Attached files
file | filename |
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EX-3.4 - EX-3.4 - GreenHunter Resources, Inc. | d70138exv3w4.htm |
EX-32.1 - EX-32.1 - GreenHunter Resources, Inc. | d70138exv32w1.htm |
EX-31.2 - EX-31.2 - GreenHunter Resources, Inc. | d70138exv31w2.htm |
EX-32.2 - EX-32.2 - GreenHunter Resources, Inc. | d70138exv32w2.htm |
EX-31.1 - EX-31.1 - GreenHunter Resources, Inc. | d70138exv31w1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
þ | Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended September 30, 2009
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.
(Exact name of registrant as specified in its charter)
Delaware | 20-4864036 | |
(State or other jurisdiction of incorporation or organization) |
(IRS employer identification No.) |
1048 Texan Trail, Grapevine, Texas 76051
(Address of principal executive offices)(Zip Code)
(Address of principal executive offices)(Zip Code)
(972) 410-1044
(Registrants telephone number including area code)
(Registrants telephone number including area code)
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.
þ Yes o 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 during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
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 the definitions of large accelerated filer and
smaller reporting
company in Rule 12b-2 of the exchange act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
State the number of shares outstanding of each of the issuers classes of common equity, as of
November 16, 2009:
22,138,876 shares of Common Stock, par value $0.001 per share.
PART 1 FINANCIAL STATEMENTS
Item 1. Financial Statements
GREENHUNTER ENERGY, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2009 | December 31, 2008 | |||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 764,525 | $ | 676,636 | ||||
Restricted cash |
4,575,045 | 342,653 | ||||||
Accounts receivable, net of allowance of $202,585 and $542,965, respectively |
405,532 | 4,475,670 | ||||||
Inventory |
590,327 | 6,137,780 | ||||||
Prepaid expenses and other current assets |
1,032,778 | 943,135 | ||||||
Assets held for sale current |
| 53,555 | ||||||
Total current assets |
7,368,207 | 12,629,429 | ||||||
FIXED ASSETS: |
||||||||
Land and improvements |
4,732,095 | 5,394,866 | ||||||
Buildings |
3,100,621 | 3,100,621 | ||||||
Plant and other equipment |
47,703,129 | 45,521,460 | ||||||
Accumulated depreciation |
(6,045,617 | ) | (2,855,250 | ) | ||||
Construction in progress |
10,698,817 | 11,934,854 | ||||||
Net fixed assets |
60,189,045 | 63,096,551 | ||||||
OTHER ASSETS: |
||||||||
Assets held for sale |
| 4,887,945 | ||||||
Deferred financing costs |
2,906,278 | 3,720,893 | ||||||
Other noncurrent assets |
8,271,261 | 9,404,152 | ||||||
Total assets |
$ | 78,734,791 | $ | 93,738,970 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Current portion of notes payable |
$ | 281,501 | $ | 507,102 | ||||
Current portion of notes payable, nonrecourse |
37,931,084 | 6,761,417 | ||||||
Accounts payable |
11,998,313 | 16,020,538 | ||||||
Dividends payable |
| 250,000 | ||||||
Accrued liabilities |
7,380,217 | 5,254,965 | ||||||
Liabilities associated with assets held for sale |
| 2,224,447 | ||||||
Total current liabilities |
57,591,115 | 31,018,469 | ||||||
NON-CURRENT LIABILITIES: |
||||||||
Notes payable |
3,006,078 | 3,062,642 | ||||||
Notes payable, nonrecourse, less current portion |
| 36,738,583 | ||||||
Redeemable debentures, net of discount of $1,247,274 and $1,485,006,
respectively |
25,188,765 | 23,139,057 | ||||||
Liabilities associated with assets held for sale, non-current |
| 74,319 | ||||||
Total long-term liabilities |
28,194,843 | 63,014,601 | ||||||
COMMITMENTS AND CONTINGENCIES (Notes 6, 12, & 13) |
||||||||
STOCKHOLDERS DEFICIT: |
||||||||
Series A 8% convertible preferred stock, $.001 par value, $1,125 and $1,000
stated value, respectively, 6,750 and 12,500 issued and outstanding,
respectively |
7,592,389 | 12,500,000 | ||||||
Series B convertible preferred stock, $.001 par value, $1,000 stated value,
10,575 issued and outstanding |
10,575,000 | 10,575,000 | ||||||
Common stock, $.001par value, 90,000,000 authorized shares, 22,138,876 and
20,988,876 issued, respectively |
22,139 | 20,989 | ||||||
Additional paid-in capital |
86,755,648 | 81,100,216 | ||||||
Accumulated deficit |
(111,299,234 | ) | (103,478,564 | ) | ||||
Treasury stock, at cost, 22,412 and 44,436 shares, respectively |
(336,285 | ) | (678,538 | ) | ||||
Noncontrolling interest in consolidated subsidiaries |
(134,911 | ) | (107,290 | ) | ||||
Unearned common stock in KSOP, at cost, 15,200 shares |
(225,913 | ) | (225,913 | ) | ||||
Total stockholders deficit |
(7,051,167 | ) | (294,100 | ) | ||||
Total liabilities and stockholders deficit |
$ | 78,734,791 | $ | 93,738,970 | ||||
See
accompanying notes to consolidated financial statements
-1-
GREENHUNTER ENERGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
REVENUE: |
||||||||||||||||
Product sales |
$ | 238,640 | $ | 312,747 | $ | 4,617,215 | $ | 628,899 | ||||||||
Terminal revenues |
165,046 | 18,740 | 527,867 | 348,473 | ||||||||||||
Processing revenue |
| | 165,697 | | ||||||||||||
Total revenue |
403,686 | 331,487 | 5,310,779 | 977,372 | ||||||||||||
COSTS AND EXPENSES: |
||||||||||||||||
Cost of sales and services |
520,017 | 2,893,682 | 8,003,810 | 4,083,481 | ||||||||||||
Hurricane repairs and losses (insurance proceeds) |
(246,212 | ) | 4,042,681 | (11,081,769 | ) | 4,042,681 | ||||||||||
Project costs |
24,457 | 54,598 | 168,290 | 248,832 | ||||||||||||
Depreciation expense |
1,069,676 | 1,029,627 | 3,209,969 | 1,216,773 | ||||||||||||
Selling, general and administrative |
2,418,018 | 2,827,863 | 8,000,894 | 16,494,045 | ||||||||||||
Loss on asset impairments |
| | 1,651,161 | | ||||||||||||
Total costs and expenses |
3,785,956 | 10,848,451 | 9,952,355 | 26,085,812 | ||||||||||||
OPERATING LOSS FROM CONTINUING OPERATIONS |
(3,382,270 | ) | (10,516,964 | ) | (4,641,576 | ) | (25,108,440 | ) | ||||||||
OTHER INCOME (EXPENSE): |
||||||||||||||||
Interest and other income |
877,626 | 119,858 | 987,515 | 588,605 | ||||||||||||
Interest, accretion and other expense |
(1,518,340 | ) | (1,367,250 | ) | (4,527,719 | ) | (2,346,824 | ) | ||||||||
Total other income (expense) |
(640,714 | ) | (1,247,392 | ) | (3,540,204 | ) | (1,758,219 | ) | ||||||||
Loss from continuing operations before
noncontrolling interest |
(4,022,984 | ) | (11,764,356 | ) | (8,181,780 | ) | (26,866,659 | ) | ||||||||
Noncontrolling Interest |
12,234 | | 59,256 | | ||||||||||||
Loss from continuing operations |
(4,010,750 | ) | (11,764,356 | ) | (8,122,524 | ) | (26,866,659 | ) | ||||||||
Gain (loss) on sale of discontinued operations |
(88,363 | ) | | 460,666 | | |||||||||||
Gain (loss) from discontinued operations, net of
taxes |
722,895 | (126,724 | ) | 460,910 | (126,724 | ) | ||||||||||
Net Loss |
(3,376,218 | ) | (11,891,080 | ) | (7,200,948 | ) | (26,993,383 | ) | ||||||||
Preferred stock dividends |
(146,750 | ) | (250,000 | ) | (619,722 | ) | (750,000 | ) | ||||||||
Deemed preferred stock dividends |
| (14,522,517 | ) | | (14,522,517 | ) | ||||||||||
Net loss to common stockholders |
$ | (3,522,968 | ) | $ | (26,663,597 | ) | $ | (7,820,670 | ) | $ | (42,265,900 | ) | ||||
Weighted average shares outstanding, basic and diluted |
22,097,434 | 20,202,531 | 21,447,349 | 19,985,349 | ||||||||||||
Net loss per share from continuing operations |
$ | (0.19 | ) | $ | (1.31 | ) | $ | (0.41 | ) | $ | (2.10 | ) | ||||
Net earnings (loss) per share from discontinued
operations |
$ | 0.03 | $ | (0.01 | ) | $ | 0.04 | $ | (0.01 | ) | ||||||
Net loss per share |
$ | (0.16 | ) | $ | (1.32 | ) | $ | (0.36 | ) | $ | (2.11 | ) | ||||
See
accompanying notes to consolidated financial statements
-2-
GREENHUNTER ENERGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE PERIOD FROM JANUARY 1, 2009 TO SEPTEMBER 30, 2009
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE PERIOD FROM JANUARY 1, 2009 TO SEPTEMBER 30, 2009
Additional | Unearned | Total | ||||||||||||||||||||||||||||||||||
Series A | Series B | Common | Paid in | Noncontrolling | Accumulated | Treasury | Shares in | Equity | ||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Stock | Capital | Interest | Deficit | Stock | KSOP | (Deficit) | ||||||||||||||||||||||||||||
BALANCE, January 1, 2009 |
$ | 12,500,000 | $ | 10,575,000 | $ | 20,989 | $ | 81,100,216 | $ | (107,290 | ) | $ | (103,478,564 | ) | $ | (678,538 | ) | $ | (225,913 | ) | $ | (294,100 | ) | |||||||||||||
Transfer accumulated preferred
dividends to stated value |
856,389 | | | | | | | | 856,389 | |||||||||||||||||||||||||||
Issue 42,797 warrants on Series B
Debentures |
| | | 942 | | | | | 942 | |||||||||||||||||||||||||||
Stock compensation |
| | | 184,000 | | | | | 184,000 | |||||||||||||||||||||||||||
Conversion of 5,750 preferred shares
into 1,150,000 common shares |
(5,764,000 | ) | | 1,150 | 5,776,183 | | | | | 13,333 | ||||||||||||||||||||||||||
Issue 22,024 treasury shares for
services provided |
(305,693 | ) | 342,253 | 36,560 | ||||||||||||||||||||||||||||||||
Dividends on preferred stock |
| | | | | (619,722 | ) | | | (619,722 | ) | |||||||||||||||||||||||||
Abandonment of Haining City interests |
31,635 | 31,635 | ||||||||||||||||||||||||||||||||||
Net loss |
| | | | (59,256 | ) | (7,200,948 | ) | | | (7,260,204 | ) | ||||||||||||||||||||||||
BALANCE, September 30, 2009 |
$ | 7,592,389 | $ | 10,575,000 | $ | 22,139 | $ | 86,755,648 | $ | (134,911 | ) | $ | (111,299,234 | ) | $ | (336,285 | ) | $ | (225,913 | ) | $ | (7,051,167 | ) | |||||||||||||
See accompanying notes to consolidated financial statements
-3-
GREENHUNTER ENERGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, | ||||||||
2009 | 2008 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net loss |
$ | (7,200,948 | ) | $ | (26,993,383 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation expense |
3,209,969 | 1,216,773 | ||||||
Noncash stock compensation |
184,000 | 7,318,474 | ||||||
Amortization of deferred financing costs |
990,066 | 314,753 | ||||||
Inventory valuation allowance |
| 532,784 | ||||||
Non-cash asset impairment |
1,651,161 | | ||||||
Hurricane property losses |
| 3,192,276 | ||||||
Noncontrolling interest |
(59,256 | ) | (19,545 | ) | ||||
Gain on sale of assets |
(450,924 | ) | (74,677 | ) | ||||
Accretion of discount |
338,758 | 169,280 | ||||||
Changes in certain assets and liabilities: |
||||||||
Accounts receivable |
4,435,688 | (476,065 | ) | |||||
Inventory |
5,547,453 | (17,260,000 | ) | |||||
Prepaid and other expense |
(92,560 | ) | (1,499,703 | ) | ||||
Accounts payable |
(5,360,525 | ) | 4,380,083 | |||||
Accrued liabilities |
2,174,142 | 4,435,688 | ||||||
Net cash provided by (used in) operating activities |
5,367,024 | (24,763,262 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Change in restricted cash |
(4,232,392 | ) | (299,841 | ) | ||||
Acquisition of Telogia |
| (2,500,000 | ) | |||||
Proceeds from sale of assets |
4,356,468 | 87,517 | ||||||
Additions to fixed assets |
(734,804 | ) | (48,537,506 | ) | ||||
Increase in other assets |
(348,270 | ) | (6,078,496 | ) | ||||
Net cash used in investing activities |
(958,998 | ) | (57,328,326 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Gross proceeds from stock and warrant issuance |
| 2,556,875 | ||||||
Net proceeds from Series B preferred stock issuance |
| 10,550,000 | ||||||
Loan common stock to KSOP |
| (225,913 | ) | |||||
Commissions and fees paid on stock issuance |
| (3,045 | ) | |||||
Gross proceeds from redeemable debenture issuance |
1,711,892 | 13,705,858 | ||||||
Purchase treasury shares |
| (1,350,521 | ) | |||||
Increase in notes payable |
298,323 | 50,653,281 | ||||||
Payment of notes payable |
(6,154,901 | ) | (7,911,627 | ) | ||||
Payment of deferred financing costs |
(175,451 | ) | (1,725,112 | ) | ||||
Preferred dividends paid in cash |
| (750,000 | ) | |||||
Net cash provided by (used in) financing activities |
(4,320,137 | ) | 65,499,796 | |||||
CHANGE IN CASH |
87,889 | (16,591,792 | ) | |||||
CASH, beginning of period |
676,636 | 18,750,394 | ||||||
CASH, end of period |
$ | 764,525 | $ | 2,158,602 | ||||
Cash paid for interest |
$ | 2,330,971 | $ | 1,857,041 | ||||
NONCASH TRANSACTIONS: |
||||||||
Issue treasury shares for payment of services |
$ | 36,560 | $ | | ||||
KSOP company match in stock |
$ | | $ | 104,232 | ||||
Noncash common dividends |
$ | | $ | 3,183,350 | ||||
Noncash preferred dividends |
$ | | $ | 14,522,517 | ||||
See accompanying notes to consolidated financial statements
-4-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
Note 1. Organization and Nature of Operations
In this quarterly report on Form 10-Q, the words GreenHunter Energy, company, we, our,
and us refer to GreenHunter Energy, Inc. and its consolidated subsidiaries unless otherwise
stated or the context otherwise requires. The condensed consolidated balance sheet of GreenHunter
Energy, Inc. and subsidiaries as of September 30, 2009, the condensed consolidated statements of
operations for the three and nine months ended September 30, 2009 and 2008, the condensed
consolidated statement of stockholders equity for the nine months ended September 30, 2009, and
the condensed consolidated statements of cash flows for the nine months ended September 30, 2009
and 2008, are unaudited. The December 31, 2008 condensed consolidated balance sheet information is
derived from audited financial statements. In the opinion of management, all necessary adjustments
(which include only normal recurring adjustments) have been made to present fairly the financial
position at September 30, 2009, and the results of operations for the three and nine month periods
ended September 30, 2009 and 2008, changes in stockholders equity for the nine months ended
September 30, 2009, and cash flows for the nine month periods ended September 30, 2009 and 2008.
Certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and notes thereto included in our
December 31, 2008 Form 10-K. The results of operations for the three and nine month periods ended
September 30, 2009 are not necessarily indicative of the operating results that will occur for the
full year.
The accompanying condensed consolidated financial statements include the accounts of the
company and our subsidiaries. All significant intercompany transactions and balances have been
eliminated in consolidation. Certain items have been reclassified to conform with the current
presentation.
Current Plan of Operations and Ability to Operate as a Going Concern
As of September 30, 2009, we had a working capital deficit of $50.2 million which includes a
$37.9 million non-recourse note payable due by a wholly-owned subsidiary. This note payable is
non-recourse to GreenHunter Energy and is included in current liabilities due to the fact that an
amendment to the credit agreement with the lender granted us until November 15, 2009 to close on a
sale or other transaction to repay the note. If we do not close on a sale or other transaction to
repay the note by that date, the bank has the right to seize BioFuels cash on hand at that date
and foreclose on the BioFuels refinery in Houston. We are negotiating with the bank about
extending the current deadline to allow more time as we are in discussions with potential buyers.
We have continued to experience substantial losses from operations. In October 2009, we sold our equity ownership
interests in Guangdong Ming Yang Wing Power Technology Co., Ltd for $9.1 million resulting in cash
proceeds of $8.5 million, net of selling costs. The cash received improved our working capital
position and has provided cash required to fund operations for the next twelve months. However
there are certain current trade payables and accrued liabilities which this cash may not be
sufficient to pay and may require us to obtain additional capital or sell additional assets to pay.
See note 13 Subsequent Events for additional information.
Our financial position has been adversely affected by our lack of working capital and the
overall deterioration across all capital markets, particularly those for renewable energy
companies. A substantial drop in market prices of both biodiesel and our feedstock inventories
previously adversely impacted our inventory values and resulting working capital positions. We
also were unable to make the interest payments due on our Series A Redeemable Debentures for the
periods of April through September 2009.
See accompanying notes to consolidated financial statements
-5-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
Execution of our business plan for the next twelve months requires the ability to generate
cash to satisfy planned operating requirements. We currently have sufficient cash reserves to meet
all of our anticipated operating obligations for the next twelve months. Planned capital
expenditures are dependant on the Companys ability to secure additional capital. As a result, we
are in the process of seeking additional capital through a number of different alternatives, and
particularly with respect to procuring working capital sufficient for
the possible return of operations at
our Houston biodiesel refinery and development of our Mesquite Lake biomass plant.
On June 25, 2009, the Credit Agreement for the non-recourse construction and working capital
loans was amended. These loans are non-recourse to GreenHunter Energy. Pursuant to the terms and
conditions of the amendment, the lender has agreed to waive any claims of events of default until
November 15, 2009. Additionally, due to the settlement of certain business interruption and
property damage insurance claims with various underwriters related to damages sustained at
GreenHunter BioFuels from Hurricane Ike in September, 2008, the lender received a significant
paydown of approximately $4.5 million on its non-recourse construction and working capital loans in
July 2009, escrowed an additional $500 thousand principal payment for its scheduled payment date,
escrowed all interest due on the loan through November 15, 2009, and postponed the repayment of the
balance of its loans until November 15, 2009. All remaining funds due from insurance proceeds will
be used at GreenHunter BioFuels to fund existing working capital requirements. If we do not close
on a sale or other transaction to repay the note by November 15, 2009, the bank has the right to
seize BioFuels cash on hand at that date and foreclose on the BioFuels refinery in Houston. We
are having active discussions with the bank about extending the current deadline to allow more time and we are
meeting with potential buyers.
We must secure additional financing to fund additional working capital requirements. The
additional capital may be provided by common or preferred equity or equity-linked securities, debt,
tolling arrangements with industry participants, project financing, joint venture projects, a
strategic alliance or business combination, assets sales or a
combination of these sources.
We were unable to bring the biodiesel refinery through demonstration of final completion
standards to the satisfaction of the project lender, causing technical default on one of the
covenants of our construction note. If we are able to obtain adequate financing, we intend to make
capital improvements intended to improve reliability, product yield and operating efficiency as
well as to construct a glycerin refinery that should allow for additional profit margins at the
facility.
If we are unable to accomplish the objectives noted above with respect to entering into
additional financing arrangements and potentially identifying a strategic partner, we may be unable
to continue to operate as a going concern. No adjustments have been made to these financial
statements that might result from the outcome of this uncertainty.
Nature of Operations
Our business plan is to acquire and operate assets in the renewable energy sectors of wind,
solar, geothermal, biomass and biofuels. Our plan is to become a leading provider of clean energy
products offering residential, business and industrial customers the opportunity to purchase and
utilize clean energy generated from renewable sources.
We currently have ongoing business initiatives at GreenHunter in wind through GreenHunter Wind
Energy, LLC (Wind Energy) and Wheatland Wind Power, LLC (Wheatland), in biodiesel, methanol,
and terminalling operations through GreenHunter BioFuels, Inc. (BioFuels), and in biomass through
GreenHunter Mesquite Lake, Inc, (Mesquite Lake).
See accompanying notes to consolidated financial statements
-6-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
We believe that our ability to successfully compete in the renewable energy industry depends
on many factors, including the location and low cost construction of our planned facilities,
development of strategic relationships, achievement of our anticipated low cost production model,
and recruitment and retention of experienced management. However, as discussed above, there are
currently several constraints on our ability to achieve our objectives.
During 2007 we acquired Channel Refining Corporation (CRC), which we subsequently renamed
GreenHunter BioFuels, Inc. (BioFuels). We completed the construction of a 105 million gallon per
year intended nameplate capacity biodiesel refinery during 2008 and began production at this
facility during August of the same year. The biodiesel refinery built on this site also includes
terminal operations, product bulk storage, as well as the ability to process contaminated methanol
(a chemical used in biodiesel production). If we obtain sufficient financing, we plan to construct
a 200 million pound per year glycerin refinery at the site to process the glycerin obtained as a
by-product of the biodiesel refining process as well as raw glycerin we hope to obtain from third
parties. We generated revenues during 2008 and 2009 from biodiesel sales, methanol processing and
terminal storage at this site.
On May 14, 2007, we acquired an inactive 18.5 megawatt (MW) (nameplate capacity) biomass
plant located in Southern California. The plant is owned by our wholly-owned subsidiary,
GreenHunter Mesquite Lake, Inc. (Mesquite Lake), which was formed for the purpose of operating
and owning assets which convert waste material to electricity. We began refurbishing this bio-mass
plant during July 2008 but ceased work during the fourth quarter of 2008 when we were informed that
certain required permits at the facility were not in place. On
August 19, 2009 we entered into a new
power purchase agreement with a public utility based in Southern California.
On August 29, 2008, we acquired an existing 14 MW (nameplate capacity) wood waste-fired
biomass power plant located in Telogia, Florida. The biomass power plant, Telogia Power, LLC, and
an associated entity, Telogia Power Unit #2, LLC, (collectively, Telogia), were acquired from a
privately-held power plant operator. Due to financial constraints, as a result of hurricane damage
at our BioFuels facility and the global capital market deterioration, we began marketing our
Telogia plant for resale during the fourth quarter of 2008 and completed the divestiture during
February 2009, which resulted in a gain of $549 thousand.
Our Wind Energy segment remains in the development stage. We continue to hold existing rights
to potential wind energy farm locations in Texas, Wyoming, California, and Montana and to operate
and gather data produced from wind measurement equipment located on these sites.
The accompanying financial statements include the accounts of GreenHunter Energy, Inc. and our
wholly-owned subsidiaries, GreenHunter Wind Energy, LLC, GreenHunter BioFuels, Inc., GreenHunter
Mesquite Lake, LLC, and Telogia Power, LLC. We have also consolidated our 30% controlling interest
in Wheatland Wind Power, LLC, with noncontrolling interests recorded for the outside interests in
this entity. We wrote off our interests in Haining City Wind Energy, LLC at September 30, 2009,
resulting in a loss of $88 thousand. All significant intercompany transactions and balances have
been eliminated.
Income or Loss Per Share
Basic income or
loss per common share is net income available to common stockholders divided
by the weighted average of common shares outstanding during the period. Diluted income or loss per
common share is calculated in the same manner, but also considers the impact to net income and
common shares outstanding for the potential dilution from in-the-money stock options and warrants,
and convertible debentures and preferred stock.
We have issued potentially dilutive instruments in the form of our 8% Series A Preferred
Stock, Series B Preferred Stock, common stock warrants and common stock options granted to our
employees. The total number of
See accompanying notes to consolidated financial statements
-7-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
potentially dilutive securities at September 30, 2009 was
29,572,899. There were 15,391,832 dilutive securities outstanding at September 30, 2008. We did
not include the potentially dilutive securities in our calculation of diluted loss per share during
either period because to include them would be anti-dilutive due to our net loss during those
periods.
Note 2. Recently Issued Accounting Standards
During the third quarter of 2009, the Company adopted The FASB Accounting Standards
Codification (ASC or Codification) and the Hierarchy of Generally Accepted Accounting Principles
(GAAP) which establishes the Codification as the sole source for authoritative U.S. GAAP and will
supersede all accounting standards in U.S. GAAP, aside from those issued by the SEC. The adoption
of the Codification did not have an impact on the Companys results of operations, cash flows or
financial position. Since the adoption of the Accounting Standards
Codification (ASC), the Companys
notes to the consolidated financial statements will no longer make reference to Statement of
Financial Accounting Standards (SFAS) or other U.S. GAAP pronouncements.
During the first quarter of 2009, in accordance with U.S. GAAP, the Company adopted the
standards on business combinations and noncontrolling interests in Consolidated Financial
Statements. These standards aim to improve, simplify, and converge internationally, the accounting
for business combinations and the reporting of noncontrolling interests in consolidated financial
statements. These standards require an entity to measure the business acquired at fair value and to
recognize goodwill attributable to any non-controlling interests (previously referred to as
minority interests) rather than just the portion attributable to the acquirer. The standards also
result in fewer exceptions to the principle of measuring assets acquired and liabilities assumed in
a business combination at fair value. In addition, the standards require payments to third parties
for consulting, legal, audit and similar services associated with an acquisition to be recognized
as expenses when incurred rather than capitalized as part of the business combination. Its
adoptions did not affect our financial statements.
During the first quarter of 2009, in accordance with U.S. GAAP, the Company adopted the
standard on consolidation as it relates to noncontrolling interests. The standard changed the
accounting and reporting for minority interests, which were recharacterized as noncontrolling
interests and classified as a component of equity. The standard requires retrospective adoption of
the presentation and disclosure requirements for existing minority interests. All other
requirements of the standard will be applied prospectively. The adoption of the guidance did not
have a material impact on the Companys financial statements.
During the first quarter of 2009, in accordance with U.S. GAAP, the Company adopted the
standard related to disclosures about derivative instruments and hedging activities, to enhance the
disclosure regarding the Companys derivative and hedging activities to improve the transparency of
financial reporting. The adoption of this standard did not have a significant impact on the
Companys results of operations, cash flows or financial position.
During first quarter of 2009, in accordance with U.S. GAAP, the Company adopted the guidance
on determining whether an instrument (or embedded feature) is indexed to an entitys own stock.
This guidance requires entities to evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock in order to determine if the instrument should be
accounted for as a derivative. The guidance is effective for financial statements issued for
fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. The
adoption of the guidance did not have a material impact on our financial statements.
During first quarter of 2009, in accordance with U.S. GAAP, the Company adopted the guidance
on equity method investment accounting considerations. This guidance states that an equity method
investor shall account for a share issuance by an investee as if the investor had sold a
proportionate share of its investment. Any gain or loss to the investor resulting from an investees share issuance should be recognized in earnings.
Previous to this guidance, changes in equity for both issuances and repurchases were recognized in
equity. The guidance is effective
See accompanying notes to consolidated financial statements
-8-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
for financial statements issued for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal years. The adoption of the guidance did
not have an impact on our financial statements.
During the second quarter of 2009, in accordance with U.S. GAAP, the Company adopted the
standards on subsequent events. This pronouncement establishes standards of accounting for and
disclosure of events that occur after the balance sheet date but before financial statements are
issued. Subsequent events have been considered in this filing through November 16, 2009.
Note 3. Discontinued Operations
We completed the sale of the Telogia plant during February 2009 for total proceeds of
approximately $4.6 million which consisted of $4.5 million in cash received and $56 thousand in
holdbacks, net of post-closing adjustments of $310 thousand, due from the buyer one year from the
date of the sale. We recorded a gain of approximately $549 thousand on the disposal.
The following table provides summarized income statement information related to Telogias
discontinued operations for the nine months ended September 30, 2009:
Sales and other revenues from discontinued operations |
$ | | ||
Operating expenses from discontinued operations |
(215,832 | ) | ||
Other income from discontinued operations |
725,348 | |||
Net loss from discontinued operations |
$ | 509,516 | ||
During September 2009, we abandoned the assets and our interests in Haining City Wind
Energy, LLC (Haining City) resulting in a loss on asset abandonment of $88 thousand.
The following table provides summarized income statement information related to Haining Citys
discontinued operations for the nine months ended September 30, 2009:
Sales and other revenues from discontinued operations |
$ | | ||
Operating expenses from discontinued operations |
(61,080 | ) | ||
Noncontrolling interest from discontinued operations |
12,474 | |||
Net loss from discontinued operations |
$ | (48,606 | ) | |
Note 4. Impairments
We periodically evaluate whether events and circumstances have occurred that may warrant
revision of the estimated useful life of long-term assets or whether the remaining balance of
long-term assets should be evaluated for possible impairment. We compare the estimate of the
related undiscounted cash flows over the remaining useful lives of the applicable assets to the
assets carrying values in measuring their recoverability. When the future cash flows are not
sufficient to recover an assets carrying value, an impairment charge is recorded for the
difference between the assets fair value and its carrying value. During 2009, we recorded an
impairment of $1.5 million related to our inability to pay the final lease option extension for our
Port Sutton lease and impairment of $170 thousand on equipment due to a reduction in value. No
other impairments were considered necessary at September 30, 2009.
See accompanying notes to consolidated financial statements
-9-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
Note 5. Inventories
Our finished goods inventories consist of processed methanol and biodiesel, and our raw
materials inventory includes contaminated methanol, animal fat, process chemicals, and vegetable
oil feedstocks to be processed by our Houston facility. Our inventories at September 30, 2009
consisted of the following:
Finished goods |
$ | 36,210 | ||
Work in process |
861,649 | |||
Raw materials |
502,762 | |||
Valuation allowance |
(810,295 | ) | ||
$ | 590,327 | |||
Note 6. Notes Payable
Notes Payable at September 30, 2009 consisted of the following:
Long-Term Debt: |
||||
Note payable due June 17, 2010, 7.0% |
$ | 76,762 | ||
Note payable due February 2, 2010, 6.1% |
111,904 | |||
Note payable due November 31, 2017, 5.7% |
3,098,913 | |||
Non-recourse construction facility, 4.85% at September 30,
2009 |
28,885,030 | |||
Non-recourse working capital line of credit, 4.85% at
September 30, 2009 |
9,046,054 | |||
10% Series A Senior Secured Redeemable Debentures, net of
$1,104,495 discount |
19,929,653 | |||
9% Series B Senior Secured Redeemable Debentures, net of
$42,696 discount |
5,259,112 | |||
66,407,428 | ||||
Less: current portion |
(38,212,585 | ) | ||
Total Long-Term Debt |
$ | 28,194,843 | ||
Note Payable
During May 2009, we financed a portion of our annual insurance premiums for our Houston
refinery in the amount of $221,560. The note bears interest at a fixed rate of 6.1% and is payable
in monthly installments through February 2, 2010.
During September 2009, we financed a portion of our annual corporate insurance premiums in the
amount of $76,762. The note bears interest at a fixed rate of 7.0% and is payable in monthly
installments through June 17, 2010.
Non-recourse Notes Payable
During March 2009, we determined we were not in compliance with certain covenants of our
non-recourse construction loan and non-recourse working capital line of credit at BioFuels.
Accordingly, we have classified the entire amounts due under both of these agreements as current
liabilities at September 30, 2009. On June 25, 2009, the Credit Agreement for the non-recourse
construction and working capital loans was amended. Pursuant to the
terms and conditions of the amendment, the lender has agreed to waive any claims of events of
default until November 15, 2009. Additionally, due to the settlement of certain business
interruption and property damage insurance claims with various underwriters related to damages
sustained at GreenHunter BioFuels from Hurricane Ike in September, 2008, the lender received a
significant paydown of approximately $4.5 million on its non-
See accompanying notes to consolidated financial statements
-10-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
recourse construction and working capital loans in July 2009, escrowed an additional $500
thousand principal payment for its scheduled payment date, escrowed all interest due on the loan
through November 15, 2009, and postponed the repayment of the balance of its loans until November
15, 2009. All remaining funds due from insurance proceeds will be used at GreenHunter BioFuels to
fund existing working capital requirements. If we do not close on a sale or other transaction to
repay the note by November 15, 2009, the bank has the right to seize BioFuels cash on hand at that
date and foreclose on the BioFuels refinery in Houston. We are
having active discussions with the bank about
extending the current deadline to allow more time and we are meeting with potential buyers.
These loans are non-recourse to GreenHunter Energy and are fully secured by certain assets at
our BioFuels refinery.
10% Series A Senior Secured Redeemable Debentures (Nonrecourse to GreenHunter Energy)
During April through September 2009, we were unable to make the interest payments on these
debentures. These debentures are secured by GreenHunter Energys ownership interest in GreenHunter
BioFuels common stock and are otherwise non-recourse to GreenHunter Energy.
Note 7. Stockholders Equity
The following table reflects changes in our outstanding common stock, preferred stock, KSOP,
and warrants during the periods reflected in our financial statements:
Preferred | Common | Treasury | ||||||||||||||||||
Stock | Stock | Stock | KSOP | Warrants | ||||||||||||||||
December 31, 2008 |
23,075 | 20,988,876 | 44,436 | 15,200 | 6,208,948 | |||||||||||||||
Conversion of Series A Preferred Shares |
(5,750 | ) | 1,150,000 | |||||||||||||||||
Issue warrants on 9% Series B Redeemable
Debentures issuances |
42,797 | |||||||||||||||||||
Issue 22,024 treasury shares for services provided |
(22,024 | ) | ||||||||||||||||||
September 30, 2009 |
17,325 | 22,138,876 | 22,412 | 15,200 | 6,251,745 | |||||||||||||||
Preferred Stock
During March 2009, the holders of 400 shares of our Series A Preferred Stock elected to
convert their preferred shares into common shares. We issued 80,000 shares of common stock upon
the conversion.
During April 2009, the holders of 350 shares of our Series A Preferred Stock elected to
convert their preferred shares into common shares. We issued 70,000 shares of common stock upon
the conversion.
During June 2009, the holders of 5,000 shares of our Series A Preferred Stock elected to
convert their preferred shares into common shares. We issued 1,000,000 shares of common stock upon
the conversion.
We were not able to pay dividends on our Series A Preferred Stock for the quarters ending
December 31, 2008, March 31, 2009, June 30, 2009, and September 30, 2009. In accordance with the
terms of this preferred stock, accrued dividends of $484 thousand on June 30, 2009 and $372
thousand on September 30, 2009, were added to the
stated value of the preferred stock. This additional $856 thousand in stated value will
accrue dividends at a 10% rate.
See accompanying notes to consolidated financial statements
-11-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
Treasury Stock
During July 2009, we issued 22,024 shares of our treasury stock with a value of $37 thousand
for payment of services provided.
Common Stock Warrants
During the first quarter of 2009, we issued 42,797 warrants upon the issuance of our Series B
Debentures. Under our Series B Debenture offering, subscribers are entitled to 125 warrants for
each $5,000 in principal issued. Warrant pricing was $25 for units acquired prior to October 15,
2008, $27.50 for units acquired after October 15, 2008 but prior to November 15, 2008, and $30.00
for units acquired after November 15, 2008. These warrants are exercisable immediately upon
issuance and have a three-year life. We can require the warrant be exercised after one year of
issuance if our common stock is trading at an average price of at least $35.00 per share over the
prior 10 consecutive days of trading. These warrants contain customary anti-dilution provisions.
Upon the issuance of these warrants, we recorded a discount on the associated debentures of $942
which will be amortized to expense over the contractual term of the related debenture. The
discount was determined based on the relative fair values of the warrants (as determined by the
Black-Scholes options pricing model) and the debentures issued.
Note 8. Stock-Based Compensation
ASC standards on share based payments applies to transactions in which an entity exchanges its
equity instruments for goods or services and also applies to liabilities an entity may incur for
goods or services that are to follow a fair value approach of those equity instruments. Under the
standards, we are required to follow a fair value approach using an option-pricing model, such as
the Black-Scholes option valuation model, at the date of a stock option grant. The deferred
compensation calculated under the fair value method would then be amortized over the respective
vesting period of the stock option.
During the nine months ended September 30, 2009, the Board of Directors authorized the
issuance of 1,961,000 shares of stock options to current employees. The options were issued at an
exercise price of $1.96 with an estimated fair value of $1.13 per share. The options have a life
of 10 years and vest in equal amounts over a three year period beginning with the date of grant.
Also during the period, as compensation for joining the Board and continued service on the Board,
200,000 shares of stock options were granted to the Board of Directors at prices ranging from $.97
to $1.96 with an estimated fair value of $.82 per share. The options have a life of ten years and
vest in equal amounts over a three year period beginning with the date of grant.
We
recognized a total of $47,164, ($756,817), $184,000, and $7,318,473 of share-based
compensation expense in our condensed consolidated statement of operations for the three month
periods ended September 30, 2009 and 2008, and nine month periods ended September 30, 2009 and
2008, respectively, associated with stock options granted through those dates. As of September 30,
2009, there was $3.5 million of total unrecognized compensation cost related to the unvested shares
associated with these stock option grants which will be recognized over a weighted-average period
of 2.33 years. We recognize compensation expense for our stock options on a straight-line basis
over their vesting term. We will issue new shares upon exercise of
any of the stock options.
The following is a summary of stock option activity during the period ended September 30,
2009.
See accompanying notes to consolidated financial statements
-12-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
Number | Weighted | Aggregate | ||||||||||
of | average | Intrinsic Value* | ||||||||||
Shares | Exercise Price | ($000s) | ||||||||||
Outstanding Beginning of
Year |
5,629,500 | $ | 9.88 | | ||||||||
Granted |
2,161,000 | $ | 1.87 | | ||||||||
Exercised |
| | | |||||||||
Cancelled |
889,669 | $ | 14.41 | | ||||||||
Outstanding End of Period |
6,900,831 | $ | 6.36 | | ||||||||
Exercisable End of Period |
4,474,995 | $ | 8.39 | $ | | |||||||
* | The Aggregate Intrinsic Value was calculated using the September 30, 2009 stock price of $1.97. |
The following is a summary of stock options outstanding at September 30, 2009:
Weighted Average | ||||||||||||
Number of | Remaining | Number of | ||||||||||
Options | Contractual | Exercisable | ||||||||||
Exercise Price | Outstanding | Life (Years) | Options | |||||||||
$.97 |
100,000 | 9.68 | | |||||||||
$1.96 |
1,961,000 | 9.91 | | |||||||||
$5.00 |
3,247,000 | 7.63 | 3,247,000 | |||||||||
$7.50 |
33,333 | 8.01 | 33,333 | |||||||||
$10.00 |
248,333 | 8.16 | 171,665 | |||||||||
$10.12 |
2,500 | 9.03 | | |||||||||
$12.00 |
6,500 | 8.24 | 5,500 | |||||||||
$13.66 |
3,000 | 8.76 | 3,000 | |||||||||
$17.76 |
40,000 | 8.37 | 50,000 | |||||||||
$18.00 |
16,667 | 8.45 | 16,667 | |||||||||
$18.91 |
1,107,498 | 8.38 | 887,830 | |||||||||
$19.75 |
13,333 | 8.55 | 13,333 | |||||||||
$20.02 |
25,000 | 8.72 | | |||||||||
$20.64 |
75,000 | 8.69 | 25,000 | |||||||||
$22.75 |
21,667 | 8.62 | 21,667 |
Note 9. Related Party Transactions
During the periods ending September 30, 2009 and 2008, we rented an airplane for business use
at various times from Pilatus Hunter, LLC, an entity 100% owned by Mr. Evans. Airplane rental
expenses totaled $136 thousand and $298 thousand for the respective nine month periods in 2009 and
2008.
Note 10. Segment Data
We currently have three reportable segments: BioFuels, Wind Energy, and BioMass. Each of our
segments is a strategic business unit that offers different products and services. They are
managed separately because each business unit requires different technology, marketing strategies
and personnel. With the exception of our BioFuels segments, all of our segments are still in
development stages with no significant operations.
During
2008, we completed building and began commissioning a
105 million gallon per year (estimated nameplate capacity)
biodiesel refinery at our renewable fuels campus located in Houston, Texas which contains terminal
operations and 638 thousand barrels of product storage as well as the ability to process up to 18
million gallons per year of contaminated
See accompanying notes to consolidated financial statements
-13-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
methanol. This segment had revenues from methanol processing and terminal storage during the
first nine months of 2008 and revenues from biodiesel sales and terminal storage during the first
nine months of 2009.
Our Wind Energy segment is currently in the development stage. We have three wind projects
that we are developing which are located in California, Texas, and Montana and we are also
participating in a wind project development located in Wyoming. All of these projects are
currently in various stages of environmental impact studies, meteorological evaluations, permit
requests and various other regulatory approvals and processes.
Our BioMass segment is also in the development stage. We have purchased an inactive 18.5 MW
(nameplate capacity) biomass power plant named Mesquite Lake located in California. We began
refurbishing this plant during the third quarter in 2008. Our BioMass segment will produce energy
from organic matter available in the immediate area of our plantsite.
The accounting policies for our segments are the same as those described in our Form 10-K for
the year ended December 31, 2008. There are no intersegment revenues or expenses.
Segment data for the three and nine month periods ended September 30, 2009 and 2008 are as
follows:
For the Three Months Ended September 30, 2009 | ||||||||||||||||||||
Unallocated | ||||||||||||||||||||
Corporate | BioPower | Wind Energy | BioFuels | TOTAL | ||||||||||||||||
Total Revenues |
$ | | $ | | $ | | $ | 403,686 | $ | 403,686 | ||||||||||
Total Operating Costs
(recoveries) |
| | 24,457 | 273,805 | 298,262 | |||||||||||||||
Depreciation expense |
43,081 | | 8,149 | 1,018,446 | 1,069,676 | |||||||||||||||
Selling, general and
administrative |
870,201 | 346,296 | 97,917 | 1,103,604 | 2,418,018 | |||||||||||||||
Operating income (loss) |
(913,282 | ) | (346,296 | ) | (130,523 | ) | (1,992,169 | ) | (3,382,270 | ) | ||||||||||
Other income and
(expense) |
(704,109 | ) | | (89,447 | ) | 152,842 | (640,714 | ) | ||||||||||||
Income (loss) from
continuing
operations before
noncontrolling interest |
$ | (1,617,391 | ) | $ | (346,296 | ) | $ | (219,970 | ) | $ | (1,839,327 | ) | $ | (4,022,984 | ) | |||||
Total Assets |
$ | 14,191,934 | $ | 15,366,842 | $ | 1,233,869 | $ | 47,942,146 | $ | 78,734,791 | ||||||||||
Capital Expenditures |
$ | | $ | 2,418 | $ | | $ | 25,435 | $ | 27,853 | ||||||||||
See accompanying notes to consolidated financial statements
-14-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
For the Three Months Ended September 30, 2008 | ||||||||||||||||||||
Unallocated | ||||||||||||||||||||
Corporate | BioPower | Wind Energy | BioFuels | TOTAL | ||||||||||||||||
Total Revenues |
$ | | $ | | $ | | $ | 331,487 | $ | 331,487 | ||||||||||
Total Operating Costs |
| 3,296 | 51,302 | 6,936,363 | 6,990,961 | |||||||||||||||
Depreciation expense |
65,199 | | 18,039 | 946,389 | 1,029,627 | |||||||||||||||
Selling, general and
administrative |
1,223,022 | 99,780 | 330,112 | 1,174,949 | 2,827,863 | |||||||||||||||
Operating income (loss) |
(1,288,221 | ) | (103,076 | ) | (399,453 | ) | (8,726,214 | ) | (10,516,964 | ) | ||||||||||
Other income and
(expense) |
(645,275 | ) | 2,204 | 22,890 | (627,211 | ) | (1,247,392 | ) | ||||||||||||
Loss from continuing
operations before
noncontrolling interest |
$ | (1,933,496 | ) | $ | (100,872 | ) | $ | (376,563 | ) | $ | (9,353,425 | ) | $ | (11,764,356 | ) | |||||
Total Assets |
$ | 15,506,595 | $ | 19,725,446 | $ | 1,330,662 | $ | 79,916,764 | $ | 116,479,467 | ||||||||||
Capital Expenditures |
$ | 69,149 | $ | 11,822,470 | $ | 123,411 | $ | 4,074,530 | $ | 16,089,560 | ||||||||||
For the Nine Months Ended September 30, 2009 | ||||||||||||||||||||
Unallocated | ||||||||||||||||||||
Corporate | BioMass | Wind Energy | BioFuels | TOTAL | ||||||||||||||||
Total Revenues |
$ | | $ | | $ | | $ | 5,310,779 | $ | 5,310,779 | ||||||||||
Total Operating Costs
(recoveries) |
(449,941 | ) | 28,309 | 139,981 | (2,628,018 | ) | (2,909,669 | ) | ||||||||||||
Depreciation expense |
137,377 | | 48,481 | 3,024,111 | 3,209,969 | |||||||||||||||
Loss on asset
impairments |
1,651,161 | | | | 1,651,161 | |||||||||||||||
Selling, general and
administrative |
3,491,552 | 746,007 | 627,694 | 3,135,641 | 8,000,894 | |||||||||||||||
Operating income (loss) |
(4,830,149 | ) | (774,316 | ) | (816,156 | ) | 1,779,045 | (4,641,576 | ) | |||||||||||
Other income and
(expense) |
(2,285,845 | ) | 7,878 | (89,522 | ) | (1,172,715 | ) | (3,540,204 | ) | |||||||||||
Income (loss) from
continuing
operations before
noncontrolling interest |
$ | (7,115,994 | ) | $ | (766,438 | ) | $ | (905,678 | ) | $ | 606,330 | $ | (8,181,780 | ) | ||||||
Total Assets |
$ | 14,191,934 | $ | 15,366,842 | $ | 1,233,869 | $ | 47,942,146 | $ | 78,734,791 | ||||||||||
Capital Expenditures |
$ | 2,463 | $ | (10,408 | ) | $ | | $ | 742,748 | $ | 734,804 | |||||||||
For the Nine Months Ended September 30, 2008 | ||||||||||||||||||||
Unallocated | ||||||||||||||||||||
Corporate | BioMass | Wind Energy | BioFuels | TOTAL | ||||||||||||||||
Total Revenues |
$ | | $ | | $ | | $ | 977,372 | $ | 977,372 | ||||||||||
Total Operating Costs |
| 3,296 | 245,536 | 8,126,162 | 8,374,994 | |||||||||||||||
Depreciation expense |
146,160 | | 38,545 | 1,032,068 | 1,216,773 | |||||||||||||||
Selling, general and
administrative |
12,181,685 | 407,330 | 884,737 | 3,020,293 | 16,494,045 | |||||||||||||||
Operating income (loss) |
(12,327,845 | ) | (410,626 | ) | (1,168,818 | ) | (11,201,151 | ) | (25,108,440 | ) | ||||||||||
Other income and
(expense) |
(1,295,944 | ) | 2,204 | 20,050 | (484,529 | ) | (1,758,219 | ) | ||||||||||||
Loss from continuing
operations before
noncontrolling interest |
$ | (13,623,789 | ) | $ | (408,422 | ) | $ | (1,148,768 | ) | $ | (11,685,680 | ) | $ | (26,866,659 | ) | |||||
Total Assets |
$ | 15,506,595 | $ | 19,725,446 | $ | 1,330,662 | $ | 79,916,764 | $ | 116,479,467 | ||||||||||
Capital Expenditures |
$ | 532,862 | $ | 13,036,918 | $ | 284,175 | $ | 37,183,551 | $ | 51,037,506 | ||||||||||
See accompanying notes to consolidated financial statements
-15-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
Note 11. Commitments and Contingencies
During 2007, we entered into an agreement with the former owner of the Mesquite Lake plant,
which grants this entity the non-exclusive right to represent us in the location and development of
renewable energy projects. In exchange for a quarterly fee of $98
thousand, this entity would be
responsible for locating, analyzing and delineating the business viability, as well as providing an
adequate development strategy for these projects. We paid the first quarterly payment of $98
thousand during September 2007, and these payments were scheduled to continue each quarter until
the final payment in September 30, 2012. During the fourth quarter of 2008, we suspended all
payments to this entity pending resolution of a contractual dispute regarding the validity of
certain air permits that were represented to be in place at Mesquite Lake at the date of our
acquisition. As of September 30, 2009, we have accrued $490 thousand in fees related to this
agreement until this matter is resolved.
In association with our purchase of the Port Sutton lease option, we agreed to issue
restricted shares to the Seller worth $2 million, subject to a floor price of $14.25 and ceiling of
$25. These shares will be issued the sooner of 18 months from the October 2008 close date or upon
the first biodiesel production or storage at the site. Accordingly, we will issue an additional
minimum number of 80,000 common shares up to a maximum number of 140,351
common shares related to this
acquisition.
In August, 2009 we entered into a 20 year Power Purchase Agreement with a public utility
based in Southern California for 100% of the net output of our Mesquite Lake biomass power plant
located in the Imperal Valley, California. Under this power purchase agreement,
we are required to begin power
sales in 2011. Pursuant to the related brokerage agreement, we are required to pay commissions of
$300 thousand within 30 days of execution of the contract and an additional sum of $1.1 million on
various dates subsequent to commercial operations of the plant for a total obligation of $1.4
million. The future obligation is contingent upon us finding
appropriate financing for capital improvements
and completing the required development of the plant for it to be in
commercial operations. The remaining
obligation will be recognized at the time the plant operations becomes probable.
Orion
On September 16, 2008, Orion Ethanol, Inc (Orion), brought suit against GreenHunter Energy,
Inc., GreenHunter BioFuels, Inc., Gary C. Evans, et al, (Defendants), in the United
States District Court for the District of Kansas. Orion brought suit against the defendants
alleging that GreenHunter Energy and GreenHunter BioFuels entered into a conspiracy with the other
defendants to weaken Orion, acquire or divert its assets and opportunities and ultimately gain
control and ownership of Orion. Specifically, Orion alleges that GreenHunter Energy and
GreenHunter BioFuels, as well as one of GreenHunters significant institutional shareholders,
tortiously interfered with Orions opportunities and expectancies in acquiring certain assets and
interfered with Orions ability to complete financing with a banking institution. The lawsuit also
alleges claims against Mr. Evans, a former officer and director of Orion, for conflicts of interest
and breaches of fiduciary duties in connection with his actions as such an officer and director.
The
Federal Judge on this case has entered an order dismissing all of the GreenHunter entities from
the lawsuit for lack of jurisdiction on July 29, 2009. No amounts have been accrued as no losses
are expected as a result of this claim.
Bioversel
On September 24, 2008, Bioversel, Inc. (Bioversel) brought suit against GreenHunter
BioFuels, Inc. alleging that BioFuels has repudiated its biodiesel tolling agreement, as amended,
with Bioversel. Bioversel has alleged breach of contract, fraud and conversion regarding our
ability to process feedstock into biodiesel under the contract.
We have been served with this lawsuit and we have responded to Bioversels first set of
discovery requests and have requested our own sets of discovery. We vigorously deny the
allegations in the lawsuit and believe the
See accompanying notes to consolidated financial statements
-16-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
lawsuit is completely without merit and have filed a countersuit against plaintiff for failure
to make payments to us under the contract. No amounts have been accrued as no losses are expected
as a result of this claim.
Jacob Stern
Jacob Stern & Sons, Inc. (Jacob Stern) brought suit against GreenHunter BioFuels, Inc. on
February 19, 2009 alleging that BioFuels breached two separate contracts for the purchase of animal fat
feedstock for our biodiesel refinery in Houston. We deny that any
form of contractual agreement was ever
entered into between the parties.
We have been served with this lawsuit and we have responded. At this point in the litigation
process, we believe it is too early to determine the ultimate outcome of this lawsuit.
Accordingly, no amounts have been accrued.
Crown Engineering
Crown Engineering and Construction brought suit against GreenHunter Energy, Inc. on April 1,
2009 alleging that we breached our contract for services to refurbish our biomass plant in
California. We have denied that the alleged amount is due in full.
We
have been served and have answered the lawsuit. Crown Engineering
has presented us with
invoices totaling $6.1 million which have been recorded in trade payables. At this point in the
litigation process, we believe it is too early to determine the ultimate outcome of this lawsuit
but believe we will ultimately be responsible for not more than 80% of the claim.
Gavilon
Gavilon brought an arbitration claim against GreenHunter BioFuels, Inc. during May 2009
alleging that we breached a contract for the purchase of animal fat feedstock for our biodiesel
refinery in Houston. We deny that any form of contractual agreement was ever entered into or agreed to
between the parties.
We have been served with this claim and formulated a response. At this point in the
arbitration process, we believe it is too early to determine the ultimate outcome of this lawsuit.
Accordingly, no amounts have been accrued.
Steel Painters
Steel Painters has brought suit against GreenHunter BioFuels and GHE for failure to pay for
goods and services rendered. GreenHunter Energy is seeking a dismissal for lack of a claim against
it. At this point in the litigation process, we believe it is too early to determine the ultimate
outcome of this lawsuits. Accordingly, no amounts have been accrued.
Bridgefield Electrical Services and Quality Contract Services
Bridgefield and Quality have brought suit against GreenHunter BioFuels and GHE for failure to
pay for goods and services rendered. The law suits were settled in
the third quarter for immaterial
amounts.
Shamrock Gulf
Shamrock Gulf, LLC brought suit against GreenHunter BioFuels for failure to pay for goods and
services rendered. The lawsuit was settled on July 28, 2009 for an immaterial amount.
Note 12. Subsequent Events
On October 28, 2009 we sold our equity ownership interest in Guangdong MingYang Wind Power
Technology Co., Ltd. for $9.1 million, resulting in a gain of $1.0 million.
See accompanying notes to consolidated financial statements
-17-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
On July 30, 2009 we sold our interest in the Ocotillo Wind Project for $250 thousand plus
future consideration of $750 thousand with an additional $25 thousand per MW of the nameplate
capacity of the wind turbine generators installed less the amount previously paid. The $250 thousand was subject to
and contingent upon the receipt of regulatory approval, which was
granted on October, 2009 and subsequently paid. The
future consideration is contingent upon the project developer achieving success with the
development, and any future sale proceeds will be recognized at that time.
See accompanying notes to consolidated financial statements
-18-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
Item 2. Managements 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, 2008 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
Prior
to April 13, 2007, we were a start-up company in the development stage pursuant to
Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS)
No. 7, Accounting and Reporting by Development Stage Enterprises. Our plan is to acquire and
operate assets in the renewable energy sectors of wind, solar, geothermal, biomass and biofuels.
We currently have ongoing business initiatives at GreenHunter in wind through GreenHunter Wind
Energy, LLC (Wind Energy) and Wheatland Wind Power, LLC (Wheatland), in biodiesel and methanol
through GreenHunter BioFuels, Inc. (BioFuels), and in biomass through GreenHunter Mesquite Lake,
Inc, (Mesquite Lake). It is our goal to become a leading provider of clean energy products.
We believe that our ability to successfully compete in the renewable energy industry depends
on many factors, including the location and low cost construction of our planned facilities,
development of strategic relationships, achievement of our anticipated low cost production model,
access to adequate debt and equity capital, and recruitment and retention of experienced
management.
BioFuels
We completed building and began operating a 105 million gallon per year (nameplate capacity)
biodiesel refinery at our Houston BioFuels campus during 2008 as well as 638 thousand barrels of
product bulk storage for our terminal operations. We also have the ability to process up to 18
million gallons per year of contaminated methanol (a chemical used in biodiesel production). We
also planned to construct a 20 million gallon per year capacity glycerin (a byproduct of biodiesel
manufacturing) refinery on site if additional financing can be obtained.
The overhaul of an existing distillation process on the site was begun in April 2007. This
process was commissioned and began processing contaminated methanol in September 2007.
Commissioning of the biodiesel process was begun in mid September 2008, and commercial production
of biodiesel began during August 2008. However, our refinery was almost immediately shut down as a
result of Hurricane Ike on September 13, 2008. The refinery remained down for repairs through
November 2008 and the facility resumed biodiesel production and the commissioning process the last
week of that month.
If adequate
capital becomes available, we expect a technical grade glycerin
project production unit will be
completed and commissioned in 2010, and to have a glycerin distillation project which will produce
US Pharmaceutical Grade Glycerin Non Certified, in 2010. All 638 thousand barrels of the Houston Terminal Project bulk storage
tanks are presently erected. There remains some minor
piping, pumps, instruments, containment and lighting repairs yet to be completed for final
completion of the Houston terminal project.
See accompanying notes to consolidated financial statements
-19-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
We
do not expect to operate at a profit in the immediate future before our biodiesel and glycerin refineries are
completely constructed and operational. Due to current economic conditions of both available
capital and the biodiesel markets overall, we made the decision during March 2009 to suspend
operations of the biodiesel refinery until the overall biodiesel market conditions recover. Until the
refinery resumes operations, we plan to continue to provide terminal services at the refinery to
provide some operating cash flow to cover overhead costs and interest
expense on the non-recourse debt.
BioMass
In May 2007 we acquired Mesquite Lake, an inactive 18.5 megawatt (nameplate capacity) biomass
plant located in El Centro, California, which we began refurbishing during 2008. During 2008 we
found that the existing air permit for the plant was not sufficient to support our planned
operations, and we put this project on hold during the fourth quarter of 2008 while we went through
the re-permitting process. We expect to obtain the new air permit
during the first quarter 2010 and
executed a new twenty year power purchase agreement in October 2009. We plan to resume construction on the
possible expansion of up to an additional 7 megawatts (MW) sometime during the first or second quarter of 2010,
assuming additional sources of funding are obtained.
Wind Energy
Until April, 2007, our primary business was the investment in and development of wind energy
farms. We continue to own rights to potential wind energy farm locations in Wyoming, Texas,
California, and Montana and continue to operate and gather data produced from wind measurement
equipment located on these sites. We also continue to seek additional potential development sites,
particularly those that would be near our other renewable energy projects. The nature of these
wind energy projects necessitates a longer term horizon than our other projects before they become
operational, if ever.
Results of Operations
Three
Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008:
BioFuels Revenues
For the quarter ended September 30, 2009, we had total revenues of $404 thousand, consisting
of $239 thousand in biodiesel sales and terminal services of $165 thousand, including storage and
material handling charges. Revenues in the prior year period consisted of $313 thousand in
methanol sales and terminal revenues of $19 thousand.
BioFuels Costs of Sales and Services
For the quarter ended September 30, 2009, we had costs of sales and services of $520 thousand
compared to $2.9 million during the quarter ended September 30, 2008. Our 2009 costs included $275
thousand of costs related to our inventory consumption and losses including feedstock and
chemicals, which are directly related to the production of our biodiesel which was sold during the
quarter. The remaining $245 thousand in costs of sales and services were related to our terminal
operations and excess capacity while our refinery was operating, including utilities, direct labor
and other production costs. The prior year cost of sales and services consisted of costs of
methanol sales of $319 thousand, an inventory valuation adjustment of $533 thousand, and idle barge
costs of $659 thousand. The idle barge costs are associated with the short-term lease of several
barges beginning March 15, 2008 to transport goods in and out of our Houston facility; these
expenses represent both idle time for the barges as well as costs for barge time spent moving
product out of our facility for our terminal operations. This lease was cancelled during September
2008. The inventory valuation was a result of decreases in the pricing of our raw
materials inventory when compared to their acquisition costs as well as decreases in the
market value of biodiesel over our cost to produce. The remainder of our costs related to
operating supplies, plant labor, and other overhead
See accompanying notes to consolidated financial statements
-20-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
charges which were not allocated to inventory as a result of start-up activities and excess
capacity during the quarter.
Wind Energy Project Costs
We incurred project costs associated with our wind energy projects of $24 thousand in the 2009
period compared to $51 thousand in the 2008 period. The decrease is the result of the expiration
of the project sites located in Montana during second quarter of 2009
that were not renewed.
Hurricane repairs and losses
We recorded a credit of $246 thousand to hurricane repairs and losses during the third
quarter of 2009 due to the settlement and accrual of insurance proceeds from environmental claims
as a result of Hurricane Ike.
Depreciation Expense
Depreciation expense was $1.1 million during the 2009 period compared to $1.0 million during
the 2008 period; the increase was due primarily to depreciation on our biodiesel refinery and
terminal which began during August 2008.
Selling, General and Administrative Expense
Selling, general and administrative expense (SG&A) was $2.4 million during the 2009 period
versus $2.8 million during the 2008 period, a decrease of $410 thousand.
Unallocated corporate SG&A decreased approximately $353 thousand between the two periods,
decreasing from $1.2 million down to $870 thousand. The decrease is due to decreases in salaries
and personnel-related costs, excluding stock compensation, office related costs, travel and
marketing, professional fees, and taxes and permits, all as a result of managements efforts to
reduce overall operating costs, which were offset by an increase in stock compensation.
BioFuels SG&A decreased $71 thousand, down from $1.2 million during 2008 to $1.1 million
during 2009. This decrease was primarily due to decreased operations at our BioFuels campus during
the current quarter.
BioMass SG&A was approximately $346 thousand during the 2009 period versus approximately $100
thousand during the 2008 period due to office and related costs of the Mesquite Lake biomass plant.
Wind Energy SG&A decreased approximately $232 thousand, down to $98 thousand resulting from
decreased new project related costs compared to 2008.
Operating Loss
Our operating loss was $3.4 million in the 2009 period versus a loss of $10.5 million in the
2008 period, due principally to hurricane losses incurred in 2008, reductions in corporate stock
compensation expense, and plant operating costs at our Houston plant.
Our BioFuels segment generated operating loss of $2.0 million and loss of $8.7 million,
respectively, during 2009 and 2008 due to hurricane losses in 2008 and decreases in plant operating
costs compared to 2008.
Our Wind Energy segment generated an operating loss of $131 thousand during 2009 as compared
to an operating loss of $399 thousand during 2008 due to decreased project related costs as a
result of fewer active projects.
Our BioMass segment generated operating losses of $346 thousand during 2009 and $103 thousand
during 2008; the increase was due to increased SG&A costs related to the Mesquite Lake project.
See accompanying notes to consolidated financial statements
-21-
\
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
Our unallocated corporate operating loss was $913 thousand for the 2009 period, compared to an
operating loss of $1.3 million during the 2008 period. The decrease was primarily due to decreases
in our SG&A as a result of lower salary and related personnel costs and insurance proceeds received
in the 2009 period for assets damaged in Hurricane Ike.
Interest and Other Revenues
Interest and other revenues were $878 thousand during the 2009 period and $120 thousand during
the 2008 period. The increase of $758 thousand was primarily due to $782 thousand in forgiveness
of indebtedness on certain trade payables.
Interest, Accretion and Other Expense
Interest, accretion and other expense increased from $1.4 million during the 2008 period up to
$1.5 million during the 2009 period. This was a result of increases in our redeemable debentures,
construction note, and working capital line of credit between the two periods.
Loss on Sale of Discontinued Operations
We recorded a loss of $88 thousand in the current period due to the abandonment of our Haining
City interests.
Loss from Continuing Operations
We realized a loss from continuing operations before noncontrolling interests of $4.0 million
in the 2009 period compared to a loss of $11.8 million during the 2008 period due to Hurricane
repairs and losses incurred in 2008, increased other income, and decreased operating losses at our
BioFuels plant in the current period.
Preferred Stock Dividends
Dividends on our preferred stock were $250 thousand in the 2008 period versus $147 thousand in
the 2009 period. The decrease was the result of the conversion of 5,750 shares of Series A
Preferred Stock into common shares between March and September of 2009.
Deemed Preferred Stock Dividends
In the 2008 period, we recorded non-cash deemed preferred dividends of $13.9 million in
relation to the Series B preferred stock issuance to reflect the excess of the fair value of the
securities issued in the transaction over the carrying value of the warrants cancelled.
Additionally, in association with our September 15, 2008 dividend, we recorded non-cash
dividends on both series of our preferred stocks of $599 thousand which was equal to the fair value
of the warrants issued on that date.
Net Loss to Common Stockholders
Our net loss to common stockholders was $3.5 million in the 2009 period versus a net loss of
$26.7 million in the 2008 period, primarily due to the deemed preferred dividends and Hurricane
losses in 2008, as well as decreased operating costs at our Houston plant, and increase in other
income in the 2009 period.
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008:
BioFuels Revenues
For the nine months ended September 30, 2009, we had total revenues of $5.3 million,
consisting of $4.6 million in biodiesel sales and terminal services of $528 thousand, including
storage and material handling charges, and $166 thousand in processing revenue. Revenues in the
prior year period consisted of $329 thousand in
methanol sales and terminal revenues of $348 thousand, due to the start-up of the biodiesel
refinery in June 2008 and the effect of Hurricane Ike.
See accompanying notes to consolidated financial statements
-22-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
BioFuels Costs of Sales and Services
For the nine months ended September 30, 2009, we had cost of sales and services of $8.0
million compared to $4.1 million during the nine months ended September 30, 2008. Our 2009 costs
included $6.2 million of costs related to our inventory consumption and losses which includes a
lower of cost or market impairment of $1.7 million related to decreases in the value of both our
raw materials on hand and the biodiesel produced at the plant, and $4.5 million in costs, including
feedstock and chemicals, which are directly related to the production of our biodiesel which was
sold during the period. The remaining $1.8 million in cost of sales and services were related to
our terminal operations and excess capacity while our refinery was operating, including utilities,
direct labor and other production costs. The prior year cost of sales and services consisted of
$1.7 million in material and freight costs and $2.3 million in operating expenses.
Wind Energy Project Costs
We incurred project costs associated with our wind energy projects of $140 thousand in the
2009 period compared to $246 thousand in the 2008 period. The decrease is due to fewer active
projects in the 2009 period.
Hurricane repairs and losses
We recorded a credit of $11.1 million to hurricane repairs and losses, for the nine months
ended September 30, 2009 due to the settlement and accrual of insurance proceeds from property
damage and business interruption claims as a result of Hurricane Ike.
Depreciation Expense
Depreciation expense was $3.2 million during the 2009 period compared to $1.2 million during
the 2008 period; the increase was due primarily to depreciation on our biodiesel refinery and
terminal assets which began during August 2008.
Selling, General and Administrative Expense
Selling, general and administrative expense (SG&A) was $8.0 million during the 2009 period
versus $16.5 million during the 2008 period, a decrease of $8.5 million.
Unallocated corporate SG&A decreased approximately $8.7 million between the two periods,
decreasing from $12.2 million down to $3.5 million. Approximately $7.1 million of this decrease
was due to employee stock option expense fell to $184 thousand from $7.3 million; primarily as a
result of options which were granted during the first half of 2008 which vested prior to 2009 or
were forfeited during the first half of 2009. Personnel and related costs, excluding stock
compensation, office related costs, travel and marketing, professional fees, and taxes and permits
all decreased as a result of managements efforts to reduce overall operating costs.
BioFuels SG&A increased $115 thousand, up from $3.0 million during 2008 to $3.1 million during
2009. This increase was primarily due to increases in property taxes and insurance costs partially
offset by the decreases in professional fees, personnel and related costs, and travel and marketing
costs.
BioMass SG&A was approximately $746 thousand during the 2009 period versus approximately $407
thousand during the 2008 period due to the increase in property tax and office and related costs at
the Mesquite Lake biomass plant.
Wind Energy SG&A decreased approximately $257 thousand, down to $628 thousand resulting from
decreased new project related costs compared to 2008.
See accompanying notes to consolidated financial statements
-23-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
Operating Income/ Loss
Our operating loss was $4.6 million in the 2009 period versus a loss of $25.1 million in the
2008 period, due principally to insurance proceeds received and accrued totaling $10.8 million and
decreases in stock compensation expenses, offset by the increase in total revenue.
Our BioFuels segment generated operating income of $1.8 million and loss of $11.2 million,
respectively, during 2009 and 2008 due to insurance proceeds, increased revenues, and decreases in
SG&A, as well as increased depreciation on the plant and
equipment.
Our Wind Energy segment generated an operating loss of $816 thousand during 2009 as compared
to an operating loss of $1.2 million during 2008 due to decreased project related costs as a result
of fewer active projects in the later part of the 2009 period.
Our BioMass segment generated operating losses of $774 thousand during 2009 and $411 thousand
during 2008; the increase was due to increased SG&A costs related to the Mesquite Lake project.
Our unallocated corporate operating loss was $4.8 million for the 2009 period, compared to an
operating loss of $12.3 million during the 2008 period. The decrease was primarily due to
decreases in our SG&A as a result of lower stock compensation expense and insurance proceeds
received for assets damaged in Hurricane Ike.
Interest and Other Revenues
Interest and other revenues were $988 thousand during the 2009 period and $589 thousand during
the 2008 period primarily due to $782 thousand in forgiveness of indebtedness on trade payables
partially offset by lower interest income in 2009 resulting from generally lower cash balances.
Interest, Accretion and Other Expense
Interest, accretion and other expense increased from $2.3 million during the 2008 period up to
$4.5 million during the 2009 period. This was a result of increases in our redeemable debentures,
construction note, and working capital line of credit between the two periods.
Gain on Sale of Discontinued Operations
We recorded a gain of $461 thousand in the current period resulting from the sale of our
Telogia plant which occurred during February of 2009, net of abandonment of our interests in
Haining City.
Loss from Continuing Operations
We realized a loss from continuing operations before noncontrolling interests of $8.2 million
in the 2009 period compared to a loss of $26.9 million during the 2008 period due to the insurance
proceeds, decreased operating losses at our BioFuels plant as well as the decrease in stock
compensation expense in the current period.
Preferred Stock Dividends
Dividends on our preferred stock were $750 thousand in the 2008 period versus $620 thousand in
the 2009 period. The decrease was the result of the conversion of 5,750 shares of Series A
Preferred Stock into common shares between March and September of 2009.
Deemed Preferred Stock Dividends
In the 2008 period, we recorded non-cash deemed preferred dividends of $13.9 million in
relation to the Series B to reflect the excess of the fair value of the securities issued in the
transaction over the carrying value of the warrants cancelled.
See accompanying notes to consolidated financial statements
-24-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
Additionally, in association with our September 15, 2008 dividend, we recorded non-cash
dividends on both series of our preferred stocks of $599 thousand
which were equal to the fair value
of the warrants issued on that date.
Net Loss to Common Stockholders
Our net loss to common stockholders was $7.8 million in the 2009 period versus a net loss of
$42.3 million in the 2008 period, primarily due to insurance proceeds received for claims resulting
from Hurricane Ike, decreased preferred dividends, and decreased
stock compensation expense, which were
partially offset by increases in depreciation expense, cost of sales and services, loss on asset
impairments, and interest expense.
Liquidity and Capital Resources
Cash Flow and Working Capital
As of September 30, 2009, we had cash and cash equivalents of approximately $765 thousand and
a working capital deficit of $50.2 million as compared to cash and cash equivalents of $2.2 million
and working capital of $2.5 million as of September 30, 2008. A significant component of our
working capital deficit at September 30, 2009 was $37.9 million in non-recourse debt at our
BioFuels location. This debt is non-recourse to GreenHunter Energy and is secured by certain
assets at our biodiesel refinery. Another component is our
non-recourse Series A Redeemable Debentures. Changes in our cash and working capital during the quarter ended
September 30, 2009 are described below.
Operating Activities
During 2009, operating activities provided $5.4 million versus used $24.8 million during 2008.
This decrease in cash used was principally due to the cost-cutting measures across the
organization as well as suspending production operations and selling feedstock inventories at our
biodiesel refinery during the first nine months of 2009 until the capital markets and biodiesel
markets improve.
We continue to have no operating sources of income with which to pay our operating costs other
than those revenues generated at our biodiesel refinery, and the use of those revenues are
restricted under our credit agreement with a bank. As a consequence, we are required to use cash
provided by financing, investing activities, or the sale of assets to fund a significant portion of our operating
activities.
Financing Activities
During the nine months ended September 30, 2009, we used cash of $4.3 million in our financing
activities. These activities included issuing $1.7 million in redeemable debentures, payment of
$175 thousand in deferred financing costs related to these debentures, $298 thousand in borrowing
on notes payable, and repayment of approximately $6.2 million under our notes payable. Details of
these activities are described below:
Notes Payable
During 2008, we financed our annual insurance premiums in the amount of $1.6 million. This
note beared interest at a fixed rate of approximately 3.84% and was payable in monthly installments
through March 15, 2009. We paid off the remaining balance of this note of approximately $421 thousand
during the first quarter of 2009.
During May 2009, we financed a portion of our annual insurance premiums in the amount of $222
thousand. This note bears interest at a fixed rate of 6.1% and is payable in monthly installments
through February 2, 2010.
During September 2009, we financed a portion of our annual insurance premiums in the amount of
$77 thousand. This note bears interest at a fixed rate of 7.0% and is payable in monthly
installments through June 17, 2010.
See accompanying notes to consolidated financial statements
-25-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
9% Series B Senior Secured Redeemable Debentures
During July 2008, we announced the offering of our 9% Series B Senior Secured Redeemable
Debentures. These notes have a term of five years. These debentures are non-recourse to GreenHunter
Energy and are secured by a second lien on our Mesquite Lake common stock. During the first quarter
of 2009, we raised $1.6 million, net of selling expenses, under this program.
Nonrecourse Term Loan and Working Capital Loan
BioFuels has a credit agreement with a bank which provides for a $33.5 million
construction/term loan facility and a $10 million working capital facility in connection with the
development, construction and operation of our BioFuels campus. The construction/term loan portion
of the facility is for a term of nine years and the working capital facility revolves annually upon
conversion of the construction loan to a term loan. Both facilities have prime (prime plus 3%) and
LIBOR (LIBOR plus 4%) based interest rate options. During 2009, we made repayments of $5.6 million
under the construction/term loan facility. During March 2009, we determined that we were not in
compliance with certain covenants of the credit agreement and have accordingly classified the
entire balance due as a current liability. On June 25, 2009, the Credit Agreement for the
non-recourse construction and working capital loans were amended. Pursuant to the terms and
conditions of the amendment, the lender has agreed to waive any claims of events of default until
November 15, 2009. Additionally, due to the settlement of certain business interruption and
property damage insurance claims with various underwriters related to damages sustained at
GreenHunter BioFuels from Hurricane Ike in September, 2008, the lender received a significant
paydown of approximately $4.5 million on its non-recourse construction and working capital loans in
July 2009, escrowed an additional $500 thousand principal payment for its scheduled payment date,
escrowed all interest due on the loan through November 15, 2009, and postponed the repayment of the
balance of its loans until November 15, 2009. All remaining funds due from insurance proceeds will
be used at GreenHunter BioFuels to fund existing working capital requirements. If we do not close
on a sale or other transaction to repay the note by that date, the bank has the right to seize
BioFuels cash on hand at that date and foreclose on the BioFuels refinery in Houston. We are
currently in discussions with the bank on matters pertaining to this deadline but the outcome of
those discussions is uncertain at this time.
Investing Activities and Future Requirements
Capital Expenditures
During the first nine months of 2009, we invested approximately $735 thousand in capital
expenditures, which was primarily comprised of a glycerin desalting project at our BioFuels campus.
Forecast
For 2009, we have not adopted a formal corporate capital expenditure budget due to our current
lack of capital resources. We have formulated specific project budgets and will adopt a formal
corporate capital expenditure budget upon securing necessary financing commitments.
BioFuels
While we do not have a formal capital expenditure budget in place, we plan to seek financing
for approximately $1.8 million in capital projects at our Houston campus. These projects would
consist of $500 thousand for glycerin desalting, $360 thousand for a water wash system, $580
thousand for improvements to our process, and $330 thousand for other upgrades. If sufficient
capital is available, we would also pursue completion of our glycerin
refinery for a total cost of approximately $4 million. Currently, due to lack of operating
capital and the current biodiesel market, we have temporarily shut-down biodiesel production and
methanol processing, and laid off most of our BioFuels employees. We estimate that our Houston
campus will be restricted to terminal storage activities for the
remainder of 2009.
See accompanying notes to consolidated financial statements
-26-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
BioMass
BioMass is seeking financing for approximately $24 million in capital expenditures in 2009 for
refurbishment and expansion costs at the Mesquite Lake biomass facility in El Centro, California.
Wind Energy
Wind Energy is not currently planning on any capital expenditures in 2009 due to adverse
economic conditions for wind projects because of low commodity prices.
On October 28, 2009 we sold our equity ownership interest in Guangdong MingYang Wind Power
Technology Co., Ltd. for $9.1 million, resulting in a gain of $1.0 million.
Obligations Under Material Contracts
Below is a brief summary of the payment obligations under material contracts to which we are a
party, other than the debt and convertible debt obligations described above.
Consulting Agreement with former owner of Mesquite Lake
We
previously granted the former owner of Mesquite Lake the non-exclusive right to represent us in
the location and development of renewable energy projects. This
entity was to be responsible for
locating, analyzing and delineating the business viability, as well as providing an adequate
development strategy for these projects in exchange for a quarterly fee of $98 thousand. The
quarterly payments began June 30, 2007 and were scheduled to continue every quarter thereafter
until the last payment is due on June 30, 2012. During the fourth quarter of 2008, we suspended
these payments to this entity pending resolution of a contractual dispute regarding the validity of
certain air permits that were represented to be in place at Mesquite Lake on the date of our
acquisition. As of September 30, 2009, we have accrued $490 thousand in fees related to this
contract until this matter is resolved.
Port Sutton
In association with our purchase of the Port Sutton lease option, we agreed to issue
restricted shares to the Seller worth $2 million, subject to a floor price of $14.25 and a ceiling
of $25. These shares will be issued the sooner of 18 months from the October 2008 close date or
upon the first biodiesel production or storage at this site. Accordingly, we will issue an
additional minimum number of 80,000 common shares up to a maximum number of
140,351 common shares. This lease
option expired during April 2009.
Mesquite Lake Power Purchase Agreement
In August, 2009 we entered into a 20 year Power Purchase Agreement with a public utility
based in Southern California for 100% of the net output of our Mesquite Lake biomass power plant
located in the Imperial Vally, California. Under this Power Purchase
Agreement, we are required to begin power
sales in 2011. Pursuant to the related brokerage agreement, we are required to pay commissions of
$300 thousand within 30 days of execution of the contract and an additional sum of $1.1 million on
various dates subsequent to commercial operations of the plant for a total obligation of $1.4
million.
Weaknesses and Uncertainties that May Affect our Financial Condition and Ability to Continue
as a Going Concern
The execution of our business plan is contingent upon our ability to obtain the requisite
capital to design, construct and operate our BioFuels, BioMass, and Wind Energy projects as well as
to fund our general and administrative expenses, financing costs and preferred dividend payments
until these projects become profitable.
At September 30, 2009, we had a working capital deficit of approximately $50.2 million, which
includes $37.9 million in debt that is non-recourse to
GreenHunter Energy, Inc., and our non-recourse Series A Redeemable
Debentures we did not
have significant cash flows from any operating assets. Due to the sale of our interests in
Guangdong Ming Yang Wind Power Technology Co., Ltd,
See accompanying notes to consolidated financial statements
-27-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
we currently have sufficient cash reserves to fund our expected operating requirements for
next 12 months. We will not be able to rely on cash flows from our biodiesel refinery until market
conditions for biodiesel improve dramatically. GreenHunter BioFuels will have to secure additional
capital sources to provide for both working capital needs and any planned project development in
the future. Currently, operations at BioFuels consists only of terminalling services which may not
provide sufficient cash flow to cover overhead costs and interest on the non-recourse notes. We
also were in technical default under our non-recourse working capital and construction notes
payable as of September 30, 2009 and were unable to make the interest payments on our Series A
Redeemable Debentures for the periods of April through September 2009. These factors raise some
doubt about our ability to continue as a going concern.
We are in the process of seeking additional capital, particularly with respect to the
development of our Mesquite Lake Biomass asset. We have applied with the Department of Energy for
loan guarantees for additional borrowing for both our BioFuels and BioPower plants. We may also
seek capital through issuance of common or preferred equity or equity-linked securities, project
financing, joint venture projects, sales of certain projects, or strategic business combinations.
On June 25, 2009, the Credit Agreement for the non-recourse construction and working capital loans
was amended. Pursuant to the terms and conditions of the amendment, the lender has agreed to waive
any claims of events of default until November 15, 2009. Additionally, due to the settlement of
certain business interruption and property damage insurance claims with various underwriters
related to damages sustained at GreenHunter BioFuels from Hurricane Ike in September, 2008, the
lender received a significant paydown of approximately $4.5 million on its non-recourse
construction and working capital loans in July 2009, escrowed an additional $500 thousand principal
payment for its scheduled payment date, escrowed all interest due on the loan through November 15,
2009, and postponed the repayment of the balance of its loans until November 15, 2009. All
remaining funds due from insurance proceeds will be used at GreenHunter BioFuels to fund existing
working capital requirements. If we do not close on a sale or other transaction to
repay the note
by that date, the bank has the right to seize BioFuels cash on hand at that date and foreclose on
the BioFuels refinery in Houston. We are having active
discussions with the bank about extending the current
deadline to allow more time and we are meeting with potential buyers
and joint venture partners.
Due to the deterioration in the debt and equity capital markets for alternative energy
companies, there can be no assurance that we will be successful in raising additional capital in
fiscal year 2009.
The assumptions that we have used in our business plan have not been tested as we only
recently commenced production at our Houston refinery and have not begun operations at any of our
other projects. As a result, we have based our business plan on agreements that are not yet
operational as well as on proposals that have not yet been finalized or implemented. Definitive
versions of such agreements, documents, plans, or proposals may never be finalized or, when
finalized, may contain terms or conditions that vary significantly from our assumptions or may not
prove to be profitable or may otherwise not perform in accordance with our assumptions.
We face uncertainty as to the actual construction cost for our proposed production facilities.
Construction cost overruns may occur due to (i) change orders approved by us or (ii) delays in the
construction of our proposed production facilities caused by numerous factors, including, but not
limited to force majeure, the destruction of the production facilities by fire or other hazards, or
an inability to obtain materials or labor in a timely manner.
Additionally, our financial condition may be adversely impacted by delays in the completion of
our production facilities. We have developed an ambitious timetable for completion of the
financing, regulatory, design and engineering, and construction phases of our production facilities
which is dependent upon the following factors: (i) how quickly we can obtain debt and equity-based
capital required for the financing and construction of our production facilities; (ii) weather and
seasonal factors that generally affect construction projects and (iii)
construction delays or other events beyond our control. If it takes longer than we anticipate
to complete the financing, obtain necessary permits, build the proposed production facilities, or
achieve commercial operations at
See accompanying notes to consolidated financial statements
-28-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
the facilities, our costs of capital could increase. We could also be forced to seek
additional sources of capital and would lose the additional revenues related to the products to be
produced at the facilities, each of which could harm our business and make it more difficult to
service our debt obligations.
In our BioFuels business, we face additional uncertainty as to the cost and availability of
feedstock and chemicals to produce biodiesel and glycerin as well as in the demand for and price of
these products. Our ability to produce biodiesel profitably also depends on the continued
availability of the $1 per gallon federal tax credit for blenders of biodiesel. This tax credit
was renewed during 2008 and currently has an expiration date of December 31, 2009. This credit is currently
being considered for another extension until December 31, 2010 or later by the United States
government. It is possible that the government might also restrict the availability of this credit in a manner that
might interfere with our plans to obtain feed-stocks worldwide or in our plans to market our
biodiesel production worldwide. Trade restrictions imposed by other countries also may negatively
impact the price we receive for our biodiesel, regardless of the availability of the federal tax
credit. One such restriction, which became effective March 13, 2009, is European Union (EU)
Trade Union approval of import duties aimed at preventing importation of subsidized biodiesel,
specifically B99, from the United States which are sufficiently high as to offset any benefit from
existing United States subsidies, and therefore hurt worldwide demand for our products.
In order to limit our exposure to pricing for a single commodity, such as soybean oil, we have
designed our biodiesel refinery to be capable of processing the widest variety of vegetable oils and
animal fats. We also chose to locate our refinery along the Houston Ship Channel to allow us to
take advantage of global supplies of these feedstocks. These actions, however, do not guarantee
that we will be able to obtain these supplies at a price adequate to return a profit to our
business. Worldwide demand for food-based feedstocks such as vegetable oil and animal fats has
kept feedstock pricing sufficiently high relative to current biodiesel pricing such that many
biodiesel producers, including ourselves, have recently been forced to suspend operations.
Based on both current and projected feedstock and biodiesel pricing, we expect thin to
negative margins for domestic biodiesel producers in the for seeable
future without further government intervention. Accordingly, in the short-term, our success
will depend on our ability to enter into terminal leasing arrangements until the biodiesel market
improves. The terminal tank storage leases are expected to sustain our organization during these
difficult market conditions.
We will continue to seek feedstocks from global sources to determine whether we can procure
raw materials at adequate prices to achieve a weighted average cost sufficient to operate
profitably. In the long-term, our success will depend on stabilization of these feedstock supplies
and prices and in finding other non-food based feedstocks, such as jatropha oil and algae based
oils. Stability in our cost structure might also depend on our ability to virtually integrate some
or all of our own feedstock sources, such as growing and processing our own supplies.
We face an uncertain market demand for our biodiesel products. Formerly, the EU was a robust
market, but now domestic biodiesel producers face uncertainty relative to market demand and volume.
As a result of the recent import duties imposed by the EU Trade Union, we will need to focus on
developing domestic, Latin America and Caribbean biodiesel markets in
2010 and beyond.
In the United States, the demand for our biodiesel product will depend on its acceptance as a
substitute fuel for petroleum-based diesel and on mandates and incentives for its use enacted by
federal, state, and local governments. Our ultimate success in developing a domestic market for our
biodiesel product might also depend on our ability to create a distribution network and terminal
operations to meet demand as and if it grows.
Critical Accounting Policies and Other
The accompanying financial statements include the accounts of GreenHunter Energy, Inc.
(GreenHunter) and our wholly-owned subsidiaries, GreenHunter Wind Energy, LLC (Wind Energy),
GreenHunter Mesquite Lake,
See accompanying notes to consolidated financial statements
-29-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
LLC (Mesquite Lake), GreenHunter BioFuels, Inc. (BioFuels), and Telogia Power, LLC
(Telogia). The statements also include Haining City Wind Energy, LLC (Haining) which has a 15%
noncontrolling interest and Wheatland Wind Power, LLC (Wheatland) which has a 70% noncontrolling
interest. All significant intercompany transactions and balances have been eliminated.
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the
period. Our estimates and assumptions are based on historical experience, industry conditions and
various other factors which we believe are appropriate. The reported financial results and
disclosures were determined using the significant accounting policies, practices and estimates
described below. We believe the reported financial results are reliable and that the ultimate
actual results will not differ significantly from those reported.
Project Costs
Project costs to date have been incurred in the preliminary stage of wind and biomass project
development and have therefore not been capitalized. These costs include transmission and
interconnection studies, engineering studies, legal fees and environmental, biological and
preservation studies relating to specific sites. Costs directly attributable to the construction
and acquisition of wind and biomass facilities have been capitalized and will be depreciated over
their estimated lives.
Fair Value of Financial Instruments
Our financial instruments, including cash and cash equivalents, accounts receivable and
accounts payable are carried at cost, which approximates their fair value because of the short-term
maturity of these instruments.
Revenue recognition
We record revenues when the product has been delivered or the services have been provided to
the customer, the sales price is fixed or determinable, and collectability is reasonably assured.
Transportation, shipping and handling costs incurred for shipments of product to customers are
included in selling, general and administrative expense. Excise and other taxes collected from
customers and remitted to governmental authorities are not included in revenue.
Stock-Based Compensation
We measure all share-based payments, including grants of employee stock options, in accordance
with ACS standards on Share-Based Payments which requires the use of a fair-value based method.
The cost of services received in exchange for awards of equity instruments is recognized in our
statement of operations based on the grant fair value of those awards amortized over the requisite
service period. We use a standard option pricing model, the Black-Scholes model, to measure the
fair value of stock options granted. Certain of our grants have performance-based vesting terms.
We amortize the fair value of these awards over their estimated vesting terms which are based on
both the probability and estimated timing of the achievement of these performance goals.
Impairments
We periodically evaluate whether events and circumstances have occurred that may warrant
revision of the estimated useful life of long-term assets or whether the remaining balance of
long-term assets should be evaluated
See accompanying notes to consolidated financial statements
-30-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
for possible impairment. We compare the estimate of the related undiscounted cash flows over
the remaining useful lives of the applicable assets to the assets carrying values in measuring
their recoverability. When the future cash flows are not sufficient to recover an assets carrying
value, an impairment charge is recorded for the difference between the assets fair value and its
carrying value. During 2009, we recorded an impairment of $1.5 million related to our inability to
pay the final lease option extension for our Port Sutton lease.
Asset Retirement Obligations
In accordance with ASC standards on accounting for asset retirement obligations, the fair
value of an asset retirement cost, and corresponding liability, should be recorded as part of the
related long-lived asset and subsequently allocated to expense using a systematic and rational
method. We have not recorded any asset retirement obligations because
we plan to conduct refinery
operations and will continue to do so in the future, we never intend to cease operations or retire
all of our assets, and we cannot estimate costs that we do not intend to incur. We do not believe
we are subject to any reclamation obligations either now or in the future.
Recent Accounting Standards
During the third quarter of 2009, the Company adopted The FASB Accounting Standards
Codification (ASC or Codification) and the Hierarchy of Generally Accepted Accounting Principles
(GAAP) which establishes the Codification as the sole source for authoritative U.S. GAAP and will
supersede all accounting standards in U.S. GAAP, aside from those issued by the SEC. The adoption
of the Codification did not have an impact on the Companys results of operations, cash flows or
financial position. Since the adoption of the Accounting Standards Codification (ASC) the Companys
notes to the consolidated financial statements will no longer make reference to Statement of
Financial Accounting Standards (SFAS) or other U.S. GAAP pronouncements.
During the first quarter of 2009, in accordance with U.S. GAAP, the Company adopted the
standards on business combinations and noncontrolling interests in Consolidated Financial
Statements. These standards aim to improve, simplify, and converge internationally, the accounting
for business combinations and the reporting of noncontrolling interests in consolidated financial
statements. These standards require an entity to measure the business acquired at fair value and to
recognize goodwill attributable to any non-controlling interests (previously referred to as
minority interests) rather than just the portion attributable to the acquirer. The standards also
result in fewer exceptions to the principle of measuring assets acquired and liabilities assumed in
a business combination at fair value. In addition, the standards require payments to third parties
for consulting, legal, audit and similar services associated with an acquisition to be recognized
as expenses when incurred rather than capitalized as part of the business combination. Its
adoptions did not affect our financial statements.
During the first quarter of 2009, in accordance with U.S. GAAP, the Company adopted the
standard on consolidation as it relates to noncontrolling interests. The standard changed the
accounting and reporting for minority interests, which were recharacterized as noncontrolling
interests and classified as a component of equity. The standard requires retrospective adoption of
the presentation and disclosure requirements for existing minority interests. All other
requirements of the standard will be applied prospectively. The adoption of the guidance did not
have a material impact on the Companys financial statements.
During the first quarter of 2009, in accordance with U.S. GAAP, the Company adopted the
standard related to disclosures about derivative instruments and hedging activities, to enhance the
disclosure regarding the Companys derivative and hedging activities to improve the transparency of
financial reporting. The adoption of this standard did not have a significant impact on the
Companys results of operations, cash flows or financial position.
During first quarter of 2009, in accordance with U.S. GAAP, the Company adopted the guidance
on determining whether an instrument (or embedded feature) is indexed to an entitys own stock.
This guidance
See accompanying notes to consolidated financial statements
-31-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
requires entities to evaluate whether an equity-linked financial instrument (or embedded
feature) is indexed to its own stock in order to determine if the instrument should be accounted
for as a derivative. The guidance is effective for financial statements issued for fiscal years
beginning after December 15, 2008 and interim periods within those fiscal years. The adoption of
the guidance did not have a material impact on our financial statements.
During first quarter of 2009, in accordance with U.S. GAAP, the Company adopted the guidance
on equity method investment accounting considerations. This guidance states that an equity method
investor shall account for a share issuance by an investee as if the investor had sold a
proportionate share of its investment. Any gain or loss to the investor resulting from an
investees share issuance should be recognized in earnings. Previous to this guidance, changes in
equity for both issuances and repurchases were recognized in equity. The guidance is effective for
financial statements issued for fiscal years beginning after December 15, 2008 and interim periods
within those fiscal years. The adoption of the guidance did not have an impact on our financial
statements.
During the second quarter of 2009, in accordance with U.S. GAAP, the Company adopted the
standards on subsequent events. This pronouncement establishes standards of accounting for and
disclosure of events that occur after the balance sheet date but before financial statements are
issued.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, unconsolidated variable interest entities,
or financing partnerships.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Our operations may expose us to market risks in the areas of commodity price risk, foreign
currency exchange risk, and interest rate risk. We do not have formal policies in place at this
stage of our business to address these risks, but we may develop strategies in the future to deal
with the volatilities inherent in each of these areas. We have not entered into any derivative
positions through September 30, 2009.
Commodity Price Risk
Our biodiesel production will be dependent upon feedstock oils, which are derived from
agricultural commodities such as vegetable oils (soybeans, rapeseed, canola, palm and jatropha) and
animal fats. Significant reductions in the harvest of these commodities due to a number of
factors, including adverse weather conditions, domestic and foreign government farm programs and
policies, and farmer planting decisions as well as changes in global demand and supply could result
in increased feedstock oil costs which could increase our costs to produce biodiesel. In the
future, we may decide to address these risks through the use of fixed price supply contracts as
well as commodity derivatives.
Interest Rate Risk
We are exposed to interest rate risk on our variable rate debt. In the future, we may enter
into interest rate derivatives to change portions of our debt from floating to fixed. At September
30, 2009, we carried approximately $37.9 million in variable rate debt.
See accompanying notes to consolidated financial statements
-32-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Companys management, with the participation of the Companys Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report.
Based on such evaluation, the Companys Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, the Companys disclosure controls and procedures are
effective.
Changes in Internal Control Over Financial Reporting
There have been no significant changes in the Companys internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal
quarter to which this report relates that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Orion
On September 16, 2008, Orion Ethanol, Inc (Orion), brought suit against GreenHunter Energy,
Inc., GreenHunter BioFuels, Inc., Gary C. Evans, et al, (Defendants), in the United
States District Court for the District of Kansas. Orion brought suit against the defendants
alleging that GreenHunter Energy and GreenHunter BioFuels entered into a conspiracy with the other
defendants to weaken Orion, acquire or divert its assets and opportunities and ultimately gain
control and ownership of Orion. Specifically, Orion alleges that GreenHunter Energy and
GreenHunter BioFuels, as well as one of GreenHunters significant institutional shareholders,
tortiously interfered with Orions opportunities and expectancies in acquiring certain assets and
interfered with Orions ability to complete financing with a banking institution. The lawsuit also
alleges claims against Mr. Evans, a former officer and director of Orion, for conflicts of interest
and breaches of fiduciary duties in connection with his actions as such an officer and director.
The
Federal Judge on this case has entered an order dismissing all of the GreenHunter entities from
the lawsuit for lack of jurisdiction on July 29, 2009. No amounts have been accrued as no losses
are expected as a result of this claim.
Bioversel
On September 24, 2008, Bioversel, Inc. (Bioversel) brought suit against GreenHunter
BioFuels, Inc. alleging that BioFuels has repudiated its biodiesel tolling agreement, as amended,
with Bioversel. Bioversel has alleged breach of contract, fraud and conversion regarding our
ability to process feedstock into biodiesel under the contract.
We have been served with this lawsuit and we have responded to Bioversels first set of
discovery requests and have requested our own sets of discovery. We vigorously deny the
allegations in the lawsuit and believe the lawsuit is completely without merit and have filed a
countersuit against plaintiff for failure to make payments to us under the contract. No amounts
have been accrued as no losses are expected as a result of this claim.
Jacob Stern
Jacob Stern & Sons, Inc. (Jacob Stern) brought suit against GreenHunter BioFuels, Inc. on
February 19, 2009 alleging that BioFuels breached two separate contracts for the purchase of animal fat
feedstock for our biodiesel refinery in Houston. We deny that any
form of contractual agreement was ever
entered into between the parties.
See accompanying notes to consolidated financial statements
-33-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
We have been served with this lawsuit and have responded. At this point in the litigation
process, we believe it is too early to determine the ultimate outcome of this lawsuit.
Accordingly, no amount have been accrued.
Crown Engineering
Crown Engineering and Construction brought suit against GreenHunter Energy, Inc. on April 1,
2009 alleging that we breached our contract for services to refurbish our biomass plant in
California. We have denied that the alleged amount is due in full.
We
have been served and have answered the lawsuit. Crown Engineering has presented us with
invoices totaling $6.1 million. At this point in the litigation process, we believe it is too
early to determine the ultimate outcome of this lawsuit but believe we will ultimately be
responsible for not more than 80% of the claim and have recorded this contingency as a current
liability.
Gavilon
Gavilon brought an arbitration claim against GreenHunter BioFuels, Inc. during May 2009
alleging that we breached a contract for the purchase of animal fat feedstock for our biodiesel
refinery in Houston. We deny that any form of contractual agreement was ever entered into or agreed to
between the parties. Accordingly, no amounts have been accrued.
We have been served with this claim and have formulated a response. At this point in the
arbitration process, we believe it is too early to determine the ultimate outcome of this lawsuit.
Steel Painters
Steel Painters has brought suit against GreenHunter BioFuels and GHE for failure to pay for
goods and services rendered. GreenHunter Energy is seeking a dismissal for lack of a claim against
it. At this point in the litigation process, we believe it is too early to determine the ultimate
outcome of this lawsuits. Accordingly, no amounts have been accrued.
Bridgefield Electrical Services and Quality Contract Services
Bridgefield and Quality have brought suit against GreenHunter BioFuels and GHE for failure to
pay for goods and services rendered. The law suits were settled in
the third quarter for immaterial
amounts.
Shamrock Gulf
Shamrock Gulf, LLC brought suit against GreenHunter BioFuels for failure to pay for goods and
services rendered. The lawsuit was settled on July 28, 2009 for an immaterial amount.
See accompanying notes to consolidated financial statements
-34-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) The following table provides information about purchases made by us during
the nine months ended September 30, 2009, of our common stock.
(c) | ||||||||||||||||
Total Number of | ||||||||||||||||
Shares Purchased | (d) | |||||||||||||||
as Part of a | Maximum Number | |||||||||||||||
Publicly | of Shares that May | |||||||||||||||
(a) | (b) | Announced | Yet be Repurchased | |||||||||||||
Total Number of | Average Price Paid | Repurchase | Under the Plan or | |||||||||||||
Period | Shares Purchased | per Share | Program | Program | ||||||||||||
January 1 through January 31, 2009 |
| | 410,600 | |||||||||||||
February 1 through February 28,
2009 |
| $ | | | 410,600 | |||||||||||
March 1 through March 31, 2009 |
| $ | | | 410,600 | |||||||||||
April 1 through April 30, 2009 |
| $ | | | 410,600 | |||||||||||
May 1 through May 31, 2009 |
| $ | | | 410,600 | |||||||||||
June 1 through June 30, 2009 |
| $ | | | 410,600 | |||||||||||
July 1 through July 30, 2009 |
| $ | | | 410,600 | |||||||||||
August 1 through August 30, 2009 |
| $ | | | 410,600 | |||||||||||
September 1 through September 30,
2009 |
| $ | | | 410,600 |
See accompanying notes to consolidated financial statements
-35-
GREENHUNTER ENERGY, INC.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
Item 6. Exhibits and Reports on Form 8-K
Exhibit | ||
Number | Exhibit Title | |
3.1* | Certificate of Incorporation |
|
3.2* | Amendment to the Certificate of Incorporation |
|
3.3* | Bylaws |
|
3.4 | Amendment No. 1 to the Bylaws |
|
4.1**** | Amended and Restated Certificate of Designations of 2007 Series A 8% Convertible Preferred Stock |
|
4.2**** | Form of Warrant Agreement by and between GreenHunter Energy, Inc. and West Coast Opportunity Fund, LLC |
|
4.3* | Form of Warrant Agreement by and between GreenHunter Energy, Inc. and certain accredited investors |
|
4.4**** | Certificate of Designations of 2008 Series B Convertible Preferred Stock |
|
10.1* | Stock Purchase Agreement dated February 2007 among Channel Refining Corporation, GreenHunter Energy, Inc. and certain
selling shareholders |
|
10.2* | Amendment No. 1 to Stock Purchase Agreement dated February 2007 among Channel Refining Corporation, GreenHunter
Energy, Inc. and certain selling shareholders |
|
10.3* | Purchase and Sale Agreement, dated May 14, 2007 between GreenHunter Energy, Inc. and Chateau Energy, Inc. regarding
acquisition of power purchase agreement |
|
10.4* | Purchase and Sale Agreement, dated May 14, 2007 between GreenHunter Energy, Inc. and Chateau Energy, Inc. regarding
acquisition of Mesquite Lake Resource Recovery Facility |
|
10.5* | 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 investors |
|
10.7* | Registration rights agreement, dated April 13, 2007 between GreenHunter Energy, Inc. and certain selling shareholders |
|
10.8* | 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*** | 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 time |
|
10.11** | Subscription and Equity Transfer Agreement between GreenHunter Energy, Inc. and MingYang Wind Power Technology Co.
LTD. et al., dated November 28, 2007 |
|
10.12** | Master Turbine Supply Agreement between GreenHunter Energy, Inc. and MingYang Wind Power Technology Co. LTD. et al.,
dated November 28, 2007 |
|
10.13***** | Amendment no. 1 to the 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 time |
|
31.1 | Certifications of the Chief Executive Officer. |
|
31.2 | Certifications of the Chief Financial Officer. |
|
32.1 | Certifications of the Chief Executive Officer provided pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32.2 | Certifications of the Chief Financial Officer provided pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Incorporated by reference to the Companys Form 10, dated October 19, 2007 | |
** | Incorporated by reference to the Companys Form 10-K, dated June 30, 2008 | |
*** | Incorporated by reference to the Companys Form 10-Q, dated May 15, 2008 | |
**** | Incorporated by reference to the Companys Form 8-K, dated August 21, 2008 | |
***** | Incorporated by reference to the Companys Form 8-K, dated June 25, 2009 | |
| Filed herewith |
See accompanying notes to consolidated financial statements
-36-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized
GreenHunter Energy, Inc. |
||||
Date: November 16, 2009 | By: | /s/ Gary C. Evans | ||
Gary C. Evans | ||||
Chairman and Chief Executive Officer | ||||
Date: November 16, 2009 | By: | /s/ David S. Krueger | ||
David S. Krueger | ||||
Vice President, and Chief Financial Officer | ||||
See accompanying notes to consolidated financial statements
-37-