of the orchard damage is still being assessed and the loss will be determined as the upcoming production quality and volume is evaluated.

(17) SUBSEQUENT EVENTS

On July 11, 2012, ML Macadamia Orchards, L. P. entered into a nut processing agreement with Buderim Macadamias of Hawaii, LLC, dba MacFarms of Hawaii (“MacFarms”) to process between 1.5 and 7.0 million pounds of wet-in-shell nuts (“WIS”) into kernel for the Partnership during 2013.  The WIS nuts will be available since a nut purchase contract with Mauna Loa Macadamia Nut Corporation covering a portion of the production of the Partnership terminates on December 31, 2012 and therefore the Partnership is no longer required to sell those nuts to Mauna Loa.  Under the agreement with MacFarms, the Partnership will pay MacFarms a processing fee of $1.30 per kernel pound for the first 300,000 pounds of kernel produced and $1.20 per kernel pound for all additional pounds of kernel produced. WIS nuts that are processed into kernel by MacFarms can be used by the Partnership to pursue its strategy of vertical integration. The agreement can be terminated by either party in the event there is a sale of either the Partnership or MacFarms.

On July 23, 2012, Royal Hawaiian Macadamia Nut, Inc. (“Royal”), a wholly-owned subsidiary of the Partnership, entered into a non-exclusive co-packing agreement with Ocean Direct, LLC, dba American Bounty, a California limited liability company (“American”), under which American will manufacture macadamia nut crunch products for Royal.  The Partnership intends to market these products in the U.S. mainland and Hawaii under the brand name “Royal Hawaiian Orchards,” with its launch currently targeted for the fourth quarter of 2012.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Significant Accounting Policies and Estimates

The Partnership prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Certain of our accounting policies, including the estimated lives assigned to our assets, nut pricing under certain nut sales agreements, determination of bad debt, deferred farming costs, asset impairment, goodwill and goodwill impairment, self-insurance reserves, assumptions used to determine employee benefit obligations, and the calculation of our income tax liabilities,

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require that we apply significant judgment in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Our judgments are based on our historical experience, terms of existing contracts, our observation of trends in the industry and crop, information provided by our customers and information available from outside sources, as appropriate. There can be no assurance that the actual results will not differ from our estimates. To provide an understanding of the methodology we apply, our significant accounting policies are discussed where appropriate in this discussion and analysis and in the notes to consolidated financial statements in the 2011 Form 10-K.

Results of Operations

The Partnership’s financial results are principally driven by nut production, which is seasonal and highly contingent upon Hawaii’s climatic conditions, as well as nut prices.  Traditionally, nut production is highest during the third and fourth quarters, with very low production in the first and second quarters.  Nut production in the first half of the year develop from pollination of blossoms and fruit set that occur during April through July-August of the previous year.  Factors, such as cool temperatures to promote flower development, sunlight, adequate moisture and its distribution, determine the length of the flower/pollination/fruit-set season and resulted in increased production in the first and second quarters of 2012.

Nut sales recorded for the three-month period ended June 30, 2012 were $352,000 and includes $292,000 from the sale of 412,000 WIS pounds produced in the second quarter 2012, $11,000 additional revenue recorded for the first quarter 2012 production from the IASCO orchards, $53,000 additional revenue for the nut production from the IASCO orchards in 2011 and a $4,000 decrease due to adjusted WIS pounds for the first quarter.  The additional revenue is the result of the adjusted price per pound of the IASCO nuts due to the final nut price for the crop year 2011-2012 published by the United States Department of Agriculture (“USDA”), which is $0.78 per pound wet-in-shell.

Nut sales recorded for the three-month period ended June 30, 2011 were $164,000 and included $87,000 from the sale of 166,000 WIS pounds produced in the second quarter 2011, $19,000 additional revenue recorded for the first quarter 2011 production from the IASCO orchards, and $58,000 additional revenue for the nut production from the IASCO orchards in 2010, effective August 1, 2010, the date of the Partnership’s acquisition of those orchards.  The additional revenue was the result of the adjusted price per pound of the IASCO nuts due to the USDA final nut price for the crop year 2010-2011 of $0.75 per pound wet-in-shell.

Nut sales for the six-month period ended June 30, 2012 and 2011 were $3.6 million and $2.3 million, respectively. The Partnership’s WIS pounds produced for the six-month period ended June 30, 2012 and 2011 was 5.6 million pounds and 3.7 million pounds, respectively, or an increase of 53%.  WIS pounds refer to the actual wet-in-shell pounds of macadamia nuts. The increase in nut sales in 2012 is mainly attributable to the increase in production and nut sales from the Ka’u orchards which produced 1.8 million more WIS pounds compared to the same period in 2011, resulting in $1.2 million more in nut sales compared with the same period in 2011.  The effects of the drought in 2010 in the Ka’u region adversely impacted nut production in the first half of 2011.  The average price received per WIS pound sold during the three and six-month periods ended June 30, 2012 was $0.71 and $0.63, respectively, compared to the price received per WIS pound sold for the three and six-month periods ended June 30, 2011 of $0.52 and $0.62, respectively, an increase of 37% and 2%, respectively.

For the six-month period ended June 30, 2012, the Partnership incurred a net loss of $805,000 from total revenues of $4.3 million.  For the six-month period ended June 30, 2011, the Partnership had a net income of $115,000 from total revenues of $2.9 million. Net loss per Class A Unit for the six-month period ended June 30, 2012 amounted to ($0.11) and net income per Class A Unit for the six-month period ended June 30, 2011 was $0.02.  The net loss in 2012 is mainly attributable to higher general and administrative expenses. See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, General and Administrative Expenses, for further information on general and administrative expenses. Additionally, the $126,000 in distribution from American AgCredit, PCA, recorded as other income for the first half of 2012 was $453,000 less than other income recorded in the same period in 2011.  The net income in 2011 is mainly attributable to the crop insurance claim in the amount of $534,000 and $45,000 in distributions from American AgCredit, PCA, offset by higher interest expense.

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Net cash flow per Class A Unit for the six-month periods ended June 30, 2012 and 2011, as defined in the Partnership Agreement, amounted to ($0.10) and $0.02, respectively.  The negative net cash flow result in 2012 is attributable to the net loss.  The net cash flow result in 2011 is attributable to the net income.

The Partnership incurred a net loss of $797,000 for the second quarter of 2012 from revenues of $745,000.  Net income for the second quarter of 2011 was $66,000 from revenues of $384,000.  Net income (loss) per Class A Unit for the second quarter of 2012 and 2011 amounted to ($0.11) and $0.01, respectively.  Net cash flow per Class A Unit for the second quarters of 2012 and 2011, as defined in the Partnership Agreement was ($0.12) and ($0.01), respectively.  The net loss for the second quarter 2012 compared to the same period in 2011 was mainly attributable to higher general and administrative expenses.  See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, General and Administrative Expenses, for further information on general and administrative expenses.  The net income for the second quarter 2011 was mainly attributable to the crop insurance claim in the amount of $534,000 offset by higher interest expense.

Owned-orchard Segment

The Partnership currently sells all of the macadamia nuts to Mauna Loa Macadamia Nut Corporation (“Mauna Loa”) under various nut purchase contracts.  Effective August 1, 2010, in connection with the purchase of the real property, orchards and farming assets from IASCO, the Partnership acquired two lease agreements and one license agreement under which all macadamia nuts produced in the acquired orchards must be sold to and are required to be purchased by Mauna Loa.  The agreements are long term agreements which expire at various dates through 2080.  Under these agreements, the Partnership is paid based on wet-in-shell pounds, at a price which is derived annually from a formula which factors in the Mauna Loa wholesale price of the highest year-to-date volume fancy and choice products sold in Hawaii, and the USDA reported sales of WIS Hawaii macadamia nuts.  To the extent that the Final USDA Report for the year contains a price or moisture that varies from that used in the formula price calculations for nuts delivered during the year, then an adjustment is made between the parties. The final nut price published by the USDA, for the crop year ended June 30, 2012, is $0.78 per WIS pound.  In the second quarter 2012, the Partnership recorded additional nut revenue of $64,000 from the IASCO orchards, including $53,000 on the production of 4.7 million WIS pounds from the IASCO orchards recorded in 2011 and $11,000 on 1.1 million WIS pounds produced in the first quarter 2012. The average nut price for nuts produced from the IASCO orchards for the three and six-month periods ended June 30, 2012 was $0.82 and $0.75 per pound, respectively. The average nut price for nuts produced from the IASCO orchards for the three and six-month periods ended June 30, 2011 was $0.67 and $0.69 per pound, respectively.

On January 31, 2011, the Partnership entered into three nut purchase contracts with Mauna Loa, each effective January 1, 2012.  These contracts replace the addendum to the 2006 nut purchase contract executed in December 2009, which expired on December 31, 2011. The new contracts are identical except for the terms, which are one, two and three years, respectively.  Each contract requires that Mauna Loa purchase and the Partnership sell 1/3 of all macadamia nut production of the Partnership (or approximately 6.5 million pounds of wet-in-shell nuts annually) excluding production from the IASCO orchards. These nut purchase contracts are based on wet-in-shell production adjusted to moisture at 20% (“WIS”) and saleable kernel/dry-in-shell of 30% (“SK/DIS”).  Under these contracts, the Partnership is paid $0.77 based on the adjusted pounds, WIS @ 20% SK/DIS @ 30%.  To the extent the Partnership delivers unhusked nuts, a $0.055 per wet-in-shell pound husking charge will be assessed by Mauna Loa. The Partnership has notified Mauna Loa that it will not renew the nut purchase contract expiring on December 31, 2012.  Instead, the Partnership intends to have the related production processed into kernel in 2013 to be marketed by the Partnership in branded and bulk forms. Under the three short-term contracts, it is the Partnership’s position that Mauna Loa is obligated, at the Partnership’s option, to use commercially reasonable efforts to process the Partnership’s available production covered by such contract at a fee equal to Mauna Loa’s cost for a period of two years after a contract is not renewed.  Mauna Loa has advised the Partnership that they believe they are not required to process the Partnership’s nuts at the expiration of the nut purchase agreements and have indicated that they do not intend to do so.  The Partnership has reserved its rights against Mauna Loa and is considering what further action it may pursue regarding this dispute.

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In order to mitigate any damages and to provide for the processing of nuts covered by the contract that expires on December 31, 2012, on July 11, 2012, the Partnership entered into a nut processing agreement with MacFarms of Hawaii (“MacFarms”), under which MacFarms will process between 1.5 and 7.0 million pounds of WIS nuts into kernel for the Partnership during 2013.  Under the Agreement with MacFarms, the Partnership will pay MacFarms a processing fee of $1.30 per kernel pound for the first 300,000 pounds of kernel produced and $1.20 per kernel pound for all additional pounds of kernel produced.  MacFarms will provide processing services only with the Partnership retaining ownership of the nuts for future sale.

For the three and six-month periods ended June 30, 2012 and 2011, nut production, nut prices and nut revenues were as follows: