##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended September 30, 2008
 o
    
    Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Transition Period from to
 Commission File Number  001-33893
 GREENHUNTER ENERGY, INC.
 Delaware
    
    20-4864036(State or other jurisdiction of 
incorporation or organization)
    
    (IRS employer identification No.)
 
 
 þ o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ(Do not check if a smaller reporting company)Smaller reporting company o o þ




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TABLE OF CONTENTS  PART 1  FINANCIAL STATEMENTSItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RisksItem 4. Controls and ProceduresPART II  OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 6. Exhibits and Reports on Form 8-KSIGNATURESEX-10.14    Table of Contents  
 PART 1  FINANCIAL STATEMENTS
 
 Item 1. Financial Statements
 GREENHUNTER ENERGY, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    2,158,602
    
    
    $
    18,750,394Restricted cash
    
    
    299,841
    
    
    
    Accounts receivable
    
    
    603,126
    
    
    
    118,709Inventory
    
    
    14,621,945
    
    
    
    23,947Prepaid expenses and other current assets
    
    
    1,661,165
    
    
    
    513,712Total current assets
    
    
    19,344,679
    
    
    
    19,406,762FIXED ASSETS:Land and improvements
    
    
    5,394,866
    
    
    
    2,868,837Buildings
    
    
    3,297,168
    
    
    
    3,209,737Property, plant and equipment
    
    
    65,345,423
    
    
    
    13,809,981Accumulated depreciation
    
    
    (1,364,907
    )
    
    
    (162,632
    )Construction in progress
    
    
    9,901,213
    
    
    
    12,942,109Net fixed assets
    
    
    82,573,763
    
    
    
    32,668,032OTHER ASSETS:Power purchase agreement
    
    
    1,652,704
    
    
    
    2,310,000Deferred financing costs
    
    
    3,802,875
    
    
    
    2,729,226Deposits and other noncurrent assets
    
    
    9,105,446
    
    
    
    2,383,265Total assets
    
    $
    116,479,467
    
    
    $
    59,497,285LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Current portion of notes payable
    
    $
    1,067,202
    
    
    $
    Current portion of notes payable, nonrecourse
    
    
    3,350,000
    
    
    
    166,890Accounts payable
    
    
    6,715,009
    
    
    
    2,334,926Accrued liabilities
    
    
    5,727,539
    
    
    
    1,878,637Total current liabilities
    
    
    16,859,750
    
    
    
    4,380,453NOTES PAYABLE,net of unamortized discount of $0 and $282,453 respectively
    
    
    3,196,010
    
    
    
    4,750,054NOTES PAYABLE,nonrecourse
    
    
    40,150,000
    
    
    
    1,502,009CONVERTIBLE NOTE PAYABLE
    
    
    
    
    
    
    3,136,38510% Series A REDEEMABLE DEBENTURES,net of unamortized discount of
$1,519,259 and $0, respectively
    
    
    19,514,889
    
    
    
    7,328,290COMMITMENTS AND CONTINGENCIES (NOTE 12)MINORITY INTEREST
    
    
    (19,545
    )
    
    
    STOCKHOLDERS EQUITY:Series A 8% convertible preferred stock, $1,000 par value, 12,500 issued
and outstanding
    
    
    12,500,000
    
    
    
    12,500,000Series B convertible preferred stock, $1,000 par value, 10,575 and 0
issued and outstanding, respectively
    
    
    10,575,000
    
    
    
    Common stock, $.001par value, 90,000,000 authorized shares, 20,929,130 and 19,759,173 issued, respectively
    
    
    20,929
    
    
    
    19,759Additional paid-in capital
    
    
    78,599,344
    
    
    
    43,771,708Accumulated deficit
    
    
    (63,340,476
    )
    
    
    (17,891,373
    )Treasury stock, at cost (89,400 and 0 shares, respectively)
    
    
    (1,350,521
    )
    
    
    Unearned common stock in KSOP, at cost (15,200 and 0 shares, respectively)
    
    
    (225,913
    )
    
    
    Total stockholders equity
    
    
    36,778,363
    
    
    
    38,400,094Total liabilities and stockholders equity
    
    $
    116,479,467
    
    
    $
    59,497,285
 See accompanying notes to consolidated financial statements
 -1-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007REVENUE:Product sales
    
    $
    312,747
    
    
    $
    136,404
    
    
    $
    628,899
    
    
    $
    616,458Terminal revenues
    
    
    18,740
    
    
    
    
    
    
    
    348,473
    
    
    
    Processing revenues
    
    
    
    
    
    
    21,369
    
    
    
    
    
    
    
    95,569Total revenue
    
    
    331,487
    
    
    
    157,773
    
    
    
    977,372
    
    
    
    712,027COSTS AND EXPENSES:Cost of sales and services
    
    
    2,893,682
    
    
    
    210,374
    
    
    
    4,083,481
    
    
    
    557,310Hurricane repairs and losses
    
    
    4,042,681
    
    
    
    
    
    
    
    4,042,681
    
    
    
    Project costs
    
    
    164,897
    
    
    
    49,432
    
    
    
    359,131
    
    
    
    241,678Depreciation expense
    
    
    1,029,627
    
    
    
    23,476
    
    
    
    1,216,773
    
    
    
    72,149Selling, general and administrative
(including stock compensation expense of
($756,817), $478,152, $7,276,234, and
$6,649,136, respectively)
    
    
    2,863,834
    
    
    
    794,261
    
    
    
    16,530,015
    
    
    
    8,135,302Total costs and expenses
    
    
    10,994,721
    
    
    
    1,077,543
    
    
    
    26,232,081
    
    
    
    9,006,439OPERATING LOSS
    
    
    (10,663,234
    )
    
    
    (919,770
    )
    
    
    (25,254,709
    )
    
    
    (8,294,412
    )OTHER INCOME (EXPENSE):Interest and other income
    
    
    119,858
    
    
    
    65,341
    
    
    
    588,605
    
    
    
    174,338Interest, accretion and other expense
    
    
    (1,367,250
    )
    
    
    (114,394
    )
    
    
    (2,346,824
    )
    
    
    (294,791
    )Total other income (expense)
    
    
    (1,247,392
    )
    
    
    (49,053
    )
    
    
    (1,758,219
    )
    
    
    (120,453
    )Loss before minority interest
    
    
    (11,910,626
    )
    
    
    (968,823
    )
    
    
    (27,012,928
    )
    
    
    (8,414,865
    )Minority interest
    
    
    19,545
    
    
    
    
    
    
    
    19,545
    
    
    
    Net loss
    
    
    (11,891,081
    )
    
    
    (968,823
    )
    
    
    (26,993,383
    )
    
    
    (8,414,865
    )Preferred stock dividends
    
    
    (250,000
    )
    
    
    (250,000
    )
    
    
    (750,000
    )
    
    
    (457,671
    )Deemed preferred stock dividends
    
    
    (14,522,517
    )
    
    
    
    
    
    
    (14,522,517
    )
    
    
    (950,000
    )Net loss to common stockholders
    
    $
    (26,663,598
    )
    
    $
    (1,218,823
    )
    
    $
    (42,265,900
    )
    
    $
    (9,822,536
    )Weighted average shares outstanding, basic
and diluted
    
    
    20,202,531
    
    
    
    17,750,055
    
    
    
    19,985,349
    
    
    
    16,709,579Net loss per share
    
    $
    (1.32
    )
    
    $
    (0.07
    )
    
    $
    (2.11
    )
    
    $
    (0.59
    )
 See accompanying notes to consolidated financial statements
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GREENHUNTER ENERGY, INC.
 UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE PERIOD FROM DECEMBER 31, 2007 TO SEPTEMBER 30, 2008
 Series A
    
    
    Series B
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    Unearned
    
    
    TotalPreferred
    
    
    Preferred
    
    
    Common
    
    
    Paid in
    
    
    Accumulated
    
    
    Treasury
    
    
    Shares In
    
    
    EquityStock
    
    
    Stock
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    KSOP
    
    
    (Deficit)BALANCE,December 31, 2007
    
    $
    12,500,000
    
    
    
    
    
    
    $
    19,759
    
    
    $
    43,771,708
    
    
    
    ($17,891,373
    )
    
    
    
    
    
    
    
    
    
    
    38,400,094Registration fees on stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,045
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,045
    )Issue 117,998 shares for note payable
exchange
    
    
    
    
    
    
    
    
    
    
    118
    
    
    
    1,874,871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,874,989Issue 841,363 warrants on the 10%
Series A secured redeemable
debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,677,622
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,677,622Issue 594,011 shares upon note
conversion
    
    
    
    
    
    
    
    
    
    
    594
    
    
    
    3,135,781
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,136,375Issue 425,250 shares on warrant and
option exercises
    
    
    
    
    
    
    
    
    
    
    425
    
    
    
    2,348,854
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,349,279Issue 10,575 preferred shares in
private
placement
    
    
    
    
    
    
    10,575,000
    
    
    
    
    
    
    
    10,518,799
    
    
    
    (13,923,850
    )
    
    
    
    
    
    
    
    
    
    
    7,169,949Issue 1,410,000 warrants on Series B
Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,380,051
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,380,051Issue 162,250 warrants for stock
option
exercise inducement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    207,596
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    207,596Employer match of 5,512 shares to
KSOP
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    104,226
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,232Loan of 15,200 shares to KSOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (225,913
    )
    
    
    (225,913
    )Purchase 89,400 shares for treasury
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,350,521
    )
    
    
    
    
    
    
    (1,350,521
    )Stock compensation
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    7,801,011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,801,038Issue 2,470,004 warrants for stock
dividend to common and preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,781,870
    
    
    
    (3,781,870
    )
    
    
    
    
    
    
    
    
    
    
    Cash dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (750,000
    )
    
    
    
    
    
    
    
    
    
    
    (750,000
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,993,383
    )
    
    
    
    
    
    
    
    
    
    
    (26,993,383
    )BALANCE,September 30, 2008
    
    $
    12,500,000
    
    
    $
    10,575,000
    
    
    $
    20,929
    
    
    $
    78,599,344
    
    
    
    ($63,340,476
    )
    
    
    ($1,350,521
    )
    
    
    ($225,913
    )
    
    $
    36,778,363
 See accompanying notes to consolidated financial statements
 -3-




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GREENHUNTER ENERGY, INC.
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Nine MonthsEnded September 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (26,993,383
    )
    
    $
    (8,414,865
    )Adjustments to reconcile net loss to net cash used in operating
activities:Depreciation expense
    
    
    1,216,773
    
    
    
    72,149Stock compensation
    
    
    7,318,474
    
    
    
    6,184,266Accretion of discount
    
    
    169,280
    
    
    
    60,918Amortization of deferred financing costs
    
    
    314,753
    
    
    
    Inventory valuation allowance
    
    
    532,784
    
    
    
    Minority interest
    
    
    (19,545
    )
    
    
    Non-cash hurricane losses
    
    
    3,192,276
    
    
    
    Gain on sale of assets
    
    
    (74,677
    )
    
    
    Changes in certain assets and liabilities, net of acquisitionAccounts receivable
    
    
    (476,065
    )
    
    
    47,532Inventory
    
    
    (17,260,000
    )
    
    
    57,598Prepaid and other expense
    
    
    (1,499,703
    )
    
    
    (63,176
    )Accounts payable
    
    
    4,380,083
    
    
    
    144,493Accrued liabilities
    
    
    4,435,688
    
    
    
    222,150Net cash used in operating activities
    
    
    (24,763,262
    )
    
    
    (1,688,935
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sale of assets
    
    
    87,517
    
    
    
    40,000Acquisition of Telogia BioPower, LLC
    
    
    (2,500,000
    )
    
    
    Excess of cash spent in GreenHunter BioFuels, Inc.
acquisition over cash on hand
    
    
    
    
    
    
    (6,648,071
    )Change in restricted cash
    
    
    (299,841
    )
    
    
    Acquisition of Mesquite Lake
    
    
    
    
    
    
    (1,426,566
    )Additions to property and equipment
    
    
    (48,537,506
    )
    
    
    (7,463,042
    )Increase in deposits and other non-current assets
    
    
    (6,078,496
    )
    
    
    (110
    )Net cash used in investing activities
    
    
    (57,328,326
    )
    
    
    (15,497,789
    )CASH FLOWS FROM FINANCING ACTIVITIES:Gross proceeds from stock and warrant issuance
    
    
    2,556,875
    
    
    
    20,000,000Net proceeds from Series B preferred stock issuance
    
    
    10,550,000
    
    
    
    Commissions and fees paid on stock issuance
    
    
    (3,045
    )
    
    
    (377,974
    )Payment of notes payable
    
    
    (7,911,627
    )
    
    
    (130,000
    )Borrowings under notes payable
    
    
    50,653,281
    
    
    
    Proceeds from redeemable debenture issuance
    
    
    13,705,858
    
    
    
    Purchase treasury shares
    
    
    (1,350,521
    )
    
    
    Loan to KSOP to purchase shares
    
    
    (225,913
    )
    
    
    Payment of buyout obligation
    
    
    
    
    
    
    (180,000
    )Payment of advance from previous affiliate
    
    
    
    
    
    
    (35,459
    )Payment of deferred financing costs
    
    
    (1,725,112
    )
    
    
    (297,652
    )Preferred dividends paid in cash
    
    
    (750,000
    )
    
    
    (457,671
    )Net cash provided by financing activities
    
    
    65,499,796
    
    
    
    18,521,244(DECREASE) INCREASE IN CASH
    
    
    (16,591,792
    )
    
    
    1,334,520CASH, beginning of period
    
    
    18,750,394
    
    
    
    64,786CASH,end of period
    
    $
    2,158,602
    
    
    $
    1,399,306Cash paid for interest
    
    $
    1,857,041
    
    
    $
    49,093NONCASH TRANSACTIONS:KSOP company match in stock
    
    $
    104,232
    
    
    $Property acquired for stock
    
    $
    
    
    
    $
    3,465,000Property acquired for notes payable, net of discount
    
    $
    
    
    
    $
    1,639,738Power purchase agreement acquired for stock
    
    $
    
    
    
    $
    2,310,000Non-cash common dividends
    
    $
    3,183,350
    
    
    $
    Non-cash preferred dividends
    
    $
    14,522,517
    
    
    $
    950,000
 See accompanying notes to consolidated financial statements
 -4-




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GREENHUNTER ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 Note 1. Organization and Nature of Operations
    Nature of Operations
    -5-




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GREENHUNTER ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- continued  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
    Note 2. Recently Issued Accounting Standards
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115
 Business Combinations
 -6-




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GREENHUNTER ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- continued  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
 Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133
 Note 3. Liquidity and Continued Operations
      Note 4. Acquisitions
 BioFuels
  -7-




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GREENHUNTER ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- continued  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 Business Combinations
  Total Purchase Price:Fair value of 450,000 shares of GreenHunter common stock
    
    $
    2,079,000Fair value of 117,998 shares of GreenHunter common stock
exchanged for notes payable originally issued at acquisition
    
    
    1,875,000Cash consideration
    
    
    6,772,342Total
    
    $
    10,726,342Net Purchase Price Allocation:Net purchase price
    
    $
    10,726,342Historical net assets acquired
    
    
    (419,146
    )Excess purchase price
    
    
    10,307,196Adjustment of land to fair market value
    
    
    (1,656,924
    )Adjustment of inventory to fair market value
    
    
    (136,361
    )Adjustment of equipment and infrastructure to fair market value
    
    
    (8,452,341
    )Amortization of discount on notes payable to interest expense
    
    
    (61,570
    )Excess purchase price
    
    $
    Historical net assets acquired were as follows:Current assets
    
    $
    162,746Property, plant and equipment, net
    
    
    981,915Current liabilities
    
    
    (576,765
    )Liabilities owed to GreenHunter
    
    
    (148,750
    )Historical net assets acquired
    
    $
    419,146
  BioPower
   -8-




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GREENHUNTER ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- continued  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
   Land
    
    $
    2,526,029Machinery and Equipment
    
    
    98,582Power Purchase Agreement
    
    
    1,652,704Permits and Fees
    
    
    643,685Total Purchase Price
    
    $
    4,921,000
 Business Combinations.
  Total Purchase Price:Cash consideration
    
    $
    1,900,000Debt assumed in transaction
    
    
    164,888Cancellation of seller promissory note
    
    
    600,000Total
    
    $
    2,664,888Net Purchase Price Allocation:Net purchase price
    
    $
    2,500,000Accounts receivable
    
    
    (8,353
    )Notes payable
    
    
    164,888Land, Property, and Equipment
    
    
    (2,656,535
    )Excess purchase price
    
    $
    
 Wind Energy
  -9-




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GREENHUNTER ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- continued  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
   Note 5. Inventories
  Finished goods
    
    $
    3,200,484Work in process
    
    
    749,868Raw materials
    
    
    11,204,378Valuation allowance
    
    
    (532,785
    )Total Inventories
    
    $
    14,621,945
  Note 6. Notes Payable
  Long-Term Debt:Note payable due November 31, 2017, 4.4%
    
    $
    3,157,507Note payable due March 15, 2009, 3.84%
    
    
    910,564Non-recourse construction loan facility, 6.46%
    
    
    33,500,000Working capital line of credit, 6.46%
    
    
    10,000,00010% Series A Senior Secured Redeemable Debentures
    
    
    19,514,889Capital leases
    
    
    195,14167,278,101Less current portion
    
    
    (4,417,202
    )Total Long-Term Debt
    
    $
    62,860,899
 Notes Payable
  -10-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- continued  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
    2008
    
    $
    42,4072009
    
    
    78,4152010
    
    
    74,319$
    195,141
 Notes Payable  Nonrecourse
  Subordinated Convertible Note Payable to Related Party
  -11-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- continued  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
  10% Series A Senior Secured Redeemable Debentures
   9% Series B Senior Secured Redeemable Debentures
  Note 7. Income or Loss Per Common Share
   -12-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- continued  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 Note 8. Stockholders Equity
  Preferred
    
    Common
    
    TreasuryStock
    
    Stock
    
    Stock
    
    KSOP
    
    WarrantsDecember 31, 2007
    
    
    12,500
    
    
    
    19,759,173
    
    
    
    
    
    
    
    
    
    
    
    2,807,834Issue 712,009 shares for notes payable
exchanges
    
    
    
    
    
    
    712,009
    
    
    
    
    
    
    
    
    
    
    
    Employer match of 5,512 shares to
KSOP
    
    
    
    
    
    
    5,512
    
    
    
    
    
    
    
    
    
    
    
    Issue 841,363 warrants on the 10%
Series A Secured Redeemable
Debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    841,363Issue 425,250 shares pursuant to
warrant and option exercises
    
    
    
    
    
    
    425,250
    
    
    
    
    
    
    
    
    
    
    
    (425,250
    )Issue 27,186 shares as stock
compensation
    
    
    
    
    
    
    27,186
    
    
    
    
    
    
    
    
    
    
    
    Loan 15,200 shares to KSOP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,200Issue 2,470,004 warrants for Preferred
and Common dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,470,004Issue 162,250 warrants for exercise
inducements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162,250Issue 1,410,000 warrants on Series B
Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,410,000Cancellation of 1,410,000 warrants
Surrendered on Series B Preferred
Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,410,000
    )Issue 10,575 shares Series B Preferred
Stock
    
    
    10,575
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase 89,400 Treasury Shares
    
    
    
    
    
    
    
    
    
    
    89,400
    
    
    
    
    
    
    
    September 30, 2008
    
    
    23,075
    
    
    
    20,929,130
    
    
    
    89,400
    
    
    
    15,200
    
    
    
    5,856,201
 Preferred Stock
   -13-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- continued  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 Common Stock
      Warrants
   Treasury Stock
  KSOP
  -14-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- continued  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
  Note 9. Stock-Based Compensation
 Share-based Payment,
   Number of options issued
    
    
    3,243,500Weighted average stock price
    
    $
    19.17Weighted average exercise price
    
    $
    18.61Weighted average expected life (a)
    
    5.53 yearsWeighted average expected volatility (b)
    
    
    29.7
    %Weighted average risk free interest rate
    
    
    2.9
    %Weighted average dividend yield
    
    
    Weighted average fair value of each stock option
    
    $
    6.68
 
 (a)
    
    As determined by the simplified method under Staff Accounting Bulletin 107.
The options have a life of ten years.(b)
    
    The expected volatility of our common stock was estimated using an average of
volatilities of publicly traded companies in similar energy businesses. -15-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- continued  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
  Number
    
    
    Weighted
    
    
    Aggregateof
    
    
    average
    
    
    Intrinsic Value*Shares
    
    
    Exercise Price
    
    
    ($000s)Outstanding  Beginning of
Year
    
    
    4,031,500
    
    
    $
    5.60
    
    
    
    Granted
    
    
    3,243,500
    
    
    $
    18.61
    
    
    
    Exercised
    
    
    250,000
    
    
    
    5.00
    
    
    
    Cancelled
    
    
    580,000
    
    
    
    18.75
    
    
    
    Outstanding  End of Period
    
    
    6,445,000
    
    
    $
    10.99
    
    
    $
    20,009,980Exercisable   End of Period
    
    
    3,780,999
    
    
    $
    6.85
    
    
    $
    27,990,436
 
 *
    
    The Aggregate Intrinsic Value was calculated using the September 30, 2008 stock
price of $14.25.  Number of
    
    Weighted Average
    
    Number ofptions
    
    Remaining Contractual
    
    ExercisableExercise Price
    
    Outstanding
    
    Life (Years)
    
    Options$
    5.00
    
    
    
    3,250,000
    
    
    
    8.62
    
    
    
    3,250,000$
    7.50
    
    
    
    100,000
    
    
    
    9.01
    
    
    $
    10.00
    
    
    
    615,000
    
    
    
    9.17
    
    
    
    39,999$
    12.00
    
    
    
    16,500
    
    
    
    9.24
    
    
    $
    13.66
    
    
    
    15,000
    
    
    
    9.75
    
    
    $
    16.70
    
    
    
    1,500
    
    
    
    9.35
    
    
    $
    17.76
    
    
    
    100,000
    
    
    
    9.36
    
    
    
    40,000$
    18.00
    
    
    
    50,000
    
    
    
    9.45
    
    
    $
    18.75
    
    
    
    15,000
    
    
    
    9.72
    
    
    $
    18.91
    
    
    
    1,762,000
    
    
    
    9.37
    
    
    
    451,000$
    19.75
    
    
    
    40,000
    
    
    
    9.55
    
    
    $
    20.02
    
    
    
    25,000
    
    
    
    9.71
    
    
    $
    20.64
    
    
    
    275,000
    
    
    
    9.68
    
    
    $
    21.88
    
    
    
    15,000
    
    
    
    9.67
    
    
    $
    22.00
    
    
    
    100,000
    
    
    
    9.67
    
    
    $
    22.75
    
    
    
    65,000
    
    
    
    9.61
    
    
    
 Note 10. Related Party Transactions
    -16-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- continued  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
  Note 11. Segment Data
      -17-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- continued  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
  For the Three Months Ended September 30, 2008UnallocatedCorporate
    
    
    BioPower
    
    
    Wind Energy
    
    
    BioFuels
    
    
    TOTALTotal Revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    331,487
    
    
    $
    331,487Total Operating Costs
    
    
    
    
    
    
    3,296
    
    
    
    161,601
    
    
    
    6,936,363
    
    
    
    7,101,260Depreciation expense
    
    
    65,199
    
    
    
    
    
    
    
    18,039
    
    
    
    946,389
    
    
    
    1,029,627General and administrative
    
    
    1,223,022
    
    
    
    135,750
    
    
    
    330,112
    
    
    
    1,174,950
    
    
    
    2,863,834Operating income (loss)
    
    
    (1,288,221
    )
    
    
    (139,046
    )
    
    
    (509,752
    )
    
    
    (8,726,215
    )
    
    
    (10,663,234
    )Other income and expense
    
    
    (645,275
    )
    
    
    2,204
    
    
    
    42,435
    
    
    
    (627,211
    )
    
    
    (1,227,847
    )Net Income (Loss)
    
    $
    (1,933,496
    )
    
    $
    (136,842
    )
    
    $
    (467,317
    )
    
    $
    (9,353,426
    )
    
    $
    (11,891,081
    )Total Assets
    
    $
    15,506,595
    
    
    $
    19,725,446
    
    
    $
    1,330,662
    
    
    $
    79,916,764
    
    
    $
    116,479,467Capital Expenditures
    
    $
    69,149
    
    
    $
    11,822,470
    
    
    $
    123,411
    
    
    $
    4,074,530
    
    
    $
    16,089,560
 For the Three Months Ended September 30, 2007UnallocatedCorporate
    
    
    BioPower
    
    
    Wind Energy
    
    
    BioFuels
    
    
    TOTALTotal Revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    157,773
    
    
    $
    157,773Total Operating Costs
    
    
    
    
    
    
    
    
    
    
    49,432
    
    
    
    210,374
    
    
    
    259,806Depreciation expense
    
    
    720
    
    
    
    
    
    
    
    8,032
    
    
    
    14,724
    
    
    
    23,476General and administrative
    
    
    663,754
    
    
    
    
    
    
    
    54,945
    
    
    
    75,562
    
    
    
    794,261Operating income (loss)
    
    
    (664,474
    )
    
    
    
    
    
    
    (112,409
    )
    
    
    (142,887
    )
    
    
    (919,770
    )Other income and expense
    
    
    (47,106
    )
    
    
    
    
    
    
    
    
    
    
    (1,947
    )
    
    
    (49,053
    )Net Income (Loss)
    
    $
    (711,580
    )
    
    $
    
    
    
    $
    (112,409
    )
    
    $
    (144,834
    )
    
    $
    (968,823
    )Total Assets
    
    $
    2,379,319
    
    
    $
    5,289,233
    
    
    $
    552,679
    
    
    $
    17,484,437
    
    
    $
    25,705,668Capital Expenditures
    
    $
    665,978
    
    
    $
    
    
    
    $
    
    
    
    $
    3,840,791
    
    
    $
    4,506,769
 For the Nine Months Ended September 30, 2008UnallocatedCorporate
    
    
    BioPower
    
    
    Wind Energy
    
    
    BioFuels
    
    
    TOTALTotal Revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    977,372
    
    
    $
    977,372Total Operating Costs
    
    
    
    
    
    
    3,296
    
    
    
    355,835
    
    
    
    8,126,162
    
    
    
    8,485,293Depreciation expense
    
    
    146,160
    
    
    
    
    
    
    
    38,545
    
    
    
    1,032,068
    
    
    
    1,216,773Selling, general and
administrative
    
    
    12,181,685
    
    
    
    443,300
    
    
    
    884,737
    
    
    
    3,020,293
    
    
    
    16,530,015Operating income (loss)
    
    
    (12,327,845
    )
    
    
    (446,596
    )
    
    
    (1,279,117
    )
    
    
    (11,201,151
    )
    
    
    (25,254,709
    )Other income and expense
    
    
    (1,295,944
    )
    
    
    2,204
    
    
    
    39,595
    
    
    
    (484,529
    )
    
    
    (1,738,674
    )Net Income (Loss)
    
    $
    (13,623,789
    )
    
    $
    (444,392
    )
    
    $
    (1,239,522
    )
    
    $
    (11,685,680
    )
    
    $
    (26,993,383
    )Total Assets
    
    $
    15,506,595
    
    
    $
    19,725,446
    
    
    $
    1,330,662
    
    
    $
    79,916,764
    
    
    $
    116,479,467Capital Expenditures
    
    $
    532,862
    
    
    $
    13,036,918
    
    
    $
    284,175
    
    
    $
    37,183,551
    
    
    $
    51,037,506
 -18-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- continued  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 For the Nine Months Ended September 30, 2007UnallocatedCorporate
    
    
    BioPower
    
    
    Wind Energy
    
    
    BioFuels
    
    
    TOTALTotal Revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    712,027
    
    
    $
    712,027Total Operating Costs
    
    
    
    
    
    
    
    
    
    
    241,678
    
    
    
    557,310
    
    
    
    798,988Depreciation expense
    
    
    1,320
    
    
    
    
    
    
    
    24,096
    
    
    
    46,733
    
    
    
    72,149General and administrative
    
    
    7,572,525
    
    
    
    
    
    
    
    261,580
    
    
    
    301,197
    
    
    
    8,135,302Operating income (loss)
    
    
    (7,573,845
    )
    
    
    
    
    
    
    (527,354
    )
    
    
    (193,213
    )
    
    
    (8,294,412
    )Other income and expense
    
    
    (120,015
    )
    
    
    
    
    
    
    
    
    
    
    (439
    )
    
    
    (120,454
    )Net Income (Loss)
    
    $
    (7,693,860
    )
    
    $
    
    
    
    $
    (527,354
    )
    
    $
    (193,652
    )
    
    $
    (8,414,866
    )Total Assets
    
    $
    2,379,319
    
    
    $
    5,289,233
    
    
    $
    552,679
    
    
    $
    17,484,437
    
    
    $
    25,705,668Capital Expenditures
    
    $
    674,611
    
    
    $
    1,426,566
    
    
    $
    
    
    
    $
    13,436,502
    
    
    $
    15,537,679
 Note 12. Commitments and Contingencies
 et al,
    Note 13. Subsequent Events
 Wheatland Wind Acquisition
  -19-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- continued  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
  Port Sutton Acquisition
  L&L Holdings Acquisition
  Adverse Changes in Financial Condition Subsequent to September 30, 2008
    -20-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis should be read in conjunction with our consolidated
financial statements and the notes associated with them contained in our Form 10-K for the year
ended December 31, 2007 and with the financial statements and accompanying notes included herein.
The discussion should not be construed to imply that the results contained herein will necessarily
continue into the future or that any conclusion reached herein will necessarily be indicative of
actual operating results in the future. Such discussion represents only the best present assessment
by our management. The discussion contains forward-looking statements that involve risks and
uncertainties (see Forward-Looking Statements above). Actual events or results may differ
materially from those indicated in such forward-looking statements.
 Overview
   Current and Prospective Capital Needs
     -21-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
   BioFuels
     Estimated Claim
    
    Retainage
    
    Estimated RecoveryEnvironmental Cleanup
    
    
    334,000
    
    
    
    25,000
    
    
    
    309,000Inventory Loss
    
    
    2,400,000
    
    
    
    25,000
    
    
    
    2,375,000Property Loss
    
    
    4,315,000
    
    
    
    5,000,000
    
    
    
    
 -22-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
   BioPower
   Wind Energy
    -23-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
    Results of Operations
 Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007:
 Biofuels Revenues and Operating Costs
    -24-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 Wind Energy Operating Costs
  Depreciation Expense
  Selling, General and Administrative Expense
       Operating Loss
  -25-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
     Other Income and Expense
  Net Loss
  Preferred Dividends
  Deemed Preferred Dividends
   Net Loss to Common Stockholders
  Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007:
 -26-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
  Biofuels Revenues and Operating Costs
    Wind Energy Operating Costs
  Depreciation Expense
  Selling, General and Administrative Expense
   -27-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
      Operating Loss
      Other Income and Expense
  -28-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
  Net Loss
  Preferred Dividends
  Deemed Preferred Dividends
   Net Loss to Common Shareholders
  Liquidity and Capital Resources
 Current and Prospective Capital Needs
 Cash Flow and Working Capital
  Operating Activities
  Investing Activities
 -29-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
  Financing Activities
 Convertible Debt
  10% Series A Senior Secured Redeemable Debentures
  Nonrecourse Term Loan and Working Capital Loan
   Series B Preferred Stock
  Warrant and Option exercises
  Treasury Shares
  -30-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 9% Series B Senior Secured Redeemable Debentures
  Other Debt and Equity Transactions Not Affecting Cash
 Common Stock Issued for Notes Payable
  Common Stock Issued for Convertible Notes Payable
  Other Common Stock Transactions
  Employee Stock Options
  Debenture Warrants Issued to Debenture Holders
  Dividend
  -31-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 Inducement warrants
  Capital Requirements
 Capital Expenditures Forecast
  BioFuels
   BioPower
   Wind Energy and MingYang Investment
  -32-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
  Risks and Uncertainties that May Affect our Financial Condition
         -33-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
     Critical Accounting Policies and Other
    -34-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 Recent Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
 Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133
 Off-Balance Sheet Arrangements
  -35-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risks
  Commodity Price Risk
  Foreign Currency Exchange Risk
   Interest Rate Risk
  
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  -36-




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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Orion Ethanol, Inc, a Nevada corporation, Plaintiff, vs GreenHunter Energy, Inc. a Delaware
corporation, GreenHunter BioFuels, Inc. a Texas corporation, Gary C. Evans, et al, Defendants,
  Bioversel, Inc. f/k/a Bioversel Trading, Inc., Plaintiff, vs. GreenHunter BioFuels, Inc.,
Defendant, in the District Court of Harris County, Texas, 55 th Judicial District.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    -37-




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GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
       (c)Total Number ofShares Purchased
    
    (d)as Part of a
    
    Maximum NumberPublicly
    
    of Shares that May(a)
    
    (b)
    
    Announced
    
    Yet be RepurchasedTotal Number of
    
    Average Price Paid
    
    Repurchase
    
    Under the Plan orPeriod
    
    Shares Purchased
    
    per Share
    
    Program
    
    ProgramJuly 1 through July 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000August 1 through August 31, 2008
    
    
    77,100
    
    
    $
    15.19
    
    
    
    77,100
    
    
    
    422,900September 1 through September 30, 2008
    
    
    12,300
    
    
    $
    14.55
    
    
    
    12,300
    
    
    
    410,600
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##### Table of Contents



GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
 
 Item 6. Exhibits and Reports on Form 8-K
 ExhibitNumber
    
    Exhibit Title3.1*
    
    Certificate of Incorporation3.2*
    
    Amendment to the Certificate of Incorporation3.3*
    
    Bylaws4.1****
    
    Amended and Restated Certificate of Designations of 2007 Series A 8% Convertible Preferred Stock4.2****
    
    Form of Warrant Agreement by and between GreenHunter Energy, Inc. and West Coast Opportunity
Fund, LLC4.3*
    
    Form of Warrant Agreement by and between GreenHunter Energy, Inc. and certain accredited investors4.4****
    
    Certificate of Designations of 2008 Series B Convertible Preferred Stock10.1*
    
    Stock Purchase Agreement dated February 2007 among Channel Refining Corporation, GreenHunter
Energy, Inc. and certain selling shareholders10.2*
    
    Amendment No. 1 to Stock Purchase Agreement dated February 2007 among Channel Refining
Corporation, GreenHunter Energy, Inc. and certain selling shareholders10.3*
    
    Purchase and Sale Agreement, dated May 14, 2007 between GreenHunter Energy, Inc. and Chateau
Energy, Inc. regarding acquisition of power purchase agreement10.4*
    
    Purchase and Sale Agreement, dated May 14, 2007 between GreenHunter Energy, Inc. and Chateau
Energy, Inc. regarding acquisition of Mesquite Lake Resource Recovery Facility10.5*
    
    Consulting Agreement dated May 14, 2007 between GreenHunter Energy, Inc. and Chateau Energy, Inc.10.6*
    
    Registration rights agreement, dated March 9, 2007 between GreenHunter Energy, Inc. and certain
institutional investors10.7*
    
    Registration rights agreement, dated April 13, 2007 between GreenHunter Energy, Inc. and certain
selling shareholders10.8*
    
    Investor rights agreement, dated May 14, 2007 between GreenHunter Energy, Inc. and Chateau
Energy, Inc.10.9*
    
    Form of subordinated promissory note of GreenHunter BioFuels, Inc.10.10*
    
    Form of Power Purchase Agreement with Southern California Edison, dated December 21, 2006.10.11***
    
    Second Amended and Restated Credit Agreement dated as of March 7, 2008 among GreenHunter BioFuels
Inc., WestLB AG New York Branch as the administrative agent, WestLB New York Branch as the LC
Issuing Bank and the Lenders Party to the Amended and Restated Credit Agreement from time to time10.12**
    
    Subscription and Equity Transfer Agreement between GreenHunter Energy, Inc. and MingYang Wind
Power Technology Co. LTD. et al., dated November 28, 200710.13**
    
    Master Turbine Supply Agreement between GreenHunter Energy, Inc. and MingYang Wind Power
Technology Co. LTD. et al., dated November 28, 200710.14
    
    Securities Purchase Agreement between Aspire Oil Services Limited and GreenHunter Energy, Inc.,
dated as of October 28, 2008.*
    
    Incorporated by reference to the Companys Form 10, dated October 19, 2007**
    
    Incorporated by reference to the Companys Form 10-K, dated March 31, 2008***
    
    Incorporated by reference to the Companys Form 10-Q, dated May 15, 2008****
    
    Incorporated by reference to the Companys Form 8-K, dated August 21, 2008
    
    Filed herewith
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SIGNATURES
  GreenHunter Energy, Inc.Date: November 14, 2008
    By:
    /s/ Gary C. EvansGary C. EvansChairman, President and Chief Executive OfficerDate: November 14, 2008
    By:
    /s/ David S. KruegerDavid S. KruegerVice President, and Chief Financial Officer -40-