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EX-32.1 - EX-32.1 - GreenHunter Resources, Inc.d73272exv32w1.htm
EX-31.2 - EX-31.2 - GreenHunter Resources, Inc.d73272exv31w2.htm
EX-32.2 - EX-32.2 - GreenHunter Resources, Inc.d73272exv32w2.htm
EX-21.1 - EX-21.1 - GreenHunter Resources, Inc.d73272exv21w1.htm
EX-31.1 - EX-31.1 - GreenHunter Resources, Inc.d73272exv31w1.htm
EX-10.12 - EX-10.12 - GreenHunter Resources, Inc.d73272exv10w12.htm
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
     
(Mark one)     
     
þ   Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2009
     
o   Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ____________ to ___________.
Commission File No. 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)
  (I.R.S. Employer
Identification No.)
1048 Texan Trail, Grapevine, Texas 76051
 
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code: (972) 410-1044
Securities registered pursuant to Section 12(b) of the Exchange Act:
     
Title of each class   Name of each exchange on which registered
     
Common Stock ($.001 par value)   NYSE Amex
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o       No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes o       No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ       No o
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer or non-accelerated filer (as defined in Rule 12b-2 of the 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 checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes o No þ
As of June 30, 2009, the aggregate market value of voting stock held by non-affiliates was $9,799,992 as computed by reference to the closing price on that date.
The number of shares outstanding of the registrant’s common stock at March 30, 2010 was 22,116,464.
 
 

 


 

TABLE OF CONTENTS
             
           
 
           
  Business     1  
  Risk Factors     18  
  Properties     35  
  Legal Proceedings     36  
  Submission of Matters to a vote of Security Holders     36  
 
           
           
 
           
  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     38  
  Selected Financial Data     38  
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     39  
  Quantitative and Qualitative Disclosures About Market Risks     53  
  Financial Statements and Supplementary Data     54  
  Changes In and Disagreements with Accountants on Accounting and Financial Disclosure     54  
  Controls and Procedures     54  
  Other Information     55  
 
           
           
 
           
  Directors, Executive Officers and Corporate Governance     55  
  Executive Compensation     60  
  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     62  
  Certain Relationships and Related Transactions, and Director Independence     63  
  Principal Accounting Fees and Services     63  
 
           
           
 
           
  Exhibits and Financial Statement Schedules     64  
 EX-10.12
 EX-21.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

 


Table of Contents

EXPLANATORY NOTE
     The Company is filing this amendment to its Form 10-K for the period ended December 31, 2009 to correct certain typographical errors, the most significant of which was a correction of the amount for net loss for common stockholders in the consolidated statement of operations.
Part I
Item 1.   Business
     Some of the information contained in this Description of Business may contain forward-looking statements. Such statements can be identified by the use of forward-looking words such as “may,” “will,” “anticipate,” “expect,” “estimate,” “continue” or other such words. These types of statements discuss future expectations or contain projections or estimates. When considering such forward-looking statements, investors should consider the risk factors set forth in the “Risk Factors” section of this report. These risk factors and other unidentified factors could cause actual results to differ materially from those contained in any forward-looking statement.
Website Access to Reports
     We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, available free of charge on or through our internet website, www.greenhunterenergy.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Incorporation and Organization
     GreenHunter Energy, Inc. (“GreenHunter”) was incorporated under the laws of the Delaware General Corporation Law (“DCGL”) in the State of Delaware on June 7, 2005 under the name BTHC IV, Inc. We were formed for the purpose of reincorporating BTHC IV, LLC, a Texas limited liability company, in the State of Delaware. BTHC IV, LLC was reincorporated in Delaware by means of a merger into GreenHunter on April 11, 2006.
     On December 6, 2006, GreenHunter Wind Energy, LLC (“Wind Energy”), a Wyoming limited liability company, completed a “reverse acquisition” with us. In exchange for all of the membership interest of Wind Energy, we issued 14,560,000 shares of Common Stock to the sole shareholder of Wind Energy, or 97.1% of all of the issued and outstanding stock of GreenHunter. Simultaneous with the closing of the transaction with Wind Energy, we changed our name to GreenHunter Energy, Inc. and increased the number of authorized shares of Common Stock to 100,000,000, consisting of 90,000,000 shares of Common Stock, having a par value of $.001 per share and 10,000,000 shares of preferred stock, having a par value of $.001 per share.
     GreenHunter was formed to be the first publicly traded renewable energy company based in the U.S. that provides to investors a portfolio of diversified assets in the alternative energy sector. Our corporate headquarters are located at 1048 Texan Trail, Grapevine, Texas 76051, and our phone number is (972) 410-1044.
Business
     GreenHunter’s business plan is to acquire businesses, develop projects and operate assets in the renewable energy sectors of wind, solar, geothermal, biomass and biofuels. We intend 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. Headquartered in Grapevine, Texas, we were formed with the aim of changing the way power and renewable energy fuels are produced and ultimately distributed. Our goal is to be more efficient and therefore provide more economic returns for our shareholders.

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     We are currently focused on the renewable energy sectors of wind, biomass and biofuels. Our assets consist of leases of real property for future development of wind energy projects located in Montana, Texas, Wyoming and California, one of the nation’s largest biodiesel refineries located in Houston, Texas, and a biomass power plant located in El Centro, California. It is our intention in the future to expand our renewable portfolio to possibly include solar, geothermal and ethanol (generated from sources other than corn). We believe a unique opportunity exists at our El Centro, California holdings to possibly build a “renewable energy campus” that could include some or all of these alternative energy businesses, including solar, geothermal and sugarcane based ethanol.
     The following is a description of renewable energy assets currently owned and recently acquired by GreenHunter, including management’s discussion of the competitive strengths of the assets.
Biofuels
     Unlike other renewable sources, biomass can be converted directly into liquid fuels called “biofuels” to help meet transportation needs. The two most common types of biofuels are biodiesel and ethanol.
     Ernst & Young includes biofuels in its renewable energy index. The United States is at the top of the “All Biofuels Index” due to its recent strength and scale of development, its high gasoline and diesel consumption and its sophisticated financial markets.
     The biodiesel market has grown significantly over the past several years with most consumption concentrated in the federal, state and local government. According to the National Biodiesel Board, U.S. biodiesel production was approximately 15 million gallons in 2002 and U.S. production has grown to an estimated 690 million gallons in 2008. By comparison, the European biodiesel market is more mature than the U.S. market, having consumed approximately 1 billion gallons of biodiesel in 2005. While current economic conditions and the recent EU tariff on U.S. produced biodiesel have created extremely challenging conditions for the biodiesel market, we believe the following factors will contribute to its ultimate recovery.
     Drivers of the biodiesel market include:
    Beneficial government initiatives and incentives. Initiatives and incentives at the federal, state and local government levels enhance the economics and market demand for biodiesel production. These initiatives include tax credits as well as mandates for increased use of biodiesel and biodiesel blends.
 
    Environmental benefits. Biodiesel is biodegradable, nontoxic and essentially free of sulfur and aromatics. Additionally, biodiesel reduces tailpipe exhaust emissions, greenhouse gas emissions and sulfur dioxide emissions (acid rain) and minimizes black smoke and smog-causing particulate matter.
 
    Easy integration into existing infrastructure. As discussed above, biodiesel can be used in diesel engines with no modifications as B100 or mixed with petroleum diesel, such as the B20 and B5 blends. A blended biodiesel may enhance petroleum diesel because it has the ability to extend engine life and decrease operating expenses due to the increase in engine lubricity.

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    Increased energy security. U.S. domestic oil production has continuously declined while demand has grown since the mid-1980s, increasing dramatically our nation’s import requirements of crude oil from third world countries. Use of biodiesel, which can be produced with a variety of feedstocks from both domestic and worldwide sources, can help reduce dependence on imported oil. Many of these feedstocks are normally unfit for human consumption.
 
    Imbalance of supply and demand. We believe that the biodiesel industry lacks sufficient capacity for production of high quality B100 to meet anticipated demand for biodiesel as well as current biodiesel specifications mandated by the U.S. government. ASTM D-6751-08 requires a new Cold Soak Filtration test standard which will create problems for biodiesel producers who use animal fats and palm oil feedstock and lack distillation technologies that exist at our state-of-the-art refinery.
Biodiesel basics
     Biodiesel is a clean-burning, non-toxic and biodegradable renewable fuel that is an alternative to petroleum diesel. Biodiesel is primarily used in blends with petroleum diesel as a fuel for trucks and automobiles, but can also be used as heating oil and in a variety of other applications, including marine transportation, electrical generation, farming equipment and mining operations.
     Biodiesel contains no petroleum and is a renewable fuel because it can be made from a variety of renewable raw materials, or ''feedstocks’’, including vegetable oils, animal fats and recycled cooking oils. Biodiesel performs comparably to petroleum diesel in terms of fuel economy, horsepower and torque and offers many benefits over petroleum diesel. The use of biodiesel reduces greenhouse gas emissions (both tailpipe emissions and emissions on a total lifecycle basis, including emissions created in the production of biodiesel), as well as other emissions such as particulate matter, carbon monoxide and unburned hydrocarbons. Biodiesel is more biodegradable than petroleum diesel and is also safer to transport due to the higher temperature at which biodiesel ignites, known as its flashpoint.
     Biodiesel can be used in its pure form as a direct substitute for diesel fuel or can be mixed at any level with petroleum diesel to create a biodiesel blend. This distinguishes biodiesel from ethanol, which can be blended with gasoline at higher levels only for use in specially modified engines and therefore is not generally used as a direct substitute for gasoline. A blended biodiesel fuel may offer improvements over low-sulphur, unblended petroleum diesel because its increased lubricity has the ability to extend engine life and reduce maintenance costs. In addition, biodiesel has a significantly higher cetane rating, which is a measurement of diesel ignition performance, than petroleum diesel. As a result, biodiesel can improve the ignition performance of diesel engines when it is used in blended or pure form.
     Biodiesel blends at various concentrations and can be used in diesel engines without modifications. Biodiesel blends vary according to geographic region and climate, but the most commonly-used blends generally range from a blend of 2% biodiesel and 98% petroleum diesel, or (“B2”), up to a blend of 20% biodiesel and 80% petroleum diesel, or (“B20”). We believe that worldwide usage of biodiesel will significantly increase in accordance with government instituted renewable fuels standards and blending mandates, as well as a general increase in the use of diesel.
Traditional Biodiesel Production Process
     Biodiesel is produced through a process called transesterification, which involves taking naturally-occurring carbon chain molecules, known as triglycerides, (found in items such as vegetable oils and animal fats), and converting them into methyl esters, (the chemical term for biodiesel.) This is achieved by reacting triglycerides with an alcohol such as methanol.

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     GreenHunter BioFuels, Inc. shall produce biodiesel in a continuous combination process that has three U.S. patents pending.
Triglycerides
     Biodiesel is the common name given to liquid fuel made from blending methyl esters with #2 diesel fuel. #2 diesel fuel is commonly known as “diesel” and is a petroleum fuel that has been available to consumers for decades. Methyl esters can be made from naturally-occurring, renewable sources of fats and oils (non-petroleum oils). Non-petroleum fats and oils are liquid compounds made up of glycerides that naturally occur in vegetable oil seeds (soybeans, corn, cotton, canola, rapeseed, palm, jatropha, etc.) as well as in living animals such as cattle, poultry and hogs. Glycerides are multi-part molecules that have a main body or core with one, two or three arms, or branches. The main body or core of a glyceride is a glycerin molecule. The arms, or branches, stemming from the glycerin core are special acid molecules called fatty-acids. Three fatty-acid branches connected to a glycerin core make up a fat/oil molecule that is technically known as a tri-glyceride. Two fatty-acid branches connected to a glycerin core make up a fat/oil known as a di-glyceride and one fatty-acid branch connected to a glycerin core make up a mono-glyceride. When fatty-acid branches break off a glyceride molecule and are present within an oil solution they are referred to as Free Fatty Acids or (“FFAs”). Non-petroleum fats and oils are typically made up of mostly triglycerides and FFAs.
Transesterification
     Non-petroleum fats and oils can be made into methyl esters through a chemical reaction called transesterification. To cause transesterification (or, to cause fats and oils to become methyl esters), the fats and/or oils must be mixed with alcohol in the presence of a catalyst. A catalyst is a chemical that helps a chemical reaction proceed more quickly and thoroughly. We will use methanol as the alcohol for the transesterification of vegetable oils and animal fats. Although the use of other alcohols is possible, they are not economically feasible at this time.
     The separation of FFAs and other compounds from whole triglycerides is known as “refining”. In its biodiesel process, we continuously refine fats and oils, and then use a continuous combination process that transesterifies the fats and oils to methyl esters. The combination aspect of our process also makes it possible to convert the separated FFAs and other compounds that were refined out of the triglycerides to methyl esters. We use a chemical reaction/process known as acid-esterification to convert FFAs and other compounds to methyl esters or to glyceride compounds that can, in turn, be converted to methyl esters. Acid-esterification is a chemical reaction where FFAs are mixed with a strong acid (sulfuric acid in our case) in the presence of methanol. Acid-esterification changes FFAs into mono-glycerides, di-glycerides and methyl esters. The stream of acid-esterified material then rejoins the triglyceride stream going to the transesterification process. By recovering and converting the FFAs and other compounds to methyl esters, the GreenHunter process is highly efficient, making the most methyl esters from every unit of fat/oil entering our process.
     The GreenHunter process will ultimately achieve feedstock conversion yields of approximately 99% for two reasons: First, the combination process allows recovery and conversion of FFAs and other compounds to methyl esters. Second, GreenHunter will use a distillation process to polish or purify its methyl esters. All but 1% (plus or minus) of the non-methyl ester compounds removed in the distillation process shall be recycled to the front of the GreenHunter process for another opportunity to be converted to desirable methyl ester product. The recycled material will consist of mono-glycerides, di-glycerides and tri-glycerides that were not successfully converted in their earlier exposure to the combination process.

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Glycerin
     The by-product of biodiesel or methyl ester production is glycerin. Glycerin is used as an ingredient in a wide range of products and applications, including pharmaceutical and personal care products, foods and beverages, animal feed and plastics. Glycerin can be sold in an unrefined form, in a partially processed form, or in a refined form. The GreenHunter process will not refine glycerin, but it will add value to the crude glycerin it produces by neutralizing the glycerin. Neutralizing glycerin makes it more fluid and pourable at cold temperatures. While dry, un-neutralized, crude glycerin will solidify in the range of 80 to 120 degrees F; dry, neutralized glycerin will remain liquid and pourable down to a range of 10 to 20 degrees F.
Methanol
     The GreenHunter process includes the ability to recover and re-use all excess methanol used in the combination process. Our refinery located in Houston, Texas has a methanol distillation system/department that is five times larger than required to meet the direct needs of the 105 million gallon-per year biodiesel production capacity at the Houston site. As a result, we have the ability and opportunity to source off-spec methanol from third-party sources, distill it and sell it as a secondary business at the same location.
Biodiesel Quality Standards
     GreenHunter methyl esters/biodiesel meets or exceeds American Society of Testing Materials, or (“ASTM”), and European, or (“EN”), standards — ASTM D6751-08 and EN 14214.
     In the U.S, biodiesel quality is measured against the ASTM standard D6751-08, which specifies the 18 required properties of B100 biodiesel for use as a blend component with petroleum diesel fuel. This standard specifies, among other parameters, the maximum amounts of contents of certain matter including acid, free glycerine, total glycerine, water and sediment content, sulfated ash, total sulfur, copper corrosivity, carbon residue and phosphorous.
     The standard also specifies minimum flash point and cetane numbers. The ASTM recently revised the standard to include cold soak filtration specifications. The cold soak filtration test subjects the biodiesel to a soak period at cold temperatures, re-warms the fuel, and then filters the biodiesel through 0.7 micron filter. The test is a qualitative evaluation meant to replicate performance of the biodiesel in cold climates. Compliance with these standards requires a process that provides for complete transesterification and efficient and thorough separation and purification processes.
     In October 2008, ASTM International, published the biodiesel blend specifications for general use. The new blend specifications included:
    ASTM D975-08a, Specification for Diesel Fuel Oils — used for on- and off-road diesel applications; revised to include requirements for up to 5 percent biodiesel.
 
    ASTM D396-08b, Specification for Fuel Oils — used for home heating and boiler applications; revised to include requirements for up to 5 percent biodiesel.
 
    ASTM D7467-08, Specification for Diesel Fuel Oil, Biodiesel Blend (B6 to 20) — a completely new specification that covers finished fuel blends of between 6 (B6) and 20 (B20) percent biodiesel for on- and off-road diesel engine use.

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     The majority of Original Equipment Manufacturers (OEMs) viewed the adoption of the ASTM blended fuel specification as a key component for full, universal acceptance of B20. Several OEMs had requested this specification for years, and having it in place makes way for increased usage of biodiesel. Even before the recent revisions, hundreds of major fleets are using B20 biodiesel, including all branches of the U.S. military for administrative uses and more than 200 school districts. The blended fuel specification Biodiesel blends are available to the public at more than 1,250 retail filling stations nationwide.
     In order to be designated biodiesel, you must meet the technical standards of ASTM 06751-08. The EN 14214 Standards are the European standards for biodiesel production. We would not be able to receive the various tax credits and incentives if these standards were not met.
Feedstocks
     A wide range of feedstocks may be used to produce biodiesel, including vegetable oils (such as soybean and canola oils), palm oils, animal fats (such as tallows and lard), and yellow grease (such as recycled cooking oil and tallows blended together). Historically, the majority of biodiesel produced in North America has been made from soybean oil, whereas the majority of biodiesel produced in the European Union (“EU”) has been made from rapeseed, or canola oil. This is largely due to the proximity of supply of these two seed oils in these markets and the inability of many technologies to efficiently and economically convert feedstocks with higher FFAs, such as palm, animal fats and recycled oil, into biodiesel. Biodiesel producers choose which feedstock to use based on compatibility with their process technology, as well as price and local availability. Feedstock prices vary substantially over time and feedstocks themselves vary according to local agriculture, weather and soil conditions. In addition to rapeseed oil and soybean oil, potential feedstocks include palm oils and a wide variety of other vegetable oils, such as sunflower, corn and cotton oils. Yellow grease is used in considerably smaller volumes than pure vegetable oils. Our biodiesel production process will process a wide variety of these feedstocks at conversion yields in excess of 98%.
     Additional feedstocks may be used to produce biodiesel in the future. For example, we believe that jatropha, an adaptable bush or tree that produces a toxic, inedible oil, has the potential to become an important source of feedstock for biodiesel in the near future because it adapts well to semi-arid, marginal soil locations where other higher-value food crops cannot be grown. Substantial amounts of capital are being spent around the world planting jatropha, and we are actively pursuing projects which would allow us to source this feedstock in the future. Another potential feedstock is algae. Algae is comprised of approximately 40% triglycerides, and new methods to grow and harvest it on a commercial basis are currently being developed. Governments around the world have demonstrated a strong interest in each of these products as new, potentially abundant sources of cash crops for their countries.
     Biodiesel production costs are highly dependent on these feedstock costs. Typically, the costs of fats, oils or greases used to make biodiesel constitute a majority of the finished product cost. The economics of biodiesel production are primarily affected by the pricing of feedstocks, some of which are commodities (such as seed oils and palm oil), the pricing for refined biodiesel of ASTM or EN quality, and the pricing for petroleum diesel. To produce biodiesel economically, a producer must seek to minimize feedstock and other production costs and maximize yield, which is the extent to which feedstock is fully converted into methyl esters. The relative cost of the various feedstocks depends largely on the content of free fatty acids (typically, the higher the FFA content, the lower the cost) and whether the feedstock may be used in the edible food market. Feedstock costs are also influenced by a number of other factors, including consumer demand for food quality feedstocks, industrial demand for non-food quality feedstocks, weather conditions, production levels, availability of feedstock export markets and government regulation including tax incentives. In order to minimize feedstock costs, we believe the

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ability to utilize a wide variety of feedstocks efficiently and interchangeably, as our Houston refinery has the ability to, is imperative to gaining a competitive advantage in the biodiesel production market.
     Our facility is able to process the following feedstocks: soybean oil (refined or crude), palm oil (refined or crude), rapeseed oil, cotton seed oil, jatropha oil, animal fats (beef and poultry), castrol oil and canola oil.
     All of these feedstocks are currently available to us, both domestically and internationally, throughout the year.
Government Initiatives
     Tax Incentives. The primary federal government incentive intended to lower the effective cost of biodiesel is the biodiesel blenders excise tax credit, which is available to registered blenders of biodiesel and petroleum diesel. As an independent biodiesel producer and blender, we are a direct recipient of the tax credit. Due to Congressional action signed into law in October 2008, all biodiesel fuel, regardless of feedstock source, now qualifies for the $1.00 per gallon biodiesel incentive as of January 1, 2009. The tax credit expired on December 31, 2009. On March 10, 2010, the U.S. Senate passed the American Workers, State, and Business Relief Act of 2010 (H.R. 4213) providing, among other provisions, a one year retroactive extension of the biodiesel tax incentive. With passage of H.R. 4213, the U.S. House and U.S. Senate must reconcile the differences between the two versions of the bill approved by the respective chambers. H.R. 4213 as approved by the U.S. House in December, 2009 also provides for a one year retroactive extension of the biodiesel tax incentive. Under the previous legislation, biodiesel produced from second use, or non-virgin, feedstocks, such as yellow grease collected from restaurants, was eligible for a reduced $0.50 per gallon tax incentive. The new legislation also closes the so-called “splash and dash” loophole, which allowed foreign-produced biodiesel to be imported to the U.S., splash blended to claim the tax incentive, and then exported to a third country for final use. In December 2007, the Energy Independence and Security Act of 2007 established a renewable fuels standard for biodiesel use in the United States of one billion gallons by 2012.
     Use Mandates. A number of federal and state regulations mandate the use of biodiesel blends. The Energy Independence and Security Act of 2007 requires a 36 billion gallons per year renewable fuels standard (RFS) by 2022, to be administered by the U.S. Environmental Protection Agency. The new RFS began in 2008 and requires 9 billion gallons of biofuels to be used in 2008 and 11 billion gallons in the following year. The RFS contains the following sub-levels:
    15 billion gallons of the ultimate 36 billion gallon requirement by 2022 will come from “conventional biofuels” and includes biodiesel;
 
    21 billion gallons of the overall 36 billion gallons mandate are to be “advanced biofuels” (defined as cellulosic ethanol, ethanol derived from sugar or starch, biogas, biomass-based diesel, butanol or other alcohols and other fuel derived from cellulosic biomass) by 2022;
 
    16 billion gallons of the “advanced biofuels”, under the same timeframe, are to come from cellulosic biofuel; and
 
    1 billion gallons by 2012 are required to be from biomass-based diesel.
Benefits of Biodiesel
     According to the National Biodiesel Board, environmental benefits in comparison to petroleum based fuels include:

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    Biodiesel reduces by as much as 65% the emission of particulates, which are small particles of solid combustion products. This can reduce cancer risks by up to 94% according to testing sponsored by the Department of Energy.
 
    Biodiesel does produce the same or slightly more (up to 7% more) nitrogen oxide (“NOx”) emissions than petrodiesel, but these emissions can be reduced through the use of catalytic converters. As biodiesel contains no nitrogen, the increase in NOx emissions may be due to the higher cetane rating of biodiesel as well as higher oxygen content, which allows it to convert nitrogen from the atmosphere into NOx more rapidly. Properly designed and tuned engines may eliminate this increase.
 
    Biodiesel has higher cetane rating than petrodiesel, and therefore ignites more rapidly when injected into the engine. It also has the highest energy content (B100) of any alternative fuel in its pure form.
 
    Biodiesel is twice as biodegradable as petroleum oils and is non-toxic. Tests sponsored by the United States Department of Agriculture confirm biodiesel is less toxic than table salt and biodegrades as quickly as sugar.
 
    In the United States, biodiesel is the only alternative fuel to have successfully completed the Health Effects Testing requirements (Tier I and Tier II) of the Clean Air Act (1990).
     In addition, the National Biodiesel Board lists the following advantages of biodiesel over other alternative fuels:
    Today, diesel engines can run most biodiesel blends with no modifications.
 
    Biodiesel does not need investments into new infrastructure. It can use the current distribution and retail infrastructure.
 
    Biodiesel can be blended in any percentage with petrodiesel .
 
    Biodiesel has the highest energy content (BTU) of any alternative fuel .
 
    Harmful emissions (carbon monoxide, particulate matter and hydrocarbons) are reduced by more than 50% compared with petrodiesel.
 
    Biodiesel is the only alternative fuel to pass Tier 1 and Tier 2 health effects testing required by the Clean Air Act.
 
    Biodiesel has a positive energy balance.
     Biodiesel can capitalize on existing infrastructure to quickly and efficiently satisfy a portion of world energy needs.
Market Acceptance of Biodiesel
     According to the National Biodiesel Board:
     Domestic:
    600 major fleets use biodiesel commercially.
 
    More than 1,250 retail filling stations offer biodiesel to the public.
 
    Our federal government has established a renewable fuel standard for biodiesel use in the United States of 1 billion gallons by 2012.
     International:
    Asia Pacific will overtake North America by 2010
 
    As economies mature, demand typically shifts from industrial use to transportation sectors
 
    U.S. is gasoline focused regarding fuels whereas Asia is diesel-focused (gas oil)

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    Biodiesel will have far greater impact on road diesel balances than ethanol will have on gasoline balances
GreenHunter BioFuels, Inc. (formerly Channel Refining Corporation) Acquisition
     GreenHunter BioFuels, Inc., (“BioFuels”) formerly known as Channel Refining Corporation, a Texas corporation was formed in 1994 to develop a 20 acre industrial parcel located on the Houston ship channel into a waste oil recycling facility. The property was acquired from private individuals who manufactured troop marine transport vessels for the U.S. military. The predecessor, Channel Refining Corporation, was the first processing operation located on this property. After the waste oil recycling facility was put into operation, the market to purchase used waste oil was dramatically affected by large utilities buying up the available market inventory at a higher price than the Company was capable of economically paying. Channel decided to invest in more sophisticated processing equipment to convert the waste oil recycling refinery into a specialty chemical manufacturing process. Prior to our acquisition, Channel was manufacturing base oils, lubricants, diesel fuels and naptha. Naptha is defined as an intermediate refined product distilled from crude oil. GreenHunter Energy acquired Channel and renamed it GreenHunter BioFuels, Inc. on April 13, 2007. The refinery did not produce any biodiesel, or associated products prior to our acquisition.
     Our site location has several key transportation and distribution attributes including:
    Feedstock can be delivered by either barge, truck, rail or ship (across the Channel)
 
    Distribution of finished product can be either shipped by barge, delivered through an on-site truck terminal or possibly loaded onto bulk rail transport
 
    An existing dock is capable of unloading 30 thousand barrels at any one time
     Prior to our acquisition, Channel did transport its finished products by barge and/or truck but did not utilize the rail system located on the property. While it is our intention to eventually utilize all three transportation methods once the plant has resumed commercial operations and financing is available, BioFuels has only utilized trucking and barges to transport its commercial grade product to date.
     BioFuels also has key site and processing attributes relevant to its operation including:
    638 thousand barrels of product storage
 
    Adequate water and power supplies
 
    Sophisticated chemical processing instrumentation and controls
 
    Additional processing equipment for market inefficiencies
 
    Ample expansion area for increased production capacity
 
    Ample open acreage for additional storage capacity
GreenHunter Strategy for the GreenHunter BioFuels Plant
     We have converted the existing processing technology into one of the nation’s largest commercial biodiesel refineries. Additionally, we have also constructed 638 thousand barrels of additional storage facilities. We executed the following business strategies during 2008:
    Converted the existing facility to a 105 million gallons per year (“mmgy”) biodiesel refinery capable of utilizing multiple vegetable oil feedstocks and animal fats
 
    Installed tankage for 638 thousand barrels of bulk storage capacity to provide the ability to acquire feedstock and sell finished product at opportune times, as well as to run terminal services as a secondary business unit when we are not using the storage for our own product

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    Maintained an approximate $0.50 per installed capital cost per gallon. Management believes the current market for competitors ranges from $1.10 — $1.25 per installed gallon
 
    Maintained cost control by self-performing as the general contractor in this project; construction of the refinery is complete with additional components substantially complete
 
    Produced biodiesel to ASTM specifications to allow us to take advantage of the following federal/state tax incentives: Federal Biodiesel Excise Tax Credit of $1.00/gallon for straight agri-biodiesel or $.01/percentage point of agri-biodiesel in a petroleum based diesel blend
 
    Processed contaminated methanol into a commercial grade methanol product through use of a 45,000 bbl/month (capacity) methanol processing tower located on the site. This tower is unique in that methanol represents approximately 8-10% of the cost of goods sold in the manufacturing and refining of biodiesel. We would only utilize approximately 20% of the methanol tower’s total capacity. Therefore, it has the ability to contribute to lower operating costs by allowing us to purchase contaminated methanol and re-process it to a 99.85% methanol which can be used in the refining process at 40-50% below the cost of pure methanol. In addition, we will have additional methanol capacity to further process and sell to other biodiesel producers or support additional company-owned refineries in the future. Very few other biodiesel producers in the U.S. have their own on-site methanol distillation tower
     We completed construction and began commissioning of this facility during 2008. The refinery construction was financed by using our existing capital, our credit facility with WestLB, and our redeemable debenture offerings.
     On December 20, 2007, BioFuels entered into a credit agreement with WestLB which provided a $38.5 million term loan facility and a $5 million working capital facility in connection with BioFuels’ development, construction and operation of a 105 million gallon per year diesel refinery, together with glycerin and methanol, and terminal assets located in Houston, Texas. During the first quarter of 2008, we amended this agreement to increase the working capital line to $10 million and to reduce the term loan portion to $33.5 million. The credit agreement allows for both a base rate and a LIBOR interest option and includes customary covenants and funding conditions. The credit agreement is secured by substantially all of BioFuels’ assets, excluding approximately 350 thousand barrels of bulk terminal storage facilities.
     Even though not critical to our business, we are currently in the process of patenting up to three of our concepts as they relate to the processing of biodiesel at the facility. We have obtained all necessary permits including an air discharge permit at our biodiesel facility. We have improved the foundations and containment areas surrounding our storage facilities which could be affected by flooding. We do not anticipate any significant capital expenditures relating to federal, state and local provisions concerning the environment in the foreseeable future. This biodiesel production business is not seasonal in nature.
Competitive Strengths
     When economic conditions substantially improve, we believe that we are well positioned to achieve our primary business objectives and to execute our strategies due to the following competitive strengths:
    We have substantially all of the necessary infrastructure in place
 
    The transportation infrastructure of barge, rail and truck provides maximum flexibility to receive and ship products at the most economic cost
 
    The ability to be both a producer and a terminal operator/blender provides opportunistic advantages for feedstock acquisition and finished product sales
 
    Our management team has substantial experience in the oil and gas industry and have historically

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      been the lower-cost producers during their prior careers
 
    The refinery location has transportation infrastructure that is unique in the biodiesel industry:
  a.   Ability to bring in by barge or ship all raw materials either domestically or internationally,
 
  b.   Rail service for raw materials and finished product shipping on-site, and
 
  c.   Major interstate within 5 miles.
     The multiple transportation options of truck, rail, barge on site and the ability to load large ships nearby creates a competitive advantage over other biodiesel production locations within the Midwest and other landlocked facilities. Additionally, future access to interstate pipelines in the Houston Ship Channel area further defines our transportation abilities. In particular, our location provides the following:
  a.   Located in one of the largest U.S. cities (Houston) which also has one of the highest rates of diesel fuel use per capita in the United States;
 
  b.   Provides the ability to ship finished product by barge to either domestic or international destinations; and
 
  c.   Provides the ability to economically access interstate pipelines to transport finished product to major northeast U.S. markets.
Sustainable Competitive Strategy
     Raw materials and finished product transportation assets are an integral part of GreenHunter Energy’s strategy to provide a sustainable competitive advantage. This combination of on-site and in close proximity of transportation/distribution assets that will be available for biodiesel transportation should enable maximum diversification of feedstock acquisition as well as maximum transportation outlets. We believe the future is embedded in the present, which is why we strategically used existing petroleum fuels-based transportation and distribution infrastructure rather than build a new “greenfield” facility.
     We believe most of our past product sales have ultimately been exported to Europe, but we plan to sell our finished product to a variety of markets, including the wholesale transportation market, the marine market, the military market and municipalities. We are registered and have been approved by the Environmental Protection Agency to sell our biodiesel to the on-road market in the United States. This approval by the EPA significantly improves our biodiesel distribution capabilities in the United States, and further augments our strategy of diversifying risk by distributing its products in multiple markets. We do not anticipate that we will be dependent on a single or a few suppliers of feedstock or purchaser of our refined biodiesel, the loss of either could have a material adverse impact on our operation.
Current Economic Conditions and Plant Status
     We completed and began commissioning our Houston refinery during the third quarter of 2008. Shortly after we had begun production, we were forced to shut down our facility as a result of damages caused by a direct hit from Hurricane Ike. We completed the major repairs to our refinery during September, October and November of 2008 and were able to resume biodiesel production during the last week of November 2008.
     As a result of poor biodiesel economics due to high feedstock prices and low finished product prices, which has a direct correlation to the price of crude oil, we limited operations at the refinery during calendar 2009 to terminal storage, toll processing and toll distillation services. This limited operation has continued into calendar 2010. We generated $693,326 of total revenue from the terminal storage operation in 2009 and anticipate an increase in revenue during 2010 as we lease out additional tankage to third parties. Biodiesel economics in the United States require support from federal subsidies in order to

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be competitive with petroleum products. Historically we have received a tax credit of up to $1.00 per gallon from our biodiesel manufacturing and blending operations. Unfortunately for us and the biodiesel industry as a whole here in the United States, this federal tax credit expired on December 31, 2009. Additionally, we do not currently have the necessary capital resources to purchase the large volumes of feedstocks required by our facility, and we believe we would face difficult profit margins at best even if we were able to find the necessary financing. We estimate that the terminal storage and distillation services will allow our facility to have a base level of cash flow that will allow us to make the necessary debt service payments and fund a reduced operation until the tax credit is extended by the U.S. government and the biodiesel markets recover.
Biomass
     Biomass power, is the use of biomass to generate electricity. Biomass is any organic matter which is available on a renewable or recurring basis, including trees, plants and associated residues; plant fiber; animal wastes; industrial waste; and the paper component of municipal solid waste.
     Biomass is considered to be a replenishable resource because it can be replaced fairly quickly without permanently depleting the Earth’s natural resources. By comparison, fossil fuels such as crude oil, natural gas and coal require millions of years of natural processes to be produced. Therefore, mining coal and producing crude oil and natural gas depletes the Earth’s resources for thousands of generations. Alternatively, biomass can easily be grown or collected, utilized and replaced.
     Energy crops involve a “closed-loop process” in that they are grown specifically for their ability to generate energy. Crops such as switch grass, cottonwood and sugar cane are attractive for fuel. Additionally, these crops are short rotation crops; they regrow after each harvest, allowing multiple harvests without having to replant. Manure from cattle feedlots and dairies can also be put to practical use as a renewable energy source and a biomass plant feedstock for certain biomass facilities.
     The use of biomass to create energy also has positive environmental implications. Carbon dioxide is a naturally-occurring gas. Plants collect and store carbon dioxide to aid in the photosynthesis process. As plants or other matter decompose, or natural fires occur, CO2 is released. In the past 150 years, the period since the industrial revolution, carbon dioxide levels in the atmosphere have risen from around 150 ppm to 330 ppm, and are expected to double again before 2050.
Mesquite Lake Resource Recovery Plant Acquisition
     We acquired Mesquite Lake Resource Recovery Plant (“Mesquite Lake”) during 2007. Mesquite Lake is an 18.5 MW waste-to-energy facility located in El Centro, California. This Imperial County facility was originally built in 1989 at a cost of approximately $68 million to process cow manure into power and operated until December 1994, when its Power Purchase Agreement (“PPA”) was repurchased by Southern California Edison. Several modifications were implemented during its operating life to improve plant performance leading to a 95% on-line capacity factor during its last year of operation. The plant has not operated since 1994.
     Within a twenty mile radius of the plant, there are approximately 400 thousand head of feedlot cattle which produce approximately 4 thousand tons a day of manure. In addition, California has an abundance of wood waste to be disposed of on an annual basis. Wood waste haulers typically dispose of wood waste in landfills, or the waste is taken to other sources such as a biomass plant. With the increased pressure from California and the EPA on waste generators, the local cattle feedlot industry has the potential to be an economic supplier of fuel for the plant.

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     During 2008 we began refurbishing this facility. During the course of our air permit review, we determined that the existing air permit was not sufficient to support our operations. We put the project on hold during the fourth quarter of 2008 while we were implementing the re-permitting process. Due to this process, we have been able to incorporate a planned expansion of up to 10 MW and have executed a new PPA with significantly higher pricing than the one we acquired with the plant. Prior to resuming construction at the plant, we must raise additional funding either through bank financing, a loan with a governmental agency or the placement of additional debentures. In March of 2010, the Imperial County California Board of Supervisors unanimously approved one or more series of tax-exempt obligations by the California Enterprise Development Authority for the Mesquite Lake facility. This approval opened up the opportunity for us to pursue low-cost funding for the majority of the projected construction costs of Mesquite Lake. In March 2010, we submitted an application to the California Debt Limit Allocation Committee for allocation of a $20 million award of the American Recovery and Reinvestment Act of 2009 (ARRA) Recovery Zone Facility Bonds (RZFB). We hope to be able to resume construction of the facility during the second half of 2010.
     There are no patents or other intellectual property rights associated with this facility. The business of producing electricity from biomass is not a seasonal business.
     Mesquite Lake has a number of key project attributes:
    Mesquite Lake has executed an interconnect agreement with Imperial Irrigation District
 
    The project’s proximity to manure sourced from cattle yards in the Imperial Valley is excellent
 
    The project qualifies for the Federal Production Tax Credit
 
    The facility should be able to use multiple biomass fuel sources at a large variance of heat rates
 
    The project will provide base load renewable power as opposed to intermittent power provided by other forms of renewable power projects
GreenHunter Energy Strategy for the Mesquite Lake Plant
     Our primary business objective is to re-power the facility using existing biomass processing technology into a profitable electricity power plant. We intend to accomplish this by executing the following business strategies:
    Find an optimal biomass fuel mix that will maximize profitability of the plant
 
    Execute long term supply contracts with local biomass producers
 
    Begin to produce our own biomass, investigate the possibility of planting a certain type of tree that will ultimately make the facility a closed-loop biomass facility
 
    Evaluate the feasibility of building an energy “campus” that includes solar power, wind, a biodiesel refinery and possibly an ethanol plant around the existing site location
     The facility has or is currently pursuing all necessary permits required for operations. Biomass consisting of wood and agricultural waste will be placed and burned in two circulating fluidized bed boilers. The facility is expected to process approximately 623 tons per day (227,269 tons per year) of wood and agricultural waste. The fuel supply for the facility will be a blend of dry wood and green wood which will produce approximately 5,000 Btu per pound on average. The steam generated by the boilers will expand across a steam turbine to power a generator that will produce 28.5 MW of renewable electricity per hour. Two and one-half MWs of electricity will be used to power the facility, and 26 MWs will be sold into the electricity marketplace.
     The facility’s location in Southern California is strategic, not only because population density is driving electricity demand, but also because of the excellent fuel supply and transportation access. The

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facility’s new power purchase agreement (“PPA”) with Imperial Irrigation District is for Renewable power, to meet the needs of California’s Renewable Power Standard. Biomass power, unlike wind and solar power, is base-load generation, and has been used reliably in California for over 30 years. The facility is also important to the stability of the Imperial Irrigation District’s system. It is located in an area with little power generation, but a significant amount of load, and this results in a circumstance whereby the electricity generated by the facility will assist with attaining the minimum amount of power required to ensure the system’s stability. The facility is also located in an area of California that has experienced significant economic contraction during the last few years and will benefit from the jobs to be created by the facility.
     The renewable power incentives instituted in the past year have resulted in an economic situation which makes the refurbishment of the facility economic. We estimate the total costs of construction and refurbishment to be approximately $30 million for a total investment by it in the facility of $51 million. Current costs to build a biomass facility of the same size would be approximately $82-94 million, thereby making it much more cost effective to refurbish the existing facility than build a new facility. In addition, the physical characteristics of the facility are strong assets, the electrical infrastructure of the facility is in excellent operational shape and the power generation and distribution infrastructure of the facility is in very good condition with a limited amount of overhaul needed.
     The facility’s PPA with the Imperial Irrigation District is to provide up to a maximum of 27 MW of net output for 20 years. We have also received interest from the market for additional generation capacity.
     The Mesquite Lake biomass plant will require an estimated $36.5 million to refurbish and begin generating electricity; we have already completed approximately $12.7 million worth of these costs. This project is currently finalizing engineering designs and final regulatory approval. We are currently pursuing the placement of debentures as well as seeking a loan with a governmental agency to finance the remaining construction and start up of the Mesquite Lake Resource Recovery Facility.
Wind Energy
     Wind energy, the world’s fastest growing energy source, is a clean and renewable source of energy that has been in use for centuries throughout Europe and, more recently, in the United States and other nations, becoming an increasingly popular choice for new electricity generation around the world. Wind turbines, both large and small, produce electricity for utilities and homeowners and remote towns.
     North America is expected to continue as the second largest regional market in terms of total installed capacity, with anticipated average annual growth of approximately 25%.
Wind Energy Basics
     We have been harnessing the wind’s energy for hundreds of years. From old Holland to farms in the United States, windmills have been used for pumping water or grinding grain. Today, the windmill’s modern equivalent—a wind turbine—can use the wind’s energy to generate electricity.
     Wind turbines, like windmills, are mounted on a tower to capture the most energy. At 197 feet (60 meters) or more above ground, they can take advantage of the faster and less turbulent wind. Turbines catch the wind’s energy with their propeller-like blades. Usually, two or three blades are mounted on a shaft to form a rotor.

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     A blade acts much like an airplane wing. When the wind blows, a pocket of low-pressure air forms on the downwind side of the blade. The low-pressure air pocket then pulls the blade toward it, causing the rotor to turn. This is called lift. The force of the lift is actually much stronger than the wind’s force against the front side of the blade, which is called drag. The combination of lift and drag causes the rotor to spin like a propeller, and the turning shaft spins a generator to make electricity.
     Wind turbines can be used as stand-alone applications, or they can be connected to a utility power grid or even combined with a photovoltaic (solar cell) system. For utility-scale sources of wind energy, a large number of wind turbines are usually built close together to form a wind plant or wind farm. Several electricity providers today use wind plants to supply power to their customers.
     Stand-alone wind turbines are typically used for water pumping or communications. However, homeowners, farmers, and ranchers in windy areas can also use wind turbines as a way to cut their electric bills.
     Small wind systems also have potential as distributed energy resources. Distributed energy resources refer to a variety of small, modular power-generating technologies that can be combined to improve the operation of the electricity delivery system.
Current GreenHunter Energy Wind Projects
     We currently have three wind projects in which we are active and a number of other potential opportunities. We have developed projects in Texas, California, Wyoming and Montana. Currently all our wind projects are in various stages of environmental studies, meteorological evaluations and power market evaluations. In light of today’s difficult credit markets, it is management’s current intention to continue to explore projects in key markets. We will continue to focus on smaller projects located near population centers in Texas.
     Management intends to utilize its existing financing sources or attempt to access new capital available in the market to fund our wind projects. The business of producing electricity from wind energy is not a seasonal business. We may be required to enter into a power purchase agreement with a utility to purchase the electricity generated by our properties in order to be successful in developing our wind assets. We may also choose to sell our wind power into the merchant market.
Divestment of Equity Interest in MingYang
     During 2009, GreenHunter sold its 3.6% equity interest and right to purchase an additional 2.38% equity interest in MingYang Wind Power Technology Co., Ltd, (“MingYang”) based in Guang Dong Province, People’s Republic of China (“PRC”) for approximately $9.1 million. We purchased these interests in 2007 for approximately $7 million.
     The following is a brief summary of each of our current wind projects:
California
Ocotillo Wind Project, Imperial County
    6,280 acres under lease with the Bureau of Land Management
 
    Seeking monitoring and testing ROW
 
    Potential for 150 MW

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     The Company sold the Ocotillo wind power development project to Ocotillo Express, LLC, a wholly-owned subsidiary of Pattern Renewables, LP, for an initial cash payment plus additional required cash milestone payments that will be determined in the future based on the amount of installed megawatts of power generation ultimately constructed at the project site.
Texas
Hilltop Wind Project, Palo Pinto County
    1 Meteorological tower installed in June 2008 at 60 meter hub height
 
    1,200 acres under lease
 
    Potential for 36 MW
Snow Hill, Morris and Titus Counties
    1 Meteorological tower installed in June 2008 at 60 meter hub height
 
    Small tract leased for meteorological tower installation
 
    Potential for 80 MW
Wyoming
Wheatland Wind Project
    3 Meteorological towers installed in October 2008
 
    Right-of-Way grant from BLM for 19,400 acres
 
    Potential for 3-500 MW
 
    GreenHunter is a minority owner
Competition
     We are currently competing with other producers of wind energy for leases, power purchase agreements, equipment and access to transmission lines. We believe we can favorably compete in this market based on our ability to identify viable prospects. We will continue to evaluate buying and selling development projects.
Solar Energy
     Solar energy, provided by the sun, is constantly replenished and will not produce harmful pollution like fossil fuels. Solar energy may be used passively, such as to heat and light buildings, or technology may be used to harness the sun’s energy by collecting it and transforming it to generate electricity. Current technologies include photovoltaics, concentrating solar, solar hot water, and more.
     The basic economic difference between solar and conventional power is that a solar system’s cost is almost entirely fixed and paid for upfront, whereas conventional power is driven by variable costs over time which could include coal, natural gas, etc.
     GreenHunter’s current plan is to focus on utility scale solar prospects when a decision is made by the management team to expand to the solar energy industry. We are exploring possible investments in thin film photovoltaic (“PV”) manufacturing and concentrating solar power (CSP) technologies such as parabolic trough solar power. Commerciality of solar power is currently constrained by average prices that are considerably higher than that of conventional power.

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     GreenHunter will also evaluate distributed generation components of solar power. Currently, solar power is attractive due to the opportunity to invest in emerging technologies in the distributed nature of PV. Distributed generation systems can provide savings through increased reliability, reduced needs for distribution infrastructure upgrades and reduced line losses. We currently have no concrete plans for developing our solar energy business.
Geothermal Energy
     Geothermal energy is a form of renewable energy derived from heat deep in the earth’s crust. This heat is brought to the near-surface by thermal conduction and by intrusion into the earth’s crust of molten magma originating from great depth. As groundwater is heated, geothermal energy is produced in the form of hot water and steam. The heated groundwater can be used for direct heating of homes and greenhouses, for vegetable drying, and for a number of other uses. These are known as direct uses of geothermal energy.
     Geothermal energy is also used for electricity production. Geothermal power generation is used today throughout the world where good geothermal resources exist, including many locations in the western United States. The U.S. continues to be the world leader in capacity and a wave of new development is underway that could double capacity within the next few years, helped by federal production tax credits.
     Three types of power plants are used to generate power from geothermal energy: dry steam, flash, and binary. Dry steam plants take steam out of fractures in the ground and use it to directly drive a turbine that spins a generator. Flash plants take hot water, usually at temperatures over 200°C, out of the ground, and allows it to boil as it rises to the surface, then separates the steam phase in steam/water separators, and then runs the steam through a turbine. In binary plants, the hot water flows through heat exchangers, boiling an organic fluid that spins the turbine. The condensed steam and remaining geothermal fluid from all three types of plants are injected back into the hot rock to pick up more heat. This is why geothermal energy is viewed as sustainable. The heat of the earth is so vast that there is no way to remove more than a small fraction even if most of the world’s energy needs came from geothermal sources.
     While we are actively looking for investments which relate to generating power with geothermal energy, we currently have not delineated a budget to develop this renewable business.
Research and Development
     We do not spend any funds on research and development at any of our business segments.
Employees
     As of March 30, 2010, we had 13 employees working on behalf of the corporate office in Grapevine, Texas. There were 11 employees working on behalf of GreenHunter BioFuels, Inc.

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Item 1A   Risk Factors
An investment in our securities involves many risks. You should carefully consider the following risks and all of the other information contained in this prospectus before making an investment decision. Additional risks related to us and our securities may be included in the applicable prospectus supplement related to an offering and in our other filings with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. In evaluating our company, the factors described below should be considered carefully. The occurrence of one or more of these events could significantly and adversely affect our business, prospects, financial condition, results of operations and cash flows.
Risks Associated with our Business
We have a limited operating history, and our business may not be as successful as we envision.
     We are currently in an early stage of our current business plan. We have limited operating history with respect to the construction and operation of biodiesel refineries for our own use. Our limited operating history makes it difficult for potential investors to evaluate our business. Therefore, our proposed operations are subject to all of the risks inherent in the initial expenses, challenges, complications and delays frequently encountered in connection with the formation of any new business, as well as those risks that are specific to the biodiesel industry in general. Investors should evaluate an investment in our company in light of the problems and uncertainties frequently encountered by companies attempting to develop markets for new products, services and technologies. Despite best efforts, we may never overcome these obstacles to achieve financial success.
     Our business is speculative and dependent upon the implementation of our business plan, as well as our ability to enter into agreements with third parties for necessary financing, the provision of necessary feedstock sources, engineering, procurement and construction services and the sale and distribution of our biodiesel fuel on terms that will be commercially viable for us. There can be no assurance that our efforts will be successful or result in revenue or profit. There is no assurance that we will earn significant revenues or that our investors will not lose their entire investment.
We have yet to attain profitable operations and we will need additional financing to fund our activities.
     We are dependent upon our ability to obtain sufficient financing to continue our development and operational activities. The ability to achieve profitable operations is in direct correlation to our ability to raise sufficient financing. It is important to note that even if the appropriate financing is received, there is no guarantee that we will ever be able to operate profitably or derive any significant revenues from our operation. We will be required to raise additional financing to fully implement our entire business plan.
Our lack of diversification beyond the renewable energy industry may increase our risk.
     We expect our primary source of revenue will come from renewable energy assets that generate cash flow from the sale of biodiesel, methanol, wind and biomass-created energy. Any diminution in the value of our assets or decrease in operating revenues could negatively affect our ability to become profitable. Further, the illiquid nature of the assets we own and intend to purchase could jeopardize our ability to satisfy our working capital needs or impair our ability to meet any debt obligations that may become due.

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We may not be able to effectively manage our acquisition and construction costs.
     We may suffer from increasing costs in retrofitting current acquisitions. For example, while we have completed the acquisition of a biomass plant located in Mesquite Lake, California, substantial costs will be incurred in retrofitting and repairing this plant in a manner that will allow commercial operations. While we have attempted to project such costs, changes in engineering scope, increases in construction, labor, or capital expenses could impair our ability to successfully achieve our investment objectives.
We have significant debt that could adversely affect our financial health and prevent us from fulfilling our obligations.
     We have a relatively high amount of indebtedness. As of December 31, 2009, we had total indebtedness of approximately $66 million. Because we must dedicate a substantial portion of our cash flow from operations to the payment of interest on our debt, that portion of our cash flow is not available for other purposes. In addition, our ability to obtain additional financing in the future may be impaired by our leverage and existing debt covenants. Our indebtedness could:
    make it more difficult for us to satisfy our obligations;
 
    increase our vulnerability to general adverse economic and industry conditions;
 
    require us to dedicate a portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate expenditures;
 
    force us to sell assets or seek additional capital to service our indebtedness, which we may be unable to do at all or on terms favorable to us;
 
    limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
 
    place us at a disadvantage compared to our competitors that have less debt;
 
    and limit our ability to borrow additional funds.
We are dependent upon our key personnel.
     Our operations and financial success will significantly depend on our managerial personnel. Our managerial personnel have the right to make all decisions with respect to management and operation of our business and affairs. We are dependent on the executive officers and key personnel of GreenHunter and our ability to attract and retain qualified personnel. Our profitability could be adversely affected if we lose members of our management team. We have not entered into any employment agreements with any of our management personnel nor have we obtained “key man” life insurance on any of their lives. Further, our officers’ and directors’ allocation of their time to other business interests could have a negative impact on our ability to achieve our business objectives. All of our officers are required to commit their full work hour time to our business affairs, with the exception of Gary C. Evans, our Chief Executive Officer, and David S. Krueger, our Chief Financial Officer, who maintain officer and director positions and relationships with other companies. For a discussion regarding the potential conflicts of interest that you should be aware of, see the risk factor below regarding conflicts of interest of our officers and directors.

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We may not be able to meet our capital requirements.
     Future construction and operation of biodiesel refineries, capital expenditures to build and operate our biomass plants and wind projects, hiring qualified management and key employees, complying with licensing, registration and other requirements, maintaining compliance with applicable laws, production and marketing activities, administrative requirements, such as salaries, insurance expenses and general overhead expenses, legal compliance costs and accounting expenses will all require a substantial amount of additional capital and cash flow.
     We will be required to pursue sources of additional capital through various means, including joint venture projects, tolling arrangements, which may include a profit sharing component, debt financing, equity financing or other means. There is no assurance that we will be successful in locating a suitable financing or strategic business combination transaction in a timely fashion or at all. In addition, there is no assurance that we will be successful in obtaining the capital we require by any other means. Future financings through equity investments are likely, and these are likely to be dilutive to the existing shareholders as we issue additional shares of common stock to investors in future financing transactions and as these financings trigger anti-dilution adjustments in existing equity-linked securities. Also, the terms of securities we issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuances of incentive awards under employee equity incentive plans, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital or financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which may adversely affect our financial results.
     Our ability to obtain needed financing may be impaired by such factors as the capital markets, both generally and specifically in the renewable energy industry, the fact that we are a new enterprise without a proven operating history, the location of our biodiesel refineries in the United States instead of Europe or other regions where biodiesel is more widely accepted, and the price of biodiesel and oil on the commodities market. Furthermore, if petroleum or biodiesel prices on the commodities markets remain depressed, then our revenues will likely decrease and decreased revenues may increase our requirements for capital. Some of the contractual arrangements governing our operations may require us to maintain minimum capital, and we may lose our contract rights if we do not have the required minimum capital. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, are not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.
Risks Related to the Renewable Energy Industry
We have not currently identified specific future investments or acquisitions within the renewable energy industry and thus cannot evaluate their associated merits or risks.
     Since we are not limited to any particular target business in the renewable energy industry within which to operate or complete an acquisition or business combination, we are unable to currently ascertain the merits or risks of any future business we may operate. We may complete a business combination in the future with a company in any business we choose in the renewable energy industry (e.g., wind, solar, geothermal, biomass and biofuels) or a vertical integration within the fuels distribution business, and we are not limited to any particular type of business. While our recent acquisitions are described in our filings with the SEC, there is minimal current information for you to evaluate the possible merits or risks of any other target businesses which we may acquire. To the extent we complete a business combination

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with a financially unstable company, a company with unknown or non-quantifiable risks or an entity in its development stage, we may be affected by numerous risks inherent in the business operations of such entity. Further acquisitions or business combinations with an entity in the renewable energy industry would be characterized by a high level of risk, and we may be adversely affected by currently unascertainable risks of that business. Although our management team will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors.
The abundant competition and rapidly changing technology in the renewable energy industry may impair our success.
     The renewable energy marketplace is highly fragmented, competitive and subject to rapid technological change, and we may be unable to successfully compete. Evolving industry standards, rapid price changes and rapid product obsolescence also impact the market. We currently compete in the market for renewable energy products and services and against companies that are better capitalized than us. Our competitors include many domestic and foreign companies, many of which have substantially greater financial, marketing, personnel and other resources than we do. Our current competitors or new market entrants could introduce new or enhanced technologies, products or services with features that could render our technologies, products or services obsolete or less marketable. Our success will be dependent upon our ability to develop superior energy products in a cost effective manner. In addition, we may be required to continually enhance any products that are developed as well as introduce new products that keep pace with technological change and address the increasingly sophisticated needs of the marketplace. There can be no assurance that we will be able to keep pace with the technological demands of the marketplace or successfully develop products that will succeed in the marketplace.
Changes to the currently favorable regulations and legislation within the renewable energy industry may adversely impact our future revenues.
     The favorable legislative and regulatory climate for the renewable energy industry may not continue. The viability of our renewable energy projects will be in large part dependent upon the continuation of a favorable legislative and regulatory climate with respect to the continuing operations and the future growth and development of the renewable energy industry. Government regulations, subsidies, incentives and the market design have a favorable impact on the construction of renewable energy facilities. If the current government regulations, subsidy and incentive programs or the design of the market are significantly modified or delayed, our projects may be adversely affected, which may have a material adverse effect on the Company.
     The Internal Revenue Code currently provides for income tax credits for biodiesel fuels and for electricity produced and sold from qualified biomass and wind energy projects. These credits, which were to expire for biodiesel fuels after December 31, 2008, and for qualified wind energy projects placed in service on or after December 31, 2008, have been extended for one year as part of the Emergency Economic Stabilization Act of 2008 (Public Law 110-343). The credits available for biodiesel fuel and biomass and wind energy are discussed below. The elimination or significant reduction in these tax credits could harm our business, financial condition and results of operations.
The pricing of renewable energy may fluctuate significantly due to the price of oil and gas.
     The market price of renewable energy fuels is volatile and subject to significant fluctuations, which may cause our profitability to fluctuate significantly. The market price of renewable energy fuels is dependent on many factors, including the price of gasoline, which is in turn dependent on the price of

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crude oil. Petroleum prices are highly volatile and difficult to forecast due to frequent changes in global politics and the world economy. The distribution of petroleum throughout the world is affected by incidents in unstable political environments, such as Iraq, Iran, Kuwait, Saudi Arabia, countries comprising the former U.S.S.R., Venezuela, Nigeria, and other countries and regions. The industrialized world depends critically on oil from these areas, and any disruption or other reduction in oil supply or other types of instability in these regions, such as an escalation of conflicts, can cause significant fluctuations in the prices of oil and gasoline. We cannot predict the future price of oil or gasoline. Unprofitable prices for the sale of renewable energy fuels may result from the significant fluctuations in market prices. In recent years, the price of crude oil, gasoline and renewable energy fuels all reached historically unprecedented high levels, although prices for oil, gasoline and renewable energy fuels declined substantially in 2008. As the prices of gasoline and petroleum materially decline, we believe that the demand for and price of renewable energy fuels may be adversely affected. Fluctuations in the market price of renewable energy fuels will likely cause our profitability to fluctuate significantly.
The pricing of renewable energy may fluctuate due to the level of production of renewable energy.
     We believe that the production of renewable energy fuels is expanding rapidly, especially in the United States. There are a number of new plants under construction and planned for construction. We expect existing renewable energy fuel and biopower plants to expand by increasing production capacity and actual production. Increases in the demand for renewable energy fuels and biopower may not be commensurate with increasing supplies of renewable energy fuels or power. Thus, increased production of renewable energy fuels or power may lead to lower renewable energy fuel prices. The increased production of renewable energy fuels and power could also have other adverse effects. For example, increased renewable energy fuels production could lead to increased supplies of co-products from the production of renewable energy fuels. Those increased supplies could lead to lower prices for those co-products. Also, the increased production of renewable energy fuels could result in increased demand for renewable energy fuel supplies. This could result in higher prices for such supplies and cause higher renewable energy fuels production costs, which would result in lower profits. We cannot predict the future price of renewable energy fuels or biopower. Any material decline in the price of renewable energy fuels or power will adversely affect our sales and profitability.
Construction and development delays or cost over-runs may adversely affect our business.
     Absent a successful business combination, the ability of GreenHunter to generate revenues will depend upon the successful completion of the restoration or development, construction and operations of our existing biodiesel refinery, biomass plants, and wind assets. Such development requires capital equipment being manufactured, shipped to our project sites, installed and tested. In addition, we will be required to build or purchase and install on-site roads, substations, interconnection facilities and other infrastructure. There is a risk that the construction phase may not be completed, that construction may be substantially delayed, or that material cost over-runs may be incurred, which may result in GreenHunter being unable to meet profit expectations.
We would be liable for violations of environmental laws related to our ownership or operation of our facilities.
     Federal, state and local laws impose liability on a landowner for releases or the otherwise improper presence on the premises of hazardous substances. This liability is without regard to fault for, or knowledge of, the presence of such substances. A landowner may be held liable for hazardous materials brought onto the property before it acquired title and for hazardous materials that are not discovered until after it sells the property. Similar liability may occur under applicable state law. In

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addition, we could face environmental liability for violations on or related to facilities we lease or otherwise use unrelated to ownership. If any hazardous materials are found within the operations of GreenHunter and are in violation of the law at any time, we may be liable for all cleanup costs, fines, penalties and other costs. This potential liability will continue after we sell or cease operations on any subject properties and may apply to hazardous materials present within the properties before we acquired or commence use of them. If significant losses arise from hazardous substance contamination, our financial viability may be substantially and adversely affected.
Risks Related to the Biodiesel Industry
The biodiesel industry is highly dependent on a mix of legislation and regulation (including tax incentives) and any changes in legislation or regulation could harm our business, results of operations and financial condition.
     The competitiveness of the biodiesel industry currently depends to a large extent on tax incentives and renewable fuel standards. We blend our biodiesel in the United States at our facilities in Houston, Texas. We are entitled to credits against the U.S. federal excise taxes imposed on the removal of biodiesel from any refinery or terminal and sales of biodiesel to certain persons. We cannot assure you that the biodiesel fuels credit or any other government incentive programs will be renewed on similar terms, if at all. Any failure to renew such incentive programs at all or on similar terms could harm our business, financial condition and results of operations. In addition, the tax credit and other federal and state programs that benefit biodiesel generally are subject to U.S. and other government obligations under international trade agreements, including those under the World Trade Organization Agreement on Subsidies and Countervailing Measures that might in the future be the subject of challenges.
     In recent years, the U.S. federal government has sought to stimulate the production and use of biodiesel fuel. The primary incentive is the biodiesel fuels credit, which was enacted as part of the American Jobs Creation Act of 2004 (Public Law No. 108-357) and modified by Energy Tax Incentive Act of 2005 (Public Law 109-58) and the Economic Emergency Stabilization Act of 2008 (Public Law No. 110-343). Under Section 40A of the Internal Revenue Code (26 U.S.C. 40A), the biodiesel fuels credit is equal to the “biodiesel mixture credit” plus the “biodiesel credit.” The biodiesel mixture credit is $0.50 per gallon, or for fuel produced or sold after December 31, 2008, $1.00 per gallon. The biodiesel mixture credit is available for biodiesel (including agri-biodiesel) used by the taxpayer in the production of a qualified biodiesel mixture (a mixture of biodiesel and diesel fuel) which is sold by the taxpayer producing such fuel mixture to any person for use as fuel or is used as a fuel by the taxpayer producing such mixture. The biodiesel credit is U.S. $0.50 per gallon, or for fuel produced or sold after December 31, 2008, $1.00 per gallon. The biodiesel credit is available for biodiesel (including agri-diesel) that is not in a mixture with diesel fuel and that is either used by the taxpayer as fuel in a trade or business or is sold by the taxpayer at retail to a person and placed in the fuel tank of such person’s vehicle. Agri-biodiesel is biodiesel produced from “virgin oils” such as soybean oil or derived from animal fats. Finally, there is an additional U.S. $0.10 per gallon tax credit for small agri-biodiesel producers for up to 15 million gallons of agri-biodiesel produced by small producers. The biodiesel fuels credit is only available for biodiesel that meets both the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under Section 211 of the Clean Air Act (42 U.S.C. 7545) and the ASTM D6751 standard.
     Under the Economic Emergency Stabilization Act of 2008, these tax incentives expired at the end of 2009. On March 10, 2010, the U.S. Senate passed the American Workers, State, and Business Relief Act of 2010 (H.R. 4213) providing, among other provisions, a one year retroactive extension of the biodiesel tax incentive. With passage of H.R. 4213, the U.S. House and U.S. Senate must reconcile the differences between the two versions of the bill approved by the respective chambers. H.R. 4213 as

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approved by the U.S. House in December, 2009 also provides for a one year retroactive extension of the biodiesel tax incentive. The failure to renew the biodiesel tax credits described above or other programs could harm our business, financial condition and results of operations. In the United States, the Energy Policy Act of 2005 (Public Law No. 109-58), mandates a minimum amount of renewable fuel (biodiesel, ethanol, and other renewable fuels) to be used by petroleum refiners in the fuel supply market, increasing from 4.0 billion gallons in 2006 to 7.5 billion gallons by 2012. Under the final regulations, adopted pursuant to the Energy Independence and Security Act of 2007, U.S. Congress established a renewable fuels standard intended to encourage the use of 12.95 billion gallons of renewable fuels annually in 2010 and 36 billion gallons of renewable fuels annually by 2022.
     While these renewable fuel standards may stimulate demand for renewable fuels generally, we cannot assure you that there will be specific demand for biodiesel. Any waiver of, or failure to adopt, the renewable fuel standards could adversely impact the demand for biodiesel and may have a material adverse effect on our business, financial condition and results of operations.
Our operations are subject to various regulatory schemes, including environmental regulations, and failure to comply with such regulations could harm our business, results of operations and financial condition.
     All phases of designing, constructing and operating biodiesel production facilities present environmental risks and hazards. We are subject to environmental regulation implemented or imposed by a variety of federal, state and municipal laws and regulations as well as international conventions. Among other things, environmental legislation provides for restrictions and prohibitions on spills and discharges, as well as emissions of various substances produced in association with biodiesel fuel operations. Legislation also requires that facility sites be operated, maintained, abandoned and reclaimed in such a way that would satisfy applicable regulatory authorities. Compliance with such legislation can require significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner we expect may result in stricter standards and enforcement, larger fines, penalties and liability, as well as potentially increased capital expenditures and operating costs. The discharge of pollutants into the air, soil or water may give rise to liabilities to governments and third parties, and may require us to incur costs to remedy such discharge.
     Failure to comply with government regulations could subject us to civil and criminal penalties, require us to forfeit property rights and may affect the value of our assets or our ability to conduct our business. We may also be required to take corrective actions, including, but not limited to, installing additional equipment, which could require us to make substantial capital expenditures. We could also be required to indemnify our directors, officers and employees in connection with any expenses or liabilities that they may incur individually in connection with regulatory action against them. These could result in a material adverse effect on our business, financial condition and results of operations.
Our results of operations, financial condition and business outlook are highly dependent on commodity prices, which are subject to significant volatility and uncertainty, and the availability of supplies.
     Our financial results are substantially dependent on many different commodity prices, especially prices for feedstock, biodiesel, petroleum diesel and materials used in the construction of our production facilities. As a result of the volatility of the prices for these items, our financial results may fluctuate substantially and we may experience periods of declining prices for our products and increasing costs for our raw materials, which could result in operating losses. Although we may attempt to offset a portion of the effects of fluctuations in prices by entering into forward contracts to supply biodiesel or purchase

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feedstock or other items or by engaging in transactions involving exchange-traded futures contracts, the ability to hedge against certain feedstock price fluctuations is limited, the amount and duration of these hedging and other risk mitigation activities may vary substantially over time and these activities also involve substantial costs and risks and may not be effective to mitigate these fluctuations.
     We depend on third parties for all of our feedstock supply. If such third parties are not able to complete their feedstock supply services or default on their agreement to provide us with feedstock or procure feedstock for us, we would be materially adversely affected. Irrespective of whether third parties perform under feedstock contractual arrangements with us, we may be forced to buy feedstock at uneconomic rates, or we may not have access to feedstock at all. Additionally, we may have difficulty selling our biodiesel if third parties with whom we contract under our off-taking agreements do not perform. These conditions may cause our operating results to suffer.
     As feedstocks comprise the primary input in producing biodiesel, changes in the price of feedstocks can significantly affect our business. The price of feedstock is influenced by market demand, weather conditions, animal processing and rendering plant decisions, factors affecting crop yields, farmer planting decisions and general economic, market and regulatory factors. These factors include government policies and subsidies with respect to agriculture and international trade, and global and local demand and supply. The significance and relative effect of these factors on the price of feedstock is difficult to predict. Any event that tends to negatively affect the supply of feedstock, such as increased demand, adverse weather or crop disease, could increase feedstock prices and potentially harm our business. In addition, we may also have difficulty, from time to time, in physically sourcing feedstock on economical terms due to supply shortages. Such a shortage could require us to suspend operations until feedstock is available at economical terms, which could have a material adverse effect on our business, results of operations and financial condition. The price we pay for feedstock at a facility could increase if an additional multi-feedstock biodiesel production facility is built in the same general vicinity or if alternative uses are found for lower cost feedstocks.
     Historically, the price of biodiesel has correlated closely to the price of petroleum diesel which is directly correlated to the price of crude oil. The price of petroleum diesel fluctuates substantially and is difficult to forecast due to factors such as political unrest, worldwide economic conditions, supply and demand, seasonal weather conditions, changes in refining capacity, fluctuations in exchange rates and natural disasters. Price fluctuations will have a significant impact upon our revenue, the return on our investment in biodiesel production facilities and on our general financial condition. Price fluctuations for biodiesel fuel may also impact the investment market, and our ability to raise capital. Although market prices for biodiesel fuel rose to record levels during 2007 and into 2008, the prices of crude oil and biodiesel fuel declined substantially in the second half of 2008. Future decreases in the prices of biodiesel or petroleum diesel fuel may have a material adverse effect on our business, financial condition and results of operations.
     Biodiesel is marketed both as a pure and blended substitute for diesel, and as a result, a decrease in petroleum diesel prices may reduce the price at which we can sell our biodiesel and materially and adversely affect our business, financial condition and results of operations.
Cold weather can cause biodiesel, particularly biodiesel produced from animal fats, oils and greases, to gel sooner than petroleum-based diesel, which has resulted in price discounts for biodiesel produced from animal fats, oils and greases.
     The cloud point for a fuel is the temperature at which the liquid becomes cloudy due to formation of crystals and solidification of saturates. With decreasing temperature, more solids form and the material approaches the pour point, the lowest temperature at which the material will pour. A lower cloud

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point means the fuel will flow more readily in cold weather. No. 2 diesel and No. 1 diesel are used extensively for automotive transportation. Although the cloud points for these products vary depending on the origin refinery and the time of the year, an indicative range observed for No.2 diesel is —14°C to -23°C. In contrast, the cloud points of soybean-based, yellow grease-based and animal tallow-based pure biodiesel, or B100, are approximately 0°C, 5°C and 10°C, respectively. Testing conducted in 2005 by the Biodiesel Cold Flow Consortium established by the National Biodiesel Board demonstrated that the cloud points of soybean-based, yellow grease-based and animal tallow-based 2% blended biodiesel, or B2, varied only a few degrees from the cloud point of No. 2 diesel. However, there exists a discount in the marketplace for B100 biodiesel with high cloud points. This discount may range from $0.50 to $1.15 per gallon depending on the season, with a lower discount during warmer months and a higher discount in the summer months.
     In addition to the decline in price differential between biodiesel and petroleum-derived diesel expected during the colder months, it is likely that the discount for biodiesel produced from animal fats, oils and greases will increase during colder weather. This may also require us to use particular feedstocks that customers believe are better suited for their climate, which could require us to purchase more expensive feedstocks and increase our cost of sales. In addition, the testing conducted by the Biodiesel Cold Flow Consortium showed that successful blending of biodiesel with petroleum-based diesel would require the biodiesel to be heated to approximately 10°C above its cloud point. This would necessitate the use of heated facilities in order to produce a blended product, which may increase blending costs and the resulting cost of biodiesel sold to the public. Further, at low temperatures, biodiesel may need to be stored in a heated building or heated storage tanks, which would increase storage costs. Any reduction in the demand for or pricing of, or increased costs of, our biodiesel will reduce our revenue and have an adverse effect on our financial condition and results of operations.
The U.S. biodiesel industry is highly dependent upon a myriad of federal and state legislation and regulation and any changes in legislation or regulation could materially and adversely affect our results of operations and financial position.
     The production of biodiesel is made significantly more competitive by federal and state tax incentives. The federal excise tax incentive program for biodiesel was originally enacted as part of the American Jobs Creation Act of 2004, but expired on December 31, 2009. Since January 1, 2009, this program provides fuel blenders, generally distributors, with a one-cent tax credit for each percentage point of biodiesel blended with petroleum diesel. For example, distributors that blend biodiesel with petroleum diesel into a B20 blend would receive a twenty cent per gallon excise tax credit. These tax credits generally allow for B100 biodiesel to sell at a premium over wholesale petroleum diesel, although the wholesale price paid by a blender to a producer may not reflect the full amount of the tax credit and the amount of the premium, if any, is generally less during colder months. On March 10, 2010, the U.S. Senate passed the American Workers, State, and Business Relief Act of 2010 (H.R. 4213) providing, among other provisions, a one year retroactive extension of the biodiesel tax incentive. With passage of H.R. 4213, the U.S. House and U.S. Senate must reconcile the differences between the two versions of the bill approved by the respective chambers. H.R. 4213 as approved by the U.S. House in December, 2009 also provides for a one year retroactive extension of the biodiesel tax incentive.
     In addition, approximately thirty-one states provide mandates, programs and other incentives to increase biodiesel production and use, such as mandates for fleet use or for overall use within the state, tax credits, financial grants, tax deductions, financial assistance, tax exemptions and fuel rebate programs. These incentives are meant to lower the cost of biodiesel in comparison to petroleum diesel. The elimination or significant reduction in the federal excise tax incentive program or state incentive programs benefiting biodiesel production may have a material and adverse effect on our results of operations and financial condition.

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Competition due to advances in alternative fuels may lessen the demand for biodiesel and negatively impact our profitability.
     Alternative fuels, gasoline oxygenates, ethanol and biodiesel production methods are continually under development. A number of automotive, industrial and power generation manufacturers are developing alternative clean power systems using fuel cells or clean-burning gaseous fuels that, like biodiesel, may address increasing worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns. Additionally, there is significant research and development being undertaken regarding the production of ethanol from cellulosic biomass, the production of methane from anaerobic digestors, and the production of electricity from wind and tidal energy systems, among other potential sources of renewable energy. If these alternative fuels continue to expand and gain broad acceptance, we may not be able to compete effectively. This additional competition could reduce the demand for biodiesel, which would adversely affect our business, results of operations and financial condition.
Adverse public opinions concerning the biodiesel industry in general could harm our business.
     The biodiesel industry is new, and general public acceptance of biodiesel is uncertain, especially in the United States. Public acceptance of biodiesel as a reliable, high-quality alternative to petroleum diesel may be limited or slower than anticipated due to several factors, including:
    public perception of the “food versus fuel” debate;
 
    public perception that biodiesel is produced from waste vegetable oil or other lower-quality feedstocks, thereby resulting in lower quality fuel;
 
    public perception that the use of biodiesel will require excessive engine modifications, or that engines running biodiesel will not reliably start in cold conditions;
 
    actual or perceived problems with biodiesel quality or performance; and
 
    concern that using biodiesel will void engine warranties.
     Such public perceptions or concerns, whether substantiated or not, may adversely affect the demand for our biodiesel, which in turn could decrease our sales, harm our business and adversely affect our financial condition.
We need to negotiate extension of credit terms with our Lender.
     Due to the current economic conditions related to the biodiesel industry, we cannot make biodiesel at a profit at our Houston refinery. Our ability to repay indebtedness to our Lender is dependent upon us achieving profitable operations at our facility. Until such time as we can achieve and maintain profitable operations at our Houston facility, we need to negotiate terms with our lender allowing us to maintain ownership and operation of the facility. Unless we negotiate mutually agreeable terms with our lender regarding repayment of the credit facility secured by the Houston refinery, our plant is subject to being foreclosed upon by the lender.

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Risks Relating to the Wind Energy Industry
One of our business segments depends on the availability of wind, which may not meet our expectations if weather patterns vary greatly.
     A portion of our business is dependent on the availability of the wind resource. The strength and consistency of the wind resource at any of our wind projects will vary. Weather patterns are unpredictable could change or the historical data could prove to be an inaccurate reflection of the strength and consistency of the wind in the future. If there is insufficient wind resource, the assumptions underlying the economic feasibility as to the amount of electricity to be generated by any of our proposed wind projects will not be met and income and cash flows will be adversely impacted. The future evaluation of our wind projects will be based on assumptions about certain conditions that may exist and events that may occur in the future. A number of additional factors may cause the wind resource and energy capture at any of our wind projects to differ, possibly materially, from those initially assumed by management, including:
    the limited time period over which the site-specific wind data were collected;
 
    the potential lack of close correlation between site-specific wind data and the longer-term regional wind data;
 
    inaccurate assumptions related to wake losses and wind shear;
 
    the limitations in the accuracy with which anemometers measure wind speed;
 
    the inherent variability of wind speeds;
 
    the lack of independent verification of the turbine power curve provided by the manufacturer;
 
    the potential impact of climatic factors, including icing and soiling of wind turbines;
 
    the potential impact of topographical variations, turbine placement and local conditions, including vegetation;
 
    the power delivery schedule being subject to uncertainty;
 
    the inherent uncertainty associated with the use of models, in particular future-oriented models; and
 
    the potential for electricity losses to occur before delivery.
     Further, the wind resources may be insufficient for our wholly owned subsidiary, GreenHunter Wind Energy, LLC, to become and remain profitable. Wind is naturally variable. The level of electricity production at any of our wind projects, therefore, will also be variable. If there is insufficient wind resource at a project site due to variability, the assumptions underlying management’s belief as to the amount of electricity to be generated by any of our wind projects will not be met. Accordingly, there is no assurance that the wind resource will be sufficient for GreenHunter Wind Energy to become or remain profitable.
The inherent volatility in the market price of electricity could impact our profitability.
     Our potential revenues, income and cash flow are subject to volatility in the market price for electricity. Our ability to generate revenue has exposure to movements in the market price of electricity, as sales to the power market are likely to be made at prevailing market prices. The market price of electricity is sensitive to cyclical changes in demand and capacity supply, and in the economy, as well as to regulatory trends and developments impacting electricity market rules and pricing, transmission

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development and investment within the United States and to the power markets in other jurisdictions via interconnects and other external factors outside of our control. Energy from wind generating facilities must be taken “as delivered” which necessitates the use of other system resources to keep the demand and supply of electric energy in balance. Accordingly, the potential revenue, income and cash flow may be volatile and adversely affect our value.
Any inability or delay in updating or obtaining required licenses and permits could hinder development and adversely affect profitability.
     We may be unable to obtain all necessary licenses and permits to operate our business. GreenHunter may not necessarily hold all of the licenses and permits required in connection with the construction and operation of most of our biodiesel refinery, biomass plants, and wind projects. The failure to obtain all necessary licenses or permits, including renewals or modifications, could result in construction delays of any of our projects or could otherwise have a material adverse effect on GreenHunter.
Our inability to enter interconnection agreements would restrict our ability to sell electricity.
     We may be unable to enter into necessary interconnection agreements. GreenHunter will be required to enter into certain interconnection agreements with electric utilities prior to selling electricity. The failure to enter into such interconnection agreements on terms that are acceptable to us could have a material adverse effect on GreenHunter.
The wind energy industry is highly dependent on tax incentives.
     Section 45 of the Internal Revenue Code provides for a production tax credit of 1.5 cents (adjusted annually for inflation) per kilowatt hours of electricity produced by the taxpayer from a qualified facility during the 10-year period beginning on the date it was originally placed in service, and sold to an unrelated person. The production tax credit is reduced under a formula for any year in which the national average price of electricity produced from wind for the immediately succeeding year, or the “reference price,” exceeds 8 cents a kilowatt hour adjusted for inflation and is completely eliminated when the reference price exceeds 11 cents (adjusted for inflation) per kilowatt hour. The reference price for 2009 was 2.1 cents.
     The production tax credit which was scheduled to expire for qualified facilities placed in service after December 31, 2008, was extended by the Emergency Economic Stabilization Act of 2008 (Public Law 110-343) to qualified facilities placed in service before January 1, 2010. Under the American Recovery and Reinvestment Tax Act of 2009, the placed in service deadline for wind facilities has been extended to December 31, 2012. The elimination or significant reduction in the production tax credit described above could harm our business, financial condition and results of operations.
Risks Relating to the Biomass Industry
The inherent volatility in the market price of electricity could impact our profitability.
     Our potential revenues, income and cash flow are subject to volatility in the market price for electricity. Our ability to generate revenue has exposure to movements in the market price of electricity, as sales to the power market are likely to be made at prevailing market prices. The market price of electricity is sensitive to cyclical changes in demand and capacity supply, and in the economy, as well as to regulatory trends and developments impacting electricity market rules and pricing, transmission

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development and investment within the United States and to the power markets in other jurisdictions via interconnects and other external factors outside of our control. Energy from biomass facilities must be taken “as delivered” which necessitates the use of other system resources to keep the demand and supply of electric energy in balance. Accordingly, the potential revenue, income and cash flow may be volatile and adversely affect our value.
Any inability or delay in updating or obtaining required licenses and permits could hinder development and adversely affect profitability.
     We may be unable to obtain all necessary licenses and permits to operate our business. GreenHunter may not necessarily hold all of the licenses and permits required in connection with the construction and operation of most of our biodiesel refinery, biomass plants, and wind projects. The failure to obtain all necessary licenses or permits, including renewals or modifications, could result in construction delays of any of our projects or could otherwise have a material adverse effect on GreenHunter.
Our inability to enter interconnection agreements would restrict our ability to sell electricity.
     We may be unable to enter into necessary interconnection agreements. GreenHunter will be required to enter into certain interconnection agreements with electric utilities prior to selling electricity. The failure to enter into such interconnection agreements on terms that are acceptable to us could have a material adverse effect on GreenHunter.
The biomass energy industry is highly dependent on tax incentives.
     Production Tax Credit. Section 45 of the Internal Revenue Code generally provides a production tax credit of 1.5 cents (the “credit amount” as adjusted annually for inflation) for electricity produced by a taxpayer from a qualified energy resource at a qualified facility during the 10-year period beginning on the date the facility was originally placed in service (the “credit period” which is adjusted for certain facilities as noted below) and sold by the taxpayer to an unrelated person. A qualified energy resource includes closed-loop biomass and open-loop biomass.
     The production tax credit is reduced under a formula for any year in which the national average price of electricity from biomass, or the “reference price,” exceeds 8 cents a kilowatt hour adjusted for inflation and is completely eliminated when the reference price exceeds 11 cents (adjusted for inflation) per kilowatt hour. For 2009, the production tax credit is 2.1 cents per kilowatt-hour for closed-loop biomass and 1.1 cents per kilowatt-hour for open-loop biomass.
     For a facility using open-loop biomass to produce electricity, the term “qualified facility” generally means any facility owned by the taxpayer which in the case of a facility using agricultural livestock waste nutrients is originally placed in service before January 1, 2011 and the nameplate capacity rating is not less than 150 kilowatts and in the case of any other facility is originally placed in service before January 1, 2011. It also includes a new unit placed in service after October 3, 2008, in connection with such facility but only to the extent of the increased amount of electricity produced at the facility by such unit. The credit period for a facility for open-loop biomass is shortened from a 10-year period to a 5-year period for any facility placed in service before August 8, 2005, and for facilities other than using agricultural livestock waste placed in service before October 22, 2004, is a 5-year period beginning on January 1, 2005. Also, the credit amount for electricity produced from a facility for open-loop biomass is reduced by one-half.

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     For a facility using closed-loop biomass to produce electricity, the term “qualified facility” generally means any facility owned by the taxpayer which is originally placed in service after 1992 and before January 1, 2011 or owned by the taxpayer which before January 1, 2011 is originally placed in service and modified to use closed-loop biomass to co-fire with coal, with other biomass, or with both but only if certain modifications are approved under the Biomass Power for Rural Development Programs or is part of a pilot project of the Commodity Credit Corporation. (The amount of production tax credit attributable to a qualified facility under the immediately preceding sentence is further adjusted based on the ratio of the thermal content of the closed-loop biomass used in the facility to the thermal content of all fuels used in such facility.) It also includes a new unit placed in service after October 3, 2008, in connection with such facility but only to the extent of the increased amount of electricity produced at the facility by such unit. With respect to either a closed-loop biomass facility or open-loop biomass facility, if the owner of such facility is not the producer of the electricity, the person eligible for the credit is the lessee or operator of such facility.
     The production tax credit for qualified resources was scheduled to expire for qualified facilities placed in service after December 31, 2008. However, the Emergency Economic Stabilization Act of 2008 (Public Law 110-343) extended the production tax credit generally to biomass facilities placed in service before January 1, 2011. Under the American Recovery and Reinvestment Tax Act of 2009, the placed in service deadline for wind facilities has been extended to December 31, 2013. The elimination or significant reduction in the production tax credit described above could harm our business, financial condition and results of operations.
     Bonus Depreciation. Finally, the Emergency Economic Stabilization Act of 2008 provides that an additional first year depreciation of 50% of the adjusted tax basis is available for cellulosic biomass plant property. Cellulosic biomass means any liquid fuel which is produced from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis. Cellulosic biomass plant property means property of a character subject to the allowance for depreciation which is used in the U.S. solely to produce cellulosic biomass, the original use of which commences with the taxpayer and which is placed in service after October 3, 2008, in taxable years ending after that date but before January 1, 2013, and which is acquired by the taxpayer by purchase.
     No Assurance of Continued Tax Incentives. The biomass industry is highly dependent on tax incentives. The credit for producing fuels from nonconventional sources has already expired, and there is no assurance that other tax incentives will be renewed or otherwise continued on favorable terms.
Risks Relating to the Ownership of our Securities
Our common stock only has been publicly traded since January 2, 2008, and the price of our common stock has fluctuated substantially since then and may fluctuate substantially in the future.
     Our common stock has been publicly traded only since January 2008. The price of our common stock has fluctuated significantly since then. From January 2, 2008, to March 30, 2010, the trading price of our common stock ranged from a low of $0.91 per share to a high of $25.45 per share and the closing trading price on March 26, 2010 was $1.34 per share. We expect our stock to continue to be subject to fluctuations as a result of a variety of factors, including factors beyond our control. These factors include:
    changing conditions in fuel markets;
 
    changes in financial estimates by securities analysts;
 
    changes in market valuations of comparable companies;
 
    additions or departures of key personnel;

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    future sales of our stock;
 
    tax and other regulatory developments;
 
    our ability to develop and complete facilities, and to introduce and market the energy created by such facilities to economically viable production volumes in a timely manner; and
 
    other factors discussed in the “Risk Factors” section and elsewhere in this prospectus and in any prospectus supplement.
We may fail to meet expectations of our stockholders or of securities analysts at some time in the future, and our stock price could decline as a result.
If we issue additional shares in the future, it will result in dilution to our existing stockholders.
     Our amended and restated certificate of incorporation denies the holders of our common stock the right to subscribe for additional shares of capital stock upon any issuance or increase thereof. As a result, if we choose to issue additional shares of common stock or securities convertible into common stock, our stockholders may be unable to maintain their pro rata ownership of common stock. The issuance of additional securities will result in a reduction of the book value and market price of the outstanding shares of our common stock. If we issue any such additional shares or securities convertible into or exercisable for shares, such issuance will cause a reduction in the proportionate ownership and voting power of all current stockholders who do not purchase such shares. Further, such issuance may result in a change of control of our company. There is no assurance that further dilution will not occur in the future.
We may issue shares of our capital stock or debt securities to complete a business combination or acquire assets, which would dilute the equity interest of our stockholders and could cause a change in control of our ownership.
     Our certificate of incorporation authorizes the issuance of up to 90,000,000 shares of common stock and 10,000,000 shares of preferred stock. As of March 30, 2010, there were 67,883,536 authorized but unissued shares of our common stock available for issuance and 9,976,825 shares of preferred stock available for issuance. As of December 31, 2009, the number of shares of our common stock subject to outstanding options, warrants, GreenHunter’s Series A convertible preferred stock and GreenHunter’s Series B convertible preferred stock was 16,958,448. At March 30, 2010, we had no commitments to issue additional shares of common stock and we will, in all likelihood, issue a substantial number of additional shares of our common stock, preferred stock or convertible securities, or a combination of common stock, preferred stock and convertible securities, to the stockholders of a potential target or in connection with a related simultaneous financing to complete a business combination or asset purchase. The issuance of additional common stock, preferred stock or convertible securities may:
    significantly dilute the equity interest of current stockholders in our Company;
 
    subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded to holders of our common stock;
 
    cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and possibly result in the resignation or removal of some or all of our present officers and directors; and
 
    adversely affect prevailing market prices for our common stock.
Similarly, our issuance of additional debt securities could result in:

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    default and foreclosure on our assets if our operating revenues after a business combination or asset purchase are insufficient to pay our debt obligations;
 
    acceleration of our obligations to repay the indebtedness, even if we have made all principal and interest payments when due, if the debt security contains covenants that require the maintenance of certain financial ratios or reserves, or change of control provisions, and any such covenant is breached without a waiver or renegotiation of that covenant;
 
    our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; and
 
    our inability to obtain additional financing, if necessary, if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding.
Our ability to successfully effect a business combination and to be successful afterwards will be dependent upon the efforts of our key personnel, and others hired to manage the acquired business and whom we would have only a limited ability to evaluate.
     Our ability to successfully effect a business combination will be dependent upon the efforts of our key personnel. However, we cannot presently ascertain the future role of our key personnel in the target business. While we intend to closely scrutinize any individuals we engage in connection with a business combination, we cannot assure you that our assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements of operating as part of a public company which could cause us to have to expend time and resources familiarizing them with such requirements. This process could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect our operations.
Our officers’ and directors’ allocation of their time to other business interests could have a negative impact.
     All of our officers are required to commit their full work hour time to our business affairs, with the exception of Mr. Evans and Mr. Krueger. Due to existing management and board of director positions and other business interests that Mr. Evans maintains with other companies, Mr. Evans cannot commit all of his work hours to GreenHunter. Mr. Krueger is also an officer with another public company. However, subject to Board approval where appropriate, all material corporate, strategic and financial decisions will be reviewed and ultimately decided by Mr. Evans.
Because of our limited resources and the significant competition for business combination opportunities, we may not be able to consummate attractive business combinations.
     We expect to encounter intense competition from other entities with business objectives similar to ours, including venture capital funds, leveraged buyout funds and operating businesses competing for acquisitions. Many of these entities are well-established and have extensive experience in identifying and effecting business combinations directly or through affiliates. Many of these competitors may possess greater technical, human and other resources than we do, and our financial resources may be relatively limited when contrasted with those of many of these competitors. While we believe that there are numerous potential target businesses that we could acquire, our ability to compete in acquiring certain sizable target businesses will be limited by our available financial resources. This inherent competitive limitation may give others an advantage in pursuing the acquisition of certain target businesses. Any of these factors may place us at a competitive disadvantage in successfully negotiating a business combination. If we are unable to successfully complete an acquisition of a target business, our business plan will be thwarted and investors may lose their entire investment.

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We may be unable to obtain additional financing, if required, to complete a business combination, asset purchase or to fund the operations and growth of the target business, which could compel us to restructure the transaction or abandon a particular business combination or asset purchase.
     We cannot ascertain the capital requirements for any particular transaction. If the net proceeds of any specific capital raise prove to be insufficient, either because of the size of the business combination or asset purchase, we may be required to seek additional financing. We cannot assure you that such financing would be available on acceptable terms, if at all. To the extent that additional financing proves to be unavailable when needed to consummate a particular business combination or asset purchase, we would be compelled to restructure the transaction or abandon that particular business combination or asset purchase and seek an alternative target. In addition, if we consummate a business combination or asset purchase, we may require additional financing to fund the operations or growth of the target. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the target. None of our officers, directors or stockholders is required to provide any financing to us in connection with or after a business combination.
We are subject to credit market risk.
     Distress in the credit and financial markets has reduced liquidity and credit availability. The Company has a credit facility consisting of a fully utilized $33.5 million term loan facility and a $10 million working capital facility with WestLB, which the bank may, in its sole discretion, increase up to an aggregate of $150 million (including the $43.5 million commitment). As of March 30, 2010, approximately $38 million was outstanding under this credit facility, and the Company had no borrowing availability. The lender has agreed to waive any events of default under the credit facility until April 30, 2010. Credit market risk could negatively impact WestLB’s ability and willingness to fund the commitment amount of the credit facility and to increase the credit facility up to $150.0 million or any lesser increased amount. Credit market risk could also negatively impact the Company’s suppliers being able to make deliveries in accordance with their commitments.
In the event we cannot comply with the requirements of the Sarbanes-Oxley Act of 2002 or we acquire a business that is unable to satisfy regulatory requirements relating to internal controls, or if our internal controls over financial reporting are not effective, our business and our stock price could suffer.
     As a reporting public company, we are currently subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and will need to have an audit of our management’s assessment of internal control beginning in fiscal year 2010. In addition, such statute also requires an evaluation of any target business acquired by us. Section 404 of the Sarbanes-Oxley Act of 2002 requires companies to do a comprehensive evaluation of their internal controls, including an evaluation of any target businesses acquired by a company. In the event the internal controls over financial reporting of a target business cannot satisfy the regulatory requirements relating to internal controls or if these internal controls over financial reporting are not effective, we may not be able to complete a business combination with the target business without substantial cost or significant risks to our company or our management may be unable to certify as to the effectiveness of the internal controls and our auditor may be unable to publicly attest to this certification following the completion of a business combination. Our efforts to comply with Section 404 and related regulations regarding our management’s required assessment of internal controls over financial reporting and our independent auditors’ attestation of that assessment may require the commitment of significant financial and managerial resources or may prevent a business combination with certain target businesses. If we fail to timely complete our evaluation, if our management is unable to certify the effectiveness of the internal controls of our company or the acquired business or if our auditors cannot attest to management’s certification, we could be subject to regulatory scrutiny and loss of public confidence, which could have an adverse effect on our business and our stock price.

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Our outstanding options, warrants and convertible preferred stock may have an adverse effect on the market price of common stock and make it more difficult to effect a business combination.
     We have issued options to purchase 7,989,500 shares of common stock, warrants to purchase 6,208,948 shares of common stock, and preferred stock convertible into 2,760,000 shares of common stock, as of December 31, 2009. To the extent we issue shares of common stock to effect a business combination, the potential for the issuance of substantial numbers of additional shares upon exercise of these options and warrants or conversion of the preferred stock could make us a less attractive acquisition vehicle in the eyes of a target business as such securities, when exercised or converted, will increase the number of issued and outstanding shares of our common stock and reduce the value of the shares issued to complete the business combination. Accordingly, our options, warrants and preferred stock may make it more difficult to effectuate a business combination or increase the cost of the target business. Additionally, the sale, or even the possibility of sale, of the shares underlying the options, warrants and preferred stock could have an adverse effect on the market price for our securities or on our ability to obtain future public financing. If, and to the extent, these options, warrants and preferred stock are exercised or converted, respectively, you may experience dilution to your holdings.
We do not intend to pay dividends on our common stock and thus stockholders must look solely to appreciation of our common stock to realize a gain on their investments.
     Although we have paid cash dividends on our Series A Preferred Stock, we have never declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings for funding growth and, therefore, do not expect to pay any dividends on our common stock in the foreseeable future. Our future dividend policy is within the discretion of our board of directors and will depend upon various factors, including our business, financial condition, results of operations, capital requirements, and investment opportunities. Accordingly, stockholders must look solely to appreciation of our common stock to realize a gain on their investment. This appreciation may not occur.
Item 2. Properties
     Through our acquisition of BioFuels in April 2007, we own a waste oil recycling facility on a 20 acre industrial parcel located on the Houston ship channel. Until July 2007, the facility was manufacturing base oils, lubricants, diesel fuels and naptha. We have designed and converted the existing facility into a 105 million gallon per year biodiesel refinery capable of utilizing multiple vegetable feedstocks and animal fats. In addition, we are in the process of completing the installation of 700 thousand barrels of bulk storage capacity on site.
     Our Mesquite Lake Resource Recovery Plant is an 18.5 MW waste-to-energy facility located in El Centro, California. This plant is owned by GreenHunter Mesquite Lake, Inc., a wholly-owned subsidiary of GreenHunter. This Imperial County facility was originally built in 1989 to process cow manure into electricity and operated until December 1994. Several modifications were implemented during its operating life to improve plant performance leading to a 95% on-line capacity factor during its last year of operation. Currently, Mesquite Lake is not generating electricity and is in a dormant state. Our primary business objective is to re-power the facility using existing biomass processing technology into a profitable electricity power plant.
     On November 30, 2007, we purchased real estate including two office buildings comprising approximately 20,200 usable square feet of space located in Grapevine, Texas for use as our corporate headquarters.

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Item 3. Legal Proceedings
     Bioversel, Inc. f/k/a Bioversel Trading, Inc., Plaintiff, vs. GreenHunter BioFuels, Inc., Defendant, in the District Court of Harris County, Texas, 55th Judicial District. Plaintiff brought suit against the defendant on September 24, 2008 alleging that the defendant has repudiated its biodiesel tolling agreement, as amended, with the plaintiff. The plaintiff has alleged breach of contract, fraud and conversion regarding defendant’s ability to process feedstock into biodiesel under the contract.
     Defendant has been served with this lawsuit and has answered the lawsuit. Defendant vigorously denies the allegations in the lawsuit and believes the lawsuit is completely without merit. Defendant has filed a countersuit against plaintiff for failure to make payments to defendant under the contract. The parties have exchanged discovery and the case is set for trial in 2010.
     Jacob Stern & Sons, Inc., Plaintiff vs. GreenHunter BioFuels, Inc., Defendant, in the District Court of Harris County, Texas, 334th Judicial District. Plaintiff brought suit against the defendant on February 19, 2009 alleging that the defendant breached two separate contracts for the purchase of animal fat feedstock for its biodiesel refinery in Houston. Defendant has denied that a contractual agreement ever existed or was entered into between the parties.
     Defendant has been served and has answered the lawsuit. The parties have responded to initial discovery requests. At this point in the litigation process the Company believes it is too early to determine the ultimate outcome of this lawsuit.
     Crown Engineering & Construction, Plaintiff vs. GreenHunter Energy, Inc., Defendant, Superior Court, County of Imperial, El Centro District, CA., Case # ECU05117. Plaintiff brought suit against the Defendant on April 1, 2009 alleging that the Defendant breached the contract for services to refurbish the Company’s biomass plant in California. Defendant has denied that the alleged amount is due in full. The parties have settled this lawsuit.
     In addition, GreenHunter Energy has been sued by various subcontractors of Crown Engineering and Construction regarding the payment for services to refurbish the Company’s biomass plant in California. GreenHunter Energy is currently negotiating with all subcontractors to settle the various amounts due with the subcontractors.
Item 4. Submission of Matters to a vote of Security Holders
     On October 19, 2009, the Company conducted its annual shareholders’ meeting. The first item of the meeting concerned the vote upon the proposal for the establishment of a classified board of directors.
     The results of the proxies voting for and the proxies voting against the proposal is as follows:
13,864,244 shares or 100% of the outstanding shares represented at the meeting voted in favor of the above-described proposal.
0 shares voted against the above-described proposal.
0 shares abstained from voting.
     The next item of the meeting concerned the vote upon the proposal to elect the Board members.
     The results of the proxies voting for and the proxies voting against the proposal is as follows:

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For each director:
Gary C. Evans, Class III
13,864,244 shares, or 100% of the outstanding shares represented at the meeting voted in favor of the nominee.
0 shares voted against the nominee.
0 shares abstained from voting.
Ronald H. Walker, Class I
13,864,244 share, or 100% of the outstanding shares represented at the meeting voted in favor of the nominee.
0 shares voted against the nominee.
0 shares abstained from voting.
Ronald Ormand, Class II
13,864,244 shares or 100% of the outstanding shares represented at the meeting voted in favor of the nominee.
0 shares voted against the nominee.
0 shares abstained from voting
     The next item of the meeting concerned the vote upon the proposal to ratify the appointment of Hein & Associates as the Corporation’s independent auditors.
     The results of the proxies voting for and the proxies voting against the proposal is as follows:
13,864,244 shares, or 100% of the outstanding shares represented at the meeting voted in favor of the above-described proposal.
0 shares voted against the above-described proposal.
0 shares abstained from voting.

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Part II
Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
     Our common stock began trading on the American Stock Exchange (now known as NYSE Amex) on January 2, 2008, under the symbol “GRH”. Prior to trading on the NYSE Amex, there was no public market for our common stock. The reported high and low sales prices for our common stock from and after January 2, 2008, as reported by the New York Stock Exchange, are shown below for the period indicated.
                         
                    Average  
                    Daily  
                    Trading  
                    Volume  
    High     Low     (Shares)  
     
 
                       
2008
                       
First Quarter
  $ 20.50     $ 12.00       3,640  
Second Quarter
  $ 25.45     $ 11.81       26,642  
Third Quarter
  $ 19.25     $ 11.55       39,256  
Fourth Quarter
  $ 14.30     $ 3.28       36,287  
 
                       
     
2009
                       
First Quarter
  $ 5.25     $ 1.16       30,429  
Second Quarter
  $ 4.32     $ 0.91       292,592  
Third Quarter
  $ 3.18     $ 1.40       295,976  
Fourth Quarter
  $ 2.08     $ 0.99       108,000  
     On March 26, 2010, the last reported closing price of our common stock on the NYSE Amex was $1.34 per share. Our registrar and transfer agent is Securities Transfer Corporation, 2591 Dallas Parkway, Suite 102, Frisco, Texas 75034. As of March 26, 2010, there were 568 record holders of our common stock.
     We have not previously paid any cash dividends on our common stock and do not anticipate paying dividends on our common stock in the foreseeable future. It is the present intention of management to utilize all available funds for the development and growth of our business activities.
                         
    Equity Compensation Plan Information
                    Number of securities
                    remaining available for
                    future issuance under
    Number of securities to   Weighted-average   equity
    be issued upon exercise   exercise price of   compensation plans
    of outstanding options,   outstanding options,   (excluding securities
Plan Category   warrants and rights   warrants and rights   reflected in column (a))
    (a)   (b)   (c)
Equity compensation plans approved by security holders
    2,000,000     $ 6.17        
Equity compensation plans not approved by security holders
    5,989,500     $ 8.02        
Total
    7,989,500     $ 7.56        
Item 6. Selected Financial Data
     Not applicable.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
     The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our financial condition and results of operations. 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. The discussion should be read in conjunction with the financial statements and accompanying notes included herewith. 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. 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 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 plan 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 capital is available, we expect a technical grade glycerin project production unit to be completed and commissioned in 2011, and to have a glycerin distillation project which will produce US Pharmaceutical Grade Glycerin — Non Certified, in 2011 — also pending availability of funding for the glycerin project. 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.

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     We do not expect to operate at a profit 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 January 2009 to suspend operations of the biodiesel refinery until the 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 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 first quarter 2010 and executed a new power purchase agreement in October 2009. We plan to resume construction on the possible expansion of up to 7 megawatt (“MW”) sometime during the first or second quarter of 2010, assuming additional sources of funding are obtained. In March of 2010, the Imperial County California Board of Supervisors unanimously approved one or more series of tax-exempt obligations by the California Enterprise Development Authority for the Mesquite Lake facility. This approval opened up the opportunity for us to pursue low-cost funding for the majority of the projected construction costs of Mesquite Lake. In March 2010, we submitted an application to the California Debt Limit Allocation Committee for allocation of a $20 million award of the American Recovery and Reinvestment Act of 2009 (ARRA) Recovery Zone Facility Bonds (RZFB).
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
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008:
     BioFuels Revenues
     For the year ended December 31, 2009, we had total revenues of $5.8 million, consisting of $4.9 million in biodiesel sales, terminal services of $693 thousand, including storage and material handling charges, and biodiesel toll distillation revenues of $166 thousand, including storage and material handling charges. Revenues in the prior year consisted of product sales of $4.6 million, comprised of $621 thousand in methanol sales, $4.0 million in biodiesel sales, and $18 thousand sales of raw materials, and revenue from terminal operations, including storage and material handling charges, of $373 thousand.
     BioFuels Costs of Sales and Services
     For the year ended December 31, 2009, we had costs of sales and services of $8.7 million compared to $14.2 million during the year ended December 31, 2008. Our 2008 costs included $10.6 million of costs related to our inventory consumption and losses which includes a lower of cost or market impairment of $4.6 million related to the large decrease in both the value of our raw materials on hand

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and the biodiesel produced at the plant and $6 million in costs, including feedstock and chemicals, which are directly related to the production of our methanol and biodiesel. The remaining $3.6 million 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.
     Wind Energy Project Costs
     We incurred project costs associated with our wind energy projects of $67 thousand in 2009 compared to $542 thousand in 2008. The decrease is the result of the expiration of the projects in Montana during second quarter of 2009 that were not renewed.
     Biomass Project Costs
     We incurred project costs associated with our biomass projects of $38 thousand in the 2009 period compared to $238 thousand in the 2008 period. These costs were associated with consulting and travel costs associated with the refurbishment of our Mesquite Lake plant.
     Hurricane repairs and losses
     In 2009, we recorded a credit of $10.9 million to hurricane repairs and losses, due to the settlement and accrual of insurance proceeds from casualty and environmental claims as a result of Hurricane Ike. During 2008, we incurred a total of $5.6 million in hurricane losses, net of anticipated insurance recoveries, as a result of our Houston BioFuels campus being hit by Hurricane Ike during September of that year. Our corporate hurricane loss of $558 thousand was related to power cogeneration equipment which was stored at our BioFuels site and was damaged due to the high water, and is net of anticipated insurance recoveries. Our BioFuels hurricane loss during fiscal 2008 of $5.0 million was due to $2.3 million in inventory losses and contamination, $974 thousand in environmental clean-up work, and $6.1 million in repairs and equipment replacements at our plant; these losses were partially offset by anticipated recoveries of $4.4 million.
     Depreciation Expense
     Depreciation expense was $4.3 million during the 2009 period compared to $2.7 million during the 2008 period; the increase was due primarily to depreciation on our biodiesel refinery and terminal which began during August 2008.
     Loss on Asset Impairments
     Our loss on asset impairment was $5.0 million during 2009, compared to $21.8 million during 2008. For 2009, impairments of $1.5 million were related to our Port Sutton lease option which expired during April 2009 while impairments of $170 thousand were related to a decline in the value of our cogen equipment and $218 thousand impairment booked related to expired wind project leases. We also recorded an additional $3.2 million in impairments related to our BioFuels campus due to significant doubt regarding the recoverability of our plant investment given our liquidity and time constraints and the current condition of the biodiesel market. In 2008, we recorded impairments of $2.6 million related to a terminated power purchase agreement and invalid air permits that were acquired at our Mesquite Lake project, and we recorded an additional $19.1 million in impairments related to our BioFuels campus.
     General and Administrative Expense
     General and administrative expense (“G&A”) was $11.6 million during the 2009 period versus $22.4 million during the 2008 period, a decrease of $11 million.
     Unallocated corporate SG&A decreased approximately $10.5 million between the two periods, decreasing from $15.9 million down to $5.4 million. 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 management’s efforts to reduce operating costs, which were offset by an increase in stock compensation.

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     BioFuels SG&A decreased $245 thousand, to $4.4 million during 2009, as compared to $4.7 million during 2008. This decrease was primarily due to decreased operations at our BioFuels campus during the current year.
     BioMass SG&A was approximately $1.1 million during the 2009 period versus approximately $1.1 million during the 2008 period.
     Wind Energy SG&A decreased approximately $541 thousand, down to $639 thousand resulting from decreased new project related costs compared to 2008.
     Operating Loss
     Our operating loss was $13 million in the 2009 period versus a loss of $62 million in the 2008 period. The reduction was due principally to hurricane losses and impairment incurred in 2008, reductions in corporate compensation expense, and reductions in plant operating costs at our Houston plant in 2009.
     Our BioFuels segment generated operating loss of $4.1 million and loss of $40.5 million, during 2009 and 2008 respectively. The reduction was due to hurricane losses and impairment in 2008 and decreases in plant operating costs in 2009 compared to 2008.
     Our Wind Energy segment generated an operating loss of $970 thousand during 2009 as compared to an operating loss of $1.5 million during 2008 due to decreased project related costs as a result of fewer active projects in 2009.
     Our BioMass segment generated operating losses of $1.2 million during 2009 and $3.5 million during 2008; the decrease was due to decreased SG&A costs related to the Mesquite Lake project.
     Our unallocated corporate operating loss was $6.8 million for the 2009 period, compared to an operating loss of $16.7 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 $4.7 million during the 2009 period and $644 thousand during the 2008 period. The increase of $4 million was primarily due to $2.8 million in forgiveness of indebtedness on trade payables and a $1.1 million gain on the sale of our equity interest in MingYang.
     Interest, Accretion and Other Expense
     Interest, accretion and other expense increased from $4.0 million during the 2008 period up to $7.1 million during the 2009 period. The increase is due to increased interest expense related to our fully borrowed construction loan and redeemable debentures.
     Discontinued Operations
     We recorded gains of $563 thousand from discontinued operations related to our Telogia plant which was sold during the first quarter of 2009. This resulted from insurance proceeds of $725 thousand per the purchase agreement, offset by operating costs composed of payroll and utility expenses at the plant prior to its sale. We recorded a loss of $49 thousand due to the abandonment of our Haining City wind farm interests, and a loss of $26 thousand related to the discontinuance of the Wheatland Wind Project.

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     Preferred Stock Dividends
     Dividends on our preferred stock were $1.0 million in the 2008 period versus $776 thousand in the 2009 period. The decrease was the result of the conversion of 5,750 shares of Series A Preferred Stock into 1,150,000 shares of common stock 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 in connection with the transaction.
     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 Shareholders
     We realized a net loss of $16.2 million in the 2009 period compared to a net loss of $82.4 million in the 2008 period, primarily due to the deemed preferred dividends and Hurricane losses and impairment in 2008, as well as decreased operating costs at our Houston plant, and increase in other income in the 2009 period.
Results of Operations
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007:
     Due to the acquisition of our BioFuels business unit on April 13, 2007, our operating results in the 2007 period included approximately nine months of BioFuels’ operating results, while the 2008 period contains a full twelve months of operating results for 2008.
     BioFuels Revenues
     For the year ended December 31, 2008, we had product sales of $4.6 million, consisting of $621 thousand in methanol sales, $4.0 million in biodiesel sales, and $18 thousand sales of raw materials. We also had revenue from terminal operations, including storage and material handling charges of $373 thousand. Revenues in the prior year period consisted of $616 thousand in fuel oil sales related to the acquired plant’s prior operations, $96 thousand in processing revenues, and $341 thousand in methanol sales. Of these prior year revenue streams, only the methanol sales were continued during 2008.
     BioFuels Costs of Sales and Services
     For the year ended December 31, 2008, we had costs of sales and services of $14.2 million compared to $759 thousand during the year ended December 31, 2007. Our 2008 costs included $10.6 million of costs related to our inventory consumption and losses which includes a lower of cost or market impairment of $4.6 million related to the large decrease in both the value of our raw materials on hand and the biodiesel produced at the plant and $6 million in costs, including feedstock and chemicals, which are directly related to the production of our methanol and biodiesel. The remaining $3.6 million 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 $307 thousand in material and freight costs and $452 thousand in operating expenses.
     Wind Energy Project Costs
     We incurred project costs associated with our wind energy projects of $542 thousand in the 2008 period compared to $277 thousand in the 2007 period. The increase was due to the acquisition of additional wind projects in Shanghai, China, Texas, and Wyoming during 2008.

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     Biomass Project Costs
     We incurred project costs associated with our biomass projects of $238 thousand in the 2008 period. These costs were associated with consulting and travel costs associated with the refurbishment of our Mesquite Lake plant.
     Hurricane repairs and losses
     We incurred a total of $5.6 million in hurricane losses, net of anticipated insurance recoveries, during 2008 as a result of our Houston BioFuels campus being hit by Hurricane Ike during September. Our corporate hurricane loss of $558 thousand was related to power cogeneration equipment which was stored at our BioFuels site and was damaged due to the high water, and is net of anticipated insurance recoveries. Our BioFuels hurricane loss of $5.0 million was due to $2.3 million in inventory losses and contamination, $974 thousand in environmental clean-up work, and $6.1 million in repairs and equipment replacements at our plant; these losses were partially offset by anticipated recoveries of $4.4 million.
     Depreciation Expense
     Depreciation expense was $2.7 million during the 2008 period compared to $119 thousand during the 2007 period; the increase was due primarily to depreciation on our biodiesel refinery and terminal which began during August 2008.
     Loss on Asset Impairments
     Our loss on asset impairment was $21.8 million during 2008. We recorded impairments of $2.6 million related to a terminated power purchase agreement and invalid air permits that were acquired at our Mesquite Lake project, and we recorded an additional $19.1 million in impairments related to our BioFuels campus due to significant doubt regarding the recoverability of our plant investment given our liquidity and time constraints and the current condition of the biodiesel market.
     General and Administrative Expense
     General and administrative expense (“G&A”) was $22.4 million during the 2008 period versus $11.8 million during the 2007 period, an increase of $10.6 million.
     Unallocated corporate G&A increased $5.3 million between the two periods, increasing from $10.7 million up to $15.9 million. Approximately $1.9 million of this increase was due to employee stock option expense which increased to $8.2 million from $6.3 million. Salaries and personnel-related costs decreased $673 thousand; although we added staff at our corporate headquarters to address the increased scope of operations and our public reporting requirements, we had significant decreases in incentive compensation during 2008. Professional fees increased $2.5 million as a result of public reporting requirements and litigation, office and related costs increased $670 thousand and travel and marketing increased $547 thousand, both as a result of added staff and our increased scope of operations.
     BioFuels G&A increased $4.0 million, up from $641 thousand during 2007 to $4.7 million during 2008. This increase was due to the addition of administrative and marketing personnel at the plant.
     Biomass G&A was approximately $624 thousand during the 2008 period versus approximately $98 thousand during the 2007 period due to construction and planning of the Mesquite Lake biomass plant.
     Wind Energy G&A increased approximately $832 thousand, up to $1.2 million as we added personnel, opened two offices, and incurred additional professional fees as a result of the increased number of projects for this segment during 2008.

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     Operating Loss
     Our operating loss was $62.1 million in the 2008 period versus a loss of $11.9 million in the 2007 period, due principally to the increase in cost of sales and services due to our BioFuels plant beginning production during 2008 as well as our asset impairments and increased G&A related to our increased scope of operations and public reporting requirements.
     Our BioFuels segment generated operating losses of $40.5 million and $422 thousand, respectively, during 2008 and 2007 due to their start-up operations during 2008 as well as hurricane damage sustained during the third quarter of 2008 and impairment charges to their Houston campus.
     Our Wind Energy segment generated an operating loss of $1.5 million during 2008 as compared to an operating loss of $697 thousand during 2007 due to additional projects entered into during the year.
     Our Biomass segment generated operating losses of $3.5 million during 2008 and $98 thousand during 2007; the increase was due to increased operations due to the construction of Mesquite Lake and the acquisition of Telogia and the write off of acquisition values assigned to invalid air permits and a terminated power purchase agreement.
     Our unallocated corporate operating losses were $16.7 million and $10.7 million during 2008 and 2007, respectively, due to increases in our G&A as a result of our public company filing requirements and increased scope of operations. Non-cash stock compensation of $8.2 million and $6.3 million was included in our unallocated operating losses during the 2008 and 2007 periods, respectively.
     Interest and Other Revenues
     Interest and other revenues were $644 thousand during the 2008 period and $373 thousand during the 2007 period primarily due to higher cash balances on hand during 2008 as a result of our financing activities.
     Interest, Accretion and Other Expense
     Interest, accretion and other expense increased from $523 thousand during the 2007 period up to $4.0 million during the 2008 period. The 2008 period was primarily comprised of interest expense related to our construction loan and redeemable debentures.
     Discontinued Operations
     We recorded losses from discontinued operations related to four months of operating costs of our Telogia plant which was sold during the first quarter of 2009. These costs were primarily composed of payroll and utility expenses at the plant.
     Net Loss
     We realized a net loss of $66.2 million in the 2008 period compared to a net loss of $12 million during the 2007 period due to the increases in our operating loss and interest expense as well as impairment charges at our Houston BioFuels campus which were partially offset by the increase in interest income in the current period.
     Net Loss to Common Shareholders
     Dividends on our preferred stock were $1.7 million in the 2007 period versus $16.2 million in the 2008 period. The 2008 amount includes deemed dividends of $15.2 million which were related to the issuance of our Series B preferred stock and a warrant dividend which was distributed to all common and preferred shareholders during as well as $1.0 million in dividends paid and accrued on our Series A 8% Preferred Stock. The 2007 period included $708 thousand in cash payments and $950 thousand in deemed dividends which were based on the value of the warrants issued in connection with the issuance of our Series A Preferred Stock.

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     Our net loss to common stockholders was $82.4 million in the 2008 period versus $13.7 million in the 2007 period, primarily due to increased operating losses due to the increased scope of our operations as well as asset impairments and the dividend expense of $16.2 million recorded in the 2008 period. Our net loss per share increased to $4.08 in the 2008 period, up from $0.80 in the 2007 period.
Liquidity and Capital Resources
Current Plan of Operations and Ability to Operate as a Going Concern
     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 December 2009. These debentures are secured by GreenHunter Energy’s ownership interest in GreenHunter BioFuels common stock and are otherwise non-recourse to GreenHunter Energy.
     As of December 31, 2009, we had a working capital deficit of $45 million which includes a $37.7 million non-recourse note payable due by a wholly-owned subsidiary. This note payable is non-recourse to the parent, GreenHunter Energy, and is included in current liabilities due to the fact that the bank has extended the due date of the loan to April 30, 2010. 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 BioFuel’s cash on hand at that date and foreclose on the BioFuel’s 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. These factors raise some doubt about our ability to continue as a going concern. 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. We also have received a letter of guarantee from a principle stockholder of the company for up to an additional $1 million if needed to fund operations. The cash received, along with the letter of guarantee, improved our working capital position and has provided cash required to fund operations for the next twelve months. Since December 31, 2009, we have negotiated reductions in liabilities owed to creditors of approximately $2.2 million.
     Execution of our business plan for the next twelve months requires the ability to generate cash to satisfy planned operating requirements. We believe 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 Company’s 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 return of operations at our Houston biodiesel refinery and development of our Mesquite Lake biomass plant.
          On December 16, 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 March 31, 2010. The agreement was further amended on March 30, 2010 to extend such date to April 30, 2010. 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. If we do not close on a sale or other transaction to repay the note by April 30, 2010, the bank has the right to seize BioFuel’s cash on hand at that date and foreclose on the BioFuel’s refinery in Houston. We are in discussions with the bank about extending the current deadline to allow more time and we are continuing to talk with potential buyers.
          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 plant.
Cash Flow and Working Capital
     As of December 31, 2009, we had cash and cash equivalents of approximately $6.9 million and a working capital deficit of $45.4 million as compared to cash and cash equivalents of $677 thousand and working capital deficit of $18.4 million in the prior period. These decreases in cash and working capital were due to the activities described below.
Operating Activities
     During 2009, operating activities provided $334 thousand versus used $29.1 million during 2008. A significant component of our working capital deficit at December 31, 2009 was $37.7 million in non-recourse debt at our BioFuels location. This debt is non-recourse to GreenHunter Energy (parent company) and is secured by certain assets at our biodiesel refinery. Changes in our cash and working capital during the quarter ended December 31, 2009 are described below.
     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 or investing activities to fund a significant portion of our operating activities.
Financing Activities
     During the year ended December 31, 2009, we used cash of $4.7 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 $6.5 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 bore interest at a fixed rate of approximately 3.84% and is payable in monthly installments through March 15, 2009. We paid 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.

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     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 (parent company) and are secured by a second lien on our ownership interest in GreenHunter Mesquite Lake, LLC. 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 $4.9 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, December 17, 2009 and March 30, 2010, the Credit Agreement for the non-recourse construction and working capital loans was amended. Pursuant to the terms and conditions of the amendments, the lender agreed to waive any claims of events of default until April 30, 2010. 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 future scheduled payment date, escrowed all interest due on the loan through December 16, 2009, and postponed the repayment of the balance of its loans until April 30, 2010. 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 BioFuel’s cash on hand at that date and foreclose on the BioFuel’s 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 2009, we invested approximately $790 thousand in capital expenditures, which was primarily comprised of a glycerin desalting project at our BioFuels campus.
     Forecast
     For 2010, 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 most of 2010.

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     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. In March of 2010, the Imperial County California Board of Supervisors unanimously approved one or more series of tax-exempt obligations by the California Enterprise Development Authority for the Mesquite Lake facility. This approval opened up the opportunity for us to pursue low-cost funding for the majority of the projected construction costs of Mesquite Lake. In March 2010, we submitted an application to the California Debt Limit Allocation Committee for allocation of a $20 million award of the American Recovery and Reinvestment Act of 2009 (ARRA) Recovery Zone Facility Bonds (RZFB).
     Wind Energy
     Wind Energy is not currently planning on any capital expenditures in 2009 due to adverse economic conditions for wind projects.
     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 was due on June 30, 2012. During the fourth quarter of 2008, we suspended these payments to this entity pending resolution of a significant 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 December 31, 2009, we have accrued $588 thousand in fees related to this contract.
     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 were to 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 were to issue an additional minimum number of 80,000 shares up to a maximum number of 140,351 shares. This lease option expired during April 2009.
     Mesquite Lake Power Purchase Agreement
     In August, 2009 we entered into a new 20 year Power Purchase Agreement with a major public utility based in Southern California for 100% of the net output of our Mesquite Lake biomass power plant located in Southern California. Under this Power Purchase Agreement we are required to begin power sales in 2011. Pursuant to the related brokerage agreement with a third party that assisted in the negotiations of this agreement, we were 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.

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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, LLC (“Mesquite Lake”), and GreenHunter BioFuels, Inc. (“BioFuels”). 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.
Restricted Cash
     Restricted cash consists of cash deposits related to our BioFuels business that are legally restricted as to their use by the lending bank.
Inventories
     Raw material inventories consist of processed methanol, contaminated methanol, vegetable oil, animal fat, and process chemical feedstocks to be processed in our Houston refinery. Inventory also includes biodiesel finished product and work-in-process for our glycerin and biodiesel lines. Inventories are stated at the lower of cost or market. Cost is determined using the average method. See Note 7 to the financial statements for additional information on our inventories.
Property, Plant and Equipment
     Property plant and equipment are stated at cost. Depreciation is computed using the straight-line method based on the following useful lives:
         
Automobiles
  5 years
Computer and office equipment
    5 to 7 years  
Plant equipment
    7 to 30 years  
Land improvements
  15 years
Buildings
  31 years
Deferred Financing Costs
     Costs incurred in connection with issuing debt are capitalized and amortized as an adjustment to interest expense over the term of the debt instrument using the interest method.
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

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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 asset’s carrying value, an impairment charge is recorded for the difference between the asset’s fair value and its carrying value. During 2009 we recorded impairments of $1.5 million related to our inability to pay the final lease option extension for our Port Sutton lease, $218 thousand related to a deposit on a wind project that was cancelled, and impairment of $170 thousand on equipment due to a reduction in value. We recorded additional impairments of $3.2 million and $19.1 million in 2009 and 2008, respectively, related to our Biofuels campus due to significant doubt regarding the recoverability of our plant investment given our liquidity and time constraints and the current economics of the biodiesel market. Additionally, during 2008, we recorded impairments of $2.6 million related to the permits and power purchase agreement acquired in our Mesquite Lake acquisition as the permits were determined to not be sufficient for our planned operation of the plant and the power purchase agreement was terminated to allow us to pursue a more valuable agreement with other utilities interested in the electricity output of the plant. There were no impairments in 2007.
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 on shipments to customers are included in selling, general and administrative costs. Excise and other taxes collected from customers and remitted to governmental authorities are not included in revenue.
Stock-Based Compensation
     The Company accounts for share-based compensation in accordance with the provisions of the ASC standards which require companies to estimate the fair value of share-based payment awards made to employees and directors, including stock options, restricted stock and employee stock purchases related to employee stock purchase plans, on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense ratably over the requisite service periods. We estimate the fair value of each share-based award using the Black-Scholes option pricing model. 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. See Note 11 to the financial statements for additional information on our stock-based compensation.

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Income Taxes
     We account for income taxes under the liability method. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We measure and record income tax contingency accruals in accordance with ASC 740, Income Taxes.
     We recognize liabilities for uncertain income tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as we must determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis or when new information becomes available to management. These reevaluations are based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, successfully settled issues under audit, expirations due to statutes, and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an increase to the tax accrual.
     We classify interest related to income tax liabilities as income tax expense, and if applicable, penalties are recognized as a component of income tax expense. The income tax liabilities and accrued interest and penalties that are anticipated to be due within one year of the balance sheet date are presented as current liabilities in our consolidated balance sheets.
Income or Loss Per Common Share
     Basic net income or loss per common share is computed by dividing the net income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income or loss per common share is calculated in the same manner, but also considers the impact to net income and common shares for the potential dilution from stock options, stock warrants and any other outstanding convertible securities.
We have issued potentially dilutive instruments in the form of our convertible note payable, 8% Series A Preferred Stock, Series B Preferred Stock, common stock warrants and common stock options granted to our employees. There were 37,469,761, 15,748,448, and 10,576,194 potentially dilutive securities outstanding at December 31, 2009, 2008, and 2007, respectively. We did not include any of these instruments in our calculation of diluted loss per share during the period because to include them would be anti-dilutive due to our net loss during the periods.
Recent Accounting Pronouncements
     In December 2007, FASB issued guidance related to Business Combinations under ASC 805, Business Combinations, and guidance related to the accounting and reporting of noncontrolling interest under ASC 810-10-65-1, Consolidation. This guidance significantly changes the accounting for and reporting of business combination transactions and noncontrolling (minority) interests in consolidated financial statements. This guidance became effective January 1, 2009. It did not have a material impact on our financial statements.
     In March 2008, the FASB issued guidance related to the disclosures about derivative instruments and hedging activities under FASB ASC 815-10-50, Derivatives and Hedging. This guidance requires

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companies to provide enhanced disclosures about (a) how and why they use derivative instruments, (b) how derivative instruments and related hedged items are accounted for under applicable guidance, and (c) how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. These disclosure requirements are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Our adoption of ASC 815-10-50 on January 1, 2009 did not have a material impact on our consolidated financial statements.
     In June 2008, the FASB issued guidance to evaluate whether an instrument (or embedded feature) is indexed to an entity’s own stock under ASC 815-40-15, Derivatives and Hedging. The 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 under the scope of ASC 815-10-15. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. We adopted ASC 815-40-15 beginning January 1, 2009. The adoption of this guidance did not have a material impact on our financial statements.
     In May 2009, the FASB issued guidance related to subsequent events under ASC 855-10, Subsequent Events. This guidance sets forth the period after the balance sheet date during which management or a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. It requires disclosure that an entity has evaluated subsequent events through the date the financial statements were issued or were available to be issued. This guidance is effective for interim and annual periods ending after June 15, 2009. We adopted ASC 855-10 beginning June 30, 2009 and have included the required disclosures in our consolidated financial statements. See Note 16 — “Subsequent Events” in the Notes to Consolidated Financial Statements for additional information.
     In June 2009, the FASB issued an amendment to ASC 810-10, Consolidation. As a result, in December 2009, the FASB issued ASC 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This guidance amends ASC 810-10-15 to replace the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a VIE with a primarily qualitative approach focused on identifying which enterprise has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance. It also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE and requires additional disclosures about an enterprise’s involvement in VIEs. This guidance is effective as of the beginning of the reporting entity’s first annual reporting period that begins after November 15, 2009 and earlier adoption is not permitted. We are currently evaluating the potential impact, if any, of the adoption of ASC 2009-17 on our consolidated financial statements.
     In June 2009, the FASB issued Accounting Standards Update No. 2009-01 which amends ASC 105, Generally Accepted Accounting Principles. This guidance states that the ASC will become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Once effective, the Codification’s content will carry the same level of authority. Thus, the U.S. GAAP hierarchy will be modified to include only two levels of U.S. GAAP: authoritative and non-authoritative. This is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We adopted ASC 105 as of September 30, 2009 and thus have incorporated the new Codification citations in place of the corresponding references to legacy accounting pronouncements.
     In August 2009, the FASB issued Accounting Standards Update No. 2009-05, Measuring Liabilities at Fair Value, which amends ASC 820, Fair Value Measurements and Disclosures. This Update provides

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clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure the fair value using one or more of the following techniques: a valuation technique that uses the quoted price of the identical liability or similar liabilities when traded as an asset, which would be considered a Level 1 input, or another valuation technique that is consistent with ASC 820. This Update is effective for the first reporting period (including interim periods) beginning after issuance. Thus, we adopted this guidance as of December 31, 2009, which did not have a material impact on our consolidated financial statements.
Contractual Obligations and Commercial Commitments
     We have the following contractual obligations as of December 31, 2009.
                                         
    Payments Due by Period (in thousands)  
            Less than                     After  
    Total     1 year     1-3 Years     4-5 Years     5 Years  
Contractual Obligations:
                                       
Fixed-rate long-term debt(a)
  $ 3,072,766     $ 89,720     $ 298,832     $ 232,253     $ 2,451,961  
Fixed-rate interest payments(a)
    1,219,236       160,269       493,417       297,627       267,923  
Nonrecourse Variable-rate long-term debt(b)
    37,679,833       37,679,833                    
10% Series A Secured Redeemable Debentures(c)
    29,243,966       3,680,978       25,562,988              
Consulting agreement(e)
    1,274,000       784,000       490,000              
9% Series B Secured Redeemable Debentures(d)
    7,202,805       516,926       4,965,380       1,720,499        
 
                             
Total Contractual Obligations
  $ 79,692,606     $ 42,911,726     $ 31,810,617     $ 2,250,379     $ 2,719,884  
 
(a)   Assumes 5.7% interest over the life of the note with principal payments, amortized on 25 year schedule, beginning January 20, 2009 and the remainder of the balance of the loan ballooning November 30, 2017.
 
(b)   Assumes quarterly payments at 5.0% interest.
 
(c)   Assumes 10% interest payments over their 5 year term.
 
(d)   Assumes 9% interest payments over their 5 year term.
 
(e)   Payments under consulting agreements have been suspended.
Off-Balance Sheet Arrangements
     We do not have any off-balance sheet arrangements, unconsolidated variable interest entities, or financing partnerships. We previously provided certain trade guarantees on behalf of our 100% owned subsidiary BioFuels only.
Item 7A. 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 December 31, 2009.
Commodity Price Risk
     Our biodiesel production will be dependent upon feedstock oils, which are derived from agricultural commodities such as soybeans, 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.

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Foreign Currency Exchange Risk
     In future activity, certain of our long-term purchase and sales contracts in the global market may have fixed price terms in currencies other than the U.S. Dollar. Any substantial fluctuations in these exchange rates as compared to the U.S. Dollar could negatively impact our financial condition. In the future, we may address these risks through the use of foreign currency derivatives or other financial 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 or from fixed to floating. At December 31, 2009, we carried approximately $36.7 million in variable rate debt.
Item 8. Financial Statements and Supplementary Data
     See Item 15.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
     None
Item 9A(T). Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
     Management, under the general direction of the principal executive officer and the principal financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934) as of the end of the period covered by this report. This evaluation included consideration of the controls and procedures that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that information required to be disclosed in reports filed by us under the Securities Exchange Act is accumulated and communicated to management, including the principal executive officer and the principal financial officer, in such a manner as to allow timely decisions regarding the required disclosure. Based on this evaluation, the principal executive officer and the principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report. Due to transition rules for newly reporting companies, we are not required to have an attestation report on our assessment by our registered public accounting firm until fiscal year 2010.
Changes in Internal Control over Financial Reporting.
     There have been no significant changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Management’s Report on Internal Control over Financial Reporting.
     Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed, under the supervision of our chief executive and chief financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (GAAP). Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
     We conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2009. This evaluation was based on the framework in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
     Based on our evaluation under the framework in Internal Control — Integrated Framework, our Chief Executive Officer and Chief Financial Officer concluded that internal control over financial reporting was effective as of December 31, 2009.
     This annual report does not include an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.
Item 9B. Other Information
     None.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
     GreenHunter Energy’s directors and executive officers, including their ages and current positions with us and/or certain additional information, are set forth below.
             
Name   Age   Positions and Offices Held
Gary C. Evans
    52     Chairman and Chief Executive Officer
Ronald D. Ormand
    51     Director
Ronald H. Walker
    72     Director
Jonathan D. Hoopes
    42     Director, President and Chief Operating Officer
Morgan F. Johnston
    49     Senior Vice President, General Counsel, and Secretary
David S. Krueger
    60     Vice President and Chief Financial Officer

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Gary C. Evans — Chairman and Chief Executive Officer
     Gary C. Evans is the Chairman and Chief Executive Officer and founder of GreenHunter Energy. Mr. Evans served as the Company’s President from inception until October 1, 2009. Mr. Evans has been Chairman and Chief Executive Officer of Magnum Hunter Resources Corporation (NYSE Amex: MHR) since May 2009. Mr. Evans is also a principal in Global Hunter Holdings, L.P., the parent of Global Hunter Securities, LLC., entities active in both direct capital investments and investment banking activities for numerous high growth Chinese based enterprises.
     During twenty years ending in April 2005, Mr. Evans served as Chairman, President and Chief Executive Officer of Magnum Hunter Resources, Inc. (a New York Stock Exchange listed company) and Chairman and Chief Executive Officer of all of the Magnum Hunter subsidiaries since their formation or acquisition dating back to 1985. Mr. Evans founded the predecessor company, Hunter Resources, Inc., that was merged into and formed Magnum Hunter Resources, Inc. until its merger with Cimarex Energy, Inc. (NYSE: XEC) during June 2005 in a $2.2 billion transaction. Magnum Hunter Resources, Inc. was in the business of exploration and production of crude oil and natural gas. From 1978 to 1985, Mr. Evans was employed in the banking profession and was associated with the Mercantile Bank of Canada, where he held various positions including Vice President and Manager of the Energy Division of the Southwestern United States, and BancTexas, N.A. f/k/a/ National Bank of Commerce.
     Mr. Evans currently serves as the Lead Director of Novavax, Inc., a NASDAQ listed pharmaceutical company. Mr. Evans serves as an Individual Trustee of TEL Offshore Trust, a NASDAQ listed oil and gas trust. Mr. Evans also serves on the Board of Advisors of the Maguire Energy Institute at Southern Methodist University. Mr. Evans was recognized by Ernst and Young as the Southwest Area 2004 Entrepreneur of the Year for the Energy Sector and was subsequently inducted into the World Hall of Fame for Ernst & Young Entrepreneurs.
Ronald D. Ormand — Director
     Mr. Ormand has been a director of the Company since June 5, 2009. Mr. Ormand has been the Executive Vice President and Chief Financial Officer of Magnum Hunter Resources Corporation (NYSE Amex: MHR) since May 2009. Mr. Ormand has over twenty five years of investment and commercial banking experience in the energy industry. Currently, Mr. Ormand serves as Executive Vice President and Chief Financial Officer for Petro Resources Corporation (NYSE Amex: PRC) and previously served as President of Perugia Advisors, Inc, a financial advisory and private investment firm focused on the energy industry. Mr. Ormand served as President, Chief Financial Officer and member of the Board of Directors of Tremisis Energy Acquisition II, Corp., (“Tremisis II”) a special purpose acquisition company focused on energy and environmental projects until the sale of a majority interest in Tremisis II to a Korean Investment group in March 2009. Mr. Ormand remains as a member of the Board of Directors of Tremisis II. From 2005 to 2007, he served as Managing Director and Head of the North American Oil and Gas Investment Banking group at West LB AG. From 1988 until December 2004, Mr. Ormand was with CIBC World Markets and Oppenheimer & Co., and served as Managing Director and Head of CIBC World Markets’ U.S. Oil and Gas Investment Banking Group. Mr. Ormand received his B.A. in Economics in 1980 and his M.B.A. in Finance and Accounting in 1982 from the University of California Los Angeles, and studied Economics at Cambridge University, England in 1979.
Ronald H. Walker — Director
     Ronald H. Walker has been a director of the company since November 1, 2007. Mr. Walker currently serves as the President of the Richard Nixon Foundation. Prior to his retirement in 2001, Mr. Walker was a senior partner with Korn/Ferry International, the world’s largest executive search firm, for

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over 20 years. At Korn/Ferry, Mr. Walker’s client base included the Fortune 100 companies. Mr. Walker’s extensive record of government services includes Special Assistant to the President of the United States from 1969 to 1972 where he was the founder and first director of the White House Advance Office. In this position, he was responsible for planning and coordinating all Presidential travel both domestic and international. Those visits included all 50 states and 25 countries. He personally directed the preparations for the President’s historic trips to the People’s Republic of China and Russia.
     President Nixon appointed Mr. Walker the 8th Director of the National Park Service in December 1972 where he served until 1975. In this position, he was charged with the preservation and care of the country’s 300 National Park System areas encompassing 300 million acres of land. He administered a budget of $350 million and managed 15,000 employees who served the 230 million people that visit America’s parklands annually.
     Mr. Walker previously served as a consultant to the White House Personnel Office. He has also served as a senior advisor to four Presidents and on Special Diplomatic assignments abroad. In addition, he has served as a senior advisor to nine Republican Conventions, highlighted by his Chairmanship and position of CEO of the 1984 Republican National Convention held in Dallas, Texas. At the request of President Ronald Reagan, he also chaired the 50th Presidential Inauguration.
     Mr. Walker has served on numerous Boards, both public and private, including being a public sector member of the United States Olympic Committee (USOC), the National Collegiate Athletic Association (NCAA), Kennedy Center, Vice Chair of the President’s Council on Physical Fitness and Sports, past chairman of the Freedom’s Foundation at Valley Forge, the National Park Foundation, Grand Teton National Park Foundation, Ford’s Theatre, and Vice Chairman of the Bicentennial of the U.S. Constitution.
     Mr. Walker is a distinguished graduate from the University of Arizona with a BA in Government and American History. He also served in the US Army reaching the rank of captain.
Jonathan D. Hoopes — Director, President and Chief Operating Officer
     Mr Hoopes has served as a Director, President and Chief Operating Officer of the Company since October 1, 2009. Mr. Hoopes is a fifteen-year veteran of Wall Street who has spent most of his professional career in the investment banking and financial services industry with a focus on the traditional and renewable energy sectors as well as the information technology sector. He has served in various capital markets, investment banking, and equity research roles at Goldman Sachs, Deutsche Bank, and UBS in London, Hong Kong and New York. Most recently, Mr. Hoopes served as Managing Director at Think Equity, LLC where he led two teams of research analysts in the alternative energy and technology sectors. Mr. Hoopes has also provided cross-border strategic advisory services to clients in the energy technology and renewable energy sectors. He holds an MBA in International Finance from the Wharton School and an MA in East Asian Studies from the University of Pennsylvania.
Morgan F. Johnston — Senior Vice President, General Counsel, and Secretary
     Morgan F. Johnston has served as Senior Vice President, General Counsel and Secretary of the company since March 1, 2007. From June 2005 until March 1, 2007, Mr. Johnston was a sole practitioner representing clients in corporate and securities law. He previously served as the Senior Vice President, General Counsel and Secretary of Magnum Hunter Resources, Inc. (MHR), a NYSE listed company, from January 1, 2003 to June of 2005. He served as MHR’s Vice President and General Counsel since April 1997 and also served as MHR’s Secretary since May 1996. Magnum Hunter Resources, Inc. was in the business of exploration and production of crude oil and natural gas.

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     Mr. Johnston was in private practice as a sole practitioner from May 1996 to April 1997, specializing in corporate and securities law. From February 1994 to May 1996, Mr. Johnston served as general counsel for Millennia, Inc. and Digital Communications Technology Corporation, two AMEX listed companies. He also previously served as securities counsel for Motel 6 L.P., a NYSE listed company. Mr. Johnston graduated cum laude from Texas Tech Law School in May 1986 and was also a member of the Texas Tech Law Review. He is licensed to practice law in the State of Texas.
David S. Krueger — Vice President and Chief Financial Officer
     David S. Krueger has served as Vice President and Chief Financial Officer of GreenHunter since May 2006. Mr. Krueger has served as Chief Accounting Officer of Magnum Hunter Resources Corporation since October 2009. From June 2005 to May 2006, Mr. Krueger was Vice President and Chief Financial Officer for Sulphur River Exploration, Inc. in Dallas, Texas. Sulphur River Exploration, Inc. is an independent oil and gas exploration, production, and operating company.
     Mr. Krueger served as Vice President and Chief Accounting Officer of Magnum Hunter Resources, Inc. from January 1997 to June 2005. Magnum Hunter Resources, Inc. was in the business of exploration and production of crude oil and natural gas. Mr. Krueger acted as Vice President-Finance of Cimarron Gas Holding Co., a gas processing and natural gas liquids marketing company in Tulsa, Oklahoma, from April 1992 until January 1997. Mr. Krueger served as Vice President/Controller of American Central Gas Companies, Inc., a gas gathering, processing and marketing company from May 1988 until April 1992. From 1974 to 1986, Mr. Krueger served in various managerial capacities for Southland Energy Corporation. Mr. Krueger, a certified public accountant, graduated from the University of Arkansas with a B.S. degree in Business Administration and earned his M.B.A. from the University of Tulsa.
Corporate Governance.
     The business, property and affairs of the Company are managed by the Chief Executive Officer under the direction of the Board of Directors. The Board has responsibility for establishing broad corporate policies and for overall performance and direction of the Company, but is not involved in the day-to-day operations. Members of the Board keep informed of the company’s business by participating in Board and committee meetings, by reviewing analyses and reports sent to them regularly, and through discussions with the Chief Executive Officer and other officers.
     The Board has adopted corporate governance guidelines that addresses significant issues of corporate governance and set forth the procedures by which the Board carries out its responsibilities. Among the areas addressed by the guidelines are director qualifications and responsibilities, Board committee responsibilities, selection and election of directors, director compensation and tenure, director orientation and continuing education, access to management and independent advisors, succession planning and management development, board meetings and board and committee performance evaluations. The Board’s Nominating/Corporate Governance committee is responsible for assessing and periodically reviewing the adequacy of these guidelines.
     The guidelines provide that at least a majority of the members of the Board must be independent as required by NYSE Amex corporate governance listing standards. The Board has affirmatively determined that all directors, with the exception of Mr. Gary C. Evans, Chairman and CEO, and Mr. Jonathan D. Hoopes, President and COO, qualify as independent directors under these standards based on its review of all relevant facts and circumstances.

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     The company also has an audit committee established in accordance with the requirements of the NYSE Amex and the Securities Exchange Act of 1934, as amended. As the Company qualifies as a smaller reporting company, the audit committee is currently comprised of two independent directors: Mr. Ronald D. Ormand, Chairman, and Mr. Ronald H. Walker.
Code of Conduct and Ethics
     We have a code of conduct and ethics that applies to its officers, employees and directors. This code assists employees in resolving ethical issues that may arise in complying with our policies. Our senior financial officers are also subject to the code of ethics for senior financial officers. The purpose of these codes is to promote, among other things:
    ethical handling of actual or apparent conflicts of interest;
 
    full fair and accurate and timely disclosure in filings with the Securities and Exchange Commission and other public disclosures;
 
    compliance with the law and other regulations;
 
    protection of the Company’s assets;
 
    insider trading policies; and
 
    prompt internal reporting of violations of the codes.
     Both of these codes are available on our website at www.greenhunterenergy.com. We will provide these codes free of charge to stockholders who request them. Any waiver of these codes with respect to officers and directors of the company may be made only by the Board of Directors and will be disclosed to stockholders on our website, along with any amendments to these codes.

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Item 11. Executive Compensation
Summary Compensation Table.
     The following table sets forth all compensation for the fiscal years ended 2009 and 2008 awarded to, earned by or paid to executive officers of GreenHunter.
                                                         
                                            All Other    
Name and Principal           Salary   Bonus   Stock Awards   Option Awards   Compensation   Total
Position   Year   ($)   ($)   ($)   ($)   ($)   ($)
Gary C. Evans — President
    2009       200,000                   125,028 **     12,000       337,028  
and CEO*
    2008       199,230       200,000       200,000       3,236,640 ***     12,000       3,847,870  
Jonathan D. Hoopes —
    2009       59,615             38,309 ****     25,872 **     50,000       173,796  
President and COO*
                                                       
David S. Krueger — Vice
    2009       200,000                   37,508 **     9,000       246,508  
President and CFO
    2008       199,230       150,000       150,000       1,011,450 ***     9,000       1,519,680  
Morgan F. Johnston — Sr.
    2009       200,000                   37,508 **     9,000       246,508  
Vice President, General
    2008       199,230       175,000       175,000       1,011,450 ***     9,000       1,569,680  
Counsel and Secretary *
                                                       
 
*   Mr. Evans acted as the Company’s President and CEO during all of 2008 and the first nine months of 2009. On October 1, 2009, Mr. Jonathan D. Hoopes was hired as the Company’s President and COO. Mr. Hoopes received $50,000 as a relocation expense.
 
**   Mr. Evans received a stock option grant for 1,000,000 shares, vesting over a three year period at an exercise price of $1.96 on August 26, 2009. Mr. Hoopes received a stock option grant for 500,000 shares, vesting both over time and achieving specific performance goals at an exercise price of $1.41 on December 11, 2009. Mr. Krueger received a stock option grant for 300,000 shares, vesting over a three year period at an exercise price of $1.96 on August 26, 2009. Mr. Johnston received a stock option grant for 300,000 shares, vesting over a three year period at an exercise price of $1.96 on August 26, 2009.
 
***   Mr. Evans received a stock option grant for 880,000 shares, vesting both over time and achieving specific performance goals at an exercise price of $18.91 on February 13, 2008. As of December 31, 2008, 352,000 options have been forfeited. Mr. Krueger received a stock option grant for 275,000 shares, vesting both over time and achieving specific performance goals at an exercise price of $18.91 on February 13, 2008. As of December 31, 2008, 110,000 options have been forfeited. Mr. Johnston received a stock option grant for 275,000 shares, vesting both over time and achieving specific performance goals at an exercise price of $18.91 on February 13, 2008. As of December 31, 2008, 110,000 options have been forfeited.
 
****   Mr. Hoopes received a restricted stock grant for 100,000 shares, vesting both over time and achieving specific performance goals on October 1, 2009.

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Outstanding Equity Awards at Fiscal Year-End.
     The following non-incentive stock options were outstanding to the below named executives at December 31, 2009:
                                 
    Number of Securities   Number of Securities        
    underlying unexercised   underlying unexercised   Exercise    
Name   options exercisable   options unexercisable   Price ($/sh)   Expiration Date
Gary C. Evans, CEO
          1,000,000       1.96     August 26, 2019
 
    293,334       234,666       18.91     February 13, 2018
Jonathan D. Hoopes, President and COO
          500,000       1.41     December 11, 2019
David S. Krueger , Vice President
          300,000       1.96     August 26, 2019
and CFO
    91,666       73,334       18.91     February 13, 2018
 
    550,000             5.00 *   May 5, 2017
Morgan F. Johnston, Sr. Vice
          300,000       1.96     August 26, 2019
President, General Counsel and
    91,666       73,334       18.91     February 13, 2018
Secretary
    500,000             5.00 *   May 5, 2017
 
*   There was no public market for our common shares on the date of grant of the option. Accordingly, the amounts set out in this column are based upon the fair market value per common share as estimated by us as at the date of grant of the option, which was $5.00.
Director Compensation
     The following compensation was paid to our independent members of the board of directors for the year ended December 31, 2009:
                                 
    Fees Earned or Paid            
    in Cash   Stock Awards   Option Awards   Total
Name   ($)   ($)   ($)   ($)
Ronald D. Ormand
    *             10,131       10,131  
Ronald H. Walker
    *             12,502       12,502  
Renato T. Bertani**
    *                    
James R. Sasser**
    *                    
Robert Zahradnik**
    *                    
 
*   The Board of Directors has deferred any compensation payments for acting as a Board member until the Company’s performance has improved.
 
**   Mr. Robert Zahradnik resigned from the Board of Directors on March 18, 2009. Mr. James R. Sasser resigned from the Board of Directors on April 3, 2009. Mr. Bertani resigned from the Board of Directors on June 3, 2009.
     For fiscal 2010, our directors (other than members of our management) will be entitled to receive an annual retainer of $50,000, payable quarterly, plus $1,000 per meeting of our board of directors, $500 per meeting of a committee of the board attended or $250 if such board member attends a board or committee meeting by telephone. These directors will also be reimbursed for all out-of-pocket expenses incurred in their capacities as members of the board. We will also grant new independent directors 100,000 stock options at an exercise price equal to the then market value vesting over a three year period. We currently maintain directors and officers liability insurance coverage with an aggregate policy limit of $5,000,000.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
     The following table sets forth information regarding beneficial ownership of GreenHunter’s common stock as of March 30, 2010 held by (i) each of GreenHunter’s directors and named executive officers; (ii) all directors and named executive officers as a group; and (iii) any person (or group) who is known to GreenHunter to be the beneficial owner of more than 5% of any class of its common stock.
     Unless otherwise specified, the address of each of the persons set forth is in care of GreenHunter Energy, Inc., 1048 Texan Trail, Grapevine, Texas 76051.
                         
    Name of Beneficial   Amount and Nature of    
Title of Class   Owner   Beneficial Ownership(1)   Percent of Class(9)
Common Stock
  Gary C. Evans     15,981,111 (2)     67.0  
Common Stock
  Ronald D. Ormand     0       *  
Common Stock
  Ronald H. Walker     66,667 (3)     *  
Common Stock
  Jonathan D. Hoopes     150       *  
Common Stock
  Morgan F. Johnston     596,059 (4)     2.6  
Common Stock
  David S. Krueger     646,535 (5)     2.8  
Common Stock
  Investment Hunter, LLC     15,675,401 (6)     66.0  
Common Stock
  West Coast Opportunity Fund, LLC     2,457,142 (7)     9.9  
Common Stock
  Southern Ute Growth Fund     1,875,000 (8)     8.4  
Common Stock
  All officers and directors as a group (6 persons named above)     17,290,522       69.0  
 
*   Less than 1%.
 
1   Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed below has direct ownership of and sole voting power and investment power with respect to the shares of GreenHunter’s common stock.
 
2   Includes 14,160,000 shares and 1,515,401 common stock purchase warrants held directly by Investment Hunter, LLC, and 293,334 common stock purchase options at an exercise price of $18.91 per share. Also includes 1,800 shares held by Mr. Evans as custodian for his children. Gary C. Evans owns 100% of the capital stock of Investment Hunter, LLC.
 
3   Consists of 66,667 common stock purchase options at an exercise price of $10.00 per share.
 
4   Includes 500,000 common stock purchase options at an exercise price of $5.00 per share, 91,666 common stock purchase options at an exercise price of $18.91 per share and 399 common stock purchase warrants at an exercise price of $27.50 per share.
 
5   Includes 550,000 common stock purchase options at an exercise price of $5.00 per share, 91,666 common stock purchase options at an exercise price of $18.91 per share and 442 common stock purchase warrants at an exercise price of $27.50 per share.
 
6   Includes 1,515,401 common stock purchase warrants at an exercise price of $27.50 per share.
 
7   Consists of 6,750 shares of Series A Preferred Stock convertible into 1,350,000 shares of common stock and 10,575 shares of Series B Preferred Stock convertible into 1,410,000 shares of common stock and 1,823,500 shares of common stock exercisable pursuant to common stock purchase warrants. By agreement, West Coast Opportunity Fund, LLC cannot convert or exercise any securities that cause it to own 10% or more of the common stock of the Company. Paul J. Orfalea, Lance W. Helfert and R. Atticus Lowe have shared voting and investment control over the securities held by West Coast Opportunity Fund, LLC.
 
8   Includes 625,000 common stock purchase warrants at an exercise price of $27.50 per share.
 
9   A total of 22,116,464 shares of GreenHunter Energy’s Common Stock are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1). For each Beneficial Owner below, any options exercisable or securities convertible into common within 60 days have been included in the denominator.

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Item 13. Certain Relationships and Related Transactions, and Director Independence
Transactions with Related Persons.
     On January 2, 2007, GreenHunter issued a promissory note in the principal amount of $2.8 million in favor of Investment Hunter, LLC, an entity controlled and 100% owned by Mr. Gary Evans, Chairman and CEO. The note bore interest at the rate of ten percent (10%) per annum simple interest until the outstanding principal balance and any accrued interest are paid in full. Accrued interest was due and payable on December 31, 2007. In December 2007, the note was amended to allow interest due at December 31, 2007 to be added to the principal balance of the note rather than be paid. On January 1, 2008 the note plus accrued interest was renewed and extended through the issuance of a GreenHunter subordinated convertible note in the amount of $3.1 million with interest at an annual rate of 10% first due on December 31, 2008. The note was convertible at the option of the holder into our common stock at a conversion price of $5.00 per share for the original principal balance of $2.8 million and at a conversion price of $12.00 for the $285 thousand of accrued interest rolled into the note. On August 28, 2008, Investment Hunter converted the principal amount of the note into 594,011 shares of GreenHunter common stock and we paid accrued interest in cash.
     Our loan from Investment Hunter, LLC described above was unanimously approved by our Board of Directors, with Mr. Evans abstaining.
     During 2008, GreenHunter rented an airplane for business use at various times from Pilatus Hunter, LLC, an entity 100% owned by Mr. Evans. Airplane rental expenses totaled $158 thousand for the 2009 year and $409 thousand for the 2008 year.
     During the year ended December 31, 2008, we leased excess office space to Gruy Petroleum Management, LLC, an entity owned 100% by Mr. Evans for $48 thousand.
     The Company currently does not have a written, stand-alone policy for evaluating related party transactions. The Board’s review procedures include evaluating the following:
    the nature of the relationships among the parties;
 
    the materiality of the transaction to the company;
 
    the related person’s interest in the transaction; and
 
    the benefit of the transaction to the related person and to the company.
     Additionally, in cases of transactions in which a director or executive officer may have an interest, the Board also will evaluate the effect of the transaction on such individual’s willingness or ability to properly perform his or her duties at the company.
Item 14. Principal Accounting Fees and Services
                         
    For the Year Ended December 31,  
    2009     2008     2007  
Audit (a)
  $ 121,190     $ 177,382     $ 74,501  
Tax preparation fees
          26,133       10,576  
All other fees (b)
    4,000       11,976       45,078  
 
                 
TOTAL
  $ 125,190     $ 215,491     $ 130,155  
 
                 
 
(a)   Includes fees paid to Hein & Associates for our annual audit and quarterly reviews and services in connection with our filing of registration statements.

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(b)   Includes fees paid to Hein & Associates for the agreed upon procedures related to an EPA report for BioFuels.
     The Audit Committee generally makes recommendations to the Board regarding the selection of the independent registered accounting firm, reviews the independence of such accountants, approves the scope of the annual audit, approves the rendering of any material non-audit services by the independent accountants, approves the fee payable to the independent accountants and reviews the audit results. The Audit Committee approves all fees paid to our principal accountants.
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) Index to Financial Statements

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders
GreenHunter Energy, Inc.
Grapevine, Texas
We have audited the accompanying balance sheets of GreenHunter Energy, Inc. (the “Company”) as of December 31, 2009 and 2008 and the related statements of operations, changes in stockholders’ deficit, and cash flows for the years ended December 31, 2009, 2008 and 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States), which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of GreenHunter Energy, Inc. as of December 31, 2009 and 2008 and the results of its operations and cash flows for the years ended December 31, 2009, 2008 and 2007, in conformity with accounting principles generally accepted in the United States of America.
We were not engaged to examine management’s assertion about the effectiveness of GreenHunter Energy, Inc.’s internal control over financial reporting as of December 31, 2009 included in Management’s Report on Internal Control over Financial Reporting, and accordingly, we do not express an opinion thereon.
/s/ HEIN & ASSOCIATES LLP
Dallas, Texas
March 31, 2010

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GREENHUNTER ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
                 
    December 31, 2009     December 31, 2008  
ASSETS
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 6,915,514     $ 676,636  
Restricted cash
    2,018,717       342,653  
Accounts receivable, net of allowance of $282,585 and $542,965, respectively
    127,373       4,475,670  
Inventory
    179,322       6,137,780  
Deposits and other current assets
    57,186        
Prepaid expenses and other current assets
    644,328       943,135  
Assets held for sale — current
          53,555  
 
           
Total current assets
    9,942,440       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
    44,477,263       45,521,460  
Accumulated depreciation
    (7,101,399 )     (2,855,250 )
Construction in progress
    10,750,089       11,934,854  
 
           
Net fixed assets
    55,958,669       63,096,551  
OTHER ASSETS:
               
Assets held for sale
          4,887,945  
Deferred financing costs
    2,617,060       3,720,893  
Other noncurrent assets
    300,110       9,404,152  
 
           
Total assets
  $ 68,818,279     $ 93,738,970  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES:
               
Current portion of notes payable
  $ 169,541     $ 507,102  
Current portion of notes payable, nonrecourse
    37,679,834       6,761,417  
Accounts payable
    9,596,732       16,020,538  
Dividends payable
    156,060       250,000  
Accrued liabilities
    7,716,289       5,254,965  
Liabilities associated with assets held for sale
          2,224,447  
 
           
Total current liabilities
    55,318,456       31,018,469  
NON-CURRENT LIABILITIES:
               
Notes payable
    2,983,045       3,062,642  
Notes payable, nonrecourse, less current portion
          36,738,583  
Redeemable debentures, net of discount of $1,047,108 and $1,485,006, respectively
    25,288,848       23,139,057  
Liabilities associated with assets held for sale, non-current
          74,319  
 
           
Total long-term liabilities
    28,271,893       63,014,601  
 
               
COMMITMENTS AND CONTINGENCIES (Notes 6 and 12)
               
 
               
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
    87,273,376       81,100,216  
Accumulated deficit
    (119,672,776 )     (103,478,564 )
Treasury stock, at cost, 22,412 and 44,436 shares, respectively
    (336,285 )     (678,538 )
Unearned common stock in KSOP, at cost, 15,200 shares
    (225,913 )     (225,913 )
 
           
Total GreenHunter Energy, Inc. stockholders’ equity
    (14,772,070 )     (186,810 )
Noncontrolling interest in consolidated subsidiaries
          (107,290 )
 
           
Total stockholders’ deficit
    (14,772,070 )     (294,100 )
 
           
Total liabilities and stockholders’ deficit
  $ 68,818,279     $ 93,738,970  
 
           

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GREENHUNTER ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                         
    For the Year Ended  
    December 31,  
    2009     2008     2007  
REVENUE:
                       
Product sales
  $ 4,932,510     $ 4,628,108     $ 957,174  
Terminal revenues
    693,326       373,473        
Processing revenue
    165,697             95,569  
 
                 
Total revenue
    5,791,533       5,001,581       1,052,743  
 
                 
 
                       
COSTS AND EXPENSES:
                       
Cost of sales and services
    8,665,846       14,150,681       758,799  
Hurricane repairs and losses (insurance proceeds)
    (10,887,690 )     5,631,158        
Project costs
    105,445       502,263       276,505  
Depreciation expense
    4,270,444       2,703,104       118,627  
Selling, general and administrative
    11,569,623       22,382,367       11,783,113  
Loss on asset impairments
    5,046,090       21,768,886        
 
                 
Total costs and expenses
    18,769,758       67,138,459       12,937,044  
 
                 
 
                       
OPERATING LOSS FROM CONTINUING OPERATIONS
    (12,978,225 )     (62,136,878 )     (11,884,301 )
 
                       
OTHER INCOME (EXPENSE):
                       
Interest and other income
    4,743,451       644,156       373,027  
Interest, accretion and other expense
    (7,055,014 )     (4,010,684 )     (523,068 )
 
                 
Total other income (expense)
    (2,311,563 )     (3,366,528 )     (150,041 )
 
                 
 
                       
Loss from continuing operations
    (15,289,788 )     (65,503,406 )     (12,034,342 )
 
                       
Loss on sale of discontinued operations
    (563,388 )            
Gain (loss) from discontinued operations, net of taxes
    434,746       (712,365 )      
 
                 
Net Loss
    (15,418,430 )     (66,215,771 )     (12,034,342 )
 
                       
Preferred stock dividends
    (775,782 )     (1,000,000 )     (707,671 )
Deemed preferred stock dividends
          (15,188,219 )     (950,000 )
 
                 
 
                       
Net loss to common stockholders
  $ (16,194,212 )   $ (82,403,990 )   $ (13,692,013 )
 
                 
 
                       
Weighted average shares outstanding, basic and diluted
    21,612,172       20,216,032       17,082,684  
     
 
                       
Net loss per share from continuing operations
  $ (0.74 )   $ (4.04 )   $ (0.80 )
     
 
                       
Net earnings (loss) per share from discontinued operations
  $ (0.01 )   $ (0.04 )   $  
     
 
                       
Net loss per share
  $ (0.75 )   $ (4.08 )   $ (0.80 )
     

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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE PERIOD FROM JANUARY 1, 2007 TO DECEMBER 31, 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, 2007
  $     $     $ 15,000     $ 1,549,163     $     $ (4,199,360 )   $     $     $ (2,635,197 )
Issue 12,500 preferred shares in private placement
    12,500,000                                                 12,500,000  
Issue 450,000 common shares to acquire GreenHunter BioFuels, Inc.
                450       2,078,550                               2,079,000  
Issue 500,000 common shares to acquire power purchase agreement
                500       2,309,500                               2,310,000  
Issue 300,000 common shares for fees on biomass plant acquisition
                300       1,385,700                               1,386,000  
Issue 2,807,834 common stock warrants in private placement of preferred and common stock
                      3,717,308             (950,000 )                 2,767,308  
Issue 4,131,500 common stock options to employees
                      6,321,321                               6,321,321  
Issue 3,509,118 common shares in private placement
                3,509       27,942,210                               27,945,719  
Commission and fees paid on private placement of common shares
                      (1,532,044 )                             (1,532,044 )
Cash dividends on preferred stock
                                  (707,671 )                 (707,671 )
Net loss
                                  (12,034,342 )                 (12,034,342 )
 
                                                     
BALANCE, December 31, 2007
    12,500,000             19,759       43,771,708             (17,891,373 )                 38,400,094  
 
                                                     
Registration fees on stock
                      (3,045 )                             (3,045 )
Issue 117,998 shares for note payable exchange
                118       1,874,871                               1,874,989  
Issue 841,363 warrants on the 10% Series A Redeemable Debentures
                      1,677,622                               1,677,622  
Issue 89,747 warrants on the 9% Series B Redeemable Debentures
                      51,610                               51,610  
Issue 594,011 shares upon note conversion
                594       3,135,781                                       3,136,375  
Issue 426,750 shares on warrant exercises
                427       2,360,116                               2,360,543  
Issue 10,575 Series B Preferred Shares in private placement
          10,575,000               14,564,550             (14,589,550 )                 10,550,000  
Issue 162,250 warrants for stock option exercise inducment
                      207,599                               207,599  
Employer match of 5,512 shares to KSOP
                6       104,226                               104,232  
Issue 58,246 shares for Port Sutton lease option acquisition
                58       366,892                               366,950  
Issue share-based payment for Port Sutton lease option acquisition
                      884,211                               884,211  
Issue 44,964 treasury shares for Wheatland acquisition
                      (356,785 )                     671,983               315,198  
Loan of 15,200 shares to KSOP
                                              (225,913 )     (225,913 )
Purchase 89,400 shares for treasury
                                        (1,350,521 )             (1,350,521 )
Stock compensation
                27       8,678,990                               8,679,017  
Issue 2,470,004 warrants for stock dividend to common and preferred
                      3,781,870             (3,781,870 )                      
Dividends on preferred stock
                                  (1,000,000 )                 (1,000,000 )
Haining City interests
                            (31,635 )                       (31,635 )
Wheatland interests
                            (75,655 )                       (75,655 )
Net loss
                                  (66,215,771 )                 (66,215,771 )
 
                                                     
BALANCE, December 31, 2008
    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
                      701,728                               701,728  
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
                                  (775,782 )                 (775,782 )
Abandonment of Haining City interests
                                    31,635                               31,635  
Abandonment of Wheatland interests
                                    75,655                               75,655  
Net loss
                                  (15,418,430 )                 (15,418,430 )
 
                                                     
BALANCE, December 31, 2009
  $ 7,592,389     $ 10,575,000     $ 22,139     $ 87,273,376     $     $ (119,672,776 )   $ (336,285 )   $ (225,913 )   $ (14,772,070 )
 
                                                     

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GREENHUNTER ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                         
    YEAR ENDED DECEMBER 31,  
    2009     2008     2007  
CASH FLOWS FROM OPERATING ACTIVITIES:
                       
Net loss
  $ (15,418,430 )   $ (66,215,771 )   $ (12,034,342 )
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Depreciation expense
    4,270,444       2,713,142       118,627  
Stock based compensation
    701,728       8,196,453       6,321,321  
Amortization of deferred financing costs
    1,279,284       706,062        
Non-cash asset impairment
    5,046,090       22,068,886        
Hurricane property losses
          3,351,299          
Noncontrolling interest
          (107,290 )      
Gain on sale of assets
    (1,267,564 )     (99,923 )      
Accretion of discount
    438,841       255,143       77,809  
Forgiveness of trade payable
    (2,757,311 )            
Changes in certain assets and liabilities:
                       
Accounts receivable
    4,348,297       (4,365,299 )     (54,153 )
Inventory
    5,958,458       (8,417,217 )     129,615  
Prepaid and other expense
    228,704       (1,095,799 )     (252,511 )
Accounts payable
    (5,004,795 )     14,997,453       1,571,373  
Accrued liabilities
    2,510,214       (1,086,453 )     1,878,635  
           
Net cash provided by (used in) operating activities
    333,960       (29,099,314 )     (2,243,626 )
           
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
Change in restricted cash
    (1,676,064 )     (342,653 )      
Acquisition of Telogia
          (2,500,000 )      
Acquisition of CRC, net of cash acquired
                (6,648,071 )
Acquisition of Mesquite Lake
                (1,426,566 )
Proceeds from sale of assets
    13,425,994       112,763       40,000  
Additions to fixed assets
    (790,362 )     (52,905,892 )     (19,256,314 )
Increase in other assets
    (348,270 )     (1,682,308 )     (1,543,375 )
           
Net cash used in investing activities
    10,611,298       (57,318,090 )     (28,834,326 )
           
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
Gross proceeds from stock and warrant issuance
          2,568,126       42,713,016  
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 )     (1,532,033 )
Gross proceeds from redeemable debenture issuance
    1,711,892       17,295,773       7,328,290  
Purchase treasury shares
          (1,350,521 )        
Increase in notes payable
    298,323       50,673,639       4,826,406  
Payment of notes payable
    (6,541,144 )     (8,444,137 )     (205,000 )
Payment of buyout obligation
                (180,000 )
Increase in convertible notes payable
                285,126  
Payment of advance from previous affiliate
                (35,459 )
Payment of deferred financing costs
    (175,451 )     (1,970,276 )     (2,729,115 )
Preferred dividends paid in cash
          (750,000 )     (707,671 )
           
Net cash provided by (used in) financing activities
    (4,706,380 )     68,343,646       49,763,560  
           
CHANGE IN CASH
    6,238,878       (18,073,758 )     18,685,608  
 
                       
CASH, beginning of period
    676,636       18,750,394       64,786  
           
 
                       
CASH, end of period
  $ 6,915,514       676,636       18,750,394  
           
`
                       
Cash paid for interest
  $ 2,994,959       4,513,302       199,514  
           
NONCASH TRANSACTIONS:
                       
KSOP company match in stock
          104,232        
Lease option acquisitioned for stock
          366,950        
Membership interest acquired for treasury shares
          315,198        
Bonus paid in stock
          482,564        
Noncash common dividends
          3,183,350        
Noncash preferred dividends
          15,188,219     $ 950,000  
Property acquired for stock
                3,465,000  
Property acquired for notes payable, net of discount
                1,639,738  
Power purchase agreement acquired for stock
                2,310,000  
Commissions paid in common stock
                500,000  

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NOTE 1. Organization And Nature Of Operations
     GreenHunter Energy, Inc. (“GreenHunter”) was incorporated in the State of Delaware on June 7, 2005 under the name BTHC IV, Inc. We were formed for the purpose of reincorporating BTHC IV, LLC, a Texas limited liability company, in the State of Delaware. BTHC IV, LLC was reincorporated in Delaware by means of a merger into our company on April 11, 2006.
     On December 6, 2006, GreenHunter Wind Energy LLC (“Wind Energy”), completed a “reverse acquisition” with GreenHunter. In exchange for all of the membership interest of Wind Energy, we issued 14,560,000 shares of Common Stock to the sole shareholder of Wind Energy, or 97.1% of all of the issued and outstanding stock of the company. Simultaneous with the closing of the transaction with Wind Energy, we changed our name to GreenHunter Energy, Inc. and increased the number of authorized shares of common stock to 100,000,000, consisting of 90,000,000 shares of common stock, having a par value of $.001 per share and 10,000,000 shares of preferred stock, having a par value of $.001 per share.
Current Plan of Operations and Ability to Operate as a Going Concern
     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 December 2009. These debentures are secured by GreenHunter Energy’s ownership interest in GreenHunter BioFuels common stock and are otherwise non-recourse to GreenHunter Energy.
     As of December 31, 2009, we had a working capital deficit of $45 million which includes a $37.7 million non-recourse note payable due by a wholly-owned subsidiary. This note payable is non-recourse to the parent, GreenHunter Energy, and is included in current liabilities due to the fact that the bank has extended the due date of the loan to April 30, 2010. 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 BioFuel’s cash on hand at that date and foreclose on the BioFuel’s 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. These factors raise some doubt about our ability to continue as a going concern. 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. We also have received a letter of guarantee from a principle stockholder of the company for up to an additional $1 million if needed to fund operations. The cash received, along with the letter of guarantee, improved our working capital position and has provided cash required to fund operations for the next twelve months. Since December 31, 2009, we have negotiated reductions in liabilities owed to creditors of approximately $2.2 million.
     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 Company’s 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 return of operations at our Houston biodiesel refinery and development of our Mesquite Lake biomass plant.

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          On December 16, 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 March 31, 2010. The agreement was further amended on March 30, 2010 to extend such date to April 30, 2010. 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 paydown of approximately $4.5 million on its non-recourse construction and working capital loans in July 2009. If we do not close on a sale or other transaction to repay the note by April 30, 2010, the bank has the right to seize BioFuel’s cash on hand at that date and foreclose on the BioFuel’s refinery in Houston. We are in discussions with the bank about extending the current deadline to allow more time and we are continuing to talk with potential buyers.
          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 plant.
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”), in biodiesel, methanol, and terminalling operations through GreenHunter BioFuels, Inc. (“BioFuels”), and in biomass through GreenHunter Mesquite Lake, Inc, (“Mesquite Lake”).
     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). 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

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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 power purchase agreement with a major 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.
Note 2. Principles of Consolidation and Basis of Presentation
     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 and Wheatland Wind Power, LLC at December 31, 2009, resulting in a loss of $88 thousand and $918 thousand. All significant intercompany transactions and balances have been eliminated.
Note 3. Summary of Significant Accounting Policies
Use of Estimates
     The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect reported amounts. These estimates are based on information available at the date of the financial statements. Therefore, actual results could differ materially from those estimates. Significant estimates include the allocation of purchase price to assets and liabilities acquired and the assessment of assets for impairment.
Reclassifications
     Certain prior period amounts have been reclassified to conform with the current year presentation.
Cash and Cash Equivalents
     Cash and cash equivalents include securities with maturities of 90 days or less at the date of purchase. We have cash deposits in excess of federally insured limits.
Restricted Cash
     Restricted cash consists of cash deposits related to our BioFuels business that are legally restricted as to their use by the lending bank.

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Accounts Receivable
     Our accounts receivable balance at December 31, 2009 primarily consisted of accrued storage revenue from our Houston plant.
Inventories
     Raw material inventories consist of processed methanol, contaminated methanol, vegetable oil, animal fat, and process chemical feedstocks to be processed in our Houston refinery. Inventory also includes biodiesel finished product and work-in-process for our glycerin and biodiesel lines. Inventories are stated at the lower of cost or market. Cost is determined using the average method. See Note 7 for additional information on our inventories.
Property, Plant and Equipment
     Property plant and equipment are stated at cost. Depreciation is computed using the straight-line method based on the following useful lives:
         
Automobiles
  5 years
Computer and office equipment
    5 to 7 years  
Plant equipment
    7 to 30 years  
Land improvements
  15 years
Buildings
  31 years
     Depreciation expense of $4.3 million, $2.7 million, and $119 thousand was recorded for the years ending December 31, 2009, 2008, and 2007, respectively. As described in Note 6, fair value increases of $8.5 million were made to equipment and infrastructure purchased from CRC. These costs did not begin depreciating until August 2008 as they were associated with the construction of our biodiesel refinery. During construction of the plant, we capitalized interest of $1.1 million during the twelve months ended December 31, 2008. Material expenditures which increase the life of an asset are capitalized and depreciated over the estimated remaining useful life of the asset. The cost of equipment sold, or otherwise disposed of, and the related accumulated depreciation or amortization is removed from the accounts, and any gains or losses are reflected in current operations.
     Construction in progress totaling $10.8 million within Plant and other Equipment on our balance sheet were assets not being depreciated at December 31, 2009, as they were not in use. They will be placed in use and subject to depreciation once construction is completed on the Mesquite Lake biomass plant. Items in Construction in Progress are not subject to depreciation while they are under construction.
Deferred Financing Costs
     Costs incurred in connection with issuing debt are capitalized and amortized as an adjustment to interest expense over the term of the debt instrument using the interest method.

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Other Non-Current Assets
     Other non-current assets at December 31, 2009 and 2008 included the following (in thousands):
                 
    2009     2008  
Power Purchase Agreement
  $ 300     $  
Investment in Ming Yang, at cost
          7,016  
Transmission service deposits
          222  
Wheatland right of way
          735  
Port Sutton lease option
          1,431  
 
           
Total
  $ 300     $ 9,404  
 
           
See Note 6 for additional information on the acquisitions of Ming Yang, Wheatland and the Port Sutton options.
Noncontrolling Interest
Our noncontrolling interest is related to interests held in our Haining and Wheatland subsidiaries. Our interests in these entities was abandoned during 2009 but for 2008, we consolidated our 85% investment in Haining as a result of holding the majority of the voting rights, and we consolidated our 30% investment in Wheatland, a variable interest entity, under ASC 810 as a result of being the chief operating decision maker as well as being the primary beneficiary of this entity. Please see Note 6 for additional information on these investments.
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 asset’s carrying value, an impairment charge is recorded for the difference between the asset’s fair value and it’s carrying value. During 2009 we recorded impairments of $1.5 million related to our inability to pay the final lease option extension for our Port Sutton lease, $218 thousand related to a deposit on a wind project that was cancelled, and impairment of $170 thousand on equipment due to a reduction in value. We recorded an additional $3.2 million and $19.1 million in 2009 and 2008, respectively, in impairments related to our Biofuels campus due to significant doubt regarding the recoverability of our plant investment given our liquidity and time constraints and the current economics of the biodiesel market. Additionally, during 2008, we recorded impairments of $2.6 million related to the permits and power purchase agreement acquired in our Mesquite Lake acquisition as the permits were determined to not be sufficient for our planned operation of the plant and the power purchase agreement was terminated to allow us to pursue a more valuable agreement with other utilities in the area of the plant. There were no impairments in 2007.
Asset Retirement Obligations
     The Company accounts for asset retirement obligations based on the guidance of ASC 410 which addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. ASC 410 requires that the fair value of a liability for an asset’s retirement obligation be recorded in the period in which it is incurred and the corresponding cost

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capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost is depreciated over the estimated useful life of the related asset. We have not recorded any asset retirement obligations because we will conduct refinery operations and power generation predominately from waste materials, and plan to 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.
Repairs and Maintenance
     We charge the cost of repairs and maintenance, including the cost of replacing minor items not constituting substantial betterment, to selling, general and administrative expenses as these costs are incurred.
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 on shipments to customers are included in selling, general and administrative costs. Excise and other taxes collected from customers and remitted to governmental authorities are not included in revenue.
Stock-Based Compensation
     The Company accounts for share-based compensation in accordance with the provisions of the ASC standards which require companies to estimate the fair value of share-based payment awards made to employees and directors, including stock options, restricted stock and employee stock purchases related to employee stock purchase plans, on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense ratably over the requisite service periods. We estimate the fair value of each share-based award using the Black-Scholes option pricing model. 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. See Note 11 for additional information on our stock-based compensation.
Income Taxes
     We account for income taxes under the liability method. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We measure and record income tax contingency accruals in accordance with ASC 740, Income Taxes.
     We recognize liabilities for uncertain income tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as we must determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis or when new information becomes available to management. These reevaluations are based on factors including, but

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not limited to, changes in facts or circumstances, changes in tax law, successfully settled issues under audit, expirations due to statutes, and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an increase to the tax accrual.
     We classify interest related to income tax liabilities as income tax expense, and if applicable, penalties are recognized as a component of income tax expense. The income tax liabilities and accrued interest and penalties that are anticipated to be due within one year of the balance sheet date are presented as current liabilities in our consolidated balance sheets.
Income or Loss Per Common Share
     Basic net income or loss per common share is computed by dividing the net income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income or loss per common share is calculated in the same manner, but also considers the impact to net income and common shares for the potential dilution from stock options, stock warrants and any other outstanding convertible securities.
     We have issued potentially dilutive instruments in the form of our convertible note payable, 8% Series A Preferred Stock, Series B Preferred Stock, common stock warrants and common stock options granted to our employees. There were 37,469,761, 15,748,448, and 10,576,194 dilutive securities outstanding at December 31, 2009, 2008, and 2007, respectively. We did not include any of these instruments in our calculation of diluted loss per share during the period because to include them would be anti-dilutive due to our net loss during the periods.
Note 4. Recently Issued Accounting Standards
     In December 2007, FASB issued guidance related to Business Combinations under ASC 805, Business Combinations, and guidance related to the accounting and reporting of noncontrolling interest under ASC 810-10-65-1, Consolidation. This guidance significantly changes the accounting for and reporting of business combination transactions and noncontrolling (minority) interests in consolidated financial statements. This guidance became effective January 1, 2009 and did not have a material impact on our financial statements.
     In March 2008, the FASB issued guidance related to the disclosures about derivative instruments and hedging activities under FASB ASC 815-10-50, Derivatives and Hedging. This guidance requires companies to provide enhanced disclosures about (a) how and why they use derivative instruments, (b) how derivative instruments and related hedged items are accounted for under applicable guidance, and (c) how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. These disclosure requirements are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Our adoption of ASC 815-10-50 on January 1, 2009 did not have a material impact on our consolidated financial statements.
     In June 2008, the FASB issued guidance to evaluate whether an instrument (or embedded feature) is indexed to an entity’s own stock under ASC 815-40-15, Derivatives and Hedging. The 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 under the scope of ASC 815-10-15. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. We adopted ASC 815-40-15 beginning January 1, 2009. The adoption of this guidance did not have a material impact on our financial statements.

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     In May 2009, the FASB issued guidance related to subsequent events under ASC 855-10, Subsequent Events. This guidance sets forth the period after the balance sheet date during which management or a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. It requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, whether that date represents the date the financial statements were issued or were available to be issued. This guidance is effective for interim and annual periods ending after June 15, 2009. We adopted ASC 855-10 beginning June 30, 2009 and have included the required disclosures in our consolidated financial statements. See Note 16 — “Subsequent Events” in the Notes to Consolidated Financial Statements for additional information.
     In June 2009, the FASB issued an amendment to ASC 810-10, Consolidation. As a result, in December 2009, the FASB issued ASC 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This guidance amends ASC 810-10-15 to replace the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a VIE with a primarily qualitative approach focused on identifying which enterprise has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance. It also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE and requires additional disclosures about an enterprise’s involvement in VIEs. This guidance is effective as of the beginning of the reporting entity’s first annual reporting period that begins after November 15, 2009 and earlier adoption is not permitted. We are currently evaluating the potential impact, if any, of the adoption of ASC 2009-17 on our consolidated financial statements.
     In June 2009, the FASB issued Accounting Standards Update No. 2009-01 which amends ASC 105, Generally Accepted Accounting Principles. This guidance states that the ASC will become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Once effective, the Codification’s content will carry the same level of authority. Thus, the U.S. GAAP hierarchy will be modified to include only two levels of U.S. GAAP: authoritative and non-authoritative. This is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We adopted ASC 105 as of September 30, 2009 and thus have incorporated the new Codification citations in place of the corresponding references to legacy accounting pronouncements.
     In August 2009, the FASB issued Accounting Standards Update No. 2009-05, Measuring Liabilities at Fair Value, which amends ASC 820, Fair Value Measurements and Disclosures. This Update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure the fair value using one or more of the following techniques: a valuation technique that uses the quoted price of the identical liability or similar liabilities when traded as an asset, which would be considered a Level 1 input, or another valuation technique that is consistent with ASC 820. This Update is effective for the first reporting period (including interim periods) beginning after issuance. Thus, we adopted this guidance as of December 31, 2009, which did not have a material impact on our consolidated financial statements.
Note 5. Discontinued Operations
     We completed the sale of the Telogia plant during February 2009 for total proceeds of approximately $4.5 million cash received. We recorded a gain of approximately $443 thousand on the disposal net of post closing adjustments.
     The following table provides summarized income statement information related to Telogia’s discontinued operations for the year ended December 31, 2009 and 2008:

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    2009   2008
Sales and other revenues from discontinued operations
  $     $  
Operating expenses from discontinued operations
    (215,832 )     (536,545 )
Other income from discontinued operations
    725,348       3,863  
     
Net loss from discontinued operations
  $ 509,516     $ (532,682 )
     
     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 City’s discontinued operations for the year ended December 31, 2009 and 2008:
                 
    2009   2008
Sales and other revenues from discontinued operations
  $     $  
Operating expenses from discontinued operations
    (61,080 )     (210,894 )
Other income from discontinued operations
    12,474       31,634  
     
Net loss from discontinued operations
  $ (48,606 )   $ (179,260 )
     
     During December 2009, we abandoned the assets and our interests in Wheatland Wind Power, LLC (“Wheatland”) resulting in a loss on asset abandonment of $918 thousand.
     The following table provides summarized income statement information related to Wheatland’s discontinued operations for the year ended December 31, 2009 and 2008:
                 
    2009   2008
Sales and other revenues from discontinued operations
  $     $  
Operating expenses from discontinued operations
    (87,211 )     (108,079 )
Other income from discontinued operations
    61,047       75,656  
     
Net loss from discontinued operations
  $ (26,164 )   $ (32,423 )
     
Note 6. Acquisitions and Divestitures
BioFuels
     On April 13, 2007 we acquired all of the outstanding shares of CRC for $10.8 million. Our purchase price consisted of $7.1 million in cash, $1.6 million in notes payable (net of discount of $360 thousand), and 450 thousand shares of our common stock valued at $4.62 per share. The acquisition was treated as a purchase of CRC in accordance with the provisions of ASC 805, Business Combinations. The agreement provided for an adjustment to the cash portion of the purchase price for working capital on hand to be settled within 60 days of closing, which reduced the cash portion of the closing price to $6.8 million and reduced the total purchase price to $10.7 million. Please see Note 8 for additional information on the notes issued in this transaction.

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     The purchase price was allocated to the fair value of the net assets acquired. The following table summarizes the purchase price and related allocation to the net assets acquired at April 13, 2007:
         
Total Purchase Price:
       
Fair value of 450,000 shares of GreenHunter common stock
  $ 2,079,000  
Cash consideration
    6,772,342  
Fair value of 117,998 shares of GreenHunter common stock exchanged for notes payable originally issued at acquisition
    1,875,000  
 
     
Total
  $ 10,726,342  
 
     
 
       
Net Preliminary Purchase Price Allocation:
       
Net purchase price
  $ 10,726,342  
Historical net assets acquired
    (419,146 )
 
     
Excess purchase price
    10,307,196  
Adjustment of land to fair market value
    (1,656,924 )
Adjustment of inventory to fair market value
    (136,361 )
Adjustment of equipment and infrastructure to fair market value
    (8,452,341 )
Amortization of discount on notes payable to interest expense
    (61,570 )
 
     
Excess purchase price
  $  
 
     
 
       
Historical net assets acquired were as follows:
       
Current assets
  $ 162,746  
Property, plant and equipment, net
    981,915  
Current liabilities
    (576,765 )
Liabilities owed to GreenHunter
    (148,750 )
 
     
Historical net assets acquired
  $ 419,146  
 
     
     CRC, a Texas corporation, was established in 1994 to develop a 20.62 acre industrial parcel of land located on the Houston ship channel into a waste oil recycling facility. Subsequently, CRC decided to invest in more sophisticated processing equipment to convert the waste oil recycling refinery into a specialty chemical manufacturing operation. CRC manufactured base oils, lubricants, diesel fuels and naphtha through July 2007. CRC’s operations were included in our consolidated financial statements beginning April 14, 2007.
Port Sutton Acquisition
     During October 2008, we issued 58,246 common shares with a value of $367 thousand and paid $130 thousand in cash to acquire a lease option with three three-month option extension periods, for a total of nine months, for twenty-two acres of waterfront acreage in Port Sutton, Florida. The lease calls for $50 thousand to be paid for each of the first two option periods with a third payment of $75 thousand to be made upon election of the third and final extension period. We paid $100 thousand for the first and second option extensions.
     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 were to 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 were to issue an additional 80,000 to 140,351 shares.
     During April 2009, the Company determined we were unable to make the final lease option extension and as a result we abandoned the project and recorded an asset impairment to remove the lease option deposits of $1.5 million from our balance sheet.

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Biomass
Mesquite Lake
     During May 2007, we acquired an inactive 18.5 MW (nameplate capacity) biomass plant located in El Centro, California, Mesquite Lake, for cash consideration of $1.4 million. We also acquired the existing power purchase agreement between the former owner of the facility and an electric utility company for 500 thousand shares of our common stock valued at $4.62 per share, or $2.3 million.
     We entered separately into a five year consulting agreement with the former owner that allows us the right to any deals developed by the consultant over the term of the agreement. The payment terms of the consulting agreement included an initial payment of 300 thousand shares of our common stock valued at $4.62 per share, or $1.4 million, which was allocated to the inactive 18.5 megawatt plant acquired, along with quarterly cash payments for the duration of the consulting agreement of $98 thousand per quarter beginning June 30, 2007. These quarterly cash payments are expensed to general and administrative expenses as incurred. We suspended these payments during the fourth quarter of 2008 pending the resolution of a dispute (as discussed below) with the former owner over the validity of certain air permits that were in place at the plant at the time of acquisition.
     We allocated the total consideration of $4.9 million as follows:
         
Land
  $ 2,526,029  
Machinery and Equipment
    98,582  
Power Purchase Agreement
    1,652,704  
Permits and Fees
    643,685  
 
     
Total Purchase Price
  $ 4,921,000  
 
     
     We began refurbishment of this plant during July 2008, but have temporarily halted construction on this project due to liquidity restraints as well as a source review of the site by the Environmental Protection Agency. During the source review, we determined that the existing air permits were not sufficient to support the operation of the plant as we intend, which led us to record an impairment on these permits of $644 thousand. We also decided to cancel the power purchase agreement acquired in order to pursue a new agreement with another utility in the area of the plant which management believes will result in higher pricing for power generated at the Mesquite Lake facility. As a result, we also recorded an impairment of $1.7 million for the value of the terminated power purchase agreement. Both of these impairments are included in loss on asset impairments on our 2008 consolidated statement of operations.
Telogia
     On August 29, 2008, we acquired 100% of the membership interests of Telogia BioPower for cash consideration of $1.9 million and cancellation of a promissory note we issued to the seller of $600 thousand. The acquisition was treated as a purchase of Telogia in accordance with the provisions of ASC 805, Business Combinations.

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     The purchase price was allocated to the fair value of the net assets acquired. The following table summarizes the purchase price and related allocation to the net assets acquired at August 28, 2008:
         
Total Purchase Price:
       
 
       
Cash consideration
  $ 1,900,000  
Debt assumed in transaction
    170,459  
Cancellation of seller promissory note
    600,000  
 
     
Total
  $ 2,670,459  
 
     
 
       
Net Purchase Price Allocation:
       
Net purchase price
  $ 2,670,459  
Land, Property, and Equipment
    (2,670,459 )
 
     
Excess purchase price
  $  
 
     
     The Company completed the sale of the Telogia plant during February 2009. See Note 5 — “Discontinued Operations” for additional information.
Wind Energy
Ming Yang
     On November 28, 2007 we entered into two separate definitive agreements with Guandong MingYang Wind Power Technology Co., LTD (“MingYang”), a Chinese company which is a manufacturer of wind turbines. The first was a subscription agreement for us to acquire a 6.3% equity interest in MingYang for 75 million RMB. As of December 31, 2008, we had funded 45 million RMB of the subscription agreement for approximately $7 million (including fees and commissions), and we held an equity ownership of approximately 3.6%. The remaining 30 million RMB of the subscription agreement was to be funded once certain conditions were met by MingYang and provided that we obtained adequate funding for the investment.
     The second agreement was a master turbine supply agreement executed by Wind Energy and MingYang which allowed Wind Energy to potentially purchase more than 900 megawatts in capacity of wind turbines manufactured by MingYang for use in wind projects to be developed between 2009 and 2012 in North America.
     We issued 50 thousand shares of our common stock valued at $500 thousand for fees related to these two agreements on December 20, 2007.
     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 $1.5 million.
Wheatland Wind Acquisition
     During October 2008, we completed the acquisition of an initial 30% membership interest in a wind development project in southeastern Wyoming (“Wheatland”). We issued 44,964 treasury shares with a value of $315 thousand and paid cash of $420 thousand to complete the acquisition.
     During December 2009, we abandoned the assets and our interests in Wheatland Wind Power, LLC (“Wheatland”) resulting in a loss on asset abandonment of $918 thousand.

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Ocotillo Wind Project
     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 WTG’s 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. 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.
Pro Forma Financial Information
     The following summary, prepared on a pro forma basis, presents the results of operations for the year ended December 31, 2007, as if the acquisitions of CRC and Mesquite Lake as well as the private placement of preferred stock described in Note 9 had occurred at the beginning of 2007. The pro-forma information includes the effect of adjustments for general and administrative expense, interest income, interest expense and preferred dividends. The pro-forma results are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of 2007, nor are they necessarily indicative of future consolidated results.
PRO FORMA RESULTS OF OPERATIONS
(Unaudited)
         
    Year Ended  
    December 31,  
    2007  
Total operating revenues
  $ 1,597,637  
 
     
Operating costs and expenses
    7,519,711  
Employee stock option expense
    6,321,321  
 
     
Total operating costs and expenses
    13,841,032  
 
     
Operating loss
    (12,243,395 )
Other income and (expense)
    (121,116 )
 
     
Net loss
    (12,364,511 )
Dividends on preferred stock
    (1,949,671 )
 
     
Net loss to common stockholders
  $ (14,314,182 )
 
     
Net loss per common share, basic and diluted
  $ (0.77 )
 
     
Note 7. 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 December 31, 2009 and 2008 consisted of the following:
                 
    2009     2008  
Finished goods
  $     $ 3,262,873  
Work in process
          520,571  
Raw materials
    179,322       2,354,336  
 
           
 
  $ 179,322     $ 6,137,780  
 
           

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We recorded a lower of cost or market adjustment related to our inventories during the year ended December 31, 2008 of $4,549,262. This adjustment is reflected in costs of sales and services in our 2008 consolidated statement of operations.
NOTE 8. NOTES PAYABLE
Notes Payable at December 31, 2009 and 2008 consisted of the following:
                 
    2009     2008  
Note payable due June 17, 2010, 7.0%
  $ 79,820     $  
Note payable due November 31, 2017, 5.7%
    3,072,766       3,147,927  
Note payable due March 15, 2009, 3.84%
          421,817  
Non-recourse construction facility, 4.26% and 4.47% at December 31, 2009 and 2008, respectively
    28,633,780       33,500,000  
Working capital line of credit, 4.26% and 4.47% at December 31, 2009 and 2008, respectively
    9,046,054       10,000,000  
10% Series A Senior Secured Redeemable Debentures, net of $1,007,039 and $1,435,378 discount, respectively
    20,027,109       19,598,770  
9% Series B Senior Secured Redeemable Debentures, net of $40,069 and $49,628 discount, respectively
    5,261,739       3,540,287  
 
           
 
    66,121,268       70,208,801  
Less: current portion
    (37,849,375 )     (7,268,519 )
 
           
Total Long-Term Debt
  $ 28,271,893     $ 62,940,282  
 
           
The following table presents the approximate annual maturities of debt as of December 31, 2009:
         
2010
  $ 37,849,375  
2011
    92,322  
2012
    100,049  
2013
    7,437,534  
Thereafter
    20,641,988  
 
     
 
  $ 66,121,268  
 
     
Notes Payable
     In connection with the acquisition of CRC, we issued $2 million principal value in notes payable to the former owners. The notes carried a term of seven years and bear an annual interest rate of 5% payable quarterly, with interest only payable for the first two years and equal quarterly amortization of principal plus interest over the remaining five years. We recorded these notes at a value of $1.6 million, with a discount of $360 thousand based upon its estimated risk-adjusted interest rate of 10% which was amortized to interest expense over the term of the notes. On January 18, 2008, the remaining balance of these notes payable issued in connection with the acquisition of CRC in the face amount of $1.875 million was exchanged for 117,998 shares of our common stock valued at $15.89 per share.
     This value was determined by averaging the closing prices for the ten day trading period ending on January 18, 2008. Due to the short amount of time that our stock was listed on the American Stock Exchange at the time of the exchange, we and the note holders did not believe the closing price on January 18, 2008 represented an accurate fair market value of the stock. Our listing in early January, 2008 caused abnormal volatilities in our trading volume and pricing, so the ten day average was used to reduce the volatility in the price of the stock. We believe that this price reflects a more reasonable

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estimate of the fair value of our stock at the time of the exchange. Because we did not use the closing quoted price of our stock on the date of the exchange, we moved to a Level II input as defined by ASC 820. The remaining unamortized discount of $272 thousand on the notes was applied to the purchase price of CRC.
     On November 30, 2007, we purchased real estate which included two office buildings for use as our corporate headquarters. The purchase price of the real estate was approximately $3.7 million. We obtained a bank loan of approximately $3.1 million in connection with this purchase. The terms of the loan include monthly payments of interest only at prime minus 85 basis points (.85%) for one year and monthly principal and interest payments thereafter amortized on a 25 year basis, with all remaining principal becoming due on November 30, 2017. In July 2008, the terms of the note were amended to a fixed interest rate of 5.70%.
     During May 2008, we financed our annual insurance premiums for our Houston refinery in the amount of $1.2 million. During July 2008, we added builder’s risk insurance premiums for the construction related to the Mesquite Lake biomass plant in the amount of $147 thousand, and we also added builder’s risk insurance premiums for the construction related to the Telogia plant in the amount of $186 thousand during August. The total amended note in the amount of $1.6 million incurred interest at a fixed rate of approximately 3.84% and was paid off in March 2009.
     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.
     In connection with our Telogia acquisition, we acquired three capital leases for equipment at the plant site. During the fourth quarter 2008, we began actively marketing our Telogia plant and all related assets and liabilities. Accordingly, these capital leases are included in our current and non-current liabilities associated with assets held for sale at December 31, 2008. Please see Note 6 — Acquisitions and Divestitures for additional information on our Telogia plant.
Notes Payable — Nonrecourse
     On December 20, 2007, BioFuels entered into a credit agreement with a bank which provided for a $38.5 million construction/term loan facility and a $5 million working capital facility in connection with our development, construction and operation of a 105 million gallon per year biodiesel refinery, as well as glycerin and methanol, and terminal assets located in Houston, Texas. During the first quarter of 2008, we amended the credit agreement to reduce the construction/term loan portion of the facility to $33.5 million and to increase the working capital portion of the facility up to $10 million. The construction/term loan portion of the facility is for a term of six 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 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 December 31, 2009. On December 16, 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

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has agreed to waive any claims of events of default until March 31, 2010. The agreement was further amended on March 30, 2010 to extend until April 30, 2010. 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. If we do not close on a sale or other transaction to repay the note by April 30, 2010, the bank has the right to seize BioFuel’s cash on hand at that date and foreclose on the BioFuel’s refinery in Houston. We are talking with the bank about extending the current deadline to allow more time and we are talking with potential buyers.
     These loans are non-recourse to GreenHunter Energy and are fully secured by certain assets at our BioFuels refinery.
Subordinated Convertible Note Payable to Related Party
     On January 1, 2008, the note plus accrued interest on our Convertible Note Payable to Investment Hunter, LLC (a related party) was renewed and extended through the issuance of a GreenHunter subordinated convertible note in the amount of $3.1 million with interest at an annual rate of 10%. The note is a general, unsecured obligation of GreenHunter and is subordinate to any and all of our secured loans. The note is convertible at the option of the holder into our common stock at a conversion price of $5.00 per share for the original principal balance of $2.8 million and at a conversion price of $12.00 for the $285 thousand of accrued interest previously rolled into the note at the renewal. The notes may be converted at any time by the holder up to the payment due date. On August 29, 2008, the holder elected to convert the entire note per the agreement. Accrued interest of $208 thousand was paid to the holder upon conversion. Please see Note 10 — Stockholders’ Equity for additional information.
10% Series A Senior Secured Redeemable Debentures
     Approximately $13.7 million of our 10% Series A Senior Redeemable Debentures (“Series A Debentures”) were issued during the year ended December 31, 2008. Since inception of this series, we have issued approximately $21 million of these debentures, resulting in net proceeds of approximately $18.9 million. These debentures are non-recourse to GreenHunter Energy, and are secured by our GreenHunter BioFuels, Inc. common stock. This offering was cancelled during April of 2008, and all proceeds were received by June 30, 2008.
     The Series A Debentures were offered in a private placement and have not been registered. The debentures have a term of five years from the date of issue and may be exchangeable at our option into freely tradable shares of our common stock. We have the right to call for redemption at any time. If redeemed, we would be required to pay a redemption price, in cash and/or common stock, equal to the following percentage of the principal amount depending on the year after issuance: 105% during the first year, 104% during the second year, 103% during the third year, and 102% during the fourth year and continuing through maturity.
     During April through December 2009, we were unable to make the interest payments on these debentures. These debentures are secured by GreenHunter Energy’s ownership interest in GreenHunter BioFuels common stock and are otherwise non-recourse to GreenHunter Energy.
9% Series B Senior Secured Redeemable Debentures
     During July 2008, we announced the offering of a 9% Series B Senior Secured Redeemable Debentures (“Series B Debentures”). These debentures have a term of five years and may be

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exchangeable into shares of our common stock after one year, at our option. These debentures are non-recourse to GreenHunter Energy, and are secured by our GreenHunter Mesquite Lake, Inc. common stock. Since inception of this series, we have issued approximately $5.3 million of these debentures, resulting in net proceeds of approximately $4.9 million. This offering was cancelled during April of 2009.
NOTE 9. INCOME TAXES
     At December 31, 2009, we had available for U.S. federal income tax reporting purposes, a net operating loss (NOL) carry forward for regular tax purposes of approximately $75 million which expires in varying amounts during the tax years 2010 through 2029. No provision for federal income tax expense or benefit is reflected on the statement of operations for the year ended December 31, 2009 because we are uncertain as to our ability to utilize our NOL in the future.
     The following is a reconciliation of the reported amount of income tax expense (benefit) for the years ended December 31, 2009, 2008 and 2007 to the amount of income tax expense that would result from applying domestic federal statutory tax rates to pretax income:
                         
    2009   2008   2007
            (in thousands)        
Statutory tax expense (benefit)
  $ (5,242 )   $ (22,513 )   $ (4,092 )
Change in valuation allowance
    4,245       21,753       4,076  
Interest expense disallowed for tax
    995       745        
Effect of other permanent differences
    2       15       16  
     
Total Tax Expense
  $     $     $  
     
The components of our deferred income taxes were as follows for the years ended December 31, 2009 and 2008:
                 
    2009   2008
    (in thousands)
Deferred tax assets:
               
Domestic net operating loss
  $ 25,560     $ 15,802  
Capital loss carryforward
    77       61  
Stock options
    4,193       3,954  
Property, equipment & project costs
          4,605  
Deferred tax liability:
               
Property, equipment & project costs
    (1,467 )      
     
Net deferred tax assets
    28,363       24,422  
Less valuation allowances
    (28,363 )     (24,422 )
     
Net deferred tax
  $     $  
     
     In June 2006, the FASB issued ASC 740 Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109. We adopted ASC 740 on January 1, 2007. Under ASC 740,

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tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than fifty percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in our tax returns that do not meet these recognition and measurement standards.
     Upon the adoption of ASC 740, we had no liabilities for unrecognized tax benefits, and, as such, the adoption had no impact on our financial statements, and we have recorded no additional interest or penalties. The adoption of ASC 740 did not impact our effective tax rates.
     Our policy is to recognize potential interest and penalties accrued related to unrecognized tax benefits within income tax expense. For the years ended December 31, 2009, 2008, and 2007, we did not recognize any interest or penalties in our consolidated condensed statement of operations, nor did we have any interest or penalties accrued in our consolidated condensed balance sheet at December 31, 2009 and 2008 relating to unrecognized tax benefits.
In May 2006, the Governor of Texas signed into law a Texas margin tax (H.B. No. 3) which restructures the state business tax by replacing the taxable capital and earned surplus components of the current franchise tax with a new “taxable margin” component. Specifically, we are subject to a new entity level tax on the portion of our total revenue (as that term is defined in the legislation) that is generated in Texas beginning in our tax year ending December 31, 2008. Specifically, the Texas margin tax is imposed at a maximum effective rate of 0.7% of our total revenue that is apportioned to Texas. The new tax had no material impact on our financial statements.
The tax years 2006-2009 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which we are subject. The tax years 2005-2009 remain open for the Texas Franchise tax.
Note 10. Stockholders’ Equity
     The following table reflects changes in our outstanding common stock, preferred stock and warrants during the periods reflected in our financial statements:

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    Preferred     Common     Treasury              
    Stock     Stock     Stock     KSOP     Warrants  
December 31, 2006
          15,000,055                    
Issue preferred shares in private placement
    12,500                                  
Issue common shares to acquire GreenHunter BioFuels, Inc.
            450,000                          
Issue common shares to acquire power purchase agreement
            500,000                          
Issue common shares for fees on biomass plant acquisition
            300,000                          
Issue common shares in private placement
            3,448,168                          
Issue common shares for commissions on investments and private placements of common stock
            60,950                          
Issue common stock warrants in private placement of preferred and common stock
                                    2,807,834  
December 31, 2007
    12,500       19,759,173                   2,807,834  
Issue 117,998 shares for note payable exchange
            117,998                          
Issue 841,363 warrants on the 10% Series A Redeemable Debentures
                                    841,363  
Issue 89,747 warrants on the 9% Series B Redeemable Debentures
                                    89,747  
Issue 594,011 shares upon note conversion
            594,011                          
Issue 173,750 shares on warrant exercises
            173,750                       (173,750 )
Issue 253,000 on option exercises
            253,000                          
Cancellation of 1,410,000 warrants surrendered
                                    (1,410,000 )
Issue 1,410,000 warrants on series B preferred stock
                                    1,410,000  
Issue 10,575 Series B Preferred Shares in private placement
    10,575                                  
Issue 173,750 warrants for stock option exercise inducement
                                    173,750  
Employer match of 5,512 shares to KSOP
            5,512                          
Issue 58,246 shares for Port Sutton lease option acquisition
            58,246                          
Issue 27,186 shares for executive compensation
            27,186                          
Issue 44,964 treasury shares for Wheatland acquisition
                    (44,964 )                
Loan of 15,200 shares to KSOP
                            15,200          
Purchase 89,400 shares for treasury
                    89,400                  
Issue 2,470,004 warrants for stock dividend to common and preferred
                                    2,470,004  
 
                             
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 )                
 
                             
December 31, 2009
    17,325       22,138,876       22,412       15,200       6,251,745  
 
                             
Preferred Stock
     Series A Preferred
     On March 9, 2007, we authorized and established a series of preferred stock that was designated as “2007 Series A 8% Convertible Preferred Stock” (“Series A Preferred”). This series was constituted as 12,500 shares with a stated value per share initially set equal to $1,000. On March 12, 2007, we executed a securities purchase agreement with institutional investors whereby we agreed to issue to such institutional investors the following securities of the company for an aggregate consideration of $15 million: $12.5 million in principal amount of our Series A Preferred, 500 thousand shares of our common stock at $5.00 per share and 1.5 million common stock purchase warrants at an exercise price of $7.50 per warrant (of which 1,250,000 warrants were allocable to the holders of the Series A Preferred).
     We allocated $4.62 to each share of common stock and $0.76 to each common stock warrant in establishing the fair value of these securities. Gross proceeds of $15 million ($14.95 million net of expenses) were received by us thereafter through May 15, 2007 from the issuance of the preferred and common stock and the common stock warrants to these institutional investors. The warrants are described further below.
     The Series A Preferred provides for a cumulative dividend that may be payable at our option in cash or shares of common stock at 115% of the cash dividend payable and using the 10-day average price per share of common stock. A holder of the Series A Preferred has the right to convert these shares at any time into shares of common stock at a conversion price of $5.00 per common share. We may force conversion at any time subject to the following conditions: (i) the closing price of our common stock exceeds $20.00 for thirty-one trading days, and (ii) the average trading volume of the shares over the

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same 31-day period equals or exceeds 65,000 shares. After five years, we may redeem the preferred stock for cash. Other provisions of the this series of preferred stock include a liquidation preference, anti-dilution provisions, voting rights equal to the common shareholders and other protective provisions.
     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. For the year ended December 31, 2008, we paid cash dividends of $750 thousand on this preferred stock and had $250 thousand in dividends payable on our balance sheet.
          Series B Preferred
     On August 21, 2008, we authorized and established a series of preferred stock that was designated as “2008 Series B Convertible Preferred Stock” (“Series B Preferred”). This series was constituted as 10,575 shares with a stated value per share equal to $1,000. We executed a securities purchase agreement with the buyer at this time whereby the buyer returned 1,410,000 their existing $7.50 common stock warrants and paid $10.6 million in cash (net of expenses) to GreenHunter, and we issued 10,575 shares of the Series B Preferred and 1,410,000 common stock warrants with an exercise price of $25.00. We cancelled the $7.50 common stock warrants which were returned to us in this transaction.
     The Series B Preferred does not provide for any preferential dividends. A holder of the Series B Preferred has the right to convert these shares at any time into shares of common stock at a conversion price of $7.50 per common share. We may force conversion at any time subject to the following conditions: (i) the closing price of our common stock exceeds $20.00 for thirty-one trading days, and (ii) the average trading volume of the shares over the same 31-day period equals or exceeds 65,000 shares. After five years, we may redeem the preferred stock for cash. Other provisions of the this series of preferred stock include a liquidation preference, anti-dilution provisions, voting rights equal to the common shareholders and other protective provisions.
     We recorded a deemed preferred dividend of $13.9 million in relation to the Series B Preferred which reflects the excess of the fair value of the securities issued in the transaction over the carrying value of the warrants cancelled. We also recorded a deemed dividend of $666 thousand related to the beneficial conversion feature of the stock at the time of the placement.
Common Stock
     We have 90,000,000 authorized shares of common stock. We may not pay any dividends on our common stock until all Series A cumulative preferred dividends have been satisfied.
     During March 2007, in association with our Series A Preferred private placement described above, we issued 500,000 shares of our common stock at $5.00 per share.

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     During April 2007 we issued one million shares of our common stock at $5.00 per share along with 500,000 common stock purchase warrants in a private placement exempt from registration under the Securities Act of 1933. Total proceeds from the issue were $5.0 million before selling and other expenses. We allocated $4.62 to each share of common stock and $0.76 to each common stock warrant in establishing the fair value of these securities.
     During October and November 2007, we issued 200,000 and 30,000 shares, respectively, of our common stock in private placements of securities. During December 2007, we closed on two private placements of securities with accredited investors. We issued 1,615,668 shares of our common stock along with 807,834 warrants in one private placement and issued 102,500 shares of our common stock in the other. Proceeds from these fourth quarter private placements were approximately $22.7 million net of selling costs. We allocated $10.64 to each share of common stock and $2.72 to each common stock warrant in establishing the fair value of these securities.
     Also during December 2007, we issued 10,950 shares of our common stock, in lieu of cash, valued at $120 thousand for commissions paid on the private placement, and we also issued 50 thousand shares of our common stock valued at $500 thousand for fees related to two separate definitive agreements with MingYang. See Note 6 — Acquisitions and Divestitures for further discussions on the agreements with MingYang.
     During February 2008, we issued 117,998 shares, valued at $15.89 per shares, of our common stock in a debt extinguishment transaction that retired the original notes issued in connection with the acquisition of CRC. See Note 8 — Notes Payable for further discussions on the transaction.
     During August 2008, we issued 594,011 shares of our common stock in a debt extinguishment transaction that retired the subordinated convertible note payable to related party. Please see Note 8 — Notes Payable for further discussions on the transaction.
     During October 2008, we issued 58,246 shares, valued at $6.30 a share to acquire a lease option for property in Port Sutton, Florida. Please see Note 6 — Acquisitions and Divestitures for additional information on this purchase.
     During 2008, we issued 5,512 shares at $18.91 per share of our common stock to the GreenHunter Energy, Inc 401(k) Employee Stock Ownership Plan (“KSOP”) as a voluntary employer match for the 2007 plan year and issued 1,667 shares at $19.19 per share as an employment inducement grant.
     During 2008, we also issued 426,750 shares of our common stock at an average price of $5.53 per share and pursuant to the exercise of 426,750 of our outstanding warrants and options. We received proceeds of $2.4 million.
     During the year ended December 31, 2008, we issued 27,186 shares of our common stock at $18.91 per share for executive compensation.
     During 2009, we issued 1,150,000 shares of our common stock to holders of our Series A Preferred Stock in association with the conversion of 5,750 shares of the preferred as described above.
Treasury Stock
     During 2008, we bought back 89,400 shares of our common stock as treasury for $1.4 million.

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     During October 2008, we issued 44,864 shares of our treasury shares valued at $316 thousand to complete the acquisition of our interests in Wheatland Wind Power, LLC. Please see Note 6 — Acquisitions and Divestitures for additional information on this purchase.
     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
     In association with the Series A placement, we issued 1.5 million common stock warrants. Each of these warrants entitle the holder thereof to purchase one share of our common stock at $7.50 per share until the expiration date of five years after issuance. We can cause the warrant to be exercised after one year from March 12, 2007, if our common stock is trading at an average price over the prior 10 consecutive days of at least $12.50 per share. The warrants contain customary anti-dilution provisions. Additionally, the warrants issued in connection with the preferred stock were treated as a dividend paid on the preferred stock upon their issuance, with a fair value of $950 thousand. In association with our Series B Preferred issuance, we cancelled 1.4 million of these warrants when they were returned to the company.
     In association with our April 2007 common stock placement, we issued 500 thousand common stock warrants. Each common stock purchase warrant entitles the holder thereof to purchase one share of our common stock at $7.50 per share at any time prior to the expiration date of April 5, 2012. We can cause the warrants to be exercised after April 5, 2008 if our common stock is trading at an average price over the prior ten consecutive days of at least $12.50 per share. The warrants contain customary anti-dilution provisions.
     We estimated the fair value of the warrants issued in March and April of 2007 using the Black-Scholes option pricing method and the following assumptions:
         
Risk Free Interest Rate
    4.01 %
Expected Life (a)
  2 years
Expected volatility (b)
    52 %
Dividend yield
     
Weighted average fair value of each warrant
  $ 0.76  
 
(a)   The warrants have a life of five years, but we expect to be able to force the exercise of the warrants in two years.
 
(b)   The expected volatility of our common stock was estimated using an average of volatilities of publicly traded companies in similar renewable energy businesses.
     In association with our December 2007 common stock placement, we issued 807,834 common stock warrants. Each of these warrants entitles the holder to purchase a share of our common stock for $18.00 per share. These warrants are exercisable immediately and expire three years from the issue date. The warrants are callable by us if our common stock trades at an average price at or above $24.00 per share for the previous ten trading days.
     We estimated the fair value of these warrants using the Black-Scholes option pricing method and the following assumptions:
         
Risk Free Interest Rate
    3.2 %
Expected Life
  3 years

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Expected volatility (a)
    58 %
Dividend yield
     
Weighted average fair value of each warrant
  $ 2.72  
 
(a)   The expected volatility of our common stock was estimated using an average of volatilities of publicly traded companies in similar renewable energy businesses.
     During the second quarter of 2008, we issued warrants to our 10% Debenture holders (“Debenture Warrants”) after the close of the Debenture program. We issued one Debenture Warrant for each $25 of Debentures purchased through April 30, 2008. These warrants have a three-year term beginning April 30, 2008 and will entitle the holder to purchase one common share of our stock at an exercise price of $25. The Debenture Warrants will be callable by GreenHunter if our common stock trades over $30 per share over a 10-day trading period, beginning two years after issuance. Upon the issuance of these warrants, we recorded a discount on our debentures of $1.7 million 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.
     During the third quarter of 2008, we issued 2,470,004 warrants with a strike price of $27.50 to our common stock and preferred stock holders as dividends. We issued an additional 173,750 warrants with a strike price of $25.00 for exercise inducements. We recorded a common dividend of $3.2 million and deemed preferred dividends of $599 thousand on our warrant dividends.
     During the fourth quarter of 2008, we issued 89,747 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.
     We allocated the proceeds from our Series B Debentures issued based on the relative fair values of the debentures and warrants. We estimated the fair value at the Series B warrants using the Black-Scholes option pricing model and the following weighted-average assumptions:
         
Risk-Free Interest Rate
    1.63 %
Expected Life
  3 years
Expected Volatility(a)
    54.21 %
Dividend Yield
     
Weighted-average fair value per warrant
  $ 0.59  
 
(a)   The expected volatility of our common stock was estimated leased on an average of volatilities of publicly traded companies in similar renewable energy businesses.
     During the first quarter of 2009, we issued an additional 42,797 warrants upon the issuance of our Series B Debentures.
     The following is a summary of warrant activity for the three years ended December 31, 2009.

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    2009     2008     2007  
            Weighted             Weighted             Weighted  
            Average             Average             Average  
    Number of     Exercise     Number of     Exercise     Number of     Exercise  
    Warrants     Price     Warrants     Price     Warrants     Price  
Outstanding — Beginning of Year
    6,208,948     $ 10.52       2,807,834     $ 10.52           $  
Granted
    42,797       30.00       4,984,864       26.28       2,807,834       10.52  
Exercised
                (173,750 )     7.50              
Cancelled
                (1,410,000 )     7.50              
Outstanding — End of Year
    6,251,745     $ 23.98       6,208,948     $ 23.94       2,807,834     $ 10.52  
 
                                         
Exercisable — End of Year
    6,251,745     $ 23.98       6,208,948     $ 23.94       2,807,834     $ 10.52  
Note 11. Stock-Based Compensation
     We account for our stock-based compensation in accordance with ASC standards on Share-based Payments. The standards apply 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 of those equity instruments. Under the ASC 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.
Common Stock Options
     During May 2007, the Board of Directors authorized the issuance of 3.5 million stock options to current employees. The options were issued with an exercise price of $5.00 per share, which was in excess of the estimated fair value per share of $4.62 on that date. The options have a life of ten years and vested immediately upon issuance.
     Also during 2007, the Board of Directors authorized the issuance of 131,500 shares of stock options to current employees. The options were issued at exercise prices ranging from $10.00 to $12.50 per share with estimated fair values ranging from $10.00 to $10.64 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 grate. Also during 2007, as compensation for joining the Board, 400,000 shares of stock options were granted to the Board of Directors at prices ranging from $7.50 to $10.00 with an estimated fair value of $10.64 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.
     During 2008, the Board of Directors authorized the issuance of 3,290,000 shares of stock options to current employees. The options were issued at exercise prices ranging from $10.00 to $22.75 per share with fair values ranging from $10.12 to $22.75 per share. Of these options issued, 474,000 have a life of ten years and vested immediately, 1,742,000 vest upon performance conditions being met, 946,000 have a life of 10 years and vest in equal amounts over a three year period beginning with the date of grant, and 28,000 have a life of 10 years and vest two years from the date of grant. Also during 2008, as compensation for joining the Board, 100,000 shares of stock options were granted to a Board of Director at a price of $10.00 and a fair value of $18.91 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.
     During June, 2009 as compensation for joining the Board 100,000 shares of stock options were granted to a Board Member at a strike price of $.97 with an estimated fair value of $.52 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.

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     During August, 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.
     During August, 2009 as compensation for continued service on the Board, 100,000 shares of stock options were granted to a Board Member at a strike price of $1.96 with an estimated fair value of $1.13 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.
     During December, 2009 the Board of Directors authorized the grant of 500,000 shares of stock options to current employees. The options have a strike price of $1.41, an estimated fair value of $0.82 per share and a term of 10 years. Of these options, 100,000 vest after 1 year of service and 400,000 vest upon performance conditions being met.
     We recorded share-based compensation expense of $702 thousand, $8.2 million, and $6.3 million during 2009, 2008, and 2007, respectively. These expenses are included in our selling, general and administrative expenses.
     Cash received from option exercises under all share-based payment arrangements for the year ended December 31, 2008 was approximately $1.3 million. No option exercises occurred in 2009 and prior to 2008. The tax benefit realized for the tax deductions from option exercise of the share-based payment arrangements in 2008 was $982 thousand. This benefit has been fully reserved under a valuation allowance.
     As of December 31, 2009, there was $3.5 million of total unrecognized compensation cost related to unvested shares associated with stock options which will be recognized over a weighted-average period of 2.07 years. We recognize compensation expense for our stock options on a straight-line basis over their vesting term. We will issue new shares upon the exercise of the stock options.
We estimated the fair value of each stock based grant using the Black-Scholes option pricing method for service and performance based options, and the Lattice Model for market based awards. The weighted average values for options issued for the years ended December 31, 2009, 2008, and 2007 were as follows:
                         
    2009   2008   2007
Number of options issued
    2,661,000       3,290,000       4,031,500  
Weighted average stock price
  $ 1.81     $ 18.99     $ 5.38  
Weighted average exercise price
  $ 1.52     $ 18.44     $ 5.60  
Weighted average expected life of options(a)
    5.00       5.53       5.13  
Weighted average expected volatility (b)
    67.2 %     30.1 %     37.7 %
Weighted average risk-free interest rate
    2.4 %     2.9 %     4.8 %
Expected annual dividend per share
                 
Weighted average fair value of each option
  $ 1.05     $ 6.65     $ 2.17  
 
(a)   As determined by the simplified method under Staff Accounting Bulletin 107. The options have a life of ten years.
 
(b)   The expected volatility of our common stock was estimated using an average of volatilities of publicly traded companies in similar energy businesses.

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    The following is a summary of stock option activity during the years ended December 31, 2009, 2008 and 2007. There were no stock options issued prior to January 1, 2007.
 
*   The Aggregate Intrinsic Value was calculated using the December 31, 2009, 2008, 2007 stock price of $1.15, $4.92, and $10.64.
                                                                         
    2009     2008     2007  
            Weighted                     Weighted                     Weighted        
            Average     Aggregate             Average     Aggregate             Average     Aggregate  
            Exercise     Intrinsic             Exercise     Intrinsic             Exercise     Intrinsic  
    Shares     Price     Value*     Shares     Price     Value*     Shares     Price     Value*  
Outstanding — Beginning of Year
    5,629,500     $ 9.88               4,031,500     $ 5.60                                  
Granted
    2,661,000     $ 1.52       18,000       3,290,000     $ 18.44               4,031,500     $ 5.60          
Exercised
                          (253,000 )   $ 5.00       2,719,900                          
Cancelled
    (890,668 )   $ 14.40               (1,439,000 )   $ 18.34                                  
 
                                                     
Outstanding — End of Year
    7,399,832     $ 5.93       18,000       5,629,500     $ 9.88             4,031,500     $ 5.60       20,318,760  
 
                                                     
Exercisable — End of Year
    4,499,663     $ 8.38             3,906,498     $ 7.00             3,500,000     $ 5.00       20,302,160  
 
                                                     
The following is a summary of stock options outstanding at December 31, 2009:
                         
                    Weighted Average
                    Remaining
    Number of Options   Number of   Contractual Life
Exercise Price   Outstanding   Exercisable Options   (Years)
$0.97
    100,000             9.43  
$1.41
    500,000             9.95  
$1.96
    1,960,000             9.66  
$5.00
    3,247,000       3,247,000       7.38  
$7.50
    33,333       33,333       7.76  
$10.00
    248,333       205,000       7.91  
$10.12
    2,500       833       8.78  
$12.00
    6,500       6,000       7.99  
$13.66
    3,000       3,000       8.50  
$17.76
    40,000       40,000       8.12  
$18.00
    16,667       16,667       8.20  
$18.91
    1,107,499       887,830       8.13  
$19.75
    13,333       13,333       8.30  
$20.02
    25,000             8.46  
$20.64
    75,000       25,000       8.44  
$22.75
    21,667       21,667       8.36  
Restricted Shares
     On October 1, 2009, we granted 100,000 shares of restricted common stock to a new executive of the company. These common shares vest at 25,000 after one year of service, 25,000 vest after two years of service, and 50,000 shares vest upon performance conditions being met. These shares were valued at $1.87 per share, based on the quoted market value of the stock on the date of grant, and $38,309 of expense was recognized as of December 31, 2009. The remaining $148,691 will be recognized over the remaining vesting term.
Note 12. Commitments and Contingencies
     During 2007, we entered into an agreement which grants Chateau, the entity from whom we purchased the Mesquite Lake plant, the non-exclusive right to represent us in the location and

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development of renewable energy projects. In exchange for a quarterly fee of $98 thousand, Chateau will be responsible for locating, analyzing and delineating the business viability, as well as providing an adequate development strategy for these projects. We paid first quarterly payment of $98 thousand during June 2007, and these payments are scheduled to continue each quarter until the final payment in March 31, 2012. During the fourth quarter of 2008, we suspended all payments to Chateau pending resolution of a dispute regarding the validity of certain air permits that were in place at Mesquite Lake at the date of our acquisition. As of December 31, 2009 we have accrued $588 thousand in fees related to this agreement.
     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 were to 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 were to issue an additional minimum number of 80,000 shares up to a maximum number of 140,351 shares related to this acquisition.
     In August, 2009 we entered into a 20 year Power Purchase Agreement with a major public utility based in Southern California for 100% of the net output of our Mesquite Lake biomass power plant located in Southern 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 financing for capital improvements and completing the required development of the plant for it to be in operations. The remaining obligation will be recognized at the time plant operations becomes probable.
     We have an outstanding employment agreement with an executive officer for a term of two years. Our maximum commitment under the employment agreement, which would apply if the employee covered by the agreement was terminated without cause, was $500 thousand at December 31, 2009.
     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 GreenHunter’s significant institutional shareholders, tortiously interfered with Orion’s opportunities and expectancies in acquiring certain assets and interfered with Orion’s 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 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.

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     We have been served with this lawsuit and we have responded to Bioversel’s 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 we breached two separate contracts for the purchase of animal fat feedstock for our biodiesel refinery in Houston. We deny that a 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. At December 31, 2009, $6.1 million was recorded in accounts payable for amount due Crown. We have subsequently settled for $1.8 million, for approximately 50% of the $6.1 million owed. We are currently negotiating settlements with subcontractors for the balance. Please see Note 16 — Subsequent Events for additional information on this settlement.
     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. On January 31, 2010 Gavilon was awarded $382 thousand in arbitration settlement. We have accrued the $381 thousand but, the Company plans to dispute the award by the arbitration pursuant to appropriate legal proceedings.
     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 these lawsuits. Accordingly, no amounts have been accrued.
Note 13. Related Party Transactions
     During 2008, we converted a convertible note payable to Investment Hunter, LLC, an entity controlled and owned by Mr. Gary C. Evans, Chairman, President and CEO. We issued 594,011 shares upon the conversion of the note and paid $208 thousand in accrued interest. Please see Note 8 — Notes Payable for additional information on this convertible note.
     During 2009, 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 $158 thousand, $409 thousand, and $182 thousand during 2009, 2008, and 2007, respectively.
     During the year ended December 31, 2008, we leased excess office space to Gruy Petroleum Management, LLC, an entity 100% owned by Mr. Evans, for $48 thousand.

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Note 14. Quarterly Financial Data
     The following tables set forth unaudited summary financial results on a quarterly basis for the three most recent years.
                                         
    2009
    First   Second   Third   Fourth   Total Year
     
Sales
  $ 3,189,618     $ 1,717,475     $ 403,686     $ 480,754     $ 5,791,533  
Operating income (loss)
  $ (7,773,863 )   $ 6,455,402     $ (3,382,270 )   $ (8,277,494 )   $ (12,978,225 )
Net income (loss) to common stockholders
  $ (8,746,889 )   $ 4,449,187     $ (3,522,968 )   $ (8,373,542 )   $ (16,194,212 )
Net income (loss) per share
  $ (0.42 )   $ 0.21     $ (0.16 )   $ (0.38 )   $ (0.75 )
Weighted average shares
    20,935,018       21,296,822       22,097,434       22,101,264       21,612,172  
                                         
    2008
    First   Second   Third   Fourth   Total Year
     
Sales
  $ 177,777     $ 468,108     $ 331,487     $ 4,024,209     $ 5,001,581  
Operating loss
  $ ( 7,953,449 )   $ ( 6,638,030 )   $ ( 10,496,693 )   $ ( 37,048,706 )   $ ( 62,136,878 )
Net loss to common stockholders
  $ ( 8,279,660 )   $ ( 7,322,647 )   $ ( 26,663,596 )   $ ( 40,138,087 )   $ ( 82,403,990 )
Net loss per share
  $ (0.42 )   $ (0.37 )   $ (1.32 )   $ (1.92 )   $ (4.08 )
Weighted average shares
    19,823,254       19,885,486       20,202,531       20,906,545       20,216,032  
                                         
    2007
    First   Second   Third   Fourth   Total Year
     
Sales
  $     $ 554,254     $ 157,773     $ 340,716     $ 1,052,743  
Operating loss
  $ ( 462,729 )   $ ( 6,911,193 )   $ (98,546 )   $ ( 4,411,833 )   $ ( 11,884,301 )
Net loss to common stockholders
  $ ( 721,902 )   $ ( 7,881,811 )   $ ( 1,284,500 )   $ ( 3,803,800 )   $ ( 13,692,013 )
Net loss per share
  $ (0.05 )   $ (0.46 )   $ (0.07 )   $ (0.21 )   $ (0.80 )
Weighted average shares
    15,111,166       17,268,736       17,750,055       18,159,940       17,082,684  
Note 15. Segment Data
     We currently have three reportable segments: BioFuels, Wind Energy, and Biomass. Each of our segments is a strategic business 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 biodiesel refinery at our renewable fuels campus located in Houston, Texas. This segment had revenues from methanol processing, biodiesel sales and terminal storage during 2008. Due to plant construction during the first part of the year and damage caused by Hurricane Ike during the third quarter, we did not complete any biodiesel sales until the fourth quarter of 2008. During 2007, this segment continued activities of its predecessor for a short time and had revenues and costs associated with specialty chemical and waste oil operations.
     Our Wind Energy segment is currently in the development stage. We have six wind projects that we are developing which are located in Montana, California, Texas, and New Mexico. 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

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(nameplate capacity) biomass power plant located in California, Mesquite Lake, and an inactive 14 MW (nameplate capacity) biomass power plant located in Telogia, Florida which was sold during the first quarter of 2009. We began refurbishing these plants during the third quarter in 2008. Our Biomass segment will produce energy from organic matter available at or near the plant sites.
     The accounting policies for our segments are the same as those described in Note 3. There are no intersegment revenues or expenses.
     Segment data for the three years ended December 31, 2009, 2008 and 2007 follows:
                                         
    2009  
    Unallocated                          
    Corporate     BioMass     Wind Energy     BioFuels     TOTAL  
     
Total Revenues
  $     $     $     $ 5,791,533     $ 5,791,533  
Total Operating Costs (recoveries)
    (449,941 )     38,309       67,136       (1,771,903 )     (2,116,399 )
Depreciation expense
    182,405             46,291       4,041,748       4,270,444  
Loss on asset impairments
    1,651,161             217,750       3,177,179       5,046,090  
Selling, general and administrative
    5,384,799       1,139,979       639,029       4,405,816       11,569,623  
 
                             
Operating income (loss)
    (6,768,424 )     (1,178,288 )     (970,206 )     (4,061,307 )     (12,978,225 )
Other income and (expense)
    (858,093 )     7,878       (723,360 )     (737,988 )     (2,311,563 )
 
                             
Income (loss) from continuing operations
  $ (7,626,517 )   $ (1,170,410 )   $ (1,693,566 )   $ (4,799,295 )   $ (15,289,788 )
 
                             
 
                                       
Total Assets
  $ 12,753,524     $ 15,704,951     $ 229,484     $ 40,130,320     $ 68,818,279  
Capital Expenditures
  $ 6,748     $ 40,865     $     $ 742,749     $ 790,362  
                                         
    2008  
    Unallocated                          
    Corporate     BioPower     Wind Energy     BioFuels     TOTAL  
     
Total Revenues
  $     $     $     $ 5,001,581     $ 5,001,581  
Total Operating Costs
    558,165       237,527       264,736       19,223,674       20,284,102  
Depreciation expense
    175,852             51,717       2,475,535       2,703,104  
Loss on asset impairments
          2,629,256             19,139,630       21,768,886  
Selling, general and administrative
    15,928,197       623,658       1,179,600       4,650,912       22,382,367  
 
                             
Operating loss
    (16,662,214 )     (3,490,441 )     (1,496,053 )     (40,488,170 )     (62,136,878 )
Other income and expense
    (1,993,634 )     5,175       29,836       (1,407,905 )     (3,366,528 )
 
                             
Net loss from continuing operations
  $ (18,655,848 )   $ (3,485,266 )   $ (1,466,217 )   $ (41,896,075 )   $ (65,503,406 )
 
                             
 
                                       
Total Assets
  $ 15,993,774     $ 20,683,669     $ 1,393,779     $ 55,667,733     $ 93,738,955  
Capital Expenditures
  $ 552,521     $ 17,221,513     $ 326,775     $ 37,305,082     $ 55,405,891  

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    2007  
    Unallocated                          
    Corporate     Biomass     Wind Energy     BioFuels     TOTAL  
     
Total Revenues
  $     $     $     $ 1,052,743       1,052,743  
Total Operating Costs
                276,505       758,799       1,035,304  
Depreciation expense
    11,535             32,128       74,964       118,627  
Selling, general and administrative
    10,655,019       98,000       388,761       641,333       11,783,113  
 
                             
Operating income (loss)
    (10,666,554 )     (98,000 )     (697,394 )     (422,353 )     (11,884,301 )
Other income and expense
    (120,374 )           53,498       (83,165 )     (150,041 )
 
                             
Net Income (Loss) from continuing operations
  $ (10,786,928 )   $ (98,000 )   $ (643,896 )   $ (505,518 )     (12,034,342 )
 
                             
 
                                       
Total Assets
  $ 27,126,618     $ 5,103,566     $ 593,264     $ 26,673,837       59,497,285  
Capital Expenditures
  $ 4,796,448     $ 1,426,566     $ 5,431     $ 21,102,506       27,330,951  
Note 16. Subsequent Events
     On January 18, 2010, a settlement was reach in the lawsuit with Crown Engineering for $1.8 million. The Company and Crown are finalizing the documentation dismissing the claims against each other in state court and the related release of mechanics’ liens. See Note 12.
     The Company has evaluated subsequent events through the date of filing this 10-K.

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(b) Exhibits
     
Exhibit    
Number   Exhibit Title
3.1*
  Certificate of Incorporation
3.2*
  Amendment to the Certificate of Incorporation
3.3*
  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****
  First Amendment to 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
10.12†
  Second amendment to 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
10.13*****
  Third amendment to 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
21.1†
  List of Subsidiaries
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 Company’s Form 10, dated October 19, 2007
 
**   Incorporated by reference to the Company’s Form 10-Q, dated May 15, 2008
 
***   Incorporated by reference to the Company’s Form 8-K, dated August 21, 2008
 
****   Incorporated by reference to the Company’s Form 8-K, dated June 25, 2009
 
*****   Incorporated by reference to the Company’s Form 8-K, dated March 30, 2010
 
  Filed herewith

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SIGNATURES
     Pursuant to the requirements of Section 13 or 15(d) 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: July 15, 2010  By:   /s/ Gary C. Evans    
    Chief Executive Officer   
       
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated.
         
Signature   Title   Date
 
       
/s/ Gary C. Evans
 
  Chairman and    July 15, 2010
Gary C. Evans
  Chief Executive Officer    
 
       
/s/ Jonathan D. Hoopes
 
  President and COO    July 15, 2010
Jonathan D. Hoopes
       
 
       
/s/ Morgan F. Johnston
 
  Sr. Vice President, General Counsel    July 15, 2010
Morgan F. Johnston
  and Secretary    
 
       
/s/ David S. Krueger
 
  Vice President and    July 15, 2010
David S. Krueger
  Chief Financial Officer    
 
       
/s/ Ronald D. Ormand
 
  Director    July 15, 2010
Ronald D. Ormand
       
 
       
/s/ Ronald H. Walker
 
  Director    July 15, 2010
Ronald H. Walker
       

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