Acquisition

6 Months Ended

Jun. 30, 2012

Acquisition [Abstract]

ACQUISITION

NOTE 3. ACQUISITION

Hunter Disposal

On February 17, 2012, the Company, through its wholly owned subsidiary, GreenHunter Water, LLC, closed on the acquisition of 100% of the equity ownership interest of Hunter Disposal, LLC, a wholly owned subsidiary of Magnum Hunter Resources Corporation, an entity affiliated through common directors, officers and stockholders. Hunter Disposal fits in with our new focus of water management services and provided an entry point into the Appalachian region. The terms and conditions of the equity purchase agreement between the parties were approved by an independent special committee of the Board of Directors for each company. The Company acquired three fully operational commercial salt water disposal (SWD) wells and associated facilities located in Washington County, Ohio and Lee County, Kentucky. The total consideration for this acquisition was approximately $9.9 million. The consideration paid consisted of $2.2 million in cash, 1,846,722 shares of the Company’s restricted common stock with a fair value of $3.3 million, 22,000 shares of our 10% Series C preferred stock with a stated value of $100 per share, or $2.2 million, and a $2.2 million convertible promissory note due to the seller. On April 25, 2012, we changed the stated liquidation value of our 10% Series C Preferred Stock from $100 per share to $25 per share. As a result, the 22,000 shares of our 10% Series C Preferred Stock issued in connection with the acquisition of Hunter Disposal were converted to 88,000 shares of 10% Series C Preferred Stock. In connection with the sale, Triad Hunter, LLC, a wholly owned subsidiary of Magnum Hunter Resources Corporation, entered into agreements with Hunter Disposal, LLC and GreenHunter Water, LLC for wastewater hauling and disposal capacity in the states of Kentucky, Ohio and West Virginia and a five-year tank rental agreement with GreenHunter Water, LLC.

The fair value of the net assets acquired, based on management’s assessment, approximated the $9.9 million in consideration paid.

The acquisition of Hunter Disposal was accounted for using the acquisition method of accounting, which requires the net assets acquired to be recorded at their fair values. The following table summarizes the purchase price and the preliminary estimate of the fair values of the net assets acquired at the date of acquisition as determined as of June 30, 2012:

Fair value of consideration transferred:
Cash paid	$	2,200,000
1,846,722 shares of common stock issued on February 17, 2012 at $1.79 per share		3,305,632
88,000 shares of 10% Series C Preferred Stock at stated value of $25 per share		2,200,000
10% Convertible Promissory note		2,200,000
Total	$	9,905,632
Amounts recognized for assets acquired and liabilities assumed:
Working capital	$	1,175,197
Disposal wells		6,263,078
Land and improvements		13,776
Field equipment (excluding disposal wells)		2,466,500
Office and admin assets		3,500
Deposits		10,936
Asset retirement obligation		(27,355	)
Total	$	9,905,632
Working capital acquired (assumed):
Cash	$	1,290,775
Accounts receivable		2,945,003
Prepaid expense		13,641
Accounts payable & accrued expenses		(3,074,222	)
Total working capital acquired	$	1,175,197

On April 27, 2012, we entered into an Option Agreement and a Pledge Agreement with Midwest Continent Holding, LLC (“Midwest”) to acquire 100% of Midwest’s membership interest in Blue Water Energy Solutions, LLC (“Blue Water”) on or before June 30, 2012 for approximately $2.5 million. Blue Water owns three existing salt water disposal wells and related facilities located in Oklahoma. Midwest previously owned 100% of the membership interest of Blue Water until April 30, 2012. The price we paid for the option was $750,000, consisting of a cash payment of $250,000 and $500,000 of our 10% Series C Preferred Stock. Midwest had pledged its membership interest in Blue Water as security for the Option Agreement. On June 29, 2012, we paid $515,000 in cash and issued 242,471 shares of our common stock valued at $512 thousand under the option agreement to extend our purchase option until July 31, 2012. On July 31, 2012, we exercised our option to acquire Blue Water (See Note 10 – Subsequent Events). We funded the option exercise with a portion of the proceeds from the sale of our 10% Series C Preferred Stock. The Option Agreement contained other covenants during the option period, including naming us as the sole Manager of Blue Water, LLC during the option term.

On May 18, 2012, we entered into a definitive joint venture agreement to develop seven salt water disposal wells in Gonzalez, Karnes, DeWitt, Frio and La Salle counties in South Texas. These new wells will be strategically located in the heart of the Eagle Ford Shale Play. On May 21, 2012, we closed on the rights to two of the wells and on June 8, 2012, we closed on the rights to two more of the wells. The total acquisition cost of the rights to the four wells was $2.1 million, consisting of $1.2 million in cash, 16,000 shares of our 10% Series C Preferred Stock valued at $400 thousand, and 247,876 shares of our common stock valued at $506 thousand. On June 30, 2012, we also agreed to pay $150,000 for drilling permits on the final three wells, which can be offset against our $1.5 million cost (on the same basis as the first four wells) to acquire rights to the remaining three joint venture wells should we decide to close on that part of the agreement.

Acquisition costs of approximately $74 thousand are included in general and administrative expense for the six months ended June 30, 2012.

The consolidated statement of operations includes Hunter Disposal’s revenue of $3.9 million and $5.7 million for the three and six months ended June 30, 2012, respectively, and Hunter Disposal’s operating income of $1.4 million and $2.0 million for the three and six months ended June 30, 2012, respectively.

The following unaudited and unreviewed summary, prepared on a pro forma basis, presents the results of operations for the three and six months ended June 30, 2012 and 2011, as if the acquisition of Hunter Disposal, LLC, along with transactions necessary to finance the acquisition, had occurred on January 1, 2011. The pro forma information includes the effects of adjustments for interest expense and depreciation expense. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of each period presented, nor are they necessarily indicative of future consolidated results.

	For the Three Months Ended June 30,			For the Six Months Ended June 30,
	2011			2012			2011
Total operating revenue	$	2,807,847		$	8,804,363		$	3,591,233
Total operating costs and expenses		2,694,925			8,959,314			4,461,736
Operating income (loss)		112,922			(154,951	)		(870,503	)
Interest expense and other		(468,982	)		(520,466	)		(627,843	)
Net loss		(356,060	)		(675,417	)		(1,498,346	)
Dividends on preferred stock		(233,592	)		(526,645	)		(460,648	)
Net loss attributable to common stock holders	$	(589,652	)	$	(1,202,062	)	$	(1,958,994	)
Net loss per share, basic & diluted	$	(0.02	)	$	(0.04	)	$	(0.08	)