10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2013

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 of incorporation or organization		I.R.S. Employer Identification No.
	2000 South Colorado Boulevard, Tower 1, Suite 3100, Denver, CO 80222
	(Address of principal executive offices) (Zip Code)
	Registrant’s telephone number, including area code: (303) 222-1000
	Securities registered pursuant to Section 12(b) of the Act:
Title of each class registered		Name of each exchange on which registered
Not Applicable		Not Applicable
	Securities registered pursuant to Section 12(g) of the Act:
	Common Stock (Title of class)

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 1, 2013 there were 24,992,550 shares outstanding of the registrant's Common Stock.

TABLE OF CONTENTS

		Page
Item 1	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets March 31, 2013 and  December 31, 2012	1
	Condensed Consolidated Statements of Operations – Three months ended March 31, 2013 and 2012	2
	Condensed Consolidated Statements of Cash Flows – Three months ended March 31, 2013 and 2012	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4	Controls and Procedures	23
PART II – OTHER INFORMATION
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 6	Exhibits	27
	SIGNATURES	27

TWO RIVERS WATER & FARMING COMPANY AND SUBSIDIARIES

Condensed Consolidated Balance Sheets  (In Thousands)

	March 31, 2013			December 31, 2012
ASSETS:	(Unaudited)			(Derived from Audit)
Current Assets:
Cash and cash equivalents	$	1,314		$	1,340
Advances and accounts receivable, net		22			184
Farm product		161			49
Deposits and other current assets		208			74
Total Current Assets		1,705			1,647
Long Term Assets:
Property, equipment and software, net		2,366			2,397
Land		5,176			3,919
Water rights and infrastructure		35,337			35,354
Dam and water infrastructure construction in progress		34			34
Intangible assets, net		1,027			1,037
Other long term assets		173			64
Total Long Term Assets		44,113			42,805
TOTAL ASSETS	$	45,818		$	44,452
LIABILITIES & STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable	$	268		$	298
Accrued liabilities		667			830
Current portion of long term debt (Note 4)		10,966			10,978
Total Current Liabilities		11,901			12,106
Long Term Debt (Note 4)		5,297			4,368
Total Liabilities		17,198			16,474
Commitments and contingencies (Note 4)
Stockholders' Equity:
Convertible preferred shares, $0.001 par value, 4,000,000 shares authorized, 3,794,000 shares and outstanding at March 31, 2013 and December 31, 2012, respectively (liquidation value of $3,794,000), net		2,851			2,851
Common stock, $0.001 par value, 100,000,000 shares authorized, 24,592,550 and 24,028,202 shares issued and outstanding at March 31, 2013 and December 31, 2012		25			24
Additional paid-in capital		60,444			56,703
Accumulated (deficit)		(44,574	)		(41,440	)
Total Two Rivers Water Company Shareholders' Equity		18,746			18,138
Noncontrolling interest in subsidiaries		9,874			9,840
Total Stockholders' Equity		28,620			27,978
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$	45,818		$	44,452

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

Two Rivers Water & Farming Company -- March 31, 2013 -- 10Q

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TWO RIVERS WATER & FARMING COMANY AND SUBSIDIARIES

Condensed Consolidated Statements of Operations  (In Thousands)

	Three months ended March 31,
	2013			2013
Revenue
Other income	$	-		$	1
Total Revenue		-			1
Direct cost of revenue		-			-
Gross Profit (Loss)		-			1
Operating Expenses:
General and administrative		1,856			2,094
Depreciation		129			53
Total operating expenses		1,985			2,147
(Loss) from operations		(1,985	)		(2,146	)
Other income (expense):
Interest expense		(173	)		(658	)
Warrant expense		(28	)		(55	)
Other Income		5			-
Total other income (expense)		(196	)		(713	)
Net (Loss) from operations before taxes		(2,181	)		(2,859	)
Income tax (provision) benefit		-			-
Net (Loss) from operations		(2,181	)		(2,859	)
Net loss attributable to the noncontrolling interest		1			8
Net (Loss) attributable to Two Rivers Water Company	$	(2,180	)	$	(2,851	)
(Loss) Per Common Stock Share - Basic and Dilutive:
(Loss) from continuing operations	$	(0.09	)	$	(0.12	)
(Loss) from discontinued operations		-			-
Total	$	(0.09	)	$	(0.12	)
Weighted Average Shares Outstanding:
Basic and Dilutive		24,310			23,217

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

Two Rivers Water & Farming Company -- March 31, 2013 -- 10Q

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TWO RIVERS WATER & FARMING COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (In Thousands)

	For the three months ended March 31,
	2013			2012
Cash Flows from Operating Activities:
Net (Loss)	$	(2,180	)	$	(2,859	)
Adjustments to reconcile net income or (loss) to net cash (used in) operating activities:
Depreciation and amortization		129			53
Amortization of debt issuance costs and pre-paids		-			348
Assumption of assessments due to purchase of HCIC shares		80			-
Stock based compensation		680			1,000
Stock and options for services		763			-
Net change in operating assets and liabilities:
Decrease (increase) in advances & accounts receivable		82			3
(Increase) in farm product		(112	)		(1	)
(Increase) decrease in deposits, prepaid expenses and other assets		(248	)		-
Increase (decrease) in accounts payable		(30	)		1
Increase (decrease) in accrued liabilities and other		(163	)		131
Net Cash (Used in) Operating Activities		(999	)		(1,324	)
Cash Flows from Investing Activities:
Construction in progress		-			(443	)
Purchase of property, equipment and software		(6	)		(3	)
Purchase of land, water shares, infrastructure		(1,315	)		-
Net Cash (Used in) Investing Activities		(1,321	)		(446	)
Cash Flows from Financing Activities:
Proceeds from bridge loan		-			3,994
Proceeds from long-term debt		1,050			606
Proceeds from sale of convertible preferred shares in DFP		1,600			-
Payment of offering costs		(223	)		(45	)
Payment on notes payable		(133	)		(5	)
Net Cash Provided by Financing Activities		2,294			4,550
Net (Decrease) Increase in Cash & Cash Equivalents		(26	)		2,780
Beginning Cash & Cash Equivalents		1,340			777
Ending Cash & Cash Equivalents	$	1,314		$	3,557
Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	148		$	474
Stock & warrants for debt issuance costs	$	-		$	115

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

Two Rivers Water & Farming Company -- March 31, 2013 -- 10Q

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TWO RIVERS WATER & FARMING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2013 and March 31, 2012

(Unaudited)

Unless the context requires otherwise, references in this document to “Two Rivers Water & Farming Company,” “Two Rivers”, “We,” “Our,” “Us” or the “Company” is 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. The information contained in this Quarterly Report is not a complete description of our business or the risks associated with an investment in our common stock or other securities. Factors that could cause or contribute to the differences are discussed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2012, as well as in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q, and in our other SEC filings.   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 SEC under the federal securities laws.  Our actual results may differ materially from our forward-looking statements.

NOTE 1 – ORGANIZATION AND BUSINESS

Our Business

Two Rivers has developed and operates a revolutionary new water business model suitable for arid regions in the Southwestern United States whereby the Company synergistically integrates irrigated farming and wholesale water distribution into one company, utilizing a practice of rotational farm fallowing.  Rotational farm fallowing, as it applies to water, is a best methods farm practice whereby portions of farm acreage are temporarily fallowed in cyclic rotation to give soil an opportunity to reconstitute itself.  As a result of fallowing, an increment of irrigation water can be made available for municipal use without permanently drying up irrigated farmland.  Collaborative rotational farm fallowing agreements between farmers and municipalities make surplus irrigation water available for urban use during droughts and, conversely, make surplus urban water available for irrigation during relatively wet periods. The Company produces and markets high-value vegetable and fodder crops on its irrigated farmland and provides wholesale water distribution through farm fallowing agreements in its initial area of focus on the Arkansas River and its tributaries on the Southern Front Range of Colorado.

Our Corporate Structure

Two Rivers Water & Farming Company

Two Rivers Water & Farming Company is the parent company and owns 100% of Two Rivers Farms, LLC (“Two Rivers Farms”) and Two Rivers Water, LLC (“Two Rivers Water”).  Two Rivers Farms owns 100% of Two Rivers Farms F-1, Inc., Two Rivers Farms F-2, Inc. and Dionisio Farms & Produce, Inc. (“DFP”).  Two Rivers Farms also owns unencumbered farmland that will eventually be redeveloped and brought into production.  As of March 31, 2013, Two Rivers Water owns 95% of the Huerfano-Cucharas Irrigation Company (sometimes referred to elsewhere in this quarterly report as HCIC) and 100% of the Orlando Reservoir No. 2 Company LLC. The Company’s organizational structure is illustrated below:

Two Rivers Water & Farming Company -- March 31, 2013 -- 10Q

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Our Water Business

Water Rights

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, because of 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, in times of shortage.  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).  Two Rivers will continue to evaluate acquisitions of farmland in light of their associated water rights and plans to continue integrating its farming and water management activities.

Two Rivers Water, LLC (“TR Water”)

During 2011, the Company formed TR Water to secure additional water rights, rehabilitate water diversion, conveyance and storage facilities and to develop one or more special water districts.

Two Rivers Water & Farming Company -- March 31, 2013 -- 10Q

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The Huerfano-Cucharas Irrigation Company (“HCIC”)

In order to supply its farms with irrigation water, the Company began to acquire shares in HCIC, a historic mutual ditch company formed by area farmers in order to develop and put to use their water rights on the Huerfano and Cucharas Rivers.  At the time HCIC was formed in 1944, the water in the two rivers was continuously augmented by groundwater pumped from coal mines that operated in the watershed.  The augmented and natural flow of the rivers, along with the water rights and facilities of HCIC were sufficient to provide reliable irrigation water for the shareholders and their expanding farm enterprises.  However, in the years following World War II, the mines began to cease production and, therefore, stopped pumping groundwater out of the mine shafts and into the river channels.  As a result of the reduction in downstream flow in the rivers, the extent of farming in the watershed could no longer be reliably irrigated.  In some years, crops failed for lack of late summer irrigation water and, over time, once thriving farms withered.  Because of such failures and the reduced flow in the rivers, the shareholders of HCIC were unable or unwilling to adequately maintain the water diversion, conveyance and storage facilities.  Therefore, at the time the Company decided to invest in the Huerfano/Cucharas watershed, the shares in HCIC had become less valuable and the residual farming in the area had reverted primarily to pasture and dry grazing.

Beginning in 2009, the Company systematically acquired shares in HCIC and, as of March 31, 2013, had acquired 95% of the HCIC shares.   The shares were acquired from willing sellers in a series of arm’s length, negotiated transactions for cash, promissory notes, and the Company’s common shares.  As the controlling shareholder, the Company currently operates HCIC and has undertaken a long-term program to refurbish and restore the historic water management facilities.  Based on management’s estimate of value, which included management’s consideration of an independent appraisal, we determined that the Company’s interest in HCIC had a book value, measured through fair value accounting, of $24,196,000, as of December 31, 2011.  HCIC’s assets, liabilities and results are consolidated in the Company’s financial statements.

During the three months ended March 31, 2013, the Company purchased an additional 3.9% of the shares of HCIC.  For the purchase the Company assumed the sellers’ past due assessment to HCIC of $80,000, which was eliminated on consolidation.  This transaction was recorded as a reclassification from HCIC non-controlling interest to additional paid in capital.  Further, the Company committed to provide the sellers a 100-year water lease equal to 3.9% of the total water available through the HCIC system at no additional charge to the sellers.

Orlando Reservoir No. 2 Company, LLC (“Orlando”)

Orlando is a Colorado limited liability company originally formed to divert water from the Huerfano River, for storage in the Orlando Reservoir to be re-timed and used for irrigation of farmland in Huerfano and Pueblo Counties.  At the time the Company began investing in the Huerfano/Cucharas watershed, Orlando owned the historic diversion structure, a conveyance system and a reservoir and also owned a small amount of irrigable farmland.  However, the water facilities were in deteriorated condition.  Beginning in January 2011, through a series of transactions, the latest of which closed on September 7, 2011, the Company acquired 100% ownership of Orlando for a combination of cash, stock and seller-financing.  Promptly following the acquisition, the Company began a program for refurbishing the facilities to restore their operating efficiency.  Pending the results of an independent appraisal, the purchase price was computed as $3,156,750 based on cash paid, the seller carry-back note and the market value of 650,000 shares of the Company’s common stock issued to the seller.  The purchase price was allocated $3,000,000 to water assets and $100,000 to farm land.

Two Rivers Water & Farming Company -- March 31, 2013 -- 10Q

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Following the purchase of Orlando and considering the refurbishment already underway, the Orlando was independently appraised as of January 16, 2012 at $5,195,000, considering agricultural irrigation as its highest and best use.  The gain from the bargain purchase of $1,736,000 was allocated $1,520,000 to water assets and $216,000 to land.

The Orlando assets include not only the reservoir, but also the senior-most direct flow water right on the Huerfano River (the #1 priority), the #9 priority and miscellaneous junior water rights.  These water rights are now integrated with the Company’s other water rights on the Huerfano and Cucharas River to optimize the natural water supply.  The water storage rights, and the physical storage reservoirs, are critical to water supply reliability in the watershed, because the storage system allows the natural spring runoff from snowmelt to be captured and re-timed for delivery to irrigate crops throughout the growing season.  Coupled with the Company’s distribution facilities and farmland, these water diversion and storage rights increase the reliability of water supplies to irrigate and grow our crops.

Dionisio Farms & Produce, Inc. (“DFP”)

As part of the purchase of DFP, the Company acquired 146 shares in the Bessemer Irrigating Ditch Company, which manages and administers the water rights in the Bessemer Ditch.  The Bessemer Ditch holds senior water rights on the Arkansas River.  The Bessemer Ditch has sustained the Dionisio farm operations (which are described below under the caption “Dionisio Farms & Produce, Inc.”) for more than 60 years, through all hydrological and weather cycles.

The Company’s purchase of DFP is further described herein under the heading “Our Farming Business.”

Our Farming Business

In furtherance of developing irrigated farmland, the Company has engaged in both: 1) acquiring farmland that is currently producing crops supported by relatively secure water rights; and 2) acquiring farmland that has not been productive for many years, but maintains significant water rights.  Presently, we are focused on acquiring farmland which is proximate to our integrated water system and farmland which has directly associated senior water rights.  By capturing water in our reservoirs and releasing it later for irrigation purposes we expect to ameliorate the inconsistencies of seasonal and annual water availability to our farms.

The Company currently owns approximately 7,790 gross acres, but not all of those acres have yet been brought into production.  During 2012, the Company produced cash crops from 482 acres of irrigated farmland.  For the 2013 farming season, we planted 1,398 acres consisting of 380 acres in full production and 1,018 acres in preventive planting.  Farming production is discussed below under the heading “Two Rivers Farms, LLC.”  Subject to the availability of capital, the Company expects to acquire and develop in excess of 30,000 acres of high yield irrigated land along the Arkansas River in Colorado within the next five years.

The Company’s current crop production consists of human-consumption produce (including cabbage, parsnips and pumpkins), animal fodder crops (including sorghum and alfalfa), and exchange traded grains (corn).  The Company expects to increase the variety of crops we produce as we expand our farming operations, improve our water system and secure contracts with purchasers.

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The Company commenced a systematic program to:

·   purchase and redevelop available farmland by deep-plowing the fields, laser-leveling the planting areas (to optimize plant absorption and minimize runoff), installing irrigation facilities, and applying fertilizers;

·   purchase a suite of water rights (including both diversion rights and storage rights);

·   refurbish the historic ditch systems and reservoirs to restore and upgrade their efficiency;

·   re-establish a sustainable and profitable farming enterprise which could achieve the scale required by modern farming methods and which could put the revived water supply to consistent beneficial use;

·   develop a customer base to consistently buy the farms’ output at prices sufficient to generate profits, and

·   build a reliable, integrated water supply system capable of flexibly serving both agricultural and urban needs.

In redeveloping our farmland, we deploy state-of-the-art methods and equipment with the aim of optimizing product yield, water efficiencies, and labor inputs.

Two Rivers Farms, LLC (“Farms”)

In order to put its water rights and facilities to productive use, the Company formed Farms to manage farms in proximity to our water distribution facilities and has undertaken a program of redeveloping the land, introducing modern agricultural and water management practices including deep plowing, laser leveling and installing efficient irrigation facilities.

During the 2010 growing season, approximately 400 acres of the Company’s land were farmed, primarily for wheat and feed corn, to determine the fertility of the soil and the most efficient and cost effective means of irrigation.

During 2011, the Company developed innovative ways to add irrigable acreage.  As a result, the Company developed 533 acres in 2011.  These additions increased the Company’s farmable acreage to 713.  However, because of the extensive drought in the area Farms did not produce a 2011 crop.  

During 2012, the Company farmed 482 acres.  For the 2013 farming season, we have planted 380 acres in full production, 1,018 acres in prevented planting for a total of 1,398 acres.  Prevented planting is where we do not plant because of the current drought situation in the Arkansas River Basin.  Under prevented planting we receive Federal assistance to offset our costs.  The reduction in acres planted is due to the drought in our farming area.

Dionisio Farms & Produce, Inc. (“DFP”)

In 2012, the Company acquired Dionisio Farms and Produce, LLC (an unrelated party) in a two stage transaction.  In the first stage, the Company acquired certain land and water rights from Dionisio Farms and Produce, LLC and its affiliated entities on June 15, 2012.  The Company purchased 146 acres of irrigable farmland, and the accompanying 146 shares of the Bessemer Ditch Irrigation Company, a senior water right holder on the main stem of the Arkansas River, and two supplemental ground water wells.  Further, the Company entered into leases for an additional 279 irrigable acres, of which 83 acres are subject to a 20 year lease.  Dionisio has been producing vegetable crops for over 70 years and has well-established commercial relationships for the sale and distribution of its crops.  The Company is operating these acquired assets under the Dionisio name and entered into employment agreements with members of the Dionisio family to maintain the experience and skill in producing and marketing of the vegetable crops.

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Commencing in October 2012, DFP offered its preferred shares to accredited investors in a private placement.  This offering, 2,500,000 shares at $2.00 per share, closed in February 2013 and generated net proceeds (after offering costs) of $4,621,000.  Proceeds of the offering were used as follows:

·   Reimbursement to the Company of $630,000 for the Dionisio first closing in June, 2012, net of bank financing;

·   Second stage of the Dionisio purchase transaction in November 2012 of $900,000 which is net of seller carry back;

·   Purchase of a neighboring farm for $56,000 plus assumption and new debt,

·   Loan to the Company of $1,000,000; and

·   The remainder of $2,035,000 as working capital and reserves.

In the second stage, the Company completed its acquisition of DFP and its affiliated entities through the payment of $900,000 and a seller carry-back promissory note of $600,000 (“Seller Note”) on November 2, 2012.  The Seller Note carries interest at 6% payable quarterly, and the principal is due at maturity in November, 2017.  The Seller Note is secured by certain farm equipment that was purchased in this transaction.

Two Rivers Farms F-1, Inc. (“F-1”) and Two Rivers Farms F-2, Inc. (“F-2”)

F-1

In January, 2011 the Company formed F-1, then a limited liability company, to hold certain farming assets and as an entity to raise debt financing for the Company’s expansion of the farming business.  In February 2011, F-1 sold $2,000,000 in 5% per annum, 3-year Series A convertible promissory notes (“Series A Notes”) that, as a class, also participate in 1/3 of the crop profit from the related land.  Proceeds from the Series A Notes were used to acquire and improve irrigation systems, pay for the farmland and retire seller carry-back debt from the purchase of HCIC.  This allowed water available through HCIC to be used to irrigate the F-1 farms without encumbrance.

In December 2012, F-1 converted from a limited liability company into a corporation and offered the holders of Series A Notes the opportunity to convert their debt into preferred shares of F-1 and warrants to purchase common shares of the Company.  Each share of F-1 Preferred can be converted into one share of common stock of the Company.  For every two preferred shares in F-1, one warrant to purchase one common share of the Company was also issued.  The warrant expires December 31, 2017 and can be exercised at $3 per common share of the Company.  As of December 31, 2012, we received from the Series A Note holders the intent, subject to a final review of all transactional and legal documents, to convert $1,975,000 of the debt thereby leaving $25,000 of the originally issued Series A Notes and accrued interest of $86,000 as outstanding as of December 31, 2012.  Since December 31, 2012, there have been no further conversions.

The F-1 Preferred includes two dividends: (1) Cumulative 8% Annual Dividend; and (2) 25% Annual Net Profits Participation Dividend.   Under the Cumulative 8% Annual Dividend, holders of the F-1 Preferred will be entitled to receive an annual dividend, when and if declared by F-1’s Board of Directors, at the rate of 8% per annum.  Under the 25% Annual Net Profits Participation Dividend, F-1 Preferred holders will be entitled to receive an annual cumulative dividend, when and if declared, on a pro rata basis, equal to 25%, on a fully converted basis, of the Annual Net Profit.  Annual Net Profit is defined as the Company’s earnings (as defined by U.S. GAAP) less interest payments and the 8% dividend set forth above and estimated income taxes owed.

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F-2

On April 5, 2011, the Company formed F-2, then a limited liability company, to hold certain farming and water assets and as an entity to raise additional debt for the Company’s expansion of the farming business.  During the summer of 2011, F-2 sold $5,332,000 in 6% per annum, 3-year Series B convertible promissory notes (the “Series B Notes”) that, as a class, also participate in 10% of the crop revenue from the related lands.  Further, for each $2.50 borrowed, the lender received a warrant to purchase one common share of the Company’s stock at $2.50.  These warrants expired unexercised on December 31, 2012.  Proceeds from the Series B Notes were used to acquire the Orlando and additional farmland and to install irrigation systems.

In December 2012, F-2 converted from a limited liability company to a corporation and offered the holders of Series B Notes the opportunity to convert their debt into convertible preferred shares of F-2 (the “F-2 Preferred”) and warrants to purchase common shares of the Company.  Each preferred share in F-2 can be converted into one share of common stock of the Company.  For every two preferred shares, a warrant to purchase one common share of the Company was also issued.  The warrant expires December 31, 2017, and can be exercised at $3 per common share of the Company.  As of December 31, 2012, we received from the Series B Note holders the intent, subject to a final review of all transactional and legal documents, to convert $5,107,000 of the debt thereby leaving $225,000 of the originally issued Series B Notes and accrued interest of $194,000 as outstanding as of December 31, 2012.  Since December 31, 2012, there have been no further conversions.

Both F-1 and F-2 lease their farmland and farming assets to Farms as the operator of the Company’s farming activities.

Other Farming

Approximately 1,500 acres of irrigable farmland in the Butte Valley acquired by the Company in connection with the Orlando purchase (the “Lascar-Butte Acres”) is subject to a conditional right to a repurchase by the sellers.  The repurchase option is for $1.00 but is only effective on or after September 7, 2021, and only if the sellers have previously offered to purchase from the Company at least 2,500 SFE (single family equivalent) water service connections and tendered payment of a $6,500 Water Resource Fee per SFE connection pursuant to an agreement.  Under that repurchase scenario, the Company would have already begun providing tap water service to the Lascar-Butte Acres and received a minimum of $16,250,000 in Water Resource Fees from sellers in exchange for the service connections.  Also, the sellers of Orlando had the right, subject to certain conditions, to repurchase Lascar-Butte Acres for $3,000,000.  However, as noted below, the repurchase right has been terminated based on actions of the Company to rehabilitate Orlando facilities and a portion of the associated farmland.

In 2011 and 2012, the Company made substantial improvements to the Lascar-Butte Acres to restore the farmable land and enhance the associated water rights.  These improvements include, but are not limited to installing an irrigation system, rebuilding the outlet works and diversion structure at the Orlando Reservoir, rebuilding the Orlando Ditch, laser leveling the farm land, purchasing nearby land, making filings with the water courts to enhance water rights, and planting sorghum for harvest.  These improvements allowed the Company to commence farming on the Lascar-Butte Acres in 2012 with a crop of sorghum.

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Through March 31, 2013, the Company had expended in excess of $2,382,000 in rebuilding and preparing the Lascar-Butte Acres for farming and developing the associated water rights.  The Company believes these substantial improvements satisfy certain obligations under the Orlando acquisition agreements and terminate the seller’s option to re-purchase the Lascar-Butte Acres.  The seller had an option to repurchase the Lascar-Butte Acres by September 7, 2013, if the Company did not use its best efforts to complete substantial improvements to the Lascar-Butte Acres, or if the Company did not commence farming on Lascar-Butte Acres.

Management plans for funding future operations

As of March 31, 2013, the Company had $1,314,000 in demand deposits and in the three months ended March 31, 2013 raised an additional $1,600,000, before placement fees, from its DFP private placement.  The Company has $10,966,000 as the current portion of long term debt.  The current portion represents $4,100,000 owed on a real estate contract, which the Company has $196,000 at risk as a non-refundable deposit and $6,623,000 in HCIC seller carry back, which the Company intends to refinance or provider the holders of the HCIC debt an incentive to extend their notes.  There can be no assurances that we will be successful in refinancing or extending the HCIC debt.

Management plans an additional equity funding round in either the second or third quarter of 2013.

The Company maintains a website at www.2riverswater.com, which is not incorporated in, and is not a part of, this report.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements do not include all of the disclosures required by accounting principles generally accepted in the U.S. (“GAAP”), pursuant to the rules and regulations of the SEC. The unaudited Consolidated Financial Statements reflect all adjustments which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company as of March 31, 2013, and the consolidated results of operations and comprehensive income and cash flows of the Company for the three months ended March 31, 2013 and 2012. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

These unaudited Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Two Rivers and its subsidiaries, Farms, F-1, F-2, DFP, TR Water, HCIC, and Orlando.  All significant inter-company balances and transactions have been eliminated in consolidation.

Non-controlling Interest

Non-controlling interest is recorded for the ownership of HCIC not owned by the Company and for preferred shares not owned by the Company in the Company’s subsidiaries.   Below is the detail of non-controlling interest shown on the balance sheet:

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Entity	March 31, 2013		December 31, 2012
HCIC	$	1,265,000	$	2,205,000
F-1		1,494,000		1,494,000
F-2		3,933,000		3,933,000
DFP		3,182,000		2,208,000
Totals	$	9,874,000	$	9,840,000

Reclassification

Certain amounts previously reported have been reclassified to conform to current presentation.  Certain labels of accounts/classifications have been changed.

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 financial statements and the reported amounts of revenues and expenses during the reported period.  Actual results could differ materially from those estimates.

Fair Value of Measurements and Disclosures

Fair Value of Assets and Liabilities Acquired

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market in an orderly transaction between market participants.  In determining fair value, the accounting standards established a three-level hierarchy that distinguishes between (i) market data obtained or developed from independent sources (i.e., observable data inputs) and (ii) a reporting entity’s own data and assumptions that market participants would use in pricing an asset or liability (i.e., unobservable data inputs).  Financial assets and financial liabilities measured and reported at fair value are classified in one of the following categories, in order of priority of observability and objectivity of pricing inputs:

•Level 1 – Fair value based on quoted prices in active markets for identical assets or liabilities.

•Level 2 – Fair value based on significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data.

•Level 3 – Fair value based on prices or valuation techniques that require significant unobservable data inputs.  Inputs would normally be a reporting entity’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.

The fair value measurement level for an asset or liability is based on the lowest level of any input that is significant to the fair value measurement.  Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.

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Recurring Fair Value Measurements:

The carrying value of the Company’s financial assets and financial liabilities is their cost, which may differ from fair value.   The carrying value of cash held as demand deposits, money market and certificates of deposit, marketable investments, accounts receivable, short-term borrowings, accounts payable and accrued liabilities approximated their fair value.  Marketable investments are valued at Level 1 due to readily available market quotes. The fair value of the Company’s long-term debt, including the current portion approximated its carrying value.  Fair value for long-term debt was estimated based on quoted market prices of the identical debt instruments or values of comparable borrowings.

Farm product

The Company capitalizes all expenditures directly associated with producing crops for sale.  This includes wages of farmers, preparing the soil, soil maintenance, crop insurance, cost of operating and maintaining equipment, seed, fertilizer, water and other direct farming expenses.  Upon sale of the farm product, the respective farm product cost is recognized as direct cost of farm product sold.

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 (see Property and Equipment below).  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.

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 are no impairments 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.

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Water Revenues

Previous 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 Two Rivers Water 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.

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 6,134,282 RSUs, 1,668,200 options and 9,323,209 warrants at March 31, 2013, has not been included in the determination of diluted earnings per share since, under ASC 260 they would anti-dilutive.

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 accurate.  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.

Water rights and infrastructure

The Company has acquired both direct flow water rights and water storage rights.  We have obtained water rights through the purchase of shares in a mutual ditch company, which we did with our purchase of shares in HCIC, or through the purchase of an entity holding water rights, which we did with our purchase of the 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.

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Upon purchasing water rights, the value is recorded at our purchase price.  If a majority interest is acquired in a company holding water assets (potentially with other assets including water delivery infrastructure, right of ways, and land), the Company determines the fair value of the assets.  To assist with the valuation, the Company may consider reports from a third-party valuation firm.  If the value of the water rights is greater than what the Company paid then a bargain purchase gain is recognized.   If the value of the water assets are less than what the Company paid then goodwill is recognized.

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.

Dam and water infrastructure construction in progress

The Company has commenced engineering for the reconstruction of the dam owned by the HCIC.  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 reconstruction is completed in accordance with ASC 360 and 835.

Reconstruction costs are as follows:

	3 months ended		Year ended
	Mar 31, 2013		Dec 31, 2012
Beginning balance	$	34,000	$	848,000
Additions		-		567,000
Completed, transferred		-		(1,381,000	)
Ending Balance	$	34,000	$	34,000

Intangible Assets

On November 2, 2012, the Company acquired the Dionisio produce business and related equipment for $1,873,000 plus accrued interest of $30,000.  Dionisio has been producing vegetable crops for over 70 years and has well-established commercial relationships for the sale and distribution of its crops.  The Company is operating these acquired assets under the Dionisio name and has entered into employment agreements with members of the Dionisio family to maintain the experience and skill in producing and marketing of the vegetable crops.

The Company paid $900,000 at closing; the seller carried back $600,000 (subsequently reduced to $590,000 with the assumption of additional debt and see Note 4, “Seller Carry Back – Dionisio”), and the Company assumed $415,000 in equipment debt.

The purchase price was allocated as follows:

Produce business	$	1,037,000
Equipment		836,000
Prepaid interest		30,000
Ending Balance	$	1,903,000

The equipment was appraised by an independent, third party appraiser.  After the allocation to equipment and the cost of the acquisition, the remainder was assigned to the produce business.  Management performed a discounted cash flow analysis to validate the assigned value intangible assets of $1,037,000.  The produce business value consists of trademarks, customer lists, and customer contracts.

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Based on the discounted cash flow analysis and assuming the average life of a customer is 20 years, the produce business has the following values:

Customer list	$	580,000
Tradename		220,000
Residual goodwill		237,000
Purchase price		1,037,000
Less:  Accumulated amortization		(10,000	)
Intangible assets, net	$	1,027,000

The cost of the customer list and the tradename will be amortized on a straight-line basis over 20 years.  The residual goodwill will be tested once per year for impairments, if any.

Based on the 20 year life of the tradename and customer list with no value at the end of the 20 years, the yearly amount of amortization is $40,000 per year.

NOTE 4 – NOTES PAYABLE

Seller Carry Back – SW Farms

On December 31, 2012, the Company purchased property from Southwest Farms, Inc. and Southwest Ready-Mix of Pueblo, Inc. (“SW Farms”).   The Company paid $4,300,000 for the acquisition with the seller taking back a $4,200,000 note.  The terms of the SW Farms seller carry back note is 2% per annum and due in full by April 30, 2013 with an extension, at the Company’s option, to May 31, 2013 with no additional funds required.  However, in the three months ended March 31, 2013, the Company paid an additional $100,000 to extend the note to a due date of August 31, 2013.  The $100,000 payment was applied to the principal.

It is the Company’s intent to pay the SW Farms note via other equity and debt sources.  If the Company cannot pay the SW Farms note by August 31, 2013, and the seller deciding not to offer any further extensions, then the Company will forfeit the $196,000 paid and give up the rights to the SW Farms assets.

McFinney Agri-Finance and Ellicott second mortgage

On March 15, 2013, the Company acquired 2,579 acres of pasture land in El Paso County, near the town of Ellicott, Colorado for $1,250,000.  This purchase was financed through a first mortgage on the land from McFinney Agri-Finance (“McFinney”) of $650,000 and through a second mortgage of $400,000 (“Ellicott Second”).

The McFinney note is due on March 18, 2018, with interest at 6.8%, monthly payments of $4,200 which represents interest and amortization of principal over 30 years.

The Ellicott Second is due on February 25, 2015, with interest only payable month at 12%.  The providers of the Ellicott Second debt also receives 25% of net revenue, defined as revenue received less any direct cost of generating the revenue and less any basis of the land sold. The 25% will be paid even after the Ellicott Second is paid in full.

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

Note		Principle balance			Mar 31 2013 accrued interest	Interest rate		Security
HCIC seller carry back	$	7,364,000		$	-	6	%	Shares in the Mutual Ditch Company
Orlando seller carry back		187,000			20,000	7	%	188 acres of land
Series A convertible debt		25,000			85,000	5	%	F-1 assets
Series B convertible debt		225,000			183,000	6	%	F-2 assets
CWCB		1,151,000			7,000	2.5	%	Certain Orlando and Farmland assets
FNB - Dionisio Farm		851,000			13,000	(1	)	Dionisio farmland and 146.4 shares of Bessemer Irrigating Ditch Company Stock, well permits
Seller Carry Back - Dionisio		590,000			-	6.0	%	Unsecured
Seller Carry Back - SW Farms		4,100,000			21,000	2	%	Secured by Sliman assets purchased
FNB - Mater		169,000			2,000	(1	)	Secured by Mater assets purchased
Seller Carry Back - Mater		25,000			-	6	%	Land from Mater purchase
McFinney Agri-Finance		650,000			1,000	6.8	%	2,579 acres of pasture land in Ellicott Colorado
Ellicott second mortgage		400,000			-	12	%	Second lien on above Ellicott land
Equipment loans		526,000			6,000	5 - 8	%	Specific equipment
Total		16,263,000		$	338,000
Less: Current portion		(10,966,000	)
Long Term portion	$	5,297,000
Notes:
(1) Prime rate + 1%, but not less than 6%.

Current portion long term debt:	3/31/2013
HCIC seller carry back	$	6,623,000
SW Farms	$	4,100,000
CWCB		-
FNB		27,000
Equipment loans		216,000
Total	$	10,966,000

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, DFP).  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, 2013												For the three months ended March 31, 2012
	Parent			Farms			Water			Total			Parent			Farms			Water			Total
Revenue
Other & misc.	$	-		$	-		$	-		$	-		$	-		$	-		$	1		$	1
Less: direct cost of revenue		-			-			-			-			-			-			-			-
Gross Margin		-			-			-			-			-			-			1			1
Expenses
Total operating expenses		1,200			533			252			1,985			1,614			199			334			2,147
Total other expense		40			25			132			196			371			231			111			713
Income (Loss) from operations before taxes		(1,239	)		(558	)		(384	)		(2,181	)		(1,985	)		(430	)		(444	)		(2,859	)
Income Taxes (Expense)/Credit		-			-			-			-			-			-			-			-
Net (loss)		(1,239	)		(558	)		(384	)		(2,181	)		(1,985	)		(430	)		(444	)		(2,859	)
Non-controlling interest		-			-			1			1			-			-			8			8
Net (Loss) Income	$	(1,239	)	$	(558	)	$	(383	)		(2,180	)	$	(1,985	)	$	(430	)	$	(436	)	$	(2,851	)
Segment assets	$	304			12,485			33,029			45,818		$	4,302			7,090			27,127			38,519

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NOTE 6 – EQUITY TRANSACTIONS

Common Stock

During the three months ended March 31, 2012, the Company had the following common stock transactions:

·   In January 2012 we issued 50,000 shares of our common stock to the independent members of the Board in exchange for Board of Director services rendered in 2011.

·   In January 2012 we issued 125,000 shares to cover 125,000 Restricted Stock Units (“RSUs”) issued to an non-executive employee under the 2011 Plan in exchange for his surrender of 250,000 options (strike price of $2.00/share) under the 2005 Plan.

·   In January 2012 100,000 shares, as part of an overall grant of 700,000 shares, were issued to the Company’s CFO pursuant to the 2011 Plan.

·   In January 2012 200,000 shares, as part of an overall grant of 400,000 shares, were issued to a former member of the Board of Directors.

·   In February 2012 we issued 83,330 shares to our investor relations consultants as partial payment for their services.

·   In March 2012 we issued 400,000 shares to participating lenders in consideration of the Bridge Loan.

During the three months ended March 31, 2013, the Company had the following common stock transactions:

·   In February 2013 we issued 179,348 shares of our common stock to a consultant for work performed in 2012.

·   In February 2013 we issued 85,000 shares of our common stock to the independent members of the Board in exchange for Board of Director services rendered in 2012.

·   In March 2013 we issued 200,000 shares of our common stock to a consultant for investor relations work performed in first quarter, 2013.

·   In March 2013 we issued 100,000 shares of our common stock to an independent member of the DFP Board of Directors in exchange for services.

NOTE 7 – SUBSEQUENT EVENTS

There were no material subsequent events through the date the financial statements were available to be issued.

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

Note about Forward-Looking Statements

This From 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

Two Rivers has developed and operates a revolutionary new water business model suitable for arid regions in the southwestern United States whereby the Company synergistically integrates irrigated farming and wholesale water distribution into one company, utilizing a practice of rotational farm fallowing.  Rotational farm fallowing, as it applies to water, is a best methods farm practice whereby portions of farm acreage are temporarily fallowed in cyclic rotation to give soil an opportunity to reconstitute itself.  As a result of fallowing, an increment of irrigation water can be made available for municipal use without permanently drying up irrigated farmland.  Collaborative rotational farm fallowing agreements between farmers and municipalities make surplus irrigation water available for urban use during droughts and, conversely, make surplus urban water available for irrigation during relatively wet periods. The Company produces and markets high value vegetable and fodder crops on its irrigated farmland and provides wholesale water distribution through farm fallowing agreements in its initial area of focus on the Arkansas River and its tributaries on the southern Front Range of Colorado.

Results of Operations

For the Three Months Ended March 31, 2013, Compared to the Three Months Ended March 31, 2012

During the three months ended March 31, 2013, we recognized no revenues from continuing operations, compared to $1,000 in revenues from continuing operations during the three months ended March 31, 2012.

Operating expenses from continuing operations during the three months ended March 31, 2013 and 2012 were $1,985,000 and $2,147,000, respectively.  The decrease of $162,000 is primarily due to the decrease of non-cash expense of granting of restrictive stock units ($680,000 for the three months ended March 31, 2013 compared to $1,000,000 for the three months ended March 31, 2012) offset by increased spending for our expansion in the Farming Business.  Management expects the expenses will continue to increase as we expand our Farming and Water Business.

For operations, during the three months ended March 31, 2013 and 2012, we recognized a net loss of $2,180,000 and $2,851,000, respectively.  The decreased loss of $671,000 is due primarily to the reasons previously stated above and a decrease of $485,000 in interest expense.

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LIQUIDITY

From the Company’s inception through March 31, 2013, we have funded our operations primarily from the following sources:

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

-   Revenue generated from operations;

-   Loans and lines of credit;

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

-   Sales of equity investments, and

-   Proceeds from the exercise of legacy Navidec options.

At the present time the Company has 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 March 31, 2013, the Company had cash and cash equivalents of $1,314,000.  Cash flow consumed by our operating activities totaled $999,000 for the three months ended March 31, 2013, compared to operating activities consuming $1,324,000 for the three months ended March 31, 2012.  The decrease in the cash consumed by our operating activities is largely due to the reduction in our interest expense.

As of March 31, 2013, the Company had $1,705,000 in current assets and $11,901,000 in current liabilities.  The Company intends to continue with its strategy of offering debt and equity securities to expand their Farming Business and Water Business and retire portions of its current debt.

Cash used in investing activities was $1,321,000 for the three months ended March 31, 2013, compared to use of cash of $446,000 for the three months ended March 31, 2012.  During the three months ended March 31, 2013, we purchased land and invested in water infrastructure through the expenditure of $1,315,000.

Cash flows generated by our financing activities for the three months ended March 31, 2013, were $2,294,000 compared to $4,550,000 for the three months ended March 31, 2012.  The decrease is primarily due to borrowing less.  During the three months ended March 31, 2013, we completed our offering of convertible preferred shares of $1,377,000 (net of offering cost) and borrowed $1,050,000 for land acquisition, offset by principal reduction on notes of $133,000.

During the three months ended March 31, 2012, we completed bridge financing of $3,994,000, drew against long debt of $606,000, our convertible debt offering of $1,975,000, offset by cost of funding of $45,000 and principal reduction of $5,000.

CRITICAL ACCOUNTING POLICIES

Two Rivers Water Company has identified the policies below as critical to the Company’s  business operations and the understanding of the Company’s results from operations.  The impact and any associated risks related to these policies on the Company’s business operations is discussed throughout Management’s Discussion and Analysis of Financial Conditions and Results of Operations where such policies affect the Company’s reported and expected financial results.  For a detailed discussion on the application of these and other accounting policies, see Note 2 in the Notes to the Consolidated Financial Statements.  Note that the Company’s preparation of this document 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 The Company’s 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.

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REVENUE RECOGNITION

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

GOODWILL AND INTANGIBLE ASSETS

The Company has acquired water shares in HCIC, which is considered an intangible asset and shown on our balance sheet as part of “Water rights and infrastructure”.   Currently, these shares are recorded at purchase price less the Company’s prorata share of the negative net worth in HCIC.  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, the Company 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 $1,037,000 and allocated this price to customer list, tradename and goodwill.  See Note 3 to our Financial Statements for a detail allocation.

SEASONALITY OF FARMING BUSINESS

Our Farming Business is subject to seasonality.  We begin planting early in the calendar year for harvesting that begins in early July and continues through November.  Management believes that the Company has enough capital and outside capital resources to fund the farming inputs until revenue is generated.

MATERIAL CONTRACTUAL OBLIGATIONS

During the three months ended March 31, 2013, the Company purchased approximately an additional 4% of the shares of HCIC.  For the purchase the Company assumed the sellers’ past due assessment to HCIC of $80,000, which was eliminated on consolidation.  This transaction was recorded as a reclassification from HCIC non-controlling interest to additional paid in capital.  Further, the Company committed to provide the sellers a 100-year water lease equal to 4% of the total water available through the HCIC system at no additional charge to the sellers.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to the impact of interest rate changes and change in the market values of the Company’s investments.  Based on the Company’s market risk sensitive instruments outstanding as of March 31, 2013, as described below, management has determined that there was no material market risk exposure to the Company’s consolidated financial position, results of operations, or cash flows as of such date. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes.

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INTEREST RATE RISK

At March 31, 2013, the Company’s exposure to market rate risk for changes in interest rates relates primarily to its borrowings and opportunities for retiring or rolling over its debt.   The Company has not used derivative financial instruments in its credit facilities.  A hypothetical 10% increase in the Prime Rate would not be significant to the Company's financial position, results of operations, or cash flows.

IMPAIRMENT POLICY

At least once every year, management examines all of the Company’s assets for proper valuation and to determine if an allowance for 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.

INVESTMENT RISK

From time to time the Company has made investments in equity instruments in companies for business and strategic purposes.  These investments, when held, are included in other long-term assets and are accounted for under the cost method since ownership is less than 20% and the Company does not assert significant influence.

INFLATION

The Company does not believe that inflation will have a material negative impact on its future operations.

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 the Company has no market risk sensitive instruments outstanding as of March 31, 2013, 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

Disclosures Controls and Procedures

We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules  13a-15I and 15d-15(e) under the Securities  Exchange Act of 1934, as amended (the "Exchange  Act")) that are designed to ensure that information required to be disclosed in our reports  under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the ’EC's rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure.

Two Rivers Water & Farming Company -- March 31, 2013 -- 10Q

Page 23

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO” who is also the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report.  Based on that evaluation, and taking the matters described below into account, the Company’s CEO and CFO have concluded that our disclosure controls and procedures over financial reporting were not effective during reporting period ended December 31, 2012 and March 31, 2013 as discussed below.

Eide Bailly LLP, our registered independent public accounting firm, was not required to and has not issued a report concerning the effectiveness of our internal control over financial reporting as of December 31, 2012.

Management's Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company in accordance with as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.  Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Our internal control over financial reporting includes those policies and procedures that:

 (i)           pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

(ii)           provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made in accordance with authorizations of our management and directors; and

(iii)           provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness 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.

Management’s assessment of the effectiveness of the small business issuer’s internal control over financial reporting as of the year ended December 31, 2012 and three months ended March 31, 2013, the Company did not maintain effective internal control over financial reporting because of the following control deficiencies that constitute material weakness:

·   On July 24, 2012, management concluded, after consultation with the Audit Committee and external auditors that the Company had not properly accounted for a beneficial conversion feature on its Series B Notes since August 2011.  This error had a material effect on our previously issued consolidated financial statements for the year ended December 31, 2011 and the quarters ended September 30, 2011 and March 31, 2012, which is requiring us to restate the financial statements for such periods.

Two Rivers Water & Farming Company -- March 31, 2013 -- 10Q

Page 24

In conjunction with the matter described above, management has re-evaluated its previously provided assessments as of September 30, 2011, December 31, 2011, and March 31, 2012 regarding the effectiveness of the Company’s disclosure controls and procedures and determined that as of these periods, the disclosure controls and procedures were properly designed to detect a material misstatement of its financial statements from occurring in the future.  However, due to a misinterpretation of an accounting standard on beneficial conversion features, the filings and disclosures made on the financial statements representing September 30, 2011, December 31, 2011 and March 31, 2012, the disclosure control was not effective.

·   During the audit conducted for the year ended December 31, 2012, the independent auditors identified material financial entries that were incorrectly made which focused in two areas:

o   The conversion of Bridge Loan, Series A and Series B Notes and the subsequent recording of these transactions and the double booking of interest expense or improper interest expense classification.

o   Issuance of the Company’s common stock and fully recognizing related expenses offset by entries into additional paid in capital.

Because of the material weakness identified above, a reasonable possibility exists that a material misstatement in our consolidated financial statements will not be prevented or detected on a timely basis. However, our Chief Executive Officer and Principal Accounting Officer believe that the financial statements included in this quarterly report on Form 10-Q present, in all material respects, our financial position, results of operations and cash flows for the periods presented, in conformity with U.S. GAAP.

Plan for Remediation of Material Weaknesses

The remediation effort outlined below is intended to address the identified material weaknesses in internal control over financial reporting.

We plan to engage an outside, independent reviewer of our 10Q and 10K filings to review these filings before submitting to our outside auditors for review or audit.  We plan to continue this service until the reviewer comments are minimal and immaterial.

For complex entries, such as the Bridge Loan, Series A and Series B Note conversion into preferred shares and warrants, we will continue to use outside technical resources; however, we will monitor the booking of complex entries more closely.

We have activated an immediate recording process of individual, one-time journal entries, particularly with stock issuance activity.

We will consider the results of our remediation efforts and related testing as part of our year-end 2013 assessment of the effectiveness of our internal control over financial reporting.

Changes in Internal Control over Financial Reporting

Except as otherwise noted above, there were no significant changes in our internal control over financial reporting during the year ended December 31, 2012 and three months ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Two Rivers Water & Farming Company -- March 31, 2013 -- 10Q

Page 25

We will continue to monitor the effectiveness of our internal control over financial reporting in the areas affected by the facts described above and employ any additional tools and resources deemed necessary to ensure that our financial statements are fairly stated in all material respects.

PART II.  OTHER INFORMATION

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the period of January 1, 2013, through March 31, 2013, the Company had the following common stock transactions:

·   In February 2013 we issued 179,348 shares of our common stock to a consultant for work performed in 2012.

·   In February 2013 we issued 85,000 shares of our common stock to the independent members of the Board in exchange for Board of Director services rendered in 2012.

·   In March 2013 we issued 200,000 shares of our common stock to a consultant for investor relations work performed in first quarter, 2013.

·   In March 2013 we issued 100,000 shares of our common stock to an independent member of the DFP Board of Directors in exchange for services.

Exemption From Registration Claimed

All of the above sales by the Company of its unregistered securities were made by the Company in reliance upon Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and/or Rule 506 of Regulation D, as promulgated under the 1933 Act.  All of the individuals and/or entities that purchased the unregistered securities were existing shareholders or were known to the Company and its management, through pre-existing business relationships, as long standing business associates.  All purchasers were provided access to all material information, which they requested, and all information necessary to verify such information and were afforded access to management of the Company in connection with their purchases.  All purchasers of the unregistered securities acquired such securities for investment and not with a view toward distribution, acknowledging such intent to the Company.  All certificates or agreements representing such securities that were issued contained  restrictive legends, prohibiting further transfer of the certificates or agreements representing such securities, without such securities either being first registered or otherwise exempt from registration in any further resale or disposition.

Two Rivers Water & Farming Company -- March 31, 2013 -- 10Q

Page 26

ITEM 6.   EXHIBITS

The following is a complete list of exhibits filed as part of this Form 10Q/A. Exhibit number corresponds to the numbers in the Exhibit table of Item 601 of Regulation S-K.

Number Description

31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act	Filed Herewith
31.2	Certification of Principal Financial Officer pursuant to the Section 302 of the Sarbanes-Oxley Act	Filed Herewith
32.1	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act	Filed Herewith
32.2	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act	Filed Herewith

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities and 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 (Registrant)
Dated: May 6, 2013	By: /s/ John McKowen
	Chief  Executive Officer & Chairman of the Board
	By: /s/ Wayne Harding
	Chief Financial Officer & Principal Accounting Officer

Two Rivers Water & Farming Company -- March 31, 2013 -- 10Q

Page 27

EX-31.1

    exh31mckowen2013q1.htm
    
    
    

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Wayne Harding, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Two Rivers Water Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact  necessary to make the statements made, in light of the  circumstances  under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls.

Dated: May 6, 2013	By: /s/ Wayne Harding,
	Chief Financial Officer &  Principal Accounting Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Two Rivers Water Company on Form 10-Q for the period ended March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John McKowen Chief Executive Officer and Chairman of the Board of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  May 6, 2013	By: /s/ John McKowen
	Chief Executive Officer & Chairman of the Board

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Two Rivers Water Company on Form 10-Q for the period ended March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Wayne Harding, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  May 6, 2013	By: /s/ Wayne Harding
	Chief Financial Officer & Principal Accounting Officer

XML

NOTES PAYABLE - Summary of long term debt (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012	Nov. 02, 2012	Dec. 31, 2011
Orlando seller carry back				$ 100,000
Convertible debt Series B, Interest rate		2.00%		6.00%
Equipment loans, Specific equipment			600,000
Less: Current portion	10,966,000
Principal Balance
Mutual Ditch seller carry back	7,364,000
Orlando seller carry back	187,000
Convertible debt Series A	25,000
Convertible debt Series B	225,000
CWCB	1,151,000
FNB - Dionisio Farm	850,000
Seller Carry Back - Dionisio	590,000
Seller Carry Back - SW Farms	4,100,000
FNB - Mater	169,000
Seller Carry Back - Mater	25,000
McFinney Agri-Finance	650,000
Ellicot second mortgage	400,000
Equipment loans, Specific equipment	526,000
Total	16,263,000
Less: Current portion	(10,966,000)
Long Term portion	5,297,000
Accrued Interest
Orlando seller carry back	20,000
Convertible debt Series A	85,000
Convertible debt Series B	183,000
CWCB	7,000
FNB - Dionisio Farm	13,000
Seller Carry Back - SW Farms	21,000
FNB - Mater	2,000
McFinney Agri-Finance	1,000
Total	$ 338,000
Interest Rate
Mutual Ditch seller carry back, Interest rate	6.00%
Orlando seller carry back, Interest rate	7.00%
Convertible debt Series A, Interest rate	5.00%
Convertible debt Series B, Interest rate	6.00%
CWCB, Interest rate	2.50%
Seller Carry Back - Dionisio, Interest rate	6.00%
Seller Carry Back - SW Farms, Interest rate	2.00%
Seller Carry Back - Mater, Interest rate	6.00%
McFinney Agri-Finance, Interest rate	6.80%
Ellicot second mortgage, Interest rate	12.00%
Equipment loans, Specific equipment, interest rate minimum	5.00%
Equipment loans, Specific equipment, interest rate maximum	8.00%

XML

NOTES PAYABLE

3 Months Ended

Mar. 31, 2013

Debt Disclosure [Abstract]

NOTES PAYABLE

NOTE 4 – NOTES PAYABLE

Seller Carry Back – SW Farms

On December 31, 2012, the Company purchased property from Southwest Farms, Inc. and Southwest Ready-Mix of Pueblo, Inc. (“SW Farms”). The Company paid $4,300,000 for the acquisition with the seller taking back a $4,200,000 note. The terms of the SW Farms seller carry back note is 2% per annum and due in full by April 30, 2013 with an extension, at the Company’s option, to May 31, 2013 with no additional funds required. However, in the three months ended March 31, 2013, the Company paid an additional $100,000 to extend the note to a due date of August 31, 2013. The $100,000 payment was applied to the principal.

It is the Company’s intent to pay the SW Farms note via other equity and debt sources. If the Company cannot pay the SW Farms note by August 31, 2013, and the seller deciding not to offer any further extensions, then the Company will forfeit the $196,000 paid and give up the rights to the SW Farms assets.

McFinney Agri-Finance and Ellicott second mortgage

On March 15, 2013, the Company acquired 2,579 acres of pasture land in El Paso County, near the town of Ellicott, Colorado for $1,250,000. This purchase was financed through a first mortgage on the land from McFinney Agri-Finance (“McFinney”) of $650,000 and through a second mortgage of $400,000 (“Ellicott Second”).

The McFinney note is due on March 18, 2018, with interest at 6.8%, monthly payments of $4,200 which represents interest and amortization of principal over 30 years.

The Ellicott Second is due on February 25, 2015, with interest only payable month at 12%. The providers of the Ellicott Second debt also receives 25% of net revenue, defined as revenue received less any direct cost of generating the revenue and less any basis of the land sold. The 25% will be paid even after the Ellicott Second is paid in full.

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

Note		Mar 31, 2013 principal balance		Mar 31, 2013 accrued interest		Interest rate	Security
HCIC seller carry back	$          7,364,000		$                -		6%		Shares in the Mutual Ditch Company
Orlando seller carry back	187,000		20,000		7%		188 acres of land
Series A convertible debt	25,000		85,000		5%		F-1 assets
Series B convertible debt	225,000		183,000		6%		F-2 assets
CWCB	1,151,000		7,000		2.5%		Certain Orlando and Farmland assets
FNB - Dionisio Farm	851,000		13,000		(1)		Dionisio farmland and 146.4 shares of Bessemer Irrigating Ditch Company Stock, well permits
Seller Carry Back - Dionisio	590,000		-		6.0%		Unsecured
Seller Carry Back - SW Farms	4,100,000		21,000		2%		Secured by Sliman assets purchased
FNB - Mater	169,000		2,000		(1)		Secured by Mater assets purchased
Seller Carry Back - Mater	25,000		-		6%		Land from Mater purchase
McFinney Agri-Finance	650,000		1,000		6.8%		2,579 acres of pasture land in Ellicott Colorado
Ellicott second mortgage	400,000		-		12%		Second lien on above Ellicott land
Equipment loans	526,000		6,000		5 - 8%		Specific equipment
Total	16,263,000		$    338,000
Less: Current portion	(10,966,000)
Long Term portion	$          5,297,000
Notes:
(1) Prime rate + 1%, but not less than 6%.

Current portion long term debt:	3/31/2013
HCIC seller carry back	$               6,623,000
SW Farms	$               4,100,000
CWCB	-
FNB	27,000
Equipment loans	216,000
Total	$             10,966,000

XML

EQUITY TRANSACTIONS (Details Narrative) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Accounting Policies [Abstract]
Common stock issued for Board of Director services rendered in 2011		50,000
Common stock issued to cover Restricted Stock Units		125,000
Stock options surrendered		250,000
Stock option strike price		$ 2.00
Common stock issued to Company's CFO		100,000
Common stock issued to former member of the Board		200,000
Common stock issued to investor relations consultant	200,000	83,330
Common stock issued for Bridge Loan consideration		400,000
Common stock issued to consultant	179,348
Common stock issued for Board of Director services rendered in 2012	$ 85,000
Common stock issued to independent member of the DFP Board of Directors	100,000

XML

INFORMATION ON BUSINESS SEGMENTS - Operating results for each business segment (in thousands) (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Parent
Revenue
Other & misc.
Less: direct cost of revenue
Gross Margin
Expenses
Total operating expenses	1,200	1,614
Total Other Income (Expense)	40	371
Income (Loss) from operations before taxes	(1,239)	(1,985)
Income Taxes (Expense)/Credit
Net (Loss)	(1,239)	(1,985)
Non-controlling interest
Net (Loss) Income	(1,239)	(1,985)
Segment assets	304	4,302
Farms
Revenue
Other & misc.
Less: direct cost of revenue
Gross Margin
Expenses
Total operating expenses	533	199
Total Other Income (Expense)	25	231
Income (Loss) from operations before taxes	(558)	(430)
Income Taxes (Expense)/Credit
Net (Loss)	(558)	(430)
Non-controlling interest
Net (Loss) Income	(558)	(430)
Segment assets	12,485	7,090
Water
Revenue
Other & misc.		1
Less: direct cost of revenue
Gross Margin		1
Expenses
Total operating expenses	252	334
Total Other Income (Expense)	132	111
Income (Loss) from operations before taxes	(384)	(444)
Income Taxes (Expense)/Credit
Net (Loss)	(384)	(444)
Non-controlling interest	1	8
Net (Loss) Income	(383)	(436)
Segment assets	33,029	27,127
Total
Revenue
Other & misc.		1
Less: direct cost of revenue
Gross Margin		1
Expenses
Total operating expenses	1,985	2,147
Total Other Income (Expense)	196	713
Income (Loss) from operations before taxes	(2,181)	(2,859)
Income Taxes (Expense)/Credit
Net (Loss)	(2,181)	(2,859)
Non-controlling interest	1	8
Net (Loss) Income	(2,180)	(2,851)
Segment assets	$ 45,818	$ 38,519

XML

INVESTMENTS AND LONG-LIVED ASSETS

3 Months Ended

Mar. 31, 2013

Investments, All Other Investments [Abstract]

INVESTMENTS AND LONG-LIVED ASSETS

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 accurate. 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.

Water rights and infrastructure

The Company has acquired both direct flow water rights and water storage rights. We have obtained water rights through the purchase of shares in a mutual ditch company, which we did with our purchase of shares in HCIC, or through the purchase of an entity holding water rights, which we did with our purchase of the 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.

Upon purchasing water rights, the value is recorded at our purchase price. If a majority interest is acquired in a company holding water assets (potentially with other assets including water delivery infrastructure, right of ways, and land), the Company determines the fair value of the assets. To assist with the valuation, the Company may consider reports from a third-party valuation firm. If the value of the water rights is greater than what the Company paid then a bargain purchase gain is recognized. If the value of the water assets are less than what the Company paid then goodwill is recognized.

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.

Dam and water infrastructure construction in progress

The Company has commenced engineering for the reconstruction of the dam owned by the HCIC. 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 reconstruction is completed in accordance with ASC 360 and 835.

Reconstruction costs are as follows:

	3 months ended	Year ended
	Mar 31, 2013	Dec 31, 2012
Beginning balance	$           34,000	$   848,000
Additions	-	567,000
Completed, transferred	-	(1,381,000)
Ending Balance	$       34,000	$                  34,000

Intangible Assets

On November 2, 2012, the Company acquired the Dionisio produce business and related equipment for $1,873,000 plus accrued interest of $30,000. Dionisio has been producing vegetable crops for over 70 years and has well-established commercial relationships for the sale and distribution of its crops. The Company is operating these acquired assets under the Dionisio name and has entered into employment agreements with members of the Dionisio family to maintain the experience and skill in producing and marketing of the vegetable crops.

The Company paid $900,000 at closing; the seller carried back $600,000 (subsequently reduced to $590,000 with the assumption of additional debt and see Note 4, “Seller Carry Back – Dionisio”), and the Company assumed $415,000 in equipment debt.

The purchase price was allocated as follows:

Produce business	$ 1,037,000
Equipment	836,000
Prepaid interest	30,000
Ending Balance	$       1,903,000

The equipment was appraised by an independent, third party appraiser. After the allocation to equipment and the cost of the acquisition, the remainder was assigned to the produce business. Management performed a discounted cash flow analysis to validate the assigned value intangible assets of $1,037,000. The produce business value consists of trademarks, customer lists, and customer contracts.

Based on the discounted cash flow analysis and assuming the average life of a customer is 20 years, the produce business has the following values:

Customer list	$ 580,000
Tradename	220,000
Residual goodwill	237,000
Purchase price	1,037,000
Less:  Accumulated amortization	(10,000)
Intangible assets, net	$       1,027,000

The cost of the customer list and the tradename will be amortized on a straight-line basis over 20 years. The residual goodwill will be tested once per year for impairments, if any.

Based on the 20 year life of the tradename and customer list with no value at the end of the 20 years, the yearly amount of amortization is $40,000 per year.

XML

Condensed Consolidated Balance Sheets (In Thousands) (Unaudited) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Current Assets:
Cash and cash equivalents	$ 1,314	$ 1,340
Advances and accounts receivable	22	184
Farm product	161	49
Deposits and other current assets	208	74
Total Current Assets	1,705	1,647
Long Term Assets:
Property, equipment and software, net	2,366	2,397
Land	5,176	3,919
Water rights and infrastructure	35,337	35,354
Dam and water infrastructure construction in progress	34	34
Intangible assets, net	1,027	1,037
Other long term assets	173	64
Total Long Term Assets	44,113	42,805
TOTAL ASSETS	45,818	44,452
Current Liabilities:
Accounts payable	268	298
Accrued liabilities	667	830
Current portion of long term debt	10,966	10,978
Total Current Liabilities	11,901	12,106
Long Term Debt	5,297	4,368
Total Liabilities	17,198	16,474
Stockholders' Equity:
Convertible preferred shares, $0.001 par value, 4,000,000 shares authorized, 3,794,000 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively, (liquidation value $3,794,000), net	2,851	2,851
Common stock, $0.001 par value, 100,000,000 shares authorized, 24,592,550 and 24,028,202 shares issued and outstanding at March 31, 2013 and December 31, 2012	25	24
Additional paid-in capital	60,444	56,703
Accumulated (deficit)	(44,574)	(41,440)
Total Two Rivers Water Company Shareholders' Equity	18,746	18,138
Noncontrolling interest in subsidiary	9,874	9,840
Total Stockholders' Equity	28,620	27,978
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$ 45,818	$ 44,452

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ORGANIZATION AND BUSINESS

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

ORGANIZATION AND BUSINESS

NOTE 1 – ORGANIZATION AND BUSINESS

Our Business

Two Rivers has developed and operates a revolutionary new water business model suitable for arid regions in the Southwestern United States whereby the Company synergistically integrates irrigated farming and wholesale water distribution into one company, utilizing a practice of rotational farm fallowing. Rotational farm fallowing, as it applies to water, is a best methods farm practice whereby portions of farm acreage are temporarily fallowed in cyclic rotation to give soil an opportunity to reconstitute itself. As a result of fallowing, an increment of irrigation water can be made available for municipal use without permanently drying up irrigated farmland. Collaborative rotational farm fallowing agreements between farmers and municipalities make surplus irrigation water available for urban use during droughts and, conversely, make surplus urban water available for irrigation during relatively wet periods. The Company produces and markets high value vegetable and fodder crops on its irrigated farmland and provides wholesale water distribution through farm fallowing agreements in its initial area of focus on the Arkansas River and its tributaries on the Southern Front Range of Colorado.

Our Corporate Structure

Two Rivers Water & Farming Company

Two Rivers Water & Farming Company is the parent company and owns 100% of Two Rivers Farms, LLC (“Two Rivers Farms”) and Two Rivers Water, LLC (“Two Rivers Water”). Two Rivers Farms owns 100% of Two Rivers Farms F-1, Inc., Two Rivers Farms F-2, Inc. and Dionisio Farms & Produce, Inc. (“DFP”). Two Rivers Farms also owns unencumbered farmland that will eventually be redeveloped and brought into production. As of March 31, 2013, Two Rivers Water owns 95% of the Huerfano-Cucharas Irrigation Company (sometimes referred to elsewhere in this quarterly report as HCIC) and 100% of the Orlando Reservoir No. 2 Company LLC. The Company’s organizational structure is illustrated below:

Our Water Business

Water Rights

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, because of 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, in times of shortage. 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). Two Rivers will continue to evaluate acquisitions of farmland in light of their associated water rights and plans to continue integrating its farming and water management activities.

Two Rivers Water, LLC (“TR Water”)

During 2011, the Company formed TR Water to secure additional water rights, rehabilitate water diversion, conveyance and storage facilities and to develop one or more special water districts.

The Huerfano-Cucharas Irrigation Company (“HCIC”)

In order to supply its farms with irrigation water, the Company began to acquire shares in HCIC, a historic mutual ditch company formed by area farmers in order to develop and put to use their water rights on the Huerfano and Cucharas rivers. At the time HCIC was formed in 1944, the water in the two rivers was continuously augmented by groundwater pumped from coal mines that operated in the watershed. The augmented and natural flow of the rivers, along with the water rights and facilities of HCIC were sufficient to provide reliable irrigation water for the shareholders and their expanding farm enterprises. However, in the years following World War II, the mines began to cease production and, therefore, stopped pumping groundwater out of the mine shafts and into the river channels. As a result of the reduction in downstream flow in the rivers, the extent of farming in the watershed could no longer be reliably irrigated. In some years, crops failed for lack of late summer irrigation water and, over time, once thriving farms withered. Because of such failures and the reduced flow in the rivers, the shareholders of HCIC were unable or unwilling to adequately maintain the water diversion, conveyance and storage facilities. Therefore, at the time the Company decided to invest in the Huerfano/Cucharas watershed, the shares in HCIC had become less valuable and the residual farming in the area had reverted primarily to pasture and dry grazing.

Beginning in 2009, the Company systematically acquired shares in HCIC and, as of March 31, 2013, had acquired 95% of the HCIC shares. The shares were acquired from willing sellers in a series of arm’s length, negotiated transactions for cash, promissory notes, and the Company’s common shares. As the controlling shareholder, the Company currently operates HCIC and has undertaken a long-term program to refurbish and restore the historic water management facilities. Based on management’s estimate of value, which included management’s consideration of an independent appraisal, we determined that the Company’s interest in HCIC had a book value, measured through fair value accounting, of $24,196,000, as of December 31, 2011. HCIC’s assets, liabilities and results are consolidated in the Company’s financial statements.

During the three months ended March 31, 2013, the Company purchased an additional 3/9% of the shares of HCIC. For the purchase the Company assumed the sellers’ past due assessment to HCIC of $80,000, which was eliminated on consolidation. This transaction was recorded as a reclassification from HCIC non-controlling interest to additional paid in capital. Further, the Company committed to provide the sellers a 100 year water lease equal to 3.9% of the total water available through the HCIC system at no additional charge to the sellers.

Orlando Reservoir No. 2 Company, LLC (“Orlando”)

Orlando is a Colorado limited liability company originally formed to divert water from the Huerfano River, for storage in the Orlando Reservoir to be re-timed and used for irrigation of farmland in Huerfano and Pueblo Counties. At the time the Company began investing in the Huerfano/Cucharas watershed, Orlando owned the historic diversion structure, a conveyance system and a reservoir and also owned a small amount of irrigable farmland. However, the water facilities were in deteriorated condition. Beginning in January 2011, through a series of transactions, the latest of which closed on September 7, 2011, the Company acquired 100% ownership of Orlando for a combination of cash, stock and seller-financing. Promptly following the acquisition, the Company began a program for refurbishing the facilities to restore their operating efficiency. The stated purchase price for Orlando was $3,450,000; however, for reporting the financial statements dated September 30, 2011 (and pending the results of an independent appraisal), the purchase price was computed as $3,156,750 based on cash paid, the seller carry-back note and the market value of 650,000 shares of the Company’s common stock issued to the seller. The purchase price was allocated $3,000,000 to water assets and $100,000 to farm land.

Following the purchase of Orlando and considering the refurbishment already underway, the Orlando was independently appraised as of January 16, 2012 at $5,195,000, considering agricultural irrigation as its highest and best use. The gain from the bargain purchase of $1,736,000 was allocated $1,520,000 to water assets and $216,000 to land.

The Orlando assets include not only the reservoir, but also the senior-most direct flow water right on the Huerfano River (the #1 priority), the #9 priority and miscellaneous junior water rights. These water rights are now integrated with the Company’s other water rights on the Huerfano and Cucharas River to optimize the natural water supply. The water storage rights, and the physical storage reservoirs, are critical to water supply reliability in the watershed, because the storage system allows the natural spring runoff from snowmelt to be captured and re-timed for delivery to irrigate crops throughout the growing season. Coupled with the Company’s distribution facilities and farmland, these water diversion and storage rights increase the reliability of water supplies to irrigate and grow our crops.

Dionisio Farms & Produce, Inc. (“DFP”)

As part of the purchase of DFP, the Company acquired 146 shares in the Bessemer Irrigating Ditch Company, which manages and administers the water rights in the Bessemer Ditch. The Bessemer Ditch holds senior water rights on the Arkansas River. The Bessemer Ditch has sustained the Dionisio farm operations (which are described below under the caption “Dionisio Farms & Produce, Inc.”)for more than 60 years, through all hydrological and weather cycles.

The Company’s purchase of DFP is further described herein under the heading “Our Farming Business.”

Our Farming Business

In furtherance of developing irrigated farmland, the Company has engaged in both: 1) acquiring farmland that is currently producing crops supported by relatively secure water rights; and 2) acquiring farmland that has not been productive for many years, but maintains significant water rights. Presently, we are focused on acquiring farmland which is proximate to our integrated water system and farmland which has directly associated senior water rights. By capturing water in our reservoirs and releasing it later for irrigation purposes we expect to ameliorate the inconsistencies of seasonal and annual water availability to our farms.

The Company currently owns approximately 7,790 gross acres, but not all of those acres have yet been brought into production. During 2012, the Company produced cash crops from 482 acres of irrigated farmland. For the 2013 farming season, we planted 1,398 acres consistintg of 380 acres in full production and 1,018 acres in preventive planting. Farming production is discussed below under the heading “Two Rivers Farms, LLC.” Subject to the availability of capital, the Company expects to acquire and develop in excess of 30,000 acres of high yield irrigated land along the Arkansas River in Colorado within the next five years.

The Company’s current crop production consists of human-consumption produce (including cabbage, parsnips and pumpkins), animal fodder crops (including sorghum and alfalfa), and exchange traded grains (corn). The Company expects to increase the variety of crops we produce as we expand our farming operations, improve our water system and secure contracts with purchasers.

The Company commenced a systematic program to:

• purchase and redevelop available farmland by deep-plowing the fields, laser-leveling the planting areas (to optimize plant absorption and minimize runoff), installing irrigation facilities, and applying fertilizers;
• purchase a suite of water rights (including both diversion rights and storage rights);
• refurbish the historic ditch systems and reservoirs to restore and upgrade their efficiency;
• re-establish a sustainable and profitable farming enterprise which could achieve the scale required by modern farming methods and which could put the revived water supply to consistent beneficial use;
• develop a customer base to consistently buy the farms’ output at prices sufficient to generate profits, and
• build a reliable, integrated water supply system capable of flexibly serving both agricultural and urban needs.

In redeveloping our farmland, we deploy state-of-the-art methods and equipment with the aim of optimizing product yield, water efficiencies, and labor inputs.

Two Rivers Farms, LLC (“Farms”)

In order to put its water rights and facilities to productive use, the Company formed Farms to manage farms in proximity to our water distribution facilities and has undertaken a program of redeveloping the land, introducing modern agricultural and water management practices including deep plowing, laser leveling and installing efficient irrigation facilities.

During the 2010 growing season, approximately 400 acres of the Company’s land were farmed, primarily for wheat and feed corn, to determine the fertility of the soil and the most efficient and cost effective means of irrigation.

During 2011, the Company developed innovative ways to add irrigable acreage. As a result, the Company developed 533 acres in 2011. These additions increased the Company’s farmable acreage to 713. However, because of the extensive drought in the area Farms did not produce a 2011 crop.  

During 2012, the Company farmed 482 acres. For the 2013 farming season, we have planted 380 acres in full production, 1,018 acres in prevented planting for a total of 1,398 acres. Prevented planting is where we do not plant because of the current drought situation in the Arkansas River Basin. Under prevented planting we receive Federal assistance to offset our costs. The reduction in acres planted is due to the drought in our farming area.

Dionisio Farms & Produce, Inc. (“DFP”)

In 2012, the Company acquired Dionisio Farms and Produce, LLC (an unrelated party) in a two stage transaction. In the first stage, the Company acquired certain land and water rights from Dionisio Farms and Produce, LLC and its affiliated entities on June 15, 2012. The Company purchased 146 acres of irrigable farmland, and the accompanying 146 shares of the Bessemer Ditch Irrigation Company, a senior water right holder on the main stem of the Arkansas River, and two supplemental ground water wells. Further, the Company entered into leases for an additional 279 irrigable acres, of which 83 acres are subject to a 20 year lease. Dionisio has been producing vegetable crops for over 70 years and has well-established commercial relationships for the sale and distribution of its crops. The Company is operating these acquired assets under the Dionisio name and entered into employment agreements with members of the Dionisio family to maintain the experience and skill in producing and marketing of the vegetable crops.

Commencing in October 2012, DFP offered its preferred shares to accredited investors in a private placement. This offering, 2,500,000 shares at $2.00 per share, closed in February 2013 and generated net proceeds (after offering costs) of $4,621,000. Proceeds of the offering were used as follows:

• Reimbursement to the Company of $630,000 for the Dionisio first closing in June, 2012, net of bank financing;
• Second stage of the Dionisio purchase transaction in November 2012 of $900,000 which is net of seller carry back;
• Purchase of a neighboring farm for $56,000 plus assumption and new debt,
• Loan to the Company of $1,000,000; and
• The remainder of $2,035,000 as working capital and reserves.

In the second stage, the Company completed its acquisition of DFP and its affiliated entities through the payment of $900,000 and a seller carry-back promissory note of $600,000 (“Seller Note”) on November 2, 2012. The Seller Note carries interest at 6% payable quarterly and the principal of the Seller Note is due at maturity in November, 2017. The Seller Note is secured by certain farm equipment that was purchased in this transaction.

Two Rivers Farms F-1, Inc. (“F-1”) and Two Rivers Farms F-2, Inc. (“F-2”)

F-1

In January 2011 the Company formed F-1, then a limited liability company, to hold certain farming assets and as an entity to raise debt financing for the Company’s expansion of the farming business. In February 2011, F-1 sold $2,000,000 in 5% per annum, 3-year Series A convertible promissory notes (“Series A Notes”) that, as a class, also participate in 1/3 of the crop profit from the related land. Proceeds from the Series A Notes were used to acquire and improve irrigation systems, pay for the farmland and retire seller carry-back debt from the purchase of HCIC. This allowed water available through HCIC to be used to irrigate the F-1 farms without encumbrance.

In December 2012, F-1 converted from a limited liability company into a corporation and offered the holders of Series A Notes the opportunity to convert their debt into preferred shares of F-1 and warrants to purchase common shares of the Company. Each share of F-1 Preferred can be converted into one share of common stock of the Company. For every two preferred shares in F-1, one warrant to purchase one common share of the Company was also issued. The warrant expires December 31, 2017 and can be exercised at $3 per common share of the Company. As of December 31, 2012, we received from the Series A Note holders the intent, subject to a final review of all transactional and legal documents, to convert $1,975,000 of the debt thereby leaving $25,000 of the originally issued Series A Notes and accrued interest of $86,000 as outstanding as of December 31, 2012. Since December 31, 2012, there have been no further conversions.

The F-1 Preferred includes two dividends: (1) Cumulative 8% Annual Dividend; and (2) 25% Annual Net Profits Participation Dividend. Under the Cumulative 8% Annual Dividend, holders of the F-1 Preferred will be entitled to receive an annual dividend, when and if declared by F-1’s Board of Directors, at the rate of 8% per annum. Under the 25% Annual Net Profits Participation Dividend, F-1 Preferred holders will be entitled to receive an annual cumulative dividend, when and if declared, on a pro rata basis, equal to 25%, on a fully converted basis, of the Annual Net Profit. Annual Net Profit is defined as the Company’s earnings (as defined by U.S. GAAP) less interest payments and the 8% dividend set forth above and estimated income taxes owed.

F-2

On April 5, 2011, the Company formed F-2, then a limited liability company, to hold certain farming and water assets and as an entity to raise additional debt for the Company’s expansion of the farming business. During the summer of 2011, F-2 sold $5,332,000 in 6% per annum, 3-year Series B convertible promissory notes (the “Series B Notes”) that, as a class, also participate in 10% of the crop revenue from the related lands. Further, for each $2.50 borrowed, the lender received a warrant to purchase one common share of the Company’s stock at $2.50. These warrants expired unexercised on December 31, 2012. Proceeds from the Series B Notes were used to acquire the Orlando and additional farmland and to install irrigation systems.

In December 2012, F-2 converted from a limited liability company to a corporation and offered the holders of Series B Notes the opportunity to convert their debt into convertible preferred shares of F-2 (the “F-2 Preferred”) and warrants to purchase common shares of the Company. Each preferred share in F-2 can be converted into one share of common stock of the Company. For every two preferred shares, a warrant to purchase one common share of the Company was also issued. The warrant expires December 31, 2017, and can be exercised at $3 per common share of the Company. As of December 31, 2012, we received from the Series B Note holders the intent, subject to a final review of all transactional and legal documents, to convert $5,107,000 of the debt thereby leaving $225,000 of the originally issued Series B Notes and accrued interest of $194,000 as outstanding as of December 31, 2012. Since December 31, 2012, there have been no further conversions.

Both F-1 and F-2 lease their farmland and farming assets to Farms as the operator of the Company’s farming activities.

Other Farming

Approximately 1,500 acres of irrigable farmland in the Butte Valley acquired by the Company in connection with the Orlando purchase (the “Lascar-Butte Acres”) is subject to a conditional right to a repurchase by the sellers. The repurchase option is for $1.00 but is only effective on or after September 7, 2021, and only if the sellers have previously offered to purchase from the Company at least 2,500 SFE (single family equivalent) water service connections and tendered payment of a $6,500 Water Resource Fee per SFE connection pursuant to an agreement. Under that repurchase scenario, the Company would have already begun providing tap water service to the Lascar-Butte Acres and received a minimum of $16,250,000 in Water Resource Fees from sellers in exchange for the service connections. Also, the sellers of Orlando had the right, subject to certain conditions, to repurchase Lascar-Butte Acres for $3,000,000. However, as noted below, the repurchase right has been terminated based on actions of the Company to rehabilitate Orlando facilities and a portion of the associated farmland.

In 2011 and 2012, the Company made substantial improvements to the Lascar-Butte Acres to restore the farmable land and enhance the associated water rights. These improvements include but are not limited to installing an irrigation system, rebuilding the outlet works and diversion structure at the Orlando Reservoir, rebuilding the Orlando Ditch, laser leveling the farm land, purchasing nearby land, making filings with the water courts to enhance water rights, and planting sorghum for harvest. These improvements allowed the Company to commence farming on the Lascar-Butte Acres in 2012 with a crop of sorghum.

Through March 31, 2013, the Company had expended in excess of $2,382,000 in rebuilding and preparing the Lascar-Butte Acres for farming and developing the associated water rights. The Company believes these substantial improvements satisfy certain obligations under the Orlando acquisition agreements and terminate the seller’s option to re-purchase the Lascar-Butte Acres. The seller had an option to repurchase the Lascar-Butte Acres by September 7, 2013, if the Company did not use its best efforts to complete substantial improvements to the Lascar-Butte Acres, or if the Company did not commence farming on Lascar-Butte Acres.

Management plans for funding future operations

As of March 31, 2013, the Company had $1,314,000 in demand deposits and in the three months ended March 31, 2013 raised an additional $1,600,000, before placement fees, from its DFP private placement. The Company has $10,966,000 as the current portion of long term debt. The current portion represents $4,100,000 owed on a real estate contract, which the Company has $196,000 at risk as a non-refundable deposit and $6,623,000 in HCIC seller carry back, which the Company intends to refinance or provider the holders of the HCIC debt an incentive to extend their notes. There can be no assurances that we will be successful in refinancing or extending the HCIC debt.

Management plans an additional equity funding round in either the second or third quarter of 2013.

The Company maintains a website at www.2riverswater.com, which is not incorporated in, and is not a part of, this report.

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INVESTMENTS AND LONG-LIVED ASSETS - Allocation of purchase price (Details) (USD $)	Nov. 02, 2012	Dec. 31, 2011
Investments, All Other Investments [Abstract]
Produce business	$ 1,037,000
Equipment	836,000
Prepaid interest	30,000
Ending Balance	$ 1,903,000	$ 3,450,000

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INVESTMENTS AND LONG-LIVED ASSETS (Details Narrative) (USD $)	Dec. 31, 2012	Nov. 02, 2012	Dec. 31, 2011
Investments, All Other Investments [Abstract]
Equipment acquisition cost		$ 1,873,000
Accrued interest		30,000
Cash paid for acquisition of Dionisio	4,300,000	900,000	3,156,750
Seller carry back note payble assumed for acquisition of Dionisio		600,000
Equipment debt assumed		415,000
Value of intangible assets		$ 1,037,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements do not include all of the disclosures required by accounting principles generally accepted in the U.S. (“GAAP”), pursuant to the rules and regulations of the SEC. The unaudited Consolidated Financial Statements reflect all adjustments which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company as of March 31, 2013, and the consolidated results of operations and comprehensive income and cash flows of the Company for the three months ended March 31, 2013 and 2012. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

These unaudited Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Two Rivers and its subsidiaries, Farms, F-1, F-2, DFP, TR Water, HCIC, and Orlando. All significant inter-company balances and transactions have been eliminated in consolidation.

Non-controlling Interest

Non-controlling interest is recorded for the ownership of HCIC not owned by the Company and for preferred shares not owned by the Company in the Company’s subsidiaries. Below is the detail of non-controlling interest shown on the balance sheet.

Entity	March 31, 2013	December 31, 2012
HCIC	$ 1,265,000	$ 2,205,000
F-1	1,494,000	1,494,000
F-2	3,933,000	3,933,000
DFP	3,182,000	2,208,000
Totals	$ 9,874,000	$ 9,840,000

Reclassification

Certain amounts previously reported have been reclassified to conform to current presentation. Certain labels of accounts/classifications have been changed.

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 financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates.

Fair Value of Measurements and Disclosures

Fair Value of Assets and Liabilities Acquired

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market in an orderly transaction between market participants. In determining fair value, the accounting standards established a three-level hierarchy that distinguishes between (i) market data obtained or developed from independent sources (i.e., observable data inputs) and (ii) a reporting entity’s own data and assumptions that market participants would use in pricing an asset or liability (i.e., unobservable data inputs). Financial assets and financial liabilities measured and reported at fair value are classified in one of the following categories, in order of priority of observability and objectivity of pricing inputs:

•Level 1 – Fair value based on quoted prices in active markets for identical assets or liabilities.

•Level 2 – Fair value based on significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data.

•Level 3 – Fair value based on prices or valuation techniques that require significant unobservable data inputs. Inputs would normally be a reporting entity’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.

The fair value measurement level for an asset or liability is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.

Recurring Fair Value Measurements:

The carrying value of the Company’s financial assets and financial liabilities is their cost, which may differ from fair value. The carrying value of cash held as demand deposits, money market and certificates of deposit, marketable investments, accounts receivable, short-term borrowings, accounts payable and accrued liabilities approximated their fair value. Marketable investments are valued at Level 1 due to readily available market quotes. The fair value of the Company’s long-term debt, including the current portion approximated its carrying value. Fair value for long-term debt was estimated based on quoted market prices of the identical debt instruments or values of comparable borrowings.

Farm product

The Company capitalizes all expenditures directly associated with producing crops for sale. This includes wages of farmers, preparing the soil, soil maintenance, crop insurance, cost of operating and maintaining equipment, seed, fertilizer, water and other direct farming expenses. Upon sale of the farm product, the respective farm product cost is recognized as direct cost of farm product sold.

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 (see Property and Equipment below). 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.

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 are no impairments 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.

Water Revenues

Previous 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 Two Rivers Water 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.

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 6,134,282 RSUs, 1,668,200 options and 9,323,209 warrants at March 31, 2013, has not been included in the determination of diluted earnings per share since, under ASC 260 they would anti-dilutive.

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Condensed Consolidated Balance Sheets (In Thousands) (Parenthetical) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Statement of Financial Position [Abstract]
Convertible preferred stock, par value	$ 0.001	$ 0.001
Convertible preferred stock, shares authorized	4,000,000	4,000,000
Convertible preferred stock, shares issued	3,794,000	3,794,000
Convertible preferred stock, shares outstanding	3,794,000	3,794,000
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	24,592,550	24,028,202
Common stock, shares outstanding	24,592,550	24,028,202

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INFORMATION ON BUSINESS SEGMENTS (Tables)

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

Operating results for each business segment

		For the three months ended March 31, 2013				For the three months ended March 31, 2012
		Parent	Farms	Water	Total	Parent	Farms	Water	Total
Revenue
	Other & misc.	$             -	$             -	$                -	$              -	$                 -	$            -	$            1	$              1
	Less: direct cost of revenue	-	-	-	-	-	-	-	-
Gross Margin		-	-	-	-	-	-	1	1
Expenses
	Total operating expenses	1,200	533	252	1,985	1,614	199	334	2,147
	Total other expense	40	25	132	196	371	231	111	713
Income (Loss) from operations before taxes		(1,239)	(558)	(384)	(2,181)	(1,985)	(430)	(444)	(2,859)
Income Taxes (Expense)/Credit		-	-	-	-	-	-	-	-
Net (loss)		(1,239)	(558)	(384)	(2,181)	(1,985)	(430)	(444)	(2,859)
Non-controlling interest		-	-	1	1	-	-	8	8
Net (Loss) Income		$    (1,239)	$       (558)	$          (383)	(2,180)	$       (1,985)	$     (430)	$       (436)	$     (2,851)
Segment assets		$         304	12,485	33,029	45,818	$         4,302	7,090	27,127	38,519

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Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 01, 2013
Document And Entity Information
Entity Registrant Name	TWO RIVERS WATER & FARMING Co
Entity Central Index Key	0001302946
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		24,992,550
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2013

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ORGANIZATION AND BUSINESS (Details Narrative) (USD $)	1 Months Ended			3 Months Ended
	Mar. 31, 2013	Nov. 30, 2012	Jun. 30, 2012	Mar. 31, 2013	Mar. 31, 2012	Feb. 28, 2013	Dec. 31, 2012	Nov. 02, 2012	Dec. 31, 2011
Accounting Policies [Abstract]
Ownership interest in Two Rivers Farms, LLC	100.00%			100.00%
Ownership interest in Huerfano-Cucharas Irrigation Company	95.00%			95.00%
Ownership interest in Orlando Reservoir No. 2	100.00%			100.00%
Book value of ownership interest in HCIC									$ 24,196,000
Additional interest acquired in HCIC				3.90%
Sellers' past due assessment assumed				80,000
Stated purchase price for Orlando								1,903,000	3,450,000
Cash paid for acquisition of Orlando							4,300,000	900,000	3,156,750
Seller carry-back note issued for acquisition of Orlando									650,000
Purchase price allocated to water assets									3,000,000
Purchase price allocated to farm land									100,000
Forgiveness of debt									384,000
Independent appraisal value of Oralndo purchase							5,195,000
Gain from bargain purchase							1,736,000
Gain from bargain purchase allocated to water assets							1,520,000
Gain from bargain purchase allocated to land							216,000
Preferred shares offered to accredited investors in a private placement						2,500,000
Par value of preferred shares issued						$ 2.00
Net proceeds from preferred shares offered						4,621,000
Reimbursement for first Dionisio closing			630,000
Seller carry back note issued for purchase of Dionisio		900,000		(133)	(5)
Purchase of farmland		56,000
Loan payable		1,000,000
Working capital and reserves		2,035,000
Cash paid for acquisition of DFP		900,000
Carry-back promissory note payable for acquisition of DFP		600,000
Quarterly interest payable on carry-back promissory note		6.00%
Series A convertible promissory notes sold						2,000,000
Amount of Series A debt converted						1,975,000
Accrued interest outstanding on Series A convertible debt						86,000			194,000
Series B convertible promissory notes sold									5,332,000
Annual interest rate on Series B convertible notes							2.00%		6.00%
Amount of Series B debt converted									5,107,000
Accrued interest outstanding on Series B convertible debt						86,000			194,000
Rebuilding costs	2,382,000
Demand deposits	1,314,000			1,314,000
Proceeds from DFP private placement				1,600,000
Current portion of long term debt	10,966,000			10,966,000
Current portion owed on real estate contract	4,100,000			4,100,000
Non-refundable deposit	196,000			196,000
HCIC seller carry back note payable	$ 6,623,000			$ 6,623,000

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Condensed Consolidated Statements of Operations (In Thousands) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Revenue
Other income		$ 1
Total Revenue		1
Direct cost of revenue
Gross Profit (Loss)		1
Operating Expenses:
General and administrative	1,856	2,094
Depreciation	129	53
Total operating expenses	1,985	2,147
(Loss) from operations	(1,985)	(2,146)
Other income (expense)
Interest expense	(173)	(658)
Warrant expense	(28)	(55)
Other income	5
Total other income (expense)	(196)	(713)
Net (Loss) from operations before taxes	(2,181)	(2,859)
Income tax (provision) benefit
Net (Loss) from operations	(2,181)	(2,859)
Net loss (income) attributable to the noncontrolling interest	1	8
Net (Loss) attributable to Two Rivers Water Company	$ (2,180)	$ (2,851)
(Loss) Per Share - Basic and Dilutive:
(Loss) from continuing operations (in Dollars per share)	$ (0.09)	$ (0.12)
(Loss) from discontinued operations
Total (in Dollars per share)	$ (0.09)	$ (0.12)
Weighted Average Shares Outstanding:
Basic and Dilutive (in Shares)	24,310	23,217

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2013

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 7 – SUBSEQUENT EVENTS

There were no material subsequent events through the date the financial statements were available to be issued.

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EQUITY TRANSACTIONS

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

EQUITY TRANSACTIONS

NOTE 6 – EQUITY TRANSACTIONS

Common Stock

During the three months ended March 31, 2012, the Company had the following common stock transactions:

·In January 2012 we issued 50,000 shares of our common stock to the independent members of the Board in exchange for Board of Director services rendered in 2011.

·In January 2012 we issued 125,000 shares to cover 125,000 Restricted Stock Units (“RSUs”) issued to an non-executive employee under the 2011 Plan in exchange for his surrender of 250,000 options (strike price of $2.00/share) under the 2005 Plan.

·In January 2012 100,000 shares, as part of an overall grant of 700,000 shares, were issued to the Company’s CFO pursuant to the 2011 Plan.

·In January 2012 200,000 shares, as part of an overall grant of 400,000 shares, were issued to a former member of the Board of Directors.

·In February 2012 we issued 83,330 shares to our investor relations consultants as partial payment for their services.

·In March 2012 we issued 400,000 shares to participating lenders in consideration of the Bridge Loan.

During the three months ended March 31, 2013, the Company had the following common stock transactions:

·In February 2013 we issued 179,348 shares of our common stock to a consultant for work performed in 2012.

·In February 2013 we issued 85,000 shares of our common stock to the independent members of the Board in exchange for Board of Director services rendered in 2012.

·In March 2013 we issued 200,000 shares of our common stock to a consultant for investor relations work performed in first quarter, 2013.

·In March 2013 we issued 100,000 shares of our common stock to an independent member of the DFP Board of Directors in exchange for services.

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INVESTMENTS AND LONG-LIVED ASSETS - Value of intangible assets (Details) (USD $)	Nov. 02, 2012
Investments, All Other Investments [Abstract]
Customer list	$ 580,000
Tradename	220,000
Residual goodwill	237,000
Purchase price	1,037,000
Less: Accumulated amortization	(10,000)
Intangible assets, net	$ 1,027,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Value of non-controlling interest (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Accounting Policies [Abstract]
HCIC	$ 1,265,000	$ 2,205,000
F-1	1,494,000	1,494,000
F-2	3,933,000	3,933,000
DFP	3,182,000	2,208,000
Totals	$ 9,874,000	$ 9,840,000

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INVESTMENTS AND LONG-LIVED ASSETS (Tables)

3 Months Ended

Mar. 31, 2013

Investments, All Other Investments [Abstract]

Reconstruction costs

	3 months ended	Year ended
	Mar 31, 2013	Dec 31, 2012
Beginning balance	$           34,000	$   848,000
Additions	-	567,000
Completed, transferred	-	(1,381,000)
Ending Balance	$       34,000	$                  34,000

Allocation of purchase price

Produce business	$ 1,037,000
Equipment	836,000
Prepaid interest	30,000
Ending Balance	$       1,903,000

Value of intangible assets

Customer list	$ 580,000
Tradename	220,000
Residual goodwill	237,000
Purchase price	1,037,000
Less:  Accumulated amortization	(10,000)
Intangible assets, net	$       1,027,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements do not include all of the disclosures required by accounting principles generally accepted in the U.S. (“GAAP”), pursuant to the rules and regulations of the SEC. The unaudited Consolidated Financial Statements reflect all adjustments which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company as of March 31, 2013, and the consolidated results of operations and comprehensive income and cash flows of the Company for the three months ended March 31, 2013 and 2012. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

These unaudited Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Principles of Consolidation

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Two Rivers and its subsidiaries, Farms, F-1, F-2, DFP, TR Water, HCIC, and Orlando. All significant inter-company balances and transactions have been eliminated in consolidation.

Non-controlling Interest

Non-controlling Interest

Non-controlling interest is recorded for the ownership of HCIC not owned by the Company and for preferred shares not owned by the Company in the Company’s subsidiaries. Below is the detail of non-controlling interest shown on the balance sheet.

Entity	March 31, 2013	December 31, 2012
HCIC	$ 1,265,000	$ 2,205,000
F-1	1,494,000	1,494,000
F-2	3,933,000	3,933,000
DFP	3,182,000	2,208,000
Totals	$ 9,874,000	$ 9,840,000

Reclassification

Reclassification

Certain amounts previously reported have been reclassified to conform to current presentation. Certain labels of accounts/classifications have been changed.

Use of Estimates

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 financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates.

Fair Value of Measurements and Disclosures

Fair Value of Measurements and Disclosures

Fair Value of Assets and Liabilities Acquired

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market in an orderly transaction between market participants. In determining fair value, the accounting standards established a three-level hierarchy that distinguishes between (i) market data obtained or developed from independent sources (i.e., observable data inputs) and (ii) a reporting entity’s own data and assumptions that market participants would use in pricing an asset or liability (i.e., unobservable data inputs). Financial assets and financial liabilities measured and reported at fair value are classified in one of the following categories, in order of priority of observability and objectivity of pricing inputs:

•Level 1 – Fair value based on quoted prices in active markets for identical assets or liabilities.

•Level 2 – Fair value based on significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data.

•Level 3 – Fair value based on prices or valuation techniques that require significant unobservable data inputs. Inputs would normally be a reporting entity’s own data and judgments about assumptions that market participants would use in pricing the asset or liability.

The fair value measurement level for an asset or liability is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques should maximize the use of observable inputs and minimize the use of unobservable inputs.

Recurring Fair Value Measurements:

The carrying value of the Company’s financial assets and financial liabilities is their cost, which may differ from fair value. The carrying value of cash held as demand deposits, money market and certificates of deposit, marketable investments, accounts receivable, short-term borrowings, accounts payable and accrued liabilities approximated their fair value. Marketable investments are valued at Level 1 due to readily available market quotes. The fair value of the Company’s long-term debt, including the current portion approximated its carrying value. Fair value for long-term debt was estimated based on quoted market prices of the identical debt instruments or values of comparable borrowings.

Farm product

Farm product

The Company capitalizes all expenditures directly associated with producing crops for sale. This includes wages of farmers, preparing the soil, soil maintenance, crop insurance, cost of operating and maintaining equipment, seed, fertilizer, water and other direct farming expenses. Upon sale of the farm product, the respective farm product cost is recognized as direct cost of farm product sold.

Land

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 (see Property and Equipment below). 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.

Water rights and infrastructure

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 are no impairments on the Company’s land and water shares. No amortization or depreciation is taken on the water rights.

Intangibles

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

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

Previous 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 Two Rivers Water 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.

Net Income (Loss) per Share

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 6,134,282 RSUs, 1,668,200 options and 9,323,209 warrants at March 31, 2013, has not been included in the determination of diluted earnings per share since, under ASC 260 they would anti-dilutive.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

Value of non-controlling interest

Entity	March 31, 2013	December 31, 2012
HCIC	$ 1,265,000	$ 2,205,000
F-1	1,494,000	1,494,000
F-2	3,933,000	3,933,000
DFP	3,182,000	2,208,000
Totals	$ 9,874,000	$ 9,840,000

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NOTES PAYABLE (Tables)

3 Months Ended

Mar. 31, 2013

Debt Disclosure [Abstract]

Summary of long term debt

Note		Mar 31, 2013 principal balance		Mar 31, 2013 accrued interest		Interest rate	Security
HCIC seller carry back	$          7,364,000		$                -		6%		Shares in the Mutual Ditch Company
Orlando seller carry back	187,000		20,000		7%		188 acres of land
Series A convertible debt	25,000		85,000		5%		F-1 assets
Series B convertible debt	225,000		183,000		6%		F-2 assets
CWCB	1,151,000		7,000		2.5%		Certain Orlando and Farmland assets
FNB - Dionisio Farm	851,000		13,000		(1)		Dionisio farmland and 146.4 shares of Bessemer Irrigating Ditch Company Stock, well permits
Seller Carry Back - Dionisio	590,000		-		6.0%		Unsecured
Seller Carry Back - SW Farms	4,100,000		21,000		2%		Secured by Sliman assets purchased
FNB - Mater	169,000		2,000		(1)		Secured by Mater assets purchased
Seller Carry Back - Mater	25,000		-		6%		Land from Mater purchase
McFinney Agri-Finance	650,000		1,000		6.8%		2,579 acres of pasture land in Ellicott Colorado
Ellicott second mortgage	400,000		-		12%		Second lien on above Ellicott land
Equipment loans	526,000		6,000		5 - 8%		Specific equipment
Total	16,263,000		$    338,000
Less: Current portion	(10,966,000)
Long Term portion	$          5,297,000
Notes:
(1) Prime rate + 1%, but not less than 6%.

Current portion of long term debt

Current portion long term debt:	3/31/2013
HCIC seller carry back	$               6,623,000
SW Farms	$               4,100,000
CWCB	-
FNB	27,000
Equipment loans	216,000
Total	$             10,966,000

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INVESTMENTS AND LONG-LIVED ASSETS - Reconstruction costs (Details) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Investments, All Other Investments [Abstract]
Beginning balance	$ 34,000	$ 848,000
Additions		567,000
Completed, transferred		(1,381,000)
Ending Balance	$ 34,000	$ 34,000

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NOTES PAYABLE - Current portion of long term debt (Details) (USD $)	Mar. 31, 2013
Debt Disclosure [Abstract]
HCIC seller carry back	$ 6,623,000
SW Farms	4,100,000
CWCB
FNB	27,000
Equipment loans	216,000
Total	$ 10,966,000

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Condensed Consolidated Statements of Cash Flows (In Thousands) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash Flows from Operating Activities:
Net (Loss)	$ (2,180)	$ (2,859)
Adjustments to reconcile net income or (loss) to net cash (used in) operating activities:
Depreciation and amortization	129	53
Amortization of debt issuance costs and pre-paids		348
Assumption of assessments due to purchase of HCIC shares	80
Stock based compensation	680	1,000
Stock and options for services	763
Net change in operating assets and liabilities:
Decrease (increase) in advances & accounts receivable	82	3
(Increase) in farm product	(112)	(1)
(Increase) decrease in deposits, prepaid expenses and other assets	(248)
(Decrease) Increase in accounts payable	(30)	1
Increase (decrease) in accrued liabilities and other	(163)	131
Net Cash (Used in) Operating Activities	(999)	(1,324)
Cash Flows from Investing Activities:
Construction in progress		(443)
Purchase of property, equipment and software	(6)	(3)
Purchase of land, water shares, infrastructure	(1,315)
Net Cash (Used in) Investing Activities	(1,321)	(446)
Cash Flows from Financing Activities:
Proceeds from bridge loan		3,994
Proceeds from long-term debt	1,050	606
Proceeds from sale of convertible preferred shares in DFP	1,600
Payment of offering costs	(223)	(45)
Payment on notes payable	(133)	(5)
Net Cash Provided by Financing Activities	2,294	4,550
Net Increase in Cash & Cash Equivalents	(26)	2,780
Beginning Cash & Cash Equivalents	1,340	777
Ending Cash & Cash Equivalents	1,314	3,557
Supplemental Disclosure of Cash Flow Information
Cash paid for interest	148	474
Stock & warrants for debt issuance costs		$ 115

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INFORMATION ON BUSINESS SEGMENTS

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

INFORMATION ON BUSINESS SEGMENTS

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, DFP). 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.

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

		For the three months ended March 31, 2013				For the three months ended March 31, 2012
		Parent	Farms	Water	Total	Parent	Farms	Water	Total
Revenue
	Other & misc.	$             -	$             -	$                -	$              -	$                 -	$            -	$            1	$              1
	Less: direct cost of revenue	-	-	-	-	-	-	-	-
Gross Margin		-	-	-	-	-	-	1	1
Expenses
	Total operating expenses	1,200	533	252	1,985	1,614	199	334	2,147
	Total other expense	40	25	132	196	371	231	111	713
Income (Loss) from operations before taxes		(1,239)	(558)	(384)	(2,181)	(1,985)	(430)	(444)	(2,859)
Income Taxes (Expense)/Credit		-	-	-	-	-	-	-	-
Net (loss)		(1,239)	(558)	(384)	(2,181)	(1,985)	(430)	(444)	(2,859)
Non-controlling interest		-	-	1	1	-	-	8	8
Net (Loss) Income		$    (1,239)	$       (558)	$          (383)	(2,180)	$       (1,985)	$     (430)	$       (436)	$     (2,851)
Segment assets		$         304	12,485	33,029	45,818	$         4,302	7,090	27,127	38,519

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NOTES PAYABLE (Details Narrative) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 15, 2013	Dec. 31, 2012	Nov. 02, 2012	Dec. 31, 2011
Debt Disclosure [Abstract]
Cash paid for acquisition of property from Southwest Farms, Inc.			$ 4,300,000	$ 900,000	$ 3,156,750
Seller carry back note payable			4,200,000
Annual interest rate on seller carry back note			2.00%		6.00%
Payment for due date extension	100,000
Purchase price of farm land		1,250,000
Value of first mortgage from McFinney Agri-Finance		650,000
Value of second mortgage from McFinney Agri-Finance		400,000
Monthly mortgage payment		$ 4,200

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative)	Mar. 31, 2013
Accounting Policies [Abstract]
Restricted stock units outstanding	6,134,282
Options outstanding	1,668,200
Warrants outstanding	9,323,209