ROYAL HAWAIIAN ORCHARDS, L.P.

The Partnership revenues result from the sale of products or services and reflect the consideration to which the Partnership expects to be entitled. Revenue is recorded based on a five step model in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”). For customer contracts, the Partnership identifies the performance obligations (products or services), determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when the performance obligation is fulfilled, which is when the product is shipped to or received by the customer, depending on the specific terms of the arrangement. The Partnership’s revenues are recorded at a point in time and our standard payment terms are 60 days. Control transfers when the customer receives the macadamia nuts, either at the shipping point or at their facility depending on the terms of the sale. The Partnership has not had material refunds and does not accept returns. Variable consideration is considered when determining the transaction price.

The Partnership evaluates its business using the Segment information and does not disaggregate further. Refer to Note 5, “Segment Information” for additional description of reportable business segments and disaggregated revenue disclosures.

Management determines the appropriate classification of its investments in debt and equity securities at the time of purchase and reevaluates such determinations each reporting period. Debt securities that the Partnership does not have the positive intent or ability to hold to maturity are classified as available-for sale. Securities classified as available-for-sale are marked-to-market at each reporting period. The cost of securities sold is based on the specific identification method. Marketable equity securities are recorded at fair value through earnings on the consolidated statement of operations. The Partnership’s marketable securities are valued at the closing price of the last trading day reported on the active market on which the individual securities are traded.

On March 19, 2018, the Partnership issued a press release announcing the filing with the U.S. Securities and Exchange Commission of a Schedule 14C Information Statement (“Information Statement”) to inform the limited partners that limited partners holding approximately 85% of the Partnership’s outstanding Class A Units have adopted resolutions by majority written consent in lieu of a meeting of limited partners approving amendments to the Partnership’s Amended and Restated Agreement of Limited Partnership, which, among other things, authorize Royal Hawaiian Resources, Inc. (the “Managing Partner” or “RHR”) to effect pro rata splits and combinations of partnership interests, including reverse splits.  The Information Statement further informs the limited partners that the Managing Partner has authorized a reverse split of our Class A Units on the basis of one post-split Unit for each 2000 pre-split Units, and the Partnership has filed a Schedule 13E-3 under Rule 13e-3 for a “going private transaction” in connection with the reverse split.

On March 14, 2018, we entered into an agreement for the sale of macadamia kernel with MacFarms, pursuant to which we will sell macadamia kernel at market prices based on the international market for macadamia nuts determined by an average of macadamia kernel prices for the respective styles of kernel sold by us for the prior six months less any adjustments for quantity, or as agreed upon by the parties from time to time.  The purchase commitment by MacFarms for the first year is 780,000 pounds of macadamia kernel which represents 27% of the 2.9 million pounds of macadamia kernel sold by our branded products segment in 2017.  Based on 2.9 million pounds of kernel and the average sales price for bulk macadamia kernel sold by our branded products segment in 2017 of $7.14, an increase in the average price of $0.75 per pound to $7.89 per pound would have increased our revenue for the year ended December 31, 2017 by $2.175 million and a decrease in the average price of $0.75 to $6.39 would have decreased our revenue by $2.175 million.

We are exposed to market price fluctuations related to our investment in Buderim Group Limited which is traded on the Australian Stock Exchange.  At March 31, 2018, the fair value of this investment was $2,803,000.  We are also exposed to foreign currency risk with respect to our investment in Buderim Group Limited as the investment is denominated in Australian dollars.  Any increase (decrease) in the value of the U.S. dollar against the Australian dollar will cause us to experience unrealized foreign currency translation losses (gains) with respect to amounts already invested in investments denominated in foreign currencies.  We do not hedge against the risk that we may incur non-cash losses upon the translation of our foreign investments.  The relationship between the U.S. dollar and Australian dollar at March 31, 2018 was A$ 0.77 per one U.S. dollar.