GreenHunter Resources, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - GreenHunter Resources, Inc.	Financial_Report.xls
EX-31 - EXHIBIT 31.2 - GreenHunter Resources, Inc.	ex31-2.htm
EX-31 - EXHIBIT 31.1 - GreenHunter Resources, Inc.	ex31-1.htm
EX-32 - EXHIBIT 32.1 - GreenHunter Resources, Inc.	ex32-1.htm
EX-32 - EXHIBIT 32.2 - GreenHunter Resources, Inc.	ex32-2.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

-OR-

☐	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-33893

GREENHUNTER RESOURCES, INC.

(Name of registrant as specified in its charter)

Delaware

20-4864036

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

1048 Texan Trail, Grapevine, TX 76051

(Address of principal executive offices)

(972) 410-1044

(Issuer’s telephone number)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding twelve months, and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Act):

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 11, 2014 there were 35,483,055 shares of the registrant’s common stock ($0.001 par value) outstanding.

PART 1—FINANCIAL INFORMATION

Item 1. Financial Statements

GREENHUNTER RESOURCES, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

	September 30, 2014			December 31, 2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	570,798		$	1,302,857
Restricted cash		132,000			-
Accounts receivable, net of allowance of $370,820 and $380,280, respectively		3,642,533			6,907,111
Related party accounts receivable, no allowance considered necessary		1,076,236			906,701
MAG Tank™ inventory		1,997,149			82,300
Prepaid expenses and other current assets		821,253			1,708,705
Total current assets		8,239,969			10,907,674
FIXED ASSETS:
Fixed assets, net		22,493,256			22,493,594
Assets held for sale		2,613,646			14,498,754
Net fixed assets		25,106,902			36,992,348
OTHER ASSETS:
Other non-current assets		87,962			125,778
Total assets	$	33,434,833		$	48,025,800

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of notes payable	$	5,560,010		$	7,056,725
Accounts payable and accrued liabilities, $1,183,698 non-recourse to parent for biomass		7,837,060			13,134,677
Accounts payable to a related party		173,913			133,517
Liabilities associated with assets held for sale		100,100			270,326
Total current liabilities		13,671,083			20,595,245
NON-CURRENT LIABILITIES:
Notes payable, less current portion		6,372,968			7,987,848
Asset retirement obligation		907,726			797,786
Liabilities associated with assets held for sale		155,104			288,514
Total liabilities		21,106,881			29,669,393
COMMITMENTS AND CONTINGENCIES (Note 10 )
STOCKHOLDERS’ EQUITY:
Series C Preferred Stock, $.001 par value, $25 stated value, 2,000,000 authorized shares, 1,975,250 issued and outstanding and liquidation preference of $49,381,250 at September 30, 2014 and 2,000,000 issued and outstanding and liquidation preference of $50,000,000 at December 31, 2013		39,710,764			40,387,706
Common stock, $.001 par value, 90,000,000 shares authorized, 35,491,389 issued and 35,483,055 outstanding at September 30, 2014, and 33,796,389 issued and 33,788,055 outstanding at December 31, 2013		35,491			33,796
Additional paid-in capital		122,163,799			118,809,722
Accumulated deficit		(149,572,953	)		(140,865,668	)
Treasury stock, at cost, 8,334 shares at both dates		(9,149	)		(9,149	)
Total stockholders’ equity		12,327,952			18,356,407
Total liabilities and stockholders’ equity	$	33,434,833		$	48,025,800

See accompanying notes to the condensed consolidated financial statements

-1-

GREENHUNTER RESOURCES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
REVENUES:
Water disposal revenue	$	3,424,318		$	2,907,559		$	10,739,288		$	8,218,912
Transportation revenue		2,442,863			2,712,986			8,698,553			6,246,322
Environmental services revenue		52,756			-			54,755			-
MAG Tank™ revenue		-			1,650,000			886,142			1,650,000
Skim oil revenue		197,592			226,390			718,480			761,840
Storage rental revenue and other		145,417			271,004			516,576			1,429,481
Total revenues		6,262,946			7,767,939			21,613,794			18,306,555
COST OF GOODS AND SERVICES PROVIDED:
Cost of goods and services provided		3,541,779			5,908,310			14,551,747			12,793,604
Depreciation and accretion expense		725,224			699,889			2,218,366			2,129,903
Stock based compensation		1,110,888			355,040			3,714,700			1,255,224
Selling, general and administrative		2,105,876			1,904,775			6,273,264			5,510,529
Total costs and expenses		7,483,767			8,868,014			26,758,077			21,689,260
OPERATING LOSS		(1,220,821	)		(1,100,075	)		(5,144,283	)		(3,382,705	)
OTHER INCOME (EXPENSE):
Interest and other income		4,128			76,837			88,177			77,742
Interest, amortization and other expense		(303,848	)		(231,356	)		(1,111,492	)		(690,989	)
Gain (loss) on sale of assets		26,000			(17,243	)		(39,198	)		2,240,076
Gain on settlements of payables		-			5,000			133,554			-
Total other income / (expense)		(273,720	)		(166,762	)		(928,959	)		1,626,829
Net loss before taxes		(1,494,541	)		(1,266,837	)		(6,073,242	)		(1,755,876	)
Income tax expense		-			-			-			-
Loss from continuing operations (Note 3)		(1,494,541	)		(1,266,837	)		(6,073,242	)		(1,755,876	)
Income (loss) from discontinued operations		(1,199,051	)		896,061			1,100,488			(6,613,135	)
Net loss		(2,693,592	)		(370,776	)		(4,972,754	)		(8,369,011	)
Preferred stock dividends		(1,234,532	)		(1,174,256	)		(3,734,531	)		(3,337,286	)
Net loss to common stockholders	$	(3,928,124	)	$	(1,545,032	)	$	(8,707,285	)	$	(11,706,297	)

Weighted average shares outstanding, basic and diluted		35,491,389			33,574,173			34,783,587			33,493,046
Net loss per share from continuing operations, basic & diluted	$	(0.08	)	$	(0.08	)	$	(0.28	)	$	(0.15	)
Net income (loss) per share from discontinued operations, basic & diluted	$	(0.03	)	$	0.03		$	0.03		$	(0.20	)
Net loss per share, basic & diluted	$	(0.11	)	$	(0.05	)	$	(0.25	)	$	(0.35	)

See accompanying notes to the condensed consolidated financial statements

-2-

GREENHUNTER RESOURCES, INC.

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE PERIOD FROM JANUARY 1, 2014 TO SEPTEMBER 30, 2014

	Series C Preferred Stock			Common Stock		Additional Paid in Capital		Accumulated Deficit			Treasury Stock			Total Stockholders' Equity
BALANCE, JANUARY 1, 2014	$	40,387,706		$	33,796	$	118,809,722	$	(140,865,668	)	$	(9,149	)	$	18,356,407
Share based payments to officers				$	1,695	$	1,659,405								1,661,100
Stock based compensation expense							1,652,818								1,652,818
Warrants issued in connection with debt offering							41,854								41,854
Gain on settlement of lawsuits		(676,942	)												(676,942	)
Dividends on preferred stock									(3,734,531	)					(3,734,531	)
Net loss									(4,972,754	)					(4,972,754	)
BALANCE, SEPTEMBER 30, 2014	$	39,710,764		$	35,491	$	122,163,799	$	(149,572,953	)	$	(9,149	)	$	12,327,952

See accompanying notes to the condensed consolidated financial statements

-3-

GREENHUNTER RESOURCES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

	For the Nine Months Ended September 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(4,972,754	)	$	(8,369,011	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and accretion expense		2,233,063			3,083,690
Impairment of asset value		930,969			1,249,444
Discount of notes receivable		164,260			-
Goodwill impairment		-			2,799,044
Gain on sale of assets		(1,115,559	)		(1,839,608	)
Gain on settlement of payables		(133,554	)		-
Gain on settlement of lawsuits		(1,859,145	)		-
Non-cash stock-based compensation		3,714,700			1,255,224
Amortization of debt discount		201,233			-
Changes in operating assets and liabilities:
Accounts receivable		3,008,578			(1,817,754	)
Related party accounts receivable		(169,535	)		1,163,044
Inventory		(1,914,849	)		(82,300	)
Prepaid expenses and other current assets		925,268			(595,531	)
Accounts payable and accrued liabilities		(5,135,639	)		(2,952,191	)
Related party accounts payable		40,396			-
Net cash used in operating activities		(4,082,568	)		(6,105,949	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(2,257,917	)		(5,424,074	)
Proceeds from notes receivable		5,085,740			-
Proceeds from sale of assets		6,817,741			5,388,657
Change in restricted cash		(132,000	)		-
Net cash provided by (used in) investing activities		9,513,564			(35,417	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of equity securities		-			8,329,765
Proceeds from the exercise of warrants and options		-			100,167
Proceeds from notes payable		1,755,682			3,325,979
Payment of notes payable		(4,184,206	)		(2,961,697	)
Preferred stock dividends paid		(3,734,531	)		(3,337,286	)
Net cash provided by (used in) financing activities		(6,163,055	)		5,456,928

CHANGE IN CASH		(732,059	)		(684,438	)
CASH, beginning of period		1,302,857			1,765,642
CASH, end of period	$	570,798		$	1,081,204

Cash paid for interest	$	1,093,574		$	659,000

NON-CASH TRANSACTIONS:
Accrued capital costs	$	788,356		$	1,347,106
Issued shares of common stock as commission for sale of purchased stock	$	-		$	174,969
Issued warrants in connection with sale of preferred stock	$	41,855		$	124,422
KSOP shares	$	-		$	78,108
Notes receivable received in connection with sale of assets	$	5,250,000		$	-

See accompanying notes to the condensed consolidated financial statements

-4-

GREENHUNTER RESOURCES, INC.

AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

In this quarterly report on Form 10-Q, the words “GreenHunter Resources”, “company”, “we”, “our” and “us” refer to GreenHunter Resources, Inc. and its consolidated subsidiaries unless otherwise stated or the context otherwise requires. The condensed consolidated balance sheet of GreenHunter Resources, Inc. and subsidiaries as of September 30, 2014, the condensed consolidated statements of operations for the three and nine months ended September 30, 2014 and 2013, the condensed consolidated statement of changes in stockholders’ equity for the nine months ended September 30, 2014, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2014 and 2013, are unaudited. The December 31, 2013 condensed consolidated balance sheet information is derived from audited financial statements. In the opinion of management, all necessary adjustments (which include normal recurring adjustments) as required by Regulation S-X, Rule 10-01 have been made to present fairly the financial position at September 30, 2014, and the results of operations for the three and nine months ended September 30, 2014 and 2013, changes in stockholders’ equity for the nine months ended September 30, 2014, and cash flows for the nine month periods ended September 30, 2014 and 2013. Non-recurring adjustments based on generally accepted accounting principles for discontinued operations, assets held for sale, and liabilities associated with assets held for sale have also been made.

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in our December 31, 2013 Form 10-K. The results of operations for the three and nine month periods ended September 30, 2014 are not necessarily indicative of the operating results that will occur for the full year.

The accompanying condensed consolidated financial statements include the accounts of the company and our subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Certain items have been reclassified to conform with the current presentation.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, receivables, and accounts payable approximate their respective fair values due to the short-term nature of these instruments. Based on borrowing rates which management believes would currently be available to the Company for similar issues of debt, taking into account the current credit risk of the Company and other market factors, the carrying value of the Company’s debt obligations approximate their fair value.

Income or Loss per Common Share

Basic income or loss per common share is net income or loss applicable to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted income or loss per common share is calculated in the same manner, but also considers the impact to net income or loss and common shares outstanding for the potential dilution from stock options, warrants, convertible debentures, preferred stock, and convertible promissory notes.

-5-

Shares of our common stock underlying the following securities were not included in dilutive weighted average shares outstanding for the nine months ended September 30, 2014 and 2013, as their effects would have been anti-dilutive.

	September 30,
	2014		2013
Stock options		14,824,821		12,823,146
Warrants		625,010		3,290,278
Convertible debentures		56,871		83,513
Convertible promissory notes		550,000		770,000
Total		16,056,702		16,966,937

Our Series C Preferred Stock is only convertible to common stock at the shareholders election upon a change in control of the Company. The potential dilutive effect of Series C Preferred Stock based on the closing price as of September 30, 2014 would be 32,065,747 common shares.

Management Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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. Actual results could differ from those estimates. Significant estimates include the following:

•	the allocation of purchase price to assets and liabilities acquired,
•	allowance for doubtful accounts receivable,
•	asset retirement obligations,
•	fair value of stock-based compensation,
•	contingent liabilities, and
•	the assessment of assets for impairment.

Critical Accounting Policies and Other

In April 2014, the FASB issued guidance regarding the reporting of discontinued operations. The guidance applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. The guidance is effective for interim and annual periods beginning on or after December 15, 2014. We do not expect adoption of this guidance to have a material impact on our financial position or results of operations. We are currently evaluating the impact of this guidance on our financial statements.

In May 2014, the FASB issued new authoritative accounting guidance related to the recognition of revenue. This authoritative accounting guidance is effective for the annual period beginning after December 15, 2016, including interim periods within that reporting period, and is to be applied using one of two acceptable methods. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company’s financial statements and disclosures.

NOTE 2. LIQUIDITY

Current Plan of Operations and Ability to Operate as a Going Concern

As of September 30, 2014, we had a working capital deficit of $5.4 million of which $1.2 million is non-recourse to the parent company, GreenHunter Resources, Inc. While we are generating increasingly significant revenues from our water management activities, we have continued to experience losses from our ongoing operations (but at a significantly reduced level), which raises doubt about our ability to continue as a going concern. Additionally, we were not in compliance with certain existing debt covenants contained in our secured debt agreements as of December 31, 2013. We obtained waivers from two of our lenders for the non-compliance in our debt covenants for the year ending December 31, 2013, and for an additional grace period for the year ending December 31, 2014 from one of the lenders.

-6-

In late 2013, Management decided to focus on expanding our future operations specifically only in the Appalachian Region. As part of this strategy, we committed to a plan to sell our fixed assets in South Texas and Oklahoma. These assets were classified as held for sale as of December 31, 2013. Most of these assets have been sold as of September 30, 2014, and the remaining few unsold assets continue to be held for sale at September 30, 2014. We have generated significant cash from the sale of these non-core assets. We have used this additional capital to assist in significantly reducing our working capital deficit and to provide growth capital needed to fund additional new projects that are a part of our overall business plan to grow our business in Appalachia. Our working capital deficit has improved from a $9.7 million deficit at December 31, 2013 to our current deficit of $5.4 million at September 30, 2014, $1.2 million of which is non-recourse to the parent company.

The remaining assets located in Oklahoma continue to be held for sale at September 30, 2014. We anticipate we will close on the sale of these assets by the end of 2014. The Company believes the amount for which it will be able to sell these assets is less than previously anticipated. The Company has also had to perform additional work on one of the wells to bring it to a saleable condition. As a result, the Company has recorded impairment of $931 thousand, which is included in discontinued operations, on these assets during the third quarter of 2014. These assets are being marketed at amounts equal to or in excess of their remaining net book value as of September 30, 2014. In December 2013, the Company entered into a letter of intent to sell our remaining renewable asset, a biomass plant, which included a non-refundable fee of $25 thousand that granted the buyer an exclusive right to purchase the property through February 15, 2014. On February 19, 2014, GreenHunter Mesquite Lake entered an agreement to sell the biomass project to ML Energy Park, LLC for $2.0 million. The closing is scheduled for March 15, 2015. The prospective buyer made an initial payment of $50 thousand as earnest money deposit and has continued to pay $50 thousand per month to date (total of $425 thousand received to date) and is required to continue the monthly payments for a one year period or until deciding to ultimately purchase the property. The monthly payments, as well as the initial $25 thousand fee, are non-refundable and can be used at our discretion, but will be applied to the purchase price if it is ultimately consummated. The Company has used the payments to reduce the carrying value of the remaining asset on its books.

During the year ended December 31, 2013, the Company borrowed $1.5 million under a promissory note due to the Company’s Chairman and Chief Executive Officer. In July of 2014, the Company paid our Chairman and Chief Executive Officer $1.3 million on the loan. In September of 2014, the Company paid an additional $50 thousand on the loan. There is an outstanding balance of $150 thousand as of September 30, 2014, leaving $1.9 million available under this facility. Should the Company borrow any available amounts, they will carry an interest rate of 13% per annum which is convertible to common stock. The $2.0 million letter of guarantee associated with this note has been extended through December 31, 2014.

On August 11, 2014, GreenHunter Resources filed a shelf registration statement on Form S-3 with the SEC. The registration statement became effective on October 24, 2014. The registration will allow for the Company to sell from time to time, in one or more offerings, any combination of its debt securities, guarantees of debt securities, common stock, preferred stock and warrants in an aggregate initial offering price of up to $150 million.

On September 16, 2014, the Company announced the receipt of permits and the completion of downhole performance tests on new wells at our Mills Hunter facility located in Meigs County, Ohio. Recent bottom hole integrity tests of these wells indicate volume capabilities of between 3,000 to 5,000 barrels of oilfield brine water per day per well. This increase in capacity is in line with earlier projections made by the Company to double injection capacity by the end of calendar year 2014. The addition of these wells brings GreenHunter’s SWD well count up to 13 in the Appalachia Basin, with a new total daily injection capacity exceeding 31,000 barrels per day. The majority of this new oilfield brine water injection capacity at the Mills Hunter facility has already been committed to several large E&P companies active in the region, secured through long term take-or-pay agreements. Utilization of these wells will commence upon the completion of a pipeline that will connect these wells to the offload terminal at the Mills Hunter facility. The pipeline is currently under construction with over 70% of the pipeline installation completed. The Company anticipates it to be completed and in operation by the end of 2014.

The Company is currently negotiating with potential investors to obtain financing for a multiple pipeline project and related assets.

We anticipate having sufficient cash reserves to meet all of our anticipated operating obligations for the next twelve months and having available funds necessary for some of our growth projects in Appalachia from the following sources:

•	Increased revenue generated from our water management activities, including the new wells now being completed at our Mills Hunter facility
•	The expected sale of our remaining assets held for sale at September 30, 2014
•	The sale of our Mesquite Lake property
•	Letter of credit guarantee from our Chairman
•	The sale of debt or equity securities under a universal “shelf” registration statement
•	The proceeds from capital project related financing

-7-

Our ability to fund all of our planned capital expenditures is largely dependent on the Company’s ability to secure additional new capital. Management believes that the steps we have taken to significantly improve our working capital position will enhance the prospect of seeking additional capital through a number of different sources. However, there can be no assurance that the Company will be successful in raising sufficient capital to fund the development of our water management business and associated ventures or that we will generate sufficient cash flow to fund our ongoing operating cash flow needs, in which case, we will be required to seek alternative financing, sell our assets, or any combination thereof. Further, considering our financial condition, we may be forced to accept financing or sell assets at terms less favorable than would otherwise be available, however, we have been successful in achieving at least market value for the non-core assets sold to date.

NOTE 3. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

In late 2013, we adopted a plan to sell all of our assets in South Texas and Oklahoma and discontinue our operations in these two geographical areas in order to concentrate 100% of our efforts in Appalachia. Based on this decision, the Company is continuing to negotiate with buyers for its three disposal wells in Oklahoma, has already sold all of its disposal wells in South Texas which include three operating wells and a lease to develop a fourth disposal well, and has sold or has auction dates set for the sale of the remaining assets previously classified as held for sale for White Top and Blackwater, which were used in our South Texas operations.

We ceased depreciation of fixed assets held for sale as of December 2013.

On May 14, 2007, we acquired a biomass plant located in Southern California. The plant is owned by our wholly-owned subsidiary, GreenHunter Mesquite Lake, Inc. (“Mesquite Lake”), which was formed for the purpose of operating and owning assets which convert waste material to electricity. For multiple reasons, including economic, Management subsequently determined that development of this project was not practicable. We obtained an independent evaluation of the asset’s salvage value as of December 31, 2012, which was $2.0 million, and recorded an impairment to write the asset down to that amount. On December 23, 2013, the Company entered into a letter of intent to sell the biomass plant, which included a non-refundable fee of $25 thousand that granted the buyer an exclusive right to purchase the property through February 15, 2014. On February 19, 2014, GreenHunter Mesquite Lake entered an agreement to sell the Mesquite Lake Biomass Project to ML Energy Park, LLC for $2.0 million. The final closing is scheduled for March 15, 2015. The prospective buyer made an initial payment of $50 thousand as earnest money deposit and has continued to pay $50 thousand per month, totaling $425 thousand to date, and is required to continue monthly payments for a one year period or until deciding to ultimately purchase the property. The monthly payments and the initial $25 thousand fee are non-refundable, but will be applied to the purchase price if it is ultimately consummated. The Company has used the payments to reduce the carrying value of the remaining asset on its books. The biomass assets were classified as held for sale at September 30, 2014. The previously reportable Biomass segment is being reported as part of discontinued operations.

The following represents selected items from the results of discontinued operations as of the dates indicated:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2014			2013			2014		2013
Revenue from discontinued operations	$	48,152		$	2,895,415		$	571,537	$	9,861,613
Gain on settlement of lawsuits		-			-			1,859,145		-
Gain (loss) on sale of assets		12,805			76,984			1,154,756		(400,468	)
Goodwill impairment		-			-			-		2,799,044
Impairment of assets		930,969			(662,473	)		930,969		1,249,444
Net income (loss) from discontinued operations before taxes		(1,199,051	)		896,061			1,100,488		(6,606,460	)
Income tax expense		-			-			-		(6,675	)
Income (loss) from discontinued operations		(1,199,051	)		896,061			1,100,488		(6,613,135	)

-8-

NOTE 4. ACQUISITIONS AND DIVESTITURES

White Top and Blackwater

We sold a portion of the equipment of White Top and Blackwater, which consisted mainly of fluid hauling trucks and trailers and heavy construction equipment, during the first nine months of 2014. The sales resulted in a gain of approximately $97 thousand. We moved certain of the remaining assets to our field operations in the Appalachian Region and anticipate selling at auction the few remaining assets classified as held for sale belonging to these companies in the fourth quarter of 2014. We anticipate that the remaining equipment that is scheduled to be auctioned will sell for amounts equal to or in excess of our net book value at September 30, 2014.

Kenedy Hunter and Coy City Hunter Disposal Wells

On January 28, 2014, GreenHunter Water sold a saltwater disposal well and associated equipment and certain real property located in Karnes County, Texas for aggregate consideration of approximately $3.9 million pursuant to an Asset Purchase Agreement with Sable Environmental SWD 5, LLC. GreenHunter Water received $1.0 million in cash at closing and a promissory note for approximately $2.9 million with an interest rate of 10% per annum and maturity date of January 31, 2016. GreenHunter Water paid the joint venture partner $200 thousand from the consideration received at closing, resulting in a gain on the sale of approximately $202 thousand, which is included in discontinued operations.

Dilley Disposal Well

On May 1, 2014, the Company’s wholly-owned subsidiary, GreenHunter Water, LLC, completed the sale of a saltwater disposal well and associated equipment located in Frio County, Texas pursuant to an Asset Purchase Agreement with Sable Environmental SWD 7, LLC. The Dilley Hunter SWD well was sold for total consideration of $4.7 million which was received at closing. The Company also received at closing the final payment for that certain promissory note dated January 29, 2014, in the principal amount of approximately $2.9 million between GreenHunter Water, LLC and Sable Environmental SWD 5, LLC, resulting in a gain of approximately $765 thousand. Therefore, the amount of cash consideration for these transactions totaled approximately $7.6 million.

Westhoff Hunter Disposal Well

On March 26, 2014, GreenHunter Water sold a saltwater disposal well and associated equipment and certain real property located in DeWitt County, Texas for aggregate consideration of approximately $3.4 million pursuant to an Asset Purchase Agreement with Clear Water Resources Partners, LLC. GreenHunter Water received $1.0 million in cash at closing and a promissory note for approximately $2.4 million with an interest rate of 10% per annum and maturity date of May 1, 2016. GreenHunter Water paid the joint venture partner $100 thousand from the consideration received at closing, resulting in a gain on the sale of approximately $140 thousand. The purchaser previously made all the required payments of principal and interest on the note prior to August 21, 2014. On August 21, 2014, the Company entered into an agreement with the purchaser to discount the note and release its lien on the property in exchange for a full payoff of the note. The purchaser paid off the note in full for a total consideration of approximately $2.2 million, representing a 7.5% discount to the remaining principal balance owed on the note.

Oklahoma Disposal Wells

We are currently in negotiations with various parties to sell all three Oklahoma SWD wells and facilities, one of which was in operation at September 30, 2014, to a single buyer. This sale is anticipated to close by the end of 2014. We anticipate that we will receive less for this property than previously anticipated, so we recorded and impairment to these properties of approximately $931 thousand in the third quarter of 2014, which includes some costs incurred to get the assets in saleable condition.

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NOTE 5. FIXED ASSETS

Fixed assets are stated at cost. The following is a schedule of our fixed assets as of September 30, 2014 and December 31, 2013:

	September 30, 2014			December 31, 2013
Land and improvements	$	1,567,824		$	1,549,059
Buildings		2,517,869			2,517,869
Water facilities, equipment, and other fixed assets
Water disposal and handling facilities		12,915,884			12,645,594
Fixed assets not yet in service		1,883,757			858,000
Transportation equipment		7,847,948			7,390,667
Other equipment		2,135,882			1,663,646
Furniture, fixtures & other		579,989			590,071
Total plant, equipment and other		25,363,460			23,147,978
Total fixed assets		29,449,153			27,214,906
Less: Accumulated depreciation		(6,955,897	)		(4,721,312	)
Net fixed assets	$	22,493,256		$	22,493,594

Fixed assets are not subject to depreciation until construction is complete and the assets are placed in service. We ceased depreciation of the assets held for sale as of December 2013 when we committed to the plan to sell these assets.

NOTE 6. ASSET RETIREMENT OBLIGATIONS

The following table summarizes the Company’s asset retirement obligation transactions during the nine months ended September 30, 2014.

	2014
Asset retirement obligation at beginning of period	$	(1,119,249	)
Liabilities incurred on new wells		(36,441	)
Liabilities relieved on retirement of wells		80,953
Accretion expense		(88,193	)
Asset retirement obligation at end of period		(1,162,930	)
Less: current portion ⁽¹⁾		(100,100	)
Non-current portion of asset retirement obligation ⁽²⁾	$	(1,062,830	)

(1)	The total current portion of asset retirement obligation of $100 thousand at September 30, 2014 is associated with assets held for sale.

(2)	The non-current portion of asset retirement obligation at September 30, 2014 includes $155 thousand associated with assets held for sale.

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NOTE 7. NOTES PAYABLE

Notes Payable at September 30, 2014 and December 31, 2013 consisted of the following:

	September 30, 2014			December 31, 2013
Notes payable for insurance premiums due in monthly installments through various dates ending September, 2015, 6.73% fixed rate	$	372,896		$	309,035
9% Series B Senior Secured Redeemable Debentures due on various dates ranging from September 30, 2013 to February 28, 2014, continues in default		90,000			90,000
Note payable collateralized by building due in monthly installments with a balloon payment at November 30, 2017, 5.7% fixed rate⁽²⁾		1,280,635			1,347,051
Notes payable collateralized by equipment due in montly installments from December 9, 2014 to August 25, 2018, various rates from 4.25% to 15.05% ⁽³⁾		4,355,519			5,676,297
Note payable collateralized by real estate due in monthly installments though December 28, 2032, 4.25% variable rate		1,055,797			1,083,886
10% convertible promissory note to a related party due in quarterly installments commencing May 17, 2013 due February 17, 2017, 10% fixed rate		1,375,000			1,787,500
Promissory notes assumed in acquisition secured by accounts receivable, inventory and equipment due on demand, maturing January 25, 2013 and February 10, 2013, 7% fixed rate, which have now been settled		-			979,863
Note payable collateralized by real estate due in monthly installments, maturing September 1, 2026, 6% variable rate		41,483			42,786
Note payable assumed in acquisition collateralized by equipment due in monthly installments, maturing January 20, 2013 to November 2, 2017, rates ranging from 4.99% to 12.93%		94,895			257,176
Note payable assumed in acquisition collateralized by equipment due in monthly capital lease installments, maturing September 14, 2014 to January 11, 2017, rates ranging from 11.23% to 12.08% ⁽¹⁾		468,764			807,376
Note payable collateralized by property and equipment due in monthly installments, maturing September 13, 2023, 3.25% variable rate		27,618			74,989
Promissory note to related party interest and principal due March 31, 2015, 13% fixed rate		150,000			1,382,341
Notes payable for MAG Tank^TM financing in 2013, including $200 thousand to related parties, with interest due on the first of each month, maturing on various dates from November 14, 2014 to December 19, 2014, 15% fixed rate		1,502,811			1,443,652
Notes payable for MAG Tank^TM financing in 2014 with interest due on the first of each month, maturing on February 28, 2015 and March 14, 2015, 15% fixed rate		1,117,560			-
		11,932,978			15,281,952
Less: current portion		(5,560,010	)		(7,226,951	)
Total long-term debt	$	6,372,968		$	8,055,001

(1)	Includes notes classified as liabilities associated with assets held for sale as of December 31, 2013, of which $170 thousand is current and $67 thousand is long term. There were not any notes classified as liabilities associated with assets held for sale as of September 30, 2014.

(2)	Note includes debt covenants for which we were not in compliance at December 31, 2013. The lender waived the default provisions related to our non-compliance as of December 31, 2013 and as of the next measurement period, December 31, 2014.

(3)	Includes notes that contained debt covenants for which we were not in compliance at December 31, 2013. The lender waived the default provisions related to our non-compliance as of December 31, 2013. The covenant’s next measurement period is as of December 31, 2014, and we anticipate that we will be in compliance with the current provisions as of that date.

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The following table presents the approximate annual maturities based on the calendar year of debt and capital lease obligations as of September 30, 2014:

2014	$	2,663,519
2015		3,439,131
2016		2,028,962
2017		2,038,785
2018		311,971
Thereafter		1,475,238
	$	11,957,606

Debt Covenants

The terms of the Company’s obligations with two financial institutions collateralized by equipment and real estate require the Company to comply, on an annual basis, with specific financial covenants including a debt service coverage ratio. The Company is required by the two financial institutions to maintain a ratio of debt service coverage equal to or in excess of 1.3 to 1.0 and 1.0 to 1.0, respectively. The respective ratios are calculated as the ratio of adjusted net income as defined by the specific covenants to required principal and interest payments on indebtedness. The Company was not in compliance with certain existing debt covenants contained in our secured debt agreements as of December 31, 2013. We obtained waivers from two of our lenders for the non-compliance in our debt covenants for the year ending December 31, 2013, and for an additional grace period for the year ending December 31, 2014 from one of the lenders.

Notes Payable

In the first quarter of 2014, the Company closed on the private placement of approximately $1.1 million of the Company’s Unsecured Term Notes due one year from the date of issuance together with 100,879 common stock purchase warrants. Each warrant entitles the holder to purchase one share of common stock of the Company for $2.25 per share and has an expiration date of five years from the date of issuance. The fair value of these warrants of approximately $42 thousand was recorded as a discount to the notes. The interest rate for the notes is 15%. The net proceeds of the placement funded additional MAG Panel™ inventory.

During the second quarter of 2014, the Company settled multiple lawsuits related to the White Top and Blackwater acquisitions. The Company acquired debt payable to a certain bank as a result of the acquisitions that was guaranteed by White Top and Blackwater. As part of the settlement, this bank agreed to release the Company from all debt and accrued interest owed to the bank for a payment of $50 thousand which was made by the Company. The Company realized a gain of $1.2 million based on the accrued interest and debt extinguished by the settlement, which is included in discontinued operations.

During the year ended December 31, 2013, the Company borrowed $1.5 million under a promissory note due to the Company’s Chairman and Chief Executive Officer. In July of 2014, the Company paid our Chairman and Chief Executive Officer $1.3 million on the loan. In September of 2014, the Company paid an additional $50 thousand on the loan. As of September 30, 2014, there is $1.9 million available under this facility. Interest for this note was $115 thousand for the nine months ended September 30, 2014 and $10 thousand for the year ended December 31, 2013. Should the Company borrow any available amounts, they will carry an interest rate of 13% per annum which is convertible to common stock. The $2.0 million letter of guarantee associated with this note has been extended through December 31, 2014.

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NOTE 8. STOCKHOLDERS’ EQUITY

The following table reflects balances in our outstanding preferred stock, common stock, and treasury stock as of the periods reflected in our financial statements.

	Preferred Stock			Common Stock		Treasury Stock
BALANCE, JANUARY 1, 2014		2,000,000			33,796,389		8,334
Share based payments to officers		-			1,695,000		-
Preferred stock received from settlement of lawsuits		(24,750	)		-		-
BALANCE, SEPTEMBER 30, 2014		1,975,250			35,491,389		8,334

Preferred Stock

The Company’s books reflected 2,000,000 shares of 10% Series C Cumulative Preferred Stock at December 31, 2013. During the second quarter of 2014, the Company settled multiple lawsuits related to the White Top and Blackwater acquisitions. As part of the settlement, the individuals who sold us those companies agreed to return 32,750 shares of Series C Preferred Stock that were originally transferred to the sellers as part of the purchase price consideration. The return of this stock resulted in a gain to the Company of $677 thousand, which is included in discontinued operations. As a result of the return of this stock, the Company currently reflects 1,975,250 shares of Series C Preferred shares on its books. The Company has authorized 2,000,000 shares of its 10% Series C Preferred Stock in its certificate of designation for such preferred stock.

The Company has authorized a total of 10,000,000 shares for five classes of Preferred Stock, which includes an authorization limit of 2,000,000 shares of our Series C Preferred Stock. Series A Preferred Stock has been fully converted to Series C Preferred Stock, Series B Preferred Stock has been fully converted to common stock, Series D and Series E Preferred Stock have not been issued as of September 30, 2014. The Series C Preferred Stock is redeemable solely at the Company’s option after June 30, 2015 at the stated value of $25.00 per share. The Series C Preferred Stock pays a dividend at 10% per annum. If it is ever redeemed, a deemed dividend of the variance between the stated value and the carrying value will be recognized upon redemption.

Common Stock

We have 90,000,000 authorized shares of common stock. We cannot pay any dividends on our common stock until all Series C cumulative preferred dividends have been satisfied.

On April 25, 2014, our Board of Directors approved a common stock grant of 1,250,000 shares for Mr. Gary C. Evans, our Chairman and Interim Chief Executive Officer, as consideration for his past credit support to the Company. The Board also approved stock-based bonuses of 445,000 shares to certain members of management. The shares were valued at $0.98 per share for a total grant of $1.7 million.

Common Stock Warrants

The following is a summary of warrant activity for the nine months ended September 30, 2014.

	Shares			Weighted Average Exercise Price		Weighted Average Expected Life
Outstanding - Beginning of Period		3,531,631		$	1.98		0.78
Granted		100,879		$	2.25		4.41
Exercised		-
Expired		(3,007,500	)	$	2.01
Outstanding - End of Period		625,010		$	1.87		4.11
Exercisable - End of Period		625,010		$	1.87		4.11

In the first quarter of 2014, the Company issued a total of 100,879 warrants, which expire five years from their issue dates, with an exercise price of $2.25 in connection with private debt placements.

On August 11, 2014, GreenHunter Resources filed a shelf registration statement on Form S-3 with the SEC. For further information, see Note 2 – Liquidity in this Form 10-Q.

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NOTE 9. STOCK-BASED COMPENSATION

Common Stock Options

On January 27, 2014, our Board of Directors approved the granting of 120,000 options of the Company’s common stock to employees under the 2013 Long-Term Incentive Plan. The options have a ten year life and an exercise price of $1.09 per share and vest in an equal amount over a three year period beginning one year from the date of grant.

On April 25, 2014, our Board of Directors approved the granting of 2,600,000 options of the Company’s common stock to certain members of management under the 2013 Long-Term Incentive Plan. The options have a ten year life and an exercise price of $0.98 per share. A total 180,000 of the options vest in equal amounts over a three year period beginning one year from the date of grant. A total 2,420,000 of the options vest based on performance metrics. We determined these performance options are expected to vest in approximately one year, and compensation expense will be recognized over the same period.

On June 10, 2014, our Board of Directors approved the granting of 62,500 options of the Company’s common stock to employees under the 2013 Long-Term Incentive Plan. The options have a ten year life and an exercise price of $1.21 per share and vest in an equal amount over a three year period beginning one year from the date of grant.

As of September 30, 2014, there was $1.7 million of total unrecognized compensation cost related to unvested shares associated with stock options which will be recognized over a weighted-average period of 1.16 years. We recognize compensation expense for our stock options on a straight-line basis over their vesting term. We are required to issue new shares of common stock upon the exercise of the stock options by such holder(s).

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 nine months ended September 30, 2014 are as follows:

Number of options issued		2,782,500
Weighted average stock price	$	0.99
Weighted average exercise price	$	0.99
Weighted average expected life of options (a)		6.00
Weighted average expected volatility (b)		66	%
Weighted average risk-free interest rate		2.01	%
Expected annual dividend per share		-
Weighted average fair value of each option	$	0.60

(a)	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. This also approximates the Company’s recent historical volatility.

The following is a summary of stock option activity during the nine months ended September 30, 2014.

	Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value* ($000s)
Outstanding - Beginning of Period		12,173,255		$	3.83	$	530
Granted		2,782,500			0.99		1,531
Exercised		-			-		-
Cancelled		(130,934	)		1.14		53
Outstanding - End of Period		14,824,821			3.32		3,311
Exercisable - End of Period		10,145,610		$	4.31	$	1,450

*	The Aggregate Intrinsic Value was calculated using the September30, 2014 and December 31, 2013 closing stock price of $1.54 and $1.16, respectively.

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The following is a summary of stock options outstanding at September 30, 2014:

Exercise Price		Number of Options Outstanding		Weighted Average Remaining Contractual Life		Number of Exercisable Options
$	0.90 - $1.00		4,589,999		8.25		1,989,999
$	1.01 - $1.20		1,265,000		8.71		418,333
$	1.21 - $1.55		512,500		8.22		133,333
$	1.56 - $1.75		2,286,163		7.60		1,472,786
$	1.76 - $2.00		1,780,667		4.97		1,740,667
$	2.01 - $10.00		3,490,332		2.66		3,490,332
$	10.01 - $15.00		43,999		3.41		43,999
$	15.01 - $18.00		36,667		3.39		36,667
$	18.01 - $20.00		792,828		3.38		792,828
$	20.01 - $22.75		26,666		3.63		26,666
			14,824,821				10,145,610

NOTE 10. COMMITMENTS AND CONTINGENCIES

Officers’ Benefits

On April 25, 2014, our Board of Directors approved certain officers of the Company to receive benefits pursuant to a change in control in accordance with their job descriptions and responsibilities to the Company, ranging from one year annual salary payment to three years annual salary payment.

Pipeline Commitments

On June 24, 2014, the Company’s wholly-owned subsidiary, GreenHunter Pipeline, LLC entered into three definitive agreements with Tuesday Pipeline, LLC concerning the transportation of brine, condensate and water through three pipelines to be constructed by Tuesday Pipeline in and around the Claysville, PA area to an area located around Benwood, WV, pursuant to a Brine Transportation Agreement, a Condensate Transportation Agreement and a Water Transportation Agreement.

Each Agreement obligated Tuesday Pipeline to furnish to GreenHunter Pipeline, LLC a formal commitment letter from a lender providing for the funding for the construction of the pipeline by August 30, 2014. Tuesday Pipeline failed to deliver the formal commitment letter by August 30, 2014. Therefore, GreenHunter Pipeline has terminated each agreement pursuant to its terms and conditions. The Company is currently seeking other financing options for this project.

Leases

The Company rents property, equipment and certain office equipment under operating leases. Lease expense under operating leases and rental contracts amounted to $890 thousand and $1.4 million for the nine months ended September 30, 2014 and 2013, respectively.

Lawsuits

We operate in a highly regulated industry. We are subject to the regulatory authority of the SEC, the EPA and numerous other federal and state governmental agencies. From time to time, we may become involved in litigation relating to claims arising from our ordinary course of business. While we cannot predict the outcome of any proceedings with certainty, we do not believe that there are any claims or actions pending or threatened against us, the ultimate disposition of which we believe would have a material adverse effect on us or on our operations.

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ABB, Inc., Plaintiff v. GreenHunter Energy, Inc., Defendant, In the Superior Court of California, County of Imperial, Case No. ECU07002 . ABB, Inc. was a subcontractor to Crown Engineering for the work done at our Mesquite Lake plant in Imperial County, California. GreenHunter Energy, Inc. had a construction contract directly with Crown Engineering only and no direct working relationship with ABB, Inc. On or about January 18, 2010, GreenHunter entered into a settlement agreement with Crown Engineering settling any disputes between the parties regarding the work done at our Mesquite Lake plant. Green Hunter performed all of its obligations under the settlement agreement. ABB has been attempting to enforce payment of its claim of approximately $328 thousand by asserting it is a third party beneficiary under our settlement agreement with Crown Engineering.

A hearing was held in September 2013 solely on the issue of whether ABB was a third party beneficiary to the settlement agreement with Crown. The court ruled in favor of GreenHunter Energy, Inc. and decided that ABB was not a third party beneficiary. The court has awarded the Company some of its attorney’s fees. ABB has filed its notice of appeal.

PetroChem, Inc. v. GreenHunter Energy, Inc., et al. in the Superior Court for the State of California, County of Imperial, Case No. ECU-05216. PetroChem, Inc. was a subcontractor to Crown Engineering for the work done at our Mesquite Lake plant in Imperial County, California. GreenHunter Energy, Inc. had a construction contract directly with Crown Engineering only and no direct working relationship with PetroChem, Inc. On or about January 18, 2010, GreenHunter entered into a settlement agreement with Crown Engineering settling any disputes between the parties regarding the work done at our Mesquite Lake plant. Green Hunter performed all of its obligations under the settlement agreement. PetroChem is attempting to enforce payment of its claim of approximately $207 thousand by asserting it is a third party beneficiary under our settlement agreement with Crown Engineering.

The PetroChem claim was stayed by the bankruptcy court but PetroChem is attempting to move forward with their claim now by asserting they are third party beneficiary to our Crown settlement agreement, and they have filed a mechanic’s lien claim. As this claim is similar to the ABB claim above, management believes this case has little or no merit and the Company will ultimately prevail.

Elisema R. Jones and Gregory Joseph Jones v. Blackwater Services and Damien Pacheco. 365^th District Court of Dimmitt County, Texas, Cause No. 11-12-11539-DCVAJA. Plaintiff brought suit against defendants for damages caused by an automobile accident with defendant Damien Pacheco, allegedly an employee of Blackwater. The claim is being handled by the insurance carrier and the Company estimates any damages will be covered by insurance.

Marcos Eric Ramon and Juan Castillo v .White Top Oilfield Construction and Jennay Marie Hawkins. 293rd District Court of Dimmitt County, Texas, Cause No. 13-07-12036-DCV. Plaintiff brought suit against defendants for damages caused by an automobile accident with defendant Jennay Hawkins, allegedly an employee of White Top. The claim is being handled by the insurance carrier and the Company estimates any damages will be covered by insurance. This case has been settled for $50 thousand.

SPX v. GreenHunter Energy, Inc., et al. in the Superior Court for the State of California, County of Imperial, Case No. ECU-5082. SPX was a subcontractor to Crown Engineering for the work done at our Mesquite Lake plant in Imperial County, California. GreenHunter Energy, Inc. had a construction contract directly with Crown Engineering only and no direct working relationship with SPX. On or about January 18, 2010, GreenHunter entered into a settlement agreement with Crown Engineering settling any disputes between the parties regarding the work done at our Mesquite Lake plant. GreenHunter performed all of its obligations under the settlement agreement.

The parties have settled this matter for $115 thousand.

Jose Torres, et al. v. GreenHunter Resources, Inc. and GreenHunter Water, LLC, in the 25^th District Court, Lavaca County, Texas, Cause No. 14-04-22652 CV. Jose Torres, an employee of Hunter Hauling, LLC, a subsidiary of the defendants, died on December 17, 2013 while working at the Company’s location in Moulton, Texas. Plaintiff claims injuries and damages were caused by the negligence and gross negligence of the named defendants. Defendants have tendered the case to the insurance companies for coverage. The Company has answered the lawsuit and is currently conducting an investigation into this matter. This matter is in the early stages of discovery and the Company cannot estimate the probability of any loss at this time. However, the claim is being handled by the insurance carrier and the Company estimates any damages will be covered by insurance.

Jonathan D. Hoopes v. GreenHunter Resources, Inc., in the 162^nd District Court of Dallas, County, Texas, Cause No. DC-14-03179. Plaintiff has sued the Company for breach of an employment agreement and enforcement of certain rights under various stock option agreements with the Company. Plaintiff is alleging he is owed one years’ salary upon termination and wants to continue to vest in certain stock options after his termination. The Company denies the allegations in the complaint as the Company had either reached an agreement with the plaintiff for his severance payment or had good cause to terminate the plaintiff. This case will be arbitrated in accordance with the employment agreement and is currently being set for the month of January 2015. The Company has accrued six months’ severance payment to the plaintiff and anticipates that this matter will result in no further obligations to the plaintiff.

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Edward Bujnoch et al v. Sanchez Oil & Gas Corporation, et al; In the 113th Judicial District Court of Harris County, Texas Cause No. 2012-71172. Plaintiff has sued Blackwater Services, LLC for wrongful death due to a car accident. Plaintiff alleges Defendant’s truck spilled drilling fluid on the highway causing Plaintiff’s car to lose control. Evidence indicates that Blackwater truck was not the truck carrying the spilled drilling fluid. In addition, the Plaintiffs were driving while intoxicated. Defendants have tendered the case to the insurance companies for coverage. The Company has answered the lawsuit and is currently conducting an investigation into this matter. Management believes this case has little or no merit and the Company will ultimately prevail.

White Top and Blackwater Lawsuits. During the second quarter of 2014, we settled multiple lawsuits related to the White Top and Blackwater acquisitions. These lawsuits included a lawsuit filed by the Company against the sellers seeking injunctive relief to force the defendants to turn over certain assets in their possession, as well as for breach of equity purchase agreements, statutory fraud and common fraud. A certain bank sued the Company demanding payment of $1.0 million plus accrued interest for promissory notes owed to the bank by White Top and Blackwater. As part of the settlement agreement, the bank agreed to unconditionally release the Company from any further liability to the bank, and the Company agreed to make a $50 thousand payment to the bank. The settlement agreement also required the sellers to return 32,750 Series C Preferrred Stock given to them as part of the original purchase price. Settlement of these lawsuits resulted in a gain of approximately $1.9 million, which is included in discontinued operations on the Statement of Operations. For additional information related to these gains, see Note 7 – Notes Payable and Note 8 – Stockholders’ Equity in this Form 10-Q.

NOTE 11. RELATED PARTY TRANSACTIONS

During the nine months ended September 30, 2014, we earned storage rental revenue for providing water storage tanks and equipment for lease to Triad Hunter, LLC (a wholly-owned subsidiary of Magnum Hunter Resources Corporation, an entity for which Gary C. Evans, our Chairman, is an officer and significant shareholder). Additionally, we also sold multiple MAG Tank™ panels to Triad Hunter, LLC. We also provided water disposal and transport services for Shale Hunter, Virco, Inc., Triad Hunter, and Eureka Hunter Pipeline, LLC (all wholly-owned subsidiaries of Magnum Hunter Resources Corporation, an entity for which Gary C. Evans, our Chairman, is an officer and significant shareholder) during the nine months ended September 30, 2014. Revenue from the affiliated companies totaled approximately $1.4 million and $5.2 million for the three and nine months ended September 30, 2014.

During the nine months ended September 30, 2013, we earned storage rental revenue for providing water storage tanks and equipment for lease to Shale Hunter, LLC, Eagle Ford Hunter, LLC and Triad Hunter, LLC, all wholly-owned subsidiaries of Magnum Hunter Resources Corporation, an entity for which Gary C. Evans, our Chairman, is an officer and significant shareholder. We also provided water disposal and transport services for Shale Hunter and Triad Hunter during the nine months ended September 30, 2013. Revenue from Eagle Ford Hunter, prior to its sale to an unaffiliated entity in April of 2013 was $-0- and $978 thousand for the three and nine months ended September 30, 2013. Revenue from the then currently affiliated companies totaled $805 thousand and $1.2 million for the three and nine months ended September 30, 2013. Revenue for the three related parties was $663 thousand and $1.9 million for the three and nine months ended September 30, 2013.

Accounts receivable associated with the above revenue for related parties totaled $1.1 million at September 30, 2014.

The Company had an accounts receivable from Pilatus Hunter, a company owned by Mr. Evans, totaling $82 thousand at September 30, 2014 for pilot expenses.

We paid for air travel services to a company owned by Mr. Evans of $-0- and $19 thousand for the three and nine months ended September 30, 2014.

On February 17, 2012, the Company entered into a 10% convertible promissory note for $2.2 million payable to Triad Hunter as partial consideration in the Hunter Disposal acquisition. Terms of payment under the note are interest only due quarterly from May 17, 2012 to February 17, 2013. Thereafter, beginning May 17, 2013 and continuing quarterly until February 17, 2017, the payments due will include accrued interest and principal payments of $137.5 thousand per quarter. Interest expense related to this note was $124 thousand for the nine months ended September 30, 2014 and $162 thousand for the nine months ended September 30, 2013. The promissory note matures on February 17, 2017 and is convertible at any time by the holder into shares of common stock of the Company at a conversion price of $2.50 per share. The balance of this note is $1.4 million at September 30, 2014.

During the year ended December 31, 2013, the Company borrowed $1.5 million under a promissory note due to the Company’s Chairman and Chief Executive Officer. In July of 2014, the Company paid our Chairman and Chief Executive Officer $1.3 million on the loan. In September of 2014, the Company paid an additional $50 thousand on the loan. As of September 30, 2014, there is $1.9 million available under this facility. Interest for this note was $115 thousand for the nine months ended September 30, 2014 and $10 thousand for the year ended December 31, 2013. Should the Company borrow any available amounts, they will carry an interest rate of 13% per annum which is convertible to common stock. The $2.0 million letter of guarantee associated with this note has been extended through December 31, 2014.

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NOTE 12. SEGMENT DATA

We currently have one reportable segment: Water Management. However, we previously had two reportable segments: Water Management and Biomass. We have entered an agreement to sell the Biomass project with a final closing set for March 15, 2015. Since we are planning on selling this segment within the next nine months, we have classified the Biomass assets as held for sale as of September 30, 2014.

The total assets for the Company’s one reporting segment are the total assets less the assets held for sale on the balance sheet. The capital expenditures for the single segment are noted on the cash flow statement.

See Note 3 – Discontinued Operations and Assets Held for Sale for more information.

NOTE 13. CONDENSED CONSOLIDATED GUARANTOR FINANCIAL STATEMENTS

Certain of the Company’s 100% owned subsidiaries, including GreenHunter Water, LLC, GreenHunter Environmental Solutions, LLC, GreenHunter Hydrocarbons, LLC, GreenHunter Pipeline, LLC, Hunter Disposal, LLC, and Hunter Hauling, LLC (collectively, “Guarantor Subsidiaries”), have fully and unconditionally guaranteed the obligations of the Company under any debt securities that it may issue under a universal shelf registration statement on Form S-3, on a joint and several basis.

Condensed consolidating guarantor financial information for GreenHunter Resources Corporation, the Guarantor Subsidiaries and the other subsidiaries of the Company (the “Non Guarantor Subsidiaries”) as of September 30, 2014 and December 31, 2013, and for the three and nine months ended September 30, 2014 and 2013, was as follows:

GreenHunter Resources, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

	As of September 30, 2014
	GreenHunter Resources, Inc.		Guarantor Subsidiaries		Non Guarantor Subsidiaries			Eliminations			GreenHunter Resources, Inc. Consolidated
ASSETS
Current assets	$	1,360,654	$	3,886,539	$	(21,930,611	)	$	24,923,387		$	8,239,969
Intercompany accounts receivable		24,923,411		-		-			(24,923,411	)		-
Fixed assets		2,077,978		18,596,649		4,097,234			335,041			25,106,902
Investment in subsidiaries		19,234,244		4,539,391		(4,466,395	)		(19,307,240	)		-
Other assets		27,026		60,936		-			-			87,962
Total Assets	$	47,623,313	$	27,083,515	$	(22,299,772	)	$	(18,972,223	)	$	33,434,833

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities	$	6,218,288	$	3,634,192	$	(21,104,784	)	$	24,923,387		$	13,671,083
Intercompany accounts payable		-		2,489,285		22,434,102			(24,923,387	)		-
Long-term liabilities		3,030,842		3,694,257		710,699			-			7,435,798
Stockholders' equity		38,374,183		17,265,781		(24,339,789	)		(18,972,223	)		12,327,952
Total Liabilities and Stockholders' Equity	$	47,623,313	$	27,083,515	$	(22,299,772	)	$	(18,972,223	)	$	33,434,833

	As of December 31, 2013
	GreenHunter Resources, Inc.		Guarantor Subsidiaries		Non Guarantor Subsidiaries			Eliminations			GreenHunter Resources, Inc. Consolidated
ASSETS
Current assets	$	1,949,764	$	7,442,231	$	(32,896,562	)	$	34,412,241		$	10,907,674
Intercompany accounts receivable		33,719,606		811,535		-			(34,531,141	)		-
Fixed assets		2,167,250		14,402,410		16,033,258			4,389,430			36,992,348
Investment in subsidiaries		19,234,244		4,539,391		(4,466,395	)		(19,307,240	)		-
Other assets		64,842		60,936		-			-			125,778
Total Assets	$	57,135,706	$	27,256,503	$	(21,329,699	)	$	(15,036,710	)	$	48,025,800

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities	$	5,648,819	$	11,954,865	$	(31,539,580	)	$	34,531,141		$	20,595,245
Intercompany accounts payable		-		-		34,531,141			(34,531,141	)		-
Long-term liabilities		3,574,506		4,517,062		982,580			-			9,074,148
Stockholders' equity		47,912,381		10,784,576		(25,303,840	)		(15,036,710	)		18,356,407
Total Liabilities and Stockholders' Equity	$	57,135,706	$	27,256,503	$	(21,329,699	)	$	(15,036,710	)	$	48,025,800

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GreenHunter Resources, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

	For the Three Months Ended September 30, 2014
	GreenHunter Resources, Inc.			Guarantor Subsidiaries		Non Guarantor Subsidiaries			Eliminations			GreenHunter Resources, Inc. Consolidated
Revenues	$	-		$	8,695,472	$	-		$	(2,432,526	)	$	6,262,946
Expenses		2,634,158			7,899,784		21,320			(2,797,775	)		7,757,487
Income (loss) from continuing operations before tax		(2,634,158	)		795,688		(21,320	)		365,249			(1,494,541	)
Income tax expense		-			-		-			-			-
Income (loss) from continuing operations		(2,634,158	)		795,688		(21,320	)		365,249			(1,494,541	)
Income from discontinued operations, net of tax		-			-		(1,199,051	)		-			(1,199,051	)
Net income (loss)		(2,634,158	)		795,688		(1,220,371	)		365,249			(2,693,592	)
Dividends on preferred stock		(1,234,532	)		-		-			-			(1,234,532	)
Net income (loss) to common stockholders	$	(3,868,690	)	$	795,688	$	(1,220,371	)	$	365,249		$	(3,928,124	)

	For the Three Months Ended September 30, 2013
	GreenHunter Resources, Inc.			Guarantor Subsidiaries			Non Guarantor Subsidiaries			Eliminations			GreenHunter Resources, Inc. Consolidated
Revenues	$	-		$	9,854,120		$	-		$	(2,086,181	)	$	7,767,939
Expenses		1,069,269			9,896,191			20,904			(1,951,588	)		9,034,776
Income (loss) from continuing operations before tax		(1,069,269	)		(42,071	)		(20,904	)		(134,593	)		(1,266,837	)
Income tax expense		-			-			-			-			-
Income (loss) from continuing operations		(1,069,269	)		(42,071	)		(20,904	)		(134,593	)		(1,266,837	)
Loss from discontinued operations, net of tax		-			-			896,061			-			896,061
Net income (loss)		(1,069,269	)		(42,071	)		875,157			(134,593	)		(370,776	)
Dividends on preferred stock		(1,174,256	)		-			-			-			(1,174,256	)
Net income (loss) to common stockholders	$	(2,243,525	)	$	(42,071	)	$	875,157		$	(134,593	)	$	(1,545,032	)

	For the Nine Months Ended September 30, 2014
	GreenHunter Resources, Inc.			Guarantor Subsidiaries		Non Guarantor Subsidiaries			Eliminations			GreenHunter Resources, Inc. Consolidated
Revenues	$	-		$	28,108,315	$	-		$	(6,494,521	)	$	21,613,794
Expenses		8,482,496			26,025,471		63,599			(6,884,530	)		27,687,036
Income (loss) from continuing operations before tax		(8,482,496	)		2,082,844		(63,599	)		390,009			(6,073,242	)
Income tax expense		-			-		-			-			-
Income (loss) from continuing operations		(8,482,496	)		2,082,844		(63,599	)		390,009			(6,073,242	)
Income from discontinued operations, net of tax		-			-		1,100,488			-			1,100,488
Net income (loss)		(8,482,496	)		2,082,844		1,036,889			390,009			(4,972,754	)
Dividends on preferred stock		(3,734,531	)		-		-			-			(3,734,531	)
Net income (loss) to common stockholders	$	(12,217,027	)	$	2,082,844	$	1,036,889		$	390,009		$	(8,707,285	)

	For the Nine Months Ended September 30, 2013
	GreenHunter Resources, Inc.			Guarantor Subsidiaries		Non Guarantor Subsidiaries			Eliminations			GreenHunter Resources, Inc. Consolidated
Revenues	$	-		$	23,723,503	$	2,781		$	(5,419,729	)	$	18,306,555
Expenses		3,415,595			21,596,281		66,512			(5,015,957	)		20,062,431
Income (loss) from continuing operations before tax		(3,415,595	)		2,127,222		(63,731	)		(403,772	)		(1,755,876	)
Income tax expense		-			-		-			-			-
Income (loss) from continuing operations		(3,415,595	)		2,127,222		(63,731	)		(403,772	)		(1,755,876	)
Loss from discontinued operations, net of tax		-			-		(6,613,135	)		-			(6,613,135	)
Net income (loss)		(3,415,595	)		2,127,222		(6,676,866	)		(403,772	)		(8,369,011	)
Dividends on preferred stock		(3,337,286	)		-		-			-			(3,337,286	)
Net income (loss) to common stockholders	$	(6,752,881	)	$	2,127,222	$	(6,676,866	)	$	(403,772	)	$	(11,706,297	)

-19-

GreenHunter Resources, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

	For the Nine Months Ended September 30, 2014
	GreenHunter Resources, Inc.			Guarantor Subsidiaries			Non Guarantor Subsidiaries			Eliminations			GreenHunter Resources, Inc. Consolidated
Cash flow from operating activities	$	3,619,528		$	3,071,330		$	(11,163,458	)	$	390,032		$	(4,082,568	)
Cash flow from investing activities		(95,999	)		(1,520,996	)		11,520,591			(390,032	)		9,513,564
Cash flow from financing activities		(4,392,675	)		(1,368,149	)		(402,231	)		-			(6,163,055	)
CHANGE IN CASH		(869,146	)		182,185			(45,098	)		-			(732,059	)
CASH, beginning of period		1,480,942			(223,183	)		45,098			-			1,302,857
CASH, end of period	$	611,796		$	(40,998	)	$	-		$	-		$	570,798

	For the Nine Months Ended September 30, 2013
	GreenHunter Resources, Inc.			Guarantor Subsidiaries			Non Guarantor Subsidiaries			Eliminations			GreenHunter Resources, Inc. Consolidated
Cash flow from operating activities	$	(6,997,922	)	$	4,117,503		$	1,760,143		$	(4,985,673	)	$	(6,105,949	)
Cash flow from investing activities		-			1,087,473			(1,122,890	)		-			(35,417	)
Cash flow from financing activities		5,060,579			1,034,995			(638,646	)		-			5,456,928
CHANGE IN CASH		(1,937,343	)		6,239,971			(1,393	)		(4,985,673	)		(684,438	)
CASH, beginning of period		3,048,316			(1,328,059	)		45,385			-			1,765,642
CASH, end of period	$	1,110,973		$	4,911,912		$	43,992		$	(4,985,673	)	$	1,081,204

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NOTE 14. SUBSEQUENT EVENTS

On October 2, 2014, the Company received a letter from the United States Coast Guard - US Department of Homeland Security specifically authorizing the Company to transport cargoes containing oilfield waste in accordance with Navigation and Vessel Inspection Circular (NVIC) 7-87. This authorization has enabled the company to expedite its plans to begin barging of oilfield waste down certain navigable waterways in the Appalachia region. GreenHunter Water believes it is the first company to receive such authorization in the United States. This authorization had been sought by GreenHunter Water in excess of two years. The Company has identified and procured accessibility to five different barging transloading facilities located along the Ohio River. Significant future growth opportunities exist predominately from producers both in the Marcellus and Utica shale plays located north of GreenHunter Water’s existing facilities in West Virginia and Ohio, which includes the State of Pennsylvania. The primary advantage to producers in this region is our ability to significantly reduce the existing cost of brine transportation via trucking over long distances. The research completed by GreenHunter Water concluded that transporting liquid cargo by water dramatically reduces the amount of vehicles on the roadways, decreases the carbon emissions into the atmosphere, while also having an economical advantage over other transportation modes and continuing to be the safest transportation option.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the notes associated with them contained in our Form 10-K for the year ended December 31, 2013 and with the financial statements and accompanying notes included herein. The discussion should not be construed to imply that the results contained herein will necessarily continue into the future or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment by our management. The discussion contains forward-looking statements that involve risks and uncertainties. Actual events or results may differ materially from those indicated in such forward-looking statements.

Overview

GreenHunter Resources, Inc., (“GreenHunter”), through its wholly-owned subsidiaries, GreenHunter Water, LLC, GreenHunter Environmental Solutions, LLC, and GreenHunter Hydrocarbons, LLC, provides Oilfield Fluid Management Solutions™ in the oilfield and the shale plays of the Appalachian Basin. GreenHunter Water continues to expand its services package by increasing down-hole injection capacity with Class II salt water disposal wells and facilities, with the launch of next-generation modular above-ground frac water storage tanks (MAG Tank™), and with advanced water hauling – including a growing fleet of DOT rated 407 trucks, for hauling hydrocarbons and water with the presence of hydrocarbons. GreenHunter Water has also spearheaded the movement to barge brine water, as barging is the safest and most cost-effective mode of transport.

GreenHunter Environmental Solutions, LLC offers onsite environmental solutions at the well pad and facilities, with a service package that includes tank and rig cleaning, liquid and solid waste removal/remediation, solidification, and spill response. An understanding that an interconnected suite of services is key to E&P waste stream management shapes GreenHunter Resources’ comprehensive end-to-end approach to services.

GreenHunter Hydrocarbons, LLC offers transportation of hydrocarbons (oil, condensate, and NGLs) and will soon offer storage, processing, and marketing of hydrocarbons (oil, condensate, and NGLs) in the Appalachian region, leveraging off of our existing asset base and infrastructure, which includes up to six different barge terminal locations, presently owned or leased by GreenHunter Resources.

It has been our goal to become a leading provider of water management solutions as it relates to the oil and gas industry in the unconventional resource plays in the Appalachian Region where we are predominantly active, including both the Marcellus and Utica Shale areas. As of September 30, 2014, we operated commercial water service facilities, including 10 disposal wells (nine in Appalachia and one in Oklahoma which is currently being marketing for sale). The Company is currently constructing a pipeline at its Mills Hunter offload terminal that will connect six or more wells to a single facility with barge unloading capabilities. The additional disposal capacity of these wells will essentially double the current disposal capacity of the Company. As these wells are permitted and ready to operate, the Company can utilize this capacity as soon as the connecting pipeline is complete, which is expected to be in late 2014.

We operate a fleet of 37 trucks located in Appalachia that are used to transport fluids to disposal and water treatment sites. Additionally, the Company has acquired or leased various sites along the Ohio River in Appalachia to facilitate the use of barges as a low cost method of hauling fluids. We anticipate initiating barge hauling services in the near future. The Company’s Mills Hunter disposal facility is located along the Ohio River. The facility, with its soon to be completed additional capacity, will be a primary destination for disposal of barged fluids. Additional infrastructure construction is currently under way at this facility to handle barging operations.

In late 2013, the Company decided to sell all of its disposal wells and properties located in South Texas and Oklahoma, to either move to Appalachia or sell most of its equipment in South Texas owned by White Top and Blackwater, and to discontinue operation in both of these areas in order to concentrate our efforts in the higher revenue region of Appalachia. We believe this area represents our best opportunities for growth and highest overall margins. We closed on the sale of all of our South Texas wells in the first half of 2014 and have ceased operations in South Texas. We expect to close on our remaining Oklahoma fixed assets in the fourth quarter of 2014. At that point, we intend to cease operating in Oklahoma.

We have deployed several modular above-ground temporary water storage systems in the Marcellus and Utica Shale Plays, and we have installed and operated an onsite semi-portable water treatment facility in the Appalachian Region. We have designed and engineered and are currently marketing this proprietary next-generation large format modular above-ground water storage system. We are evaluating a license for new technologies to treat water and other fluids associated with the production of oil and natural gas for reuse. As part of our strategy of focusing our future growth in the Appalachian Region, we expect to add more new disposal wells in the last quarter of 2014, including constructing pipelines to transport produced liquids, which will essentially double our disposal capacity, lower the cost associated with transporting liquids as well as increase our overall profit margins.

-22-

In the second quarter of 2014, the Company decided to construct three pipelines that will be used to transport oilfield waste water (brine), fresh water, and hydrocarbons (condensate and NGLs), respectively. The point of delivery will be along the Ohio River, from which point we expect to deliver the hydrocarbons by barge to the purchasers, as well as deliver the waste water by barge to our disposal wells. We expect the use of the pipelines and barges to substantially reduce the cost of transporting these products and give us a significant competitive advantage in both areas. Additionally, fresh water will flow through this pipeline in the opposite direction (from the river inland toward the production areas) thereby furnishing producers with sources of fresh water. Currently, fresh water, generally used for hydraulic fracturing, must be delivered to these production areas by truck. Our lower cost delivery by pipeline should give us a significant competitive advantage in delivering this product. As part of our strategic growth plans, the Company signed definitive agreements with a third party to construct three independent pipelines in the Appalachian Region that would be funded by the third party. The agreements gave the Company exclusive use of the three pipelines for a period of ten years with an option to renew the agreements for another ten years. This third party was not able to obtain the needing financing by the August 30, 2014 deadline, and the agreement was terminated. However, the Company has found other investors who have a high level of interest in financing this pipeline project. We believe we will be able to obtain financing and plan to build these pipelines ourselves. We anticipate having the financing in place by late 2014 or early 2015, at which time we will begin construction of the pipelines.

In preparation for the completion of these pipelines, the Company will be active in building the infrastructure needed to store, transport (mainly by barge), offload, and deliver the fresh water and condensates to buyers and will also be adding new disposal wells capable of handling both the expected growth in our current disposal business, as well as the significant amounts of waste water that will be received via the new pipeline.

We believe that our ability to successfully compete in the oil field fluids industry depends on many factors, including the location and low cost construction of our planned facilities, execution of our growth strategies, development of strategic relationships, achievement of our anticipated low cost production model, access to adequate capital, proper and meaningful governmental support which may include tax incentives and credit enhancements, and recruitment and retention of experienced management and qualified field personnel.

Current Plan of Operations and Ability to Operate as a Going Concern

As of September 30, 2014, we had a working capital deficit of $5.4 million, of which $1.2 million is non-recourse to the parent company, GreenHunter Resources, Inc.

While we are generating increasingly significant revenues from our water management activities, we have continued to experience losses from our ongoing operations (but at a significantly reduced level), which raises doubt about our ability to continue as a going concern. Although we are on track to be in compliance with the requirements of one existing debt covenant at the next measurement date, December 31, 2014, and have a waiver from a second lender debt covenant should we not be in compliance with its provisions at December 31, 2014, we were not in compliance with these two covenants as of December 31, 2013. However, waivers were obtained from the specific lenders for December 31, 2013, and for an additional grace period for the year ending December 31, 2014 from one of the lenders. Although we have obtained waivers for the events of default resulting from the non-compliance with certain financial covenants, the lenders under the affected secured debt arrangements retain rights to call that debt in the event we are unable to attain compliance with the required ratios in future periods. While we do not believe that it is probable that we will be out of compliance with the requirements of the affected agreements once the waivers lapse, compliance is dependent upon improvements in the results of our operations. We believe that we can continue to improve the results of our operations, considering our renewed focus on our Appalachian operations and abandonment of our South Texas and Oklahoma operations as discussed elsewhere in this Form 10-Q, but there can be no assurance that we can attain such improvements. In the event that we are unable to meet the requirements of our secured debt arrangements, we will be required to either a) seek refinancing of those loans; b) repay amounts outstanding under the agreements via new financing or sales of existing assets or operations; or c) a combination of the two. Considering our current financial position, we may be forced to accept terms of refinancing or sales that would be less favorable than those available to other entities.

In late 2013, Management decided to focus on expanding our future operations only in the Appalachian Region. As part of this strategy, we committed to a plan to sell our fixed assets in South Texas and Oklahoma. These assets were classified as held for sale as of December31, 2013, and the few remaining unsold assets continue to be held for sale at September 30, 2014. We have generated significant cash from these non-core asset sales. We have used this additional capital to assist in significantly reducing our working capital deficit and to provide growth capital to fund additional new projects that are a part of our overall business plan to grow our business in Appalachia.

Additional assets located in South Texas and Oklahoma remain classified as held for sale at September 30, 2014. We anticipate we will close on the sale of these assets sometime in the last quarter of 2014. The Company believes the amount for which it will be able to sell these assets is less than previously anticipated. The Company has also had to perform additional work on one of the wells to bring it to a saleable condition. As a result, the Company has recorded impairment of $931 thousand on these assets during the third quarter of 2014. These assets are being marketed at amounts equal to or in excess of our net book value at September 30, 2014.

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In December 2013, the Company entered into a letter of intent to sell our remaining renewable asset, a biomass plant, which included a non-refundable fee of $25 thousand that granted the buyer an exclusive right to purchase the property through February 15, 2014. On February 19, 2014, GreenHunter Mesquite Lake entered an agreement to sell the biomass project to ML Energy Park, LLC for $2.0 million. The closing is scheduled for March 15, 2015. The prospective buyer made an initial payment of $50 thousand as earnest money deposit and has continued to pay $50 thousand per month to date and is required to continue the monthly payments for a year or until deciding to ultimately purchase the property. The monthly payments, as well as the initial $25 thousand fee, are non-refundable and can be used at our discretion, but will be applied to the purchase price if it is ultimately consummated. As of September 30, 2014, the Company has received $425 thousand toward the sales price of this property. The Company has used the payments to reduce the carrying value of the remaining asset on its books.

During the year ended December 31, 2013, the Company borrowed $1.5 million under a promissory note due to the Company’s Chairman and Chief Executive Officer. As of September 30, 2014, $1.4 million of this balance has been paid and there is $1.9 million available under this facility. The $2.0 million letter of guarantee associated with this note has been extended through December 31, 2014.

On August 11, 2014, GreenHunter Resources filed a shelf registration statement on Form S-3 with the SEC. The registration statement became effective on October 24, 2014. The registration will allow for the Company to sell from time to time in one or more offerings of any combination of its debt securities, guarantees of debt securities, common stock, preferred stock and warrants in an aggregate initial offering price of up to $150 million.

	•	Increased revenue generated from our water management activities
	•	The expected sale of our remaining assets held for sale at September 30, 2014
	•	The sale of our Mesquite Lake property
	•	Letter of credit guarantee from our Chairman
	•	The sale of debt or equity securities under a universal “shelf” registration statement
	•	The proceeds from capital project related financing

On July 22, 2014, the Company announced that it has filed with the Internal Revenue Service a request for a ruling that income derived by a newly formed Limited Partnership (“MLP”) from the handling of fluid, storage, treatment and disposal services, frac tank rental, water monitoring services, and environmental remediation services that constitute a part of the exploration, developmental, mining, processing, refining and transportation of natural resources will in fact constitute “Qualified Income” under certain sections of the Internal Revenue Code of 1986, as amended. Management and the Board have determined that utilizing an MLP structure will be the most efficient way to fund our future capital needs.

Our ability to fund all of our planned capital expenditures is largely dependent on the Company’s ability to secure additional capital. Management believes that the steps we have taken to significantly improve our working capital position will enhance the prospect of seeking additional capital through a number of different sources. However, there can be no assurance that the Company will be successful in raising sufficient capital to fund the development of our water management business and associated ventures or that we will generate sufficient cash flow to fund our ongoing operating cash flow needs, in which case, we will be required to seek alternative financing, sell our assets, or any combination thereof. Further, considering our financial condition, we may be forced to accept financing or sell assets at terms less favorable than would otherwise be available, however, we have been successful in achieving at least market value for the non-core assets sold to date.

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Results of Operations

Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013:

The following table summarizes results from continuing operations for the three months ended September 30, 2014 and 2013:

	2014			2013			Change			Change %
Revenues:
Water disposal revenue	$	3,402,449		$	2,583,761		$	818,688			31.7	%
Water disposal fees - take or pay		21,869			323,798			(301,929	)		-93.2	%
Transportation revenue		2,442,863			2,712,986			(270,123	)		-10.0	%
Environmental services revenue		52,756			-			52,756			0.0	%
MAG Tank™ revenue		-			1,650,000			(1,650,000	)		-100.0	%
Skim oil revenue		197,592			226,390			(28,798	)		-12.7	%
Storage rental revenue and other		145,417			271,004			(125,587	)		-46.3	%
Total revenues		6,262,946			7,767,939			(1,504,993	)		-19.4	%
Cost of goods and services provided		3,541,779			5,908,310			(2,366,531	)		-40.1	%
Margin (1)		2,721,167			1,859,629			861,538			46.3	%
Margin %		43.4	%		23.9	%
Depreciation and accretion expense		725,224			699,889			25,335			3.6	%
Stock based compensation		1,110,888			355,040			755,848			212.9	%
Selling, general and administrative		2,105,876			1,904,775			201,101			10.6	%
Operating Loss	$	(1,220,821	)	$	(1,100,075	)	$	(120,746	)		11.0	%

(1)	Margin is defined as revenues less cost of goods and services provided and excludes depreciation and accretion, impairment, selling, general and administrative and stock compensation expense costs.

Total Revenues

The following table compares disposal volumes and revenue from continuing operations for the three months ended September 30, 2014 and 2013:

	Barrels			Revenue			Average Price
2014		1,016,812		$	3,402,449		$	3.35
2013		719,648		$	2,583,761		$	3.59
Increase / (Decrease)		297,164		$	818,688		$	(0.24	)
Increase / (Decrease) %		41.3	%		31.7	%		-6.8	%

The increase in disposal revenue related to continuing operations was mainly due to an increase in both capacity and volumes. We operated nine disposal wells in Appalachia for most of the third quarter of 2014. Only eight wells were in operation in Appalachia for the third quarter of 2013, and these wells generally operated at well below capacity levels in 2013. Our volume of barrels disposed represents a significant increase in utilization of our wells over the same period in 2013.

The “take or pay” disposal revenue declined significantly in the current quarter compared to the same period in the prior year. Take of pay relates to contracts in which we guarantee the availability of a certain number of barrels of disposal and in exchange the customer agrees to pay a designated amount per barrel for any barrels below the guaranteed number of barrels. In the prior year, we had a significant take or pay contract with a major customer that disposed barrels significantly below the guaranteed amount and paid us their contracted rate for the difference. We have a similar contract in the current year but at a reduced rate per barrel on the unutilized portion.

-25-

The following table compares internal trucking hours and revenue from continuing operations for the three months ended September 30, 2014 and 2013:

	Hours			Revenue			Average Price
2014		21,623		$	2,156,969		$	99.75
2013		11,881		$	1,259,084		$	105.97
Increase / (Decrease)		9,742		$	897,885		$	(6.22	)
Increase / (Decrease) %		82.0	%		71.3	%		-5.9	%

Our Appalachia trucking fleet increased from 32 trucks in the third quarter of 2013 to 37 trucks for the same period in 2014, which enabled us to haul more fluids. Additionally, the demand for our services in the third quarter of 2014 was beyond our capacity, and our trucks operated at maximum capacity subject to limitations of available driver hours during most of the quarter.

The following table compares third party trucking hours and revenue from continuing operations for the three months ended September 30, 2014 and 2013:

	Hours			Revenue			Average Price
2014		2,774		$	285,894		$	103.06
2013		14,341		$	1,453,903		$	101.38
Increase / (Decrease)		(11,567	)	$	(1,168,009	)	$	1.68
Increase / (Decrease) %		-80.7	%		-80.3	%		1.7	%

Our third party trucking revenue decreased because we did not use third party trucking extensively in the third quarter of 2014. The Company has been historically experiencing losses due to the use of a significant amount of third party trucking. Even though we may have had less disposal volume than we might have had otherwise, the limited use of third party trucking has favorably impacted the Company’s margins. We may continue to limit our use of third party trucking. The Company believes that future additions to our internal trucking fleet and the use of barging, which we plan to implement in the near future, will enhance our ability to haul liquids at even more favorable profit margins without relying heavily on third party trucking.

Our Environmental Services operations began in June of 2014. To date, these operations are still in start-up mode and have generated little outside revenue. We used their services in the third quarter of 2014 to perform several internal projects for which we otherwise would have had to hire outside parties to perform. We expect revenue from these operations to grow sequentially over the next few quarters.

We sold our first MAG Tanks™ to customers in the third quarter of 2013. We did not sell a MAG Tank™ in the third quarter of 2014. Most of our customers are in the process of budget planning for 2015, and we expect orders for our MAG Tank™ panels as this process unfolds.

Skim oil, or hydrocarbon liquids, a by-product of the disposal process, is oil that was mixed with the water that is hauled to our disposal tanks. The oil floats to the top of the tank and is “skimmed” off and ultimately sold. Skim oil revenue decreased in the third quarter of 2014 versus the third quarter of 2013. The skim oil has been removed and sold on a consistent basis each month of 2014. Also, skim oil sales are dependent on the amount of oil in the waste water delivered to our facilities, over which we have no control.

-26-

Cost of Goods and Services Provided

Our operating costs related to continuing operations decreased substantially when compared to the same period last year and our operating margins showed a substantial increase, rising from 23.9% to 43.4%. The decrease in costs was partially due to our sale of a MAG Tank™ in 2013, but not in 2014. Additionally, both our costs and our margins were favorably impacted by our limited use of third party trucking in the third quarter of 2014 as compared to last year. Our operating results have previously been negatively impacted by our use of third party trucking. We believe that the alternative methods of transporting fluids, including the use of barging and pipelines, that we have planned for the coming months will continue to improve our margins as we are able to implement these changes.

Depreciation and Accretion Expense

Depreciation and accretion expense increased primarily due to having one additional disposal wells in service for the third quarter of 2014 that had been placed into service in Appalachia after the third quarter of 2013.

Stock Based Compensation

This increase in stock based compensation for the three months ended September 2014 versus the three months ended September 2013 is mainly due to a 2,600,000 option grant in April of 2014 to certain members of management, of which 1,000,000 options were granted to our Chairman of the Board and Interim Chief Executive Officer Mr. Gary C. Evans

We expect overall stock based compensation expense to increase in future periods as we continue to expand our personnel necessary to conduct our water management business.

Selling, General and Administrative Expense

Selling, general and administrative expense (“SG&A”) was approximately $2.1 million and $1.9 million during the quarter ended September 30, 2014 and 2013, respectively. This 10.6% increase was due to expansion of our business activities. We believe our SG&A costs will continue to be stable in 2014 but may grow if we see significant growth in our overall business.

The following is a schedule of our selling, general and administrative expense for the three months ended September 30,:

	2014		2013		Variance
Personnel and related costs	$	1,442,758	$	1,110,053	$	332,705
Office and related costs		265,200		410,084		(144,884	)
Travel, selling, and marketing		158,801		181,915		(23,114	)
Professional fees		232,906		158,528		74,378
Taxes and permits		6,211		44,195		(37,984	)
Total	$	2,105,876	$	1,904,775	$	201,101

Operating Loss

The increase in operating loss is primarily due to additional expenses mainly related to personnel incurred for the future expansion of our new business activities. It also includes a common stock based bonus to certain members of management.

Other Income and Expense

Total other expense was $274 thousand for the quarter ended September 30, 2014 as compared to expense of $167 thousand for the quarter ended September 30, 2013. The components of the total other expense include the following: 1) Interest expense was approximately $304 thousand in 2014 compared to approximately $231 thousand for 2013, and we expect our interest expense will continue to increase as we add overall indebtedness to fund our future expansion activities; 2) the sale of assets resulted in a $26 thousand gain in 2014 versus $17 thousand loss in 2013; 3) the settlement of payables was $-0- in 2014 versus favorable by $5 thousand in 2013; and 4) other income was $4 thousand and $77 thousand for 2014 and 2013, respectively.

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Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013:

The following table summarizes results from continuing operations for the nine months ended September 30, 2014 and 2013:

	2014			2013			Change			Change %
Revenues:
Water disposal revenue	$	10,313,058		$	6,399,770		$	3,913,288			61.1	%
Water disposal fees - take or pay		426,230			1,819,142			(1,392,912	)		-76.6	%
Transportation revenue		8,698,553			6,246,322			2,452,231			39.3	%
Environmental services revenue		54,755			-			54,755			0.0	%
MAG Tank™ revenue		886,142			1,650,000			(763,858	)		-46.3	%
Skim oil revenue		718,480			761,840			(43,360	)		-5.7	%
Storage rental revenue and other		516,576			1,429,481			(912,905	)		-63.9	%
Total revenues		21,613,794			18,306,555			3,307,239			18.1	%
Cost of goods and services provided		14,551,747			12,793,604			1,758,143			13.7	%
Margin (1)		7,062,047			5,512,951			1,549,096			28.1	%
Margin %		32.7	%		30.1	%
Depreciation and accretion expense		2,218,366			2,129,903			88,463			4.2	%
Stock based compensation		3,714,700			1,255,224			2,459,476			195.9	%
Selling, general and administrative		6,273,264			5,510,529			762,735			13.8	%
Operating Loss	$	(5,144,283	)	$	(3,382,705	)	$	(1,761,578	)		52.1	%

(1)	Margin is defined as revenues less cost of goods and services provided and excludes depreciation and accretion, impairment, selling, general and administrative and stock compensation expense costs.

Total Revenues

The following table compares disposal volumes and revenue from continuing operations for the nine months ended September 30, 2014 and 2013:

	Barrels			Revenue			Average Price
2014		2,930,389		$	10,313,058		$	3.52
2013		1,961,235		$	6,399,770		$	3.26
Increase / (Decrease)		969,154		$	3,913,288		$	0.26
Increase / (Decrease) %		49.4	%		61.1	%		7.9	%

The increase in disposal revenue related to continuing operations was mainly due to an increase in both capacity and volumes. We operated a total of nine disposal wells in Appalachia as of the end of the third quarter of 2014. Eight wells operated for the first two months of 2014, and an additional new well was put into service in Meigs County, Ohio, on March 1, 2014. Only seven wells were in operation in Appalachia for the first eight months of 2013, and an additional well was put in service in Washington County, Ohio, in September of 2013. In addition to this increase in overall average capacity year over year, our wells in Appalachia, as a whole, operated at a higher rate of overall utilization when compared to last year. The combination of both higher capacity and higher utilization of the available capacity contributed to the 49% increase in utilization year over year, which also directly contributed to our increase in disposal revenue of 61% for the first nine months of 2014 when compared to the same period in 2013.

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The following table compares internal trucking hours and revenue from continuing operations for the nine months ended September 30, 2014 and 2013:

	Hours			Revenue			Average Price
2014		52,528		$	5,613,608		$	106.87
2013		33,337		$	3,512,448		$	105.36
Increase / (Decrease)		19,191		$	2,101,160		$	1.51
Increase / (Decrease) %		57.6	%		59.8	%		1.4	%

The increase in transportation revenue was due to two factors. Our Appalachia trucking fleet increased from an average of 28 trucks in the first nine months of 2013 to an average of 36 trucks for the same period in 2014, which enabled us to haul more fluids resulting in a corresponding increase in revenues in the current year versus last year.

The following table compares third party trucking hours and revenue from continuing operations for the nine months ended September 30, 2014 and 2013:

	Hours			Revenue			Average Price
2014		33,892		$	3,084,945		$	91.02
2013		26,610		$	2,733,875		$	102.74
Increase / (Decrease)		7,282		$	351,070		$	(11.72	)
Increase / (Decrease) %		27.4	%		12.8	%		-11.4	%

The increase in both third party trucking hours and revenue were mainly due to our extensive use of third party trucking in the first two quarters of 2014. We substantially reduced our third party trucking use in the third quarter of 2014and believe this positively affected our year to date margins even though revenue was lower.

The decrease in MAG Tank™ revenue was due to a lower number of our MAG Tank™ panels being sold in the first nine months of 2014 when compared to the same period in 2013.

Skim oil revenue decreased slightly in the first nine months of 2014 compared to the same period in 2013. Skim oil, or hydrocarbon liquids, a by-product of the disposal process, is oil that is mixed with the water and is hauled to our disposal tanks. The oil floats to the top of the tank and is “skimmed” off and ultimately sold. Skim oil sales are determined by the quantity of oil in the waste water delivered to our facilities, over which we have no control.

Our other revenue decreased mainly due to a large remediation contract we obtained early in 2013 that did not occur in 2014.

Cost of Goods and Services Provided

Our operating costs related to continuing operations increased due to the overall increase in activity, but actually decreased as a percentage of revenue leading to the 9% increase in our direct margins year over year. This was due to several reasons, but the largest factor was our limited use of third-party trucking in the third quarter of 2014. We had been losing money using third party trucking in prior quarters including the prior year. Management believes that the decreased use of third party trucking as well as developing alternative low cost methods of transporting fluids, including the use of barging and pipelines, will continue to improve our operating margins as we implement these changes.

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Depreciation and Accretion Expense

Depreciation and accretion expense increased by nominal amounts due to having more disposal wells in service for the whole nine months for 2014 compared to the same period in 2013.

Stock Based Compensation

This increase in stock based compensation for the first nine months of 2014 versus the first nine months of 2013 is mainly due to the following:

	●	A common stock grant in April of 2014 of 1,250,000 shares for Mr. Gary C. Evans, our Chairman and Interim Chief Executive Officer, as consideration for his past credit support that he has provided to the Company when no other financing was available

	●	A stock based bonus in April of 2014 of 445,000 shares to certain members of management

	●	A 2,600,000 option grant in April of 2014 to certain members of management, of which 1,000,000 options were granted to our Chairman of the Board and Interim Chief Executive Officer Mr. Gary C. Evans

We expect overall stock based compensation expense to increase in future periods as we continue to expand our personnel necessary to conduct our water management business.

Selling, General and Administrative Expense

Selling, general and administrative expense (“SG&A”) was approximately $6.3 million and $5.5 million during the nine months ended September 30, 2014 and 2013, respectively. This 13.8% increase was due to expansion of our business activities. We believe our SG&A costs have been stable in 2014 but may grow if we see significant growth in our overall business.

The following is a schedule of our selling, general and administrative expense for the nine months ended September 30,:

	2014		2013		Variance
Personnel and related costs	$	4,116,432	$	2,817,343	$	1,299,089
Office and related costs		902,718		1,196,299		(293,581	)
Travel, selling, and marketing		320,563		484,338		(163,775	)
Professional fees		788,022		891,453		(103,431	)
Taxes and permits		145,529		121,096		24,433
Total	$	6,273,264	$	5,510,529	$	762,735

The increase in personnel and related costs is due partly to bonus expense accrued in 2014 but not 2013and to a lesser extent due to a general increase in personnel as the Company has grown.

Operating Loss

The increase in operating loss is primarily due to the increase in non-cash stock compensation in 2014 compared to 2013, and to the increased personnel and related costs in selling, general, and administrative expenses.

Other Income and Expense

Total other expense was $929 thousand for the nine months ended September 30, 2014 as compared to income of $1.6 million for the nine months ended September 30, 2013. The components of the total other income/expense include the following: 1) Interest expense was approximately $1.1 million in 2014 compared to approximately $691 thousand for 2013, and we expect our interest expense will continue to increase as we add overall indebtedness to fund our future expansion activities; 2) the loss on the sale of assets was $39 thousand in 2014 versus a gain of $2.2 million in 2013; 3) the settlement of payables resulted in a gain of $134 thousand in 2014 and $-0- in 2013; and 4) other income was $88 thousand and $78 thousand for 2014 and 2013, respectively.

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Liquidity and Capital Resources

Cash Flow and Working Capital

As of September 30, 2014, we had cash and cash equivalents of approximately $571 thousand and a working capital deficit of $5.4 million as compared to cash and cash equivalents of $1.3 million and a working capital deficit of $9.7 million as of December 31, 2013. The effects of the decrease in cash and the favorable change in the working capital deficit, net decrease of $3.6 million, were partially due to the activities described below.

Operating Activities

During the first nine months of 2014 and 2013, operating activities used $4.1 million and $6.1 million, respectively. Although cash flows from operating activities may not be sufficient to meet our operating needs in the near term and we may have to rely on other sources of cash, we expect increases in cash flows from new assets placed in service over the next twelve months to improve our ability to fund our operations within operating cash flow.

Investing Activities

During the nine months ended September 30, 2014, investing activities provided approximately $9.5 million in cash. This was comprised of $6.8 million of cash in net proceeds from the sale of assets, which were primarily part of the assets held for sale at December 31, 2013, including the sale of the Kenedy and Coy City disposal wells, the sale of the Westhoff disposal well, the sale of the Dilley disposal well, and the sale of certain equipment related to White Top and Blackwater. There were additional proceeds of $5.1 million related to the notes receivable. Also, offsetting this was approximately $2.3 million used for capital expenditures for water disposal facilities in Appalachia and $132 thousand of cash classified as restricted.

During the nine months ended September 30, 2013, investing activities used approximately $35 thousand in cash. Capital expenditures were $2.1 million for development of disposal wells and related facilities and $3.3 million for the acquisition of a barging terminal facility and construction of our South Texas wells. We also received proceeds of $5.2 million for the sale of our Helena disposal well.

Financing Activities

During the nine months ended September 30, 2014, our financing activities used $6.2 million. The net financing uses were mostly due to net borrowings of $2.5 million and preferred stock dividends of $3.7 million.

The cash provided during the 2013 first nine months was $5.5 million. The 2013 period proceeds were $8.3 million, net of costs, for the sale of our Series C Preferred Stock and common stock, proceeds of $100 thousand from the exercise of warrants and options, and proceeds of approximately $3.3 million from borrowing on notes payable. We made payments on notes payable of $3.0 million and paid approximately $3.3 million of dividends on our 10% Series C Preferred Stock.

Investing Activities and Future Requirements

Capital Expenditures

During the first nine months of 2014, we invested approximately $2.3 million in capital expenditures, mainly for new disposal wells and barging facilities in Appalachia.

During the first nine months of 2013, we had capital expenditures of approximately $5.4 million, primarily for construction and development of our disposal wells and related facilities and for the acquisition of a barging terminal facility and construction of our South Texas salt water disposal wells. On March 13, 2013, the Company acquired a 10.8 acre barging terminal facility located in Wheeling, Ohio County, West Virginia. Previously utilized as a gasoline storage facility, the Company has fully engineered plans to convert the location into a water treatment, recycling, and condensate handling logistics terminal.

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Forecast

For 2014, we have not adopted a formal corporate capital expenditure budget due to the uncertainty of future capital resources. We have formulated specific project budgets and will adopt a formal corporate capital expenditure budget upon securing necessary financing commitments.

Water Resource Management

In late 2013, the Company decided that the best use of its resources was to concentrate its future growth on the Appalachian Region exclusively. As part of this plan, the Company expects our near-term growth to center around the following:

•

The addition of new disposal wells in the Appalachian Region. One new disposal well was added during the first quarter of 2014, and several additional wells are in the final stages of completion. We expect these wells to be completed in the fourth quarter of 2014, allowing us to reach our goal of doubling our disposal capacity during 2014.

	•	The development of its current barge facilities as well as adding additional barging locations which will enable the Company to transport water to disposal sites at prices more competitive than traditional transportation methods such as trucking. The Company expects this to result in higher profit margins as compared to traditional transportation methods. Barging activities are expected to begin late in the last half of 2014.

	•	The construction of pipelines to carry produced water to disposal wells. We expect this lower cost method of transporting water to enhance our ability to attract and retain customers in this market. The new disposal well added during the first quarter of 2014 is fed by a pipeline from an existing off-loading facility, which we expect to increase the incremental profit margin for water disposal for this well. All of the wells we intend to bring into service during the fourth quarter of 2014 will be fed by pipelines from existing off-loading terminals. We expect this trend to continue into 2015.

	•	The addition of transport trucks and trailers to our fleet to reduce our dependence on third party trucking needed to meet the demands of our customers, which we also expect to improve our profit margins. We are currently in the process of seeking to increase our truck fleet in Appalachia via the acquisition of new trucks.

	•	An increase in the sales and rental of our MAG Tanks™. We are currently having MAG Tank™ inventory constructed in two manufacturing locations in anticipation of growth in this business activity.

	•	The addition of additional water treatment facilities to broaden the use of our Frac Cycle technology.

The Company expects our longer-term growth to center around the following:

•

The construction of three independent pipelines in the Appalachian Region. The Company is currently negotiating financing to fund the construction of the pipelines. The pipelines will be used to transport oilfield waste water (brine), fresh water, and hydrocarbons (condensate and NGLs), respectively. The point of delivery will be along the Ohio River. We expect to have this financing in place in the fourth quarter of 2014 or early 2015.

•

The building of the infrastructure needed to store, transport (mainly by barge), offload, and deliver the fresh water and condensates to buyers and the adding of new disposal wells capable of handling the significant amounts of waste water that will be received via the new pipeline when completed.

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As part of our focus on the Appalachian Region going forward, the Company has sold most of its fixed assets in South Texas and expects to sell off its remaining fixed assets in Oklahoma to improve both our working capital deficit and to provide capital necessary for our growth plans in Appalachia. Some equipment formerly used in South Texas has been transferred to Appalachia.

We have previously closed the sale of all of our South Texas wells except one in the first quarter of 2014, and the last well closed on May 1, 2014. We expect to sell our Oklahoma wells sometime in late 2014.

The estimated total net proceeds from assets sold or currently under contract exceed $13.5 million. Management is continuing its discussions with various parties concerning new loans and/or possibly equity necessary to fund its future growth plans in Appalachia.

Critical Accounting Policies and Other

In addition to established accounting policies, our consolidated financial statements are impacted by certain estimates and assumptions made by management. No changes in our critical accounting policies have occurred since the filing of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Contractual Obligations and Commercial Commitments

We have the following contractual obligations as of September 30, 2014.

	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Contractual Obligations:
Fixed-rate long-term debt	$	11,517,607	$	2,223,520	$	5,468,093	$	2,350,756	$	1,475,238
Fixed-rate interest payments		1,382,140		205,967		642,410		186,766		346,997
Notes due to related parties		350,000		350,000		-		-		-
9% Series B Secured Redeemable Debentures (a)		119,160		119,160		-		-		-
Operating leases (b)		785,684		237,667		365,100		90,000		92,917
Total Contractual Obligations	$	14,154,591	$	3,136,314	$	6,475,603	$	2,627,522	$	1,915,152

(a)	Assumes 9% interest over 1 year term due to its classification.
(b)	Represents future minimum lease payments for non-cancelable operating leases for property, equipment and certain office equipment.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, unconsolidated variable interest entities, or financing partnerships.

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Item 3. Quantitative and Qualitative Disclosures about Market Risks

Cybersecurity Risks and Threats

Threats to information technology systems associated with cybersecurity risks and cyber incidents or attacks continue to grow. It is possible that our business, financial and other systems could be compromised, which might not be noticed for some period of time. Risks associated with these threats include, among other things, loss of intellectual property, disruption of our and customers’ business operations and safety procedures, loss or damage to our worksite data delivery systems, and increased costs to prevent, respond to or mitigate cybersecurity events.

There were no material changes other than the addition of the above risk related to cybersecurity in our Quantitative and Qualitative Disclosures about Market Risks from our Form 10-K for the year ended December 31, 2013.

Item 4. Controls and Procedures

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 amended (the “Exchange Act”) as of September 30, 2014. 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 Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms, and that information required to be disclosed in reports filed by us under the 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 September 30, 2014.

Changes in Disclosure Controls and Procedures and in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

We operate in a highly regulated industry. We are subject to the regulatory authority of the SEC, the EPA and numerous other federal and state governmental agencies. From time to time, we may become involved in litigation relating to claims arising from our ordinary course of business. While we cannot predict the outcome of any proceeding with certainty, we do not believe that there are any claims or actions pending or threatened against us, the ultimate disposition of which we believe would have a material adverse effect on us or our operations. Refer to Note 10 – Commitments and Contingencies in this Form 10-Q for further information.

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Item 6. Exhibits

Exhibit Number		Exhibit Title

3.1		Certificate of Incorporation (Incorporated by reference to the Company’s Form 10, dated October 19, 2007)

3.2		Amendment to the Certificate of Incorporation (Incorporated by reference to the Company’s Form 10, dated October 19, 2007)

3.3		Bylaws (Incorporated by reference to the Company’s Form 10, dated October 19, 2007)

3.3.1		Amendment to Bylaws (Incorporated by reference to the Company’s DEF 14A Proxy Statement filed September 3, 2009

4.1		Form of Warrant Agreement by and between the Company and purchasers of securities, dated November 14, 2013 (Incorporated by reference to the Company’s Form 8-K, dated November 19, 2013)

4.2		Form of Warrant Agreement by and between the Company and purchasers of securities, dated September 19, 2013 (Incorporated by reference to the Company’s Form 8-K, dated September 24, 2013)

4.3		Form of Warrant Agreement between the Company and Gary C. Evans, dated December 12, 2013 (Incorporated by reference to the Company’s Form 8-K, dated December 12, 2013)

4.4		Form of Warrant Agreement by and between the Company and purchasers of securities, dated February 28, 2014 (Incorporated by reference to the Company’s Form 8-K, dated February 28, 2014)

4.5		Second Amended and Restated Certificate of Designations of 10% Series C Cumulative Preferred Stock (Incorporated by reference to the Company’s Form 8-K, dated April 25, 2012)

4.6		Certificate of Correction to the Amended and Restated Certificate of Designations, Rights, Number of Shares and Preferences of the 10% Series C Cumulative Preferred Stock (Incorporated by reference to the Company’s Form 10-K, dated April 5, 2013)

10.1		Form of securities purchase agreement by and between the Company and purchasers of securities, dated September 19, 2013 (Incorporated by reference to the Company’s Form 8-K, dated September 24, 2013)

10.2		Form of registration rights agreement by and between the Company and purchasers of securities, dated September 19, 2013 (Incorporated by reference to the Company’s Form 8-K, dated September 24, 2013)

10.3		Equity Purchase Agreement between Triad Hunter LLC and the Company dated February 17, 2012 (Incorporated by reference to the Company’s Form 8-K, dated February 17, 2012)

10.4		Registration Rights Agreement dated February 17, 2012 between the Company and Triad Hunter, LLC (incorporated by reference from the registrant’s Annual Report on Form 10-K filed on March 30, 2012)

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10.5		Asset Purchase Agreement by and among GreenHunter Water, LLC, Helena Hunter Water Disposal, LLC and Sable Environmental SWD 4, LLC dated June 10, 2013 (incorporated by reference from Form 8-K, dated June 14, 2013)

10.6		Form of Note by and between the Company and purchasers of securities, dated November 14, 2013 (Incorporated by reference to the Company’s Form 8-K, dated November 19, 2013)

10.7		Form of Note between the Company and Gary C. Evans, dated December 12, 2013 (Incorporated by reference to the Company’s Form 8-K, dated December 12, 2013)

10.8		Form of Note by and between the Company and purchasers of securities, dated February 28, 2014 (Incorporated by reference to the Company’s Form 8-K, dated February 28, 2014)

10.9		Asset Purchase Agreement by and among GreenHunter Water, LLC, Kenedy Hunter LLC, Coy City Hunter LLC and Sable Environmental SWD 5, LLC dated January 29, 2014 (Incorporated by reference to the Company’s Form 8-K, dated January 29, 2014)

10.10		Purchase and Sale Agreement between GreenHunter Mesquite Lake, LLC, (“Seller”)and ML Energy Park, LLC, a California limited liability company (“Purchaser”) dated February 19, 2014 (Incorporated by reference to the Company’s Form 8-K, dated January 29, 2014)

10.11		Form of the Company’s Stock Option Agreement (incorporated by reference from the registrant’s Amendment No. 2 to its registration statement on Form S-1, filed on May 18, 2012)

10.12		2013 Long-Term Incentive Compensation Plan (Incorporated by reference to the Company’s Form 10-Q dated June 30, 2013)

10.13		Asset Purchase Agreement by and among GreenHunter Water, LLC, Westhoff Hunter, LLC, and Clear Water Resources Partners, LLC, dated March 26, 2014 (Incorporated by reference to the Company’s Form 8-K, dated March 28, 2014)

10.14		Asset Purchase Agreement by and among GreenHunter Water, LLC, Dilley Hunter, LLC, and Sable Environmental SWD 7, LLC, dated March 11, 2014, as amended (Incorporated by reference to the Company’s Form 8-K, dated March 26, 2014)

31.1 †		Certifications of the Chief Executive Officer.

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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.
101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

†	Filed herewith

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized


		GreenHunter Resources, Inc.

Date: November 12, 2014	By:	/s/ Gary C. Evans
		Gary C. Evans

		Chairman and Interim Chief Executive Officer

Date: November 12, 2014	By:	/s/ Kirk J. Trosclair
		Kirk J. Trosclair

		Executive Vice President and Chief Operating Officer

Date: November 12, 2014	By:	/s/ Ronald McClung
		Ronald McClung

		Senior Vice President and Chief Financial Officer

Date: November 12, 2014	By:	/s/ Morgan F. Johnston
		Morgan F. Johnston

		Senior Vice President, General Counsel and Secretary

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GreenHunter Resources, Inc. - FORM 10-Q - November 12, 2014

Attached files

GreenHunter Resources, Inc. Reports