$TURV Form 10-K

Overview

Our core business converts irrigated farmland from traditional use to grow marginally profitable feed crops to use for 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, as third parties leasing to us additional water rights that can be used not only for profitable farming operations, but also for provision to municipalities to address their supply challenges. 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.

Our farm revenues increased from $972,000 in 2012 to $2.0 million in 2013 to $2.4 million in 2014. We began acquiring and developing irrigated farmland and associated water rights and infrastructure in 2009, and as of December 31, 2014 we owned 7,538 gross acres. We will seek to expand our holdings by strategically acquiring or leasing irrigable farmland in the Arkansas River Basin.

In 2014, we farmed a total of 799 gross acres, of which 679 gross acres were planted and 120 acres were the subject of federal crop insurance payments attributable to drought conditions. We intend to develop and bring into

In 2014 we initiated a corporate restructuring pursuant to which are organizing substantially all of our operations under the control of TR Capital Partners, LLC, or TR Capital. This restructuring better reflects our emphasis on acquiring and operating irrigated farming and water distribution activities under our integrated business model. TR Capital issued all of its common units to the Parent Company and, as of March 20, 2015, had issued a total of 30,158,815 preferred units in exchange for aggregate consideration consisting of $6.0 million in cash and $18.9 million of outstanding equity securities of certain of our subsidiaries. Please see “Our Organizational Structure” below for further information about the corporate restructuring and TR Capital’s outstanding units.

Acquisitions

In 2013, we focused on utilizing our existing farming assets by bringing more of our owned land and additional leased farmland into production. Strategic land was acquired in El Paso County, east of Colorado Springs, for $1,250,000.
Presently this land is used as grazing land.

In 2014, we purchased an additional 73 acres of irrigated farmland, with associated water rights, in the Bessemer Ditch area.

Financings

We have expanded our operations relying on various funding mechanisms, including debt, convertible debt and equity capital. Since inception, we have raised and invested over $55 million to acquire, improve and integrate farm/water assets necessary to support our business.

On December 31, 2013, we closed on $1,300,000 of short-term financing. On February 1, 2014, this financing converted into preferred units of TR Capital.
In addition, TR Capital sold preferred units for $1,700,000 in cash on February 4, 2014 and sold additional preferred units for $3,000,000 in the quarter ending June 30, 2014.

As of December 31, 2014, the current portion of our long-term debt totaled $3,284,000. The current portion of long-term debt included a short-term bridge loan of $1,870,000 that was converted into preferred units of GCP1 on January 15, 2015.

Results of Operations

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

Our revenues are a result of the activities of our farming business and water business. Presently, we grow human consumable vegetables and feed crops that include corn and sorghum. There is an active market for both of our farm products. We receive water revenues through the lease of water.

During the year ended December 31, 2014, we recognized revenues from operations of $2,436,000 compared to $2,091,000, in revenues from operations during the year ended December 31, 2013. The increase of $345,000 was a result of our expanded farming operations.

In 2014 we reclassified certain general and administrative expenses that were directly tied to farm production, including the salary and benefits of our farming chief operating officers. Therefore, for 2013, $368,000 of general and administrative cots were reclassified into direct cost of revenue, which caused the gross profit(loss) to decrease from $377,000 to $9,000. The gross loss for 2014 was $558,000. The $567,000 decrease in gross profit, even on higher sales, is mostly due to 54.6 acres of cabbage planted that were not sold. Tip burn destroyed 4 acres of cabbage production and a lack of customers caused 50.6 acres to be turned under. Together this represented a $510,000 loss.
Management has taken steps to increase the number of buyers of our cabbage for 2015.

During the year ended December 31, 2014 other expenses were $1,241,000 compared to $1,931,000 for the year ended December 31, 2013. The decrease in other expenses of $690,000 was a result of a reduction of loss on debt extinguishment of $782,000 offset by higher interest expense.

These figures produced a loss from operations of $4,666,000 for the year ended December 31, 2014 compared to a loss from operations of $5,050,000 for the year ended December 31, 2013.

Liquidity and Capital Resources

Resources

We believe our existing cash and cash equivalents and our projected cash flows from operating activities will be sufficient to meet our anticipated cash needs for at least the next twelve months. Our future working capital requirements will depend on many factors, including the rates of our farming growth, expansion of water projects and expansion of our greenhouse development. To the extent our cash and cash equivalents and cash flows from operating activities are insufficient to fund our future activities, we may need to 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 effect one or more acquisitions of businesses, technologies and products. If additional funding is required, we may not be able to effect an equity or debt financing on terms acceptable to us or at all.

We historically have funded our operations primarily from the following sources:

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equity and debt proceeds through private placements of Parent Company and subsidiaries securities;

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revenue generated from operations;

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loans and lines of credit;

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sales of residential properties acquired through deed-in-lieu of foreclosure actions; and

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proceeds from exercises of options.

At the present time we have no available line or letters of credit.

Cash flow from operations has not historically been sufficient to sustain our operations without the above additional sources of capital. As of December 31, 2014, we had cash and cash equivalents of $1,934,000. Cash flow consumed by our operating activities totaled $4,372,000 for the year ended December 31, 2014 compared to operating activities consuming $2,587,000 for the year ended December 31, 2013. The increase of $1,785,000 is due payment of preferred distributions of $1,643,000 and to our expanding farming operations.

As of December 31, 2014, we had $2,128,000 in current assets and $4,249,000 in current liabilities, which included $3,284,000 as the current portion of long-term debt.

Subsequent to December 31, 2014, we have further addressed our short-term working capital needs through the conversion of the $1,840,000 short-term bridge financing into 2,065,652 preferred units of GCP1.

Cash produced in financing activities was $5,914,000 for the year ended December 31, 2014 compared to a production of cash of $4,623,000 for the year ended December 31, 2013.

During 2014, we issued the GCP1 bridge loan for $1,870,000, sold TR Capital preferred units for $4,363,000, obtained new financing of $180,000 and received payments on notes payable of $499,000. In January 2015, $1,840,000 of the $1,870,000 GCP1 bridge loan was converted to GCP1 preferred units.

During 2013, we received $1,300,000 from a bridge loan, $2,601,000 from the issuance of ASF Notes, the McFinney Agri-Finance loan and the Ellicot second mortgage, and $1,600,000 from a DFP private placement. We repaid $655,000 in principal payments of our various debt arrangements, which included a payment of $335,000 for the extinguishment of certain HCIC Seller Carryback notes.

Our farming business is very seasonal. It requires investment of funds for the farm inputs to grow our food that is harvested in the third and fourth quarter of each year. We do not anticipate any major change in the cost of our farm inputs. We estimate that we will invest $750,000 into farm inputs (which includes farm labor) before our farm revenues begin.

Cash flows used by our investing activities for the year ended December 31, 2014, were $1,677,000 compared to $1,307,000 used for the year ended December 31, 2013. For the year ended December 31, 2014, we purchased $303,000 in farmland and water rights, expended $284,000 for a cooler warehouse expansion and $1,081,000 to begin construction on the first greenhouse.

In the year ended December 31, 2013 we used $1,329,000 to purchase land, water shares and infrastructure, $36,000 to purchase property and equipment offset by sale of equipment of $58,000.

In January 2015 we entered into a new lease with the Colorado Center in Denver, Colorado, for our corporate headquarters. The space is 1,775 square feet and monthly payments of $3,800, with minor escalations and common area maintenance charges. The lease terminates on June 30, 2018. The amounts due at the base rate are as follows:

Period   Amount Due
  2015   $
             38,000
  2016   $
             45,700
  2017   $
             46,600
  2018   $
             47,500

Expiration   County   Acres   Amount per Year
2018         Pueblo     301   $
                                      187,000
2032         Pueblo      95   $
                                       14,000

As of March 20, 2015, we are planning to complete the 105,000 square foot greenhouse/warehouse complex for GCP1. We estimate that another $600,000 is required for completion. We plan to increase farm acreage through purchases with associated debt or through leasing.

                                    Payments Due by Period
                           Less than                     More than
                            1 year   1-3 years 3-5 years  5 years     Total
                           $         $         $         $          $
Long-Term Debt Obligations 3,284,000 8,089,000 1,514,000    833,000 13,720,000
Capital Lease Obligations          -         -         -          -          -
Operating Lease
Obligations                   38,000    92,300    47,500          -    177,800
Purchase and Development
Obligations                  600,000         -         -          -    600,000
Other Long-Term
Obligations                      -         -         -          -          -

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

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.

Water Revenues

Current water revenues are from the lease of water own by HCIC to farmers in the HCIC service area and through re-leasing of our water from the Pueblo Board of Water lease. Water revenues are recognized when the water is consumed.

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 the Parent Company to HCIC are eliminated in consolidation of the 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

We account for share-based payments in accordance with FASB Accounting Standards Codification (“ASC”) 710-10-55 (prior authoritative guidance: FASB Statement 123-R Share-Based Payments). We use the Black-Scholes option valuation model to estimate the fair value of stock options and warrants issued under ASC 710-10-55. For the years ended December 31, 2014 and 2013, equity compensation in the form of stock options, warrants and grants of restricted stock that vested totaled $247,000 and $166,000, respectively.

Accounting for Debt Conversions into Preferred Shares

As of December 31, 2012, we had received from some debt holders their intent to convert debt to convert into preferred stock of the Parent Company and subsidiaries. In 2014 the majority of holders of preferred stock of the Parent Company and subsidiaries converted into preferred units of TR Capital. In order to properly record the conversion, we applied the guidance in ASC Topic 470-20 “Debt with Conversion and Other Options” as the conversion into preferred units have a beneficial conversion feature (“BCF”) with detachable warrants.

Impairments

At least once per year, we analyze the recorded value of property, plant and equipment, land, goodwill and water rights and infrastructure to determine if the recorded value is greater than the fair market value, then an impairment will be recorded and will not be reversed in future periods.

Recently Issued Accounting Pronouncements

In July 2013, the FASB issued Accounting Standards Update No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU No. 2013-11”). ASU No. 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss

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 2014-15amends 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.

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.

Off Balance Sheet Arrangements

We have no significant off balance sheet transactions, arrangements or obligations.