TWO RIVERS WATER Co (Form: 10-K/A, Received: 08/29/2012 15:42:55)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

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

For the fiscal year ended December 31, 2011

[ ] 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 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes |_| No |X|

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes |X| No |_|

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X|

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|

The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $40,472,000 as of December 31, 2011.

There were 23,616,824 shares outstanding of the registrant's Common Stock as of March 5, 2012.

EXPLANATORY NOTE

This Form 10-K/A (the “Amendment”) amends our Form 10-K for the period ended December 31, 2011, which was filed with the Securities and Exchange Commission on March 8, 2012 (the “Original Filing”). We are filing this Form 10-K/A to enhance disclosures and Part IV, Item 15, Financials.

Specifically, during a review by the United States Securities Exchange Commission (SEC), the SEC recommended enhanced disclosure. , The Company will use guidance from ASC 470-20 as it relates to its Series B convertible debt. Previously the Company did not account for the beneficial conversion feature of the Series B debt. The beneficial conversion feature increased the Company’s paid in capital and increased the discount on the Series B note by $1,490,000. The Company also reclassified its $76,000 purchase of the Company’s stock from Cash Flows from Investing Activities to Cash Flows from Financing Activities.

This Amendment does not reflect events occurring after the Original Filing except as noted above. Except for the foregoing amended information, this Form 10-K/A continues to speak as of the date of the Original Filing and the Company has not otherwise updated disclosures contained therein or herein to reflect events that occurred at a later date.

Two Rivers Water Company -- 2011 Annual Report and 10K/A

iii

Two Rivers Water Company -- 2011 Annual Report and 10K/A

TABLE OF CONTENTS

PART I
		Page
ITEM 1	Business	1
ITEM 1 A.	Risk Factors	14
ITEM 1 B.	Unresolved Staff Comments	21
ITEM 2	Properties	21
ITEM 3	Legal Proceedings	25
ITEM 4	Mine Safety Disclosures	25

PART II

ITEM 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	26
ITEM 6	Selected Financial Data	30
ITEM 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
ITEM 7 A.	Quantitative and Qualitative Disclosures About Market Risk	38
ITEM 8	Financial Statements and Supplementary Data	38
ITEM 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38
ITEM 9 A.	Controls and Procedures	39
ITEM 9 A.(T).	Controls and Procedures	39
ITEM 9B	Other Information	40

PART III

ITEM 10	Directors, Executive Officers, and Corporate Governance	42
ITEM 11	Executive Compensation	46
ITEM 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	51
ITEM 13	Certain Relationships and Related Transactions, and Director Independence	52
ITEM 14	Principal Accounting Fees and Services	52

PART IV

ITEM 15	Exhibits Listing	54
	Auditor Opinions	56
	Financials	58
SIGNATURES		55

Two Rivers Water Company -- 2011 Annual Report and 10K/A

Bibliography

Colorado Foundation for Water Education. (2009). Citizens Guide to Colorado Water Law. Denver : Colorado Foundation for Water Education.

Colorado Springs Utiltiies . (2009). Southern Delivery System . Retrieved Feburary 17, 2012, from http://www.sdswater.org/overview.asp

Colorado Water Consveration Board. (2011). Colorado's Water Supply Future. Denver: Colorado Water Conservation Board.

Driscoll, G. M. (2011, January 7). Front Range Water Planning Supply Update: Increased Storage, Increased Demands, Incerased Transmountain Diversions. Carbondale: Elk Mountain Consulting. Retrieved February 17, 2012, from http://www.rwapa.org/reports/Front_Range_Water_Supply_Planning_Update_(Final)11011.pdf

Finley, B. (2012, Feburary 17). The Denver Post. EPA wants further review of water diversion project to protect the Colorado River , p. 3.

Grantham, J. (2011). Time to Wake Up: Days of Abundant Resources and Falling Prices are Over. GMO , 18.

U.S. Department of the Interior Bureau of Reclamation . (2005, October ). SDS EIS Newsletter. Southern Delivery System Project , p. 5.

Two Rivers Water Company -- 2011 Annual Report and 10K/A

Table of Contents

Unless the context requires otherwise, references in this document to “Two Rivers Water Company,” “We,” “Our,” “Us” or the “Company” is to Two Rivers Water Company and its subsidiaries.

Note about Forward-Looking Statements

This Form 10-K 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.

PART I

ITEM 1. BUSINESS

Summary

Two Rivers Water Company acquires and develops high yield irrigated farmland and associated water rights and infrastructure in the watershed of the Huerfano and Cucharas Rivers in Southeastern Colorado. This combined watershed encompasses approximately 1,860 square miles and extends from the eastern crest of the Continental Divide in the Spanish Peaks and Sangre de Christo Mountains to the Huerfano River’s confluence with the Arkansas River, just downstream of Pueblo, Colorado. The elevations in the watershed thus begin at more than 14,000 feet above sea level to approximately 4,500 feet at the confluence. As noted, the Huerfano and Cucharas Rivers are tributaries of the Arkansas River, which, in turn, is a tributary of the Mississippi River. The Arkansas River basin is subject to legal administration under the 1948 compact between Colorado and Kansas.

In acquiring land and water assets in the Huerfano/Cucharas watershed, the Company plans to create an integrated system in which our farming assets and water assets work in synergy. Our primary focus is the profitable production of annual crops. As we build our agriculture business, we also acquire agriculture water rights. In times of municipal need, we can deploy rotational farm fallowing and other conservation methods so as to reduce the need for irrigation water and thereby make surplus water available to support water users along Colorado’s Front Range. Thus, our secondary focus is to integrate our water system with urban water delivery systems serving the Front Range.

Two Rivers Water Company2011 Annual Report and 10K/A Page

Two Rivers Water Company -- 2011 Annual Report and 10K/A

Page 1

Table of Contents

The Company has already acquired and begun to refurbish a significant portfolio of land and water assets, some of which were first brought into use more than 100 years ago. Because older, more senior water rights are accorded preference under Colorado water law and regulation, and because refurbishment of continuously operating facilities is more readily permitted than new construction, redevelopment of mature rights and facilities is economically and operationally preferable to establishing new rights and facilities. Moreover, by managing an integrated land/water system in the watershed, the Company believes it has established a sustainable competitive advantage both in its farming business and in its water supply and management business. The Company seeks to generate profits by developing each of these lines of business in tandem and in long-term balance. However, the Company will require additional capital in order to acquire and refurbish additional assets so as to attain critical mass and achieve positive cash flow.

In 2009 and 2010, the Company accumulated, through a series of transactions, a 91% interest in the Huerfano Cucharas Irrigation Company (“Mutual Ditch Company”), a mutual irrigation company incorporated in 1944. The Company’s acquisition of the Mutual Ditch Company shares involved the payment of cash, the issuance of seller take-back notes and the issuance of 7.5 million shares of the Company’s common stock. The aggregate purchase price, calculated as $22,018,000, is supported by an independent appraisal commissioned by the Company following our acquisition of the Mutual Ditch Company’s shares. Based on our controlling position, the Company has assumed effective management of the Mutual Ditch Company and, along with the residual minority shareholders, is refurbishing an extensive storage and irrigation system to support its farming operations in Huerfano and Pueblo Counties.

In February 2011, the Company also purchased, for a combination of cash and stock, the Orlando Reservoir and Butte Valley water rights as well as a small amount of nearby farmland. During the year ended December 31, 2011, the Company commenced a construction project to refurbish and improve the Orlando Reservoir; the project was completed and successfully tested in February 2012. Similarly, the Company is incrementally refurbishing diversion, storage and distribution facilities throughout its water asset portfolio with the overall objective of improving the portfolio’s efficiency, reliability and operational flexibility.

As of the date of this annual report, the Company has the operable right to store 15,000 acre-feet of water 1 within the Huerfano and Cucharas Rivers watershed. When the Company’s reservoirs are fully restored, we will have the operable capacity and legal right to store in excess of 70,000 acre-feet of water. Similarly, based on its portfolio of water rights, some of which are more senior than others, the Company has the right to divert from the natural flows of the two rivers in excess of 90 cubic feet per second. Seasonal variability in the natural flow of the rivers, as well as the priorities of other water users in the system, limits the Company’s ability to divert the decreed amounts of water on a continuous basis. The Company’s current water rights produce a long-term historic average annual diversion of approximately 15,000 acre-feet of water which produces 9,661 acre-feet of consumptive use at the plant, an amount sufficient to fully irrigate approximately 3,000 acres of corn or organic alfalfa.

Two Rivers Water Company -- 2011 Annual Report and 10K/A

Page 2

Table of Contents

The 15,000 acre-feet average is based on a 50+ year period of record and also relies on historic studies of these rights by a variety of engineers at various times. It is common practice within the water industry in Colorado to use long periods of time to create reliable averages of water flow. The Company believes that using averages relating to only recent years can be misleading. If one of those years was particularly dry or wet, it would skew the averages. For example, in four out of the last ten years, there has been an extreme drought in the Western United States and in the Arkansas River watershed, our area of operations. Due to this drought condition, our flow averages for the most recent ten, five and three fiscal years are 8,200 AF, 10,500 AF and 10,400 AF, respectfully. A similar request for the same averages for the decade beginning in 1980 would be about approximately 15,900 AF, 18,500 AF and 17,200 AF.

Consumptive use is the transferable component of a water right, and is often the measure of value for a water right. It is measured by the amount of water consumed by the plants. For farmland that has been out of production, the amount can increase over time. However this report shows the current historic consumptive use in our water portfolio.

The Company currently owns approximately 4,600 gross acres of irrigable farmland within the watershed of the Huerfano and Cucharas Rivers. Based on progress in preparing this land for long-term farming, the Company expects that approximately 800 acres of our land will be in production during the 2012 growing season and an additional 2,200 acres of land developed for 2012 fall planting. Each acre of irrigated farmland is capable of producing approximately six tons of alfalfa during a typical annual growing season. The Company plans to acquire and develop in excess of 25,000 acres of such farmland within the Huerfano/Cucharas watershed within the next five years, subject to capital availability and operational constraints.

The Company’s ownership and control of water rights, water storage facilities and diversion canals in proximity to its irrigable farmland gives the Company a unique and sustainable economic advantage within our Southeastern Colorado sphere of farm operations. The Company’s water assets also have inherent advantages compared to other water assets which are tributary to the Arkansas River as a result of our assets’ seniority, entitlements, elevation and proximity to Front Range communities and water conveyance facilities. To capitalize on these advantages, the Company plans to refurbish the Cucharas Reservoir as well as smaller reservoirs currently under our ownership and control which, together with our diversion rights and facilities will allow us to store an additional 55,000 acre-feet of water (over and above our 15,000 acre-feet of currently operable storage) in the two rivers watershed within the next five years. The additional water storage will provide reliability during dry years and dry seasons, enabling the Company to expand our farming operations to maintain balance between irrigable land and available irrigation water.

In February 2012, the Company received approval of a plan that allows use of water leased from Pueblo Board of Water Works to be stored in its reservoirs and used to irrigate farmlands in Huerfano and Pueblo County. The administrative approval follows an application filed in the Water Court by Two Rivers in December 2011 to capture high river flows during the spring runoff to make it available for farming later in the summer. The Pueblo Board of Water Works lease is for a five year period to allow Two Rivers to invest in modernizing its farms and upgrade the condition of the reservoirs. The lease period will also provide an opportunity to collaborate with other regional water purveyors by establishing the validity of the exchange.

Two Rivers Water Company plans to operate two core businesses, organic crop production from potentially high yield irrigated farmland and water supply to municipal markets in Huerfano County and the Front Range of Colorado. The Company’s initial crop production will consist of organic premium to supreme alfalfa hay and, potentially, exchange traded grains. The Company may also initiate production of organic vegetable and fruit crops following further development of its water asset portfolio. Based on rotational farm fallowing and other advanced agronomy, the Company expects to be able to support long-term crop production and to supply water on a highly reliable basis for municipal water users within Southeastern Colorado.

Two Rivers Water Company -- 2011 Annual Report and 10K/A

Page 3

Table of Contents

The Company has aggressively expanded operations through various funding mechanisms, which include debt, convertible debt and equity capital. Since inception, the Company has raised and invested over $30 million in assembling and improving assets necessary to support its two integrated businesses. The Company plans to raise an additional $100 million to support expansion over the next five years in order to fully develop the high yield irrigated farmland and water assets within and in proximity to the Huerfano/Cucharas watershed. We cannot make any assurances that we will be able to raise such funds or whether we would be able to raise such funds on terms that are acceptable to us.

The Company is developing a business model whereby it acquires and develops agricultural assets (both land and associated water rights and facilities) to create a profitable, synergistic relationship between crop production and other water uses in the arid western regions of the United States.

Corporate Evolution

Prior to 2009, the Company was named Navidec Financial Services, Inc. (“Navidec”) and had been engaged in mortgage lending and other enterprises unrelated to its current lines of business. The Company was incorporated in the state of Colorado on December 20, 2002. On July 28, 2009, Navidec formed a wholly-owned Colorado corporation for the purpose of acquiring farm and water assets in the Huerfano/Cucharas watershed. On November 19, 2009, with shareholder approval, Navidec changed its name to Two Rivers Water Company.

The Farming and Water Business in Colorado

Water is a scarce and crucial commodity in the Western United States. As world markets present increasing demand for high quality food, the arable land and water required to produce food and fiber make those resources more valuable. In Colorado, both land and water rights are real property rights that transfer by deed. Allocation of water is based on appropriation date; the first date the water was beneficially used, meaning that senior (older) water rights are much more valuable. Colorado’s hydraulic dilemma is that 85% of the water consumed in Colorado is on the Front Range, the east side of the Continental Divide, while 85% of the precipitation falls to the west in the Colorado River basin. Precipitation on the Front Range and water diverted from the Colorado River watershed, drain to the Mississippi through the South Platte and Arkansas Rivers.

The Colorado River supplies water for Arizona, California, Colorado, Nevada, New Mexico, Utah, and Wyoming. Although Colorado reserved the right to consume about 500,000 acre-feet of water per year under the Colorado Compact of 1922, the sustainable use of Colorado River water, particularly through further diversion to the Front Range, has been severely restricted. Because most of the Colorado River Basin States have seen tremendous growth in populations and water demands over the past few decades, Colorado has had to look for other resources to meet the needs of its growing Front Range communities. A substantial but unsustainable portion of the new water demands on the Front Range has been met through pumping water from underground aquifers which, as a result, have become depleted and more expensive to manage. As a further result, many Front Range communities have sought to replace or supplement their groundwater resources with renewable surface water supplies such as those being refurbished by the Company.

Further, the increased world population and rising incomes are increasing the demand for high quality food and fiber, yet there has been a reduction of arable land and pressure on finite water supplies to keep up with this demand. As a result, food production, distribution and prices are experiencing a paradigm shift. (Grantham, 2011, p. 1).

Two Rivers Water Company -- 2011 Annual Report and 10K/A

Page 4

Table of Contents

Two Rivers Water Company recognizes this opportunity and is developing an integrated system to re-aggregate and refurbish dispersed water assets and efficiently use them to irrigate farmland. In addition to producing valuable agricultural products, this irrigated farmland can be operated as a flexible “water bank” to support municipal use in Huerfano County and, through exchanges, along the Front Range. Based on the foundation of efficient and independently profitable farming, the Company plans to manage our water assets, through rotational farm fallowing and other farm water conservation techniques, to provide a reliable and affordable source of supplemental water for municipal and industrial use without damaging our farming business. Rotational farm fallowing is an agricultural practice whereby portions of farm acreage are fallowed on a rotational basis each year and thereby allow the water, which would otherwise be used for irrigation to be diverted for alternative beneficial uses.

Water in Colorado’s Front Range

Along the Front Range of Colorado, water is a scarce and valuable resource. Natural precipitation varies widely throughout the year and from one year to another. Rivers which flood with the spring melt from the snowpack in the mountains may be refreshed only with the occasional thunderstorm in the heat of the summer growing season. Annual precipitation also varies between surplus and drought. The resulting variability in stream flows lead to the development of water laws in Colorado.

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

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

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

In addition to the intra-state administration of water flowing in its rivers, Colorado also has inter-state water administration responsibilities because each of its major rivers (the Colorado, the North Platte and the Arkansas) is governed as well by interstate compacts with downstream states. These compacts are subject to judicial review, interpretation and enforcement under the original jurisdiction of the U.S. Supreme Court to resolve disputes among the states. In 1948, Colorado and Kansas reached an agreement that apportioned the water of the Arkansas River; Colorado was apportioned 60% of the water while Kansas is apportioned 40% of the River’s flow (Colorado Foundation for Water Education, 2009, p. 23). In order to comply with Colorado’s obligations under the Arkansas River Compact, therefore, water rights on the Arkansas and its tributaries (including the Huerfano and Cucharas Rivers) are administered to assure the Compact-required water flows at the Colorado-Kansas state line. When necessary, Colorado’s in-state uses are curtailed, in order of priority, to assure compliance with the compact.

Two Rivers Water Company -- 2011 Annual Report and 10K/A

Page 5

Table of Contents

The interstate compacts (beginning with the Colorado River Compact of 1922) increased Colorado’s need to husband its apportioned water to meet the needs of its growing population along the Front Range. Trans-basin diversions (primarily tunnels and canals) were developed, under the Prior Appropriation Doctrine, to divert water from one watershed for conveyance to and use in another. Mainly, water from the Colorado River Basin, west of the Continental Divide, was diverted east to meet the water needs along the earlier developing Front Range by so-called “conservancy districts”. These projects began in the 1930’s and, although many have been in operation for decades, some remain incomplete (Driscoll, 2011, p. 3). Increasingly, further trans-basin diversions are limited not only by competing appropriative water rights in the basins of origin but also by increasingly stringent environmental restrictions.

Stymied in their attempts to import additional surface water from distant watersheds, some municipalities and water providers began to rely on inherently unsustainable groundwater “mining” (depleting aquifers for current consumption at a rate in excess of the rate at which natural recharge occurs). After decades of such groundwater mining, many of the aquifers on the Front Range have been severely depleted. Some municipalities also purchased farms with water diversion rights and then ceased irrigating the farmland, transferring the water to their urban uses. Because neither the practice of groundwater mining nor the practice of “buying up and drying up” farmland is sustainable, both Colorado and federal law have placed limits and regulations on both practices.

Recognizing the need for additional water sources along the Front Range, the Colorado Water Conservation Board (“CWCB”) published its 2050 Municipal and Industrial Gap Analysis in 2011 . This report estimates that the Arkansas and South Platte basins (essentially the Front Range) have a combined projected by 2050 the average annual supply shortage of 130,000 acre-feet of water (Colorado Water Conservation Board, 2011, p. table 2.2). The difficulty and expense of incremental trans-mountain diversions coupled with the unsustainability of groundwater mining and agricultural-to-urban transfers—as documented by the CWCB—motivates Front Range water purveyors to address the projected gap and to identify and develop inherently scarce renewable sources of water.

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

The Arkansas River Basin Roundtable has only a few IPPs to meet the municipal water supply gap identified in its basin. The most significant of the Arkansas Basin IPPs is the Southern Delivery System (SDS), an $800 million, 62-mile water supply pipeline and associated pumping plants currently under construction by a consortium of four regional water purveyors including Colorado Springs. These purveyors will use a portion of the capacity in the SDS to transport water made available to each of them under their respective contracts with the United States Bureau of Reclamation (USBR). (U.S. Department of the Interior Bureau of Reclamation, 2005, p.1) The SDS connects USBR’s Pueblo Reservoir on the Arkansas River, the point of delivery under the USBR contracts, with the purveyors’ service areas. (Colorado Springs Utilities, 2009)

PURCHASE AGREEMENT

THIS AGREEMENT (the “Agreement”), dated the ---- day of September, 2010 (the "Effective Date"), is between THE ORLANDO RESERVOIR NO. 2 COMPANY, LLC , a Colorado limited liability company (referred to hereinafter as "Seller"), and TRWC, INC., a Colorado corporation d/b/a TWO RIVERS WATER COMPANY (referred to hereinafter as "Buyer"). Seller and Buyer are individually referred to hereinafter as a “Party” and collectively as the “Parties.”

Recitals

A. Seller owns approximately ___ acres of real property in Huerfano County, Colorado, upon which is located Orlando Reservoir No. 2, which property is more particularly described on Exhibit A attached hereto and incorporated herein by this reference (the “Land”). Seller also owns a number of water rights as more particularly described in the special warranty deed attached hereto as Exhibit B and incorporated herein by this reference (collectively referred to hereinafter as the “Water Rights”). The Land and the Water Rights are collectively referred to hereinafter as the “Property.”

B. Seller desires to sell the Property to Buyer, and Buyer desires to purchase the Property from Seller on the terms and conditions of this Agreement.

C. Seller and Buyer have previously entered into that certain agreement dated May 28, 2010 by which Buyer has leased two years of the water stored in Orlando No. 2 Reservoir, as more particularly provided for in the lease (the “Water Lease”). If the Closing occurs pursuant to the terms of this Agreement, the Water Lease shall be deemed automatically terminated and said water shall become the property of the Buyer, but no refunds of any amounts previously paid pursuant to the Water Lease shall be due to Buyer. If Closing does not occur pursuant to the terms of this Agreement, the Water lease shall remain in full force and effect and the rights and obligations of the Parties thereto shall remain unchanged.

In consideration of the covenants contained herein and the earnest money discussed below in Section 1.1, the Parties agree as follows:

I. Purchase of Property

1.1. Deposit . 1.1. Within three business days following the mutual execution of this Agreement, Buyer shall deposit with Land Title Guarantee Company, Inc., 102 S. Tejon Street, Suite 100, Colorado Springs, Colorado 80903 (the “Title Company”) the sum of $100,000.00 (the "Deposit") as earnest money and an option payment which shall be applied against the Purchase Price if there is a Closing (defined in Section 3.1 below). The Deposit shall be held by the Title Company in an interest bearing account. The Deposit and all interest earned thereon are collectively referred to in this Agreement as the “Deposit.” The Deposit shall be held, paid, applied or refunded only as expressly provided in this Agreement.

1.2. Purchase Price . Seller shall sell and Buyer shall purchase the Property on the terms and conditions of this Agreement for a price of Three Million One Hundred Fifty Thousand Dollars U.S. ($3,150,000.00) (the “Purchase Price”). Buyer must purchase the entire Property unless Buyer and Seller agree otherwise in writing. The Purchase Price shall be payable in full by cashier’s check or by wire transfer of funds at Closing, and adjusted for real property taxes as provided for in Section 3.2(e) below.

1.3. Survey . 14 days prior to the end of the Property Approval Period as described in Paragraph 4.1 below, Seller, at Seller’s expense, shall obtain and provide to Buyer an ALTA survey of the Land (the "Survey") prepared by a licensed Colorado surveyor. The Survey shall be certified to Buyer and the Title Company, and shall include the surveyor's calculation of the total acreage of the Land. Buyer may object to the Survey or any title exceptions revealed by the Survey, as provided in Section 2.2, within 10 days after receipt of the Survey.

1.4. Delivery of Materials . The parties have been negotiating this Agreement for a number of months during which time Seller has previously delivered to Buyer copies of all existing engineering studies, soils reports, geological studies, wetlands studies, governmental reports, environmental site assessments, topographic surveys, and water rights documentation pertaining to the Property, if any, in Seller’s possession that deal with or specifically relate to the Property or any portion thereof.

II. Title

2.1. Title Commitment . Within 10 days from the Effective Date, Seller shall furnish to Buyer a commitment for owner's title insurance (the "Title Commitment") issued by the Title Company, committing to insure fee title to the Land in Buyer. The Title Commitment shall commit to delete the standard printed exceptions from the title insurance policy. All exceptions to title listed in the Title Commitment will be deemed accepted by Buyer unless objected to within the time periods and in the manner set forth in Section 2.2 below.

2.2. Objections to Title . If title to the Property is not acceptable to Buyer, Buyer shall deliver a notice of objections to Seller within 10 days after receipt of the Title Commitment, or within 5 days after Buyer has received any updates or endorsements to the Title Commitment showing new exceptions. If Buyer does not deliver a notice of objections within the foregoing time periods, it shall be deemed to have waived all objections to title. Except as otherwise provided below, Seller shall make reasonable efforts to cure any title matters to which Buyer objects, but may elect not to cure them if the cost of the cure exceeds $5,000.00. Seller shall have until 5 days after delivery of any such notice of objections by Buyer to procure the issuance of an endorsement to the Title Commitment committing to delete the exceptions objected to by Buyer, or to otherwise satisfy Buyer's objections, and, upon such endorsement being provided or Buyer being otherwise satisfied, the matter objected to shall be deemed accepted by Buyer. Buyer may terminate this Agreement by written notice to Seller given within five (5) days of the date of delivery of an endorsement that would delete the objectionable exception if said objection is inconsistent with Buyer’s Planned Investment as it is defined herein or the endorsement is not satisfactory to Buyer in Buyers sole discretion. If Seller is unable or unwilling to obtain such endorsement and fails to otherwise satisfy Buyer, Buyer may, as its sole remedy, either (a) waive, by delivery of a written notice to Seller, any objections to title made in Buyer's original notice of title objections and close the purchase of the Property on the terms and conditions of this Agreement; or (b) terminate this Agreement, in which case the Deposit will be promptly returned to Buyer. If Buyer does not deliver a notice waiving the remaining or uncured title objections to Seller within 5 days after the end of Seller’s 5-day cure period, Buyer shall be deemed to have elected to terminate this Agreement, unless Closing occurs within such time period, in which case Buyer shall be deemed to have waived all title exceptions. The date of Closing shall be extended for a reasonable period of time to allow for the above time periods but in no case beyond October 29, 2010. Notwithstanding the foregoing, Seller shall be obligated to remove from title to the Property at or prior to Closing all monetary liens and all title exceptions created after the Effective Date as a result of Seller’s actions or omissions.

2.3. Title Policy . Promptly after Closing, Seller shall, at its expense, deliver to Buyer an owner's title policy for the Land in the amount of the Purchase Price, with standard printed exceptions deleted and subject only to those exceptions accepted or waived by Buyer pursuant hereto. The owner's title policy will also include such reasonable endorsements as Buyer shall request, provided that Buyer pays the costs of obtaining any such endorsements.

III. Closing

3.1. Time and Place . The closing of the purchase of the Property ("Closing") shall be at the offices of the Title Company Land Title Guarantee Company, Inc., 102 S. Tejon Street, Suite 100, Colorado Springs, Colorado 80903 on October 29, 2010, or on an earlier date mutually agreed to by the Parties hereto.

3.2. Procedure . At Closing, the following shall occur:

(a) Seller shall convey the Land to Buyer by Special Warranty Deed in the form of Exhibit C attached hereto (the "Land Deed"), and subject only to those matters referred to above in Section 2.1.

(b) Seller shall convey the Water Rights to Buyer by Special Warranty Deed in the form of Exhibit B (the “Water Deed”) attached hereto, and the conveyance shall include any and all easements, permits, structures (headgates, outlet works, etc.), meters and other measuring equipment, and any related agreements with others which to the extent that they are owned or leased by Seller and are associated and used in conjunction with the Water Rights;

(d) Buyer shall deliver to Seller the Purchase Price for the Property, by cashier's check or by wire transfer of funds, credited for the Deposit and for the Thirty Thousand Dollar ($30,000.00) lease payment made by Buyer pursuant to the Water Lease, and adjusted for real property taxes as provided below;

(e) Real property taxes and special assessments for the year of Closing, due and payable the following year, shall be prorated to the date of Closing on the basis of the most recently available assessment and mill levy. This tax proration shall be considered final settlement of real property taxes;

(f) Buyer and Seller shall execute the Service Agreement;

(g) Buyer and Seller shall execute and deliver the Title Company’s standard closing instructions, standard mechanic’s lien affidavits and indemnity agreements required to induce the Title Company to delete the standard printed exceptions from the title policy, a tax proration agreement, a real property transfer declaration and settlement statements, all prepared by the Title Company;

(h) Seller shall provide Colorado Department of Revenue Form DR 1083 and an affidavit of non-foreign status pursuant to Section 1445 of the Internal Revenue Code;

(i) Seller shall deliver possession of the Property to Buyer; and

(j) Seller shall provide Buyer will copies of all water records and data regarding the Water Rights for water year 2010 which are in Seller’s possession or under its control.

3.3. Closing Costs . Buyer shall pay the documentary and recording fees payable upon recording the Land Deed, all costs and expenses relating to Buyer's financing and Buyer's attorneys' fees. Any fees charged by the Title Company as closing agent shall be divided equally between the Parties. Seller shall pay all other customary closing costs and its own attorneys' fees.

IV. Buyer's Due Diligence

4.1. Property Approval Period . As noted above, Buyer and Seller have been negotiating this transaction for a few months, and during that time Buyer has completed certain due-diligence regarding the Water Rights. Buyer shall have an additional period of time through thirty (30) days from the Effective Date (the “Approval Date”) to determine, in its sole discretion, the feasibility of Buyer’s planned investment in the Property. If Buyer’s agents have not completed the requested evaluations by the Approval Date, then such Approval Date shall be extended for a reasonable period of time not in excess of ten (10) days to allow for such completion. Prior to the Approval Date, Buyer, at its expense, may conduct such further studies and investigations and obtain such approvals as it deems appropriate, which may include, but are not necessarily limited to, an environmental audit and assessment, soils studies and soils report, water rights determinations and water engineering reports, drainage assessments, radon tests, engineering and surveying work and planning activities. Buyer’s obligations to Close under this Agreement are conditioned upon Buyer determining, on or before the Approval Date, that the Property is acceptable for its use and investment and that all studies and investigations are satisfactory, in Buyer's sole discretion. If Buyer delivers written notice to Seller on or before the Approval Date that Buyer has determined that the Property is not acceptable (in Buyer's sole judgment) for Buyer's planned improvements and investment and that Buyer has elected to terminate this Agreement, this Agreement shall terminate and be of no further force or effect and the Earnest Money and all other payments and things of value received from Buyer shall be returned to Buyer, and Buyer will return to Seller any materials pertaining to the Property previously provided to Buyer by Seller . If Buyer does not deliver such a notice of termination to Seller on or before the Approval Date, the conditions contained in this Section 4.1 shall be conclusively presumed to be satisfied. Thereafter, Buyer shall have no right to any refund of the Deposit, unless Seller defaults under this Agreement and except as expressly provided elsewhere in this Agreement, including Paragraph 2.2.

4.2. Entry by Buyer . After mutual execution of this Agreement, Buyer shall have the right to enter the Land to proceed with studies and investigations as permitted by Section 4.1. Until Closing, Buyer shall not materially alter the existing condition of the Property. Buyer hereby indemnifies and holds Seller and Seller’s members and agents harmless from any and all losses, costs or expenses (including lien and personal injury claims, settlement and reasonable attorneys’ fees) which arise from Buyer’s entry, work and activities relating to the Property and which may be asserted against Seller or the Property. To facilitate Buyer's economic evaluation of the Property, Seller shall furnish Buyer with all such documents and information concerning the Property as Buyer may reasonably request and which are in the possession or control of the Seller.

4.3. Seller hereby warrants and represents to Buyer as follows:

(a) To the best of Seller’s knowledge, information and belief, there has been no disposal or release on the Land of any material which would constitute Hazardous Substances, as defined in 42 U.S.C. § 9601(14), Hazardous Waste, as defined in 42 U.S.C. § 6903(5), Pollutants or Contaminants, as defined in 42 U.S.C § 9601(33), or Hazardous Materials, as defined in 49 U.S.C. § 1802(2). Hazardous Substances, Hazardous Waste, Pollutants and Contaminants, and Hazardous Materials are referred to collectively hereinafter as "Hazardous Substances."

(b) To the best of Seller’s knowledge, information and belief, there are no underground storage tanks located on or under the Property.

(c) Seller possesses all right, authority, and power to execute and perform this Agreement. This Agreement has been duly executed by Seller and is enforceable against Seller in accordance with its terms, and will convey fee simple title to the Land to Buyer.

(d) Seller has received no notices, claims or demands of any type from any federal state or local agency regarding any clean up requirements or releases or threats of release of any Hazardous Substances and Seller is not aware of any facts which would give rise to such notices, claims or demands of any type, and there are no presently pending or threatened claims, suits or judgments, relating to violations at the Land of zoning, building, fire, air pollution, water pollution or other environmental regulations, or health regulations or other law designed to protect human health or the environment.

(e) There are no outstanding agreements made by or on behalf of Seller for any improvements to the Land or other work with respect to the Land which have not been fully paid for, and Seller will cause to be discharged, and indemnify Buyer with respect to, all mechanic's and materialmen's liens or other claims arising from any labor, equipment, or materials furnished prior to Closing and with respect to any agreement entered into by Seller.

(f) Except as expressly set forth herein, there are no oral or written, recorded or unrecorded contracts, leases (other than the Water Lease and the Grazing Lease as defined in Section 5.8 below), licenses or other agreements affecting the Land or the Water Rights or any portion thereof.

(g) Seller has not filed for protection under the Bankruptcy Code, 11 U.S.C. §§ 101-1330, and Seller has received no notice or other indication that a third party has or may initiate an action against Seller for involuntary bankruptcy or other insolvency proceedings.

(h) There is no active, pending, or threatened litigation affecting Seller, the Property, or others, which may have an adverse effect on any part of the Property or the value or use thereof.

(i) There are no active, pending, or threatened water administrative enforcement actions, abandonment actions or other litigation affecting Seller or the Water Rights.

(j) Seller will not have taken any actions that would adversely impact or change, as of the Closing, the status of title to the Property, as shown by the Title Commitment, and such title shall be free and clear of all liens, charges, encumbrances, claims, conditions, or restrictions of any kind, except the Permitted Exceptions

(k) Seller shall neither enter into any additional leases nor modify any of the leases without the prior written consent of Buyer, which may be exercised in its sole discretion.

(l) There are no outstanding options or rights of first refusal to purchase the Property, or any portion thereof or any interest therein.

(m) There are no attachments, executions, assignments for the benefit of creditors, receiverships, conservatorships or voluntary or involuntary proceedings in bankruptcy or actions pursuant to any other debtor relief laws contemplated by Seller or pending against Seller or the Property.

(n) Seller is now and on the Closing Date will be (i) validly existing and in good standing under the laws of the State of Colorado; (ii) qualified to do business and in good standing under the laws of the State of Colorado; and, (iii) duly authorized, qualified, and licensed to do all things required of it under or in connection with this Agreement. This Agreement and all agreements, instruments, and documents herein provided to be executed or to be caused to be executed by Seller are duly executed by and binding upon Seller.

(o) The truth and correctness of all of the foregoing representations and warranties shall be a condition precedent to any obligation of Buyer to Buyer the Property, which condition is intended solely for the benefit of Buyer, and Buyer shall have the right at its sole election to waive any such condition and proceed with the purchase or, in the alternative, to terminate this Agreement and receive a refund of the Deposit. In the event Buyer elects to terminate this Agreement, Seller shall be responsible for any title and escrow charges. Buyer's election to terminate this Agreement and receive a refund of the Deposit shall be Buyer's sole and exclusive remedy against Seller for any breach of this Agreement prior to Closing.

4.4. Radon . EPA has raised concerns with respect to adverse effects on human health of long-term exposure to high levels of radon. Buyer may conduct radon tests to determine the possible presence of radon in the Land and may conduct such other investigations and consult such experts as Buyer deems appropriate to evaluate radon mitigation measures that can be employed in the design and construction of improvements on the Land. Buyer shall rely solely upon such investigations and consultations and acknowledges that Seller has made no representation, express or implied, concerning the presence or absence of radon in the Land, and Buyer releases Seller from any and all liability whatsoever with respect to the foregoing matters.

4.5. Buyer’s Inspections/As Is/Where Is . Buyer acknowledges that, except as expressly set forth in this Agreement, Seller has made no representations or warranties concerning the condition of the Land or the soils therein, the amount of water represented by the Water Rights or the dependability, quality or value of such water, or as to the enforceability of any of the Water Rights, or any other matter pertaining to the physical condition of the Land or the Water Rights. Buyer acknowledges, agrees and accepts the risk that the amount of water produced by the Water Rights is subject to change from time to time based on a number of factors, including, but not limited to, climactic conditions and maintenance of the reservoir, including the dam and release structures. Buyer is solely responsible for making such investigations concerning the Water Rights, soils, drainage and other physical conditions on the Land, including the integrity and dependability of the dam and release structures, as it deems necessary or appropriate. Buyer shall independently verify to its satisfaction any information or materials provided by Seller pursuant to Section 1.4 above, and Buyer shall rely entirely on its own investigations concerning such matters. If Buyer does not terminate this Agreement pursuant to Section 4.1, then subject to the representations set forth in Section 4.3 and the indemnification set forth in Section IX, Buyer shall purchase the Property in its "as is, where is condition and with all benefits and faults" at the time of Closing, provided there has been no material change (other than changes caused by Buyer) in the condition of the Property between the Approval Date and the Closing. Subject to the representations set forth in Section 4.3 and the indemnification set forth in Section IX, Buyer hereby waives and relinquishes forever any and all claims it may now or hereafter have against Seller relating to the condition of the Water Rights, Orlando No. 2 Reservoir, soils, drainage, and any other physical conditions on the Land, and, contingent upon Closing, Buyer agrees to indemnify and hold Seller harmless from any and all claims, losses, costs or liabilities (including reasonable attorneys’ fees) relating to same and arising out of the actions of Buyer.

V. Seller’s Development, Planning, Mutual Cooperation and Future Water Service

5.1. Future Development . Seller, through one or more related entities (“Seller’s Affiliates”), owns two ranches which are in proximity to the Land and total approximately 7,000 acres, which ranches are more particularly described on Exhibit D attached hereto and incorporated herein by this reference (the “Affiliates’ Ranches”). Seller’s Affiliates intend to develop the Affiliates’ Ranches in the future for residential and commercial uses with supporting recreational opportunities (the “Future Development”). Seller currently contemplates that the Future Development will include approximately 5,000 single family equivalent (“SFE”) units. From and after the Closing, Buyer agrees to be supportive of Seller’s efforts to complete the Future Development, and agrees to provide water in support of the Future Development in accordance with the terms of the Service Agreement (as defined below).

5.2. Water Service for Future Development . Buyer and Seller agree that the Parties will both benefit from a Service Agreement wherein Buyer provides Water Service to Seller's Future Development and the Parties agree to use best efforts to complete a service agreement (the “Service Agreement”) prior to Closing. Both Buyer's and Seller's obligations to close under this Agreement are contingent on that Party's approval of the terms and conditions of the Service Agreement, in the Party's sole and absolute discretion. Buyer’s commitment to provide water to the Development as it is to be defined in the Service Agreement may be limited to the amount of transferable historical consumptive use from the Water Rights as determined by the presiding water court following submission by Buyer of a Petition for a change to municipal use. The Parties agree that such a petition will not be filed any earlier than three (3) years from the Closing date. After three (3) years, Buyer agrees to prepare and submit such a petition within six (6) months from the date of a written request from Seller to Buyer indicating that Seller is prepared to commence

development of Seller's Future Development, and Buyer agrees to diligently pursue the prosecution of the petition thereafter, at Buyer's expense. Water Service for municipal water supplies to the Future Development will be at a rate of 3.3 SFE Taps per One Acre Foot of water from the Water Rights transferred to Buyer pursuant to this Agreement. Buyer’s long-term plans include efforts to acquire additional water rights within this area; therefore, Buyer and Seller will enter into a Covenant Not to Compete Agreement (the “Non-Compete”) as of the Closing Date, which could augment Buyer's ability to provide water service to the Future Development. The terms and conditions of the Non-Compete shall be agreed upon by the Parties in each Party’s sole and absolute discretion prior to and as a condition to Closing. However, Buyer’s obligations hereunder are limited to providing water to Seller as may be produced from the Water Rights with competent water resource management and subject to the judicial process to change the type or place of use of a water right, with a goal of 3,000 SFE Taps. Buyer is not guaranteeing the amount of water that may be available in the future from the Water Rights, but is covenanting to use competent resource management of the Water Rights to maximize their quality and value and increase the likelihood of successfully converting those rights to municipal water rights in the future for the benefit of Seller's Future Development. The Future Development water resource development charge (“Water Resource Fee”) is estimated to be $6,500.00 per SFE tap.

5.3. Creation of Special District or POA for Buyer . Seller acknowledges that Buyer intends to form a Title 32 or similar special district and quasi-governmental entity (“Buyer’s District”) which can hold title to the Property and administer the Water Rights and deliver the water to the Future Development in accordance with the Service Agreement. Seller agrees to cooperate with Buyer in those efforts and Seller agrees that Buyer may assign its rights under this Agreement to Buyer’s District, and the Buyer agrees that Buyer's District shall enter into an Assignment and Assumption Agreement, in form reasonably acceptable to Seller, by which Buyer's District shall assume Buyer's obligations under the Service Agreement and will agree to perform the obligations of Buyer under the Service Agreement for the benefit of Seller and the Future Development.

5.4. Seller’s District or POA . Seller may form one or more Title 32 or similar districts to hold Seller’s rights under this Agreement and receive, treat and distribute the water (unless Buyer’s District elects to treat and/or distribute the water) to be delivered by Buyer for the Future Development (“Seller’s Districts”), and may also provide other infrastructure for the Future Development, as determined by Seller in Seller’s sole discretion. If Seller is not successful in forming Seller’s Districts, Seller, at Seller’s expense, may form a property owners association for Seller which may perform the functions contemplated to be formed by Seller’s Districts.

5.5. Recreational Easement . Buyer acknowledges that Seller may use the Orlando Reservoir No. 2 as a recreational amenity for the Future Development at the time it develops, and Buyer agrees that such recreational use of the Orlando Reservoir No. 2 is within the context of an overall Service Agreement and may be limited by the provisions of Paragraph 4.5, namely the risk that the amount of water produced by the Water Rights is subject to change from time to time based on a number of factors, including, but not limited to, climactic conditions, such as drought, and accidents and acts of God that impact the reservoir, including the dam and release structures. The Recreational Easement and any recreational uses shall endeavor to preserve ten percent (10%) of the capacity of the reservoir for recreational uses, but shall be subject to Buyer’s right to reasonably fluctuate the water level in the reservoir (including emptying it completely if necessary for maintenance and repair) and shall be subject to changes in climactic conditions such as drought, as will be more particularly provided for in the Service Agreement. At the time that Seller is ready to commence development of the Future Development, Buyer and Seller will document those recreational use rights within the Service Agreement or in a subsequent service agreement. An example of a Recreational Easement is included here as Exhibit E .

5.6. Administration of Water Rights . From and after the Closing, Buyer covenants and agrees to, and shall be solely responsible for the costs and efforts required to, maintain the Water Rights in good standing and for the preparation and maintenance of all documentation and record keeping necessary or helpful to that purpose. Additionally, Buyer will be responsible for and agrees to prepare, pay the application fees for and prosecute any and all water rights applications and cases necessary to change the use of the Water Rights in accordance with Buyer’s plans, investments and activities, including Buyer's agreement to serve water to the Future Development pursuant to the Service Agreement. Seller agrees, as requested, but at no cost to Seller except as may be agreed to in the Service Agreement, to assist and cooperate with Buyer in those efforts. Buyer agrees to at all times keep Seller informed of its planned actions with regard to the Water Rights and provide Seller with the opportunity to review and approve, in Seller's reasonable discretion, for consistency with the Service Agreement all applications and related filings, including any pertinent engineering data and reports, regarding those Water Rights. To assist Buyer in further developing and maintaining the Water Rights, to the extent owned by Seller, Seller agrees, for a period of five (5) years from the Closing Date, to allow Buyer to apply the water to the land historically irrigated by the Water Rights as described in Exhibit F hereof attached hereto (the "Irrigable Land"), with the condition that those irrigation rights and the application of water for beneficial consumptive use will not interfere with Seller’s ability to graze or hunt on the Irrigable Land, except as provided in Section 5.8 below.

5.7. Leasing of Water Rights . Commencing on the date three (3) years following the Closing, if Buyer intends to sell or lease water from the Water Rights to a third party for irrigation, Buyer will notify Seller of Buyer's intent to sell or lease the water and the agreed upon rate for such water ("Buyer's Notice"), and Buyer agrees to provide Seller with the first right of refusal to purchase or lease water annually from Buyer at the rate for such irrigation water set forth in Buyer's Notice. Seller will have thirty (30) days from the date of Buyer’s Notice within which to make a binding election to purchase or lease that water at the rate specified in Buyer's Notice. If Seller fails to notify Buyer of Seller's binding agreement to buy or lease that water at the rate set forth in Buyer's Notice, then Buyer shall be free to sell or lease the water to that third party on substantially the same terms as set forth in Buyer's Notice. If Buyer does not conclude the transaction set forth in Buyer's Notice within six (6) months from the date of Buyer's Notice, then this procedure and the offer and notice required to be given to Seller shall be repeated.

5.8 Grazing . Seller’s Affiliates currently use the Affiliates’ Ranches for grazing and have a grazing lease in place with Tom Sikes (the "Grazing Lease"). Pursuant to the Grazing Lease, livestock graze up to the water's edge and drink water from Orlando No. 2 Reservoir and from the ditches related thereto ("Grazing Activities"). Buyer agrees to take title subject to the Grazing Lease and consents to the continued Grazing Activities by Seller and Seller's tenants, provided, however, that Buyer shall be entitled to cause Seller to terminate the Grazing Lease and further Grazing activities upon not less than twelve (12) months notice from Buyer to Seller. It is anticipated that Buyer may desire to have grazing cease on the Irrigable Land in the future. Accordingly, provided that Seller still owns the Irrigable Land, Seller shall, within sixty (60) days from receipt of a written request from Buyer, terminate any further grazing rights on the Irrigable Land and, at Buyer’s expense, fence livestock off the Irrigable Land or portions thereof.

VI. Assignment and Transfer

6.1. Assignment of Contract . At and following the Closing, Buyer may, without Seller’s consent, assign this Agreement to an entity which Buyer controls or Buyer’s District. Buyer shall notify Seller if this Agreement is assigned to Buyer’s District. Buyer agrees to assign the Service Agreement to Buyer’s District and have Buyer’s District assume the Service Agreement. At and following Closing, Seller shall be entitled to assign its rights under this Agreement or the Service Agreement to Seller’s District or to any successor or proportionately to any successors to the Affiliates’ Ranches or to any land purchased by Seller that may be capable of utilizing the water to be delivered under this Agreement in accordance with the Service Agreement. Seller shall notify Buyer if this Agreement is assigned to any of the foregoing entities.

VII. Brokers

Seller and Buyer each represent and warrant to each other that, other than Garald L. Barber, who has served as a transactional broker for this Agreement, no broker has been retained or dealt with by either of them in connection with the transaction contemplated by this Agreement, and each agrees to hold the other harmless from, and indemnify the other against, any claim or demand for commission by any other broker based on their respective acts. Seller will be solely responsible for the commission payable to Garald L. Barber pursuant to the terms and conditions of a separate agreement between Seller and Garald L. Barber, including that the commission will be payable only out of the closing proceeds upon the Closing. Seller hereby discloses to Buyer that members of the Seller are real estate brokers licensed in Colorado who are entering into this Agreement as participants of Seller and shall not participate in any real estate commissions.

VIII. Default

8.1. Remedies . A Party shall be in default under this Agreement if it fails to perform any of its obligations under this Agreement as they become due or fails to comply with any covenant or restriction contained in this Agreement, and such failure has not been cured within seven days as to a payment default, and within the time period provided in Section 8.1(b) as to a non-payment default, after receipt of a written notice of default (the “Default Notice”) from the nondefaulting Party. If any Party is in default, the nondefaulting Party shall have the following remedies:

(a) Prior to Closing. The nondefaulting Party may terminate this Agreement by delivering to the other Party a written notice stating that this Agreement is terminated and specifying the event of default. Such termination shall relieve the Parties from all obligations to each other under this Agreement with respect to the Property, except that termination shall not affect Buyer's obligations under Section 4.2 of this Agreement. Termination shall entitle Seller to retain the Deposit as liquidated damages if the default is by Buyer, and shall entitle Buyer to a prompt return of the Deposit if the default is by Seller or as otherwise specified in this Agreement. Termination of this Agreement and retention of the Deposit shall be Seller’s sole remedy on account of a default by Buyer prior to Closing. In addition to its right to terminate this Agreement and receive the refund of the Earnest Money on account of a default by Seller prior to Closing, Buyer shall have the right to sue for specific performance.

(b) Post-Closing . In the event of a default by a Party after the Closing, the defaulting Party shall be provided a period of thirty (30) days from the date of the Default Notice within which to cure the default, however, if the nature of the default is such that it cannot reasonably be cured within thirty (30) days, then that thirty-day period shall be extended as reasonably needed to complete the cure provided that the defaulting Party has commenced the cure within that thirty-day period and diligently prosecutes the cure to completion thereafter. If the default has not been cured within that thirty-day period, as potentially extended, then the non-defaulting Party shall be entitled to recover its damages resulting from such default. Additionally, if the default is Buyer’s failure to provide the water to the Future Development or honor the terms of the Recreational Easement as provided for in this Agreement, if the Water Rights have been transferred to Buyer's District as provided for in this Agreement, then Seller may in addition to damages sue for specific performance, and if Buyer has not transferred those Water Rights to Buyer's District, then Seller shall be entitled to have the Property re-conveyed to Seller, in which case Seller shall be required to refund the Purchase Price to Buyer. In addition to an action for damages, either Party shall be entitled to an action for specific performance of a Party’s obligations or remedies under this Agreement.

8.2. Costs . In any action to enforce this Agreement, or to collect damages on account of any breach of warranty or indemnity provided for herein, the prevailing Party shall also be entitled to collect all its costs in such action, including costs of investigation, settlement, reasonable attorneys' fees and all additional costs of collecting any judgment rendered in such action.

IX . Indemnification .

9.1. Indemnification by Seller. Seller agrees to indemnify and hold harmless Buyer and Buyer's heirs, successors and assigns from and against:

(a) all losses, damages, liabilities, deficiencies or obligations incurred by Buyer or any such other indemnified person resulting from or arising out of (i) any breach of any representation or warranty made by Seller in this Agreement, (ii) any breach of any covenant, agreement or obligation of Seller contained in this Agreement, or (iii) any act or omission of Seller with respect to, or any event or circumstance related to the ownership or control of the Property, which act, omission, event or circumstance occurred or existed prior to or at the Closing date, without regard to whether a claim with respect to such matter is asserted before or after the Closing date; and

(b) all claims, actions, suits, proceedings, demands, judgments, assessments, fines, interest, penalties, costs and expenses (including settlement costs and reasonable legal, accounting, experts' and other fees, costs and expenses) incident or relating to or resulting from any of the foregoing.

9.2. Indemnification by Buyer. Buyer agrees to indemnify and hold harmless Seller and Seller’s heirs, successors and assigns from and against:

(a) all losses, damages, liabilities, deficiencies or obligations incurred by Seller or by any such other indemnified person resulting from or arising out of (i) any breach of any representation or warranty made by Buyer in this Agreement, (ii) any breach of any covenant, agreement or obligation of Buyer contained in this Agreement, or (iii) any act or omission of Buyer with respect to, or any event or circumstance related to the ownership or control of the Property or any portion thereof, which act, omission, event or circumstance occurs at or after the Closing date, without regard to whether a claim with respect to such matter is asserted before or after the Closing date; and

X. Notices and Other Deliveries

Any notice or other documents or materials required or permitted to be delivered in connection with this Agreement shall be deemed properly delivered upon receipt by the Party to whom the same are to be delivered, as follows:

If to Seller, to: The Orlando Reservoir No. 2 Company, LLC,

Attn: Randle Case II

102 East Pikes Peak Avenue, Suite 200

Colorado Springs, CO 80903

with a copy to: Mulliken Wiener Karsh Berg & Jolivet, P.C.

Attn: Steven K. Mulliken

102 South Tejon Street, Suite 900

Colorado Springs, CO 80903

If to Buyer, to Two Rivers Water Company

Attn: John R. McKowen

2000 S. Colorado Boulevard

Denver, Colorado 80222

with a copy to: KRASSA & MILLER, LLC

Attn: Robert F. T. Krassa

2344 Spruce Street, Suite A

Boulder, CO 80321

and with a copy to: Lyndsay S. Ressler, Associate Attorney

Thomas G. Martin, Attorney, P.C.

405 South Cascade Ave., Suite 203

Colorado Springs, Colorado 80903

Either Party may, by notice properly delivered, change the person or address to which future notices and deliveries to that Party shall be made.

XI. Interpretation of Agreement

11.1. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado.

11.2. Headings . The article and section headings in this Agreement are for convenience only, and shall not be used in its interpretation or considered part of this Agreement.

11.3. Saturdays, Sundays and Holidays . If any payment or delivery of any document is required pursuant to any term of this Agreement to be made on the date which falls on a Saturday, Sunday or legal holiday in the State of Colorado, such payment or delivery shall be made on the first business day following such Saturday, Sunday or legal holiday.

11.4. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

11.5. Term of Agreement . This Agreement shall commence on the date of its execution and this Agreement and all covenants contained herein continue in full force and effect until such time as all obligations of the Parties to each other hereunder have been fulfilled.

11.6. Effect of Agreement . All negotiations relative to the matters contemplated by this Agreement are merged herein and there are no other understandings or agreements relating to the matters and things herein set forth other than those incorporated in this Agreement. This instrument and the Water Lease set forth the entire agreement between the Parties. No provision of this Agreement shall be altered, amended, revoked or waived except by an instrument in writing signed by the Party to be charged with such amendment, revocation or waiver. Subject to the provisions of Article VI, this Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective personal representatives, heirs, successors and assigns.

11.7. Survival of Representations and Warranties . All covenants, agreements, representations and warranties made hereunder or pursuant hereto or in consideration of the transactions contemplated hereby shall survive Closing.

11.8. Joint and Several Liability . If there are more than one entity or person which or who are a Party under this Agreement, the obligations imposed upon the Party under this Agreement shall be joint and several.

11.9. Severability. If any clause or provision of this Agreement is illegal, invalid or unenforceable under applicable present or future laws, then it is the intention of the Parties that the remainder of this Agreement shall not be affected, and that in lieu of any such clause or provision there be added as a part hereof a substitute clause or provision as similar in terms and effect to such illegal, invalid or unenforceable clause or provision as may be possible.

11.10. Timing . Time is of the essence of this Agreement.

11.11. Future Assurances . From and after the Closing, the Parties agree to execute and deliver such other and further documents and agreements as may be requested by a Party to more fully implement and document the intent of the Parties as set forth in this Agreement.

11.12 Authorship . This Agreement has been developed through efforts of both Parties and their respective attorneys and shall not be interpreted for or against any Party on the basis of authorship or origin of any provision hereof.

SELLER:

THE ORLANDO RESERVOIR NO. 2, COMPANY , LLC,

a Colorado limited liability company

By:

Manager

BUYER:

TRWC, INC., a Colorado corporation d/b/a

TWO RIVERS WATER COMPANY

By:

John R. McKowen

Its:

S:\Current\Clients N-R\Orlando Reservoir No. 2 Company, LLC\Sale of Reservior\Documents\PURCHASE AGREEMENT v8A Orlando Reservoir.doc

EXHIBIT A

LEGAL DESCRIPTION OF THE LAND

EXHIBIT B

WATER DEED

SPECIAL WARRANTY DEED

THIS DEED, made this _____ day of ________________ 2010 between THE ORLANDO RESERVOIR NO. 2 COMPANY, LLC, a Colorado Limited Liability Company, whose address is 102 East Pikes Peak Avenue, Suite 200, Colorado Springs, County of El Paso, State of Colorado 80903 (grantor) and TRWC, INC., a Colorado Corporation, d/b/a Two Rivers Water Company, whose address is 2000 South Colorado Boulevard, Suite 200, Denver, County of Denver, State of Colorado 80222 doing business as Two Rivers Water Company (grantee).

WITNESSETH, that the grantor, for and in consideration of the sum of __________, the receipt and sufficiency of which is hereby acknowledged, has remised, sold, and conveyed, and by these presents does remise, sell and convey unto the grantee, its heirs, successors and assigns, forever, all the right, title, interest, claim and demand which the grantor has in and to the real property, together with improvements, if any, situate, lying and being in the County of Huerfano and COLORADO, described as follows:

A)	ORLANDO RESERVOIR NO. 2, decreed for a total of 3,110 acre-feet storage, as follows:

ORLANDO RESERVOIR NO. 2, for storage of 43,560,000 cubic feet of water (1,000 acre-feet), for irrigation, date of appropriation December 14, 1905, date of adjudication October 3, 1921 (previous adjudication date was October 15, 1901), in Civil Action No. 1414, District Court, in and for Huerfano County, located in Section 17, Township 26 South, Range 66 West, 6 th PM, Huerfano County, Colorado, sources The Huerfano River through and by means of the Orlando Canal No. 3, and Greasewood Arroyo, through and by means of the Greasewood Arroyo Diverting Canal, and as more particularly describes in the aforesaid Decree entered October 31, 1921, in Civil Action No. 1414 (Priority No. 349).

II)

ORLANDO RESERVOIR NO. 2, (ENLARGEMENT), for storage of 35,078,750 CUBIC FEET OF WATER (800 acre-feet), for irrigation, date of appropriation December 14, 1905, date of adjudication (conditional) October 3, 1921 in Civil Action No. 1414, District Court, in and for Huerfano County, located in Section 17, Township 26 South, Range 66 West, 6 th PM, Huerfano County, Colorado, sources The Huerfano River and Greasewood Arroyo, and the conditional right made absolute by Decree in Civil Action No. 1414-60, and 1414-62, entered November 1, 1960, and November 8, 1962 (Priority No. 349).

III)

ORLANDO RESERVOIR NO. 2, (SECOND ENLARGEMENT), for storage of 1,310 acre-feet of water, for irrigation, date of appropriation October 2, 1906, date of adjudication (conditional) October 3, 1921, in Civil Action 1414, District Court, in and for Huerfano County, located in Section 17, Township 26 South, Range 66 West, 6 th PM, Huerfano County, Colorado, sources The Huerfano River and Greasewood Arroyo, and the conditional right partly made absolute November 1, 1960 (320 acre-feet) and April 2, 1962 (990 acre-feet) (Priority No. 367½ ).

Together with the Orlando Canal No. 3 and the Greasewood Arroyo Diverting Canal, described as follows:

IV)

That the headgate of the Orlando Canal No. 3, is located at a point on the North bank of the Huerfano River, from whence the West quarter corner of Section 25, Township 26 South, Range 66 West of the 6 th PM, bears North 5˚ 30’ West 973 feet, said canal having a carrying capacity of 130 cubit feet of water per second of time.

That the headgate of the Greasewood Arroya Diverting Canal, is located at a point on the said Greasewood Arroya, from whence the Northeast corner of Section 18, Township 26 South, Range 66 West of the 6 th PM, bears North 68˚ 3’ East 2920 feet, said canal having a carrying capacity of 1500 cubic feet of water per second of time.

Together with all ditches, ditch rights, easements, rights of way, and appurtenances, including headgates, measuring devices, and other fixtures thereon.

B)	BUTTE VALLEY DITCH, decreed for a total of 9 cubic-feet per second, as follows:

BUTTE VALLEY DITCH for diversion of 1.2 cubic-feet of water per second of time, from The Huerfano River for irrigation, date of appropriation May 15, 1862, date of adjudication June 12, 1889 (Reed Decree), point of diversion in the NW ¼ NE ¼ Section 30, Township 26 South, Range 66 West, 6 th PM, Huerfano County, Colorado (Priority No. 1).

II)

BUTTE VALLEY DITCH (ENLARGEMENT) for diversion of 1.8 cubic-feet of water per second of time, from The Huerfano River, for irrigation, date of appropriation May 15, 1865, date of adjudication June 12, 1889 (Reed Decree), point of diversion in the NW ¼ NE ¼ Section 30, Township 26 South, Range 66 West, 6 th PM, Huerfano County, Colorado (Priority No. 9).

III)

BUTTE VALLEY DITCH (SECOND ENLARGEMENT), for diversion of 3.0 cubic feet per second of time, from The Huerfano River, for irrigation, date of appropriation May 15, 1886, date of adjudication June 12, 1889 (Reed Decree), point of diversion in the NW ¼ NE ¼, Section 30, Township 26 South, Range 66 West, 6 th PM, Huerfano County, Colorado (Priority No. 86).

IV)

BUTTE VALLEY DITCH (KILLIAN) for diversion of 3.0 cubic feet per second of time, from The Huerfano River, for irrigation, date of appropriation May 15, 1886, date of adjudication February 23, 1898 (Killian Decree), point of diversion in the NW ¼ NE ¼ Section 30, Township 26 South, Range 66 West, 6 th PM, Huerfano County, Colorado (previous adjudication date of June 12, 1889) (Priority No. 111).

Together with all ditches, ditch rights, easements, rights of way, and appurtenances, including headgates, measuring devices, and other fixtures thereon.

TO HAVE AND TO HOLD the same, together with all and singular the appurtenances and privileges thereunto belonging, or in anywise thereunto appertaining, and all the estate, right, title, interest, and claim whatsoever, of the grantor, either in law or equity, to the only proper use, benefit and behoof of the grantee, its heirs and assigns forever. Grantor, for grantor, and for grantor's heirs, personal representatives, successors, and assigns, covenants and agrees that grantor shall and will WARRANT AND FOREVER DEFEND the above bargained premises in the quiet and peaceable possession of grantee, and grantee's successors and assigns, against all and every person or persons claiming the whole or any part of the property, by, through, or under grantor.

IN WITNESS WHEREOF, the grantor has executed this deed on the date set forth above.

THE ORLANDO RESERVOIR NO. 2 COMPANY, LLC

By: ________________________________________

STATE OF COLORADO )

) ss

COUNTY OF EL PASO )

The foregoing instrument was acknowledged before me this _____ day of ____________ 2010 by ___________________________, _____________________ of The Orlando Reservoir No. 2 Company, LLC.

Witness my hand and official seal.

___________________________________

Notary Public

My Commission expires: _______________

EXHIBIT C

LAND DEED

SPECIAL WARRANTY DEED

THIS DEED , made to be effective as of the ___ day of ______________, 2010, between THE ORLANDO RESERVIOR NO. 2 COMPANY, LLC , a Colorado limited liability company, whose address is 102 East Pikes Peak Avenue, Suite 200, Colorado springs, Colorado 80903, Grantor, and TRWC, INC. , a Colorado corporation d/b/a TWO RIVERS WATER COMPANY , whose address is 2000 S. Colorado Boulevard, Denver, Colorado 80222, ATTN: John R. McKowen, Grantee:

WITNESS, that the Grantor, for and in consideration of the sum of Ten and no/100ths Dollars ($10.00) , the receipt and sufficiency of which are hereby acknowledged, has granted, bargained, sold and conveyed, and by these presents does grant, bargain, sell, convey and confirm unto the Grantee, its successors and assigns forever, all the real property together with improvements, if any (the "Property"), situate, lying and being in the County of Huerfano and State of Colorado, described as follows:

See Exhibit A attached hereto and incorporated herein

Together with all and singular the hereditaments and appurtenances thereto belonging, or in anywise appertaining, and the reversion and reversions, remainder and remainders, rents, issues and profits thereof; and all the estate, right, title, interest, claim and demand whatsoever of the Grantor, either in law or in equity, of, in and to the above bargained premises, with the hereditaments and appurtenances;

TO HAVE AND TO HOLD the Property above bargained and described, with the appurtenances unto Grantee, and Grantee's successors and assigns, forever. Grantor, for Grantor, and for Grantor's heirs, personal representatives, successors, and assigns, covenants and agrees that Grantor shall and will WARRANT AND FOREVER DEFEND the above bargained premises in the quiet and peaceable possession of Grantee, and Grantee's successors and assigns, against all and every person or persons claiming the whole or any part of the Property, by, through, or under Grantor.

IN WITNESS WHEREOF, the Grantor has executed this deed on the date set forth above.

THE ORLANDO RESERVOIR NO. 2 COMPANY, LLC

By:_____________________________ By: STEVEN G. ELLER, MANAGER

Its: Manager

STATE OF COLORADO )

) ss.

COUNTY OF HUERFANO )

Acknowledged before me this _____ day of _______________, 2010, by ___________________, as Manager of The Orlando Reservoir No. 2 Company, LLC, a Colorado limited liability company.

WITNESS my hand and official seal.

My commission expires: ____________________________

__________________________________

Notary Public

[SEAL]

Structure	Elevation	Priority No.	Appropriation Date	Consumptive Use	Decreed Amount
Butte Valley Ditch	5,909 ft	1	5/15/1862	360 A.F.	1.2 cfs
Butte Valley Ditch		9	5/15/1865		1.8 cfs
Butte Valley Ditch		86	5/15/1886		3.0 cfs
Butte Valley Ditch		111	5/15/1886		3.0 cfs
Robert Rice Ditch	5,725 ft	19	3/01/1867	131 A.F.	3.0 cfs
Huerfano Valley Ditch	4,894 ft	120	2/2/1888	2,891 A.F.	42.0 cfs
Huerfano Valley Ditch	4,894 ft	342	5/1/1905	2,891 A.F.	18.0 cfs

Structure	Elevation	Priority No.	Appropriation Date	Consump-tive Use	Decreed Amount (A.F.)	Operable Storage (A.F.)
Huerfano Valley Reservoir	4,702 ft	6	2/2/1888	1,424 A.F.	2,017	1,000
Cucharas Valley Reservoir	5,570 ft	66	3/14/1906	3,055 A.F.	31,956.	10,000
Cucharas Valley Reservoir*	5,705 ft	66c	3/14/1906	3,055 A.F.	34,404	10,000
Bradford Reservoir	5,850 ft	64.5	12/15/1905	-	6,000	-
Orlando Reservoir # 2	5,911 ft	349	12/14/1905	1,800 A.F.	3,110	2,400

Location	Legal Description	Acreage	Purchase date
Pueblo County, CO	Lots 2-4 Sec 4-22-62 less Lot 4 by WD#1519965 to Hall formerly #22-000-00-135	85.3	9/17/2009
Pueblo County, CO	33-21-62 SE4 Less POR sold in WD#123993 to Cook Formerly 12-000-00-042	120	9/17/2009
Pueblo County, CO	E2 35-22-63 320A	320	2/2/2010
Pueblo County, CO	N2 SE4 26-22-63 Contg 80A formerly 23-000-00-139	80	2/2/2010
Pueblo County, CO	N2 S2 SE4 26-22-63 (40A) formerly 23-000-00-193	40	2/2/2010
Pueblo County, CO	36-22-63 All por of sec 36 desc as: comm fr NW cor of sec, N 88 deg 27 min 59 sec E alg N ln of sec A dist of 23304.98 ft, th S 03 deg 53 min 33 sec E a dist of 5270.92 ft to a sandstone marking th S4 of sec 36 th S 89 deg 24 min 00 sec W alg S ln of sec A dist of 2647.27 ft to SW cor of sec th N 00 deg 09 min 46 sec W alg the W ln of sec A dist of 5224.83 ft to pt of beg less 3.2A for ditch formerly #23-000-00-157	297.24	2/2/2010
Pueblo County, CO	NW 1/4 31-22-62 150.77A	150.77	2/22/2010
Pueblo County, CO	25-22-63 SW4 (160A) contg 320A less POR retained by Disanti formerly #23-000-00-072	160	2/22/2010
Pueblo County, CO	36-22-63 That part of Sec 36, lying ely of desc Div Ln; comm fr NW cor of Sec 36 monumented with 3/4: x 30" rebar & 3-1/4" alum cap n 88 deg 27 min 59 sec E alg N Ln of SD sec 36 a dist of 2304.98 ft to pt of beg of sd div ln, sd ln runs S 03 dge 53 min 33 sec E a dist of 5270.92 ft to a sandstone being the S4 cor of SD sec 36 + the pt of terminums of ths div ln formerly #23-000-00-157	338.86	2/22/2010
Pueblo County, CO	A PAR of land being a POR of the SE4 25-22-63 more part desc as follows: Comm from the NE Cor of the SE4 of SD sec 25, S 00 deg 00Min 00Sec E alg the Eln of SD sec 25, a dist of 1905.92 ft; th N 90 deg 00 Min 00sec W, a dist of 844.0 ft to the true pt of beg, th cont N 90 deg 00 Min 00Sec W a dist of 946.00 ft; th N 12 deg 16 min 49 sec E, a dist of 322.91 ft; th N 04 deg 58 min 28 sec W , a dist of 1543.82 ft to the N ln of undercliff rd (county rd); th N 89 deg 18 min 31 sec E alg the S	41	2/22/2010
Walsenburg, CO	TOWNSHIP 28 SOUTH, RANGE 67 WEST OF THE 6TH P.M. Section 19: Part of the SW1I4NW1I4, NW1I4SW1I4, SEI / 4NWI / 4 being more particularly described as follows: Beginning at the SW comer of the NW1 I 4SW1 /4 , thence S 89°41 'E a distance of 1355.7 feet, thence N 0° 33' E a distance of583.3 feet; thence N 45° W a distance of333.3 feet; thence N 10° E a distance of 198 feet; thence N 31 ° 15' E a distance of 174.9 feet, thence N 9°E a distance of 152.7 feet, thence East a distance of 263.8 feet thence N45°E a distance of 149.9 feet, thence N 44°48' W a distance of 443.3 feet; thence N25°35'E a distance of72.6 feet, thence S64°E a distance of 133 feet, thence N9°1 O'E a distance of201.3 feet, thence N43°W a distance of 168.3 feet, thence N28°34'E a distance of 247.5 feet; thence N44°48'W a distance of 475.8; thence S 89°57'W a distance of 1142.7 feet; to the NW comer ofSWl!4NW1I4, thence S0054W a distance of 1306.25 feet to the W1I4 comer of said section 19 and 2612.5 feet to the place of beginning Section 24: SI / 2NE1/4NE1 I 4 less that part conveyed to Huerfano County Hospital District in Book 392, Page 535. Also a tract of land being Part of the SE1I4 and more particularly described as follows: Beginning at the S1I4 comer, thence North 2640 feet, thence East 726 feet; thence south 1996 feet, thence in a Northeasterly direction 75 feet, thence north 1980 feet; thence east 1815 feet, thence south 412 feet; thence in a southwesterly direction along the north right of way of the D&RGW railroad to the point of beginning except that part conveyed to Jesus Maria Lopez in Book 40, Page 78 and Ramon Vigil in Book 33, Page 326 and less that part conveyed to the D&RGW railroad ROW.	76.38	10/26/2009
Huerfano, CO	S 1/2 of the NW 1/4 of Section 4, Township 27 South, Range 64 West, Huerfano County, Colorado; The SW 1/4 of Section 4, Township 27 South, Range 64 West, Huerfano County, Colorado; the S 1/2 of the NE 1/4 of Section 5, Township 27 South, Range 64 West	320	11/10/2009
Pueblo County, CO	The SE 1/4 of Section 15, Township 22 South, Range 63 Parcel 1: West of the 6th principal meridian, except that portion conveyed in Book 1208 at page 425. Also except a rectangular area, being 50 ft by 200 ft and located in the Southwest corner of the SE 1/4 of section 15, described as follows: Beginning at the southwest corner of the SE 1/4 of section 15, township 22 south, range 63 west of the 6th principal meridian, thence north along the west side of the said SE 1/4 of section 15, a distance of 200 ft; thence east 50 feet parallel to the south line of the said section 15: thence south 200 ft to a point on the south line of said section 15; thence west along the south line of said section 15, a distance of 50 feet more or less to the point of beginning .	1120	8/31/2011
Pueblo County, CO	Parcel 2: The SE 1/4 of Section 23, Township 22 South, Range 63 West of the 6th Principal Meridian, County of Pueblo, State of Colorado	incl
Pueblo County, CO	Parcel 3: The S 1/2 of Section 24, Township 22 South, Range 63 West of the 6th Principal Meridian, County of Pueblo, State of Colorado	incl
Pueblo County, CO	Parcel 4: The N 1/2 of Section 25, Township 22 South, Range 63 west of the 6th Principal Meridian, except one square acre in the SE corner thereof, County of Pueblo, State of Colorado	incl
Pueblo County, CO	Parcel 5: The SW 1/4 of Section 26, Township 22 South, Range 63 West of the 6th Principal meridian, County of Pueblo, State of Colorado	incl
Huerfano, CO	Lot 146, Colorado Land & Livestock, Unit F, as filed April 29, 1981, at reception no 282669, Map No 169, according to the records of the clerk and recorder for Huerfano County, CO: 2083 CR 104, Walsenburg, CO 81089		8/12/2011
Huerfano, CO	Lot 145 Unit F CLL Ranch; 289 Chickasaw Dr, Walsenburg, CO 81089	40	8/24/2011
Huerfano, CO	A parcel of land located in Sections 17, 18, 19. 20, Township 26 South, Range 66 West of the 6th P.M., also being a portion of Orlando Reservoir No2, per plat of Amended Grant of Easement and Result of Survey Plat recorded April 29, 19811, as Map 170, Pocket 3, Folder 3, (also known as Colorado Land and Grazing Unit "E", being more particularly described as follows: Beginning at the SE corner of the Orlando Reservoir No 2 parcel and northerly		2/23/2011
Huerfano, CO	Orlando properties.	1500	1/28/2011
Pueblo County, CO	SE4 LESS E 30 FT + S 30 FT RD + 50X200 FT TR 15-22-63	158.7	8/31/2011

Quarter Ended	High		Low
2011
December 31 st	$	2.40	$	1.50
September 30 th		2.85		2.00
June 30 th		3.05		2.37
March 31 st		2.80		1.75
2010
December 31 st	$	2.35	$	1.40
September 30 th		1.80		1.10
June 30 th		1.40		1.05
March 31 st		1.49		1.20

	Number of Shares
	FOR	WITHHOLD	Total Voted
John R. McKowen	11,278,470	25,483	11,303,953
John Stroh, II	11,276,462	27,491	11,303,953
Dennis Channer	11,286,820	17,133	11,303,953
Brad Walker	11,286,806	17,147	11,303,953
Gregg Campbell	11,286,820	17,133	11,303,953

Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum number of shares that may yet be purchased under the plans or programs
November, 2011		18,050	$	2.12		18,050		81,950
December, 2011		18,570	$	2.08		18,570		63,380
Total		36,620	$	2.10

	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-term debt obligations	$	15,055,700	$	32,000	$	14,993,700	$	30,000		-

Schedule of principal & Interest payments due by year :
			Interest Due
Year Ending December 31,	Principal Due		HCIC		Orlando		Conv. Debt A (1)		Conv. Debt B (2)	Equip. Loans		Total Interest Due
2012	$	32,200		444,000				86,000	160,000		8,000	$	698,000
2013	$	14,953,500		111,000		16,000		100,000	529,000		6,000	$	762,00
2015	$	29,800										$	2,000
2016	$	7,100											-
Total	$	15,055,700

Name	Age	Position	Term
John McKowen	62	Chief Executive Officer, Chairman of the Board of Directors	Annual
Gary Barber (1)	57	Chief Operations Officer, President of Two Rivers Water Company	Annual
Wayne Harding	57	Chief Financial Officer, Corporate Secretary	Annual
John Stroh II	64	Director	Annual
Bradley Walker	53	Director	Annual
Dennis Channer	61	Director	Annual
Gregg Campbell	67	Director	Annual

Name & Position	Year	Salary ($)		Bonus ($)		Stock Awards ($) (11)		Option Awards ($)		Non-equity incentive plan comp ($)		Non-qualified deferred comp earnings ($)		All other comp ($)		Total ($)
John McKowen, CEO, Chairman	2011(1)		193,042		26,660		-		-		-		-		26,589		246,291
	2010(2)		223,158		-		-		-		-		-		14,738		237,896
	2009(3)		241,484		27,500		-		-		-		-		7,476		276,460
Wayne Harding, CFO & Secretary	2011(4)		127,167		20,498		142,500		-		-		-		4,800		294,965
	2010(4)		97,750		1,833		-		-		-		-		14,880		114,463
	2009(5)		95,423		6,250		-		-		-		-		23,069		124,742
Gary Barber, COO & Pres.	2011(6)		109,000		31,162		-		-		-		-		33,700		173,862
Gary Barber, COO & Pres.	2010(7)		-		-		-		-		-		-		32,000		32,000
John Stroh, President	2011(8)		-		-		101,247		-		-		-		76,045		177,292
	2010(9)		45,260		1,125		-		-		-		-		58,437		104,822
	2009(10)		-		-		-		-		-		-		63,192		63,192

Name	Fees earned or paid in cash ($)		Stock awards ($) (4)		Option Awards ($)		Non-equity incentive plan compen- sation ($)		Non- Qualified Deferred compen- sation earnings ($)		All other compen-sation ($)		Total ($)
John McKowen (1)		-		-		-		-		-		-		-
Gary Barber (2)		-		-		-		-		-		-		-
John Stroh II (3)		2,500		-		-		-		-		-		2,500
Bradley Walker		5,500		44,150		-		-		-		565		50,215
Dennis Channer		5,500		44,150		-		-		-		71		49,721
Gregg Campbell		2,500		22,250		-		-		-		-		24,750

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Owner		Percent of Class (1)
Common Shares	John McKowen (CEO and Chairman of the Board) (2) 2000 S Colorado Blvd Annex Bldg Ste 420 Denver CO 80222	3,699,953	14.09%
Common Shares	Wayne Harding (CFO, Secretary) (3) 2000 S Colorado Blvd Annex Bldg Ste 420 Denver CO 80222	373,756	1.42%
Common Shares	Gary Barber (President, COO) (4) 2000 S Colorado Blvd. Annex Bldg. Ste 420 Denver CO 80222	338,333	1.29%
Common Shares	John Stroh II (Board member) (5) 2000 S Colorado Blvd. Annex Bldg. Ste 420 Denver CO 80222	950,357	3.62%
Common Shares	Dennis Channer (Board member) (6) 2000 S Colorado Blvd. Annex Bldg. Ste 420 Denver CO 80222	25,000	0.10%
Common Shares	Brad Walker (Board member) (7) 2000 S Colorado Blvd. Annex Bldg. Ste 420 Denver CO 80222	25,000	0.10%
Common Shares	Gregg Campbell (Board member) (8) 2000 S Colorado Blvd. Annex Bldg. Ste 420 Denver CO 80222	10,000	0.04%
Total for all Directors and Executive Officers as a Group		5,422,299	20.66%

	Year Ended December 31,
	2011		2010
Audit/review Fees – Schumacher	$	40,000	$	63,885
Audit/review Fees – Eide Bailly		20,500		0
Audit-related Fees		0		0
Tax Fees		0		0
All Other Fees		0		0
Total Fees	$	60,500	$	63,885

10.1	Bridge Loan Note	*
10.2	Orlando purchase agreement	Filed Herewith
10.3	Orlando modified purchase agreement	Filed Herewith
10.4	Orlando first amendment to the master agreement	Filed Herewith
10.5	Orlando second amendment to the master agreement	Filed Herewith
21.1	List of Subsidiaries of Two Rivers Water Company	*
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act	*
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act	*
32.1	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act	*
32.2	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act	*

Dated: August 8, 2012	Two Rivers Water Company


By:	/s/John McKowen
	John McKowen, Chief Executive Officer and Chairman of the Board


By:	/s/ Wayne Harding
	Wayne Harding, Chief Financial Officer and Principal Accounting Officer

For	14,784,623
Against	238
Abstain	15,056
Total Voted	14,799,917

For	10,976,015
Against	327,438
Abstain	500
Total Voted	11,303,953

Greenwood Village, Colorado
March 6, 2012, except for Note 2, for which the date is August 29, 2012

	December 31,
ASSETS:	RESTATED 2011			2010
Current Assets:
Cash and cash equivalents	$	777		$	645
Marketable securities, available for sale (Notes 2,3)		137			-
Advances and accounts receivable		87			38
Farm product (Note 2)		43			-
Deposits and other current assets		20			16
Total Current Assets		1,064			699

Property, equipment and software, net (Note 2)		1,129			156

Other Assets
Debt issuance costs		663			-
Land (Note 2)		2,968			1,279
Water rights and infrastructure (Note 2)		28,786			24,216
Options on real estate and water shares (Note 2)		-			100
Dam and water infrastructure construction in progress (Note 2)		848			489
Discontinued operations - assets held for sale (Notes 2, 6)		-			259
Total Other Assets		33,265			26,343
TOTAL ASSETS	$	35,458		$	27,198

LIABILITIES & STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable	$	631		$	463
Current portion of notes payable (Note 4)		32			-
Accrued liabilities		495			114
Total Current Liabilities		1,158			577
Notes Payable - Long Term (Note 4)		12,104			9,128
Total Liabilities		13,262			9,705

Stockholders' Equity:
Common stock, $0.001 par value, 100,000,000 shares authorized, 23,258,494 and 19,782,916 shares issued and outstanding at December 31, 2011 and 2010, respectively		23			20
Additional paid-in capital		39,847			28,949
Accumulated comprehensive (loss)		(51	)		-
Accumulated (deficit)		(19,785	)		(13,587	)
Total Two Rivers Water Company Shareholders' Equity		20,034			15,382
Noncontrolling interest in subsidiary (Note 2)		2,162			2,111
Total Stockholders' Equity		22,196			17,493
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$	35,458		$	27,198

	For the year ended December 31,
	RESTATED 2011			2010
Cash Flows from Operating Activities:
Net (Loss)	$	(6,147	)	$	(9,462	)
Adjustments to reconcile net income or (loss) to net cash (used in) operating activities:
Depreciation (including discontinued operations)		102			58
Amortization of debt issuance costs and pre-paids		456			-
Legendary Investment sale and write off		-			14
Increase in reserves and impairments (discontinued operations)		-			499
Loss from REOs sold (discontinued operations)		-			83
Loss on sale of investments and assets held (discontinued operations)		132			155
(Gain) on extinguishment of notes payables		(196	)		-
(Gain) Bargain Purchase Value adjustment		(1,736	)		-
Realized (Gain) of market securities		(18	)		-
Beneficial conversion		-			325
Stock based compensation and warrant expense		2,678			5,059
Stock for services		938			298
Options for services		107			-
Net change in operating assets and liabilities:
Decrease (increase) in income tax receivable		(49	)		489
(Increase) in farm product		(43	)		-
(Increase) decrease in deposits, prepaid expenses and other assets		(4	)		(36	)
Increase in accounts payable		168			182
Increase (decrease) in accrued liabilities and other		400			131
Net Cash (Used in) Operating Activities		(3,212	)		(2,205	)

Cash Flows from Investing Activities:
Investments (increased)/decreased:
Boston real estate and other residential real estate		-			(381	)
Proceeds from REO properties and other assets sold		-			2,788
Marketable securities purchased		(331	)		-
Marketable securities sold		162			-

Proceeds from asset held for sale		-			176
Proceeds from fixed assets sold		-			19
Purchase of property, equipment and software		(947	)		(131	)
Purchase of real estate option		-			(100	)
Purchase of land, water shares, infrastructure		(1,064	)		(8,012	)
Dam construction		(359	)		(326	)
Other assets		-			3
Net Cash (Used in) Investing Activities		(2,539	)		(5,964	)
Continued on next page

Cash Flows from Financing Activities:
Proceeds from issuance of convertible notes	7,332		-
Payment of offering costs	(664	)	-
Payment on note	(38	)	-
Payment on notes payable	(1,179	)	-
Payment for settlement of note payable	(105	)	-
(Decrease) in short term borrowings	-		(950	)
Options and warrants exercised	613		-
Increase in long term borrowings	-		6,951
Retirement of Common Stock	(76	)	(5	)
Private placement - net of offering costs	-		2,202
Net Cash Provided by Financing Activities	5,883		8,198
Net Increase in Cash & Cash Equivalents	132		29

Beginning Cash & Cash Equivalents	645		616
Ending Cash & Cash Equivalents	$ 777		$ 645

Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	435	$	526
Cash received from income tax refunds	$	-	$	501
Conversion of note receivable for loan on land	$	-	$	295
Common stock issued for land and water share purchase	$	-	$	500
Common stock issued in conjunction with extinguishment of notes payable	$	1,499	$	-
Acquisition of Orlando Reservoir for seller financed note payable	$	187	$	-
Stock issued for partial payment for the purchase of Orlando Reservoir No.2, LLC	$	1,557	$	-
Stock issued for non-controlling interest in HCIC	$	-	$	11,379
Equipment purchases financed	$	146	$	-
Fair value of warrants issued with Series B offering	$	1,675	$	-
Value of beneficial conversion with Series B offering	$	1490		-
Stock & warrants for debt issuance costs	$	369	$	-


	Voting Common Stock
	Shares			Amount		Additional Paid-In Capital			Other Comprehensive Income (Expense)		Accumulated Deficit			Non-Controlling Interest			Stockholders' Equity
Balances, January 1, 2010	9,214		$	9	$	9,200		$	-	$	(4,121	)	$	2,675		$	7,763
Net Income (Loss)	-			-		-			-		(9,466	)		4			(9,462		)
Stock-based compensation expense	-			-		4,841			-		-			-			4,841
Warrant extension expense	-			-		218			-		-			-			218
Beneficial conversion	-			-		325			-		-			-			325
Stock issued in exchange for land and water shares and contract labor	723			1		798			-		-			-			799
Stock purchased through private placement	2,400			3		2,398			-		-			-			2,401
Direct cost of private placement	-			-		(196	)		-		-			-			(196		)
Stock issued in merger with TRB	7,500			7		11,371			-		-			(568	)		10,810
Retirement of Stock – open market purchases	(55	)		-		(6	)		-		-			-			(6		)
Balances, December 31, 2010	19,782		$	20	$	28,949		$	-	$	(13,587	)	$	2,111		$	17,493
Net Income (Loss)	-			-		-			-		(6,112	)						(6,112	)
Stock-based compensation expense	2			-		2,678			-		-							2,678
Options exercised	452			-		563			-		-							563
Warrants exercised	50			-		50			-		-							50
Warrants issued	-			-		1,805			-		-							1,805
Options issued for services	-			-		107			-		-							107
RSUs issued	1,148			1		(1	)		-		-							-
Stock issued in exchange for debt	1,372			2		3,330			-		-							3,332
Gain(Loss) attributable to noncontrolling entity	-			-		-			-		-			51				51
Stock issued for services	490			-		938			-		-							938
Unrealized gain (loss) on securities available for sale	-			-		-			(51		-							(51	)
Retirement of stock – open market purchases	(37	)		-		(62	)		-		-							(62	)
Adjustments from restatement	-			-		1,490			-		(86	)						1,404
Balances, December 31, 2011	23,259		$	23	$	39,847		$	(51	$	(19,785	)		2,162			$	22,196

Consolidated Balance Sheet (in thousands)	December 31,
	2011			CHANGE			2011 RESTATED
ASSETS:
Current Assets:
Cash and cash equivalents	$	777					$	777
Marketable securities, available for sale		137						137
Advances and accounts receivable		87						87
Farm product		43						43
Deposits and other current assets		20						20
Total Current Assets		1,064						1,064

Property, equipment and software, net		1,129						1,129

Other Assets
Debt issuance costs		663						663
Land (Note 2)		2,968						2,968
Water rights and infrastructure		28,786						28,786
Options on real estate and water shares		-						-
Dam and water infrastructure construction in progress		848						848
Discontinued operations - assets held for sale		-						-
Total Other Assets		33,265						33,265
TOTAL ASSETS	$	35,458					$	35,458

LIABILITIES & STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable	$	631					$	631
Current portion of notes payable		32						32
Accrued liabilities		495						495
Total Current Liabilities		1,158						1,158
Notes Payable - Long Term		13,508			(1,404	)		12,104
Total Liabilities		14,666			(1,404	)		13,262

Stockholders' Equity:
Common stock, $0.001 par value, 100,000,000 shares authorized, 23,258,494 and 19,782,916 shares issued and outstanding at December 31, 2011 and 2010, respectively		23						23
Additional paid-in capital		38,357			1,490			39,847
Accumulated Comprehensive (Loss)		(51	)					(51	)
Accumulated (deficit)		(19,699	)		(86	)		(19,785	)
Total Two Rivers Water Company Shareholders' Equity		18,630			1,404			20,034
Noncontrolling interest in subsidiary		2,162			-			2,162
Total Stockholders' Equity		20,792			-			22,196
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY	$	35,458			-		$	35,458

Consolidated Statement of Operations (in thousands)	For the year ended December 31,
	2011			CHANGE			2011 RESTATED
Revenue
Farm revenue	$	-					$	-
Water revenue		-						-
Member assessments		102						102
Other income		3						3
Total Revenue		105						105
Direct cost of revenue		97						97
Gross Margin (Loss)		8						8

Operating Expenses:
General and administrative		3,868						3,868
Stock based compensation		2,678						2,678
Depreciation		102						102
Total operating expenses		6,648						6,648
(Loss) from operations		(6,640	)					(6,640	)

Other income (expense)
Interest expense		(1,212	)		(86	)		(1,298	)
Warrant expense		-						-
Gain (Loss) sale of assets		5						5
Gain bargain purchase		1,736						1,736
Gain (Loss) on extinguishment of notes payable		196						196
Other income (expense)		(14	)					(14	)
Total other income (expense)		711			(86	)		625
Net (Loss) from continuing operations before taxes		(5,929	)					(6,015	)
Income tax (provision) benefit		-						-
Net (Loss) from continuing operations		(5,929	)					(6,015	)

Discontinued Operations
Loss from operations of discontinued real estate and mortgage business		(132	)					(132	)
Income tax (provision) benefit from discontinued operations		-						-
(Loss) on discontinued operations		(132	)					(132	)

Net (Loss)		(6,061	)					(6,147	)
Net loss (income) attributable to the noncontrolling interest		(51	)					(51	)
Net (Loss) attributable to Two Rivers Water Company	$	(6,112	)	$	(86	)	$	(6,198	)

(Loss) Per Share - Basic and Dilutive:
(Loss) from continuing operations	$	(0.27	)		-		$	(0.27	)
(Loss) from discontinued operations		-			-			-
Total	$	(0.27	)		-		$	(0.27	)
Weighted Average Shares Outstanding:
Basic and Dilutive		22,156			-			22,156

Consolidated Statement of Cash Flows (in thousands)
	For the year ended December 31,
	2011			CHANGE			2011 RESTATED
Cash Flows from Operating Activities:
Net (Loss)	$	(6,061	)	$	(86	)	$	(6,147	)
Adjustments to reconcile net income or (loss) to net cash (used in) operating activities:
Depreciation (including discontinued operations)		102						102
Amortization of debt issuance costs and pre-paids		370			86			456
Legendary Investment sale and write off		-						-
Increase in reserves and impairments (discontinued operations)		-						-
Loss from REOs sold (discontinued operations)		-						-
Loss on sale of investments and assets held (discontinued operations)		132						132
(Gain) on extinguishment of notes payables		(196	)					(196	)
(Gain) Bargain Purchase Value adjustment		(1,736	)					(1,736	)
Realized (Gain) of market securities		(18	)					(18	)
Beneficial conversion		-						-
Stock based compensation and warrant expense		2,678						2,678
Stock for services		938						938
Options for Services		107						107
Net change in operating assets and liabilities:
Decrease (increase) in advances & accounts receivable		(49	)					(49	)
(Increase) in farm product		(43	)					(43	)
(Increase) decrease in deposits, prepaid expenses and other assets		(4	)					(4	)
Increase in accounts payable		168						168
Increase (decrease) in accrued liabilities and other		400						400
Net Cash (Used in) Operating Activities		(3,212	)		-			(3,212	)

Cash Flows from Investing Activities:
Investments (increased)/decreased
Boston real estate and other residential real estate		-						-
Proceeds from REO properties and other assets sold		-						-
Marketable securities purchased		(331	)					(331	)
Marketable securities sold		162						162
Retirement of Stock		(76	)		76			-
Proceeds from asset held for sale		-						-
Proceeds from fixed assets sold		-						-
Purchase of property, equipment and software		(947	)					(947	)
Purchase of real estate option		-						-
Purchase of land, water shares, infrastructure		(1,064	)					(1,064	)
Dam construction		(359	)					(359	)
Other assets		-						-
Net Cash (Used in) Investing Activities		(2,615	)		76			(2,539	)

Consolidated Statement of Changes in Stockholders’ Equity
(In thousands)
									Other Comprehensive Income (Expense)
	Voting Common Stock					Additional Paid-in Capital									Non-
	Voting Common Stock											Accumulated (Deficit)			Controlling		Stockholders'
	Shares			Amount								Accumulated (Deficit)			Interest		Equity
Balances, December 31, 2010		19,782		$	20	$	28,949		$	-		$	(13,587	)	$	2,111	$	17,493
Net Income (Loss)		-			-		-			-			(6,112	)		-		(6,112	)
Stock-based compensation expense		2			-		2,678			-			-			-		2,678
Options Exercised		452			-		563			-			-			-		563
Warrants Exercised		50			-		50			-			-			-		50
Warrants issued		-			-		1,805			-			-			-		1,805
Options issued for services		-			-		107			-			-			-		107
RSUs issued		1,148			1		(1	)		-			-			-		-
Stock issued in exchange for debt		1,372			2		3,330			-			-			-		3,332
Gain(Loss) attributable to noncontrolling entity		-			-		-			-			-			51		51
Stock issued for services		490			-		938			-			-			-		938
Unrealized gain (loss) on securities available for sale		-			-		-			(51	)		-			-		(51	)
Retirement of Stock - open market purchases		(37	)		-		(62	)		-			-			-		(62	)
Adjustments from restatement		-			-		1,490			-			(86	)		-		1,404
Balances, December 31, 2011		23,259		$	23	$	39,847		$	(51	)	$	(19,785	)	$	2,162	$	22,196

		Year ended December 31, 2011				Year ended December 31, 2010
Mutual Ditch Company		$	51,000			$	4,000

Acquisition	Date	Price paid*		Fair Value		Gain/(Loss)
Mutual Ditch Company	2010, Qtr 1	$	24,196,000	$	24,196,000		-
Orlando	2011, Qtr 3	$	3,459,000	$	5,195,000	$	1,736,000

Asset Type	Life in Years		December 31, 2011		December 31, 2010
Office equipment & Furniture		5 – 7	$	53,000	$	74,000
Computers		3		38,000		59,000
Vehicles		5		119,000		45,000
Farm equipment		7		289,000		39,000
Mobile office		10		10,000		10,000
Irrigation system		10		822,000		31,000
Website		3		7,000		2,000
Subtotal				1,338,000		260,000
Less Accumulated Depreciation				209,000		107,000
Net Book Value			$	1,129,000	$	153,000

	Year ended
	Dec 31 2011		Dec 31, 2010
Beginning balance	$	489,000	$	163,000
Additions		359,000		326,000
Retirements, deletions		-		-
Depreciation		-		-
Ending Balance	$	848,000	$	489,000

Note	Dec 31, 2011 principal balance			Dec 31, 2011 accrued interest		Interest rate			Security
Mutual Ditch seller carry back	$	7,403,000		$	-		6	%	Shares in the Mutual Ditch Company
Orlando purchase		187,500			3,500		7	%	188 acres of land
Convertible debt Series A		2,000,000			85,500		6	%	F-1 assets
Convertible debt Series B		5,332,000			160,000		6	%	F-2 assets
Equipment loans		133,200			-		5 - 8	%	Specific equipment
Total	$	15,055,700		$	249,000
Less: Current portion		(32,000	)
Less: Discount on Series B		(2,919,200	)
Long Term portion	$	12,104,500

	For the year ended December 31, 2011															For the year ended December 31, 2010
	Parent			Farms			Water			Discontinued Operations			Total			Parent			Farms			Water			Discontinued Operations			Total
Revenue
Assessments	$	-			-			97			-			97		$	-			-			25			-			25
Farm revenue		-			-			-			-			-			-			153			-			-			153
Water revenue		-			-			-			-			-			15			-			-			-			15
Other & misc.		-			2			5			-			7			-			3			-			-			3
		-			2			102			-			104			15			156			25			-			196
Less: direct cost of revenue		-			97			-			-			97			-			285			-			-			285
Gross Margin		-			(95	)		102			-			7			15			(129	)		25			-			(89	)
Total Operating Expenses		(5,548	)		(589	)		(640	)		-			(6,777	)		(5,924	)		(457	)		(1,137	)		-			(7,518	)
Total Other Income/(Expense)		(160	)		1,652			(652	)		-			840			(909	)		-			-			-			(909	)
Net (Loss) Income from continuing operations before income taxes		(5,708	)		968			(1,190	)		-			(5,930	)		(6,818	)		(586	)		(1,112	)		-			(8,516	)
Income Taxes (Expense)/Credit		-			-			-			-			-			-			-			-			-			-

Net Income (Loss) from continuing operations		(5,708	)		968			(1,190	)		-			(5,930	)		(6,818	)		(586	)		(1,112	)		-			(8,516	)
Discontinued operations:
(Loss) from operations of discontinued real estate and mortgage business		-			-			-			(131	)		(131	)		-			-			-			(946	)		(946	)
Income tax benefit		-			-			-			-			-			-			-			-			-			-
Loss on discontinued operations		-			-			-			(131	)		(131	)		-			-			-			(946	)		(946	)
Non-controlling interest		-			-			(51	)		-			(51	)		-			-			(4	)		-			(4	)
Net (Loss) Income	$	(5,708	)		968			(1,241	)		(131	)		(6,112	)	$	(6,818	)		(586	)		(1,116	)		(946	)		(9,466	)
Segment assets	$	1,563			7,127			26,763			5			35,458		$	849			105			26,236			8			27,198

	Shares			Weighted Average Exercise Price
Outstanding, January 1, 2010		3,631,510		$	1.38
Granted		20,000			2.00
Cancelled		(1,905,948	)		1.41
Expired		-			-
Exercised		-			-
Outstanding, January 1, 2011		1,745,562			1.37
Granted		434,666			1.44
Cancelled		-			-
Expired		-			-
Exercised		452,362			1.25
Outstanding, December 31, 2011		1,727,866		$	1.34
Options Exercisable , December 31, 2011		1,701,199		$	1.31

	Shares			Weighted Average Exercise Price
Outstanding, January 1, 2009		582,777		$	0.50
Granted		-			-
Cancelled		(562,777	)	$	0.50
Expired		-			-
Exercised		-			-
Outstanding, January 1, 2010		20,000		$	0.50
Granted		200,000		$	0.50
Cancelled		(20,000	)	$	0.50
Expired		-			-
Exercised		-			-
Outstanding, December 31, 2010		200,000		$	0.50
Options Exercisable , December 31, 2010		200,000		$	0.50

Expected stock price volatility	122%
Risk-free interest rate	2.64%
Expected option life (years)	3.3 to 5.2
Expected annual dividend yield	0%

No. of Warrants		Exercise Price Per Share		Expiration Date
	100,000	$	1.00	December 31, 2011*
	2,132,800	$	2.50	December 31, 2012
	170,624	$	2.50	September 29, 2014
	250,000	$	2.50	May 3, 2016