UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One) 
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal quarter ended SeptemberJune 30, 20212022
  
☐ 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)
———————
Nevada94-3439569
(State or other jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization) 
 
1331 Gemini Street, Suite 250 77058
Houston, Texas
(Address of principal executive offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock,
$0.001 Par Value Per Share
VTNR
The NASDAQ Stock Market LLC

(Nasdaq Capital Market)


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 every Interactive Data File required to be submitted 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 such files).   Yes  ý    No  ¨

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


Large accelerated filer☐Accelerated filer☐☒
Non-accelerated filer☒☐Smaller reporting company☒☐
Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨

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: 63,284,215 75,608,826 shares of common stock are issued and outstanding as of NovemberAugust 8, 2021.2022.


TABLE OF CONTENTS

 
 
  Page
 PART I 
Item 1. 
   
 
Consolidated Balance Sheets (unaudited)
F-1
   
 
Consolidated Statements of Operations (unaudited)
F-3
   
Consolidated Statements of Equity (unaudited)
F-5
 
Consolidated Statements of Cash Flows (unaudited)
F-87
   
 
Notes to Consolidated Financial Statements (unaudited)
F-119
   
Item 2
1
   
Item 3.
3035
   
Item 4.
3136
   
 PART II 
Item 1.
3237
   
Item 1A.
3338
   
Item 2.
4652
   
Item 3.
4752
   
Item 4.
4752
   
Item 5.
4752
   
Item 6.
4853


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

    This Quarterly Report on Form 10-Q (this "Report") contains forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995, regarding future events and the future results of the Company that are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the management of the Company. 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. Factors that might cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Report, including under “Risk Factors”, and in other reports the Company files with the Securities and Exchange Commission (“SEC”SEC” or the "Commission"), including the Company’s Annual Report on Form 10-K for the year ended December 31, 2020,2021, as filed with the SEC on March 9, 202114, 2022 (under the heading “Risk Factors” and in other parts of that report), which factors include:

•our need for additional funding and the availability of and terms of such funding;
•risks associated with our outstanding convertible notes,indebtedness, including our outstanding Convertible Senior Notes, including amounts owed, restrictive covenants dilution caused by the conversion thereof, optional and mandatory redemption rightssecurity interests in connection therewith, and our ability to repay such debts and amounts due thereon (including interest) when due;due, and mandatory and special redemption provisions thereof, and conversion rights associated therewith, including dilution caused thereby (in connection with the Convertible Senior Notes);

•security interests, guarantees and pledges associated with our outstanding Loan and Security Agreement and Supply and Offtake Agreement, and risks associated with such agreements in general;
•risks related to combining our operations with the recently acquired Mobile, Alabama refinery;
•risks associated with the capital project currently in process at our recently acquired Mobile, Alabama refinery, including costs, timing, delays and unanticipated problems associated therewith;
•health, safety, security and environment risks;
•risks associated with an offtake agreement which will only become effective upon the occurrence of certain events, including the completion of the capital project at the Mobile, Alabama refinery, which may not be completed timely;
•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;
•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 relationshiprelationships with KMTEX and Bunker One (USA) Inc;Inc, Macquarie Energy North America Trading Inc., and Shell;
•the impact of competitive services and products;
•our ability to complete and integrate acquisitions;
•our ability to complete future acquisitions;
•risks associated with our planned sale of substantially all of our used motor oil assets and operations and the planned acquisition of the Mobile Refinery (defined and discussed below);

•our ability to maintain insurance;
•potential future litigation, judgments and settlements;
•rules and regulations making our operations more costly or restrictive, including IMO 2020;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;
•losses under derivative and hedging contracts;
•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;
•decreases in global demand for, and the price of, oil, due to COVID-19, and/or state, federal and foreign responses thereto;
•our ability to acquire sufficient amounts of used oil feedstock through our collection routes, to produce finished products, and in the absence of such internally collected feedstocks, our ability to acquire third-party feedstocks on commercially reasonable terms;

•risks associated with COVID-19, the global efforts to stop the spread of COVID-19, potential downturns in the U.S. and global economies due to COVID-19 and the efforts to stop the spread of the virus, and COVID-19 in general;

•repayment of and covenants in our current and future debt facilities;

•the lack of capital available on acceptable terms to finance our continued growth; and
•other risk factors included under “Risk Factors” in our latest Annual Report on Form 10-K and set forth below under “Risk Factors”.

    You should read the matters described in, and incorporated by reference in, “Risk Factors” and the other cautionary statements made in this Report, and incorporated by reference herein, 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. All forward-looking statements included herein speak only as of the date of the filing of this Report. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified


in their entirety by the cautionary statements above. 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.
Our fiscal year ends on December 31st. Interim results are presented on a quarterly basis for the quarters ended March 31st, June 30th, and September 30th, the first quarter, second quarter and third quarter, respectively, with the quarter ending December 31st being referenced herein as our fourth quarter. Fiscal 2022 means the year ended December 31, 2022; fiscal 2021 means the year ended December 31, 2021, and fiscal 2020 means the year ended December 31, 2020.


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
VERTEX ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares and par value)
(UNAUDITED)
September 30,
2021		December 31,
2020		 June 30,
2022		December 31,
2021
ASSETSASSETS  ASSETS  
Current assetsCurrent assets  Current assets  
Cash and cash equivalentsCash and cash equivalents$12,112,577 $10,895,044 Cash and cash equivalents$97,914 $36,130 
Restricted cashRestricted cash100,125 100,125 Restricted cash100 100,497 
Accounts receivable, netAccounts receivable, net5,796,484 4,858,847 Accounts receivable, net90,854 5,297 
InventoryInventory2,402,126 1,458,288 Inventory201,752 3,736 
Derivative commodity assetDerivative commodity asset— 96 
Prepaid expenses and other current assetsPrepaid expenses and other current assets5,062,889 1,942,137 Prepaid expenses and other current assets36,627 4,280 
Assets held for sale, currentAssets held for sale, current87,670,167 10,530,947 Assets held for sale, current92,494 84,116 
Total current assetsTotal current assets113,144,368 29,785,388 Total current assets519,741 234,152 
Noncurrent assets  
Fixed assets, at costFixed assets, at cost16,508,660 15,495,562 Fixed assets, at cost116,722 13,811 
Less accumulated depreciationLess accumulated depreciation(1,926,886)(1,573,025)Less accumulated depreciation(4,475)(2,045)
Fixed assets, net Fixed assets, net14,581,774 13,922,537  Fixed assets, net112,247 11,766 
Finance lease right-of-use assetsFinance lease right-of-use assets14,842 18,100 Finance lease right-of-use assets44,373 — 
Operating lease right-of use assetsOperating lease right-of use assets4,850,112 4,734,497 Operating lease right-of use assets4,768 5,011 
Intangible assets, netIntangible assets, net385,798 466,546 Intangible assets, net8,375 359 
Other assetsOther assets11,708,732 1,008,733 Other assets1,159 14,772 
Assets held for sale, noncurrent— 72,164,157 
TOTAL ASSETSTOTAL ASSETS$144,685,626 $122,099,958 TOTAL ASSETS$690,663 $266,060 
LIABILITIES, TEMPORARY EQUITY, AND EQUITYLIABILITIES, TEMPORARY EQUITY, AND EQUITY  LIABILITIES, TEMPORARY EQUITY, AND EQUITY  
Current liabilitiesCurrent liabilities  Current liabilities  
Accounts payableAccounts payable$5,673,876 $2,419,543 Accounts payable$50,652 $4,216 
Accrued expensesAccrued expenses2,185,282 980,233 Accrued expenses30,560 3,618 
Dividends payable— 606,550 
Liabilities held for sale, current38,765,716 14,342,808 
Finance lease liability-currentFinance lease liability-current346,322 122,702 Finance lease liability-current652 302 
Operating lease liability-currentOperating lease liability-current872,694 783,747 Operating lease liability-current953 960 
Current portion of long-term debt, net of unamortized finance costs14,398,267 4,367,169 
Revolving note— 133,446 
Current portion of long-term debt, netCurrent portion of long-term debt, net1,927 2,413 
Obligations under inventory financing agreements, netObligations under inventory financing agreements, net172,857 — 
Derivative commodity liabilityDerivative commodity liability155,929 94,214 Derivative commodity liability46,536 — 
Liabilities held for sale, currentLiabilities held for sale, current35,507 37,645 
Total current liabilities
Total current liabilities
339,644 49,154 
  
Long-term debt, net Long-term debt, net135,332 114 
Finance lease liability-long-termFinance lease liability-long-term44,640 — 
Convertible senior unsecured note 2027, netConvertible senior unsecured note 2027, net41,543 64,016 
Operating lease liability-long-termOperating lease liability-long-term3,816 4,052 
Total current liabilities
62,398,086 23,850,412 
Long-term liabilities  
Long-term debt, net of unamortized finance costs124,124 7,981,496 
Finance lease liability-long-term— 315,513 
Operating lease liability-long-term3,977,418 3,950,750 
Liabilities held for sale, noncurrent— 24,380,440 
Derivative warrant liabilityDerivative warrant liability1,072,620 330,412 Derivative warrant liability26,615 75,211 
Other liabilitiesOther liabilities1,378 — 
Total liabilitiesTotal liabilities67,572,248 60,809,023 Total liabilities592,968 192,547 
COMMITMENTS AND CONTINGENCIES (Note 3)COMMITMENTS AND CONTINGENCIES (Note 3)— — COMMITMENTS AND CONTINGENCIES (Note 3)— — 
TEMPORARY EQUITY
F-1

September 30,
2021		December 31,
2020		 June 30,
2022		December 31,
2021
Series B Convertible Preferred Stock, $0.001 par value per share;
10,000,000 shares designated, 4,102,690 and 4,102,690 shares issued and 0 and 4,102,690 shares outstanding at September 30, 2021 and December 31, 2020, respectively with a liquidation preference of $— and $12,718,339 at September 30, 2021 and December 31, 2020, respectively.
— 12,718,339 
Series B1 Convertible Preferred Stock, $0.001 par value per share;
17,000,000 shares designated, 7,399,649 and 7,399,649 shares issued and 0 and 7,399,649 shares outstanding at September 30, 2021 and December 31, 2020, respectively with a liquidation preference of $— and $11,543,452 at September 30, 2021 and December 31, 2020, respectively.
— 11,036,173 
TEMPORARY EQUITYTEMPORARY EQUITY
Redeemable non-controlling interestRedeemable non-controlling interest39,771,408 31,611,674 Redeemable non-controlling interest— 43,447 
Total temporary equityTotal temporary equity39,771,408 55,366,186 Total temporary equity— 43,447 
EQUITYEQUITY  EQUITY  
50,000,000 of total Preferred shares authorized:50,000,000 of total Preferred shares authorized:  50,000,000 of total Preferred shares authorized:  
Series A Convertible Preferred Stock, $0.001 par value;
5,000,000 shares designated, 385,601 and 419,859 shares issued and outstanding at September 30, 2021 and December 31, 2020, with a liquidation preference of $574,545 and $625,590 at September 30, 2021 and December 31, 2020.
386 420 
Series A Convertible Preferred Stock, $0.001 par value;
5,000,000 shares designated, 0 and 385,601 shares issued and outstanding at June 30, 2022 and December 31, 2021, with a liquidation preference of $0 and $574,545 at June 30, 2022 and December 31, 2021.
Series A Convertible Preferred Stock, $0.001 par value;
5,000,000 shares designated, 0 and 385,601 shares issued and outstanding at June 30, 2022 and December 31, 2021, with a liquidation preference of $0 and $574,545 at June 30, 2022 and December 31, 2021.
— — 
Series C Convertible Preferred Stock, $0.001 par value;
44,000 shares designated, no shares issued or outstanding.
— — 
Series C Convertible Preferred Stock, $0.001 par value;
44,000 shares designated, zero shares issued or outstanding.
Series C Convertible Preferred Stock, $0.001 par value;
44,000 shares designated, zero shares issued or outstanding.
— — 
Common stock, $0.001 par value per share;
750,000,000 shares authorized; 63,003,766 and 45,554,841 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively.
63,004 45,555 
Common stock, $0.001 par value per share;
750,000,000 shares authorized; 75,509,002 and 63,287,965 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively.
Common stock, $0.001 par value per share;
750,000,000 shares authorized; 75,509,002 and 63,287,965 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively.
76 63 
Additional paid-in capitalAdditional paid-in capital136,905,764 94,569,674 Additional paid-in capital278,455 138,620 
Accumulated deficitAccumulated deficit(101,475,299)(90,008,778)Accumulated deficit(182,588)(110,614)
Total Vertex Energy, Inc. stockholders' equity35,493,855 4,606,871 
Total Vertex Energy, Inc. shareholders' equityTotal Vertex Energy, Inc. shareholders' equity95,943 28,069 
Non-controlling interestNon-controlling interest1,848,115 1,317,878 Non-controlling interest1,752 1,997 
Total equityTotal equity37,341,970 5,924,749 Total equity97,695 30,066 
TOTAL LIABILITIES, TEMPORARY EQUITY, AND EQUITYTOTAL LIABILITIES, TEMPORARY EQUITY, AND EQUITY$144,685,626 $122,099,958 TOTAL LIABILITIES, TEMPORARY EQUITY, AND EQUITY$690,663 $266,060 
































See accompanying notes to the consolidated financial statements.
F-2

VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(UNAUDITED)
Three Months Ended September 30,Nine Months Ended September 30, Three Months Ended June 30,Six Months Ended June 30,
2021202020212020 2022202120222021
RevenuesRevenues$28,974,471 $16,249,312 $84,823,476 $30,460,606 Revenues$991,839 $30,228 $1,032,056 $55,273 
Cost of revenues (exclusive of depreciation and amortization shown separately below)Cost of revenues (exclusive of depreciation and amortization shown separately below)28,061,498 15,324,914 79,319,678 28,598,874 Cost of revenues (exclusive of depreciation and amortization shown separately below)984,442 28,041 1,023,008 50,850 
Depreciation and amortization attributable to costs of revenuesDepreciation and amortization attributable to costs of revenues126,795 115,562 358,905 327,672 Depreciation and amortization attributable to costs of revenues3,122 116 3,236 228 
Gross profitGross profit786,178 808,836 5,144,893 1,534,060 Gross profit4,275 2,071 5,812 4,195 
Operating expenses:Operating expenses:Operating expenses:
Selling, general and administrative expensesSelling, general and administrative expenses4,944,719 1,832,067 12,111,951 6,044,050 Selling, general and administrative expenses36,641 4,177 45,423 7,035 
Depreciation and amortization attributable to operating expensesDepreciation and amortization attributable to operating expenses26,916 28,002 80,748 48,118 Depreciation and amortization attributable to operating expenses763 27 790 54 
Total operating expensesTotal operating expenses4,971,635 1,860,069 12,192,699 6,092,168 Total operating expenses37,404 4,204 46,213 7,089 
Loss from operationsLoss from operations(4,185,457)(1,051,233)(7,047,806)(4,558,108)Loss from operations(33,129)(2,133)(40,401)(2,894)
Other income (expense):Other income (expense):    Other income (expense):    
Interest incomeInterest income18 — 18 — 
Other incomeOther income152 4,222 625 4,223 
Other income— — 4,222,000 — 
Loss on sale of assets(3,351)(136,434)(1,927)(124,090)
Gain (loss) on change in value of derivative warrant liability11,907,413 256,587 (11,380,122)1,844,369 
Loss on change in value of derivative warrant liabilityLoss on change in value of derivative warrant liability(945)(21,508)(4,524)(23,288)
Interest expenseInterest expense(352,587)(97,157)(603,398)(291,933)Interest expense(47,722)(139)(51,952)(251)
Total other income (expense)11,551,475 22,996 (7,763,447)1,428,346 
Income (loss) from continuing operations before income tax7,366,018 (1,028,237)(14,811,253)(3,129,762)
Total other expenseTotal other expense(48,497)(17,425)(55,833)(19,316)
Loss from continuing operations before income taxLoss from continuing operations before income tax(81,626)(19,558)(96,234)(22,210)
Income tax benefit (expense)Income tax benefit (expense)— — — — Income tax benefit (expense)— — — — 
Income (loss) from continuing operations7,366,018 (1,028,237)(14,811,253)(3,129,762)
Income (loss) from discontinued operations, net of tax3,278,498 (926,933)12,464,445 (5,323,630)
Net income (loss)10,644,516 (1,955,170)(2,346,808)(8,453,392)
Net income (loss) attributable to non-controlling interest and redeemable non-controlling interest from continuing operations(115,131)136,334 510,618 155,322 
Net income (loss) attributable to non-controlling interest and redeemable non-controlling interest from discontinued operations2,400,141 343,881 7,183,268 35,449 
Net income (loss) attributable to Vertex Energy, Inc.8,359,506 (2,435,385)(10,040,694)(8,644,163)
Loss from continuing operationsLoss from continuing operations(81,626)(19,558)(96,234)(22,210)
Income from discontinued operations, net of tax (see note 16)Income from discontinued operations, net of tax (see note 16)17,844 3,601 31,643 9,219 
Net lossNet loss(63,782)(15,957)(64,591)(12,991)
Net income attributable to non-controlling interest and redeemable non-controlling interest from continuing operationsNet income attributable to non-controlling interest and redeemable non-controlling interest from continuing operations165 243 97 626 
Net income attributable to non-controlling interest and redeemable non-controlling interest from discontinued operationsNet income attributable to non-controlling interest and redeemable non-controlling interest from discontinued operations3,023 3,175 6,829 4,783 
Net loss attributable to Vertex Energy, Inc.Net loss attributable to Vertex Energy, Inc.(66,970)(19,375)(71,517)(18,400)
Accretion of redeemable noncontrolling interest to redemption value from continued operationsAccretion of redeemable noncontrolling interest to redemption value from continued operations(414,690)(1,287,559)(1,176,683)(13,635,797)Accretion of redeemable noncontrolling interest to redemption value from continued operations(6)(387)(428)(762)
Accretion of discount on Series B and B1 Preferred StockAccretion of discount on Series B and B1 Preferred Stock— (29,157)(507,282)(1,500,395)Accretion of discount on Series B and B1 Preferred Stock— (284)— (507)
Dividends on Series B and B1 Preferred StockDividends on Series B and B1 Preferred Stock— (591,777)258,138 (1,296,493)Dividends on Series B and B1 Preferred Stock— — — 258 
Net income (loss) available to shareholders from continuing operations7,066,459 (3,073,064)(16,747,698)(19,717,769)
Net income (loss) available to shareholders from discontinued operations, net of tax878,357 (1,270,814)5,281,177 (5,359,079)
Net income (loss) available to common shareholders$7,944,816 $(4,343,878)$(11,466,521)$(25,076,848)
Net loss attributable to shareholders from continuing operationsNet loss attributable to shareholders from continuing operations(81,797)(20,472)(96,759)(23,847)
F-3

Basic income (loss) per common share    
Continuing operations$0.12 $(0.07)$(0.31)$(0.43)
Discontinued operations, net of tax$0.01 $(0.03)$0.10 $(0.12)
Basic income (loss) per common share$0.13 $(0.10)$(0.21)$(0.55)
Diluted income (loss) per common share
Continuing operations$0.11 $(0.07)$(0.31)$(0.43)
Discontinued operations, net of tax$0.01 $(0.03)$0.10 $(0.12)
Diluted income (loss) per common share$0.12 $(0.10)$(0.21)$(0.55)
Shares used in computing earnings per share    
Basic61,348,508 45,554,841 53,963,617 45,494,235 
Diluted64,605,326 45,554,841 53,963,617 45,494,235 








Net income attributable to shareholders from discontinued operations, net of tax14,821 426 24,814 4,436 
Net loss attributable to common shareholders$(66,976)$(20,046)$(71,945)$(19,411)
Basic income (loss) per common share    
Continuing operations$(1.20)$(0.39)$(1.47)$(0.48)
Discontinued operations, net of tax0.22 0.01 0.38 0.09 
Basic income (loss) per common share$(0.98)$(0.38)$(1.09)$(0.39)
Diluted income (loss) per common share
Continuing operations$(1.20)$(0.39)$(1.47)$(0.48)
Discontinued operations, net of tax0.22 0.01 0.38 0.09 
Diluted income (loss) per common share$(0.98)$(0.38)$(1.09)$(0.39)
Shares used in computing earnings per share    
Basic67,923 52,683 65,660 50,210 
Diluted67,923 52,683 65,660 50,210 


































See accompanying notes to the consolidated financial statements.
F-4


VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020(in thousands, except par value)
(UNAUDITED)
Nine Months Ended September 30, 2021
Common StockSeries A PreferredSeries C Preferred
 Shares$0.001 ParShares$0.001 ParShares$0.001 ParAdditional Paid-In CapitalRetained EarningsNon-controlling InterestTotal Equity
Balance on January 1, 202145,554,841 $45,555 419,859 $420 — $— $94,569,674 $(90,008,778)$1,317,878 $5,924,749 
Exercise of options22,992 23 — — — — (23)— — — 
Exercise of B1 warrants1,079,753 1,080 — — — — 2,756,877 — — 2,757,957 
Exchanges of Series B Preferred stock to common2,359,494 2,359 — — — — 4,114,570 630,321 — 4,747,250 
Share based compensation expense— — — — — — 150,514 — — 150,514 
Conversion of Series B Preferred stock to common638,224 638 — — — — 1,977,856 — — 1,978,494 
Conversion of Series B1 Preferred stock to common2,087,195 2,087 — — — — 3,253,937 — — 3,256,024 
Dividends on Series B and B1— — — — — — — (372,183)— (372,183)
Accretion of discount on Series B and B1— — — — — — — (223,727)— (223,727)
Accretion of redeemable non-controlling interest to redemption value— — — — — — — (373,748)— (373,748)
Net income— — — — — — — 974,369 1,990,969 2,965,338 
Less: amount attributable to redeemable non-controlling interest— — — — — — — — (1,542,402)(1,542,402)
Balance on March 31, 202151,742,499 $51,742 419,859 $420 — $— $106,823,405 $(89,373,746)$1,766,445 $19,268,266 
Exercise of options to common505,376 505 — — — — 229,007 — — 229,512 
Exercise of options to common- unissued— — — — — — 474,866 — — 474,866 
Leverage Lubricants contribution— — — — — — — — (13,491)(13,491)
Exercise of B1 warrants156,792 157 — — — — 1,634,409 — — 1,634,566 
Exercise of B1 warrants-unissued— — — — — — 1,185,831 — — 1,185,831 
Share based compensation expense— — — — — — 205,039 — — 205,039 
Conversion of Series A Preferred stock to common28,257 28 (28,257)(28)— — — — — — 
Conversion of Series B Preferred stock to common1,841,406 1,842 — — — — 5,706,517 — — 5,708,359 
Conversion of Series B Preferred stock to common-unissued— — — — — — 759,983 — — 759,983 
F-5

Conversion of Series B1 Preferred stock to common5,634,889 5,635 — — — — 8,784,782 — — 8,790,417 
Accretion of discount on Series B and B1— — — — — — — (283,555)— (283,555)
Accretion of redeemable non-controlling interest to redemption value— — — — — — — (388,245)— (388,245)
Net loss— — — — — — — (19,374,569)3,417,907 (15,956,662)
Less: amount attributable to redeemable non-controlling interest— — — — — — — — (3,111,743)(3,111,743)
Balance on June 30, 202159,909,219 $59,909 391,602 $392 — $— $125,803,839 $(109,420,115)$2,059,118 $18,503,143 
Exercise of options to common1,267,472 1,268 — — 1,481,119 — — 1,482,387 
Exercise of options to common- unissued— — — — — — 2,925 — — 2,925 
Exercise of B1 warrants1,575,918 1,576 — — — — 9,361,053 — — 9,362,629 
Conversion of Series B Preferred stock to common245,156 245 — — — — (245)— — — 
Conversion of Series A Preferred stock to common6,001 6 (6,001)(6)— — — — — — 
Leverage Lubricants contribution— — — — — — — — 2,260 2,260 
Distribution from VRM LA— — — — — — — — (169,368)(169,368)
Share based compensation expense— — — — — — 257,073 — — 257,073 
Accretion of redeemable non-controlling interest to redemption value— — — — — — — (414,690)— (414,690)
Net loss— — — — — — 8,359,506 2,285,010 10,644,516 
Less: amount attributable to redeemable non-controlling interest— — — — — — — — $(2,328,905)$(2,328,905)
Balance on September 30, 202163,003,766 $63,004 385,601 $386 $— $— $136,905,764 $(101,475,299)$1,848,115 $37,341,970 
Nine Months Ended September 30, 2020
Common StockSeries A PreferredSeries C Preferred
 Shares$0.001 ParShares$0.001 ParShares$0.001 ParAdditional Paid-In CapitalRetained EarningsNon-controlling InterestTotal Equity
Balance on January 1, 202043,395,563 $43,396 419,859 $420 — $— $81,527,351 $(59,246,514)$777,373 $23,102,026 
Purchase of shares of consolidated subsidiary— — — — — — (71,171)— — (71,171)
Share based compensation expense— — — — — — 163,269 — — 163,269 
Adjustment of carrying amount of non-controlling interest— — — — — — 9,091,068 — — 9,091,068 
F-6

Conversion of Series B1 Preferred stock to common2,159,278 2,159 — — — — 3,366,315 — — 3,368,474 
Dividends on Series B and B1— — — — — — — (344,499)— (344,499)
Accretion of discount on Series B and B1— — — — — — — (932,003)— (932,003)
Accretion of redeemable non-controlling interest to redemption value— — — — — — — (10,966,349)— (10,966,349)
Net income— — — — — — — 2,788,860 (398,609)2,390,251 
Less: amount attributable to redeemable non-controlling interest— — — — — — — — 517,877 517,877 
Balance on March 31, 202045,554,841 $45,555 419,859 $420 — $— $94,076,832 $(68,700,505)$896,641 $26,318,943 
Share based compensation expense— — — — — — 156,539 — — 156,539 
Dividends on Series B and B1— — — — — — — (360,217)— (360,217)
Accretion of discount on Series B and B1— — — — — — — (539,235)— (539,235)
Accretion of redeemable non-controlling interest to redemption value— — — — — — — (1,381,889)— (1,381,889)
Net income (loss)(8,997,638)109,165 (8,888,473)
Less: amount attributable to redeemable non-controlling interest— — — — — — — — (127,044)(127,044)
Balance on June 30, 202045,554,841 $45,555 419,859 $420 — $— $94,233,371 $(79,979,484)$878,762 $15,178,624 
Share based compensation expense— — — — — — 171,149 — — 171,149 
Accretion of redeemable non-controlling interest to redemption value— — — — — — — (1,287,559)— (1,287,559)
Dividends on Series B and B1— — — — — — — (591,777)(591,777)
Accretion of discount on Series B and B1— — — — — — — (29,157)(29,157)
Net income— — — — — — — (2,435,385)480,215 (1,955,170)
Less: amount attributable to redeemable non-controlling interest— — — — — — — — (306,251)(306,251)
Balance on September 30, 202045,554,841 $45,555 419,859 $420 — $— $94,404,520 $(84,323,362)$1,052,726 $11,179,859 




Six Months Ended June 30, 2022
Common StockSeries A PreferredSeries C Preferred
 Shares$0.001 ParShares$0.001 ParShares$0.001 ParAdditional Paid-In CapitalRetained EarningsNon-controlling InterestTotal Equity
Balance on January 1, 202263,288 $63 386 $— — $— $138,620 $(110,614)$1,997 $30,066 
Exercise of options60 — — — — — 76 — — 76 
Exercise of warrants1,113 1 — — — — (1)— — — 
Share based compensation expense— — — — — — 250 — — 250 
Conversion of Series A Preferred stock to common5 — (5)— — — — — — — 
Reclassification of derivative liabilities— — — — — — 78,789 — — 78,789 
Accretion of redeemable non-controlling interest to redemption value— — — — — — — (422)— (422)
Net income (loss)— — — — — — — (4,547)3,739 (808)
Less: amount attributable to redeemable non-controlling interest— — — — — — — — (3,769)(3,769)
Balance on March 31, 202264,466 64 381 — — — 217,734 (115,583)1,967 104,182 
Exercise of options to common498 1 — — — — 553 — — 554 
Exercise of options to common- unissued— — — — — — 3 — — 3 
Distribution to noncontrolling shareholder— — — — — — — — (380)(380)
Adjustment of redeemable non controlling interest— — — — — — 29 (29)— — 
Conversion of Convertible Senior Notes to common10,164 10 — — — — 59,812 — — 59,822 
Share based compensation expense— — — — — — 324 — — 324 
Conversion of Series A Preferred stock to common381 1 (381)— — — — — — 1 
Accretion of redeemable non-controlling interest to redemption value— — — — — — — (6)— (6)
Net loss— — — — — — — (66,970)3,188 (63,782)
Less: amount attributable to redeemable non-controlling interest— — — — — — — — (3,023)(3,023)
Balance on June 30, 202275,509 $76 — $— — $— $278,455 $(182,588)$1,752 $97,695 




See accompanying notes to the consolidated financial statements.
F-7F-5

Six Months Ended June 30, 2021
Common StockSeries A PreferredSeries C Preferred
 Shares$0.001 ParShares$0.001 ParShares$0.001 ParAdditional Paid-In CapitalRetained EarningsNon-controlling InterestTotal Equity
Balance on January 1, 202145,555 $46 420 $— — $— $94,570 $(90,009)$1,318 $5,925 
Exercise of options23 — — — — — — — — — 
Exercise of B1 warrants1,080 1 — — — — 2,757 — — 2,758 
Exchanges of Series B Preferred stock to common2,359 2 — — — — 4,114 630 — 4,746 
Share based compensation expense— — — — — — 150 — — 150 
Conversion of Series B Preferred stock to common638 1 — — — — 1,978 — — 1,979 
Conversion of Series B1 Preferred stock to common2,087 2 — — — — 3,254 — — 3,256 
Dividends on Series B and B1— — — — — — — (372)— (372)
Accretion of discount on Series B and B1— — — — — — — (224)— (224)
Accretion of redeemable non-controlling interest to redemption value— — — — — — — (373)— (373)
Net income— — — — — — — 974 1,991 2,965 
Less: amount attributable to redeemable non-controlling interest— — — — — — — — (1,542)(1,542)
Balance on March 31, 202151,742 52 420 — — — 106,823 (89,374)1,767 19,268 
Exercise of options to common505 — — — — — 229 — — 229 
Exercise of options to common- unissued— — — — — — 475 — — 475 
Leverage Lubricants contribution— — — — — — — — (13)(13)
Exercise of B1 warrants157 — — — — — 1,634 — — 1,634 
Exercise of B1 warrants-unissued— — — — — — 1,186 — — 1,186 
Share based compensation expense— — — — — — 205 — — 205 
Conversion of Series A Preferred stock to common28 — (28)— — — — — — — 
Conversion of Series B Preferred stock to common1,842 2 — — — — 5,707 — — 5,709 
Conversion of Series B Preferred stock to common-unissued— — — — — — 760 — — 760 
Conversion of Series B1 Preferred stock to common5,635 6 — — — — 8,785 — — 8,791 
Accretion of discount on Series B and B1— — — — — — — (284)— (284)
Accretion of redeemable non-controlling interest to redemption value— — — — — — — (387)— (387)
Net loss— — — — — — — (19,375)3,418 (15,957)
Less: amount attributable to redeemable non-controlling interest— — — — — — — — (3,113)(3,113)
Balance on June 30, 202159,909 $60 392 $— — $— $125,804 $(109,420)$2,059 $18,503 

See accompanying notes to the consolidated financial statements.
F-6

VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (in thousands)
(UNAUDITED)

Nine Months Ended Six Months Ended
September 30,
2021		September 30,
2020		 June 30,
2022		June 30,
2021
Cash flows from operating activitiesCash flows from operating activities  Cash flows from operating activities  
Net income (loss) before adjustment for non-controlling interest$(2,346,808)$(8,453,392)
Income (loss) from discontinued operations, net of tax12,464,445 (5,323,630)
Income (loss) from continuing operations(14,811,253)(3,129,762)
Adjustments to reconcile net loss from continuing operations to cash
used in operating activities, net of acquisitions		  
Net lossNet loss$(64,591)$(12,991)
Income from discontinued operations, net of taxIncome from discontinued operations, net of tax31,643 9,219 
Loss from continuing operationsLoss from continuing operations(96,234)(22,210)
Adjustments to reconcile net loss from continuing operations to cash provided by
(used in) operating activities, net of acquisitions		 Adjustments to reconcile net loss from continuing operations to cash provided by
(used in) operating activities, net of acquisitions		  
Stock based compensation expenseStock based compensation expense612,626 490,958 Stock based compensation expense574 356 
Depreciation and amortizationDepreciation and amortization439,653 375,790 Depreciation and amortization4,026 282 
Gain on forgiveness of debtGain on forgiveness of debt(4,222,000)— Gain on forgiveness of debt— (4,222)
Loss on sale of assets1,927 124,090 
Gain on sale of assetsGain on sale of assets(82)(1)
Provision for environment clean upProvision for environment clean up1,428 — 
Bad debt expense629,791 (9,875)
Increase (decrease) in fair value of derivative warrant liability11,380,122 (1,844,369)
Loss (gain) on commodity derivative contracts2,204,606 (4,489,355)
Increase (reduction) of allowance for bad debtIncrease (reduction) of allowance for bad debt(12)620 
Increase in fair value of derivative warrant liabilityIncrease in fair value of derivative warrant liability4,524 23,288 
Loss on commodity derivative contracts Loss on commodity derivative contracts93,745 1,925 
Net cash settlements on commodity derivatives Net cash settlements on commodity derivatives(1,998,707)5,484,734  Net cash settlements on commodity derivatives(64,814)(1,961)
Amortization of debt discount and deferred costs Amortization of debt discount and deferred costs37,500 47,826  Amortization of debt discount and deferred costs40,000 — 
Changes in operating assets and liabilities, net of effect of acquisition
Changes in operating assets and liabilities, net of acquisitionChanges in operating assets and liabilities, net of acquisition
Accounts receivable and other receivablesAccounts receivable and other receivables(1,513,058)206,352 Accounts receivable and other receivables(85,545)(2,489)
InventoryInventory(911,980)1,008,343 Inventory(67,796)(704)
Prepaid expenses and other current assetsPrepaid expenses and other current assets(3,232,253)(1,186,023)Prepaid expenses and other current assets(12,614)1,641 
Accounts payableAccounts payable3,184,965 1,729,129 Accounts payable46,399 2,890 
Accrued expensesAccrued expenses1,203,283 (1,207,230)Accrued expenses26,891 (217)
Other assets Other assets(699,999)(581,534) Other assets(50)(89)
Net cash used by operating activities(7,694,777)(2,980,926)
Net cash used in operating activities from continuing operationsNet cash used in operating activities from continuing operations(109,560)(891)
Cash flows from investing activitiesCash flows from investing activities  Cash flows from investing activities  
Acquisition of business, net of cashAcquisition of business, net of cash2,058 (1,822,690)Acquisition of business, net of cash(227,525)2 
Internally developed software— (49,229)
Software purchaseSoftware purchase(106)— 
Purchase of fixed assetsPurchase of fixed assets(1,060,039)(642,186)Purchase of fixed assets(1,159)(861)
Deposit for Refinery Purchase(10,000,000)— 
Proceeds from sale of fixed assetsProceeds from sale of fixed assets74,991 36,465 Proceeds from sale of fixed assets157 75 
Net cash used in investing activities(10,982,990)(2,477,640)
Net cash used in investing activities from continuing operationsNet cash used in investing activities from continuing operations(228,633)(784)
Cash flows from financing activitiesCash flows from financing activities  Cash flows from financing activities  
Payments on finance leasesPayments on finance leases(91,893)(93,438)Payments on finance leases(107)(134)
Proceeds from exercise of options and warrants to common stockProceeds from exercise of options and warrants to common stock6,492,759 — Proceeds from exercise of options and warrants to common stock632 2,829 
Distributions to noncontrolling interestDistributions to noncontrolling interest(169,368)— Distributions to noncontrolling interest(380)— 
Contributions received from noncontrolling interest and redeemable noncontrolling interest2,260 21,000,000 
Line of credit (payments) proceeds, net(166,129)— 
Proceeds from note payable (includes proceeds from PPP note)10,078,115 7,992,346 
Net borrowings on inventory financing agreementsNet borrowings on inventory financing agreements172,607 — 
Line of credit proceeds, netLine of credit proceeds, net— 1,032 
Redemption of noncontrolling interestRedemption of noncontrolling interest(50,666)— 
Proceeds from note payable, netProceeds from note payable, net165,718 — 
Payments on note payablePayments on note payable(3,778,589)(12,601,976)Payments on note payable(7,716)(1,837)
Net cash provided by financing activities12,367,155 16,296,932 
Net cash provided by financing activities from continuing operationsNet cash provided by financing activities from continuing operations280,088 1,890 
Discontinued operations:Discontinued operations:
Net cash provided by operating activitiesNet cash provided by operating activities21,366 5,936 
Net cash used in investing activitiesNet cash used in investing activities(1,578)(1,961)
Net cash used in financing activitiesNet cash used in financing activities(296)(118)
Net cash provided by discontinued operationsNet cash provided by discontinued operations19,492 3,857 
Net change in cash, cash equivalents and restricted cashNet change in cash, cash equivalents and restricted cash(38,613)4,072 
Cash, cash equivalents, and restricted cash at beginning of the periodCash, cash equivalents, and restricted cash at beginning of the period136,627 10,995 
Cash, cash equivalents, and restricted cash at end of periodCash, cash equivalents, and restricted cash at end of period$98,014 $15,067 
F-8F-7

 Nine Months Ended
 September 30,
2021		September 30,
2020
Discontinued operations:
Net cash provided (used) by operation activities11,014,236 4,370,152 
Net cash used in investing activities(3,168,865)(3,527,980)
Net cash provided (used) by financing activities(317,226)(227,259)
Net cash provided by discontinued operations7,528,145 614,913 
Net change in cash, cash equivalents and restricted cash1,217,533 11,453,279 
Cash, cash equivalents, and restricted cash at beginning of the period10,995,169 4,199,825 
Cash, cash equivalents, and restricted cash at end of period$12,212,702 $15,653,104 

SUPPLEMENTAL INFORMATION  
Cash paid for interest$843,523 $812,887 
Cash paid for taxes$— $— 
NON-CASH INVESTING AND FINANCING TRANSACTIONS  
Exchanges of Series B Preferred Stock into common stock$4,747,250 $— 
Conversion of Series A Preferred Stock into common stock$34 $— 
Conversion of Series B Preferred Stock into common stock$8,446,836 $— 
Conversion of Series B1 Preferred Stock into common stock$12,046,441 $3,368,474 
Accretion of discount on Series B and B1 Preferred Stock$507,282 $1,500,395 
Dividends-in-kind accrued on Series B and B1 Preferred Stock$(258,138)$1,296,493 
Option exercised$650 $— 
Equipment acquired under finance leases$— $1,017,638 
Initial adjustment of carrying amount redeemable noncontrolling interests$— $9,091,068 
Accretion of redeemable noncontrolling interest to redemption value$1,176,683 $13,635,797 

SUPPLEMENTAL INFORMATION  
Cash paid for interest$11,438 $483 
Cash paid for taxes$— $— 
NON-CASH INVESTING AND FINANCING TRANSACTIONS  
Equity component of the convertible note issuance$78,789 $— 
Conversion of Series B Preferred Stock into common stock$— $8,447 
Conversion of Series B1 Preferred Stock into common stock$— $12,046 
Exchanges of Series B Preferred Stock into common stock$— $4,747 
Accretion of discount on Series B and B1 Preferred Stock$— $507 
Dividends-in-kind accrued on Series B and B1 Preferred Stock$— $(258)
Conversion of Convertible Senior Notes to common stock$59,822 $— 
Equipment acquired (disposed) under leases$45,096 $174 
Accretion of redeemable noncontrolling interest to redemption value$428 $762 

























F-9












See accompanying notes to the consolidated financial statements.
F-10F-8

VERTEX ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20212022
(UNAUDITED)

NOTE 1.  BASIS OF PRESENTATION AND NATURE OF OPERATIONS

The accompanying unaudited interim consolidated financial statements of Vertex Energy, Inc. (the "Company""Company" or "Vertex Energy""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 for the year ended December 31, 2020,2021, contained in the Company's annual report, as filed with the SEC on Form 10-K on March 9, 202111, 2022 (the "Form 10-K"). The December 31, 20202021 balance sheet was derived from the audited financial statements of our 20202021 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. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the audited consolidated financial statements for the most recent fiscal year 20202021 as reported in Form 10-K have been omitted.

UMO Business Sale

On June 29, 2021, Vertex Energy entered into an Asset Purchase Agreement (the “Sale Agreement”) with Vertex Energy Operating, LLC, Vertex’s wholly-owned subsidiary (“Vertex Operating”) and Vertex Refining LA, LLC (“Vertex LA”) (wholly-owned by Vertex Operating), Vertex Refining OH, LLC (“Vertex OHOhio”) (wholly-owned by HPRM, LLC, of which we ownVertex Energy currently owns a 35%100% interest)(“HPRM”), Cedar Marine Terminals, L.P. (“CMT”) (indirectly wholly-owned), and H & H Oil, L.P. (“H&H”) (indirectly wholly-owned)(collectively, the “Vertex Entities”, and together, Vertex, Vertex Operating and the Vertex Entities, the “Seller Parties”), as sellers, and Safety-Kleen Systems, Inc., as purchaser (“Safety-Kleen”).

Pursuant to the Sale Agreement, Safety-Kleenthe Company agreed to acquire the Company’s Marrero used oil refinery in Louisiana (currently owned by Vertex LA, which entity is indirectly wholly-owned); our Columbus, Ohio, Heartland used oil refinery in Ohio (currently owned by Vertex OH, of which we indirectly own a 35% interest and will acquire the remaining 65% interest prior to Closing); our H&H and Heartlandsell its used motor oil (“UMO”(UMO) business (the "UMO Business") collections business; our oil filters and absorbent materials recycling facility in East Texas; and the rights CMT holds to a lease on the Cedar Marine terminal in Baytown, Texas, including the sale of the operations conducted at the various properties subject to the Sale Agreement (discussed below), which primarily consist of (1) operating our Marrero, Louisiana and Columbus, Ohio re-refineries and the Cedar Marine terminal, and in connection therewith, acquiring used lubricating oils from commercial and retail establishments and re-refining such oils into processed oils and other products for the distribution, supply and sale to end-customers, (2) collecting and processing used motor oil, oil filters, and related automotive waste streams and (3) the provision of related products and support services (collectively, the “UMO Business” and the assets and operations associated therewith, the “Purchased Assets”).

Safety-Kleen.
During the third quarter of 2021, the Company classified the UMO businessBusiness as held for sale based on management’s intention and shareholdersthe Company’s shareholders’ approval to sell this business, which is expected to occur in the first half of 2022.business. The Company’s historical financial statements have been revised to present the operating results of the UMO business as discontinued operations. The results of operations of this business are presented as “Income (loss) from discontinued operations” in the statement of operations and the related cash flows of this business have been reclassified to discontinued operations for all periods presented. The assets and liabilities of the UMO businessBusiness have been reclassified to “Assets held for sale” and “Liabilities held for sale”, respectively, in the consolidated balance sheet for all periods presented.

Novel Coronavirus (COVID-19)

In December 2019, a novel strain of coronavirus, which causes the infectious disease known as COVID-19, was reported in Wuhan, China. The World Health Organization declared COVID-19 a “Public Health Emergency of International Concern” onOn January 30, 2020 and a global pandemic on March 11, 2020. In March and April, many U.S. states and local jurisdictions began issuing ‘stay-at-home’ orders, which have mainly been terminated or expired as24, 2022, each of the date of this report. Notwithstanding such ‘stay-at-home’ orders, our operationsCompany and its subsidiaries that were forparty to the most part deemedSale Agreement and Safety-Kleen, entered into an essential business under applicable governmental orders based onAsset Purchase Termination Agreement (the “Termination Agreement”) pursuant to which the critical natureSale Agreement was terminated. Pursuant to the terms of the products we offer.

F-11

We sell products and services primarily inTermination Agreement, the U.S. domestic oil and gas commodity markets. ThroughoutCompany agreed to pay a termination fee to Safety-Kleen of $3 million. Immediately upon receipt of such termination fee, which the first quarter of 2020,Company paid simultaneously with the industry experienced multiple factors which lowered both the demand for, and prices of, oil and gas. First, the COVID-19 pandemic lowered global demand for hydrocarbons, as social distancing and travel restrictions were implemented across the world. Second, the lifting of Organizationexecution of the Petroleum Exporting Countries (OPEC)+ supply curtailments,Termination Agreement, the Sale Agreement was terminated and the associated increase in productionis of oil, drove the global supply of hydrocarbons higher through the first quarter of 2020. As a result of both dynamics, prices for hydrocarbons declined 67% from peak prices within the first quarter of 2020. While global gross domestic product (GDP) growth was impacted by COVID-19 during 2020no further force or effect, and into the first, second and third quarters of 2021, we expect GDPwith no further liability to continue to be impacted globally for the remainder of 2021, as a resultany party thereunder, other than certain confidentiality obligations of the COVID-19 pandemic. As a result, we expect oilparties and gas related markets will continue to experience significant volatility duringongoing liability for any willful or intentional breach of, or non-compliance with, the remainder of 2021. Our goal through this downturn has been to remain disciplined in allocating capital and to focus on liquidity and cash preservation. We are taking the necessary actions to right-size the business for expected activity levels.

As a result of the impact of the COVID-19 outbreak, some of our feedstock suppliers have permanently or temporarily closed their businesses, and/or have experienced a decreased demand for services. As a result of the above, and due to prior ‘stay-at-home’ and other social distancing orders, as well as the decline in U.S. travel caused by COVID-19, we saw a significant decline in the volume of feedstocks (specifically used oil) that we were able to collect during 2020, and therefore process through our facilities. A future prolonged economic slowdown, renewed periods of social quarantine (imposed by the government or otherwise), or another prolonged period of decreased travel due to COVID-19 or the responses thereto, similar to those experienced during 2020, will likely have a material negative adverse impact on our ability to produce products, and consequently our revenues and results of operations.

Sale Agreement.
The full extent ofCompany is still exploring opportunities to sell the impact of COVID-19 on our businessUMO Business and operations currently cannot be estimated andbelieves it will depend onsell such assets within a number of factors including the scope and duration of the global pandemic, the efficacy of, and the willingness of the general public to obtain vaccines and boosters, further mutations of the virus, as well as the rate of transmission of new COVID-19 variants.
Currently we believe that we have sufficient cash on hand and will generate sufficient cash through operations to support our operations for the foreseeable future; however, we will continue to evaluate our business operations based on new information as it becomes available and will make changes that we consider necessary in light of any new developments regarding the pandemic.

year.
NOTE 2.  SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the same such amounts shown in the consolidated statements of cash flows.flows (in thousands).
September 30, 2021December 31, 2020
Cash and cash equivalents$12,112,577 $10,895,044 
Restricted cash100,125 100,125 
Cash and cash equivalents and restricted cash as shown in the consolidated statements of cash flows$12,212,702 $10,995,169 
F-9

June 30, 2022December 31, 2021
Cash and cash equivalents$97,914 $36,130 
Restricted cash100 100,497 
Cash and cash equivalents and restricted cash as shown in the consolidated statements of cash flows$98,014 $136,627 

The Company has placed all the$100 thousand of restricted cash in a money market account, to serve as collateral for payment of a credit card. As of December 31, 2021, a total of $100 million of restricted cash was held in an escrow account in connection with the issuance of the convertible notes, which was released in conjunction with the purchase of the Mobile Refinery (defined below) on April 1, 2022.

Accounts Receivable
Accounts receivable represents amounts due from customers. Accounts receivable are recorded at invoiced amounts, net of reserves and allowances, do not bear interest and are not collateralized. 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.
Receivable balances greater than 90 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 allowance was $1 million and $1 million at June 30, 2022 and December 31, 2021, respectively.
Inventory and Obligations Under Inventory Financing Agreements

Inventories of products consist of feedstocks, refined petroleum products and recovered ferrous and non-ferrous metalsmetals. Commodity inventories, excluding commodity inventories at the Mobile Refinery (defined and discussed below under “Note 14. Share Purchase, Subscription Agreements and Mobile Refinery Acquisition — Mobile Refinery Acquisition”), are reportedstated at the lower of cost or net realizable value. Cost is determinedvalue using the first-in, first-out (“first in, first out (FIFO) accounting method. Commodity inventories at the Mobile Refinery are stated at the lower of cost or net realizable value using the weighted average inventory accounting method. We value merchandise along with spare parts, materials, and supplies at average cost. Estimating the net realizable value of our inventory requires management to make assumptions about the timing of sales and the expected proceeds that will be realized for these sales.

All of the crude oil utilized at the Mobile Refinery is financed by Macquarie Energy North America Trading Inc. ("Macquarie") under procurement contracts. The crude oil remains in the legal title of Macquarie and is stored in our storage tanks governed by a storage agreement. Legal title to the crude oil passes to us at the tank outlet. After processing, Macquarie takes title to the refined products stored in our storage tanks until they are sold to our retail locations or to third parties. We record the inventory owned by Macquarie on our behalf as inventory with a corresponding accrued liability on our balance sheet because we maintain the risk of loss until the refined products are sold to third parties and we have an obligation to repurchase it. The valuation of our repurchase obligation requires that we make estimates of the prices and differentials assuming settlement occurs at the end of the reporting period.

In connection with the consummation of the Mobile Acquisition (defined and discussed below under “FIFONote 14. Share Purchase, Subscription Agreements and Mobile Refinery Acquisition — Mobile Refinery Acquisition”) method., the Company became a party to a Supply and Offtake Agreement with Macquarie. Under this arrangement, the Company purchases crude oil supplied from third-party suppliers and Macquarie provides credit support for certain of these purchases. Macquarie holds title to all crude oil and refined products inventories, except for liquefied petroleum gases or sulfur, at all times and pledges such inventories, together with all receivables arising from the sales of these inventories. The Company reviews its inventory commoditiesvaluation of our terminal obligation requires that we make estimates of the prices and differentials for impairment whenever events or circumstances indicate that the value may not be recoverable.our then monthly forward purchase obligations.

Impairment of long-lived assets
F-12

The Company evaluates the carrying value and recoverability of its long-lived assets when circumstances warrant such evaluation by applying the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) regarding long-lived assets. It requires that long-livedevaluation. Long-lived assets beare 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
F-10

amount by which the carrying value exceeds the fair value. The Company determined that no long-lived asset impairment existed during the three and ninesix months ended SeptemberJune 30, 2022 and 2021.

Use of Estimates
The preparation of financial statements in conformity with U.S. GAAPgenerally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses. Actual results could differ from these estimates. Any effects on the business, financial position or results of operations from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.
Reclassification of Prior Year Presentation
Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications had no effect on the reported results of operations. 
Redeemable Noncontrolling Interests

As more fully described in “Note 14. Share Purchase and Subscription Agreements”, the Company is party to put/call option agreements with the holder of Vertex Refining Myrtle Grove LLC (“MG SPV”SPV”) and HPRM LLC, a Delaware limited liability company (“Heartland SPV”SPV”), which entities were formed as special purpose vehicles in connection with the transactions described in greater detail below, non-controlling interests. The put options permit MG SPV’sSPV's and Heartland SPV’sSPV's non-controlling interest holders, at any time on or after the earlier of (a) the fifth anniversary of the applicable closing date of such issuances and (ii) the occurrence of certain triggering events (an “MG Redemption”“MG Redemption” and “Heartland Redemption”"Heartland Redemption", as applicable) to require MG SPV and Heartland SPV to redeem the non-controlling interest from the holder of such interest. Per the agreements, the cash purchase price for such redeemed Class B Units (MG SPV) and Class A Units (Heartland SPV) is the greater of (y) the fair market value of such units (without discount for illiquidity, minority status or otherwise) as determined by a qualified third party agreed to in writing by a majority of the holders seeking an MG SPV Redemption and Heartland SPV Redemption and Vertex Operating, LLC, our wholly-owned subsidiary (“Vertex Operating”) (provided that Vertex Operating still owns Class A Units (as to MG SPV) or Class B Units (as to Heartland SPV) on such date, as applicable) and (z) the original per-unit price for such Class B Units/Class A Units plus any unpaid Class A/Class B preference. The preference is defined as the greater of (A) the aggregate unpaid “Class B/Class A Yield” (equal to an annual return of 22.5% per annum) and (B) an amount equal to fifty percent (50%) of the aggregate capital invested by the Class B/Class A Unit holders. The agreements also permit the Company to acquire the non-controlling interest from the holders thereof upon certain events. Applicable accounting guidance requires an equity instrument that is redeemable for cash or other assets to be classified outside of permanent equity if it is redeemable (a) at a fixed or determinable price on a fixed or determinable date, (b) at the option of the holder, or (c) upon the occurrence of an event that is not solely within the control of the issuer. Based on this guidance, the Company has classified the MG SPV and Heartland SPV non-controlling interests between the liabilities and equity sections of the accompanying September 30, 2021 and December 31, 2020 consolidated balance sheets. If an equity instrument subject to the guidance is currently redeemable, the instrument is adjusted to its maximum redemption amount at the balance sheet date. If the equity instrument subject to the guidance is not currently redeemable but it is probable that the equity instrument will become redeemable (for example, when the redemption depends solely on the passage of time), the guidance permits either of the following measurement methods: (a) accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument using an appropriate methodology, or (b) recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The amount presented in temporary equity should be no less than the initial amount reported in temporary equity for the instrument. Because the MG SPV and Heartland SPV equity instruments will become redeemable solely based on the passage of time, the Company determined that it is probable that the MG SPV and Heartland SPV equity instruments will become redeemable. The Company has elected to apply the second of the two measurement options described above. An adjustment to the carrying amount of a non-controlling interest from the application of the above guidance does not impact net income or loss in the consolidated financial statements. Rather, such adjustments are treated as equity transactions.

transactions and adjustment to net loss in determining net loss available to common stockholders for the purpose of calculating earnings per share. On April 1, 2022, the Company redeemed the non-controlling interest holder's interest of MG SPV, and on May 26, 2022, the Company redeemed the non-controlling interest holder's interest of Heartland SPV.
Variable Interest Entities

F-13

The Company accounts for the investments it makes in certain legal entitiesdetermines whether each business entity in which it has equity investors do not have (1)interests, debt, or other investments constitutes a variable interest entity (“VIE”) based on consideration of the following criteria: (i) the entity lacks sufficient equity at risk for the legal entityat-risk to finance its activities without additional subordinated financial support, (2)or (ii) equity holders, as a group, (the holderslack the characteristics of the equity investment at risk), either the power, through voting or similar rights, to direct the activities of the legal entity that most significantly impacts the entity’s economic performance, or (3) the obligation to absorb the expected losses of the legal entity or the right to receive expected residual returns of the legal entity. These certain legal entities are referred to as “variable interest entities” or “VIEs.”
The Company consolidates the results of any such entity in which it determines that it has a controlling financial interest. The Company has a “controlling financial interest” in suchinstrument.
If an entity ifis determined to be a VIE, the Company then determines whether to consolidate the entity as the primary beneficiary. The primary beneficiary has both (i) the power to direct the activities that most significantly affectimpact the VIE’s economic performance, and (ii) the obligation to absorb the losses of the VIE or the right to receive benefits from the VIE that could potentially be potentially significant to the VIE. On a quarterly basis, the Company reassesses whether it has a controlling financial interest in any investments it has in these certain legal entities.entity.
F-11

Assets and Liabilities Held for Sale

The Company classifies disposal groups as held for sale in the period in which all of the following criteria are met: (1) management, having the authority to approve the action, commits to a plan to sell the disposal group; (2) the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups; (3) an active program to locate a buyer or buyers and other actions required to complete the plan to sell the disposal group have been initiated; (4) the sale of the disposal group is probable, and transfer of the disposal group is expected to qualify for recognition as a completed sale, within one year, except if events or circumstances beyond the Company’s control extend the period of time required to sell the disposal group beyond one year; (5) the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
A disposal group that is classified as held for sale is initially measured at the lower of its carrying amount or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. No loss was recognized during the periods presented.
Subsequent changes in the fair value of a disposal group less any costs to sell are reported as an adjustment to the carrying amount of the disposal group, as long as the new carrying amount does not exceed the carrying amount of the asset at the time it was initially classified as held for sale. Upon determining that a disposal group meets the criteria to be classified as held for sale, the Company reports the assets and liabilities of the disposal group for all periods presented in the line items assets held for sale and liabilities held for sale, respectively, in the consolidated balance sheets.
Discontinued Operations

The results of operations of a component of the Company that can be clearly distinguished, operationally and for financial reporting purposes, that either has been disposed of or is classified as held for sale is reported in discontinued operations, if the disposal represents a strategic shift that has, or will have, a major effect on the Company’s operations and financial results.
Revenue Recognition
NOTEOur revenues are generated through the sale of refined petroleum products and terminalling and storage services. We recognize revenue from product sales at prevailing market rates at the point in time in which the customer obtains control of the product. Terminalling and storage revenues are recognized as services are rendered, and our performance obligations have been satisfied once the product has been transferred back to the customer. These services are short-term in nature, and the service fees charged to our customers are at prevailing market rates. The timing of our revenue recognition may differ from the timing of payment from our customers. A receivable is recorded when revenue is recognized prior to payment and we have an unconditional right to payment.
Environmental Matters
We accrue for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. The liability represents the expected costs of remediating contaminated soil and groundwater at the site. Costs of future expenditures for environmental remediation obligations are discounted to their present value.

Recently adopted accounting pronouncements
In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity to simplify the accounting for convertible debt and other equity-linked instruments. The new guidance simplifies the accounting for convertible instruments by eliminating the cash conversion and beneficial conversion feature models used to separately account for embedded conversion features as a component of equity. Instead, the entity will account for the convertible debt or convertible preferred stock securities as a single unit of account, unless the conversion feature requires bifurcation and recognition as derivatives. Additionally, the guidance requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of potential share settlement for instruments that may be settled in cash or shares. The Company adopted this new guidance as of January 1, 2022, under the modified retrospective method.
F-12

NOTE 3. CONCENTRATIONS, SIGNIFICANT CUSTOMERS, COMMITMENTS AND CONTINGENCIES
 
At SeptemberJune 30, 20212022 and 20202021 and for each of the ninesix months then ended, the Company’s revenues and receivables were comprised of the following customer concentrations:
 Nine Months Ended September 30, 2021Nine Months Ended
September 30, 2020
% of
Revenues		% of
Receivables		% of
Revenues		% of
Receivables
Customer 122%17%18%16%
Customer 216%13%9%11%
Customer 314%11%7%—%
Customer 413%14%15%—%
F-14

As of and for the Six Months Ended
 June 30, 2022June 30, 2021
% of
Revenues		% of
Receivables		% of
Revenues		% of
Receivables
Customer 142%1%21%14%
Customer 217%18%17%20%
Customer 39%—%16%10%

For each of the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, the Company’s segment revenues were comprised of the following customer concentrations:
% of Revenue by Segment% Revenue by Segment% of Revenue by Segment% Revenue by Segment
Nine Months Ended September 30, 2021Nine Months Ended September 30, 2020Six Months Ended June 30, 2022Six Months Ended June 30, 2021
Black OilRefiningRecoveryBlack OilRefiningRecoveryBlack OilRefiningRecoveryBlack OilRefiningRecovery
Customer 1Customer 1—%27%—%—%25%—%Customer 1—%43%—%—%27%—%
Customer 2Customer 2—%20%—%—%13%—%Customer 2—%18%—%—%—%78%
Customer 3Customer 3—%—%73%—%—%28%Customer 3—%9%—%—%20%—%
Customer 4—%16%—%—%20%—%

The Company had one and no vendorsvendor that represented 10%70% and 59% of total purchases or payables for the ninesix months ended SeptemberJune 30, 2022 and 2021, respectively, and 2020,73% and 69% of total payables at June 30, 2022 and 2021, respectively.

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, access to capital, and the quantities of petroleum-based products that the Company can economically produce.

Litigation
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. We are currently party to the following material litigation proceedings:
Vertex Refining LA, LLC (“Vertex Refining LA”), the wholly-owned subsidiary of Vertex Operating was named as a defendant, along with numerous other parties, in 5five lawsuits filed on or about February 12, 2016, in the Second Parish Court for the Parish of Jefferson, State of Louisiana, Case No. 121749, by Russell Doucet et. Al.al., Case No. 121750, by Kendra Cannon et. Al.al., Case No. 121751, by Lashawn Jones et. Al.al., Case No. 121752, by Joan Strauss et. Al.al. and Case No. 121753, by Donna Allen et. Al.al. The suits relate to alleged noxious and harmful emissions from our facility located in Marrero, Louisiana. The suits seek damages for physical and emotional injuries, pain and suffering, medical expenses and deprivation of the use and enjoyment of plaintiffs’ homes. We intend to vigorously defend ourselves and oppose the relief sought in the complaints, provided that at this stage of the litigation, the Company has no basis for determining whether there is any likelihood of material loss associated with the claims and/or the potential and/or the outcome of the litigation.

On November 17, 2020, Vertex filed a lawsuit against Penthol LLC (“Penthol”Penthol”) in the 61st Judicial District Court of Harris County, Texas, Cause No. 2020-65269,, for breach of contract and simultaneously sought a Temporary Restraining Order and Temporary Injunction enjoining Penthol from, among other things, circumventing Vertex in violation of the terms of that certain June 5, 2016 Sales Representative and Marketing Agreement entered into between Vertex Operating and Penthol (the “Penthol Agreement”). Vertex is seekingseeks permanent injunctive relief, damages, attorney’s fees, costs of court, and all other relief to which it may be entitled. This lawsuit is pending. On February 8, 2021, Penthol filed a complaint against Vertex Operating in the United States District Court for the Southern District of Texas; Civil Action No. 4:21-CV-416 (the “Complaint”). Penthol’s Complaint sought damages from Vertex Operating for alleged violations of the Sherman Act, breach of contract, business disparagement, and misappropriation of trade secrets under the Defend Trade Secrets Act and Texas Uniform Trade Secrets Act. On August 12, 2021, United States District Judge Andrew S. Hanen dismissed Penthol’s Sherman Act claim. Penthol’s remaining claims are pending. Penthol is seeking a declaration that Vertex has materially breached the agreement; an injunction that prohibits Vertex from using Penthol’s alleged trade secrets and requires Vertex to return any of Penthol’s alleged trade secrets; awards of actual, consequential and exemplary damages, attorneys’ fees and costs of court; and other relief to which it may be entitled. Vertex
F-13

denies Penthol’s allegations in the Complaint. Vertex contends Penthol’s claims are completely without merit, and that Penthol’s termination of the Penthol Agreement was wrongful and resulted in damages to Vertex that it is seeking to recover in the Harris County lawsuit. Further, Vertex contends that Penthol’s the termination of the Penthol Agreement constitutes a breach by Penthol under the express terms of the Penthol Agreement, and that Vertex remains entitled to payment of the amounts due Vertex under the Penthol Agreement for unpaid commissions and unpaid performance incentives. Vertex disputes Penthol’s allegations of wrongdoing and intends to vigorously defend itself in this matter.
F-15


 On February 26, 2021, Penthol filed its second amended answer and counterclaims, alleging that Vertex improperly terminated the Penthol Agreement and that Vertex tortiously interfered with Penthol’s prospective and existing business relationships. Vertex denies these allegations and is vigorously defending them. This case is pending but is currently set for trial in February 2023.
We cannot predict the impact (if any) that any of the matters described above may have on our business, results of operations, financial position, or cash flows. Because of the inherent uncertainties of such matters, including the early stage and lack of specific damage claims in the Penthol matter, we cannot estimate the range of possible losses from them (except as otherwise indicated).

Related Parties
From time to time, the Company consults Ruddy Gregory, PLLC., a related party law firm of which James Gregory, a member of the Board of Directors, serves as a partner. During the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, we paid $564,175 and $56,971,$382 thousand and $134 thousand, respectively, to such law firm for services rendered, ,whichwhich services includes the drafting and negotiation of, and due diligence associated with, the Sale Agreement and Refinery Purchase Agreement (defined and discussed below), and related transactions.

Leverage Lubricants, LLC
On May 1, 2021, Vertex Energy Operating, LLC obtained a 51% membership interest in Leverage Lubricants, LLC. Leverage Lubricants is intransactions, including the business of wholesale specialty blending of lubricantsLoan and warehousing and distribution of petroleum based products and related services.

May 2021 Purchase Agreement
On May 26, 2021, Vertex Operating, entered into a Sale and Purchase Agreement (the “Refinery Purchase Agreement”) with Equilon Enterprises LLC d/b/a Shell Oil Products US and/or Shell Chemical LP and/or Shell Oil Company (“Seller”), to purchase the Seller’s Mobile, Alabama refinery, certain real property associated therewith, and related assets, including all inventory at the refinery as of closing and certain equipment, rolling stock, and other personal property associated with the Mobile refinery (collectively, the “Mobile Refinery” and the “Mobile Acquisition”). The Mobile Refinery is located on an 800+ acre site in the city and county of Mobile, Alabama. The 91,000 barrel-per-day nameplate capacity Mobile Refinery is capable of sourcing a flexible mix of cost-advantaged light-sweet domestic and international feedstocks. Approximately 70% of the refinery’s current annual production is distillate, gasoline and jet fuel, with the remainder being vacuum gas oil, liquefied petroleum gas (LPG) and other products. The facility distributes its finished product across the southeastern United States through a high-capacity truck rack, together with deep and shallow water distribution points capable of supplying waterborne vessels.

In addition to refining assets, the Mobile Acquisition will include the acquisition by the Company of approximately 3.2 million barrels of inventory and product storage, logistics and distribution assets, together with more than 800+ acres of developed and undeveloped land.

The initial base purchase price for the assets is $75 million. In addition, we will also pay for the hydrocarbon inventory located at the Mobile Refinery, as valued at closing, and the purchase price is subject to other customary purchase price adjustments and reimbursement for certain capital expenditures, resulting in an expected total purchase price of approximately $86.7 million.

In connection with Vertex Operating’s execution of the Refinery PurchaseSecurity Agreement and as a required termSupply and condition thereof, Vertex Operating provided the Seller a promissory note in the amount of $10 million (the “Deposit Note”). Pursuant to the terms of the Refinery PurchaseOfftake Agreement, the terms of such agreement (other than exclusivity through December 31, 2021, or such earlier date that the Refinery Purchase Agreement is terminated), were not legally binding on the Seller until such time as Vertex Operating funds the Deposit Note in cash (which note has been paid in full to date). The Deposit Note did not accrue interest unless or until an event of default occurred under such note, at which time interest was to accrue at 12% per annum until paid. The entire balance of the Deposit Note was due upon the earlier of (i) 45 calendar days following the date of the Deposit Note (i.e., July 10, 2021); and (ii) five calendar days following the closing of any transaction between Vertex Operating and any third party, which Deposit Note was paid in full prior to such applicable due date. This deposit is recorded in other assets in the consolidated balance sheet at September 30, 2021.discussed below.

In the event of the closing of the transactions contemplated by the Refinery Purchase Agreement, the funded portion of the Deposit Note, and any interest thereon (the “Deposit”) is credited against the purchase price due to the Seller. In the event the Refinery Purchase Agreement is terminated, the Deposit is non-refundable except as more particularly described in the Refinery Purchase Agreement, which provides that in some circumstances the Company may receive a complete refund of the Deposit or must pay a portion of (or in some cases all) the costs for the Swapkit (defined below) and/or the audit of the Seller’s operations, to the extent requested by the Company.

F-16

The Refinery Purchase Agreement is subject to termination prior to closing under certain circumstances, and may be terminated: at any time prior to the closing date by the mutual consent of the parties; by Vertex Operating or Seller in the event the closing has not occurred by May 26, 2022 (the “Refinery Purchase Outside Date”, subject to extensions as discussed in the Purchase and Sale Agreement), in the event such failure to close is not a result of Vertex Operating’s or Seller’s breach of the agreement, respectively, or the failure to obtain any government consent; or by Vertex Operating or Seller, if the other party has breached any representation, warranty or covenant set forth in the agreement, subject to certain cases to the right to cure such breach, or required regulatory approvals have not been received as of the Refinery Purchase Outside Date.

The Refinery Purchase Agreement provides that if all conditions to closing are satisfied other than government approvals and required permits and registrations, then the Refinery Purchase Outside Date is extended to such date as the parties mutually agree; provided, however, in the event the parties do not mutually agree, then the Refinery Purchase Outside Date is automatically extended to May 26, 2023.

The Refinery Purchase Agreement contemplates the Company and the Seller entering into various supply and offtake agreements at closing.

The Mobile Acquisition is expected to close in the first quarter of 2022, subject to satisfaction of customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the absence of legal impediments prohibiting the Mobile Acquisition, receipt of regulatory approvals and required consents, absence of a material adverse effect and the Company raising sufficient cash to pay such aggregate purchase price. The Company anticipates financing the transaction through the recent sale of convertible notes (see “Note 16. Subsequent Events”) and the entry into a debt facility. The Company has not entered into any definitive lending agreements regarding such debt fundings to date, and such debt funding may not be available on favorable terms, if at all. The Company may also generate cash through asset divestitures. The conditions to the closing of the Mobile Acquisition may not be met, and such closing may not ultimately occur on the terms set forth in the Refinery Purchase Agreement, if at all.

Upon completion of the transaction and provided that Vertex’s fundraising initiatives are successful, Vertex plans to complete an $85 million capital project designed to modify the Mobile Refinery’s hydrocracking unit to produce renewable diesel fuel on a standalone basis, $13.0 million of which, for engineering services and for the initial payments of purchase orders for long lead-time equipment associated with the capital project, are expected to be expended prior to closing such acquisition, with funds raised through the sale of the November 2021 convertible notes (see “Note 16. Subsequent Events”).

In connection with the entry into the Refinery Purchase Agreement, Vertex Operating and the Seller entered into a Swapkit Purchase Agreement (the “Swapkit Agreement”). Pursuant to the agreement, Vertex Operating agreed to fund a technology solution comprising the ecosystem required for the Company to run the Mobile Refinery after closing (the “Swapkit”), at a cost of $8.7 million, which is payable at closing (subject to certain adjustments), or in certain circumstances, upon termination of the Purchase and Sale Agreement.

Safety-Kleen Sale Agreement
On June 29, 2021, we entered into an Asset Purchase Agreement (the “Sale Agreement” and the transactions contemplated therein, the “Sale Transaction” or the “Sale”) with Vertex Operating, Vertex LA, (“Vertex ”), OH, CMT, and H&H, as sellers, and Safety-Kleen, dated as of June 28, 2021.

Pursuant to the Sale Agreement, Safety-Kleen agreed to acquire the Company’s Marrero used oil refinery in Louisiana (currently owned by Vertex LA); our Heartland used oil refinery in Ohio (currently owned by Vertex OH); our H&H and Heartland UMO collections business; our oil filters and absorbent materials recycling facility in East Texas; and the rights CMT holds to a lease on the Cedar Marine terminal in Baytown, Texas (“UMO Business”).

The initial base purchase price for the assets is $140 million, which is subject to customary adjustments to account for working capital, taxes and assumed liabilities.

The Sale Agreement also requires us to place $7 million of shares of our common stock into escrow for a period of 18 months following the closing (the “Escrow Period”), in order to satisfy any indemnification claims made by Safety-Kleen pursuant to the terms of the Sale Agreement. Such shares are to be valued at the volume weighted average price of the Company’s common stock for the ten consecutive trading days ending on and including the closing date (the “10-Day VWAP”). On the last day of each fiscal quarter during the Escrow Period, the value of the shares of common stock held in escrow is calculated (based on the 10-Day VWAP, using the last day of each quarter as the ending trading day in lieu of the closing date), and if such value is less than $7 million (less any value of shares released from escrow to satisfy indemnification claims under the Sale Agreement, based on the 10-Day VWAP ending on the trading day immediately prior to the date any such shares are released from escrow), we are required to deposit additional shares into escrow such that the value of shares held in the escrow account is at least
F-17

$7 million at all times. Notwithstanding the above, in no event will the number of shares issued into the escrow account, or otherwise pursuant to the terms of the Sale Agreement, exceed 19.9% of the Company’s outstanding common stock on the date the Sale Agreement was entered into. Upon termination of the Escrow Period, any shares remaining in escrow (subject to pending claims) are to be returned to the Company for cancellation.

The Sale Agreement is subject to termination prior to closing under certain circumstances, and may be terminated: at any time prior to the closing date by the mutual consent of the parties; by Safety-Kleen in the event the closing has not occurred by December 31, 2021 (the “Sale Agreement Outside Date”, subject to certain extensions as discussed in the Sale Agreement), in the event such failure to close is not a result of Safety-Kleen’s breach of the agreement, provided that if the failure to close is the result of the failure to obtain certain government consents or the failure of the Company to obtain the required shareholder approval for the transaction, either party may extend the Sale Agreement Outside Date for up to an additional 90 days; by the Company or Safety-Kleen, if the other party has breached the agreement, subject to certain cases to the right to cure such breach; by the Company if it becomes apparent that the closing of the Sale Agreement will not occur due to certain reasons, including if any of Safety-Kleen’s required conditions to closing conditions will not be fulfilled by the Sale Agreement Outside Date, unless such failure is the result of the Company. In the event that the Sale Agreement is terminated as a result of the failure of the Company’s shareholders to approve the transaction, we are required to reimburse all of Safety-Kleen’s out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, financing sources, experts and consultants) incurred in connection with the authorization, preparation, negotiation, execution and performance of the Sale Agreement and the transactions contemplated therein (the “Reimbursement”).

If Safety-Kleen terminates the Sale Agreement for certain reasons, including in certain cases due to a breach of the agreement by the Company in the event the Company solicits other competing transactions or takes other similar actions; because the Company considers a competing transaction and the shareholders of the Company fail to approve the Sale Agreement; or the Company’s board of directors refuses to complete the transaction due to a competing transaction, then we are required to pay Safety-Kleen a break-fee of $3,000,000, less amounts paid as Reimbursement (the “Break-Fee”), which will be the sole remedy of Safety-Kleen in such situation.

The Sale Agreement is expected to close in the first half of 2022, subject to satisfaction of customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the absence of legal impediments prohibiting the transaction, and receipt of regulatory approvals and required consents. We are currently responding to inquiries received from the Federal Trade Commission (the “FTC”), which is not required to rule on the matter until the expiration of 30 days following submission of our responses which is not expected to occur before November 30, 2021, if then. The Sale Agreement also required us to hold a shareholders meeting to seek shareholder approval for the Sale Agreement, which shareholder approval was received in September 2021. The conditions to the closing of the Sale Agreement may not be met, and such closing may not ultimately occur on the terms set forth in the Sale Agreement, if at all.

Houlihan Lokey acted as financial advisor to the Company on the transaction. Vallum Advisors acted as financial communications counsel to the Company.


F-18

NOTE 4. REVENUES

Disaggregation of Revenue

The following tables present our revenues disaggregated by geographical market and revenue source:source (in thousands):
Three Months Ended September 30, 2021
Black OilRefining & MarketingRecoveryTotal
Primary Geographical Markets
Southern United States$446,676 $24,572,390 $3,955,405 $28,974,471 
Sources of Revenue
Pygas$— $3,736,534 $— $3,736,534 
Industrial fuel— 417,096 — 417,096 
Distillates— 20,418,760 — 20,418,760 
Oil collection services158,676 — 0158,676 
Metals— — 3,669,411 3,669,411 
Other re-refinery products— — 285,994 285,994 
VGO/Marine fuel sales288,000 — — 288,000 
Total revenues$446,676 $24,572,390 $3,955,405 $28,974,471 

Nine Months Ended September 30, 2021
Black OilRefining & MarketingRecoveryTotal
Primary Geographical Markets
Southern United States$1,300,220 $67,683,034 $15,840,222 $84,823,476 
Sources of Revenue
Pygas$— $10,570,907 $— $10,570,907 
Industrial fuel— 1,138,311 — 1,138,311 
Distillates— 55,973,816 — 55,973,816 
Oil collection services436,220 — 3,423 439,643 
Metals— — 15,464,375 15,464,375 
Other re-refinery products— — 372,424 372,424 
VGO/Marine fuel sales864,000 — — 864,000 
Total revenues$1,300,220 $67,683,034 $15,840,222 $84,823,476 
Three Months Ended September 30, 2020
Black OilRefining & MarketingRecoveryTotal
Primary Geographical Markets
Southern United States$288,000 $13,501,751 $2,459,561 $16,249,312 
Sources of Revenue
Pygas$— $1,184,434 $— $1,184,434 
Industrial fuel— 82,644 — 82,644 
Distillates— 12,234,673 — 12,234,673 
Metals— — 2,459,561 2,459,561 
VGO/Marine fuel sales288,000 — — 288,000 
Total revenues$288,000 $13,501,751 $2,459,561 $16,249,312 
Three Months Ended June 30, 2022
Black OilRefining & MarketingRecoveryTotal
Primary Geographical Markets
Southern United States$20,254 $966,390 $5,195 $991,839 
Sources of Revenue
Gasolines— 255,909 — 255,909 
Jet Fuels— 143,688 — 143,688 
Diesel— 322,317 — 322,317 
Pygas— 20,685 — 20,685 
Oil collection services26 — — 26 
Metals— — 4,318 4,318 
Other refinery products666 72,460 877 74,003 
VGO/Marine fuel sales19,562 151,331 — 170,893 
Total revenues$20,254 $966,390 $5,195 $991,839 

F-19F-14

Nine Months Ended September 30, 2020Three Months Ended June 30, 2021
Black OilRefining & MarketingRecoveryTotalBlack OilRefining & MarketingRecoveryTotal
Primary Geographical MarketsPrimary Geographical MarketsPrimary Geographical Markets
Southern United StatesSouthern United States$864,000 $22,309,670 $7,286,936 $30,460,606 Southern United States$155 $23,836 $6,237 $30,228 
Sources of RevenueSources of RevenueSources of Revenue
GasolinesGasolines— 6,083 — 6,083 
DieselDiesel— 13,481 — 13,481 
PygasPygas$— $4,815,040 $— $4,815,040 Pygas— 3,862 — 3,862 
Industrial fuelIndustrial fuel— 135,396 — 135,396 Industrial fuel— 410 — 410 
Distillates— 17,359,234 — 17,359,234 
Oil collection servicesOil collection services155 — — 155 
MetalsMetals— — 6,151 6,151 
Other refinery productsOther refinery products— — 86 86 
Metals— — 7,286,936 7,286,936 
VGO/Marine fuel sales864,000 — — 864,000 
Total revenuesTotal revenues$864,000 $22,309,670 $7,286,936 $30,460,606 Total revenues$155 $23,836 $6,237 $30,228 

Six Months Ended June 30, 2022
Black OilRefining & MarketingRecoveryTotal
Primary Geographical Markets
Southern United States$21,804 $1,001,109 $9,143 $1,032,056 
Sources of Revenue
Gasolines— 263,458 — 263,458 
Jet Fuels— 143,688 — 143,688 
Diesel— 344,225 — 344,225 
Pygas— 25,375 — 25,375 
Industrial fuel— 572 — 572 
Oil collection services240 — — 240 
Metals— — 7,733 7,733 
Other refinery products666 72,460 1,410 74,536 
VGO/Marine fuel sales20,898 151,331 — 172,229 
Total revenues$21,804 $1,001,109 $9,143 $1,032,056 



F-15

Six Months Ended June 30, 2021
Black OilRefining & MarketingRecoveryTotal
Primary Geographical Markets
Southern United States$278 $43,110 $11,885 $55,273 
Sources of Revenue
Gasolines— 10,494 — 10,494 
Diesel— 25,060 — 25,060 
Pygas— 6,835 — 6,835 
Industrial fuel— 721 — 721 
Oil collection services278 — 3 281 
Metals— — 11,796 11,796 
Other refinery products— — 86 86 
Total revenues$278 $43,110 $11,885 $55,273 



NOTE 5. ACCOUNTS RECEIVABLE

Accounts receivable, net, consists of the following at SeptemberJune 30, 20212022 and December 31, 2020:2021(in thousands):
September 30, 2021December 31, 2020
Accounts receivable trade$6,779,049 $5,211,621 
Allowance for doubtful accounts(982,565)(352,774)
Accounts receivable trade, net$5,796,484 $4,858,847 

June 30, 2022December 31, 2021
Accounts receivable trade$91,866 $6,297 
Allowance for doubtful accounts(1,012)(1,000)
Accounts receivable trade, net$90,854 $5,297 

Accounts receivable trade represents amounts due from customers. Accounts receivable trade are recorded at invoiced amounts, net of reserves and allowances and do not bear interest. 


NOTE 6. FINANCING ARRANGEMENTS

NOTE 6. LINE OF CREDIT AND LONG-TERM DEBT

On April 24, 2020, (a) Encina Business Credit, LLC (“EBC”)The Company's outstanding debt facilities as of June 30, 2022 and the lenders under our February 2017 Revolving Credit Agreement with EBC (the “EBC Lenders”), and Vertex Operating, entered into a Fourth Amendment and Limited Waiver to Credit Agreement, effective on April 24, 2020, pursuant to which the EBC Lenders agreed to amend the EBC Credit Agreement; and (b) the EBC Lenders and Vertex Operating entered into a Fourth Amendment and Limited Waiver to our February 2017 ABL Credit Agreement, (the “Revolving Credit Agreement”), effective on April 24, 2020, pursuant to which the EBC Lenders agreed to amend the Revolving Credit Agreement (collectively, the “Waivers”). The Waivers amended the credit agreements to extend the due date of amounts owed thereunder from February 1,December 31, 2021 to February 1, 2022.

On August 7, 2020, the Company and Vertex Operating entered into a Fifth Amendment to Credit Agreement with EBC (the “Fifth Amendment”), which amended the EBC Credit Agreement to provide the Company up to a $2 million term loan to be used for capital expenditures (the “CapEx Loan”), which amounts may be requested from time to time by the Company, provided that not more than four advances of such amount may be requested, with each advance being not less than $500,000are summarized as follows (in multiples of $100,000). The amendment also provided that any prepayments of the EBC Credit Agreement would first be applied to the term loan and then to the CapEx Loan. The CapEx Loan bears interest at the rate of LIBOR (0.08% at September 30, 2021) plus 7%, or to the extent that LIBOR is not available, the highest of the prime rate and the Federal Funds Rate plus 0.50%, in each case, plus 6%. We are required to repay the CapEx Loan in monthly installments of 1/48th of the amount borrowed, each month that the CapEx Loan is outstanding, with a final balloon payment due at maturity. The obligation of EBC to fund the CapEx Loan is subject to customary conditions and requirements set forth in the Fifth Amendment, including the requirement that the Company has maintained daily availability under the ABL Credit Agreement greater than $1 million for the last thirty days, and that such availability would remain over $1 million, on a pro forma basis with such new loan. We are also required to provide the agent for the EBC Credit Agreement, a first priority security interest in the rolling stock collection assets or other assets acquired with the CapEx Loan.thousands):

F-20F-16

On November 27, 2020, the Company, Vertex Operating, the Agent and the EBC Lenders, entered into a Fifth Amendment and Limited Waiver to Credit Agreement (the “Amendment and Waiver”), pursuant to which the Lenders agreed to amend the Revolving Credit Agreement, to (1) provide for the Lender’s waiver of an event of default which occurred under the Revolving Credit Agreement, relating solely to the Company exceeding the $3 million capital expenditure limitation for 2020 set forth in the Revolving Credit Agreement; (2) amend the capital expenditure limit set forth in the Revolving Credit Agreement to $4 million for 2020 (compared to $3 million previously) and $3 million thereafter; and (3) amended the minimum required availability under the Revolving Credit Agreement to be $1 million prior to December 31, 2020 (which amount was previously $2 million) and $2 million thereafter. Notwithstanding the technical default under the Revolving Credit Agreement discussed above, the Lenders did not take any action to accelerate amounts due under the Revolving Credit Agreement, such amounts due thereunder were not automatically accelerated in connection with the default, and as discussed above, such technical default was waived by the Lenders according to the Amendment and Waiver.

On January 18, 2021, the Company, Vertex Operating and EBC as agent for the lenders named therein, and such lenders, entered into a Sixth Amendment to Credit Agreement (the “6th Amendments”), which amended the EBC Credit Agreement and the Revolving Credit Agreement, between Vertex Operating, the Company, substantially all of the Company’s subsidiaries, EBC, as agent for the lenders named therein, and such lenders, to permit availability at any time to be less than (a) $1,000,000 at any time during the period commencing on December 31, 2020 through and including March 31, 2021 and (b) $2,000,000 at any time from and after April 1, 2021.

On May 26, 2021, the Company, Vertex Operating and EBC as agent for the lenders named therein, and such lenders, entered into a Seventh Amendment to Credit Agreement and a Seventh Amendment to ABL Credit Agreement (collectively, the “7th Amendments”), which amended the EBC Credit Agreement and Revolving Credit Agreement, to allow the Company to enter into the Refinery Purchase Agreement, subject to the Company agreeing to not use any funds from the Revolving Credit Agreement towards such Refinery Purchase Agreement or to pay amounts in connection with a $10 million deposit note in connection with such Refinery Purchase Agreement.

On July 1, 2021, the Company and Vertex Operating entered into an Eighth Amendment to Credit Agreement with EBC (the “8th Amendment”), which amendment amended the EBC Credit Agreement. Pursuant to the 8th Amendment, Encina Business Credit SPV, LLC agreed to loan the Company $5 million under the terms of the EBC Credit Agreement (the “Term Loan”), under the stipulation that the Company use such loaned funds solely to paydown amounts owed under the $10 million deposit note payable in connection with the entry into the Refinery Purchase Agreement ( the "Deposit Note"). The $5 million Term Loan bears interest at the variable-rate of LIBOR (0.08% at September 30, 2021) plus 6.5% per year, or to the extent that LIBOR is not available, the highest of the prime rate and the Federal Funds Rate plus 0.50%, in each case, plus 6%. We are required to repay the Term Loan in monthly installments of 1/48th of the amount borrowed, each month that the Term Loan is outstanding, with a final balloon payment due at maturity. The Term Loan is subject to customary events of defaults and other covenants set forth in the EBC Credit Agreement. The Term Loan is secured by Encina’s security interests over substantially all of our assets.
CreditorLoan TypeBalance on June 30, 2022Balance on December 31, 2021
Term Loan 2025Loan$165,000 $— 
John Deere NoteNote— 93 
AVT Equipment Lease-HHFinance Lease— 302 
SBA LoanSBA Loan59 59 
VRA Finance LeaseFinance Lease45,291 — 
Various institutionsInsurance premiums financed9,236 2,375 
Principal amount of long-term debt and finance lease liabilities219,586 2,829 
Less: unamortized discount and deferred financing costs(37,035)— 
Total debt, net of unamortized discount and deferred financing costs182,551 2,829 
Less: current maturities, net of unamortized discount and deferred financing costs(2,579)(2,715)
Long term debt and finance lease liabilities, net of current maturities$179,972 $114 

On November 1, 2021, the Company repaid in full the amounts owed to the EBC Lenders (see “
Note 16. Subsequent Events”).
Future contractual principal maturities of notes payable as of June 30, 2022 are summarized as follows (in thousands):

Loan Agreements

On May 4, 2020, the Company applied for a loan from Texas Citizens Bank in the principal amount of $4.22 million, pursuant to the Paycheck Protection Program (the “PPP” and the “PPP Loan”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020. On May 5, 2020, the Company received the loan funds. The Note was unsecured, was to mature on April 28, 2022, and accrued interest at a rate of 1.00% per annum, payable monthly commencing in February 2021, following an initial deferral period as specified under the PPP.

Under the terms of the CARES Act, PPP loan recipients can apply for, and the U.S. Small Business Administration (“SBA”), which administers the CARES Act, can grant forgiveness of, all or a portion of loans made under the PPP if the recipients use the PPP loan proceeds for eligible purposes, including payroll costs, mortgage interest, rent or utility costs and meet other requirements regarding, among other things, the maintenance of employment and compensation levels. The Company used the PPP Loan proceeds for qualifying expenses and applied for forgiveness of the PPP Loan in accordance with the terms of the CARES Act. On June 22, 2021, the Company received a notification from the Lender that the SBA approved the Company’s PPP Loan forgiveness application for the entire PPP Loan balance of $4.222 million and accrued interest and that the remaining PPP Loan balance is zero. The forgiveness of the PPP Loan was recognized during the quarter ending June 30, 2021.

F-21

On May 27, 2020, the Company entered into a loan contract security agreement with John Deere to finance $152,643 to purchase equipment. The Note matures on June 27, 2024, and bears interest at a rate of 2.45% per annum, payable monthly commencing on June 27, 2020. The payment of the note is secured by the equipment purchased.

On July 18, 2020, Leverage Lubricants LLC, which Vertex Energy Operating, LLC holds 51% interest, entered into a SBA loan in the amount of $58,700. The loan matures on July 18, 2050 and bears interest at the rate of 3.75% per annum.
Year Ended June 30,Amount Due
2023$14,013 
20249,514 
2025154,049 
20261,605 
20271,809 
Thereafter38,596 
Total$219,586 

Insurance Premiums

The Company financed insurance premiums through various financial institutions bearing interest rates from 4.00%3.24% to 4.90%4.09% per annum. All such premium finance agreements have maturities of less than one year and have a balance of $3,562,608$9.2 million at SeptemberJune 30, 20212022 and $1,183,543$2.4 million at December 31, 2020.2021.

Finance Leases

On April 2, 2020, the Company obtained 1, finance lease with payments of $9,322 per month for three years and on July 28, 2020, the Company entered into another finance lease with payments of $3,545 per month for three years. The amount of the finance lease obligation has been reduced to $0 at September 30, 2021.

On May 22, 2020,2022, the Company entered into 1 finance lease. PaymentsBase payments are $15,078$0.4 million per month for three years and the first six months, increasing to $0.5 million per month for the next 180 months. The amount of the right of use assets is $44.4 million at June 30, 2022, and the finance lease obligation has been reduced to $0is $45 million at SeptemberJune 30, 2021.2022.

The Company's outstanding debt facilitiesTerm Loan

On April 1, 2022 (the “Closing Date”), Vertex Refining; the Company, as a guarantor; substantially all of September 30, 2021the Company’s direct and December 31, 2020 are summarizedindirect subsidiaries, as follows:
CreditorLoan TypeOrigination DateMaturity DateLoan AmountBalance on September 30, 2021Balance on December 31, 2020
Encina Business Credit, LLCTerm LoanFebruary 1, 2017February 1, 2022$20,000,000 $9,758,000 $5,433,000 
Encina Business Credit SPV, LLCRevolving NoteFebruary 1, 2017February 1, 2022$10,000,000 — 133,446 
Encina Business Credit, LLCCapex LoanAugust 7, 2020February 1, 2022$2,000,000 1,102,170 1,378,819 
Wells Fargo Equipment Lease-OhioFinance LeaseApril-May, 2019April-May, 2024$621,000 346,321 436,411 
John Deere NoteNoteMay 27, 2020June 24, 2024$152,643 103,414 131,303 
Loan-Leverage LubricantsSBA LoanJuly 18, 2020July 18, 2050$58,700 58,700 — 
Well Fargo Equipment Lease-VRM LAFinance LeaseMarch, 2018March, 2021$30,408 — 1,804 
Texas Citizens BankPPP LoanMay 5, 2020April 28, 2022$4,222,000 — 4,222,000 
Various institutionsInsurance premiums financedVarious< 1 year$2,902,428 3,562,608 1,183,543 
Total$14,931,213 $12,920,326 
Deferred finance costs(62,500)— 
Total, net of deferred finance costs$14,868,713 $12,920,326 
guarantors (together with the Company, the “Guarantors”); certain funds and accounts under management by BlackRock Financial Management, Inc. or its affiliates, as lenders (“BlackRock”), certain funds managed or advised by Whitebox Advisors, LLC, as lenders (“Whitebox”), certain funds managed by Highbridge Capital Management, LLC, as lenders (“Highbridge”), Chambers Energy Capital IV, LP, as a lender (“Chambers”), CrowdOut Capital LLC, as a lender (“CrowdOut Capital”), CrowdOut Credit Opportunities Fund LLC, as a lender (collectively with BlackRock, Whitebox, Highbridge, Chambers and CrowdOut Capital, the “Lenders”); and Cantor Fitzgerald Securities, in its capacity as
F-22F-17

administrative agent and collateral agent for the Lenders (the “Agent”), entered into a Loan and Security Agreement (the “Loan and Security Agreement”).

Pursuant to the Loan and Security Agreement, the Lenders agreed to provide a $125 million term loan to Vertex Refining (the “Initial Term Loan”), the proceeds of which, less agreed upon fees and discounts, were held in escrow prior to the Closing Date, pursuant to an Escrow Agreement. On the Closing Date, net proceeds from the term loans, less the agreed upon fees and discounts, as well as certain transaction expenses, were released from escrow to Vertex Refining in an aggregate amount of $94 million.

On May 26, 2022, each of the Initial Guarantors (including the Company), Vertex Ohio, HPRM LLC, a Delaware limited liability company (“HPRM”), and Tensile-Heartland Acquisition Corporation, a Delaware corporation (“Tensile-Heartland”, and together with Vertex Ohio and HPRM, the “Additional Guarantors”, and the Additional Guarantors, together with the Initial Guarantors, the “Guarantors”, and the Guarantors, together with Vertex Refining, the “Loan Parties”), entered into an Amendment Number One to Loan and Security Agreement (“Amendment No. One to Loan Agreement”), with certain of the Lenders and CrowdOut Warehouse LLC, as a lender (the “Additional Lenders” and together with the Initial Lenders, the “Lenders”) and the Agent, pursuant to which, the amount of the Term Loan (as defined below) was increased from $125 million to $165 million, with the Additional Lenders providing an additional term loan in the amount of $40 million (the “Additional Term Loan”, and together with the Initial Term Loan, the “Term Loan”).

Pursuant to the Loan and Security Agreement, on the last day of March, June, September and December of each year (or if such day is not a business day, the next succeeding business day), beginning on March 31, 2023 and ending on December 31, 2024, Vertex Refining is required to repay $2 million of the principal amount owed under the Loan and Security Agreement (i.e., 1.25% of the original principal amount per quarter), subject to reductions in the event of any prepayment of the Loan and Security Agreement.

The Company used a portion of the proceeds from the Term Loan borrowing to pay a portion of the purchase price associated with the acquisition of the Mobile Refinery (defined below) acquired by Vertex Refining on April 1, 2022, as discussed in greater detail below, and to pay certain fees and expenses associated with the closing of the Loan and Security Agreement and is required to use the remainder of the funds for (i) the planned renewable diesel conversion of the Mobile Refinery, and (ii) working capital and liquidity needs.
Warrant Agreement and Derivative Liabilities

In connection with the Loan and Security Agreement, and as additional consideration for the Lenders agreeing to loan funds to the Company thereunder, the Company granted warrants to purchase 2.75 million shares of common stock of the Company to the Lenders (and/or their affiliates) on the Closing Date (the “Initial Warrants”). The terms of the warrants are set forth in a Warrant Agreement (the “April 2022 Warrant Agreement”) entered into on April 1, 2022, between the Company and Continental Stock Transfer & Trust Company as warrant agent.
In connection with the entry into the Amendment No. One to Loan Agreement, and as a required term and condition thereof, on May 26, 2022, the Company granted warrants (the “Additional Warrants” and together with the Initial Warrants, the “Warrants”) to purchase 250 thousand shares of the Company’s common stock to the Additional Lenders and their affiliates. The terms of the Additional Warrants are set forth in a Warrant Agreement (the “May 2022 Warrant Agreement” and together with the April 2022 Warrant Agreement, the “Warrant Agreements”) entered into on May 26, 2022, between the Company and Continental Stock Transfer & Trust Company as warrant agent.
Each holder shall have a put right to require the Company to repurchase any portion of the warrants held by such holder concurrently with the consummation of such fundamental transaction. The fundamental transaction clause requires the warrants to be classified as liabilities.

The initial 2.75 million Initial Warrants were valued at April 1, 2022, the 250 thousand additional Warrants were valued at May 26, 2022 and the total 3 million warrants were revalued at June 30, 2022 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 $23 million, $3 million and $27 million, respectively. The Dynamic Black Scholes Merton inputs used were: expected dividend rate of 0%, expected volatility of 97%-111%, risk free interest rate of 2.61% - 3.01% and expected term of 5.5 years.

The following is an analysis of changes in the derivative liability for the six months ended June 30, 2022 (in thousands):
F-18

Level Three Roll-Forward
2022
Balance at beginning of period$— 
April 1 warrants issued22,796 
May 26 warrants issued2,874 
Value of warrants exercised— 
Change in valuation of warrants945 
Balance at end of period$26,615 


Future contractual maturitiesIndenture and Convertible Senior Notes
On November 1, 2021, we issued $155 million aggregate principal amount at maturity of our 6.25% Convertible Senior Notes due 2027 (the “Convertible Senior Notes”) pursuant to an Indenture (the “Indenture”), dated November 1, 2021, between the Company and U.S. Bank National Association, as trustee (the “Trustee”), in a private offering (the “Note Offering”) to persons reasonably believed to be “qualified institutional buyers” and/or to “accredited investors” in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Securities Purchase Agreements. The issue price was 90% of the face amount of each note. Interest payments on the Notes are paid semiannually on April 1 and October 1 of each year, beginning on April 1, 2022. On April 1, 2022, a total of $4 million of interest was paid on our outstanding Convertible Senior Notes.
A total of seventy-five percent (75%) of the net proceeds from the offering were placed into an escrow account to be released to the Company, upon the satisfaction of certain conditions, including the satisfaction or waiver of all of the conditions precedent to the Company’s obligation to consummate the Mobile Acquisition (collectively, the “Escrow Release Conditions”). The Mobile Acquisition (defined below) was consummated on April 1, 2022, and the proceeds from the sale of the Convertible Senior Notes which were held in escrow were released on April 1, 2022.
Prior to July 1, 2027, the Convertible Senior Notes will be convertible at the option of the holders of the Convertible Senior Notes only upon the satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.
Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election, provided that until such time as the Company’s stockholders had approved the issuance of more than 19.99% of our common stock issuable upon conversion of the Convertible Senior Notes in accordance with the rules of The Nasdaq Capital Market, such Convertible Senior Notes were not convertible.
Initially, a maximum of 36 million shares of common stock could be issued upon conversion of the Convertible Senior Notes, based on the initial maximum conversion rate of 233.6449 shares of the Company’s common stock per $1,000 principal amount of Convertible Senior Notes, which is subject to customary and other adjustments described in the Indenture.
On January 20, 2022, our shareholders approved the issuance of shares of our common stock issuable upon conversion of the Convertible Senior Notes, in accordance with Nasdaq Listing Rules 5635 (a) and (d). Accordingly, $79 million of derivative Convertible Senior Note liabilities were reclassified to additional paid in capital.
On May 26, 2022, May 27, 2022, May 31, 2022, and June 1, 2022, holders of $60 million of the Convertible Senior Notes due 2027, converted such notes into 10.2 million shares of common stock of the Company pursuant to the terms of the Indenture. The shares of common stock issued upon conversion of the $60 million in 6.25% Convertible Senior Notes due 2027 were issued in reliance upon Section 3(a)(9) of the Securities Act, as involving an exchange by the Company exclusively with its security holders. Upon the conversion, the Company recognized $33.9 million unamortized deferred loan cost and discount as interest expense.
The components of the Convertible Senior Notes are presented as follows (in thousands):
F-19

June 30, 2022
Principal Amounts$155,000 
Conversion of principal into common stock(59,822)
Unamortized discount and issuance costs(53,635)
Net Carrying Amount$41,543 
Our Convertible Senior Notes will mature on October 1, 2027, unless earlier repurchased, redeemed or converted. Interest is payable assemiannually in arrears on April 1 and October 1 of September 30, 2021 are summarized as follows:each year, beginning on April 1, 2022. The following table represents the future interest payment (in thousands):
CreditorYear 1Year 2Year 3Year 4Year 5Thereafter
Encina Business Credit, LLC$9,758,000 $— $— $— $— $— 
Encina Business Credit, LLC1,102,170 — — — — — 
John Deere Note37,991 38,933 26,490 — — — 
Well Fargo Equipment Lease- Ohio346,321 — — — — — 
Loan-Leverage Lubricants— 683 1,290 1,340 1,391 53,996 
Various institutions3,562,608 — — — — — 
Totals$14,807,090 $39,616 $27,780 $1,340 $1,391 $53,996 
Deferred finance costs, net(62,500)— — — — — 
Totals, net of deferred finance costs$14,744,590 $39,616 $27,780 $1,340 $1,391 $53,996 
Interest payableYear 1Year 2Year 3Year 4Year 5Thereafter
Interest payable$6,572 $5,949 $5,949 $5,949 $5,949 $2,974 
NOTE 7. EARNINGS PER SHARE

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. Diluted earnings per share reflects 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. 

Due to their anti-dilutive effect, the calculation of diluted earnings per share for the three months ended SeptemberJune 30, 20212022 and 20202021 excludes: 1) options to purchase 915,1790.8 million and 5,140,2885.6 million shares, respectively, of common stock, 2) warrants to purchase 55,5631.3 million and 8,633,1931.9 million shares, respectively, of common stock, 3) Series B Preferred Stock which is convertible into 0 and 3,883,449 shares, respectively, of common stock, 4) Series B1 Preferred Stock which is convertible into 0 and 7,004,236 shares, respectively, of common stock, and 5) Series A Preferred Stock which is convertible into 385,6010 and 419,8590.4 million shares of common stock, asand 6) 22.2 million shares of September 30, 2021 and 2020. common stock which may be issued upon conversion of the Convertible Senior Notes, based on the initial maximum conversion rate of 233.6449 shares of the Company’s common stock per $1,000 principal amount of the Convertible Senior Notes.

Due to their anti-dilutive effect, the calculation of diluted earnings per share for the ninesix months ended SeptemberJune 30, 20212022 and 20202021 excludes: 1) options to purchase 4,195,1680.9 million and 5,140,2885.6 million shares, respectively, of common stock, 2) warrants to purchase 288,4581.6 million and 8,633,1931.9 million shares, respectively, of common stock, 3) Series B Preferred Stock which is convertible into 0 and 3,883,449 shares, respectively, of common stock, 4) Series B1 Preferred Stock which is convertible into 0 and 7,004,236 shares, respectively, of common stock, and 5) Series A Preferred Stock which is convertible into 385,6010 and 419,8590.4 million shares of common stock, as of September 30, 2021 and 2020.6)

In accordance with ASC 260-10-45, Share-Based Payment Arrangements and Participating Securities and the Two-Class Method, our Series A Preferred Stock, Series C Preferred Stock, and Series B and B1 Preferred Stock are considered participating securities. Basic earnings per common share are calculated by dividing the net income, adjusted for preferred dividends and income allocated to participating securities, by the weighted average number22.2 million shares of common shares outstanding during the period. Diluted net income per common share reflects the dilutions that would occur if any potential dilutive instruments were exercised or converted into common shares. The dilutive effect of participating securities is calculated using the more dilutivestock which may be issued upon conversion of the treasury stock method or two-class method. Other potentially dilutive securities include preferred stock, stock options and warrants, and restricted stock. These are included in dilutedConvertible Senior Notes, based on the initial maximum conversion rate of 233.6449 shares to the extent they are dilutive under the treasury stock method for the applicable periods. During the periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company.Company’s common stock per $1,000 principal amount of the Convertible Senior Notes.

The following is a reconciliation of the numerator and denominator for basic and diluted earnings per share for the three months and ninesix months ended SeptemberJune 30, 2022 and 2021 and 2020:(in thousands, except per share amounts):

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Basic and diluted loss per Share
Numerator:
Net loss attributable to shareholders from continuing operations$(81,797)$(20,472)$(96,759)$(23,847)
Net income attributable to shareholders from discontinued operations, net of tax14,821 426 24,814 4,436 
Net loss attributable to common shareholders$(66,976)$(20,046)$(71,945)$(19,411)
Denominator:  
Weighted-average common shares outstanding67,923 52,683 65,660 50,210 
Continuing operations$(1.20)$(0.39)$(1.47)$(0.48)
Discontinued operations, net of tax0.22 0.01 0.38 0.09 
Basic and diluted loss per share$(0.98)$(0.38)$(1.09)$(0.39)


F-23

Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Basic loss per Share
Numerator:
Net income (loss) available to shareholders from continuing operations$7,066,459 $(3,073,064)$(16,747,698)$(19,717,769)
Net income (loss) available to shareholders from discontinued operations, net of tax878,357 (1,270,814)5,281,177 (5,359,079)
Net income (loss) available to common shareholders$7,944,816 $(4,343,878)$(11,466,521)$(25,076,848)
Denominator:  
Weighted-average common shares outstanding61,348,508 45,554,841 53,963,617 45,494,235 
Continuing operations$0.12 $(0.07)$(0.31)$(0.43)
Discontinued operations, net of tax$0.01 $(0.03)$0.10 $(0.12)
Basic earnings (loss) per share$0.13 $(0.10)$(0.21)$(0.55)
Diluted Earnings per Share
Numerator:
Net income (loss) available to shareholders from continuing operations$7,066,459 $(3,073,064)$(16,747,698)$(19,717,769)
Net income (loss) available to shareholders from discontinued operations, net of tax878,357 (1,270,814)5,281,177 (5,359,079)
Net income (loss) available to common shareholders$7,944,816 $(4,343,878)$(11,466,521)$(25,076,848)
Denominator:  
Weighted-average shares outstanding61,348,508 45,554,841 53,963,617 45,494,235 
Effect of dilutive securities
Stock options and warrants2,871,217 — — — 
Preferred stock385,601 — — — 
Diluted weighted-average shares outstanding64,605,326 45,554,841 53,963,617 45,494,235 
Continuing operations$0.11 $(0.07)$(0.31)$(0.43)
Discontinued operations, net of tax$0.01 $(0.03)$0.10 $(0.12)
Diluted earnings (loss) per share$0.12 $(0.10)$(0.21)$(0.55)

F-24F-20

NOTE 8. COMMON STOCK

The total numberDuring the six months ended June 30, 2022, the Company issued 386 thousand shares of authorizedcommon stock in connection with the conversion of Series A Convertible Preferred Stock, pursuant to the terms of such securities, issued 1.1 million shares of the Company’sCompany's common stock is 750,000,000in exchange for warrants to purchase 1.5 million shares $0.001 par valueof the Company's common stock with an exercise price of $2.25 per share. Asshare on a cashless basis, and issued 10.2 million shares of September 30, 2021, there were 63,003,766the Company's common stock in conversion of $59.8 million in Convertible Senior Notes. In addition, the Company issued 0.6 million shares issued and outstanding.of common stock in connection with the exercise of options.

During the ninesix months ended SeptemberJune 30, 2021, the Company issued 15,653,08513.8 million shares of common stock in connection with the conversion of Series A, Series B and& B1 Convertible Preferred Stock and exerciseexercises of warrants into common stock of the Company, pursuant to the terms of such securities. In addition, the Company issued 1,795,8400.5 million shares of common stock in connection with the exercise of options.

During the nine months ended September 30, 2020,Warrant Exchange Agreement

On March 24, 2022, the Company issued 2,159,278entered into an Exchange Agreement with Tensile Capital Partners Master Fund LP (the “Holder” and "Tensile"). Pursuant to the Exchange Agreement, the Holder agreed to exchange outstanding warrants to purchase 1.5 million shares of the Company’s common stock with an exercise price of $2.25 per share and an expiration date of July 25, 2029, for 1.1 million shares of the Company’s common stock, effectively resulting in a net cashless exercise of the warrants (which were cancelled in connection with the conversiontransaction), with the value of Series B1such surrendered shares based on the five day trailing volume weighted average price of the Company’s common stock.
Conversion of Convertible Preferred StockSenior Notes
On May 26, 2022, May 27, 2022, May 31, 2022, and June 1, 2022, holders of $59.8 million of the Company’s 6.25% Convertible Senior Notes due 2027, converted such notes into 10.2 million shares of common stock of the Company pursuant to the terms of such securities.the Indenture.

Conversion of Series B Exchange AgreementsA Preferred Stock

On February 23, 2021,Pursuant to the Company entered into a Series B Preferred Stock Exchange Agreement with Pennington Capital LLC,designation of the then holder of shares of Series B Preferred Stock, pursuant to which the holder exchanged 822,824 sharesrights and preferences of the Series BA Convertible Preferred Stock of the Company, which it held, which had an aggregate liquidation preferenceeach share of $2,550,754 ($3.10 per share), for 1,261,246Series A Convertible Preferred Stock is automatically converted into shares of the Company’s common stock (based on an exchange ratio equalof the Company (on a one-for-one basis), automatically and without further action by the Company or any holder, upon the first to approximatelyoccur of certain events, including if the five-day volume-weighted averageclosing price per share of the Company’s common stock on the date the Exchange Agreement was entered into). The Series B Preferred Stock shares were subsequently returned to the Company and cancelled in consideration for the issuance of the 1,261,246 shares of common stock. The Exchange Agreement included customary representations and warranties of the parties. This resulted in a deemed dividend recognition of $267,899 due to more shares being issued than were provided in the original agreement.

On March 2, 2021, the Company entered into a Series B Preferred Stock Exchange Agreement with Carrhae & Co FBO Wasatch Micro Cap Value Fund, the then holder of shares of Series B Preferred Stock, pursuant to which the holder exchanged 708,547 shares of the Series B Preferred Stock of the Company which it held, which had an aggregate liquidation preference of $2,196,496 ($3.10 per share), for 1,098,248 shares of the Company’s common stock (based on an exchange ratio equal to $2.00Nasdaq Capital Market averages at least $15.00 per share of common stock). The Series B Preferred Stock was returned to the Company and cancelled in consideration for the issuance of the 1,098,248 shares of common stock. The Exchange Agreement included customary representations and warranties of the parties. This resulted inover a deemed dividend recognitionperiod of $362,422 due to more shares being issued than were provided in the original agreement.

As described in ASC 260-10-S99-2, when preferred stock is exchanged, the difference between fair value of the consideration transferred to the holders of the preferred stock and (2) the carrying amount of the preferred stock in the registrant’s balance sheet (net of issuance costs) should be subtracted from (or added to) net income to arrive at income available to common shareholders in the calculation of earnings per share. As a result, the Company recorded a credit to retained earnings with a corresponding debit to additional paid in capital (APIC) of $630,321 which was added to net income to arrive at net income available to common shareholders, as a result of the transactions above.

Series B and B1 Conversions

During the three months ended June 30, 2021, holders our Series B and Series B1 Preferred Stock converted 58,114 and 2,500,000 shares, respectively, of such preferred stock into the same number of shares of common stock, on a 1-for-one basis, pursuant to the terms of such preferred stock.

During the three months ended March 31, 2021, holders our Series B and Series B1 Preferred Stock converted 638,224 and 2,087,195 shares, respectively, of such preferred stock into the same number of shares of common stock, on a 1-for-one basis, pursuant to the terms of such preferred stock.

Series B and B1 Automatic Conversions

Pursuant to the terms of the Series B Preferred Stock and Series B1 Preferred Stock of the Company, in the event that the closing sales price of the Company’s common stock was at least $6.20 (as to the Series B Preferred Stock) and $3.90 (as to the Series B1 Preferred Stock) per share for at least 20 consecutive trading days suchand the daily trading volume over the same 20-day period averages at least 7,500 shares of Series B Preferred Stock and Series B1 Preferred Stock were to convert automatically into common stock of the Company on a 1-for-one basis (the “Automatic“Automatic Conversion Provisions”Provision”).
F-25


Effective on June 24, 2021 (as to the Series B1 Preferred Stock) and June 25, 2021 (as to the Series B Preferred Stock),10, 2022, the Automatic Conversion ProvisionsProvision of the Series BA Convertible Preferred Stock and Series B1 Preferred Stock werewas triggered, and the 374,337 outstanding shares of the Company’s Series B Preferred Stock and Series B1A Convertible Preferred Stock automatically converted into 374,337 shares of common stock of the Company.

Specifically,Company and on June 10, 2022, all rights of any holder with respect to the 1,783,292 then outstanding shares of the Series BA Convertible Preferred Stock automaticallyso converted, into 1,783,292including the rights, if any, to receive distributions of the Company’s assets terminated, except only for the rights of such holders to receive certificates for the number of whole shares of common stock and the 3,134,889 then outstandinginto which such shares of the Series B1A Convertible Preferred Stock automatically converted into 3,134,889 shares of common stock (or 4,918,181 shares of common stock in total).were converted.

F-26F-21

NOTE 9.  PREFERRED STOCK AND DETACHABLE WARRANTS

The total number of authorized shares of the Company’s preferred stock is 50,000,00050 million shares, $0.001 par value per share. The total number of designated shares of the Company’s Series A Convertible Preferred Stock is 5,000,0005 million (“Series A Preferred”). The total number of designated shares of the Company’s Series B Convertible Preferred Stock is 10,000,000.10 million. The total number of designated shares of the Company’s Series B1 Convertible Preferred Stock is 17,000,000.17 million. The total number of designated shares of Series C Convertible Preferred Stock is 44,000. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, there were 385,6010 and 419,859386 thousand shares, respectively, of Series A Preferred Stock issued and outstanding. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, there were 4,102,690 and 4,102,690 shares issued and 0 and 4,102,690no shares of Series B , B1 and C Preferred Stock outstanding, respectively. As of September 30, 2021 and December 31, 2020, there were 7,399,649 and 7,399,649 shares issued and 0 and 7,399,649 shares of Series B1 Preferred Stock outstanding, respectively.outstanding.
Series B Preferred Stock and Temporary Equity
The following table represents the activity related to the Series B Preferred Stock, classified as Temporary Equity on the accompanying unaudited consolidated balance sheet, during the nine months ended September 30, 2021 and 2020:
20212020
Balance at beginning of period$12,718,339 $11,006,406 
Less: conversions of shares to common(8,446,837)— 
Less: exchanges of shares to common(4,747,250)— 
Plus: discount accretion— 854,364 
Plus: dividends in kind475,748 547,349 
Balance at end of period$— $12,408,119 

At September 30, 2021 and December 31, 2020, a total of $0 and $317,970 of dividends were accrued on our outstanding Series B Preferred Stock, respectively. During the three months ended September 30, 2021 and 2020, we paid dividends in-kind in additional shares of Series B Preferred Stock of $0 and $188,837, respectively. Because such preferred stock was not redeemed on June 24, 2020, the preferred stock accrued a 10% per annum dividend (payable in-kind at the option of the Company), until such preferred stock was redeemed or converted into common stock, which preferred stock was automatically converted into common stock effective on June 25, 2021.
Series B1 Preferred Stock and Temporary Equity

The following table represents the activity related to the Series B1 Preferred Stock, classified as Temporary Equity on the accompanying unaudited consolidated balance sheet, for the nine months ended September 30, 2021 and 2020:
20212020
Balance at beginning of period$11,036,173 $12,743,047 
Less: conversions of shares to common(12,046,441)(3,368,474)
Plus: discount accretion507,282 646,031 
Plus: dividends in kind502,986 546,557 
Balance at end of period$— $10,567,161 

As of September 30, 2021 and December 31, 2020, respectively, a total of $0 and $288,594 of dividends were accrued on our outstanding Series B1 Preferred Stock. During the three months ended September 30, 2021 and 2020, we paid dividends in-kind in additional shares of Series B1 Preferred Stock of $0 and $171,380, respectively. Because such preferred stock was not redeemed on June 24, 2020, the preferred stock accrued a 10% per annum dividend (payable in-kind at the option of the Company), until such preferred stock was redeemed or converted into common stock, which preferred stock was automatically converted into common stock effective on June 24, 2021.

The Series B1 Warrants were revalued at September 30, 2021 and December 31, 2020 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 $1,072,620 and $330,412, respectively. The Dynamic Black Scholes Merton inputs used were: expected dividend rate of 0%, expected volatility of 66%-202%, risk free interest rate of 4.50% and expected term of 0.25 years. The
F-27

Series B Warrants expired pursuant to their terms on December 24, 2020. The Series B1 Warrants will expire pursuant to their terms on November 13, 2021.

The following is an analysis of changes in the derivative liability for the nine months ended September 30:
Level Three Roll-Forward
20212020
Balance at beginning of period$330,412 $1,969,216 
Value of warrants exercised(10,637,914)— 
Change in valuation of warrants11,380,122 (1,844,369)
Balance at end of period$1,072,620 $124,847 

NOTE 10.  SEGMENT REPORTING
The Company’s reportable segments include the (1) Black Oil, (2) Refining and Marketing, and (3) Recovery segments.

(1) The Black Oil segment consists primarily of the sale of (a) petroleum products which include base oil and industrial fuels—which consist of used motor oils, cutterstock and fuel oil generated by our facilities; (b) oil collection services—which consist of used oil sales, burner fuel sales, antifreeze sales and service charges; (c) the sale of other re-refinery products including asphalt, condensate, recovered products, and used motor oil; (d) transportation revenues; and (e) the sale of VGO (vacuum gas oil)/marine fuel.

(2) The Refining and Marketing segment consists primarily of the sale of pygas;gasoline, diesel and jet fuel produced at our Mobile refinery as well as pygas and industrial fuels, which are produced at a third-party facility; and distillates.facility.

(3) The Recovery segment consists primarily of revenues generated from the sale of ferrous and non-ferrous recyclable Metal(s) products that are recovered from manufacturing and consumption. It also includes revenues generated from trading/marketing of Group III Base Oils.

We also disaggregate our revenue by product category for each of our segments, as we believe such disaggregation helps depict how our revenue and cash flows are affected by economic factors.

Segment information for the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 is as follows:follows (in thousands):

F-28F-22

THREE MONTHS ENDED SEPTEMBER 30, 2021
THREE MONTHS ENDED JUNE 30, 2022THREE MONTHS ENDED JUNE 30, 2022
Black OilRefining &
Marketing		RecoveryTotalBlack OilRefining &
Marketing		RecoveryTotal
Revenues:Revenues:Revenues:
GasolinesGasolines$— $255,909 $— $255,909 
Jet FuelsJet Fuels— 143,688 — 143,688 
DieselDiesel— 322,317 — 322,317 
PygasPygas$— $3,736,534 $— $3,736,534 Pygas— 20,685 — 20,685 
Industrial fuel— 417,096 — 417,096 
Distillates (1)
— 20,418,760 — 20,418,760 
Oil collection servicesOil collection services158,676 — 158,676 Oil collection services26 — — 26 
Metals (2)
— — 3,669,411 3,669,411 
Other re-refinery products (3)
— — 285,994 285,994 
Metals (1)
Metals (1)
— — 4,318 4,318 
Other refinery products (2)
Other refinery products (2)
666 72,460 877 74,003 
VGO/Marine fuel salesVGO/Marine fuel sales288,000 — — 288,000 VGO/Marine fuel sales19,562 151,331 — 170,893 
Total revenuesTotal revenues446,676 24,572,390 3,955,405 28,974,471 Total revenues20,254 966,390 5,195 991,839 
Cost of revenues (exclusive of depreciation and amortization shown separately below)Cost of revenues (exclusive of depreciation and amortization shown separately below)402,988 23,897,264 3,761,246 28,061,498 Cost of revenues (exclusive of depreciation and amortization shown separately below)20,147 959,767 4,528 984,442 
Depreciation and amortization attributable to costs of revenuesDepreciation and amortization attributable to costs of revenues18,420 29,844 78,531 126,795 Depreciation and amortization attributable to costs of revenues31 3,009 82 3,122 
Gross profit (loss)25,268 645,282 115,628 786,178 
Gross profitGross profit76 3,614 585 4,275 
Selling, general and administrative expensesSelling, general and administrative expenses3,675,190 1,034,024 235,505 4,944,719 Selling, general and administrative expenses12,027 23,597 1,017 36,641 
Depreciation and amortization attributable to operating expensesDepreciation and amortization attributable to operating expenses26,916 — — 26,916 Depreciation and amortization attributable to operating expenses27 736 — 763 
Loss from operationsLoss from operations$(3,676,838)$(388,742)$(119,877)$(4,185,457)Loss from operations$(11,978)$(20,719)$(432)$(33,129)

THREE MONTHS ENDED SEPTEMBER 30, 2020
 Black OilRefining &
Marketing		RecoveryTotal
Revenues:
Pygas$— $1,184,434 $— $1,184,434 
Industrial fuel— 82,644 — 82,644 
  Distillates (1)
— 12,234,673 — 12,234,673 
Oil collection services— — — — 
  Metals (2)
— — 2,459,561 2,459,561 
  Other re-refinery products (3)
— — — — 
VGO/Marine fuel sales288,000 — — 288,000 
Total revenues288,000 13,501,751 2,459,561 16,249,312 
Cost of revenues (exclusive of depreciation and amortization shown separately below)189,947 13,217,757 1,917,210 15,324,914 
Depreciation and amortization attributable to costs of revenues3,985 31,829 79,748 115,562 
Gross profit94,068 252,165 462,603 808,836 
Selling, general and administrative expenses987,424 696,611 148,032 1,832,067 
Depreciation and amortization attributable to operating expenses26,916 1,086 — 28,002 
Income (loss) from operations$(920,272)$(445,532)$314,571 $(1,051,233)

THREE MONTHS ENDED JUNE 30, 2021
Black OilRefining &
Marketing		RecoveryTotal
Revenues:
Gasolines$— $6,083 $— $6,083 
Diesel— 13,481 — 13,481 
Pygas— 3,862 — 3,862 
Industrial fuel— 410 — 410 
Oil collection services155 — — 155 
Metals (1)
— — 6,151 6,151 
Other refinery products (2)
— — 86 86 
Total revenues155 23,836 6,237 30,228 
Cost of revenues (exclusive of depreciation and amortization shown separately below)363 22,248 5,430 28,041 
Depreciation and amortization attributable to costs of revenues19 31 66 116 
Gross profit (loss)(227)1,557 741 2,071 
Selling, general and administrative expenses3,281 687 209 4,177 
Depreciation and amortization attributable to operating expenses27 — — 27 
Income (loss) from operations$(3,535)$870 $532 $(2,133)

F-29F-23

NINE MONTHS ENDED SEPTEMBER 30, 2021
SIX MONTHS ENDED JUNE 30, 2022SIX MONTHS ENDED JUNE 30, 2022
Black OilRefining &
Marketing		RecoveryTotalBlack OilRefining &
Marketing		RecoveryTotal
Revenues:Revenues:Revenues:
GasolineGasoline$— $263,458 $— $263,458 
Jet FuelsJet Fuels— 143,688 — 143,688 
DieselDiesel— 344,225 — 344,225 
PygasPygas$— $10,570,907 $— $10,570,907 Pygas— 25,375 — 25,375 
Industrial fuelIndustrial fuel— 1,138,311 — 1,138,311 Industrial fuel— 572 — 572 
Distillates (1)
— 55,973,816 — 55,973,816 
Oil collection servicesOil collection services436,220 — 3,423 439,643 Oil collection services240 — — 240 
Metals (2)
— — 15,464,375 15,464,375 
Other re-refinery products (3)
— — 372,424 372,424 
Metals (1)
Metals (1)
— — 7,733 7,733 
Other refinery products (2)
Other refinery products (2)
666 72,460 1,410 74,536 
VGO/Marine fuel salesVGO/Marine fuel sales864,000 — — 864,000 VGO/Marine fuel sales20,898 151,331 — 172,229 
Total revenuesTotal revenues1,300,220 67,683,034 15,840,222 84,823,476 Total revenues21,804 1,001,109 9,143 1,032,056 
Cost of revenues (exclusive of depreciation and amortization shown separately below)Cost of revenues (exclusive of depreciation and amortization shown separately below)1,045,608 64,503,727 13,770,343 79,319,678 Cost of revenues (exclusive of depreciation and amortization shown separately below)21,797 992,854 8,357 1,023,008 
Depreciation and amortization attributable to costs of revenuesDepreciation and amortization attributable to costs of revenues56,983 97,658 204,264 358,905 Depreciation and amortization attributable to costs of revenues47 3,033 156 3,236 
Gross profit (loss)Gross profit (loss)197,629 3,081,649 1,865,615 5,144,893 Gross profit (loss)(40)5,222 630 5,812 
Selling, general and administrative expensesSelling, general and administrative expenses9,030,142 2,481,541 600,268 12,111,951 Selling, general and administrative expenses19,438 24,721 1,264 45,423 
Depreciation and amortization attributable to operating expensesDepreciation and amortization attributable to operating expenses80,748 — — 80,748 Depreciation and amortization attributable to operating expenses54 736 — 790 
Income (loss) from operations$(8,913,261)$600,108 $1,265,347 $(7,047,806)
Loss from operationsLoss from operations$(19,532)$(20,235)$(634)$(40,401)







NINE MONTHS ENDED SEPTEMBER 30, 2020
SIX MONTHS ENDED JUNE 30, 2021SIX MONTHS ENDED JUNE 30, 2021
Black OilRefining &
Marketing		RecoveryTotalBlack OilRefining &
Marketing		RecoveryTotal
Revenues:Revenues:Revenues:
GasolineGasoline$— $10,494 $— $10,494 
DieselDiesel— 25,060 — 25,060 
PygasPygas$— $4,815,040 $— $4,815,040 Pygas— 6,835 — 6,835 
Industrial fuelIndustrial fuel— 135,396 — 135,396 Industrial fuel— 721 — 721 
Distillates (1)
— 17,359,234 — 17,359,234 
Oil collection servicesOil collection services— — — — Oil collection services278 — 3 281 
Metals (2)
— — 7,286,936 7,286,936 
Other re-refinery products (3)
— — 0— 
VGO/Marine fuel sales864,000 — — 864,000 
Metals (1)
Metals (1)
— — 11,796 11,796 
Other refinery products (2)
Other refinery products (2)
— — 86 86 
Total revenuesTotal revenues864,000 22,309,670 7,286,936 30,460,606 Total revenues278 43,110 11,885 55,273 
Cost of revenues (exclusive of depreciation and amortization shown separately below)Cost of revenues (exclusive of depreciation and amortization shown separately below)$567,898 $21,750,686 $6,280,290 28,598,874 Cost of revenues (exclusive of depreciation and amortization shown separately below)643 40,198 10,009 50,850 
Depreciation and amortization attributable to costs of revenuesDepreciation and amortization attributable to costs of revenues3,985 101,152 222,535 327,672 Depreciation and amortization attributable to costs of revenues39 63 126 228 
Gross profit292,117 457,832 784,111 1,534,060 
Gross profit (loss)Gross profit (loss)(404)2,849 1,750 4,195 
Selling, general and administrative expensesSelling, general and administrative expenses3,780,366 1,867,028 396,656 6,044,050 Selling, general and administrative expenses5,223 1,447 365 7,035 
Depreciation and amortization attributable to operating expensesDepreciation and amortization attributable to operating expenses44,860 3,258 — 48,118 Depreciation and amortization attributable to operating expenses54 — — 54 
Income (loss) from operationsIncome (loss) from operations$(3,533,109)$(1,412,454)$387,455 $(4,558,108)Income (loss) from operations$(5,681)$1,402 $1,385 $(2,894)

(1) Distillates are finished fuel products such as gasoline and diesel fuels.
F-30

(2) Metals consist of recoverable ferrous and non-ferrous recyclable metals from manufacturing and consumption. Scrap metal can be recovered from pipes, barges, boats, building supplies, surplus equipment, tanks, and other items consisting of metal composition. These materials are segregated, processed, cut-up and sent back to a steel mill for re-purposing.
(3)(2) Other re-refinery products include the sales of asphalt, condensate, recovered products, and other petroleum products.
F-24


NOTE 11. INCOME TAXES
Our effective tax rate of 0% on pretax income differs from the U.S. federal income tax rate of 21% because of the change in our valuation allowance.
The year to date loss at SeptemberJune 30, 20212022 puts the Company in an accumulated loss position for the cumulative 12 quarters then ended. For tax reporting purposes, we have net operating losses (“NOLs”NOLs”) of approximately $38.9$146 million as of SeptemberJune 30, 20212022 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 generated pre-tax loss of approximately $2.3$65 million from January 1, 20212022 through SeptemberJune 30, 2021.2022.

NOTE 12. COMMODITY DERIVATIVE INSTRUMENTS

The Company utilizes derivative instruments to manage its exposure to fluctuations in the underlying commodity prices of its inventory. The Company’s management sets and implements hedging policies, including volumes, types of instruments and counterparties, to support oil prices at targeted levels and manage its exposure to fluctuating prices.

The Company’s derivative instruments consist of swapoption and futures arrangements for oil. In a commodity swap agreement, if the agreed-upon published third-party index price (“index price”) is lower than the swap fixed price, the Company receives the difference between the index priceFor option and the swap fixed price. If the index price is higher than the swap fixed price, the Company pays the difference. For futures arrangements, the Company receives the difference positive or negative between an agreed-upon strike price and the market price.

The mark-to-market effects of these contracts as of SeptemberJune 30, 20212022 and December 31, 2020,2021, are summarized in the following table. The notional amount is equal to the total net volumetric derivative position during the period indicated. The fair value of the crude oil futures agreements is based on the difference between the strike price and the New York Mercantile Exchange and Brent Complex futures price for the applicable trading months.
As of September 30, 2021
As of June 30, 2022As of June 30, 2022
Contract TypeContract TypeContract PeriodWeighted Average Strike Price (Barrels)Remaining Volume (Barrels)Fair ValueContract TypeContract PeriodWeighted Average Strike Price (Barrels)Remaining Volume (Barrels)Fair Value
(in thousands)
SwapSwapAug. 2022- Oct. 2022$14.77 3,220 $(47,773)
OptionsOptionsAug 2022 - Aug 2022$6.98 63 $1,048 
FuturesFuturesAug 2022 - Aug 2022$45.79 15 $(17)
FuturesFuturesSep 2022 - Sep 2022$44.42 13 $41 
FuturesFuturesSep. 2021- Oct. 2021$98.22 35,000 $(155,929)FuturesJune 2022 - June 2022$47.79 9 $165 
As of December 31, 2020
Contract TypeContract PeriodWeighted Average Strike Price (Barrels)Remaining Volume (Barrels)Fair Value
FuturesDec. 2020-Mar. 2021$62.33 55,000 $(94,214)

As of December 31, 2021
Contract TypeContract PeriodWeighted Average Strike Price (Barrels)Remaining Volume (Barrels)Fair Value
(in thousands)(in thousands)
OptionsDec. 2021-Mar. 2022$3.18 18 $136 
FuturesDec. 2021-Mar. 2022$31.59 20 $71 
FuturesDec. 2021-Mar. 2022$32.48 50 $(111)


The carrying values of the Company’s derivatives positions and their locations on the consolidated balance sheets as of SeptemberJune 30, 20212022 and December 31, 20202021 are presented in the table below.
Balance Sheet ClassificationContract Type20212020
Derivative commodity liabilityFutures$(155,929)$(94,214)

F-31F-25

Balance Sheet ClassificationContract Type20222021
Crude oil options$1,048 $136 
Crude oil swaps(47,773)— 
Crude oil futures189 (40)
Derivative commodity assets (liabilities)$(46,536)$96 

For the three months ended SeptemberJune 30, 20212022 and 2020,2021, we recognized a $277,419$94.3 million and $1 million of loss, and a $4,557 gain, respectively, on commodity derivative contracts on the consolidated statements of operations as part of our cost of revenues.

For the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, we recognized a $2,204,606$93.7 million and $1.9 million of loss, and a $4,489,355 gain, respectively, on commodity derivative contracts on the consolidated statements of operations as part of our cost of revenues.

NOTE 13. LEASES

Finance Leases

Finance leases are included inOn April 1, 2022, the Company entered into one finance lease and the balance of finance lease right-of-use lease assets and finance lease liability current and long-term liabilities on the unaudited consolidated balance sheets. is $44.4 million at June 30, 2022. The associated amortization expenses for the three months ended SeptemberJune 30, 2022 and 2021 were $0.8 million and 2020 were $3,258 and $3,258,$1.1 thousand, respectively, and are included in depreciation and amortization on the unaudited consolidated statements of operations. The associated interest expense for the three months ended SeptemberJune 30, 20212022 and 20202021 were $0$0.8 million and $74,$14 thousand, respectively, and are included in interest expense on the unaudited consolidated statements of operations. The associated amortization expenses for the ninesix months ended SeptemberJune 30, 2022 and 2021 were $0.8 million and 2020 were $9,774 and $9,774,$2.2 thousand, respectively, and are included in depreciation and amortization on the unaudited consolidated statements of operations. The associated interest expense for the ninesix months ended SeptemberJune 30, 20212022 and 20202021 were $16$1.4 million and $359,$23 thousand, respectively, and are included in interest expense on the unaudited consolidated statements of operations. Please see “Note 6. Line of Credit and Long-Term DebtFinancing Arrangements” for more details.
Operating Leases
Operating leases are included in operating lease right-of-use lease assets, and operating current and long-term lease liabilities on the consolidated balance sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease expense is recognized in the period in which the obligation for those payments is incurred. Lease expense for equipment is included in cost of revenues and other rents are included in selling, general and administrative expense on the unaudited consolidated statements of operations and are reported net of lease income. Lease income is not material to the results of operations for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020.2021. Total operating lease costs for both the three months ended SeptemberJune 30, 2022 and 2021 were $0.25 million and 2020 were $218,176 and $203,969,$0.2 million, respectively. Total operating lease costs for both the ninesix months ended SeptemberJune 30, 2022 and 2021 were $0.5 million and 2020 were $646,310 and $596,449,$0.4 million, respectively.
Cash Flows
Cash paid for amounts included in operating lease liabilities including some small leases with initial terms less than twelve months was $0.4$0.5 million and $1.6$0.4 million during the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, and is included in operating cash flows. Cash paid for amounts included in finance lease was $91,893$107 thousand and $93,438$134 thousand during the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and is included in financing cash flows.
Maturities of our lease liabilities for all operating leases are as follows as of SeptemberJune 30, 2021:2022 (in thousands):
September 30, 2021
FacilitiesEquipmentPlantTotal
Year 1$214,937 $7,500 $650,257 $872,694 
Year 2195,017 7,500 650,257 852,774 
Year 338,400 7,500 650,257 696,157 
Year 438,400 4,375 650,257 693,032 
Year 512,800 — 650,257 663,057 
Thereafter— — 3,684,844 3,684,844 
Total lease payments$499,554 $26,875 $6,936,129 $7,462,558 
Less: interest(58,160)(2,626)(2,551,660)(2,612,446)
Present value of operating lease liabilities$441,394 $24,249 $4,384,469 $4,850,112 
F-26

June 30, 2022
FacilitiesEquipmentPlantTotal
Year 1$244 $8 $702 $954 
Year 2105 7 701 813 
Year 347 6 701 754 
Year 411 — 701 712 
Year 5— — 701 701 
Thereafter— — 3,331 3,331 
Total lease payments407 21 6,837 7,265 
Less: interest(33)(1)(2,462)(2,496)
Present value of operating lease liabilities$374 $20 $4,375 $4,769 

The weighted average remaining lease terms and discount rates for all of our operating leases were as follows as of SeptemberJune 30, 2021:
F-32

2022:
Remaining lease term and discount rate:SeptemberJune 30, 20212022
Weighted average remaining lease terms (years)
   Lease facilities5.201.62
   Lease equipment0.602.84
   Lease plant11.509.37
Weighted average discount rate
   Lease facilities9.059.16 %
   Lease equipment8.00 %
   Lease plant9.37 %
Significant Judgments
Significant judgments include the discount rates applied, the expected lease terms, lease renewal options and residual value guarantees. There are several leases with renewal options or purchase options.
The purchase options are not expected to have a material impact on the lease obligation. There are several facility and plant leases which have lease renewal options from one to twenty years.
The largest facilityplant lease has an initial term through 2032. That lease does not have an extension option. The 2 plant leases both have multiple 5-year extension options for a total of 20 years. NaNThe extension options haveoption has been included in the lease right-of-use asset and lease obligation.
The Company will reassess the lease terms and purchase options when there is a significant change in circumstances or when the Company elects to exercise an option that had previously been determined that it was not reasonably certain to do so.
NOTE 14. SHARE PURCHASE, AND SUBSCRIPTION AGREEMENTS AND MOBILE REFINERY ACQUISITION

Completion of Myrtle Grove Share Purchase and Subscription Agreement
Amounts received by On April 1, 2022, the Company, through Vertex Splitter Corporation (“Vertex Splitter”), a wholly-owned subsidiary of the Company acquired the 15% noncontrolling interest of Vertex Refining Myrtle Grove LLC (“MG SPV from its direct sale of Class B Units to”) held by Tensile-Myrtle Grove Acquisition Corporation (“Tensile-MG”Tensile-MG”), an affiliate of Tensile Capital Partners Master Fund LP, an investment fund based in San Francisco, California (“Tensile”Tensile”) may only be usedfrom Tensile-Vertex for additional investments$7.2 million, which was based on the value of the Class B Unit preference of MG SPV held by Tensile-MG, plus capital invested by Tensile-MG in MG SPV (which had not been returned as of the date of payment), plus cash and cash equivalents held by Tensile-MG as of the closing date. As a result, the Company acquired 100% of MG SPV, which in turn owns the Company’s former Belle Chasse, Louisiana, re-refining complex (the “MG Refinery”) or for day to day operations at the MG Refinery. At September 30, 2021, $0.05 million reported as cash and cash equivalents on the balance sheet is restricted to MG Refinery investments or operating expenses.
The Class B Unit holders may force MG SPV to redeem the outstanding Class B Units at any time on or after the earlier of (a) the fifth anniversary of July 26, 2019 (the “MG Closing Date”) and (ii) the occurrence of a Triggering Event (defined below)(an “MG Redemption”). The cash purchase price for such redeemed Class B Units is the greater of (y) the fair market value of such units (without discount for illiquidity, minority status or otherwise) as determined by a qualified third party agreed to in writing by a majority of the holders seeking an MG Redemption and Vertex Operating (provided that Vertex Operating still owns Class A Units on such date) and (z) the original per-unit price for such Class B Units plus any unpaid Class B preference. The preference is defined as the greater of (A) the aggregate unpaid “Class B Yield” (equal to an annual return of 22.5% per annum) and (B) an amount equal to fifty percent (50%) of the aggregate capital invested by the Class B Unit holders. The Company did not pay the preferential yield during the nine months ended September 30, 2021. “Triggering Events” mean (a) any dissolution, winding up or liquidation of the Company, Vertex Operating or any significant subsidiary of Vertex Operating, (b) any sale, lease, license or disposition of any material assets of the Company, Vertex Operating or any significant subsidiary of Vertex Operating, (c) any transaction or series of related transactions (whether by merger, exchange, contribution, recapitalization, consolidation, reorganization, combination or otherwise) involving the Company, Vertex Operating or any significant subsidiary of Vertex Operating, the result of which is that the holders of the voting securities of the relevant entity as of the Closing Date are no longer the beneficial owners, in the aggregate, after giving effect to such transaction or series of transactions, directly or indirectly, of more than fifty percent (50%) of the voting power of the outstanding voting securities of the entity, subject to certain other requirements set forth in the MG Company Agreement, (d) the failure to consummate the Heartland Closing (defined below) by June 30, 2020 (a “Failure to Close”), provided that such Heartland Closing was consummated by June 30, 2020, (e) the failure of Vertex Operating to operate MG SPV in good faith with appropriatecomplex.
F-33

resources, or (f) the material failure of the Company and its affiliates to comply with the terms of the contribution agreement, whereby the Company contributed assets and operations to MG SPV. No triggering events occurred during the nine months ended September 30, 2021.
Myrtle Grove Redeemable Noncontrolling Interest

As a result of the Share Purchase and Subscription Agreement (the “MG Share Purchase”), Tensile, through Tensile-Myrtle Grove Acquisition Corporation, acquired an approximate 15.58% ownership interest in Vertex Refining Myrtle Grove LLC, a Delaware limited liability company, which entity was formed as a special purpose vehicle in connection with the transactions. This is considered a redeemable noncontrolling equity interest, as it is redeemable in the future and not solely within our control.

After initial recognition, inIn accordance with ASC 480-10-S99-3A, the Company applied a two-step approach to measure noncontrolling interests associated with MG SPV at the balance sheet date. First, the Company applied the measurement guidance in ASC 810-10 by attributing a portion of the subsidiary’s net loss of $200,218$38 thousand to the noncontrolling interest. Second, the Company applied the subsequent measurement guidance in ASC 480-10-S99-3A, which indicates that the noncontrolling interest’s carrying amount is the higher of (1) the cumulative amount that would result from applying the measurement guidance in ASC 810-10 in the first step or (2) the redemption value. Pursuant to ASC 480-10-S99-3A, for a security that is probable of becoming redeemable in the future, the Company adjusted the carrying amount of the redeemable noncontrolling interests to what would
F-27

be the redemption value assuming the security was redeemable at the balance sheet date. This accretion adjustment of $1,176,683$0.4 million increased the carrying amount of redeemable noncontrolling interests to the redemption value as of September 30, 2021April 1, 2022 of $6,449,306.$7.2 million. Adjustments to the carrying amount of redeemable noncontrolling interests to redemption value are reflected in retained earnings.
The table below presents the reconciliation of changes in redeemable noncontrolling interest relating to MG SPV as of SeptemberJune 30, 2022 and 2021 and 2020.(in thousands):
September 30, 2021September 30, 2020June 30, 2022June 30, 2021
Beginning balanceBeginning balance$5,472,841 $4,396,894 Beginning balance$6,812 $5,473 
Net loss attributable to redeemable non-controlling interestNet loss attributable to redeemable non-controlling interest(200,218)(120,031)Net loss attributable to redeemable non-controlling interest(38)(129)
Change in ownership— 71,171 
Accretion of non-controlling interest to redemption valueAccretion of non-controlling interest to redemption value1,176,683 833,354 Accretion of non-controlling interest to redemption value428 762 
Redemption of non-controlling interestRedemption of non-controlling interest(7,202)0
Ending balanceEnding balance$6,449,306 $5,181,388 Ending balance$— $6,106 

Completion of Heartland Share Purchase and Subscription Agreement

On January 17, 2020 (the “Heartland Closing Date”),May 26, 2022, the Company, through Vertex Operating,Splitter acquired the 65% noncontrolling interest of Heartland SPV held by Tensile-Heartland Acquisition Corporationfrom Tensile-Vertex Holdings LLC (“Tensile-Heartland”Tensile-Vertex”), an affiliate of Tensile and solely for $43.5 million, which was based on the purposes of a guaranty, the Company, and Heartland SPV, entered into a Share Purchase and Subscription Agreement (the “Heartland Share Purchase”).

Prior to entering into the Heartland Share Purchase, the Company transferred 100%value of the ownership of Vertex Refining OH, LLC, its indirect wholly-owned subsidiary to Heartland SPV in consideration for 13,500 Class A Units, 13,500 Class A-1 Preferred Units and 11,300 Class B UnitsUnit preference of Heartland SPV held by Tensile-Heartland, plus capital invested by Tensile-Heartland in Heartland SPV (which had not been returned as of the date of payment), plus cash and immediately thereafter contributed 248 Class B Units tocash equivalents held by Tensile-Heartland as of the Company’s wholly-owned subsidiary, Vertex Splitter Corporation,closing date. As a Delaware corporation (“Vertex Splitter”), as a contribution to capital.

Vertex OHresult, the Company acquired 100% of Heartland SPV, which in turn owns the Company’s Columbus, Ohio, Heartland facility, which produces a base oil product that is sold to lubricant packagers and distributors.

Pursuant to the Heartland Share Purchase, Vertex Operating sold Tensile-Heartland the 13,500 Class A Units and 13,500 Class A-1 Preferred Units of Heartland SPV in consideration for $13.5 million. Also, on the Heartland Closing Date, Tensile-Heartland purchased 7,500 Class A Units and 7,500 Class A-1 Units in consideration for $7.5 million (less the expenses of Tensile-Heartland in connection with the transaction) directly from Heartland SPV.

F-34

Concurrently with the closing of the transactions described above, and pursuant to the terms of the Heartland Share Purchase, the Company, through Vertex Operating, purchased 1,000 newly issued Class A Units from MG SPV at a cost of $1,000 per unit ($1 million in aggregate). As a result of this transaction, MG SPV is owned 85.00% by Vertex Operating and 15.00% by Tensile-MG.

The Heartland Share Purchase provides Tensile-Heartland an option, exercisable at its election, at any time, subject to the terms of the Heartland Share Purchase, to purchase up to an additional 7,000 Class A-2 Preferred Units at a cost of $1,000 per Class A-2 Preferred Unit from Heartland SPV.

The Heartland SPV is currently owned 35% by Vertex Operating and 65% by Tensile-Heartland. Heartland SPV is managed by a 5-member Board of Managers, of which 3 members are appointed by Tensile-Heartland and 2 are appointed by the Company. The Class A Units held by Tensile-Heartland are convertible into Class B Units as provided in the Limited Liability Company Agreement of Heartland SPV (the “Heartland Company Agreement”), based on a conversion price (initially 1-for-one) which may be reduced from time to time if new Units of Heartland SPV are issued and will automatically convert into Series B Units upon certain events described in the Heartland Company Agreement.

The Class A-1 and A-2 Preferred Units (“Class A Preferred Units”), which are 100% owned by Tensile-Heartland, accrue a 22.5% per annum preferred return subject to terms of the Heartland Company Agreement (the “Class A Yield”).

Additionally, the Class A Unit holders (common and preferred) may force Heartland SPV to redeem the outstanding Class A Units at any time on or after the earlier of (a) the fifth anniversary of the Heartland Closing Date and (b) the occurrence of a Heartland Triggering Event (defined below)(a “Heartland Redemption”). The cash purchase price for such redeemed Class A Unit will be the greater of (y) the fair market value of such units (without discount for illiquidity, minority status or otherwise) as determined by a qualified third party agreed to in writing by a majority of the holders seeking Heartland Redemption and Vertex Operating (provided that Vertex Operating still owns Class B Units on such date) and (z) the original per-unit price for such Class A Units plus any unpaid Class A preference. The Class A preference is defined as the greater of (A) the aggregate unpaid Class A yield and (B) an amount equal to fifty percent (50%) of the aggregate capital invested by the Class A Unit holders through such Heartland Redemption date. “Heartland Triggering Events” include (a) any termination of an Administrative Services Agreement entered into with Tensile, pursuant to its terms and/or any material breach by us of the environmental remediation and indemnity agreement entered into with Tensile, (b) any dissolution, winding up or liquidation of the Company, Vertex Operating or any significant subsidiary of Vertex Operating, (c) any sale, lease, license or disposition of any material assets of the Company, Vertex Operating or any significant subsidiary of Vertex Operating, or (d) any transaction or series of related transactions (whether by merger, exchange, contribution, recapitalization, consolidation, reorganization, combination or otherwise) involving the Company, Vertex Operating or any significant subsidiary of Vertex Operating, the result of which is that the holders of the voting securities of the relevant entity as of the Heartland Closing Date are no longer the beneficial owners, in the aggregate, after giving effect to such transaction or series of transactions, directly or indirectly, of more than fifty percent (50%) of the voting power of the outstanding voting securities of the entity, subject to certain other requirements set forth in the Heartland Company Agreement.

In the event that Heartland SPV fails to redeem such Class A Units within 180 days after a redemption is triggered, the Class A Yield is increased to 25% until such time as such redemption is completed (with such increase being effective back to the original date of a notice of redemption). In addition, in such event, the Class A Unit holders may cause Heartland SPV to initiate a process intended to result in a sale of Heartland SPV.

Distributions of available cash of Heartland SPV pursuant to the Heartland Company Agreement (including pursuant to liquidations of Heartland SPV), subject to certain exceptions set forth therein, are to be made (a) first, to the holders of the Class A Preferred Units, in an amount equal to the Class A preference; (b) second, the Class A Preferred Unit holders, together as a separate and distinct class, are entitled to receive an amount equal to the aggregate Heartland Invested Capital; (c) third, the Class B Unitholders (other than Class B Unitholders which received Class B Units upon conversion of Class A Preferred Units), together as a separate and distinct class, are entitled to receive all or a portion of any distribution equal to the sum of all distributions made under sections (a) and (b) above; and (d) fourth, to the holders of Units who are eligible to receive such distributions in proportion to the number of Units held by such holders.

Heartland Variable interest entity

The Company has assessed the Heartland SPV under the variable interest guidance in ASC 810. The Company determined that the Class A Units are not at risk due to a 22.5% preferred return and a redemption provision that, if elected, would require Heartland SPV to repurchase the Class A Units at their original cost plus the preferred return. The Company further determined that as a minority shareholder, holding only 35% of the voting rights, the Company does not have the ability to direct the
F-35

activities of Heartland SPV that most significantly impact the entity’s performance. Based on this assessment, the Company concluded that Heartland SPV is a variable interest entity.

In assessing if the Company is the primary beneficiary of Heartland SPV, the Company determined that certain provisions of the Heartland Company Agreement prohibiting the transfer of its Class B Units result in the Class A Unit holders being related parties under the de facto agents criteria in ASC 810. The Company and the Class A Unit holders, as a group, have the power to direct the significant activities of Heartland SPV and the obligations to absorb the losses and the right to receive the benefits that could potentially be significant to Heartland SPV. The Company concluded that substantially all of the activities of Heartland SPV are conducted on its behalf, and not on behalf of the Class A Unit holders, the decision maker, thus the Company is the primary beneficiary and required to consolidate Heartland SPV in accordance with ASC 810.

The Company’s consolidated financial statements include the assets, liabilities and results of operations of Heartland SPV for which the Company is the primary beneficiary. The other equity holders’ interests are reflected in net loss attributable to noncontrolling interests and redeemable noncontrolling interest in the consolidated statements of income and noncontrolling interests in the consolidated balance sheets.
The following table summarizes the carrying amounts of Heartland SPV’s assets and liabilities included in the Company’s consolidated balance sheets at September 30, 2021 and December 31, 2020:
September 30, 2021December 31, 2020
Cash and cash equivalents$7,229,786 $7,890,886 
Accounts receivable, net7,601,929 3,591,468 
Inventory927,810 629,667 
Prepaid expense and other current assets1,567,763 926,203 
   Total current assets17,327,288 13,038,224 
Fixed assets, net7,290,467 6,549,139 
Finance lease right-of-use assets805,313 1,031,353 
Operating lease right-of-use assets237,217 299,758 
Intangible assets, net876,440 1,064,624 
Other assets106,643 108,643 
Total assets$26,643,368 $22,091,741 
Accounts payable$2,290,245 $1,753,160 
Accrued expenses630,442 307,340 
Finance lease liability-current692,274 346,029 
Operating lease liability-current181,644 251,037 
   Total current liabilities3,794,605 2,657,566 
Finance lease liability-long term— 643,446 
Operating lease liability-long term55,573 48,721 
Total liabilities$3,850,178 $3,349,733 

The assets of Heartland SPV may only be used to settle the obligations of Heartland SPV, and may not be used for other consolidated entities. The liabilities of Heartland SPV are non-recourse to the general credit of the Company’s other consolidated entities.

re-refining complex.
Heartland Redeemable Noncontrolling Interest

As a result of the Heartland Share Purchase (as defined and discussed above), Tensile, through Tensile-Heartland, acquired an approximate 65.00% ownership interest in Heartland SPV, a Delaware limited liability company, which entity was formed as a special purpose vehicle in connection with the transactions. This is considered a redeemable noncontrolling equity interest, as it is redeemable in the future and not solely within our control.

F-36

The initial carrying amount that is recognized in temporary equity for redeemable noncontrolling interests is the initial carrying amount determined in accordance with the accounting requirements for noncontrolling interests in ASC 810-10. In accordance with ASC 810-10-45-23, changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary are accounted for as equity transactions. Therefore, the Company recognized no gain or loss in consolidated net income and the carrying amount of the noncontrolling interest was adjusted to reflect the change in our ownership interest of the subsidiary. The difference of $9,091,068 between the fair value of the consideration received of $21,000,000 and the carrying amount of the noncontrolling interest determined in accordance with ASC 810-10 of $11,908,932, was recognized in additional paid in capital.

After initial recognition, in accordance with ASC 480-10-S99-3A, the Company applied a two-step approach to measure noncontrolling interests associated with Heartland SPV at the balance sheet date. First, the Company applied the measurement guidance in ASC 810-10 by attributing a portion of the subsidiary’s net income of $7,183,268$6.8 million to the noncontrolling interest. Second, the Company applied the subsequent measurement guidance in ASC 480-10-S99-3A, which indicates that the noncontrolling interest’s carrying amount is the higher of (1) the cumulative amount that would result from applying the measurement guidance in ASC 810-10 in the first step or (2) the redemption value. At September 30, 2021,May 26, 2022, the cumulative amount resulting from the application of the measurement guidance in ASC 810-10 exceededwas $43.5 million. On May 26, 2022, the redemption value of $30,802,527.Company acquired a 65% interest in Heartland SPV from Tensile for $43.5 million.
The table below presents the reconciliation of changes in redeemable noncontrolling interest relating to Heartland SPV as of SeptemberJune 30, 2022 and 2021 and 2020.(in thousands):
September 30, 2021September 30, 2020June 30, 2022June 30, 2021
Beginning balanceBeginning balance$26,138,833 $— Beginning balance$36,635 $26,139 
Initial adjustment of carrying amount of non-controlling interest— 11,908,932 
Net income attributable to redeemable non-controlling interestNet income attributable to redeemable non-controlling interest7,183,268 35,449 Net income attributable to redeemable non-controlling interest6,829 4,783 
Accretion of non-controlling interest to redemption value— 12,802,442 
Redemption of non-controlling interestRedemption of non-controlling interest(43,464)— 
Ending balanceEnding balance$33,322,101 $24,746,823 Ending balance$— $30,922 

The amount of accretion of redeemable noncontrolling interest to redemption value of $1,176,683 is$0.4 million and $0.8 million are presented as an adjustment to net income (loss) attributable to Vertex Energy, Inc., to arrive at net income available(loss) attributable to common shareholders on the consolidated statements of operations which represent the MG SPV and Heartland SPV accretion of redeemable noncontrolling interest to redemption value combined for the ninesix months ended SeptemberJune 30, 2021.2022 and 2021, respectively.
Mobile Refinery Acquisition
F-28

On April 1, 2022, Vertex currently plansOperating assigned its rights to use the proceedsMay 26, 2021 Sale and Purchase Agreement between Vertex Operating and Equilon Enterprises LLC d/b/a Shell Oil Products US, Shell Oil Company and Shell Chemical LP, subsidiaries of Shell plc (“Shell”) (the “Refinery Purchase Agreement”), to Vertex Refining and on the same date, Vertex Refining completed the acquisition of a Mobile, Alabama refinery (the “Mobile Refinery”) from Shell (the “Mobile Acquisition”). On the saleEffective Date, a total of UMO Business$75 million (less $10 million previously paid) was paid by Vertex Refining in consideration for the acquisition of the Mobile Refinery, which amount is subject to pay amounts required to becustomary purchase price adjustments and reimbursement for certain capital expenditures in the amount of approximately $0.4 million, $15.9 million was paid to TensileShell for previously agreed upon capital expenditures and miscellaneous prepaid and reimbursable items, and $130 million was paid to Shell by Vertex Refining in connection with the Company’s planned acquisitionpurchase of certain crude oil inventory and finished products owned by Shell and located at the Mobile Refinery on April 1, 2022 (approximately $124 million of which was funded by Macquarie (defined below) as a result of the ownership interestssimultaneous sale of Tensile held indirectly in two special purpose entities as described above.such inventory to Macquarie pursuant to an Inventory Sales Agreement between Vertex Refining and Macquarie). The Company also paid $8.7 million at closing pursuant to the terms of a Swapkit Purchase Agreement entered into with Shell on May 26, 2021 (the “Swapkit Agreement”), pursuant to which the Company agreed to fund a technology solution comprising the ecosystem required for the Company to run the Mobile Refinery after closing (the “Swapkit”).

Tensile TransactionsThe purchase price allocation is preliminary and subject to change based upon the finalization of our valuation report. The following table summarizes the preliminary determination and recognition of assets acquired (in thousands):

On July 1, 2021, the Operating Agreement of MG SPV was amended to provide that from the date of such agreement until December 31, 2021, the Company (through Vertex Operating), is required to fund the working capital requirements of MG SPV, which advances are initially characterized as debt, but that Tensile MG may convert such debt into additional Class A Units of MG SPV (after December 31, 2021), at $1,000 per unit (the “MG SPV Amendment”).
Financing agreementVertex acquisitionTotal
Inventory$124,311 $5,909 $130,220 
Prepaid assets— 147 147 
Fixed assets— 97,158 97,158 
Total purchase price$124,311 $103,214 $227,525 

On July 1, 2021, Heartland SPV loaned Vertex Operating $7,000,000, which was evidenced by a Promissory Note (the “Heartland Note”). The Heartland Note accrues interest at the applicable federal rate of interest from time to time, increasing to 12% upon an event of default. Amounts borrowed under the Heartland Note are due ninety days after the date of the note or within five (5) days of the closing of the Sale Agreement described below (whichever is earlier), and may be prepaid at any time without penalty. In the event the Heartland Note is not paid on or before the applicable due date, we agreed to use our best efforts to raise the funds necessary to repay the note as soon as possible. The Heartland Note includes customary events of defaults. The Company used the funds borrowed under the Heartland Note, to paydown a portion of the Deposit Note, with the remaining funds coming from a loan from EBC as discussed above.


The following table presents summarized results of operations of Mobile Refinery for the period from April 1, 2022 to June 30, 2022, and are included in the accompanying consolidated statement of operations for the period ended June 30, 2022 (in thousands):

For Three Months Ended June 30, 2022
Revenue$922,196 
Net loss$(24,271)
The following table presents unaudited pro forma results of operations reflecting the acquisition of Mobile Refinery as if the acquisition had occurred as of January 1, 2021.This information has been compiled from current and historical financial statements and is not necessarily indicative of the results that actually would have been achieved had the transaction occurred at the beginning of the periods presented or that may be achieved in the future (in thousands):

For Six Months Ended June 30,
20222021
Revenue$1,670,800 $942,900 
Net income (loss)$30,200 $(24,900)


NOTE 15. INVENTORY FINANCING AGREEMENT

On April 1, 2022, pursuant to an Inventory Sales Agreement entered into between Vertex Refining and Macquarie, Macquarie purchased all the Mobile Refinery Inventory from Vertex Refining for $130 million (which funds, together with cash on hand, were used by Vertex Refining to purchase the Mobile Refinery Inventory from Shell), which Mobile Refinery Inventory then became subject to the terms of the Supply and Offtake Agreement, discussed in detail below. The following table summarizes our outstanding obligations under our inventory financing agreements as of June 30, 2022 (in thousands):

F-37
F-29

June 30, 2022
Obligations under inventory financing agreement$174,607 
Unamortized financing cost(1,750)
Obligations under inventory financing agreement, net$172,857 

Supply and Offtake Agreement

On April 1, 2022 (the “Commencement Date”), Vertex Refining entered into a Supply and Offtake Agreement (the “Supply and Offtake Agreement”) with Macquarie Energy North America Trading Inc., a Delaware corporation (“Macquarie”), pertaining to crude oil supply and offtake of finished products located at the Mobile Refinery acquired on April 1, 2022. On the Commencement Date, pursuant to an Inventory Sales Agreement and in connection with the Supply and Offtake Agreement, Macquarie purchased from Vertex Refining all crude oil and finished products within the categories covered by the Supply and Offtake Agreement and the Inventory Sales Agreement, which were held at the Mobile Refinery and a certain specified third party storage terminal, which were previously purchased by Vertex Refining as part of the acquisition of the Mobile Refinery as discussed in greater detail above.

Pursuant to the Supply and Offtake Agreement, beginning on the Commencement Date and subject to certain exceptions, substantially all of the crude oil located at the Mobile Refinery and at a specified third party storage terminal from time to time will be owned by Macquarie prior to its sale to Vertex Refining for consumption within the Mobile Refinery processing units. Also pursuant to the Supply and Offtake Agreement, and subject to the terms and conditions and certain exceptions set forth therein, Macquarie will purchase from Vertex Refining substantially all of the Mobile Refinery’s output of certain refined products and will own such refined products while they are located within certain specified locations at the Mobile Refinery. Macquarie takes title to the refined products stored in our storage tanks until they are sold to our retail locations or to third parties. We record the inventory owned by Macquarie on our behalf as inventory with a corresponding accrued liability on our balance sheet because we maintain the risk of loss until the refined products are sold to third parties and we have an obligation to repurchase it.

Pursuant to the Supply and Offtake Agreement and subject to the terms and conditions therein, Macquarie may during the term of the Supply and Offtake Agreement procure crude oil and refined products from certain third parties which may be sold to Vertex Refining or third parties pursuant to the Supply and Offtake Agreement and may sell Refined Products to Vertex Refining or third parties (including customers of Vertex Refining).

The obligations of Vertex Refining and any of its subsidiaries under the Supply and Offtake Agreement and related transaction documents are guaranteed by the Company. The obligations of Vertex Refining and any of its subsidiaries under the Supply and Offtake Agreement and related transaction documents are also secured by a Pledge and Security Agreement in favor of Macquarie, discussed below, executed by Vertex Refining. In addition, the Supply and Offtake Agreement also requires that Vertex Refining post and maintain cash collateral (in the form of an independent amount) as security for Vertex Refining’s obligations under the Supply and Offtake Agreement and the related transaction documents. The amount of cash collateral is subject to adjustments during the term.

Pursuant to the Supply and Offtake Agreement, Vertex Refining and Macquarie agreed to cooperate to develop and document, by no later than 180 days after the Commencement Date (September 28, 2022), procedures relating to the unwinding and termination of the agreement and related agreements, in the event of the expiration or early termination of the Supply and Offtake Agreement. The parties also agreed to use commercially reasonable efforts to negotiate mutually agreeable terms for Macquarie’s intermediating of renewable feedstocks and renewable diesel that will be utilized and/or produced by Vertex Refining in connection with and following a planned renewable diesel conversion project at the Mobile Refinery (including providing Macquarie a right of first refusal in connection therewith), for 90 days after the Commencement Date (the “RD Period”), which discussions are ongoing. If, by the end of the RD Period, Macquarie and Vertex Refining, each acting in good faith and in a commercially reasonable manner, have not been able to reach commercial agreement regarding the entry into a renewable diesel intermediation, Vertex Refining may elect to terminate the Supply and Offtake Agreement by providing notice of any such election to Macquarie; provided that no such election may be effective earlier than the date falling 90 calendar days following the date on which such notice is delivered. The agreement is also subject to termination upon the occurrence of certain events, including the termination of certain agreements relating to the delivery of crude oil to and the offtake of products from the Mobile Refinery. Upon an early termination of the Supply and Offtake Agreement, Vertex Refining is required to pay amounts relating to such termination to Macquarie including, among other things, outstanding unpaid amounts, amounts owing with respect to terminating transactions under the Supply and Offtake Agreement and related transaction documents, unpaid ancillary costs, and breakage costs, losses and out-of-pocket costs with respect to the termination, liquidation, maintenance or
F-30

reestablishment, or redeployment of certain hedges put in place by Macquarie in connection with the transactions contemplated by the agreement, and Vertex Refining is required to pay other termination fees and amounts to Macquarie in the event of any termination of the agreement. Additionally, upon the termination of the Supply and Offtake Agreement, the outstanding obligations of Vertex Refining and Macquarie to each other will be calculated and reduced to an estimated net settlement payment which will be subject to true-up when the final settlement payment has been calculated following termination.

The Supply and Offtake Agreement requires Vertex Refining to prepare and deliver certain forecasts, projections and estimates and comply with financial statement delivery obligations and other disclosure obligations. The agreement also requires Vertex Refining to provide Macquarie notice of certain estimated monthly crude oil delivery, crude oil consumption, product production, target inventory levels and product offtake terms, which Macquarie has the right to reject, subject to certain disclosure requirements.

The Supply and Offtake Agreement has a 24 month term following the Commencement Date, subject to the performance of customary covenants, and certain events of default and termination events provided therein (certain of which are discussed in greater detail below), for a facility of this size and type. Additionally, either party may terminate the agreement at any time, for any reason, with no less than 180 days prior notice to the other.

The Supply and Offtake Agreement includes certain customary representations, warranties, indemnification obligations and limitations of liability of the parties for a facility of this size and type, and also requires Vertex Refining to be responsible for certain ancillary costs relating to the Supply and Offtake Agreement and the transactions contemplated thereby. The Supply and Offtake Agreement requires Vertex Refining to comply with various indemnity, insurance and tax obligations, and also includes a prohibition on any amendments to Vertex Refining’s financing agreements which, among other things, adversely affect Macquarie’s rights and remedies under the Supply and Offtake Agreement and related transaction documents without the prior consent of Macquarie; a prohibition on Vertex Refining entering into any financing agreement which would cause Vertex Refining’s specified indebtedness to exceed $10 million without Macquarie’s prior consent, subject to certain exceptions; and a requirement that Vertex Refining not have less than $17.5 million in unrestricted cash for any period of more than three consecutive business days. The Supply and Offtake Agreement includes events of default and termination events, including if the Company ceases to beneficially own, directly or indirectly, 100% of the capital stock of Vertex Refining; the change in ownership of the Company or Vertex Refining resulting in one person or group acquiring 50% or more of the capital stock of the Company or Vertex Refining (as applicable); or a change in a majority of the Board of Directors of the Company or Vertex Refining during any 12 consecutive months, without certain approvals, including the approval of the Board of Directors of the Company or Vertex Refining (as applicable) immediately prior to such change; and a cross default to indebtedness (other than indebtedness under financing agreements) of the Company or Vertex Refining for over $20 million, a cross default to indebtedness under financing agreements of Vertex Refining or the Company, or a final judgment or order being rendered against Vertex Refining or the Company in an amount exceeding $20 million.

The price for crude oil purchased by the Company from Macquarie and for products sold by the Company to Macquarie within each agreed product group, in each case, is equal to a pre-determined benchmark, plus a pre-agreed upon differential, subject to adjustments and monthly true-ups.

Vertex Refining will be required to pay Macquarie various monthly fees in connection with the Supply and Offtake Agreement and related arrangements, including, without limitation, (1) an inventory management fee, calculated based on the value of the inventory owned by Macquarie in connection with the Supply and Offtake Agreement, (2) a lien inventory fee based upon the value of certain inventory on which Macquarie has a lien, (3) a per barrel crude handling fee based upon the volume of crude oil Macquarie sells to Vertex Refining, (4) per barrel crude oil and products intermediation fees for each barrel of crude oil which Macquarie buys from a third party and each barrel of products Macquarie sells to a third party, in each case, in connection with the Supply and Offtake Agreement, and (5) a services fee in respect of which Macquarie agrees to make Crude Oil and Products available to the Company in accordance with the weekly nomination procedure as set forth in the Supply and Offtake Agreement. Vertex Refining will also be responsible for certain payments relating to Macquarie’s hedging of the inventory it owns in connection with the Supply and Offtake Agreement, including the costs of rolling hedges forward each month, as well as any costs (or gains) resulting from a mismatch between the Company’s projected target inventory levels (which provide the basis for Macquarie’s hedge position) and actual month end inventory levels.

In connection with the entry into the Supply and Offtake Agreement, Vertex Refining entered into various ancillary agreements which relate to supply, storage, marketing and sales of crude oil and refined products including, but not limited to the following: Inventory Sales Agreement, Master Crude Oil and Products Agreement, Storage and Services Agreement, and a Pledge and Security Agreement (collectively with the Supply and Offtake Agreement, the “Supply Transaction Documents”). The Company agreed to guarantee the obligations of Vertex Refining and any of its subsidiaries arising under the Supply Transaction Documents pursuant to the entry into a Guaranty in favor of Macquarie.
F-31


Tripartite Agreements

Also on the Commencement Date, Vertex Refining, Macquarie and certain parties subject to crude oil supply and products offtake agreements with Vertex Refining, relating to the Mobile Refinery, entered into various tripartite agreements (the “Tripartite Agreements”), whereby Vertex Refining granted Macquarie the right, on a rolling daily or monthly basis, as applicable, to elect to assume Vertex Refining’s rights and obligations under such crude oil supply and products offtake agreements in connection with the performance of the Supply and Offtake Agreement, and the counterparties thereto are deemed to have consented to Macquarie’s assuming such obligations. Such Tripartite Agreements also provided for certain interpretations of the provisions of such supply and offtake agreements between Vertex Refining and such third parties in connection with Macquarie’s right to elect to assume Vertex Refining’s rights and obligations under such agreements. The Tripartite Agreements remain in place until the termination of the agreements to which they relate, or the earlier termination thereof as set forth in the Tripartite Agreements, including in the event of certain events of default by the parties thereto under the modified crude oil supply and products offtake agreements or the Supply and Offtake Agreement and related transaction documents and also in the event of the termination of the Supply and Offtake Agreement. Macquarie, Vertex Refining and a third party offtaker also entered into a tripartite agreement pursuant to which certain storage capacity within the Mobile Refinery which Macquarie had leased pursuant to the Storage and Services Agreement was effectively made available to such third party consistent with the terms agreed by such party and Vertex Refining in its underlying products offtake agreement. Macquarie, Vertex Refining and a third party storage terminal operator also entered into a tripartite agreement relating to the storage of Macquarie-owned crude oil in such terminal in connection with the Supply and Offtake Agreement.

Guaranty

Vertex Refining’s obligations under the Supply and Offtake Agreement and related transaction documents (other than the hedges which are secured and guaranteed on a pari passu basis under the Loan and Security Agreement) were unconditionally guaranteed by the Company pursuant to the terms of a Guaranty entered into on April 1, 2022, by the Company in favor of Macquarie (the “Guaranty”).

NOTE 15.16. DISCONTINUED OPERATIONS

During the third quarter of 2021, the Company initiated and began executing a strategic plan to sell its UMO Business. An investment banking advisory services firm was engaged and actively marketed this segment. On September 28, 2021, the shareholders approved the proposed sale of its portfolio of used motor oil collection and recycling assets to Safety-Kleen.

The Company met all of the criteria to classify the UMO Business’s assets and liabilities as held for sale in the third quarter 2021. The Company has classified the assets, liabilities, and results of operations for this business as “Discontinued Operations”“Discontinued Operations” for all periods presented.

Disposal of the UMO Business represented a strategic shift that will have a major effect on the Company’s operations and financial results.

On June 29, 2021, the Company announced that it had entered into a definitive agreement to sell its portfolio of used motor oil collection and recycling assets (the UMO business) to Safety-Kleen, a subsidiary of Clean Harbors, Inc. (“Clean Harbors”) for total cash consideration of $140 million, subject to working capital and other adjustments, and subject to certain closing conditions, including regulatory approvals and a shareholder vote. After retiring term debt, together with the payment of transaction-related fees and financial obligations, total net cash proceeds from the transaction to Vertex arewere expected to be approximately $90 million.

The following summarized financial information has been segregated from continuing operations and reported as Discontinued Operations for the three and nine months ended September 30, 2021, and 2020.

Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenues$36,950,919 $21,422,320 $104,956,817 $65,364,581 
Cost of revenues (exclusive of depreciation shown separately below)26,867,718 15,861,769 71,860,804 51,622,468 
Depreciation and amortization attributable to costs of revenues1,294,157 971,258 3,803,216 3,175,134 
Gross profit8,789,044 4,589,293 29,292,797 10,566,979 
Operating expenses:
Selling, general and administrative expenses
  (exclusive of acquisition related expenses)		4,938,494 4,697,503 15,099,782 13,792,598 
Depreciation and amortization expense attributable to operating expenses455,953 681,209 1,367,859 1,593,115 
Total Operating expenses5,394,447 5,378,712 16,467,641 15,385,713 
Income (loss) from operations3,394,597 (789,419)12,825,156 (4,818,734)
Other income (expense)
Other income (expense)— — — 101 
Interest expense(116,099)(137,514)(360,711)(504,997)
Total other income (expense)(116,099)(137,514)(360,711)(504,896)
Income (loss) before income tax3,278,498 (926,933)12,464,445 (5,323,630)
Income tax benefit (expense)— — — — 
Income (loss) from discontinued operations, net of tax3,278,498 $(926,933)$12,464,445 $(5,323,630)


The assets and liabilities held for sale on the Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 are as follows

F-38

September 30, 2021December 31, 2020
ASSETS
Accounts receivable, net$10,756,838 $6,280,086 
Inventory6,119,150 2,981,551 
Prepaid expenses370,184 1,269,310 
Property and equipment, at cost32,188,708 — 
Finance lease right-of-use assets1,209,827 — 
Operating lease right-of use assets28,898,931 — 
Intangible assets, net7,563,036 — 
Other assets563,493 — 
Total current assets87,670,167 10,530,947 
Property and equipment, at cost— 32,517,979 
Finance lease right-of-use assets— 1,518,611 
Operating lease right-of use assets— 28,581,379 
Intangible assets, net— 8,930,895 
Other assets— 615,293 
Total noncurrent assets— 72,164,157 
Assets held for sale$87,670,167 $82,695,104 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable$6,824,664 $8,065,368 
Accrued expenses2,355,719 1,072,873 
Finance lease liability-current686,402 373,529 
Operating lease liability-current28,898,931 4,831,038 
Total current liabilities38,765,716 14,342,808 
Finance lease liability-noncurrent— 630,099 
Operating lease liability-noncurrent— 23,750,341 
Total noncurrent liabilities— 24,380,440 
Liabilities held for sale$38,765,716 $38,723,248 


The Board of Directors considered a number of factors before deciding to enter into the Sale Agreement, including, among other factors, the price to be paid by Safety-Kleen for the UMO Business, the scope of the sale process with respect to the UMO Business that led to entering into the Sale Agreement, the future business prospects of the UMO Business, including the costs to remain competitive and grow, the opinion of H.C. Wainwright & Co., LLC that the terms were fair, from a financial point of view, the then planned acquisition of the Mobile Refinery, and the planned change in business focus associated therewith, and the terms and conditions of the Sale Agreement.

On January 25, 2022, the Company entered into a mutual agreement with Safety-Kleen to terminate the Sale Agreement. In connection with the termination agreement, the Company paid Safety-Kleen a break-up fee of $3 million.
The Company met all ofVertex is continuing to explore opportunities for the criteria to classify the UMO Business’s assets and liabilities as held for sale in the third quarter 2021. The Company has classified the assets, liabilities, and results of operations for this business as “Discontinued Operations” for all periods presented.
Disposal of the UMO business represented a strategic shift that would have a major effect on the Company’sbusiness.
F-32

The following summarized financial information has been segregated from continuing operations and financial results.reported as Discontinued Operations for the three months ended June 30, 2022, and 2021 (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Revenues$59,429 $35,068 $112,459 $68,216 
Cost of revenues (exclusive of depreciation shown separately below)33,585 24,965 65,977 45,611 
Depreciation and amortization attributable to costs of revenues1,332 1,278 2,636 2,513 
Gross profit24,512 8,825 43,846 20,092 
Operating expenses:
Selling, general and administrative expenses  (exclusive of acquisition related expenses)6,243 4,648 11,327 9,716 
Depreciation and amortization expense attributable to operating expenses427 456 872 912 
Total operating expenses6,670 5,104 12,199 10,628 
Income from operations17,842 3,721 31,647 9,464 
Other income (expense)
Interest expense2 (120)(4)(245)
Total other expense2 (120)(4)(245)
Income before income tax17,844 3,601 31,643 9,219 
Income tax benefit (expense)— — — — 
Income from discontinued operations, net of tax$17,844 $3,601 $31,643 $9,219 


The assets and liabilities held for sale on the Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 are as follows (in thousands):

F-39F-33

June 30, 2022December 31, 2021
ASSETS
Accounts receivable, net$15,135 $9,583 
Inventory9,014 5,548 
Prepaid expenses1,953 450 
Total current assets26,102 15,581 
Fixed assets, at cost66,065 63,837 
Less accumulated depreciation(34,388)(32,045)
   Fixed assets, net31,677 31,792 
Finance lease right-of-use assets— 813 
Operating lease right-of use assets27,995 28,260 
Intangible assets, net6,236 7,107 
Other assets484 563 
Assets held for sale92,494 84,116 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable6,156 7,764 
Accrued expenses1,355 1,324 
Finance lease liability-current— 296 
Operating lease liability-current27,996 28,261 
Liabilities held for sale, current$35,507 $37,645 


NOTE 17. FIXED ASSETS, NET
Fixed assets consist of the following (in thousands):
Useful Life
(in years)		June 30, 2022December 31, 2021
Equipment10$75,176 $2,060 
Furniture and fixtures743 40 
Leasehold improvements15338 113 
Office equipment51,167 918 
Vehicles5575 373 
Building202,034 — 
Land improvements20273 0
Construction in progress30,101 10,307 
Land7,015 — 
Total fixed assets116,722 13,811 
Less accumulated depreciation(4,475)(2,045)
Net fixed assets$112,247 $11,766 
The increase in fixed assets is due to the fixed assets acquired by the acquisition of the Mobile Refinery on April 1, 2022. Depreciation expense was $2.4 million and $0.1 million for the three months ended June 30, 2022 and 2021, respectively, for the continued operations. Depreciation expense was $2.5 million and $0.2 million for the six months ended June 30, 2022 and 2021, respectively for the continued operations.
Asset Retirement Obligations:
F-34

The Company has asset retirement obligations with respect to certain of its refinery assets due to various legal obligations to clean and/or dispose of various component parts of each refinery at the time they are retired. However, these component parts can be used for extended and indeterminate periods of time as long as they are properly maintained and/or upgraded. It is the Company’s practice and current intent to maintain its refinery assets and continue making improvements to those assets based on technological advances. As a result, the Company believes that its refinery assets have indeterminate lives for purposes of estimating asset retirement obligations because dates, or ranges of dates, upon which the Company would retire refinery assets cannot reasonably be estimated. When a date or range of dates can reasonably be estimated for the retirement of any component part of a refinery, the Company estimates the cost of performing the retirement activities and records a liability for the fair value of that cost using established present value techniques.
NOTE 18. INTANGIBLE ASSETS, NET

Components of intangible assets (subject to amortization) consist of the following items:
June 30, 2022December 31, 2021
Useful Life
(in years)		Gross
Carrying
Amount
 
Accumulated Amortization
Net
Carrying
Amount		Gross
Carrying
Amount		 
Accumulated Amortization		Net
Carrying
Amount
Software3$9,344 $969 $8,375 $538 $179 $359 
Intangible assets are amortized on a straight-line basis. We continually evaluate the amortization period and carrying basis of intangible assets to determine whether subsequent events and circumstances warrant a revised estimated useful life or reduction in value.
Total amortization expense of intangibles was $763 thousand and $27 thousand for the three months ended June 30, 2022 and 2021, respectively. Total amortization expense of intangibles was $790 thousand and $54 thousand for the six months ended June 30, 2022 and 2021, respectively.
Estimated future amortization expense is as follows (in thousands):
Year 1$3,051 
Year 23,051 
Year 32,273 
Thereafter— 
$8,375 

NOTE 19. ACCRUED LIABILITIES

Accrued expenses and other current liabilities consisted of the following (in thousands):

June 30, 2022December 31, 2021
Accrued purchases$6,440 $553 
Accrued interest2,111 1,594 
Accrued compensation and benefits241 1,082 
Accrued income, real estate, sales and other taxes1,328 389 
RINS liabilities20,389 — 
Environmental liabilities - current51 — 
$30,560 $3,618 

The increase in accrued liabilities from December 31, 2021 is due to the operation of the Mobile Refinery, which was acquired on April 1, 2022.

F-35

NOTE 16.20. SUBSEQUENT EVENTS

Warrant Exercises
Indenture and Convertible Notes

On November 1, 2021, we issued $155.0 millionJuly 11, 2022, 2 holders of warrants to purchase an aggregate principal amount at maturityof 165,000 shares of our 6.25% Convertible Senior Notes due 2027 (the “Convertible Notes”) pursuantcommon stock with an exercise price of $4.50 per share and a holder of warrants to purchase 15,000 shares of our common stock with an Indenture (the “Indenture”), dated November 1,2021, between the Company and U.S. Bank National Association, as trustee (the “Trustee”),exercise price of $9.25 per share, exercised such warrants in a private offering (the “Note Offering”) to persons reasonably believed to be “qualified institutional buyers” and/or to “accredited investors” in reliance on the exemption from registration provided by Section 4(a)(2)cashless exercise (surrendering 81,925 shares of the Securities Act, pursuant to Securities Purchase Agreements.

The net proceeds from the offering, after deducting placement agent fees and estimated offering costs and expenses payable by the Company, were approximately $133.9 million. The Company intends to use approximately (1) $33.7 million of the net proceeds from the offering to fund a portion of the funds payablecommon stock in connection with such exercise, valued based on the Refinery Purchase Agreement, (2) $13.0 million of the net proceeds from the offering for engineering services and for the initial payments of purchase orders for long lead-time equipment associated with a capital project designed to modify the Mobile Refinery’s hydrocracking unit to produce renewable diesel in advance of the purchase, (3) $10.9 million of the net proceeds from the offering to repay amounts owed by the Company under its credit facilities with Encina Business Credit, LLC and certain of its affiliates, and (4) $0.4 million of the net proceeds to repay certain secured equipment leases with certain affiliates of Wells Fargo Bank, National Association. The Company intends to use the remainder of the net proceeds for working capital and other general corporate purposes. which may include debt retirement and organic and inorganic growth initiative, provided that the Company has no current specific plans for such uses.

Key terms of the Convertible Notes are as follows:

•Issuefive day trailing volume weighted average price– 90% of the face amount of each Note.

•Interest rate of 6.25% – The Convertible Notes will bear interest at a rate of 6.25% per year, payable semiannually in arrears on April 1 and October 1 of each year, beginning on April 1, 2022.

•Conversion price of approximately $5.89 – The Convertible Notes will be convertible at an initial conversion rate of 169.9235 shares of Vertex Energy’s common stock, per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $5.89 per share, which represents a conversion premium of approximately 37.5% to the last reported sale price of $4.28 per share of the Company’s common stock, on The Nasdaq Capital Market on October 26, 2021).

•Maturity date –The Convertible Notes will mature on October 1, 2027, unless earlier repurchased, redeemed or converted.

•Conversion – Prior to July 1, 2027,pay the Convertible Notes will be convertible at the option of the holders of the Convertible Notes only upon the satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.

•Cash settlement of principal amountexercise price due in connection with conversions – Upon conversion,therewith), pursuant to the Company will pay or deliver, as the case may be, cash,terms of such warrants, and were issued 98,075 shares of its common stock orstock.
On July 19, 2022, a combinationholder of cash andwarrants to purchase 100 shares of its common stock, at its election, provided that until such time as the Company’s stockholders have approved the issuance of more than 19.99% of our common stock issuable upon conversionwith an exercise price of the Convertible Notes in accordance with the rules of The Nasdaq Capital Market, the Company is required to elect “cash settlement” for all conversions of the Convertible Notes.

•Limited investor put rights – Holders of the Convertible Notes will have the right to require the Company to repurchase$4.50 per share exercised such warrants for cash all or partand was issued 100 shares of their Convertible Notes at a repurchase price equal to 100% of the accreted principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding the repurchase date, upon the occurrence of certain change of control transactions or liquidation, dissolution or common stock delisting events (collectively, a “fundamental change”), subject to certain conditions.

•Optional Redemption – Prior to October 6, 2024, the Convertible Notes will not be redeemable at the Company’s option. On a redemption date occurring on or after October 6, 2024 and on or before the 30 scheduled trading day before the maturity date, the Company may redeem for cash all or part of the Convertible Notes (subject to certain
F-40

restrictions), at its option, if the last reported sale price of our Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides a notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the redemption notice date at a redemption price equal to 100% of the accreted principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No “sinking fund” is provided for the Convertible Notes, which means that we are not required to redeem or retire the Convertible Notes periodically.

•Escrow of proceeds; special mandatory redemption. A total of seventy-five percent (75%) of the net proceeds from the offering were placed into an escrow account to be released to the Company, upon the satisfaction of certain conditions, including the satisfaction or waiver of all of the conditions precedent to the Company’s obligation to consummate the Mobile Acquisition (collectively, the “Escrow Release Conditions”). If the Mobile Acquisition is not consummated on or prior to April 1, 2022, if the Company has not certified to the escrow agent that all conditions precedent to the Company’s obligations to consummate the Mobile Acquisition have been satisfied, or if the Company notifies the trustee and the escrow agent in writing that the agreement relating to the purchase of the Mobile Refinery has been terminated, the Convertible Notes will be subject to a special mandatory redemption equal to 100% of the accreted principal amount of the Convertible Notes, plus accrued and unpaid interest to, but excluding, the special mandatory redemption date, plus interest that would have accrued on the Convertible Notes from the special mandatory redemption date to, and including, the date that is nine (9) months after the special mandatory redemption date. If the Escrow Release Conditions have been satisfied or waived, the Company can request that the escrowed funds be released to the Company.

•Conversion rate increase in certain customary circumstances – The Company will also be required to increase the conversion rate for holders who convert their Convertible Notes in connection with a fundamental change and certain other corporate events or convert their Convertible Notes called for optional redemption (or deemed called for redemption) following delivery by the Company of a notice of optional redemption, in either case, in certain circumstances.

The Convertible Notes are Vertex Energy’s senior unsecured obligations.

The Indenture contains additional customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Convertible Notes then outstanding may declare the entire principal amount of all the Convertible Notes plus accrued and unpaid interest, if any, to be immediately due and payable, provided that in the case of an event of default with respect to the Convertible Notes arising from specified events of bankruptcy or insolvency, 100% of the principal of and accrued and unpaid special interest, if any, on the Convertible Notes will automatically become due and payable.

The Company may elect that the sole remedy for an event of default relating to a failure by it to comply with certain reporting obligations set forth in the Indenture, will after the occurrence of such an event of default consist exclusively of the right to receive additional interest on the Convertible Notes at a rate equal to (i) 1.00% per annum of the principal amount of the Convertible Notes outstanding for each day during the period beginning on, and including, the date on which such event of default first occurred and ending on the earlier of (x) the date on which such event of default is cured or validly waived and (y) the 365th day immediately following, and including, the date on which such event of default first occurred. On the 366th day after such event of default (if the event of default relating to the reporting obligations is not cured or waived prior to such 366th day), the Trustee by notice to us, or the holders of at least 25% in principal amount of the outstanding Convertible Notes by notice to us and the Trustee, may declare 100% of the principal of and accrued and unpaid interest, if any, on all the Convertible Notes to be due and payable.

If on or after the date that is six months after the last original issue date of the Convertible Notes, the Company has not satisfied the reporting conditions (including, for the avoidance of doubt, the requirement for current Form 10 information) set forth in Rule 144(c) and (i)(2) under the Securities Act, or the Convertible Notes are not otherwise able to be traded pursuant to Rule 144 by holders other than the Company’s affiliates or holders that were affiliates of the Company at any time during the three months immediately preceding (as a result of restrictions pursuant to U.S. securities laws or the terms of the Indenture or the Convertible Notes), the Company will pay additional interest on the Convertible Notes at a rate equal to 1.00% per annum of the principal amount of the Convertible Notes outstanding, in each case for each day for which the Company’s failure to file has occurred and is continuing or the Convertible Notes are not otherwise able to be traded pursuant to Rule 144 as described above.stock.

F-41

Initially, a maximum of 36,214,960 shares of common stock may be issued upon conversion of the Convertible Notes, based on the initial maximum conversion rate of 233.6449 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes, which is subject to customary and other adjustments described in the Indenture.

Wells Fargo Equipment Lease-Ohio

On October 29, 2021, the Company repaid in full the amounts owed to Wells Fargo for the equipment lease with the funds raised through the sale of the Convertible Notes described above.


EBC Lenders Paid Off

On November 1, 2021, the Company repaid in full the amounts owed to the EBC Lenders with the fund raised through the sale of the Convertible Notes described above.
F-42F-36

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

Introduction

    This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto and “Part II”,“Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2020,2021, filed with the Securities and Exchange Commission on March 9, 202114, 2022 (the “Annual Report”). The majority of the numbers presented below are rounded numbers and should be considered as approximate.

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

Our logo and some of our trademarks and tradenames are used in this Report. This Report also includes trademarks, tradenames and service marks that are the property of others. Solely for convenience, trademarks, tradenames and service marks referred to in this Report may appear without the ®, ™ and SM symbols. References to our trademarks, tradenames and service marks are not intended to indicate in any way that we will not assert to the fullest extent under applicable law our rights or the rights of the applicable licensors if any, nor that respective owners to other intellectual property rights will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

    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.

Our fiscal year ends on December 31st. Interim results are presented on a quarterly basis for the quarters ended March 31, June 30, and September 30th, the first quarter, second quarter and third quarter, respectively, with the quarter ending December 31st being referenced herein as our fourth quarter. Fiscal 2022 means the year ended December 31, 2022, and fiscal 2021 means the year ended December 31, 2021, fiscal 2020 means the year ended December 31, 2020, and fiscal 2019 means the year ended December 31, 2019.2021.

    Please see the “Glossary of Selected Terms” incorporated by reference hereto as Exhibit 99.1,beginning on page 4 of the Annual Report, for a list of abbreviations and definitions used throughout this Report.

Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “Vertex”, “Vertex Energy” and “Vertex Energy, Inc.” refer specifically to Vertex Energy, Inc. and its consolidated subsidiaries.

In addition, unless the context otherwise requires and for the purposes of this report only:

“BBL” (also “bbl” or “Bbl”) is the abbreviated form for one barrel, 42 U.S. gallons of liquid volume.

“BPD” (also “bpd”) is the abbreviated form for barrels per day. This can refer to designed or actual capacity/throughput.

“BCD” (also “bcd”, “b/cd”) is the abbreviated form of barrels per calendar day; meaning the total number of barrels of actual throughput processed within 24 hours under typical operating conditions.

“Base Oiloil” means the lubricationis a lubricant grade oilsoil initially produced from refining crude oil (mineral base oil) or through chemical synthesis (synthetic base oil). In general, only 1% to 2% of a barrel of crudeused in manufacturing lubricant products such as lubricating greases, motor oil, is suitable for refining into base oil. The majority of the barrel is used to produce gasoline and other hydrocarbons;metal processing fluids.

“CutterstockBlack Oil” means fuelis a term used to describe used lubricating oils, which may be visually characterized as dark in color due to carbon and other residual elements and compounds which accumulate through use. This term can also refer to the business segment within the Company, which manages used motor oil usedrelated operations and processes such as a blending agent added to other fuels. For example, to lower viscosity;purchase, sales, aggregation, processing, and re-refining.

“CrackCatalytic Reforming” means breaking apart crude oilis a process that uses heat, pressure, and a catalyst to convert low-octane naphthas into its component products, including gases like propane, heating fuel,high-octane gasoline light distillates like jet fuel, intermediate distillates like diesel fuel and heavy distillates like grease;

“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;

“Feedstock” means a product or a combination of products derived from crude oil and destined for further processing in the refining or re-refining industries. It is transformed into one or more components and/or finished products;

“Gasoline Blendstock” means naphthas and various distillate products used for blending or compounding into finished motor gasoline. These components can include reformulated gasoline blendstock for oxygenate blending (RBOB) but exclude oxygenates (alcohols and ethers), butane, and pentanes (an organic compound with properties similar to a butane);components.

1

“HydrotreatingCracking” refers to the process of breaking down larger, heavier, and more complex hydrocarbon molecules into simpler and lighter molecules through the use of heat, pressure, and sometimes a catalyst.

“Crude oil distillation” means the process of reactingdistilling vapor from liquid crudes, usually by heating and condensing the vapor slightly above atmospheric pressure turning it back to liquid in order to purify, fractionate or form the desired products.

“Cutterstock” also known as “cutter stock”, refers to any stream that is blended to adjust various properties of the resulting blend.

“Generator” means any person, by site, whose act or process produces used oil fractions with hydrogen in the presence of a catalystor whose act first causes used oil to become subject to regulation. Generators can be service stations, governments or other businesses that produce high-value clean products;or receive used oil.

“IMO 2020” refers to the International Maritime Organization’s rule, effective January 1, 2020, the International Maritime Organization (IMO) mandated a maximum sulphurwhich limited sulfur content of 0.5% in marine fuels globally;used on board ships operating outside designated emission control areas to 0.50% mass by mass.

“MDOLLS” means marine diesel oil, which is a type of fuel oilLouisiana Light Sweet Crude and is a blendgrade of gasoil and heavy fuelcrude oil with less gasoil than intermediate fuel oil used in the maritime field;classified by its low sulfur content.

“NaphthasLPG” means any of various volatile, highly flammable liquid hydrocarbon mixtures used chiefly as solvents and diluents and as raw materials for conversion to gasoline;liquefied petroleum gases.

“PygasLubricant” or “lube” means pyrolysis gasoline, an aromatics-rich gasoline stream produceda solvent-neutral paraffinic product used in sizeable quantities by an ethylene plant. These plants are designed to crack a number of feedstocks, including ethane, propane, naphtha,commercial heavy-duty engine oils, passenger car oils, and gasoil. Pygas can servespecialty products for industrial applications such as a high-octane blendstock for motor gasoline or as a feedstock for an aromatics extraction unit;heat transfer, metalworking, rubber, and other general process oil.

“SECMBL” or the “Commission” refers to the United States Securities and Exchange Commission;means one thousand barrels.

“Securities ActRe-Refining” refers to the Securities Act of 1933,process or industry which uses refining processes and technology with used oil as amended;a feedstock to produce high-quality base stocks and intermediate feedstocks for lubricants, fuels, and other petroleum products.

“VGORefining adjusted EBITDA” refers to Vacuum Gas Oil (also known as cat feed) -a feedstock for a fluid catalytic cracker typically foundrepresents net income (loss) from operations minus depreciation and amortization, unrealized gains and losses on hedging activities, gain and loss on intermediation agreement, and unusual or non-recurring charges included in a crude oil refineryselling, general, and used to make gasoline No. 2 oil and other byproducts.administrative expenses.

“Refining gross margin” is defined as revenues less the cost of fuel intakes and other fuel costs. It excludes operating expenses and depreciation attributable to cost of revenues and other non-operating items included in costs of revenues.

“Refining gross margin per barrel of throughput” is calculated as refining gross margin divided by total throughput barrels for the period presented.

“Reformate” is a gasoline blending stock produced by catalytic reforming.

“Renewable Diesel” means a diesel fuel derived from vegetable oils or animal fats that is produced through various processes, most commonly through hydrotreating, reacting the feedstock with hydrogen under temperatures and pressure in the presence of a catalyst.

“RINs” means renewable identification numbers and refers to serial numbers assigned to credits generated from renewable fuel production under the Environmental Protection Agency’s Renewable Fuel Standard (“RFS”) regulations, which require blending renewable fuels into the nation’s fuel supply. In lieu of blending, refiners may purchase these transferable credits to comply with the regulations.

“Sour Crude Oil” refers to crude oil containing quantities of sulfur greater than 0.4 percent by weight.

“Sweet Crude Oil” refers to crude oil containing quantities of sulfur equal to or less than 0.4 percent by weight.

“UMO” is the abbreviation for used motor oil.

“Vacuum Distillation” is the process of distilling vapor from liquid crudes, usually by heating and condensing the vapor below atmospheric pressure turning it back to a liquid in order to purify, fractionate or form the desired products.

“Vacuum Gas Oil” or “VGO” is a product produced from a vacuum distillation column which is predominately used as an intermediate feedstock to produce transportation fuels and other by-products such as gasoline, diesel and marine fuels.
2


“VTB” refers to vacuum tower bottoms, the leftover bottom product of distillation, which can be processed in cokers and used for upgrading into gasoline, diesel, and gas oil.

Where You Can Find Other Information

We file annual, quarterly, and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Our SEC filings (reports, proxy and information statements, and other information) are available to the public over the Internet at the SEC’s website at www.sec.gov and are available for download, free of charge, soon after such reports are filed with or furnished to the SEC, on the “Investor Relations,” “SEC Filings” page of our website at www.vertexenergy.com. Information on our website is not part of this Report, and we do not desire to incorporate by reference such information herein. Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report.
3


Summary of The Information Contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying unaudited consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

•Strategy and Plan of Operations. Discussion of our current strategy and plan of operations.

•Description of Business Activities. Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the remainder of MD&A, and including an update on the effect of the COVID-19 pandemic on us and a summary of certain recent events.&A.

•Results of Operations. An analysis of our financial results comparing the threesix and ninethree months ended SeptemberJune 30, 2021,2022, and 2020.2021.

•Liquidity and Capital Resources. An analysis of changes in our consolidated balance sheets and cash flows and discussion of our financial condition.

•Critical Accounting Policies and Use of Estimates. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

Strategy and Plan of Operations

The principal elements of our strategy include:

•Completion of Renewable Diesel Conversion Project. We are in the process of completing a renewable diesel conversion project designed to modify the Mobile Refinery's hydrocracking unit to produce renewable diesel fuel on a standalone basis. To date, we have technology, engineering and construction partners and construction of foundations and fabrication of piping has commenced. Initial renewable production volumes are expected to come on-stream by the first quarter 2023. The Company expects the total project cost to be in the range of $90 to $100 million, funded entirely through existing cash on-hand and cash flow from operations.

•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 that we will 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. We believe that the expansion of our facilities and our technology, and investments in additional technologies, will enable us to upgrade feedstock into end products, such as lubricating base oil, that command higher market prices than the current re-refined products we produce.

•Pursue Selective Strategic Relationships or Acquisitions. We plan to grow market share by consolidating feedstock supply through partnering with or acquiring collection and aggregation assets. Such 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. In addition, we intend to pursue further vertical integration opportunities by acquiring complementary processing technologies where we can realize synergies by leveraging our customer and vendor relationships, infrastructure, and personnel, and by eliminating duplicative overhead costs.
2
4

Description of Business Activities
We
Below is a discussion of our business activities during the quarters ended June 30, 2022, and 2021. Effective April 1, 2022, we completed the acquisition of the Mobile Refinery (as discussed and defined below). As a result, since April 1, 2022, our operations include the operation of the Mobile Refinery. The Mobile Refinery and related logistics assets (“Logistics Assets”) are an environmental services companya group of downstream assets that recycles industrial waste streamsoperate ten miles north of Mobile, in Saraland, Alabama, which include the Mobile Refinery and off-specification commercial chemical products. Our primary focus is recycling used motorBlakeley Island Terminal, a deep-water draft, bulk loading terminal facility, for crude oil and otherassociated refined petroleum by-products.products located in Mobile, Alabama, with 600,000 Bbls of storage for loading/unloading of vessels along with a pipeline tie-in, as well as the related logistics infrastructure of a high capacity truck with 3-4 loading heads per truck, each rated at 600 gallons per minute (the “Mobile Truck Rack”). The Mobile Refinery currently processes heavy and sour crude to produce heavy olefin feed, regular gasoline, premium gasoline, jet fuel, and diesel fuel. This activity falls in the financial results of our Refining and Marketing segment during the three months ended June 30, 2022. The Mobile Refinery has substantially changed our overall revenue, cost of revenue, net income, and earnings before interest, taxes, depreciation, and amortization and during the three months ended June 30, 2022, represented 93% of our total revenue.

The below description is of our business activities during the periods reported (the six months ended June 30, 2022, and 2021).

Vertex is an energy transition company specializing in refining and marketing high-value conventional and lower-carbon alternative transportation fuels. We are engaged in operations across the entire petroleum recycling value chain, including collection, aggregation, transportation, storage, re-refinement,refinement, and sales of aggregated feedstock and re-refinedrefined products to end users.end-users. We operate in three segments:

(1) Black Oil,

(2) Refining and Marketing, and

(3) Recovery.

We currently provide our services in 15 states, primarily in the Gulf Coast,, Midwest, and Mid-Atlantic regions of the United States. For the rolling twelve-month period ending SeptemberJune 30, 2021,2022, we aggregated approximately 83.287.4 million gallons of used motor oil and other petroleum by-product feedstocks and managed the re-refining of approximately 74.280.4 million gallons of used motor oil with our proprietary vacuum gas oil (“VGO”VGO”) and Base Oil processes.

Our Black Oil segment 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. We operate a refining facility that uses our proprietary Thermal Chemical Extraction Process (“TCEP”TCEP”), and we also utilize third-party processing facilities. TCEP’s original purpose was to re-finere-refine used oil into marine cutterstock; however, between the third quarter of 2015 and the third quarter of 2019, and since the first quarter of 2020, the original purpose of TCEP has not been economically viable, and we have instead been using TCEP to re-finepre-treat used oil into marine cutterstock;feedstock; prior to shipping to our facility in Marrero, Louisiana.

We also acquired ouroperate a facility located in Marrero, Louisiana, facility, which facility re-refines used motor oil and also produces VGO, and the Myrtle Grovea re-refining complex located in Belle Chasse, Louisiana, (which is now owned by a special purpose entity which we own an approximate 85% interest of) in May 2014.refer to as our Myrtle Grove facility.

Our Refining and Marketing segment aggregates and manages the re-refinementrefining of used motorcrude oil and other petroleum by-products and sells the re-refinedthose refined products to end customers.

Our Recovery segment includes a generator solutions company for the proper recoveryproperly recovering and management ofmanaging hydrocarbon streams as well asand metals, which includesincluding transportation and marine salvage services throughout the Gulf Coast.

Black Oil Segment
Discontinued operations of Vertex includeincludes the Black Oil Segment, also referred to as the UMO Business, Refer to Note 15,16, "Discontinued Operations" in the Notes to Financial Statements for additional information.
5

Our Black Oil segment 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.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 4143 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 ownPrior to the completion of the Mobile Refinery Acquisition, and during the period covered by this Report, we owned a fleet of 3043 transportation trucks and more than 80 abovegroundabove-ground storage tanks with over 8.6 million gallons of storage capacity. These assets are used by both the Black Oil segment and the Refining and Marketing segment.segments. 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. Also, as discussed above under “Description“Description of Business Activities”Activities”, from time to time, when market conditions warrant (i.e., when oil prices are sufficiently high), we have used our proprietary TCEP technology to re-refine used oil into marine fuel cutterstock, provided that we are currently using such technology solely to pre-treat our used motor oil feedstock
3

prior to shipping to our facility in Marrero, Louisiana. In addition, at our Marrero, Louisiana facility, we produce a Vacuum Gas Oil (VGO) product that is sold to refineries as well as tofor the marine fuels market. At our Columbus, Ohio facility (Heartland Petroleum), we produce a base oil product thatwhich in turn is sold to lubricant packagers and distributors.

Refining and Marketing Segment
Our Refining and Marketing segment is engaged in the aggregation of feedstock, re-refining it into higher value-endhigher-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 segment. We have a toll-based processing agreement in place with KMTEXMonument Chemical Port Arthur, LLC (“Monument Chemical”) to re-refine feedstock streams, under our direction, into various end products that we specify. KMTEXMonument Chemical uses industry standardindustry-standard processing technologies to re-refine our feedstocks into pygas, gasoline blendstock, and marine fuel oil cutterstock. We sell all of our re-refined products directly to end-customersend customers or to processing facilities for further refinement. In addition, we are distributing refined motor fuels such as gasoline, blended gasoline products, and diesel used as engine fuels to third partythird-party customers who typically resell these products to retailers and end consumers.
In addition, the newly acquired Mobile, Alabama facility is included in this segment. The Mobile Refinery and Logistics Assets are a group of downstream assets and related logistics infrastructure of the Mobile Truck Rack. The Mobile Refinery currently processes heavy and sour crude to produce vacuum gas oil (VGO), heavy olefin feed, regular gasoline, jet fuel and diesel fuel, vacuum tower bottoms (VTBs), and other incremental products such as LPGs, sulfur, and reformate. We are also currently in the process of completing a renewable diesel conversion project designed to modify the Mobile Refinery's hydrocracking unit to produce renewable diesel fuel on a standalone basis, as discussed above.
Recovery Segment
The Company’s Recovery Segment includes a generator solutions company for the proper recovery and management of hydrocarbon streams the sales and marketing of Group III base oils and other petroleum-based products, together with the recovery and processing of metals.

Thermal Chemical Extraction Process

We own the intellectual property for our patented TCEP. TCEP is a technology which utilizes thermal and chemical dynamics to extract impurities from used oil which increases the value of the feedstock. We intend to continue to develop our 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 - $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. Our TCEP technology converts feedstock into a low sulfur marine fuel that can be sold into the new 0.5% low sulfur marine fuel specification mandated under International Maritime Organization (IMO) rules which went into effect on January 1, 2020. As described above, due to the decline in oil prices and challenges in obtaining feedstock in the early part of 2020, we have been using TCEP for the purposes of pre-treating our used motor oil feedstock prior to shipping to our facility in Marrero, Louisiana since the first quarter of 2020. We have no current plans to construct any other TCEP facilities at this time.
Products and Services

We generate substantially allthe majority of our revenue from the providing ofrefining petroleum products, oil collection services, and salesales of seventhe below product categories.categories, and gasolines, jet fuels and diesel. All of these products are commodities that are subject to various degrees of product quality and performance specifications.

Base Oil

Base oil is an oil to which other oils, additives, or substancesother compounds are added to producemanufacture a finished lubricant. Typically, the mainThe primary substance in lubricants, base oils, areoil, can be refined from crude oil.oil or re-refined from used motor oils.

Pygas
46

Pygas

Pygas, or pyrolysis gasoline, is a product that can be blended with gasoline as an octane booster or that can be distilled and separated into its components, including benzene and other hydrocarbons.

Industrial Fuel

Industrial fuel is a distillate fuel oil, which is typically a blend of lower qualitylower-quality fuel oils. It can include diesel fuels and fuel oils such as No. 1, No. 2, and No. 4 diesel fuels that are historically used for space heating and power generation.Industrial fuel is typically a fuel with low viscosity, as well as low sulfur, ash, and heavy metal content, making it an ideal blending agent.

Distillates

Distillates are finished fuel products such as gasolinekerosene and diesel fuels.

Oil Collection Services

Oil collection services include the collection, handling, treatment, and salestransacting of used motor oil and related products which includecontain used motor oil (such as oil filters) which are collectedfilters and absorbents) acquired from our customers.

Metals

Metals consist of recoverable ferrous and non-ferrous recyclable metals from manufacturing and consumption. Scrap metal can be recovered from pipes, barges, boats, building supplies, surplus equipment, tanks, and other items consisting of metal composition. These materials are segregated, processed, cut-upcut up, and sent back to a steel mill for re-purposing.

Other refinery products
Other re-refinery products

Other re-refineryrefinery products include the sales of asphalt, condensate, recovered products, and other petroleum products.

VGO/Marine fuel sales

VGO/Marine fuel sales relate to the sale of low sulfur fuel meeting the criteria for IMO 2020 compliant marine fuels.

Olefins
Olefins are hydrotreated VGO.
The way that the product categories above fit into our three operating segments, (1) Black Oil; (2) Refining and Marketing; and (3) Recovery, are indicated below:


Black Oil(1)
Refining and Marketing(2)
Recovery(3)
Base oilXGasolinesX
PygasX
Industrial fuelJet FuelsXX
DistillatesDieselX
Oil collection servicesBase oilXX
PygasX
Industrial fuelXX
Oil collection servicesX
MetalsX
Other re-refineryrefinery productsXXX
VGO/Marine fuel salesX


(1) As discussed in greater detail above under “Black“Black Oil Segment”Segment”, the Black Oil segment consists primarily of the sale of (a) petroleum products which include base oil and industrial fuels—which consist of used motor oils, cutterstock, and fuel oil
7

generated by our facilities; (b) oil collection services—which consist of used oil sales, burner fuel sales, antifreeze sales and service charges; (c) the sale of other re-refinery products including asphalt, condensate, recovered products, and used motor oil; (d) transportation revenues; and (e) the sale of VGO (vacuum gas oil)/marine fuel.
5


(2) As discussed in greater detail above under “Refining and Marketing Segment”, the Refining and Marketing segment consists primarily of the sale of pygas;refined finished products which include jet fuel, gasolines, diesels, LPGs, residual fuels which are produced at our Mobile Refinery along with pygas and industrial fuels, which are produced at a third-party facility (KMTEX); and distillates.("Monument Chemical").

(3) As discussed in greater detail above under “Recovery Segment”“Recovery Segment”, the Recovery segment consists primarily of revenues generated from the sale of ferrous and non-ferrous recyclable Metal(s)metal(s) products that are recovered from manufacturing and consumption.It also includes revenues generated from trading/marketing of Group III Base Oils.

Novel Coronavirus (COVID-19)
In December 2019, a novel strain of coronavirus, which causes the infectious disease known as COVID-19, was reported in Wuhan, China. The World Health Organization declared COVID-19 a “Public Health Emergency of International Concern” on January 30, 2020 and a global pandemic on March 11, 2020. In March and April, many U.S. states and local jurisdictions began issuing ‘stay-at-home’ orders, which have mainly been terminated of the date of this report. Notwithstanding such ‘stay-at-home’ orders, to date, our operations have for the most part been deemed an essential business under applicable governmental orders based on the critical nature of the products we offer.

We sell products and services primarily in the U.S. domestic oil and gas commodity markets. Throughout the first quarter of 2020, the industry experienced multiple factors which lowered both the demand for, and prices of, oil and gas. First, the COVID-19 pandemic lowered global demand for hydrocarbons, as social distancing and travel restrictions were implemented across the world. Second, the lifting of Organization of the Petroleum Exporting Countries (OPEC)+ supply curtailments, and the associated increase in production of oil, drove the global supply of hydrocarbons higher through the first quarter of 2020. As a result of both dynamics, prices for hydrocarbons declined 67% from peak prices within the first quarter of 2020. While global gross domestic product (GDP) growth was impacted by COVID-19 during 2020 and into the first, second and third quarters of 2021, we expect GDP to continue to be impacted globally for the remainder of 2021, as a result of the COVID-19 pandemic. As a result, we expect oil and gas related markets will continue to experience significant volatility in the fourth quarter of 2021. Our goal through this downturn has been to remain disciplined in allocating capital and to focus on liquidity and cash preservation. We are taking the necessary actions to right-size the business for expected activity levels.

As a result of the impact of the COVID-19 outbreak, some of our feedstock suppliers have permanently or temporarily closed their businesses, limited our access to their businesses, and/or have experienced a decreased demand for services. As a result of the above, and due to ‘stay-at-home’ and other social distancing orders, as well as the decline in U.S. travel caused by COVID-19, we saw a significant decline in the volume of feedstocks (specifically used oil) that we were able to collect during 2020, and therefore process through our facilities. A prolonged economic slowdown, renewed periods of social quarantine (imposed by the government or otherwise), or another prolonged period of decreased travel due to COVID-19 or the responses thereto, similar to those experienced during 2020, will likely have a material negative adverse impact on our ability to produce products, and consequently our revenues and results of operations.

The full extent of the impact of COVID-19 on our business and operations currently cannot be estimated and will depend on a number of factors including the scope and duration of the global pandemic, the efficacy of, and the willingness of the general public to obtain, vaccines, as well as the rate of transmission of new COVID-19 variants.
Currently we believe that we have sufficient cash on hand and will generate sufficient cash through operations to support our operations for the foreseeable future; however, we will continue to evaluate our business operations based on new information as it becomes available and will make changes that we consider necessary in light of any new developments regarding the pandemic.
The full extent of the impact of COVID-19 on our business and operations currently cannot be estimated and will depend on a number of factors including the scope and duration of the global pandemic, the efficacy of, and the willingness of the general public to obtain, vaccines and boosters, further mutations of the virus, as well as the rate of transmission of new COVID-19 variants.

Recent Events

Heartland and Myrtle Grove Purchase Agreements
May 2021On February 25, 2022, Vertex Splitter Corporation (“Vertex Splitter”), a wholly-owned subsidiary of the Company entered into (1) a Purchase and Sale Agreement with Tensile-Vertex Holdings LLC (“Tensile-Vertex”), an affiliate of Tensile and Tensile-Heartland (the “Heartland Purchase Agreement

On May 26, 2021, Vertex Operating, entered into”); and (2) a definitivePurchase and Sale Agreement with Tensile-Vertex and Tensile-MG (the “Myrtle Grove Purchase Agreement (the “Refinery Purchase Agreement”) with Equilon Enterprises LLC d/b/a Shell Oil Products US and/or Shell Chemical LP and/or Shell Oil Company (“Seller”)”, to purchase the Seller’s Mobile, Alabama refinery, certain real property associated therewith, and related assets,
6

including all inventory at the refinery as of closing and certain equipment, rolling stock, and other personal property associatedtogether with the Mobile refinery (collectively, the “Mobile Refinery” and the “Mobile Acquisition”). The Mobile Refinery is located on an 800+ acre site in the city and county of Mobile, Alabama. The 91,000 barrel-per-day nameplate capacity Mobile Refinery is capable of sourcing a flexible mix of cost-advantaged light-sweet domestic and international feedstocks. Approximately 70% of the refinery’s current annual production is distillate, gasoline and jet fuel, with the remainder being vacuum gas oil, liquefied petroleum gas (LPG) and other products. The facility distributes its finished product across the southeastern United States through a high-capacity truck rack, together with deep and shallow water distribution points capable of supplying waterborne vessels.

In addition to refining assets, the transaction will include the acquisition by the Company of approximately 3.2 million barrels of inventory and product storage, logistics and distribution assets, together with more than 800+ acres of developed and undeveloped land.

The initial base purchase price for the assets is $75 million. In addition, we will also pay for the hydrocarbon inventory located at the Mobile Refinery, as valued at closing, and the purchase price is subject to other customary purchase price adjustments and reimbursement for certain capital expenditures, resulting in an expected total purchase price of approximately $86.7 million.

In connection with Vertex Operating’s execution of the Refinery Purchase Agreement, and as a required term and condition thereof, Vertex Operating provided the Seller a promissory note in the amount of $10 million (the “Deposit Note”), which has been fully funded to date.

In the event of the closing of the transactions contemplated by the RefineryHeartland Purchase Agreement, the funded portion of the Deposit Note (the “Deposit”) is credited against the purchase price due to the Seller. In the event the Refinery Purchase Agreement is terminated, the Deposit is non-refundable except as more particularly described in the Refinery Purchase Agreement, which provides that in some circumstances the Company may receive a complete refund of the Deposit or must pay a portion of (or in some cases all) the costs for the Swapkit (defined below) and/or the audit of the Seller’s operations, to the extent requested by the Company.

The Refinery Purchase Agreement is subject to termination prior to closing under certain circumstances, and may be terminated: at any time prior to the closing date by the mutual consent of the parties; by Vertex Operating or Seller in the event the closing has not occurred by May 26, 2022 (the “Refinery Purchase Outside Date”, subject to extensions as discussed in the Purchase and Sale Agreement), in the event such failure to close is not a result of Vertex Operating’s or Seller’s breach of the agreement, respectively, or the failure to obtain any government consent; by Vertex Operating or Seller, if the other party has breached any representation, warranty or covenant set forth in the agreement, subject to certain cases to the right to cure such breach, or required regulatory approvals have not been received as of the Refinery Purchase Outside Date; or by Seller if Vertex Operating fails to remit payment of the Deposit by the Deposit Note Due Date, at which time Seller also has the right to pursue collection under the terms of the Deposit Note, plus interest, if any, and to retain any amounts thereby collected.

The Refinery Purchase Agreement provides that if all conditions to closing are satisfied other than government approvals and required permits and registrations, then the Refinery Purchase Outside Date is extended to such date as the parties mutually agree; provided, however, in the event the parties do not mutually agree, then the Refinery Purchase Outside Date is automatically extended to May 26, 2023.

The Refinery Purchase Agreement contemplates the Company and the Seller entering into various supply and offtake agreements at closing.

The Mobile Acquisition is expected to close in the first quarter of 2022, subject to satisfaction of customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the absence of legal impediments prohibiting the Mobile Acquisition, receipt of regulatory approvals and required consents, absence of a material adverse effect and the Company raising sufficient cash to pay such aggregate purchase price. The Company anticipates financing the transaction through the recent sale in November 2021 of Convertible Notes (defined below) and the entry into a future debt facility. The Company has not entered into any definitive lending agreements regarding such debt fundings to date, and such debt funding may not be available on favorable terms, if at all. The Company may also generate cash through asset divestitures. The Company may also generate cash through asset divestitures. The conditions to the closing of the Mobile Acquisition may not be met, and such closing may not ultimately occur on the terms set forth in the Refinery Purchase Agreement, if at all.

We plan to launch an $85 million capital project designed to modify the Mobile Refinery’s hydrocracking unit to produce renewable diesel fuel on a standalone basis (the “ConversionPurchase Agreements”). Certain engineering services and
As the initial payments
7

time of purchase orders for long lead-time equipment associated with the Conversion are expected to be paid in advance of the closing of the Mobile Acquisition in the approximate amount of $13.0 million, and provided that our fundraising initiatives are successful, we plan to follow through with completion of the Conversion at an additional cost of approximately $72.0 million.

In connection with the entry into the Refinery Purchase Agreement, Vertex Operatingagreement, Tensile-Heartland held 65% of Heartland SPV and the Seller entered into a Swapkit Purchase Agreement (the “Swapkit Agreement”). Tensile-MG owned 15% of MG SPV, with Tensile-Vertex holding 100% of both Tensile-Heartland and Tensile-MG.
Pursuant to the agreement,Heartland Purchase Agreement, the Company, through Vertex OperatingSplitter, agreed to fund a technology solution comprisingacquire 100% of the ecosystem required foroutstanding securities of Tensile-Heartland and pursuant to the Myrtle Grove Purchase Agreement, the Company, through Vertex Splitter, agreed to runacquire 100% of the Mobile Refinery after closing (the “Swapkit”)outstanding securities of Tensile-MG, at a costfrom Tensile-Vertex, the result of $8.7which will be that Vertex Splitter will own 100% of each of Heartland SPV and MG SPV.
On April 1, 2022, the Company, through Vertex Splitter acquired 100% of Tensile-MG from Tensile-Vertex for $7.2 million, which is payable at closing (subject to certain adjustments), or in certain circumstances, upon terminationwas based on the value of the Refinery Purchase Agreement.

SeriesClass B and B1 Preferred Stock Automatic Conversion

Pursuant to the termsUnit preference of the Series B Preferred Stock and Series B1 Preferred Stock of the Company,MG SPV held by Tensile-MG, plus capital invested by Tensile-MG in the event that the closing sales price of the Company’s common stock was at least $6.20 (as to the Series B Preferred Stock) and $3.90 (as to the Series B1 Preferred Stock) per share for at least 20 consecutive trading days, such shares of Series B Preferred Stock and Series B1 Preferred Stock were to convert automatically into common stock of the Company on a one-for-one basis (the “Automatic Conversion Provisions”).

Effective on June 24, 2021 (as to the Series B1 Preferred Stock) and June 25, 2021 (as to the Series B Preferred Stock), the Automatic Conversion Provisions of the Series B Preferred Stock and Series B1 Preferred Stock were triggered, and the outstanding shares of the Company’s Series B Preferred Stock and Series B1 Preferred Stock automatically converted into common stock of the Company.

Specifically, the 1,783,292 then outstanding shares of Series B Preferred Stock automatically converted into 1,783,292 shares of common stock and the 3,134,889 then outstanding shares of Series B1 Preferred Stock automatically converted into 3,134,889 shares of common stock (or 4,918,181 shares of common stock in total).

As a result, there are no outstanding shares of Series B or B1 Preferred Stock as of September 30, 2021, orMG SPV (which had not been returned as of the date of this Report.payment), plus cash and cash equivalents held by Tensile-MG as of the closing date. As a result, the Company indirectly acquired 100% of MG SPV, which in turn owns the Company’s Belle Chasse, Louisiana, re-refining complex, and consequently the Company, as of April 1, 2022, owns 100% of the Belle Chasse, Louisiana, re-refining complex.

Safety-Kleen Sale Agreement

On June 29, 2021, we entered into an AssetThe Myrtle Grove Purchase Agreement included customary representations of the parties for a transaction of that size and type, requires Vertex Splitter to maintain officer and director insurance for Tensile-MG for at least six years following the closing; requires that each party bear their own fees and expenses; includes customary indemnification obligations; and includes mutual releases of the parties, which were effective upon closing.
On May 26, 2022, the Company, through Vertex Splitter acquired 100% of Tensile-Heartland from Tensile-Vertex for $43.5 million, which was equal to $35 million (the “Sale Agreement” and the transactions contemplated therein, the “Sale Transaction” or the “Sale”) with Vertex Operating, Vertex Refining LA, LLC (“Vertex LA”“Base Amount”), Vertex Refining OH, LLC (“Vertex OH”), Cedar Marine Terminals, L.P. (“CMT”),plus an amount accrued and H & H Oil, L.P. (“H&H”), as sellers,accruing from and Safety-Kleen Systems, Inc., as purchaser (“Safety-Kleen”), dated as of June 28, 2021.

Pursuant to the Sale Agreement, Safety-Kleen agreed to acquire the Company’s Marrero used oil refinery in Louisiana (currently owned by Vertex LA); our Heartland used oil refinery in Ohio (currently owned by Vertex OH); our H&H and Heartland used motor oil (“UMO”) collections business; our oil filters and absorbent materials recycling facility in East Texas; and the rights CMT holds to a leaseafter May 31, 2021, on the Cedar Marine terminal in Baytown, Texas (the “UMO Business”).

The initial base purchase price for the assets is $140 million, which is subject to customary adjustments to account for working capital, taxes and assumed liabilities.

The Sale Agreement also requires us to place $7 million of shares of our common stock into escrow forBase Amount on a period of 18 months following the closing (the “Escrow Period”), in order to satisfy any indemnification claims made by Safety-Kleen pursuant to the terms of the Sale Agreement. Such shares are to be valueddaily basis at the volume weighted average pricerate of the Company’s common stock for the ten consecutive trading days ending22.5% per annum compounded on and including the closing date (the “10-Day VWAP”). On the last day of each fiscalcalendar quarter during the Escrow Period, the valueplus an amount equal to any and all cash and cash equivalents of the shares of common stock held in escrow is calculated (based on the 10-Day VWAP, using the last day of each quarterTensile-Heartland, as the ending trading day in lieu of the closing date),date. As a result of the closing, the Company acquired 100% of Heartland SPV, which in turn owns the Company’s Columbus, Ohio, Heartland facility.
The Heartland Purchase Agreement included customary representations of the parties, requires Vertex Splitter to maintain officer and if such value is less than $7 million (less any valuedirector insurance for Tensile-Heartland for at least six years following the closing; requires that the parties bear their own fees and expenses; includes customary indemnification obligations; and includes mutual releases of shares releasedthe parties, which were effective upon closing.
The Company used funds from escrowthe Additional Term Loan to satisfy indemnification claimspay amounts due under the Sale Agreement, based on the 10-Day VWAP ending on the trading day immediately prior to the date any such shares are released from escrow), we are required to deposit additional shares into escrow such that the value of shares held in the escrow account is at least $7 million at all times. Notwithstanding the above, in no event will the number of shares issued into the escrow account, or otherwise pursuant to the terms of the Sale Agreement, exceed 19.9% of the Company’s outstanding common stock on the date the Sale Agreement was entered into. Upon termination of the Escrow Period, any shares remaining in escrow (subject to pending claims) are to be returned to the Company for cancellation.Heartland Purchase Agreement.

Heartland Note Amendment
8

The Sale Agreement is subjectAlso on February 25, 2022, Vertex Operating, the Company and Heartland SPV, entered into a Second Amendment to termination priorPromissory Note (the “Second Note Amendment”), which amended the Heartland Note, to extend the due date of the Heartland Note until the earlier of (i) June 30, 2022; and (ii) five (5) calendar days following the closing under certain circumstances, andof a sale of substantially all the assets of Vertex Refining OH, LLC (“Vertex Ohio”), and/or the sale of membership interests in Vertex Ohio possessing voting control (with the consent of the Company), provided that the Heartland Note may be terminated:prepaid in whole or in part at any time prior towithout premium or penalty and without the closing date by the mutual consent of the parties; by Safety-Kleen in the event the closing has not occurred by December 31, 2021 (the “Sale Agreement Outside Date”, subject to certain extensions as discussed in the Sale Agreement), in the event such failure to close is not a result of Safety-Kleen’s breach of the agreement, provided that if the failure to close is the result of the failure to obtain certain government consents or the failure of the Company to obtain the required shareholder approval for the transaction, either party may extend the Sale Agreement Outside Date for up to an additional 90 days; by the Company or Safety-Kleen, if the other party has breached the agreement, subject to certain cases to the right to cure such breach; by the Company if it becomes apparent that the closing of the Sale Agreement will not occur due to certain reasons, including if any of Safety-Kleen’s required conditions to closing conditions will not be fulfilled by the Sale Agreement Outside Date, unless such failure is the result of the Company. In the event that the Sale Agreement is terminated as a result of the failure of the Company’s shareholders to approve the transaction, we are required to reimburse all of Safety-Kleen’s out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, financing sources, experts and consultants) incurred in connection with the authorization, preparation, negotiation, execution and performance of the Sale Agreement and the transactions contemplated therein (the “Reimbursement”).

If Safety-Kleen terminates the Sale Agreement for certain reasons, including in certain cases due to a breach of the agreement by the Company in the event the Company solicits other competing transactions or takes other similar actions; because the Company considers a competing transaction and the shareholders of the Company fail to approve the Sale Agreement; or the Company’s board of directors refuses to complete the transaction due to a competing transaction, then we are required to pay Safety-Kleen a break-fee of $3,000,000, less amounts paid as Reimbursement (the “Break-Fee”), which will be the sole remedy of Safety-Kleen in such situation.

The Sale Agreement is expected to close in the first half of 2022, subject to satisfaction of customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the absence of legal impediments prohibiting the transaction, and receipt of regulatory approvals and required consents. We are currently responding to inquiries received from the Federal Trade Commission (the “FTC”), which is not required to rule on the matter until the expiration of 30 days following submission of our responses which is not expected to occur before November 30, 2021, if then. The Sale Agreement also required us to hold a shareholders meeting to seek shareholder approval for the Sale Agreement, which shareholder approval was received in September 2021. The conditions to the closing of the Sale Agreement may not be met, and such closing may not ultimately occur on the terms set forth in the Sale Agreement, if at all.

Houlihan Lokey and H.C. Wainwright acted as financial advisors to the Company on the transaction. Vallum Advisors acted as financial communications counsel to the Company.

Tensile Transactions

On July 1, 2021, the Operating Agreement of MG SPV was amended to provide that from the date of such agreement until December 31, 2021, the Company (through Vertex Operating), is required to fund the working capital requirements of MG SPV, which advances are initially characterized as debt, but that Tensile MG may convert such debt into additional Class A Units of MG SPV (after December 31, 2021), at $1,000 per unit (the “MG SPV Amendment”).

On July 1, 2021, Heartland SPV loaned Vertex Operating $7,000,000, which was evidenced by a Promissory Note (the “Heartland Note”).SPV. The Heartland Note accrues interest at the applicable federal rate of interest from time to time, increasing to 12% upon an event of default. Amounts borrowed underOn May 26, 2022, the Heartland Note are due ninety dayswas forgiven after the datecompletion of the noteTensile-Heartland transaction as noted above as an inter-company transaction.

Loan and Security Agreement
On April 1, 2022 (the “Closing Date”), Vertex Refining; the Company, as a guarantor; substantially all of the Company’s direct and indirect subsidiaries, as guarantors (together with the Company, the “Guarantors”); certain funds and accounts under management by BlackRock Financial Management, Inc. or within five (5) daysits affiliates, as lenders (“BlackRock”), certain funds managed or advised by Whitebox Advisors, LLC, as lenders (“Whitebox”), certain funds managed by Highbridge Capital Management, LLC, as lenders (“Highbridge”), Chambers Energy Capital IV, LP, as a lender (“Chambers”), CrowdOut Capital LLC, as a lender (“CrowdOut Capital”), CrowdOut Credit Opportunities Fund LLC, as a lender (collectively with BlackRock, Whitebox, Highbridge, Chambers and CrowdOut Capital, the “Lenders”); and Cantor Fitzgerald Securities, in its capacity as administrative agent and collateral agent for the Lenders (the “Agent”), entered into a Loan and Security Agreement (the “Loan and Security Agreement”).
Pursuant to the Loan and Security Agreement, the Lenders agreed to provide a $125 million term loan to Vertex Refining (the “Initial Term Loan”), the proceeds of which, less agreed upon fees and discounts, were held in escrow prior to the Closing Date, pursuant to the Escrow Agreement, discussed above. On the Closing Date, net proceeds from the term loans, less the agreed upon fees and discounts, as well as certain transaction expenses, were released from escrow to Vertex Refining in an aggregate amount of $94.3 million.
The Company used a portion of the proceeds from the Term Loan borrowing to pay a portion of the purchase price associated with the acquisition of the Mobile, Alabama refinery (the “Mobile Refinery”) acquired by Vertex Refining on April 1, 2022, as discussed in greater detail below, and to pay certain fees and expenses associated with the closing of the SaleLoan and Security Agreement (whicheverand is earlier), and may be prepaid at any time without penalty. In the event the Heartland Note is not paid on or before the applicable due date, we agreedrequired to use our best efforts to raisethe remainder of the funds necessaryfor (i) the planned renewable diesel conversion of the Mobile Refinery, and (ii) working capital and liquidity needs.
The amounts borrowed pursuant to repay the note as soon as possible. The Heartland Note includes customary eventsterms of defaults. Thethe Loan and Security Agreement are secured by substantially all of the present and after-acquired assets of the Company used the funds borrowedand its subsidiaries. Additionally, Vertex Refining’s obligations under the Heartland Note, to paydown a portionLoan and Security Agreement are jointly and severally guaranteed by substantially all of the Deposit Note,Company’s subsidiaries and the Company (collectively, Vertex Refining, the Company and the Company’s subsidiaries which have guaranteed Vertex Refining’s obligations under the Loan and Security Agreement, each a “Loan Party” and collectively, the “Loan Parties”).
In connection with the remainingLoan and Security Agreement, and as additional consideration for the Lenders agreeing to loan funds coming from a loan from EBC as discussed below.

On July 25, 2019, Tensile purchased 1,500,000to the Company thereunder, the Company granted warrants to purchase 2.75 million shares of common stock of the Company to the Lenders (and/or their affiliates) on the Closing Date, as discussed in greater detail below.
The amounts owed under the Loan and warrantsSecurity Agreement are also secured by various deeds of trusts and mortgages for the real property(s) described therein, over the Mobile Refinery and substantially all other material owned and leased real property of the Guarantors including properties in Texas and Louisiana.
Intellectual Property Security Agreement
In connection with the entry into the Loan and Security Agreement, Vertex Energy Operating, LLC (“Vertex Operating”), the Company’s wholly-owned subsidiary, entered into an Intellectual Property Security Agreement in favor of the Agent, pursuant to which it granted a security interest in substantially all of its intellectual property (including patents and trademarks) in favor of the Lenders to secure the obligations of the Loan Parties under the Loan and Security Agreement.
Collateral Pledge Agreement
In connection with the entry into the Loan and Security Agreement, the Company, Vertex Refining and each of the Guarantors, entered into a Collateral Pledge Agreement in favor of the Agent, pursuant to which they granted the Agent a
9

security interest in all now owned or hereafter acquired promissory notes and instruments evidencing indebtedness to any Guarantor and all now owned or hereafter acquired equity interests owned by such Guarantor.
Intercreditor Agreement
In connection with the entry into the Loan and Security Agreement and the Supply and Offtake Agreement (as defined below), the Agent, Macquarie (as defined below), Vertex Refining and each of the Guarantors (collectively, the “Grantors”) entered into an intercreditor agreement (the “Intercreditor Agreement”) pursuant to which the Agent and Macquarie acknowledged each other’s liens on the assets of Vertex Refining. The intercreditor arrangements may limit our ability to amend the Loan and Security Agreement and the Supply and Offtake Agreement and related agreements, provides for certain restrictions on the exercise of remedies (through “standstill” and access periods) and governs certain creditor rights in bankruptcy proceedings relating to Grantors.
Completion of Mobile Refinery Acquisition
On April 1, 2022, Vertex Operating assigned its rights to the May 26, 2021 Sale and Purchase Agreement (the “Refinery Purchase Agreement”) to Vertex Refining and on the same date, Vertex Refining completed the Mobile Acquisition. On the Effective Date, a total of $75.0 million (less $10 million previously paid) was paid by Vertex Refining in consideration for the acquisition of the Mobile Refinery, which amount is subject to customary purchase price adjustments and reimbursement for certain capital expenditures in the amount of approximately $440 thousand, $15.9 million was paid to Shell for previously agreed upon capital expenditures and miscellaneous prepaid and reimbursable items, and $164.2 million was paid to Shell by Vertex Refining in connection with the purchase of certain crude oil inventory and finished products owned by Shell and located at the Mobile Refinery on the Closing Date (approximately $154 million of which was funded by Macquarie as a result of the simultaneous sale of such inventory to Macquarie pursuant to an Inventory Sales Agreement between Vertex Refining and Macquarie). The Company also paid $8.7 million at closing pursuant to the terms of a Swapkit Purchase Agreement entered into with Shell on May 26, 2021 (the “Swapkit Agreement”), pursuant to which the Company agreed to fund a technology solution comprising the ecosystem required for the Company to run the Mobile Refinery after closing (the “Swapkit”).
As discussed above, we have started a renewable diesel conversion project designed to modify the Mobile Refinery's hydrocracking unit to produce renewable diesel fuel on a standalone basis, which has an estimated cost of $90 to $100 and is expected to be online during the first quarter of 2023.

Funds for the purchase of the Mobile Refinery, Swapkit Agreement, provision of cash collateral required pursuant to terms of the Supply and Offtake Agreement (discussed below), capital expenditures and transaction expenses, came from funds previously held in escrow in connection with our November 2021 sale of $155 million principal at maturity of 6.25% senior unsecured notes due 2027 ($100.4 million), the Term Loan and cash on hand. Following the transactions described above, including the Term Loan, and our acquisition of Tensile-MG (as defined and discussed below), our unrestricted cash increased by approximately $75 million, which funds are anticipated to be used for (i) the planned renewable diesel conversion of the Mobile Refinery, and (ii) working capital and liquidity needs.
Inventory and Finished Products Purchase and Sale
As a required condition to the closing of the Mobile Acquisition, on the Closing Date, Vertex Refining paid approximately $164.2 million for the acquisition from Shell, of all Mobile Refinery Inventory (defined and discussed below). Also on April 1, 2022, pursuant to an Inventory Sales Agreement entered into between Vertex Refining and Macquarie, Macquarie purchased all the Mobile Refinery Inventory from Vertex Refining for $154 million (which funds, together with cash on hand, were used by Vertex Refining to purchase 1,500,000the Mobile Refinery Inventory from Shell), which Mobile Refinery Inventory then became subject to the terms of the Supply and Offtake Agreement, discussed in detail below.
Supply and Offtake Agreement
On April 1, 2022 (the “Commencement Date”), Vertex Refining entered into a Supply and Offtake Agreement (the “Supply and Offtake Agreement”) with Macquarie Energy North America Trading Inc., a Delaware corporation (“Macquarie”), pertaining to crude oil supply and offtake of finished products located at the Mobile Refinery acquired on April 1, 2022. On the Commencement Date, pursuant to an Inventory Sales Agreement and in connection with the Supply and Offtake Agreement, Macquarie purchased from Vertex Refining all crude oil and finished products within the categories covered by the Supply and Offtake Agreement and the Inventory Sales Agreement, which were held at the Mobile Refinery and a certain specified third
10

party storage terminal, which were previously purchased by Vertex Refining as part of the acquisition of the Mobile Refinery as discussed in greater detail above.
Pursuant to the Supply and Offtake Agreement, beginning on the Commencement Date and subject to certain exceptions, substantially all of the crude oil located at the Mobile Refinery and at a specified third party storage terminal from time to time will be owned by Macquarie prior to its sale to Vertex Refining for consumption within the Mobile Refinery processing units. Also pursuant to the Supply and Offtake Agreement, and subject to the terms and conditions and certain exceptions set forth therein, Macquarie will purchase from Vertex Refining substantially all of the Mobile Refinery’s output of certain refined products and will own such refined products while they are located within certain specified locations at the Mobile Refinery. Macquarie will have title to and risk of loss of crude oil and refined products purchased from Vertex Refining while within certain specified locations at the Mobile Refinery and a specified third party storage terminal.
Pursuant to the Supply and Offtake Agreement and subject to the terms and conditions therein, Macquarie may during the term of the Supply and Offtake Agreement procure crude oil and refined products from certain third parties which may be sold to Vertex Refining or third parties pursuant to the Supply and Offtake Agreement and may sell Refined Products to Vertex Refining or third parties (including customers of Vertex Refining).
The obligations of Vertex Refining and any of its subsidiaries under the Supply and Offtake Agreement and related transaction documents are guaranteed by the Company. The obligations of Vertex Refining and any of its subsidiaries under the Supply and Offtake Agreement and related transaction documents are also secured by a Pledge and Security Agreement in favor of Macquarie, discussed below, executed by Vertex Refining. In addition, the Supply and Offtake Agreement also requires that Vertex Refining post and maintain cash collateral (in the form of an independent amount) as security for Vertex Refining’s obligations under the Supply and Offtake Agreement and the related transaction documents. The amount of cash collateral is subject to adjustments during the term.
Pursuant to the Supply and Offtake Agreement, Vertex Refining and Macquarie agreed to cooperate to develop and document, by no later than 180 days after the Commencement Date, procedures relating to the unwinding and termination of the agreement and related agreements, in the event of the expiration or early termination of the Supply and Offtake Agreement. The parties also agreed to use commercially reasonable efforts to negotiate mutually agreeable terms for Macquarie’s intermediating of renewable feedstocks and renewable diesel that will be utilized and/or produced by Vertex Refining in connection with and following a planned renewable diesel conversion project at the Mobile Refinery (including providing Macquarie a right of first refusal in connection therewith), for 90 days after the Commencement Date (the “RD Period”), which discussions are ongoing. If, by the end of the RD Period, Macquarie and Vertex Refining, each acting in good faith and in a commercially reasonable manner, have not been able to reach commercial agreement regarding the entry into a renewable diesel intermediation, Vertex Refining may elect to terminate the Supply and Offtake Agreement by providing notice of any such election to Macquarie; provided that no such election may be effective earlier than the date falling 90 calendar days following the date on which such notice is delivered. The agreement is also subject to termination upon the occurrence of certain events, including the termination of certain agreements relating to the delivery of crude oil to and the offtake of products from the Mobile Refinery. Upon an early termination of the Supply and Offtake Agreement, Vertex Refining is required to pay certain amounts relating to such termination to Macquarie including, among other things, outstanding unpaid amounts, amounts owing with respect to terminating transactions under the Supply and Offtake Agreement and related transaction documents, unpaid ancillary costs, and breakage costs, losses and out-of-pocket costs with respect to the termination, liquidation, maintenance or reestablishment, or redeployment of certain hedges put in place by Macquarie in connection with the transactions contemplated by the agreement, and Vertex Refining is required to pay other termination fees and amounts to Macquarie in the event of any termination of the agreement. Additionally, upon the termination of the Supply and Offtake Agreement, the outstanding obligations of Vertex Refining and Macquarie to each other will be calculated and reduced to an estimated net settlement payment which will be subject to true-up when the final settlement payment has been calculated following termination.
The Supply and Offtake Agreement has a 24 month term following the Commencement Date, subject to the performance of customary covenants, and certain events of default and termination events provided therein (certain of which are discussed in greater detail below), for a facility of this size and type. Additionally, either party may terminate the agreement at any time, for any reason, with no less than 180 days prior notice to the other.
The price for crude oil purchased by the Company from Macquarie and for products sold by the Company to Macquarie within each agreed product group, in each case, is equal to a pre-determined benchmark, plus a pre-agreed upon differential, subject to adjustments and monthly true-ups.
11

In connection with the entry into the Supply and Offtake Agreement, Vertex Refining entered into various ancillary agreements which relate to supply, storage, marketing and sales of crude oil and refined products including, but not limited to the following: Inventory Sales Agreement, Master Crude Oil and Products Agreement, Storage and Services Agreement, and a Pledge and Security Agreement (collectively with the Supply and Offtake Agreement, the “Supply Transaction Documents”). The Company agreed to guarantee the obligations of Vertex Refining and any of its subsidiaries arising under the Supply Transaction Documents pursuant to the entry into a Guaranty in favor of Macquarie.
Tripartite Agreements
Also on the Commencement Date, Vertex Refining, Macquarie and certain parties subject to crude oil supply and products offtake agreements with Vertex Refining, relating to the Mobile Refinery, entered into various tripartite agreements (the “Tripartite Agreements”), whereby Vertex Refining granted Macquarie the right, on a rolling daily or monthly basis, as applicable, to elect to assume Vertex Refining’s rights and obligations under such crude oil supply and products offtake agreements in connection with the performance of the Supply and Offtake Agreement, and the counterparties thereto are deemed to have consented to Macquarie assuming such obligations. Such Tripartite Agreements also provided for certain interpretations of the provisions of such supply and offtake agreements between Vertex Refining and such third parties in connection with Macquarie’s right to elect to assume Vertex Refining’s rights and obligations under such agreements. The Tripartite Agreements remain in place until the termination of the agreements to which they relate, or the earlier termination thereof as set forth in the Tripartite Agreements, including in the event of certain events of default by the parties thereto under the modified crude oil supply and products offtake agreements or the Supply and Offtake Agreement and related transaction documents and also in the event of the termination of the Supply and Offtake Agreement. Macquarie, Vertex Refining and a third party offtaker also entered into a tripartite agreement pursuant to which certain storage capacity within the Mobile Refinery which Macquarie had leased pursuant to the Storage and Services Agreement was effectively made available to such third party consistent with the terms agreed by such party and Vertex Refining in its underlying products offtake agreement. Macquarie, Vertex Refining and a third party storage terminal operator also entered into a tripartite agreement relating to the storage of Macquarie-owned crude oil in such terminal in connection with the Supply and Offtake Agreement.
Guaranty
Vertex Refining’s obligations under the Supply and Offtake Agreement and related transaction documents (other than the hedges which are secured and guaranteed on a pari passu basis under the Loan and Security Agreement) were unconditionally guaranteed by the Company pursuant to the terms of a Guaranty entered into on April 1, 2022, by the Company in favor of Macquarie (the “Guaranty”).
Pledge and Security Agreement
In connection with the entry into the Supply and Offtake Agreement, Vertex Refining entered into a Pledge and Security Agreement in favor of Macquarie, pursuant to which it provided Macquarie a first priority security interest in all inventory, including all crude oil, product, and all proceeds with respect of the forgoing, subject to certain exceptions. The Pledge and Security Agreement includes customary representations, warranties and covenants of Vertex Refining for a facility of this size and type.
Inventory Sales Agreement
On April 1, 2022, pursuant to an Inventory Sales Agreement entered into between Vertex Refining and Macquarie, Macquarie purchased all crude oil and finished products (including, jet fuel, diesel and gasoline) located at the Mobile Refinery and held in inventory on such date, which purchase was based on agreed upon market values (the “Mobile Refinery Inventory”) from Vertex Refining for $154 million (which funds, together with cash on hand, were used by Vertex Refining to purchase the Mobile Refinery Inventory from Shell, as discussed in detail above), which Mobile Refinery Inventory then became subject to the terms of the Supply and Offtake Agreement.
Initial Warrant Agreement and Registration Rights Agreement
In connection with the entry into the Loan and Security Agreement, and as a required term and condition thereof, on April 1, 2022, the Company granted warrants (the “Initial Warrants”) to purchase 2.75 million shares of the Company’s common stock to the Lenders and their assigns. The terms of the Initial Warrants are set forth in a Warrant Agreement entered into on April 1, 2022, between the Company and Continental Stock Transfer & Trust Company as warrant agent (the “Initial Warrant Agreement”).
12

The Initial Warrants have a five-year term and a $4.50 per share exercise price, and include weighted average anti-dilutive rights in the event any shares of common stock or other equity or equity equivalent securities payable in common stock are granted, issued or sold (or the Company enters into any agreement to grant, issue or sell), or in accordance with anthe terms of the Warrant Agreement, are deemed to have granted, issued or sold, in each case, at a price less than the exercise price, which automatically decreases the exercise price of $2.25 per share,the Initial Warrants upon the occurrence of such event, as described in greater detail in the Warrant Agreement, and weincreases the number of shares of common stock issuable upon exercise of the Initial Warrants, such that the aggregate exercise price of all Initial Warrants remains the same before and after any such dilutive event. The Initial Warrants are described in greater detail below under “Amendment Number One to Loan and Security Agreement”.
In connection with the grant of the Initial Warrants, the Company and the holders of such Warrants entered into a Registration Rights Agreement dated April 1, 2022 (the “Initial Registration Rights Agreement”), which was amended and Lock-Upreplaced by the Amended and Restated Registration Rights Agreement discussed in greater detail below.
Crude Supply Agreement
On the Commencement Date, Vertex Refining and Shell Trading (US) Company (“STUSCO”) entered into a Crude Oil & Hydrocarbon Feedstock Supply Agreement (the “Crude Supply Agreement”) pursuant to which STUSCO agreed to sell to Vertex Refining, and Vertex Refining agreed to buy from STUSCO, all of the crude oil and hydrocarbon feedstock requirements of the Mobile Refinery, subject to certain exceptions set forth therein. The agreement provides that STUSCO is the exclusive supplier for the Mobile Refinery’s requirement for crude oil and hydrocarbon feedstock.
The initial term of the Crude Supply Agreement will continue for five (5) years beginning on the Commencement Date, unless earlier terminated, and will automatically renew for one (1) year renewal terms thereafter subject to timely notice of either party that it elects not to so renew.
Pursuant to the Crude Supply Agreement, STUSCO will procure crude oil based upon a monthly mandate from Vertex Refining as to the Mobile Refinery’s requirements for each delivery month, based on a pre-agreed price, based on internal market prices, subject in certain cases to markup.
Vertex Refining will prepay STUSCO for crude oil deliveries on a provisional basis during a predetermined delivery period during each delivery month, subject to final true up.
The Crude Supply Agreement also contains customary and typical general terms and conditions for transactions of this nature.
Pursuant to a tripartite agreement, Macquarie may intermediate Vertex Refining’s purchases of crude oil from STUSCO under the Crude Supply Agreement, from time to time, by assuming Vertex Refining’s rights and obligations under the Crude Supply Agreement in respect of purchases of crude oil and feedstock in a given delivery month. If Macquarie assumes Vertex Refining’s rights and obligations, Macquarie will be responsible for paying the purchase price for such crude oil and feedstocks to STUSCO in accordance with Tensilethe terms of the tripartite agreement. In the event that Macquarie intermediates a purchase and sale, the terms and conditions for Vertex Refining’s payments to Macquarie for such crude oil and feedstocks will be determined pursuant to the Supply and Offtake Agreement.
Storage & Services Agreement
On the Commencement Date, Vertex Refining and Macquarie entered into a Storage & Services Agreement (the “Storage & Services Agreement”), whereby Vertex Refining granted Macquarie certain access, storage, usage and information rights in respect of the Mobile Refinery and certain storage facilities and agreed to provide Macquarie certain services in connection with, among other things, such rights under certain other agreements, including the Supply and Offtake Agreement and various tripartite agreements.
Pursuant to the Storage & Services Agreement, Macquarie will pay Vertex Refining a monthly storage fee for provision of the storage and related services.
Pursuant to the Storage & Services Agreement, Macquarie will have the exclusive and uninterrupted license and right to use certain storage facilities specified in the Supply and Offtake Agreement (the “Included Locations”), including the right to inject, store and withdraw crude oil and products (as applicable) in and from the Included Locations. Vertex Refining will be responsible for the care, custody and control of, and will hold as bailee, the property of Macquarie and certain other eligible
13

hydrocarbons which are held within the Included Locations, and will be solely responsible for pumping, unloading, receipt, movements, blending, transportation, storage, measuring, gauging, sampling, analysis, treatment, refining, loading, and delivery of and use of such property, subject to the terms of the Supply and Offtake Agreement and other applicable transaction documents.
Pursuant to the Storage & Services Agreement and in addition to customary services provided by a storage provider, Macquarie has appointed Vertex Refining to perform certain obligations assumed by Macquarie in connection with supply, offtake and exchange arrangements related to the Supply and Offtake Agreement and related transaction documents, including, without limitation, giving, receiving, accepting and rejecting nominations for delivering, loading, unloading, receiving and transporting crude oil and products; the provision of facilities for the delivery, loading, unloading and transportation of crude oil and products; arranging, coordinating quantity and quality sampling, measurements, analysis and inspections for crude oil and products; preparing and handling shipping documentation; providing information with respect to, and submitting claims in relation to, quality, quantity and demurrage; and notifying Macquarie of the occurrence of certain specified events. Vertex Refining periodically will be required us to registerprovide various reports to Macquarie regarding the inventory held in the Included Locations.
The Storage & Services Agreement includes certain accelerated export rights pursuant to which, upon the occurrence of certain events, including during the continuation of an event of default under the Supply and Offtake Agreement, Macquarie can instruct Vertex Refining to withdraw all or any amount of Macquarie’s property from the Included Locations.
Macquarie has certain rights to inspect and access the Included Locations and conduct audits on accounting records and other documents maintained by Vertex Refining relating to the Storage & Services Agreement, in each case subject to the terms and conditions of the Storage & Services Agreement.
Vertex Refining will be required to maintain and operate the Included Locations in accordance with various customary covenants contained within the Storage & Services Agreement, including, without limitation, in respect of the maintenance of the Included Locations and related facilities, the standard of care pursuant to which Vertex Refining will perform services under the Storage & Services Agreement, insurance requirements, and compliance with laws. Vertex Refining made various representations and warranties to Macquarie which are required to continue to be met during the term of the agreement, which are customary and typical for storage agreements relating to an intermediation facility, including maintaining insurance. The Supply & Storage Agreement also includes certain customary limitations on liability and damages.
In addition to certain obligations to indemnify Macquarie for loss, damage or degradation of Macquarie’s property held at the Included Locations, Vertex Refining agreed to indemnify Macquarie against various liabilities which may arise relating to its performance under the Storage & Services Agreement, as well as, among other liabilities, any liabilities directly or indirectly arising from or in connection with environmental conditions at the facility, environmental law, required permits, and law applicable to the operation of Vertex Refining’s refinery and storage facilities.
The term of the Storage & Services Agreement will continue until the earlier to occur of (i) the date upon which all of Macquarie’s property in the Included Locations has been sold to Vertex Refining or another person or (ii) the date upon which Macquarie has certified that all of its property has been removed from the Included Locations.
ULSD/Gasoline Offtake Agreement
On the Commencement Date, Vertex Refining and Equilon Enterprises LLC, dba Shell Oil Products US (“Shell”) entered into a refined products offtake agreement for the sale of ultra low sulfur diesel (“ULSD”) and gasoline (the “ULSD/Gasoline Offtake Agreement”) pursuant to which Shell agreed to purchase from Vertex Refining, and Vertex Refining agreed to sell to Shell, ULSD and gasoline produced by the Mobile Refinery according to an agreed nomination and confirmation process, subject to certain exceptions set forth therein.
The initial term of the ULSD/Gasoline Offtake Agreement will continue for five years beginning on the Commencement Date, unless earlier terminated as provided in the ULSD/Gasoline Offtake Agreement, and will automatically renew for one year renewal terms thereafter, unless terminated by either party by written notice as set forth therein.
With respect to purchases and sales of ULSD, during the first three years of the term, Shell is required to purchase and Vertex Refining is required to sell certain pre-determined amounts of barrels (subject to minimums and maximums) per month. Thereafter, Vertex Refining may elect to sell Shell the same amounts or certain other pre-determined amounts, at Shell’s option. Volumes in excess of the foregoing limits for ULSD may be sold subject to mutual agreement.
14

With respect to purchases and sales of gasoline, during the first three years of the term, Shell will purchase all gasoline produced at the refinery up to certain maximum number of barrels per day, and all premium gasoline up to a pre-determined maximum number of barrels per day. Thereafter, Vertex Refining may elect to sell Shell the same amounts or certain pre-determined amounts of barrels (subject to minimums and maximums) per month, at Shell’s option. Volumes in excess of the foregoing limits for gasoline may be sold subject to mutual agreement.
In the event that Shell does not purchase and take delivery of certain required quantities of product nominated for purchase in a given month, Vertex Refining is entitled to sell the resulting shortfall volumes and obtain cover damages from Shell (excluding shortfall volumes resulting from force majeure events). In the event that Vertex Refining does not supply certain required quantities of product nominated for sale in a given month, Shell is entitled to procure replacement product to cover the shortfall volumes and obtain damages from Vertex Refining (excluding shortfall volumes resulting from force majeure events) in connection therewith.
Products will be provisionally priced and invoiced over certain pre-determined periods, subject to final true up. Prices will be calculated based upon published indices and an agreed fixed per gallon differentials.
The ULSD/Gasoline Offtake Agreement also contains customary and typical general terms and conditions for transactions of this nature.
Amendment Number One to Loan and Security Agreement
On May 26, 2022, each of the Initial Guarantors (including the Company), Vertex Refining OH, LLC, an Ohio limited liability company (“Vertex Ohio”), HPRM, and Tensile-Heartland, and together with Vertex Ohio and HPRM, the “Additional Guarantors”, and the Additional Guarantors, together with the Initial Guarantors, the “Guarantors”, and the Guarantors, together with Vertex Refining, the “Loan Parties”), entered into an Amendment Number One to Loan and Security Agreement (“Amendment No. One to Loan Agreement”), with certain of the Lenders and CrowdOut Warehouse LLC, as a lender (the “Additional Lenders” and together with the Initial Lenders, the “Lenders”) and the Agent, pursuant to which, the amount of the Term Loan (as defined below) was increased from $125 million to $165 million, with the Additional Lenders providing an additional term loan in the amount of $40 million (the “Additional Term Loan”, and together with the Initial Term Loan, the “Term Loan”).
As part of the transaction, each of the Additional Guarantors entered into joinders to the prior intercreditor agreement, intercompany subordination agreement, and collateral and pledge agreements relating to the Term Loan, and certain of the prior mortgages securing the Term Loan were amended to provide the Additional Lenders secured rights over the amount of the Additional Term Loan.
The Amendment No. One to Loan Agreement amended the Loan and Security Agreement to provide for the Additional Term Loan; to provide for the grant of the Additional Warrants (defined and described below) to the Lenders; and to include certain other mutually negotiated changes to the Loan and Security Agreement, including permitting certain share buybacks.
The proceeds of the Additional Term Loan can be used by the Company to fund (i) the acquisition of Heartland SPV pursuant to the Heartland Purchase Agreement and (ii) certain fees and expenses associated with the closing of the transactions contemplated by the Heartland Purchase Agreement and the Additional Term Loan.
The Term Loan will bear interest at a rate per annum equal to the sum of (i) the greater of (x) the per annum rate publicly quoted from time to time by The Wall Street Journal as the “Prime Rate” in the United States minus 1.50% as in effect on such day and (y) the Federal Funds rate for such day plus 0.50%, subject in the case of this clause (i), to a floor of 1.0%, plus (ii) 9.25%. The funds borrowed in connection with the Term Loan were issued with an original issue discount of 1.5%. The Company also paid certain fees and transaction expenses in connection with the Term Loan. Amounts owed under the Loan and Security Agreement (as amended), if not earlier repaid, are due on April 1, 2025 (or the next business day thereafter). Interest on the Term Loans is payable in cash (i) quarterly, in arrears, on the last business day of each calendar quarter, commencing on the last business day of the calendar quarter ending June 30, 2022, (ii) in connection with any payment, prepayment or repayment of the Term Loans (including as discussed in greater detail below), and (iii) at maturity (whether upon demand, by acceleration or otherwise).
Pursuant to the Loan and Security Agreement (as amended), on the last day of March, June, September and December of each year (or if such day is not a business day, the next succeeding business day), beginning on March 31, 2023 and ending on December 31, 2024, Vertex Refining is required to repay $2,062,500 of the principal amount owed under the Loan and
15

Security Agreement (as amended) (i.e., 1.25% of the principal amount per quarter), subject to reductions in the event of any prepayment of the Loan and Security Agreement (as amended).
In connection with the Additional Term Loan, and as additional consideration to the Additional Lenders for loaning funds to the Company in connection therewith, the Company granted warrants to purchase 250,000 shares of common stock issuedof the Company to Tensile,the Lenders (and/or their affiliates), as discussed in greater detail below.
Additional Warrant Agreement and Amended and Restated Registration Rights Agreement
In connection with the entry into the Amendment No. One to Loan Agreement, and as a required term and condition thereof, on May 26, 2022, the Company granted warrants (the “Additional Warrants” and together with the Initial Warrants, the “Warrants”) to purchase 250,000 shares of the Company’s common stock to the Lenders and their affiliates. The terms of the Additional Warrants are set forth in a Warrant Agreement (the “Additional Warrant Agreement” and together with the Initial Warrant Agreement, the “Warrant Agreements”) entered into on May 26, 2022, between the Company and Continental Stock Transfer & Trust Company as warrant agent.
In connection with the grant of the Additional Warrants, the Company and the holders of the Warrants entered into an Amended and Restated Registration Rights Agreement dated May 26, 2022, entered into between the Company and the holders of the Warrants (as amended and restated, the “Amended and Restated Registration Rights Agreement” or the “Registration Rights Agreement”). Under the Registration Rights Agreement, the Company agreed to file a registration statement (the “Initial Registration Statement”) with the SEC as soon as reasonably practicable and in no event later than 75 days following April 1, 2022 (i.e., on or before June 15, 2022), for purposes of registering the resale of the shares of common stock issuable upon exercise of the warrants issued to Tensile, and TensileWarrants. The Company also agreed to certain restrictions onuse commercially reasonable efforts to cause the saleSEC to declare the Registration Statement effective as soon as practicable and no later than 45 days following the filing of the shares heldInitial Registration Statement; provided, that such date is extended until 120 days after the filing date if the Initial Registration Statement is reviewed by Tensile. On July 1, 2021, we entered into a First Amendment tothe staff of the Commission. The Registration Rights Agreement also provides the holders of the Warrants certain piggyback and Lock-Up Agreement with Tensile (the “RRA Amendment”)demand registration rights (including pursuant to adjustan underwritten offering, in the restrictionevent the gross proceeds from such underwritten offering are expected to exceed $35 million). The Company filed and obtained effectiveness of the required Registration Statement on Tensile’s ability to sellJuly 8, 2022.
The Additional Warrants have a five and one-half-year term and a $9.25 per share exercise price, and include weighted average anti-dilutive rights in the event any shares of common stock underor other equity or equity equivalent securities payable in common stock are granted, issued or sold (or the lock-upCompany enters into any agreement to provide for Tensilegrant, issue or sell), or in accordance with the terms of the Additional Warrant Agreement, are deemed to not sell morehave granted, issued or sold, subject to certain exceptions, in each case, at a price less than 500,000the exercise price, which automatically decreases the exercise price of the Additional Warrants upon the occurrence of such event, as described in greater detail in the Additional Warrant Agreement, and increases the number of shares of common stock in any seven day period until July 25, 2024, without the prior written consentissuable upon exercise of the Company.Additional Warrants, such that the aggregate exercise price of all Additional Warrants remains the same before and after any such dilutive event.

9

Encina Credit Agreement Term Loan

On November 1, 2021,Until or unless the Company repaid in full the amounts owed to the EBC Lenders with the funds raised through the sale of the Convertible Notes.

Indenture and Convertible Notes

On November 1, 2021, we issued $155.0 million aggregate principal amount at maturity of our 6.25% Convertible Senior Notes due 2027 (the “Convertible Notes”) pursuant to an Indenture (the “Indenture”), dated November 1, 2021, between the Company and U.S. Bank National Association, as trustee (the “Trustee”), in a private offering (the “Note Offering”) to persons reasonably believed to be “qualified institutional buyers” and/or to “accredited investors” in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, pursuant to Securities Purchase Agreements.

The net proceeds from the offering, after deducting placement agent fees and estimated offering costs and expenses payable by the Company, were approximately $133.9 million. The Company intends to use approximately (1) $33.7 million of the net proceeds from the offering to fund a portion of the funds payable in connection with the Refinery Purchase Agreement, (2) $13.0 million of the net proceeds from the offeringreceives shareholder approval under applicable Nasdaq listing rules for engineering services and for the initial payments of purchase orders for long lead-time equipment associated with the Conversion, (3) $10.9 million of the net proceeds from the offering to repay amounts owed by the Company under its credit facilities with Encina Business Credit, LLC and certain of its affiliates, and (4) $0.4 million of the net proceeds to repay certain secured equipment leases with certain affiliates of Wells Fargo Bank, National Association. The Company intends to use the remainder of the net proceeds for working capital and other general corporate purposes, which may include debt retirement and organic and inorganic growth initiative, provided that the Company has no current specific plans for such uses.

Key terms of the Convertible Notes are as follows:

•Issue price – 90% of the face amount of each Note.

•Interest rate of 6.25% – The Convertible Notes will bear interest at a rate of 6.25% per year, payable semiannually in arrears on April 1 and October 1 of each year, beginning on April 1, 2022.

•Conversion price of approximately $5.89 – The Convertible Notes will be convertible at an initial conversion rate of 169.9235 shares of the Company’s common stock, per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $5.89 per share, which represents a conversion premium of approximately 37.5% to the last reported sale price of $4.28 per share of the Company’s common stock on The Nasdaq Capital Market on October 26, 2021).

•Maturity date –The Convertible Notes will mature on October 1, 2027, unless earlier repurchased, redeemed or converted.

•Conversion – Prior to July 1, 2027, the Convertible Notes will be convertible at the option of the holders of the Convertible Notes only upon the satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date.

•Cash settlement of principal amount in connection with conversions – Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election, provided that until such time as the Company’s stockholders have approved the issuance of more than 19.99%19.9% of ourthe Company’s outstanding shares of common stock issuableon April 1, 2022, pursuant to the exercise of Warrants (i.e., 12,828,681 shares of common stock, based on 64,465,734 shares of outstanding common stock on such date) (the “Share Cap”), the Company may not issue more shares of common stock upon conversionexercise of the Convertible NotesWarrants than the Share Cap, and is required to pay the Lenders cash, based on the fair market value of any shares required to be issued upon exercise of the Prior Warrants and Additional Warrants (as calculated in accordancethe Warrant Agreement), in excess of the Share Cap. Upon the occurrence of a fundamental transaction (as described in the Warrant Agreements), the Warrant Agreements (a) provide each holder a put right and (b) provides the Company with a call right in respect of the rulesWarrants. Upon the exercise of a put right by the holder or a call right by the Company, the Company is obligated to repurchase the Warrants for the Black Scholes Value of the Warrants repurchased, as calculated in the Warrant Agreements. The Nasdaq Capital Market,Warrants also include cashless exercise rights and a provision preventing a holder of the Warrants from exercising any portion of their Warrants if such holder (together with its affiliates) would beneficially own in excess of 4.99% or 9.99% (as applicable pursuant to the Warrant Agreements) of the number of shares of Company common stock outstanding immediately after giving effect to the exercise, subject to certain rights of the holders to increase or decrease such percentage.
Amendment No. 1 to the First Amended and Restated Registration Rights Agreement
On June 15, 2022, the Company and the holders of the Warrants (the “Warrant Holders”) entered into an Amendment No. 1 to the First Amended and Restated Registration Rights Agreement (the “Amendment”), which amended the required filing date of the initial registration statement that the Company is required to elect “cash settlement” for all conversions of the Convertible Notes.

•Limited investor put rights – Holders of the Convertible Notes will have the rightuse commercially reasonable efforts to require the Company to repurchase for cash all or part of their Convertible Notes at a repurchase price equal to 100% of the accreted principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding the repurchase date, upon the occurrence of certain change of control transactions or liquidation, dissolution or common stock delisting events (collectively, a “fundamental change”), subject to certain conditions.

file
1016

•Optional Redemption – Priorpursuant to October 6, 2024, the Convertible Notes will not be redeemable at the Company’s option. On a redemption date occurring on or after October 6, 2024 and on or before the 30 scheduled trading day before the maturity date, the Company may redeem for cash all or partterms of the Convertible Notes (subjectRegistration Rights Agreement, to certain restrictions), at its option, ifregister the last reported sale priceresale of our Company’sthe shares of common stock has been at least 130% ofunderlying the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the dateWarrants, from no later than June 15, 2022, to on which the Company provides a notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the redemption notice date at a redemption price equal to 100% of the accreted principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No “sinking fund” is provided for the Convertible Notes, which means that we are not required to redeem or retire the Convertible Notes periodically.

•Escrow of proceeds; special mandatory redemption. A total of seventy-five percent (75%) of the net proceeds from the offering (approximately $100 million) were placed into an escrow account to be released to the Company, upon the satisfaction of certain conditions, including the satisfaction or waiver of all of the conditions precedent to the Company’s obligation to consummate the Mobile Acquisition (collectively, the “Escrow Release Conditions”). If the Mobile Acquisition is not consummated on or prior to AprilJuly 1, 2022, if the Company has not certified to the escrow agent that all conditions precedent to the Company’s obligations to consummate the Mobile Acquisition have been satisfied, or, if the Company notifies the trustee and the escrow agent in writing that the agreement relatingwas then ineligible to the purchase of the Mobile Refinery has been terminated, the Convertible Notes will be subject tofile a special mandatory redemption equal to 100% of the accreted principal amount of the Convertible Notes, plus accrued and unpaid interest to, but excluding, the special mandatory redemption date, plus interest that would have accruedregistration statement on the Convertible Notes from the special mandatory redemptionsuch date, to and including, the date that is nine (9) months after the special mandatory redemption date. If the Escrow Release Conditions have been satisfied or waived,require the Company can request that the escrowed funds be released to the Company.

•Conversion rate increase in certain customary circumstances – The Company will also be requireduse commercially reasonable efforts to increase the conversion rate for holders who convert their Convertible Notes in connection with a fundamental change and certain other corporate events or convert their Convertible Notes called for optional redemption (or deemed called for redemption) following delivery by the Company of a notice of optional redemption, in either case, in certain circumstances.

The Convertible Notes are Vertex Energy’s senior unsecured obligations.

The Indenture contains additional customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Convertible Notes then outstanding may declare the entire principal amount of all the Convertible Notes plus accrued and unpaid interest, if any,cause such registration statement to be immediately due and payable, provided that in the case of an event of default with respect to the Convertible Notes arising from specified events of bankruptcy or insolvency, 100% of the principal of and accrued and unpaid special interest, if any, on the Convertible Notes will automatically become due and payable.

The following events are considered an “event of default,” which may result in acceleration of the maturity of the Convertible Notes: (1) default in any payment of interest on any Convertible Note when due and payable and the default continues for a period of 30 consecutive days; (2) default in the payment of the accreted principal amount of any Convertible Note when due and payable at its stated maturity, upon optional redemption, upon any required repurchase, upon declaration of acceleration or otherwise; (3) our failure to comply with our obligation to convert the Convertible Notes in accordance with the Indenture upon exercise of a holder’s conversion right and such failure continues for three business days; (4) our failure to give certain required notices under the Indenture, in each case when due and such failure continues for five business days; (5) our failure to comply with certain of our obligations under the Indenture; (6) our failure for 60 days after written notice from the Trustee or the holders of at least 25% in principal amount of the Convertible Notes then outstanding to comply with any of our other agreements contained in the Convertible Notes or Indenture; (7) default by us or any of our significant subsidiaries with respect to any mortgage, agreement or other instrument under which there may be outstanding, or by which there may be secured or evidenced, any indebtedness for borrowed money in excess of $15,000,000 (or its foreign currency equivalent) in an aggregate of us and/or any such significant subsidiary, whether such indebtedness now exists or shall hereafter be created (i) resulting in such indebtedness becoming or being declared due and payable prior to its stated maturity date or (ii) constituting a failure to pay the principal of any such indebtedness when due and payable (after the expiration of all applicable grace periods) at its stated maturity, upon required repurchase, upon declaration of acceleration or otherwise and in the cases of clauses (i) and (ii), such acceleration shall not have been rescinded or annulled or such failure to pay or default shall not have been cured or waived, or such indebtedness is not paid or discharged, as the case may be, within 30 days after written notice to us by the Trustee or to us and the Trustee by holders of at least 25% in aggregate principal amount of the Convertible Notes then
11

outstanding in accordance with the Indenture; (8) certain events of bankruptcy, insolvency, or reorganization of us or any of our significant subsidiaries; or (9) a final judgment or judgments for the payment of $15,000,000 (or its foreign currency equivalent) (excluding any amounts covered by insurance) or more (excluding any amounts covered by insurance) in the aggregate rendered against us or any of our Significant Subsidiaries, which judgment is not discharged, bonded, paid, waived or stayed within 60 days after (i) the date on which the right to appeal thereof has expired if no such appeal has commenced, or (ii) the date on which all rights to appeal have been extinguished.

The Company may elect that the sole remedy for an event of default relating to a failure by it to comply with certain reporting obligations set forth in the Indenture, will after the occurrence of such an event of default consist exclusively of the right to receive additional interest on the Convertible Notes at a rate equal to (i) 1.00% per annum of the principal amount of the Convertible Notes outstanding for each day during the period beginning on, and including, the date on which such event of default first occurred and ending on the earlier of (x) the date on which such event of default is cured or validly waived and (y) the 365th day immediately following, and including, the date on which such event of default first occurred. On the 366th day after such event of default (if the event of default relating to the reporting obligations is not cured or waived prior to such 366th day), the Trustee by notice to us, or the holders of at least 25% in principal amount of the outstanding Convertible Notes by notice to us and the Trustee, may declare 100% of the principal of and accrued and unpaid interest, if any, on all the Convertible Notes to be due and payable.

If on or after the date that is six months after the last original issue date of the Convertible Notes, the Company has not satisfied the reporting conditions (including, for the avoidance of doubt, the requirement for current Form 10 information) set forth in Rule 144(c) and (i)(2)effective under the Securities Act, oras promptly as reasonably practicable after the Convertible Notes are not otherwise able to be traded pursuant toinitial filing thereof (including, if then a “well-known seasoned issuer” (as defined in Rule 144 by holders other than the Company’s affiliates or holders that were affiliates405 of the Securities Act, a “WKSI”) by filing such registration statement as an automatically effective shelf registration statement). The Amendment also included various representations from the Company at any time during the three months immediately preceding (as a result of restrictions pursuant to U.S. securities laws or the termsregarding its satisfaction of the Indenture or the Convertible Notes), the Company will pay additional interest on the Convertible Notes atrequirements for being a rate equal to 1.00% per annum of the principal amount of the Convertible Notes outstanding, in each case for each day for which the Company’s failure to file has occurred and is continuing or the Convertible Notes are not otherwise able to be traded pursuant to Rule 144 as described above.

Initially, a maximum of 36,214,960 shares of common stock may be issued upon conversion of the Convertible Notes, based on the initial maximum conversion rate of 233.6449 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes, which is subject to customary and other adjustments described in the Indenture.

WKSI.
1217

RESULTS OF OPERATIONS
Description of Material Financial Line Items:
Revenues
We generateDuring the periods covered by this Report, we generated revenues from three existing operating segments as follows:
BLACK OIL -Revenues from our Black Oil segment are comprised primarily of product sales from our re-refineries and 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 export market.  In addition, through used oil re-refining, we re-refine used oil into different commodity products. 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. 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.
Discontinued operations of Vertex include the Black Oil Segment, also referred to as the “UMO Business”, Refer to Note 15,16, "Discontinued Operations" in the Notes to Financial Statements for additional information.
REFINING AND MARKETING -The Refining and Marketing segment generates revenues relating to the sales of finished products. The Mobile Refinery and Logistics Assets are included in our Refining and Marketing segment and are a group of downstream assets and related logistics infrastructure of the Mobile Truck Rack.The Mobile Refinery currently processes heavy and sour crude to produce heavy olefin feed, regular gasoline, premium gasoline, jet fuel and diesel fuel.

This segment also 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. In addition, we are distributing refined motor fuels such as gasoline, blended gasoline products and diesel used as engine fuels, to third party customers who typically resell these products to retailers and end consumers.

RECOVERY -The Recovery segment is a generator solutions company for the proper recovery and management of hydrocarbon streams. 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 segment are comprised primarily of feedstock purchases from a network of providers. Other cost of revenues includeincludes processing costs, transportation costs, purchasing and receiving costs, analytical assessments, brokerage fees and commissions, and surveying and storage costs.
Discontinued operations of Vertex include the Black Oil Segment, also referred to as the UMO Business, Refer to Note 15,16, "Discontinued Operations" in the Notes to Financial Statements for additional information.
REFINING AND MARKETING -The Refining and Marketing segment 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 segment incurs cost of revenues relating to the purchase of hydrocarbon products, purchasing and receiving costs, inspection, and transporting of metals and other salvage and materials. Cost of revenues also includes broker’s fees, inspection and transportation costs.
18

Our cost of revenues is 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.
13

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 our Vertex Holdings, L.P. (formerly Vertex Energy, L.P.), a Texas limited partnership (“Holdings”), Omega Refining, LLC (“Omega Refining”), Warren Ohio Holdings Co., LLC, f/k/a Heartland Group Holdings, LLC (“Heartland”), Acadiana Recovery, LLC, Nickco Recycling, Inc., Ygriega Environmental Services, LLC, Specialty Environmental Services, and Crystal Energy, LLC acquisitions, described in greater detail in our 2020 Annual Report on Form 10-K for the year ended December 31, 2020.and Mobile Refinery acquisitions.
Depreciation and amortization expense attributable to cost of revenues reflects the depreciation and amortization of the fixed assets at our refineries along with rolling stock at our collection branches.

Depreciation and amortization expense attributable to operating expenses reflects depreciation and amortization related to our corporate and administrative offices along with systems, applications, and products (SAP) and internet technology (IT) related items and intangibles.

Factors Impacting Comparability of Our Financial Results
Our results of operations for the three and six months ended June 30, 2022, were significantly impacted by the acquisition of the Mobile Refinery on April 1, 2022. There are no comparable amounts presented for the same periods in 2021. See summary of the Mobile Refinery operating results under Results of Operations – Mobile Refinery, below.

Non-GAAP Financial Measures

In addition to our results calculated under generally accepted accounting principles in the United States (“GAAP”), in this Report we also present Refining Gross Margin, Refining Gross Margin Per Barrel of Throughput and Refining Adjusted EBITDA, each as discussed in greater detail below. Refining Gross Margin, Refining Gross Margin Per Barrel of Throughput and Refining Adjusted EBITDA are “non-GAAP financial measures” presented as supplemental measures of the Company’s performance. They are not presented in accordance with GAAP. We use Refining Gross Margin, EBITDA and Adjusted EBITDA as supplements to GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to allocate resources and to compare our performance relative to our peers. Additionally, these measures, when used in conjunction with related GAAP financial measures, provide investors with an additional financial analytical framework which management uses, in addition to historical operating results, as the basis for financial, operational and planning decisions and present measurements that third parties have indicated are useful in assessing the Company and its results of operations. Refining Gross Margin, EBITDA and Adjusted EBITDA are presented because we believe they provide additional useful information to investors due to the various noncash items during the period. Refining Gross Margin, EBITDA, and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry.

Refining Gross Margin, Refining Gross Margin Per Barrel of Throughput and Refining Adjusted EBITDA are unaudited, and have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Some of these limitations are: Refining Gross Margin, Refining Gross Margin Per Barrel of Throughput and Refining Adjusted EBITDA do not reflect cash expenditures, or future requirements for capital expenditures, or contractual commitments; Refining Gross Margin, Refining Gross Margin Per Barrel of Throughput and Refining Adjusted EBITDA do not reflect changes in, or cash requirements for, working capital needs; Refining Gross Margin, Refining Gross Margin Per Barrel of Throughput and Refining Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debt or cash income tax payments; although depreciation and amortization are noncash charges, the assets being depreciated and amortized will often have to be replaced in the future, Refining Gross Margin, Refining Gross Margin Per Barrel of Throughput and Refining Adjusted EBITDA do not reflect any cash requirements for such replacements; Refining Gross Margin, Refining Gross Margin Per Barrel of Throughput and Refining Adjusted EBITDA, represent only a portion of our total operating results; and other companies in this industry may calculate Refining Gross Margin, Refining
19

Gross Margin Per Barrel of Throughput and Refining Adjusted EBITDA differently than we do, limiting their usefulness as a comparative measure.

You should not consider Refining Gross Margin, Refining Gross Margin Per Barrel of Throughput and Refining Adjusted EBITDA in isolation, or as substitutes for analysis of the Company’s results as reported under GAAP. The Company’s presentation of these measures should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items. We compensate for these limitations by providing a reconciliation of each of these non-GAAP measures to the most comparable GAAP measure below. We encourage investors and others to review our business, results of operations, and financial information in their entirety, not to rely on any single financial measure, and to view these non-GAAP measures in conjunction with the most directly comparable GAAP financial measure.

Refining gross margin.

Refining gross margin is defined as revenues less the cost of fuel intakes and other fuel costs. It excludes operating expenses and depreciation attributable to cost of revenues and other non-operating items included in costs of revenues.

Refining gross margin per barrel of throughput.

Refining gross margin per throughput barrel is calculated as refining gross margin divided by total throughput barrels for the period presented.

Refining Adjusted EBITDA.

Refining Adjusted EBITDA represents net income (loss) from operations minus depreciation and amortization, , unrealized gains and losses on hedging activities, gain and loss on intermediation agreement, and unusual or non-recurring charges included in selling, general, and administrative expenses.

Crack Spread USGC 2-1-1

The crack spread is a measure of the difference between market prices for refined products and crude oil, commonly used by the refining industry. We use crack spreads as a performance benchmark for our refining gross margin and as a comparison with other industry participants. Crack spreads can fluctuate significantly, particularly when prices of refined products do not move in the same direction as the cost of crude oil. To calculate the crack spread we believe more closely relates to the crude intakes and products at the Mobile Refinery, we use two barrels of Louisiana Light Sweet crude oiil, producing one barrel of USGC CBOB gasoline and one barrel of USGC ULSD.

The following table reconciles gross profit to refining gross margin and net loss to refining Adjusted EBITDA for the periods presented (in thousands):

Three Months Ended June 30, 2022
Total Refining and MarketingMobile Refinery
Gross profit$3,614 $1,967 
Operating expenses included in cost of revenues17,575 17,575 
Depreciation and amortization attributable to cost
of revenues		3,009 2,986 
Unrealized loss on hedging activities46,901 46,901 
Loss on inventory intermediation agreement23,180 23,180 
Refining gross margin$94,279 $92,609 
Net loss from operations$(20,719)$(20,729)
Depreciation and amortization3,745 3,722 
Unrealized loss on hedging activities46,901 46,901 
Loss on intermediation agreement23,180 23,180 
Acquisition costs9,078 9,078 
20

Environmental reserve1,428 1,428 
Refining Adjusted EBITDA$63,613 $63,580 










Mobile Refinery

Set forth are our results of operations and certain key performance indicators disaggregated to show only the Mobile Refinery to facilitate comparability between periods (in thousands) and certain key performance indicators:


Three Months Ended June 30, 2022
Statement of operations data:
Revenues$922,196 
Cost of revenues917,243 
Depreciation and amortization attributable to cost
of revenues		2,986 
Gross profit1,967
Operating expenses:
Operating expenses21,960
Depreciation and amortization736
Total operating expenses22,696
Operating income (loss)(20,729)
Other income (expense)
Interest expense(3,250)
Other income, net18
Net loss$(23,961)
Adjusted EBITDA$63,580 
Key performance indicators:
Sales volume (MBLs)6,468 
Refining gross margin$92,608 
Refining gross margin per bbl of throughput14.11 
USGC 2-1-1 Crack Spread Per Barrel45.06 
Operating expenses per bbl of throughput$3.35 


Three Months Ended June 30, 2022
Refinery Feedstocks (bpd)
Crude oil72,133
Total feedstocks72,133
Refinery Yields (bpd)
14
21

Gasolines17,997
Distillates30,112 
Other (1)23,646 
Total average barrel yields per day71,755

(1) Other includes intermediates and LPGs.
22

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBERJUNE 30, 20212022 COMPARED TO THE THREE MONTHS ENDED SEPTEMBERJUNE 30, 20202021 FROM CONTINUING OPERATIONS
 
Set forth below are our results of operations for the three months ended SeptemberJune 30, 20212022 as compared to the same period in 2020.2021 (in thousands):
Three Months Ended September 30,$ Change - Favorable (Unfavorable)% Change - Favorable (Unfavorable)Three Months Ended June 30,$ Change - Favorable (Unfavorable)% Change - Favorable (Unfavorable)
2021202020222021
RevenuesRevenues$28,974,471 $16,249,312 $12,725,159 78 %Revenues$991,839 $30,228 $961,611 3,181 %
Cost of revenues (exclusive of depreciation and amortization shown separately below)Cost of revenues (exclusive of depreciation and amortization shown separately below)28,061,498 15,324,914 (12,736,584)(83)%Cost of revenues (exclusive of depreciation and amortization shown separately below)984,442 28,041 (956,401)(3,411)%
Depreciation and amortization attributable to costs of revenuesDepreciation and amortization attributable to costs of revenues126,795 115,562 (11,233)(10)%Depreciation and amortization attributable to costs of revenues3,122 116 (3,006)(2,591)%
Gross profitGross profit786,178 808,836 (22,658)(3)%Gross profit4,275 2,071 2,204 106 %
Operating expenses:Operating expenses:Operating expenses:
Selling, general and administrative expensesSelling, general and administrative expenses4,944,719 1,832,067 (3,112,652)(170)%Selling, general and administrative expenses36,641 4,177 (32,464)(777)%
Depreciation and amortization attributable to operating expensesDepreciation and amortization attributable to operating expenses26,916 28,002 1,086 4 %Depreciation and amortization attributable to operating expenses763 27 (736)(2,726)%
Total operating expensesTotal operating expenses4,971,635 1,860,069 (3,111,566)(167)%Total operating expenses37,404 4,204 (33,200)(790)%
Loss from operationsLoss from operations(4,185,457)(1,051,233)(3,134,224)(298)%Loss from operations(33,129)(2,133)(30,996)(1,453)%
Other income (expense):Other income (expense):Other income (expense):
Loss on asset sales(3,351)(136,434)133,083 98 %
Gain on change in value of derivative liability11,907,413 256,587 11,650,826 4,541 %
Interest incomeInterest income18 — 18 100 %
Other incomeOther income152 4,222 (4,070)(96)%
Gain on asset salesGain on asset sales— — — — %
Loss on change in value of derivative warrant liabilityLoss on change in value of derivative warrant liability(945)(21,508)20,563 96 %
Interest expenseInterest expense(352,587)(97,157)(255,430)(263)%Interest expense(47,722)(139)(47,583)(34,232)%
Total other expenseTotal other expense11,551,475 22,996 11,528,479 50,133 %Total other expense(48,497)(17,425)(31,072)(178)%
Income (loss) before income tax7,366,018 (1,028,237)8,394,255 816 %
Loss from continuing operation before income taxLoss from continuing operation before income tax(81,626)(19,558)(62,068)(317)%
Income tax benefit (expense)Income tax benefit (expense)— — — — %Income tax benefit (expense)— — — — %
Net income (loss) from continuing operations7,366,018 (1,028,237)8,394,255 816 %
Income (loss) from discontinued operations, net of tax (see Note 15)3,278,498 (926,933)4,205,431 454 %
Loss from continuing operationsLoss from continuing operations(81,626)(19,558)(62,068)(317)%
Income from discontinued operations, net of taxIncome from discontinued operations, net of tax17,844 3,601 14,243 396 %
Net lossNet loss(63,782)(15,957)(47,825)79 %
Net income attributable to non-controlling interest and redeemable non-controlling interest from continuing operationsNet income attributable to non-controlling interest and redeemable non-controlling interest from continuing operations(115,131)136,334 (251,465)(184)%Net income attributable to non-controlling interest and redeemable non-controlling interest from continuing operations165 243 (78)(32)%
Net income attributable to non-controlling interest and redeemable non-controlling from discontinued operationsNet income attributable to non-controlling interest and redeemable non-controlling from discontinued operations2,400,141 343,881 2,056,260 598 %Net income attributable to non-controlling interest and redeemable non-controlling from discontinued operations3,023 3,175 (152)(5)%
Net income (loss) attributable to Vertex Energy, Inc.$8,359,506 $(2,435,385)$10,794,891 443 %
Net loss attributable to Vertex Energy, Inc.Net loss attributable to Vertex Energy, Inc.$(66,970)$(19,375)$(47,595)116 %

Our operating results are significantly affected by the Mobile Refinery acquisition, which closed on April 1, 2022. During the three months ended June 30, 2022, the Mobile Refinery generated approximately $922 million of revenue, cost of revenues associated with the Mobile Refinery were $917 million, there was $4 million of depreciation and amortization to both cost of revenue and operating expenses, and $22 million of selling, general and administrative expenses.

Our revenues and cost of revenues are also significantly impacted by fluctuations in commodity prices; increases in commodity prices typically result in increases in revenue and cost of revenues (i.e., feedstock acquisition costs). 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. During the three months ended SeptemberJune 30, 2021,2022, compared to the same period in 2020,2021, we saw a 15% increase16% decrease in the volume of products we managedmanage through our facilities.facilities (mainly as a result of the Mobile Refinery acquisition and
23

increased volumes processed through such facility) In addition, we saw an increase in operating costs (inclusive of depreciation and amortization) on a per barrel basis for the thirdsecond quarter of 20212022 as compared to the same period in 2020.2021.

    Total revenues increased by 78%approximately $961.6 million, of which $922.2 million was from the Mobile Refinery and $39.4 million of the increase from other business for the three months ended SeptemberJune 30, 2021,2022, compared to the same period in 2020,2021. The $39.4 million increase was due primarily to higher commodity prices (commodity prices reached near historic lows during 2020, as a result of the COVID-19 pandemic) and increased volumes at our facilities; including $20 million of revenue generated from our wholesale distribution of gasoline, blended gasoline, and diesel for use as engine fuel to operate automobiles, trucks, locomotives, and construction equipment, which operations were acquired in June 2020, in connection with our acquisition of Crystal Energy, LLC ("Crystal”), for the three months ended September 30, 2021, compared to the same period in 2020. Total volume increased 15% during the three months ended September 30, 2021, compared to the same period in 2020.facilities. Volumes were impactedimproved as a result of additional feedstock
15

availability in the overall marketplace. This volume impact was largely due to lingering impacts of the shelter in place orders in the locations in which we operate as a result of the COVID-19 pandemic, which directly impacted the generation of metals and petroleum products during the period ended 2020.

During the three months ended SeptemberJune 30, 2021,2022, total cost of revenues (exclusive of depreciation and amortization) increased approximately $956 million, of which $917 million was $28,061,498from the Mobile Refinery and $39 million was from other business compared to $15,324,914 for the three monthssame period ended SeptemberJune 30, 2020, an increase of $12,736,584 or 83% from the prior period.2021. The main reason for the $39 million increase was the result of the increase in commodity prices which impacted our feedstock pricing and the additional cost of sales related to our Crystal operations.certain operational expenses. Our cost of revenues is a function of the ultimate price we are required to pay to acquire feedstocks.feedstocks and other maintenance costs at our facilities.

We had selling, general and administrative expenses of $4,944,719approximately $36.6 million for the three months ended SeptemberJune 30, 20212022, compared to $1,832,067$4.2 million from the prior year’s period, an increase of $3,112,652approximately $32.5 million or 170%777% from the prior year’s period. This increase is primarily due to the additional$22 million of selling, general and administrative expenses incurred during the period as a result of increased personnel costs, legal expenses, and insurance expenses related to our expansion of trucks and facilities through acquisitions and organic growth. In addition, we had significant business development and related expenses relatedrelating to the transactions contemplated by the Sale AgreementMobile Refinery and the$8 million of Mobile Refinery Purchase Agreement and related transactions.acquisition costs.

For the three months ended SeptemberJune 30, 2021,2022, total depreciation and amortization expense attributable to cost of revenues was $126,795,$3.1 million, compared to $115,562$0.1 million for the three months ended SeptemberJune 30, 2020,2021, an increase of $11,233$3.0 million, mainly due to Mobile Refinery assets acquired and additional investments in rolling stock and facility assets during the fourth quarter of 2020,2021, which increased depreciation and amortization in 2021.2022.

We had gross profit as a percentage of revenue of 2.7%0.4% for the three months ended SeptemberJune 30, 2021,2022, compared to gross profit as a percentage of revenues of 5.0%6.9% for the three months ended SeptemberJune 30, 2020.2021. The main reason for the decrease was the increase in commodity pricesrecognition of a $94 million loss from hedging activities for Mobile Refinery inventory during the period.

    Additionally, our per barrel margin was decreased 16%21% for the three months ended SeptemberJune 30, 2021,2022, relative to the three months ended SeptemberJune 30, 2020.2021. Our per barrel margin is calculated by dividing the total volume of product sold (in bbls) by total gross profit for the applicable period ($786,1784.3 million for the 20212022 period versus $808,836)$2.1 million for the 20202021 period). This decrease was a result of the decrease in our product spreads related to increases in feedstock prices and increases in operating maintenance costs at our facilities, during the three months ended SeptemberJune 30, 2021,2022, compared to the same period during 2020.2021.
Overall, commodity prices were up for the three months ended SeptemberJune 30, 2021,2022, compared to the same period in 2020.2021. For example, the average posting (U.S. Gulfcoast Residual Fuel No. 6 3%) for the three months ended SeptemberJune 30, 2021,2022, increased $24.5461% per barrel from a three-month average of $37.95$58.59 for the three months ended SeptemberJune 30, 20202021 to $62.49$94.11 per barrel for the three months ended SeptemberJune 30, 2021.2022. The average posting (U.S. Gulfcoast Unleaded 87 Waterborne) for the three months ended SeptemberJune 30, 20212022 increased $33.81$67.79 per barrel from a three-month average of $44.82$86.55 for the three months ended SeptemberJune 30, 20202021 to $78.63$154.35 per barrel for the three months ended SeptemberJune 30, 2021.2022.

We had loss from operations of $4,185,457approximately $33.1 million for the three months ended SeptemberJune 30, 2021,2022, compared to loss from operations of $1,051,233$2.1 million for the three months ended SeptemberJune 30, 2020,2021, an increase of $3,134,224 or 298%$30.2 million from the prior year’s three-month period. The increase in loss from operations was mostly due to a $21 million loss from the increases seen in commodity pricesMobile Refinery and overall margin impact from our bunker fuels business along with overall increase in operating expenses at our facilities.$8 million of acquisition costs

related to the transactions contemplated by the Refinery Purchase Agreement and related transactions.

    We had interest expense of $352,587$47.7 million for the three months ended SeptemberJune 30, 2021,2022, compared to interest expense of $97,157$139 thousand for the three months ended SeptemberJune 30, 2020,2021, an increase in interest expense of $255,430$47.6 million or 263%34,232% from the prior period, due to having a higher amountthe unamortized deferred loan costs related to the conversion of term debt outstandingConvertible Senior Notes to common stock during the three months ended September 30,period and the interest associated with the Convertible Senior Notes, which were issued on November 1, 2021, compared toand the prior year’s period.Term Loan, which was issued on April 1, 2022 ($125 million) and May 26, 2022 ($40 million).
    We had a $11,907,413 gainan approximately $0.9 million loss on change in value of derivative liability for the three months ended SeptemberJune 30, 2021,2022, in connection with certainthe warrants granted in connection with the Term Loan issued on April 1, 2022 (warrants to purchase 2.75 million shares) and May 2016, as described in greater detail in “Note 9. Preferred Stock and Detachable Warrants”26, 2022 (warrants to the unaudited consolidated financial statements included herein under “Part I”-“Item 1 Financial Statements”purchase 0.25 million shares), compared to a gainloss on change in the value of our derivative liability of $256,587$21.5 million in the prior year’s period, (which also includedwhich was in connection with certain warrants granted in June 2015, which had expired as of December 31, 2020).May 2016. This change was mainly due to the fluctuation in the market price of our common stock (and more specifically the increase in the market price of our common stock during the current period, compared to the prior period), warrant exercises, and non-cash accounting adjustments in connection therewith. This resulted in a significant change in non-cash expense for the period, compared to the prior year’s period.

1624


    We had net incomeloss from continuing operations of $7,366,018approximately $80.9 million for the three months ended SeptemberJune 30, 2021,2022, compared to net loss from continuing operations of $1,028,237$19.6 million for the three months ended SeptemberJune 30, 2020,2021, an increase in net incomeloss from continuing operations of $8,394,255$61.3 million or 816% from the prior period.317%. The main reason for the increase in net incomeloss for the three months ended SeptemberJune 30, 2021,2022, compared to the three months ended SeptemberJune 30, 2020,2021, was attributable to the loss on inventory hedging activities, acquisition costs and the increase in gain on change in value of derivative liability as discussed above, which is a non-cash adjustment, offset by the decrease in gross profitinterest expenses for the three months ended SeptemberJune 30, 2021,2022, each as described in greater detail above.

Each of our segments’ income (loss) from operations during the three months ended SeptemberJune 30, 20212022 and 20202021 was as follows:
Three Months Ended
September 30,		$ Change - Favorable (Unfavorable)% Change - Favorable (Unfavorable)
Black Oil Segment20212020
Revenues$446,676 $288,000 $158,676 55 %
Cost of revenues (exclusive of depreciation and amortization shown separately below)402,989 189,947 (213,042)(112)%
Depreciation and amortization attributable to costs of revenues18,420 3,985 (14,435)(362)%
Gross profit (loss)25,267 94,068 (68,801)(73)%
Selling general and administrative expense3,675,190 987,424 (2,687,766)(272)%
Depreciation and amortization attributable to operating expenses26,916 26,916 — — %
Income (loss) from operations$(3,676,839)$(920,272)$(2,756,567)(300)%
Refining and Marketing Segment
Revenues$24,572,390 $13,501,751 $11,070,639 82 %
Cost of revenues (exclusive of depreciation and amortization shown separately below)23,897,263 13,217,757 (10,679,506)(81)%
Depreciation and amortization attributable to costs of revenues29,844 31,829 1,985 6 %
Gross profit645,283 252,165 393,118 156 %
Selling general and administrative expense1,034,024 696,611 (337,413)(48)%
Depreciation and amortization attributable to operating expenses— 1,086 1,086 100 %
Income (loss) from operations$(388,741)$(445,532)$56,791 13 %
Recovery Segment
Revenues$3,955,405 $2,459,561 $1,495,844 61 %
Cost of revenues (exclusive of depreciation and amortization shown separately below)3,761,246 1,917,210 (1,844,036)(96)%
Depreciation and amortization attributable to costs of revenues78,531 79,748 1,217 2 %
Gross profit (loss)115,628 462,603 (346,975)(75)%
Selling general and administrative expense235,505 148,032 (87,473)(59)%
Depreciation and amortization attributable to operating expenses— — — — %
Loss from operations$(119,877)$314,571 $(434,448)(138)%
follows (in thousands):

Three Months Ended
June 30,		$ Change - Favorable (Unfavorable)% Change - Favorable (Unfavorable)
Black Oil Segment20222021
Revenues$20,254 $155 $20,099 12,967 %
Cost of revenues (exclusive of depreciation and amortization shown separately below)20,147 363 (19,784)(5,450)%
Depreciation and amortization attributable to costs of revenues31 19 (12)(63)%
Gross profit (loss)76 (227)39,895 35 %
Selling general and administrative expense12,027 3,281 (8,746)(267)%
Depreciation and amortization attributable to operating expenses27 27 — — %
Loss from operations$(11,978)$(3,535)$48,641 (239)%
Refining and Marketing Segment
Revenues$966,390 $23,836 $942,554 3,954 %
Cost of revenues (exclusive of depreciation and amortization shown separately below)959,767 22,248 (937,519)(4,214)%
Depreciation and amortization attributable to costs of revenues3,009 31 (2,978)(9,606)%
Gross profit3,614 1,557 2,057 132 %
Selling general and administrative expense23,597 687 (22,910)(3,335)%
Depreciation and amortization attributable to operating expenses736 — (736)(100)%
Income (loss) from operations$(20,719)$870 $25,703 (2,481)%
Recovery Segment
Revenues$5,195 $6,237 $(1,042)(17)%
Cost of revenues (exclusive of depreciation and amortization shown separately below)4,528 5,430 902 17 %
Depreciation and amortization attributable to costs of revenues82 66 (16)(24)%
Gross profit585 741 (156)(21)%
Selling general and administrative expense1,017 209 (808)(387)%
Depreciation and amortization attributable to operating expenses— — — — %
Income (loss) from operations$(432)$532 $(964)(181)%

Our Black Oil segment generated revenues of $446,676approximately $20.3 million for the three months ended SeptemberJune 30, 2021,2022, with cost of revenues (exclusive of depreciation and amortization) of $402,989,$20.1 million, and depreciation and amortization attributable to cost of revenues of $18,420.$31 thousand. During the three months ended SeptemberJune 30, 2020,2021, these revenues were $288,000$0.2 million with cost of revenues (exclusive of depreciation and amortization) of $189,947$0.4 million and depreciation and amortization attributable to cost of revenues of $3,985. Income$19 thousand. Revenue from operations decreasedincreased for the three months ended SeptemberJune 30, 2021,2022, compared to 2020,2021, as a result of increases in commodity prices, and a new Marine Division which resulted in higher costs, as well as negative spreads inprovided positive revenue and a profit for the period, which was created at the end of 2021 for blending bunker fuel market which directly impacted our margins as well as higher operating expenses through our various facilities and increased SG&A expense.
fuels into the Gulf Coast Market
. The total loss was $12 million for the three months
1725


    During the three months ended SeptemberJune 30, 2021, our Refining and Marketing cost of revenues (exclusive of depreciation and amortization) were $23,897,263, of2022, which the processing costs for our Refining and Marketing business located at KMTEX were $448,647, and depreciation and amortization attributableincreased $8 million compared to cost of revenues was $29,844. Revenues for the same period were $24,572,390. Duringended June 30, 2021, due to the three months ended September 30, 2020, our Refiningcosts related to the acquisition and Marketing costproposed sale of revenues (exclusive of depreciation and amortization) were $13,217,757, which included the processing costs at KMTEX of $328,225, and depreciation and amortization attributable to cost of revenues was $31,829. Revenues for the same period were $13,501,751.UMO Business.

Our Refining segment includes the business operations of our Refining and Marketing operations, as well as Crystal which we acquired in June 2020. With the acquisitionincludes Mobile Refinery. Revenues of Crystal, we began operating as a wholesale distributer of motor fuels which include gasoline, blended gasoline and diesel. Revenues$966 million in the Refining segment were up 82%3,954% during the three months ended SeptemberJune 30, 2021,2022, as compared to the same period in 20202021 mostly as a result of the added business lineoperations of the Mobile Refinery, which had $922 million of revenue and the increased commodity prices and volume during the three months ended SeptemberJune 30, 2021.2022. Overall volume for the Refining and Marketing segment was flatincreased during the three months ended SeptemberJune 30, 2021,2022, as compared to the same period in 2020. Our pygas volumes increased 33% for the three months ended September 30, 2021, as compared to the same period in 2020. Our fuel oil cutter volumes increased 13% for the three months ended September 30, 2021, as compared to the same period in 2020, due to improvements in the volume of feedstock available from third party facilities in the Gulf coast region. Our Crystal volumes were down 5% for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. We have also had to assess the volume of fuel oil cutterstocks that we manage due to enhanced quality of products being demanded in the marketplace.2021.

    Our Recovery segment generated revenues of $3,955,405approximately $5 million for the three months ended SeptemberJune 30, 2021,2022, with cost of revenues (exclusive of depreciation and amortization) of $3,761,246,$5 million, and depreciation and amortization attributable to cost of revenues of $78,531.$82 thousand. During the three months ended SeptemberJune 30, 2020,2021, these revenues were $2,459,561$6 million with cost of revenues (exclusive of depreciation and amortization) of $1,917,210,$5 million, and depreciation and amortization attributable to cost of revenues of $79,748.$66 thousand. Loss from operations increasedof $0.4 million for the three months ended SeptemberJune 30, 2021,2022, compared to 2020, asprofit from operation of $0.5 million in 2021, was a result of higher operatingcommodity costs, related to increasesless metal sales in volumes, attributable to our Recovery segment and somewhatwhich caused lower margins related thereto, through our various facilities.

Our Recovery segment includes the business operations of Vertex Recovery Management as well as our Group III base oil business. Vertex previously acted as Penthol C.V. of the Netherlands aka Penthol LLC’s (a Penthol subsidiary in the United States) (“Penthol’s”) exclusive agent to provide marketing, sales, and logistical duties of Group III base oil from the United Arab Emirates to the United States from June 2016 to January 2021. Vertex and Penthol are currently involved in ongoing litigation described in greater detail above under “Part I” -“Item 1. Financial Statements” in the Notes to Consolidated Financial Statements in “Note 3. Concentrations, Significant Customers, Commitments and Contingencies”, under the heading “Litigation”. Revenues for this segment increased 61% as a result of an increase in volumes during the three months ended September 30, 2021, compared to the same period in 2020. Volumes were down in our metals segment during the three months ended September 30, 2021, compared to the same period during 2020, due to certain one-time projects.thereto. This segment periodically participates in project work that is not ongoing thus we expect to see fluctuations in revenue and gross profit from this segment from period to period.












18


RESULTS OF OPERATIONS FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20212022 COMPARED TO THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20202021 FROM CONTINUING OPERATIONS

Set forth below are our results of operations for the ninesix months ended SeptemberJune 30, 20212022 as compared to the same period in 2020.2021 (in thousands):
 Nine Months Ended September 30,$ Change - Favorable (Unfavorable)% Change - Favorable (Unfavorable)
 20212020
Revenues$84,823,476 $30,460,606 $54,362,870 178 %
Cost of revenues (exclusive of depreciation and amortization shown separately below)79,319,678 28,598,874 (50,720,804)(177)%
Depreciation and amortization attributable to costs of revenues358,905 327,672 (31,233)(10)%
Gross Profit5,144,893 1,534,060 3,610,833 235 %
Operating expenses:
Selling, general and administrative expenses12,111,951 6,044,050 (6,067,901)(100)%
Depreciation and amortization attributable to operating expenses80,748 48,118 (32,630)(68)%
Total operating expenses12,192,699 6,092,168 (6,100,531)(100)%
Income (loss) from operations(7,047,806)(4,558,108)(2,489,698)(55)%
Other income (expense):
Other Income4,222,000 — 4,222,000 100 %
Loss on sale of assets(1,927)(124,090)122,163 98 %
Gain (loss) on change in value of derivative liability(11,380,122)1,844,369 (13,224,491)(717)%
Interest expense(603,398)(291,933)(311,465)(107)%
Total other income (expense)(7,763,447)1,428,346 (9,191,793)(644)%
Loss before income taxes(14,811,253)(3,129,762)(11,681,491)(373)%
Income tax (expense) benefit— — — — %
Net loss from continuing operations(14,811,253)(3,129,762)(11,681,491)(373)%
Income (loss) from discontinued operations (see Note 15)12,464,445 (5,323,630)25,221,927 303 %
Net income (loss) attributable to non-controlling interest and redeemable non-controlling interest from continued operations510,618 155,322 355,296 229 %
Net income (loss) attributable to non-controlling interest and redeemable non-controlling interest from discontinued operations7,183,268 35,449 7,147,819 20,164 %
Net loss attributable to Vertex Energy, Inc.$(10,040,694)$(8,644,163)$23,825,396 276 %
26

 Six Months Ended June 30,$ Change - Favorable (Unfavorable)% Change - Favorable (Unfavorable)
20222021
Revenues$1,032,056 $55,273 $976,783 1,767 %
Cost of revenues (exclusive of depreciation and amortization shown separately below)1,023,008 50,850 (972,158)(1,912)%
Depreciation and amortization attributable to costs of revenues3,236 228 (3,008)(1,319)%
Gross Profit5,812 4,195 1,617 39 %
Operating expenses:
Selling, general and administrative expenses45,423 7,035 (38,388)(546)%
Depreciation and amortization attributable to operating expenses790 54 (736)(1,363)%
Total operating expenses46,213 7,089 (39,124)(552)%
Loss from operations(40,401)(2,894)(37,507)(1,296)%
Other income (expense):
Interest income18 — 18 100 %
Other Income625 4,223 (3,598)(85)%
Bargain purchase gain related to Omega acquisition— — — — %
Loss on sale of assets— — — — %
Loss on change in value of derivative liability(4,524)(23,288)18,764 81 %
Gain (loss) on futures contracts— — — — %
Interest expense(51,952)(251)(51,701)(20,598)%
Total other expense(55,833)(19,316)(36,517)— 
Loss before income taxes(96,234)(22,210)(74,024)(333)%
Income tax (expense) benefit— — — — %
Net loss from continuing operations(96,234)(22,210)(74,024)(333)%
Income (loss) from discontinued operations (see Note 15)31,643 9,219 25,222 303 %
Net income attributable to non-controlling interest and redeemable non-controlling interest from continued operations97 626 (529)(85)%
Net income attributable to non-controlling interest and redeemable non-controlling interest from discontinued operations6,829 4,783 2,046 43 %
Net loss attributable to Vertex Energy, Inc.$(71,517)$(18,400)$(27,895)(152)%

Our revenues and cost of revenues are significantly impacted by the recently acquired Mobile Refinery and fluctuations in commodity prices; increases in commodity prices typically result in increases in revenue and cost of revenues (i.e., feedstock acquisition costs). Additionally, we use hedging instruments to manage our exposure to underlying commodity prices. 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. As demand for feedstock increases, the prices we are required to pay for such feedstock typically increases as well.

Our cost of revenues is a function of the ultimate price we are required to pay to acquire feedstocks, how efficient we are in acquiring such feedstocks as well as how efficiently we operate our facilities, and other maintenance at our facilities.

1927

    Total revenues increased by 178%1,767% for the ninesix months ended SeptemberJune 30, 20212022 compared to the same period in 2020,2021, due primarily to the Mobile Refinery acquisition, which Mobile Refinery generated approximately $922 million in revenue and higher commodity prices and increased volumes across our facilities, during the ninesix months ended SeptemberJune 30, 2021,2022, compared to the prior year’s period. Total volume was up 3% during the nine months ended September 30, 2021, compared to the same period in 2020.

During the ninesix months ended SeptemberJune 30, 2021,2022, total cost of revenues (exclusive of depreciation and amortization) was $79,319,678,$1 billion, compared to $28,598,874$50.9 million for the ninesix months ended SeptemberJune 30, 2020,2021, an increase of $50,720,804$972.2 million or 177%1,912% from the prior period. The main reason for the increase was the addition of the CrystalMobile Refinery business which we only had for the second half of 2020 and have now had the operations of for the full nine months of 2021,started on April 1, 2022, in addition to higher commodity prices, which impacted our feedstock pricing, and increases in volumes throughout the business.

    Additionally, our per barrel margin increased 226% for    For the ninesix months ended SeptemberJune 30, 2021, relative to the nine months ended September 30, 2020, due to increased volumes, along with increases in commodity prices for the finished products we sell during the nine months ended September 30, 2021, compared to the same period during 2020. Our per barrel margin is calculated by dividing the total volume of product sold (in bbls) by total gross profit for the applicable period ($5,144,893 for the 2021 period versus $1,534,060 for the 2020 period). The 177% increase in cost of revenues (exclusive of depreciation and amortization) for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, is mainly a result of the increase in commodity prices, and increased volumes at our facilities during the period, offset by increases in revenues.

For the nine months ended September 30, 2021,2022, total depreciation and amortization expense attributable to cost of revenues was $358,905,approximately $3.2 million, compared to $327,672$0.2 million for the ninesix months ended SeptemberJune 30, 2020,2021, an increase of $31,233,$3.0 million, mainly due to additional investments in rolling stock and facility assets duringacquired with the fourth quarter of 2020, which increased depreciation and amortization in 2021.Mobile Refinery purchase.

We had gross profit as a percentage of revenue of 6.1%0.6% for the ninesix months ended SeptemberJune 30, 2021,2022, compared to gross profit as a percentage of revenues of 5.0%7.6% for the ninesix months ended SeptemberJune 30, 2020.2021. The decrease The main reason formainly due to the improvementrecognition of $94 million loss of inventory hedging activities, which was the increase in volumes at our refineries, along with increases in commodity pricesreported as cost of revenue, during the period.

In addition, commodity prices increased approximately 68% for the nine months ended September 30, 2021, compared to the same period in 2020. For example, the average posting (U.S. Gulfcoast No. 2 Waterbone) for the nine months ended September 30, 2021, increased $26.53 per barrel from a nine-month average of $45.96 for the nine months ended September 30, 2020, to $72.49 per barrel for the nine months ended September 30, 2021.

We had selling, general, and administrative expenses of $12,111,951approximately $45.4 million for the ninesix months ended SeptemberJune 30, 2021,2022, compared to $6,044,050 of selling, general, and administrative expenses$7.0 million for the prior year’s period, an increase of $6,067,901$38.4 million or 100%546%. This increase is primarily due to the additional$22 million of selling, general and administrative expenses incurred duringrelating to the period as a resultMobile Refinery and $13.6 million of increased personnelMobile Refinery acquisition costs legal expenses, and insurancebusiness development expenses related to expansion through organic growth.the transactions contemplated by the Sale Agreement (which was terminated as of January 25, 2022) and the Refinery Purchase Agreement and related transactions.

    We had loss from operations of $7,047,806approximately $40.4 million for the ninesix months ended SeptemberJune 30, 2021,2022, compared to a loss from operations of $4,558,108$2.9 million for the ninesix months ended SeptemberJune 30, 2020,2021, an increase of $2,489,698 or 55%$37.5 million in loss from the prior year’s nine-monthsix-month period. The increase in loss from operations was mostly due to the increases seen in commodity pricescost of the Mobile Refinery acquisition and overall margin impact from our bunker fuels business along with overall increase in operating expenses at our facilities. As market conditions change, the pay or charge for our oil collection services will fluctuate.hedging loss.

    We had interest expense of $603,398 approximately $52.0 millionfor the ninesix months ended SeptemberJune 30, 2021,2022, compared to interest expense of $291,933$0.3 million for the ninesix months ended SeptemberJune 30, 2020,2021, an increase in interest expense of $311,465 or 107%,$51.7 million due to a higher amount of term debt outstanding during the ninesix months ended SeptemberJune 30, 2021,2022, compared to the prior period. This was dueperiod, the unamortized deferred loan costs related to having a higher amountthe conversion of term debt outstandingConvertible Senior Notes to common stock during the nine months ended September 30,period and the interest associated with the Convertible Senior Notes, which were issued on November 1, 2021, compared toand the prior year’s period.

We had other income of $4,222,000 for the nine months ended September 30, 2021, compared to $0 for the nine months ended September 30, 2020. This is due to the debt forgiveness of the PPP loan during the second quarter of 2021 (see “Note 6. Line of CreditTerm Loan, which was issued on April 1, 2022 ($125 million) and Long-Term Debt” – “Loan Agreements” for more information)May 26, 2022 ($40 million).

    We had a loss on the sale of assets of $1,927 for the nine months ended September 30, 2021, compared to a loss on the sale of assets of $124,090 for the nine months ended September 30, 2020.

    We had a $11,380,122an approximately $4.5 million loss on change in value of derivative liability for the ninesix months ended SeptemberJune 30, 2021,2022, in connection with certain warrants granted in June 2015April and May 2016, as described in greater detail in “Note 9. Preferred Stock and Detachable Warrants” to the unaudited consolidated financial statements included herein under “Part I”-“Item 1 Financial
20

Statements”,2022, compared to a gainloss on change in the value of our derivative liability of $1,844,369$23.3 million in the prior year’s period.period, which related to warrants granted in June 2015 and May 2016 and expired during 2021. This change was mainly due to the fluctuation in the market price of our common stock (and more specifically the significant increase in the market price of our common stock during the current period), warrant exercises, and non-cash accounting adjustments in connection therewith. This resulted in a significant change in non-cash expense for the period, compared to the prior year’s period.

    We had a net loss from continuing operations of $14,811,253 approximately $96.2 millionfor the ninesix months ended SeptemberJune 30, 2021,2022, compared to a net loss from continuing operations of $3,129,762$22.2 million for the ninesix months ended SeptemberJune 30, 2020,2021, an increase in net loss of $11,681,491$74.0 million or 373%333% from the prior period due to the reasons described above. The majority of our net loss for the ninesix months ended SeptemberJune 30, 2021,2022, was attributable to the loss on change in valuehedging activities and amortized deferred loan cost and discount, which was reported as interest expenses, related to the conversion of derivative liability due to change in market conditions,Convertible Senior Notes, which is a non-cash expense.
28


Each of our segments’ income (loss) from operations during the ninesix months ended SeptemberJune 30, 20212022 and 20202021 was as follows:
 Nine Months Ended September 30,$ Change - Favorable (Unfavorable)% Change - Favorable (Unfavorable)
Black Oil Segment20212020
Revenues$1,300,220 $864,000 $436,220 50 %
Cost of revenues (exclusive of depreciation and amortization shown separately below)1,045,608 567,898 (477,710)(84)%
Depreciation and amortization attributable to costs of revenues56,983 3,985 (52,998)(1,330)%
Gross profit (loss)197,629 292,117 (94,488)(32)%
Selling, general and administrative expense9,030,142 3,780,366 (5,249,776)(139)%
Depreciation and amortization attributable to operating expenses80,748 44,860 (35,888)(80)%
Loss from operations$(8,913,261)$(3,533,109)$(5,380,152)(152)%
Refining Segment    
Revenues$67,683,035 $22,309,671 $45,373,364 203 %
Cost of revenues (exclusive of depreciation and amortization shown separately below)64,503,727 21,750,687 (42,753,040)(197)%
Depreciation and amortization attributable to costs of revenues97,658 101,152 3,494 3 %
Gross profit3,081,650 457,832 2,623,818 573 %
Selling, general and administrative expense2,481,5421,867,027(614,515)(33)%
Depreciation and amortization attributable to operating expenses—3,2583,258100%
Income (loss) from operations$600,108$(1,412,453)$2,012,561142%
Recovery Segment
Revenues$15,840,222$7,286,935$8,553,287117%
Cost of revenues (exclusive of depreciation and amortization shown separately below)13,770,3436,280,290(7,490,053)(119)%
Depreciation and amortization attributable to costs of revenues204,264222,53518,2718%
Gross profit1,865,615784,1101,081,505138%
Selling, general and administrative expense600,268396,656(203,612)(51)%
Depreciation and amortization attributable to operating expenses————%
Income from operations$1,265,347$387,454$877,893227%
follows (in thousands):

 Six Months Ended June 30,$ Change - Favorable (Unfavorable)% Change - Favorable (Unfavorable)
Black Oil Segment20222021
Revenues$21,804 $278 $21,526 7,743 %
Cost of revenues (exclusive of depreciation and amortization shown separately below)21,797 643 (21,154)(3,290)%
Depreciation and amortization attributable to costs of revenues47 39 (8)(21)%
Gross loss(40)(404)364 90 %
Selling, general and administrative expense19,438 5,223 (14,215)(272)%
Depreciation and amortization attributable to operating expenses54 54 — — %
Loss from operations$(19,532)$(5,681)$(13,851)(244)%
Refining Segment    
Revenues$1,001,109 $43,110 $957,999 2,222 %
Cost of revenues (exclusive of depreciation and amortization shown separately below)992,852 40,198 (952,654)(2,370)%
Depreciation and amortization attributable to costs of revenues3,033 63 (2,970)(4,714)%
Gross profit5,224 2,849 2,375 83 %
Selling, general and administrative expense24,7211,447(23,274)(1,608)%
Depreciation and amortization attributable to operating expenses736—(736)(100)%
Income (loss) from operations$(20,233)$1,402$(21,635)(1,543)%
Recovery Segment
Revenues$9,143$11,885$(2,742)(23)%
Cost of revenues (exclusive of depreciation and amortization shown separately below)8,35710,0091,65217%
Depreciation and amortization attributable to costs of revenues156126(30)(24)%
Gross loss6301,750(1,120)(64)%
Selling, general and administrative expense1,264365(899)(246)%
Depreciation and amortization attributable to operating expenses————%
Loss from operations$(634)$1,385$(2,019)(146)%

    Our Black Oil segment generated revenues of $1,300,220approximately $21.8 million for the ninesix months ended SeptemberJune 30, 20212022, with cost of revenues (exclusive of depreciation and amortization) of $1,045,608,$21.8 million, and depreciation and amortization attributable to cost of revenues of $56,983$47 thousand. During the ninesix months ended SeptemberJune 30, 2020,2021, these revenues were $864,000 $0.3 millionwith cost of revenues (exclusive of depreciation and amortization) of $567,898,$0.6 million, and depreciation and amortization attributable to cost of revenues of $39 thousand
21

.
$3,985. Loss from operations increaseddecreased for the ninesix months ended SeptemberJune 30, 2021,2022, compared to 2020,2021, as a result of higher commodity prices and increased operating expenses as well as the fact that, as discussed above, during the ninesix months ended SeptemberJune 30, 2021.2022. In addition, a new Marine Division which provided positive revenue and profit for the period, was created at the end of 2021 for blending bunker fuels into the Gulf Coast Market.

    Our Refining segment includes the business operations of our Refining and Marketing operations, as well as Crystal. Since the acquisition of Crystal in June 2020, we have operated as a wholesale distributer of motor fuels which include gasoline, blended gasoline and diesel.Mobile Refinery acquired on April 1, 2022. During the ninesix months ended SeptemberJune 30, 2021,2022, our Refining and Marketing cost of revenues (exclusive of depreciation and amortization) were $64,503,727,approximately $993 million, of which the processing costs for our Refining and Marketing business located at KMTEXthe Mobile Refinery were $1,304,672$917 million, and depreciation and amortization attributable to cost of revenues of $97,658.was $3.0 million. Revenues for the
29

same period were $67,683,035.$1 billion, of which $922 million related to the Mobile Refinery operation. During the ninesix months ended SeptemberJune 30, 20202021, our Refining and Marketing cost of revenues (exclusive of depreciation and amortization) were $21,750,687, which included the processing costs at KMTEX of $1,202,050$40 million, , and depreciation and amortization attributable to cost of revenues of $101,152$63 thousand. Revenues for the same period were $22,309,671.$43 million.

    Overall volume for the Refining and Marketing division increased 123% during the nine months ended September 30, 2021, as compared to the same period in 2020. Our fuel oil cutter volumes increased 46% for the nine months ended September 30, 2021, compared to the same period in 2020. Our pygas volumes were up 9% for the nine months ended September 30, 2021, as compared to the same period in 2020. The improved margins were a result of increases in available feedstock volumes as compared to the same period during 2020. We experienced a large increase in volumes being received from third party facilities as a result of changes in COVID-19 restrictions in 2021 compared to the prior 2020 period.

    Our Recovery segment generated revenues of $15,840,222approximately $9 million for the ninesix months ended SeptemberJune 30, 2021,2022, with cost of revenues (exclusive of depreciation and amortization) of $13,770,343$8 million, and depreciation and amortization attributable to cost of revenues of $204,264.$0.2 million. During the ninesix months ended SeptemberJune 30, 20202021, these revenues were $7,286,935$12 million with cost of revenues (exclusive of depreciation and amortization) of $6,280,290,$10 million, and depreciation and amortization attributable to cost of revenues of $222,535.$0.1 million. Income from operations increaseddecreased for the ninesix months ended SeptemberJune 30, 2021,2022, compared to 2020,2021, as a result of increaseddecreased volumes attributable to our Recovery segment and margins related thereto, through our various facilities. ThisFor the six months ended on June 30, 2021, this segment benefitsbenefited from certain one-time projects that drive increases in volumes as well as revenues and margins from time to time and the increase for the current period was due to certain one-time projects which were completed.completed within 2021.

Our Recovery segment includes the business operations of Vertex Recovery Management as well as our Group III base oil business. Vertex previously acted as Penthol’s exclusive agent to provide marketing, sales, and logistical duties of Group III base oil from the United Arab Emirates to the United States from June 2016 to January 2021. Vertex and Penthol are currently involved in ongoing litigation described in greater detail above under “Part I” -“-“Item 1. Financial Statements” in the Notes to Consolidated Financial Statements in “Note 3. Concentrations, Significant Customers, Commitments and Contingencies”, under the heading “Litigation”. Revenues for this segment increased 117%23% as a result of increased commodity prices when compared to the same period in 2020.2021. Volumes of products acquired in our Recovery business were down 12% during the ninesix months ended SeptemberJune 30, 2021,2022, compared to the same period during 2020.2021. This segment periodically participates in project work that is not ongoing, thus we expect to see fluctuations in revenue and income before income taxes from period to period. These projects are typically bid related and can take time to line out and get started; however, we believe these are very good projects for the Company and we anticipate more in the upcoming periods.



The following table sets forth the high and low spot prices during the ninesix months ended SeptemberJune 30, 2021,2022, for our key benchmarks.
2021
20222022
BenchmarkBenchmarkHighDateLowDateBenchmarkHighDateLowDate
U.S. Gulfcoast No. 2 Waterborne (dollars per gallon)U.S. Gulfcoast No. 2 Waterborne (dollars per gallon)$2.15 September 30$1.32 January 4U.S. Gulfcoast No. 2 Waterborne (dollars per gallon)$4.36 March 8$2.15 January 3
U.S. Gulfcoast Unleaded 87 Waterborne (dollars per gallon)U.S. Gulfcoast Unleaded 87 Waterborne (dollars per gallon)$2.30 July 30$1.36 January 4U.S. Gulfcoast Unleaded 87 Waterborne (dollars per gallon)$4.35 June 3$2.26 January 3
U.S. Gulfcoast Residual Fuel No. 6 3% (dollars per barrel)U.S. Gulfcoast Residual Fuel No. 6 3% (dollars per barrel)$69.64 September 30$45.08 January 4U.S. Gulfcoast Residual Fuel No. 6 3% (dollars per barrel)$112.93 March 8$67.84 January 3
NYMEX Crude oil (dollars per barrel)NYMEX Crude oil (dollars per barrel)$75.29 September 28$47.62 January 4NYMEX Crude oil (dollars per barrel)$123.70 March 8$76.08 January 3
Reported in Platt’s US Marketscan (Gulf Coast)Reported in Platt’s US Marketscan (Gulf Coast)   Reported in Platt’s US Marketscan (Gulf Coast)   

22

    The following table sets forth the high and low spot prices during the ninesix months ended SeptemberJune 30, 2020,2021, for our key benchmarks.
2020
20212021
BenchmarkBenchmarkHighDateLowDateBenchmarkHighDateLowDate
U.S. Gulfcoast No. 2 Waterborne (dollars per gallon)U.S. Gulfcoast No. 2 Waterborne (dollars per gallon)$1.95 January 3$0.42 April 27U.S. Gulfcoast No. 2 Waterborne (dollars per gallon)$2.10 June 22$1.32 January 4
U.S. Gulfcoast Unleaded 87 Waterborne (dollars per gallon)U.S. Gulfcoast Unleaded 87 Waterborne (dollars per gallon)$1.75 January 3$0.40 March 23U.S. Gulfcoast Unleaded 87 Waterborne (dollars per gallon)$2.21 June 23$1.36 January 4
U.S. Gulfcoast Residual Fuel No. 6 3% (dollars per barrel)U.S. Gulfcoast Residual Fuel No. 6 3% (dollars per barrel)$47.34 January 29$12.00 April 21U.S. Gulfcoast Residual Fuel No. 6 3% (dollars per barrel)$64.92 June 25$45.08 January 4
NYMEX Crude oil (dollars per barrel)NYMEX Crude oil (dollars per barrel)$63.27 January 6$(37.63)April 20NYMEX Crude oil (dollars per barrel)$74.05 June 25$47.62 January 4
Reported in Platt’s US Marketscan (Gulf Coast)Reported in Platt’s US Marketscan (Gulf Coast)   Reported in Platt’s US Marketscan (Gulf Coast)   

We saw an increase in the second halffirst six months of 2021,2022, in each of the benchmark commodities we track compared to the same period in 2020.2021. The increaseincrease in market prices was a result of the gradual opening up of states and marketplaces which were shut-down a year ago as a result of COVID-19, which led to worldwide shutdowns and halting of commercial and interpersonal activity, as governments around the world imposed regulations in response to efforts to control the spread of COVID-19, such as 'shelter-in-place' orders, quarantines, executive orders and similar restrictions. As a result, the global economy has been marked by significant slowdown and uncertainty, which has led to a precipitous decline in oil prices in response to demand concerns, further exacerbated by the price war among memberscontinued recovery of the Organization of Petroleum Exporting Countries (“OPEC”) and other non-OPEC producer nations (collectivelyeconomy from the pandemic together with OPEC members, “OPEC+”) during the first quarter of 2020 and global storage considerations. Moving into the fourth quarter of 2021, we anticipate that our results of operations will continue to be significantly impacted by the price of, and demand for oil, COVID-19 and the global response thereto.geopolitical tensions.

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
30

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 have 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 our technologies, 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. Additionally, if we are forced to pay more for feedstock, our cash flows will be negatively impacted and our margins will decrease.

    Liquidity and Capital Resources

Our primary sources of liquidity have historically included cash flow from operations, proceeds from notes offerings, bank borrowings, term loans, public equity offerings and other financial arrangements. Uses of cash have included capital expenditures, acquisitions and general working capital.
 
    The success of our current business operations has becomebeen dependent on repairs and maintenance to our facilities and our ability to make routine capital expenditures, as well as our ability to manage our margins which are a function of the difference between what we are able to pay or charge for raw materials and the market prices for the range of products produced. We also must maintain relationships with feedstock suppliers and end-product customers (including Shell, Macquarie and others), 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 $144,685,626approximately $690.7 million as of SeptemberJune 30, 2021,2022, compared to $122,099,958$266.1 million at December 31, 2020.2021. The increase was mainly due to exercisesthe acquisition of options and warrants that provided cash, along withthe Mobile Refinery, increases in accounts receivable and inventory levels, due to the increases in commodity prices and volumes and the payment of the $10 million deposit to the Seller in connection with the Refinery Purchase Agreement, during the ninesix months ended SeptemberJune 30, 2021, compared to the prior year's period.2022.

23

    We had total current liabilities of $62,398,086approximately $339.6 million as of SeptemberJune 30, 2021,2022, compared to $23,850,412$49.2 million at December 31, 2020.2021. We had total liabilities of $67,572,248$593.0 million as of SeptemberJune 30, 2021,2022, compared to total liabilities of $60,809,023$192.5 million as of December 31, 2020.2021. The increase in current liabilities and total liabilities was mainly due to the inventory financing liabilities, increase in accounts payable and accrued liabilities as a result of rises in commodity prices and volumes current portion of debt duealong with the increase in less than a year,commodity derivative liabilities and derivative warrant liabilitythe term loan balance, thereof during the ninesix months ended SeptemberJune 30, 2021, compared to the prior year’s period.2022.
    We had working capital of $50,746,282approximately $180.1 million as of SeptemberJune 30, 2021,2022, compared to working capital of $5,934,976$185.0 million as of December 31, 2020.2021. The increasedecrease in working capital from December 31, 20202021 to SeptemberJune 30, 20212022 is mainly due to the changeincrease in presentation of assets heldinventory, accounts payable and accrued liabilities, and obligations under our inventory financing agreement (discussed above), for which the inventory was purchased in June 2022 to be used for the product and sale in current assets,early of July 2022. Also we had a $3 million break fee paid for the generationtermination of additional liquiditythe Sales Agreement with Safety-Kleen, and $8.2 million acquisition costs paid in connection with the Mobile Refinery purchase on April 1, 2022.

Market conditions have improved through the end of 2021 and into 2022, as a result of optionCOVID-19 restrictions have eased and warrant exercisesdemand for cash andrefined products has rebounded. Although commodity prices have rebounded, we are still seeing extreme volatility in commodity pricing, however, the increase in accounts receivablerefined product pricing has had a positive impact on our business and inventory offset by the increase in accounts payable, as explained above, and the increase in the debt owed to Encina Business Credit, LLC and Encina Business Credit SPV, LLC (as shown below), which is a current liability because it is due in less than a year from September 30, 2021, as described below.overall liquidity.

    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 more capital expenditures related to new TCEP facilities in the future (provided that none are currently planned).

    Given the ongoing COVID-19 pandemic, challenging market conditions and recent market events resulting in industry-wide spending cuts, we continue to remain focused on maintaining a strong balance sheet and adequate liquidity. We believe that our cash on hand, internally generated cash flows and availability under the Revolving Credit Agreement and other borrowings will be sufficient to fund our operations and service our debt in the near term, notwithstanding the funding which will be required to complete the acquisition of the Mobile Refinery and a planned capital project following such acquisition, and the funds we plan to receive upon the closing of the Sale (each as discussed in greater detail above). A prolonged period of weak, or a significant decrease in, industry activity and overall markets, due to COVID-19 or otherwise, may make it difficult to comply with our covenants and the other restrictions in the agreements governing our debt and/or may make it more difficult or costly to raise funding to complete the Mobile Refinery acquisition and the planned capital project associated therewith. Current global and market conditions have increased the potential for that difficulty.



future.

    The Company’s outstanding debt facilities as of SeptemberJune 30, 20212022 and December 31, 20202021 (excluding the Convertible Senior Notes) are summarized as follows:follows (in thousands):
2431

CreditorLoan TypeOrigination DateMaturity DateLoan AmountBalance on September 30, 2021Balance on December 31, 2020
Encina Business Credit, LLCTerm LoanFebruary 1, 2017February 1, 2022$20,000,000 $9,758,000 $5,433,000 
Encina Business Credit SPV, LLCRevolving NoteFebruary 1, 2017February 1, 2022$10,000,000 — 133,446 
Encina Business Credit, LLCCapex LoanAugust 7, 2020February 1, 2022$2,000,000 1,102,170 1,378,819 
Wells Fargo Equipment Lease-OhioFinance LeaseApril-May, 2019April-May, 2024$621,000 346,321 436,411 
John Deere NoteNoteMay 27, 2020June 24, 2024$152,643 103,414 131,303 
Loan-Leverage LubricantsSBA LoanJuly 18, 2020July 18, 2050$58,700 58,700 — 
Well Fargo Equipment Lease-VRM LAFinance LeaseMarch, 2018March, 2021$30,408 — 1,804 
Texas Citizens BankPPP LoanMay 5, 2020April 28, 2022$4,222,000 — 4,222,000 
Various institutionsInsurance premiums financedVarious< 1 year$2,902,428 3,562,608 1,183,543 
Total$14,931,213 $12,920,326 
Deferred finance costs(62,500)— 
Total, net of deferred finance costs$14,868,713 $12,920,326 
CreditorLoan TypeBalance on June 30, 2022Balance on December 31, 2021
Term Loan 2025Loan$165,000 $— 
John Deere NoteNote— 93 
AVT Equipment Lease-HHFinance Lease— 302 
SBA LoanSBA Loan59 59 
VRA Finance leaseFinance Lease45,291 — 
Various institutionsInsurance premiums financed9,236 2,375 
Total$219,586 $2,829 
    
    Future contractual maturities of notes payable are summarized as follows:follows (in thousands):
CreditorYear 1Year 2Year 3Year 4Year 5Thereafter
Encina Business Credit, LLC$9,758,000 $— $— $— $— $— 
Encina Business Credit, LLC1,102,170 — — — — — 
John Deere Note37,991 38,933 26,490 — — — 
Well Fargo Equipment Lease- Ohio346,321 — — — — — 
Loan-Leverage Lubricants— 683 1,290 1,340 1,391 53,996 
Various institutions3,562,608 — — — — — 
Totals$14,807,090 $39,616 $27,780 $1,340 $1,391 $53,996 
Deferred finance costs, net(62,500)— — — — — 
Totals, net of deferred finance costs$14,744,590 $39,616 $27,780 $1,340 $1,391 $53,996 
CreditorYear 1Year 2Year 3Year 4Year 5Thereafter
Totals$14,013 $9,514 $154,049 $1,605 $1,809 $38,596 
    
Our Convertible Senior Notes will mature on October 1, 2027, unless earlier repurchased, redeemed or converted. The components of convertible notes are presented as follows (in thousands):
Need for additional funding
June 30, 2022
Principal Amounts$155,000 
Conversion of principal into common stock(59,822)
Unamortized discount and issuance costs(53,635)
Net Carrying Amount$41,543 

Interest of the Convertible Senior Notes is payable semiannually in arrears on April 1 and October 1 of each year, beginning on April 1, 2022. The following table represents the future interest payment (in thousands):
Interest payableYear 1Year 2Year 3Year 4Year 5Thereafter
Interest payable$6,572 $5,949 $5,949 $5,949 $5,949 $2,974 
Cash Flows from Operating, Investing and Financing Activities

    Our re-refining businessWe believe that we have sufficient liquid assets, cash flow from operations, borrowing capacity and adequate access to capital markets to meet our financial commitments, debt service obligations and anticipated capital expenditures for at least the next 12 months. We expect that our short-term liquidity needs which include debt service, working capital, and capital expenditures related to currently planned growth projects (including the renewable diesel conversion project designed to modify the Mobile Refinery's hydrocracking unit to produce renewable diesel fuel on a standalone basis) will require significant capital to designbe met through projected cash flow from operations, borrowings under our various facilities and construct any new facilities. The facility infrastructure would be an additional capitalized expenditure to these process costs and would depend on the location and site specifics of the facility. We also estimate the need for additional funding to complete the transactions contemplated by the Refinery Purchase Agreement.asset sales.     

    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
25

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.

Our current near term plans include closing the transactions contemplated by the Purchase Agreement and the Sale Agreement and transitioning the majority of our assets and operations away from used motor oil and towards several important objectives, the combination of which we believe will advance our strategy of becoming a leading pure-play energy transition company of scale in connection with the plannedrecent acquisition of the Mobile Refinery. The refinery, which has a long track record of safe, reliable operations and consistent financial performance, is expected tohas, effective on April 1, 2022, upon the closing of the acquisition, become Vertex’sour flagship refining asset, upon the close of the transaction, positioning the Companywhich we believe positions us to become a pure-play producer of renewable and conventional products.The addition of renewable fuels production associated with the refinery is anticipated to accelerate Vertex’s strategic focus on "clean""clean" refining. By year-end 2022, assuming the completion of the $90 to $100 million planned acquisition and our capital project at the facility, the Mobile Refinery is projected to produce approximately 8,000 to 10,000 barrels per day (bpd) of renewable diesel fuel and renewable byproducts. By mid-year 2023, based on current projections, Vertex expects to increase renewable diesel production to 14,000 bpd. Upon completion of the planned renewable diesel project, Vertex expects to become one of the leading independent producers of renewable fuels in the southeastern United States.

On November 1, 2021, the Company issued $155.0 million aggregate principal amount
32

Additionally, we or our affiliates may, at maturity of its 6.25%any time and from time to time, retire or repurchase our outstanding Convertible Senior Notes due 2027 in a private offering with persons believed to be "Qualified institutional buyers"open-market purchases, privately negotiated transactions, refinancing or otherwise, through cash purchases and/or "accredited investors" pursuant to a Private Placement Purchase Agreement.exchanges for equity or debt. Such repurchases, refinancings or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. Repurchases, if any, will be funded through available cash from operations. The net proceeds from the offering, after deducting placement agent fees and estimated offering costs and expenses payable by the Company, were approximately $133.9 million, more details on this offering canamounts involved may be found in our Recent Events section above.material.

The Company plans to use $10.9 million of the net proceeds from the offering to repay amounts owed by the Company under its credit facilities with Encina Business Credit, LLC and certain of its affiliates, as well as $0.4 million of the net proceeds to repay certain secured equipment leases with certain affiliates of Wells Fargo Bank, National Association.

We anticipate that the market for our common stock will be 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;

(4)the status of planned acquisitions and divestitures;divestitures and ongoing capital projects at our facilities; and

(5)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 and industry information.

26

    Cash flows for the ninesix months ended SeptemberJune 30, 20212022 compared to the ninesix months ended SeptemberJune 30, 2020:2021, were as follows (in thousands):
Nine Months Ended September 30,Six Months Ended June 30,
2021202020222021
Beginning cash, cash equivalents and restricted cashBeginning cash, cash equivalents and restricted cash$10,995,169 $4,199,825 Beginning cash, cash equivalents and restricted cash$136,627 $10,995 
Net cash provided by (used in):Net cash provided by (used in):Net cash provided by (used in):
Operating activitiesOperating activities(7,694,777)(2,980,926)Operating activities(88,194)5,045 
Investing activitiesInvesting activities(10,982,990)(2,477,640)Investing activities(230,211)(2,745)
Financing activitiesFinancing activities12,367,155 16,296,932 Financing activities279,792 1,772 
Net increase in cash, cash equivalents and restricted cash1,217,533 11,453,279 
Net increase (decrease) in cash, cash equivalents and restricted cashNet increase (decrease) in cash, cash equivalents and restricted cash(38,613)4,072 
Ending cash, cash equivalents and restricted cashEnding cash, cash equivalents and restricted cash$12,212,702 $15,653,104 Ending cash, cash equivalents and restricted cash$98,014 $15,067 

The analysis of cash flow activities below and the table above, is combined for both continued and discontinued operations, whereas the consolidated statement of cash flows included in this report.

Our primary sources of liquidity are cash flows from our operationsthe Convertible Senior Notes and the availability to borrow funds under our credit and loan facilities. We also raised $6,492,759 from the exercise of options and warrants for common stock during the nine months ended September 30, 2021.Term Loan.

Net cash used byin operating activities was $7,694,777approximately $88.2 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to net cash usedprovided by operating activities of $2,980,926$5.0 million during the corresponding period in 2020. Our primary sources of liquidity are cash flows from our operations and the availability to borrow funds under our credit and loan facilities.2021. The primary reason for the increase in cash used by operating activities for the ninesix month period ended SeptemberJune 30, 2021,2022, compared to the same period in 2020,2021, was the fluctuation in marketMobile Refinery inventory purchase of $68 million, $13.6 million of acquisition costs related to the Mobile Refinery purchase, $65 million cash settlement on inventory hedging activities, and commodity prices, a gain on forgivenessthe cash paid for the termination of the PPP loan, and the increaseSales Agreement with Safety-Kleen in account receivable and inventory, during the nine months ended September 30, 2021.January 2022.

Investing activities used cash of $10,982,990approximately $230.2 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to having used $2,477,640$2.7 million of cash during the corresponding period in 2020,2021, due mainly to the purchaseacquisition of fixed assets and our deposit to Shell related toMobile Refinery during the potential acquisition.current period.

33

    Financing activities provided cash of $12,367,155approximately $279.8 million for the ninesix months ended SeptemberJune 30, 2021,2022, as compared to providing cash of $16,296,932$1.8 million during the corresponding period in 2020.2021. Financing activities for the ninesix months ended SeptemberJune 30, 2022 were comprised of proceeds from Term Loan and insurance premium finance of $166 million, from inventory financing of $173 million and from the exercise of options and warrants of $0.7 million offset by the payment on redemption of non-controlling interest of $51 million, distribution to noncontrolling interest of $0.4 million and payment on notes payable and capital leases of $8 million. Financing activities for the six months ended June 30, 2021 were comprised of proceeds from the exercise of options and warrants of $6,492,759$3 million and proceeds from our line of credit totaling $5,178,117,proceeds of $1 million offset by $2,826,939 used to pay down our long-term debt. Financing activities for the nine months ended September 30, 2020 were comprisedpayment on notes payable and capital leases of contributions the Company received from certain transactions undertaken with Tensile during January 2020 totaling $21,000,000, of which $1,650,746 was used to pay down our long-term debt, and $6,741,727 of proceeds on our line of credit.$2 million.

More information regarding our outstanding line of credits, promissory notesloan agreements, leases, and long-term debtConvertible Senior Notes, can be found under “Note 6. Line of Credit and Long-Term DebtFinancing Arrangements” to the unaudited financial statements included herein.
    
Critical Accounting Policies and Use of Estimates
 
Our financial statements are prepared in accordance with U.S. 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, variable interest entities, and legal matters. Actual results may differ from these estimates may be material. Note 2, “Summary of Critical Accounting Policies and Estimates” in Part I, Item 1 of this Quarterly Report on Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021 (the “20202021 Form 10-K”), and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the 20202021 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s financial statements. There have been no material changes to the Company’s critical accounting policies and estimates since the 20202021 Form 10-K, except as summarized below:10-K.

27

    Impairment of long-lived assets
The Company evaluates the carrying value and recoverability of its long-lived assets when circumstances warrant such evaluation by applying 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. The Company determined that no long-lived asset impairment existed as of and for the nine months ended September 30, 2021.
Leases
    In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016-02 requires companies to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements.  We adopted ASU No. 2016-02, Leases (Topic 842) effective January 1, 2019 and elected certain practical expedients which permit us to not reassess whether existing contracts are or contain leases, to not reassess the lease classification of any existing leases, to not reassess initial direct costs for any existing leases, and to not separate lease and nonlease components for all classes of underlying assets.  We also made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet for all classes of underlying assets. Additional information and disclosures required by this new standard are contained in “Part I” -“Item 1. Financial Statements”- “Note 13. Leases”.

Redeemable Noncontrolling Interest
    As more fully described in “Note 14. Share Purchase and Subscription Agreements”, the Company is party to put/call option agreements with the holder of MG SPV’s and Heartland SPV’s non-controlling interests. The put options permit MG SPV’s and Heartland SPV’s non-controlling interest holders, at any time on or after the earlier of (a) the fifth anniversary of the applicable closing date of such issuances and (ii) the occurrence of certain triggering events (an “MG Redemption” and “Heartland Redemption”, as applicable) to require MG SPV and Heartland SPV to redeem the non-controlling interest from the holder of such interest. Per the agreements, the cash purchase price for such redeemed Class B Units (MG SPV) and Class A Units (Heartland SPV) is the greater of (y) the fair market value of such units (without discount for illiquidity, minority status or otherwise) as determined by a qualified third party agreed to in writing by a majority of the holders seeking an MG SPV Redemption and Heartland SPV Redemption and Vertex Operating (provided that Vertex Operating still owns Class A Units (as to MG SPV) or Class B Units (as to Heartland SPV) on such date, as applicable) and (z) the original per-unit price for such Class B Units/Class A Units plus any unpaid Class A/Class B preference. The preference is defined as the greater of (A) the aggregate unpaid “Class B/Class A Yield” (equal to an annual return of 22.5% per annum) and (B) an amount equal to fifty percent (50%) of the aggregate capital invested by the Class B/Class A Unit holders. The agreements also permit the Company to acquire the non-controlling interest from the holders thereof upon certain events. Applicable accounting guidance requires an equity instrument that is redeemable for cash or other assets to be classified outside of permanent equity if it is redeemable (a) at a fixed or determinable price on a fixed or determinable date, (b) at the option of the holder, or (c) upon the occurrence of an event that is not solely within the control of the issuer. Based on this guidance, the Company has classified the MG SPV and Heartland SPV non-controlling interests between the liabilities and equity sections of the accompanying consolidated balance sheets. If an equity instrument subject to the guidance is currently redeemable, the instrument is adjusted to its maximum redemption amount at the balance sheet date. If the equity instrument subject to the guidance is not currently redeemable but it is probable that the equity instrument will become redeemable (for example, when the redemption depends solely on the passage of time), the guidance permits either of the following measurement methods: (a) accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument using an appropriate methodology, or (b) recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The amount presented in temporary equity should be no less than the initial amount reported in temporary equity for the instrument. Because the MG SPV and Heartland SPV equity instruments will become redeemable solely based on the passage of time, the Company determined that it is probable that the MG SPV and Heartland SPV equity instruments will become redeemable. The Company has elected to apply the second of the two measurement options described above. An adjustment to the carrying amount of a non-controlling interest from the application of the above guidance does not impact net income or loss in the consolidated financial statements. Rather, such adjustments are treated as equity transactions.

Variable Interest Entities
    The Company has investments in certain legal entities in which equity investors do not have (1) sufficient equity at risk for the legal entity to finance its activities without additional subordinated financial support, (2) as a group, (the holders of the equity investment at risk), do not have either the power, through voting or similar rights, to direct the activities of the legal entity that most
28

significantly impact the entity’s economic performance, or (3) the obligation to absorb the expected losses of the legal entity or the right to receive expected residual returns of the legal entity. These certain legal entities are referred to as “variable interest entities” or “VIEs.”
    The Company consolidates the results of any such entity in which it determines that it has a controlling financial interest. The Company has a “controlling financial interest” in such an entity if the Company has both the power to direct the activities that most significantly affect the VIE’s economic performance and the obligation to absorb the losses of, or right to receive benefits from, the VIE that could be potentially significant to the VIE. On a quarterly basis, the Company reassesses whether it has a controlling financial interest in any investments it has in these certain legal entities.
Assets and Liabilities Held for Sale
The Company classifies disposal groups as held for sale in the period in which all of the following criteria are met: (1)management, having the authority to approve the action, commits to a plan to sell the disposal group; (2) the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups; (3) an active program to locate a buyer or buyers and other actions required to complete the plan to sell the disposal group have been initiated; (4) the sale of the disposal group is probable, and transfer of the disposal group is expected to qualify for recognition as a completed sale, within one year, except if events of circumstances beyond the Company’s control extend the period of time required to sell the disposal group beyond one year; (5) the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
A disposal group that is classified as held for sale is initially measured at the lower of its carrying amount or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met.
Subsequent changes in the fair value of a disposal group less any costs to sell are reported as an adjustment to the carrying amount of the disposal group, as long as the new carrying amount does not exceed the carrying amount of the asset at the time it was initially classified as held for sale. Upon determining that a disposal group meets the criteria to be classified as held for sale, the Company reports the assets and liabilities of the disposal group for all periods presented in the line items assets held for sale and liabilities held for sale, respectively, in the consolidated balance sheets.
Discontinued Operations

The results of operations of a component of the Company that can be clearly distinguished, operationally and for financial reporting purposes, that either has been disposed of or is classified as held for sale is reported in discontinued operations, if the disposal represents a strategic shift that has, or will have, a major effect on the Company’s operations and financial results.
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.

2934

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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.
Interest Rate 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.

Interest Rate Risk

At September 30, 2021, the Company had approximately $10.8 million of variable-rate term debt outstanding. At this borrowing level, a hypothetical relative increase of 10% in interest rates would have an unfavorable but insignificant impact on the Company’s pre-tax earnings and cash flows. The primary interest rate exposure on variable-rate debt is based on the LIBOR rate (0.08% at September 30, 2021) plus 6.50%-7.0% per year. On November 1, 2021, the Company repaid in full the amounts of variable-rate term debt outstanding at September 30, 2021.

    Commodity Price Risk

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.

Inflation Risk
Inflationary factors such as increases in the cost of our products and overhead costs may adversely affect our results of operations. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we continue to monitor the impact of inflation in order to minimize its effects through price increases and cost reductions. A high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general, and administrative expenses as a percentage of net revenue if the selling prices of our products do not increase in proportion with these increased costs.

30
35

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 SEC pursuant to the Exchange Act, 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)(principal executive officer) and Chief Financial Officer (CFO) (principal accounting/financial officer), 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 Exchange Act) as of the end of the period covered by this report. As of SeptemberJune 30, 2021,2022, based on the evaluation of these disclosure controls and procedures, ourprocedures, and in light of the material weakness we found in our internal controls over financial reporting as of December 31, 2021 (as described in greater detail in our annual report on Form 10-K for the year ended December 31, 2021), our CEO and CFO have concluded that our disclosure controls and procedures were not effective to provide reasonablereasonable assurance that information required to be disclosed in our reports filed with the Securities and Exchange Commission pursuant to the Exchange Act, is recorded properly, 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.

Remediation Efforts to Address Material Weakness
We believe the remedial measures described in Part II, “Item 9A, Controls and Procedures” in our Annual Report on Form 10-K for the year ended December 31, 2021, and others that may be implemented, will remediate this material weakness. However, this material weakness will not be considered formally remediated until controls have operated effectively for a sufficient period of time and management has concluded, through testing, that the controls are operating effectively. We expect this to occur by the end of fiscal 2022.

Inherent Limitations over Internal Controls

Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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. ThereWith the exception of our Mobile acquisition, which we are in the process of evaluating, there were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Qthree months ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As a result of the COVID-19 pandemic, certain employees of the Company began working remotely in March 2020, and continued to work remotely through September 30, 2021, but these changes to the working environment did not have a material effect on the Company’s internal control over financial reporting. We will continue to monitor the impact of COVID-19 on our internal control over financial reporting.


3136

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.
    Such current litigation or other legal proceedings are described in, and incorporated by reference in, this “Item 1. Legal Proceedings” of this Form 10-Q from, “Part I” -“Item 1. Financial Statements” in the Notes to Consolidated Financial Statements in “Note 3. Concentrations, Significant Customers, Commitments and Contingencies”, under the heading “Litigation”. The Company believes that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our financial condition or results of operations. However, assessment of the current litigation or other legal claims could change in light of the discovery of facts not presently known to the Company or by judges, juries or other finders of fact, which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.

Additionally, the outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.


    






3237

Item 1A. Risk Factors
    There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020,2021, filed with the Commission on March 9, 202114, 2022 (the “Form 10-K”), under the heading “Risk Factors”, except as set forth below, and investors should review the risks provided in the Form 10-K (as modified as discussed below) and below, prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below and in the Form 10-K for the year ended December 31, 2020,2021, under “Risk Factors”, which risk factors from the Form 10-K are incorporated by reference in this Item 1A. Risk Factors, subject to updates to such risk factors as provided below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.

The risk factor from the Form 10-K entitled “Epidemics, including the recent outbreak of the COVID-19 coronavirus,Risks Relating to Our Need for Future Funding and other crises have, and willCurrent Indebtedness
We will need to raise additional capital in the future negatively impactand our business and results of operations.”, fromability to obtain the Form 10-Knecessary funding is replaced and superseded byuncertain.
We will need to raise additional funding to meet the following:

Epidemics, including the recent outbreakrequirements of the COVID-19 coronavirus,terms and other crises have,conditions of our outstanding Convertible Senior Notes, including to pay interest and willprincipal thereon and to repay the Term Loan, and we may need to raise additional funding in the future negatively impactto support our businessoperations, complete acquisitions and resultsgrow our operations. If we 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 operations.

Our revenuesour common stock and cost of revenues are significantly impacted by fluctuationspreferred stock. If funding is insufficient at any time in commodity prices; decreases in commodity prices typically result in decreases in revenuethe future and cost of revenues. Our revenue is to a large extent a function of the market discount we are ableunable to obtain in purchasing feedstock, as well as how efficiently management conducts operations. Additionally,generate sufficient revenue from new business arrangements, to repay our sales volumes, and as a result,outstanding debts, 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 have substantial indebtedness and plan to acquire additional indebtedness in the future, which could adversely affect our financial flexibility and our competitive position. 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 June 30, 2022, we owed approximately $81 million in accounts payable and accrued expenses, $173 million in connection with our inventory financing agreements obligations and $260 million, net of original issue discount "OID", under our senior notes payable and term loan (each described above under "Part I. - Item 1. Financial Statements and Supplementary Data" -"Note 6. Financing Arrangements"- "Indenture and Convertible Senior Notes").
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 flows, significantly dependflow 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 Convertible Senior Notes, the Term Loan, planned future borrowings 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 U.S.terms of such financing. If equity financing is available and obtained it may result in our stockholders experiencing significant dilution. If such financing is
38

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.
The requirements, restrictions and covenants in our Loan and Security Agreement may restrict our ability to operate our business and might lead to a lesser extent, worldwide demanddefault under such agreement.
The Loan and Security Agreement includes customary representations and warranties, and affirmative and negative covenants of the Loan Parties for a facility of that size and type, including prohibiting the Loan Parties from creating any indebtedness without the consent of the Lenders, subject to certain exceptions, and requiring the Loan Parties to have no less than $17.5 million of unrestricted cash for more than three consecutive business days.
The Loan and Security Agreement includes customary events of default for transactions of that type, including failures to pay amounts due, bankruptcy proceedings, covenant defaults, attachment or seizure of a material portion of the collateral securing the Loan and Security Agreement, cross defaults, if there is a default in any agreement governing indebtedness in excess of $3,000,000, resulting in the right to accelerate such indebtedness, certain judgments against a Loan Party, misrepresentations by the Loan Parties in the transaction documents, insolvency, cross default of the Offtake and Supply Agreement, a Change of Control (discussed below), termination of certain intercreditor agreements, and the loss or termination of certain material contacts. Upon the occurrence of an event of default the Agent may declare the entire amount of obligations owed under the Loan and Security Agreement immediately due and payable and take certain other actions provided for under the Loan and Security Agreement, including enforcing security interests and guarantees.
Additionally, in the event of any payment, repayment or prepayment (other than with respect to a sale of the Company’s used motor oil assets or a change of control, and other than in connection with prepayments required to be made with funds received from insurance settlements and recoveries which are not subject to a prepayment premium), including in the event of acceleration of the Term Loan, certain asset sales (other than the used oil. motor oil assets), certain equity issuances, and voluntary prepayments (a) during the first 18 months after the Closing Date, Vertex Refining agreed to pay an additional amount to the Lenders equal to 150% of the applicable interest rate, multiplied by the amount of such prepayment amount; (b) during the 19th through 24th months after the Closing Date, Vertex Refining agreed to pay an additional amount to the Lenders equal to 50% of the applicable interest rate, multiplied by the amount of such prepayment amount; and (c) at any time during the 25th month after the Closing Date, but prior to the date that is 90 days before the maturity date of amounts owed pursuant to the Loan and Security Agreement, Vertex Refining agreed to pay an additional amount to the Lenders equal to 25% of the applicable interest rate, multiplied by the amount of such prepayment amount. Upon the sale of the Company’s used motor oil assets (as discussed below), or the required repayment upon a change of control (also discussed below), Vertex Refining agreed to pay an additional amount to the Lenders equal to 1% of the aggregate principal amount of the amount prepaid (as applicable, the “Prepayment Premium”). The Prepayment Premium is also due upon a change of control, which includes the direct or indirect transfer of all or substantially all of the assets of the Loan Parties (defined below); the adoption of a plan of liquidation or dissolution relating to the Company; the acquisition in one or a series of transactions of 33% or more of the equity interests of the Company by a person or entity; the Company’s failure to own 100% of Vertex Refining and the other Loan Parties, unless permitted by the Lenders; during any period of twelve consecutive months commencing on or after the Closing Date, the occurrence of a change in the composition of the Board of Directors of the Company such that a majority of the members of such Board of Directors are no longer directors; or a “change of control” or any comparable term under, and as defined in, any other indebtedness exceeding $2 million of the Loan Parties, shall have occurred (each a “Change of Control”).
As a result pandemics, epidemics,of these requirements, covenants and public health crises, which effect the U.S. and the world as a whole, and which resultlimitations, we may not be able to respond to changes in travel disruptions, reductions in shipping and therefore declines in the need for oil and used oil, will harm our business and cause our operating results to suffer. Similarly, the economic slowdownconditions and general market uncertainty caused by the COVID-19 coronavirus outbreak and the steps taken by local, state and federal governments to attempt to reduce the spread of, and effects of, such virus, significantly reduced the demand for, and price of oil (which reached all-time lows during 2020), but has more recently recovered to near pre-pandemic levels, and concurrent therewith, the slowdown in the U.S. economy caused by stay-at-home and similar orders during 2020, reduced the amount of feedstock being produced and as a result, our ability to obtain feedstocks,additional financing, if needed, and produce finished products, which had a material adverse effect on our year-over-year results of operations for 2020. While the majority of COVID-19 restrictions in the jurisdictions in which we operate have since expired or been terminated due to the availability of vaccines, the possibility of future variants and potential waning immunity of vaccinations, creates continued uncertainty as to the total length and effect of the pandemic and/or whether future government actions will result in further reduced economic activity or new ‘stay-at-home’ or similar orders.

A public health pandemic, including COVID-19, poses the risk that the Company or its affiliates, employees, suppliers, customers and others may be prevented from conducting business activities forengaging in transactions that might otherwise be beneficial to us. The breach of any of these requirements or covenants could result in a default under the Loan and Security Agreement or future credit facilities. Upon the occurrence of an indefinite periodevent of time,default, the lenders could elect to declare all amounts outstanding under such Loan and Security Agreement or future debt facilities, including accrued interest or other obligations, to be immediately due and payable. If amounts outstanding under such Loan and Security Agreement or future debt facilities were to be accelerated, our assets might not be sufficient to repay in full that indebtedness and our other indebtedness.
Our Loan and Security Agreement and Supply and Offtake Agreement also contain cross-default and cross-acceleration provisions as may our future debt facilities. Under these provisions, a result of shutdowns, travel restrictions and other actions that may be requesteddefault or mandated by governmental authorities. Such actions may preventacceleration under one instrument governing our debt will in the Company from accessing or operating its facilities, delivering products or continuing to obtain feedstocks. While a substantial portioncase of the Company’s businesses have been classified as an essential business in jurisdictions in which facility closures have been mandated, the Company can give no assurance that this will not changeLoan and Security Agreement and Supply and Offtake Agreement and may in the case of future indebtedness, 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 that the Company’s businesses will be classified as essential in each of the jurisdictions in which it operates.at all. Alternatively, such a default could require us to sell assets and otherwise curtail
39

It is also possible that the current outbreakoperations to pay our creditors. The proceeds of such a sale of assets, or continued spreadcurtailment of COVID-19 will cause a global recession, or continued shortages in suppliesoperations, might not enable us to pay all of certain materials and equipment.our liabilities.

A continued prolonged period of weak, or a significant decrease in, industry activity and overall markets, due to COVID-19 or otherwise, may make it difficult to comply with our covenants and the other restrictions in the agreements governing our debt(including our recently sold Convertible Notes). Current and current global and market conditions have increased the potential for that difficulty.

Our ability to service our indebtedness will depend on our ability to generate cash in the future.
Our ability to make payments on our current (including our Convertible Senior Notes and Term Loan) and future indebtedness will depend on our ability to generate cash in the future. Our ability to generate cash is subject to general economic and market conditions and financial, competitive, legislative, regulatory and other factors that are beyond our control. Our business may not generate sufficient cash to fund our working capital requirements, capital expenditures, debt service and other liquidity needs, which could result in our inability to comply with financial and other covenants contained in our debt agreements, our being unable to repay or pay interest on our indebtedness, and our inability to fund our other liquidity needs. If we are unable to service our debt obligations, fund our other liquidity needs and maintain compliance with our financial and other covenants, we could be forced to curtail our operations, our creditors could accelerate our indebtedness and exercise other remedies and we could be required to pursue one or more alternative strategies, such as selling assets or refinancing or restructuring our indebtedness. However, such alternatives may not be feasible or adequate.
Our obligations under the Loan and Security Agreement and Supply and Offtake Agreement are secured by a first priority security interest in substantially all of our assets and various Company guarantees.
The amounts borrowed pursuant to the terms of the Loan and Security Agreement are secured by substantially all of the present and after-acquired assets of the Company and its subsidiaries. Additionally, certainVertex Refining’s obligations under the Loan and Security Agreement are jointly and severally guaranteed by substantially all of the Company’s employees have been working from home, eithersubsidiaries and the Company. The amounts owed under the Loan and Security Agreement are also secured by various deeds of trusts and mortgages for the real property(s) described therein, over the Mobile Refinery and substantially all other material owned and leased real property of the Guarantors including properties in Texas and Louisiana. In connection with the entry into the Loan and Security Agreement, Vertex Operating, entered into an Intellectual Property Security Agreement in favor of the Agent, pursuant to avoidwhich it granted a security interest in substantially all of its intellectual property (including patents and trademarks) in favor of the riskLenders to secure the obligations of catching the COVID-19 coronavirus,Loan Parties under the Loan and Security Agreement. In connection with the entry into the Loan and Security Agreement, the Company, Vertex Refining and each of the Guarantors, entered into a Collateral Pledge Agreement in favor of the Agent, pursuant to which they granted the Agent a security interest in all now owned or duehereafter acquired promissory notes and instruments evidencing indebtedness to stay-at-home orders issuedany Guarantor and all now owned or hereafter acquired equity interests owned by local governments where they live or work,such Guarantor.
The obligations of Vertex Refining and any of its subsidiaries under the Supply and Offtake Agreement and related transaction documents are guaranteed by the Company. The obligations of Vertex Refining and any of its subsidiaries under the Supply and Offtake Agreement and related transaction documents are also secured by a Pledge and Security Agreement in favor of Macquarie, discussed below, executed by Vertex Refining. In addition, the Supply and Offtake Agreement also requires that Vertex Refining post and maintain cash collateral (in the form of an independent amount) as security for Vertex Refining’s obligations under the Supply and Offtake Agreement and the related transaction documents. The amount of cash collateral is subject to adjustments during the term.
As a result productivityof the above, our creditors and Macquarie, in the event of the occurrence of a default under the Loan and Security Agreement or Supply and Offtake Agreement, respectively, may drop,enforce their security interests over our assets and/or our subsidiaries which secure such obligations, take control of our assets and operations, force us to seek bankruptcy protection, or force us to curtail or abandon our current business plans and operations. If that were to happen, any investment in the Company (including, but not limited to any investment in our common stock) could impact revenuesbecome worthless.
Our arrangement with Macquarie exposes us to Macquarie-related credit and profitability.performance risk as well as potential refinancing risks.

In April 2022, we entered into several agreements with Macquarie as discussed above under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” – “Recent Events”, to support the operations of the Mobile Refinery. Pursuant to the Supply and Offtake Agreement, Macquarie has agreed to intermediate crude oil supplies and refined product inventories at the Mobile Refinery. Macquarie will own all of the crude oil in our tanks and substantially all of our refined product inventories prior to our sale of the inventories.
3340

WhileShould Macquarie terminate the overallSupply and Offtake Agreement with 180 days written notice, we would need to seek alternative sources of financing, including the requirement upon termination to repurchase the inventory at then current market prices. In addition, the cost of repurchasing the inventory may be at higher prices than we sold the inventory. If the price of crude oil is well above the price at which we sold the inventory, we would have to pay more for the inventory than the price we sold the inventory for. If this is the case at the time of termination, we could suffer significant reductions in liquidity when Macquarie terminates the Supply and Offtake Agreement and we have to repurchase the inventories. We may also be unable to enter into a similar relationship with a third party which may impair our ability to operate the Mobile Refinery and purchase inventory therefore, which could have a material adverse effect on our operations and cash flows.
If we are unable to obtain crude oil supplies for our Mobile Refinery without the benefit of certain intermediation agreements, the capital required to finance our crude oil supply could negatively impact our liquidity.
All of the COVID-19 coronaviruscrude oil delivered at our Mobile Refinery is subject to our Supply and Offtake Agreements with Macquarie. If we are unable to obtain our crude oil supply for our refinery under these agreements, our exposure to crude oil pricing risks may increase as the number of days between when we pay for the crude oil and when the crude oil is delivered to us increases. Such increased exposure could negatively impact our liquidity position due to the increase in working capital used to acquire crude oil inventory for our refineries.
The Intermediation Agreements expose us to counterparty credit and performance risk.

We have Supply and Offtake Agreements with Macquarie, pursuant to which Macquarie will intermediate crude oil supplies and refined product inventories at our Mobile Refinery. Macquarie will own all of the crude oil in our tanks and substantially all of our refined product inventories prior to our sale of the inventories. Upon termination of the Supply and Offtake Agreements, unless extended by mutual agreement for an additional one year term, we are obligated to repurchase all crude oil and refined product inventories then owned by Macquarie and located at the specified storage facilities at then current market prices. This repurchase obligation could have a material adverse effect on our business, results of operations, or financial condition. An adverse change in the business, results of operations, liquidity, or financial condition of our intermediation counterparties could adversely affect the ability of such counterparties to perform their obligations, which could consequently have a material adverse effect on our business, results of operations, or liquidity and, as a result, our business and operating results.
An increase in interest rates will cause our debt service obligations to increase.
The amounts borrowed under the Loan and Security Agreement will bear interest at a rate per annum equal to the sum of (i) the greater of (x) the per annum rate publicly quoted from time to time by The Wall Street Journal as the “Prime Rate” in the United States minus 1.50% as in effect on such day and (y) the Federal Funds rate for such day plus 0.50%, subject in the case of this clause (i), to a floor of 1.0%, plus (ii) 9.25%, which rate is currently 10.25%. As such an increase in the interest rates associated with our floating-rate debt would increase our debt service costs and affect our results of operations. In addition, an increase in interest rates could adversely affect our future ability to obtain financing or materially increase the cost of any additional financing.
Economic uncertainty may affect our access to capital and/or increase the costs of such capital.
Global economic conditions continue to be volatile and uncertain due to, among other things, consumer confidence in future economic conditions, fears of recession and trade wars, global conflicts, including the ongoing conflict between Russia and Ukraine, the price of energy, fluctuating interest rates, the availability and cost of consumer credit, the availability and timing of government stimulus programs, levels of unemployment, increased inflation, and tax rates. These conditions remain unpredictable and create uncertainties about our ability to raise capital in the future. In the event required capital becomes unavailable in the future, or more costly, it could have a material adverse effect on our business, results of operations, and financial condition.
Risks Relating to Our Operations, Business and Industry
Unanticipated problems at, or downtime effecting, our facilities and those operated by third parties on which we rely, could have a material adverse effect on our results of operations at this point remains uncertain, we anticipate that the factors discussed above and others, which have had a negative effectoperations.
Our ability to process feedstocks depends on our 2020ability to operate our refining/processing operations and 2021 first, secondfacilities, including our newly acquired Mobile Refinery, and those operated by third quarter operations, will continueparties on which we rely, including, but not limited to Monument Chemical, and the total time that such facilities are online and operational. The occurrence of significant
41

unforeseen conditions or events in connection with the operation or maintenance of such facilities, such as the need to refurbish such facilities, complete capital projects at such facilities, shortages of workers or materials, adverse weather, including, but not limited to lightning strikes, floods, hurricanes, tornadoes and earthquakes, equipment failures, fires, explosions, oil or other leaks, damage to or destruction of property and equipment associated therewith, environmental releases and/or damage, government regulation changes affecting the use of such facilities, terrorist attacks, mechanical or physical failures of equipment, acts of God, or other conditions or events, could prevent us from operating our facilities, or prevent such third parties from operating their facilities, or could force us or such third parties to shut such facilities down for repairs, maintenance, refurbishment or upgrades for a significant period of time. In the event any of our facilities or those of third parties on which we rely are offline for an extended period of time, it could have a negativematerial adverse effect on our results of operations for the remainder of the 2021 year, depending on how long the global slowdown associated with the virus and its after-effects last. Any one or more of the events described above could cause the value of our securities to decline in value.

The risk factor from the Form 10-K entitled “We may not qualify for forgiveness of our PPP Loan. We face risks associated with such PPP Loan.”, is no longer relevant since our PPP Loan has been forgiven in full.

The risk factors from the Form 10-K entitled “We do not anticipate redeeming our Series B and B1 Preferred Stock in the near future.”, “The issuance of common stock upon conversion of the Series B Preferred Stock and Series B1 Preferred Stock will cause immediate and substantial dilution to existing shareholders.”, “Our outstanding Series B Preferred Stock and Series B1 Preferred Stock accrue a dividend.” and “We may be required to issue additional shares of Series B Preferred Stock and Series B1 Preferred Stock upon the occurrence of certain events.”, are no longer relevant since we do not currently have any Series B Preferred Stock or Series B1 Preferred Stock outstanding.

The risk factor from the Form 10-K entitled “Our outstanding options, warrants and convertible securities may adversely affect the trading price of our common stock.”, from the Form 10-K is replaced and superseded by the following:

Our outstanding options, warrants and convertible securities may adversely affect the trading price of our common stock.

As of September 30, 2021, we had (i) outstanding stock options to purchase an aggregate of 4,195,168 shares of common stock at a weighted average exercise price of $1.57 per share; (ii) outstanding warrants to purchase an aggregate of 288,458 shares of common stock at a weighted average exercise price of $1.53 per share; and (iii) 385,601 outstanding shares of Series A Convertible Preferred Stock (which convert on a one-for-one basis (subject to adjustments for stock splits and recapitalizations) into common stock). For the life of the options and warrants, the holders have the opportunity to profit from a rise in the market price of our common stock without assuming the risk of ownership. The issuance of shares upon the exercise of outstanding securities will also dilute the ownership interests of our existing stockholders.

The availability of these shares for public resale, as well as any actual resales of these shares, could adversely affect the trading price of our common stock. We cannot predict the size of future issuances of our common stock pursuant to the exercise of outstanding options or warrants or conversion of other securities, or the effect, if any, that future issuances and sales of shares of our common stock may have on the market price of our common stock. Sales or distributions of substantial amounts of our common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may cause the market price of our common stock to decline.

In addition, the common stock issuable upon exercise/conversion of outstanding convertible securities 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 happensconsequently the price of our stock will decrease,securities. For example, on October 7, 2020, we had a fire at our Marrero refinery which took the facility offline for repairs for about two weeks. The refinery suffered some minor structural damage along with piping, valves and any additional shares which stockholders attempt to sellinstrumentation in the market will only further decreaseimmediate area of the share price. Iffire, the share volumelargest impact was the damage to the electrical conduit that feeds the power to the refinery equipment and was back up October 26, 2020. Additionally, during August and September 2020, two hurricanes brought severe flooding and high winds that adversely impacted operations in the Gulf Coast and, specifically at the Company’s Marrero, Louisiana refinery, while also limiting outbound shipments of finished product along adjacent waterways between Houston and New Orleans for approximately two weeks. Additionally, during August 2021, Hurricane Ida made landfall in southeast Louisiana, approximately 30 miles directly south and west of the Myrtle Grove facility, which resulted in the entire 42 acre Myrtle Grove site to be covered with 4-6 feet of storm surge and thus damages of assets and equipment. The Company reviewed the inspection report and related information from insurance companies and a third party engineer, and determined that there is no 100% certainty around the recoverability of some Construction-In-Progress assets such as fire heaters and pumps and instrumentation. The Company recorded $2.1 million of loss on assets impairment on the Consolidated Statements of Operations in the fourth quarter of 2021, of which the entire amount is related to our common stock cannot absorb shares sold by holdersBlack Oil segment. Subsequent downtime at our facilities, including our newly acquired Mobile Refinery, losses of equipment or use of such facilities may have a material adverse effect on our outstanding convertible securities, thenoperations, cash flows or assets. The Company believes that it maintains adequate insurance coverage.
Unanticipated problems or delays, or increases in costs, in connection with the value ofongoing capital project at the newly acquired Mobile Refinery may harm our common stock will likely decrease.business and viability.

We are in the process of completing an $85 million capital project designed to modify the Mobile Refinery’s hydrocracking unit to produce renewable diesel fuel on a standalone basis (the “
Conversion”). The risk factoroccurrence of significant unforeseen conditions or events in connection with the Conversion may make the Conversion more expensive, prevent us from completing the Form 10-K entitled “We have established preferred stockConversion, delay the completion of the Conversion or require us to reexamine our business model. Any change to our business model or management’s evaluation of the viability of the Conversion or timing associated therewith may adversely affect our business. Construction costs for the Conversion may also increase to a level that would make such Conversion too expensive to complete or unprofitable to operate, due to increases in material, labor, inflation or otherwise. Contractors, engineering firms, construction firms and equipment suppliers also receive requests and orders from other companies and, therefore, we may not be able to secure their services or products on a timely basis or on acceptable financial terms. We may suffer significant delays or cost overruns as a result of a variety of factors, such as increases in the prices of raw materials, shortages of workers or materials, transportation constraints, adverse weather, equipment failures, fires, damage to or destruction of property and equipment, environmental damage, unforeseen difficulties or labor issues, or issues associated with planned capital projects, including cost overruns and unforeseen delays, any of which can be designated bycould prevent us from timely completing the Board of Directors without shareholder approval and have established Series A Preferred Stock, Series B Preferred Stock and Series B1 Preferred Stock, which give the holders thereof a liquidation preference.”, from the Form 10-K is replaced and superseded by the following:Conversion.

We have established preferred stock which canmay be designated byunable to sell our UMO Business.
Our agreement with Safety-Kleen to acquire our UMO Business was terminated in January 2022. We are continuing to seek sales opportunities relating to such UMO Business, but we may be unable to find a purchaser to purchase such UMO Business on as favorable terms as Safety-Kleen had previously agreed to acquire such assets, such sale may be unable to be completed due to required conditions to closing, including governmental regulations, and the Board of Directors without shareholder approval and have Series A Preferred Stock outstanding, which give the holders thereof a liquidation preference.

We have 50 million shares of preferred stock authorized, which includes 5 million shares of designated Series A Preferred Stock of which 385,601 sharesknowledge that we are issued and outstanding, 10 million designated shares of Series B Preferred Stock, of which no shares are issued and outstanding, and 17 million designated shares of Series B1 Preferred Stock, of which no shares are issued and outstanding. The Series A Preferred Stock has a liquidation preference of $1.49 per share.actively trying to sell our UMO Business may result in depressed prices. As a result, if we weremay not be able to dissolve, liquidate or sell our assets, the holders ofUMO Business on favorable terms, if at all and/or may face termination and other fees in connection with any planned sale which is subsequently abandoned.
Claims above our Series A Preferred Stock would have the right to receive up to the first approximately $0.6 millioninsurance limits, or significant increases in proceeds from any such transaction. The payment of the liquidation preferences couldour insurance premiums, may reduce our profitability.
3442

resultWe currently employ approximately 92 full-time drivers. From time to time, some of these employee drivers are involved in common stock stockholders not receiving any consideration ifautomobile accidents. We currently carry liability insurance of $1,000,000 for our drivers, subject to applicable deductibles, and carry umbrella coverage up to $25,000,000. We currently employ over 450 employees. Claims against us may exceed the amounts of available insurance coverage. 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 offeringsexperience a material increase in the future,frequency or preventseverity of accidents, liability claims or delay a changeworkers’ compensation claims or unfavorable resolutions of control. Becauseclaims, our board of directors is entitled to designate the powers and preferences of the preferred stock without a vote of our stockholders, subject to Nasdaq rules and regulations, our stockholders will have no control over what designations and preferences our future preferred stock, if any, will have.

operating results could be materially affected.
The following are new risk factors that supplement the risk factors included in the Form 10-K:

Our hedging activities have in the past and may in the future prevent us from benefiting fully from increases in oil prices and may expose us to other risks, including counterparty risk.

The Company utilizesWe use derivative instruments to manage its exposure tohedge the impact of fluctuations in oil and other prices on our results of operations and cash flows and are also required to use such hedges pursuant to the underlying commodity pricesterms of its inventory. The Company's management setsthe Loan and implements hedging policies, including volumes, types of instrumentsSecurity Agreement. We have in the past, and counterparties, to support oil prices at targeted levels and manage its exposure to fluctuating prices. The Company’s derivative instruments consist of swap and futures arrangements for oil. In a commodity swap agreement, if the agreed-upon published third-party index price (“index price”) is lower than the swap fixed price, the Company receives the difference between the index price and the swap fixed price. If the index price is higher than the swap fixed price, the Company pays the difference. For futures arrangements, the Company receives the difference positive or negative between an agreed-upon strike price and the market price.

To the extent that we continue to engage in hedging activities to protect ourselves against commodity price declines, we may be prevented from fully realizing the benefits of increases in oil prices above the prices established by our hedging contracts. In addition,contracts and/or may result in us paying more for oil feedstocks then we receive upon the sale of finished products as we hedge finished product sales and not feedstock purchases. For example, as of June 30, 2022, our outstanding oil hedges had a fair value of negative $46,537,144. Our hedging activities may expose us to the risk of financial loss in certain circumstances, including instances in which the counterparties to our hedging contracts fail to perform under the contracts. Finally, we are subject to risks associated with the adoption of derivatives legislation and regulations related to derivative contracts which if adopted, could have an adverse impact on our ability to hedge risks associated with our business. If regulations adopted in the future require that we post margin for our hedging activities or require our counterparties to hold margin or maintain capital levels, the cost of which could be passed through to us, or impose other requirements that are more burdensome than current regulations, hedging transactions in the future would become more expensive than we experienced in the past. Our hedges have in the past and may in the future result in significant losses and reduce the amount of revenue we would otherwise obtain upon the sale of finished products and may also increase our margins and decrease our net revenues.
We depend on certain third-party pipelines for transportation of feedstocks and products, and if these pipelines become unavailable to us, our revenues and cash available for payment of our debt obligations could decline.
Our Mobile Refinery is interconnected to a pipeline that supplies a portion of its crude oil feedstock. Since we do not own or operate this pipeline, its continuing operation is not within our control. The unavailability of any third-party pipelines for the transportation of crude oil or finished products, because of acts of God, accidents, earthquakes or hurricanes, government regulation, terrorism or other third-party events, could lead to disputes or litigation with certain of our suppliers or a decline in our sales, net income and cash available for payments of our debt obligations.
We make capital expenditures in our facilities to maintain their reliability and efficiency. If we are unable to complete capital projects at their expected costs and/or in a timely manner, or if the market conditions assumed in our projected economics deteriorate, results of operations or cash flows could be adversely affected.
Delays or cost increases related to the engineering, procurement and construction of new facilities, or improvements and repairs to our existing facilities and equipment, could have a material adverse effect on our business, financial condition, results of operations or our ability to make payments on our debt obligations. Such delays or cost increases may arise as a result of unpredictable factors in the marketplace, many of which are beyond our control, including:
• denial or delay in obtaining regulatory approvals and/or permits;
• changes in government regulations, including environmental and safety regulations;
• unplanned increases in the cost of equipment, materials or labor;
• disruptions in transportation of equipment and materials;
• severe adverse weather conditions, natural disasters or other events (such as equipment malfunctions, explosions, fires or spills) affecting our facilities, or those of our vendors and suppliers;
• shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages;
• market-related increases in a project’s debt or equity financing costs; and/or
43

• nonperformance or declarations of force majeure by, or disputes with, our vendors, suppliers, contractors or sub-contractors.
Equipment, even if properly maintained, may require significant capital expenditures and expenses to keep it operating at optimum efficiency.
Any one or more of these occurrences noted above could have a significant impact on our business or subject us to significant cost overruns. If we were unable to make up the delays or to recover the related costs, or if market conditions change, we may not realize the anticipated benefits of our capital projects and it could materially and adversely affect our financial position, results of operations or cash flows and, as a result, our ability to make payments of our debt obligations.
From time to time, we may seek to divest portions of our business, which could materially affect our results of operations and result in disruption to other parts of the business.
We may dispose of portions of our current business or assets (including, but not limited to our UMO Business, which we are actively seeking to divest), based on a variety of factors and strategic considerations, consistent with our strategy of preserving liquidity and streamlining our business to better focus on the advancement of our core business. We expect that any potential divestitures of assets will also provide us with cash to reinvest in our business and repay indebtedness. These dispositions, together with any other future dispositions we make, may involve risks and uncertainties, including disruption to other parts of our business, potential loss of employees, customers or revenue, exposure to unanticipated liabilities or result in ongoing obligations and liabilities to us following any such divestiture. In addition, any such divestitures may not yield the targeted improvements in our business. Any of the foregoing could adversely affect our financial condition and results of operations or cash flows and, as a result, our ability to make payments of our debt obligations.
The prices of crude oil and refined and finished lubricant products materially affect our profitability, and are dependent upon many factors that are beyond our control, including general market demand and economic conditions, seasonal and weather-related factors, regional and grade differentials and governmental regulations and policies.
Among these factors is the demand for crude oil and refined and finished lubricant products, which is largely driven by the conditions of local and worldwide economies, as well as by weather patterns, changes in consumer preferences and the taxation of these products relative to other energy sources. Governmental regulations and policies, particularly in the areas of taxation, energy and the environment, and more recently in response to the COVID-19 pandemic, also have a significant impact on our activities. Operating results can be affected by these industry factors, product and crude pipeline capacities, crude oil differentials (including regional and grade differentials), changes in transportation costs, accidents or interruptions in transportation, competition in the particular geographic areas that we serve, global market conditions, actions by foreign nations and factors that are specific to us, such as the efficiency of our refinery operations. The demand for crude oil and refined and finished lubricant products can also be reduced due to a local or national recession or other adverse economic condition, which results in lower spending by businesses and consumers on gasoline and diesel fuel, higher gasoline prices due to higher crude oil prices, a shift by consumers to more fuel-efficient vehicles or alternative fuel vehicles (such as ethanol or wider adoption of gas/electric hybrid vehicles), or an increase in vehicle fuel economy, whether as a result of technological advances by manufacturers, legislation mandating or encouraging higher fuel economy or the use of alternative fuel.
We do not produce crude oil and must purchase all our crude oil, the price of which fluctuates based upon worldwide and local market conditions. Our profitability depends largely on the spread between market prices for refined petroleum products and crude oil prices. This margin is continually changing and may fluctuate significantly from time to time. Crude oil and refined products are commodities whose price levels are determined by market forces beyond our control. For example, the reversal of certain existing pipelines or the construction of certain new pipelines transporting additional crude oil or refined products to markets that serve competing refineries could affect the market dynamic that has allowed us to take advantage of favorable pricing. A deterioration of crack spreads or price differentials between domestic and foreign crude oils could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Additionally, due to the seasonality of refined products markets and refinery maintenance schedules, results of operations for any particular quarter of a fiscal year are not necessarily indicative of results for the full year and can vary year to year in the event of unseasonably cool weather in the summer months and/or unseasonably warm weather in the winter months in the markets in which we sell our petroleum products. In general, prices for refined products are influenced by the price of crude oil. Although an increase or decrease in the price for crude oil may result in a similar increase or decrease in prices for refined products, there may be a time lag in the realization of the similar increase or decrease in prices for refined products. The effect of changes in crude oil prices on operating results, therefore, depends in part on how quickly refined product prices adjust to reflect these changes. A substantial or prolonged increase in crude oil prices without a corresponding increase in refined
44

product prices, a substantial or prolonged decrease in refined product prices without a corresponding decrease in crude oil prices, or a substantial or prolonged decrease in demand for refined products could have a significant negative effect on our earnings and cash flow. Also, our crude oil and refined products inventories are valued at the lower of cost or market under the last-in, first-out (“LIFO”) inventory valuation methodology, excluding commodity inventories at the Mobile Refinery which use the weighted average inventory accounting method. If the market value of our inventory were to decline to an amount less than our LIFO cost, we would record a write-down of inventory and a non-cash charge to cost of products sold even when there is no underlying economic impact at that point in time. Continued volatility in crude oil and refined products prices could result in lower of cost or market inventory charges in the future, or in reversals reducing cost of products sold in subsequent periods should prices recover.
To successfully operate our facilities, we are required to expend significant amounts for capital outlays and operating expenditures. If we are unable to complete capital projects at their expected costs or in a timely manner, or if the market conditions assumed in our project economics deteriorate, our financial condition, results of operations, or cash flows could be materially and adversely affected.
Our facilities consist of many processing units, a number of which have been in operation for many years. One or more of the units may require unscheduled downtime for unanticipated maintenance or repairs that are more frequent than our scheduled turnaround for such units. Scheduled and unscheduled maintenance could reduce our revenues during the period of time that the units are not operating. The installation and redesign of key equipment at our facilities, including the planned construction of the renewable diesel capital project at the Mobile Refinery, involves significant uncertainties, including the following: our upgraded equipment may not perform at expected levels; operating costs of the upgraded equipment may be higher than expected; the yield and product quality of new equipment may differ from design and/or specifications and redesign, modification or replacement of the equipment may be required to correct equipment that does not perform as expected, which could require facility shutdowns until the equipment has been redesigned or modified. Any of these risks associated with new equipment, redesigned older equipment, or repaired equipment could lead to lower revenues or higher costs or otherwise have a negative impact on our future financial condition and results of operations.

One of the ways we may grow our business is through the construction of new refinery processing units (or the purchase and refurbishment of used units from another refinery) and the conversion or expansion of existing ones, such as the ongoing conversion at the Mobile Refinery to produce renewable biodiesel. Projects are generally initiated to increase the yields of higher-value products, increase the amount of lower cost crude oils that can be processed, increase refinery production capacity, meet new governmental requirements or take advantage of new government incentive programs, or maintain the operations of our existing assets. Additionally, our growth strategy includes projects that permit access to new and/or more profitable markets, including the growing demand for renewable diesel. The construction process involves numerous regulatory, environmental, political, and legal uncertainties, most of which are not fully within our control, including:
•third party challenges to, denials, or delays with respect to the issuance of requisite regulatory approvals and/or obtaining or renewing permits, licenses, registrations and other authorizations;
•societal and political pressures and other forms of opposition;
•compliance with or liability under environmental regulations;
•unplanned increases in the cost of construction materials or labor;
•disruptions in transportation of modular components and/or construction materials;
•severe adverse weather conditions, natural disasters, terror or cyberattacks, vandalism or other events (such as equipment malfunctions, explosions, fires or spills) affecting our facilities, or those of vendors and suppliers;
•shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages;
•market-related increases in a project’s debt or equity financing costs; and/or
•nonperformance or force majeure by, or disputes with, vendors, suppliers, contractors, or sub-contractors involved with a project.
If we are unable to complete capital projects at their expected costs or in a timely manner our financial condition, results of operations, or cash flows could be materially and adversely affected.Delays in making required changes or upgrades
45

to our facilities could subject us to fines or penalties as well as affect our ability to supply certain products we make. In addition, our revenues may not increase immediately upon the expenditure of funds on a particular project. For instance, the construction of our previously announced renewable diesel capital project at the Mobile Refinery will occur over an extended period of time and we will not receive any material increases in revenues until after completion of the project. Moreover, we may construct facilities to capture anticipated future growth in demand for refined products or renewable diesel in a region in which such growth does not materialize. As a result, new capital investments may not achieve our expected investment return, which could adversely affect our financial condition or results of operations.
In addition, we expect to execute turnarounds at our refineries, which involve numerous risks and uncertainties. These risks include delays and incurrence of additional and unforeseen costs. The turnarounds allow us to perform maintenance, upgrades, overhaul and repair of process equipment and materials, during which time all or a portion of the refinery will be under scheduled downtime.
Our forecasted internal rates of return are also based upon our projections of future market fundamentals which are not within our control, including changes in general economic conditions, available alternative supply, global market conditions, actions by foreign nations and customer demand.
Competition in the refining industry is intense, and an increase in competition in the markets in which we sell our products could adversely affect our earnings and profitability.
We compete with a broad range of refining companies, including certain multinational oil companies. Because of their geographic diversity, larger and more complex refineries, integrated operations and greater resources, some of our competitors may be better able to withstand volatile market conditions, to obtain crude oil in times of shortage and to bear the economic risks inherent in all areas of the refining industry.
We are not engaged in petroleum exploration and production activities and do not produce any of the crude oil feedstocks used at our refineries. We do not have a retail business and therefore are dependent upon others for outlets for our refined products. Certain of our competitors, however, obtain a portion of their feedstocks from company-owned production and have retail outlets. Competitors that have their own production or extensive retail outlets, with brand-name recognition, are at times able to offset losses from refining operations with profits from producing or retailing operations, and may be better positioned to withstand periods of depressed refining margins or feedstock shortages.
In recent years there have been several refining and marketing consolidations or acquisitions between entities competing in our geographic market. These transactions could increase the future competitive pressures on us.
The markets in which we compete may be impacted by competitors’ plans for expansion projects and refinery improvements that could increase the production of refined products in our areas of operation and significantly affect our profitability.
Also, the potential operation of new or expanded refined product transportation pipelines, or the conversion of existing pipelines into refined product transportation pipelines, could impact the supply of refined products to our existing markets and negatively affect our profitability.
In addition, we compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our industrial, commercial and individual consumers. The more successful these alternatives become as a result of governmental regulations, technological advances, consumer demand, improved pricing or otherwise, the greater the impact on pricing and demand for our products and our profitability. There are presently significant governmental and consumer pressures to increase the use of alternative fuels in the United States.
The market for our lubricants is highly competitive and requires us to continuously develop and introduce new products and product enhancements.
Our ability to grow our lubricants depends, in part, on our ability to continuously develop, manufacture and introduce new products and product enhancements on a timely and cost-effective basis, in response to customers’ demands for higher performance process lubricants and other product offerings. Our competitors may develop new products or enhancements to their products that offer performance, features and lower prices that may render our products less competitive or obsolete, and, as a consequence, we may lose business and/or significant market share. Our efforts to respond to changes in consumer demand in a timely and cost-efficient manner to drive growth could be adversely affected by unfavorable margins or difficulties or delays in product development and service innovation, including the inability to identify viable new products, successfully
46

complete research and development, obtain regulatory approvals, obtain intellectual property protection or gain market acceptance of new products or service techniques. The development and commercialization of new products requires significant expenditures over an extended period of time, and some products that we seek to develop may never become profitable, and we could be required to write-off our investments related to a new product that does not reach commercial viability.
A material decrease in the supply, or a material increase in the price, of crude oil or other raw materials or equipment available to our refineries and other facilities could significantly reduce our production levels and negatively affect our operations.

To maintain or increase production levels at our refineries, we must continually contract for crude oil supplies from third parties. There are a limited number of crude oil suppliers in certain geographic regions, and in such cases, we may be required to source from more than one supplier. If we are unable to maintain or extend our existing contracts with any such crude oil suppliers, or enter into new agreements on similar terms, the supply of crude oil could be adversely impacted, or we may incur a higher cost. A material decrease in crude oil production from the fields that supply our refineries, as a result of depressed commodity prices, decreased demand, lack of drilling activity, natural production declines, catastrophic events or otherwise, could result in a decline in the volume of crude oil available to our refineries. In addition, any prolonged disruption of a significant pipeline that is used in supplying crude oil to our refineries or the potential operation of a new, converted or expanded crude oil pipeline that transports crude oil to other markets could result in a decline in the volume of crude oil available to our refineries. Such an event could result in an overall decline in volumes of refined products processed at our refineries and therefore a corresponding reduction in our cash flow. If we are unable to secure additional crude oil supplies of sufficient quality or crude pipeline expansion to our refineries, we will be unable to take full advantage of current and future expansion of our refineries’ production capacities.
For certain raw materials and utilities used by our refineries and other facilities, there are a limited number of suppliers, and, in some cases, we source from a single supplier and/or suppliers in economies that have experienced instability or the supplies are specific to the particular geographic region in which a facility is located. Any significant disruption in supply could affect our ability to obtain raw materials, or increase the cost of such raw materials, which could significantly reduce our production levels or have a material adverse effect on our business, financial condition and results of operations. In addition, certain raw materials that we use are subject to various regulatory laws, and a change in the ability to legally use such raw materials may impact our liquidity, financial position and results of operations.
It is also common in the refining industry for a facility to have a sole, dedicated source for its utilities, such as steam, electricity, water and gas. Having a sole or limited number of suppliers may limit our negotiating power, particularly in the case of rising raw material costs. Any new supply agreements we enter into may not have terms as favorable as those contained in our current supply agreements. Additionally, there is growing concern over the reliability of water sources. The decreased availability or less favorable pricing for water as a result of population growth, drought or regulation could negatively impact our operations.
In addition, periods of disruption in the global supply chain, including as a result of COVID-19, have caused shortages in the equipment and parts necessary to operate our facilities and complete our capital projects. Certain suppliers have experienced, and may continue to experience, delays related to a variety of factors, including logistical delays and component shortages from vendors. We continue to monitor the situation and work closely with our suppliers to minimize disruption to our operations as a result of supply chain interruptions.
If our raw material, utility or water supplies or access to the equipment necessary to operate our facilities were disrupted, our businesses may incur increased costs to procure alternative supplies or equipment or incur excessive downtime, which would have a direct negative impact on our operations.
We depend upon Shell for a substantial portion of the crude supply and distribution network that serve our Mobile Refinery.
Currently Shell supplies all of the crude oil which we refine at the Mobile Refinery. Shell is subject to its own operating and regulatory risks and the occurrence of any of these risks could directly or indirectly affect Shell’s as well as our financial condition, results of operations and cash flows if Shell is unable to deliver us sufficient crude oil to operate the Mobile Refinery at full capacity. Additionally, these risks could affect Shell’s ability to continue operations which could affect its ability to serve our supply and distribution network needs.
47

We may be negatively impacted by inflation.
Increases in inflation may have an adverse effect on us. Current and future inflationary effects may be driven by, among other things, supply chain disruptions and governmental stimulus or fiscal policies. Continuing increases in inflation could impact the commodity markets generally, the overall demand for our products, our costs for feedstocks, labor, material and services and the margins we are able to realize on our products and services, all of which could have an adverse impact on our business, financial position, results of operations and cash flows. Inflation may also result in higher interest rates, which in turn would result in higher interest expense related to our variable rate indebtedness and any borrowings we undertake to refinance existing fixed rate indebtedness.
Large capital projects can take many years to complete, and the political and regulatory environments or other market conditions may change or deteriorate over time, negatively impacting project returns.
We may engage in capital projects based on the forecasted project economics, political and regulatory environments, and the expected return on the capital to be employed in the project, including the in process Mobile Refinery renewal biodiesel capital project. Large-scale projects take many years to complete, during which time the political and regulatory environment or other market conditions may change from our forecast. As a result, we may not fully realize our expected returns, which could negatively impact our business, financial condition, results of operations, and liquidity.
Our industry and the broader US economy have experienced higher than expected inflationary pressures in the first and second quarters of 2022, related to continued supply chain disruptions, labor shortages and geopolitical instability. Should these conditions persist our business, results of operations and cash flows could be materially and adversely affected.
The first and second quarters of 2022 have seen significant increases in the costs of certain materials, including construction material required for our ongoing capital project at our Mobile Refinery and longer lead times for such materials, as a result of availability constraints, supply chain disruption, increased demand, labor shortages associated with a fully employed US labor force, high inflation and other factors. Supply and demand fundamentals have been further aggravated by disruptions in global energy supply caused by multiple geopolitical events, including the ongoing conflict between Russia and Ukraine. Recent supply chain constraints and inflationary pressures have in the past, and may in the future continue to, adversely impact our operating costs and timelines for capital projects and may negatively impact our ability to procure materials and equipment in a timely and cost-effective manner, if at all, which could result in delays in the completion of ongoing and future capital projects, delays in turn-arounds at our facilities, increased down-time, reduced margins and delays and, as a result, our business, financial condition, results of operations and cash flows could be materially and adversely affected.
The conflict in Ukraine and related price volatility and geopolitical instability could negatively impact our business.
In late February 2022, Russia launched significant military action against Ukraine. The conflict has caused, and could intensify, volatility in natural gas, oil and NGL prices, and the extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have a substantial negative impact on the global economy and/or our business for an unknown period of time. We believe that the increase in crude oil prices during the first half of 2022 has partially been due to the impact of the conflict between Russia and Ukraine on the global commodity and financial markets, and in response to economic and trade sanctions that certain countries have imposed on Russia. Any such volatility and disruptions may also magnify the impact of other risks described herein and in our Annual Report on Form 10-K.
Legal, Environmental, Governmental and Regulatory Risks
We may incur significant environmental remediation costs and liabilities in the operation of our refineries, facilities, terminals and related facilities.
The operation of our refineries, facilities, terminals, and related facilities subject us to the risk of incurring significant environmental remediation costs and liabilities due to our handling of petroleum hydrocarbons and other products, because of air emissions and water discharges related to our operations and activities, and as a result of historical operations and waste disposal practices at our facilities or in connection with our activities, some of which may have been conducted by prior owners or operators. We could incur significant remedial costs in the cleanup of any petroleum hydrocarbons or wastes or hazardous substances or wastes that may have been released on, under or from the properties owned or operated by us.
Some environmental laws may impose joint and several, strict liability for releases of petroleum hydrocarbons and wastes or hazardous substances or wastes, which means in some situations, we could be exposed to liability as a result of our
48

conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior operators or other third parties. Private parties, including the owners of properties adjacent to our operations and facilities where our petroleum hydrocarbons or wastes or hazardous substances or wastes are taken for reclamation or disposal, may also have the right to pursue legal actions to enforce compliance as well as to seek damages for non-compliance with environmental laws and regulations or for personal injury or property damage. We may not be able to recover some or any of these costs from insurance or other sources of indemnity. To the extent that the costs associated with meeting any or all of these requirements are significant and not adequately secured or indemnified for, there could be a material adverse effect on our business, financial condition and results of operations or cash flows and, as result, our ability to make payments of our debt obligations.
The nature of our operations exposes us, and the communities in which we work, to a wide range of health, safety, security and environment risks.
The health, safety, security and environment (HSSE) risks to which we and the communities in which we work are potentially exposed cover a wide spectrum, given the wide geographical area and diversity of our operations. These risks include the effects of natural disasters (including weather events), earthquakes, social unrest, pandemic diseases, criminal actions by external parties, and safety lapses. If a major risk materializes, such as an explosion or hydrocarbon leak or spill, this could result in injuries, loss of life, environmental harm, disruption of business activities, loss or suspension of permits, loss of our licenses to operate. Accordingly, this could have a material adverse effect on our earnings, cash flows and financial condition. Our operations are subject to extensive HSSE regulatory requirements that often change and are likely to become more stringent over time. We could incur significant extra costs in the future because of the need to comply with such requirements. We could also incur significant extra costs due to violations of or liabilities under laws and regulations that involve elements such as fines, penalties, clean-up costs and third-party claims. If HSSE risks materialize, they could have a material adverse effect on our earnings, cash flows and financial condition.
The availability and cost of renewable identification numbers could have an adverse effect on our financial condition and results of operations.
Pursuant to the Energy Policy Act of 2005, Congress established a Renewable Fuel Standard (“RFS”) program that requires annual volumes of renewable fuel be blended into domestic transportation fuel. A Renewable Identification Number (“RIN”) is assigned to each gallon of renewable fuel produced in, or imported into, the United States. We are exposed to the volatility in the market price of RINs. We cannot predict the future prices of RINs. RINs prices are dependent upon a variety of factors, including EPA regulations, the availability of RINs for purchase, and levels of transportation fuels produced, which can vary significantly from quarter to quarter. Additionally, the status of EPA RFS exemptions may impact the price of RINs. EPAs policy on granting certain RFS exemptions has changed under the Biden administration, and some previously granted exemptions have been the subject of legal proceedings that may ultimately result in the reversal of past exemptions. The occurrence of any one or more of these events may increase our operating expenses or make it more difficult for us to operate.

Risks Related to the Planned Sale TransactionOur Securities

The announcementOur outstanding options and pendency of the Sale, whether or not completed, may adversely affect the value of ourconvertible securities UMO Business and our continuing operations.

The announcement and pendency of the Sale may adversely affect the trading price of our common stock.
As of the date of the filing, we had (i) outstanding stock options to purchase an aggregate of 3 million shares of common stock at a weighted average exercise price of $1.81 per share; (ii) outstanding warrants to purchase 2.6 million shares of common stock at an exercise price of $4.50 per share and securities, our business or our relationships with clients, customers, suppliers0.2 million shares of common stock at an exercise price of $14.15 per share; and employees. Third parties(iii) outstanding Convertible Senior Notes which may be unwilling to enterconverted into material agreements with respect toa maximum of 22.2 million shares of common stock, based on the UMO Business or our continuing operations after the Saleinitial maximum conversion rate of the UMO Business (the “Continuing Operations”). New or existing customers, suppliers and business partners may prefer to enter into agreements with our competitors who have not expressed an intention to sell their business because customers, suppliers and business partners may perceive that such new relationships are likely to be more stable. Additionally, employees working in the UMO Business or the Continuing Operations may become concerned about the future of the UMO Business or the Continuing Operations, as applicable, and lose focus or seek other employment. In addition, while the completion of the Sale is pending, we may be unable to attract and retain key personnel and our management’s focus and attention and employee resources may be diverted from operational matters.

The Sale Transaction will require significant management resources.

The implementation of the Sale Transaction will require significant time, attention, and resources of our senior management and others within the Company, potentially diverting their attention from the conduct233.6449 shares of the Company’s business.

If we fail to complete the Sale, our business and financial performance may be adversely affected.

The completioncommon stock per $1,000 principal amount of the SaleNotes, which is subject to customary and other adjustments described in the satisfaction or waiver of various conditions, includingIndenture. For the approvallife of the Sale by our stockholders (which stockholder approval was obtained on September 28, 2021) options and warrants, the absence ofholders have the opportunity to profit from a material adverse effect on the UMO Business, which may not be satisfied in a timely manner or at all. If the Sale is not completed, we may have difficulty recouping the costs incurred in connection with negotiating the Sale, preparing the Sale Agreement and the
35

proxy statement (and mailing) required in connection therewith. Our directors, executive officers and other employees will have expended extensive time and effort and will have experienced significant distractions from their work during the pendency of the Sale, and we will have incurred significant third-party transaction costs, in each case, without any commensurate benefit, which may have a material and adverse effect on our stock price and results of operations.

In addition, if the Sale is not completed, the Board of Directors, in discharging its fiduciary obligations to our stockholders, may evaluate other strategic options including, but not limited to, continuing to operate the UMO Business for the foreseeable future or an alternative sale transaction relating to the UMO Business or the Continuing Operations. An alternative sale transaction, if available, may yield lower consideration than the proposed Sale, be on less favorable terms and conditions than those containedrise in the Sale Agreement and involve significant delay. Any future salemarket price of all or substantially allour common stock without assuming the risk of ownership. The issuance of shares upon the assetsexercise of outstanding securities will also dilute the Company or other transactions may be subject to further stockholder approval.ownership interests of our existing stockholders.

Finally, if the Sale is not completed, the announcementThe availability of the terminationthese shares for public resale, as well as any actual resales of the Sale Agreement maythese shares, could adversely affect our relationships with customers, suppliers and employees, which could have a material adverse effect on our ability to effectively operate the UMO Business or the Continuing Operations, and we may be required to pay a Break-Fee of $3.0 million to Safety-Kleen under certain circumstances, each of which could have further adverse effects on our business, results of operations and the trading price of our common stock.

We will be subjectcannot predict the size of future issuances of our common stock pursuant to certain contractual restrictions while the Sale Transaction is pending.

The Sale Agreement restricts us from making certain acquisitions and divestitures, entering into certain contracts, and takingexercise of outstanding options or warrants or conversion of other specified actions until the earlier of the completion of the Sale Transactionsecurities, or the terminationeffect, if any, that future issuances and sales of the Sale Agreement. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Sale Transaction and could have the effect of delaying or preventing other strategic transactions.

The Sale Agreement limits our ability to pursue alternatives to the Sale.

The Sale Agreement contains provisions that may make it more difficult for us to sell all, or a significant part, of the UMO Business to any party other than Safety-Kleen. These provisions include the prohibition on our ability to solicit competing proposals and the requirement that we pay Safety-Kleen a termination/break fee of approximately $3.0 million in certain cases, including if (i) (x) Safety-Kleen terminates the Sale Agreement in certain circumstances if it becomes apparent that any of such conditions will not be, fulfilled by December 31, 2021 (as such date may be extended by up to 90 days under certain circumstances) under certain circumstances, unless such failure shall be principally due to the failure of Safety-Kleen or (y) as a result of a breach by us of our non-solicitation requirements, whether such breach results from a determination by our Board of Directors that, in order to fulfill its fiduciary obligations, an acquisition proposal must be considered, or otherwise; or (ii) we refuse to consummate the transactions contemplated by the Sale Agreement under certain circumstances. These provisions could make it less advantageous for a third party that might have an interest in acquiring all of or a significant part of the UMO Business to consider or propose an alternative transaction, even if that party were prepared to pay consideration with a higher value than the consideration to be paid by Safety-Kleen.

The Sale Agreement may be terminated in accordance with its terms and the Sale Transaction may not be completed. We may owe a break-fee in connection with a termination of the Sale Agreement under certain circumstances.

The completion of the Sale Transaction is subject to the satisfaction or waiver of a number of conditions. These conditions to the closing may not be fulfilled and, accordingly, the Sale Transaction may not be completed. In addition, if the Sale Transaction is not completed by December 31, 2021 (Sale Agreement Outside Date) unless such failure shall be principally due to the failure of Safety-Kleen to perform or comply with any of the covenants, agreements or conditions thereof to be performed or complied with by it prior to the closing; provided, however, that if, on the Sale Agreement Outside Date, all of the conditions to closing other than the conditions relating to certain required governmental approvals, and relating to stockholder approval, shall have been satisfied or waived, then either Safety-Kleen or the Company has the right to extend the Sale Agreement Outside Date by up to an additional 90 calendar days, either we or Safety-Kleen may choose not to proceed with the Sale Transaction, and the parties can mutually decide to terminate the Sale Agreement at any time prior to the completion of the Sale Transaction, before or after the required stockholder approval is received (which stockholder approval from our stockholders was obtained at a special meeting of stockholders held on September 28, 2021). In addition, we and Safety-Kleen may elect to terminate the Sale Agreement in certain other circumstances. If the Sale Agreement is terminated, we may incur substantial fees in connection with termination of the Sale Agreement (including, in certain circumstances, the payment of the Break-Fee and/or requirement to reimburse the expenses of Safety-Kleen) and will not recognize the anticipated benefits of the Sale Transaction.

36

Termination of the Sale Agreement could negatively impact us.

If the Sale Agreement is terminated in accordance with its terms and the Sale Transaction is not completed, our ongoing business may be adversely affected by a variety of factors. Our business may be impacted by having foregone other strategic opportunities during the pendency of the Sale Transaction, the failure to obtain the anticipated benefits of completing the Sale Transaction, changes to existing business relationships caused by uncertainties pending the Sale Transaction, payment of certain costs relating to the Sale Transaction, and the attention, time, and resources of our senior management and other employees devoted to the Sale Transaction, diverting their attention from the conduct of our business. In addition, if the Sale Agreement is terminated under certain circumstances, we may be required to pay the Break-Fee or reimburse certain expenses of Safety-Kleen (which is creditable toward the Break-Fee), depending on the circumstances surrounding the termination. We may also be negatively impacted if the Sale Agreement is terminated and the Board of Directors is unable to execute an alternative strategic transaction offering equivalent or more attractive benefits than the benefits to be provided in the Sale Transaction.

The parties to the Sale Agreement must obtain certain regulatory approvals in order to complete the Sale Transaction; if such approvals are not obtained or are obtained with conditions, the Sale Transaction may be prevented or delayed or the anticipated benefits of the Sale Transaction could be reduced.

Completion of the Sale Transaction is conditioned upon, among other things, the expiration or termination of the applicable waiting period under The Hart–Scott–Rodino Antitrust Improvements Act of 1976 (“HSR Act”). We are currently responding to inquiries received from the Federal Trade Commission (the “FTC”), which is not required to rule on the matter until the expiration of 30 days following submission of our responses which is not expected to occur before November 30, 2021, if then. At any time before or after the Sale Transaction is completed, any of the United States Department of Justice (DOJ), the United States Federal Trade Commission (FTC), or U.S. state attorneys general could take action under the antitrust laws in opposition to the Sale Transaction, including seeking to enjoin completion of the Sale Transaction or condition completion of the Sale Transaction upon the divestiture of assets held by us, Safety-Kleen or our or their respective subsidiaries or affiliates. Any such requirements or restrictions may prevent or delay completion of the Sale Transaction or may reduce the anticipated benefits of the Sale Transaction, which could also have a material adverse effect on us. Furthermore, the requirement to obtain HSR Act and/or FTC approval for the Sale could delay or prevent the Sale Transaction from being completed.

Risks Related to the Planned Acquisition of the Mobile Refinery

Combining the Mobile Refinery and the Company may be more difficult, costly or time-consuming than expected and the Company may fail to realize the anticipated benefits of the acquisition of the Mobile Refinery, including expected financial and operating performance of the Company.

The success of the acquisition of the Mobile Refinery will depend, in part, on the Company’s ability to realize anticipated cost savings from combining the businesses of the Company and the Mobile Refinery. To realize the anticipated benefits and cost savings from the Mobile Refinery acquisition, the Company must successfully integrate and combine the business of the Mobile Refinery in a manner that permits those cost savings to be realized. If the Company is not able to successfully achieve this objective, the anticipated benefits of the Mobile Refinery may not be realized fully or at all or may take longer to realize than expected.

The Company and the Mobile Refinery have operated and, until the completion of the acquisition of the Mobile Refinery, must continue to operate independently. It is possible that the integration process could result in the loss of key employees, the disruption of our ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with customers, suppliers and employees or to achieve the anticipated benefits and cost savings. Integration efforts may also divert management attention and resources. These integration matters could have an adverse effect on each of the Company and the Mobile Refinery during this transition period and for an undetermined period after completion of the acquisition of the Mobile Refinery.

We will need to raise significant additional capital to complete the acquisition of the Mobile Refinery, a planned capital project, and to pay other expenses associated with the Mobile Refinery.

The initial base purchase price for the Mobile Refinery is $75.0 million, and together with related assets and other costs payable at closing, the total purchase price is expected to be approximately $86.7 million. The funds from the sale of the Convertible Notes will not be sufficient, on their own, to allow us to complete the acquisition of the Mobile Refinery, and we currently estimate that we will need approximately an additional $53.0 million to complete such acquisition (in addition to
37

amounts from the Convertible Note offering currently held in escrow which are anticipated to be used to pay the purchase price for the Mobile Refinery). In addition, we are also required to pay for the hydrocarbon inventory located at the Mobile Refinery, as valued at closing, and the purchase price is subject to other customary purchase price adjustments and reimbursement for certain capital expenditures. We also plan to undertake certain engineering services and the initial payments of purchase orders for long lead-time equipment associated with the Conversion in the approximate amount of $13.0 million. Upon completion of the acquisition of the Mobile Refinery and provided that our fundraising initiatives are successful, we plan to follow through with completion of the Conversion at an additional cost of approximately $72.0 million, for a total cost of the Conversion of approximately $85.0 million. We also anticipate the need for approximately $125.0 million of working capital in connection with the Mobile Refinery. We currently anticipate raising such additional required funding for the Mobile Acquisition and other items described above through the entry into a secured term loan in the amount of approximately $125.0 million and a secured working capital facility in the amount of approximately $125.0 million. However, we have not entered into any definitive agreements regarding such funding to date, and such funding 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 stockholders’ experiencing significant dilution. If such financing is unavailable, we may be unable to complete the acquisition of the Mobile Refinery and/or may be unable to complete the planned capital project.

We anticipate financing a portion of the acquisition of the Mobile Refinery by way of a secured term loan, and financing certain working capital and other amounts by way of a secured working capital facility, both of which are expected to be secured by a priority security interest in substantially all of our assets.

As described in the risk factor above, we currently anticipate raising required funding to complete the Mobile Acquisition, to complete a planned capital project thereon, and for working capital, through the entry into a secured term loan in the amount of approximately $125.0 million and a secured working capital facility in the amount of approximately $125.0 million. In the event that such funding is available to us, and we are able to borrow such planned funding, we anticipate our obligations under the debt facilities being secured by a priority security interest in substantially all of our assets, with the term loan being secured by a first priority security interest in the Mobile Refinery, assuming we are successful in closing the acquisition of such refinery, and the working capital facility being secured by a first priority security interest in our inventory and receivables. We further expect that substantially all of our subsidiaries would be required to guarantee our obligations under such loan facilities. As such, our creditors will likely have security interests over our assets and/or our subsidiaries which secure the repayment of such obligations, and in the event we default under such facilities, the lenders may be able to take control of our assets and operations, force a sale of our assets, force us to seek bankruptcy protection, or force us to curtail or abandon our current business plans and operations. If that were to happen, any investment in the Company (including, but not limited to any investment in our common stock) could become worthless.

Our failure to comply with the covenants in any documents governing future indebtedness could materially adversely affect our financial condition and liquidity.

In connection with our planned credit facilities discussed above, we anticipate being subject to certain affirmative and negative covenants and to be subject to financial covenants. A breach of any of these covenants, if uncured or unwaived, could lead to an event of default, which in some circumstances could give our creditors the right to demand that we accelerate repayment of amounts due and/or enforce their rights under the credit agreements. This would likely, in turn, trigger cross-acceleration or cross-default rights in other documents governing our indebtedness, including the Convertible Notes. Therefore, in the event of any such breach, we may need to seek covenant waivers or amendments from our creditors or seek alternative or additional sources of financing, and we may not be able to obtain any such waivers or amendments or alternative or additional financing on acceptable terms, if at all. In addition, any covenant breach or event of default could harm our credit rating and our ability to obtain additional financing on acceptable terms. The occurrence of any of these events could have a material adverse effect on our financial condition and liquidity and/or cause our lenders to pursue enforcement remedies available to them under their respective credit agreements which could ultimately result in foreclosure, which would have a material adverse effect on our operations and the value of our securities. As a result, we may be unable to pay amounts due on the Convertible Notes, including upon maturity, and the valueshares of our common stock may decline in value or become worthless.

Regulatory and other approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the Company following the Mobile Refinery acquisition.

Before the Mobile Refinery acquisition may be completed, applicable approvals may need to be obtained under certain laws and regulations and from various third parties. In deciding whether to grant regulatory clearances and approvals, the relevant governmental entities may consider, among other things, the effect of the Mobile Refinery acquisition on competition within their relevant jurisdiction. The terms and conditions of the approvals that are granted may impose requirements, limitations or costs or place restrictions on the conduct of the Company’s business. There can be no assurance that regulators
38

will not impose conditions, terms, obligations or restrictions and that such conditions, terms, obligations or restrictions will not have the effect of delaying completion of the Mobile Refinery acquisition or that obtaining the consent of such regulators or third parties will not result in additional material costs. In addition, any such conditions, terms, obligations or restrictions may result in the delay or abandonment of the Mobile Refinery acquisition.

Upon the closing of the Mobile Refinery acquisition, we plan to transition the majoritymarket price of our business operations to thosecommon stock. Sales or distributions of the Mobile Refinery.

Following the closing of the Mobile Refinery acquisition, we anticipate that the more significant portionsubstantial amounts of our assets and operations will be related to such Mobile Refinery. Our change in business structure may not be successful. Additionally, our directors and officers may not be able to properly manage our new direction. If our new management fails to properly manage and direct our operations, we may be forced to scale back or abandon our planned operations, which may cause the value of our securities to decline or become worthless.

We will be subject to business uncertainties and contractual restrictions while the Mobile Refinery acquisition is pending.

Uncertainty about the effect of the Mobile Refinery acquisition on employees and partners may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Mobile Refinery acquisition is completed, and could cause partners and others that deal with us to seek to change existing business relationships, cease doing business with us or cause potential new partners to delay doing business with us until the Mobile Refinery acquisition has been successfully completed or terminated. Retention of certain employees may be challenging during the pendency of the Mobile Refinery acquisition, as certain employees may experience uncertainty about their future roles or compensation structure. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the business, our business following the Mobile Refinery acquisition could be negatively impacted. In addition, the Mobile Refinery acquisition restricts us from making certain acquisitions and taking other specified actions until the Mobile Refinery acquisition is completed without certain consents and approvals. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Mobile Refinery acquisition.

The Mobile Refinery acquisition agreement may be terminated in accordance with its terms and the Mobile Refinery acquisition may not be completed.

The Mobile Refinery acquisition agreement is subject to several conditions that must be fulfilled in order to complete the Mobile Refinery acquisition. These conditions to the closing of the Mobile Refinery acquisition may not be fulfilled and, accordingly, the Mobile Refinery acquisition may not be completed. In addition, the parties to the Mobile Refinery acquisition agreement can generally terminate such agreement if the transactions contemplated thereby do not close by May 26, 2022 (subject to certain extension rights), under certain other conditions if the terms of the Mobile Refinery acquisition agreement are breached, and the parties can mutually decide to terminate the Mobile Refinery acquisition agreement at any time.

Litigation could prevent or delay the closing of the Mobile Refinery acquisition or otherwise negatively impact the business and operations of the Company.

The Company may incur costscommon stock (including shares issued in connection with the defense or settlement of any stockholder lawsuits filed in connection with the Mobile Refinery acquisition. Such litigation could have an adverse effect on the financial condition and results of operations of the Company and could prevent or delay the consummation of the Mobile Refinery acquisition. Such litigation, affecting the Mobile Refinery and/acquisition), or the transaction,perception that such sales could delay or prevent the closing of the Mobile Refinery acquisition.

Termination of the Mobile Refinery acquisition agreement could negatively impact the Company.

In the event the Mobile Refinery acquisition agreement is terminated, our businessoccur, may have been adversely impacted by our failure to pursue other beneficial opportunities due to the focus of management on the Mobile Refinery acquisition, andcause the market price of our common stock might decline to the extent that the current market price reflects a market assumption that the Mobile Refinery acquisition will be completed. If the Mobile Refinery acquisition is terminated and our Board of Directors seeks another acquisition or business combination, our stockholders cannot be certain that we will be able to find a party willing to offer equivalent or more attractive consideration than the consideration provided for by the Mobile Refinery acquisition. Upon termination of the Mobile Refinery transaction under certain circumstances, we could lose the $10.0 million deposit thatdecline.
3949

we paid pursuant to the terms of the Mobile Refinery acquisition agreement (which was originally in the form of a note, which has been fully funded to date).

Completion of the acquisition of the Mobile Refinery is subject to certain conditions, and if these conditions are not satisfied or waived, the acquisition will not be completed.

The obligations of the parties to the Mobile Refinery acquisition agreement to complete such sale and purchase are subject to satisfaction or waiver (if permitted) of a number of conditions. The satisfaction of all of the required conditions could delay the completion of the transaction for a significant period of time or prevent it from occurring. Any delay in completing the acquisition could cause the Company not to realize some or all of the benefits that the Company expects to achieve if the acquisition is successfully completed within its expected time frame. Further, there can be no assurance that the conditions to the closing of the acquisition will be satisfied or waived or that the acquisition will be completed.

Failure to complete the Mobile Refinery acquisition could negatively impact our stock price and future business and financial results.

If the Mobile Refinery acquisition is not completed, our ongoing business may be adversely affected and we would be subject to a number of risks, including the following:

•we will not realize the benefits expected from the Mobile Refinery acquisition, including a potentially enhanced competitive and financial position, expansion of assets and therefore opportunities, and will instead be subject to all the risks we currently face as an independent company;

•we may experience negative reactions from the financial markets and our partners and employees;

•the Mobile Refinery acquisition places certain restrictions on the conduct of our business prior to the completion of the Mobile Refinery acquisition or the termination of the Mobile Refinery acquisition. Such restrictions, the waiver of which is subject to the consent of the counterparties to such agreement, may prevent us from making certain acquisitions, taking certain other specified actions or otherwise pursuing business opportunities during the pendency of the Mobile Refinery acquisition; and

•matters relating to the Mobile Refinery acquisition (including integration planning) may require substantial commitments of time and resources by our management, which would otherwise have been devoted to other opportunities that may have been beneficial to us.

Significant costs are expected to be incurred in connection with the consummation of the Mobile Refinery acquisition and integration of the Company and the Mobile Refinery into a single business, including legal, accounting, financial advisory and other costs.

If the Mobile Refinery acquisition is consummated, the Company is expected to incur significant costs in connection with integrating the Mobile Refinery operations. These costs may include costs for:

• employee redeployment, relocation or severance;

•integration of information systems; and

• reorganization or closures of facilities.

In addition, the Company expects to incur a number of non-recurring costs associated with combining the operations of the Mobile Refinery, which cannot be estimated accurately at this time. The Company will also incur transaction fees and other costs related to the Mobile Refinery acquisition. Additional unanticipated costs may be incurred in the integration of the Mobile Refinery. Upon completion of the Mobile Acquisition, and provided that our fundraising initiatives are successful, we plan to complete the Conversion for an additional cost of approximately $72.0 million, which will be the continuation of engineering services and initial payments of purchase orders for long lead-time equipment associated with the Conversion in the amount of approximately $13.0 million that we plan to initiate prior to closing the Mobile Acquisition. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may offset incremental transaction and transaction-related costs over time, this net benefit may not be achieved in the near term, or at all. There can be no assurance that the Company will be successful in these integration efforts.

40

We plan to use a portion of the approximately $33.5 million of funds which we received immediately upon the sale of the Convertible Notes for engineering services and for the initial payments of purchase orders for long lead-time equipment associated with the Conversion.

The approximately $33.5 million of net funds from the offering of the Convertible Notes which were not placed in the escrow account will be available for use by us immediately. We plan to use approximately $13.0 million of these funds for engineering services and for the initial payments of purchase orders for long lead-time equipment associated with the Conversion. These expenses will be paid in anticipation of the closing of the Mobile Acquisition, and in the event that the Mobile Acquisition does not close in the future, we do not believe we will be able to recoup such expenses, which we anticipate will likely be written off in their entirety. As such, in the event the Mobile Acquisition does not close, the use of such proceeds in advance of such closing could have a material adverse effect on us, our operating results and our ability to redeem the Convertible Notes from time to time.

Risks Related to the Convertible Notes

Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the Convertible Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

We owe a significant amount of money under the Convertible Notes which could adversely affect our financial flexibility and our competitive position and our failure to comply with the terms of the Indenture could result in the Convertible Notes being declared in default.

We have a significant amount of outstanding indebtedness. As of the date of this filing, we owed approximately $155.0 million under the Convertible Notes. Despite our current debt levels, we and our subsidiaries may be able to incur substantial additional debt in the future, subject to the restrictions contained in our debt instruments, some of which may be secured debt.

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.

The indenture governing our Senior Notes imposes certain restrictions on us and requires us to maintain compliance with specified covenants. Our ability to comply with these covenants may be affected by events beyond our control. A failure to comply with the covenants and other provisions of our outstanding debt could result in events of default under such instruments, which could permit acceleration of all of our debt and borrowings. Any required repayment of our debt as a result
41

of a fundamental change or other acceleration would lower our current cash on hand such that we would not have those funds available for use in our business.

We may need to raise additional funding in the future to repay or refinance the Convertible Notes 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.

Our ability to service our indebtedness will depend on our ability to generate cash in the future.

Our ability to make payments on our indebtedness (including our Convertible Notes) will depend on our ability to generate cash in the future. Our ability to generate cash is subject to general economic and market conditions and financial, competitive, legislative, regulatory and other factors that are beyond our control. Our business may not generate sufficient cash to fund our working capital requirements, capital expenditure, debt service and other liquidity needs, which could result in our inability to comply with financial and other covenants contained in our debt agreements, our being unable to repay or pay interest on our indebtedness, and our inability to fund our other liquidity needs. If we are unable to service our debt obligations, fund our other liquidity needs and maintain compliance with our financial and other covenants, we could be forced to curtail our operations, our creditors could accelerate our indebtedness and exercise other remedies and we could be required to pursue one or more alternative strategies, such as selling assets or refinancing or restructuring our indebtedness. However, such alternatives may not be feasible or adequate.

We may not have enough available funds or the ability to raise the funds necessary to pay the special mandatory redemption price on the Convertible Notes upon a special mandatory redemption, to repurchase the Convertible Notes for cash upon a fundamental change or to settle conversions of the Convertible Notes in cash, and our future indebtedness may contain limitations on our ability to pay cash upon conversion or repurchase of the Convertible Notes.

If the Mobile Acquisition is not consummated on or prior to April 1, 2022, if we have not certified to the escrow agent of the escrow pursuant to which 75% of the net proceeds from our November 2021 Convertible Note offering (approximately $100 million) are being held, pending all conditions precedent to our obligations to consummate the Mobile Acquisition being satisfied, or if we notify the Trustee and the escrow agent in writing that the Refinery Purchase Agreement has been terminated, the Convertible Notes will be subject to special mandatory redemption at a special mandatory redemption price equal to 100% of the aggregate accreted principal amount thereof, plus accrued and unpaid interest to, but excluding, the special mandatory redemption date, plus accrued and unpaid interest to, and including, the date that is nine months after the special mandatory redemption date.

Further, holders of the Convertible Notes will have the right to require us to repurchase all or a portion of their Convertible Notes upon the occurrence of a fundamental change at a fundamental change repurchase price equal to 100% of the accreted principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

In addition, unless and until we obtain stockholder approval to issue more than 12,650,514 shares of our common stock, which is 19.99% of our common stock outstanding on October 26, 2021, upon conversion of the Convertible Notes in accordance with the listing standards of The Nasdaq Capital Market, we will be required to elect “cash settlement” for all conversions of the Convertible Notes and we will not be permitted to issue shares of common stock upon conversion until we obtain such stockholder approval. After we obtain such stockholder approval, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Convertible Notes being converted.

Moreover, we will be required to repay the Convertible Notes in cash at their maturity unless earlier repurchased, redeemed or converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Convertible Notes surrendered therefor or Convertible Notes are being redeemed or converted. In addition, our ability to repurchase the Convertible Notes or to pay cash upon redemptions of the Convertible Notes may be limited by agreements we enter into governing our future indebtedness, which may limit our ability to repurchase the Convertible Notes or to pay cash upon redemptions or conversions of the Convertible Notes. Finally, our ability to repurchase the Convertible Notes or to pay cash upon redemptions or conversions of the Convertible Notes may be limited by law or by regulatory authority. Our failure to repurchase Convertible Notes at a time when the repurchase is required by the indenture or to pay any cash payable upon redemption or on future conversions of the Convertible Notes, as required by the indenture, would constitute a default under the indenture. A default under the indenture or the occurrence of a fundamental change itself could also lead to a default under agreements governing our future indebtedness. Moreover, the occurrence of a fundamental change under the indenture governing the Convertible Notes could constitute an event of default under any agreements
42

governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Convertible Notes or make cash payments upon conversions thereof.

We may not have sufficient funds available to pay amounts owed on the Convertible Notes, and such funding may not be available on favorable terms, if at all. Our failure to pay the amounts due under the Convertible Notes, when due, would constitute a default under the Convertible Notes and may force us to sell certain assets, curtail our business plan, or seek bankruptcy protection.

Unless and until we obtain stockholder approval to issue more than 12,650,514 shares of our common stock upon conversion of the Convertible Notes in accordance with the listing standards of The Nasdaq Capital Market, we will be required to elect “cash settlement” for all conversions of the Convertible Notes.

Unless and until we obtain stockholder approval to issue more than 12,650,514 shares of our common stock upon conversion of the Convertible Notes in accordance with the listing standards of The Nasdaq Capital Market, we will be required to elect “cash settlement” for all conversions of the Convertible Notes and will not be permitted to issue shares of common stock upon conversion until we obtain such stockholder approval (the “Stockholder Approval Date”). We may not be able to receive such stockholder approval and may not be able to deliver shares of common stock upon conversion of the Convertible Notes during the term of the Convertible Notes. As discussed above and below, we may not have the cash or the ability to raise funds necessary to make such cash payments and any such payment, if made, could adversely affect our liquidity.

The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and liquidity.

In the event the conditional conversion feature of the Convertible Notes is triggered, and that we have obtained stockholder approval for the issuance of shares in excess of the applicable share threshold discussed above, holders of Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option.

Specifically, the Convertible Notes bear interest at a rate of 6.25% per year, payable semiannually in arrears on April 1 and October 1 of each year, beginning on April 1, 2022. The Convertible Notes are convertible into common stock (following the Stockholder Approval Date) at an initial conversion rate of 169.9235 shares of common stock, per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $5.89 per share). Prior to July 1, 2027, the Convertible Notes will be convertible at the option of the holders of the Convertible Notes only upon the satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election, provided that until such time as the Company's stockholders have approved the issuance of more than 19.99% of our common stock issuable upon conversion of the Convertible Notes in accordance with the rules of The Nasdaq Capital Market, the Company is required to elect “cash settlement” for all conversions of the Convertible Notes. The Company will also be required to increase the conversion rate for holders who convert their Convertible Notes in connection with a fundamental change and certain other corporate events or convert their Convertible Notes called for optional redemption (or deemed called for optional redemption) following delivery by the Company of a notice of redemption, in either case, in certain circumstances.

If one or more holders elect to convert their Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share)(to the extent the Stockholder Approval Date has occurred), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. Further, even if holders do not elect to convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes, as a current rather than long-term liability, which would result in a material reduction of our net working capital.

Additionally, the issuance of common stock upon conversion of the Convertible Notes will result in immediate and substantial dilution to the interests of other stockholders. In addition, the common stock issuable upon exercise/conversion of the Convertible Notesoutstanding convertible securities 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’sour stock will decrease, and any additional shares which shareholdersstockholders attempt to sell in the market will only further decrease the share price. The Convertible Notes may in the future be convertible into shares of our common stock at a discount to market, which would provide the holders with the ability to sell their common stock at or below market and still make a profit. If the share volume of our common stock cannot absorb the discounted shares sold by holders of our outstanding convertible securities, then the value of our common stock will likely decrease.

43

The accounting method for reflectingWarrants have certain anti-dilutive rights, put and call rights upon the Convertible Notesoccurrence of a fundamental transaction, and include a limitation on our balance sheet, accruing interest expense for the Convertible Notes and reflecting the underlyingnumber of shares of our common stock in our reported diluted earningswhich may be issued upon exercise thereof without shareholder approval.
A total of 2,584,900 of the Warrants have a term through April 1, 2027 and a $4.50 per share may adversely affect our reported earningsexercise price and financial condition.

In August 2020, the Financial Accounting Standards Board (“FASB”) published an Accounting Standards Update, which we refer to as ASU 2020-06, which simplifies certaina total of 235,000 of the accounting standards that apply to convertible notes. ASU 2020-06 will be effective for SEC-reporting entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. However, early adoption is permitted in certain circumstances for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. In accordance with ASU 2020-06, we expect that the Convertible Notes will be reflected asWarrants have a liability on our balance sheets, with the initial carrying amount equal to the principal amountterm through November 26, 2027 and a $9.25 exercise price. All of the Convertible Notes, netWarrants include weighted average anti-dilutive rights in the event any shares of issuance costs. The issuance costs will be treated as a debt discount for accounting purposes, which will be amortizedcommon stock or other equity or equity equivalent securities payable in common stock are granted, issued or sold (or the Company enters into interest expense over the term of the Convertible Notes. As a result of this amortization, the interest expense that we expectany agreement to recognize for the Convertible Notes for accounting purposes will be greater than the cash interest payments we will pay on the Convertible Notes, which will result in lower reported income.

In addition, we expect that the shares underlying the Convertible Notes will be reflected in our diluted earnings per share using the “if converted” method,grant, issue or sell), or in accordance with ASU 2020-06. Under that method, if the conversion valueterms of the Convertible Notes exceeds their principal amount forWarrant Agreements, are deemed to have granted, issued or sold, in each case, at a reporting period, then we will calculate our diluted earnings per share assuming that allprice less than the exercise price, which automatically decreases the exercise price of the Convertible Notes were converted atWarrants upon the beginningoccurrence of such event, as described in greater detail in the Warrant Agreements, and increases the number of shares of common stock issuable upon exercise of the reporting periodWarrants, such that the aggregate exercise price of all Warrants remains the same before and that we issuedafter any such dilutive event. Such anti-dilution rights, if triggered, could result in a significant decrease in the exercise price of the Warrants combined with a significant increase in the number of shares of our common stock to settle the excess. However, if reflecting the Convertible Notes in diluted earnings per share in this manner is anti-dilutive, or if the conversion value of the Convertible Notes does not exceed their principal amount for a reporting period, then the shares underlying the Convertible Notes will not be reflected in our diluted earnings per share. The application of the if-converted method may reduce our reported diluted earnings per share, and accounting standards may change in the future in a manner that may adversely affect our diluted earnings per share.

We have not reached a final determination regarding the accounting treatment for the Convertible Notes, and the description above is preliminary. Accordingly, we may account for the Convertible Notes in a manner that is significantly different than described above.

In addition, so long as we are required to settle conversions of Convertible Notes entirely in cash, the conversion option that is part of the Convertible Notes may be accounted for as a derivative pursuant to accounting standards relating to derivative instruments and hedging activities. Under such standards, for each financial statement period after issuance of the Convertible Notes, if “cash settlement” applies, a gain (or loss) would be reported in our consolidated statement of operations to the extent the valuation of the conversion option changes from the previous period,issuable upon exercise thereof, which could result in significant volatilitydilution to existing shareholders.
Upon the occurrence of a fundamental transaction (as described in our resultsthe Warrant Agreements) the Warrant Agreements (a) provide each holder a put right and (b) provide the Company with a call right in respect of operations. This could adversely affect our reportedthe Warrants. Upon the exercise of a put right by the holder or future financial results,a call right by the market priceCompany, the Company is obligated to repurchase the Warrants for the Black Scholes Value of our common stockthe Warrants repurchased, as calculated in the Warrant Agreements. Such Black Scholes value may be significant and the value ofrequirement to pay such amount may prohibit us from completing a transaction which would otherwise be accretive to shareholders or make such transaction more costly.
Additionally, until or unless the Convertible Notes. Furthermore, this could also make it harder to compare period to period financial results, as a result of potentially significant non-cash gains or losses relating to such accounting.

The conversion rateCompany receives shareholder approval under applicable Nasdaq listing rules for Convertible Notes converted in connection with a make-whole fundamental change or a notice of redemption for an optional redemption may be increased.

If a make-whole fundamental change occurs prior to the maturity date of the Convertible Notes or upon the issuance of a noticemore than 19.9% of redemption for an optional redemption, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such make-whole fundamental change or elects to convert its Convertible Notes called (or deemed called) for optional redemption during the related redemption period, by a number of additionalCompany’s outstanding shares of our common stock. The increase in the conversion rate will be determined basedstock on the date on which the specified corporate transaction becomes effective or the date of the notice and the price paid (or deemed to be paid) per share of our common stock in such transaction or the date of the redemption notice. Provided however, in no event will the conversion rate per $1,000 principal amount of Convertible Notes as a result of this adjustment exceed 233.6449Warrant Agreements were entered into (i.e., more than 12,828,681 shares of common stock.
stock)(the “
Share Cap
In addition, unless and until we obtain stockholder approval to”), the Company may not issue more than 12,650,514 shares of our common stock upon conversion of the Convertible Notes in accordance with the listing standards of The Nasdaq Capital Market, we will be required to elect “cash settlement” for all conversions of the Convertible Notes and we will not be permitted to issue shares of common stock upon conversion untilexercise of the Warrants than totals the Share Cap, and is required to pay the Lenders cash, based on the fair market value of any shares required to be issued upon exercise of the Warrants (as calculated in the Warrant Agreements), which would exceed the Share Cap. In the event the anti-dilutive rights of the Warrants result in more than 12,828,681 shares of common stock being issuable upon exercise of the Warrants, we obtaincould be required to pay cash to the holders of the Warrants in the amount equal to such stockholder approval.excess shares, which could have a significant adverse effect on our available funds and liquidity.
The Warrants also include cashless exercise rights. As a result, we may not receive any cash upon the exercise of the Warrants.
We face significant penalties and damages in the event a registration statement registering the resale of the shares of common stock issuable upon exercise of the Warrants is not available for the sale of such shares.

Our obligation to increase the conversion rate for Convertible Notes converted inIn connection with the grant of the Warrants, the Company and the holders of such Warrants entered into a make-whole fundamental change or Convertible Notes calledRegistration Rights Agreement. Under the Registration Rights Agreement, the Company agreed to use commercially reasonable efforts to file a registration statement (the “Registration Statement”) with the SEC, for optional redemptionpurposes of registering the resale of the shares of common stock issuable upon exercise of the Warrants no later than July 1, 2022. The Company also agreed to use commercially reasonable efforts to cause the SEC to declare the Registration Statement effective as soon as practicable and no later than 45 days following the filing of the Registration Statement; provided, that such date is extended until 75 days after the filing date if the Initial Registration Statement is reviewed by the staff of the Commission. The Registration Statement was filed with the SEC and became effective on July 8, 2022. The Registration Rights Agreement also provides the holders of the Warrants certain piggyback and demand registration rights (including pursuant to an underwritten offering, in the event the gross proceeds from such underwritten offering are convertedexpected to exceed $35 million).
If, subject to certain limited exceptions described in the Registration Rights Agreement, during the related redemption period could be consideredcommencing on the effective date of the Registration Statement and ending on the earlier of the date when there are no registrable securities or the third anniversary of the effective date of the Registration Statement, a penalty, in which case the enforceability thereof would be subject to general principles of reasonableness and equitable remedies.

registration statement is not continuously effective
4450

The fundamental change repurchase featureto allow the sale of the Convertible Notesshares underlying the Warrants, for more than 10 consecutive calendar days or more than an aggregate of 15 calendar days (which need not be consecutive) during any 12-month period, then, in addition to any other rights such holder of Warrants may have under the Registration Rights Agreement or applicable law, (x) on the first such applicable default date, the Company is required to pay to such holder of a Warrant an amount in cash, as partial liquidated damages and not as a penalty, equal to 1.0% of the fair market value (such fair market value calculated as required under the Registration Rights Agreement) of the registrable securities held by such holder (the “1% Penalty”), and (y) on each monthly anniversary of such default date until all applicable defaults have been cured, shall pay the 1% Penalty, subject to a maximum penalty of 10% of the fair market value of the registrable securities held by each applicable holder of Warrants (such fair market value calculated as required under the Registration Rights Agreement).
The Company has agreed, among other things, to indemnify the holders of the Warrants and their affiliates with respect to certain liabilities and to pay all fees and expenses incident to the Company’s obligations under the Registration Rights Agreement.
In the event the Registration Statement is suspended or terminated, or we otherwise fail to meet certain requirements set forth in the Registration Rights Agreement, we could delay or prevent an otherwise beneficial attemptbe required to take overpay significant penalties which could adversely affect our company, or discourage a potential acquirercash flow and cause the value of us.our securities to decline in value.


The Convertible Notes include certain repurchase rights of the holders which are triggered upon a fundamental change as discussed herein. A takeover of our company would trigger an option of the holders of the Convertible Notes to require us to repurchase the Convertible Notes. This may have the effect of delaying or preventing a takeover of our company that would otherwise be beneficial to shareholders or discouraging a potential acquirer of us.
4551

Item 2. Recent Sales of Unregistered Securities

There have been no sales of unregistered securities during the quarter ended SeptemberJune 30, 20212022 and from the period from OctoberJuly 1, 20212022, to the filing date of this report, which have not previously been disclosed in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, or a Current Report on Form 8-K, except as set forth below:

In July 2021,May 2022, a holder of Series A Convertible Preferred Stock of the Company converted 6,0016,223 shares of the Company’s Series A Convertible Preferred Stock into 6,0016,223 shares of common stock, pursuant to the terms of such Series A Convertible Preferred Stock.

We claim an exemption from registration provided by Section 3(a)(9) of the Securities Act for such issuance, as the securities were exchanged by us with our existing security holder in a transaction where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange.

In August 2021, a holderOn July 11, 2022, two holders of warrants exercised warrants to purchase 32,052an aggregate of 165,000 shares of our common stock with an exercise price of $1.53$4.50 per share paying the aggregate exercise priceand a holder of $49,040, and was issued 32,052 shares of common stock in connection therewith. We claim an exemption from registration pursuant to Section 4(a)(2) of the Securities Act, for the above issuance in connection with the exercise. The resale of shares of common stock issuable upon exercise of the warrant was registered under the Securities Act.

In August 2021, two holders of warrants exercised warrants to purchase an aggregate of 120,19415,000 shares of our common stock with an exercise price of $1.53$9.25 per share, payingexercised such warrants in a cashless exercise, pursuant to the aggregate exercise priceterms of $183,897,such warrants, and waswere issued an aggregate of 120,19498,075 shares of common stock in connection therewith.stock. We claim an exemption from registration pursuant toprovided by Section 4(a)(2)3(a)(9) of the Securities Act for such issuance, as the above issuancessecurities were exchanged by us with our existing security holder in connection with the exercises. The resale of shares of common stock issuable upon exercise of the warrants were registered under the Securities Act .a transaction where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange.

In September 2021,On July 19, 2022, a holder of warrants exercised warrants to purchase 1,126,111100 shares of our common stock with an exercise price of $1.53$4.50 per share paying the aggregate exercise price of $1,722,950,exercised such warrants for cash and was issued 1,126,111100 shares of common stock in connection therewith. We claim an exemption from registrationstock. The shares were issued pursuant to Section 4(a)(2) of the Securities Act, for the above issuance in connection with the exercise. The resale of shares of common stock issuable upon exercise of the warrant was registered under the Securities Act.

In September 2021, certain other holders of warrants exercised warrants to purchase an aggregate of 281,535 shares of our common stock with an exercise price of $1.53 per share, paying the aggregate exercise price of $430,749,equity securities originally offered and were issued an aggregate of 281,535 shares of common stock in connection therewith. We claim an exemption fromsold without registration pursuant to Section 4(a)(2) of the Securities Act, for the above issuances in connection with the exercises. The resale of shares of common stock issuable upon exercise of the warrants were registered under the Securities Act .

In September 2021, a holder of warrants exercised warrants to purchase 280,449 shares of our common stock with an exercise price of $1.53 per share, payingaccredited investors in reliance upon the aggregate exercise price of $429,087, and was issued 280,449 shares of common stock in connection therewith. We claim an exemption from registration pursuant to Sectionprovided by Rule 4(a)(2) of the Securities Act, for the above issuance in connection with the exercise. The resale of shares of common stock issuable upon exercise of the warrant was registered under the Securities Act.

    As a result of the issuances described above, and certain other transactions which occurred during the period as previously reported, there are 385,601 outstanding shares of Series A Convertible Preferred Stock issued and outstanding as of the date of this Report, and the maximum number of shares of common stock which may be issued, if such shares were converted in full, totals 385,601 shares of common stock.

.
Use of Proceeds from Sale of Registered Securities
None.
Issuer Purchases of Equity Securities by the Issuer and Affiliate Purchasers
None.


46

Item 3.  Defaults Upon Senior Securities

    None.

Item 4.  Mine Safety Disclosures

    Not applicable.

Item 5.  Other Information.

    None.
4752

Item 6.  Exhibits


4853

Incorporated by Reference
Exhibit NumberDescription of ExhibitFiled or Furnished HerewithFormExhibitFiling Date/Period End DateFile No.
2.1+£8-K2.1 5/27/2021001-11476
2.2+£8-K2.1 6/29/2021001-11476
3.1 8-K3.1 7/2/2021001-11476
4.1 8-K4.1 11/2/2021001-11476
4.2 8-K4.2 11/2/2021001-11476
10.1+8-K10.2 5/27/2021001-11476
10.2 8-K10.1 7/2/2021001-11476
10.3 8-K10.2 10/14/2021001-11476
10.4 8-K10.4 7/2/2021001-11476
10.5 8-K10.5 7/2/2021001-11476
10.6 8-K10.6 7/2/2021001-11476
31.1 X
31.2 X
32.1 X
Incorporated by Reference
Exhibit NumberDescription of ExhibitFiled or Furnished HerewithFormExhibitFiling Date/Period End DateFile No.
2.1+£8-K2.15/27/2021001-11476
2.28-K2.24/7/2022001-11476
4.18-K4.111/2/2021001-11476
4.28-K4.211/2/2021001-11476
4.38-K4.14/7/2022001-11476
4.48-K4.15/27/2022001-11476
10.1#8-K10.25/27/2021001-11476
10.28-K10.17/2/2021001-11476
10.38-K10.210/14/2021001-11476
10.48-K10.13/3/2022001-11476
10.58-K10.23/3/2022001-11476
10.68-K10.33/3/2022001-11476
10.78-K10.43/3/2022001-11476
10.88-K10.14/7/2022001-11476
10.98-K10.24/7/2022001-11476
4954

32.2 X
99.1 10-K99.1 12/31/2012001-11476
101*Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-QX
101.INS*Inline XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.X
101.SCH*Inline XBRL Taxonomy Extension Schema DocumentX
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase DocumentX
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase DocumentX
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase DocumentX
104*Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document SetX
10.108-K10.34/7/2022001-11476
10.118-K10.44/7/2022001-11476
10.128-K10.54/7/2022001-11476
10.138-K10.64/7/2022001-11476
10.148-K10.74/7/2022001-11476
10.158-K10.84/7/2022001-11476
10.168-K10.114/7/2022001-11476
10.17#£8-K10.124/26/2022001-11476
10.188-K10.134/26/2022001-11476
10.19£8-K10.144/26/2022001-11476
10.20#8-K10.15/27/2022001-11476
10.218-K10.25/27/2022001-11476
10.22***8-K10.16/14/2022001-11476
10.238-K10.26/21/2022001-11476
31.1X
31.2X
32.1X
55

32.2X
101*Inline XBRL Document Set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-QX
101.INS*Inline XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.X
101.SCH*Inline XBRL Taxonomy Extension Schema DocumentX
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase DocumentX
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase DocumentX
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase DocumentX
104*Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document SetX


*    Filed herewith.

**    Furnished herewith.

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

+# Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request; provided, however that Vertex Energy, Inc. may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished.

£ Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[****]”) because the identified confidential portions (i) are not material and (ii) the Company customarily and actually treats that information as private or confidential.






5056

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: NovemberAugust 8, 20212022By: /s/ Benjamin P. Cowart
Benjamin P. Cowart
 Chief Executive Officer
 (Principal Executive Officer)
  
 
Date: NovemberAugust 8, 20212022By: /s/ Chris Carlson
Chris Carlson
 Chief Financial Officer
 (Principal Financial/Accounting Officer)

5157