UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark one)

þ		Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

o		Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 001-33893

GREENHUNTER ENERGY, INC.

(Exact name of registrant as specified in its charter)

Delaware		20-4864036
(State or other jurisdiction of incorporation or organization)		(IRS employer identification No.)

1048 Texan Trail, Grapevine, Texas 76051

(972) 410-1044

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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). þ Yes o 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. See the definitions of “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the exchange act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of August 15, 2011: 25,420,674 shares of Common Stock, par value $0.001 per share.

 

 

PART 1 — FINANCIAL STATEMENTS

Item 1.		Financial Statements

GREENHUNTER ENERGY, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Development Stage Company)

		June 30,
		2011				December 31, 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	12,737			$	181,471
Related party accounts receivable			27,981				4,783
Deposits and other current assets			68,135				88,014
Prepaid expenses			122,774				182,079
Total current assets			231,627				456,347
FIXED ASSETS:
Land and improvements			3,243,687				3,243,687
Buildings			3,100,621				3,100,621
Plant and other equipment			2,621,262				2,626,140
Accumulated depreciation			(658,972	)			(566,525	)
Construction in progress			12,842,379				12,846,608
Net fixed assets			21,148,977				21,250,531
OTHER ASSETS:
Deferred financing costs			219,165				264,998
Other noncurrent assets			1,448,136				1,446,136
Total assets		$	23,047,905			$	23,418,012
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of notes payable		$	136,451			$	176,603
Note payable to related party			771,878				766,957
Redeemable debentures, net of discount of $26,930 and $0, respectively			5,277,505				—
Accounts payable			2,255,440				2,098,328
Dividends payable			178,592				172,056
Accrued liabilities			3,923,155				3,498,207
Convertible securities			36,822				1,001,622
Total current liabilities			12,579,843				7,713,773
NON-CURRENT LIABILITIES:
Redeemable debentures, net of discount of $0 and $29,558, respectively			—				5,272,249
Notes payable			2,837,112				2,886,947
Total liabilities			15,416,955				15,872,969
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS’ EQUITY:
Series A 8% convertible preferred stock, $.001 par value, $1,271 and $1,220 stated value, 5,978 and 6,750 issued and outstanding, and liquidation preference of $7,774,058 and $8,576,345, at June 30, 2011 and December 31, 201 , respectively			7,595,466				8,232,234
Series B convertible preferred stock, $.001 par value, $1,000 stated value, 9,802 and 10,575 issued and outstanding and liquidation preference of $9,802,000 and 10,575,000 at June 30, 2011 and December 31, 2010, respectively			9,802,000				10,575,000
Common stock, $.001 par value, 90,000,000 authorized shares, 22,138,876 issued each period and 25,949,004 and 22,601,504 outstanding, respectively			25,229				22,139
Additional paid-in capital			93,590,143				88,968,889
Accumulated deficit prior to re-entering development stage			(126,670,716	)			(126,670,716	)
Retained earnings during development stage			23,851,026				26,979,695
Treasury stock, at cost, 22,412 shares			(336,285	)			(336,285	)
Unearned common stock in KSOP, at cost, 15,200 shares			(225,913	)			(225,913	)
Total stockholders’ equity			7,630,950				7,545,043
Total liabilities and stockholders’ equity		$	23,047,905			$	23,418,012

See accompanying notes to the condensed consolidated financial statements

GREENHUNTER ENERGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
AND THE PERIOD FROM JULY 1, 2010 (RE-ENTERING DEVELOPMENT STAGE) THROUGH
JUNE 30, 2011 (DEVELOPMENT STAGE COMPANY)

																		From Re-entering
																		Development
																		Stage
		For the Three Months								For the Six Months Ended								July 1, 2010
		Ended June 30,								June 30,								through
		2011				2010				2011				2010				June 30, 2011
COSTS AND EXPENSES:
Project costs		$	—			$	—			$	203			$	4,065			$	(14,492	)
Depreciation expense			46,892				46,830				94,480				94,505				189,733
Selling, general and administrative			990,456				728,382				2,115,995				1,813,438				5,648,387
Loss on asset impairments			—				—				—				160,824				—
Total costs and expenses			1,037,348				775,212				2,210,678				2,072,832				5,823,628
OPERATING LOSS			(1,037,348	)			(775,212	)			(2,210,678	)			(2,072,832	)			(5,823,628	)
OTHER INCOME (EXPENSE):
Interest and other income			9				211,289				4,860				2,135,778				863,365
Interest, accretion and other expense			(188,070	)			(165,883	)			(373,294	)			(332,677	)			1,149,496
Unrealized gain (loss) on convertible securities			(250,671	)			—				(198,909	)			—				—
Total other income (expense)			(438,732	)			45,406				(567,343	)			1,803,101				2,012,861
Loss from continuing operations			(1,476,080	)			(729,806	)			(2,778,021	)			(269,731	)			(3,810,767	)
Gain on disposal of discontinued operations			—				—				—				—				33,055,388
Loss from discontinued operations, net of taxes			—				(3,403,690	)			—				(6,408,287	)			(3,771,559	)
Net income (loss)			(1,476,080	)			(4,133,496	)			(2,778,021	)			(6,678,018	)			25,473,062
Preferred stock dividends			(178,592	)			(163,862	)			(350,648	)			(319,922	)			(686,567	)
Net income (loss) to common stockholders		$	(1,654,672	)		$	(4,297,358	)		$	(3,128,669	)		$	(6,997,940	)		$	24,786,495
Weighted average shares outstanding, basic and diluted			23,981,809				22,373,261				23,424,602				22,239,515				22,967,035
Basic and diluted earnings (loss) per share:
Continuing operations		$	(0.07	)		$	(0.04	)		$	(0.13	)		$	(0.03	)		$	(0.20	)
Discontinued operations		$	—			$	(0.15	)		$	—			$	(0.29	)		$	1.28
Net income (loss) per share		$	(0.07	)		$	(0.19	)		$	(0.13	)		$	(0.31	)		$	1.08

See accompanying notes to the condensed consolidated financial statements

     

GREENHUNTER ENERGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE PERIOD FROM JULY 1, 2010 TO JUNE 30, 2011
(Development Stage Company)

														Additional				Accumulated Deficit				Accumulated Deficit During								Unearned				Total
		Series A				Series B				Common				Paid in				Prior to Re-entering				Development Stage July 1,				Treasury				Shares in				Stockholders’
		Preferred Stock				Preferred Stock				Stock				Capital				Development Stage				2010 - June 30, 2011				Stock				KSOP				Deficit
BALANCE, July 1, 2010		$	7,904,508			$	10,575,000			$	22,139			$	88,043,038			$	(126,670,716	)		$	—			$	(336,285	)		$	(225,913	)		$	(20,688,229	)
Transfer accumulated preferred dividends to stated value			327,726				—				—				—				—				—				—				—				327,726
Share based payments			—				—				—				925,851				—				—				—				—				925,851
Dividends on preferred stock			—				—				—				—				—				(335,919	)			—				—				(335,919	)
Net income			—				—				—				—				—				27,315,614				—				—				27,315,614
BALANCE, DECEMBER 31, 2010		$	8,232,234			$	10,575,000			$	22,139			$	88,968,889			$	(126,670,716	)		$	26,979,695			$	(336,285	)		$	(225,913	)		$	7,545,043
Transfer accumulated preferred dividends to stated value			344,111				—				—				—				—				—				—				—				344,111
Share based payments			—				—				—				161,756				—				—				—				—				161,756
Issued shares of common stock and warrants for cash			—				—				1,045				1,043,955				—				—				—				—				1,045,000
Dividends on preferred stock			—				—				—				—				—				(350,648	)			—				—				(350,648	)
Issued shares of common stock and warrants upon conversion of shares of Series A Preferred Stock			(980,879	)			—				772				1,607,870				—				—				—				—				627,763
Issued shares of common stock and warrants upon conversion of shares of Series B Preferred Stock			—				(773,000	)			773				1,308,173				—				—				—				—				535,946
Issued shares of common stock and warrants upon conversion of $500,000 in principal of the promissory note payable with a related party			—				—				500				499,500				—				—				—				—				500,000
Net loss			—				—				—				—				—				(2,778,021	)			—				—				(2,778,021	)
BALANCE, JUNE 30, 2011		$	7,595,466			$	9,802,000			$	25,229			$	93,590,143			$	(126,670,716	)		$	23,851,026			$	(336,285	)		$	(225,913	)		$	7,630,950

See accompanying notes to the condensed consolidated financial statements

GREENHUNTER ENERGY, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
AND THE PERIOD FROM JULY 1, 2010 (RE-ENTERING DEVELOPMENT STAGE) THROUGH
JUNE 30, 2011 (DEVELOPMENT STAGE COMPANY)

										From Re-entering
										Development Stage
		For the Six Months Ended June 30,								July 1, 2010 through
		2011				2010				June 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(2,778,021	)		$	(6,678,018	)		$	25,473,062
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation expense			94,480				1,674,487				189,733
Noncash stock compensation			161,756				700,551				1,352,669
Issue warrants on letter of guarantee			—				69,111				—
Amortization of deferred financing costs			45,833				1,226,277				597,374
Loss on asset impairments			—				160,824				—
Gain (loss) on sale of assets			1,967				—				(33,053,421	)
Accretion of discount			5,256				200,166				172,936
Unrealized loss (gain) from change in fair value of convertible securities			198,909				—				—
Changes in certain assets and liabilities:
Accounts receivable			(39,836	)			28,639				(38,928	)
Inventory			—				179,322				—
Prepaid expenses			79,184				463,522				47,083
Accounts payable			157,112				(7,510,321	)			1,960,143
Accrued liabilities			433,723				3,467,741				1,696,573
Deposits and other current assets			—				—				110
Net cash used in operating activities			(1,639,637	)			(6,017,699	)			(1,602,666	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in restricted cash			—				2,018,717				48
Proceeds from sale of assets			—				9,775				—
Additions to fixed assets			(4,547	)			(305,425	)			(1,803,695	)
Increase in other assets			(2,000	)			(1,196,136	)			48,000
Net cash provided by (used in) investing activities			(6,547	)			526,931				(1,755,647	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and warrants			1,045,000				—				1,045,000
Increase in notes payable			573,598				55,848				1,538,590
Payment of notes payable			(141,148	)			(151,850	)			(264,349	)
Payment of deferred financing costs			—				—				(275,802	)
Net cash provided by (used in) financing activities			1,477,450				(96,002	)			2,043,439
CHANGE IN CASH			(168,734	)			(5,586,770	)			(1,314,874	)
CASH, beginning of period			181,471				6,914,381				1,327,611
CASH, end of period		$	12,737			$	1,327,611			$	12,737
Cash paid for interest		$	166,287			$	729,376			$	986,959
NONCASH TRANSACTIONS:
Shares of common stock and warrants issued upon conversion of shares of Series A Preferred Stock and Series B Preferred Stock		$	1,753,879			$	—			$	1,753,879
Shares of common stock and warrants issued upon conversion of principal on promissory note with a related party		$	500,000				—			$	500,000

See accompanying notes to consolidated financial statements

GREENHUNTER ENERGY, INC.
AS OF AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Nature of Operations

     In this quarterly report on Form 10-Q, the words “GreenHunter Energy”, “company”, “we”, “our”, and “us” refer to GreenHunter Energy, Inc. and its consolidated subsidiaries unless otherwise stated or the context otherwise requires. The condensed consolidated balance sheet of GreenHunter Energy, Inc. and subsidiaries as of June 30, 2011, the condensed consolidated statements of operations for the three and six months ended June 30, 2011 and 2010, the condensed consolidated statement of stockholders’ equity for the six months ended June 30, 2011, and the condensed consolidated statements of cash flows for the six months ended June 30, 2011 and 2010, are unaudited. The December 31, 2010 condensed consolidated balance sheet information is derived from audited financial statements. In the opinion of management, all necessary adjustments (which include only normal recurring adjustments) have been made to present fairly the financial position at June 30, 2011, and the results of operations for the three and six month periods ended June 30, 2011 and 2010, changes in stockholders’ equity for the six months ended June 30, 2011, and cash flows for the six month periods ended June 30, 2011 and 2010.

     Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. You should read these condensed consolidated financial statements in conjunction with the financial statements and notes thereto included in our December 31, 2010 Form 10-K. The results of operations for the three and six month periods ended June 30, 2011 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.

Development Stage Company

     The Company has not earned significant revenue from planned principal operations since the second quarter of 2010. Accordingly, effective July 1, 2010, the Company’s activities have been accounted for as those of a “Development Stage Enterprise” as set forth by FASB ASC 915. Among the disclosures required are that the Company’s financial statements be identified as those of a development stage company, and the statements of operations, stockholders’ equity and cash flows disclose activity since the date of the Company’s inception of development stage.

Nature of Operations

     Our business plan is to acquire businesses, develop projects, and operate assets involved within the renewable energy sectors of clean water, biomass, wind, solar and geothermal. We structured our business to become a leading provider of clean energy products offering industrial, business, and residential customers the opportunity to purchase and utilize clean energy generated from renewable sources. Management has identified a significant unmet need and market opportunity in the area of clean water management as it relates to unconventional resource plays in the energy industry.

     The accompanying financial statements include the accounts of GreenHunter Energy, Inc. and our wholly-owned subsidiaries, GreenHunter Mesquite Lake, LLC (“Mesquite Lake”), GreenHunter Wind Energy, LLC (“Wind”), and GreenHunter Water, LLC (f/k/a Hilltop Wind Energy, LLC). All significant intercompany transactions and balances have been eliminated.

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

     Our financial position has been adversely affected by our lack of working capital and the overall deterioration across all capital markets, particularly those for renewable energy companies. The lack of consistent and meaningful governmental support with tax incentives and other credit enhancements has had a serious detrimental effect on our planned business operations.

     As of June 30, 2011, we had a working capital deficit of $12.3 million which includes $4.1 million related to construction at our Mesquite Lake Biomass Plant.

GREENHUNTER ENERGY, INC.
AS OF AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     We have continued to experience losses from ongoing operations. These factors raise doubt about our ability to continue as a going concern. We have received a number of advances from our Chairman and Chief Executive Officer in exchange for promissory notes that have been consolidated and extended to December 31, 2011. On March 30, 2011, we received a letter of guarantee from the Chairman and Chief Executive Officer of the company for up to $1.5 million of credit support if needed to fund operations. The total amount loaned against this letter of guarantee is approximately $772 thousand resulting in remaining guarantee of $728 thousand as of June 30, 2011.

     Execution of our business plan for the next twelve months requires the ability to generate cash to satisfy planned operating requirements. We expect to receive $500 thousand in proceeds as another progress payment from the sale of our Ocotillo wind energy project in September 2011. Along with the letter of guarantee and credit support, we anticipate having sufficient cash reserves to meet all of our anticipated operating obligations for the next twelve months. Planned capital expenditures are wholly dependent on the Company’s ability to secure additional capital. As a result, we are in the process of seeking additional capital through a number of different alternatives, and particularly with respect to procuring working capital sufficient for the development of our new water service business and our Mesquite Lake biomass plant in order that we have a business segment that can generate positive cash flow to sustain operations. We continue to pursue opportunities in water resource management.

Income or Loss Per 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 and preferred stock.

     Shares of common stock underlying the following items were not included in dilutive weighted average shares outstanding for the three and six month periods ended June 30, 2011 and 2010, as their effects would have been anti-dilutive.

		Six months ended
		June 30,
		2011				2010
Stock options			6,776,500				7,076,500
Warrants			7,692,548				6,351,745
Convertible debentures			7,042,248				27,507,141
Preferred Stock			2,826,026				2,990,902
Total			24,337,322				43,926,288

Note 2. New Accounting Pronouncements

     In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amended guidance changes several aspects of the fair value measurement guidance in ASC 820, Fair Value Measurement, further clarifying how to measure and disclose fair value. This guidance amends the application of the “highest and best use” concept to be used only in the measurement of fair value of nonfinancial assets, clarifies that the measurement of the fair value of equity-classified financial instruments should be performed from the perspective of a market participant who holds the instrument as an asset, clarifies that an entity that manages a group of financial assets and liabilities on the basis of its net risk exposure can measure those financial instruments on the basis of its net exposure to those risks, and clarifies when premiums and discounts should be taken into account when measuring fair value. The fair value disclosure requirements also were amended. The amendment is effective for the Company at the beginning of January 2012, with early adoption prohibited. The adoption of this amendment is not expected to materially affect the Company’s financial statements.

Note 3. Fair Value of Financial Instruments

     Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standards also establish a framework for

GREENHUNTER ENERGY, INC.
AS OF AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

measuring fair value and a valuation hierarchy based upon the transparency of inputs used in the valuation of an asset or liability. Classification within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuation hierarchy contains three levels:

	•		Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets
	•		Level 2 — Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs or significant value drivers are observable
	•		Level 3 — Significant inputs to the valuation model are unobservable

     As of June 30, 2011 and December 31, 2010 there were no transactions measured at fair value on a nonrecurring basis. The following table shows assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010 and the input categories associated with those assets and liabilities.

Fair value measurements on a recurring basis
June 30, 2011
		Level 1				Level 2				Level 3
Convertible securities		$	—			$	—			$	36,822
Total liabilities at fair value		$	—			$	—			$	36,822

Fair value measurements on a recurring basis
December 31, 2010
		Level 1				Level 2				Level 3
Convertible securities		$	—			$	—			$	1,001,622
Total liabilities at fair value		$	—			$	—			$	1,001,622

The following schedule shows the changes in fair value measurements during the six months ended June 30, 2011:

Fair market value as of December 31, 2010		$	(1,001,622	)
Unrealized loss from change in fair market value			(198,909	)
Fair market value of derivatives settled upon conversion of Preferred Stock to common shares			1,163,709
Fair market value as of June 30, 2011		$	(36,822	)

     The Company had current derivative liabilities resulting from the antidilutive features on its common stock warrants, Series A Convertible Preferred Stock, and Series B Convertible Preferred Stock. The estimated fair value of the convertible securities liability is revalued at each balance sheet date, with changes in value recorded as other income or expense in the consolidated statements of operations. As discussed in Note 7, Stockholders’ Equity, on June 21, 2011, pursuant to the agreement with the holder of our Series A and Series B Preferred Stock outstanding, the holder converted 772 shares of Series A Preferred and 773 shares of Series B Preferred with combined stated value of $1.8 million into 772,500 units which were being sold under our private placement of common stock and warrants. The fair value of the antidilutive provision for those shares on June 21, 2011, of $1.2 million was reclassed to additional paid in capital upon the conversion of the preferred shares.

Note 4. Discontinued Operations

     During June 2010, the assets of GreenHunter BioFuels, Inc., a former wholly owned subsidiary, were placed into receivership. On November 26, 2010, the Company transferred all of its common stock in BioFuels to an irrevocable trust for the benefit of the holders of the Series A Debentures and their respective successors, assigns, heirs and devisees in full and final satisfaction of any obligation the Company might have to the holders of the Series A Debentures, based on the terms of the debenture agreements. These

GREENHUNTER ENERGY, INC.
AS OF AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

debentures were secured by GreenHunter Energy’s ownership interest in GreenHunter BioFuels common stock and are otherwise non-recourse to GreenHunter Energy. The divestiture of our interests in GreenHunter BioFuels resulted in a one time gain of $33.1 million.

     The following table provides summarized income statement information related to GreenHunter BioFuel’s discontinued operations for the three and six months ended June 30, 2010:

		Three months ended				Six months ended
		June 30, 2010				June 30, 2010
Sales and other revenues from discontinued operations		$	75,776			$	319,170
Operating expenses from discontinued operations			(1,460,531	)			(3,800,366	)
Other expense from discontinued operations			(2,018,935	)			(2,927,091	)
Loss from discontinued operations		$	(3,403,690	)		$	(6,408,287	)

Note 5. Impairments

     We periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful life of long-term assets or whether the remaining balance of long-term assets should be evaluated for possible impairment. We compare the estimate of the related undiscounted cash flows over the remaining useful lives of the applicable assets to the assets’ carrying values in measuring their recoverability. When the future cash flows are not sufficient to recover an asset’s carrying value, an impairment charge is recorded for the difference between the asset’s fair value and its carrying value. During the six months ended June 30, 2011, we recorded no impairments. We recorded $161 thousand of impairments for the six months ended June 30, 2010, on assets for wind projects that had expired.

Note 6. Notes Payable

     Notes Payable at June 30, 2011, consisted of the following:

		June 30,				December 31,
		2011				2010
Note payable due November 30, 2017, 5.7%		$	2,934,552			$	2,982,051
Notes payable to related party due December 31, 2011, 10% and 14%			771,878				766,957
Notes payable due between July 1, 2011 and March 2, 2012, rates from 7.0% to 8.25%			39,011				81,499
9% Series B Senior Secured Redeemable Debentures due on various dates ranging from September 30, 2013 to February 28, 2014, net of discount of $26,930 and $29,558 at June 30, 2011 and December 31, 2010, respectively			5,277,505				5,272,249
			9,022,946				9,102,756
Less: current portion			(6,185,834	)			(943,560	)
Total Long-Term Debt		$	2,837,112			$	8,159,196

Note Payable to Related Party

     During the six months ended June 30, 2011, the Company has borrowed an additional $100,000 under our 10% promissory note due to the Company’s Chairman and Chief Executive Officer. On May 6, 2011, the maturity date was extended to December 31, 2011. The Company also borrowed an additional $400,000 under a new promissory note at an interest rate of 14% from the Chairman and Chief Executive Officer.

     On June 21, 2011, principal in the amount of $500,000 from the 10% Promissory Note due to the Chairman and Chief Executive Officer was converted to 250,000 units which were offered under our private placement of common stock and warrants. See Note 7, Stockholders Equity, for more information.

GREENHUNTER ENERGY, INC.
AS OF AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The balance under these promissory notes was $771,878 at June 30, 2011, and $766,957 at December 31, 2010.

Series B Debentures

     The Company has not paid interest on our Series B debentures for the period March 2011 through June 2011. Therefore, we were in default on our Series B Debentures at June 30, 2011. Upon an event of default, the debentures become due and payable upon demand, so we have classified the debentures as a current liability as of June 30, 2011.

Note 7. Stockholders’ Equity

     The following table reflects changes in our outstanding common stock, preferred stock and warrants during the periods reflected in our financial statements from December 31, 2010 to June 30, 2011:

		Preferred				Common				Treasury
		Stock				Stock				Stock				KSOP				Warrants
December 31, 2010			17,325				22,601,504				22,412				15,200				5,443,911
Issue common stock and warrants for cash			—				1,045,000				—				—				1,045,000
Issue common stock and warrants upon conversion of $500,000 in principal on promissory notes			—				500,000				—				—				500,000
Issue common stock and warrants upon conversion of 1,545 shares of preferred stock			(1,545	)			1,545,000				—				—				1,545,000
Common shares granted to non-employee Board Members							28,090
Common shares granted as 401k matching contribution							229,410
Warrants expired during the period			—				—				—				—				(841,363	)
June 30, 2011			15,780				25,949,004				22,412				15,200				7,692,548

Preferred Stock

     We were not able to pay dividends on our Series A Preferred Stock for the quarters ending December 31, 2010 and March 31, 2011. In accordance with the terms of this preferred stock, accrued dividends of $344 thousand on March 31, 2011 were added to the stated value of the preferred stock. This additional $344 thousand in stated value will accrue dividends at a 10% rate per annum.

     In January of 2011 we entered into an agreement with the holder of our Series A and Series B Preferred Stock where by the holder waived their right under the Series A and Series B Certificate of Designations as it pertains to the adjustment of the conversion price caused by the Company’s private placement to certain accredited investors for consideration of the ability to convert shares of the Series A Preferred having an aggregate stated value equal to 50% and shares of the Series B Preferred having an aggregate stated value equal to 50% of the gross proceeds received by the Company from investors after the closing of the offering into shares of common stock of the Company at the same price which the Company sells the unit shares to investors.

          On June 21, 2011, pursuant to the agreement with the holder of our Series A and Series B Preferred Stock outstanding, the holder converted 772 shares of Series A Preferred and 773 shares of Series B Preferred with combined stated value of $1.8 million into 772,500 units which were being sold under our private placement of common stock and warrants. The fair value of the antidilutive provision for those shares on June 21, 2011, of $1.2 million was reclassed to additional paid in capital upon the conversion of the preferred shares.

Common Stock and Common Stock Warrants

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

Equity Private Placement

     On January 28, 2011, the Company initiated a private placement of common equity securities with accredited investors which closed on June 21, 2011 with total equity raised of $3.0 million. The equity securities sold consisted of units comprised of two shares of common stock and two common stock warrants, one

GREENHUNTER ENERGY, INC.
AS OF AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

with an exercise price of $1.50 and another with an exercise price of $2.50 per share for $2.00 per unit. The sale of these units resulted in proceeds of $1.0 million to the Company. The warrants are exercisable immediately and expire on January 31, 2014.

     The Company’s private placement initiated on January 28, 2011, triggered the antidilutive provision on 4,602,548 common stock warrants outstanding at that time, which adjusted the exercise price for the warrants to $1.50.

     On April 6, 2011, the Company’s Board of Directors approved the 2010 fiscal year 401k matching contribution of $206 thousand to be paid in shares of common stock of the company based on the closing price on the date. The 229,410 shares were not issued as of June 30, 2011, but were included in the weighted average shares outstanding.

     On June 21, 2011, the Company issued 1,545,000 shares of common stock, 772,500 warrants with an exercise price of $1.50, and 772,500 warrants with an exercise price of $2.50 upon the conversion of shares of preferred stock with a stated value of $1.8 million. The fair value of the antidilutive provision on the converted preferred shares on June 21, 2011, of $1.2 million was reclassed to additional paid in capital upon the conversion of the preferred shares.

     On June 21, 2011, the Company issued 500,000 shares of common stock, 250,000 common stock warrants with an exercise price of $1.50, and 250,000 common stock warrants with an exercise price of $2.50 upon the conversion of $500 thousand in principal of our promissory notes with a related party.

     During the six months ended June 30, 2011, 841,363 of our $25.00 common stock warrants have expired.

Note 8. Share-Based Compensation

     We account for our stock-based compensation in accordance with ASC standards on Share-based Payments. The standards apply to transactions in which an entity exchanges its equity instruments for goods or services and also applies to liabilities an entity may incur for goods or services that are to follow a fair value of those equity instruments. Under the ASC standards, we are required to follow a fair value approach using an option-pricing model, such as the Black-Scholes option valuation model, at the date of a stock option grant. The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of the stock option.

     In September 2010, the Company adopted its 2010 Long-Term Incentive Compensation Plan (the “Incentive Plan”), which provides for equity incentives to be granted to employees, officers or directors of the Company, as well as key advisers or consultants. Equity incentives may be in the form of stock options with an exercise price not less than the fair market value of the underlying shares on the date of grant, stock appreciation rights, restricted stock awards, stock bonus awards, other stock-based awards, or any combination of the foregoing. A maximum of 5,000,000 shares of Common Stock were authorized for issuance under the Incentive Plan.

Common Stock Options

     The company did not grant any stock options during the six months ended June 30, 2011.

     We recorded share-based compensation expense of $162 thousand related to stock options for which the requisite service period elapsed during the six months ended June 30, 2011. These expenses are included in our selling, general and administrative expenses. No option exercises occurred during the six months ended June 30, 2011.

     As of June 30, 2011, there was $818 thousand of total unrecognized compensation cost related to unvested shares associated with stock options which will be recognized over a weighted-average period of .93 years. We recognize compensation expense for our stock options on a straight-line basis over their vesting term. We will issue new shares upon the exercise of the stock options.

GREENHUNTER ENERGY, INC.
AS OF AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     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 following is a summary of stock option activity during the six months ended June 30, 2011.

						Weighted				Aggregate
		Number of				average Exercise				Intrinsic
		Shares				Price				Value* ($000’s)
Outstanding — Beginning of Year			7,076,500			$	5.95			$	—
Granted			—				—				—
Exercised			—				—				—
Cancelled			(300,000	)			1.41				—
Outstanding — End of Period			6,776,500			$	5.95			$	—
Exercisable — End of Period			5,392,330			$	7.86			$	—

     The following is a summary of stock options outstanding at June 30, 2011:

						Weighted Average
		Number of				Remaining				Number of
		Options				Contractual Life				Exercisable
Exercise Price		Outstanding				(Years)				Options
$0.97			100,000				7.68				66,666
$1.41			200,000				8.21				—
$1.96			1,725,000				7.91				574,999
$5.00			3,247,000				5.63				3,247,000
$7.50			33,333				6.01				33,333
$10.00			243,333				6.16				243,333
$10.12			2,500				7.03				1,666
$12.00			6,500				6.24				6,500
$13.66			3,000				6.76				3,000
$17.76			40,000				6.37				40,000
$18.00			16,667				6.45				16,667
$18.91			1,099,167				6.38				1,099,166
$19.75			13,333				6.55				13,333
$20.64			25,000				6.69				25,000
$22.75			21,667				6.62				21,667
			6,776,500								5,392,330

Share Awards

     During the six months ended June 30, 2011, we granted 28,090 shares of common stock to the nonemployee members of the Board of Directors as payment for their fees for the first quarter 2011 in lieu of receiving cash for their fees. These common shares vest immediately and were valued at weighted average of $0.89 per share, based on the quoted market value of the stock on the date of the grant. We recognized $25 thousand of expense in our selling, general, and administrative expenses as of June 30, 2011, related to these shares. These shares were not issued as of June 30, 2011 but are included in weighted average basic shares outstanding as of June 30, 2011. At June 30, 2011, there were 198,690 shares owed to the non-employee members of the Board of Directors that were not issued but are included in weighted average basic shares outstanding as of June 30, 2011.

Note 9. Related Party Transactions

     During the six months ended June 30, 2011, we obtained accounting services for a fee and provided office space and services for a fee to Magnum Hunter Resources Corporation, an entity for which our Chairman and Chief Executive Officer is an officer and major shareholder. Office related services revenues net of professional services expense totaled $22 thousand and $40 thousand for the three and six months ended June 30, 2011 and $30 thousand and $60 thousand for the three and six months ended June 30, 2010.

GREENHUNTER ENERGY, INC.
AS OF AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     During the six months ended June 30, 2011, the Company has borrowed an additional $100,000 under our 10% promissory note due to the Company’s Chairman and Chief Executive Officer. On May 6, 2011, the maturity date was extended to December 31, 2011. The Company also borrowed an additional $400,000 under a new promissory note at an interest rate of 14% from the Chairman and Chief Executive Officer. On June 21, 2011, principal in the amount of $500,000 from the 10% Promissory Note was converted to 250,000 units which were offered under our private placement of common stock and warrants. See Note 7, Stockholders’ Equity, for more information.

Note 10. Segment Data

     We currently have two reportable segments: Wind Energy and Biomass. Each of our segments is a strategic business that offers different products and services. They are managed separately because each business unit requires different technology, marketing strategies and personnel. All of our segments are still in development stages with no significant operations.

     The accounting policies for our segments are the same as those described in our Form 10-K for the year ended December 31, 2010. There are no intersegment revenues or expenses.

     Segment data for the three and six month periods ended June 30, 2011 and 2010 are as follows:

		For the Three Months Ended June 30, 2011
		Unallocated
		Corporate				BioMass				Wind Energy				TOTAL
Depreciation expense		$	46,892			$	—			$	—			$	46,892
Selling, general and administrative			774,941				214,545				970				990,456
Operating loss			(821,833	)			(214,545	)			(970	)			(1,037,348	)
Other income and (expense)			(438,732	)			—				—				(438,732	)
Loss from continuing operations		$	(1,260,565	)		$	(214,545	)		$	(970	)		$	(1,476,080	)
Total Assets		$	4,076,198			$	18,969,070			$	2,637			$	23,047,905
Capital Expenditures		$	—			$	4,547			$	—			$	4,547

		For the Three Months Ended June 30, 2010
		Unallocated
		Corporate				BioMass				Wind Energy				TOTAL
Depreciation expense		$	46,830			$	—			$	—			$	46,830
Selling, general and administrative			601,139				121,726				5,517				728,382
Operating loss			(647,969	)			(121,726	)			(5,517	)			(775,212	)
Other income and (expense)			(118,756	)			164,160				2				45,406
Income (loss) from continuing operations		$	(766,725	)		$	42,434			$	(5,515	)		$	(729,806	)
Total Assets		$	6,919,166			$	17,142,530			$	36,524			$	24,098,220
Capital Expenditures		$	2,836			$	149,699			$	—			$	152,535

GREENHUNTER ENERGY, INC.
AS OF AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

		For the Six Months Ended June 30, 2011
		Unallocated
		Corporate				BioMass				Wind Energy				TOTAL
Total Operating Costs		$	—			$	—			$	203			$	203
Depreciation expense			94,480				—				—				94,480
Selling, general and administrative			1,835,497				279,528				970				2,115,995
Operating loss			(1,929,977	)			(279,528	)			(1,173	)			(2,210,678	)
Other income and (expense)			(567,343	)			—				—				(567,343	)
Loss from continuing operations		$	(2,497,320	)		$	(279,528	)		$	(1,173	)		$	(2,778,021	)
Total Assets		$	4,076,198			$	18,969,070			$	2,637			$	23,047,905
Capital Expenditures		$	—			$	4,547			$	—			$	4,547

		For the Six Months Ended June 30, 2010
		Unallocated
		Corporate				BioMass				Wind Energy				TOTAL
Total Operating Costs		$	—			$	—			$	4,065			$	4,065
Depreciation expense			94,505				—				—				94,505
Loss on asset impairments			—				—				160,824				160,824
Selling, general and administrative			2,153,347				(352,377	)			12,468				1,813,438
Operating loss			(2,247,852	)			352,377				(177,357	)			(2,072,832	)
Other income and (expense)			(57,191	)			1,860,290				2				1,803,101
Loss from continuing operations		$	(2,305,043	)		$	2,212,667			$	(177,355	)		$	(269,731	)
Total Assets		$	6,919,166			$	17,142,530			$	36,524			$	24,098,220
Capital Expenditures		$	7,474			$	320,223			$	—			$	327,697

Note 11. Commitments and Contingencies

Bioversel, Inc

     Bioversel brought suit against the Company on September 24, 2008, alleging that the Company has repudiated its biodiesel tolling agreement, as amended with the plaintiff. The plaintiff has alleged breach of contract, fraud, and conversion regarding defendant’s ability to process feedstock into biodiesel under the contract. The Company filed a countersuit against Bioversel, Inc. for failure to make payments to defendant under the contract.

     The Company and the defendant had a mediation on September 29, 2010. The parties failed to settle this suit at mediation and the suit went to trial in front of a Judge in Harris County, Texas. The trial concluded on April 12, 2011 and the Judge is expected to render a verdict prior to August 31, 2011. No amounts have been accrued as no losses are anticipated as a result of this litigation.

Series A Debenture Holders, et al.

     On or about June 29, 2007, GreenHunter issued a Private Placement Memorandum to potential investors for 10% Series A Secured Redeemable Debentures. The plaintiffs allege that the defendants fraudulently made representations to the plaintiffs that the debentures were collaterally backed by the biodiesel refinery, when in fact the only collateral for the Debentures was equity ownership in GreenHunter’s former wholly owned subsidiary, GreenHunter BioFuels, Inc.

GREENHUNTER ENERGY, INC.
AS OF AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     Plaintiffs refiled an arbitration case for this matter to be heard in Houston, Texas before a three member Arbitration panel. The parties have conducted a preliminary hearing. There will be no discovery conducted between the parties and the arbitration hearing has now been set for January 2012. No amounts have been accrued as no losses are anticipated as a result of this claim.

Note 12. Subsequent Events

     On August 2, 2011, a wholly owned subsidiary of GreenHunter Water, LLC, entered into a definitive agreement to acquire approximately 99 mineral acres and 84 surface acres located in West Virginia where it plans to develop a commercial water service facility. The acquisition includes an existing well that has been approved for commercial water disposal by the state. The acquisition will close in two phases where the first closing is anticipated on August 31, 2011, and the second closing will be upon the well commencing commercial operations. Total consideration to be paid consists of $750 thousand in cash and preferred stock to be valued at $300 thousand.

     On August 2, 2011, a wholly owned subsidiary of GreenHunter Water, LLC, entered into a definitive agreement to lease approximately 5 mineral acres in Wilson County, Texas, where it will develop a wastewater injection well. Total consideration paid consists of $1 thousand per acre leased per year during the term of the lease. The primary term of the lease is ten years.

     Planned uses for both the West Virginia and Texas locations include treatment facilities for oilfield produced water, frac water and drilling mud, salt water disposal wells and heavy equipment and frac tank lay-down yards. The properties to be acquired and leased through these transactions are strategically located in the heart of the drilling activity within the Appalachian resource plays of the Marcellus Shale, the new Utica Shale, and the Eagle Ford Shale, as well as being strategically located nearby existing highway infrastructure where water hauling trucks are very active.

     The Company has borrowed an additional $150,000 from the Chairman and Chief Executive Officer of the Company in exchange for a promissory note bearing interest at 14% and maturing on December 31, 2011 from June 30, 2011 through the date of this report. On August 15, 2011, the letter of guarantee from the Chairman and Chief Executive Officer of the Company was increased for up to $2 million of credit support if needed to fund operations.

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, 2010 and with the financial statements and accompanying notes included herein. The discussion should not be construed to imply that the results contained herein will necessarily continue into the future or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment by our management. The discussion contains forward-looking statements that involve risks and uncertainties (see “Forward-Looking Statements” above). Actual events or results may differ materially from those indicated in such forward-looking statements.

Overview

     Prior to April 13, 2007, we were a startup company in the development stage and we have reentered the development stage effective July 1, 2010. Our plan is to acquire and operate assets in the renewable energy sectors of water management, biomass, solar, wind, and geothermal. We currently have ongoing business initiatives in biomass through GreenHunter Mesquite Lake, LLC, (“Mesquite Lake”) and GreenHunter Water, LLC. It is our goal to become a leading provider of water management solutions and clean energy products.

     We believe that our ability to successfully compete in the clean water and renewable energy industries depends on many factors, including the location and low cost construction of our planned facilities, execution of our acquisition strategy, development of strategic relationships, achievement of our anticipated low cost production model, access to adequate debt and equity capital, proper and meaningful governmental support including tax incentives and credit enhancements, and recruitment and retention of experienced management.

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

     Our financial position has been adversely affected by our lack of working capital and the overall deterioration across all capital markets, particularly those for renewable energy companies. The lack of consistent and meaningful governmental support with tax incentives and other credit enhancements has had a serious detrimental effect on our planned business operations.

     As of June 30, 2011, we had a working capital deficit of $12.3 million which includes $4.1 million related to construction at our Mesquite Lake Biomass Plant.

     We have continued to experience losses from ongoing operations. These factors raise doubt about our ability to continue as a going concern. We have received a letter of guarantee from the Chairman and Chief Executive Officer of the company for up to $1.5 million of credit support if needed to fund operations. During the six months ended June 30, 2011, the Chairman and Chief Executive Officer has loaned the Company $500 thousand to fund short-term liquidity needs, and has loaned an additional $150 thousand since June 30, 2011. The promissory notes mature December 31, 2011. As of June 30, 2011 there was availability under the letter of guarantee of $728 thousand.

     Execution of our business plan for the next twelve months requires the ability to generate cash to satisfy planned operating requirements. With the funds from the proceeds from our recently issued private placement offering, $500 thousand in anticipated proceeds as another progress payment from the sale of our Ocotillo wind project to be received in September 2011, and the letter of guarantee and credit support from our chairman and CEO, we anticipate having sufficient cash reserves to meet all of our anticipated operating obligations for the next twelve months. Planned capital expenditures are wholly dependent on the Company’s ability to secure additional capital. As a result, we are in the process of seeking additional capital through a number of different sources for working capital and development costs of our new water service business and our Mesquite Lake plant and water resource projects.

Water Resource Management

     Recent improvements in drilling and completion technologies have unlocked large reserves of hydrocarbons in multiple unconventional resources plays in North America. These new drilling methods often involve a procedure called hydraulic fracturing or hydrofracking. This process involves the injection of large amounts of water, sand and chemicals under high pressures into rock formations to stimulate production. Unconventional wells can require more than four million gallons of water to complete a hydrofracking procedure. Some portion of the water used in production process will return to the surface as a by-product or waste stream; this water is commonly referred to by operators in the oil and gas industry as frack-flowback. In

addition to frack-flowback, oil and natural gas wells also generate produced salt water or brine which is water from underground formations that is brought to the surface during the normal course of oil or gas production. Because the water has been in contact with hydrocarbon-bearing formations, it contains some of the chemical characteristics of the formations and the hydrocarbons. The physical and chemical properties of produced water vary considerably depending on the geographic location of the field, the geologic formation, and the type of hydrocarbon product being produced. Produced water properties and volume also vary through the lifetime of a reservoir.

     Produced water is the largest volume by-product or waste stream associated with oil and gas exploration and production. Although the details on generation and management of produced water are not well understood on a national scale, the U.S. Department of Energy’s National Energy Technology Laboratory (NETL) estimates that the total volume of produced water generated by U.S. onshore and offshore oil and gas production activities in 2007 was nearly 21 billion barrels or 882 billion gallons (1 barrel equals 42 U.S. gallons).

     While produced water (also known as oil field brine or brine due to its high salinity content) can be reused if certain water quality conditions are met, approximately 95 percent of U.S. onshore produced water generated by the oil and gas industry is disposed of by using high-pressure pumps to inject the water into under-ground geologic formations or is discharged under National Pollutant Discharge Elimination System (NPDES) permits. The remaining 5 percent is managed through beneficial reuse or disposed through other methods including evaporation, percolation pits, and publicly owned treatment works.

     Federal and state legislation and regulatory initiatives relating to hydraulic fracturing are expected to result in increased costs and additional operating restrictions for oil and gas explorers and producers. Congress is currently considering legislation to amend the federal Safe Drinking Water Act to require the disclosure of chemicals used by the oil and natural gas industry in the hydraulic fracturing process. Sponsors of two companion bills, which are currently pending in the House Energy and Commerce Committee and the Senate Committee on Environment and Public Works Committee have asserted that chemicals used in the fracturing process could adversely affect drinking water supplies. The proposed legislation would require the reporting and public disclosure of chemicals used in the fracturing process, which could make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings based on allegations that specific chemicals used in the fracturing process could adversely affect groundwater. In addition, this legislation, if adopted, could establish an additional level of regulation at the federal level that could lead to operational delays or increased operating costs and could result in additional regulatory burdens for oil and natural gas operators. Several states are also considering implementing, or in some instances, have implemented, new regulations pertaining to hydraulic fracturing, including the disclosure of chemicals used in connection therewith. The adoption of any future federal or state laws or implementing regulations imposing reporting obligations on, or otherwise limiting, the hydraulic fracturing process would make it more difficult and more expensive to complete new wells in the unconventional shale resource formations and increase costs of compliance and doing business for oil and natural gas operators.

     Management, which has a significant background in the oil and gas industry, has identified water reuse and water management opportunities in the energy industry as a significant growth opportunity and is exploring various ways to reposition the Company to serve this growing segment through joint ventures, targeted acquisitions, development and deployment of water resource management technologies, and services including underground injection for disposal, evaporation, pre-treatment of water for underground injection for increasing oil recovery, offsite commercial disposal, onsite remediation and beneficial reuse.

     We recently entered into a definitive agreement to acquire approximately 99 mineral acres and 84 surface acres located in West Virginia where we plan to develop a commercial water service facility. The acquisition includes an existing well that has been approved for commercial water disposal. The acquisition will close in two phases with the first closing is anticipated on August 31, 2011 and the second closing will be upon the well commencing commercial operations. Total consideration to be paid consists of $750 thousand in cash and preferred stock to be valued at $300 thousand.

     On August 2, 2011, a wholly owned subsidiary of GreenHunter Water, LLC, entered into a definitive agreement to lease approximately 5 mineral acres in Wilson County, Texas, where it will develop a wastewater injection well. Total consideration paid consists of $1 thousand per acre leased per year during the term of the lease. The primary term of the lease is ten years.

     Planned uses for both the West Virginia and Texas locations include treatment facilities for oilfield produced water, frac water and drilling mud, salt water disposal wells and heavy equipment and frac tank lay-down yards. The properties to be acquired and leased through these transactions are strategically located in the heart of the drilling activity within the Appalachian resource plays of the Marcellus Shale,

the new Utica Shale, and the Eagle Ford Shale, as well as being strategically located nearby existing highway infrastructure where water hauling trucks are very active.

BioMass

     In May 2007, we acquired Mesquite Lake, an inactive 18.5 megawatt (nameplate capacity) biomass waste-to-energy electricity facility located on a 40-acre site in unincorporated Imperial County, California. We began refurbishing the plant during 2008. During 2008, we found that the existing air permit for the plant was not sufficient to support our planned operations, and we put this project on hold during the fourth quarter of 2008 while we went through the re-permitting process. We executed a new power purchase agreement for this facility in October 2009 and we obtained the air permit in July 2010. We plan to resume construction on the facility, including an expansion of up to 10 Megawatts (“MW”), sometime during the second half of 2011, assuming additional sources of funding are obtained.

     Phase I of the project is anticipated to be operational by mid 2012. When Phase II of the project is completed and in operation, which is anticipated by the second half of 2012, the Mesquite Lake biomass facility will burn annually more than 280,000 tons of waste woody biomass which will be converted into green electricity to serve residential and industrial users in California’s Imperial Valley through our power purchase agreement with Imperial Irrigation District (IID).

     Mesquite Lake is located in a region that the U.S. Bureau of Labor Statistics registers as having the highest unemployment rate in the United States of 27.3 percent, and the Imperial Valley Economic Development Corporation estimates that approximately 642 jobs will be directly or indirectly created as a result of the project development.

Wind Energy

     Until April 2007, our primary business was the investment in and development of wind energy farms. We continue to own rights to a wind energy farm under development located in California. The nature of these wind energy projects necessitates a longer term horizon than our other development projects before they become operational, if ever. The significant decrease in natural gas prices over the past several years has in turn caused a significant decline in wholesale electric prices which has caused our ability to develop future wind projects to be commercially uneconomical.

Solar Energy

     According to the National Renewable Energy Laboratory (NREL), average annual irradiance per square meter in the Imperial County is 6.23 kilowatt hours per day. Our Mesquite Lake biomass facility is located on a 40-acre parcel of which 30 acres could be utilized for the biomass operation leaving 10 to 15 acres for the development of additional renewable energy projects. During the first quarter of 2010, we formed a new subsidiary to explore the development of a solar energy farm on our Mesquite Lake project site and completed a generator interconnection request with the Imperial Irrigation District (IID). On March 16, 2010 we were notified that IID had preserved an interconnection queue position for our solar project. Subject to regulatory and permitting approvals, we believe there are unique economic and operational advantages to building a solar farm on this site most significant being the ability to share existing interconnection infrastructure with the biomass facility.

Results of Operations

Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010:

Depreciation Expense

     Depreciation expense was $47 thousand during both the three months ended June 30, 2011 and June 30, 2010.

Selling, General and Administrative Expense

     Selling, general and administrative expense (“SG&A”) was approximately $990 thousand and $728 thousand during the three months ended June 30, 2011 and 2010, respectively, which includes a credit of $69 thousand and $18 thousand, respectively, of non-cash stock compensation expense included in unallocated corporate SG&A as described below.

     Unallocated corporate SG&A increased approximately $174 thousand between the two periods, from $601 thousand up to $775 thousand. The increase due to legal fees in the second quarter of 2011 as well as increased fees associated with listing shares of the Company’s stock on a public exchange.

     BioMass SG&A was approximately $215 thousand during the 2011 period versus approximately $122 thousand during the 2010 period. The increase is due to higher legal fees and other fees incurred during the 2011 period.

     Wind Energy SG&A decreased approximately $5 thousand, down to $1 thousand for the three months ended June 30, 2011, resulting from the Company not pursuing any new wind projects during the period.

Operating Income/Loss

     Our operating loss was $1.0 million in the 2011 period versus $775 thousand in the 2010 period. The increase in the operating loss is due to the increase in unallocated corporate SG&A as well as the SG&A incurred by the BioMass segment described above.

     Our Wind Energy segment generated an operating loss of $1 thousand during the 2011 period as compared to an operating loss of $6 thousand during 2010 due to lower SG&A costs incurred as described above.

     Our BioMass segment generated operating losses of $215 thousand and $122 thousand during the three months ended June 30, 2011 and 2010, respectively. The increase in operating loss is due to the increase in SG&A costs incurred by the BioMass segment as described above.

     Our unallocated corporate operating loss was $822 thousand for the 2011 period compared to operating loss of $648 thousand during the 2010 period. The increase in loss resulted from increased SG&A expenses described above.

Other Income and Expense

     Other expense was $439 thousand in the 2011 period compared to other income of $45 thousand for the 2010 period. The decrease in other income is due to the settlement of trade payables at less than full value in the 2010 period versus none in the 2011 period and unrealized loss on convertible of $251 thousand in 2011 versus none in 2010.

Preferred Stock Dividends

     Dividends on our preferred stock were $179 thousand in the 2011 period versus $164 thousand in the 2010 period. The increase is the result of accrued dividends converted into stated value on June 30, 2010, September 30, 2010, and March 31, 2011.

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010:

Depreciation Expense

     Depreciation expense was $94 thousand and $95 thousand during the six months ended June 30, 2011 and 2010, respectively.

Selling, General and Administrative Expense

     Selling, general and administrative expense (“SG&A”) was approximately $2.1 million and $1.8 million during the six months ended June 30, 2011 and 2010, respectively, which included $162 thousand and $701 thousand, respectively, on non-cash stock compensation expense included in unallocated corporate SG&A as described below.

     Unallocated corporate SG&A decreased approximately $318 thousand between the two periods, from $2.2 million down to $1.8 million. The decrease is due mainly to decreased share based compensation.

     BioMass SG&A was approximately $280 thousand during the 2011 period versus a credit of approximately $352 thousand during the 2010 period. The increase is due to $588 thousand of cancelled consultant fees related to a consulting agreement recorded in the six months ended June 30, 2010, as well as an increase in legal fees incurred in the 2011 period.

     Wind Energy SG&A decreased approximately $11 thousand, down to $1 thousand for the six months ended June 30, 2011, resulting from the Company not pursuing any new wind projects during the period.

Operating Loss

     Our operating loss was $2.2 million and $2.1 million for the six months ended June 30, 2011 and 2010, respectively. The increase in operating loss is caused by the increase in SG&A expenses incurred by the BioMass segment entity described above partially offset by the lower unallocated corporate operating losses and lower operating losses in the Wind Energy segment.

     Our Wind Energy segment generated an operating loss of $1 thousand during the 2011 period as compared to an operating loss of $177 thousand during 2010 due to decreased impairment charges taken on discontinued wind projects.

     Our BioMass segment generated operating losses of $280 thousand during 2011 and income of $352 thousand during 2010. The decrease in loss due to the change in SG&A expense as described above.

     Our unallocated corporate operating loss was $1.9 million for the 2011 period, compared to operating loss of $2.2 million during the 2010 period. The decrease in loss resulted from decreased SG&A expenses described above.

Other Income and Expense

     Other expense was $567 thousand in the 2011 period compared to other income of $1.8 million for the 2010 period. The decrease in other income is due to the settlement of trade payables at less than full value in the 2010 period versus none in the 2011 period.

Preferred Stock Dividends

     Dividends on our preferred stock were $351 thousand in the 2011 period versus $320 thousand in the 2010 period. The increase is the result of accrued dividends converted into stated value which accrues dividends at 10%.

Liquidity and Capital Resources

Cash Flow and Working Capital

     As of June 30, 2011, we had cash and cash equivalents of approximately $13 thousand and a working capital deficit of $12.3 million as compared to cash and cash equivalents of $1.3 million and working capital deficit of $49.6 million as of June 30, 2010. A significant portion of our working capital deficit at June 30, 2010 was comprised of 43.8 million which related to assets held in receivership from the BioFuels entity that were subsequently disposed.

Operating Activities

     During the six months ended June 30, 2011, operating activities used $1.6 million versus $6.0 million by operating activities during the six months ended June 30, 2010. We continue to have no operating sources of income with which to pay our operating costs. As a consequence, we are required to use cash provided by financing or investing activities to fund a significant portion of our operating activities.

Financing Activities

     During the six months ended June 30, 2011, our financing activities provided $1.5 million compared to $96 thousand net cash used for the six months ended June 30, 2010. The cash provided during the 2011 period resulted from proceeds of $1.0 million from the issuance of common stock and warrants under our private placement offering during the 2011 period, and proceeds from the borrowing of $574 thousand on notes payable during the six month period 2011, $500 thousand of which was from the Chairman and CEO. We made $141 thousand of payments on notes payable during the six months ended June 30, 2011. In the 2010 period, the cash used by financing activities was comprised of repayment on notes payable.

Investing Activities and Future Requirements

     Capital Expenditures

     During the first six months of 2011, we had capital expenditures of $5 thousand. During the first six months of 2010, we had cash flows provided by investing activities of $527 thousand, which was made up of cash provided by a change in restricted cash of $2.0 million partially offset by capital expenditures of $305 thousand and expenditures related to the power purchase agreement of $1.2 million.

BioMass

     We have been seeking financing for a minimum of $24 million and a maximum of $34 million to fund additional capital expenditures for the biomass plant during the remainder of 2011 to be used for refurbishment and expansion costs at the Mesquite Lake biomass facility near El Centro, California.

Water Resource Management

     On August 2, 2011, GreenHunter Water, LLC, entered into a definitive agreement to acquire approximately 99 mineral acres and 84 surface acres located in West Virginia where it plans to develop a commercial water service facility. The acquisition includes an existing well that has been approved for commercial water disposal by the state. The acquisition will close in two phases where the first closing is anticipated on August 31, 2011, and the second closing will be upon the well commencing commercial operations. Total consideration to be paid consists of $750 thousand in cash and preferred stock to be valued at $300 thousand.

     Planned uses for this location include a treatment facility for oilfield produced water, frac water and drilling mud, one or more salt water disposal wells and a heavy equipment and frac tank lay-down yard. The property to be acquired through this transaction is strategically located in the heart of the drilling activity within the Appalachian resource plays of the Marcellus Shale and new Utica Shale, as well as being strategically located nearby existing highways where water hauling trucks are very active.

Obligations Under Material Contracts

     We have an outstanding employment agreement with an executive officer through September 30, 2011. Our maximum commitment under the employment agreement, which would apply if the employee covered by the agreement was involuntarily terminated during a change in control, was $500 thousand at June 30, 2011.

Related Party Transactions

     During the six months ended June 30, 2011, we obtained accounting services for a fee and provided office space and services for a fee to Magnum Hunter Resources Corporation, an entity for which our Chairman and Chief Executive Officer is an officer and major shareholder. Office related services revenues net of professional services expense totaled $22 thousand and $40 thousand for the three and six months ended June 30, 2011 and $30 thousand and $60 thousand for the three and six months ended June 30, 2010.

     During the six months ended June 30, 2011, the Company has borrowed an additional $100,000 under our 10% promissory note due to the Company’s Chairman and Chief Executive Officer. On May 6, 2011, the maturity date was extended to December 31, 2011. The Company also borrowed an additional $400,000 under a new promissory note at an interest rate of 14% from the Chairman and Chief Executive Officer. On June 21, 2011, principal in the amount of $500,000 from the 10% Promissory Note was converted to 250,000 units which were offered under our private placement of common stock and warrants.

Off-Balance Sheet Arrangements

     From time to time, we enter into off-balance sheet arrangements and transactions that can give rise to off-balance sheet obligations. As of June 30, 2011, the off-balance sheet arrangements and transactions that we have entered into include an employee agreement. We do not believe that this arrangement is reasonably likely to materially affect our liquidity or availability of, or requirements for, capital resources.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

     Our operations may expose us to market risks in the areas of commodity price risk, foreign currency exchange risk, and interest rate risk. We do not have formal policies in place at this stage of our business development to address these risks, but we may develop strategies in the future to deal with the volatilities inherent in each of these areas. We have not entered into any derivative positions through June 30, 2011.

Commodity Price Risk

     Upon operations of our Mesquite Lake facility it will consume woody biomass as fuel to generate electricity. The woody biomass will comprise any organic material not derived from fossil fuels, such as agriculture crop residue, orchard prunings and removals, stone fruit pits, nut shells, vineyard prunings, cull logs, eucalyptus logs, bark, lawn clippings, yard and garden clippings, leaves, silvicultural residue, tree and brush prunings, wood and wood chips and wood waste. We have performed a fuel availability study and believe there is ample woody biomass available at economically feasible prices in the geographic area surrounding Mesquite Lake. However, a number of factors including continued decline in economic activity, adverse weather conditions and competition from other consumers of woody biomass could result in reduced supply or higher prices for woody biomass which could increase our costs to produce electricity. In the future, we may decide to address these risks through the use of fixed price supply contracts as well as commodity derivatives.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

     The Company’s management, with the participation of the Company’s Chief Executive Officer, President and COO, and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer, President and COO, and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

     There have been no significant changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Bioversel, Inc

     Bioversel brought suit against the Company on September 24, 2008, alleging that the Company has repudiated its biodiesel tolling agreement, as amended with the plaintiff. The plaintiff has alleged breach of contract, fraud, and conversion regarding defendant’s ability to process feedstock into biodiesel under the contract. The Company filed a countersuit against Bioversel, Inc. for failure to make payments to defendant under the contract.

     The Company and the defendant had a mediation on September 29, 2010. The parties failed to settle this suit at mediation and the suit went to trial in front of a Judge in Harris County, Texas. The trial concluded on April 12, 2011, and the Judge is expected to render a verdict prior to August 31, 2011. No amounts have been accrued as no losses are anticipated as a result of this litigation.

Certain Series A Debenture Holders

     On or about June 29, 2007 GreenHunter issued a Private Placement Memorandum to potential investors for 10% Series A Secured Redeemable Debentures. The plaintiffs allege that the defendants fraudulently made representations to the plaintiffs that the debentures were collaterally backed by the biodiesel refinery, when in fact the only collateral for the Debentures was the equity ownership in GreenHunter’s former wholly owned subsidiary, GreenHunter Biofuels, Inc.

     Plaintiffs filed an arbitration case for this matter to be heard in Houston, Texas before a three member Arbitration Panel. The parties have conducted a preliminary hearing. There will be no discovery conducted between the parties and the arbitration hearing has now been set for January 2012. No amounts have been accrued as no losses are anticipated as a result of this claim.

Item 6. Exhibits

Exhibit
Number		Exhibit Title
3.1*		Certificate of Incorporation
3.2*		Amendment to the Certificate of Incorporation
3.3*		Bylaws
4.1***		Amended and Restated Certificate of Designations of 2007 Series A 8% Convertible Preferred Stock
4.2***		Form of Warrant Agreement by and between GreenHunter Energy, Inc. and West Coast Opportunity Fund, LLC
4.3*		Form of Warrant Agreement by and between GreenHunter Energy, Inc. and certain accredited investors
4.4***		Certificate of Designations of 2008 Series B Convertible Preferred Stock
10.1*		Purchase and Sale Agreement, dated May 14, 2007 between GreenHunter Energy, Inc. and Chateau Energy, Inc. regarding acquisition of Mesquite Lake Resource Recovery Facility
10.2*		Registration rights agreement, dated March 9, 2007 between GreenHunter Energy, Inc. and certain institutional investors
10.3*		Registration rights agreement, dated April 13, 2007 between GreenHunter Energy, Inc. and certain selling shareholders
10.4**		Second Amended and Restated Credit Agreement dated as of March 7, 2008 among GreenHunter BioFuels Inc., WestLB AG New York Branch as the administrative agent, WestLB New York Branch as the LC Issuing Bank and the Lenders Party to the Amended and Restated Credit Agreement from time to time
10.5****		First Amendment to Second Amended and Restated Credit Agreement dated as of March 7, 2008 among GreenHunter BioFuels Inc., WestLB AG New York Branch as the administrative agent, WestLB New York Branch as the LC Issuing Bank and the Lenders Party to the Amended and Restated Credit Agreement from time to time
10.6******		Second amendment to Second Amended and Restated Credit Agreement dated as of March 7, 2008 among GreenHunter BioFuels Inc., WestLB AG New York Branch as the administrative agent, WestLB New York Branch as the LC Issuing Bank and the Lenders Party to the Amended and Restated Credit Agreement from time to time
10.7*****		Third amendment to Second Amended and Restated Credit Agreement dated as of March 7, 2008 among GreenHunter BioFuels Inc., WestLB AG New York Branch as the administrative agent, WestLB New York Branch as the LC Issuing Bank and the Lenders Party to the Amended and Restated Credit Agreement from time to time
31.1 †		Certifications of the Chief Executive Officer.
31.2 †		Certifications of the Chief Financial Officer.
32.1 †		Certifications of the Chief Executive Officer provided pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit
Number		Exhibit Title
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

SIGNATURES

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