ROYAL HAWAIIAN ORCHARDS, L.P. - FORM 10-Q

Attached files

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EX-32.1 - EXHIBIT 32.1 - ROYAL HAWAIIAN ORCHARDS, L.P.	ex_100148.htm
EX-31.1 - EXHIBIT 31.1 - ROYAL HAWAIIAN ORCHARDS, L.P.	ex_100149.htm
EX-11.1 - EXHIBIT 11.1 - ROYAL HAWAIIAN ORCHARDS, L.P.	ex_100147.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

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

For the quarterly period ended September 30, 2017

☐

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

Commission File Number 1-9145

ROYAL HAWAIIAN 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.)

688 Kinoole Street, Suite 121, Hilo, Hawaii	96720
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (808) 747-8471

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 12 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its 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 ☒ No ☐

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

Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer ☐	Smaller reporting company ☒

	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 10, 2017, the registrant had 22,200,000 Class A Units issued and outstanding.

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ROYAL HAWAIIAN ORCHARDS, L.P.

INDEX

PART I – Financial Information			2

	Item 1.	Financial Statements	2

	Condensed Consolidated Balance Sheets		2

	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited)		3

	Condensed Consolidated Statements of Partners’ Capital (unaudited)		4

	Condensed Consolidated Statements of Cash Flows (unaudited)		5

	Notes to Condensed Consolidated Financial Statements (unaudited)		6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

	Item 4.	Controls and Procedures	28

PART II – Other Information			29

	Item 6.	Exhibits	29

SIGNATURES			30

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PART I – Financial Information

Item 1. Financial Statements

Royal Hawaiian Orchards, L.P.

Condensed Consolidated Balance Sheets

(in thousands)

	September 30,			December 31,
	2017			2016
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	10,777		$	1,132
Accounts receivable, net		2,817			3,215
Inventories, net		7,610			10,293
Other current assets		393			418
Total current assets		21,597			15,058
Land, orchards and equipment, net		47,478			48,490
Other non-current assets		227			308
Total assets	$	69,302		$	63,856

Liabilities and partners’ capital
Current liabilities
Current portion of long-term debt, net	$	988		$	13,155
Accounts payable		828			781
Accrued payroll and benefits		1,211			760
Other current liabilities		83			208
Total current liabilities		3,110			14,904
Non-current benefits		654			732
Long-term debt, net of current portion		8,433			10,164
Deferred income tax liability		1,014			1,014
Total liabilities		13,211			26,814

Commitments and contingencies

Partners’ capital
General and limited partners		56,319			37,270
Accumulated other comprehensive loss		(228	)		(228	)
Total partners’ capital		56,091			37,042
Total liabilities and partners’ capital	$	69,302		$	63,856

See accompanying notes to condensed consolidated financial statements.

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Royal Hawaiian Orchards, L. P.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited)

(in thousands, except per unit data)

	Three months						Nine months
	ended September 30,						ended September 30,
	2017			2016			2017			2016
Revenues
Orchards revenue	$	2,168		$	727		$	5,357		$	3,398
Branded product sales, net		3,841			6,839			16,575			16,022
Total revenues		6,009			7,566			21,932			19,420
Cost of revenues
Cost of orchards revenue		1,998			774			4,775			2,655
Cost of branded product sales		2,943			5,000			13,707			12,108
Total cost of revenues		4,941			5,774			18,482			14,763
Gross profit		1,068			1,792			3,450			4,657
General and administrative expenses		611			720			2,330			2,084
Selling expenses		452			947			1,467			3,069
Operating income (loss)		5			125			(347	)		(496	)
Net loss on sale of property and equipment		-			-			(10	)		(4	)
Other income		290			189			261			374
Interest expense		(121	)		(313	)		(696	)		(898	)
Net income (loss) before income taxes		174			1			(792	)		(1,024	)
Income tax expense		13			18			15			119
Net income (loss)		161			(17	)		(807	)		(1,143	)

Other comprehensive income (loss), net of tax
Pension costs		-			1			-			5
Other comprehensive income, net of tax		-			1			-			5
Comprehensive income (loss)	$	161		$	(16	)	$	(807	)	$	(1,138	)


Net income (loss) per Class A Unit	$	0.01		$	(0.00	)	$	(0.05	)	$	(0.10	)

Cash distributions per Class A Unit	$	-		$	-		$	-		$	-

Weighted average Class A Units outstanding		22,200			11,100			16,711			11,100

See accompanying notes to condensed consolidated financial statements.

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Royal Hawaiian Orchards, L.P.

Condensed Consolidated Statements of Partners’ Capital (unaudited)

(in thousands)

	Three months ended						Nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
Partners’ capital at beginning of period:
General and limited partners	$	56,158		$	38,140		$	37,270		$	39,042
Accumulated other comprehensive loss		(228	)		(317	)		(228	)		(321	)
		55,930			37,823			37,042			38,721

Proceeds from sale of general partner interest		-			-			-			224
		-			-			-			224
Partner's capital issued for cash:
Class A limited partner units (11,100,000 units) net of fees of $214,000.		-			-			19,655			-
General partner interest		-			-			201			-
		-			-			19,856			-

Allocation of net income (loss):
General and limited partners		161			(17	)		(807	)		(1,143	)
		161			(17	)		(807	)		(1,143	)

Accumulated other comprehensive income
Change in pension and severance		-			1			-			5
		-			1			-			5

Partners' capital at end of period:
General and limited partners		56,319			38,123			56,319			38,123
Accumulated other comprehensive loss		(228	)		(316	)		(228	)		(316	)
Total partners' capital	$	56,091		$	37,807		$	56,091		$	37,807

See accompanying notes to condensed consolidated financial statements.

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Royal Hawaiian Orchards, L.P.

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Nine Months Ended
	September 30,
	2017			2016


Cash flows from operating activities:
Net loss	$	(807	)	$	(1,143	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,351			2,307
Amortization of debt issance costs		47			31
Net loss on sale of property and equipment		10			4
Change in pension and severance		-			6
Changes in assets and liabilities:
Accounts receivable		398			398
Inventories		2,683			(357	)
Other current assets		25			(535	)
Non-current assets		-			-
Accounts payable		47			(573	)
Accrued payroll and benefits		451			147
Other current liabilities		(205	)		(335	)
Total adjustments		5,807			1,093
Net cash provided by (used in) operating activities		5,000			(50	)

Cash flows from investing activities:
Capital expenditures		(1,266	)		(167	)
Net cash used in investing activities		(1,266	)		(167	)

Cash flows from financing activities:
Proceeds from sale of general partner interest		-			224
Proceeds from rights offering		19,869			-
Payment of rights offering fees		(214	)
Proceeds from issuance of general partner interest		201			-
Proceeds from drawings on line of credit		400			4,000
Repayment of line of credit		(6,750	)		(2,000	)
Repayment of long-term debt		(7,595	)		(1,652	)
Net cash provided by financing activities		5,911			572

Net increase in cash		9,645			355
Cash and cash equivalents at beginning of period		1,132			404
Cash and cash equivalents at end of period	$	10,777		$	759

Supplemental disclosure of cash flow information:
Cash paid for interest for the periods ended September 30, 2017 and 2016 was $827,000 and $885,000, respectively.
Cash paid for income taxes for the periods ended September 30, 2017 and 2016 was $11,000 and $94,000, respectively.

See accompanying notes to condensed consolidated financial statements.

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ROYAL HAWAIIAN ORCHARDS, L.P.

Notes to Condensed Consolidated Financial Statements (unaudited)

(1) BASIS OF PRESENTATION

Royal Hawaiian Orchards, L.P. (the “Partnership”) is a master limited partnership organized in 1986 under the laws of the State of Delaware. The Partnership is managed by its sole general partner, Royal Hawaiian Resources, Inc. (the “Managing Partner” or “RHR”). The accompanying unaudited condensed consolidated financial statements of the Partnership and its subsidiaries RHR (through June 2016), Royal Hawaiian Services, LLC (“RHS”) and Royal Hawaiian Macadamia Nut, Inc. (“Royal”), include all adjustments (consisting only of those of a normal recurring nature) that, in the opinion of management, are necessary to present fairly their financial position as of September 30, 2017, and December 31, 2016, the results of operations and changes in partners’ capital for the three and nine months ended September 30, 2017 and 2016, and the changes in cash flows for the nine months ended September 30, 2017 and 2016. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results expected for the full year or for any future period.

The December 31, 2016 condensed consolidated balance sheet data in this report was derived from audited consolidated financial statements contained in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Annual Report”), but does not include all disclosures required by accounting principles generally accepted in the United States of America. The 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 (“SEC”) in the 2016 Annual Report.

The Partnership’s business has historically been highly seasonal, reflecting the general pattern of peak harvest and sales of macadamia nuts during the fourth quarter. Commencing in January 2015, the Partnership began inventorying more than 70% of its harvest for use in its branded products and sale as bulk kernel. The inventoried nuts are sold throughout the year which has reduced seasonality of revenues but increased the inventory balances and costs associated with maintaining such balances.

(2) CONSOLIDATION

The consolidated financial statements include the accounts of the Partnership and its subsidiaries. All significant intercompany balances and transactions have been eliminated. On June 30, 2016, the Partnership sold all of the shares of RHR, its general partner, in a related party transaction, so RHR is included in the consolidated financial statements through June 30, 2016, but not for subsequent periods.

(3) NEW ACCOUNTING STANDARDS

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ASU 2016-13, “Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Partnership is currently assessing the provisions of the standard and the impact of the adoption on its consolidated financial statements.

In February 2016, FASB issued ASU 2016-02, “Leases (Topic 842).” The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Partnership is currently assessing the provisions of the standard and the impact of the adoption on its consolidated financial statements.

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In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740),” to simplify income tax accounting. The update requires that all deferred tax assets and liabilities be classified as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. The Partnership adopted the provisions of ASU 2015-17 in the first quarter of 2017, and the update did not have a material impact on the Partnership’s financial condition, results of operations or cash flows.

In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Partnership adopted the provisions of ASU 2015-11 in the first quarter of 2017, and the new accounting standard did not have a material impact on the Partnership’s financial condition, results of operations or cash flows.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The new guidance provides new criteria for recognizing revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the Partnership expects to be entitled in exchange for those goods or services. The new guidance requires expanded disclosures to provide greater insight into both revenue that has been recognized and revenue that is expected to be recognized in the future from existing contracts. Quantitative and qualitative information will be provided about the significant judgments and changes in those judgments that management made to determine the revenue which is recorded. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.” This update deferred the effective date for implementation of this standard by one year. ASU 2014-09 is now effective for annual and interim periods beginning after December 15, 2017, including interim periods within that period. The Partnership will adopt this guidance in the first quarter of 2018 using the modified retrospective transition method and does not anticipate a significant impact on its financial statements, except for broader disclosure of its revenue recognition in its Notes to Consolidated Financial Statements.

(4) SEGMENT INFORMATION

The Partnership’s two reportable segments, orchards and branded products, are distinct business enterprises that have different products and services, customers and regulatory environments. Both segments are organized on the basis of revenues and assets. The orchards segment derives its revenues from the sale of wet-in-shell macadamia nuts, sale of dry-in-shell macadamia nuts, sale of macadamia nut kernel to Royal, revenues from contract farming, and orchard lease income. The branded products segment derives its revenues from the sale of branded macadamia nut products and bulk macadamia nut kernel by Royal.

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Management evaluates the performance of each segment on the basis of operating income and revenue growth. The Partnership accounts for intersegment sales and transfers at a predetermined rate that includes cost plus a margin, and such transactions are eliminated in consolidation. The following tables summarize each reportable segment’s revenues, operating income or loss, assets and other information as of and for the three and nine months ended September 30, 2017 and 2016. Due to the seasonality of crop patterns and the timing of nut purchase contract fulfillment, interim results are not necessarily indicative of annual performance.

	Three Months Ended September 30, 2017
	(in thousands)

	Orchards			Branded Products			Eliminations/ Reconciliation			Total
Revenues⁽¹⁾
External customers	$	2,168		$	3,841	⁽²⁾	$	-		$	6,009
Intersegment revenue		2,836			-			(2,836	)		-
Total revenue	$	5,004		$	3,841		$	(2,836	)	$	6,009


Operating (loss) income	$	(104	)	$	70		$	39		$	5

Depreciation and amortization	$	772		$	24		$	-		$	796

Capital expenditures	$	747		$	-		$	-		$	747

Segment assets	$	78,165		$	4,689		$	(13,552	)	$	69,302

	Three Months Ended September 30, 2016
	(in thousands)

	Orchards			Branded Products			Eliminations/ Reconciliation			Total
Revenues⁽¹⁾
External customers	$	727		$	6,839	⁽²⁾	$	-		$	7,566
Intersegment revenue		389			-			(389	)		-
Total revenue	$	1,116		$	6,839		$	(389	)	$	7,566


Operating (loss) income	$	(518	)	$	(150	)	$	793		$	125

Depreciation and amortization	$	745		$	23		$	-		$	768

Capital expenditures	$	31		$	-		$	-		$	31


Segment assets	$	73,439		$	8,257		$	(17,669	)	$	64,027

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	Nine Months Ended September 30, 2017
	(in thousands)

	Orchards			Branded Products			Eliminations/ Reconciliation			Total
Revenues⁽¹⁾
External customers	$	5,357		$	16,575	⁽²⁾	$	-		$	21,932
Intersegment revenue		11,572			-			(11,572	)		-
Total revenue	$	16,929		$	16,575		$	(11,572	)	$	21,932


Operating (loss) income	$	(655	)	$	407		$	(99	)	$	(347	)

Depreciation and amortization	$	2,285		$	66		$	-		$	2,351

Capital expenditures	$	1,261		$	5		$	-		$	1,266


Segment assets	$	78,165		$	4,689		$	(13,552	)	$	69,302

	Nine Months Ended September 30, 2016
	(in thousands)

	Orchards		Branded Products			Eliminations/ Reconciliation			Total
Revenues⁽¹⁾
External customers	$	3,398	$	16,022	⁽²⁾	$	-		$	19,420
Intersegment revenue		10,658		-			(10,658	)		-
Total revenue	$	14,056	$	16,022		$	(10,658	)	$	19,420


Operating income (loss)	$	1,541	$	(1,558	)	$	(479	)	$	(496	)

Depreciation and amortization	$	2,239	$	68		$	-		$	2,307

Capital expenditures	$	108	$	59		$	-		$	167


Segment assets	$	73,439	$	8,257		$	(17,669	)	$	64,027

(1) All revenues are from sources within the United States of America, Canada and Asia.

(2) Branded products revenue is reported net of slotting fees, trade discounts and promotional allowances.

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(5) INVENTORIES

Inventories consisted of the following (in thousands):

	September 30, 2017								December 31, 2016
	Orchard		Branded Product			Total			Orchard		Branded Product			Total

Wet-in-shell	$	360	$	-		$	360		$	919	$	-		$	919
Dry-in-shell		3,143		-			3,143			4,527		-			4,527
Macadamia nut kernel		-		1,433			1,433			-		2,362			2,362
Finished goods		-		1,391			1,391			-		1,902			1,902
Farming supplies		114		-			114			135		-			135
Packaging, supplies and ingredients		-		510			510			-		584			584
Allowance for shrink and obsolescence		-		(77	)		(77	)		-		(136	)		(136	)
Total inventory, net	$	3,617	$	3,257		$	6,874		$	5,581	$	4,712		$	10,293
Deferred farming cost	$	736	$	-		$	736		$	-	$	-		$	-
Total inventory and deferred farming costs, net	$	4,353	$	3,257		$	7,610		$	5,581	$	4,712		$	10,293

Orchard costs (e.g., irrigation, fertilizer, pruning and depreciation) related to nuts sold under nut purchase contracts and services provided under farming contracts were expensed to cost of revenues based on management’s estimate of the costs expected to be incurred to produce macadamia nuts sold during the interim reporting period, with the difference between costs incurred-to-date and costs expensed-to-date included in inventory as deferred farming costs. Deferred farming costs historically accumulate during the first and second quarter of the year and are expensed or added to inventory over the remainder of the year. At December 31, 2016, all farming costs not expensed to cost of goods sold were allocated to inventory.

(6) LAND, ORCHARDS AND EQUIPMENT

Land, orchards and equipment, stated at cost, consisted of the following (in thousands):

	September 30,			December 31,
	2017			2016
Land	$	10,808		$	10,745
Improvements		2,440			2,016
Machinery and equipment		11,911			11,891
Irrigation well and equipment		2,613			2,615
Producing orchards		76,073			76,073
Construction work-in-progress		642			-
Land, orchards and equipment (gross)		104,487			103,340
Less accumulated depreciation and amortization		(57,009	)		(54,850	)
Land, orchards and equipment (net)	$	47,478		$	48,490

(7) INCOME TAXES

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 as a corporation, as allowed by the Taxpayer Relief Act of 1997. This tax is calculated at 3.5% on partnership gross profit.

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Royal is subject to taxation as a C corporation at the current federal tax rate of 35% and a blended state tax rate of 6.9% on the corporation’s taxable income (loss). As a result of the cumulative tax losses of Royal, the balance of the Partnership’s deferred tax asset at September 30, 2017, was approximately $3.5 million, against which the Partnership has recorded a valuation allowance equal to 100% of the deferred tax asset due to the uncertainty regarding future realization of Royal’s net operating loss carry-forwards.

(8) DEBT

As of the indicated dates, the Partnership had the following long-term debt outstanding (in thousands):

	September 30,			December 31,
	2017			2016
Long-Term Debt
Revolving Credit Facility (due 2020)⁽¹⁾	$	1,800		$	8,150
2015 Bridge Loan		-			2,835
2010 Term Loan (due 2020)		-			3,762
2015 6-Year Term Loan (due 2021)		3,062			3,792
2015 20-Year Term Loan (due 2035)		4,673			4,936
Other		-			7
Total principal amount of long-term debt		9,535			23,482
Less: unamortized debt issuance costs		(114	)		(163	)
Total long-term debt, net of unamortized loan fees		9,421			23,319
Less: current portion of long-term debt, net		(988	)		(13,155	)
Long-Term Debt, net of associated unamortized loan fees	$	8,433		$	10,164

________________________

(1)

On July 13, 2017, the maturity date was extended to July 15, 2020.

The following table summarizes the Partnership’s principal maturities of its debt (in thousands):

	Payments Due by Period
	Total		2017⁽¹⁾		2018		2019		2020		2021		Remaining
Debt	$	9,535	$	146	$	1,138	$	1,138	$	2,938	$	555	$	3,620

_________________________

(1) For remainder of 2017

Credit Agreement with AgCredit PCA

On March 27, 2015, the Partnership and each of its wholly-owned subsidiaries, RHR (through June 2016), Royal and RHS, as the borrowers, and American AgCredit, PCA (“AgCredit PCA”), as lender and as agent for such other persons who may be added as lenders from time to time, entered into an Amended and Restated Credit Agreement that amended and restated the terms of the Partnership’s outstanding borrowings with AgCredit PCA (as it may be further amended, restated, modified or supplemented from time to time, the “PCA Credit Agreement”).

On July 13, 2017, the Partnership, Royal and RHS entered into the Seventh Amendment to Amended and Restated Credit Agreement (the “Seventh PCA Credit Agreement Amendment”) with AgCredit PCA. As a result, the PCA Credit Agreement was amended to (i) delete references to certain loans that were paid in full in May 2017, (ii) extend the maturity date of the Revolving Credit Facility (as defined below) by three years, and (iii) revise certain financial covenants in connection with the three-year extension, all of which was described in greater detail in a Current Report on Form 8-K filed by the Company on July 17, 2017, and as a subsequent event in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.

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Set forth below is a summary of the borrowings provided for by the PCA Credit Agreement:

Revolving Credit Facility. The PCA Credit Agreement provides for a $9 million revolving credit facility (the “Revolving Credit Facility”). As a result of the Seventh PCA Credit Agreement Amendment, the maturity date was extended from July 15, 2017 to July 15, 2020. Advances under the Revolving Credit Facility bear interest based on an election made by the Partnership at the time of the advance at either LIBOR rates or at the base rate of the higher of (a) one-half of one percent (0.50%) per annum in excess of the latest Federal Funds Rate (as defined in the PCA Credit Agreement); and (b) the prime rate of interest in effect for such day as published from time to time in The Wall Street Journal. The Partnership is required to pay a fee of 0.375% per annum on the daily unused portion of the Revolving Credit Facility. The interest rate on the Revolving Credit Facility at September 30, 2017, was 5.25% per annum.

As of September 30, 2017 and December 31, 2016, the outstanding balance on the Revolving Credit Facility was $1.8 million and $8.15 million, respectively.

2010 Term Loan. The PCA Credit Agreement governed a 2010 term loan of $10.5 million, which was scheduled to mature on July 1, 2020 (the “2010 Term Loan”). The 2010 Term Loan bore interest at a fixed rate of 6.5% per annum until March 27, 2015. Since that date the interest rate has been 6.0% per annum. The 2010 Term Loan was repaid in full in May 2017. As of December 31, 2016, the outstanding balance on the 2010 Term Loan was $3.762 million.

2015 6-Year Term Loan. The PCA Credit Agreement provides for a six-year term loan of $5.25 million, which matures on March 27, 2021 (the “2015 6-Year Term Loan”). The 2015 6-Year Term Loan bears interest at a fixed rate of 4.01% per annum. The Partnership used the proceeds of the 2015 6-Year Term Loan to replace working capital used to construct Phase 1 of the Partnership’s drying plant and to finance the construction of Phase 2 of its drying plant. As of September 30, 2017 and December 31, 2016, the outstanding balance on the 2015 6-Year Term Loan was $3.062 million and $3.792 million, respectively.

2015 Bridge Loan. In connection with the June 2015 acquisition by the Partnership of 736 acres of land, including improvements, 641 acres of macadamia nut trees, and windbreak trees (the “Becker Property Acquisition”), the PCA Credit Agreement was amended to provide for a bridge loan of $2.835 million (the “2015 Bridge Loan”), which was to mature on the earlier of (a) July 15, 2017, or (b) the date that the Partnership or any of its wholly-owned subsidiaries receives net proceeds from any issuance of equity, subject to certain exceptions. The 2015 Bridge Loan originally bore interest at the base rate plus three quarters of one percent (0.75%) where the base rate (“Base Rate”) is the higher of (i) one half of one percent (0.5%) per annum in excess of the latest Federal Funds Rate, and (ii) the prime rate of interest in effect for such day as published from time to time in The Wall Street Journal. As of September 1, 2016, the interest rate on the 2015 Bridge Loan increased to the Base Rate plus 1.00%. As of April 15, 2017, the interest rate on the 2015 Bridge Loan increased to the Base Rate plus 1.25%. The proceeds of the 2015 Bridge Loan were used by the Partnership on June 16, 2015, for the Becker Property Acquisition. The 2015 Bridge Loan was repaid in full in May 2017.

The borrowings pursuant to the PCA Credit Agreement are collateralized by all of the personal and real property assets of the Borrowers, including a second priority interest in the properties acquired in the Becker Property Acquisition. The PCA Credit Agreement contains certain restrictions associated with partner distributions, further indebtedness, sales of assets, and maintenance of certain financial covenants.

Credit Agreement with AgCredit FLCA

Also in connection with the Becker Property Acquisition, the Partnership entered into a Credit Agreement, effective June 15, 2015 (as it may be amended, restated, modified or supplemented from time to time, the “FLCA Credit Agreement”), with American AgCredit, FLCA (“AgCredit FLCA”), providing for a $5.265 million 20-year term loan that matures on July 1, 2035 (“2015 20-Year Term Loan”). The 2015 20-Year Term Loan bears interest at a fixed rate of 5.29% per annum and requires quarterly payments, with fixed principal reductions, over the term. The FLCA Credit Agreement requires the maintenance of certain financial covenants, including a covenant requiring the Total Indebtedness to Consolidated EBITDA Ratio (as defined in the FLCA Credit Agreement) not to exceed 4.0 to 1.0 as of the last day of each calendar quarter commencing with the calendar quarter ending September 30, 2017. The Partnership used the proceeds of the 2015 20-Year Term Loan for the Becker Property Acquisition. The 2015 20-Year Term Loan is secured by a mortgage on the properties acquired in the Becker Property Acquisition. As of September 30, 2017 and December 31, 2016, the outstanding balance on the 2015 20-Year Term Loan was $4.673 million and $4.936 million, respectively.

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(9) FAIR VALUE MEASUREMENTS

Fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Accounting guidance requires disclosures about how fair value is determined for assets and liabilities and establishes a hierarchy by which these assets and liabilities must be grouped based on the types of inputs in measuring fair value as follows:

Level 1:

Quoted prices in active markets for identical assets or liabilities;

Level 2:

Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or

Level 3:

Unobservable inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.

There were no transfers between levels, and the Company consistently applied the valuation techniques discussed below in all periods presented.

Level 3 Liabilities – Debt

The inputs used in determining the fair value of the bridge and term loans and Revolving Credit Facility are classified as Level 3 within the fair value measurement hierarchy.

The carrying value of the Revolving Credit Facility approximates its fair value due to the variability of the interest rate and frequency that the interest rate resets on the line of credit.

The estimated fair value of the Partnership’s bridge loan and term loans was determined using a discounted cash flow model with similar terms and remaining maturities to that of the current financial instruments. The Partnership has not considered lender fees in determining the estimated fair value.

The estimated fair values of the Partnership’s debt instruments are as follows (in thousands):

	September 30,				December 31,
	2017				2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt	$	7,735	$	7,718	$	15,332	$	15,123
Revolving credit facility		1,800		1,800		8,150		8,150
	$	9,535	$	9,518	$	23,482	$	23,273

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(10) PARTNERS’ CAPITAL

Net losses are allocated 1% to the general partner and 99% to the holders of the Class A Units in proportion to the number of Class A Units held.

The Partnership successfully concluded its rights offering on May 9, 2017. The rights offering allowed existing unitholders of the Partnership to purchase an aggregate of 11.1 million Class A Units at $1.79 per Unit. The rights offering was fully subscribed and raised gross proceeds of approximately $19.869 million. The issuance of the Class A Units purchased upon exercise of the rights occurred on May 15, 2017, after which the Partnership had 22.2 million Class A Units outstanding. In conjunction with the closing of the rights offering, the Managing Partner made a $201,000 capital contribution to the Partnership to maintain its 1% ownership interest as required by the Partnership Agreement.

(11) PENSION PLAN

The Partnership sponsors a defined benefit pension plan covering employees who 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.

The components of net periodic pension cost consisted of the following (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Service cost	$	15		$	16		$	46		$	49
Interest cost		18			17			54			50
Expected return on plan assets		(18	)		(16	)		(53	)		(49	)
Amortization of net actuarial loss and prior service cost		-			1			-			5
Net periodic pension cost	$	15		$	18		$	47		$	55

(12) INTERMITTENT SEVERANCE PLAN

The Partnership sponsors a defined intermittent severance benefit plan covering employees who 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.

The components of net periodic intermittent severance cost consisted of the following (in thousands):

	Intermittent Severance Plan Cost
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Service cost	$	4	$	4	$	12	$	12
Interest Cost		3		4		10		10
Net periodic intermittent severance cost	$	7	$	8	$	22	$	22

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(13) COMMITMENTS AND CONTINGENCIES

The Partnership is involved in various commercial claims, litigation and other legal proceedings that arise in the ordinary course of its business. The Partnership assesses these claims in an effort to determine the degree of probability and loss for potential accrual in its financial statements. In accordance with ASC 450, “Contingencies,” an accrual is recorded for a loss contingency when its occurrence is probable and damages are reasonably estimable based on the anticipated most likely outcome or the minimum amount within a range of possible outcomes. Because legal proceedings are inherently unpredictable, and unfavorable resolutions can occur, assessing contingencies is highly subjective and requires judgments about uncertain future events. When evaluating contingencies, the Partnership may be unable to provide a meaningful estimate of loss or recovery due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, the ongoing discovery and/or development of information important to the matter.

Edmund C. Olson, as Trustee of The Edmund C. Olson Trust No. 2 vs. Royal Hawaiian Orchards, L.P. On February 14, 2017, the Partnership entered into a Definitive Terms of Settlement Agreement (the “Settlement Agreement”) with Edmund C. Olson as Trustee for the EDMUND C. OLSON TRUST No. 2 dated August 21, 1985 (the “Olson Trust”). The Settlement Agreement settles the lawsuit filed by the Olson Trust against the Partnership on January 22, 2015, seeking a declaratory judgment that the Partnership had breached the terms of the leases for the Greenshoe I Orchard and the Greenshoe II Orchard, on which 609 tree acres of macadamia nut orchards are situated. Pursuant to the settlement, each of the parties has released all claims against the other related to the lawsuit and the leases, other than claims related to enforcing the Settlement Agreement. The lawsuit was dismissed with prejudice on February 15, 2017, pursuant to a joint stipulation of dismissal. The settlement involves the termination of certain leases and the exchange of certain land and trees by the parties. The parties are continuing to work on the legal partition and transfer of ownership of the properties, but have transitioned the operating activities so that each party is responsible, effective as of July 1, 2017, for the operations of and receive the benefits from the orchards that are being transferred to it under the Settlement Agreement. For additional details of the terms of the Settlement Agreement, see Note 16 – Subsequent Events in Part II, Item 8 of the 2016 Annual Report.

The settlement will be reflected in the financial statements beginning in the quarter when the exchange of land and orchards has been completed. The Partnership is currently evaluating the net impact of this transaction.

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

The following discussion and analysis of our financial condition, results of operations, and liquidity and capital resources should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto and the financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2016 (“2016 Annual Report”). This discussion includes forward-looking statements that are subject to risks, uncertainties and other factors that could cause our actual results for this fiscal year and periods that follow to differ materially from those contemplated by these forward-looking statements. Factors that could cause or contribute to such differences include those identified below under the heading “Disclosure Regarding Forward-Looking Statements” and those described in Part I, Item 1A – Risk Factors in our 2016 Annual Report on Form 10-K.

Overview

Royal Hawaiian Orchards, L.P. (the “Partnership”) is a producer, marketer and distributor of high-quality macadamia nuts and nut-based products. We are the largest macadamia nut farmer in the State of Hawaii, farming approximately 5,010 tree acres of orchards that we own or lease in two locations on the island of Hawaii, including 641 tree acres that we own and lease to another party. We also farm approximately 433 tree acres of macadamia orchards on the island of Hawaii for other orchard owners.

The Partnership was formed in 1986 as a master limited partnership. In 2012, we established a branded products company to manufacture and sell a line of macadamia snacks under the brand name ROYAL HAWAIIAN ORCHARDS®.

Our macadamia snacks contain no artificial ingredients, contain no genetically modified organisms, are gluten-free, and have no sulfites. We sell our products to national, regional and independent grocery and drug store chains, as well as mass merchandisers, club stores and other retail channels that target consumers with healthy eating habits and disposable income necessary to afford premium products.

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Our Operations

We have two business segments: orchards and branded products. The orchards segment includes our orchard, farming and processing operations. The branded products segment includes the development, manufacture and sale of branded products and the sale of processed kernel.

Our orchards segment derives its revenues from the sale of wet-in-shell (“WIS”) macadamia nuts grown in orchards we own or lease, the sale of dry-in-shell (“DIS”) macadamia nuts, the sale of macadamia nut kernel to our wholly-owned subsidiary Royal Hawaiian Macadamia Nut, Inc. (“Royal”), revenues from the farming of macadamia orchards owned by other growers and lease income. Our financial results are principally driven by nut production, which is seasonal and highly contingent upon Hawaii’s climatic conditions and nut prices. The macadamia crop year in Hawaii runs from July 1 through June 30, with nuts generally being harvested from August through April. Nut production is generally highest during the third and fourth quarters of the calendar year, with very low production in the first quarter and little or no production in the second quarter. Nut production in the first half of the year is the result of pollination and nut-set that occurs during April through July or 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/nut-set season.

Our branded products segment, the result of our vertical integration efforts, derives its revenues from the sale of branded macadamia nut products and bulk macadamia nuts. For sales of branded macadamia nut products, substantial advertising and promotional expenditures are required to introduce a new product or maintain or improve a brand’s market position. Promotional allowances, such as slotting fees, are netted against our revenues; therefore, an increase in promotional allowances without a resulting increase in sales may decrease our revenues. Sales of bulk macadamia nut are dependent on the overall world market for macadamia nuts. Our emphasis on selling branded macadamia nut products versus selling bulk macadamia nuts is adjusted based on the relative profitability and cash flow provided by the respective channels.

How We Evaluate Our Business

In operating our business and monitoring its performance, we pay attention to trends in the global and local macadamia nut industries and the food manufacturing industry. Management evaluates the performance of each segment on the basis of operating income, revenue growth and cash flow. In addition, we manage our orchards segment based on increased nut-in-shell productivity, farming costs, kernel recovery, cost stabilization and cash flow generation to support and fund other Partnership priorities. We manage our branded products segment based on sales, gross margins and selling expenses. The Partnership accounts for intersegment sales and transfers at cost plus a mark-up, and such transactions are eliminated in consolidation.

Factors that May Affect Our Results of Operations

Our businesses are seasonal. While sales of our branded products are anticipated to be less seasonal, macadamia nut production is very seasonal, with the largest quantities typically being produced and added to inventory from September through November, resulting in large inventories that will be converted into finished product and sold throughout the following year.

A substantial portion of our WIS revenues occur from September through February. Weather conditions may affect yields and delay harvesting, which may result in higher or lower than normal production and revenues within a particular fiscal quarter or fiscal year. In the first six months of 2017, our crop was larger than average due to a later than average start of the 2016-2017 crop year, which caused more of the crop to be harvested in the first half of 2017. Harvest of our 2017-2018 crop started in mid-July compared to the 2016-2017 crop year when the harvest started in late August.

We have three long-term nut purchase agreements with Mauna Loa Macadamia Nut Corporation (“Mauna Loa”), expiring in 2029, 2078 and 2080. Under these agreements, all macadamia nuts produced from the orchards acquired from International Air Service Co., Ltd. (“IASCO”), which represented approximately 18% of our production in 2016, must be sold to and purchased by Mauna Loa at a predetermined price as described below.

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Under the IASCO agreements, we are paid based on WIS pounds at a price that is derived annually from a formula that factors in the Mauna Loa wholesale price of the highest year-to-date volume fancy and choice products sold in Hawaii and the U.S. Department of Agriculture National Agricultural Statistics Service (“NASS”) reported price of WIS Hawaii macadamia nuts for the period of delivery. If the Final NASS 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 NASS nut price for the crop year ended June 30, 2017 was $1.00 per WIS pound compared to $0.97 per WIS pound in 2016.

Prior to 2015, we sold most of our harvested macadamia nuts as WIS. We now retain most of our harvested macadamia nuts, dry and process them, and then sell them as bulk kernel or use them for our branded products. The cost of the nuts plus costs of husking, drying and shelling are included in cost of goods sold when our bulk kernel and branded products are sold. As a result, the recognition of revenues and expensing of the associated farming costs now occur over a longer period.

Critical Accounting Estimates

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Certain of our accounting policies, including estimates of deferred farming costs, accrual for workers’ compensation claims, assumptions used to determine employee benefit obligations, valuation of long-lived and intangible assets, carrying value of inventories, revenue recognition and accounts receivable, the calculation of our income tax liabilities, and allocation of general and administrative costs to subsidiaries, require management to make significant judgments in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to a degree of uncertainty. Management’s judgments are based on historical experience, terms of existing contracts, observance of trends in the industry, crop information provided by customers and information available from outside sources, as appropriate. Actual results may differ from these estimates. To provide an understanding of the methodology applied, significant accounting policies are discussed where appropriate in this discussion and analysis and in the notes to consolidated financial statements in our 2016 Annual Report.

Recent Developments

On February 14, 2017, we entered into a Definitive Terms of Settlement Agreement (the “Settlement Agreement”) with Edmund C. Olson as Trustee for the EDMUND C. OLSON TRUST No. 2 dated August 21, 1985 (the “Olson Trust”). Pursuant to the Settlement Agreement, effective as of July 1, 2017, Olson Trust began farming approximately 371 tree acres for the 2017/2018 crop year. Accordingly, the crop from Ka’u will be smaller than if the Partnership had continued farming that acreage. In the 2016/2017 crop year, the Ka’u orchards (excluding IASCO) produced 7.2 million pounds over 2,100 acres, or 3,429 pounds per acre.

Results of Operations

Consolidated Revenues, Cost of Revenues and Gross Profit

For the three months ended September 30, 2017, net revenue decreased $1.6 million or 21% compared to the same period in 2016. The decrease in the three-month period was due to a $3.0 million decrease in net revenues from branded products due to lower bulk sales offset by a $1.4 million increase in orchard revenue due to higher production in the IASCO orchards and an early start to the fall harvest compared to the same period in 2016. Bulk sales were lower in the third quarter due to the Partnership’s efforts to reduce inventory which resulted in sales of bulk kernel earlier in the year than in 2016 so less kernel was available to sell in the third quarter.

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For the nine months ended September 30, 2017, net revenue increased $2.5 million or 13% compared to the same period in 2016. The increase in the nine-month period was due to a $553,000 increase in net revenues from the branded products segment and $2.0 million increase in orchard revenues. Net revenues from our branded products segment increased as a result of reducing deductions to gross revenues, and revenues from the orchards segment increased due to higher WIS pounds sold due to greater production from our IASCO orchards as compared to 2016 and sales of additional WIS in the third quarter.

For the three months ended September 30, 2017, cost of revenues decreased $833,000 or 14%, compared to the same period in 2016 due to a decrease in bulk sales during the second quarter offset by higher cost of orchard revenues due to higher orchard revenues. The 2017 bulk kernel had a higher cost per pound compared to nuts from 2016 due to the lower crop yields in 2016 that resulted in higher costs per pound compared to the 2015 nuts that were sold in the first half of 2016. We generated a gross profit of $1.1 million and a gross margin of 18%, compared to gross profit of $1.8 million and gross margin of 24% for the same period in 2016.

For the nine months ended September 30, 2017, cost of revenues increased $3.7 million or 25%, compared to the same period in 2016 due to an increase in bulk kernel sales from our branded products segment and an increase in orchard revenue. The increase in cost of revenues was higher than the increase in revenue due to higher cost of nuts compared to the same period in 2016. For the nine months ended September 30, 2017, we generated a gross profit of $3.5 million and a gross margin of 16%, compared to gross profit of $4.7 million and gross margin of 24% for the same period in 2016.

Orchards Segment

The orchards segment derives its revenues from the sale of WIS macadamia nuts, sale of DIS macadamia nuts, sale of macadamia nut kernel to Royal for our branded products pursuant to an intercompany supply agreement, revenues from contract farming, and orchard lease income.

The tables below show revenues, costs of revenues and gross profit and other financial information for our orchards segment for the three and nine months ended September 30, 2017 and 2016. See Note 4 – Segment Information to the accompanying financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of orchards segment results to our consolidated results.

	Three Months Ended
	(in thousands)
	September 30,
	2017			2016			Change		% Change
Revenues
External customers	$	2,168		$	727		$	1,441		198	%
Intersegment revenue (Royal)		2,836			389			2,447		629	%
Total revenue	$	5,004		$	1,116		$	3,888		348	%

Cost of orchards revenue	$	4,712		$	1,082		$	3,630		335	%

Operating loss	$	(104	)	$	(518	)	$	414		80	%

Depreciation and amortization	$	772		$	744		$	28		4	%

Capital expenditures	$	747		$	31		$	716		2310	%

Segment assets	$	78,165		$	73,439		$	4,726		6	%

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	Nine Months Ended
	(in thousands)
	September 30,
	2017			2016		Change			% Change
Revenues
External customers	$	5,357		$	3,398	$	1,959			58	%
Intersegment revenue (Royal)		11,572			10,658		914			9	%
Total revenue	$	16,929		$	14,056	$	2,873			20	%

Cost of orchards revenue	$	16,375		$	11,150	$	5,225			47	%

Operating (loss) income	$	(655	)	$	1,541	$	(2,196	)		-143	%

Depreciation and amortization	$	2,285		$	2,239	$	46			2	%

Capital expenditures	$	1,261		$	108	$	1,153			1068	%

Segment assets	$	78,165		$	73,439	$	4,726			6	%

Revenues from external customers increased $1.4 million and $2.0 million for the three and nine months ended September 30, 2017, respectively, compared to the same periods in 2016. The increase was due to higher production from the IASCO orchards compared to 2016 and an earlier start to the fall harvest than in 2016 that increased contract farming revenue, IASCO revenue and revenue from WIS sales outside of the IASCO contracts in the three months ended September 30, 2017, as compared to the same period in 2016. For the three and nine month periods ended September 30, 2017, intersegment revenue (sales to Royal) increased $2.4 million and $914,000, respectively, due to a larger and later spring crop in 2017 compared to 2016 which resulted in more kernel sold to Royal in the third quarter and year-to-date. Segment revenue for sales to Royal is recognized after the nuts have been husked, dried and shelled.

For the three and nine months ended September 30, 2017, cost of orchards revenue increased $3.6 million and $5.2 million, respectively. The increase in cost of orchards revenue for the three and nine months ended September 30, 2017, compared to the same periods in 2016 was due to the higher revenues. Cost of orchards revenue was higher for the nine months ended September 30, 2017, compared to the same period in 2016 due to a historically low calendar year 2016 crop, which resulted in higher costs per pound, and due to higher standard costs used in 2017 compared to the first nine months of 2016.

For the three and nine months ended September 30, 2017, we incurred an operating loss of $104,000 and $655,000, respectively, compared to an operating loss of $518,000 and operating income of $1.5 million in the same periods of 2016. The decrease in operating loss for the three months ended September 30, 2017, as compared to the same period in 2016 was due to an earlier start to the fall harvest which resulted in increased revenue. The increase in operating loss for the nine months ended September 30, 2017, was due to lower gross margin in 2017 due to higher nut cost from the calendar year 2016 crop sold in 2017 and a higher cost for the 2017 nut sales compared to the cost in the same period of 2016.

For the three months ended September 30, 2017 and 2016, WIS nut production was 6.3 million pounds and 2.6 million pounds, respectively. For the nine months ended September 30, 2017 and 2016, WIS nut production was 13.0 million pounds and 7.6 million pounds, respectively. The increase in production in 2017 as compared to the same period in 2016 was due to a late crop in 2016 which resulted in some production shifting into the first half of 2017 and due to the fall harvest starting earlier in 2017 than in 2016.

Farming costs are recognized when our products are sold to external customers. Farming costs related to WIS nuts are capitalized as deferred farming costs or WIS inventory until sold to external customers. Farming costs related to our branded products are initially capitalized as deferred farming costs and subsequently added to our branded products inventory until sold to external customers.

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Branded Products Segment

Our branded products segment derives its revenues from the sale of bulk macadamia nuts and branded macadamia nut products sold under the ROYAL HAWAIIAN ORCHARDS® brand name and reported under Royal.

Financial information for our branded products segment for the three and nine months ended September 30, 2017 and 2016, are set forth in the following tables.

	For the Three Months Ended
	(in thousands, except percentages)
	September 30, 2017				September 30, 2016					Change			% Change

Total gross revenues	$	4,313			$	7,395				$	(3,082	)		-42	%
Deductions to gross revenues		472				556					(84	)		-15	%
Net revenues		3,841	100	%		6,839		100	%		(2,998	)		-44	%
Total cost of revenues		3,075	80	%⁽¹⁾		5,756		84	%⁽¹⁾		(2,681	)		-47	%
Total gross profit		766	20	%⁽¹⁾		1,083		16	%⁽¹⁾		(317	)		-29	%
General and administrative expenses		244	6	%⁽¹⁾		286		4	%⁽¹⁾		(42	)		-15	%
Selling expenses		452	12	%⁽¹⁾		947		14	%⁽¹⁾		(495	)		-52	%
Operating income (loss)	$	70	2	%⁽¹⁾	$	(150	)	(2	%)⁽¹⁾	$	220			147	%

	For the Nine Months Ended
	(in thousands, except percentages)
	September 30, 2017				September 30, 2016					Change			% Change

Total gross revenues	$	17,933			$	17,988				$	(55	)		0	%
Deductions to gross revenues		1,358				1,966					(608	)		-31	%
Net revenues		16,575	100	%		16,022		100	%		553			3	%
Total cost of revenues		13,581	82	%⁽¹⁾		13,674		85	%⁽¹⁾		(93	)		-1	%
Total gross profit		2,994	18	%⁽¹⁾		2,348		15	%⁽¹⁾		646			28	%
General and administrative expenses		1,120	7	%⁽¹⁾		837		5	%⁽¹⁾		283			34	%
Selling expenses		1,467	9	%⁽¹⁾		3,069		19	%⁽¹⁾		(1,602	)		-52	%
Operating income (loss)	$	407	2	%⁽¹⁾	$	(1,558	)	(10	%)⁽¹⁾	$	1,965			126	%

(1) As a percentage of net revenues.

In 2017, we reduced inventory levels to improve cash flow by selling bulk kernel sooner. This change has resulted in gross and net revenues that are not comparable to 2016 on a quarterly basis. We had higher branded products segment revenues in the first two quarters of 2017, largely due to the change in timing of when bulk kernel was sold rather than due to increased revenues from the branded products, and we had lower net revenues in the third quarter, resulting in year-to-date gross revenue similar to 2016. The change in emphasis has allowed the branded products segment to reduce shipping and storage expenses related to holding inventory and allowed it to reduce its selling and marketing activities.

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Gross segment revenue for the three and nine months ended September 30, 2017, decreased $3.1 million and $55,000, respectively, compared to the same periods in 2016 due to lower sales of bulk kernel offset by higher sales of branded products. Net branded products revenue and bulk kernel sales were $2.6 million and $1.2 million, respectively for the three months ended September 30, 2017, compared to $1.3 million and $5.5 million, respectively, for the same period in 2016. Net branded products revenue and bulk kernel sales were $5.4 million and $11.2 million, respectively for the nine months ended September 30, 2017, compared to $4.7 million and $11.3 million, respectively, for the same period in 2016. Net branded products segment revenues grew over the nine months ended September 30, 2017, compared to the same period in 2016 due to reduced deductions to gross revenue.

Deductions to gross revenue include slotting fees, trade and sales discounts, promotional incentives and reclamation charges. Deductions to gross revenue decreased by approximately $84,000 and $608,000 respectively, for the three and nine months ended September 30, 2017, compared with the same periods in 2016. We offer a variety of sales and promotion incentives to our customers, such as price discounts, slotting allowances, advertising allowances, in-store displays and consumer coupons. Slotting allowances are one-time costs paid to gain distribution primarily in the grocery channel and totaled $9,700 and $126,000 for the three months ended September 30, 2017 and 2016, respectively. Slotting allowances totaled $162,000 and $469,000 for the nine months ended September 30, 2017 and 2016, respectively. We reduced the amount of new slotting allowances offered in the first nine months of 2017 compared to the same period in 2016.

Cost of revenues (excluding inter-segment eliminations) for the three and nine months ended September 30, 2017, decreased by $2.7 million (47%) and $93,000 (1%), respectively, compared to the same periods in 2016. The cost of revenues decreased for the three months ended September 30, 2017, due to lower bulk sales in the third quarter as much of the bulk had been sold in the first six months of 2017. Cost of revenues for the nine months ended September 30, 2017, were approximately the same as cost of revenues for the same period in 2016, because gross revenue for the nine months ended September 30, 2017, was approximately the same as gross revenue for the nine months ended September 30, 2016. Our prices for intersegment sales of kernel from the orchards to branded products are set pursuant to an intercompany agreement at cost plus a mark-up.

Operating income for the branded products segment for the three and nine months ended September 30, 2017 increased $220,000 and $2.0 million, respectively, from operating losses in the same periods in 2016 mainly due to higher gross margins and lower selling expenses partially offset by higher general and administrative costs in the first two quarters of 2017. Selling expenses decreased due to decreased marketing and sales personnel costs as a result of cuts in expenditures and lower storage and handling costs and freight costs due to sales of bulk kernel after processing instead of inventorying it.

General and Administrative Expenses

General and administrative expenses on a consolidated basis were $611,000 and $2.3 million for the three and nine months ended September 30, 2017, respectively, and were $720,000 and $2.1 million for the three and nine months ended September 30, 2016. The decrease in general and administrative expenses in the three months ended September 30, 2017, compared to 2016 was mainly attributable to lower legal fees as compared to 2016. The increase in general and administrative expenses in the nine months ended September 30, 2017, was attributable to increases in accrued bad debt expense and officer compensation offset by lower legal fees due to the settlement of outstanding litigation. We are still working on collection of the amount accrued for bad debt.

Selling Expenses

Selling expenses on a consolidated basis were $452,000 and $1.5 million for the three and nine months ended September 30, 2017, respectively, compared to $947,000 and $3.1 million for the same periods in 2016. The decrease in selling expenses in 2017 was attributable to lower storage and handling costs and freight due to the branded products segment selling bulk kernel immediately after processing rather than holding it in inventory. Decreased advertising costs, product development costs, sales personnel and other selling and marketing expenses also contributed to the decrease in selling expenses.

Interest Expense

Interest expense for the three and nine months ended September 30, 2017, was $121,000 and $696,000, respectively, compared to $313,000 and $898,000 for the same periods in 2016. The decreases in the three months and nine months ended September 30, 2017, were due to (i) a lower balance outstanding on the line of credit as a result of payments from operating cash flow and from proceeds from the rights offering and (ii) repayment of the 2015 Bridge Loan and the 2010 Term Loan in May 2017, partially offset by a higher interest rate charged on line of credit balances.

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Other Income and Expenses (net)

Other income, net of other expense, was $290,000 and $261,000 for the three and nine months ended September 30, 2017, respectively. Other income, net of other expense, was $189,000 and $374,000 for the three and nine months ended September 30, 2016, respectively. Other income for the nine-month period ended September 30, 2017, was comprised of a $179,000 dividend from American AgCredit and proceeds of $306,000 from a crop insurance claim offset by separation costs due to a reduction in employees. The other income for the nine months ended September 30, 2016, was primarily attributable to a patronage dividend from AgCredit.

Net Income (Loss)

For the three and nine months ended September 30, 2017, we had net income of $161,000 and net loss of $807,000, respectively, compared to net losses of $17,000 and $1.1 million for the same periods in 2016. The net income in the three-month period ended September 30, 2017, was primarily due to net income from our branded products segment and a crop insurance claim in our orchard segment. The net loss for the nine-month period ended September 30, 2017, was primarily attributable to lower gross margin from sales of kernel due to a small 2016 crop which resulted in a high nut cost on sales of 2016 kernel and due to other losses from separation of employees and bad debt. The net loss in the three- and nine-month periods ended September 30, 2016, was primarily attributable to high selling and general and administrative expenses in the branded products business, partially offset by higher gross profit and increased income from the orchard segment.

Income Taxes

The Partnership is subject to a gross income tax as a result of our election to continue to be taxed as a partnership rather than as a corporation, as allowed by the Taxpayer Relief Act of 1997. This tax is calculated at 3.5% on partnership gross income (revenues less cost of revenues). For the three and nine months ended September 30, 2017, gross income tax expense was $13,000 and $15,000, respectively, compared to a $18,000 and $119,000 gross income tax expense for the same periods in 2016.

Our wholly owned subsidiary, Royal, is subject to taxation as a C corporation at the current federal tax rate of 35% and a blended state tax rate of approximately 6.9% on the corporation’s taxable income (loss). As a result of the cumulative tax losses of Royal, the balance of our deferred tax asset at September 30, 2017, was $3.5 million, against which we have recorded a valuation allowance equal to 100% of the deferred tax asset due to the uncertainty regarding future realization of Royal’s net operating loss carry-forwards.

Liquidity and Capital Resources

Our businesses are seasonal. Production from our orchard segment normally peaks in the fall and winter; however, farming operations continue year-round.

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(in thousands)	September 30, 2017		December 31, 2016
Cash and cash equivalents	$	10,777	$	1,132
Accounts receivable		2,817		3,215
Inventories		7,610		10,293
Accounts payable		828		781
Accrued payroll and benefits		1,211		760
Net working capital ⁽¹⁾		18,487		154

(1)	Working capital consists of total current assets less total current liabilities.

At September 30, 2017, our working capital was $18.5 million and our current ratio (current assets/current liabilities) was 6.94-to-1, compared to working capital of $154,000 and a current ratio of 1.01-to-1 at December 31, 2016. The working capital increase was attributable to our rights offering to raise equity that was completed in May 2017, the extension of the line of credit which moved the balance of the line of credit to long-term, and increased cash flow from operations for the nine months ended September 30, 2017. We believe that as of the date of the filing of this quarterly report on Form 10-Q, we have sufficient working capital to fund our operations for the next 12 months.

Debt

As of the indicated dates, we had the following long-term debt outstanding (in thousands):

	September 30,			December 31,
	2017			2016
Long-Term Debt
Revolving Credit Facility (due 2020)⁽¹⁾	$	1,800		$	8,150
2015 Bridge Loan (due 2017)		-			2,835
2010 Term Loan (due 2020)		-			3,762
2015 6-Year Term Loan (due 2021)		3,062			3,792
2015 20-Year Term Loan (due 2035)		4,673			4,936
Other		-			7
Total principal amount of long-term debt		9,535			23,482
Less: unamortized debt issuance costs		(114	)		(163	)
		9,421			23,319
Less: current portion of long-term debt		(988	)		(13,155	)
Total long-term debt outstanding	$	8,433		$	10,164

______________________________________________________________________

(1)

On July 13, 2017, the maturity date was extended to July 15, 2020.

The following table summarizes the Partnership’s principal maturities of its debt (in thousands):

	Payments Due by Period
	Total		2017⁽¹⁾		2018		2019		2020		2021		Remaining
Debt	$	9,535	$	146	$	1,138	$	1,138	$	2,938	$	555	$	3,620

_________________________

(1) For remainder of 2017.

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Credit Agreement with AgCredit PCA. On March 27, 2015, the Partnership and each of its wholly-owned subsidiaries, Royal Hawaiian Resources, Inc. through June 2016 (the “Managing Partner” or “RHR”), Royal and Royal Hawaiian Services, LLC (“RHS”), as the borrowers, and American AgCredit PCA (“AgCredit PCA”), as lender and as agent for such other persons who may be added as lenders from time to time, entered into an Amended and Restated Credit Agreement (as it may be further amended, restated, modified or supplemented from time to time, the “PCA Credit Agreement.”). Set forth below is a summary of the borrowings provided for by the PCA Credit Agreement:

Revolving Credit Facility. The PCA Credit Agreement provides for a $9 million revolving credit facility (the “Revolving Credit Facility”), which was scheduled to mature on July 15, 2017. On July 13, 2017, we entered into the Seventh Amendment to Amended and Restated Credit Agreement (the “Seventh PCA Credit Agreement Amendment”) with AgCredit PCA. The Seventh PCA Credit Agreement Amendment extended the maturity date by three years to July 15, 2020. Advances under the Revolving Credit Facility bear interest based on an election made by us at the time of the advance at either LIBOR rates or at the base rate of the higher of (a) one-half of one percent (0.50%) per annum in excess of the latest Federal Funds Rate (as defined in the PCA Credit Agreement); and (b) the prime rate of interest in effect for such day as published from time to time in The Wall Street Journal. We are required to pay a fee of 0.375% per annum on the daily unused portion of the Revolving Credit Facility. The interest rate on the Revolving Credit Facility at September 30, 2017, was 5.25% per annum.

As of September 30, 2017 and December 31, 2016, the outstanding balance on the Revolving Credit Facility was $1.8 million and $8.15 million, respectively.

2010 Term Loan. The PCA Credit Agreement governed a 2010 term loan of $10.5 million, which was scheduled to mature on July 1, 2020 (the “2010 Term Loan”). The 2010 Term Loan bore interest at a fixed rate of 6.5% per annum until March 27, 2015. Since that date the interest rate has been 6.0% per annum. As of December 31, 2016, the outstanding balance on the 2010 Term Loan was $3.762 million. The 2010 Term Loan was repaid in full in May 2017, and all references to the 2010 Term Loan were deleted from the PCA Credit Agreement pursuant to the Seventh PCA Credit Agreement Amendment.

2015 6-Year Term Loan. The PCA Credit Agreement provides for a six-year term loan of $5.25 million, which matures on March 27, 2021 (the “2015 6-Year Term Loan”). The 2015 6-Year Term Loan bears interest at a fixed rate of 4.01% per annum. We used the proceeds of the 2015 6-Year Term Loan to replace working capital used to construct Phase 1 of our drying plant and to finance the construction of Phase 2 of our drying plant. As of September 30, 2017 and December 31, 2016, the outstanding balance on the 2015 6-Year Term Loan was $3.062 million and $3.792 million, respectively.

2015 Bridge Loan. In connection with our June 2015 acquisition of 736 acres of land, including improvements, 641 acres of macadamia nut trees, and windbreak trees (the “Becker Property Acquisition”), the PCA Credit Agreement was amended to provide for a bridge loan of $2.835 million (the “2015 Bridge Loan”), which was due to mature on the earlier of (a) July 15, 2017, or (b) the date that we receive net proceeds from any issuance of equity, subject to certain exceptions. The 2015 Bridge Loan originally bore interest at the base rate plus three quarters of one percent (0.75%) where the base rate (“Base Rate”) is the higher of (i) one half of one percent (0.5%) per annum in excess of the latest Federal Funds Rate, and (ii) the prime rate of interest in effect for such day as published from time to time in The Wall Street Journal. As of September 1, 2016, the interest rate on the 2015 Bridge Loan increased to the Base Rate plus 1.00%. As of April 15, 2017, the interest rate on the 2015 Bridge Loan increased to the Base Rate plus 1.25%. The proceeds of the 2015 Bridge Loan were used by us on June 16, 2015, for the Becker Property Acquisition. The 2015 Bridge Loan was repaid in full in May 2017, and all references to the 2015 Bridge Loan were deleted from the PCA Credit Agreement pursuant to the Seventh PCA Credit Agreement Amendment.

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The borrowings pursuant to the PCA Credit Agreement are collateralized by all of our personal and real property assets, including a second priority interest in the properties acquired in the Becker Property Acquisition. The PCA Credit Agreement contains certain restrictions associated with partner distributions, further indebtedness, sales of assets, and maintenance of certain financial covenants, including minimum consolidated tangible net worth commencing with the fiscal year ending December 31, 2017, and minimum Consolidated EBITDA (as defined below). Pursuant to the Seventh PCA Credit Agreement Amendment, the minimum Consolidated EBITDA was changed from $2,500,000 on the last day of each fiscal quarter to $2,000,000 for the quarter ending June 30, 2017, which brought us into compliance with the Consolidated EBITDA covenant for that quarter. Under the PCA Credit Agreement, we are required to achieve minimum Consolidated EBITDA for future four-quarter periods ending on the last day of each fiscal quarter as follows:

Fiscal Quarter Ended/Ending
September 30, 2017			2,250,000
December 31, 2017 through September 30, 2018			2,750,000
December 31, 2018 and each fiscal quarter thereafter			3,000,000

___________________

(1)

Consolidated EBITDA is a non-GAAP financial measure based on the definition of Consolidated EBITDA in the PCA Credit Agreement, which is defined as the sum (without duplication) of (a) consolidated net income determined in accordance with GAAP; plus (b) the sum of (i) Federal, state, local and foreign income taxes, (ii) interest expense (including the interest portion of any capitalized lease obligations), (iii) depletion, depreciation, and amortization, and (iv) extraordinary losses; minus (c) the sum of (i) gains on asset sales and (ii) extraordinary gains.

Management believes that the Consolidated EBITDA covenant is a material term of the PCA Credit Agreement and that information about the Consolidated EBITDA covenant is material to an investor's understanding of our performance and ability to comply with our loan covenants. Reconciliation of Consolidated Net Income to Consolidated EBITDA is as follows:

	Four Quarters ended September 30, 2017
	(in thousands)
Consolidated Net Loss	$	(1,660	)
Total interest expense		980
Income taxes		(35	)
Depreciation and amortization		3,115
Consolidated EBITDA	$	2,400

Credit Agreement with AgCredit FLCA. Also in connection with the Becker Property Acquisition, we entered into a Credit Agreement, effective June 15, 2015 (the “FLCA Credit Agreement”), with American AgCredit, FLCA (“AgCredit FLCA”), providing for a $5.265 million 20-year term loan that matures on July 1, 2035 (“2015 20-Year Term Loan”). The 2015 20-Year Term Loan bears interest at a fixed rate of 5.29% per annum and requires quarterly payments, with fixed principal reductions, over the term. The FLCA Credit Agreement requires the maintenance of certain financial covenants, including a covenant requiring the Total Indebtedness to Consolidated EBITDA Ratio (as defined in the FLCA Credit Agreement) not to exceed 4.0 to 1.0 as of the last day of each calendar quarter commencing with the calendar quarter ending September 30, 2017. We used the proceeds of the 2015 20-Year Term Loan for the Becker Property Acquisition. The 2015 20-Year Term Loan is secured by a mortgage on the properties acquired in the Becker Property Acquisition. As of September 30, 2017 and December 31, 2016, the outstanding balance on the 2015 20-Year Term Loan was $4.673 million and $4.936 million, respectively.

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Cash Flows

The following table sets forth, for the periods indicated, our beginning balance of cash, net cash flows provided by or used in operating, investing and financing activities and ending cash balance:

	Nine Months Ended
	September 30,
(in thousands)	2017			2016
Cash and cash equivalents at beginning of period	$	1,132		$	404
Net cash provided by (used in) operating activities		5,000			(50	)
Net cash used in investing activities		(1,266	)		(167	)
Net cash provided by financing activities		5,911			572
Cash and cash equivalents at end of period		10,777			759

Operating Cash Flow. Net cash provided by and used in operating activities for the nine months ended September 30, 2017 and 2016, was $5 million and ($50,000), respectively, an increase of $5.05 million. Net loss decreased $337,000 for the first nine months of 2017, and there were positive changes in asset and liability balances, including a $2.7 million reduction in inventory and deferred farming cost, which was comprised of a $3.4 million reduction in inventory and an $736,000 change in deferred farming cost. Cash provided by operating activities was $5.05 million more than the cash used in operating activity in the first nine months of 2016. Inventory decreased in the first nine months of 2017 due to the Partnership selling bulk kernel. The decrease in deferred farming costs was due to a higher standard cost being used in the first nine months of 2017 compared to the same period in 2016, which resulted in more farming costs being included in cost of goods sold and inventory in the first nine months than in 2016. As discussed in Note 5 – Inventories to the accompanying financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q, costs related to maintaining the orchards and preparing for harvest are deferred and capitalized to inventory as the nuts are harvested. As we have become more vertically integrated, the timing of operating cash flows has changed as our nuts are being inventoried and sold throughout the year.

Investing Cash Flow. Cash used in investing activities of $1.3 million in the nine months ended September 30, 2017, was used for equipment purchases, relocation of the Keaau operations and garage, and the purchase of a building in Pahala for $210,000. Cash used in investing activities of $167,000 in the nine months ended September 30, 2016, was used for small equipment purchases.

Financing Cash Flow. Financing activities for the nine months ended September 30, 2017, consisted of net proceeds from our May 2017 rights offering of $19.9 million, proceeds of $400,000 from the Revolving Credit Facility, payments of $7.6 million on our long-term debt and payments of $6.75 million on our Revolving Credit Facility.

Financing activities for the nine months ended September 30, 2016, consisted of proceeds of $4.0 million under our Revolving Credit Facility and $224,000 received from the sale of the General Partner. We made payments on our long-term debt in the amount of $3.7 million, which includes $2 million on our Revolving Credit Facility, during the nine months ended September 30, 2016.

Disclosure Regarding Forward-Looking Statements

Statements that are not historical facts contained or incorporated by reference into this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements involve risks and uncertainties that could cause actual results to differ from projected results. The words “anticipate,” “goal,” “seek,” “project,” “strategy,” “future,” “likely,” “may,” “should,” “will,” “believe,” “estimate,” “expect,” “plan,” “intend” and similar expressions and references to future periods, as they relate to us, are intended to identify forward-looking statements. Forward-looking statements include statements we make regarding:

●

the transition of operating activities and responsibilities and benefits with respect to the orchards that are being transferred between us and the Olson Trust under to the Settlement Agreement;

●

projections of revenues, expenses, income or loss;

●

quarterly results not being indicative of annual performance;

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●

trends in our business, including seasonality of nut production and sales of branded products;

●

estimates of deferred farming costs and the timing of the accumulation and recognition of such costs;

●

our plans, objectives and expectations, including those relating to regulatory actions, business plans, products or services;

●

amount of kernel produced in our orchards segment that will be inventoried and used in our branded products;

●

estimated production;

●

crop insurance coverage;

●

evaluations of our branded products and the retail channels in which we sell;

●

the focus of our efforts for future sales of kernel and branded products;

●

increases or decreases in expenditures on slotting fees and other promotional activities and their impact on revenues;

●

the sufficiency of our working capital to fund operations for the next year;

●

future economic performance;

●

industry trends;

●

legal proceedings, commitments and contingencies;

●

expected impact of new accounting standards on our financial statements and the timing of adopting such guidance;

●

the effectiveness of our disclosure controls and procedures and internal controls over financial reporting; and

●

estimated fair values of our financial instruments.

Forward-looking statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Our actual results could differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in such forward-looking statements include, without limitation, the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, as well as risks associated with the following:

●

changing interpretations of GAAP;

●

changes in macadamia nut prices;

●

world market conditions relating to macadamia nuts;

●

the weather and local conditions in Hawaii affecting macadamia nut production;

●

legislation or regulatory environments, requirements or changes adversely affecting our businesses;

●

general economic conditions;

●

geopolitical events and regulatory changes;

●

our ability to retain and attract skilled employees;

●

our success in finding purchasers for our macadamia nut production at acceptable prices;

●

increasing competition in the snack food market;

●

the availability of and our ability to negotiate acceptable agreements with third parties that are necessary for our business, including those with nut processors, co-packers, distributors and transportation companies;

●

market acceptance of our products in the branded segment;

●

the availability and cost of raw materials;

●

changes in fuel and labor costs;

●

our success at managing the risks involved in the foregoing items; and

●

other factors discussed from time to time in our press releases, public statements and documents filed or furnished with the SEC.

Forward-looking statements speak only as of the date on which such statements are made. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. All forward-looking statements are expressly qualified by these cautionary statements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

In the ordinary course of business, we are exposed to various market risks, including those resulting from changes in the market price of macadamia kernel and changes in interest rates. There have been no significant changes in our market risk exposures since December 31, 2016. See “Part II, Item 7A – Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2016, for further discussion on quantitative and qualitative disclosures about market risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer/Chief Financial Officer of the Managing Partner of the Partnership, of the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, the Chief Executive Officer/Chief Financial Officer has concluded that, as of the Evaluation Date, the Partnership’s disclosure controls and procedures were effective. The Partnership’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Partnership in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s applicable rules and forms, and (ii) accumulated and communicated to the Partnership’s management, including the Chief Executive Officer/Chief Financial Officer, to allow timely decisions regarding required disclosure. A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control Over Financial Reporting

No changes were made to internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II Other Information

Item 6. Exhibits

The following documents are filed or furnished as required by Item 601 of Regulation S-K:

Exhibit Number		Description
3.1		Certificate of Limited Partnership of the Partnership, as amended, as filed with the Delaware Secretary of State (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-1 filed on November 6, 2013)

3.2		Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of October 1, 2012, as amended by Amendment to the Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of November 1, 2013, as amended by Second Amendment to Amended and Restated Agreement of Limited Partnership of the Partnership, dated February 15, 2017 (incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2016)

10.1		Seventh Amendment to Amended and Restated Credit Agreement and Waiver among Royal Hawaiian Orchards, L.P., Royal Hawaiian Services, LLC, and Royal Hawaiian Macadamia Nut, Inc., as Borrowers, American AgCredit, PCA, as Agent, and the Lenders, dated as of July 13, 2017 (incorporated by reference to Exhibit 10.1 to the Current Report on 8-K filed on July 17, 2017)

11.1+		Statement re Computation of Net Income (Loss) per Class A Unit

31.1+		Certification under Section 302 of the Sarbanes-Oxley Act of 2002 — Principal Executive and 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 — Principal Executive and Financial Officer

101+		Financial statements from the Quarterly Report on Form 10-Q of Royal Hawaiian Orchards, L.P. for the nine months ended September 30, 2017, filed on November 14, 2017, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Partners’ Capital, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements

+ Filed herewith.

++ Furnished herewith.

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SIGNATURES

Pursuant to the requirements 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.

	ROYAL HAWAIIAN ORCHARDS, L.P.
		(Registrant)

	By:	Royal Hawaiian Resources, Inc.
		Managing General Partner

Date: November 14, 2017

	By:	/s/ Bradford Nelson
		Bradford Nelson
		President, Chief Executive Officer, and Chief Financial Officer
		(Principal Executive and Financial Officer)

ROYAL HAWAIIAN ORCHARDS, L.P. - FORM 10-Q - November 14, 2017

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