Vertex Energy Inc. - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal quarter ended September 30, 2015

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _____________ TO _____________

Commission File Number 001-11476

———————

VERTEX ENERGY, INC.

(Exact name of registrant as specified in its charter)

———————



NEVADA	94-3439569
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

1331 GEMINI STREET, SUITE 250 HOUSTON, TEXAS	77058
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: 866-660-8156

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

Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ¨	Accelerated filer ý
Non-accelerated filer ¨	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 ý

State the number of shares of the issuer’s common stock outstanding, as of the latest practicable date: 28,214,276 shares of common stock issued and outstanding as of November 6, 2015.

TABLE OF CONTENTS



		Page
	PART I
Item 1.	Financial Statements

	Consolidated Balance Sheets (unaudited)	F-1

	Consolidated Statements of Operations (unaudited)	F-3

	Consolidated Statements of Equity (unaudited)	F-4

	Consolidated Statements of Cash Flows (unaudited)	F-5

	Notes to Consolidated Financial Statements (unaudited)	F-7

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

	PART II
Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults Upon Senior Securities	37

Item 4.	Mine Safety Disclosures	37

Item 5.	Other Information	37

Item 6.	Exhibits	38

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements



VERTEX ENERGY, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
	September 30, 2015			December 31, 2014
ASSETS
Current assets
Cash and cash equivalents	$	4,020,161		$	6,017,076
Accounts receivable, net	7,897,650			9,936,948
Current portion of notes receivable, net	1,000,000			3,150,000
Inventory	3,847,157			12,620,616
Prepaid expenses	2,169,524			1,245,307
Costs in excess of billings	—			779,285
Total current assets	18,934,492			33,749,232

Noncurrent assets

Fixed assets, at cost	61,560,190			59,919,721
Less accumulated depreciation	(6,742,217		)	(3,758,373		)
Net fixed assets	54,817,973			56,161,348
Notes receivable	8,308,000			8,308,000
Intangible assets, net	17,687,897			18,512,960
Goodwill	4,922,353			4,922,353
Deferred financing cost, net	1,818,376			2,191,888
Deferred federal income tax	—			9,495,000
Other assets	481,450			481,450
Total noncurrent assets	88,036,049			100,072,999
TOTAL ASSETS	$	106,970,541		$	133,822,231

LIABILITIES, TEMPORARY EQUITY, AND EQUITY
Current liabilities
Accounts payable and accrued expenses	$	12,893,323		$	21,984,136
Dividends payable	401,951			—
Capital leases	364,561			492,755
Current portion of long-term debt	4,773,042			40,136,584
Revolving note	659,893			—
Deferred revenue	—			463,210
Total current liabilities	19,092,770			63,076,685
Long-term liabilities
Long-term debt	21,644,605			1,867,574
Derivative liability	4,393,034			—
Contingent consideration	6,069,000			6,069,000
Deferred federal income tax	—			4,189,000
Total liabilities	51,199,409			75,202,259

COMMITMENTS AND CONTINGENCIES

TEMPORARY EQUITY
Series B Preferred shares, $.001 par value per share:
10,000,000 shares authorized, 8,032,274 and 0 shares issued and outstanding at September 30, 2015 and December 31, 2014,
respectively with liquidation preference of $24,900,050 at
September 30, 2015	11,191,623			—

F-1



EQUITY
Preferred stock, $0.001 par value per share:
50,000,000 shares authorized
Series A Convertible Preferred stock, $0.001 par value,
5,000,000 authorized and 612,943 and 630,419 issued
and outstanding with a liquidation preference of $913,285 and $939,324 at September 30, 2015 and December 31,
2014, respectively	613			630
Common stock, $0.001 par value per share;
750,000,000 shares authorized; 28,214,276 and 28,108,105
issued and outstanding at September 30, 2015 and
December 31, 2014, respectively	28,214			28,109
Additional paid-in capital	52,884,086			46,595,472
Retained earnings (accumulated deficit)	(8,333,404		)	11,995,761
Total Equity	$	44,579,509		$	58,619,972
TOTAL LIABILITIES, TEMPORARY EQUITY, AND EQUITY	$	106,970,541		$	133,822,231

See accompanying notes to the consolidated financial statements

F-2



VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(UNAUDITED)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Revenues	$	39,262,584		$	76,903,516		$	126,066,634		$	196,332,796
Cost of revenues	34,104,949			73,761,171			115,748,581			179,949,373
Gross profit	5,157,635			3,142,345			10,318,053			16,383,423

Reduction of contingent consideration	—			(1,876,752		)	—			(1,876,752		)

Operating expenses:
Selling, general and administrative expenses (exclusive of acquisition related expenses)	6,052,764			4,706,104			17,064,043			11,786,070
Depreciation and amortization expense	1,597,881			1,180,443			4,716,177			2,981,393
Acquisition related expenses	5,910			259,235			163,588			2,819,065
Total operating expenses	7,656,555			6,145,782			21,943,808			17,586,528

Income (loss) from operations	(2,498,920		)	(1,126,685		)	(11,625,755		)	673,647

Other income (expense):
Provision for doubtful accounts	—			—			(2,650,000		)	—
Other income	11			109,980			29			110,357
Gain on bargain purchase	—			92,635			—			6,573,686
Other income (expense)	(20,657		)	—			(78,316		)	(10,866		)
Gain on change in value of derivative liability	818,051			—			2,635,033			—
Gain on futures contracts	395,430			—			395,430			—
Interest expense	(763,791		)	(947,325		)	(2,851,947		)	(1,680,371		)
Total other income (expense)	429,044			(744,710		)	(2,549,771		)	4,992,806

Income (loss) before income tax	(2,069,876		)	(1,871,395		)	(14,175,526		)	5,666,453

Income tax expense	—			(57,975		)	(5,306,000		)	(57,975		)

Net income (loss)	$	(2,069,876	)	$	(1,929,370	)	$	(19,481,526	)	$	5,608,478

Net income (loss) attributable to non-controlling interest	$	—		$	—		$	—		$	325,399

Net income (loss) attributable to Vertex Energy, Inc.	$	(2,069,876	)	$	(1,929,370	)	$	(19,481,526	)	$	5,933,877

Less: accretion of discount on series B	$	(444,899	)	$	—		$	(444,899	)	$	—
Less: accrual of dividend on series B	(402,740		)	—			(402,740		)	—
Less: other	(55,056		)	—			(55,056		)	—

Net income (loss) available to common shareholders	$	(2,972,571	)	$	(1,929,370	)	$	(20,384,221	)	$	5,933,877

Earnings (loss) per common share
Basic	$	(0.11	)	$	(0.08	)	$	(0.72	)	$	0.26
Diluted	$	(0.11	)	$	(0.08	)	$	(0.72	)	$	0.24

Shares used in computing earnings per share
Basic	28,198,701			25,151,660			28,165,427			23,077,914
Diluted	28,198,701			25,151,660			28,165,427			24,825,326

See accompanying notes to the consolidated financial statements

F-3



VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015
	Common Stock Shares	Common Stock $.001 Par		Series A Preferred Stock Shares		Series A Preferred Stock $.001 Par			Additional Paid-in Capital		Retained Earnings			Total Equity
Balance on January 1, 2015	28,108,105	$	28,108	630,419		$	630		$	46,595,472	$	11,995,761		$	58,619,971
Share based compensation expense, total	—	—		—		—			305,153		—			305,153
Issuance of restricted common stock	56,180	56		—		—			199,958		—			200,014
Conversion of preferred A stock to common	17,476	17		(17,476	)	(17		)	—		—			—
Conversion of Preferred B stock to common	32,515	33							100,763					100,796
Beneficial conversion feature on Preferred stock (APIC)	—	—		—		—			5,682,740		—			5,682,740
Dividends declared, Preferred B shares, stock											(402,740		)	(402,740		)
Accretion of redemption discount, Preferred series B									—		(444,899		)	(444,899		)
Net income (loss)	—	—		—		—			—		(19,481,526		)	(19,481,526		)
Balance on September 30, 2015	28,214,276	$	28,214	612,943		$	613		$	52,884,086	$	(8,333,404	)	$	44,579,509

F-4



VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(UNAUDITED)
	Nine Months Ended
	September 30, 2015			September 30, 2014
Cash flows from operating activities
Net income (loss)	$	(19,481,526	)	$	5,608,478
Adjustments to reconcile net income to cash provided by (used in) operating activities
Stock based compensation expense	305,153			173,979
Depreciation and amortization	4,716,177			2,981,393
Gain on acquisition	—			(6,573,686		)
Loss on asset sale	63,410			—
Gain on change in fair value of derivative liability	(2,635,033		)	—
Deferred federal income tax	5,306,000			—
Reduction of contingent liability	—			(1,876,752		)
Changes in operating assets and liabilities
Accounts receivable	1,879,150			(9,731,011		)
Allowance for doubtful accounts	2,810,146			(230,000		)
Notes receivable-related party	—			(3,150,000		)
Inventory	8,773,459			(6,269,253		)
Prepaid expenses	(924,216		)	(1,348,935		)
Costs in excess of billings	779,285			—
Accounts payable	(8,858,058		)	8,962,991
Deferred revenue	(495,965		)	—
Other assets	—			(81,450		)
Net cash provided by (used in) operating activities	(7,762,018		)	(11,534,246		)

Cash flows from investing activities
Acquisitions	(1,082,649		)	(30,164,464		)
Purchase of fixed assets	(1,159,488		)	(4,227,056		)
Proceeds from asset sales	4,500			—
Notes receivable	(500,000		)	—
Net cash used in investing activities	(2,737,637		)	(34,391,520		)

Cash flows from financing activities
Proceeds from sale of stock	23,557,553			15,803,000
Payments on contingent consideration	—			(136,662		)
Payments on notes payable	(18,019,983		)	(10,469,474		)
Proceeds from note payable	2,305,277			41,372,315
Proceeds from revolving note	74,801,900			—
Payments on revolving note	(74,142,007		)	—
Debt issue cost	—			(2,452,157		)
Proceeds from exercise of common stock options and warrants	—			359,862
Net cash provided by (used in) financing activities	8,502,740			44,476,884

Net change in cash and cash equivalents	(1,996,915		)	(1,448,882		)

Cash and cash equivalents at beginning of the period	6,017,076			2,678,628

Cash and cash equivalents at end of period	$	4,020,161		$	1,229,746

F-5



SUPPLEMENTAL INFORMATION
Cash paid for interest	$	2,835,681	$	1,600,117
Cash paid for income taxes	$	—	$	80,158

NON-CASH INVESTING AND FINANCING TRANSACTIONS
Conversion of Series A Preferred Stock into common stock	$	17	$	689
Dividends declared but not yet paid	$	401,951	$	—
Note payable for acquisition of E-Source interest	$	—	$	854,050
Additional paid in capital for acquisition of E-Source interest	$	—	$	1,790,745
Shares issued as payment	$	200,000	$	—
Beneficial conversion feature for Series B Preferred stock	$	5,737,796	$	—
Fair value of warrants issued with series B Preferred stock	$	7,028,067	$	—

See accompanying notes to the consolidated financial statements

F-6

VERTEX ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS

The accompanying unaudited consolidated interim financial statements of Vertex Energy, Inc. (the “Company,” "Vertex" or “Vertex Energy”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s annual consolidated financial statements as filed with the SEC on Form 10-K/A on April 15, 2015 (the “Form 10-K”). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Certain prior period amounts have been reclassified to conform to current period presentation. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for the most recent fiscal year 2014 as reported in Form 10-K, have been omitted.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

New Accounting Pronouncements

In April, 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. This ASU is effective for the Company beginning in the first quarter of 2016, with early adoption permitted. The Company does not expect that the ASU will have a material impact on the consolidated financial statements.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The subsidiaries are as follows:


•	Cedar Marine Terminals, L.P. (“CMT”) operates a 19-acre bulk liquid storage facility on the Houston Ship Channel. The terminal serves as a truck-in, barge-out facility and provides throughput terminal operations. CMT is also the site of the Thermal Chemical Extraction Process ("TCEP").


•	Crossroad Carriers, L.P. (“Crossroad”) is a third-party common carrier that provides transportation and logistical services for liquid petroleum products, as well as other hazardous materials and product streams.


•	Vertex Recovery, L.P. (“Vertex Recovery”) is a generator solutions company for the recycling and collection of used oil and oil-related residual materials from large regional and national customers throughout the U.S. It facilitates its services through a network of independent recyclers and franchise collectors.


•	H&H Oil, L.P. (“H&H Oil”) collects and recycles used oil and residual materials from customers based in Austin, Baytown, San Antonio and Corpus Christi, Texas.


•	E-Source Holdings, LLC (“E-Source”) provides dismantling and demolition services at industrial facilities throughout the Gulf Coast.


•	Vertex Refining, LA, LLC is a used oil re refinery based in Marrero, Louisiana and also has assets in Belle Chasse, Louisiana.


•	Vertex Refining, NV, LLC ("Vertex Refining") is a base oil marketing and distribution company with customers throughout the United States.


•	Golden State Lubricant Works, LLC ("Golden State") operates an oil storage and blend facility based in Bakersfield, California.


•	Vertex Refining, OH, LLC collects and re refines used oil and residual materials from customers throughout the Midwest. Refinery operations are based in Columbus, Ohio and have collection branches located in Norwalk, Ohio Zanesville, Ohio, Ravenswood, West Virginia, and Mt. Sterling, Kentucky.


•	Vertex Energy Operating, LLC ("Vertex Operating"), a holding company for various of the subsidiaries described above.

Accounts receivable

F-7

accounts based on a variety of factors, including the length of time receivables are past due, economic trends and conditions affecting its customer base, significant one-time events and historical write-off experience. Specific provisions are recorded for individual receivables when we become aware of a customer’s inability to meet its financial obligations. The Company reviews the adequacy of its reserves and allowances quarterly.

Receivable balances greater than 30 days past due are individually reviewed for collectability and if deemed uncollectible, are charged off against the allowance accounts after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any significant off balance sheet credit exposure related to its customers. The allowance was $476,861 and $316,715 at September 30, 2015 and December 31, 2014, respectively.

Inventory

Inventories of products consist of feedstocks and refined petroleum products and are reported at the lower of cost or market. Cost is determined using the first-in, first-out (“FIFO”) method. The Company reviews its inventory commodities whenever events or circumstances indicate that the value may not be recoverable. The Company recognized an inventory impairment loss of $0 and $467,911 at September 30, 2015 and December 31, 2014, respectively.

Revenue recognition

Revenue for each of the Company’s divisions is recognized when persuasive evidence of an arrangement exists, goods are delivered, sales price is determinable, and collection is reasonably assured. Revenue is recognized upon delivery by truck and railcar of feedstock to its re-refining customers and upon product leaving the Company’s terminal facilities and third party processing facility via barge. Revenue is also recognized as recovered scrap materials are sold.

Income Taxes

The Company accounts for income taxes in accordance with the FASB ASC Topic 740. The Company records a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and when temporary differences become deductible. The Company considers, among other available information, uncertainties surrounding the recoverability of deferred tax assets, scheduled reversals of deferred tax liabilities, projected future taxable income, and other matters in making this assessment.

As part of the process of preparing its consolidated financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. This process requires the Company to estimate its actual current tax liability and to assess temporary differences resulting from differing book versus tax treatment of items, such as deferred revenue, compensation and benefits expense and depreciation. These temporary differences result in deferred tax assets and liabilities, which are included within the Company’s consolidated statements of financial condition. Significant management judgment is required in determining the Company’s provision for income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against its net deferred tax assets. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized and, when necessary, valuation allowances are established. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the level of historical taxable income, scheduled reversals of deferred taxes, projected future taxable income and tax planning strategies that can be implemented by the Company in making this assessment. If actual results differ from these estimates or the Company adjusts these estimates in future periods, the Company may need to adjust its valuation allowance, which could materially impact the Company’s consolidated financial position and results of operations.

Tax contingencies can involve complex issues and may require an extended period of time to resolve. Changes in the level of annual pre-tax income can affect the Company’s overall effective tax rate. Significant management judgment is required in determining the Company’s provision for income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against its net deferred tax assets. Furthermore, the Company’s interpretation of complex tax laws may impact its recognition and measurement of current and deferred income taxes.

The loss during the quarter ended March 31, 2015 put the Company in an accumulated loss position for the cumulative 12 quarters then ended. The Company did not have sufficient positive evidence to overcome the recent losses and determined it was more likely than not the deferred tax assets would not be realized as of March 31, 2015 and as a result the Company incurred deferred tax expense of $5,306,000 during the three month period ended March 31, 2015.

F-8

Earnings per share

Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common shareholders by the weighted average number of common and common equivalent shares outstanding during the period. Common share equivalents included in the diluted computation represent shares issuable upon assumed exercise of stock options and warrants using the treasury stock and “if converted” method. For periods in which net losses are incurred, weighted average shares outstanding is the same for basic and diluted loss per share calculations, as the inclusion of common share equivalents would have an anti-dilutive effect.

Derivative liabilities

The Company, in accordance with ASC 815-40-25 and ASC 815-10-15 Derivatives and Hedging and ASC 480-10-25 Liabilities-Distinguishing from Equity, convertible preferred shares are accounted for net, outside of shareholders' equity and warrants are accounted for as liabilities at their fair value during periods where they can be net cash settled in case of a change in control transaction.

The warrants are accounted for as a liability at their fair value at each reporting period. The value of the derivative warrant liability will be re-measured at each reporting period with changes in fair value recorded as earnings. To derive an estimate of the fair value of these warrants, a Dynamic Black Scholes model is utilized that computes the impact of a possible change in control transaction upon the exercise of the warrant shares. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price and volatility assumptions to dynamically adjust the payoff of the warrants in the presence of the dilution effect.

Derivative Financial Instruments

The Company records all derivative financial instruments at their fair value in its consolidated balance sheets. None of the derivative financial instruments that the Company holds are designated as either a fair value hedge or cash flow hedge and the gain or loss on the derivative instrument is recorded in earnings. The Company has determined that the fair value of its derivative financial instruments are determined using level 1 inputs (quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability) in the fair value hierarchy as the fair value is based on publicly available commodity futures prices rates at each financial reporting date. The fair value of the Company’s futures contracts is included in other prepaid assets in the accompanying consolidated balance sheets; and the gain or losses are included in gain on futures contracts in the accompanying consolidated statements of operations.

Preferred Stock Classification

A mandatorily redeemable financial instrument shall be classified as a liability unless the redemption is required to occur only upon the liquidation or termination of the reporting entity.

A financial instrument issued in the form of shares is mandatorily redeemable if it embodies an unconditional obligation requiring the issuer to redeem the instrument by transferring its assets at a specified or determinable date (or dates) or upon an event certain to occur. A financial instrument that embodies a conditional obligation to redeem the instrument by transferring assets upon an event not certain to occur becomes mandatorily redeemable-and, therefore, becomes a liability-if that event occurs, the condition is resolved, or the event becomes certain to occur.

The Series B preferred stock requires the Company to redeem such preferred stock on the fifth anniversary of the issuance of the Series B Preferred stock if the redemption would not be subject to then existing restrictions under the Company's senior credit agreement that prohibits redemption. SEC reporting requirements provide that any possible redemption outside of the control of the Company requires the preferred stock to be classified outside of permanent equity.

F-9

NOTE 3. LIQUIDITY

During the six month period ending June 30, 2015, an event of default occurred under our financing agreements (as described in Note 10). We were able to obtain a waiver of the defaults under the credit agreements and to negotiate mutually agreed upon amendments to the credit agreements to bring the Company into compliance with such credit agreements. In June 2015, we raised an additional $25.0 million in cash from the issuance of Series B Preferred Stock, as further described in Note 13. We used the net proceeds to repay amounts owed under the credit agreements in the amount of $15.1 million. In addition, on November 9, 2015, the Company further amended the credit agreements, as further described in Note 16. Based upon the revised terms of the credit agreements, the current net working capital, our cash flow projections for the next twelve months including recovery of insurance proceeds, and the Company's ability to issue stock and access capital markets, we believe that the Company will have sufficient liquidity to meet the Company's obligations for the foreseeable future.

In the event further defaults occur under the credit agreements, the lenders may exercise any and all rights and remedies available to them under their respective agreements, including demanding immediate repayment of all amounts then outstanding or initiating foreclosure or insolvency proceedings. In the event we default upon our obligations under our credit facilities, our lenders demand repayment of such obligations and we are unable to obtain alternative financing to repay or refinance such obligations, our business will be materially and adversely affected, and we may be forced to sharply curtail or cease our operations.

NOTE 4. ACQUISITIONS

Aaron Oil Acquisition

Effective August 6, 2015, H&H Oil acquired a collection route consisting of collecting, shipping and selling used oil, oil filters, antifreeze and other related services in the state of Louisiana, but excluding industrial customers, maritime customers, off shore customers, dockside locations, industrial services, used absorbent services, wastewater generating customers and collectors/transporters of crankcase used oil, petroleum fuel reclamation customers and crude oil producers/processing/recovery/reclamation customers of Aaron Oil Company, Inc. (“Aaron Oil”). Included in the purchase were certain trucks and other assets owned by Aaron Oil and certain contract rights. The President, Chief Executive Officer and owner of Aaron Oil is Dan Cowart, the brother of our Chief Executive Officer and largest stockholder, Benjamin P. Cowart. The acquisition price paid at closing was approximately $1 million, which included a reimbursement for certain prepaid contract rights. Aaron Oil also agreed to provide account servicing services to us for a period of sixty days following the closing at an agreed upon price per gallon of oil serviced. Aaron Oil also agreed to a non-compete provision prohibiting Aaron Oil from competing against the Company in the Louisiana market for a period of two years from the closing.

NOTE 5. RELATED PARTIES

Effective October 3, 2014, the Company entered into a consulting agreement with its director, Timothy C. Harvey, pursuant to which Mr. Harvey agreed to provide consulting services to the Company in connection with overseeing the Company’s trading and selling of finished products and assisting the Company with finding the best markets for products from the Company’s facilities for a term of one year. In consideration for agreeing to provide services under the agreement, the Company agreed to pay Mr. Harvey $10,000 per month, and to grant him an option to purchase up to 75,000 shares of the Company's common stock at an exercise price of $6.615 per share, the mean between the highest and lowest quoted selling prices of the Company's common stock on October 2, 2014 (the day immediately preceding the approval by the Board of Directors of the agreement), which vest at the rate of 1/4th of such options per year, subject to Mr. Harvey’s continued consulting, employment or service as a director of the Company, which options were granted under the Company's 2013 Stock Incentive Plan. Effective August 1, 2015, Mr. Harvey's agreement was changed to an hourly basis whereby he will only be paid on an as-needed basis.

On August 6, 2015, the Company acquired a collection route in the state of Louisiana. The President, Chief Executive Officer and owner of which is Dan Cowart, the brother of our Chief Executive Officer and largest stockholder, Benjamin P. Cowart, as described in Note 4.

NOTE 6. CONCENTRATIONS, SIGNIFICANT CUSTOMERS, COMMITMENTS AND CONTINGENCIES

At September 30, 2015 and 2014 and for each of the nine months then ended, the Company’s revenues and receivables were comprised of the following customer concentrations:

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	Three Months Ended September 30, 2015		Nine Months Ended September 30, 2014
	% of Revenues	% of Receivables	% of Revenues	% of Receivables
Customer 1	21%	1%	9%	47%
Customer 2	17%	14%	13%	8%
Customer 3	8%	6%	7%	12%
Customer 4	7%	—%	10%	—%
Customer 5	—%	—%	28%	—%
Customer 6	2%	3%	2%	11%

At September 30, 2015 and 2014 and for each of the nine months then ended, the Company's segment revenues were comprised of the following customer concentrations:



	% of Revenue by Segment			% Revenue by Segment
	Three Months Ended September 30, 2015			Nine Months Ended September 30, 2014
	Black Oil	Refining	Recovery	Black Oil	Refining	Recovery
Customer 1	100%	—%	—%	98%	—%	2%
Customer 2	58%	42%	—%	21%	79%	—%
Customer 3	—%	100%	—%	—%	100%	—%
Customer 4	—%	100%	—%	—%	100%	—%
Customer 5	100%	—%	—%	100%	—%	—%
Customer 6	100%	—%	—%	100%	—%	—%

The Company purchases goods and services from one company that represented 15% of total purchases for the nine months ended September 30, 2015 and one company that represented 10% of total purchases for the nine months ended September 30, 2014.

The Company has had various debt facilities available for use, of which there was $27,442,101 and $42,496,913 outstanding as of September 30, 2015 and December 31, 2014, respectively. See Note 10 for further details.

In February 2013, Bank of America agreed to lease the Company up to $1,025,000 of equipment to enhance the TCEP operation, which went into effect in April 2013. Under the current terms of the lease agreement, there are 60 monthly payments due of approximately $13,328.

The Company’s revenue, profitability and future rate of growth are substantially dependent on prevailing prices for petroleum-based products. Historically, the energy markets have been very volatile, and there can be no assurance that these prices will not be subject to wide fluctuations in the future. A substantial or extended decline in such prices could have a material adverse effect on the Company’s financial position, results of operations, cash flows, and access to capital and on the quantities of petroleum-based products that the Company can economically produce.

The Company, in its normal course of business, is involved in various other claims and legal action. In the opinion of management, the outcome of these claims and actions will not have a material adverse impact upon the financial position of the Company.

For tax reporting purposes, we have NOLs of approximately $58.4 million as of September 30, 2015 that are available to reduce future taxable income. In determining the carrying value of our net deferred tax asset, the Company considered all negative and positive evidence. The Company has incurred a cumulative pre-tax loss of $17.0 million over a three year period ended September 30, 2015. As a result, we determined that a full valuation allowance for our deferred tax assets at September 30, 2015 of $5.3 million was appropriate.

NOTE 7. ACCOUNTS RECEIVABLE

Accounts receivable, net, consists of the following at:

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	September 30, 2015	December 31, 2014
Accounts receivable	$8,374,511	$10,253,663
Allowance for doubtful accounts	(476,861)	(316,715)
Accounts receivable, net	$7,897,650	$9,936,948

Accounts receivable represents amounts due from customers. Accounts receivable are recorded at invoiced amounts, net of reserves and allowances, and do not bear interest. The Company uses its best estimate to determine the required allowance for doubtful accounts based on a variety of factors, including the length of time receivables are past due, economic trends and conditions affecting its customer base, significant one-time events and historical write-off experience. Specific provisions are recorded for individual receivables when we become aware of a customer’s inability to meet its financial obligations. The Company reviews the adequacy of its reserves and allowances quarterly.

NOTE 8. NOTES RECEIVABLE

Current portion of notes receivable, net, consists of the following at:



	September 30, 2015	December 31, 2014
Notes receivable - current	$5,346,452	$4,846,452
Allowance	(4,346,452)	(1,696,452)
Notes receivable - current, net	$1,000,000	$3,150,000

The current portion of notes receivable represents amounts due from Omega Holdings, LLC. Of the total notes receivable balance, $1,696,452 represents invoiced amounts that do not bear interest as of September 30, 2015. Based on management's assessment, the Company recognized an allowance of $1,696,452 related to the receivable. The write off was necessary because the Company's receivable was unsecured and the amount that the Company may ultimately recover, if any, is not presently determinable.

As of September 30, 2015, $3,650,000 of the current notes receivable balance represents short-term loans that carry an interest rate of 9.5% per annum. No accrued interest is included in the balance. Based on management's assessment, the Company recognized an allowance of $2,650,000 during the three months ended March 31, 2015. The note is collateralized by insurance proceeds expected to be collected in 2015 and the allowance was a result of revised insurance proceeds expectations.

The long-term notes receivable represents amounts due from Omega Holdings, LLC. The $8,308,000 due to Vertex is based on the purchase price allocated to the Nevada facility, which has not yet closed. The note is collateralized by assets at the Nevada facility and carries an interest rate of 9.5% per annum. It is anticipated the balance of the note will be satisfied in connection with a foreclosure of the property and equipment pledged as collateral to secure the note. No accrued interest is included in the account balance. The aggregate receivable balance has been classified as noncurrent because they are not expected to be collected within one year from the balance sheet date. The note is currently in default as of September 30, 2015.

NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is to offset changes in the fair value or cash flows of our commodity feedstock and processed inventories. The Company has entered into certain financial derivative instruments to manage this risk. In addition, see Note 13 for details regarding our Warrants granted in connection with the Series B Preferred Stock.

The derivative financial instruments the Company has entered into are futures contracts which have terms of less than a year to offset the effects of the market value changes in our hedged items, as well as to avoid significant volatility that might arise due to market exposure.

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gain or loss on the derivative instrument is recorded in earnings. The Company has determined that the fair value of its derivative financial instruments are determined using level 2 inputs (inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability) in the fair value hierarchy as the fair value is based on publicly available commodity futures prices rates at each financial reporting date. At September 30, 2015, the fair value of the Company’s futures contracts totaled a nominal net asset and will be included in other prepaid assets in future consolidated balance sheets; and the gain of approximately $395,400 is included in gain on futures contracts in the accompanying consolidated statements of operations. The notional principal of outstanding futures contracts at September 30, 2015 was $2,600,000.

At September 30, 2015, the Company’s financial instruments do not contain any credit-risk-related or other contingent features that could cause accelerated payments when the Company’s financial instruments are in net liability positions. The Company does not use derivative financial instruments for trading or speculative purposes.

NOTE 10. LINE OF CREDIT AND LONG-TERM DEBT

In September 2012, the Company entered into a credit agreement with Bank of America. Pursuant to the agreement, Bank of America agreed to loan the Company $8,500,000 in the form of a term loan and to provide the Company with an additional $10,000,000 in the form of a revolving line of credit.

In May 2014, the Company entered into an amended and restated credit agreement with Bank of America. The amended credit agreement amended and restated the prior credit agreement entered into with Bank of America in September 2012. Pursuant to the agreement, Bank of America agreed to loan the Company up to $20,000,000 in the form of a revolving line of credit, subject to certain terms and lending ratios, to be used for feedstock purchases and general corporate purposes. The line of credit bears interest at the option of the Company of either the lender's prime commercial lending rate then in effect between 1.25% and 2% per annum or the Bank of America LIBOR rate plus between 2.35% and 3% (both ranges dependent upon the Company's leverage ratio from time to time). Accrued and unpaid interest on the revolving note is due and payable monthly in arrears and all amounts outstanding under the revolving note are due and payable on May 2, 2017. The balance on the revolving line of credit was $0 at September 30, 2015.

The financing arrangement discussed above is secured by a first priority security interest in all of the assets and securities of our direct and indirect subsidiaries other than E-Source. The loan includes various covenants binding upon the Company, including, requiring that the Company comply with certain reporting requirements, provide notices of material corporate events and forecasts to Bank of America, and maintain certain financial ratios relating to debt leverage, consolidated EBITDA, maximum debt exposure, and minimum liquidity, including maintaining a ratio of quarterly consolidated EBITDA to certain fixed charges.

On May 2, 2014, the Company entered into a Credit and Guaranty Agreement with Goldman Sachs Bank USA. Pursuant to the agreement, Goldman Sachs Bank USA loaned the Company $40,000,000 in the form of a term loan. As set forth in the Credit Agreement, the Company has the option to select whether loans made under the Credit Agreement bear interest at (a) the greater of (i) the prime rate in effect, (ii) the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System plus ½ of 1%, (iii) the sum of (A) the Adjusted LIBOR Rate and (B) 1%, and (iv) 4.5% per annum; or (b) the greater of (i) 1.50% and (ii) the applicable ICE Benchmark Administration Limited interest rate, divided by (x) one minus, (y) the Adjusted LIBOR Rate. Interest on the Credit Agreement is payable monthly in arrears. Amortizing principal payments are due on the Credit Agreement Loan in the amount of $300,000 per fiscal quarter for June 30, 2014, September 30, 2014, December 31, 2014 and March 31, 2015, and $800,000 per fiscal quarter thereafter until maturity on May 2, 2019. The balance on the term loan was $23,200,000 at September 30, 2015.

The Goldman Sachs Bank USA financing arrangement is secured by all of the assets of the Company, but was subordinate to the aforementioned Bank of America credit agreement.

On March 26, 2015, we, Vertex Operating, and substantially all of our other subsidiaries (other than E-Source), Goldman Sachs Specialty Lending Holdings, Inc. (“Lender”) and Goldman Sachs Bank USA, as Administrative Agent and Collateral Agent for Lender (“Agent”), entered into a Second Amendment to Credit and Guaranty Agreement (the “Second Amendment”). The Second Amendment amended that certain Credit and Guaranty Agreement entered into between the parties dated as of May 2, 2014 and amended by the First Amendment to Credit and Guaranty Agreement entered into on December 5, 2014 (the “First Amendment” and the Credit and Guaranty Agreement as amended and modified by the First Amendment and Second Amendment, the “Credit Agreement”).

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During the third quarter of 2014, various events of default had occurred and were continuing under the Credit Agreement and the parties entered into the Second Amendment to among other things, provide for the waiver of the prior defaults and to restructure certain covenants and other financial requirements of the Credit Agreement and to allow for our entry into the MidCap Loan Agreement (described below).

The amendments to the Credit Agreement effected by the Second Amendment include, but are not limited to:


•	Effecting various amendments to the Credit Agreement to substitute the name of MidCap Business Credit, LLC and the MidCap Loan Agreement (as described below) in place of Bank of America, NA (“BOA”), and the Company’s prior Credit Agreement with BOA.


•	Increasing the interest rate of certain outstanding loans made under the terms of the Credit Agreement by up to 2% per annum, based on the leverage ratio of debt to consolidated EBITDA of the Company.


•	Changing the calculation dates for certain fixed charge ratios required to be calculated pursuant to the terms of the Credit Agreement.


•	Changing how certain debt leverage ratios are calculated under the terms of the Credit Agreement.


•	Increasing the additional default interest payable upon the occurrence of an event of default under the Credit Agreement to 4% per annum (compared to 2% per annum for all other defaults) above the then applicable interest rate in the event we fail to make the Required Prepayment (as defined below).


•	Providing that no quarterly amortization payments would be due under the terms of the Credit Agreement for the quarters ended March 31, 2015 and June 30, 2015 (previously amortization payments of $800,000 per quarter were due for both such quarters).


•	Providing that we are not required to meet certain debt and leverage covenants for certain periods of fiscal 2015.


•	Requiring that we raise at least $9.1 million by June 30, 2015 through the sale of equity, and that we are required to pay such funds directly to the Lender as a mandatory pre-payment of the amounts outstanding under the Credit Agreement (the “Required Payment”), which required payment was paid in June 2015, as described below.

•

Changing certain of the required prepayment terms of the Credit Agreement, which require us to prepay the amounts owed under the Credit Agreement in an amount equal to 100% of the extent total consolidated debt exceeds (x) total consolidated EBITDA (as calculated pursuant to the agreement) multiplied by (y) the maximum debt leverage ratios described in the Credit Agreement, provided that no prepayments in connection with such requirements are required to be made through December 31, 2015.


•	Reducing the amount of allowable additional borrowings we can make under other debt agreements and facilities to $7 million in aggregate (including not more than $6 million under the MidCap Loan Agreement through December 31, 2015).


•	Changing certain fixed charge, leverage ratios and consolidated EBITDA calculations, definitions, and requirements relating to covenants under the Credit Agreement.

•

Changing the required amount of cash on hand and available borrowings under the MidCap Loan Agreement. We are required to have at least (a)$750,000 after the date of the Second Amendment and prior to June 30, 2015, (b) $1.5 million at any time after June 30, 2015 and prior to December 31, 2015, (c) $2 million at any time after December 31, 2015 and prior to June 30, 2016, (d) $2.5 million at any time after June 30, 2016 and prior to December 31, 2016, and (e) $3 million at any time after December 31, 2016.

The Lender also waived all of the prior defaults which the Lender had provided the Company notice of previously (which were all of the known defaults that existed at the time of the parties’ entry into the Second Amendment) and the Company and its subsidiaries provided a release in favor of the Lender and its representatives and assigns. We also agreed to pay the Agent a fee of $50,000 per year (including $50,000 paid upon our entry into the Second Amendment) as an administration fee; and pay the Agent certain prepayment fees in the event we prepay amounts outstanding under the Credit Agreement prior to March 26, 2018,

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provided no prepayment fee is due in connection with the Required Payment or certain other mandatory prepayments required under the terms of the Credit Agreement, subject to certain exceptions.

As additional consideration for the Lender agreeing to the terms of the Second Amendment, we granted Goldman, Sachs & Co., an affiliate of the Lender (such initial holder and its assigns, if any, the “Holder”) a warrant to purchase 1,766,874 shares of our common stock which was evidenced by a Common Stock Purchase Warrant (the “Lender Warrant”). The Lender Warrant was to expire on March 26, 2022 and originally had an exercise price equal to the lower of (x) $3.39583 per share; and (y) the lowest price per share at which we issue any common stock (or sets an exercise price for the purchase of common stock) between the date of our entry into the Lender Warrant and June 30, 2015. The Lender Warrant was exercisable by the Holder at any time after September 1, 2015, including pursuant to a cashless exercise. The Lender Warrant provided that in the event that, prior to June 30, 2015, we prepaid the amount owed under the Credit Agreement in an amount greater than $9.1 million (i.e., in an amount greater than the Required Payment) then the number of shares of common stock issuable upon exercise of the Lender Warrant is reduced by the pro rata amount by which the amount prepaid exceeds $9.1 million and is less than $15.1 million, provided that if prior to June 30, 2015 we prepaid at least $6 million in addition to the Required Payment the Lender Warrant automatically terminated.

On June 18, 2015, the Company entered into the Third Amendment to Credit and Guaranty Agreement (the “Third Amendment”), which amended the Credit Agreement (defined above). The amendments to the Credit Agreement effected by the Third Amendment include, but are not limited to:


•	Extending the time period pursuant to which we are required to make certain post-closing deliverables pursuant to the terms of the Credit Agreement.


•	Providing that we are not required to meet certain debt and leverage covenants for certain periods extending until March 31, 2016 (previously we were required to meet such covenants beginning with the quarter ended December 31, 2015).

•

Extending the date we are required to begin making required prepayments under the terms of the Credit Agreement, in an amount equal to 100% of the extent total consolidated debt exceeds (x) total consolidated EBITDA (as calculated pursuant to the agreement) multiplied by (y) the maximum debt leverage ratios described in the Credit Agreement, until March 31, 2016 (previously no payments were required to be made through December 31, 2015).

•

Reducing certain required consolidated EBITDA targets pursuant to the terms of the Credit Agreement to be more favorable to the Company, including reducing such targets to $250,000, $1.5 million, $4.25 million, $7.25 million and $9.5 million for the quarters ended September 30, 2015, December 31, 2015, March 31, 2016, June 30, 2016 and September 30, 2016 (and each quarter thereafter), respectively, compared to $3 million, $5.5 million, $8 million, $9 million and $10 million, respectively.


•	Extending the date we are required to begin meeting various leverage ratios and consolidated EBITDA targets as set forth in the Credit Agreement from December 31, 2015 and June 30, 2015, to March 31, 2016 and September 30, 2015, respectively.

As additional consideration for the Lender agreeing to the terms of the Third Amendment, we agreed to modify, pursuant to a First Amendment to Warrant, the terms of the Lender Warrant. Pursuant to the First Amendment to Warrant, we agreed to reduce the exercise price of the Lender Warrant to $2.778 per share (the 30 day volume weighted average price of our common stock as of the date of our entry into the Third Amendment) from $3.395828553 per share, and that in the event we issue any preferred stock, that the lowest exercise price associated with any warrants or similar convertible securities issued in connection with such preferred stock offering shall become the exercise price of the Lender Warrant; provided that, if the Company does not issue preferred stock on or prior to June 30, 2015, then the exercise price of the Lender Warrant would be reduced to the lowest closing price per share of our common stock on any date between March 26, 2015 and June 30, 2015.

Effective June 29, 2015, we repaid $15.1 million of the amount owed to the Lender under the Credit, and as a result, the Lender Warrant and rights thereunder were canceled and terminated.

On May 2, 2014, in connection with the closing of the Omega Refining acquisition, the Company assumed two capital leases totaling $3,154,860. Payments of $2,790,299 were made at closing and the balance was $364,561 at September 30, 2015.

The Company financed insurance premiums through various financial institutions bearing interest rates from 4% to 4.52%. All such premium finance agreements have maturities of less than one year and have a balance of $1,172,147 at September 30, 2015.

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The MidCap Loan Agreement contains customary representations, warranties, covenants, and events of default for facilities of similar nature and size as the MidCap Loan Agreement, and requirements for the Company to indemnify MidCap for certain losses.

We also entered into a Revolving Note (the “MidCap Note”) to evidence amounts borrowed from MidCap from time to time under the MidCap Loan Agreement. Interest on the MidCap Note accrues at a fluctuating rate equal to the aggregate of: (x) the prime rate then in effect, and (y) 1.75% per annum, or at such other rate mutually agreed on from time to time by the parties, based upon the greater of (i) any balance owing under the MidCap Note at the close of each day; or (ii) a minimum assumed average daily loan balance of $3 million. Interest is payable in arrears, on the first day of each month that amounts are outstanding under the MidCap Note. The balance on the revolving note was $659,893 at September 30, 2015.

On January 7, 2015, E-Source entered into a loan agreement with Texas Citizens Bank to consolidate various smaller debt obligations. The loan Agreement provides a term note in the amount of $2,201,372 that matures on January 7, 2020. Borrowings bear a fixed interest rate of 5.5% per annum and interest will be calculated from the date of each advance until repayment in full or maturity. The loan has 59 scheduled monthly payments of $45,147 which includes principal and interest. The loan is collateralized by all of the assets of E-Source. The balance on the term note was $2,045,500 at September 30, 2015.

The Company's outstanding debt facilities as of September 30, 2015 are summarized as follows:

Creditor

Loan Type

Origination Date

Maturity Date

Loan Amount

Balance on September 30, 2015

MidCap Business Credit, LLC

Revolving Note

March, 2015

March, 2017

7,000,000

659,893

Goldman Sachs USA

Term Loan

May, 2014

May, 2019

40,000,000

23,200,000

Pacific Western Bank

Capital Lease

September, 2012

August, 2017

520,219

364,561

Texas Citizens Bank

Term Note

January, 2015

January, 2020

2,201,372

2,045,500

Various institutions

Insurance premiums financed

Various

< 1 year

1,789,481

1,172,147

51,511,072

27,442,101

Future contractual maturities of notes payable are summarized as follows:



Creditor	2015		2016		2017		2018		2019		Thereafter
MidCap Business Credit, LLC	$	659,893	$	—	$	—	$	—	$	—	$	—
Goldman Sachs USA	800,000		3,200,000		3,200,000		3,200,000		12,800,000		—
Pacific Western Bank	44,460		186,947		133,154		—		—		—
Texas Citizens Bank	71,394		442,600		468,225		495,013		523,333		44,935
Various institutions	661,968		510,179		—		—		—		—
Totals	$	2,237,715	$	4,339,726	$	3,801,379	$	3,695,013	$	13,323,333	$	44,935

NOTE 11. EARNINGS PER SHARE

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Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the periods presented. The calculation of basic earnings per share for the nine months ended September 30, 2015 includes the weighted average of common shares outstanding. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity, such as convertible preferred stock, stock options, warrants or convertible securities. The calculation of diluted earnings per share for the nine months ended September 30, 2015 does not include options to purchase 2,129,924 shares, warrants to purchase 219,868 shares of common stock, Series B Preferred stock which is convertible into 8,032,274 shares of common stock and warrants to purchase 4,032,267 shares due to their anti-dilutive effect.

The following is a reconciliation of the numerator and denominator for basic and diluted earnings per share for the nine months ended September 30, 2015 and 2014:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Basic Earnings per Share
Numerator:
Net income available to common shareholders	$	(2,972,571	)	$	(1,929,370	)	$	(20,384,221	)	$	5,933,877
Denominator:
Weighted-average shares outstanding	28,198,701			25,151,660			28,165,427			23,077,914
Basic earnings per share	$	(0.11	)	$	(0.08	)	$	(0.72	)	$	0.26

Diluted Earnings per Share
Numerator:
Net income available to common shareholders	$	(2,972,571	)	$	(1,929,370	)	$	(20,384,221	)	$	5,933,877
Denominator:
Weighted-average shares outstanding	28,198,701			25,151,660			28,165,427			23,077,914
Effect of dilutive securities
Stock options and warrants	—			—			—			1,116,993
Preferred stock	—			—			—			630,419
Diluted weighted-average shares outstanding	28,198,701			25,151,660			28,165,427			24,825,326
Diluted earnings per share	$	(0.11	)	$	(0.08	)	$	(0.72	)	$	0.24

NOTE 12. COMMON STOCK

The total number of authorized shares of the Company’s common stock is 750,000,000 shares, $0.001 par value per share. As of September 30, 2015, there were 28,214,276 common shares issued and outstanding.

Each share of the Company's common stock is entitled to equal dividends and distributions per share with respect to the common stock when, as and if declared by the Company's board of directors. No holders of any shares of the Company's common stock has a preemptive right to subscribe for any of the Company's securities, nor are any shares of the Company's common stock subject to redemption or convertible into other securities. Upon liquidation, dissolution or winding-up of the Company and after payment of creditors and preferred shareholders of the Company, if any, the assets of the Company will be divided pro rata on a share-for-share basis among the holders of the Company's common stock. Each share of the Company's common stock is entitled to one vote. Shares of the Company's common stock do not possess any cumulative voting rights.

During the nine months ended September 30, 2015, a total of 17,476 shares of the Company's Series A Preferred Stock were converted into 17,476 shares of our common stock on a one-for-one basis.

On April 5, 2014, the Company issued 56,180 shares of the Company's restricted common stock in connection with the inventory true up stipulated in the Heartland purchase agreement (as described in greater detail in the Quarterly Report on form 10-Q which we filed with the Securities and Exchange Commission on May 19, 2015).

F-17

During the three months ended March 31, 2015, the Company recognized contingently issuable warrants to purchase 1,766,874 shares of our common stock in connection with the amendments to the Credit Agreement with Goldman Sachs Bank USA (see Note 10). Management has determined that the warrants will more likely than not be canceled due to certain repayment provisions on or before June 30, 2015. Due to the down round feature of the warrant, the Company used the Black-Scholes model to value these warrants and have concluded that these are level 3 inputs. Management determined a discount factor on the grant date and on the balance sheet date based on available projections of cash to be used to make the mandatory repayments which resulted in a fair value derivative liability for the warrants of $577,440 at March 31, 2015. Effective June 29, 2015, we repaid $15.1 million of the amount owed to the lender and as a result, the lender warrants and rights were canceled and terminated.

Effective on June 24, 2015, the Compensation Committee of the Board of Directors (the “Committee”) granted Chris Carlson, our Chief Financial Officer, options to purchase 75,000 shares of our common stock with an exercise price of $3.15 per share, with a ten year term, vesting at the rate of 1/4th of such options per year on the first four anniversaries of the grant, under our 2013 Stock Incentive Plan.

On July 7, 2015, the Board of Directors granted (a) our non-executive directors options to purchase an aggregate of 300,000 shares of common stock at an exercise price of $2.08 per share (60,000 options per non-executive director); and (b) certain of our non-executive officers, options to purchase an aggregate of 150,000 shares of common stock at an exercise price of $2.08 per share (50,000 shares per executive officer), with a ten year term (subject to continued employment/directorship), vesting at the rate of 1/4th of such options per year on the first four anniversaries of the grant, under our 2013 Stock Incentive Plan in consideration for services rendered and to be rendered to the Company. On September 30, 2015, one of the non-executive officers resigned from the Company, terminating the 50,000 options granted to this individual which were unvested.

In August 2015, holders of our Series B Preferred Stock fully converted all 32,260 of the shares of Series B Preferred Stock which it then held into shares of our common stock on a one-for-one basis. The shares of common stock issuable in connection with such conversion were previously registered by us on a Form S-1 Registration Statement. Additionally, the same holder converted an aggregate of approximately $791 in accrued dividends on such converted Series B Preferred Stock shares into 255 shares of common stock ($3.10 per share of common stock), which shares of common stock were also previously registered by us on a Form S-1 Registration Statement.

NOTE 13. PREFERRED STOCK AND DETACHABLE WARRANTS

The total number of authorized shares of the Company’s preferred stock is 50,000,000 shares, $0.001 par value per share. The total number of designated shares of the Company’s Series A Convertible Preferred Stock is 5,000,000 (“Series A Preferred”). The total number of designated shares of the Company’s Series B Preferred Stock is 10,000,000. As of September 30, 2015, there were 612,943 shares of Series A Preferred Stock issued and outstanding and 8,032,274 shares of Series B Preferred Stock issued and outstanding.

Series B Preferred Stock

Dividends on our Series B Preferred Stock accrue at an annual rate of 6% of the original issue price of the preferred stock, subject to increase under certain circumstances, and are payable on a quarterly basis. The dividends may be paid in cash or in shares of registered common stock, or some combination thereof, at the Company's discretion. If paid in registered common stock, the number of shares payable will be calculated by dividing (a) the accrued dividend by (b) 90% of the arithmetic average of the volume weighted average price of the Company’s common stock for the 10 trading days immediately prior to the applicable date of determination.

In determining the earnings per share on common stock, the earnings will be reduced for the preferred stock dividends and the accretion of the discounts on the Series B Preferred Stock related to the issuance costs, warrant value and the beneficial conversion feature.

The Series B Preferred Stock accrues a dividend, payable quarterly in arrears (based on calendar quarters), in the amount of 6% per annum of the original issuance price of the Series B Preferred Stock ($3.10 per share or $25.0 million in aggregate).

The dividend is payable by the Company, at the Company’s election, in registered common stock of the Company (if available) or cash. In the event dividends are paid in registered common stock of the Company, the number of shares payable will be calculated by dividing (a) the accrued dividend by (b) 90% of the arithmetic average of the volume weighted average price (VWAP) of the Company’s common stock for the 10 trading days immediately prior to the applicable date of determination (the “Dividend Stock Payment Price”). Notwithstanding the foregoing, in no event may the Company pay dividends in common stock unless the applicable Dividend Stock Payment Price is above $2.91. If the Company is prohibited from paying the dividend in cash (due to contractual

F-18

senior credit agreements or other restrictions) or is unable to pay the dividend in registered common stock, the dividend will be paid in kind in Series B Preferred Stock shares at $3.10 per share.

The Series B Preferred Stock include a liquidation preference (in the amount of $3.10 per share) which is junior to the Company’s previously outstanding shares of preferred stock, senior credit facilities and other debt holders as provided in further detail in the designation of the Series B Preferred Stock (the "Designation").

The Series B Preferred Stock (including accrued and unpaid dividends) is convertible into shares of the Company’s common stock at the holder’s option at any time after closing at $3.10 per share (initially a one-for-one basis). If the Company’s common stock trades at or above $6.20 per share for a period of 20 consecutive trading days at any time following the earlier of (a) the effective date of a resale registration statement which we are required to file to register the resale of the shares of common stock underlying the Series B Preferred Stock and Warrants pursuant to the Purchase Agreement (described below), (which was declared effective on August 6, 2015) or (b) December 24, 2015, the Company may at such time force conversion of the Series B Preferred Stock (including accrued and unpaid dividends) into common stock of the Company.

Voting Rights

The Series B Preferred Stock votes together with the common stock on an as-converted basis, provided that each holder’s voting rights are subject to and limited by the Beneficial Ownership Limitation described below.

The Company has the option to redeem the outstanding shares of Series B Preferred Stock at $3.10 per share, plus any accrued and unpaid dividends on such Series B Preferred Stock redeemed, at any time beginning on June 24, 2017, and the Company is required to redeem the Series B Preferred Stock at $3.10 per share, plus any accrued and unpaid dividends, on June 24, 2020. Notwithstanding either of the foregoing, the Series B Preferred Stock may not be redeemed unless and until amounts outstanding under the Company’s senior credit facility have been paid in full.

The Series B Preferred Stock contains a provision prohibiting the conversion of such Series B Preferred Stock into common stock of the Company, if upon such conversion, the holder thereof would beneficially own more than 9.999% of the Company’s then outstanding common stock (the “Beneficial Ownership Limitation”). The Beneficial Ownership Limitation does not apply to forced conversions undertaken by the Company pursuant to the terms of the Designation (summarized above). In addition to the Beneficial Ownership Limitation, certain of the Investors also entered into agreements with us to limit their ability to effect conversions of Series B Preferred Stock (and exercise of Warrants (defined below)), to prohibit them contractually from converting (or exercising) such applicable security if upon such conversion (or exercise) they would beneficially own more than 4.999% of our outstanding common stock.

Unit Offering

On June 24, 2015, we closed the transactions contemplated by the June 19, 2015 Unit Purchase Agreement (the “Purchase Agreement”) we entered into with certain institutional investors (the “Investors”), pursuant to which the Company sold the Investors an aggregate of 8,064,534 units (the “Units”), each consisting of (i) one share of Series B Preferred Stock and (ii) one warrant to purchase one-half of a share of common stock of the Company (each a “Warrant” and collectively, the “Warrants”). The Units were sold at a price of $3.10 per Unit (the “Unit Price”) (a 6.1% premium to the closing bid price of the Company’s common stock on the NASDAQ Capital Market on the date the Purchase Agreement was entered into which was $2.91 per share (the “Closing Bid Price”)). The Warrants have an exercise price of $2.92 per share ($0.01 above the Closing Bid Price). Total gross proceeds from the offering of the Units (the “Offering”) was $25.0 million.

The Placement Agent received a commission equal to 6.5% of the gross proceeds (less $4.0 million raised from certain investors in the Offering for which they will receive no fee) from the Offering, for an aggregate commission of $1.365 million which was netted against the proceeds.

The number of shares of common stock issuable upon the complete conversion of the Series B Preferred Stock (not including any dividends which, pursuant to the terms of the Series B Preferred Stock may be paid in shares of common stock of the Company) and complete exercise of the Warrants sold in the Offering (i.e., Warrants to purchase an aggregate of 4,032,267 shares of common stock), would total 12,096,801 shares or 43.0% of our issued and outstanding shares of common stock immediately prior to our entry into the Purchase Agreement.

We used the net proceeds from the Offering to repay amounts owed under the Credit Agreement in the amount of $15.1 million.

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In addition, under the Purchase Agreement, the Company has agreed to register the shares of common stock issuable upon conversion of the Series B Preferred Stock and upon exercise of the Warrants under the Securities Act of 1933, as amended, for resale by the Investors. The Company has committed to file a registration statement on Form S-1 by the 30th day following the closing of the Offering (which filing date was met) and to cause the registration statement to become effective by the 90th day following the closing (or, in the event of a “full review” by the Securities and Exchange Commission, the 120th day following the closing), which registration statement was declared effective by the Securities and Exchange Commission on August 6, 2015. The Purchase Agreement provides for liquidated damages upon the occurrence of certain events, including, but not limited to, the failure by the Company to cause the registration statement to become effective by the deadlines set forth above. The amount of the liquidated damages is 1.0% of the aggregate subscription amount paid by an Investor for the Units affected by the event that are still held by the Investor upon the occurrence of the event, due on the date immediately following the event that caused such failure (or the 30th day following such event if the event relates to the suspension of the registration statement as described in the Purchase Agreement), and each 30 days thereafter, with such payments to be prorated on a daily basis during each 30 day period, subject to a maximum of an aggregate of 6% per annum.

Under the Purchase Agreement, the Company has agreed to indemnify the Investors for liabilities arising out of or relating to (i) any untrue statement of a material fact contained in the registration statement, (ii) any inaccuracy in the representations and warranties of the Company contained in the Purchase Agreement or the failure of the Company to perform its obligations under the Purchase Agreement and (iii) any failure by the Company to fulfill any undertaking included in the registration statement, subject to certain exceptions. The Investors, severally, and not jointly agreed to indemnify the Company against (i) any failure by such Investor to comply with the covenants and agreements contained in the Purchase Agreement and (ii) any untrue statement of a material fact contained in the registration statement to the extent such untrue statement was made in reliance upon and in conformity with written information furnished by or on behalf of that Investor specifically for use in preparation of the registration statement, subject to certain exceptions.

The Company agreed pursuant to the Purchase Agreement, that until 60 days following effectiveness of the registration statement filed, to register the shares of common stock underlying the Series B Preferred Stock and Warrants (the “Lock-Up Period”), to not offer or sell any common stock or securities convertible or exercisable into common stock, except pursuant to certain exceptions described in the Purchase Agreement, and each of the Company’s officers and directors agreed to not sell or offer for sale any shares of common stock until the end of the Lock-Up Period, subject to certain exceptions.

The warrants were valued using the dynamic Black Scholes Merton formula pricing model that computes the impact of share dilution upon the exercise of the warrant shares at approximately $7,021,000. The Black-Scholes inputs used were: expected dividend rate of 0%, expected volatility of 70%-100%, risk free interest rate of 1.59%, and expected term of 5.5 years. This valuation resulted in a beneficial conversion feature on the convertible preferred stock of approximately $5,737,810. This amount will be accreted over the term as a deemed dividend. Fees in the amount of $1.4 million relating to the stock placement were netted against proceeds. The warrants are exercisable beginning on December 26, 2015, and expire December 24, 2020.

The following table represents the carrying amount of the Series B Preferred Stock at inception and as of September 30, 2015:



At Inception	Amount
Face amount of Series B Preferred	$	25,000,000
Less: warrant value	7,028,067
Less: beneficial conversion feature	5,737,796
Less: issuance costs and fees	1,442,462
Carrying amount at inception	$	10,791,675

At September 30, 2015	Amount
Face amount of Series B Preferred	$	25,000,000
Less: un-accreted discount	13,808,377
Carrying amount at September 30, 2015	$	11,191,623

In accordance with ASC 815-40-25 and ASC 815-10-15 Derivatives and Hedging and ASC 480-10-25 Liabilities-Distinguishing Liabilities from Equity as approved by shareholders, the convertible preferred shares are accounted for net outside of stockholders’ equity at $11,191,623 with the warrants accounted for as liabilities at their fair value of $4,393,034 as

F-20

of September 30, 2015. The value of the derivative warrant liability will be re-measured at each reporting period with changes in fair value recorded as earnings. To derive an estimate of the fair value of these warrants, the Company utilized a dynamic Black Scholes Merton formula that computes the impact of share dilution upon the exercise of the warrant shares. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price and volatility assumptions to dynamically adjust the payoff of the warrants in the presence of the dilution effect. In the event the convertible preferred shares are redeemed, any redemption price in excess of the carrying amount of the convertible preferred stock would be treated as a dividend.

The changes in liabilities measured using significant unobservable inputs for the period ended September 30, 2015 were as follows:



Level Three Roll-Forward
Item	Level 3
Balance at December 31, 2014	$	—
Warrants issued June 24, 2015	7,028,067
Change in valuation of warrants	(2,635,033		)
Balance at September 30, 2015	$	4,393,034

The warrants related to the Series B Preferred Stock were revalued at September 30, 2015 using the Dynamic Black Scholes model that computes the impact of a possible change in control transaction upon the exercise of the warrant shares at approximately $4,393,034. The dynamic Black-Scholes inputs used were: expected dividend rate of 0%, expected volatility of 70%-100%, risk free interest rate of 1.10%, and expected term of 4.9 years.

The Certificate of Designation contains customary anti-dilution protection for proportional adjustments (e.g. stock splits).

The beneficial conversion feature (BCF) relates to potential difference between the effective conversion price (measured based on proceeds allocated to the Series B Preferred Stock) and the fair value of the stock into which Preferred B Shares are currently convertible (common stock).

If a conversion option embedded in a debt host instrument does not require separate accounting as a derivative instrument under ASC 815, the convertible hybrid instrument must be evaluated under ASC 470-20 for the identification of a possible (BCF).

The BCF will be initially recognized as an offsetting reduction to Series B Preferred B Stock (debit), with the credit being recognized in equity (additional paid-in capital).

The resulting debt issuance costs, debt discount, value allocated to warrants, and BCF should be accreted to the Series B Preferred Stock to ensure that the Series B Preferred Stock balance is equal to its face value as of the redemption or conversion date, if conversion is expected earlier.

The BCF was determined by calculating the intrinsic value of the conversion feature as follows:



Face amount of Series B Preferred Stock	$	25,000,000
Less: allocated value of Warrants	7,028,067
Allocated value of Series B Preferred Stock	$	17,971,933
Shares of Common stock to be converted	8,064,534
Effective conversion price	$	2.23
Market price	$	2.94
Intrinsic value per share	$	0.7115
Intrinsic value of beneficial conversion feature	$	5,737,796

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NOTE 14. SEGMENT REPORTING

The Company’s reportable segments include the Black Oil, Refining & Marketing and Recovery divisions. Segment information for the three and nine months ended September 30, 2015 and 2014 is as follows:



NINE MONTHS ENDED SEPTEMBER 30, 2015
	Black Oil			Refining & Marketing		Recovery		Total
Revenues	$	86,885,254		$	28,466,144	$	10,715,236	$	126,066,634

Income (loss) from operations	$	(14,429,753	)	$	623,594	$	2,180,404	$	(11,625,755	)



NINE MONTHS ENDED SEPTEMBER 30, 2014
	Black Oil		Refining & Marketing		Recovery			Total
Revenues	$	124,884,174	$	58,000,951	$	13,447,671		$	196,332,796

Income (loss) from operations	$	388,035	$	1,768,043	$	(1,482,431	)	$	673,647



THREE MONTHS ENDED SEPTEMBER 30, 2015
	Black Oil			Refining & Marketing			Recovery		Total
Revenues	$	27,632,744		$	8,752,135		$	2,877,705	$	39,262,584

Income (loss) from operations	$	(3,942,438	)	$	(216,654	)	$	1,660,172	$	(2,498,920	)



THREE MONTHS ENDED SEPTEMBER 30, 2014
	Black Oil			Refining & Marketing		Recovery			Total
Revenues	$	52,434,252		$	19,655,674	$	4,813,590		$	76,903,516

Income (loss) from operations	$	(749,043	)	$	229,260	$	(606,902	)	$	(1,126,685	)

NOTE 15. CONTINGENT CONSIDERATION

As part of the consideration paid in connection with the acquisition of Vertex Holdings, L.P. in August 2012, if certain earning targets were met, the Company had to pay the seller approximately $2,233,000 annually in 2013, 2014 and 2015. The earn-out targets were not met for 2013 and the earn-out consideration was adjusted accordingly. In 2014, it was determined that the 2014 and 2015 earnings targets would not be met and the contingent consideration was reduced by $2,861,000, which represented 100% of the discounted cash flow for years two and three.

As part of the consideration paid in connection with the acquisition of certain assets from Omega Refining, LLC in May 2014, the Company agreed to pay the seller additional earn-out consideration in the event that certain EBITDA targets were met (a) during any twelve month period during the eighteen month period commencing on the first day of the first full calendar month following the May 2, 2014 initial closing date (which targets begin at $8,000,000 of EBITDA during such twelve month period) of up to 470,498 shares of common stock of the Company; and (b) during the calendar year ended December 31, 2015 (which targets begin at $9,000,000 of EBITDA) of up to 770,498 shares of common stock of the Company, in each case subject to adjustment for certain capital expenditures. In 2014, the contingent consideration was evaluated by management and reduced by $2,165,000, which represents 100% of the contingent liability related to the Omega Refining acquisition.

F-22

As part of the consideration paid in connection with the acquisition of 51% of E-Source, if certain targets were met, the Company had to pay the seller approximately $260,000 annually in 2014, 2015, 2016 and 2017. The Company recorded contingent consideration of $748,000, which was the discounted cash flows of the earn-out payments. Of this amount, $136,662 was paid in 2014 and the remaining $611,338 was written off. The write off was triggered because certain terms of the contingent consideration agreement were not met by the acquiree.

As part of the consideration paid for certain assets acquired from Warren Ohio Holdings Co., LLC. f/k/a Heartland Group Holdings, LLC (“Heartland”) in December 2014, the Company has agreed to pay the seller additional earn-out consideration of up to a maximum of $8,276,792, based on total EBITDA related to the operations acquired from Heartland during the twelve month period beginning on the first day of the first full calendar month commencing on or after the first anniversary of the closing (“Contingent Payments”). Any Contingent Payment due is payable 50% in cash and 50% in shares of the Company’s common stock. We are required to furnish Heartland, at such time as the financial results for each applicable earn-out period are finalized and released, but no later than one hundred twenty days following the earn-out period, a written statement of the Contingent Payment due, if any. In the event a Contingent Payment is due, it is required to be satisfied within five business days, after the final determination of the amount of the Contingent Payment. Additionally, the amount of any Contingent Payment is reduced by two-thirds of the cumulative total of required capital expenditures incurred at Heartland’s refining facility in Columbus, Ohio, which are paid or funded by Vertex OH after the closing, not to exceed $866,667, which capital expenditures are estimated to total $1.3 million in aggregate. The Company recorded contingent consideration of $6,069,000, which represents the fair value of the earn-out payment calculated at close. As of September 30, 2015, the contingent consideration was evaluated by management and it was determined that no adjustment was necessary.

NOTE 16. SUBSEQUENT EVENTS

For the period from June 24-30, 2015 and June 30-September 30, 2015, a total of approximately $398,459 of dividends accrued on our outstanding Series B Preferred Stock (not including shares of Series B Preferred Stock converted into common stock in August 2015, as described above). We were prohibited from paying such dividends in shares of common stock because the applicable Dividend Stock Payment Price was below $2.91. The “Dividend Stock Payment Price” is calculated by dividing (a) the accrued dividends by (b) 90% of the arithmetic average of the volume weighted average price (VWAP) of the Company’s common stock for the 10 trading days immediately prior to the applicable date of determination. In the event the applicable Dividend Stock Payment Price is below $2.91 we are required to pay such dividend in cash or in-kind in additional shares of Series B Preferred Stock. Pursuant to the terms of the Credit Agreement with the Lender, we are prohibited from paying the dividend in cash and therefore we paid the accrued dividends in-kind by way of the issuance of 128,535 restricted shares of Series B Preferred Stock pro rata to each of the then holders of our Series B Preferred Stock in October 2015.

•

Including Vertex OH in the calculation of Consolidated Adjusted EBITDA, once Vertex OH has (a) delivered certain required mortgages and legal opinions in respect to its real estate properties and in order to create a valid first priority security interest in such real estate properties in favor of the Agent, (b) taken action to cause certain deposit accounts of Vertex OH to become controlled accounts under the Credit Agreement; and (c) appointed an agent for service of process in New York.


•	Excluding from the definition of Consolidated Liquidity any amounts which are more than 75 days past due.


•	Changing the beginning calculation dates for certain fixed charge ratios required to be calculated pursuant to the terms of the Credit Agreement from December 31, 2015 to March 31, 2016.


•	Changing the way certain required leverage ratios are calculated as provided in the Credit Agreement.


•	Extending the date that we were required to begin making installment payments on the Credit Agreement from September 30, 2015 to the earlier of (a) December 31, 2015; and (b) the date we receive insurance proceeds from the Bango, Nevada plant of at least $800,000.


•	Removing prior restrictions which prevented Vertex OH from undertaking certain actions including co-mingling funds with the Company’s other subsidiaries and which required such entity to maintain its own books and records.

F-23


•	Extending the date we are required to begin meeting various leverage ratios relating to indebtedness, fixed charge ratios and consolidated EBITDA targets (while also reducing such consolidated EBITDA targets) from December 31, 2015 to March 31, 2016, and in some cases modifying the calculation of such ratios.


•	Reducing minimum consolidated liquidity amounts to not less than (i) $500,000 at any time from the date of the Fourth Amendment to December 31, 2015, (ii) $750,000 at any time after December 31, 2015 and on or prior to March 31, 2016, and (iii) $1,000,000 at any time after March 31, 2016.

Additionally, the Agent and the Company agreed that if the Company prepays, for any reason, all or any part of the principal balance of the amount owed under the Credit Agreement on or prior to June 18, 2018, the Company would pay the Agent a prepayment premium (“Prepayment Premium”) equal to (i) the greater of (a) 4.00% of such prepayment and (b) the Yield Maintenance Premium (defined below) with respect to such prepayment, if such repayment occurs on or prior to June 18, 2017, (ii) 2.00% of such repayment if such repayment occurs after June 18, 2017 and on or prior to June 18, 2018, and (iii) nothing thereafter; provided, however, that no Prepayment Premium is due with respect to any mandatory prepayment from (1) insurance proceeds received pursuant to the terms of the Credit Agreement, (2) excess cash flow under the terms of the Credit Agreement, (3) amounts required to be paid under the Credit Agreement in the event, among other things, certain EBITDA targets and leverage ratios are not met, (4) certain other mandatory prepayments of the amounts owed under the Credit Agreement; (5) tax return payments under the Credit Agreement, or voluntary prepayments of the amounts owed under the Credit Agreement prior to January 31, 2016. “Yield Maintenance Premium” means an amount equal to (1) the aggregate amount of interest which would have otherwise been payable on the amount of the principal prepayment from the date of prepayment until June 18, 2017, minus (2) the aggregate amount of interest the holder of the debt would earn if the prepaid principal amount were reinvested for the period from the date of prepayment until June 18, 2017 in treasury securities. Finally, the Agent agreed to Vertex OH becoming a party to the Midcap Loan Agreement and to guaranteeing certain debt owed to Midcap thereunder.

Also on November 9, 2015, we and certain of our subsidiaries entered into a First Amendment to Loan and Security Agreement (the “Midcap First Amendment”), which amended the Midcap Loan Agreement with Midcap. The Midcap First Amendment amended the Midcap Loan Agreement to add Vertex OH as a party thereto; remove Vertex OH’s requirement to enter into a negative pledge agreement with MidCap; created separate maximum borrowing base credit limits for Vertex OH’s accounts and customers ($100,000 maximum per customer, subject to certain exceptions); excluded customers who are based outside of the U.S. or Canada from the credit limits if backed by a bank letter of credit or covered by a foreign receivables insurance policy; removed inventory of Vertex OH from the definition of Eligible Inventory under the Midcap Loan Agreement; and provided that additional affiliates of the Company may become party to the Midcap Loan Agreement by executing an assumption agreement and revolving note in favor of Midcap.

F-24

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Report. These factors include:


•	risks associated with our outstanding credit facilities, including amounts owed, restrictive covenants, security interests thereon and our ability to repay such facilities and amounts due thereon when due;


•	the level of competition in our industry and our ability to compete;


•	our ability to respond to changes in our industry;


•	the loss of key personnel or failure to attract, integrate and retain additional personnel;


•	our ability to protect our intellectual property and not infringe on others’ intellectual property;


•	our ability to scale our business;


•	our ability to maintain supplier relationships and obtain adequate supplies of feedstocks;


•	our ability to obtain and retain customers;


•	our ability to produce our products at competitive rates;


•	material weaknesses in our internal controls over financial reporting;


•	our ability to execute our business strategy in a very competitive environment;


•	trends in, and the market for, the price of oil and gas and alternative energy sources;


•	our ability to maintain our relationship with KMTEX;


•	the impact of competitive services and products;


•	our ability to integrate acquisitions;


•	our ability to complete future acquisitions;


•	our ability to maintain insurance;


•	potential future litigation, judgments and settlements;


•	rules and regulations making our operations more costly or restrictive;


•	changes in environmental and other laws and regulations and risks associated with such laws and regulations;


•	economic downturns both in the United States and globally;


•	risk of increased regulation of our operations and products;


•	negative publicity and public opposition to our operations;


•	disruptions in the infrastructure that we and our partners rely on;


•	an inability to identify attractive acquisition opportunities and successfully negotiate acquisition terms;


•	our ability to effectively integrate acquired assets, companies, employees or businesses;


•	liabilities associated with acquired companies, assets or businesses;


•	interruptions at our facilities;


•	required earn-out payments and other contingent payments we are required to make;


•	unexpected changes in our anticipated capital expenditures resulting from unforeseen required maintenance, repairs, or upgrades;


•	our ability to acquire and construct new facilities;


•	certain events of default which have occurred under our debt facilities and previously been waived;


•	prohibitions on borrowing and other covenants of our debt facilities;


•	our ability to effectively manage our growth;


•	repayment of and covenants in our debt facilities;


•	the lack of capital available on acceptable terms to finance our continued growth; and


•	other risk factors included under “Risk Factors” below and in our Annual Report on Form 10-K and prior Form 10-Qs.

You should read the matters described in “Risk Factors” below and disclosed in the Company’s Annual Report on Form 10-K/A, filed with the Commission on April 15, 2015 and the other cautionary statements made in this Report as being applicable to all related forward-looking statements wherever they appear in this Report. We cannot assure you that the forward-looking statements in this Report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.

Please see the “Glossary of Selected Terms” incorporated by reference hereto as Exhibit 99.1, for a list of abbreviations and definitions used throughout this Report.

Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our consolidated financial statements included above under “Part I - Financial Information” - “Item 1. Financial Statements”.

In this Quarterly Report on Form 10-Q, we may rely on and refer to information regarding the refining, re-refining, used oil and oil and gas industries in general from market research reports, analyst reports and other publicly available information. Although we believe that this information is reliable, we cannot guarantee the accuracy and completeness of this information, and we have not independently verified any of it.

Corporate History of the Registrant:

Vertex Energy, Inc. (the “Company,” “we,” “us,” and “Vertex”) was formed as a Nevada corporation on May 14, 2008. Pursuant to an Amended and Restated Agreement and Plan of Merger dated May 19, 2008, by and between Vertex Holdings, L.P. (formerly Vertex Energy, L.P.), a Texas limited partnership ("Holdings"), us, World Waste Technologies, Inc., a California corporation (“WWT” or “World Waste”), Vertex Merger Sub, LLC, a California limited liability company and our wholly-owned subsidiary ("Merger Subsidiary"), and Benjamin P. Cowart, our Chief Executive Officer, as agent for our shareholders (as amended from time to time, the “Merger Agreement”). Effective on April 16, 2009, World Waste merged with and into Merger Subsidiary, with Merger Subsidiary continuing as the surviving corporation and becoming our wholly-owned subsidiary (the "Merger"). In connection with the Merger, (i) each outstanding share of World Waste common stock was cancelled and exchanged for 0.10 shares of our common stock; (ii) each outstanding share of World Waste Series A preferred stock was cancelled and exchanged for 0.4062 shares of our Series A preferred stock; and (iii) each outstanding share of World Waste Series B preferred stock was cancelled and exchanged for 11.651 shares of our Series A preferred stock. Additionally, as a result of the Merger, the common stock of World Waste was effectively reversed one for ten (10) as a result of the exchange ratios set forth in the Merger, and unless otherwise noted, the impact of such effective reverse stock split, created by the exchange ratio set forth above, is retroactively reflected throughout this Report.

Recent Acquisition

Aaron Oil Acquisition

Effective August 6, 2015, H&H Oil, L.P. , our indirect wholly-owned subsidiary (“H&H Oil”)

acquired a collection route consisting of collecting, shipping and selling used oil, oil filters, antifreeze and other related services in the state of Louisiana, but excluding industrial customers, maritime customers, off shore customers, dockside locations, industrial services, used absorbent services, wastewater generating customers and collectors/transporters of crankcase used oil, petroleum fuel reclamation customers and crude oil producers/processing/recovery/reclamation customers of Aaron Oil Company, Inc. (“Aaron Oil”). Included in the purchase were certain trucks and other assets owned by Aaron Oil and certain contract rights. The President, Chief Executive Officer and owner of Aaron Oil is Dan Cowart, the brother of our Chief Executive Officer and largest stockholder, Benjamin P. Cowart. The acquisition price paid at closing was approximately $1 million, which included a reimbursement for certain prepaid contract rights. Aaron Oil also agreed to provide account servicing services to us for a period

of sixty days following the closing at an agreed upon price per gallon of oil serviced. Aaron Oil also agreed to a non-compete provision prohibiting Aaron Oil from competing against the Company in the Louisiana market for a period of two years from the closing.

Recent Events:

Churchill County, Nevada Lease

On April 30, 2015, Vertex Refining NV, LLC ("Vertex Refining Nevada"), entered into a Lease With Option For Membership Interest Purchase (the “Bango Lease”) with Bango Oil, LLC (“Bango Oil”). Pursuant to the Bango Lease, we, through Vertex Refining Nevada, agreed to lease a used oil re-refining plant located on approximately 40 acres in Churchill County, Nevada (the “Bango Plant”). The Bango Plant produces base lubricating oils and all of the raw and finish products into and out of the Bango Plant are transported by either rail car or tanker trucks.

The Bango Plant was previously leased by Bango Refining, a subsidiary of Omega Holdings; however, the lease was terminated by Bango Oil and we were able to enter into the Bango Lease directly with Bango Oil instead of having to acquire the rights to the Bango Plant pursuant to the prior terms of our prior Asset Purchase Agreement with Louisiana LV OR LLC f/k/a Omega Refining, LLC ("Omega Refining"), Bango Refining NV, LLC ("Bango Refining") and Omega Holdings Company LLC ("Omega Holdings" and collectively with Omega Refining and Bango Refining, "Omega"), pursuant to which we were originally required to deliver 1.5 million shares to Omega and to forgive amounts due under the Omega Secured Note (defined and described below under "Liquidity and Capital Resources - "Omega Secured Note"). Bango Refining ceased operating the Bango Plant on April 30, 2015. As a result of its lease with Bango Oil, Vertex Refining Nevada has the right as of May 1, 2015 to operate the Bango Plant and is in the process of obtaining required operating permits.

The Bango Lease contains usual and customary covenants, representations, events of default and indemnification requirements for a commercial lease agreement of similar size and scope as the Bango Lease. The term of the Bango Lease continues until August 10, 2025, provided that as long as no event of default under the Bango Lease exists, we have the right to terminate the Bango Lease at any time, beginning six months after the start of the lease with twelve months prior notice to Bango Oil, provided further that Bango Oil can terminate the Bango Lease with thirty days prior notice to us during the twelve month notice period (i.e., after we have previously provided the twelve month notice of our intent to terminate the Bango Lease). Notwithstanding the above, we also have the right, during the first six months of the lease, to terminate the Bango Lease with five days written notice to Bango Oil in the event certain material improvements or equipment at the Bango Plant are physically removed by creditors of Omega, or such creditors obtain a preliminary injunction preventing the use of a material portion of such improvements or equipment, and in either case it interferes with our use of the plant.

No rent is due under the Bango Lease until January 1, 2016, at which time rent in the amount of $244,000 per month is due for the remainder of the term of the lease. We also have the option of paying rent which is due during 2016 in shares of our restricted common stock. Specifically, we have the right to issue shares of restricted common stock to Bango Oil equal to 110% of the rental payment due, based on the volume weighted average price (VWAP) of our common stock during the ten day period preceding the first of each applicable month, provided that if on the six month anniversary of the issuance of any stock issued in consideration for rent due, the value of the stock issued is less than 110% of the rental payment due, we are required to pay Bango Oil the difference in cash or issue Bango Oil additional shares of common stock equal to the difference in value. In addition to monthly rent, we are required to pay all taxes assessed on the property under the Bango Lease.

The Bango Lease also includes a purchase option, whereby, if no event of default exists on the Bango Lease, we have the option at any time during the term of the lease to purchase all of the equity interests of Bango Oil (the “Purchase Option”), effectively acquiring ownership of the Bango Plant. The initial consideration due to Bango Oil in connection with the Purchase Option is $8.5 million, provided that if the Purchase Option is not exercised by us prior to August 31, 2015, the amount due increases by $125,000 per month until July 1, 2016, and $3,000 per month thereafter, up to a maximum of $13 million, assuming we make timely rental payments under the lease (in the event we fail to timely make any rental payment due, the monthly increase in the purchase price for such applicable month increases by an additional $122,000).

We also continue to maintain a first priority security interest in certain personal property of Omega used at the plant pursuant to our prior agreements with Omega (which property we lease pursuant to the Personal Property Lease described below). In the event we obtain title to such property which secures the repayment of the Omega Secured Note through a foreclosure, we agreed to transfer certain assets which constitute fixtures to Bango Oil upon the termination of the Bango Lease, unless such termination is due to us exercising our rights under the Purchase Option. Notwithstanding the above, Vertex Refining Nevada entered into a Personal Property Lease with Omega Refining and Bango Refining, both related parties of Omega on April 30, 2015 (the “Personal Property Lease”), whereby Vertex Refining Nevada agreed to lease all machinery, equipment and other tangible personal property

located at the Bango Plant from Omega Refining and Bango Refining, for $220,000 per month, provided that until the Omega Secured Note is paid in full, Vertex Refining Nevada is able to accrue such payments and set them off against the amount due under the Omega Secured Note. The Personal Property Lease terminates after 60 days unless Vertex Refining Nevada provides notice of its intent to renew for an additional 30 days. It is anticipated that Vertex Refining Nevada will acquire the leased personal property from Omega Refining and Bango Refining at the termination of the Personal Property Lease pursuant to Article 9 of the Uniform Commercial Code, with such acquisition occurring through an offset of a portion of the amount due Vertex Refining under the Omega Secured Note.

Also on April 30, 2015, Vertex Refining Nevada and Vertex Operating, LLC ("Vertex Operating"), our wholly-owned subsidiary, entered into a Shared Services Agreement whereby Vertex Operating agreed to operate and provide support services at the Bango Plant for $80,000 per month through May 2, 2019.

In addition to the Bango Lease for the Bango Plant, Vertex Refining Nevada also entered into two Lease and Purchase Agreements (the “Equipment Leases”). The Equipment Leases provide the use of a rail facility and related equipment and a pre-fabricated metal building located at the plant. The Equipment Leases expire on December 31, 2016, subject to certain rights Vertex Refining Nevada has to terminate the leases earlier. The monthly rental costs for the leases are $16,300 and $3,800 per month, respectively, provided no rent is due for fiscal 2015. We also have the right pursuant to the Equipment Leases to pay the rent due under the Equipment Leases in shares of our restricted common stock, equal in value to 110% of the applicable rental payment due, based on the VWAP of our common stock during the ten day period preceding the first of each applicable month, provided that if on the six month anniversary of the issuance of any stock in lieu of cash payments, the value of the stock issued (based on the then 10 day VWAP) is less than 110% of the rental payment due, we are required to pay the lessor(s) the difference in cash or issue the lessor(s) additional shares of common stock equal to the difference in value. We also have the right under the Equipment Leases to acquire the applicable property/equipment subject to each Equipment Lease at any time prior to the expiration of the leases for $914,000 and $400,000, respectively, provided such amounts are discounted to $776,900 and $340,000, respectively, if the applicable purchase option is exercised prior to August 31, 2015. Finally, we have the right pursuant to the agreements to pay the purchase price associated with the purchase option in restricted common stock, equal in value to 110% of the amount due, based on the VWAP of our common stock during the ten day period preceding the purchase date, provided that if on the six month anniversary of the issuance of any stock in lieu of a cash payment, the value of the stock issued (based on the then 10 day VWAP) is less than 110% of the purchase price, we are required to pay the lessor(s) the difference in cash or issue the lessor(s) additional shares of common stock equal to the difference in value.

Our senior lender, Goldman Sachs Bank USA (“Goldman”), approved the entry by Vertex Refining Nevada into the Bango Lease and Equipment Leases, and also waived various events of default which had previously occurred under our senior credit facility with Goldman relating to various deliverables which we failed to make to Goldman as required pursuant to the terms of the credit facility and the fact that our auditor provided a ‘going concern’ opinion in our December 31, 2014 audited financial statements.

Each of the lessors under the Bango Lease and Equipment Leases also entered into an Acknowledgement and Confirmation Agreement with us, whereby they make various representations regarding their financial suitability to receive shares of our common stock, the restricted nature of the shares they may receive in lieu of cash consideration under the leases, and their status as an accredited investor, and agreed to not sell our stock short during the term of the leases which they are party to, and we agreed to not issue such investors securities representing more than 9.99% of our outstanding common stock. All of the parties also agreed that the aggregate shares of common stock issuable pursuant to all of the leases would not (i) exceed 19.9% of the outstanding shares of our common stock on April 30, 2015, (ii) exceed 19.9% of the combined voting power of the then outstanding voting securities of our common stock on April 30, 2015, or (iii) otherwise exceed such number of shares of common stock that would violate applicable listing rules of the NASDAQ Stock Market in the event our stockholders do not approve the issuance of the shares (collectively, the “Share Cap”).

Unit Offering

On June 24, 2015, we closed the transactions contemplated by the June 19, 2015 Unit Purchase Agreement (the “Purchase Agreement”) we entered into with certain institutional investors (the “Investors”), pursuant to which the Company sold the Investors an aggregate of 8,064,534 units (the “Units”), each consisting of (i) one share of Series B Preferred Stock (described below) and (ii) one warrant to purchase one-half of a share of common stock of the Company (each a “Warrant” and collectively, the “Warrants”). The Units were sold at a price of $3.10 per Unit (the “Unit Price”) (a 6.1% premium to the closing bid price of the Company’s common stock on the NASDAQ Capital Market on the date the Purchase Agreement was entered into which was $2.91 per share (the “Closing Bid Price”)). The Warrants have an exercise price of $2.92 per share ($0.01 above the Closing Bid Price). Total gross proceeds from the offering of the Units (the “Offering”) were $25.0 million.

Craig-Hallum Capital Group LLC (the “Placement Agent”) acted as exclusive placement agent in connection with the Offering. The Placement Agent received a commission equal to 6.5% of the gross proceeds (less $4.0 million raised from certain investors in the Offering for which they will receive no fee) from the Offering, for an aggregate commission of $1.365 million.

The number of shares of common stock issuable upon the complete conversion of the Series B Preferred Stock (not including any dividends which, pursuant to the terms of the Series B Preferred Stock may be paid in shares of common stock of the Company) sold at closing and complete exercise of the Warrants sold in the Offering (i.e., Warrants to purchase an aggregate of 4,032,267 shares of common stock), would total 12,096,801 shares or 43.0% of our issued and outstanding shares of common stock immediately prior to our entry into the Purchase Agreement.

We used the net proceeds from the Offering to repay amounts owed under our senior credit facility with Goldman in the amount of $15.1 million and plan to use the remaining proceeds for general corporate and working capital purposes. Pursuant to the terms of the Common Stock Purchase Warrant dated March 26, 2015 (as amended and modified to date the “Lender Warrant”) which we previously granted to Goldman, Sachs & Co., an affiliate of Goldman (the “Holder”), which provided the Holder the right to purchase up to 1,766,874 shares of our common stock (as described in greater detail in the Current Reports on Form 8-K which we filed with the Securities and Exchange Commission on March 31, 2015 and June 19, 2015), such Lender Warrant and rights thereunder were cancelled and terminated in connection with our payment of the $15.1 million to Goldman as described above.

In addition, under the Purchase Agreement, the Company has agreed to register the shares of common stock issuable upon conversion of the Series B Preferred Stock and upon exercise of the Warrants under the Securities Act of 1933, as amended, for resale by the Investors. The Company has committed to file a registration statement on Form S-1 by the 30th day following the closing of the Offering and to cause the registration statement to become effective by the 90th day following the closing (or, in the event of a “full review” by the Securities and Exchange Commission, the 120th day following the closing), each of which filing and effectiveness deadlines were met by the Company, and which registration statement was declared effective by the Securities and Exchange Commission on August 6, 2015. The Purchase Agreement provides for liquidated damages upon the occurrence of certain events, including, but not limited to, the failure by the Company to cause the registration statement to become effective by the deadlines set forth above. The amount of the liquidated damages is 1.0% of the aggregate subscription amount paid by an Investor for the Units affected by the event that are still held by the Investor upon the occurrence of the event, due on the date immediately following the event that caused such failure (or the 30th day following such event if the event relates to the suspension of the registration statement as described in the Purchase Agreement), and each 30 days thereafter, with such payments to be prorated on a daily basis during each 30 day period, subject to a maximum of an aggregate of 6% per annum.

The Company agreed pursuant to the Purchase Agreement, that until 60 days following effectiveness of the registration statement filed to register the shares of common stock underlying the Series B Preferred Stock and Warrants (the “Lock-Up Period”), to not offer or sell any common stock or securities convertible or exercisable into common stock, except pursuant to certain exceptions described in the Purchase Agreement, and each of the Company’s officers and directors agreed to not sell or offer for sale any shares of common stock until the end of the Lock-Up Period, subject to certain exceptions.

Series B Preferred Stock

On June 23, 2015, we filed with the Secretary of State of Nevada, an Amended and Restated Certificate of Designation of Vertex Energy, Inc. Establishing the Designation, Preferences, Limitations and Relative Rights of Its Series B Preferred Stock (the “Designation” and the “Series B Preferred Stock”), which Designation filing became effective on the same date.

The Series B Preferred Stock includes a liquidation preference (in the amount of $3.10 per share) which is junior to the Company’s previously outstanding shares of preferred stock, senior credit facilities and other debt holders as provided in further detail in the Designation.

The Series B Preferred Stock (including accrued and unpaid dividends) is convertible into shares of the Company’s common stock at the holder’s option at any time after closing at $3.10 per share (initially a one-for-one basis). If the Company’s common stock trades at or above $6.20 per share for a period of 20 consecutive trading days at any time following the earlier of (a) the effective date of a resale registration statement which we are required to file to register the resale of the shares of common stock underlying the Series B Preferred Stock and Warrants pursuant to the Purchase Agreement (described above), or (b) December 24, 2015, the Company may at such time force conversion of the Series B Preferred Stock (including accrued and unpaid dividends) into common stock of the Company.

The Series B Preferred Stock contains a provision prohibiting the conversion of such Series B Preferred Stock into common stock of the Company, if upon such conversion, the holder thereof would beneficially own more than 9.999% of the Company’s then outstanding common stock (the “Beneficial Ownership Limitation”). The Beneficial Ownership Limitation does not apply to forced conversions undertaken by the Company pursuant to the terms of the Designation (summarized above). In addition to the Beneficial Ownership Limitation, certain of the Investors also entered into agreements with us to limit their ability to effect conversions of Series B Preferred Stock (and exercise of Warrants (defined above)), to prohibit them contractually from converting (or exercising) such applicable security if upon such conversion (or exercise) they would beneficially own more than 4.999% of our outstanding common stock.

Description of Business Activities:

We are an environmental services company that recycles industrial waste streams and off-specification commercial chemical products. Our primary focus is recycling used motor oil and other petroleum by-products. We are engaged in operations across the entire petroleum recycling value chain including collection, aggregation, transportation, storage, refinement, and sales of aggregated feedstock and re-refined products to end users. We operate in three divisions- the Black Oil, Refining and Marketing and Recovery divisions. Our Black Oil division collects and purchases used motor oil directly from third-party generators, aggregates used motor oil from an established network of local and regional collectors, and sells used motor oil to our customers for use as a feedstock or replacement fuel for industrial burners. Our Refining and Marketing division aggregates and manages the re-refinement of used motor oil and other petroleum by-products and sells the re-refined products to end customers. Our Recovery division is a generator solutions company for the proper recovery and management of hydrocarbon streams. We operate a refining facility that uses our proprietary Thermal Chemical Extraction Process ("TCEP") technology and we also utilize third-party processing facilities.

We previously acquired a 100% interest in E-Source Holdings, LLC ("E-Source") , a company that leases and operates a facility located in Houston, Texas, and provides dismantling, demolition, decommission and marine salvage services at industrial facilities throughout the Gulf Coast. E-Source also owns and operates a fleet of trucks and other vehicles used for shipping and handling equipment and scrap materials. We also recently acquired Omega's Marrero, Louisiana re-refinery and Myrtle Grove complex in Belle Chasse, Louisiana and ownership of Golden State Lubricant Works, LLC ("Golden State") . The Marrero, Louisiana facility re-refines used motor oil and also produces vacuum gas oil. Golden State operates a strategic blending and storage facility located

in Bakersfield, California. We also recently closed a lease in Churchill County, Nevada which has a used oil re-refining plant located on approximately 40 acres in Churchill County, Nevada, the Bango Plant produces base lubricating oils.

Black Oil Division

Our Black Oil division is engaged in operations across the entire used motor oil recycling value chain including collection, aggregation, transportation, storage, refinement, and sales of aggregated feedstock and re-refined products to end users. We collect and purchase used oil directly from generators such as oil change service stations, automotive repair shops, manufacturing facilities, petroleum refineries, and petrochemical manufacturing operations. We own a fleet of 18 collection vehicles, which routinely visit generators to collect and purchase used motor oil. We also aggregate used oil from a diverse network of approximately 50 suppliers who operate similar collection businesses to ours.

We manage the logistics of transport, storage and delivery of used oil to our customers. We own a fleet of 15 transportation trucks and more than 95 aboveground storage tanks with over 5.5 million gallons of storage capacity. These assets are used by both the Black Oil division and the Refining and Marketing division. In addition, we also utilize third parties for the transportation and storage of used oil feedstocks. Typically, we sell used oil to our customers in bulk to ensure efficient delivery by truck, rail, or barge. In many cases, we have contractual purchase and sale agreements with our suppliers and customers, respectively. We believe these contracts are beneficial to all parties involved because it ensures that a minimum volume is purchased from collectors and generators, a minimum volume is sold to our customers, and we are able to minimize our inventory risk by a spread between the costs to acquire used oil and the revenues received from the sale and delivery of used oil. We also use our proprietary TCEP technology to re-refine used oil into marine fuel cutterstock and a higher-value feedstock for further processing. In addition, at our Marrero facility we produce a Vacuum Gas Oil (VGO) product that is sold to refineries as well as to the marine fuels market. At our Columbus, Ohio facility (Heartland Petroleum) we produce a base oil product that is sold to lubricant packagers and distributors.

Refining and Marketing Division

Our Refining and Marketing division is engaged in the aggregation of feedstock, re-refining it into higher value end products, and selling these products to our customers, as well as related transportation and storage activities. We aggregate a diverse mix of feedstocks including used motor oil, petroleum distillates, transmix and other off-specification chemical products. These feedstock streams are purchased from pipeline operators, refineries, chemical processing facilities and third-party providers, and are also transferred from our Black Oil division. We have a toll-based processing agreement in place with KMTEX LLC (previously KMTEX Ltd., "KMTEX" ) to re-refine feedstock streams, under our direction, into various end products that we specify. KMTEX uses industry standard processing technologies to re-refine our feedstocks into pygas, gasoline blendstock and marine fuel cutterstock. We sell all of our re-refined products directly to end-customers or to processing facilities for further refinement.

Recovery Division

The Recovery division is a generator solutions company for the proper recovery and management of hydrocarbon streams. The Recovery division also provides industrial dismantling, demolition, decommissioning, investment recovery and marine salvage services in industrial facilities. The Company (through this division) owns and operates a fleet of eight trucks and heavy equipment used for processing, shipping and handling of reusable process equipment and other scrap commodities.

We currently provide our services in 13 states, primarily in the Gulf Coast and Central Midwest regions of the United States. For the rolling twelve month period ending September 30, 2015, we aggregated approximately 133.1 million gallons of used motor oil and other petroleum by-product feedstocks and managed the re-refining of approximately 82.2 million gallons of used motor oil with our proprietary TCEP process, VGO and base oil processes.

Biomass Renewable Energy

We are also continuing to work on joint development commercial projects which focus on the separation of municipal solid waste into feedstocks for energy production. We are very selective in choosing opportunities that we believe will result in value for our shareholders. We can provide no assurance that the ongoing venture will successfully bring any projects to a point of financing or successful construction and operation.

Thermal Chemical Extraction Process

We own the intellectual property for our patented TCEP technology. TCEP is a technology which utilizes thermal and chemical dynamics to extract impurities from used oil which increases the value of the feedstock. We currently sell the TCEP final product as fuel oil cutterstock. We intend to continue to develop the TCEP technology and design with the goal of producing additional re-refined products including lubricating base oil.

TCEP differs from conventional re-refining technologies, such as vacuum distillation and hydrotreatment, by relying more heavily on chemical processes to remove impurities rather than temperature and pressure. Therefore, the capital requirements to build a TCEP plant are typically much less than a traditional re-refinery because large feed heaters, vacuum distillation columns, and a hydrotreating unit are not required. The end product currently produced by TCEP is used as fuel oil cutterstock. Conventional re-refineries produce lubricating base oils or product grades slightly lower than base oil that can be used as industrial fuels or transportation fuel blendstocks.

We currently estimate the cost to construct a new, fully-functional, commercial facility using our TCEP technology, with annual processing capacity of between 25 and 50 million gallons at another location would be approximately $10 to $15 million, which could fluctuate based on throughput capacity. The facility infrastructure would require additional capitalized expenditures which would depend on the location and site specifics of the facility.

Strategy and Plan of Operations

The principal elements of our strategy include:

Pursue Strategic Acquisitions and Partnerships

We plan to grow market share by consolidating feedstock supply through partnering with or acquiring collection and aggregation assets. Our executive team has a proven ability to evaluate resource potential and identify acquisition targets, funding permitting. The acquisitions and/or partnerships could increase our revenue and provide better control over the quality and quantity of feedstock available for resale and/or upgrading as well as providing additional locations for the implementation of TCEP. We also intend to diversify our revenue by acquiring complementary recycling service businesses, refining assets and technologies, and other vertically integrated businesses or assets. We believe we can realize synergies on acquisitions by leveraging our customer and vendor relationships, infrastructure, and personnel, and by eliminating duplicative overhead costs.

Expand Feedstock Supply Volume

We intend to expand our feedstock supply volume by growing our collection and aggregation operations. We plan to increase the volume of feedstock we collect directly by developing new relationships with generators and working to displace incumbent collectors; increasing the number of collection personnel, vehicles, equipment, and geographical areas we serve; and acquiring collectors in new or existing territories. We intend to increase the volume of feedstock we aggregate from third-party collectors by expanding our existing relationships and developing new vendor relationships. We believe that our ability to acquire large feedstock volumes will help to cultivate new vendor relationships because collectors often prefer to work with a single, reliable customer rather than manage multiple relationships and the uncertainty of excess inventory.

Broaden Existing Customer Relationships and Secure New Large Accounts

We intend to broaden our existing customer relationships by increasing sales of used motor oil and re-refined products to these accounts. In some cases, we may also seek to serve as our customers’ primary or exclusive supplier. We also believe that as we increase our supply of feedstock and re-refined products we will have the opportunity to secure larger customer accounts that require a partner who can consistently deliver high volumes.

Re-Refine Higher Value End Products

We intend to develop, lease, or acquire technologies to re-refine our feedstock supply into higher value end products, including assets or technologies which complement TCEP. Currently, we are using TCEP to re-refine used oil feedstock into cutter stock for use in the marine fuel market. We believe that continued improvements to our TCEP technology and investments in additional technologies will enable us to upgrade feedstock into higher value end products, such as fuels and lubricating base oil, which command higher market prices than the current re-refined products we produce. In addition to TCEP, at our Marrero, Louisiana facility we are producing a vacuum gas oil (VGO) through our re-refinery.

Expand TCEP Re-Refining Capacity

We intend to expand our TCEP capacity by building additional TCEP facilities to re-refine feedstock. We believe the TCEP technology has a distinct competitive advantage over conventional re-refining technology because it produces a high-quality fuel oil product, and the capital expenditures required to build a TCEP plant are significantly lower than a comparable conventional re-refining facility. By continuing the transition from our historical role as a value-added logistics provider to operating as a re-refiner, we believe we will be able to leverage our feedstock supply network and aggregation capabilities to upgrade a larger percentage of our feedstock inventory into higher value end products, which we believe should lead to increased revenue and gross margins. We intend to build TCEP facilities near the geographic location of substantial feedstock sources that we have relationships with through our existing operations or from an acquisition. By establishing TCEP facilities near proven feedstock sources, we will seek to lower our transportation costs and lower the risk of operating plants at low capacity.

RESULTS OF OPERATIONS

Description of Material Financial Line Items:

Revenues

We generate revenues from three existing operating divisions as follows:

BLACK OIL - Revenues for our Black Oil division are comprised primarily of product sales from our re-refineries and also feedstock sales (used motor oil) which are purchased from generators of used motor oil such as oil change shops and garages, as well as a network of local and regional suppliers. Volumes are consolidated for efficient delivery and then sold to third-party re-refiners and fuel oil blenders for the utility fuel export market. In addition, through used oil re-refining, we re-refine used oil into different commodity products. The Houston, Texas TCEP facility finished product is then sold by barge as a fuel oil cutterstock. Through the operations at our Marrero, Louisiana facility, we produce a Vacuum Gas Oil (VGO) product from used oil re-refining which is then sold via barge to crude refineries to be utilized as an intermediate feedstock in the refining process. The Marrero facility’s product is also sold as a low sulfur fuel oil blend in the marine fuel markets. Through the operations at our Columbus, Ohio facility we produce a base oil finished product which is then sold via truck or rail car to end users for blending, packaging and marketing of lubricants.

REFINING AND MARKETING - The Refining and Marketing division generates revenues relating to the sales of finished products. The Refining and Marketing division gathers hydrocarbon streams in the form of petroleum distillates, transmix and other chemical products that have become off-specification during the transportation or refining process. These feedstock streams are purchased from pipeline operators, refineries, chemical processing facilities and third-party providers, and then processed at a third-party facility under our direction. The end products are typically three distillate petroleum streams (gasoline blendstock, pygas and fuel oil cutterstock), which are sold to major oil companies or to large petroleum trading and blending companies. The end products are delivered by barge and truck to customers.

RECOVERY - The Recovery division is a generator solutions company for the proper recovery and management of hydrocarbon streams. This division also provides dismantling, demolition, decommission and marine salvage services at industrial facilities. We own and operate a fleet of trucks and other vehicles used for shipping and handling equipment and scrap materials.

Our revenues are affected by changes in various commodity prices including crude oil, natural gas, #6 oil and metals.

Cost of Revenues

BLACK OIL - Cost of revenues for our Black Oil division are comprised primarily of feedstock purchases from a network of providers. Other cost of revenues include processing costs, transportation costs, purchasing and receiving costs, analytical assessments, brokerage fees and commissions, and surveying and storage costs.

REFINING AND MARKETING - The Refining and Marketing division incurs cost of revenues relating to the purchase of feedstock, purchasing and receiving costs, and inspection and processing of the feedstock into gasoline blendstock, pygas and fuel oil cutter by a third party. Cost of revenues also includes broker’s fees, inspection and transportation costs.

RECOVERY - The Recovery division incurs cost of revenues relating to the purchase of hydrocarbon products, purchasing and receiving costs, inspection, demolition and transporting of metals and other salvage and materials. Cost of revenues also includes broker’s fees, inspection and transportation costs.

Our cost of revenues are affected by changes in various commodity indices, including crude oil, natural gas, #6 oil and metals. For example, if the price for crude oil increases, the cost of solvent additives used in the production of blended oil products, and fuel cost for transportation cost from third party providers will generally increase. Similarly, if the price of crude oil falls, these costs may also decline.

General and Administrative Expenses

Our general and administrative expenses consist primarily of salaries and other employee-related benefits for executive, administrative, legal, financial and information technology personnel, as well as outsourced and professional services, rent, utilities, and related expenses at our headquarters, as well as certain taxes.

Depreciation and Amortization Expenses

Our depreciation and amortization expenses are primarily related to the property, plant and equipment and intangible assets acquired in connection with the Holdings, E Source, Omega Refining acquisitions and Warren Ohio Holdings Co., LLC. f/k/a Heartland Group Holdings, LLC (“Heartland”) asset purchase.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2014

Set forth below are our results of operations for the three months ended September 30, 2015 as compared to the same period in 2014.



	Three Months Ended September 30,
	2015			2014			$ Change			% Change
Revenues	$	39,262,584		$	76,903,516		$	(37,640,932	)	(49	)%
Cost of Revenues	34,104,949			73,761,171			(39,656,222		)	(54	)%
Gross Profit	5,157,635			3,142,345			2,015,290			64	%
Reduction in contingent consideration	—			(1,876,752		)	1,876,752			100	%
Selling, general and administrative expenses	6,052,764			4,706,104			1,346,660			29	%
Depreciation and amortization	1,597,881			1,180,443			417,438			35	%
Acquisition related expenses	5,910			259,235			(253,325		)	(98	)%
Income (loss) from operations	(2,498,920		)	(1,126,685		)	(1,372,235		)	122	%
Other Income (loss)	11			109,980			(109,969		)	(100	)%
Bargain purchase gain related to Omega acquisition	—			92,635			(92,635		)	(100	)%
Other expense	(20,657		)	—			(20,657		)	100	%
Gain on futures contracts	395,430			—			395,430			100	%
Gain on change in value of derivative liability	818,051			—			818,051			100	%
Interest Expense	(763,791		)	(947,325		)	183,534			(19	)%
Total other income (expense)	429,044			(744,710		)	1,173,754			(158	)%
Income (loss) before income taxes	(2,069,876		)	(1,871,395		)	(198,481		)	11	%
Income tax (expense) benefit	—			(57,975		)	57,975			100	%
Net income (loss)	$	(2,069,876	)	$	(1,929,370	)	$	(140,506	)	7	%

Each of our segments’ gross profit (loss) during the three months ended September 30, 2015 and 2014 was as follows:



	Three Months Ended September 30,
Black Oil Segment	2015			2014			$ Change			% Change
Total revenue	$	27,632,744		$	52,434,252		$	(24,801,508	)	(47	)%
Total cost of revenue	25,128,353			50,846,953			(25,718,600		)	(51	)%
Gross profit (loss)	2,504,391			1,587,299			917,092			58	%
Reduction in contingent consideration	—			(1,876,752		)	1,876,752			100	%
Selling general and administrative expense	5,194,783			3,088,518			2,106,265			68	%
Depreciation and amortization	1,246,136			865,341			380,795			44	%
Acquisition related expenses	5,910			259,235			(253,325		)	(98	)%
Income (loss) from operations	$	(3,942,438	)	$	(749,043	)	$	(3,193,395	)	(325	)%

Refining Segment
Total revenue	$	8,752,135		$	19,655,674		$	(10,903,539	)	(55	)%
Total cost of revenue	8,281,753			18,680,731			(10,398,978		)	(56	)%
Gross profit	470,382			974,943			(504,561		)	(52	)%
Selling general and administrative expense	456,631			525,227			(68,596		)	(13	)%
Depreciation and amortization	230,405			220,456			9,949			5	%
Income from operations	$	(216,654	)	$	229,260		$	(445,914	)	(195	)%

Recovery Segment
Total revenue	$	2,877,705		$	4,813,590		$	(1,935,885	)	(40	)%
Total cost of revenue	694,843			4,233,487			(3,538,644		)	(84	)%
Gross profit	2,182,862			580,103			1,602,759			276	%
Selling general and administrative expense	401,350			1,092,359			(691,009		)	(63	)%
Depreciation and amortization	121,340			94,646			26,694			28	%
Income (loss) from operations	$	1,660,172		$	(606,902	)	$	2,267,074		374	%

The following schedule separates revenues and gross profit contributed by our recently acquired business entities and operations, Omega Refining and Heartland, during the three month period ending September 30, 2015. The isolated figures are presented in dollars and as a percentage of total consolidated revenue.



	Three Months Ended September 30, 2015
	Consolidated Results		Omega Refining		% Contributed by Omega Refining
Total Revenue	$	39,262,584	$	15,886,178	40%
Gross Profit	5,157,635		220,461		4%

	Consolidated Results		Heartland		% Contributed by Heartland
Total Revenue	$	39,262,584	$	6,867,113	17%
Gross Profit	5,157,635		1,983,933		38%

Our revenues and cost of revenues are significantly impacted by fluctuations in commodity prices; decreases in commodity prices typically result in decreases in revenue and cost of revenues. Our gross profit is to a large extent a function of the market discount we are able to obtain in purchasing feedstock, as well as how efficiently management conducts operations.

Total revenues decreased by 48.9% for the three months ended September 30, 2015 compared to the same period in 2014, due primarily to lower commodity prices during the three months ended September 30, 2015 compared to the same period in 2014.

Total volume increased 3% largely as a result of the additions of the Marrero, Louisiana facility in May 2014, which produces a VGO finished product as well as the Heartland facility in Columbus, Ohio in December 2014, which produces a base oil finished product. Gross profit increased by 64% for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. Prices of our finished products continue to be impacted across the industry by the lower commodity prices. Additionally, our per barrel margin increased 59% relative to the three months ended September 30, 2014. This increase was a result of decreased operational costs related to the Marrero and Heartland facilities in addition to increased margins in our feedstock and finished product values during the three months ended September 30, 2015, compared to the same period during 2014. The 54% decrease in cost of revenues for the three months ended September 30, 2015 compared to the three months ended September 30, 2014 is mainly a result of the overall decrease in commodity prices which has an impact on the prices we pay for feedstock.

Our Black Oil division's volume increased approximately 3% during the three months ended September 30, 2015 compared to the same period in 2014. This increase was due to the increased amount of volume managed through our Marrero and Heartland facilities which produces a VGO finished product and base oil respectively. Volumes collected through our H&H Oil and Heartland collection facilities increased 51% during the three months ended September 30, 2015 compared to the same period in 2014. Our focus continues to be on growing our own volumes of collected oil and displacing third party oil processed in our facilities.

Overall volumes of product sold increased 3% for the third quarter of 2015 versus the third quarter of 2014. This is important for our business as it illustrates our reach into the market and expansion of overall market share.

We experienced a 55% decrease in the volume of our TCEP refined product during the three months ended September 30, 2015, compared to the same period in 2014. This decrease was a result of strategic decisions that were made during the third quarter not to produce our TCEP finished product and to ship the feedstock we would have otherwise used at our TCEP facility to our Marrero facility due to market pricing impacts on the margins of the product produced in the Houston market vs. the Marrero, Louisiana market, in order to keep the volumes up and move lower priced feedstock through the Marrero facility. In addition, commodity prices decreased approximately 48% for the three months ended September 30, 2015, compared to the same period in 2014. The average posting (U.S. Gulfcoast Residual Fuel No. 6 3%) for the three months ended September 30, 2015 decreased $49.42 per barrel from a three month average of $87.40 for the three months ended September 30, 2014 to $37.97 per barrel for the three months ended September 30, 2015.

Our TCEP technology generated revenues of $3,025,406 during the three months ended September 30, 2015 with cost of revenues of $3,580,283, producing a gross loss of $554,877. The per barrel margin for our TCEP product decreased 385% as compared to the same period during 2014. This decrease was largely a result of the decrease in TCEP volume during the quarter as described above, which resulted in the continued carrying cost for the operation with very low throughput, as well as a lower priced commodity market which has put additional pressure on our margins, due to the way we calculate purchases on a percentage discount basis at this facility. Volumes of produced product using TCEP tend to vary significantly from quarter-to-quarter based on opportunistic purchases of products and production availability and timing at the facility we operate.

Overall volume for the Refining and Marketing division decreased 7% during the three months ended September 30, 2015 as compared to the same period in 2014. This division experienced a decrease in production of 24% for its gasoline blendstock for the three months ended September 30, 2015, compared to the same period in 2014. Our fuel oil cutter volumes decreased 8% for the three months ended September 30, 2015, compared to the same period in 2014. Our pygas volumes increased 16% for the three months ended September 30, 2015 as compared to the same period in 2014.

Our Recovery division includes the business operations of Vertex Recovery as well as the business of E-Source (of which we own a 100% interest). Revenues for this division decreased 40% mostly as a result of decreased commodity prices as well as project work during the period at our E-Source division for the three months ended September 30, 2015, compared to the prior period. Gross profit for the recovery division increased 276% for the three months ended September 30, 2015, compared to the same period in 2014. Our volumes increased 67% for the three months ended September 30, 2015 as compared to the same period in 2014. This division through E-Source periodically participates in project work that is not ongoing thus we expect to see fluctuations in revenue and gross profit from this division from period to period.

Overall gross profit increased 64% due to an increase in our margin per barrel of approximately 59% for the three months ended September 30, 2015, compared to the same period in 2014.

The following table sets forth the high and low spot prices during the nine months ended September 30, 2015 for our key benchmarks.



2015
Benchmark	High		Date	Low		Date
U.S. Gulfcoast No. 2 Waterborne (dollars per gallon)	$	1.91	May 6	$	1.25	August 25
U.S. Gulfcoast Unleaded 87 Waterborne (dollars per gallon)	$	2.16	June 11	$	1.31	August 26
U.S. Gulfcoast Residual Fuel No. 6 3% (dollars per barrel)	$	54.73	May 6	$	29.49	August 26
NYMEX Crude oil (Dollars per barrel)	$	61.43	June 10	$	38.24	August 24
Reported in Platt's US Marketscan (Gulf Coast)

The following table sets forth the high and low spot prices during the nine months ended September 30, 2014 for our key benchmarks.



2014
Benchmark	High		Date	Low		Date
U.S. Gulfcoast No. 2 Waterborne (dollars per gallon)	$	3.00	March 3	$	2.55	September 30
U.S. Gulfcoast Unleaded 87 Waterborne (dollars per gallon)	$	3.08	June 20	$	2.54	January 3
U.S. Gulfcoast Residual Fuel No. 6 3% (dollars per barrel)	$	94.94	June 24	$	82.67	September 30
NYMEX Crude oil (Dollars per barrel)	$	107.26	June 20	$	91.16	September 30
Reported in Platt's US Marketscan (Gulf Coast)

We saw a significant decrease during the first nine months of 2015 in each of the benchmark commodities we track compared to the same period in 2014.

Our margins are a function of the difference between what we are able to pay for raw materials and the market prices for the range of products produced. The various petroleum products produced are typically a function of crude oil indices and are quoted on multiple exchanges such as the New York Mercantile Exchange ("NYMEX"). These prices are determined by a global market and can be influenced by many factors, including but not limited to supply/demand, weather, politics, and global/regional inventory levels. As such, we cannot provide any assurances regarding results of operations for any future periods, as numerous factors outside of our control affect the prices paid for raw materials and the prices (for the most part keyed to the NYMEX) that can be charged for such products. Additionally, for the near term, results of operations will be subject to further uncertainty, as the global markets and exchanges, including the NYMEX, continue to experience volatility.

As our competitors bring new technologies to the marketplace, which will likely enable them to obtain higher values for the finished products created through their technologies from purchased black oil feedstock, we anticipate that they will be able to pay more for feedstock due to the additional value received from their finished product (i.e., as their margins increase, they are able to increase the prices they are willing to pay for feedstock). If we are not able to continue to refine and improve our technologies and gain efficiencies in the TCEP technology, our VGO technology through our Marrero facility, and our base oil technology at Heartland we could be negatively impacted by the ability of our competitors to bring new processes to market which compete with our processes, as well as their ability to outbid us for feedstock supplies.

If we are unable to effectively compete with additional technologies brought to market by our competitors, our finished products could be worth less and if our competitors are willing to pay more for feedstock than we are, they could drive up prices, which would cause our revenues to decrease (as described above, our revenues track the spread between the prices we purchase feedstock for and the prices we can sell finished product at), and cause our cost of sales to increase, respectively. Additionally, if we are forced to pay more for feedstock, our cash flows will be negatively impacted and our margins will decrease.

We had total operating expenses of $7,656,555 for the three months ended September 30, 2015, which included minimal acquisition related expenses, compared to $6,145,782 of total operating for the prior year’s period (including $259,235 of acquisition related expenses), an increase of $1,510,773 or 25% from the prior period. This increase is primarily due to an increase of $417,438 in depreciation and amortization and an increase of $1,346,660 in selling, general and administrative expense, partially offset by the reduction of acquisition related costs. Additionally, operating expenses include $1.2 million of selling, general and administrative costs and $0.5 million of operating expenses associated with the inactive Bango Refinery.

We had a loss from operations of $2,498,920 for the three months ended September 30, 2015, compared to a loss from operations of $1,126,685 for the three months ended September 30, 2014, an increase in loss from operations of $1,372,235 or 122% from the prior year’s period. The increase was mainly due to market and operational conditions as well as the additional selling general and administrative expenses associated with new product lines, and acquired operations. We have implemented an inventory management and hedging solution that we believe will mitigate some of the exposure the Company has historically had to sharp declines in oil and commodity prices moving forward.

We also had interest expense of $763,791 for the three months ended September 30, 2015, compared to interest expense of $947,325 for the three months ended September 30, 2014, a decrease in interest expense of $183,534 or 19% from the prior period mainly due to the debt facilities with Goldman Sachs and Midcap as described below.

We had $818,051 of gain on change in value of derivative liability for the three months ended September 30, 2015, in connection with a beneficial conversion feature on certain warrants granted in June 2015, as described in greater detail in Note 13 to the unaudited financial statements included herein under "Part I"-"Item 1. Financial Statements".

We had a gain on futures contracts of $395,430 for the three months ended September 30, 2015, which is the first period we have used futures contract to offset the effects of the market value changes in our hedged items, as well as to avoid significant volatility that might arise due to market exposure.

We had a net loss of $2,069,876 for the three months ended September 30, 2015, compared to a net loss of $1,929,370 for the three months ended September 30, 2014, an increase in net loss of $140,506 or 7% from the prior period for the reasons described above.

During the three months ended September 30, 2015, the processing costs for our Refining and Marketing division located at KMTEX were $1,136,025. In addition, we have provided the results of operations for this segment of our business below during the same three month period.



Three Months Ended September 30, 2015
	Refining and Marketing
Revenues	$	8,752,135

Income (loss) from operations	$	(216,654	)

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2014

Set forth below are our results of operations for the nine months ended September 30, 2015 as compared to the same period in 2014.



	Nine Months Ended September 30,
	2015			2014			$ Change			% Change
Revenues	$	126,066,634		$	196,332,796		$	(70,266,162	)	(36	)%
Cost of Revenues	115,748,581			179,949,373			(64,200,792		)	(36	)%
Gross Profit	10,318,053			16,383,423			(6,065,370		)	(37	)%
Reduction in contingent consideration	—			(1,876,752		)	1,876,752			100	%
Selling, general and administrative expenses	17,064,043			11,786,070			5,277,973			45	%
Depreciation and amortization	4,716,177			2,981,393			1,734,784			58	%
Acquisition related expenses	163,588			2,819,065			(2,655,477		)	(94	)%
Income (loss) from operations	(11,625,755		)	673,647			(12,299,402		)	(1,826	)%
Provision for doubtful accounts	(2,650,000		)	—			(2,650,000		)	(100	)%
Other Income (loss)	29			110,357			(110,328		)	(100	)%
Bargain purchase gain related to Omega acquisition	—			6,573,686			(6,573,686		)	(100	)%
Other expense	(78,316		)	(10,866		)	(67,450		)	621	%
Gain on futures contracts	395,430			—			395,430			100	%
Gain on change in value of derivative liability	2,635,033			—			2,635,033			100	%
Interest Expense	(2,851,947		)	(1,680,371		)	(1,171,576		)	70	%
Total other income (expense)	(2,549,771		)	4,992,806			(7,542,577		)	(151	)%
Income (loss) before income taxes	(14,175,526		)	5,666,453			(19,841,979		)	(350	)%
Income tax (expense) benefit	(5,306,000		)	(57,975		)	(5,248,025		)	9,052	%
Net income (loss)	$	(19,481,526	)	$	5,608,478		$	(25,090,004	)	(447	)%

Each of our segments’ gross profit (loss) during the nine months ended September 30, 2015 and 2014 was as follows:



	Nine Months Ended September 30,
Black Oil Segment	2015			2014			$ Change			% Change
Total revenue	$	86,885,254		$	124,884,174		$	(37,998,920	)	(30	)%
Total cost of revenue	83,181,680			115,047,901			(31,866,221		)	(28	)%
Gross profit (loss)	3,703,574			9,836,273			(6,132,699		)	(62	)%
Reduction in contingent consideration	—			(1,876,752		)	(1,876,452		)	(100	)%
Selling general and administrative expense	14,250,207			6,477,056			7,773,151			120	%
Depreciation and amortization	3,719,532			2,028,869			1,690,663			83	%
Acquisition related expenses	163,588			2,819,065			(2,655,477		)	(94	)%
Income (loss) from operations	$	(14,429,753	)	$	388,035		$	(14,817,788	)	(3,819	)%

Refining Segment
Total revenue	$	28,466,144		$	58,000,951		$	(29,534,807	)	(51	)%
Total cost of revenue	25,543,926			53,559,214			(28,015,288		)	(52	)%
Gross profit	2,922,218			4,441,737			(1,519,519		)	(34	)%
Selling general and administrative expense	1,665,998			2,066,159			(400,161		)	(19	)%
Depreciation and amortization	632,626			607,535			25,091			4	%
Income from operations	$	623,594		$	1,768,043		$	(1,144,449	)	(65	)%

Recovery Segment
Total revenue	$	10,715,236		$	13,447,671		$	(2,732,435	)	(20	)%
Total cost of revenue	7,022,975			11,342,258			(4,319,283		)	(38	)%
Gross profit	3,692,261			2,105,413			1,586,848			75	%
Selling general and administrative expense	1,147,838			3,242,855			(2,095,017		)	(65	)%
Depreciation and amortization	364,019			344,989			19,030			6	%
Income (loss) from operations	$	2,180,404		$	(1,482,431	)	$	3,662,835		247	%

The following schedule separates revenues and gross profit contributed by our recently acquired business entities and operations, Omega Refining and Heartland, during the nine month period ending September 30, 2015. The isolated figures are presented in dollars and as a percentage of total consolidated revenue.



	Nine Months Ended September 30, 2015
	Consolidated Results		Omega Refining		% Contributed by Omega Refining
Total Revenue	$	126,066,634	$	41,256,257	33%
Gross Profit (loss)	10,318,053		232,068		2%

	Consolidated Results		Heartland		% Contributed by Heartland
Total Revenue	$	126,066,634	$	18,238,402	14%
Gross Profit	10,318,053		3,272,229		32%

Total revenues decreased by 36% for the nine months ended September 30, 2015 compared to the same period in 2014, due primarily to the lower commodity prices during the nine months ended September 30, 2015 compared to the same period in 2014.

Total volume increased 16% largely as a result of the recent addition of the Marrero, Louisiana facility in May 2014, which produces a VGO finished product as well as the Heartland facility in Columbus, Ohio in December 2014, which produces a base oil finished product. Gross profit decreased by 37% for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. Prices of our finished products were impacted across the industry by the sharp decline in energy prices that occurred during the last quarter of 2014 and the first three months of 2015. Additionally, our per barrel margin decreased 46% relative to the nine months ended September 30, 2014. This decrease was a result of increased operational costs related to the Marrero and Heartland facilities in addition to decreased margins in our feedstock and finished product values during the nine months ended September 30, 2015, compared to the same period during 2014. The 37% decrease in cost of revenues for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 is mainly a result of the overall decrease in commodity prices which has an impact on the prices we pay for feedstock.

Our Black Oil division's volume increased approximately 19% during the nine months ended September 30, 2015 compared to the same period in 2014. This increase was due to the increased amount of volume managed through our Marrero and Heartland facilities which produce a VGO finished product and base oil respectively. Volumes collected through our H&H Oil and Heartland collection facilities increased 59% during the nine months ended September 30, 2015 compared to the same period in 2014. One of our key initiatives continues to be a focus on growing our own volumes of collected material and displacing the third party oil processed in our facilities.

Overall volumes of product sold increased 16% for the nine months ended September 30, 2015 versus the same period in 2014. This is important for our business as it illustrates our reach into the market and expansion of overall market share.

We experienced a 52% decrease in the volume of our TCEP refined product during the nine months ended September 30, 2015, compared to the same period in 2014. This decrease was a result of strategic decisions we made not to produce our TCEP finished product during January and February 2015, and again from July through September 2015, and to ship the feedstock we would have otherwise used at our TCEP facility to our Marrero facility due to market pricing impacts on the margins of the product produced in the Houston market vs. the Marrero, Louisiana market. The margins on the VGO product produced at our Marrero facility tend to be greater than those produced at our TCEP facility, and due to the sharp decline in prices we were not able to adjust our feedstock purchases at our TCEP facility to keep up with the change in market conditions. In addition, commodity prices decreased approximately 50% for the nine months ended September 30, 2015, compared to the same period in 2014. The average posting (U.S. Gulfcoast Residual Fuel No. 6 3%) for the nine months ended September 30, 2015 decreased $45.12 per barrel from a nine month average of $89.51 for the nine months ended September 30, 2014 to $44.39 per barrel for the nine months ended September 30, 2015.

Our TCEP technology generated revenues of $14,611,336 during the nine months ended September 30, 2015 with cost of revenues of $14,051,582, producing a gross profit of $559,755. The per barrel margin for our TCEP product decreased 83% as compared to the same period during 2014. This decrease was largely a result of the decrease in TCEP volume during the quarter as described above, which resulted in the continued carrying cost for the operation with very low throughput.

Overall volume for the Refining and Marketing division decreased 6% during the nine months ended September 30, 2015 as compared to the same period in 2014. This division experienced a decrease in production of 15% for its gasoline blendstock for the nine months ended September 30, 2015, compared to the same period in 2014. Our fuel oil cutter volumes decreased 26% for the nine months ended September 30, 2015, compared to the same period in 2014. Our pygas volumes increased 43% for the nine months ended September 30, 2015 as compared to the same period in 2014. These decreases were a result of decisions not to purchase or process certain non-profitable feedstock streams under the current market conditions.

Our Recovery division includes the business operations of Vertex Recovery as well as the recently acquired business of E-Source (of which we own a 100% interest). Revenues for this division decreased 20% mostly as a result of lower commodity prices and the decline of project based work related to our E-Source business during the nine months ended September 30, 2015, compared to the same period in 2014. We did experience increased volumes of petroleum products acquired during the nine months ended September 30, 2015 in our Recovery business. This division through E-Source periodically participates in project work that is not ongoing thus we expect to see fluctuations in revenue and gross profit from this division from period to period.

Overall gross profit decreased 37% and our margin per barrel decreased approximately 46% for the nine months ended September 30, 2015, compared to the same period in 2014. This decrease was largely a result of lower volumes than expected at each facility along with the decrease in overall business production at each of our facilities compared to what we planned for.

We had selling, general, and administrative expenses of $17,064,043 for the nine months ended September 30, 2015, which does not include $163,588 of acquisition related expenses, compared to $11,786,070 of selling, general, and administrative expenses for the prior year’s period (which does not include $2,819,065 of acquisition related expenses), an increase of $5,277,973 or 45%

from the prior period (not including acquisition related expenses). This increase is primarily due to the additional selling, general and administrative expenses generated by new business lines, specifically those business lines acquired from Omega Refining, Heartland and the E-Source acquisition, as well as increased sales expenses associated with our expansion into new West Coast markets.

We had a loss from operations of $11,625,755 for the nine months ended September 30, 2015, compared to income from operations of $673,647 for the nine months ended September 30, 2014, a decrease of $12,299,402 or 1,826% from the prior year’s nine-month period. The decrease was mainly due to market and operational conditions which resulted in a decrease in revenue as described above as well as the additional selling general and administrative expenses associated with new product lines, and acquired operations.

We had a provision for doubtful accounts of $2,650,000 for the nine months ended September 30, 2015, compared to no provision for doubtful accounts for the nine months ended September 30, 2014. The provision for doubtful accounts was related to amounts owed to Omega under the Omega Secured Note including $1,696,452 which was unsecured, and which the collection of which is doubtful, and $2,650,000 which is collateralized by insurance proceeds expected to be collected in 2015, due to revised insurance proceeds expectations.

We also had interest expense of $2,851,947 for the nine months ended September 30, 2015, compared to interest expense of $1,680,371 for the nine months ended September 30, 2014, an increase in interest expense of $1,171,576 or 70% from the prior period mainly due to the debt facilities with Goldman Sachs and Midcap as described below. We had total other expense of $78,316 for the nine months ended September 30, 2015, related to the disposal of assets compared to total other expense of $10,866 for the nine months ended September 30, 2014, also due to the disposal of assets.

We had $2,635,033 of gain on change in value of derivative liability for the nine months ended September 30, 2015, in connection with a beneficial conversion feature on certain warrants granted in September 2015, as described in greater detail in Note 13 to the unaudited financial statements included herein under "Part I"-"Item 1 Financial Statements".

We had a gain on futures contracts of $395,430 for the nine months ended September 30, 2015, as the third quarter of 2015 was the first period we have used futures contract to offset the effects of the market value changes in our hedged items, as well as to avoid significant volatility that might arise due to market exposure.

Contributing to other income for the nine months ended September 30, 2014 was $6,573,686, relating to a one-time non-cash bargain purchase benefit from the purchase price of the Omega assets.

We had an income tax expense of $5,306,000 for the nine months ended September 30, 2015, compared to $57,975 income tax expense for the nine months ended September 30, 2014. For tax reporting purposes, we have net operating losses (“NOLs”) of approximately $58.4 million as of September 30, 2015 that are available to reduce future taxable income. In determining the carrying value of our net deferred tax asset, the Company considered all negative and positive evidence. The Company has incurred a cumulative pre-tax loss of $17.0 million over a three year period ended September 30, 2015. As a result, we determined that a full valuation allowance for our deferred tax assets at September 30, 2015 of $5,306,000 was appropriate.

We had net loss of $19,481,526 for the nine months ended September 30, 2015, compared to net income of $5,608,478 for the nine months ended September 30, 2014, a decrease in net income of $25,090,004 or 447% from the prior period for the reasons described above.

During the nine months ended September 30, 2015, the processing costs for our Refining and Marketing division located at KMTEX were $3,248,938. In addition, we have provided the results of operations for this segment of our business below during the same nine month period.



Nine Months Ended September 30, 2015
	Refining and Marketing
Revenues	$	28,466,144

Income (loss) from operations	$	623,594

Set forth below, we have disclosed a quarter-by-quarter summary of our statements of operations and statements of operations by segment information for the first three quarters of fiscal 2015 and for fiscal year 2014, by quarter.



	Fiscal 2015									Fiscal 2014
	Third			Second			First			Fourth			Third			Second			First
	Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter

Revenues	$	39,262,584		$	49,119,711		$	37,684,339		$	62,572,071		$	76,903,516		$	72,079,622		$	47,349,658

Cost of Revenues	34,104,949			43,635,177			38,008,456			67,049,736			73,761,171			63,844,569			42,343,633

Gross Profit (loss)	5,157,635			5,484,534			(324,117		)	(4,477,665		)	3,142,345			8,235,053			5,006,025

Reduction of contingent liability	—			—			—			(3,371,836		)	(1,876,752		)	—			—

Selling, general and administrative expenses	6,052,764			5,641,250			5,370,028			7,783,149			4,706,104			4,363,617			2,716,349

Depreciation and amortization	1,597,881			1,561,314			1,556,982			1,296,450			1,180,443			1,068,273			732,677

Acquisition related expenses	5,910			—			157,678			994,603			259,235			1,959,418			600,412

Total selling, general and administrative expenses	7,656,555			7,202,564			7,084,688			6,702,366			4,269,030			7,391,308			4,049,438

Income (loss) from operations	(2,498,920		)	(1,718,030		)	(7,408,805		)	(11,180,031		)	(1,126,685		)	843,745			956,587

Other income (expense)

Provision for doubtful accounts	—			—			(2,650,000		)	—			—			—			—
Other income	11			10			8			223,255			109,980			7			370
Gain on bargain purchase	—			—			—			375,000			92,635			6,481,051			—
Other expense	(20,657		)	12,818			(70,478		)	—			—			(10,866		)	—
Gain on futures contracts	395,430			—			—			—			—			—			—
Gain on change in value of derivative liability	818,051			1,816,982			—			—			—			—			—
Interest expense	(763,791		)	(556,975		)	(1,531,180		)	(956,319		)	(947,325		)	(657,235		)	(75,811		)
Total other income (expense)	429,044			1,272,835			(4,251,650		)	(358,064		)	(744,710		)	5,812,957			(75,441		)

Income (loss) before income taxes	(2,069,876		)	(445,195		)	(11,660,455		)	(11,538,095		)	(1,871,395		)	6,656,702			881,146

Income tax benefit (expense)	—			—			(5,306,000		)	57,975			(57,975		)	—			—

Net income (loss)	$	(2,069,876	)	$	(445,195	)	$	(16,966,455	)	$	(11,480,120	)	$	(1,929,370	)	$	6,656,702		$	881,146
Net income (loss) attributable to non-controlling interest	—			—			—			—			—			344,380			(18,981		)
Net income (loss) attributable to Vertex Energy, Inc.	$	(2,069,876	)	$	(445,195	)	$	(16,966,455	)	$	(11,480,120	)	$	(1,929,370	)	$	7,001,082		$	862,165

The below graph charts our total quarterly revenue over time from January 1, 2013 to September 30, 2015:



	Fiscal 2015							Fiscal 2014
	Third		Second		First			Fourth			Third		Second		First
	Quarter		Quarter		Quarter			Quarter			Quarter		Quarter		Quarter
Black Oil
Revenues	$	27,632,744	$	34,338,534	$	24,913,976		$	46,028,775		$	52,434,252	$	48,878,522	$	23,571,400
Cost of revenues	25,128,353		30,912,204		27,141,124			48,709,354			50,846,953		42,973,852		21,227,096
Gross profit	$	2,504,391	$	3,426,330	$	(2,227,148	)	$	(2,680,579	)	$	1,587,299	$	5,904,670	$	2,344,304
Refining & Marketing
Revenues	$	8,752,135	$	11,447,889	$	8,266,120		$	14,694,971		$	19,655,674	$	18,517,819	$	19,827,459
Cost of revenues	8,281,753		9,956,771		7,305,402			15,570,210			18,680,731		16,626,592		18,251,891
Gross profit (loss)	$	470,382	$	1,491,118	$	960,718		$	(875,239	)	$	974,943	$	1,891,227	$	1,575,568
Recovery
Revenues	$	2,877,705	$	3,333,288	$	4,504,243		$	1,848,325		$	4,813,590	$	4,683,281	$	3,950,799
Cost of revenues	694,843		2,766,202		3,561,930			2,770,172			4,233,487		4,244,125		2,864,646
Gross profit (loss)	$	2,182,862	$	567,086	$	942,313		$	(921,847	)	$	580,103	$	439,156	$	1,086,153

Liquidity and Capital Resources

The success of our current business operations has become dependent on repairs, and maintenance to our facilities and our ability to make routine capital expenditures. We also must maintain relationships with feedstock suppliers and end-product customers, and operate with efficient management of overhead costs. Through these relationships, we have historically been able to achieve volume discounts in the procurement of our feedstock, thereby increasing the margins of our segments’ operations. The resulting operating cash flow is crucial to the viability and growth of our existing business lines.

We had total assets of $106,970,541 as of September 30, 2015 compared to $133,822,231 at December 31, 2014. The decrease was mainly due to a decrease of $8,773,459 in inventory, a decrease of $1,996,915 in cash and cash equivalents, a $5,306,000 net decrease in deferred federal income tax, a $779,285 decrease in costs in excess of billings, an increase of $2,983,844 in depreciation, as well as a $825,063 reduction in intangible assets, a $373,512 reduction in financing costs, and a $2,150,000 decrease in current portion of notes receivable offset by a $2,039,298 decrease in accounts receivable, net. Total current assets as of September 30, 2015 of $18,934,492 consisted of cash and cash equivalents of $4,020,161, accounts receivable, net, of $7,897,650, notes receivable

of $1,000,000, relating to the Omega Secured Note described below, inventory of $3,847,157, and prepaid expenses of $2,169,524. Non-current assets consisted of fixed assets, net, of $54,817,973, these consist of property, plant and equipment related to our various processing facilities, note receivable - related party of $8,308,000, relating to the Omega Secured Note described below, net intangible assets of $17,687,897, which primarily represents the value of the Company's TCEP patent and certain other patents acquired from Omega Refining, and $4,922,353 of goodwill (booked in connection with the acquisition of Holdings and E-Source), deferred financing costs of $1,818,376, and other assets of $481,450. Our cash, accounts receivable, inventory and accounts payable fluctuate and are somewhat tied to one another based on the timing of our inventory cycle and sales.

We had total current liabilities of $19,092,770 as of September 30, 2015 compared to $63,076,685 at December 31, 2014. This decrease was largely due to a reduction and reclassification in the current portion of long-term debt in the amount of $35,363,542, due to a paydown requirement during the first half of the year the entire amount of our debt with Goldman Sachs (as described below) was accounted for as current debt as of December 31, 2014. We made a payment in the amount of $15,100,000 towards this outstanding debt during the second quarter of 2015 which reduced the amount owed and resulted in a significant portion of the prior current debt being moved to long-term debt. This was offset set by a $659,893 increase in revolving note in connection with amounts borrowed from MidCap as described below. As of September 30, 2015, accounts payable totaled $12,893,323 and we had capital lease liabilities of which the current portion outstanding at September 30, 2015 was $364,561. In addition, we had $4,773,042 of current liabilities associated with long-term debt which included $400,895 related to E-Source and $3,200,000 related to the Goldman Sachs credit facility (as described below) and our prior credit facility with Bank of America (BOA), and $4,393,034 of derivative liability, described in greater detail in Note 13 to the unaudited financial statements included herein under "Part I"-"Item 1 Financial Statements".

We had total liabilities of $51,199,409 as of September 30, 2015, including current liabilities of $19,092,770 and long-term debt of $21,644,605, which included $2,045,500 related to E-Source debt, and $6,069,000 of contingent consideration relating to the remaining potential earn-out payments associated with the acquisition of Heartland in December 2014.

We had a working capital deficit of $158,278 as of September 30, 2015, compared to a working capital deficit of $29,327,453 as of December 31, 2014. The decrease in working capital deficit from December 31, 2014 to September 30, 2015 is due to an increase in accounts receivable as of September 30, 2015, a decrease in accounts payable, the reclassification of certain current debt to long-term debt as described above, off-set by the increase in the balance of the revolving note.

Our future operating cash flows will vary based on a number of factors, many of which are beyond our control, including commodity prices, the cost of recovered oil, and the ability to turn our inventory. Other factors that have affected and are expected to continue to affect earnings and cash flow are transportation, processing, and storage costs. Over the long term, our operating cash flows will also be impacted by our ability to effectively manage our administrative and operating costs. Additionally, we may incur future capital expenditures related to new TCEP facilities.

On May 2, 2014, in connection with the closing of the Omega Refining acquisition, the Company assumed two capital leases totaling $3,154,860. Payments of $2,790,299 were made and the balance was $364,561 at September 30, 2015.

The Company has notes payable to various financial institutions, bearing interest at rates ranging from 5.5% to 6.35%, maturing January 7, 2020. The balance of the notes payable is $2,045,500 at September 30, 2015.

The Company's outstanding debt facilities as of September 30, 2015 are summarized as follows:

Creditor

Loan Type

Origination Date

Maturity Date

Loan Amount

Balance on September 30, 2015

MidCap Business Credit, LLC

Revolving Note

March, 2015

March, 2017

7,000,000

659,893

Goldman Sachs USA

Term Loan

May, 2014

May, 2019

40,000,000

23,200,000

Pacific Western Bank

Capital Lease

September, 2012

August, 2017

520,219

364,561

Texas Citizens Bank

Term Note

January, 2015

January, 2020

2,201,372

2,045,500

Various institutions

Insurance premiums financed

Various

< 1 year

1,789,481

1,172,147

51,511,072

27,442,101

Future contractual maturities of notes payable are summarized as follows:



Creditor	2015		2016		2017		2018		2019		Thereafter
MidCap Business Credit, LLC	$	659,893	$	—	$	—	$	—	$	—	$	—
Goldman Sachs USA	800,000		3,200,000		3,200,000		3,200,000		12,800,000		—
Pacific Western Bank	44,460		186,947		133,154		—		—		—
Texas Citizens Bank	71,394		442,600		468,225		495,013		523,333		44,935
Various institutions	661,968		510,179		—		—		—		—
Totals	$	2,237,715	$	4,339,726	$	3,801,379	$	3,695,013	$	13,323,333	$	44,935

The Company has various leases for office facilities and vehicles which are classified as operating leases, and which expire at various times through 2032. Total rent expense for the nine months ended September 30, 2015 and 2014 is summarized as follows:



	Nine Months Ended September 30
	2015		2014
Office leases	$	392,952	$	412,899
Plant Leases	3,355,800		1,665,000
Vehicle leases	300,207		318,771
	$	4,048,959	$	2,396,670

Minimum future lease commitments as of September 30, 2015 are summarized as follows:



	Office Facilities		Vehicles		Plant Leases		Totals
2015	$	139,855	$	112,444	$	999,000	$	1,251,299
2016	464,354		454,301		6,924,000		7,842,655
2017	414,932		175,216		6,574,000		7,164,148
2018	312,466		57,710		4,060,000		4,430,176
2019	300,000		—		2,928,000		3,228,000
thereafter	4,175,000		—		14,640,000		18,815,000
	$	5,806,607	$	799,671	$	36,125,000	$	42,731,278

In addition to the above, we are required to redeem any non-converted shares of Series B Preferred Stock, which remain outstanding on December 24, 2020, at the rate of $3.10 per share (or approximately $25 million as of September 30, 2015), subject to the terms of our senior loan documents, which funds we may not have, or which may not be available on favorable terms, if at all.

MidCap Loan Agreement

Effective March 27, 2015, the Company, Vertex Operating and all of the Company’s other subsidiaries other than E-Source and Golden State, entered into a Loan and Security Agreement with MidCap Business Credit LLC (“MidCap” and the “MidCap Loan Agreement”). Pursuant to the MidCap Loan Agreement, MidCap agreed to loan us up to the lesser of (i) $7 million; and (ii) 85% of the amount of accounts receivable due to us which meet certain requirements set forth in the MidCap Loan Agreement (“Qualified Accounts”), plus the lesser of (y) $3 million and (z) 50% of the cost or market value, whichever is lower, of our raw material and finished goods which have not yet been sold, subject to the terms and conditions of the MidCap Loan Agreement (“Eligible Inventory”), minus any amount which MidCap may require from time to time in order to over secure amounts owed to MidCap under the MidCap Loan Agreement, as long as no event of default has occurred or is continuing under the terms of the MidCap Loan Agreement. The requirement of MidCap to make loans under the MidCap Loan Agreement is subject to certain standard conditions and requirements. Notwithstanding the above, the parties agreed that until such time as (i) Goldman Sachs at last $9.1 million which was due to it by June 30, 2015 (which amount was timely raised and paid), or (ii) we enter into an amendment with Goldman Sachs to remove the requirement that we make the Required Payment, the advance rate against Qualified Accounts is reduced to 53% (compared to 85% after such date) and the advance rate against Eligible Inventory is reduced to 31% (compared to 50% after such date). Additionally, the advance rate against Qualified Accounts is reduced by 1% for each percentage point by which the following calculation, expressed as a percentage, exceeds 3%: (a) actual bad debt write-downs, discounts, advertising allowances, credits, or other dilutive items, divided by (b) gross sales (excluding non-recurring items), for any applicable period as determined by MidCap. The MidCap Loan had a balance of $659,893 on September 30, 2015.

We are required to make immediate pre-payments of outstanding principal owed under the MidCap Note in the amount certain thresholds are exceeded as set forth in the MidCap Loan Agreement. We are also required to provide MidCap certain monthly reports and accountings. We agreed to pay MidCap certain fees in connection with the MidCap Loan Agreement including (a) a non-refundable fee equal to 0.75% of the $7 million credit limit ($52,500), which was due upon our entry into the MidCap Loan Agreement, and is due on each anniversary thereafter; (b) reimbursement for MidCap’s audit fees incurred from time to time; a collateral monitoring charge of 0.20% of the greater of the average outstanding balance of the MidCap Note (as defined below) at the end of each month or $3 million; (c) a fee equal to 0.75% of the difference between the credit limit of $7 million and the greater of (i) the amount actually borrowed, and (ii) $3 million, as calculated in the MidCap Loan Agreement, payable monthly in arrears and added to the balance of the MidCap Note; and (d) a one-time placement fee equal to 0.50% of the $7 million credit limit which we paid upon our entry into the MidCap Loan Agreement.

The MidCap Loan Agreement contains customary representations, warranties, covenants for facilities of similar nature and size as the MidCap Loan Agreement, and requirements for the Company to indemnify MidCap for certain losses. The Credit Agreement also includes various covenants (positive and negative), binding the Company and its subsidiaries, including not permitting the availability for loans under the MidCap Loan Agreement to ever be less than 10% of the credit limit ($700,000); prohibiting us from creating liens on any collateral pledged under the MidCap Loan Agreement, subject to certain exceptions; and prohibiting us from paying any dividends on capital stock, advancing any money to any person, guarantying any debt, creating any indebtedness, and entering into any transactions with affiliates on terms more favorable than those of an arms-length third party transaction. The MidCap Loan Agreement also includes customary events of default for facilities of a similar nature and size as the MidCap Loan Agreement.

The MidCap Loan Agreement continues in effect until the second anniversary of the parties’ entry into the Agreement, subject to the right of the parties, subject to mutual agreement, to extend such rights and agreement, provided that we have the right to terminate the MidCap Loan Agreement at any time with 60 days prior written notice. In the event we desire to terminate the MidCap Loan Agreement we are required to pay MidCap a termination fee of $70,000, subject to certain exceptions in the MidCap Loan Agreement. We also have the right to terminate the agreement without providing 60 days’ prior notice as long as we pay MidCap the equivalent amount of interest which would have been due (as calculated in the MidCap Loan Agreement) for such 60 day period, along with the $70,000 termination fee. In the event the MidCap Loan Agreement is terminated by MidCap upon the occurrence of an event of default, we are required to pay MidCap a fee of $70,000 upon such termination. We also entered into a Revolving Note (the “MidCap Note”) to evidence amounts borrowed from MidCap from time to time under the MidCap Loan Agreement. Interest on the MidCap Note accrues at a fluctuating rate equal to the aggregate of: (x) the prime rate then effect, and (y) 1.75% per annum, or at such other rate mutually agreed on from time to time by the parties, based upon the greater of (i) any balance owing under the MidCap Note at the close of each day; or (ii) a minimum assumed average daily loan balance of $3 million. Interest is payable in arrears, on the first day of each month that amounts are outstanding under the MidCap Note.

We and each of our subsidiaries subject to the MidCap Loan Agreement are jointly and severally liable for the repayment of amounts owed under the MidCap Note. Pursuant to the MidCap Loan Agreement, we granted MidCap a security interest in substantially all of our assets and provided MidCap junior mortgages on all real estate which we own, subject to the first priority mortgages of the Lender. Finally, MidCap and the Lender entered into an Intercreditor Agreement, which governs which of the

lenders have first and second priority security interests over our assets which are pledged as collateral in order to secure repayment of the amounts owed pursuant to the Credit Agreement and MidCap Loan Agreement.

Compliance with Covenants and Fulfillment of Conditions:

On June 18, 2015, the Company entered into the Third Amendment to Credit and Guaranty Agreement (the "Third Amendment"), which amended the Credit Agreement (as described and defined above under Note 10 to our consolidated financial statements included above under “Part I - Financial Information” - “Item 1. Financial Statements"). The amendments to the Credit Agreement effected by the Third Amendment include, but are not limited to:

•Extending the time period pursuant to which we are required to make certain post-closing deliverables pursuant to the terms of the Credit Agreement.

• Providing that we are not required to meet certain debt and leverage covenants for certain periods extending until March 31, 2016 (previously we were required to meet such covenants beginning with the quarter ended December 31, 2015).

• Extending the date we are required to begin making required prepayments under the terms of the Credit Agreement, in an amount equal to 100% of the extent total consolidated debt exceeds (x) total consolidated EBITDA (as calculated pursuant to the agreement) multiplied by (y) the maximum debt leverage ratios described in the Credit Agreement, until March 31, 2016 (previously no payments were required to be made through December 31, 2015).

• Reducing certain required consolidated EBITDA targets pursuant to the terms of the Credit Agreement to be more favorable to the Company, including reducing such targets to $250,000, $1.5 million, $4.24 million, $7.25 million and $9.5 million for the quarters ended September 30, 2015, December 31, 2015, March 31, 2016, June 30, 2016 and September 30, 2016 (and each quarter thereafter), respectively, compared to $3 million, $5.5 million, $8 million, $9 million and $10 million, respectively.

•Extending the date we are required to begin meeting various leverage ratios and consolidated EBITDA targets as set forth in the Credit Agreement from December 31, 2015 and June 30, 2015, to March 31, 2016 and September 30,

2015, respectively.

Omega Secured Note

In connection with the initial closing (the transaction was originally contemplated to close in two parts, an “Initial Closing” and a “Final Closing”, which Final Closing we subsequently terminated and abandoned) of the Omega Asset Purchase Agreement (the "Purchase Agreement"), Omega Refining and Bango Refining provided Vertex Refining Nevada a Secured Promissory Note (the “Omega Secured Note”) in the aggregate amount of $13,858,067, which had a balance of $13,858,067 as of September 30, 2015, representing (a) a loan to Omega in the amount of approximately $7.56 million (representing the agreed upon value of the amount by which the consideration paid at the Initial Closing (which included consideration relating to the assets acquired at the Initial Closing and which were planned to be acquired at the Final Closing) exceeded the value of assets acquired at the Initial Closing) (the “Purchase Price Loan”); (b) a $750,000 loan related to the delivery of a certain amount of used motor oil inventory at the Initial Closing (the “First Inventory Loan”); (c) a $1,400,000 loan related to the delivery of a certain amount of used motor oil inventory which was planned to be acquired at the Final Closing (the “Second Inventory Loan” and along with the First Inventory Loan, the “Inventory Loans”); (d) advances totaling $4.15 million to satisfy accounts payable and other working capital related obligations of Omega after the Initial Closing (the “Draw Down Loans”); and (e) an additional loan of $1 million for capital expenditures (the “Capital Expenditure Loan”).

The Purchase Price Loan and the Draw Down Loans accrued interest at the short-term federal rate as published by the Internal Revenue Service from time to time (approximately 0.33% per annum as of the Initial Closing) prior to October 30, 2014, and thereafter at 9.5% per annum, payable monthly in arrears and had a maturity date of March 31, 2015, provided that the loan was not paid when due and is currently in default. The First Inventory Loan and the Draw Down Loans accrue interest at the rate of 9.5% per annum beginning on May 31, 2014, were due and payable on March 31, 2015, and were not paid on such date and are currently in default.

The repayment of the Secured Note is guaranteed by Omega Holdings pursuant to a Guaranty Agreement and secured by a security interest granted pursuant to the terms of the Secured Note and a Leasehold Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture Filing. Additionally, we have the right to set-off any amount due upon an event of default under the Secured Note against certain of the shares pledged by Omega in connection with the Initial Closing and the earnout consideration

due to Omega (provided that we have determined that no earn-out consideration will be due to Omega), subject to the terms of the Asset Purchase Agreement.

It is anticipated that Vertex Refining Nevada will acquire certain personal property leased from Omega Refining and Bango Refining under a Personal Property Lease at the termination of the Personal Property Lease pursuant to Article 9 of the Uniform Commercial Code, with such acquisition occurring through an offset of a portion of the amount due Vertex Refining Nevada under the Omega Secured Note.

Omega Secured Note had an outstanding balance of $13,858,067 as of September 30, 2015, provided that based on our management’s assessment, the Company recognized an allowance for doubtful accounts of $4,346,452 related to amounts owed to the Company by Omega under the Omega Secured Note during the three months ended March 31, 2015.

Texas Citizens Bank Loan Agreement

On January 7, 2015, E-Source entered into a loan agreement with Texas Citizens Bank to consolidate various smaller debt obligations. The loan Agreement provides a term note in the amount of $2,045,500 that matures on January 7, 2020. Borrowings bear a fixed interest rate of 5.5% per annum and interest is calculated from the date of each advance until repayment in full or maturity. The loan has 59 scheduled monthly payments of $45,147 which includes principal and interest. The loan is collateralized by all of the assets of E-Source. The loan contains customary representations, warranties, and covenants for facilities of similar nature and size.

Unit Offering

As described above under “Part I” - “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” - “Recent Events” - “Unit Offering”, we closed the Offering of Units on June 24, 2015 and raised a gross amount of $25 million and a net of $23.6 million, after commissions and before our expenses, of which $15.1 million was immediately used to pay down amounts owed to Goldman Sachs under the Credit Agreement.

Need for additional funding

Our re-refining business will require significant capital to design and construct any new facilities. The facility infrastructure would be an additional capitalized expenditure to these proposed process costs and would depend on the location and site specifics of the facility.

Management believes that the amount remaining from our June 2015 Unit Offering (described above) and the amount available under our MidCap Loan Agreement, in addition to projected earnings, will provide sufficient liquidity to fund our operations for the foreseeable future, although we may seek additional financing to fund acquisitions or other developments in the future and to repay amounts owed to our senior creditor. We may raise funds in the future through the sale of common stock, preferred stock, debt, or convertible debt, which may include the grant of warrants. We may also seek to obtain sufficient funding to completely refinance the Goldman and/or MidCap debt subsequent to the date of this filing which may take any or all of the forms described above.

Additionally, as part of our ongoing efforts to maintain a capital structure that is closely aligned with what we believe to be the potential of our business and goals for future growth, which is subject to cyclical changes in commodity prices, we will be exploring additional sources of external liquidity. The receptiveness of the capital markets to an offering of debt or equities cannot be assured and may be negatively impacted by, among other things, debt maturities, current market conditions, and potential stockholder dilution. The sale of additional securities, if undertaken by us and if accomplished, may result in dilution to our shareholders. However, such future financing may not be available in amounts or on terms acceptable to us, or at all.

In addition to the above, we may also seek to acquire additional businesses or assets (similar to our recent acquisitions from Heartland, Omega and Aaron Oil (as described above under "Recent Acquisition" - Aaron Oil Acquisition"). In addition, the Company could consider selling assets if a more strategic acquisition presents itself. Finally, in the event we deem such transaction in our best interest, we may enter into a business combination or similar transaction in the future.

There is currently only a limited market for our common stock, and as such, we anticipate that such market will be illiquid, sporadic and subject to wide fluctuations in response to several factors moving forward, including, but not limited to:


(1)	actual or anticipated variations in our results of operations;


(2)	the market for, and volatility in, the market for oil and gas;


(3)	our ability or inability to generate new revenues; and


(4)	the number of shares in our public float.

Furthermore, because our common stock is traded on the NASDAQ Capital Market, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock. Additionally, at present, we have a limited number of shares in our public float, and as a result, there could be extreme fluctuations in the price of our common stock.

We believe that our stock prices (bid, ask and closing prices) may not relate to the actual value of our company, and may not reflect the actual value of our common stock. Shareholders and potential investors in our common stock should exercise caution before making an investment in our common stock, and should not rely on the publicly quoted or traded stock prices in determining our common stock value, but should instead determine the value of our common stock based on the information contained in our public reports, industry information, and those business valuation methods commonly used to value private companies.

Cash flows for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014



	Nine Months Ended September 30,
	2015			2014
Beginning cash and cash equivalents	$	6,017,076		$	2,678,628
Net cash provided by (used in):
Operating activities	(7,762,018		)	(11,534,246		)
Investing activities	(2,737,637		)	(34,391,520		)
Financing activities	8,502,740			44,476,884
Net increase (decrease) in cash and cash equivalents	(1,996,915		)	(1,448,882		)
Ending cash and cash equivalents	$	4,020,161		$	1,229,746

Net cash used in operating activities was $7,762,018 for the nine months ended September 30, 2015 as compared to $11,534,246 of net cash provided by operating activities during the corresponding period in 2014. Our primary sources of liquidity are cash flows from our operations and the availability to borrow funds under our Credit Agreement, notes payable, and MidCap Loan Agreement. The primary reasons for the decrease in cash provided by operating activities for the nine month period ended September 30, 2015 are related to the net loss of $19,481,526 (compared to net income of $5,608,478 in the prior period), an increase in accounts receivable of $1,879,150 and an increase in prepaid expenses of $924,216. These cash outflows were partially offset by favorable adjustments for depreciation and amortization expenses of $4,716,177, a decrease in inventory of $8,773,459 costs in excess of billings of $779,285, $495,965 of deferred revenue, $2,810,146 of allowance for doubtful accounts, and a decrease in accounts payable of $8,858,058 and deferred federal income tax of $5,306,000 for the nine month period ended September 30, 2015.

Investing activities used cash of $2,737,637 for the nine months ended September 30, 2015 as compared to having used $34,391,520 of cash during the corresponding period in 2014. Investing activities for the nine months ended September 30, 2015 were primarily comprised of $1,159,488 invested in fixed assets, $1,082,649 of acquisitions and an increase in notes receivable of $500,000, offset by $4,500 of proceeds from the sale of assets. Cash used in investing activities for the nine months ended September 30, 2014, mainly consisted of cash used to acquire Omega.

Financing activities provided cash of $8,502,740 for the nine months ended September 30, 2015 as compared to $44,476,884 of cash during the corresponding period in 2014. Financing activities for the nine months ended September 30, 2015 are comprised of proceeds from the sale of stock of $23,557,553 as part of our June 2015 Unit offering as described above, which was significantly

offset by payments on notes payable in the amount of $18,019,983 (which represents amounts paid to Goldman Sachs under the Credit Agreement), and amounts received from the MidCap Loan Agreement of $659,893. Net cash provided by financing activities for the nine months ended September 30, 2014, were mainly comprised of proceeds borrowed from Goldman Sachs.

Critical Accounting Policies and Use of Estimates

Our financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management regularly evaluates its estimates and judgments, including those related to revenue recognition, goodwill, intangible assets, long-lived assets valuation, legal matters, derivative liabilities, valuation of warrants and beneficial conversion feature on preferred shares. Actual results may differ from these estimates.

We evaluate the carrying value and recoverability of our long-lived assets within the provisions of the FASB ASC regarding long-lived assets. It requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

Revenue Recognition. Revenue for each of our divisions is recognized when persuasive evidence of an arrangement exists, goods are delivered, sales price is determinable, and collection is reasonably assured. Revenue is recognized upon delivery by truck and railcar of feedstock to its re-refining customers and upon product leaving the Company's terminal facilities and third party processing facility via barge. Revenue is also recognized as recovered scrap materials are sold and projects are completed.

Stock Based Compensation

We account for share-based expense and activity in accordance with FASB ASC Topic 718, which establishes accounting for equity instruments exchanged for services. Under this provision, share-based compensation costs are measured at the grant date, based on the calculated fair value of the award, and are recognized as an expense over the employee’s requisite service period, generally the vesting period of the equity grant.

Share-based payments to non-employees are measured at the grant date, based on the calculated fair value of the award, and are recognized as an expense over the service period, generally the vesting period of the equity grant. We estimate the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, expected option term, expected volatility of the stock over the option’s expected term, risk-free interest rate over the option’s expected term, and the expected annual dividend yield. We believe that the valuation technique and approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the stock options granted.

Basic and Diluted Income/ Loss per Share

Basic and diluted income/loss per share has been calculated based on the weighted average number of shares of common stock outstanding during the period.

Income Taxes

We account for income taxes in accordance with the FASB ASC Topic 740. We record a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and when temporary differences become deductible. We consider, among other available information, uncertainties surrounding the recoverability of deferred tax assets, scheduled reversals of deferred tax liabilities, projected future taxable income, and other matters in making this assessment.

Derivative Liabilities

The Company, in accordance with ACS 815-40-25 and ASC 815-10-15 Derivatives and Hedging and ASC 480-10-25 Liabilities-Distinguishing from Equity, convertible preferred shares are accounted for net, outside of shareholder's equity and warrants are accounted for as liabilities at their fair value during periods where they can be net cash settled in case of a change in control transaction.

The warrants are accounted for as a liability at their fair value at each reporting period. The value of the derivative warrant liability will be re-measured at each reporting period with changes in fair value recorded as earnings. To derive an estimate of the fair value of these warrants, a binomial model is utilized that computes the impact of a possible change in control transaction upon the exercise of the warrant shares. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price and volatility assumptions to dynamically adjust the payoff of the warrants in the presence of the dilution effect.

Derivative Financial Instruments

The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is to offset changes in the fair value or cash flows of our commodity feedstock and processed inventories. The Company has entered into certain financial derivative instruments to manage this risk. In addition, see Note 13 for details regarding our Warrants sold in connection with the Series B Preferred Stock.

The Company records all derivative financial instruments at their fair value in its Consolidated Balance Sheets. None of the derivative financial instruments that the Company holds are designated as either a fair value hedge or cash flow hedge and the gain or loss on the derivative instrument is recorded in earnings. The Company has determined that the fair value of its derivative financial instruments are determined using level 1 inputs (quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability) in the fair value hierarchy as the fair value is based on publicly available commodity futures prices rates at each financial reporting date. At September 30, 2015, the net fair value of the Company’s futures contracts totaled a nominal net asset and is included in other prepaid assets (accrued liabilities) in the accompanying Consolidated Balance Sheets; and the gain of approximately $395,400 is included in Gain on futures contracts in the accompanying Consolidated Statements of Operations. The notional principal of outstanding futures contracts at September 30, 2015 was $2,600,000.

Preferred Stock Classification

FASB establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. A mandatorily redeemable financial instrument shall be classified as a liability unless the redemption is required to occur only upon liquidation or termination of the reporting entity.

The Series B Preferred Stock is required to be redeemed by the Company on the fifth anniversary of the issuance of the Series B Preferred Stock if the redemption would not be subject to then existing restrictions under the Company's senior credit agreement that prohibits redemption. SEC reporting requirements provide that any possible redemption outside of the control of the Company requires the preferred stock to the classified outside of permanent equity.

Market Risk

Our revenues and cost of revenues are affected by fluctuations in the value of energy related products. We attempt to mitigate much of the risk associated with the volatility of relevant commodity prices by using our knowledge of the market to obtain feedstock at attractive costs, by efficiently managing the logistics associated with our products, by turning our inventory over quickly, and by selling our products into markets where we believe we can achieve the greatest value. We believe that the current downward trend in natural gas prices coupled with increasing crude oil prices provides an attractive margin opportunity for our TCEP.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to interest rate risks primarily through borrowings under various bank facilities. Interest on these facilities is based upon variable interest rates using LIBOR or Prime as the base rate.

We are exposed to market risks related to the volatility of crude oil and refined oil products. Our financial results can be

significantly affected by changes in these prices which are driven by global economic and market conditions. We attempt to mitigate much of the risk associated with the volatility of relevant commodity prices by using our knowledge of the market to obtain feedstock at attractive costs, by efficiently managing the logistics associated with our products, by turning our inventory over quickly, and by selling our products into markets where we believe we can achieve the greatest value. We believe that the current downward trend in natural gas prices coupled with increasing crude oil prices provides an attractive margin opportunity for our TCEP finished product.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established and maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 , as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Commission and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosures.

Management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. As of September 30, 2015, based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting as of December 31, 2014 (as described in greater detail in our annual report on Form 10-K/A for the year ended December 31, 2014), our CEO and CFO have concluded that our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed in our reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Commission and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

In light of the material weaknesses described above, we have performed additional analysis and other post-quarter procedures to ensure our consolidated financial statements are prepared in accordance with generally accepted accounting principles. Accordingly, management has concluded that the financial statements fairly present in all material respects our financial condition, results of operations and cash flows as at, and for, the periods presented in this report.

Changes in Internal Control Over Financial Reporting

We regularly review our system of internal control over financial reporting to ensure we maintain an effective internal control environment. There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q 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

From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business.

We and Vertex Refining LA, LLC, the wholly-owned subsidiary of Vertex Operating, our wholly-owned subsidiary, were named as defendants, along with Plaquemines Holdings, L.L.C. (“Plaquemines”), in a lawsuit filed in the United States District Court For the Eastern District of Louisiana (Civil Action No. 15-1198) on June 11, 2015 by CHS Inc. (“CHS”). The lawsuit is in connection with our planned construction of a barge dock on property leased by Vertex Refining LA from Plaquemines in Myrtle Grove, Louisiana. The suit seeks certain declaratory and injunctive relief related to the planned location and construction of the barge dock, including that a location proposed by CHS is proper, the prior location proposed by us is no longer valid, and that we be enjoined from constructing a barge dock for any purpose other than servicing a used oil refinery or other qualifying plan. We intend to vigorously defend ourselves and oppose the relief sought in the complaint, provided that at this stage of the litigation, the Company has no basis of determining whether there is any likelihood of material loss associated with the claims and/or the potential and/or the outcome of the litigation.

Vertex Refining LA, LLC, the wholly-owned subsidiary of Vertex Operating, our wholly-owned subsidiary, was named as a defendant in a lawsuit filed in the Twenty-Fourth Judicial District For the Parish of Jefferson Louisiana on January 6, 2015. Pursuant to the lawsuit, Stacy Davis, Becky Vallee and James A. Block (the “Plaintiffs”) made certain allegations against Vertex Refining LA, LLC, Omega Refining and the manager of the Marrero, Louisiana facility (the “Defendants”). The claims are structured as class actions relating to certain operations performed at our newly acquired re-refinery located in Marrero, Louisiana, including the alleged emission of noxious and harmful substances. The Plaintiffs allege they are part of a valid class due to the fact that they live and work near the facility. The lawsuit relates to alleged actions and inactions related to the facility between 2012 to present and includes allegations relating to violations of various Louisiana statutes, allegations relating to the misrepresentation of information to the Louisiana Department of Environmental Quality, allegations relating to violations of hourly permitted emission limits, and alleged failure to report an un-permitted point-source. The suit seeks damages for physical and emotional injuries, pain and suffering, medical expenses and deprivation of the use and enjoyment of Plaintiffs’ homes. The Plaintiffs further allege that there are estimated to be over 1,000 class members to the suit, provided that the proposed class is yet to be certified. We intend to vigorously defend ourselves against the allegations made in the complaint, provided that at this stage of the litigation, the Company has no basis of determining whether there is any likelihood of material loss associated with the claims and/or the potential outcome of the litigation.

On or around April 29, 2015, we, Vertex Refining Nevada, Bango Oil (our landlord under a lease relating to our Churchill, Nevada facility (the “Bango Plant”), described in greater detail above under “Part I” - “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” - “Recent Events” - “Churchill County, Nevada Lease”, Bango Refining, Omega Holdings, and various other parties, were sued by Republic Bank, Inc. (“Republic”), in the Tenth Judicial District Court in and for Churchill County, Nevada (Case No. 15-10DC0502). Pursuant to the lawsuit, Republic, made various claims against the named defendants including, (i) alleging a default on certain lease obligations which Republic and Bango Refining were party to, relating to leased equipment used at the Bango Plant; (ii) alleging the liability of certain guarantors of the equipment lease including Omega Holdings in connection with the amounts alleged due under the equipment lease; (iii) requesting confirmation of Republic’s security interest in the equipment; (iv) alleging a breach of contract in connection with the lease agreement (including the allegation that we breached various contracts with Republic in connection with the Omega acquisition and our failure to complete the final closing thereunder); and (v) alleging unjust enrichment against us in connection with the use of the lease equipment subject to the lease agreement. Pursuant to the lawsuit, Republic is asking for damages of approximately $2.9 million, plus interest and fees, a declaratory judgment against Bango Oil confirming that Republic’s security interest in the equipment is perfected and senior to the security interest of Bango Oil, and joint and several liability against all defendants (including us) for the damages alleged due (including in connection with the breach of contract and unjust enrichment claims). We have not yet responded to the claims made by Republic however, we intend to vigorously defend ourselves against the allegations made in the complaint, provided that at this stage of the litigation, the Company has no basis of determining whether there is any likelihood of material loss associated with the claims and/or the potential outcome of the litigation.

E-Source, the wholly-owned subsidiary of Vertex Operating, was named as a defendant (along with Motiva Enterprises, LLC, ("Motiva")) in a lawsuit filed in the Sixtieth (60th) Judicial District, Jefferson County, Texas, on April 22, 2015. Pursuant to the lawsuit, Whole Environmental, Inc., made certain allegations against E-Source, and Motiva. The claims include Breach of Contract and Quantum Meruit actions relating to asbestos abatement and remediation operations performed for defendants' at Motiva's facility in Port Arthur, Jefferson County, Texas. The plaintiff alleges it is due monies earned. Defendants have denied any amounts due plaintiff. The suit seeks damages of approximately $864,000, along with pre-judgment and post-judgment interest, the fair

value of certain property alleged to be converted by defendants and reimbursement of legal fees. We intend to vigorously defend ourselves against the allegations made in the complaint. The Company has no basis of determining whether there is any likelihood of material loss associated with the claims and/or the potential and/or the outcome of the litigation.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2014, filed with the Commission on April 15, 2015, except as provided below and investors should review the risks provided below and in the Form 10-K/A, prior to making an investment in the Company.

GENERAL RISKS RELATING TO OUR BUSINESS AND INDUSTRY

We will need to raise additional capital to meet the requirements of the terms and conditions of our Credit Agreement and to fund future acquisitions and our ability to obtain the necessary funding is uncertain.

We will need to raise additional funding to meet the requirements of the terms and conditions of our Credit Agreement. Additionally, we may need to raise additional funds through public or private debt or equity financing, via the sale of assets or through other various means to fund our obligations, or acquire assets and businesses in the future. In such a case, adequate funds may not be available when needed or may not be available on favorable terms. If we need to raise additional funds in the future, by issuing equity securities, dilution to existing stockholders will result, and such securities may have rights, preferences and privileges senior to those of our common stock. If funding is insufficient at any time in the future and we are unable to generate sufficient revenue from new business arrangements, to complete planned acquisitions or operations, our results of operations and the value of our securities could be adversely affected. Future funding may not be available on favorable terms, if at all.

We may not be able to generate sufficient cash flow to meet our debt service and other obligations due to events beyond our control.

Our ability to generate cash flows from operations, to make scheduled payments on or refinance our indebtedness and to fund working capital needs and planned capital expenditures will depend on our future financial performance and our ability to generate cash in the future. Our future financial performance will be affected by a range of economic, financial, competitive, business and other factors that we cannot control, such as general economic, legislative, regulatory and financial conditions in our industry, the economy generally, the price of oil and other risks described in our other reports filed with the SEC. A significant reduction in operating cash flows resulting from changes in economic, legislative or regulatory conditions, increased competition or other events beyond our control could increase the need for additional or alternative sources of liquidity and could have a material adverse effect on our business, financial condition, results of operations, prospects and our ability to service our debt and other obligations. If we are unable to service our indebtedness or to fund our other liquidity needs, we may be forced to adopt an alternative strategy that may include actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing our indebtedness, seeking additional capital, or any combination of the foregoing. If we raise additional debt, it would increase our interest expense, leverage and our operating and financial costs. We cannot assure you that any of these alternative strategies could be affected on satisfactory terms, if at all, or that they would yield sufficient funds to make required payments on our indebtedness or to fund our other liquidity needs. Reducing or delaying capital expenditures or selling assets could delay future cash flows. In addition, the terms of existing or future debt agreements may restrict us from adopting any of these alternatives. We cannot assure you that our business will generate sufficient cash flows from operations or that future borrowings will be available in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.

If for any reason we are unable to meet our debt service and repayment obligations, we would be in default under the terms of the agreements governing our indebtedness, which would allow our creditors at that time to declare all outstanding indebtedness to be due and payable. This would likely in turn trigger cross-acceleration or cross-default rights between our applicable debt agreements. Under these circumstances, our lenders could compel us to apply all of our available cash to repay our borrowings. In addition, the lenders under our credit facilities or other secured indebtedness could seek to foreclose on our assets that are their collateral. If the amounts outstanding under our indebtedness were to be accelerated, or were the subject of foreclosure actions, our assets may not be sufficient to repay in full the money owed to the lenders or to our other debt holders.

We are currently owed a significant amount of money from Omega Holdings Company, LLC and related entities, which amount is in default, and we may be unable to collect on the full amount of such note.

The Omega Secured Note had an outstanding balance of $13,858,067 as of September 30, 2015, not including a $4.3 million allowance for doubtful accounts in connection with such note (described below). The Omega Secured Note represents (a) a loan to Omega in the amount of approximately $7.56 million (representing the agreed upon value of the amount by which the consideration paid at the initial closing of the Omega acquisition (which included consideration relating to the assets acquired at the initial closing and which were planned to be acquired at the final closing, which has since been terminated by the parties) exceeded the value of assets acquired at the initial closing) (the “Purchase Price Loan”); (b) a $750,000 loan related to the delivery of a certain amount of used motor oil inventory at the initial closing (the “First Inventory Loan”); (c) a $1,400,000 loan related to the delivery of a certain amount of used motor oil inventory which was planned to be acquired at the final closing, which the parties have agreed will now not occur (the “Second Inventory Loan” and along with the First Inventory Loan, the “Inventory Loans”); (d) advances totaling $4.15 million to satisfy accounts payable and other working capital related obligations of Omega after the initial closing (the “Draw Down Loans”); and (e) an additional loan of $1 million for capital expenditures (the “Capital Expenditure Loan”).

The Purchase Price Loan and the Draw Down Loans accrued interest at the short-term federal rate as published by the Internal Revenue Service from time to time (approximately 0.33% per annum as of the initial closing) prior to October 30, 2014, and thereafter at 9.5% per annum, payable monthly in arrears and had a maturity date of March 31, 2015. The First Inventory Loan and the Draw Down Loans accrued interest at the rate of 9.5% per annum beginning on May 31, 2014, and were due and payable on March 31, 2015. None of the amounts due under the Omega Secured Note were paid when due on March 31, 2015, and such amounts are currently in default. Upon an event of default under any of the loans, the loans accrue interest at 18% per annum until paid in full, and such note is currently accruing 18% per annum.

Based on our management’s assessment, the Company recognized an allowance for doubtful accounts of $4,346,452 related to amounts owed to the Company by Omega under the Omega Secured Note during the three months ended March 31, 2015.

The repayment of the Secured Note is guaranteed by Omega pursuant to a Guaranty Agreement and secured by a security interest granted pursuant to the terms of the Secured Note and a Leasehold Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture Filing. Additionally, we have the right to set-off any amount due upon an event of default under the Omega Secured Note against certain of the shares pledged by Omega in connection with the initial closing and the earn-out consideration due to Omega (provided that we have determined that no earn-out consideration will be due to Omega), subject to the terms of an Asset Purchase Agreement entered into with Omega.

In the event Omega does not have sufficient cash on hand to repay the Omega Secured Note, we may be forced to attempt to enforce our security interests over Omega’s assets in an attempt to satisfy such note. Such actions could take significant time and resources, and we may ultimately not be able to receive the full value of the amounts owed to us pursuant to the terms of the Omega Secured Note. In the event we do not receive the full amounts owed pursuant to the Omega Secured Note, it could have a material adverse effect on our cash flows, debt covenants and negatively impact the amount of cash we have on hand and the amount of additional funding we are required to raise moving forward. Additionally, the value of our securities may decline in value upon such event.

We have substantial indebtedness which could adversely affect our financial flexibility and our competitive position. Our debt agreements have previously been declared in default, and our future failure to comply with financial covenants in our debt agreements could result in such debt agreements again being declared in default.

We have a significant amount of outstanding indebtedness. As of September 30, 2015, we owed approximately $12.9 million in accounts payable. As of September 30, 2015, we owed $23,200,000 under the Credit Agreement. The amount owed under the Credit Agreement is due and payable on May 2, 2019 and we were previously in default of the provisions of the Credit Agreement, which were waived by our lender in connection with our entry into an amendment to the Credit Agreement. Effective March 27, 2015, we, Vertex Operating and all of our other subsidiaries other than E-Source and Golden State, entered into the MidCap Loan Agreement. Pursuant to the MidCap Loan Agreement, MidCap agreed to loan us up to the lesser of (i) $7 million; and (ii) 85% of the amount of accounts receivable due to us which meet certain requirements set forth in the MidCap Loan Agreement (“Qualified Accounts”), plus the lesser of (y) $3 million and (z) 50% of the cost or market value, whichever is lower, of our raw material and finished goods which have not yet been sold, subject to the terms and conditions of the MidCap Loan Agreement (“Eligible Inventory”), minus any amount which MidCap may require from time to time in order to over secure amounts owed to MidCap under the MidCap Loan Agreement, as long as no event of default has occurred or is continuing under the terms of the MidCap Loan Agreement. The requirement of MidCap to make loans under the MidCap Loan Agreement is subject to certain standard conditions and requirements. A total of $659,893 was outstanding under the MidCap Loan Agreement as of September 30, 2015.

Our substantial indebtedness could have important consequences and significant effects on our business. For example, it could:


•	increase our vulnerability to adverse changes in general economic, industry and competitive conditions;


•	require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;


•	restrict us from taking advantage of business opportunities;


•	make it more difficult to satisfy our financial obligations;


•	place us at a competitive disadvantage compared to our competitors that have less debt obligations; and


•	limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes on satisfactory terms or at all.

We may need to raise additional funding in the future to repay or refinance the Credit Agreement and MidCap Loan Agreement and our accounts payable, and as such may need to seek additional debt or equity financing. Such additional financing may not be available on favorable terms, if at all. If debt financing is available and obtained, our interest expense may increase and we may be subject to the risk of default, depending on the terms of such financing. If equity financing is available and obtained it may result in our shareholders experiencing significant dilution. If such financing is unavailable, we may be forced to curtail our operations, which may cause the value of our securities to decline in value and/or become worthless. Furthermore, the fact that our credit agreements have previously been declared in default may negatively affect the perception of the Company and our ability to pay our debts as they become due in the future and could result in the price of our securities declining in value or being valued at lower levels than companies with similar histories of defaults.

The covenants in our credit and loan agreements restrict our ability to operate our business and might lead to a default under our credit agreements.

Our debt agreements limit, among other things, our ability to:


•	incur or guarantee additional indebtedness;


•	create liens;


•	make payments to junior creditors;


•	make investments;


•	sell material assets;


•	affect fundamental changes in our structure;


•	make certain acquisitions;


•	sell interests in our subsidiaries;


•	consolidate or merge with or into other companies or transfer all or substantially all of our assets; and


•	engage in transactions with affiliates.

The Credit Agreement also includes various covenants (positive and negative) binding the Company, including, requiring that the Company provide the Agent with certain reports, provide the Agent notice of material corporate events and forecasts, limiting the amount of indebtedness the Company may incur (for example, the Company’s total indebtedness could not exceed between $30,000,000-$32,000,000 at any time prior to our entry into the Second Amendment to the Credit Agreement on March 26, 2015 (the “Second Amendment”), and cannot exceed $7 million (including not more than $6 million under the MidCap Credit Agreement through December 31, 2015), subject to certain exemptions set forth in greater detail in the Credit Agreement), and requiring us to maintain certain financial ratios, relating to consolidated EBITDA (which for the purposes of the Credit Agreement, never take into account the results of operations of Vertex Refining OH, LLC (“Vertex OH”)) and debt leverage including maintaining a ratio of quarterly consolidated EBITDA (as calculated and adjusted in the Credit Agreement) to certain fixed charges (quarterly on a cumulative basis), for each applicable period of between 1.10:1.00 and 1.25:1.00 (depending on the applicable period); maintaining a ratio of consolidated debt to consolidated EBITDA (as calculated and adjusted in the Credit Agreement), for the applicable period (depending on the terms of the Credit Agreement such calculation is made for the prior 12 month period, the prior six month period or prior nine month period), for each quarter through maturity of between 4:00:1.00 and 2.5:1.00 (depending on the applicable period); maintaining consolidated EBITDA (as calculated and adjusted in the Credit Agreement), for each applicable period (as provided in the Credit Agreement), of between $4.25 million and $11.5 million between the original date of the Credit Agreement and December 31, 2014, and between $250,000 and $7.0 million thereafter through the maturity date of the Credit Agreement (depending on the applicable quarter); maintaining at all times liquid cash on hand and available borrowings under other applicable credit agreements of at least $3 million through the date of the Second Amendment and of at least $750,000 after the date of the Second Amendment prior to June 30, 2015, $1.5 million at any time after June 30, 2015 and prior to the date of the Fourth Amendment, $500,000 after the date of the Fourth Amendment and until December 31, 2015, $750,000 at any time from December 31, 2015 to March 31, 2016, and $1 million at any time after March 31, 2016. The Credit Agreement also provides that the Company

is not authorized to make any “earn-out” payment under the Heartland Purchase Agreement, if an event of default exists under the Credit Agreement or if such payment would create an event of default under the Credit Agreement.

As a result of these covenants and limitations, we may not be able to respond to changes in business and economic conditions and to obtain additional financing, if needed, and we may be prevented from engaging in transactions that might otherwise be beneficial to us. Our credit and loan agreements require, and our future credit facilities and loan agreements may require, us to maintain certain financial ratios and satisfy certain other financial condition tests. Our ability to meet these financial ratios and tests can be affected by events beyond our control, and we may not be able to meet those tests. The breach of any of these covenants could result in a default under our credit agreements or future credit facilities. Upon the occurrence of an event of default, the lenders could elect to declare all amounts outstanding under such credit agreements, including accrued interest or other obligations, to be immediately due and payable. If amounts outstanding under such credit agreements were to be accelerated, our assets might not be sufficient to repay in full that indebtedness and our other indebtedness.

Our credit agreements and loan agreements also contain cross-default and cross-acceleration provisions. Under these provisions, a default or acceleration under one instrument governing our debt may constitute a default under our other debt instruments that contain cross-default and cross-acceleration provisions, which could result in the related debt and the debt issued under such other instruments becoming immediately due and payable. In such event, we would need to raise funds from alternative sources, which funds might not be available to us on favorable terms, on a timely basis or at all. Alternatively, such a default could require us to sell assets and otherwise curtail operations to pay our creditors. The proceeds of such a sale of assets, or curtailment of operations, might not enable us to pay all of our liabilities.

RISKS RELATED TO OUR SECURITIES

Our Chief Executive Officer, Benjamin P. Cowart, has significant voting control over us, including the appointment of Directors and may have interests that differ from other shareholders. Mr. Cowart, as a significant shareholder, may, therefore, take actions that are not in the interest of other shareholders.

Benjamin P. Cowart, our Chairman, President and Chief Executive Officer, beneficially owns approximately 28% of our common stock (not including shares issuable upon exercise of options and warrants held by Mr. Cowart) and 23% of our total voting stock, and as such, Mr. Cowart exercises significant control in determining the outcome of corporate transactions or other matters, including the election of directors, mergers, consolidations, the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control. The interests of Mr. Cowart may differ from the interests of the other stockholders and thus result in corporate decisions that are adverse to other shareholders. Should conflicts of interest arise, Mr. Cowart may not act in the best interests of our other shareholders and conflicts of interest may not be resolved in a manner favorable to our other shareholders.

We have established preferred stock which can be designated by the Board of Directors without shareholder approval and have established Series A Preferred Stock and Series B Preferred Stock, which gives the holders a liquidation preference and the ability to convert such shares into our common stock.

We have 50,000,000 shares of preferred stock authorized, which includes 5,000,000 shares of designated Series A Preferred Stock of which approximately 0.6 million shares are issued and outstanding as of the date of this report, and 10,000,000 designated shares of Series B Preferred Stock, of which 8,064,534 shares are issued and outstanding as of the date of this report. The Series A Preferred Stock has a liquidation preference of $1.49 per share. The Series B Preferred Stock has a liquidation preference of $3.10 per share, payable only after amounts owed to our senior creditor are satisfied. As a result, if we were to dissolve, liquidate or sell our assets, the holders of our Series A Preferred Stock would have the right to receive up to the first approximately $1 million in proceeds from any such transaction and holders of our Series B Preferred Stock would have the right to receive up to $25 million after the payment of amounts owed to certain other of our creditors, but before any amount is paid to the holders of our common stock. The payment of the liquidation preferences could result in common stock shareholders not receiving any consideration if we were to liquidate, dissolve or wind up, either voluntarily or involuntarily. Additionally, the existence of the liquidation preference may reduce the value of our common stock, make it harder for us to sell shares of common stock in offerings in the future, or

prevent or delay a change of control. Furthermore, the conversion of Series A Preferred Stock and Series B Preferred Stock into common stock (each of which convert on a one-for-one basis (subject to adjustments for stock splits and recapitalizations)) may cause substantial dilution to our common shareholders. Additionally, because our Board of Directors is entitled to designate the powers and preferences of the preferred stock without a vote of our shareholders, subject to NASDAQ rules and regulations, our shareholders will have no control over what designations and preferences our future preferred stock, if any, will have.

In addition to the above, we are required to redeem any non-converted shares of Series B Preferred Stock, which remain outstanding on December 24, 2020, at the rate of $3.10 per share (or $25 million in aggregate as of the date of this filing), subject to the terms of our senior loan documents, which funds we may not have, or which may not be available on favorable terms, if at all.

There may be future sales of our common stock, which could adversely affect the market price of our common stock and dilute shareholders ownership of common stock.

The exercise of any options granted to executive officers and other employees under our equity compensation plans, and other issuances of our common stock could have an adverse effect on the market price of the shares of our common stock. We are not restricted from issuing additional shares of common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive shares of common stock, provided that we are subject to the requirements of the Nasdaq Capital Market (which generally require shareholder approval for any transactions which would result in the issuance of more than 20% of our then outstanding shares of common stock or voting rights representing over 20% of our then outstanding shares of stock) and are restricted for a period of six months from the effective date of the registration statement we are required to file pursuant to the Purchase Agreement from issuing securities, subject to certain exceptions, subject to the terms of the Purchase Agreement. Sales of a substantial number of shares of our common stock in the public market or the perception that such sales might occur could materially adversely affect the market price of the shares of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Additionally, the sale of all or a significant portion of the shares of common stock, the resale of which is being registered pursuant to the registration statement required by the Purchase Agreement may cause the value of our common stock to decline in value.

The issuance and sale of common stock upon exercise of the Warrants may cause substantial dilution to existing stockholders and may also depress the market price of our common stock.

The Warrants have an exercise price of $2.92 per share. The Warrants are exercisable beginning 185 days after the date of the closing of the Offering and have a term of 5.5 years. The Warrants contain a cashless exercise provision in connection with any shares that are not then registered by the Company. Although the Warrants may not be exercised by the holders thereof if such exercise would cause such holder to own more than 9.999% of our outstanding common stock, this restriction does not prevent such holder from exercising some of the Warrants, selling those shares, and then exercising the rest of the Warrants, while still staying below the 9.999% limit. In this way, the holders of the Warrants could sell more than this limit while never actually holding more shares than this limit allows. If the holders of the Warrants choose to do this, it will cause substantial dilution to the then holders of our common stock.

If exercises of the Warrants and sales of such shares issuable upon exercise thereof take place, the price of our common stock may decline. In addition, the common stock issuable upon exercise of the Warrants may represent overhang that may also adversely affect the market price of our common stock. Overhang occurs when there is a greater supply of a company’s stock in the market than there is demand for that stock. When this happens the price of the company’s stock will decrease, and any additional shares which shareholders attempt to sell in the market will only further decrease the share price. If the share volume of our common stock cannot absorb shares sold by the Warrant holders, then the value of our common stock will likely decrease.

RISKS RELATED TO OUR SERIES B PREFERRED STOCK

The issuance of common stock upon conversion of the Series B Preferred Stock will cause immediate and substantial dilution to existing shareholders.

The Series B Preferred Stock (including accrued and unpaid dividends) is convertible into shares of the Company’s common stock at any time at $3.10 per share (initially a one-for-one basis). If the Company’s common stock trades at or above $6.20 per share for a period of 20 consecutive trading days at any time following the earlier of (a) the effective date of a resale registration statement which we are required to file to register the resale of the shares of common stock underlying the Series B Preferred Stock and Warrants pursuant to the Purchase Agreement, or (b) December 24, 2015, the Company may at such time force conversion of the Series B Preferred Stock (including accrued and unpaid dividends) into common stock of the Company.

The issuance of common stock upon conversion of the Series B Preferred Stock will result in immediate and substantial dilution to the interests of other stockholders since the holders of the Series B Preferred Stock may ultimately receive and sell the full amount of shares issuable in connection with the conversion of such Series B Preferred Stock. Although the Series B Preferred Stock may not be converted by holder if such conversion would cause the holder to own more than 9.999% of our outstanding common stock, this restriction does not prevent such holder from converting some of its holdings, selling those shares, and then converting the rest of its holdings, while still staying below the 9.999% limit. In this way, the holders of the Series B Preferred Stock could sell more than this limit while never actually holding more shares than this limit allows. If the holders of the Series B Preferred Stock choose to do this, it will cause substantial dilution to the then holders of our common stock.

Our outstanding Series B Preferred Stock accrues a cash dividend.

Our Series B Preferred Stock accrues a dividend, payable quarterly in arrears (based on calendar quarters), in the amount of 6% per annum of the original issuance price of the Series B Preferred Stock ($3.10 per share or $25.3 million in aggregate as of the date of this report). The dividend is payable by the Company, at the Company’s election, in registered common stock of the Company (if available) or cash, provided that any cash dividend payment is subject to us previously having repaid all amounts owed to our senior lender. In the event dividends are paid in registered common stock of the Company, the number of shares payable will be calculated by dividing (a) the accrued dividend by (b) 90% of the arithmetic average of the volume weighted average price (VWAP) of the Company’s common stock for the 10 trading days immediately prior to the applicable date of determination (the “Dividend Stock Payment Price”). Notwithstanding the foregoing, in no event may the Company pay dividends in common stock unless the applicable Dividend Stock Payment Price is above $2.91. If the Company is prohibited from paying the dividend in cash (due to contractual senior credit agreements or other restrictions) or is unable to pay the dividend in registered common stock, the dividend will be paid in-kind in Series B Preferred Stock shares at $3.10 per share.

We may not have sufficient available cash to pay the dividends as they accrue. The payment of the dividends, or our failure to timely pay the dividends when due, could reduce our available cash on hand, have a material adverse effect on our results of operations and cause the value of our stock to decline in value. Additionally, the issuance of shares of common stock or additional shares of Series B Preferred Stock in lieu of cash dividends (and the subsequent conversion of such Series B Preferred Stock into common stock pursuant to the terms of such Series B Preferred Stock) could cause substantial dilution to the then holders of our common stock.

We may be required to issue additional shares of Series B Preferred Stock upon the occurrence of certain events.

As described above, in the event we do not have available cash to pay the dividends which accrue on the Series B Preferred Stock in cash, we are prohibited from paying such dividends in cash, and we do not have sufficient registered shares of common stock available to allow for the payment of such dividends in common stock, we are required to pay such dividends in-kind in Series B Preferred Stock shares at $3.10 per share, which will also include a $3.10 per share liquidation preference and the right to convert into common stock on a one-for-one basis. To date we have paid $399,249 in accrued dividends on the Series B Preferred Stock by way of the issuance of 128,790 shares of Series B Preferred Stock in-kind.

The issuance and sale of common stock upon conversion of the Series B Preferred Stock may depress the market price of our common stock; and the redemption of the Series B Preferred Stock, if not converted into common stock prior to the required redemption date, will require significant additional funds.

If conversions of the Series B Preferred Stock and sales of such converted shares take place, the price of our common stock may decline. In addition, the common stock issuable upon conversion of the Series B Preferred Stock may represent overhang that may also adversely affect the market price of our common stock. Overhang occurs when there is a greater supply of a company’s stock in the market than there is demand for that stock. When this happens the price of the company’s stock will decrease, and any additional shares which shareholders attempt to sell in the market will only further decrease the share price. If the share volume of our common stock cannot absorb converted shares sold by the Series B Preferred Stock holders, then the value of our common stock will likely decrease.

Any non-converted shares of Series B Preferred Stock are required to be redeemed by us on June 24, 2020. We are required to redeem any non-converted shares of Series B Preferred Stock, which remain outstanding on December 24, 2020, at the rate of $3.10 per share (or $25.3 million in aggregate as of the date of this filing), subject to the terms of our senior loan documents, which funds we may or may not have, or which may not be available on favorable terms, if at all.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In August 2015, one of the holders of our Series B Preferred Stock fully-converted all 32,260 of the shares of Series B Preferred Stock which it then held into shares of our common stock on a one-for-one basis. The shares of common stock issuable in connection with such conversion were previously registered by us on a Form S-1 Registration Statement. Additionally, the same holder converted an aggregate of approximately $791 in accrued dividends on such converted Series B Preferred Stock shares into 255 shares of common stock ($3.10 per share of common stock), which shares of common stock were also previously registered by us on a Form S-1 Registration Statement.

For the period from June 24-30, 2015 and June 30-September 30, 2015, a total of approximately $398,459 of dividends accrued on our outstanding Series B Preferred Stock (not including shares of Series B Preferred Stock converted into common stock in August 2015, as described above). We were prohibited from paying such dividends in shares of common stock because the applicable Dividend Stock Payment Price was below $2.91. The “Dividend Stock Payment Price” is calculated by dividing (a) the accrued dividends by (b) 90% of the arithmetic average of the volume weighted average price (VWAP) of the Company’s common stock for the 10 trading days immediately prior to the applicable date of determination. In the event the applicable Dividend Stock Payment Price is below $2.91 we are required to pay such dividend in cash or in-kind in additional shares of Series B Preferred Stock. Pursuant to the terms of the Credit Agreement with Goldman Sachs, we are prohibited from paying the dividend in cash and therefore we paid the accrued dividends in-kind by way of the issuance of 128,535 restricted shares of Series B Preferred Stock pro rata to each of the then holders of our Series B Preferred Stock in October 2015. If converted in full, the 128,535 shares of restricted Series B Preferred Stock would convert into 128,535 shares of our common stock. As the issuance of the Series B Preferred Stock in-kind in satisfaction of the dividends did not involve a “sale” of securities under Section 2(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”), we believe that no registration of such securities, or exemption from registration for such securities, was required under the Securities Act.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information.

On November 9, 2015, we, Vertex Operating, and certain of our subsidiaries, Lender, as lender and Agent, as administrative agent, entered into a Fourth Amendment to Credit and Guaranty Agreement, amending the Credit Agreement (defined and described above under “Note 10. Line of Credit and Long-Term Debt” to the consolidated financial statements included above under “Part I - Financial Information” - “Item 1. Financial Statements”)(the “Fourth Amendment”). The amendments to the Credit Agreement effected by the Fourth Amendment include, but are not limited to:

•


•	Excluding from the definition of Consolidated Liquidity any amounts which are more than 75 days past due.


•	Changing the beginning calculation dates for certain fixed charge ratios required to be calculated pursuant to the terms of the Credit Agreement from December 31, 2015 to March 31, 2016.


•	Changing the way certain required leverage ratios are calculated as provided in the Credit Agreement.


•	Extending the date that we were required to begin making installment payments on the Credit Agreement from September 30, 2015 to the earlier of (a) December 31, 2015; and (b) the date we receive insurance proceeds from the Bango, Nevada plant of at least $800,000.


•	Removing prior restrictions which prevented Vertex OH from undertaking certain actions including co-mingling funds with the Company’s other subsidiaries and which required such entity to maintain its own books and records.


•	Extending the date we are required to begin meeting various leverage ratios relating to indebtedness, fixed charge ratios and consolidated EBITDA targets (while also reducing such consolidated EBITDA targets) from December 31, 2015 to March 31, 2016, and in some cases modifying the calculation of such ratios.


•	Reducing minimum consolidated liquidity amounts to not less than (i) $500,000 at any time from the date of the Fourth Amendment to December 31, 2015, (ii) $750,000 at any time after December 31, 2015 and on or prior to March 31, 2016, and (iii) $1,000,000 at any time after March 31, 2016.

Also on November 9, 2015, we and certain of our subsidiaries entered into a First Amendment to Loan and Security Agreement (the “Midcap First Amendment”), which amended the Midcap Loan Agreement with Midcap (defined and described above under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” - “Liquidity and Capital Resources” - “MidCap Loan Agreement”). The Midcap First Amendment amended the Midcap Loan Agreement to add Vertex OH as a party thereto; remove Vertex OH’s requirement to enter into a negative pledge agreement with MidCap; created separate maximum borrowing base credit limits for Vertex OH’s accounts and customers ($100,000 maximum per customer, subject to certain exceptions); excluded customers who are based outside of the U.S. or Canada from the credit limits if backed by a bank letter of credit or covered by a foreign receivables insurance policy; removed inventory of Vertex OH from the definition of Eligible Inventory under the Midcap Loan Agreement; and provided that additional affiliates of the Company may become party to the Midcap Loan Agreement by executing an assumption agreement and revolving note in favor of Midcap.

Item 6. Exhibits

See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.

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, hereunto duly authorized.



	VERTEX ENERGY, INC.

Date: November 9, 2015	By: /s/ Benjamin P. Cowart
	Benjamin P. Cowart
	Chief Executive Officer
	(Principal Executive Officer)


Date: November 9, 2015	By: /s/ Chris Carlson
	Chris Carlson
	Chief Financial Officer
	(Principal Financial Officer)

EXHIBIT INDEX



			Incorporated by Reference
Exhibit Number	Description of Exhibit	Filed or Furnished Herewith	Form	Exhibit	Filing Date/Period End Date	File No.
1.1	Underwriting Agreement, dated November 20, 2013, by and among Vertex Energy, Inc. and Craig-Hallum Capital Group LLC		8-K	1.1	11/21/2013	001-11476
2.1	Unit Purchase Agreement by and among Vertex Energy, Inc., Vertex Acquisition Sub, LLC, Vertex Holdings, L.P. and B&S Cowart Family L.P. dated as of August 14, 2012		8-K	2.1	8/15/2012	000-53619
2.2	First Amendment to Unit Purchase Agreement by and among Vertex Energy, Inc., Vertex Acquisition Sub, LLC, Vertex Holdings, L.P. and B&S Cowart Family L.P. dated as of September 11, 2012		8-K	2.2	9/12/2012	000-53619
2.3	Asset Purchase Agreement by and among Vertex Energy, Inc., Vertex Refining LA, LLC.,Vertex Refining NV., LLC, Omega Refining, LLC, Bango Refining NV, LLC and Omega Holdings Company LLC (March 17, 2014)		8-K	2.1	3/19/2014	001-11476
2.4	Second Amendment to Asset Purchase Agreement by and among Vertex Energy, Inc., Vertex Refining LA, LLC, Vertex Refining NV, LLC, Bango Refining NV, LLC and Omega Holdings Company LLC (April 30, 2014)		8-K	2.3	5/6/2014	001-11476
2.5(#)	Third Amendment to Asset Purchase Agreement by and among Vertex Energy, Inc., Vertex Refining LA, LLC, Vertex Refining NV, LLC, Bango Refining NV, LLC and Omega Holdings Company LLC (May 2, 2014)		8-K	2.4	5/6/2014	001-11476
2.6	Fourth Amendment to Asset Purchase Agreement by and among Vertex Energy, Inc., Vertex Refining LA, LLC, Vertex Refining NV, LLC, Louisiana LV OR LLC, formerly known as Omega Refining, LLC, Bango Refining NV, LLC and Omega Holdings Company LLC (January 19, 2015)		8-K	2.1	1/21/2015	001-11476
2.7	Asset Purchase Agreement by and among Vertex Energy Operating, LLC, Vertex Refining OH, LLC, Vertex Energy Inc. and Heartland Group Holdings, LLC (October 21, 2014)		8-K	2.1	10/28/2014	001-11476
2.8	First Amendment to Asset Purchase Agreement by and among Vertex Energy Operating, LLC, Vertex Refining OH, LLC, Vertex Energy, Inc. and Heartland Group Holdings, LLC (November 26, 2014)		8-K	2.2	12/1/2014	001-11476



2.9	Second Amendment to Asset Purchase Agreement by and among Vertex Energy Operating, LLC, Vertex Refining OH, LLC, Vertex Energy, Inc. and Heartland Group Holdings, LLC (December 5, 2014)	8-K	2.3	12/9/2014	001-11476
2.10	Third Amendment to Asset Purchase Agreement by and among Vertex Energy Operating, LLC, Vertex Refining OH, LLC, Vertex Energy, Inc. and Heartland Group Holdings, LLC (March 4, 2015)	8-K	2.4	3/6/2015	001-11476
3.1	Articles of Incorporation (and amendments thereto) of Vertex Energy, Inc.	8-K/A	3.1	6/26/2009	000-53619
3.2	Amended and Restated Certificate of Designation of Rights, Preferences and Privileges of Vertex Energy, Inc.'s Series A Convertible Preferred Stock.	8-K	3.1	7/16/2010	000-53619
3.3	Amended and Restated Certificate of Designation of Vertex Energy, Inc. Establishing the Designation, Preferences, Limitations and Relative Rights of Its Series B Preferred Stock (as filed with the Secretary of State of Nevada on June 23, 2015)	8-K	3.1	6/24/2014	001-11476
3.4	Amended and Restated Bylaws of Vertex Energy, Inc.	8-K	3.1	1/15/2014	001-11476
10.1	Employment Agreement with Benjamin P. Cowart effective April 16, 2009 ***	8-K/A	10.5	6/26/2009	000-53619
10.2	Employment Agreement with Matthew Lieb effective April 16, 2009 ***	8-K/A	10.7	6/26/2009	000-53619
10.3	Loan Agreement with Bank of America dated September 16, 2010	8-K	10.1	9/24/2010	000-53619
10.4	Security Agreement with Bank of America dated September 16, 2010	8-K	10.2	9/24/2010	000-53619
10.5(+)	Tolling Agreement between KMTEX, Ltd. and Vertex Energy Inc., dated April 17, 2013	8-K	10.1	11/12/2013	001-11476
10.6	Amended and Restated Employment Agreement with Chris Carlson dated March 29, 2011 and effective April 1, 2010***	10-K	10.18	12/31/2010	000-53619
10.7	First Amendment to Employment Agreement with Benjamin P. Cowart dated March 25, 2011 and effective as of December 15, 2010***	10-K	10.19	12/31/2010	000-53619
10.8	First Amendment to Employment Agreement with Matt Lieb dated February 1, 2011 and effective March 28, 2011***	10-K	10.20	12/31/2010	000-53619
10.9	Addendum to Employment Agreement Between Vertex Energy, Inc. and Greg Wallace dated July 5, 2011***	10-Q	10.21	9/30/2011	000-53619
10.10	Second Addendum to Employment Agreement Between Vertex Energy, Inc. and Greg Wallace dated June 15, 2012***	10-Q	10.11	9/30/2012	000-53619
10.11	Employment Agreement with John Strickland - July 2012**	10-Q	10.12	9/30/2012	000-53619



10.12	Credit Agreement between Vertex Energy, Inc. and Bank of America, N.A. dated August 31, 2012	8-K	10.1	9/12/2012	000-53619
10.13	$10,000,000 Revolving Note by Vertex Energy, Inc. in favor of Bank of America, N.A. dated August 31, 2012	8-K	10.2	9/12/2012	000-53619
10.14	$8,500,000 Term Note by Vertex Energy, Inc. in favor of Bank of America, N.A. dated August 31, 2012	8-K	10.3	9/12/2012	000-53619
10.15	Security Agreement with Bank of America, N.A. dated August 31, 2012	8-K	10.4	9/12/2012	000-53619
10.16	Corporate Guaranty in favor of Bank of America, N.A. dated August 31, 2012	8-K	10.5	9/12/2012	000-53619
10.17	First Amendment to Credit Agreement between Vertex Energy, Inc. and Bank of America, N.A. dated August 31, 2012	10-Q	10.18	9/30/2012	000-53619
10.18	Non-Competition and Non-Solicitation Agreement by Vertex Holdings, L.P., B & S Cowart Family L.P., Benjamin P. Cowart, Chris Carlson and Greg Wallace in favor of Vertex Energy, Inc., dated August 31, 2012***	10-Q	10.19	9/30/2012	000-53619
10.19	Second Addendum to Employment Agreement with Benjamin P. Cowart, dated August 31, 2012***	10-Q	10.20	9/30/2012	000-53619
10.20	First Addendum to Amended and Restated Employment Agreement with Chris Carlson, dated August 31, 2012***	10-Q	10.21	9/30/2012	000-53619
10.21	2004 Stock Option Plan - World Waste Technologies, Inc.***	10-KSB	10.3	12/31/2004	001-11476
10.22	Form of Stock Option Agreement, pursuant to 2004 Stock Option Plan***	10-KSB	10.4	12/31/2004	001-11476
10.23	2007 Stock Plan - World Waste Technologies, Inc.***	8-K	10.2	5/21/2007	001-11476
10.24	Form of Stock Option Agreement, pursuant to 2007 Stock Option Plan***	8-K	10.3	5/21/2007	001-11476
10.25	Vertex Energy, Inc., 2008 Stock Incentive Plan***	8-K/A	4.1	6/26/2009	000-53619
10.26	2008 Stock Incentive Plan - Form of Stock Option Agreement***	10-K	10.27	12/31/2012	001-11476
10.27	Vertex Energy, Inc., 2009 Stock Incentive Plan***	8-K	4.1	7/31/2009	000-53619
10.28	2009 Stock Incentive Plan - Form of Stock Option Agreement***	10-K	10.29	12/31/2012	001-11476
10.29	Waiver and Second Amendment to Credit Agreement with Bank of America, N.A. (January 2013)	10-K	10.30	12/31/2012	001-11476
10.30	Vertex Energy, Inc. 2013 Stock Incentive Plan***	S-8	4.1	7/28/2014	333-197659
10.31	Vertex Energy, Inc.-Form of 2013 Stock Incentive Plan Stock Option Award***	8-K	10.1	9/30/2013	001-11476
10.32	Vertex Energy, Inc.-Form of 2013 Stock Incentive Plan Restricted Stock Grant Agreement***	S-8	4.3	7/28/2014	333-197659



10.33(+)	Secured Promissory Note ($13,858,066.67)-May 2, 2014-Omega Refining, LLC and Bango Refining NV, LLC as borrowers and Vertex Refining NV, LLC as lender	8-K	10.1	5/6/2014	001-11476
10.34	Guaranty Agreement-Omega Holdings-May 2, 2014	8-K	10.2	5/6/2014	001-11476
10.35(+)	Credit and Guaranty Agreement dated as of May 2, 2014, by and among Vertex Energy Operating, LLC, Vertex Energy, Inc., and certain other subsidiaries of Vertex Energy, Inc., as Guarantors, and Goldman Sachs USA, as Lender and as Administrative Agent, Collateral Agent, and Lead Arranger	8-K	10.3	5/6/2014	001-11476
10.36	Term Loan Note ($40,000,000)-Credit and Guaranty Agreement dated as of May 2, 2014	8-K	10.4	5/6/2014	001-11476
10.37(+)	Pledge and Security Agreement-Credit and Guaranty Agreement dated as of May 2, 2014	8-K	10.5	5/6/2014	001-11476
10.38(+)	Amended and Restated Credit Agreement, among Vertex Energy, Inc., and Vertex Energy Operating, LLC, as Borrowers and Bank of America, N.A., as Lender as of May 2, 2014	8-K	10.6	5/6/2014	001-11476
10.39	Revolving Note ($20,000,000)-Amended and Restated Credit Agreement, as of May 2, 2014	8-K	10.7	5/6/2014	001-11476
10.40(+)	Pledge and Security Agreement-Amended and Restated Credit Agreement, as of May 2, 2014	8-K	10.8	5/6/2014	001-11476
10.41	Amended and Restated Guaranty-Amended and Restated Credit Agreement, as of May 2, 2014	8-K	10.9	5/6/2014	001-11476
10.42	Intercreditor Agreement, May 2, 2014, by and among Bank of America, N.A. and Goldman Sachs Bank USA	8-K	10.10	5/6/2014	001-11476
10.43	At-Will Employment, Confidential Information, Invention Assignment and Arbitration Agreement with David Peel (April 2014)***	8-K	10.1	6/24/2014	001-11476
10.44	Retention and Noncompetition Agreement with David Peel (April 2014)***	8-K	10.2	6/24/2014	001-11476
10.45	Employment Agreement between Vertex Refining LA, LLC and James P. Gregory (Effective May 2, 2014)***	8-K	10.1	7/29/2014	001-11476
10.46	Form of Common Stock Purchase Agreement dated June 5, 2014 by and between Vertex Energy, Inc. and the purchasers named therein	8-K	10.1	6/6/2014	001-11476
10.47	Land Lease between Marrero Terminal LLC, as Landlord and Omega Refining, LLC, as Tenant, relating to the Used Motor Oil Re-Refinery Located at 5000 River Road, Marrero, Louisiana 70094, dated as of April 30, 2008 and amendments	10-Q	10.22	6/30/2014	001-11476



10.48	Commercial Lease between Plaquemines Holdings, LLC as Landlord and Omega Refining, LLC, as Tenant, relating to the Myrtle Grove Facility Located at 278 East Ravenna Road, Myrtle Grove, LA, dated as of May 25, 2012 and amendments	10-Q	10.23	6/30/2014	001-11476
10.49	Operation and Maintenance Agreement dated as of November 3, 2010, by and between Magellan Terminals Holdings, L.P. (f/k/a Marrero Terminal, LLC) and Omega Refining, LLC	10-Q	10.24	6/30/2014	001-11476
10.50(#)	Terminaling Services Agreement between Marrero Terminal LLC (Owner) and Omega Refining, LLC (Customer) dated as of May 1, 2008	10-Q	10.25	6/30/2014	001-11476
10.51(#)	Second Use Motor Oil Buy/Sell Contract dated August 1, 2012, by and between Thermo Fluids, Inc. and Omega Refining, LLC	10-Q	10.26	6/30/2014	001-11476
10.52	Consulting Agreement, Timothy C. Harvey (October 3, 2014)***	8-K	10.1	10/9/2014	001-11476
10.53	Consulting Agreement between Heartland Group Holdings, LLC and Vertex Energy Operating, LLC (July 28, 2014)	8-K	10.1	10/28/2014	001-11476
10.54	Common Stock Purchase Warrant to purchase 109,934 shares of common stock of the Company held by The Benjamin Paul Cowart 2012 Grantor Retained Trust (December 4, 2014)	8-K	4.1	12/9/2014	001-11476
10.55	Common Stock Purchase Warrant to purchase 109,934 shares of common stock of the Company held by The Shelley T. Cowart 2012 Grantor Retained Trust (December 4, 2014)	8-K	4.2	12/9/2014	001-11476
10.56	Form of Subscription Agreement dated December 4, 2014	8-K	10.2	12/9/2014	001-11476
10.57	First Amendment to Credit and Guaranty Agreement between Vertex Energy Operating, LLC, Vertex Energy, Inc. and Goldman Sachs Bank USA (December 5, 2014)	8-K	10.3	12/9/2014	001-11476
10.58	First Amendment to Amended and Restated Credit Agreement between Vertex Energy Operating, LLC, Vertex Energy, Inc. and Bank of America, N.A. (December 5, 2014)	8-K	10.4	12/9/2014	001-11476
10.59	First Amendment to Secured Promissory Note dated January 7, 2015 - Omega Refining, LLC and Bango Refining NV, LLC as borrowers and Vertex Refining NV, LLC as lender	8-K	10.2	1/15/2015	001-11476
10.60	Second Amendment to Credit and Guaranty Agreement dated March 26, 2015, by and between Vertex Energy Operating, LLC, Vertex Energy, Inc., certain of the Company's subsidiaries, Goldman Sachs Specialty Lending Holdings, Inc. ("Lender") and Goldman Sachs Bank USA. as Administrative Agent and Collateral Agent for Lender	8-K	10.1	3/31/2015	001-11476



10.61	Common Stock Purchase Warrant to purchase 1,766,874 shares of common stock dated March 26, 2015, by Vertex Energy, Inc., in favor of Goldman, Sachs & Co.	8-K	10.2	3/31/2015	001-11476
10.62(#)	Loan and Security Agreement between Vertex Energy, Inc., Vertex Energy Operating, LLC, Vertex Acquisition Sub, LLC, Vertex Refining LA, LLC, Vertex II GP, LLC, Vertex Merger Sub, LLC, Cedar Marine Terminals, LP, Crossroad Carriers, L.P., H & H Oil, L. P., and Vertex Recovery, L.P., as borrower and MidCap Business Credit LLC, as lender, dated March 27, 2015	8-K/A	10.3	6/16/2015	001-11476
10.63	Revolving Note by Vertex Energy, Inc., Vertex Energy Operating, LLC, Vertex Acquisition Sub, LLC, Vertex Refining LA, LLC, Vertex II GP, LLC, Vertex Merger Sub, LLC, Cedar Marine Terminals, LP, Crossroad Carriers, L.P., H & H Oil, L. P., and Vertex Recovery, L.P. in favor of MidCap Business Credit LLC dated March 27, 2015, in the face amount of up to $7 million [provided that notwithstanding the face amount of such Revolving Note, the Revolving Note only evidences amounts borrowed under such security from time to time]	8-K	10.4	3/31/2015	001-11476
10.64	Intercreditor Agreement dated March 26, 2015, by and between MidCap Business Credit LLC and Goldman Sachs Bank USA	8-K	10.5	3/31/2015	001-11476
10.65	Lease With Option For Membership Interest Purchase (April 30, 2015), by and between Vertex Refining NV, LLC as lessee and Bango Oil, LLC, as landowner	8-K	10.1	5/5/2015	001-11476
10.66	Acknowledgement and Confirmation Agreement (April 30, 2015), by and among Vertex Energy, Inc., Vertex Refining NV, LLC, Bango Oil, LLC, RESC, LLC, and Diatom Rail Park, LLC	8-K	10.2	5/5/2015	001-11476
10.67	Personal Property Lease (April 30, 2015), by and between Vertex Refining NV, LLC, Omega Refining, LLC and Bango Refining NV, LLC	8-K	10.3	5/5/2015	001-11476
10.68	Consent Letter (April 30, 2015) From Goldman Sachs Bank USA	8-K	10.4	5/5/2015	001-11476
10.69	Loan and Security Agreement between Vertex Energy, Inc., Vertex Energy Operating, LLC, Vertex Acquisition Sub, LLC, Vertex Refining LA, LLC, Vertex II GP, LLC, Vertex Merger Sub, LLC, Cedar Marine Terminals, LP, Crossroad Carriers, L.P., H & H Oil, L. P., and Vertex Recovery, L.P., as borrower and MidCap Business Credit LLC, as lender, dated March 27, 2015	8-K	10.3	6/16/2015	001-11476
10.70	Form of Unit Purchase Agreement dated June 19, 2015 by and between Vertex Energy, Inc. and the purchasers named therein	8-K	10.1	6/19/2015	001-11476



10.71	Third Amendment to Credit and Guaranty Agreement dated June 18, 2015, by and between Vertex Energy Operating, LLC, Vertex Energy, Inc., certain of the Company’s subsidiaries, Goldman Sachs Specialty Lending Holdings, Inc. (“Lender") and Goldman Sachs Bank USA, as Administrative Agent and Collateral Agent for Lender		8-K	10.2	6/24/2015	001-11476
10.72	Form of Warrant (incorporated by reference to Exhibit B of the Form of Unit Purchase Agreement incorporated by reference herein as Exhibit 10.69)		8-K	10.3	6/19/2015	001-11476
10.73	Executive Employment Agreement with Benjamin P. Cowart (August 7, 2015)***		10-Q	10.73	6/30/2015	001-11476
10.74	Executive Employment Agreement with Chris Carlson (August 7, 2015)***		10-Q	10.74	6/30/2015	001-11476
10.75	Amended and Restated 2013 Stock Incentive Plan ***		8-K	10.1	9/21/2015	001-11476
10.76##	First Amendment to Processing Agreement between KMTEX LLC and Vertex Energy, Inc., effective November 1, 2013		8-K	10.2	9/21/2015	001-11476
10.77	Executive Employment Agreement with John Strickland (COO), effective October 1, 2015		8-K	10.1	10/19/2015	001-11476
10.78	Fourth Amendment to Credit and Guaranty Agreement dated November 9, 2015, by and between Vertex Energy Operating, LLC, Vertex Energy, Inc., certain of the Company’s subsidiaries, Goldman Sachs Specialty Lending Holdings, Inc. (“Lender") and Goldman Sachs Bank USA, as Administrative Agent and Collateral Agent for Lender	X
10.79	First Amendment to Loan and Security Agreement between Vertex Energy, Inc., Vertex Energy Operating, LLC, Vertex Acquisition Sub, LLC, Vertex Refining LA, LLC, Vertex II GP, LLC, Vertex Merger Sub, LLC, Cedar Marine Terminals, LP, Crossroad Carriers, L.P., H & H Oil, L. P., and Vertex Recovery, L.P., as borrower and MidCap Business Credit LLC, as lender, dated November 9, 2015	X
16.1	Letter dated April 30, 2015 From LBB & Associates Ltd., LLP		8-K	16.1	5/1/2015	001-11476
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act	X
31.2	Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act	X
32.1	Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act**	X
32.2	Certification of Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act**	X
99.1	Glossary of Selected Terms		10-K	99.1	12/31/2012	001-11476

101.INS++

XBRL Instance Document

101.SCH++

XBRL Taxonomy Extension Schema Document

101.CAL++

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF++

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB++

XBRL Taxonomy Extension Label Linkbase Document

101.PRE++

XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

** Furnished herewith.

*** Indicates management contract or compensatory plan or arrangement.

+ Certain portions of these documents (which portions have been replaced by "X's") have been omitted in connection with a request for Confidential Treatment which has been accepted by the Commission. This entire exhibit including the omitted confidential information has been filed separately with the Commission.

# Certain portions of this document (which portions have been replaced by "***'s") have been omitted in connection with a request for Confidential Treatment which has been accepted by the Commission. This entire exhibit including the omitted confidential information has been filed separately with the Commission.

## Certain portions of this document as filed herewith (which portions have been replaced by "***'s") have been omitted in connection with a request for Confidential Treatment which has been submitted to the Commission. This entire exhibit including the omitted confidential information has been filed separately with the Commission.

++XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.