NOTE 7. COMMITMENTS AND CONTINGENCIES

As a result of the fire on West Gonzales in April 2014, as of March 31, 2015, we have paid $320,828 for repairs, the full amount of which was reimbursed through insurance proceeds. We have one additional payment of $35,648 remaining to complete the repairs, which we expect to occur during the three months ending June 30, 2015, and we have received assurance from the insurance company of full recovery for this amount. In addition, we paid $175,956 to further upgrade the insulation inside the cooler, for which $113,371 was reimbursed through insurance proceeds. We are currently seeking reimbursement for the remainder of this amount.

In connection with the follow-on lease we executed upon our acquisition of Sycamore Road in July 2014, we are required to make certain irrigation improvements on the property to increase overall water availability by November 1, 2015. These improvements are expected to be completed during the three months ending September 30, 2015. As of March 31, 2015, we have expended or accrued $562,500 related to these improvements, and we expect to incur additional costs of approximately $188,000. In addition, we will earn additional rent on the total cost of these improvements, up to a total cost of $750,000, commensurate with the annual yields on the farmland.

In connection with the lease we executed upon our acquisition of Wauchula Road in September 2014, we agreed to fund certain irrigation upgrades at the tenant’s option. Currently, 125 of the 590 farm acres on the property are subject to drip irrigation. Pursuant to the lease, the tenant has the option to construct irrigation improvements necessary to convert all or a portion of the drip-irrigated acres to overhead irrigation and be reimbursed by us, up to a maximum aggregate cost of $1.5 million. The lease provides for additional rental income to be earned on the newly-converted acres upon completion of the irrigation improvements. The tenant has informed us of their intention to construct these improvements, and the work is expected to be completed during the three months ending September 30, 2015.

Upon acquiring Espinosa Road in January 2015, we assumed an eminent domain lawsuit brought by the California Department of Transportation (“CalTrans”) against the previous owner of the property for approximately 4.5 acres of nonfarmable land. CalTrans had offered $160,000 to the previous owner as payment for the 4.5 acres; however, this offer was rejected. We intend to accept this offer of $160,000 as fair compensation for the 4.5 nonfarmable acres, and we expect this lawsuit to be settled during the second half of 2015.

In connection with our acquisition of Parrish Road in March 2015, for which we initially paid approximately $3.2 million, we committed to providing $700,000 as additional compensation, contingent upon the approval by a local water management district of increases in certain water permits on the property. We expect these permits to be approved during the three months ending September 30, 2015. In addition, we also committed to providing up to an additional $500,000 of capital to the tenant for certain irrigation improvements and upgrades on the property, for which we will earn additional rent on the total amount of capital committed by us. The tenant has informed us of their intention to construct these improvements, and the work is expected to be completed during the three months ending September 30, 2015.

Litigation

We are not currently subject to any material known or threatened litigation.