OPERATIONS AND OWNERSHIP

12 Months Ended

Dec. 31, 2013

OPERATIONS AND OWNERSHIP

OPERATIONS AND OWNERSHIP

(1) OPERATIONS AND OWNERSHIP

Royal Hawaiian Orchards, L.P. (the “Partnership”) owns or leases 5,070 tree acres of macadamia orchards on the island of Hawaii. The Partnership either sells harvested nuts to another entity in Hawaii, which processes the nuts and markets the finished products, or the Partnership retains them to be processed into finished products or sold in bulk kernel form.  The Partnership also farms approximately 1,100 acres of macadamia orchards in Hawaii for other orchard owners in exchange for a fee.

The Partnership has developed two retail product lines of better for you macadamia snacks being sold under the brand name “Royal Hawaiian Orchards®” and reported under Royal Hawaiian Macadamia Nut, Inc. (“Royal”), a wholly owned subsidiary of the Partnership.  Royal has contracted with third party co-packers in California to manufacture its branded products.

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

Royal Hawaiian Services, LLC (“RHS”), a wholly owned subsidiary of the Partnership, commenced operations in 2013 and provides administrative and farming services for the Partnership.

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

Liquidity.  The Partnership recorded a net loss of $3.7 million resulting in negative cash flows from operations of $2.9 million during 2013.  The Partnership’s working capital amounted to $155,000 at December 31, 2013.  The net loss and negative cash flow are mainly attributable to the lower nut revenue of $8.1 million.  The lower nut revenues is the result of the Partnership taking into inventory, kernel that is no longer sold to Mauna Loa following the expiration of a one-year nut purchase contract on December 31, 2012.  In addition, adverse weather conditions resulted in lower annual nut production in 2013.  The Partnership recorded a net loss of $499,000, generated operating cash flows of $1.4 million during 2012 and its working capital amounted to $2.0 million at December 31, 2012.  The increase in operating expenses and cash paid for Royal’s inventory and development costs of approximately $2.0 million, resulted in the net loss and decreased cash flow for the Partnership in 2012.  Higher price per pound received on the Partnership’s production contributed to the favorable financial results in 2012 for the orchards segment.

The Partnership successfully completed a rights offering on February 6, 2014 raising net proceeds of approximately $8.89 million after deducting offering expenses of $290,000.  The net proceeds will be used over the next two years to build raw materials and finished goods inventory; extend the revenue cycle of harvested macadamias and extend credit to our customers; to repay indebtedness incurred to fund working capital needs; to fund promotional allowances, including slotting fees charged by food retailers in order to have our product placed on their shelves; and for general partnership purposes.  Management feels that the Partnership has sufficient working capital to meet current obligations and debt service requirements.