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EX-32.1 - EXHIBIT 32 - TWO RIVERS WATER & FARMING Coexhibit32_ex32z1.htm
EX-31.2 - EXHIBIT 31.2 - TWO RIVERS WATER & FARMING Coexhibit31_ex31z2.htm
EX-31.1 - EXHIBIT 31.1 - TWO RIVERS WATER & FARMING Coexhibit311_ex31z1.htm


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549


FORM 10-Q


(Mark One)


[X]

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

For the quarterly period ended March 31, 2016

or

[  ]

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

EXCHANGE ACT OF 1934

For the transition period from _________ to _____________


Commission file number: 000-51139

Two Rivers Water & Farming Company

(Exact Name of Registrant as Specified in Its Charter)


 

Colorado

 

13-4228144

 

(State or Other Jurisdiction or
Incorporation or Organization)

 

(I.R.S. Employee
Identification No.)

 

 

 

 

2000 South Colorado Blvd.
Tower 1, Suite 3100

Denver, Colorado

 

80222

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s telephone number, including area code:  (303) 222-1000


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 |X| 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 |X| No |_|


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


Large accelerated filer

[  ]

 

Accelerated filer

[  ]

Non-accelerated filer

(Do not check if a smaller reporting company)

[  ]

 

Smaller reporting company

[X]


Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes |_| No |X|


As of May 11,2016 there were 26,980,811shares outstanding of the registrant's Common Stock.





1




TABLE OF CONTENTS


 

 

Page

PART I – FINANCIAL INFORMATION

 

Item 1.

Financial Statements

4

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

21

Item 4.

Controls and Procedures

21

 

 

PART II – OTHER INFORMATION

 

Item 1A.

Risk Factors

22

Item 6.

Exhibits

22

 

 

SIGNATURE

22



2





PART I.  FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS


 

Page

Financial Statements (Unaudited):

 

Condensed Consolidated Balance Sheets – March 31, 2016 and December 31, 2015

4

Condensed Consolidated Statements of Operations – Three months ended March 31, 2016 and 2015

5

Condensed Consolidated Statements of Cash Flows – Three months ended March 31, 2016 and 2015

6

Notes to Condensed Consolidated Financial Statements

7




3




TWO RIVERS WATER & FARMING COMPANY AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In Thousands)

 

 

 

 

 

March 31, 2016 (Unaudited)

 

Dec 31, 2015 Derived from Audit

ASSETS:

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

$

161 

 

$

521 

 

 

Accounts receivable, net

108 

 

110 

 

 

Accounts receivable, related party

 

910 

 

 

Farm product

707 

 

81 

 

 

Deposits and other current assets

120 

 

51 

 

Total Current Assets

1,096 

 

1,673 

 

Long Term Assets:

 

 

 

 

 

Property, equipment and software, net

1,888 

 

1,949 

 

 

Land

5,154 

 

5,154 

 

 

Water assets

31,712 

 

31,550 

 

 

Greenhouse & infrastructure, net

5,059 

 

1,827 

 

 

Construction in progress

2,068 

 

4,684 

 

 

Intangible assets, net

907 

 

917 

 

 

Other long term assets

87 

 

135 

 

Total Long Term Assets

46,875 

 

46,216 

TOTAL ASSETS

$

47,971 

 

$

47,889 

 

 

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS' EQUITY:

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable

$

1,390 

 

$

367 

 

 

Accrued liabilities

385 

 

359 

 

 

Current portion of notes payable

11,018 

 

11,068 

 

 

Preferred dividend payable

1,097 

 

1,341 

 

 

Total Current Liabilities

13,890 

 

13,135 

 

Notes Payable, net of current portion

3,923 

 

3,630 

 

 

 

Total Liabilities

 

17,813 

 

16,765 

 

Commitments & Contingencies (Note 3)

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized, 26,980,811 shares issued and outstanding at March 31, 2016 and December 31, 2015

27 

 

27 

 

 

Additional paid-in capital

73,702 

 

73,702 

 

 

Accumulated (deficit)

(76,107)

 

(73,517)

 

Total Two Rivers Water Company Shareholders' Equity

(2,378)

 

212 

 

 

Noncontrolling interest in subsidiary

32,536 

 

30,912 

 

 

 

Total Stockholders' Equity

30,158 

 

31,124 

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY

$

47,971 

 

$

47,889 


The accompanying notes to condensed consolidated financial statements are an integral part of these statements.



4




TWO RIVERS WATER & FARMING COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In Thousands, except Per Share Data)

(Unaudited)


 

For the three months ended March 31,

 

2016     

 

2015     

Revenue

 

 

 

Farm

$

103 

 

$

Leasing - Greenhouse

 

Leasing - Other

17 

 

Total Revenue

120 

 

Direct cost of revenue

50 

 

Gross profit

70 

 

Operating expenses:

 

 

 

General and administrative

1,534 

 

362 

    Depreciation & amortization

174 

 

128 

        Total operating expenses

1,708 

 

490 

(Loss) from operations

(1,638)

 

(490)

Other income (expense)

 

 

 

Interest expense

(390)

 

(216)

Warrant and options expense

 

(47)

Other income (expense)

39 

 

   Total other income (expense)

(351)

 

(260)

Net (Loss) from operations before taxes

(1,989)

 

(750)

Income tax (provision) benefit

 

Net (Loss) before Non-Controlling Interest

(1,989)

 

(750)

Net loss (income) attributable to the noncontrolling interest

 

Net (Loss)

(1,989)

 

(750)

Preferred shareholder distributions

(601)

 

(627)

Net (Loss) attributable to Two Rivers Water & Farming Company Common Shareholders

$

(2,590)

 

$

(1,377)

 

 

 

 

(Loss) Per Share - Basic and Dilutive:

$

(0.10)

 

$

(0.05)

Weighted Average Shares Outstanding:

 

 

 

   Basic and Dilutive

26,981 

 

26,590 



The accompanying notes to condensed consolidated financial statements are an integral part of these statements.



5




TWO RIVERS WATER & FARMING COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

 

 

 

For the three months ended March 31,

 

 

 

2016    

 

2015    

Cash Flows from Operating Activities:

 

 

 

 

Net (Loss)

$

(2,590)

 

$

(1,377)

 

Adjustments to reconcile net income or (loss) to net cash (used in) operating activities:

 

 

 

 

Depreciation and amortization

173 

 

128 

 

 

Accretion of debt discount

68 

 

53 

 

 

Write off of Suncanna receivable and advance

910 

 

 

 

Warrant expense

 

47 

 

 

In-kind distributions

495 

 

 

Net change in operating assets and liabilities:

 

 

 

 

 

Decrease in accounts receivable

 

102 

 

 

(Increase) in farm product

(626)

 

(490)

 

 

(Increase) in deposits, prepaid expenses and other assets

(89)

 

(88)

 

 

Increase in accounts payable

1,023 

 

141 

 

 

(Decrease) increase in distribution payable to preferred shareholders

(246)

 

627 

 

 

Increase (decrease) in accrued liabilities and other

27 

 

(13)

Net Cash (Used in) Operating Activities

(853)

 

(870)

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

Purchase of property and equipment

(45)

 

(149)

 

Investment in water assets

(162)

 

 

Construction in progress

(604)

 

(1248)

Net Cash (Used in) Investing Activities

(811)

 

(1397)

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

Offering costs

(112)

 

(193)

 

GrowCo LLC preferred membership offerings

1,241 

 

1,249 

 

Payment on notes payable

(125)

 

(183)

 

Proceeds from long-term debt

300 

 

564 

Net Cash Provided by Financing Activities

1,304 

 

1,437 

Net (Decrease) in Cash & Cash Equivalents

(360)

 

(830)

Beginning Cash & Cash Equivalents

521 

 

1,934 

Ending Cash & Cash Equivalents

$

161 

 

$

1,104 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

Cash paid for interest

$

339 

 

$

156 

 

Equipment purchases financed

$

 

$

64 

 

Non-cash payment of preferred distribution

$

 

$

499 

 

Non-cash conversion of debt to GrowCo Partners 1, LLC membership units

$

 

$

1,840 


The accompanying notes to condensed consolidated financial statements are an integral part of these statements.



6




TWO RIVERS WATER & FARMING COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2016 and March 31, 2015

(Unaudited)


NOTE 1 – ORGANIZATION AND BUSINESS

The following is a summary of some of the information contained in this document.  Unless the context requires otherwise, references in this document to “Two Rivers,” or the “Company” is to Two Rivers Water & Farming Company and its subsidiaries.

Corporate Evolution


On January 29, 2014, the board of directors approved a plan to reorganize our subsidiaries in a more integrated manner based on functional operations.  We formed a new company, TR Capital Partners, LLC or TR Capital, which issued all of its common units to Two Rivers Water & Farming Company.  Two Rivers then initiated the transactions whereby our direct and indirect subsidiaries entered into a series of related transactions as the result of which assets and operations of subsidiaries transferred to TR Capital.  As a result of those transactions, TR Capital operates all of the operations formerly conducted by those subsidiaries, and we classify TR Capital as Two Rivers Water & Farming Company.  Two Rivers has divided its operations into our traditional lines of business of farming and water and into our cannabis-focus business under GrowCo, Inc. The following chart shows our current corporate organization:


[f2016033110q_10q001.jpg]




Overview


In 2009, we began acquiring and developing irrigated farmland and associated water rights and infrastructure.  As of March 31, 2016, we own 7,350 gross acres. We will seek to expand our holdings by strategically acquiring or leasing irrigable farmland in the Arkansas River Basin.  We intend to develop and bring into production more of our currently held gross acres as we acquire additional water rights.  We also expect to increase the variety of crops we produce as we continue to expand.




7




In May, 2014, we formed GrowCo, Inc., or GrowCo, which issued 20,000,000 shares of its common stock to the Parent Company.  On August 1, 2014 we announced that we were reserving 10,000,000 of the GrowCo shares to be distributed to holders of Common Stock as of four record dates (January 1, 2015; April 1, 2015; July 1, 2015 and October 1, 2015) after an effective registration statement is filed, which has not yet occurred.  On each record date, we recorded a pending distribution of 2,500,000 GrowCo common shares on a pro rata basis to holders of Common Stock.


Under GrowCo, a separate Colorado limited liability company will own each greenhouse project.  On January 20, 2015, we announced that GrowCo Partners 1, LLC, or GCP1, completed a $4.4 million financing for the first greenhouse project, which consists of a 90,000 square foot greenhouse and 15,000 square foot processing and warehouse facility on 40 acres of land.  GCP1’s greenhouse was partially occupied in September with lease revenue beginning September 1, 2015.


Our second greenhouse project will also consist of a 90,000 square foot greenhouses and a 15,000 square foot processing and warehouse facilities on an additional 80 acres of land.  Upon completion, this project (GCP 2) will be operated, as a landlord, by a separate GrowCo LLC.  Construction on this greenhouse began in early January, 2016 with an expected completion by September 30, 2016.

 

During the third quarter of 2015, GrowCo completed a $4.0 million private placement of GrowCo debt, with proceeds to be used to partially fund the second greenhouse and provide working capital.


In December 2015, GrowCo completed a $5.1 million private placement of equity interests of GCP Super Units, LLC, which will invest directly in various assets of GrowCo, with proceeds to be used to complete the construction of the first greenhouse, partially fund the second greenhouse and provide working capital.  Our investment in GCP Super Units, LLC is reflected on our balance sheet as a non-controlling equity interest.   


In the first quarter of 2016, to raise additional capital, GrowCo began to offer up to $1.5 million in promissory notes.  As of March 31, 2016, GrowCo obtained $300,000 in subscriptions and associated payments.  Subsequent to March 31, 2016, GrowCo changed its $1.5 million promissory notes into a $5.0 million senior note offering, with the notes paying 22.5% per annum interest and due May 31, 2018.  



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Two Rivers along with its farming, water and greenhouse operations. All significant inter-company balances and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Item 210 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements, although the Company believes that the disclosures made are adequate to make the information not misleading. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation for the periods presented have been included as required by Regulation S-X, Rule 10-01.  Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ended December 31, 2016. It is suggested that these condensed consolidated financial statements be read in conjunction with the Company’s consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.




8




Non-controlling Interest

Below is the detail of non-controlling interest shown on the condensed consolidated balance sheets.

 

As of

Entity

March 31, 2016

December 31, 2015

TR Capital

$

20,588,000

$

20,588,000

HCIC

1,375,000

1,375,000

F-1

28,000

28,000

F-2

162,000

162,000

DFP

452,000

452,000

GrowCo Partners 1, LLC

3,521,000

3,521,000

GCP Super Units, LLC

4,957,000

3,828,000

TR Cap 20150630 Distribution, LLC

498,000

498,000

TR Cap 20150930 Distribution, LLC

460,000

460,000

TR Cap 20151231 Distribution, LLC

495,000

-

Totals

$

32,536,000

$

30,912,000


During the year ended December 31, 2015, $152,000 of TR Capital Preferred Membership units converted into Two Rivers’ common shares and $60,000 of F-2 membership units converted into Two Rivers’ common shares.  Two Rivers also formed two LLC special entities (TR Cap 20150630 Distribution and TR Cap 20150930 Distribution) to provide in-kind distributions totaling $958,000 to holders of TR Capital Preferred Membership units.

During the quarter ended March 31, 2016, Two Rivers also formed a LLC special entity (TR Cap 20151231 Distribution) to provide in-kind distributions totaling $495,000 to holders of TR Capital Preferred Membership units.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reported period.  Actual results could differ materially from those estimates.

Cash and Cash Equivalents

For purposes of reporting cash flows, Two Rivers Water & Farming Company considers cash and cash equivalents to include highly liquid investments with original maturities of 90 days or less. Those are readily convertible into cash and not subject to significant risk from fluctuations in interest rates.  The recorded amounts for cash equivalents approximate fair value due to the short-term nature of these financial instruments.

Farm Product

Farm product represents expenses directly attributed to the planting and cultivation of the crops.  Upon harvesting, the farm product is reduced in proportion to the revenue generated.  The reduction of the farm product is recognized as direct cost of revenue.

Lease Revenues – Related Party




9




The lease between GrowCo (through its subsidiary, GCP 1) and its related party lessee, Suncanna, is classified as an operating lease.  Under ASC 840-10-25-1(a) “Lease Classification Criteria”, a lease is an operating lease if it does not many any of the four criteria listed in ASC 840-10-25-1.  GrowCo’s lease with Suncanna does not meet any of these criteria.


For the period September 1, 2015 through December 31, 2015, Lease revenue – related party is recognized monthly at the end of each month.  Total lease payments under the 60 month lease agreement, which are $11,151,000, is divided by the lease term.  Therefore, the average lease rate per month is $186,000. This spreads the total amount of the lease payment stream over the life of the lease.  


As of December 31, 2016, we have advanced $203,000 to our related party tenant, Suncanna, to assist with its working capital.  ASC 605-45-45 “Revenue Recognition, Principal Agent Considerations” provides eight indicators that may support reporting gross revenue.  While GrowCo does not have any rights to Suncanna’s cannabis inventory, Two Rivers has determined that GrowCo is the primary obligor of Suncanna’s working capital commitments, performs part of the service on behalf of Suncanna, involved in the determination of services to Suncanna, and has credit risk.  Therefore, the $203,000 is recognized as an addition to leasing revenue – related party with $203,000 shown as the direct cost of leasing revenue.


On April 14, 2015, we received notice from the Enforcement Division of the Colorado Department of Revenue that Suncanna received a suspension order.  This caused Suncanna to be in violation of its lease with GCP1.  Therefore, GCP1 began eviction process against Suncanna.  Due the eviction process, during the three months ended March 31, 2016, we wrote off $743,000 in Lease Revenues – Related Party, wrote off $587,000 in advances to Suncanna, and did not recognized any Lease Revenues – Related Party.  The total write off of $1,287,000 is partially off-set by a $350,000 reduction in the amount owed to the GCP1 preferred unit holders.


Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.  Depreciation is computed principally on the straight-line method over the estimated useful life of each type of asset, which ranges from three to twenty seven and a half years.  Maintenance and repairs are charged to expense as incurred; improvements and betterments are capitalized.  Upon retirement or disposition, the related costs and accumulated depreciation are removed from the accounts, and any resulting gains or losses are credited or charged to income.

Below is a summary of premises and equipment:

Asset Type

Life in Years

 

March 31, 2016

December 31, 2015

Office equipment, furniture

5 – 7

 

$

11,000 

$

11,000 

Computers

3

 

47,000 

45,000 

Vehicles

5

 

45,000 

45,000 

Farm equipment

7 - 10

 

1,850,000 

1,807,000 

Irrigation system

10

 

995,000 

995,000 

Buildings

27.5

 

393,000 

393,000 

Website

3

 

7,000 

7,000 

Subtotal

 

 

3,348,000 

3,303,000 

Less: Accumulated depreciation

 

 

(1,460,000)

(1,354,000)

Net book value

 

 

$

1,888,000 

$

1,949,000 


Land

Land acquired for farming is recorded at cost.  Some of the land acquired has not been farmed for many years, if not decades.  Therefore, additional expenditures are required to make the land ready for efficient farming.  Expenditures for leveling the land are added to the cost of the land.  Irrigation is not capitalized in the cost of Land (Property and Equipment above). Land is not depreciated.  However, once per year, Management will assess the value of land held, and in their opinion, if the land has become impaired, Management will establish an allowance against the land.



10




Water Rights and Infrastructure

Subsequent to purchase of water rights and water infrastructure, management periodically evaluates the carrying value of its assets, and if the carrying value is in excess of fair market value, the Company will establish an impairment allowance.  Currently, there is a $30,000 impairment reserve on the Company’s land and water shares.  No amortization or depreciation is taken on the water rights.

Intangibles

Two Rivers recognizes the estimated fair value of water rights acquired by the Company’s purchase of stock in HCIC and Orlando.   These intangible assets will not be amortized because they have an indefinite remaining useful life based on many factors and considerations, including, the historical upward valuation of water rights within Colorado.

Revenue Recognition

Farm Revenues

Revenues from farming operations are recognized when sold into the market.  All direct expenses related to farming operations are capitalized as farm inventory and recognized as a direct cost of sale upon the sale of the crops.

Shipping costs invoiced to customers are shown as farm revenue.  Shipping costs paid by the Company are shown in the direct cost of farm revenue.

Member Assessments

Once per year the HCIC board estimates HCIC’s expenses, less anticipated water revenues, and establishes an annual assessment per ownership share.  One-half of the member assessment is recorded in the first quarter of the calendar year and the other one-half of the member assessment is recorded in the third quarter of the calendar year.  Assessments paid by Two Rivers Water Company to HCIC are eliminated in consolidation of the condensed consolidated financial statements.

HCIC does not reserve against any unpaid assessments.  Assessments due, but unpaid, are secured by the member’s ownership of HCIC.  The value of this ownership is significantly greater than the annual assessments.

Stock Based Compensation

Beginning January 1, 2006, the Company adopted the provisions of ASC 718 and accounts for stock-based compensation in accordance with ASC 718.  Under the fair value recognition provisions of this standard, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which generally is the vesting period.  The Company elected the modified-prospective method, under which prior periods are not revised for comparative purposes.  The valuation provisions of ASC 718 apply to new grants and to grants that were outstanding as of the effective date and are subsequently modified.  

Net Income (Loss) per Share

Basic net income per share is computed by dividing net income (loss) attributed to Two Rivers available to common shareholders for the period by the weighted average number of common shares outstanding for the period.  Diluted net income (loss) per share is computed by dividing the net income for the period by the weighted average number of common and potential common shares outstanding during the period.

The dilutive effect of the outstanding 2,369,948 RSUs, 2,014,867 options, and 17,802,908 warrants at March 31, 2016, has not been included in the determination of diluted earnings per share since, under ASC 260 they would anti-dilutive.

Recently Issued Accounting Pronouncements



11




In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification Topic No. 605, Revenue Recognition, most industry-specific guidance throughout the industry topics of the accounting standards codification, and some cost guidance related to construction-type and production-type contracts. ASU 2014-09 is effective for public entities for annual periods and interim periods within those annual periods beginning after December 15, 2017. Early adoption is not permitted. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern, or ASU 2014-15. ASU 2014-15 amends FASB ASC 205-40 Presentation of Financial Statements – Going Concern, by providing guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements, including requiring management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements and providing certain disclosures if there is substantial doubt about the entity’s ability to continue as a going concern. ASU 2014-15 will be effective after December 15, 2016, and early adoption is permitted.  We are still evaluating the impact of this ASU on our financial statement disclosures.

In April 2015, FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.  The guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.  Early adoption is allowed for financial statements that have not been previously issued.  Debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts.  The Company has elected to adopt this ASU in 2015 and is presented in these financial statements.


On February 25, 2016, FASB issued a new lease accounting standard, ASU 2016-02, Leases (Topic 842). The new leasing standard presents changes to the balance sheets of lessees. The guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  Lessor accounting is updated to align with certain changes in the lessee model and the new revenue recognition standard.  We are evaluating the impact of this ASU on our financial statement disclosures.


The Company elected to adopt early FASB ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs, whereby debt issuance costs are recorded as a deduction from the carrying value of liability, and not recorded as an asset.  The debt issuance costs are amortized using the effective interest method.


Management does not believe that any other recently issued, but not effective, accounting standards if currently adopted would have a material effect on the accompanying consolidated financial statements.



NOTE 3 – INVESTMENTS AND LONG-LIVED ASSETS


Land


Upon purchasing land, the value is recorded at the purchase price or fair value, whichever is more appropriate.  Costs incurred to prepare the land for the intended purpose, which is efficient irrigated farming, is also capitalized in the recorded cost of the land.  No amortization or depreciation is taken on land.  However the land is reviewed by management at least once per year to ascertain if a further analysis is necessary for any potential impairments.



12





Water Rights and Infrastructure


The Company has acquired both direct flow water rights and water storage rights.  It has obtained water rights through the purchase of shares in a mutual ditch company, which it accomplished through its purchase of shares in HCIC, or through the purchase of an entity holding water rights, which it effected through its purchase of a membership interest of Orlando.  The Company may also acquire water rights through outright purchase.  In all cases, such rights are recognized under decrees of the Colorado water court and administered under the jurisdiction of the Office of the State Engineer.


Subsequent to purchase, management periodically evaluates the carrying value of its assets, and if the carrying value is in excess of fair market value, the Company will establish an impairment allowance.  Currently, there are no impairments on the Company’s land and water shares.  No amortization or depreciation is taken on the water rights.


GrowCo, GCP1, GCP 2 Greenhouse Construction in Progress


The Company has completed the construction of its first greenhouse (91,000 square feet) and related warehouse facilities (15,000 square feet).  In addition, the Company is in the process of rehabilitating various outlet gates, pipes and water gates.  These costs are capitalized, and not amortized or depreciated until the dam construction is completed in accordance with ASC 360 and 835.


Construction costs are as follows:

 

Three Months ended

Year ended

 

March 31, 2016

December 31, 2015

Beginning balance

$

4,684,000 

$

1,081,000 

Additions

604,000 

5,430,000 

Finished - Transferred

(3,220,000)

(1,827,000)

Ending Balance

$

2,068,000 

$

4,684,000 


The Company estimates an additional expenditure of $150,000 is required for the completion of the GCP1 greenhouse and warehouse and $2.4 million to complete GCP 2.  The remaining balance in construction in progress represents greenhouse 2 costs.



NOTE 4 – NOTES PAYABLE


Below is a summary of the Company’s consolidated long term debt:



13





 

March 31, 2016

December 31, 2015

 

 

 

Note

Principal Balance

Accrued Interest

Principal Balance

Interest rate

Security

HCIC seller carry back

$

7,319,000

$

37,000

$

7,373,000

6%

Shares in the Mutual Ditch Company

Series B convertible debt

-

-

25,000

6%

F-2 assets

CWCB

802,000

24,000

845,000

2.5%

Certain Orlando and Farmland assets

FirstOak Bank - Dionisio Farm

771,000

12,000

771,000

(1)

Dionisio farmland and 146.4 shares of Bessemer Irrigating Ditch Company Stock, well permits

FirstOak Bank - Dionisio Farm

162,000

1,000 

162,000

(2)

Dionisio farmland and 9 shares of Bessemer Irrigating Ditch Company Stock, well permits, water leases

Seller Carry Back - Dionisio

590,000

4,000 

590,000

6.0%

Unsecured

FirstOak Bank - Mater

152,000

2,000 

152,000

(1)

Secured by Mater assets purchased

McFinney Agri-Finance

629,000

631,000

6.8%

2,579 acres of pasture land in Ellicott Colorado

GrowCo, Inc.

4,300,000

81,000 

4,000,000

22.5%

Various land and water assets

Equipment loans

383,000

13,000 

385,000

5 - 8%

Specific equipment

Total

15,108,000 

$

174,000

14,934,000 

 

 

 

Less: HCIC discount

(65,000)

 

(127,000)

 

 

 

Less: GrowCo discount

(102,000)

 

(109,000)

 

 

 

Less: Current portion

(11,018,000)

 

(11,068,000)

 

 

 

Long term portion

$

3,923,000 

 

$

3,630,000 

 

 

 


Notes:

  (1) Prime rate + 1%, but not less than 6%

  (2) Prime rate + 1.5%, but not less than 6%


The Company elected to adopt early FASB ASU 2015-03, whereby debt issuance costs are recorded as a deduction from the carrying value of liability, and not recorded as an asset.  The debt issuance costs are amortized using the effective interest method.  As of March 31, 2016 and December 31, 2015, the total debt discount was $167,000 and $236,000, respectively.


NOTE 5 – INFORMATION ON BUSINESS SEGMENTS


We organize our business segments based on the nature of the products and services offered.  We focus on the Water and Farming Business with Two Rivers Water & Farming Company as the Parent company.  Therefore, we report our segments by these lines of businesses: Farms and Water.  Farms contain all of our Farming Business (Farms, F-1, F-2, Dionisio).  Water contains our Water Business (HCIC and Orlando).  Our Parent category is not a separate reportable operating segment.  Segment allocations may differ from those on the face of the income statement.


In the following tables of financial data, the total of the operating results of these business segments is reconciled, as appropriate, to the corresponding consolidated amount.  There are some corporate expenses that were not allocated to the business segments, and these expenses are contained in the “Total Operating Expenses” under Parent.



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Operating results for each of the segments of the Company are as follows (in thousands):


 

 

For the three months ended March 31, 2016

 

For the three months ended March 31, 2015

 

 

Parent

Farms

Greenhouse Leasing & Services

Water

Total

 

Parent

Farms

Greenhouse Leasing & Services

Water

Total

Revenue

$

$

120 

$

$

$

120 

 

$

$

$

$

$

 

Less: direct cost of revenue

50 

50 

 

Gross Profit (Loss)

70 

70 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

364 

136 

1,176 

32 

1,708 

 

364 

94 

 

32 

490 

 

Total other expense

76 

224 

51 

351 

 

48 

44 

15 

153 

260 

Total Expenses

364 

212 

1,400 

83 

2,059 

 

412 

138 

15 

185 

750 

Net (Loss) Income from operations before income taxes

(364)

(142)

(1,400)

(83)

(1,989)

 

(412)

(138)

(15)

(185)

(750)

Income Taxes (Expense)/Credit

 

 

Net (Loss) before Non-Controlling Interest

(364)

(142)

(1,400)

(83)

(1,989)

 

(412)

(138)

(15)

(185)

(750)

Non-controlling interest

 

 

Net (Loss)

(364)

(142)

(1,400)

(83)

(1,989)

 

(412)

(138)

(15)

(185)

(750)

 

Preferred shareholder distributions

(453)

(148)

(601)

 

(499)

(49)

(79)

(627)

Net (Loss) attributed to Two Rivers Water & Farming Company Common Shareholders

$

(817)

$

(142)

$

(1,548)

$

(83)

$

(2,590)

 

$

(911)

$

(187)

$

(94)

$

(185)

$

(1,377)

Segment assets

$

1,913 

$

7,044 

$

7,214 

$

31,800 

$

47,971 

 

$

569 

$

9,040 

$

3,038 

$

31,289 

$

43,936 






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NOTE 7– EQUITY TRANSACTIONS


Common Stock


The Company has authorized 100,000,000 shares of common stock with a par value of $0.001.  The total issued common stock as of March 31, 2016, was 26,980,811common shares.

During the three months ended March 31, 2015 the Company issued 130,833 shares to the independent members of the Board of Directors for services performed in 2014.

During the three months ended March 31, 2016, the Company had no common stock transactions.



NOTE 8 – RELATED PARTY TRANSACTIONS


The Company’s CEO, John McKowen, invested $1.121million into the GCP Super Units, LLC.  For his investment, he was paid a finder’s fee of $73,000, which he netted against his investment.



NOTE 9 – SUBSEQUENT EVENTS


Pursuant to ASC 855, management has evaluated all events and transactions that occurred from March 31, 2016 through the date of issuance of these financial statements.  During this period, we had the following significant subsequent events:


On April 14, 2016, we received notice from the Marianna Enforcement Division of the Colorado Department of Revenue that Suncanna received a suspension order.  This caused Suncanna to be in violation of its lease with GCP1.  Therefore, GCP1 began eviction process against Suncanna.  Due the eviction process, during the three months ended March 31, 2016, we wrote off $743,000 in Lease Revenues – Related Party, wrote off $587,000 in advances to Suncanna, and did not recognized any Lease Revenues – Related Party.  The total write off of $1.287 million is partially off-set by a $350,000 reduction in the amount owed to the GCP1 preferred unit holders.


On May 2, 2016 converted GrowCo’s $1.5 million promissory note offering to a $5.0 million promissory note offering at 22.5% per annum and included a warrant in Two Rivers common shares for each dollar invested at $0.50/share and a warrant in GrowCo common shares for each dollar invested.  Both warrants expire May 21, 2021.  The investors that invested in the $1.5 million note offering were offered an exchange to the $5.0 million note offering, of which $150,000 have converted.  As of May 6, 2016 GrowCo has raised $1.305 million, which includes those that converted from the $1.5 million promissory note offering.





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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Unless the context requires otherwise, references in this Form 10-Q to “we,” “our,” “us” and similar terms refer to Two Rivers Water & Farming Company and its subsidiaries.

Note about Forward-Looking Statements


This Form 10-Q contains forward-looking statements, such as statements relating to our financial condition, results of operations, plans, objectives, future performance and business operations.  These statements relate to expectations concerning matters that are not historical facts.  These forward-looking statements reflect our current views and expectations based largely upon the information currently available to us and are subject to inherent risks and uncertainties.  Although we believe our expectations are based on reasonable assumptions, they are not guarantees of future performance and there are a number of important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.  By making these forward-looking statements, we do not undertake to update them in any manner except as may be required by our disclosure obligations in filings we make with the Securities and Exchange Commission under the Federal securities laws.  Our actual results may differ materially from our forward-looking statements.


Overview

Our core business converts irrigated farmland from traditional use in the area which grew marginally profitable feed crops to growing fruit and vegetable crops that generate higher yield, revenue and operating margins.  In the short-term, our business model is designed to provide us with increased profitability and cash flow that is enabling us to expand our farming operations by acquiring and developing additional irrigated farmland and associated water rights and infrastructure.  In the longer term, we believe our ability and willingness to pay a higher price for water will increase our access to water.  We seek to concentrate our acquisitions on water rights and infrastructure that are, in part, owned by municipalities, which can alleviate and expedite the legal and political processes necessary for municipal consumers to obtain excess water.  

In 2016we have planted, or plan to plant, a total of 845 acres with no preventative planted acres.Our planned crop production will consist of cabbage, pumpkins, squash, watermelon, onions, parsnips and pinto beans grown for human consumption, as well as feed/industrial crops, such as hemp and corn, planted as part of our crop rotation practice.

In 2015 we farmed a total of 973 gross acres, of which 661 gross acres were planted and 312 acres were preventive planted.

Due to our strategic location of farmland and associated water rights, greenhouses operators have approached us to purchase some of our farmland and water rights.  Since core to our business is the long-term ownership of farmland and water rights, we are not interested in one time sales.  Rather, we want to use our excess farmland and associated water to create revenue streams.  


In Colorado, since the passing of recreational use of marijuana in 2012, the demand of marijuana has increased substantially. To address this demand, in May, 2014, we formed GrowCo, Inc., or GrowCo, which issued 20,000,000 shares of its common stock to the Parent Company.  On August 1, 2014 we announced that we were reserving 10,000,000 of the GrowCo shares to be distributed to holders of Common Stock as of four record dates (January 1, 2015; April 1, 2015; July 1, 2015 and October 1, 2015) after an effective registration statement is filed, which has not yet occurred.  On each record date, we recorded a pending distribution of 2,500,000 GrowCo common shares on a pro rata basis to holders of Common Stock.


Under GrowCo, a separate Colorado limited liability company will own each greenhouse project.  On January 20, 2015, we announced that GrowCo Partners 1, LLC, or GCP1, completed a $4.4 million financing for the first greenhouse project, which consists of a 90,000 square foot greenhouse and 15,000 square foot processing and warehouse facility on 40 acres of land.  GCP1’s greenhouse was partially occupied in September with lease revenue beginning September 1, 2015.



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On April 14, 2016 we were notified that the sole tenant of GCP1 greenhouse (Suncanna LLC) received a notice of suspension from the Marijuana Enforcement Division of the Colorado Department of Revenue.  This suspension remains in place until a hearing is set.   Due to this suspension order, the GCP1 greenhouse tenant (Suncanna, LLC) is in violation of its lease.  Therefore, on April 25, 2016, GCP1 terminated Suncanna’s lease and began an eviction process against Suncanna.  Therefore, the Company did not recognize any lease revenue for the quarter ended March 31, 2016. As of December 31, 2015, the Company recorded a lease receivable of $700,000 and deferred rent of $43,400.  Due to Suncanna’s suspension, during the quarter ending March 31, 2016 the Company wrote off the $700,000 lease receivable and the deferred rent of $43,400.  Further, advances to Suncanna of $587,000 were written off.


Our second greenhouse project will also consist of a 90,000 square foot greenhouse and 15,000 square foot processing and warehouse facility on an additional 40 acres of land.  Upon completion, this project will be operated, as a landlord, by a separate LLC under GrowCo (GCP 2).   GCP 2’s greenhouse will share some facilities (e.g., boiler, water, generator) whereby costs might be shared with GCP 1.  GCP 2’s greenhouse structure was ordered in 2015.  Construction on this greenhouse began in early January, 2016 with an expected completion by November 30, 2016.  


During the third quarter of 2015, GrowCo completed a $4.0 million private placement of GrowCo debt, with proceeds to be used to partially fund the second greenhouse and provide working capital.


In December 2015, GrowCo completed a $5.1 million private placement of equity interests of GCP Super Units, LLC, which will invest directly in various assets of GrowCo, with proceeds to be used to complete the construction of the first greenhouse, partially fund the second greenhouse and provide working capital.  Our investment in GCP Super Units, LLC is reflected on our balance sheet as a non-controlling equity interest.   


During the quarter ending March 31, 2016, GrowCo initiated a $5.0 million exchange note offering, which was subsequently increased to a $6.0 million offering.  As of March 31, 2016, $300,000 had been subscribed and collected.  As of May 6, 2016, the Company has closed on $1.305 million, which does not include $150,000 from the prior note offering that has not yet exchanged into the current note offering.


Results of Operations


Our Consolidated Operations


For the Three Months Ended March 31, 2016, Compared to the Three Months Ended March 31, 2015


Due to the nature of our farming business for the three months ended March 31, 2016 and March 31, 2015, we have little or no revenues.  The revenue of $103,000for the three months ended March 31, 2016 was from the sale of parsnips. Also during this period, we recognized $17,000 from leasing our land.


Operating expenses from operations during the three months ended March 31, 2016 and 2015 were $1,708,000 and $490,000, respectively. The increase of $1,218,000 was primarily due to the $743,000 write off of the December 31, 2015 lease receivable and deferred rent, the write off of $587,000 in advances paid to Suncanna, partially offset by a reduction of $350,000 of the distributions owed to GrowCo Partners 1, LLC preferred members.  The Company also had increased legal expenses due to the Suncanna issue.   Therefore, for operations, during the three months ended March 31, 2016 and 2015, we recognized a net loss of $1,638,000 and $490,000, respectively.


Net loss attributed to Two Rivers for the three months ended March 31, 2016 was $2,590,000, compared to a loss of $1,377,000 for the three months ended March 31, 2015. The increase of $1,213,000 is due primarily to the reasons stated above and a $175,000 increase in interest expense.


Liquidity and Capital Resources


We have funded our operations primarily from the following sources:



18




·

Equity proceeds through private placements of Two Rivers Water & Farming Company and subsidiaries securities;

·

Revenue generated from operations;

·

Loans and lines of credit;


As of March 31, 2016, we had no available line or letters of credit and do not intend to seek any such financing in the foreseeable future.


Cash flow from operations has not historically been sufficient to sustain our operations without the above additional sources of capital.  As of March 31, 2016, we had cash and cash equivalents of $161,000. Cash flow consumed by our operating activities totaled $853,000 for the three months ended March 31, 2016, compared to operating activities consuming $870,000 for the three months ended March 31, 2015.


As of March 31, 2016, we had $1,096,000 in current assets and $13,890,000 in current liabilities. Of the current liabilities, $6,752,000 is from the HCIC seller carry back notes that are due June 30, 2016.  Management has been in contact with the various holders about an extension to July 1, 2019.  As of May 9, 2016, management has received a verbal commitment to extend $3,197,000 of these notes to July 1, 2019.The HCIC seller carry back notes have the HCIC ditch system as collateral, with an appraised value of $24,216,000.


Additionally, another $4,000,000 of GrowCo notes are classified as current liabilities.  The notes are due April 1, 2020; however the holders have the right to request full payment of the principal balance with a 60 day notice.  Management believes that none of the note holders will request the early principal payment option due to the high rate of interest and all note holders are also investors in other securities of the Company.


During the quarter ended March 31, 2016, GrowCo began offering $5,000,000 in senior secured exchange  notes due May 31, 2018, paying 22.5% annual interest, and an option at the holder to exchange into certain assets of GrowCo. Subsequent to the three months ended March 31, 2016 and through May 6, 2016, the Company received subscriptions and payment for an additional $1,155,000, net of offering costs, and converted $150,000 from a prior note payable into this offering.


Cash used in investing activities was $811,000 for the three months ended March 31, 2016 compared to $1,397,000 for the three months ended March 31, 2015. During the three months ended March 31, 2016, we purchased $45,000 in farming equipment, invested $162,000 in our water assets and continued on our construction of  GCP1 and GCP23X greenhouse of $604,000.


Cash flows generated by our financing activities for the three months ended March 31, 2016 was $1,304,000 compared to $1,437,000 for the three months ended March 31, 2015. During the three months ended March 31, 2016, we completed our GCP Super Units, LLC offering, closed on $300,000 of GrowCo debt, and reduced $125,000 in principal on our existing debt.


We currently expect that our cash expenditures will increase for the foreseeable future, as we seek to further expand our farming business and to continue expanding GrowCo.  As a result, our existing cash and cash equivalents and other working capital may not be sufficient to meet all of the projected cash needs contemplated by our business strategies for the remainder of 2016 and for 2017.  To the extent our cash and cash equivalents and other working capital are insufficient to fund our planned activities, we may need to either slow our growth initiatives or raise additional funds through public or private equity or debt financings.  We also may need to raise additional funds in the event we determine in the future to affect one or more acquisitions of businesses, technologies and products.  If additional funding is required, we cannot assure that we will be able to affect an equity or debt financing on terms acceptable to us or at all.


Critical Accounting Policies


We have identified the policies below as critical to our business operations and the understanding of our results from operations.  The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Conditions and Results of Operations where such policies affect our reported and expected financial results.  For a detailed discussion of



19




the application of these and other accounting policies, see Note 2 of the notes to condensed consolidated financial statements included elsewhere in this Form 10-Q.  Our preparation of such condensed consolidated financial statements and this Form 10-Q requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period.  There can be no assurance that actual results will not differ from those estimates.


Revenue Recognition


We follow specific and detailed guidelines in measuring revenue; however, certain judgments may affect the application of our revenue policy.  Revenue results are difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter and could result in future operating losses.


Goodwill and Intangible Assets


We have acquired water shares in Huerfano-Cucharas Irrigation Company, which is considered an intangible asset and shown on our balance sheet as part of “Water assets”.  Currently, these shares are recorded at purchase price less our pro rata share of the negative net worth in HCIC Holdings, LLC.  Management evaluates the carrying value, and if necessary, will establish an impairment of value to reflect current fair market value.  Currently, there are no impairments on the water shares.


In 2012, we acquired a produce business, which is considered an intangible asset and shown on our balance sheet as “Intangible assets, net”.   Management evaluated the purchase price of $1.0 million and allocated this price to customer list, trade name and goodwill.


Capitalization of Certain Interest Expenses


As part of our GrowCo development operations, which began in July 2014, the Company began to incur large construction costs, which are capitalized.  The related interest expenses incurred related to these expenditures can be capitalized as well per ASC 720-15.  This guidance states that interest should be capitalized in relation to the following assets: (i) assets that are constructed or otherwise produced for an entity’s own use, (ii) assets intended for sale or lease that are constructed or otherwise produced as discrete projects, and (iii) investments accounted for by the equity method while the investee has activities in progress necessary to commence its planned principal operations.  As the GrowCo assets classify under the second point, the Company began the process of calculating interest costs to be capitalized each quarter.  Interest capitalization begins when the expenditures begin and interest is being incurred.  Management independently determines the start point for each individual project when it commences.  At the end of each quarter, management will then take the average accumulated expenditures for each project, multiplied by the interest rate on the associated debt (or the weighted average rate on all debt if no debt is specifically associated) to arrive at a capitalized interest amount.  This amount will be booked as an adjustment to interest expense each quarter.  Once the construction process ends and the asset is deemed ready for use, capitalization of interest will cease.


Impairment Policy


At least once every year, management examines all of our assets for proper valuation and to determine if an impairment is necessary.  In terms of real estate owned, this impairment examination also includes the accumulated depreciation.  Management examines market valuations and if an additional impairment is necessary for lower of cost or market, then an impairment charge is recorded.  


Inflation


We do not believe that inflation will have a material negative impact on our operations in the foreseeable future.




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


We are exposed to the impact of interest rate changes and change in the market values of our real estate properties and water assets.  Because we had no market risk sensitive instruments outstanding as of March 31, 2016, it was determined that there was no material market risk exposure to our consolidated financial position, results of operations, or cash flows as of such date.  We do not enter into derivatives or other financial instruments for trading or speculative purposes.


ITEM 4.  CONTROLS AND PROCEDURES


Management’s Evaluation of Disclosures Controls and Procedures

Our management, comprised of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2016.  The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.  Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as described above.  Based on this evaluation, our management concluded that as of March 31, 2016, our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting.  “Internal control over financial reporting” is defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that:

·

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of a company;

·

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and that receipts and expenditures of a company are being made only in accordance with authorizations of management and directors of a company; and

·

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of a company’s assets that could have a material effect on the financial statements.

Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements.  All internal control systems, no matter how well designed, have inherent limitations, which may not prevent or detect misstatements.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Projections of any evaluation of effectiveness



21




to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.  Based on this assessment, management concluded that, as of March 31, 2016, our internal control over financial reporting was effective based on those criteria.

Changes in Internal Control over Financial Reporting

Since the year ending December 31, 2015 we have had no changes in our internal controls over financial reporting.


PART II.  OTHER INFORMATION


ITEM 1A.  RISK FACTORS


The risks described in Item 1A. Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2015, could materially and adversely affect our business, financial condition and results of operations.  Those risk factors do not identify all risks that we face, and operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations.


ITEM 6.   EXHIBITS


The following exhibits are being filed as part of this Form 10Q:


Exhibit
Number

 


Description

31.1

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

31.2

 

Certification of Principal Financial Officer pursuant to the Section 302 of the Sarbanes-Oxley Act

32.1

 

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act


SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) 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.

 

 

 

 

 

 

 

 

TWO RIVERS WATER & FARMING COMPANY


Date:  May 12, 2016

 

By:

 

/s/ Wayne Harding

 

 

 

 

Wayne Harding

 

 

 

 

Chief Financial Officer



22






EXHIBIT INDEX

 

Exhibit
Number

 


Description

31.1

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

31.2

 

Certification of Principal Financial Officer pursuant to the Section 302 of the Sarbanes-Oxley Act

32.1

 

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act




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