Surface Rights

The following table presents our holdings of surface, or direct flow, water rights with respect to the Bessemer

Storage Rights and Infrastructure

The following table presents our holdings of storage water rights:

7

Table of Contents

store the water.  The conditional right establishes a seniority date but allows time for completion of the project.  Conditional rights are reviewed every six years by the water court to confirm that progress is being made on the effort to perfect the right.  When a conditional water right is perfected, which can be done incrementally in the case of storage, the water right becomes absolute.

As part of our comprehensive water and farming system, we utilize storage reservoirs and ditches.  Reservoirs allow water owners to store their water and plan the water’s distribution throughout the growing season.  We currently own reservoirs associated with HCIC and Orlando, and we plan to develop additional reservoirs and augmentation ponds, also known as recharge ponds, in strategic locations in the Arkansas River watershed.  The development of storage reservoirs in the area will allow us to offer storage to other water users in the area.  Through water exchanges and other water-related transactions, the reservoirs can potentially increase and strengthen our existing water rights.

We are developing a recharge pond facility to supplement the irrigation water we receive from ditch companies.  Recharge consists of a series of ponds engineered to time water back to the river’s alluvium, or water table, over a certain period. Recharge ponds will allow us to pull water out of the alluvium of the river to irrigate their high-value irrigated vegetables during critical points of the irrigation season.

All of our reservoirs are used for irrigation in a similar manner to other reservoirs in the region, with the exception of Pueblo Reservoir, which was also constructed for flood control.  Direct flow rights generally are senior to most storage rights but typically do not divert early in the spring when storage rights fill.  The Arkansas River below Pueblo Reservoir operates a Winter Storage Program that re-allocates winter direct flow rights to storage in reservoirs from November 15 to March 15 each year.  The Bessemer Ditch has the ability to store water in the Pueblo Reservoir through the Winter Storage Program.

Because our water rights and operating structures are located at succeeding elevations in the watershed, the system moves water supplies from point of diversion, through storage, to place of use primarily by means of gravity, making our more economical to operate than systems requiring energy to pump water for beneficial use.

In order to use these rights and structures most efficiently, we have planned and begun to implement a program of renovation and integration.  For example, we began construction of new outlet works for the 1905 Orlando Reservoir in November 2011.  The work was completed and successfully tested in February 2012, approximately a year after we acquired Orlando.  Also in February 2012, we commenced reconstruction of the diversion structure, which takes water from the Huerfano River for storage in the Orlando reservoir, and to irrigate our nearby farmland.  Additional water facility renovation projects are planned on a phased basis as necessary to provide reliable irrigation for our expanding farming operations.

We currently have the operable right to store 15,000 acre-feet of water within the Huerfano and Cucharas Rivers watershed in three separate reservoirs, subject to repair, or removal and rebuilding, limitations.  When our reservoirs on the Huerfano and Cucharas Rivers have been fully restored, we will have the operable capacity and legal right to store in excess of 70,000 acre-feet of water.  Similarly, based on our portfolio of water rights, we have the right to divert from the natural flows of the two rivers in excess of 90 cubic feet per second.  Seasonal variability in the natural flow of the rivers, as well as the priorities of other water users in the system, limits our ability to divert the decreed amounts of water on a continuous basis.  Our current water rights produce a long-term average annual diversion of 15,000 acre-feet of water, which provides 10,000 acre-feet of consumptive use at the plant.

The 15,000 acre-feet average is based on a record period of more than 50 years and also relies on historic studies of these rights by a variety of engineers at various times.  It is common practice within the water industry in Colorado to use long periods of time to create reliable averages of water flow.  We believe that using averages relating to only recent years can be misleading because an average could be skewed if only one of those years was particularly dry or wet.  For example, in four out of the last ten years, there has been an extreme drought in our area of operations.  Due to this drought condition, our flow averages for the most recent ten, five and three years are 8,200 acre-feet, 10,500 acre-feet and 10,400 acre-feet, respectfully.  A similar request for the same averages for the decade beginning in 1980 would be result in averages of 5,900 acre-feet, 18,500 acre-feet and 17,200 acre-feet.

“Consumptive use” is the term for the portion of a water diversion right that is actually consumed by its beneficial use.  Where the beneficial use is agricultural irrigation, consumptive use represents the amount of water consumed by the irrigated crop or evaporated on the farm.  After deducting consumptive use from the amount of water diverted and applied to irrigation, the remainder is described as “return flow” to the system.  Such return flows are generally

8

Table of Contents

subject to appropriation downstream.  Only the consumptive use portion of a given water right is subject to transfer (that is, a change in the point of diversion, place of use, or purpose of use).  Therefore, water rights are often assigned monetary value based on the consumptive use portion.  Although consumptive use varies by crop, rainfall, temperature and other factors, in southeastern Colorado, crops generally consume about two acre-feet of applied water for each acre planted, depending on the crops planted.  In order to provide that amount of consumptive use water, an irrigator must generally apply three acre-feet of water (allowing for predictable return flow equal to about one-third of the applied water).  We measure our water rights both in terms of the amount of the diversion or storage right, as the case may be, but also in terms of the historic consumptive use.

Strategic Judicial Proceedings

In September 2011, we entered into a five-year lease with the Pueblo Board of Water Works for 500 acre-feet of water to be delivered to us annually by the Pueblo Board of Water Works.  We planned to use the water not only to support our farming operations but also to demonstrate the ability to store such water in our reservoirs through a judicially-approved exchange.  In September 2011 we filed a water court case (District Court, Water Division 2, Colorado) designed to improve the overall efficiency of our emerging system, including the ability to exchange water between the Arkansas River and our storage reservoirs.  This water court case, designated 11CW94, seeks approval of our plan to divert and store water even when our rights are not in priority by replacing the water downstream pursuant to the Pueblo Board of Water Works lease.  Although the water court’s ultimate approval to routinely carry out such an exchange awaits the completion of the judicial process, the Office of the State Engineer of Colorado administratively granted a temporary substitute water supply plan implementing such an exchange during the interim until the case is adjudicated.  Under the substitute water supply plan, we will be allowed to capture Huerfano River water for upstream storage and later use, even when our rights are not in priority.  To avoid injury to senior water rights, which have priority over our rights during the period of the exchange, the Pueblo Board of Water Works will release water pursuant to the replacement water contract upon our order.  By means of such exchanges, we plan to eventually integrate our water supply system with the overall water use and delivery systems served by the Arkansas River and its tributaries.  We plan to use the substitute water supply plan for augmentation.

Our Organizational Structure

Since commencing operations as a farming and water company in 2009, we have built an organizational structure that enabled us to raise capital for specific projects completed by our direct and indirect subsidiaries.  The following chart shows our corporate organization as of December 31, 2013:

9

Table of Contents

In January 2014, the board of directors approved a plan to reorganize our subsidiaries in a more integrated manner based on functional operations.  We formed TR Capital, which issued all of its common units to the Parent Company.   In a series of transactions from January to September 2014, TR Capital entered into Membership Interest Purchase Agreements pursuant to which it issued and sold a total of 30,158,815 preferred units to investors in exchange for consideration comprised of $6.0 million in cash and $15.2 million of outstanding equity and equity-related securities of our subsidiaries other than HCIC Holdings, LLC and Huerfano-Cucharas Irrigation Company.

The TR Capital Limited Liability Company Agreement dated as of January 31, 2014 provides that holders of preferred units generally will be entitled to receive distributions each fiscal year in an amount equal to the lesser of (a) 12% of the preferred unit holders’ aggregate capital contributions and (b) TR Capital’s Adjusted Gross Margin (as defined) for such fiscal year .  Regardless of TR Capital’s operating results, however, preferred unit holders are entitled to a minimum distribution for each full fiscal year equal to 8% of their aggregate capital contributions, payable in equal quarterly installments.  If TR Capital’s Adjusted Gross Margin for a fiscal year is less than 12% of the preferred unit holders’ aggregate capital contributions, the shortfall will not be payable in any subsequent fiscal year.  Distributions for fiscal year 2014 for each preferred unit were prorated for the portion of the year that the preferred unit was outstanding.

Pursuant to an Exchange Agreement dated as of January 31, 2014 entered into with TR Capital and the Parent Company, any holder may surrender a TR Capital preferred unit to the Parent Company at any time for consideration consisting of (a) accrued but unpaid preferred distributions on the preferred unit through the exchange date, (b) one share of Common Stock and (c) a warrant to purchase an additional one-half share of Common Stock at a price of $2.10 per share.  TR Capital may require (with limited exceptions) each of its outstanding preferred units to be surrendered to the Parent Company in exchange for such consideration at any time after January 31, 2017 , at which ( 1) for a period of 20 trading days, at least 250,000 shares of Common Stock have been traded on a national securities exchange for a closing price of at least $3.00 and (b) a registration statement filed by us with the SEC is effective with respect to the shares of Common Stock, including shares purchasable pursuant to warrants, issuable upon such exchanges.  Each warrant issued upon any such exchange generally will be exercisable at any time on or before January 31, 2019, subject to our right to redeem the warrant at any time after January 31, 2017 , at which (A) for a period of 20 trading days, at least 250,000 shares of Common Stock have been traded on a national securities exchange for a closing price of at least $3.00 and (B)  a registration statement has been filed and is effective with respect to the shares of Common Stock issuable pursuant to such warrant.  Under the Exchange Agreement, the Parent Company also granted holders of preferred units one-time demand registration rights under which the Parent Company may be required to file a registration statement covering shares of Common Stock (including shares subject to warrants) issued or issuable upon exchanges of TR Capital preferred units.  As of March 20, 2015, the Parent Company could be required under the Parent Company to issue and deliver to holders of outstanding TR Capital preferred units, upon exchange, up to 30,158,815 shares of Common Stock together with warrants to purchase up to an additional 15,079,408 shares of Common Stock.  If the Parent Company receives any TR Capital pursuant to exchanges under the Exchange Agreement, it would be entitled to receive distributions on those preferred units pro rata with other holders of preferred units.

Following the completion of those transactions in September 2014, TR Capital and the Parent Company’s other direct and indirect subsidiaries (excluding HCIC Holdings, LLC and HCIC) entered into a series of related transactions as the result of which control and operation of those other subsidiaries and their businesses transferred to TR Capital.   The following chart shows our corporate organization as of March 20, 2015:

10

Table of Contents

Corporate Information

The Parent Company is a Colorado corporation with principal executive offices at 2000 South Colorado Boulevard, Tower 1, Suite 3100, Denver, Colorado, and our telephone number at that address is (303) 222-1000. Our website address is www.2riverswater.com . The information on our website is not part of this report.

Sales

The produce industry, like many other industries, is built on relationships that take place over time and involve a great deal of trust. Our produce relationships were built exactly this way; DFP marketing relationships go back 20 years.  Contracts are negotiated on a yearly basis before planting begins.  At the beginning of the year, we reach out to our vendors to see what their needs are going to be for that year and plant to their needs. Once it is planted, the contract has been finalized with the agreed upon amount and price.  About 20% of the produce we grow does not have a contract, and will be sold to other vendors who contact us for product.  In 2014, we were unable to sell approximately 40 acres of cabbage production.  We are taking steps to mitigate loss of vegetable production through expanding our network of buyers.

We also have a network of growers that grow produce for us.  Once our produce contracts are finalized, and our planting schedule for the year is complete, we reach out to our growers to ask them to plant the remaining crops we need.  As people in the area become aware of our operation, they are signing up to grow for us. 

Competition

The rights to use water in Colorado have been fully appropriated to beneficial uses (such as agriculture irrigation and municipal and industrial applications) under court decrees and state regulation according to the prevailing Prior Appropriation Doctrine in which more senior (older) water rights take precedence in times of shortage over junior (newer) water rights. Notwithstanding significant conservation, growth in Colorado with related incremental demands for water has made the rights to divert, convey, store and use water relatively scarce and valuable.  There is significant competition for the acquisition and beneficial use of historic water rights.  Many competitors for the acquisition of such rights have significantly greater financial resources, technical expertise and managerial capabilities than we do and, consequently, we could be at a competitive disadvantage in assembling, developing and deploying water assets required to support our businesses.  Competitors’ resources could overwhelm our efforts and cause adverse consequences to our operational performance.  To mitigate such competitive risks, we concentrate our efforts in the Huerfano and Cucharas Rivers watershed where our local knowledge and control of a portfolio of water rights, storage facilities, distribution canals and productive farmland creates a somewhat protected geographic niche.  To further mitigate competitive risk, we strive to actively engage with both the farming and the water communities in southeastern Colorado to explore strategies for cooperatively addressing challenges and

11

Table of Contents

opportunities faced by those communities—particularly to address the 130,000 acre-foot shortfall in water supplies on the Front Range, without taking valuable farmland out of production.

We also acquire farmland through outright purchase with the intent to hold and manage, through purchase with the intent to resell to investors with our company managing farm production, and from leases, preferably long term.  There is growing competition for acquisition of farmland.  Many purchasers of farmland have greater financial resources than we do.  Our advantage is our built-in infrastructure for the processing, shipping and marketing of produce.

Regulation

Farming

We are subject to a variety of federal, state and local laws that govern various aspects of our business, including:  laws regulating the cultivation, processing, handling, storage, transport and sale of our products, laws restricting the use and ownership of land, including laws regulating the acquisition or leasing of rural properties by certain entities and individuals, and rules and regulations governing a variety of environmental, health and safety matters.  In addition, we are subject to other laws and government policies governing or affecting the food and agriculture industries, including legal requirements for food and feed safety.

To continue to operate and expand our operations, we must obtain and maintain numerous permits, licenses and approvals from governmental agencies.  Our facilities are subject to periodic inspection by governmental agencies.   

From time to time, agricultural production shortfalls in certain regions and growing demand for agricultural commodities for feed, food and fuel use have caused prices for soybeans, vegetable oils, sugar, corn and wheat to rise.  High commodity prices and regional crop shortfalls have led, and in the future may lead, governments to impose price controls, tariffs, export restrictions and other measures designed to assure adequate domestic supplies or mitigate price increases in their domestic markets, as well as to increase the scrutiny of competitive conditions in their markets.

Our business could be adversely affected in the future by national regulation or taxation of greenhouse gas emissions.  The U.S. Environmental Protection Agency has adopted regulations requiring the owners of certain facilities to measure and report their greenhouse gas emissions, and has initiated a process to regulate these emissions under the Clean Air Act.  We cannot at this time assess or estimate the potential impact of any future greenhouse gas emission legislation or regulations on our business.  Potential consequences could, however, include increases in our costs of energy, transportation and raw materials and requirements for additional investments in our facilities and equipment, all of which could have a material adverse effect on our operating results and cash position.

Water

Background

The right to water in Colorado is a right that can be developed, managed, purchased or sold much like real property subject to appropriate regulation.  Water rights are judicially decreed and, under Colorado’s application of the Prior Appropriation Doctrine (“first in time, first in right”), senior water right holders are entitled to the beneficial use of water prior to junior holders.  Consequently senior water rights are more consistent, reliable and valuable than junior rights, which may be interrupted, or “called out” in the parlance of Colorado water administration.  

Along the Front Range of Colorado, water is a scarce and valuable resource.  Natural precipitation varies widely throughout the year and from one year to another.  Rivers, which fill, and sometimes flood, with the spring melt from the mountain snowpack, may be refreshed only with the occasional thunderstorm in the heat of the summer growing season.  Annual precipitation also varies between surplus and drought.  Additionally, the large majority of Colorado’s population resides on the Front Range (east of the Continental Divide) while the large majority of the State’s precipitation falls on the Western Slope (west of the Divide).  Over time, many communities, farms and enterprises developed trans-mountain diversions to bring more water to the Front Range.  Precipitation on the Front Range, and water diverted from the Western Slope, drain to the Mississippi River through the South Platte and Arkansas Rivers.  Water on the Western Slope drains through the Colorado River.  All of the State’s rivers are

12

Table of Contents

administered pursuant to interstate compacts with neighboring states.  As a result of the variability of Colorado’s hydrology, its arrangements for diversions, storage and beneficial use, and its obligations to downstream states, Colorado has developed an integrated and complex water rights administration system.   

In Colorado and the Western United States, the right to use water is based on the Prior Appropriation Doctrine, which is often referred to as “first in time, first in right.”  Under this doctrine, water use is allocated to satisfy the oldest (“most senior”) water right before water is allocated to the next water right in historic chronology (a “junior water right” in comparison to a water right perfected earlier).  Moreover, in Colorado, water rights and their relative priorities are protected by judicial decrees and are administered by the Office of the State Engineer, or the State Engineer, within the Colorado Department of Water Resources.  The ability to consistently irrigate farmland, and thus avoid the inconsistencies of rainfall, is therefore tied to the relative seniority of historic water rights.  Two Rivers is focused on developing irrigated farmland and maximizing beneficial use of the water rights associated with that farmland.

To manage water uses according to the Prior Appropriation Doctrine, Colorado maintains both judicial oversight through regional water courts and administrative oversight through the State Engineer.  Water rights claims are filed in the court, adjudicated as necessary to resolve any adverse claims, and then decreed though an enforceable judgment.  The State Engineer is charged with administering the accorded priorities among the various water rights in each of the State’s river systems.

Colorado water law further recognizes two distinct but related prior appropriative rights: direct diversion rights and storage rights.  Direct diversion rights permit a user in priority to divert water directly from the river for immediate beneficial use (such as irrigation); storage rights permit a user in priority to divert water from the river and impound the water in a reservoir to re-time the water for later beneficial use.  Thus, in Colorado, a direct diversion right must be conveyed to an immediate use; it cannot be stored without a storage right.  As a result, both types of appropriative rights are often paired, when possible, so that in priority diversion rights can be re-timed through the exercise of a companion storage right to address seasonal and year-to-year variability in natural supplies.  The older the appropriation date of any water right, the more reliable is its yield; similarly, the more effectively a senior diversion right is paired with a senior storage right, the more reliable each becomes.  

Administration of Water Rights

In addition to the intra-state administration of water flowing in its rivers, Colorado also has inter-state water administration responsibilities because each of its major rivers (the Colorado, the North Platte and the Arkansas) is governed as well by interstate compacts with downstream states.  These compacts are subject to judicial review, interpretation and enforcement under the original jurisdiction of the U.S. Supreme Court to resolve disputes among the states.  In 1948, Colorado and Kansas reached an agreement that apportioned the water of the Arkansas River; Colorado was apportioned 60% of the water while Kansas is apportioned 40% of the River’s flow.  In order to comply with Colorado’s obligations under the Arkansas River Compact, therefore, water rights on the Arkansas and its tributaries (including the Huerfano and Cucharas Rivers) are administered to assure the Compact-required water flows at the Colorado-Kansas state line.  When necessary, Colorado’s in-state uses are curtailed, in reverse order of priority, to assure compliance with the Compact.

The interstate compacts (beginning with the Colorado River Compact of 1922) increased Colorado’s need to husband its apportioned water to meet the needs of its growing population along the Front Range.  Trans-basin diversions (primarily tunnels and canals) were developed, under the Prior Appropriation Doctrine, to divert water from one watershed for conveyance to and use in another.  Mainly, water from the Colorado River Basin, west of the Continental Divide, was diverted east to meet the water needs along the earlier developing Front Range by so-called “conservancy districts”.  These projects began in the 1930’s and, although many have been in operation for decades, and some remain incomplete.  Increasingly, further trans-basin diversions are limited not only by competing appropriative water rights in the basins of origin but also by increasingly stringent environmental restrictions.  

Stymied in their attempts to import additional surface water from distant watersheds, some municipalities and water providers began to rely on inherently unsustainable ground water “mining” (depleting aquifers for current consumption at a rate in excess of the rate at which natural recharge occurs).  After decades of such ground water mining, many of the aquifers on the Front Range have been severely depleted.  Some municipalities also purchased farms with water diversion rights and then ceased irrigating the farmland, transferring the water to their urban uses.  

13

Table of Contents

Because neither the practice of ground water mining nor the practice of “buying up and drying up” farmland is sustainable, Colorado law has placed limits and regulations on both practices.

Recognizing the need for additional water sources along the Front Range, the Colorado Water Conservation Board published its 2050 Municipal and Industrial Gap Analysis in 2011 .   This report estimates that the Arkansas and South Platte Basins (essentially the Front Range) will have a combined average annual supply shortage of 130,000 acre-feet of water by 2050.  The difficulty and expense of incremental trans-mountain diversions coupled with the unsustainability of ground water mining and agricultural-to-urban transfers—as documented by the Colorado Water Conservation Board—motivates Front Range water purveyors to address the projected gap and to identify and develop inherently scarce renewable sources of water.  

As early as 2005, the Colorado General Assembly created basin roundtables to convene regional water purveyors to address the looming municipal supply gap.  The roundtables were charged to identify “projects and methods to meet the consumptive and non-consumptive needs of the basin.” (Colorado House Bill 05-1177).  The potential solutions include Identified Plans and Process or IPPs, Conservation, New Supply Development , and Alternatives to Agricultural Transfers.

As of March 20, 2015, 23 states and the District of Columbia allowed their residents to use medical marijuana and voters in the States of Colorado and Washington had approved and implemented regulations to legalize cannabis for adult use.

14

Table of Contents

Employees

At March 20, 2015, we had 10 full-time employees, of whom 5 were employed at our Denver headquarters and 5 were employed in our farming and water operations.  None of our employees is covered by a collective bargaining agreement.  We consider our relationship with our employees to be good.

ITEM 1A.  RISK FACTORS

Risk Factors Relating to Our Business

Our farming and water operations require significant capital expenditures.

Farming is capital intensive.  On an annual basis, we could spend significant sums of money for additions to, or replacement of, land, land improvements, irrigation and farming equipment.  The refurbishment of our water assets is also capital intensive.  On an annual basis, we could spend significant sums of money for additions to, or replacement of, our facilities, reservoirs and equipment.  We must obtain funds for these capital projects from operations or capital raised.  We cannot provide assurance that any sources will be adequate or that the cost of funds will be at levels permitting us to earn a reasonable rate of return.

We have a limited operating history in the farming business, so investors have no way to gauge our long-term performance.

We have limited operating experience in the farming business in Colorado.  To date we have farmed 482 acres during the 2012 growing season, 820 acres during the 2013 growing season and 799 acres during the 2014 growing season.  Therefore, our business plan should be considered highly speculative.  This risk factor is somewhat mitigated by the fact that DFP, which we acquired in 2012, has a long operating history.  Although DFP has a long operating history, we have managed the farms irrigated by the Bessemer Ditch and the related produce business for less than one year.

Without sufficient funds to expand our farming business, we will not be able to meet our general and administration expenses from revenue generated from the farming business.  No assurance can be given that any such expansion funds will be available.

15

Table of Contents

We can give no assurance of success or profitability to investors.

There is no assurance that we will operate profitably.  There is no assurance that we will generate revenues or profits.  We have not been profitable in the past and had an accumulated deficit of almost $67 million as of December 31, 2014.   We incurred a net loss of $ 4.7 million in 2014 and a net loss of $ 5.0 million in 2013.

Water rights in Colorado are subject to the Prior Appropriation Doctrine, which accords lower priority to junior water rights.  Water rights that are senior (such as our Butte Valley Ditch Right Number 1 dating from 1862) have priority over junior rights (such as our Huerfano Valley Ditch Right Number 342 dating from 1905) as to use in dry years, and junior rights may not get water or as much water as they wish, if senior rights use it all.

16

Table of Contents

We are required to maintain water quality standards and are subject to regulatory and environmental risks.

We face the risk that our water supplies may be contaminated or polluted whether through our error or through actions by other agents or through acts of God.  In addition, normal farming practices, including the application of pesticides, herbicides and fertilizers, introduce pollutants to waterways through irrigation water runoff.  Improved detection technology, increasingly stringent regulatory requirements, and heightened consumer awareness of water quality contribute to an environment of increased risk with the possibility of increased operating costs.  We cannot assure you that in the future we will be able to reduce the amounts of contaminants in our water to acceptable levels.

Our water supplies are subject to contamination, including contamination from naturally occurring compounds, pollution from man-made sources and intentional sabotage.  We cannot assure you that we will successfully manage these risks, and failure to do so could have a material adverse effect on our future results of operations.  We may not be able to recover the costs associated with these liabilities through our sales or insurance or such recovery may not occur in a timely manner.

The water and farming business is heavily regulated and, as a result, decisions by regulatoryagencies and changes in laws and regulations could significantly affect our farming business.

When the crop is ready to harvest, we are dependent on seasonal labor and contractors for harvesting.  During harvest season, there is demand for such seasonal labor from many farming operations which will compete with our demand.  The availability of seasonal farm labor is also affected by uncertain national immigration policies and politically volatile enforcement practices.  Thus, adequate labor may not be available when our crops are ready to harvest.  This could delay revenue or decrease revenue of our farming business.

17

Table of Contents

Adverse weather conditions, natural disasters, crop disease, pests and other natural conditions could impose significant costs and losses on our business.

Crops in the field are vulnerable to adverse weather conditions, including hail storms, high winds, tornados, early and late snow storms, floods, drought and temperature extremes, which are quite common but difficult to predict.  In addition, crops are vulnerable to disease and to pests, which may vary in severity and effect depending on the stage of production at the time of infection or infestation, the type of treatment applied and climatic conditions.  Unfavorable growing conditions could reduce both crop size and quality.  These factors could directly impact us by decreasing the quality and yields of crops, increasing our costs and decreasing revenue and gross margins, which may have a material adverse effect on our business, results of operations and financial condition.

Weather conditions could adversely affect the ability to grow crops.

We may not have crop insurance adequate to cover losses we incur.

18

Table of Contents

We have substantial competitors who have an advantage over us in resources and management.

We may be unable to develop the properties that are critical to our proposed greenhouse business.

We may be unable to expand successfully into new markets.

We intend to pursue our aggressive greenhouse development to lease to licensed marijuana growers for the foreseeable future.  This expansion into new markets, particularly in states where we do not currently operate, may not succeed.   This expansion may expose us to new operational, regulatory or legal risks.  In addition, expanding into new states may subject us to unfamiliar or uncertain local regulations that may adversely affect our operations, for example, by applying, obtaining and/or maintaining appropriate licenses.  Facilities we open in new markets may also take longer to reach expected revenue and profit levels on a consistent basis and may have higher construction, occupancy or operating costs than facilities we open in existing markets, thereby affecting our overall profitability.  New markets may have competitive conditions, consumer preferences and spending patterns that are more difficult to predict or satisfy than our existing markets.

The leasing market for marijuana lessees could be volatile.

We have signed two, five-year leases with growers of marijuana.  There is no guarantee that the lease will be renewed or at what rate.  The current lease rate is $20 per square foot, triple net.  The development and construction cost for a 105,000 square foot greenhouse and facilities are $45 per square foot.  Even though we capture all of our costs before the five year lease expires, a new lease rate may be substantially lower, thereby decreasing our returns.

Our greenhouse lessees may not be able to fund lease payments.

If GrowCo tenants incur unforeseen weather, negative crop events, or a major reduction of the price of marijuana, tenants may not be able to pay lease payments.  This will cause a legal action to the eviction of the tenant and a search for a new tenant, which may not be successful.

19

Table of Contents

Our future success depends on our ability to attract new greenhouse lessees.

Our immediate plan is to construct four independent greenhouses on a 160 -acre plat, with each greenhouse having a separate 40-acre sub-plat.  We have signed leases for the first two greenhouses, but not for the next two greenhouses.  There is no assurance that we can attract new tenants.

Our failure to obtain capital may significantly restrict our proposed greenhouse operations.

Our proposed greenhouse business is dependent on state laws pertaining to the marijuana industry.

As of January 31, 2015, 23 states and the District of Columbia allowed their residents to use medical marijuana.  Voters in the states of Colorado and Washington approved and implemented regulations to legalize cannabis for adult use.  In the November 2014 elections, voters in Oregon and Alaska voted to approve the production, sale and use of marijuana, while voters in Washington D.C. allows for possession of up to two ounces of marijuana.  The state laws are in conflict with the Federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level.  The Obama administration has made numerous statements indicating that it is not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana.  However, there is no guarantee that the administration will not change its stated policy regarding the low-priority enforcement of federal laws. Additionally, any new administration that follows could change this policy and decide to stringently enforce the federal laws.  Any such change in the federal government’s enforcement of current federal laws could cause the greenhouse leases to be terminated, or even confiscated by the Federal government.  If the greenhouses can no longer be used for marijuana production, we plan to use the greenhouses for production of organic fruit and vegetables.   This potential change of us will significantly reduce the return of the capital invested in the greenhouses.

Since the use of marijuana is illegal under federal law, many banks will not accept for deposit funds from businesses involved with marijuana.  Consequently, businesses involved in the marijuana industry often have trouble finding a bank willing to accept their business.  The inability to open bank accounts may make it difficult for potential tenants of GrowCo to operate.  There may also be an issue with GrowCo’s ability to deposit payments from its tenants.

Laws and regulations affecting the medical marijuana industry are constantly changing, which could detrimentally affect our greenhouse leasing operations.

20

Table of Contents

material adverse effect on our operations.  Furthermore, it is possible that regulations may be enacted in the future that will be directly applicable to our leasing activities.  We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.

Risk Factors Related to Ownership of Common Stock

We may in the future issue more shares of capital stock, which could cause a loss of control by present management and current shareholders and/or dilution to investors.

Our common shareholders could face substantial potential dilution from outstanding preferred units, warrants and unvested restricted stock units.

As of March 20, 2015, the Parent Company had 26,855,371 shares of Common Stock outstanding.  If holders of TR Capital preferred units convert those preferred units into shares of Common Stock and exercise their warrants to acquire shares of Common Stock, the Parent Company would issue up to an additional 45,238,223 shares of Common Stock.  In addition, as of March 20, 2015, there were outstanding warrants to acquire 2,723,500 shares of Common Stock and restricted stock units, or RSUs, covering 2,723,500 shares of Common Stock.  As a result, there may be a substantial dilution to our existing shareholders.

We are classified as a “penny stock” company.  The Common Stock currently trades on the OTCQB Market and is subject to an SEC rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited investors.  For purposes of the rule, the phrase “accredited investors” means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse’s income, exceeds $300,000).  For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Effectively, this discourages broker-dealers from executing trades in penny stocks.  Consequently, the rule will affect the ability of purchasers in this offering to sell their securities in any market that may develop therefore because it imposes additional regulatory burdens on penny stock transactions.

In addition, the SEC has adopted a number of rules to regulate “penny stocks,” including Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7 and 15g-9 under the Exchange Act.  Common Stock constitutes a “penny stock” within the meaning of these rules, and these rules imposes additional regulatory burdens that may affect the ability of holders to sell Common Stock in any market that may develop.

21

Table of Contents

Rule 144 sales of Common Stock in the future may have a depressive effect on our stock price.

All of the outstanding shares of Common Stock held by our officers, directors and affiliated shareholders are “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933.  As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Act and as required under applicable state securities laws. Rule 144 provides in essence that a person who has held restricted securities for six months may sell without restriction, except for affiliates which, under certain conditions, may sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1.0% of a company’s outstanding common stock or the average weekly trading volume during the four calendar weeks prior to the sale.  There is no limit on the amount of restricted securities that may be sold by a non-affiliate after the owner has held the restricted securities for a period of six months.  A sale under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to subsequent registration of shares of Common Stock of current shareholders, may have a depressive effect upon the price of Common Stock in any market that may develop.  There may be substantial dilution to our shareholders as a result of future decisions of the board of directors to issue shares without shareholder approval for cash, services or acquisitions at prices determined solely by the board.

Shares of Common Stock are thinly traded on the OTCQB market, meaning that the number of persons interested in purchasing Common Stock at or near ask prices at any given time may be relatively small.  This situation is attributable to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume and that even if we came to the attention of such persons, they may be risk-averse and reluctant to follow an early stage company or purchase or recommend the purchase of any of our securities until such time as we became more seasoned and profitable.  As a consequence, there may be periods of several days or more when trading activity in our securities is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect its securities price.  We cannot give you any assurance that a broader or more active public trading market for our common securities will be developed or sustained.  Due to these conditions, we can give investors no assurance that they will be able to sell their shares at or near ask prices or at all if they desire to liquidate shares of Common Stock.

ITEM 1B.   UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  DESCRIPTION OF PROPERTIES

Our corporate headquarters are located in Denver, Colorado, where we lease 1,775 square feet of office space pursuant to a lease agreement that will expire in June 2018.  We believe that our current office facilities will be sufficient to meet our operational needs for the remainder of the existing lease term and that, upon the expiration of our current lease term, we will be able to extend our lease or lease suitable replacement office space as needed on acceptable, commercially reasonable terms.

We purchase and lease land as an integral part of our farming-and-water business. We operate in the combined watershed area of the Huerfano River and Cucharas River in the Arkansas River Basin, an area encompassing 1,860 square miles on the southern Front Range in Colorado.   As of December 31, 2014, we managed a total of 7,538 acres of land that we acquired or leased since 2009, as shown in the following table.  Short-term (year-to-year) leases are not shown in the following table.

22

Table of Contents

The following table provides a breakdown, by county, of the location of the land we owned and leased as of December 31, 2014: