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 quarterquarterly period ended JuneSeptember 30, 2022
  
☐ 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 incorporation or organization)(I.R.S. Employer Identification No.)
incorporation or organization)
 
1331 Gemini Street, Suite 250, 77058
Houston, Texas 77058
(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
VTNRThe 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☑ NoYes  ¨ 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☐

1

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  ☐☑ Noý

State the numberAs of shares of the issuer’s common stock outstanding, as of the latest practicable date:November 7, 2022, th 75,608,826ere were 75,668,826 shares of common stock are issued and outstanding as of August 8, 2022.outstanding.

2

TABLE OF CONTENTS

 
 
  Page
4
 PART I 
Item 1.
   
 
Consolidated Balance Sheets (unaudited)
F-17
   
 
Consolidated Statements of Operations (unaudited)
F-39
   
Consolidated Statements of Equity (unaudited)
F-511
 
Consolidated Statements of Cash Flows (unaudited)
F-713
   
 
Notes to Consolidated Financial Statements (unaudited)
F-916
   
Item 2
148
   
Item 3.
3569
   
Item 4.
3670
   
 PART II 
Item 1.
3771
   
Item 1A.
3872
   
Item 2.
5291
   
Item 3.
5291
   
Item 4.
5291
   
Item 5.
5291
   
Item 6.
5392

3

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATIONGLOSSARY OF TERMS

    This Quarterly ReportPlease see the “Glossary” beginning 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 industrypage 4 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” or the "Commission"), including the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SECSecurities and Exchange Commission on March 14, 2022 (under(the "Annual Report"), for a list of abbreviations and definitions used throughout this Report. In addition, unless the heading context otherwise requires and for the purposes of this report only:
•“Risk FactorsBBL” and in other parts(also “bbl” or “Bbl”) is the abbreviated form for one barrel, 42 U.S. gallons of that report), which factors include:

liquid volume.
•our need“BPD” (also “bpd”) is the abbreviated form for additional funding and the availability of and terms of such funding;barrels per day. This can refer to designed or actual capacity/throughput.
•risks associated with our outstanding indebtedness, including our outstanding Convertible Senior Notes, including amounts owed, restrictive covenants and security interests in connection therewith, and our ability to repay such debts and amounts due thereon (including interest) when due, and mandatory and special redemption provisions thereof, and conversion rights associated therewith, including dilution caused thereby (in connection with“BCD” (also “bcd”, “b/cd”) is the Convertible Senior Notes);abbreviated form of barrels per calendar day; meaning the total number of barrels of actual throughput processed within 24 hours under typical operating conditions.
•security interests, guarantees“Base oil” is a lubricant grade oil initially produced from refining crude oil or through chemical synthesis used in manufacturing lubricant products such as lubricating greases, motor oil, and pledges associated with our outstanding Loan and Security Agreement and Supply and Offtake Agreement, and risks associated with such agreements in general;metal processing fluids.
•risks“Black Oil” is 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 related to combining our operations with the recently acquired Mobile, Alabama refinery;and processes such as purchase, sales, aggregation, processing, and re-refining.
•risks associated with the capital project currently in“Catalytic Reforming” is a process at our recently acquired Mobile, Alabama refinery, including costs, timing, delaysthat uses heat, pressure, and unanticipated problems associated therewith;a catalyst to convert low-octane naphthas into high-octane gasoline blending components.
•health, safety, security“Cracking” refers to the process of breaking down larger, heavier, and environment risks;more complex hydrocarbon molecules into simpler and lighter molecules through the use of heat, pressure, and sometimes a catalyst.
•risks associated with an offtake agreement which will only become effective upon“Crude oil distillation” means the occurrenceprocess of certain events, includingdistilling vapor from liquid crudes, usually by heating and condensing the completion ofvapor slightly above atmospheric pressure turning it back to liquid in order to purify, fractionate or form the capital project at the Mobile, Alabama refinery, which may not be completed timely;desired products.
•“Cutterstock” also known as “cutter stock”, refers to any stream that is blended to adjust various properties of the level of competition in our industry and our ability to compete;resulting blend.
•our ability to respond to changes in our industry;“Distillates” are finished fuel products such as diesel fuels, jet fuel and kerosene.
•the loss of key personnel“Generator” means any person, by site, whose act or failureprocess produces used oil or whose act first causes used oil to attract, integrate and retain additional personnel;become subject to regulation. Generators can be service stations, governments or other businesses that produce or receive used oil.
•our ability“IMO 2020” refers to protect our intellectual property and not infringethe International Maritime Organization’s rule, effective January 1, 2020, which limited sulfur content in fuels used on others’ intellectual property;board ships operating outside designated emission control areas to 0.50% mass by mass.
•our ability to scale our business;“Industrial fuel” is a distillate fuel oil, typically a blend of lower-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.
•our ability to maintain supplier relationships“LLS” means Louisiana Light Sweet Crude and obtain adequate suppliesis a grade of feedstocks;crude oil classified by its low sulfur content.
•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;“LPG” means liquefied petroleum gases.

4

•our ability to maintain our relationships with Bunker One (USA) Inc, Macquarie Energy North America Trading Inc.,“Lubricant” or “lube” means a solvent-neutral paraffinic product used in commercial heavy-duty engine oils, passenger car oils, and Shell;specialty products for industrial applications such as heat transfer, metalworking, rubber, and other general process oil.
•the impact of competitive services and products;“MBL” means one thousand barrels.
•our ability“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 complete and integrate future acquisitions;a steel mill for re-purposing.
•our ability to maintain insurance;“Oil collection services” include the collection, handling, treatment, and transacting of used motor oil and related products which contain used motor oil (such as oil filters and absorbents) acquired from customers.
•potential future litigation, judgments and settlements;“Olefins” are hydrotreated VGO.
•rules“Other refinery products” include the sales of asphalt, condensate, recovered products, and regulations making our operations more costly or restrictive;other petroleum products.
•changes in environmental“Pygas” or pyrolysis gasoline, is a product that can be blended with gasoline as an octane booster or distilled and separated into its components, including benzene and other laws and regulations and risks associated with such laws and regulations;hydrocarbons.
•economic downturns both in“Re-Refining” refers to the United Statesprocess or industry which uses refining processes and globally;technology with used oil as a feedstock to produce high-quality base stocks and intermediate feedstocks for lubricants, fuels, and other petroleum products.
•risk of increased regulation of our“Refining adjusted EBITDA” represents income (loss) from operations plus depreciation and products;amortization, unrealized gains and losses on hedging activities, gain and loss on intermediation agreement, and certain other unusual or non-recurring charges included in selling, general, and administrative expenses.
•negative publicity“Refining gross margin” is defined as gross profit (loss) less the cost of fuel intakes and public oppositionother fuel costs. It excludes operating expenses and depreciation attributable to our operations;cost of revenues and other non-operating items included in costs of revenues, including unrealized losses on hedging activities and loss on inventory intermediation agreement.
•disruptions in“Refining gross margin per barrel of throughput” is calculated as refining gross margin divided by total throughput barrels for the infrastructure that we and our partners rely on;period presented.
•an inability to identify attractive acquisition opportunities and successfully negotiate acquisition terms;“Reformate” is a gasoline blending stock produced by catalytic reforming.
•liabilities associated“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 acquired companies, assets or businesses;hydrogen under temperatures and pressure in the presence of a catalyst.
•interruptions at our facilities;“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.
•losses under derivative and hedging contracts;“Sour Crude Oil” refers to crude oil containing quantities of sulfur greater than 0.4 percent by weight.
•unexpected changes in our anticipated capital expenditures resulting from unforeseen required maintenance, repairs,“Sweet Crude Oil” refers to crude oil containing quantities of sulfur equal to or upgrades;less than 0.4 percent by weight.
•our ability to acquire and construct new facilities;
•prohibitions on borrowing and other covenants of our debt facilities;
•our ability to effectively manage our growth;
•decreases in global demand“UMO” is the abbreviation for and the price of, oil, due to COVID-19, 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;
•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 qualifiedmotor oil.

5

•“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 their entirety byorder to purify, fractionate or form the cautionary statements above. Other thandesired products.
•“Vacuum Gas Oil” or “VGO” is a product produced from a vacuum distillation column which is predominately used as required by law, we undertake no obligationan intermediate feedstock to update or revise these forward-looking statements, even though our situation may changeproduce transportation fuels and other by-products such as gasoline, diesel and marine fuels.
•“VTB” refers to vacuum tower bottoms, the leftover bottom product of distillation, which can be processed in the future.
Our fiscal year ends on December 31st. Interim results are presented on a quarterly basiscokers and used for the quarters ended March 31st, June 30th,upgrading into gasoline, diesel, 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.gas oil.

6

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
VERTEX ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares and par value)
(UNAUDITED)
June 30,
2022		December 31,
2021		 September 30,
2022		December 31,
2021
ASSETSASSETS  ASSETS  
Current assetsCurrent assets  Current assets  
Cash and cash equivalentsCash and cash equivalents$97,914 $36,130 Cash and cash equivalents$117,464 $36,130 
Restricted cashRestricted cash100 100,497 Restricted cash4,929 100,497 
Accounts receivable, netAccounts receivable, net90,854 5,297 Accounts receivable, net51,830 14,880 
InventoryInventory201,752 3,736 Inventory169,772 8,031 
Derivative commodity assetDerivative commodity asset— 96 Derivative commodity asset1,219 96 
Prepaid expenses and other current assetsPrepaid expenses and other current assets36,627 4,280 Prepaid expenses and other current assets33,337 4,567 
Assets held for sale, currentAssets held for sale, current92,494 84,116 Assets held for sale, current11,651 10,070 
Total current assetsTotal current assets519,741 234,152 Total current assets390,202 174,271 
Fixed assets, at costFixed assets, at cost116,722 13,811 Fixed assets, at cost198,088 62,196 
Less accumulated depreciationLess accumulated depreciation(4,475)(2,045)Less accumulated depreciation(33,371)(26,043)
Fixed assets, net Fixed assets, net112,247 11,766  Fixed assets, net164,717 36,153 
Finance lease right-of-use assetsFinance lease right-of-use assets44,373 — Finance lease right-of-use assets43,649 377 
Operating lease right-of use assetsOperating lease right-of use assets4,768 5,011 Operating lease right-of use assets33,960 33,272 
Intangible assets, netIntangible assets, net8,375 359 Intangible assets, net12,803 6,652 
Other assetsOther assets1,159 14,772 Other assets2,246 15,335 
TOTAL ASSETSTOTAL ASSETS$690,663 $266,060 TOTAL ASSETS$647,577 $266,060 
LIABILITIES, TEMPORARY EQUITY, AND EQUITYLIABILITIES, TEMPORARY EQUITY, AND EQUITY  LIABILITIES, TEMPORARY EQUITY, AND EQUITY  
Current liabilitiesCurrent liabilities  Current liabilities  
Accounts payableAccounts payable$50,652 $4,216 Accounts payable$70,906 $11,980 
Accrued expensesAccrued expenses30,560 3,618 Accrued expenses42,650 4,942 
Finance lease liability-currentFinance lease liability-current652 302 Finance lease liability-current1,155 342 
Operating lease liability-currentOperating lease liability-current953 960 Operating lease liability-current6,421 5,849 
Current portion of long-term debt, netCurrent portion of long-term debt, net1,927 2,413 Current portion of long-term debt, net16,637 2,413 
Obligations under inventory financing agreements, netObligations under inventory financing agreements, net172,857 — Obligations under inventory financing agreements, net134,244 — 
Derivative commodity liability46,536 — 
Liabilities held for sale, current35,507 37,645 
Total current liabilities
Total current liabilities
339,644 49,154 
Total current liabilities
272,013 25,526 
    
Long-term debt, net Long-term debt, net135,332 114  Long-term debt, net167,665 64,131 
Finance lease liability-long-termFinance lease liability-long-term44,640 — Finance lease liability-long-term44,339 256 
Convertible senior unsecured note 2027, net41,543 64,016 
Operating lease liability-long-termOperating lease liability-long-term3,816 4,052 Operating lease liability-long-term27,539 27,423 
Derivative warrant liabilityDerivative warrant liability26,615 75,211 Derivative warrant liability14,303 75,211 
Other liabilitiesOther liabilities1,378 — Other liabilities1,378 — 
Total liabilitiesTotal liabilities592,968 192,547 Total liabilities527,237 192,547 
COMMITMENTS AND CONTINGENCIES (Note 3)— — 
COMMITMENTS AND CONTINGENCIES (Note 4)COMMITMENTS AND CONTINGENCIES (Note 4)— — 
F-17

June 30,
2022		December 31,
2021		 September 30,
2022		December 31,
2021
TEMPORARY EQUITYTEMPORARY EQUITYTEMPORARY EQUITY
Redeemable non-controlling interestRedeemable non-controlling interest— 43,447 Redeemable non-controlling interest— 43,447 
Total temporary equityTotal temporary equity— 43,447 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, 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;
zero and 5,000,000 shares designated, zero and 385,601 shares issued and outstanding at September 30, 2022 and December 31, 2021, with a liquidation preference of $0 and $574,545 at September 30, 2022 and December 31, 2021.
Series A Convertible Preferred Stock, $0.001 par value;
zero and 5,000,000 shares designated, zero and 385,601 shares issued and outstanding at September 30, 2022 and December 31, 2021, with a liquidation preference of $0 and $574,545 at September 30, 2022 and December 31, 2021.
— — 
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; 75,509,002 and 63,287,965 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively.
76 63 
Common stock, $0.001 par value per share;
750,000,000 shares authorized; 75,608,826 and 63,287,965 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively.
Common stock, $0.001 par value per share;
750,000,000 shares authorized; 75,608,826 and 63,287,965 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively.
76 63 
Additional paid-in capitalAdditional paid-in capital278,455 138,620 Additional paid-in capital278,930 138,620 
Accumulated deficitAccumulated deficit(182,588)(110,614)Accumulated deficit(160,354)(110,614)
Total Vertex Energy, Inc. shareholders' equityTotal Vertex Energy, Inc. shareholders' equity95,943 28,069 Total Vertex Energy, Inc. shareholders' equity118,652 28,069 
Non-controlling interestNon-controlling interest1,752 1,997 Non-controlling interest1,688 1,997 
Total equityTotal equity97,695 30,066 Total equity120,340 30,066 
TOTAL LIABILITIES, TEMPORARY EQUITY, AND EQUITYTOTAL LIABILITIES, TEMPORARY EQUITY, AND EQUITY$690,663 $266,060 TOTAL LIABILITIES, TEMPORARY EQUITY, AND EQUITY$647,577 $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 June 30,Six Months Ended June 30,
 2022202120222021
Revenues$991,839 $30,228 $1,032,056 $55,273 
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 revenues3,122 116 3,236 228 
Gross profit4,275 2,071 5,812 4,195 
Operating expenses:
Selling, general and administrative expenses36,641 4,177 45,423 7,035 
Depreciation and amortization attributable to operating expenses763 27 790 54 
Total operating expenses37,404 4,204 46,213 7,089 
Loss from operations(33,129)(2,133)(40,401)(2,894)
Other income (expense):    
Interest income18 — 18 — 
Other income152 4,222 625 4,223 
Loss on change in value of derivative warrant liability(945)(21,508)(4,524)(23,288)
Interest expense(47,722)(139)(51,952)(251)
Total other expense(48,497)(17,425)(55,833)(19,316)
Loss from continuing operations before income tax(81,626)(19,558)(96,234)(22,210)
Income tax benefit (expense)— — — — 
Loss from continuing operations(81,626)(19,558)(96,234)(22,210)
Income from discontinued operations, net of tax (see note 16)17,844 3,601 31,643 9,219 
Net loss(63,782)(15,957)(64,591)(12,991)
Net 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 operations3,023 3,175 6,829 4,783 
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 operations(6)(387)(428)(762)
Accretion of discount on Series B and B1 Preferred Stock— (284)— (507)
Dividends on Series B and B1 Preferred Stock— — — 258 
Net loss attributable to shareholders from continuing operations(81,797)(20,472)(96,759)(23,847)
F-3

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 condensed notes to the consolidated financial statements.
F-4


VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except par value)
(UNAUDITED)

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-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-68

VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWSOPERATIONS
(in thousands)thousands, except per share amounts)
(UNAUDITED)
 Six Months Ended
 June 30,
2022		June 30,
2021
Cash flows from operating activities  
Net loss$(64,591)$(12,991)
Income from discontinued operations, net of tax31,643 9,219 
Loss 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		  
Stock based compensation expense574 356 
Depreciation and amortization4,026 282 
Gain on forgiveness of debt— (4,222)
Gain on sale of assets(82)(1)
Provision for environment clean up1,428 — 
Increase (reduction) of allowance for bad debt(12)620 
Increase in fair value of derivative warrant liability4,524 23,288 
     Loss on commodity derivative contracts93,745 1,925 
     Net cash settlements on commodity derivatives(64,814)(1,961)
     Amortization of debt discount and deferred costs40,000 — 
Changes in operating assets and liabilities, net of acquisition
Accounts receivable and other receivables(85,545)(2,489)
Inventory(67,796)(704)
Prepaid expenses and other current assets(12,614)1,641 
Accounts payable46,399 2,890 
Accrued expenses26,891 (217)
    Other assets(50)(89)
Net cash used in operating activities from continuing operations(109,560)(891)
Cash flows from investing activities  
Acquisition of business, net of cash(227,525)2 
Software purchase(106)— 
Purchase of fixed assets(1,159)(861)
Proceeds from sale of fixed assets157 75 
Net cash used in investing activities from continuing operations(228,633)(784)
Cash flows from financing activities  
Payments on finance leases(107)(134)
Proceeds from exercise of options and warrants to common stock632 2,829 
Distributions to noncontrolling interest(380)— 
Net borrowings on inventory financing agreements172,607 — 
Line of credit proceeds, net— 1,032 
Redemption of noncontrolling interest(50,666)— 
Proceeds from note payable, net165,718 — 
Payments on note payable(7,716)(1,837)
Net cash provided by financing activities from continuing operations280,088 1,890 
Discontinued operations:
Net cash provided by operating activities21,366 5,936 
Net cash used in investing activities(1,578)(1,961)
Net cash used in financing activities(296)(118)
Net cash provided by discontinued operations19,492 3,857 
Net change in cash, cash equivalents and restricted cash(38,613)4,072 
Cash, cash equivalents, and restricted cash at beginning of the period136,627 10,995 
Cash, cash equivalents, and restricted cash at end of period$98,014 $15,067 
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Revenues$810,208 $50,982 $1,915,423 $147,807 
Cost of revenues (exclusive of depreciation and amortization shown separately below)750,463 46,142 1,819,757 127,986 
Depreciation and amortization attributable to costs of revenues4,050 1,028 9,144 3,002 
Gross profit55,695 3,812 86,522 16,819 
Operating expenses:
Selling, general and administrative expenses36,978 8,177 89,934 21,742 
Depreciation and amortization attributable to operating expenses1,120 420 2,656 1,260 
Total operating expenses38,098 8,597 92,590 23,002 
Income (loss) from operations17,597 (4,785)(6,068)(6,183)
Other income (expense):    
Other income (expenses)417 (3)1,060 4,220 
Gain (loss) on change in value of derivative warrant liability12,312 11,907 7,788 (11,380)
Interest expense(13,131)(455)(65,083)(919)
Total other income (expense)(402)11,449 (56,235)(8,079)
Income (loss) from continuing operations before income tax17,195 6,664 (62,303)(14,262)
Income tax benefit (expense)— — — — 
Income (loss) from continuing operations17,195 6,664 (62,303)(14,262)
Income from discontinued operations, net of tax (see note 23)4,975 3,981 19,882 11,915 
Net income (loss)22,170 10,645 (42,421)(2,347)
Net income (loss) attributable to non-controlling interest and redeemable non-controlling interest from continuing operations(64)(115)33 511 
Net income attributable to non-controlling interest and redeemable non-controlling interest from discontinued operations— 2,400 6,829 7,183 
Net income (loss) attributable to Vertex Energy, Inc.22,234 8,360 (49,283)(10,041)
Accretion of redeemable noncontrolling interest to redemption value from continued operations— (415)(428)(1,177)
Accretion of discount on Series B and B1 Preferred Stock— — — (507)
Net income (loss) attributable to common shareholders from continuing operations17,259 6,364 (62,764)(16,457)
Net income attributable to common shareholders from discontinued operations, net of tax4,975 1,581 13,053 4,732 
Net income (loss) attributable to common shareholders$22,234 $7,945 $(49,711)$(11,725)
F-79

Basic income (loss) per common share    
Continuing operations$0.23 $0.10 $(0.91)$(0.31)
Discontinued operations, net of tax0.07 0.03 0.19 0.09 
Basic income (loss) per common share$0.30 $0.13 $(0.72)$(0.22)
Diluted income (loss) per common share
Continuing operations$0.22 $0.10 $(0.91)$(0.31)
Discontinued operations, net of tax0.06 0.02 0.19 0.09 
Diluted income (loss) per common share$0.28 $0.12 $(0.72)$(0.22)
Shares used in computing earnings per share    
Basic75,591 61,349 69,007 53,964 
Diluted79,638 64,605 69,007 53,964 


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 








































See accompanying condensed notes to the consolidated financial statements.
F-810


VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except par value)
(UNAUDITED)

Nine Months Ended September 30, 2022
Common StockSeries A Preferred
 Shares$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 common10,165 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 income (loss)— — — — — (66,970)3,188 (63,782)
Less: amount attributable to redeemable non-controlling interest— — — — — — (3,023)(3,023)
Balance on June 30, 202275,510 76 — — 278,455 (182,588)1,752 97,695 
Exercise of options to common4 — — — — — — — 
Exercise of options to common- unissued— — — — 97 — — 97 
Exercise of warrants96 — — — — — — — 
Share based compensation expense— — — — 378 — — 378 
Net income (loss)— — — — 22,234 (64)22,170 
Balance on September 30, 202275,610 $76 — $— $278,930 $(160,354)$1,688 $120,340 







See accompanying condensed notes to the consolidated financial statements.
11

Nine Months Ended September 30, 2021
Common StockSeries A Preferred
 Shares$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 income (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 
Exercise of options to common1,267 1 — — 1,481 — — 1,482 
Exercise of options to common- unissued— — — — 3 — — 3 
Exercise of B1 warrants1,576 2 — — 9,361 — — 9,363 
Conversion of Series B Preferred stock to common245 — — — — — — — 
Conversion of Series A Preferred stock to common6 — (6)— — — — — 
Leverage Lubricants contribution— — — — — — 2 2 
Distribution from VRM LA— — — — — — (169)(169)
Share based compensation expense— — — — 257 — — 257 
Accretion of redeemable non-controlling interest to redemption value— — — — — (415)— (415)
Net income— — — — — 8,360 2,285 10,645 
Less: amount attributable to redeemable non-controlling interest— — — — — — (2,329)(2,329)
Balance on September 30, 202163,003 $63 386 $— $136,906 $(101,475)$1,848 $37,342 

See accompanying condensed notes to the consolidated financial statements.
12

VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
 Nine Months Ended September 30,
 20222021
Cash flows from operating activities  
Net loss$(42,421)$(2,347)
Income from discontinued operations, net of tax19,882 11,915 
Loss from continuing operations(62,303)(14,262)
  Adjustments to reconcile net loss from continuing operations to cash
    provided by (used in) operating activities, net of acquisitions		  
Stock based compensation expense952 613 
Depreciation and amortization11,800 4,263 
Gain on forgiveness of debt— (4,222)
(Gain) loss on sale of assets(112)2 
Provision for environment clean up1,428 — 
Increase in allowance for bad debt157 717 
Increase in fair value of derivative warrant liability(7,788)11,380 
     Loss on commodity derivative contracts87,218 2,205 
     Net cash settlements on commodity derivatives(100,253)(1,999)
     Amortization of debt discount and deferred costs44,537 38 
Changes in operating assets and liabilities, net of acquisition
Accounts receivable and other receivables(37,157)(6,123)
Inventory(31,521)(3,716)
Prepaid expenses and other current assets(16,433)(2,366)
Accounts payable58,925 1,945 
Accrued expenses37,658 2,450 
    Other assets54 (648)
Net cash used in operating activities from continuing operations(12,838)(9,723)
Cash flows from investing activities  
Acquisition of business, net of cash(227,525)2 
Software purchase(106)— 
Purchase of fixed assets(34,744)(2,313)
Investment in Mobile Refinery assets— (10,241)
Proceeds from sale of fixed assets188 75 
Net cash used in investing activities from continuing operations(262,187)(12,477)
Cash flows from financing activities  
Payments on finance leases(201)(409)
Proceeds from exercise of options and warrants to common stock729 6,493 
Distributions to noncontrolling interest(380)(169)
Net borrowings on inventory financing agreements133,744 — 
Net change in line of credit— (166)
Redemption of noncontrolling interest(50,666)— 
Proceeds from note payable173,315 10,078 
Payments on note payable(14,101)(3,779)
Net cash provided by financing activities from continuing operations242,440 12,050 
Discontinued operations:
Net cash provided by operating activities20,199 13,043 
Net cash used in investing activities(1,848)(1,675)
Net cash provided by discontinued operations18,351 11,368 
Net change in cash, cash equivalents and restricted cash(14,234)1,218 
Cash, cash equivalents, and restricted cash at beginning of the period136,627 10,995 
Cash, cash equivalents, and restricted cash at end of period$122,393 $12,213 

13

See accompanying condensed notes to the consolidated financial statements.
VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(UNAUDITED)
(Continued)

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 (in thousands).

Nine Months Ended
September 30,
2022		September 30,
2021
Cash and cash equivalents$117,464 $12,113 
Restricted cash4,929 $100 
Cash and cash equivalents and restricted cash as shown in the consolidated statements of cash flows$122,393 $12,213 
SUPPLEMENTAL INFORMATION  
Cash paid for interest$20,191 $844 
Cash paid for taxes$— $— 
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 $1,177 
























14

See accompanying notes to the consolidated financial statements.
15

VERTEX ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNESEPTEMBER 30, 2022
(UNAUDITED)

NOTE 1.  BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Vertex Energy, Inc. (the "Company" or "Vertex Energy") is an energy transition company focused on the production and distribution of conventional and alternative fuels. We operate used motor oil processing plants in Houston, Texas, Port Arthur, Texas, Marrero, Louisiana, and Columbus, Ohio.

As of April 1, 2022, we own a refinery in Mobile, Alabama (the “Mobile Refinery”) with an operable refining capacity of 75,000 barrels per day (“bpd”) and more than 3.2 million barrels of storage capacity. The total purchase consideration was $75.0 million in cash plus $16.3 million in previously agreed upon capital expenditures and miscellaneous prepaid and reimbursable items. At the time of the acquisition, the Company also purchased $130.0 million in hydrocarbon inventories of which $124.0 were financed under an inventory financing agreement. See Note 3 “Mobile Refinery Acquisition” and Note 10 “Inventory Financing Agreement” for additional information.
The accompanying unaudited interim consolidated financial statements of Vertex Energy, Inc. (the "Company" or "Vertex Energy")the Company 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, 2021, contained in the Company's annual report, as filed with the SEC on Form 10-K on March 11,14, 2022 (the "Form 10-K").
The December 31, 2021 balance sheet was derivedretroactively restated from the audited financial statements of our 2021 Form 10-K.10-K to account for the change for our discontinued business, see Note 23 "Discontinued Operations". 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. All significant intercompany transactions have been eliminated in consolidation. 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 2021 as reported in Form 10-K have been omitted.
Used Motor Oils Business ("UMO Business")
Our UMO Business
consists of our used oil refinery in Marrero, Louisiana, our Heartland used oil refinery in Ohio, 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 to a lease at the Cedar Marine terminal in Baytown, Texas. The UMO Business is presented as part of our Black Oil segment in our consolidated financial statements. On June 29, 2021, Vertex Energythe Company, through certain of its subsidiaries, entered into an Asset Purchase Agreement (the ““UMO Sale Agreement”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 Ohio”) (wholly-owned by HPRM, LLC, of which Vertex Energy currently owns a 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., (“Safety-Kleen”) by which Safety-Kleen agreed to acquire the Company’s UMO Business. Assets which form a part of our Black Oil Segment which will not be sold as purchaser (“Safety-Kleen”). Pursuantpart of the sale of the UMO Business consent of (1) our re-refining complex located in Belle Chasse, Louisiana, which we refer to as our Myrtle Grove Facility; (2) our Marine division established in 2022, which consists of blending and distribution of fuels to the Sale Agreement,marine market; and (3) our finished lubricants and metal operations, including the Company agreed to sell its used motor oil (UMO) business (the "UMO Business") to Safety-Kleen.distribution and blending of lubricants as well as a metal recovery operation.
During the third quarter of 2021, the Company classified the UMO Business as held for sale based on management’s intention and the Company’s shareholders’ approval to sell this business.the UMO Business. The Company’s historical financial statements have been revised to present the operating results of the UMO businessBusiness 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 Business have been reclassified to “Assets held for sale” and “Liabilities held for sale”, respectively, in the consolidated balance sheet for all periods presented.
On January 24, 2022, each of the Company and its subsidiaries that were party to the UMO Sale Agreement and Safety-Kleen, entered into an Asset Purchase Termination Agreement (the ““UMO Termination Agreement”) pursuant to which the UMO Sale Agreement was terminated. Pursuant toUnder the terms of the UMO Termination Agreement, the Company agreed to paypaid a termination fee to Safety-Kleen of $3$3.0 million. Immediately upon receipt of such termination fee, which the Company paid simultaneously with the execution of the UMO Termination Agreement, the UMO Sale Agreement was terminated and is of no further force or
16

effect, and with no further liability to any party thereunder, other than certain confidentiality obligations of the parties and ongoing liability for any willful or intentional breach of, or non-compliance with, the UMO Sale Agreement.
The Company is still exploring opportunities toto sell the UMO Business and believes it will sell such assets within a year. As of the day of this filing, the Company is in ongoing discussions with a third party regarding a potential sale of the Company's Heartland refinery in Ohio, and as such has determined to present only the Company's Heartland refinery options as discontinued operations ("Heartland Business").
Use of Estimates
The preparation of GAAP financial statements 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.
The majority of the numbers presented below are rounded numbers and should be considered as approximate.
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.
The Company included the Heartland Business as discontinued operation, and reclassified the other UMO Business operations out of the assets held for sale, and all liabilities of the UMO Business out of liabilities held for sale, other than in connection with the Heartland Business.
NOTE 2.  SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

With the exception of the accounting policies below, there have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

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 providesRestricted cash as of September 30, 2022, consisted of a reconciliation$4.8 million deposit in a bank for financing of casha short-term equipment lease, 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 (in thousands).
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 $100 thousand of restricted casha $0.1 million deposit in a money market account to serve as collateral for payment of a credit card. As of December 31, 2021, a total of $100$100.4 million of restricted cash was held in an escrow account in connection with the issuance of thecertain convertible notes which was(see Note 15. "Long-Term Debt". The funds were released on April 1, 2022 and used in conjunction with the purchase of the Mobile Refinery. See Note 3 “Mobile Refinery (defined below) on April 1, 2022.
Acquisition”
.
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$1.5 million and $1$1.4 million at JuneSeptember 30, 2022 and December 31, 2021, respectively.
17

Inventory and Obligations Under Inventory Financing Agreements

Mobile Refinery. Inventories of productsat the recently acquired Mobile Refinery consist of feedstocks,crude oil and refined petroleum products and recovered ferrous and non-ferrous metals. Commodity inventories, excluding commodity inventories atproducts. Simultaneously with the acquisition of the Mobile Refinery, (defined and discussed belowthe Company entered into an inventory financing agreement with Macquarie Energy North America Trading Inc. (“Macquarie”) under “Note 14. Share Purchase, Subscription Agreements and Mobile Refinery Acquisition — Mobile Refinery Acquisition”), are stated at the lower of cost or net realizable value using the 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 managementwhich Macquarie agreed to make assumptions about the timing of sales and the expected proceeds that will be realized for these sales.

All offinance all the crude oil utilized at the Mobile Refinery is financed by Macquarie Energy North America Trading Inc. ("Macquarie") under procurement contracts. In addition, 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 at all times, except for liquefied petroleum gases and sulfur, which the Company has pledged, together with all receivables arising from the sales of such inventories.
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 ofHydrocarbon inventories at the Mobile Acquisition (definedRefinery are stated at the lower of cost or net realizable value using the weighted average inventory accounting method. Estimating the net realizable value of our inventory requires management to make assumptions about the timing of sales and discussed below under “the expected proceeds that will be realized for these sales. See Note 14. Share Purchase, Subscription Agreements9 “Inventory” and Mobile Refinery Acquisition — Mobile Refinery AcquisitionNote 10 “Inventory Financing Agreement” for more information.
Other locations. ”), the Company became a party to a Supply and Offtake Agreement with Macquarie. Under this arrangement, the Company purchases crude oil suppliedInventories from third-party suppliers and Macquarie provides credit support for certainour legacy business consist of these purchases. Macquarie holds title to all crude oilfeedstocks and refined petroleum products and recovered ferrous and non-ferrous metals. These commodity inventories except for liquefiedare stated at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) accounting method.
Revenue Recognition
Our revenues are generated through the sale of refined petroleum gases or sulfur,products and terminalling and storage services. We recognize revenue from product sales at all timesprevailing market rates at the point in time in which the customer obtains control of the product. Terminalling and pledges such inventories, together with all receivables arisingstorage 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 salestiming of these inventories.payment from our customers. A receivable is recorded when revenue is recognized prior to payment and we have an unconditional right to payment.
Environmental Reserves
We accrue for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. The valuationliability represents the expected costs of our terminal obligation requires that we make estimatesremediating contaminated soil and groundwater at the site. Costs of the prices and differentialsfuture expenditures for our then monthly forward purchase obligations.

environmental remediation obligations are discounted to their present value.
Impairment of long-lived assets
The Company evaluates the carrying value and recoverability of its long-lived assets when circumstances warrant such evaluation. Long-lived assets are 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 sixnine months ended JuneSeptember 30, 2022 and 2021.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally 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 Agreements22. Non-Controlling Interests”, the Company iswas party to put/call option agreements with the holder of Vertex Refining Myrtle Grove LLC (“MG SPV”) and HPRM LLC, a Delaware limited liability company (“Heartland SPV”), which entities were formed as special purpose vehicles in connection with the transactions described in greater detail below,in non-controlling interests. The put options permitpermited MG SPV's and Heartland SPV's non-controlling interest holders, at any time
18

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. 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 willwere to 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 willwould 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 loss in the consolidated financial statements. Rather, such adjustments are treated as equity 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
The Company determines whether each business entity in which it has equity 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 to finance its activities without additional subordinated financial support, or (ii) equity holders, as a group, lack the characteristics of a controlling financial instrument.
If an entity is 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 impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the 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
19


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
Our 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.New Accounting Pronouncements

RecentlyAccounting pronouncements adopted accounting pronouncementsby the Company in 2022.
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. On January 20, 2022, our shareholders approved the issuance of shares of our common stock issuable upon the conversion of our $155 million aggregate principal amount at maturity 6.25% Convertible Senior Notes due 2027 (the "Convertible Senior Notes"), the $79 million derivative liabilities were recorded as additional paid-in capital.
Accounting pronouncements not yet adopted.
The Company has not identified any recent accounting pronouncements that are expected to have a material impact on our financial condition, results of operations or cash flows upon adoption.

NOTE 3. MOBILE REFINERY ACQUISITION
On April 1, 2022 (the “Effective Date”), Vertex Energy Operating, LLC (“Vertex Operating”), the Company’s wholly-owned subsidiary assigned its rights to that certain May 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 Alabama LLC, a Delaware limited liability company (“Vertex Refining”) which is indirectly wholly-owned by the Company, 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 Effective Date, a total of $75 million (less $10 million previously paid) was paid by Vertex Refining in consideration for the acquisition of the Mobile Refinery, which amount was subject to customary purchase price adjustments and reimbursement for certain capital expenditures in the amount of approximately $0.4 million, $15.9 million was paid to Shell 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 purchase 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 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”).
The 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):
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 

F-1220

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

For Three Months Ended September 30, 2022For Six Months Ended September 30, 2022
Revenue$733,521 $1,655,717 
Net Income (loss)$18,370 $(5,592)
The following table presents unaudited pro forma results of operations reflecting the acquisition of the 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 Nine Months Ended September 30,
20222021
Revenue$2,406,617 $1,473,700 
Net income (loss)$49,509 $(37,500)


NOTE 3. CONCENTRATIONS, SIGNIFICANT CUSTOMERS,4. COMMITMENTS AND CONTINGENCIES
 
At June 30, 2022 and 2021 and for each of the six months then ended, the Company’s revenues and receivables were comprised of the following customer concentrations:
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 six months ended June 30, 2022 and 2021, the Company’s segment revenues were comprised of the following customer concentrations:
% of Revenue by Segment% Revenue by Segment
Six Months Ended June 30, 2022Six Months Ended June 30, 2021
Black OilRefiningRecoveryBlack OilRefiningRecovery
Customer 1—%43%—%—%27%—%
Customer 2—%18%—%—%—%78%
Customer 3—%9%—%—%20%—%

The Company had one vendor that represented 70% and 59% of total purchases for the six months ended June 30, 2022 and 2021, respectively, and 73% and 69% of total payables at June 30, 2022 and 2021, respectively.

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 five 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., Case No. 121750, by Kendra Cannon et. al., Case No. 121751, by Lashawn Jones et. al., Case No. 121752, by Joan Strauss et. al. and Case No. 121753, by Donna Allen et. 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”“Penthol Agreement”). Vertex seeks permanent injunctive relief, damages, attorney’s fees, costs of court, and all other relief to which it may be entitled.
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”“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 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
21

for unpaid commissions and unpaid performance incentives. Vertex disputes Penthol’s allegations of wrongdoing and intends to vigorously defend itself in this matter. 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.
Recently, the parties agreed to move the pending claims and defenses in the Texas state court lawsuit into the federal court lawsuit. Both parties also sought to amend their pleadings to add additional claims. By order dated October 18, 2022, the Judge in the lawsuit, Judge Hanen largely granted these requests. As a result, Vertex was granted leave to add Penthol C.V. as a defendant. Penthol was granted leave to add claims for fraud and breach of contract relating to an assignment agreement, and add claims for misappropriation of trade secrets. All pending claims between the parties are now in the federal court action.
The parties recently conducted numerous depositions and substantial document discovery. Vertex has filed a motion for summary judgment, and Penthol has filed a motion for partial summary judgment, both of which are pending.
This case is pending, but is currently set for trial in FebruaryJanuary 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 PartiesEnvironmental Matters
From timeLike other petroleum refiners, we are subject to time,federal, state, and local environmental laws and regulations. These laws generally provide for control of pollutants released into the Company consults Ruddy Gregory, PLLC.,environment and require responsible parties to undertake remediation of hazardous waste disposal. These governmental entities may also propose or assess fines or require corrective actions for these asserted violations. Except as disclosed below, we do not anticipate that any such matters currently known to management will have a related party law firmmaterial impact on our financial condition, results of which James Gregory, a member ofoperations, or cash flows. On April 1, 2022, we acquired the Board of Directors, serves as a partner. DuringMobile Refinery and during the sixnine months ended Juneon September 30, 2022, and 2021, we paid $382 thousand and $134 thousand, respectively, to such law firmreserved $1.4 million for services rendered, which 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, including the Loan and Security Agreement and Supply and Offtake Agreement, discussed below.environment clean up.
NOTE 4.5. REVENUES

DisaggregationOur revenues are primarily generated from contracts with customers through the sale of Revenuerefined 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 following tables present our revenues disaggregated by geographical market and revenue source (in thousands):
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-1422

Three Months Ended June 30, 2021Three Months Ended September 30, 2022
Black OilRefining & MarketingRecoveryTotalBlack Oil* & RecoveryRefining &
Marketing		Consolidated
Primary Geographical MarketsPrimary Geographical MarketsPrimary Geographical Markets
Southern United StatesSouthern United States$155 $23,836 $6,237 $30,228 Southern United States$43,439 $766,769 $810,208 
Sources of RevenueSources of RevenueSources of Revenue
Refined products:Refined products:
GasolinesGasolines— 6,083 — 6,083 Gasolines$— $171,023 $171,023 
Jet FuelsJet Fuels— 138,962 138,962 
DieselDiesel— 13,481 — 13,481 Diesel— 276,355 276,355 
Other refinery products (1)
Other refinery products (1)
37,607 108,337 145,944 
Re-refined products:Re-refined products:
PygasPygas— 3,862 — 3,862 Pygas— 15,285 15,285 
Industrial fuel— 410 — 410 
Metals(2)Metals(2)4,060 — 4,060 
Other re-refined products (3)
Other re-refined products (3)
1,490 54,663 56,153 
Services:Services:
TerminallingTerminalling— 2,144 2,144 
Oil collection servicesOil collection services155 — — 155 Oil collection services282 — 282 
Metals(2)— — 6,151 6,151 
Other refinery products— — 86 86 
Total revenuesTotal revenues$155 $23,836 $6,237 $30,228 Total revenues$43,439 $766,769 $810,208 

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 


Three Months Ended September 30, 2021
Black Oil* & RecoveryRefining &
Marketing		Consolidated
Primary Geographical Markets
Southern United States$26,410 $24,572 $50,982 
Sources of Revenue
Refined products:
Gasolines$— $6,674 $6,674 
Jet Fuels— — — 
Diesel— 13,745 13,745 
Other refinery products (1)
20,339 — 20,339 
Re-refined products:
Pygas— 3,736 3,736 
Metals (2)
4,328 — 4,328 
Other re-refined products (3)
909 417 1,326 
Services:— 
Oil collection services834 — 834 
Total revenues$26,410 $24,572 $50,982 

F-1523

Six Months Ended June 30, 2021Nine Months Ended September 30, 2022
Black OilRefining & MarketingRecoveryTotalBlack Oil* & RecoveryRefining &
Marketing		Consolidated
Primary Geographical MarketsPrimary Geographical MarketsPrimary Geographical Markets
Southern United StatesSouthern United States$278 $43,110 $11,885 $55,273 Southern United States$147,545 $1,767,878 $1,915,423 
Sources of RevenueSources of RevenueSources of Revenue
Refined products:Refined products:
GasolinesGasolines— 10,494 — 10,494 Gasolines$— $432,173 $432,173 
Jet FuelsJet Fuels— 282,650 282,650 
DieselDiesel— 25,060 — 25,060 Diesel— 620,580 620,580 
Other refinery products (1)
Other refinery products (1)
129,078 259,667 388,745 
Re-refined products:Re-refined products:
PygasPygas— 6,835 — 6,835 Pygas— 40,661 40,661 
Industrial fuel— 721 — 721 
Metals(2)Metals(2)13,080 — 13,080 
Other re-refined products (3)
Other re-refined products (3)
4,111 127,695 131,806 
Services:Services:— 
TerminallingTerminalling— 4,452 4,452 
Oil collection servicesOil collection services278 — 3 281 Oil collection services1,276 — 1,276 
Metals(2)— — 11,796 11,796 
Other refinery products— — 86 86 
Total revenuesTotal revenues$278 $43,110 $11,885 $55,273 Total revenues$147,545 $1,767,878 $1,915,423 

Nine Months Ended September 30, 2021
Black Oil* & RecoveryRefining &
Marketing		Consolidated
Primary Geographical Markets
Southern United States$80,124 $67,683 $147,807 
Sources of Revenue
Refined products:
Gasolines— 17,168 17,168 
Jet Fuels— — — 
Diesel— 38,806 38,806 
Other refinery products (1)
58,039 — 58,039 
Re-refined products:
Pygas— 10,571 10,571 
Metals (2)
17,455 — 17,455 
Other re-refined products (3)
1,763 1,138 2,901 
Services:— 
Oil collection services2,867 — 2,867 
Total revenues$80,124 $67,683 $147,807 

* The Company has determined to combine the Black Oil and Recovery segments in the presentation above due to the revenue from such segment being less than 10% of the Company's total revenue after the Mobile Refinery acquisition. The Black Oil segment includes the Heartland Business, which is presented herein as discontinued operations.
(1) Other refinery products include the sales of base oil, VGO, cutterstock and Hydrotreated VGO and other petroleum products.
(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) Other re-refinery products include the sales of asphalt, condensate, recovered products, and other petroleum products.

24

NOTE 6.  SEGMENT REPORTING
NOTE 5. ACCOUNTS RECEIVABLEAfter the acquisition of the Mobile Refinery on April 1, 2022, the revenues of our Black Oil and Recovery segments are less than 10% of consolidated revenue. The Company decided to present our Black Oil and Recovery segment together during this reporting period.
The Refining and Marketing segment consists primarily of the sale of gasoline, diesel and jet fuel produced at the Mobile Refinery as well as pygas and industrial fuels, which are produced at a third-party facility.
The Black Oil and Recovery 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; (e) the sale of VGO (vacuum gas oil)/marine fuel; (f) the sale of ferrous and non-ferrous recyclable Metal(s) products that are recovered from manufacturing and consumption; and (g) revenues generated from trading/marketing of Group III Base Oils. The Black Oil segment includes the Heartland Business, which is presented herein as discontinued operations.
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.

Accounts receivable, net, consists ofSegment information for the following at Junethree and nine months ended September 30, 2022 and December 31, 2021(in thousands):

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

The Company's outstanding debt facilities as of June 30, 2022 and December 31, 2021 are summarizedis as follows (in thousands):

THREE MONTHS ENDED SEPTEMBER 30, 2022
Black Oil & RecoveryRefining &
Marketing		Corporate and EliminationsConsolidated
Revenues:
Refined products$37,607 $694,677 $— $732,284 
Re-refined products5,550 69,948 — 75,498 
Services282 2,144 — 2,426 
Total revenues43,439 766,769 — 810,208 
Cost of revenues (exclusive of depreciation and amortization shown separately below)35,299 715,164 — 750,463 
Depreciation and amortization attributable to costs of revenues939 3,111 — 4,050 
Gross profit7,201 48,494 — 55,695 
Selling, general and administrative expenses4,919 27,988 4,071 36,978 
Depreciation and amortization attributable to operating expenses39 850 231 1,120 
Income (loss) from operations$2,243 $19,656 $(4,302)$17,597 
Capital expenditures$412 $26,333 $— $26,745 

F-16
25

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 
THREE MONTHS ENDED SEPTEMBER 30, 2021
Black Oil & RecoveryRefining &
Marketing		Corporate and EliminationsConsolidated
Revenues:
Refined products$20,339 $20,419 $— $40,758 
Re-refined products5,237 4,153 — 9,390 
Services834 — — 834 
Total revenues26,410 24,572 — 50,982 
Cost of revenues (exclusive of depreciation and amortization shown separately below)22,205 23,937 — 46,142 
Depreciation and amortization attributable to costs of revenues901 127 — 1,028 
Gross profit3,304 508 — 3,812 
Selling, general and administrative expenses3,618 1,034 3,525 8,177 
Depreciation and amortization attributable to operating expenses59 108 253 420 
Loss from operations$(373)$(634)$(3,778)$(4,785)
Capital expenditures$228 $— $— $228 

NINE MONTHS ENDED SEPTEMBER 30, 2022
Black Oil & RecoveryRefining &
Marketing		Corporate and EliminationsConsolidated
Revenues:
Refined products$129,078 $1,595,070 $— $1,724,148 
Re-refined products17,191 168,356 — 185,547 
Services1,276 4,452 — 5,728 
Total revenues147,545 1,767,878 — 1,915,423 
Cost of revenues (exclusive of depreciation and amortization shown separately below)111,740 1,708,017 — 1,819,757 
Depreciation and amortization attributable to costs of revenues2,805 6,339 — 9,144 
Gross profit33,000 53,522 — 86,522 
Selling, general and administrative expenses13,383 52,709 23,842 89,934 
Depreciation and amortization attributable to operating expenses142 1,785 729 2,656 
Income (loss) from operations$19,475 $(972)$(24,571)$(6,068)
Capital expenditures$2,830 $142,927 $— $145,757 

Future contractual principal maturities of notes payable as of June 30, 2022 are summarized
26

NINE MONTHS ENDED SEPTEMBER 30, 2021
Black Oil & RecoveryRefining &
Marketing		Corporate and EliminationsConsolidated
Revenues:
Refined products$58,039 $55,974 $— $114,013 
Re-refined products19,218 11,709 — 30,927 
Services2,867 — — 2,867 
Total revenues80,124 67,683 — 147,807 
Cost of revenues (exclusive of depreciation and amortization shown separately below)63,431 64,555 — 127,986 
Depreciation and amortization attributable to costs of revenues2,623 379 — 3,002 
Gross profit14,070 2,749 — 16,819 
Selling, general and administrative expenses10,841 2,482 8,419 21,742 
Depreciation and amortization attributable to operating expenses176 325 759 1,260 
Income (loss) from operations$3,053 $(58)$(9,178)$(6,183)
Capital expenditures$2,313 $— $— $2,313 

Total assets by segment were as follows (in thousands):

Year Ended June 30,Amount Due
2023$14,013 
20249,514 
2025154,049 
20261,605 
20271,809 
Thereafter38,596 
Total$219,586 
AS OF SEPTEMBER 30, 2022
Black Oil & RecoveryRefining &
Marketing		Corporate and EliminationsConsolidated
Total assets$123,808 $395,692 $128,077 $647,577 
AS OF SEPTEMBER 30, 2021
Black Oil & RecoveryRefining &
Marketing		Corporate and EliminationsConsolidated
Total assets$101,461 $4,775 $38,414 $144,650 

Insurance Premiums
The Company financed insurance premiums through various financial institutions bearing interest rates from 3.24% to 4.09% per annum. All such premium finance agreements have maturitiesSegment assets for the Refining and Marketing and Black Oil and Recovery segments consist of less than one yearproperty, plant, and have a balanceequipment, right-of-use assets, intangible assets, accounts receivable, inventories and other assets. Assets for the corporate unallocated amounts consist of $9.2 millionproperty, plant, and equipment used at June 30, 2022 and $2.4 million at December 31, 2021.the corporate headquarters, intangible assets, derivative commodity assets, assets held for sale as well as cash.

Finance Leases

On April 1, 2022, the Company entered into 1 finance lease. Base payments are $0.4 million per month for 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 is $45 million at June 30, 2022.

Term Loan

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 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-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 


Indenture 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 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 
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 June 30, 2022 and 2021 excludes: 1) options to purchase ACCOUNTS RECEIVABLE0.8 million and 5.6 million shares, respectively, of common stock, 2) warrants to purchase 1.3 million and 1.9 million shares, respectively, of common stock, 3) Series A Preferred Stock which is convertible into 0 and 0.4 million shares of common stock, and 6) 22.2 million shares of 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 six months ended June 30, 2022 and 2021 excludes: 1) options to purchase 0.9 million and 5.6 million shares, respectively, of common stock, 2) warrants to purchase 1.6 million and 1.9 million shares, respectively, of common stock, 3) Series A Preferred Stock which is convertible into 0 and 0.4 million shares of common stock, and 6) 22.2 million shares of common stock which may be issued upon conversionAccounts receivable, net, consists 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.

The following is a reconciliation of the numerator and denominator for basic and diluted earnings per share for the three months and six months ended June 30, 2022 and 2021 (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-20

NOTE 8. COMMON STOCK

During the six months ended June 30, 2022, the Company issued 386 thousand shares of common 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's common stock in exchange for warrants to purchase 1.5 million shares of the Company's common stock with an exercise price of $2.25 per share on a cashless basis, and issued 10.2 million shares of the Company's common stock in conversion of $59.8 million in Convertible Senior Notes. In addition, the Company issued 0.6 million shares of common stock in connection with the exercise of options.

During the six months ended June 30, 2021, the Company issued 13.8 million shares of common stock in connection with the conversion of Series A, Series B & B1 Convertible Preferred Stock and exercises of warrants into common stock of the Company, pursuant to the terms of such securities. In addition, the Company issued 0.5 million shares of common stock in connection with the exercise of options.

Warrant Exchange Agreement

On March 24, 2022, the Company entered 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 transaction), with the value of such surrendered shares based on the five day trailing volume weighted average price of the Company’s common stock.
Conversion of Convertible Senior 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 the Indenture.

Conversion of Series A Preferred Stock

Pursuant to the designation of the rights and preferences of the Series A Convertible Preferred Stock of the Company, each share of Series A Convertible Preferred Stock is automatically converted into shares of common stock of the Company (on a one-for-one basis), automatically and without further action by the Company or any holder, upon the first to occur of certain events, including if the closing price of the Company’s common stock on the Nasdaq Capital Market averages at least $15.00 per share over a period of 20 consecutive trading days and the daily trading volume over the same 20-day period averages at least 7,500 shares (the “Automatic Conversion Provision”).

Effective on June 10, 2022, the Automatic Conversion Provision of the Series A Convertible Preferred Stock was triggered, and the 374,337 outstanding shares of the Company’s Series A Convertible Preferred Stock automatically converted into 374,337 shares of common stock of the Company and on June 10, 2022, all rights of any holder with respect to the shares of the Series A Convertible Preferred Stock so converted, including 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 into which such shares of the Series A Convertible Preferred Stock were converted.

F-21

NOTE 9.  PREFERRED STOCK AND DETACHABLE WARRANTS

The total number of authorized shares of the Company’s preferred stock is 50 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 million (“Series A Preferred”). The total number of designated shares of the Company’s Series B Convertible Preferred Stock is 10 million. The total number of designated shares of the Company’s Series B1 Convertible Preferred Stock is 17 million. The total number of designated shares of Series C Convertible Preferred Stock is 44,000. As of JuneSeptember 30, 2022 and December 31, 2021, there were 0 and 386 thousand shares, respectively, of Series A Preferred Stock issued and outstanding. As of June 30, 2022 and December 31, 2021, there were no shares of Series B , B1 and C Preferred Stock outstanding.

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 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.

(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 six months ended June 30, 2022 and 2021 is as follows (in2021(in thousands):

F-22

THREE MONTHS ENDED JUNE 30, 2022
Black OilRefining &
Marketing		RecoveryTotal
Revenues:
Gasolines$— $255,909 $— $255,909 
Jet Fuels— 143,688 — 143,688 
Diesel— 322,317 — 322,317 
Pygas— 20,685 — 20,685 
Oil collection services26 — — 26 
Metals (1)
— — 4,318 4,318 
Other refinery products (2)
666 72,460 877 74,003 
VGO/Marine fuel sales19,562 151,331 — 170,893 
Total revenues20,254 966,390 5,195 991,839 
Cost of revenues (exclusive of depreciation and amortization shown separately below)20,147 959,767 4,528 984,442 
Depreciation and amortization attributable to costs of revenues31 3,009 82 3,122 
Gross profit76 3,614 585 4,275 
Selling, general and administrative expenses12,027 23,597 1,017 36,641 
Depreciation and amortization attributable to operating expenses27 736 — 763 
Loss from operations$(11,978)$(20,719)$(432)$(33,129)
September 30, 2022December 31, 2021
Accounts receivable trade$52,338 $16,302 
Allowance for doubtful accounts(1,509)(1,422)
Accounts receivable trade, net50,829 14,880 
Accounts receivable other1,001 — 
Accounts receivable, net$51,830 $14,880 

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)

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. 
F-23

SIX MONTHS ENDED JUNE 30, 2022
Black OilRefining &
Marketing		RecoveryTotal
Revenues:
Gasoline$— $263,458 $— $263,458 
Jet Fuels— 143,688 — 143,688 
Diesel— 344,225 — 344,225 
Pygas— 25,375 — 25,375 
Industrial fuel— 572 — 572 
Oil collection services240 — — 240 
Metals (1)
— — 7,733 7,733 
Other refinery products (2)
666 72,460 1,410 74,536 
VGO/Marine fuel sales20,898 151,331 — 172,229 
Total revenues21,804 1,001,109 9,143 1,032,056 
Cost of revenues (exclusive of depreciation and amortization shown separately below)21,797 992,854 8,357 1,023,008 
Depreciation and amortization attributable to costs of revenues47 3,033 156 3,236 
Gross profit (loss)(40)5,222 630 5,812 
Selling, general and administrative expenses19,438 24,721 1,264 45,423 
Depreciation and amortization attributable to operating expenses54 736 — 790 
Loss from operations$(19,532)$(20,235)$(634)$(40,401)

SIX MONTHS ENDED JUNE 30, 2021
Black OilRefining &
Marketing		RecoveryTotal
Revenues:
Gasoline$— $10,494 $— $10,494 
Diesel— 25,060 — 25,060 
Pygas— 6,835 — 6,835 
Industrial fuel— 721 — 721 
Oil collection services278 — 3 281 
Metals (1)
— — 11,796 11,796 
Other refinery products (2)
— — 86 86 
Total revenues278 43,110 11,885 55,273 
Cost of revenues (exclusive of depreciation and amortization shown separately below)643 40,198 10,009 50,850 
Depreciation and amortization attributable to costs of revenues39 63 126 228 
Gross profit (loss)(404)2,849 1,750 4,195 
Selling, general and administrative expenses5,223 1,447 365 7,035 
Depreciation and amortization attributable to operating expenses54 — — 54 
Income (loss) from operations$(5,681)$1,402 $1,385 $(2,894)

(1)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.
(2) Other re-refinery products include the sales of asphalt, condensate, recovered products, and other petroleum products.
F-2427


NOTE 8. CONCENTRATIONS OF RISK AND SIGNIFICANT CUSTOMERS
At September 30, 2022 and 2021 and for each of the nine months then ended, the Company’s revenues and receivables were comprised of the following customer concentrations:
As of and for the Nine Months Ended
 September 30, 2022September 30, 2021
% of
Revenues		% of
Receivables		% of
Revenues		% of
Receivables
Customer 140%2%34%11%
Customer 222%45%12%6%
Customer 310%7%9%5%

For each of the nine months ended September 30, 2022 and 2021, the Company’s segment revenues were comprised of the following customer concentrations:
% of Revenue by Segment% Revenue by Segment
Nine Months Ended September 30, 2022Nine Months Ended September 30, 2021
Black Oil and RecoveryRefiningBlack Oil and RecoveryRefining
Customer 1—%43%—%27%
Customer 2—%24%—%20%
Customer 383%4%64%—%

The Company had one vendor that represented 57% of total purchases and 49% of total payables for the nine months ended September 30, 2022, and one vendor that represented 38% of total purchases and 26% of total payables at September 30, 2021.

NOTE 9. INVENTORY
The following table describes the Company's inventory balances by category (in thousands):
 
As of September 30, 2022As of December 31, 2021
Crude oil$60,504 $926 
Refined products97,5684,729
Re-refined products6,5902,376
Total hydrocarbon inventories164,6628,031
Other inventories5,110— 
Total inventories$169,772 $8,031 


NOTE 11. INCOME TAXES10. INVENTORY FINANCING AGREEMENT
Our
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 September 30, 2022 (in thousands):

28

September 30, 2022
Obligations under inventory financing agreement$135,744 
Unamortized financing cost(1,500)
Obligations under inventory financing agreement, net$134,244 

The valuation of our obligations at the end of each reporting period requires that we make estimates of the prices and differentials for our then monthly forward purchase obligations.
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, 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 in Note 3. "Mobile Refinery Acquisition".

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 are in discussions 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 tax rateearlier 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 0% on pretax income differscertain events, including the termination of certain agreements relating to the delivery of crude oil to and the offtake of products from the U.S. federal incomeMobile 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
29

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 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 rateobligations, 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 21% becauseMacquarie; 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 our valuation allowance.
The yearownership 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 date loss at June 30, 2022 putssuch 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 accumulated loss positionamount exceeding $20 million.

The price for crude oil purchased by the cumulative 12 quarters then ended. For tax reporting purposes, we have net operating losses (“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 is 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 “NOLsSupply Transaction Documents”).
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The Company agreed to guarantee the obligations of approximately $146 millionVertex 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 June 30, 2022 thatthe 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 reduce future taxable income. In determiningsuch third party consistent with the carrying valueterms 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 our net deferred tax asset,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 considered all negative and positive evidence. The Company has generated pre-tax losspursuant to the terms of approximately $65 million from Januarya Guaranty entered into on April 1, 2022, through June 30, 2022.by the Company in favor of Macquarie (the “Guaranty”).

NOTE 11. PREPAID EXPENSES AND OTHER CURRENT ASSETS
The following table describes the Company's prepaid expenses and other current assets balances (in thousands):
As of September 30, 2022As of December 31, 2021
Prepaid insurance$15,168 $2,638 
Commodity derivative advance12,468 556 
Renewable volume obligation (RVO) assets1,389 — 
Other prepaid expenses4,312 1,373 
Total prepaid expenses$33,337 $4,567 

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 option and futures arrangements for oil. For option and 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 June 30, 2022 and December 31, 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 June 30, 2022
Contract TypeContract PeriodWeighted Average Strike Price (Barrels)Remaining Volume (Barrels)Fair Value
(in thousands)(in thousands)
SwapAug. 2022- Oct. 2022$14.77 3,220 $(47,773)
OptionsAug 2022 - Aug 2022$6.98 63 $1,048 
FuturesAug 2022 - Aug 2022$45.79 15 $(17)
FuturesSep 2022 - Sep 2022$44.42 13 $41 
FuturesJune 2022 - June 2022$47.79 9 $165 

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 June 30, 2022 and December 31, 2021 are presented in the table below.FIXED ASSETS, NET
F-2531

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 
Fixed assets consist of the following (in thousands):

Useful Life
(in years)		September 30, 2022December 31, 2021
Equipment10$116,370 $38,682 
Furniture and fixtures7106 106 
Leasehold improvements152,779 2,473 
Office equipment51,433 1,183 
Vehicles58,168 6,999 
Building202,334 274 
Land improvements20158 — 
Construction in progress57,730 10,484 
Land9,010 1,995 
Total fixed assets198,088 62,196 
Less accumulated depreciation(33,371)(26,043)
Net fixed assets$164,717 $36,153 
ForThe increase in fixed assets is due to the three months ended June 30, 2022 and 2021, we recognized $94.3fixed assets acquired by the acquisition of the Mobile Refinery on April 1, 2022. Depreciation expense was $3.3 million and $1$1.0 million of loss, respectively, on commodity derivative contracts on the consolidated statements of operations as part of our cost of revenues.

For the six months ended June 30, 2022 and 2021, we recognized $93.7 million and $1.9 million of loss, respectively, on commodity derivative contracts on the consolidated statements of operations as part of our cost of revenues.

NOTE 13. LEASES

Finance Leases

On April 1, 2022, the Company entered into one finance lease and the balance of finance lease right-of-use lease assets is $44.4 million at June 30, 2022. The associated amortization expenses for the three months ended June 30, 2022 and 2021 were $0.8 million and $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 June 30, 2022 and 2021 were $0.8 million and $14 thousand, respectively, and are included in interest expense on the unaudited consolidated statements of operations. The associated amortization expenses for the six months ended June 30, 2022 and 2021 were $0.8 million and $2.2 thousand, respectively, and are included in depreciation and amortization on the unaudited consolidated statements of operations. The associated interest expense for the six months ended June 30, 2022 and 2021 were $1.4 million and $23 thousand, respectively, and are included in interest expense on the unaudited consolidated statements of operations. Please see “Note 6. Financing 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 six months ended June 30, 2022 and 2021. Total operating lease costs for both the three months ended June 30, 2022 and 2021 were $0.25 million and $0.2 million, respectively. Total operating lease costs for both the six months ended June 30, 2022 and 2021 were $0.5 million and $0.4 million, respectively.
Cash Flows
Cash paid for amounts included in operating lease liabilities was $0.5 million and $0.4 million during the six months ended June 30, 2022 and 2021, and is included in operating cash flows. Cash paid for amounts included in finance lease was $107 thousand and $134 thousand during the six months ended JuneSeptember 30, 2022 and 2021, respectively, for the continued operations. Depreciation expense was $7.6 million and is included in financing cash flows.
Maturities of our lease liabilities$2.9 million for all operating leases are as follows as of Junethe nine months ended September 30, 2022 (in thousands):and 2021, respectively for the continued operations.
Asset Retirement Obligations:
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 13. INTANGIBLE ASSETS, NET

Components of intangible assets (subject to amortization) consist of the following items:
September 30, 2022December 31, 2021
Useful Life
(in years)		Gross
Carrying
Amount
 
Accumulated Amortization
Net
Carrying
Amount		Gross
Carrying
Amount		 
Accumulated Amortization		Net
Carrying
Amount
Customer relations5$978 $971 $7 $978 $940 $38 
Vendor relations104,778 4,557 221 4,778 4,199 579 
Trademark/Trade name15887 595 292 887 550 337 
TCEP Technology/Patent1513,287 8,617 4,670 13,287 7,952 5,335 
Non-compete3197 196 1 197 192 5 
Software39,344 1,732 7,612 538 180 358 
$29,471 $16,668 $12,803 $20,665 $14,013 $6,652 
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.
F-2632

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 termsTotal amortization expense of intangibles was $1.1 million and discount rates for all of our operating leases were as follows as of June 30, 2022:
Remaining lease term and discount rate:June 30, 2022
Weighted average remaining lease terms (years)
   Lease facilities1.62
   Lease equipment2.84
   Lease plant9.37
Weighted average discount rate
   Lease facilities9.16 %
   Lease equipment8.00 %
   Lease plant9.37 %
The plant lease has multiple 5-year extension options for a total of 20 years. The extension option 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, SUBSCRIPTION AGREEMENTS AND MOBILE REFINERY ACQUISITION

Completion of Myrtle Grove Purchase Agreement
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”) held by Tensile-Myrtle Grove Acquisition Corporation (“Tensile-MG”), an affiliate of Tensile Capital Partners Master Fund LP, an investment fund based in San Francisco, California (“Tensile”) from Tensile-Vertex for $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 Belle Chasse, Louisiana, re-refining complex.

Myrtle Grove Redeemable Noncontrolling Interest
In 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 $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 $0.4 million increasedfor the carrying amount of redeemable noncontrolling interests to the redemption value as of April 1, 2022 of $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 Junethree months ended September 30, 2022 and 2021, (in thousands):
June 30, 2022June 30, 2021
Beginning balance$6,812 $5,473 
Net loss attributable to redeemable non-controlling interest(38)(129)
Accretion of non-controlling interest to redemption value428 762 
Redemption of non-controlling interest(7,202)0
Ending balance$— $6,106 

Completionrespectively. Total amortization expense of Heartland Purchase Agreement
On May 26, 2022, the Company, through Vertex Splitter acquired the 65% noncontrolling interest of Heartland SPV held by Tensile-Heartland from Tensile-Vertex Holdings LLC (“Tensile-Vertex”), an affiliate of Tensile for $43.5 million, whichintangibles was based on the value of the Class B Unit 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 cash equivalents held by Tensile-Heartland as of the closing date. As a result, the Company acquired 100% of Heartland SPV, which in turn owns the Company’s Columbus, Ohio, re-refining complex.
Heartland Redeemable Noncontrolling Interest

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 $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 May 26, 2022, the cumulative amount resulting from the application of the measurement guidance in ASC 810-10 was $43.5 million. On May 26, 2022, the 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 June 30, 2022 and 2021 (in thousands):
June 30, 2022June 30, 2021
Beginning balance$36,635 $26,139 
Net income attributable to redeemable non-controlling interest6,829 4,783 
Redemption of non-controlling interest(43,464)— 
Ending balance$— $30,922 

The amount of accretion of redeemable noncontrolling interest to redemption value of $0.4$2.7 million and $0.8$1.3 million are presented as an adjustment to net income (loss) attributable to Vertex Energy, Inc., to arrive at net income (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 sixnine months ended JuneSeptember 30, 2022 and 2021, respectively.
Mobile Refinery Acquisition
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On April 1, 2022, Vertex Operating assigned its rights to the May 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 Effective Date, a total of $75 million (less $10 million previously paid) was paid by Vertex Refining in consideration for the acquisition of the Mobile Refinery, which amountEstimated future amortization expense is subject to customary purchase price adjustments and reimbursement for certain capital expenditures in the amount of approximately $0.4 million, $15.9 million was paid to Shell 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 purchase 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 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”).

The 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 acquiredfollows (in thousands):

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 


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
RevenueYear 1$922,1964,061 
Net lossYear 24,005 
Year 32,549 
Year 4950 
Year 5948 
Thereafter290 
$(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):

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June 30, 2022
Obligations under inventory financing agreement$174,607 
Unamortized financing cost(1,750)
Obligations under inventory financing agreement, net$172,85712,803 

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
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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.
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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 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.14. ACCRUED LIABILITIES
The Company met all
Accrued expenses and other current liabilities consisted 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 “following (in thousands):
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.
September 30, 2022December 31, 2021
Accrued purchases$18,496 $1,877 
Accrued interest1 1,594 
Accrued compensation and benefits3,625 1,082 
Accrued income, real estate, sales and other taxes1,454 389 
RINS liabilities19,023 — 
Environmental liabilities - current51 — 
$42,650 $4,942 
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 were expected to be approximately $90 million.
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 respectincrease in accrued liabilities from December 31, 2021 is due 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 acquisitionoperation of the Mobile Refinery, and the planned change in business focus associated therewith, and the terms and conditionswhich was acquired on April 1, 2022.

NOTE 15. LONG-TERM DEBT

The Company's long-term debt consisted 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 feefollowing as of $3 million.
Vertex is continuing to explore opportunities for the sale of the UMO business.
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The following summarized financial information has been segregated from continuing operations and reported as Discontinued Operations for the three months ended JuneSeptember 30, 2022 and December 31, 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 
CreditorLoan TypeBalance on September 30, 2022Balance on December 31, 2021
Senior Convertible NoteConvertible note$95,178 $155,000 
Term Loan 2025Loan165,000 — 
John Deere NoteNote— 94 
SBA LoanSBA Loan59 59 
Various institutionsInsurance premiums financed10,449 2,375 
Principal amount of long-term debt270,686 157,528 
Less: unamortized discount and deferred financing costs(86,384)(90,984)
Total debt, net of unamortized discount and deferred financing costs184,302 66,544 
Less: current maturities, net of unamortized discount and deferred financing costs(16,637)(2,413)
Long term debt, net of current maturities$167,665 $64,131 
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The assets and liabilities held for sale on the Consolidated Balance SheetsFuture maturities of long-term debt, excluding financing lease obligations, as of JuneSeptember 30, 2022 and December 31, 2021 are summarized as follows (in thousands):

Period Ended September 30,Amount Due
2023$16,637 
20248,252 
2025150,563 
20261 
202795,180 
Thereafter53 
Total$270,686 

Term Loan
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 “Initial 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 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 Refining OH, LLC, which is indirectly wholly-owned by the Company ("Vertex OH"), Heartland SPV, and Tensile-Heartland Acquisition Corporation, a Delaware corporation (“Tensile-Heartland”, and together with Vertex Ohio and Heartland SPV, 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 above) acquired by Vertex Refining on April 1, 2022, as discussed in greater detail above, 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.
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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 
On September 30, 2022, Vertex Refining; the Company, as a guarantor; substantially all of the Company’s direct and indirect subsidiaries, as guarantors; Vertex Marine Fuel Services LLC (“Vertex Marine”) and Vertex Refining Texas LLC (“Vertex Texas,” and together with Vertex Marine, the “New Subsidiary Guarantors”), which are indirectly wholly-owned by the Company; the lenders thereto; and the Agent, entered into a second amendment (“Amendment No. Two”) to the Loan and Security Agreement.
Amendment No. Two (a) extends the date that the Company is required to begin initial commercial production of renewable diesel at the Mobile Refinery, from February 28, 2023 to April 28, 2023, and provides other corresponding extensions of the milestones required to complete the Company’s capital project designed to modify the Mobile Refinery’s existing hydrocracking unit to produce renewable diesel fuel on a standalone basis, which as previously described, is currently anticipated for mechanical completion during the first quarter of 2023; and (b) waives and extends certain deadlines and time periods for the Company to take other actions in connection with the Loan and Security Agreement.
In addition, each of the New Subsidiary Guarantors also entered into a Guarantor Joinder, agreeing to be bound by the terms of the Loan and Security Agreement, and to guaranty the amounts owed thereunder.
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 Warrant holder has 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.

Indenture 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. As of October 1, 2022, a total of $7 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 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 are 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
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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 can 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 an aggregate 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. 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):
September 30, 2022
Principal Amounts$155,000 
Conversion of principal into common stock(59,822)
Outstanding principal amount95,178 
Unamortized discount and issuance costs(52,362)
Net Carrying Amount$42,816 
Our Convertible Senior Notes will mature on October 1, 2027, unless earlier repurchased, redeemed or converted. Interest is payable semiannually in arrears on April 1 and October 1 of each year, beginning on April 1, 2022.
NOTE 16. LEASES

Finance Leases

The Company's finance leases liabilities consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):
CreditorLoan TypeBalance on September 30, 2022Balance on December 31, 2021
AVT Equipment Lease-HHFinance Lease$— $302 
AVT Equipment Lease-OhioFinance Lease— 296 
VRA Finance LeaseFinance Lease45,494 — 
$45,494 $598 
Future maturities of finance lease obligations, as of September 30, 2022 are summarized as follows (in thousands):
Period Ended September 30,Amount Due
2023$1,155 
20241,301 
20251,466 
20261,652 
20271,862 
Thereafter38,058 
Total$45,494 

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On April 1, 2022, the Company entered into one finance lease. Base payments are $0.4 million per month for 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 $43.6 million at September 30, 2022, and the finance lease obligation is $45.5 million at September 30, 2022. The associated amortization expenses for the three months ended September 30, 2022 and 2021 were $0.7 million and $28.7 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 September 30, 2022 and 2021 were $1.4 million and $19.4 thousand, respectively, and are included in interest expense on the unaudited consolidated statements of operations. The associated amortization expenses for the nine months ended September 30, 2022 and 2021 were $0.7 million and $86.0 thousand, respectively, and are included in depreciation and amortization on the unaudited consolidated statements of operations. The associated interest expense for the nine months ended September 30, 2022 and 2021 were $2.7 million and $37 thousand, respectively, and are included in interest expense on the unaudited consolidated statements of operations.
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 nine months ended September 30, 2022 and 2021. Total operating lease costs for both the three months ended September 30, 2022 and 2021 were $1.5 million and $1.4 million, respectively. Total operating lease costs for both the nine months ended September 30, 2022 and 2021 were $4.4 million and $4.2 million, respectively.
Cash Flows
Cash paid for amounts included in operating lease liabilities was $4.4 million and $4.2 million during the nine months ended September 30, 2022 and 2021, respectively, and is included in operating cash flows. Cash paid for amounts included in finance lease was $201 thousand and $409 thousand during the nine months ended September 30, 2022 and 2021, respectively, and is included in financing cash flows.
Maturities of our lease liabilities for all operating leases are as follows as of September 30, 2022 (in thousands):
September 30, 2022
FacilitiesEquipmentPlantRailcarTotal
Year 1$715 $262 $4,111 $1,333 $6,421 
Year 2495 262 4,111 1,437 6,305 
Year 3394 259 4,111 489 5,253 
Year 4306 259 4,111 305 4,981 
Year 5300 234 4,111 181 4,826 
Thereafter1,550 — 22,482 — 24,032 
Total lease payments3,760 1,276 43,037 3,745 51,818 
Less: interest(1,139)(218)(15,728)(773)(17,858)
Present value of operating lease liabilities$2,621 $1,058 $27,309 $2,972 $33,960 

The weighted average remaining lease terms and discount rates for all of our operating leases were as follows as of September 30, 2022:
37

Remaining lease term and discount rate:September 30, 2022
Weighted average remaining lease terms (years)
   Lease facilities4.79
   Lease equipment10.69
   Lease plant10.47
   Lease railcar3.22
Weighted average discount rate
   Lease facilities9.13 %
   Lease equipment7.97 %
   Lease plant9.37 %
   Lease railcar8.00 %
The plant lease has multiple 5-year extension options for a total of 20 years. The extension option 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.
38

NOTE 17. EQUITY

During the nine months ended September 30, 2022, the Company issued 385,593 shares of common stock in connection with the conversion of Series A Convertible Preferred Stock, pursuant to the terms of such securities, issued 1,112,728 shares of the Company's common stock in exchange for warrants to purchase 1,500,000 shares of the Company's common stock with an exercise price of $2.25 per share, issued 96,074 shares of the Company's common stock in exchange for warrants to purchase 165,100 shares of the Company's common stock with an exercise price of $4.50 per share on a cash and cashless basis, and issued 10,165,149 shares of the Company's common stock in conversion of $59,822,000 in Convertible Senior Notes. In addition, the Company issued 561,317 shares of common stock in connection with the exercise of options.
During the nine months ended September 30, 2021, the Company issued 13,826,010 shares of common stock in connection with the conversion of Series A, Series B & B1 Convertible Preferred Stock (which has since been fully converted and terminated) and exercises of warrants into common stock of the Company, pursuant to the terms of such securities. In addition, the Company issued 528,368 shares of common stock in connection with the exercise of options.
Warrant Exchange Agreement. On March 24, 2022, the Company entered into an Exchange Agreement with Tensile Capital Partners Master Fund LP (the “Holder” and "Tensile"). The Holder agreed to exchange outstanding warrants to purchase 1,500,000 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 1,112,728 shares of the Company’s common stock, effectively resulting in a net cashless exercise of the warrants (which were cancelled in connection with the transaction), with the value of such surrendered shares based on the five day trailing volume weighted average price of the Company’s common stock.
Warrant Agreement in connection with term loan. On July 11, 2022, the holders of warrants to purchase 165,000 shares of the Company’s common stock exercised warrants to purchase 165,000 shares of the Company's common stock with an exercise price of $4.50 per share and an expiration date of April 1, 2027, on a cashless basis, and were issued 95,974 shares of the Company’s common stock, with the value of such surrendered shares based on the five day trailing volume weighted average price of the Company’s common stock.
On July 22, 2022, the holders of warrants to purchase 100 shares of common stock exercised warrants to purchase 100 shares of the Company's common stock with an exercise price of $4.50 per share and were issued 100 shares of common stock.
Conversion of Convertible Senior Notes. On May 26, 2022, May 27, 2022, May 31, 2022, and June 1, 2022, holders of an aggregate of $59,822,000 of the Company’s 6.25% Convertible Senior Notes due 2027, converted such notes into 10,165,149 shares of common stock of the Company pursuant to the terms of the Indenture.
Conversion of Series A Preferred Stock. Pursuant to the prior designation of the rights and preferences of the Series A Convertible Preferred Stock of the Company, each share of Series A Convertible Preferred Stock was to be automatically converted into shares of common stock of the Company (on a one-for-one basis), automatically and without further action by the Company or any holder, upon the first to occur of certain events, including if the closing price of the Company’s common stock on the Nasdaq Capital Market averaged at least $15.00 per share over a period of 20 consecutive trading days and the daily trading volume over the same 20-day period averaged at least 7,500 shares (the “Automatic Conversion Provision”).
Effective on June 10, 2022, the Automatic Conversion Provision of the Series A Convertible Preferred Stock was triggered, and the 374,337 then outstanding shares of the Company’s Series A Convertible Preferred Stock automatically converted into 374,337 shares of common stock of the Company and on June 10, 2022, all rights of any holder with respect to the shares of the Series A Convertible Preferred Stock so converted, including 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 into which such shares of the Series A Convertible Preferred Stock were converted.
Preferred Stock and Detachable Warrants. The total number of authorized shares of the Company’s preferred stock is 50,000,000 shares, $0.001 par value per share. The total number of designated shares of the Company’s Series A Convertible Preferred Stock is 0 and 5,000,000, as of September 30, 2022 and December 31, 2021 (“Series A Preferred”). The total number of designated shares of the Company’s Series B Convertible Preferred Stock is 0 and 10 million, as of September 30, 2022 and December 31, 2021. The total number of designated shares of the Company’s Series B1 Convertible Preferred Stock is 0 and 17,000,000 as of September 30, 2022 and December 31, 2021. The total number of designated shares of Series C Convertible Preferred Stock is 0 and 44,000 as of September 30, 2022 and December 31, 2021. As of September 30, 2022 and December 31, 2021, there were 0 and 385,601 shares, respectively, of Series A Preferred Stock issued and outstanding. As of September 30, 2022 and December 31, 2021, there were no shares of Series B, B1 and C Preferred Stock outstanding. On
39

August 31, 2022, the Company decided to withdraw and terminate the designations of the Series A, Series B, Series B1 and Series C preferred stock.
Certificates of Withdrawal of Previously Designated Preferred Stock. The Company filed Certificates of Withdrawal relating to each series of Preferred Stock previously designated with the Secretary of State of Nevada and terminated the designation of its Series A Preferred Stock (on August 24, 2022); Series B Preferred Stock (on August 24, 2022); Series B1 Preferred Stock (on August 23, 2022) and Series C Preferred Stock (on August 23, 2022). At the time of the filing of the Certificates of Withdrawal, no shares of any of the previously designated series of Preferred Stock were outstanding. The Certificates of Withdrawal were effective upon filing, and eliminated from our Articles of Incorporation all matters set forth in the previously-filed Certificates of Designation with respect to the previously designated series of Preferred Stock.

40

NOTE 18. EARNINGS PER SHARE

The following is a reconciliation of the numerator and denominator for basic and diluted income (loss) per share for the three months and nine months ended September 30, 2022 and 2021 (in thousands, except per share amounts):

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Basic income (loss) per Share
Numerator:
Net income (loss) attributable to shareholders from continuing operations$17,259 $6,364 $(62,764)$(16,457)
Net income attributable to shareholders from discontinued operations, net of tax4,975 1,581 13,053 4,732 
Net income (loss) attributable to common shareholders$22,234 $7,945 $(49,711)$(11,725)
Denominator:  
Weighted-average common shares outstanding75,591 61,349 69,007 53,964 
Basic income (loss) per common shares
Continuing operations$0.23 $0.10 $(0.91)$(0.31)
Discontinued operations, net of tax0.07 0.03 0.19 0.09 
Basic income (loss) per share$0.30 $0.13 $(0.72)$(0.22)
Diluted Income (Loss) per Share
Numerator:
Net income (loss) attributable to shareholders from continuing operations$17,259 $6,364 $(62,764)$(16,457)
Net income available to shareholders from discontinued operations, net of tax4,975 1,581 13,053 4,732 
Net income (loss) available to common shareholders$22,234 $7,945 $(49,711)$(11,725)
Denominator:  
Weighted-average shares outstanding75,591 61,349 69,007 53,964 
Effect of dilutive securities
Stock options and warrants4,047 2,871 — — 
Preferred stock— 385 — — 
Diluted weighted-average shares outstanding79,638 64,605 69,007 53,964 
Diluted income (loss) per common shares
Continuing operations$0.22 $0.10 $(0.91)$(0.31)
Discontinued operations, net of tax0.06 0.02 0.19 0.09 
Diluted income (loss) per share$0.28 $0.12 $(0.72)$(0.22)


NOTE 17. FIXED ASSETS, NET19. FAIR VALUE MEASUREMENTS
Fixed
The following tables present assets consistand liabilities accounted for at fair value on a recurring basis as of the followingSeptember 30, 2022 and December 31, 2021 (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-3441

The Company has asset retirement obligations
As of September 30, 2022
Level 1Level 2Level 3Total
Derivative instruments, assets
Commodity$1,219 $— $— $1,219 
Derivative instruments, assets1,219 — — 1,219 
Derivative instruments, liabilities
Derivative warrants— — 14,303 14,303 
Derivative warrants, liabilities— — 14,303 14,303 
Total$1,219 $— $(14,303)$(13,084)
As of December 31, 2021
Level 1Level 2Level 3Total
Derivative instruments, assets
Commodity$96 $— $— $96 
Derivative instruments, assets96 — — 96 
Derivative instruments, liabilities
Derivative warrants— — 75,211 75,211 
Derivative warrants, liabilities— — 75,211 75,211 
Total$96 $— $(75,211)$(75,115)

Level 3 instruments include Initial Warrants and Additional Warrants granted in connection with respect to certain of its refinery assets due to various legal obligations to clean and/or dispose of various component parts of each refinerythe Loan and Security Agreement, see Note 15 "Long-Term Debt". We revalued the 2,835 thousand warrants granted and outstanding at September 30, 2022 using 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 isDynamic Black-Scholes model that computes 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 partimpact of a refinery,possible change in control transaction upon the Company estimatesexercise of the costwarrant shares. The Dynamic Black-Scholes Merton unobservable inputs used were as follows:

Dynamic Black-Scholes Merton Unobservable Inputs
Initial WarrantsAdditional Warrants
Expected dividend rate— %— %
Expected volatility104.52 %101 %
Risk free interest rate4.06 %4.06 %
Expected term55.5

The following is an analysis of performingchanges in the retirement activities and records aderivative liability forclassified as level 3 in the fair value hierarchy for the nine months ended September 30, 2022 (in thousands):

Level Three Roll-Forward
2022
Balance at beginning of period$75,211 
April 1 warrants granted22,795 
May 26 warrants granted2,874 
Equity component of the convertible senior not(78,789)
Change in valuation of warrants included in net income(7,788)
Balance at end of period$14,303 

See Note 20 "Commodity Derivative Instruments", below for information on the impact on results of that cost using established present value techniques.operations of our commodity derivative instruments.
42


NOTE 18. INTANGIBLE ASSETS, NET20. COMMODITY DERIVATIVE INSTRUMENTS

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

The Company’s derivative instruments consist of option and futures arrangements for oil. For option and 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 September 30, 2022 and December 31, 2021, are summarized in the following items: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.
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 
As of September 30, 2022
Contract TypeContract PeriodWeighted Average Strike Price (Barrels)Remaining Volume (Barrels)Fair Value
(in thousands)(in thousands)
SwapSept. 2022 - Nov. 2022$4.51 12 $54 
SwapSept. 2022 - Nov. 2022$2.39 6 $14 
OptionSept. 2022 - Nov. 2022$10.75 42 $1,075 
SwapSept. 2022 - Nov. 2022$1.52 50 $76 
Intangible assets
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 September 30, 2022 and December 31, 2021 are amortized on a straight-line basis. We continually evaluatepresented in 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.table below.
Total amortization expense of intangibles was $763 thousand and $27 thousand for
Balance Sheet ClassificationContract Type20222021
Crude oil options$1,075 $136 
Crude oil swaps144 — 
Crude oil futures— (40)
Derivative commodity assets$1,219 $96 
For the three months ended JuneSeptember 30, 2022 and 2021, respectively. Total amortization expensewe recognized $11.0 million and $0.3 million of intangiblesgain, respectively, on commodity derivative contracts on the consolidated statements of operations as part of our cost of revenues.

For the nine months ended September 30, 2022 and 2021, we recognized $87.2 million and $2.2 million of loss, respectively, on commodity derivative contracts on the consolidated statements of operations as part of our cost of revenues.

43

NOTE 21. 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 September 30, 2022 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”) of approximately $106 million as of September 30, 2022 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 $29.1 million from January 1, 2022 through September 30, 2022.

The year to date loss at September 30, 2021 puts the Company in an accumulated loss position for the cumulative 12 quarters then ended. For tax reporting purposes, we have NOLs of approximately $38.9 million as of September 30, 2021 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 generated pre-tax loss of approximately $2.3 million from January 1, 2021 through September 30, 2021.

NOTE 22. NON-CONTROLLING INTERESTS

Myrtle Grove Facility
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”) held by Tensile-Myrtle Grove Acquisition Corporation (“Tensile-MG”), an affiliate of Tensile Capital Partners Master Fund LP, an investment fund based in San Francisco, California (“Tensile”) from Tensile-Vertex for $7.2 million, which was $790based 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 Belle Chasse, Louisiana, re-refining complex.

Myrtle Grove Redeemable Noncontrolling Interest. In 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 $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 be the redemption value assuming the security was redeemable at the balance sheet date. This accretion adjustment of $0.4 million increased the carrying amount of redeemable noncontrolling interests to the redemption value as of April 1, 2022 of $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 September 30, 2022 and $54 thousand2021 (in thousands):
September 30, 2022September 30, 2021
Beginning balance$6,812 $5,473 
Net loss attributable to redeemable non-controlling interest(38)(200)
Accretion of non-controlling interest to redemption value428 1,176 
Redemption of non-controlling interest(7,202)— 
Ending balance$— $6,449 

Heartland Re-refining Complex
On May 26, 2022, the Company, through Vertex Splitter acquired the 65% noncontrolling interest of Heartland SPV held by Tensile-Heartland from Tensile-Vertex Holdings LLC (“Tensile-Vertex”), an affiliate of Tensile for $43.5 million, which was based on the value of the Class B Unit 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 cash equivalents held by
44

Tensile-Heartland as of the closing date. As a result, the Company acquired 100% of Heartland SPV, which in turn owns the Company’s Columbus, Ohio, re-refining complex.
Heartland Redeemable Noncontrolling Interest. 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 $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 May 26, 2022, the cumulative amount resulting from the application of the measurement guidance in ASC 810-10 was $43.5 million. On May 26, 2022, the 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 September 30, 2022 and 2021 (in thousands):
September 30, 2022September 30, 2021
Beginning balance$36,635 $26,139 
Net income attributable to redeemable non-controlling interest6,829 7,183 
Redemption of non-controlling interest(43,464)— 
Ending balance$— $33,322 

The amount of accretion of redeemable noncontrolling interest to redemption value of $0.4 million and $1.1 million are presented as an adjustment to net income (loss) attributable to Vertex Energy, Inc., to arrive at net income (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 nine months ended September 30, 2022 and 2021, respectively.
NOTE 23. 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 pursuant to the UMO Sale Agreement discussed below.
On January 25, 2022, the Company entered into a mutual agreement with Safety-Kleen to terminate the UMO Sale Agreement. In connection with the termination agreement, the Company paid Safety-Kleen a break-up fee of $3 million.
Vertex is continuing to explore opportunities for the sale of the UMO Business. Subsequent to the April 1, 2022 acquisition of the Mobile Refinery, our UMO Business operations no longer consist of ‘all or substantially all’ of our assets and as such, we have determined that the sale of such operations does not reach a level that would require shareholder approval if sold under Nevada law. As such, the requirement to obtain shareholder approval for any subsequent sale of the UMO Business is no longer necessary.
The Company is still exploring opportunities to sell the UMO Business and believes it will sell such assets within a year. As of the day of this filing, the Company is in ongoing discussions with a third party regarding a potential sale of the Heartland Business and has accordingly presented only this division as discontinued operations while reclassifying the other UMO Business operations out of assets held for sale, and all liabilities of the UMO Business out of liabilities held for sale, other than in connection with the Heartland Business. The following summarized financial information has been reclassified as continued operations for the six months ended June 30, 2022 and 2021 respectively.(in thousands):
Estimated future amortization expense is
45

June 30, 2022December 31, 2021
Assets held for sale to assets held and used$81,616 $74,046 
Liabilities held for sale to liabilities held and paid$(35,507)$(37,645)
Six Months Ended June 30,
20222021
Net income from discontinued operations to continued operation$16,736 $1,284 
The following summarized financial information has been segregated from continuing operations and reported as Discontinued Operations for the three months and nine months ended September 30, 2022, and 2021 (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenues$22,153 $14,507 $63,534 $41,039 
Cost of revenues (exclusive of depreciation shown separately below)14,306 8,638 36,077 23,124 
Depreciation and amortization attributable to costs of revenues391 393 1,170 1,160 
Gross profit7,456 5,476 26,287 16,755 
Operating expenses:
Selling, general and administrative expenses (exclusive of depreciation shown separately below)2,418 1,418 6,213 4,606 
Depreciation and amortization expense attributable to operating expenses63 63 188 188 
Total operating expenses2,481 1,481 6,401 4,794 
Income from operations4,975 3,995 19,886 11,961 
Other income (expense)
Interest expense— (14)(4)(46)
Total other expense— (14)(4)(46)
Income before income tax4,975 3,981 19,882 11,915 
Income tax benefit (expense)— — — — 
Income from discontinued operations, net of tax$4,975 $3,981 $19,882 $11,915 


The assets and liabilities held for sale on the Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 are as follows (in thousands):
Year 1
46

September 30, 2022December 31, 2021
ASSETS
Inventory$2,190 $1,253 
Prepaid expenses317 163 
Total current assets2,507 1,416 
Fixed assets, at cost17,658 15,451 
Less accumulated depreciation(9,140)(8,047)
   Fixed assets, net8,518 7,404 
Finance lease right-of-use assets— 436 
Intangible assets, net626 814 
Assets held for sale$11,651 $10,070 

$3,051 
Year 23,051 
Year 32,273 
Thereafter— 
$8,375 

NOTE 19. ACCRUED LIABILITIESNOTE 24. RELATED PARTY TRANSACTIONS
Related Parties

Accrued expenses and other current liabilities consistedFrom time to time, the Company consults Ruddy Gregory, PLLC., a related party law firm of which James Gregory, a member of the following (in thousands):
Board of Directors, serves as a partner. During the nine months ended September 30, 2022 and 2021, we
paid $0.5 million and $0.6 million, respectively, to such law firm for services rendered, which services include the drafting and negotiation of, and due diligence associated with, the Sale Agreement and Refinery Purchase Agreement (defined and discussed above), and related transactions, including the Loan and Security Agreement and Supply and Offtake Agreement, discussed above.
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 20.25. SUBSEQUENT EVENTS
Warrant Exercises
On July 11, 2022, 2 holders of warrants to purchase an aggregate of 165,000 shares of our common 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 exercise price of $9.25 per share, exercised such warrants in a cashless exercise (surrendering 81,925 shares of common stock in connection with such exercise, valued based on the five day trailing volume weighted average price of the Company’s common stock, to pay the exercise price due in connection therewith), pursuant to the terms of such warrants, and were issued 98,075 shares of common stock.
On July 19,October 1, 2022, a holdertotal of warrants to purchase 100 shares$3 million of interest was paid on our common stock with an exercise price of $4.50 per share exercised such warrants for cash and was issued 100 shares of common stock.outstanding Convertible Senior Notes.

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

Introduction

    This informationOur 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 thereto on the basis of management’s assessment to assist readers in understanding our results of operations, financial condition, and cash flows. As such, it 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, 2021, filed with the Securities and Exchange Commission on March 14, 2022 (the “Annual Report”). The majority ofUnless the numbers presented below are rounded numberscontext requires otherwise, references to the “Company,” “we,” “us,” “our,” “Vertex”, “Vertex Energy” and should be considered as approximate.“Vertex Energy, Inc.” refer specifically to Vertex Energy, Inc. and its consolidated subsidiaries.

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“Part I -– Financial Information” -– “Item 1. Financial Statements”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 aWe file annual, quarterly, basis for the quarters ended March 31, June 30, and September 30th, the first quarter, second quartercurrent reports, proxy statements and third quarter, respectively,other information with the quarter ending December 31st being referenced herein asSecurities 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 fourth quarter. Fiscal 2022 meanswebsite 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 year ended December 31, 2022,SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and fiscal 2021 meanstelephone number set forth on the year ended December 31, 2021.

    Please see the “Glossary” beginning oncover page 4 of the Annual Report, for a list of abbreviations and definitions used throughout this Report.

The majority of the numbers presented below are rounded numbers and should be considered as approximate.
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 oil” is a lubricant grade oil initially produced from refining crude oil or through chemical synthesis used in manufacturing lubricant products such as lubricating greases, motor oil, and metal processing fluids.

“Black Oil” is 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 related operations and processes such as purchase, sales, aggregation, processing, and re-refining.

“Catalytic Reforming” is a process that uses heat, pressure, and a catalyst to convert low-octane naphthas into high-octane gasoline blending components.

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“Cracking”● “Exchange Act” refers to the processSecurities Exchange Act of breaking down larger, heavier, and more complex hydrocarbon molecules into simpler and lighter molecules through1934, as amended;
● “SEC” or the use of heat, pressure, and sometimes a catalyst.

“Crude oil distillation” means the process of distilling 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 or whose act first causes used oil to become subject to regulation. Generators can be service stations, governments or other businesses that produce or receive used oil.

“IMO 2020”“Commission” refers to the International Maritime Organization’s rule, effective January 1, 2020, which limited sulfur content in fuels used on board ships operating outside designated emission control areas to 0.50% mass by mass.United States Securities and Exchange Commission; and

“LLS” means Louisiana Light Sweet Crude and is a grade of crude oil classified by its low sulfur content.

“LPG” means liquefied petroleum gases.

“Lubricant” or “lube” means a solvent-neutral paraffinic product used in commercial heavy-duty engine oils, passenger car oils, and specialty products for industrial applications such as heat transfer, metalworking, rubber, and other general process oil.

“MBL” means one thousand barrels.

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

“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.

“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.

amended.
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
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written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report.
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” or the “Commission”), including the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 14, 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 indebtedness, including our outstanding Convertible Senior Notes, including amounts owed, restrictive covenants and security interests in connection therewith, and our ability to repay such debts and amounts due thereon (including interest) when 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 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;
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•our ability to maintain our relationships with Bunker One (USA) Inc, Macquarie Energy North America Trading Inc., and Shell;
•the impact of competitive services and products;
•our ability to complete and integrate future acquisitions;
•our ability to maintain insurance;
•potential future litigation, judgments and settlements;
•rules and regulations making our operations more costly or restrictive;
•changes in environmental and other laws and regulations and risks associated with such laws and regulations;
•economic downturns both in the United States and globally;
•risk of increased regulation of our operations and products;
•negative publicity and public opposition to our operations;
•disruptions in the infrastructure that we and our partners rely on;
•an inability to identify attractive acquisition opportunities and successfully negotiate acquisition terms;
•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;
•prohibitions on borrowing and other covenants of our debt facilities;
•our ability to effectively manage our growth;
•decreases and/or volatility in global demand for, and the price of, oil;
•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;
•repayment of and covenants in our current and future debt facilities;
•rising inflation, rising interest rates, governmental responses thereto and possible recessions caused thereby;
•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“.
In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements.
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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.

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Overview and Business Activities
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 petroleum value chain, including refining, collection, aggregation, transportation, storage and sales of aggregated feedstock and refined products to end-users. All of these products are commodities that are subject to various degrees of product quality and performance specifications.
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 September 30, 2022, we aggregated approximately 86.5 million gallons of used motor oil and other petroleum by-product feedstocks and managed the re-refining of approximately 80.1 million gallons of used motor oil with our proprietary vacuum gas oil (“VGO”) and Base Oil processes.

Mobile Refinery acquisition.Effective April 1, 2022, we completed the acquisition of a 75,000 bpd crude oil refinery ten miles north of Mobile, in Saraland, Alabama (the “Mobile Refinery”) and related logistics assets, which include a deep-water draft, bulk loading terminal facility with 600,000 Bbls of storage capacity for crude oil and associated refined petroleum products located in Mobile, Alabama (the “Blakeley Island Terminal”). The terminal includes a dock for loading and unloading vessels with a pipeline tie-in, as well as the related logistics infrastructure of a high-capacity truck rack 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.
SummaryThe Company paid a total of $75.0 million (less $10 million previously paid) in consideration for the acquisition of the Mobile Refinery. In addition, we paid $16.4 million for previously agreed upon capital expenditures, miscellaneous prepaids and reimbursable items and an $8.7 million technology solution comprising the ecosystem required for the Company to run the Mobile Refinery after the acquisition. The Information ContainedCompany also purchased certain crude oil and finished products inventories for $130.2 million owned by Shell at the Mobile Refinery.
As a result of the Mobile Refinery purchase, 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.
Additionally, as a result of the Mobile Refinery purchase, we entered into several agreements with Macquarie Energy North America Trading Inc (“Macquarie”). Under these agreements (together, the “Inventory Financing Agreement”), Macquarie agrees to finance the Mobile Refinery’s crude supply and inventories, and Vertex agrees to provide storage and terminalling services to Macquarie. At the time of the acquisition, Macquarie agreed to finance $124.3 million of the $130.2 million of opening inventories. See Note 3 “Mobile Refinery Acquisition” of our Condensed Notes to Consolidated Financial Statements.
Myrtle Grove Facility Purchase.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”) held by Tensile-Myrtle Grove Acquisition Corporation (“Tensile-MG”), an affiliate of Tensile Capital Partners Master Fund LP, an investment fund based in Management’s DiscussionSan Francisco, California (“Tensile”) from Tensile-Vertex for $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 Analysiscash 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 Belle Chasse, Louisiana, re-refining complex. See Note 22 “Non-Controlling Interests” of our Condensed Notes to Consolidated Financial ConditionStatements.
Heartland Re-refining Complex. On May 26, 2022, the Company, through Vertex Splitter acquired the 65% noncontrolling interest of HPRM LLC, a Delaware limited liability company (“Heartland SPV”) held by Tensile-Heartland Acquisition Corporation, a Delaware corporation (“Tensile-Heartland”) from Tensile-Vertex Holdings LLC (“Tensile-Vertex”), an affiliate of Tensile for $43.5 million, which was based on the value of the Class B Unit 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 Resultscash equivalents held by Tensile-Heartland as of Operationsthe closing date. As a result, the Company acquired 100% of Heartland SPV, which in turn owns the Company’s Columbus, Ohio, re-refining complex. See Note 22 “Non-Controlling Interests” of our Condensed Notes to Consolidated Financial Statements.
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Our Management’s DiscussionWe operate two business segments: the Refining and AnalysisMarketing segment and the Black Oil and Recovery segment. For further description of Financial Conditionthe business 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. Discussionproducts of our current strategy and plansegments, see “Results 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.

•Results of Operations. An analysis of our financial results comparing the six and three months ended June 30, 2022, and 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.

Operations”, below.
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 aThe renewable diesel conversion project is 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 byin the firstsecond quarter of 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. As of September 30, 2022, the Company had incurred $38.8 million in capital expenditures for this project.

•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.

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DescriptionResults of Business ActivitiesOperations

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 a group of downstream assets that operate ten miles north of Mobile, in Saraland, Alabama, which include the Mobile Refinery and Blakeley Island Terminal, a deep-water draft, bulk loading terminal facility, for crude oil and associated refined petroleum 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 petroleum value chain, including crude oil refining, collection, aggregation, transportation, storage, refinement, and sales of refined and re-refined products and aggregated feedstockfeedstock. Our margins are a function of the difference between what we are able to pay for raw materials and the market prices for the range of products produced. The various petroleum products produced are typically a function of crude oil indices and are quoted on multiple exchanges such as the New York Mercantile Exchange (“NYMEX”). These prices are determined by a global market and can be influenced by many factors, including but not limited to supply/demand, weather, politics, and global/regional inventory levels. As such, we cannot provide any assurances regarding results of operations for any future periods, as numerous factors outside of our control affect the prices paid for raw materials and the prices (for the most part keyed to the NYMEX) that can be charged for such products. These factors include the supply of, and demand for, crude oil, and refined products, which in turn depend on changes in domestic and foreign economies; weather conditions; domestic and foreign political affairs; production levels; the marketing of competitive fuels; and government regulation. Additionally, for the near term, results of operations will be subject to end-users. We operatefurther uncertainty, as the global markets and exchanges, including the NYMEX, continue to experience volatility.
Refining margins have experienced significant increases during the first nine months of 2022 in three segments:each of the benchmark commodities we track compared to the same period in 2021. The ongoing conflict between Russia and Ukraine, which began in the first quarter of 2022, and the economic sanctions imposed on Russia have decreased the global supply of crude oil affecting global prices. This conflict coupled with disruptions in supply chain that began with the COVID-19 pandemic in 2020, have resulted in increased inflation and higher market prices in crude oil and refined products. During the twelve months ended September 30, 2022, the Consumer Price Energy Index in the United States increased 19.7% impacting our gross margins. The Consumer Price All Items Index increased 8.2% for the same period impacting our operating expenses and slowing economic growth.
The following table sets forth the high and low spot prices during the nine months ended September 30, 2022, for our key benchmarks.
2022
BenchmarkHighDateLowDate
Crackspread 2-1-1 (dollars per barrel) (1)$56.47 June 22$25.50 August 8
U.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)$4.35 June 3$2.26 January 3
U.S. Gulfcoast Residual Fuel No. 6 3% (dollars per barrel)$112.93 March 8$54.30 September 30
NYMEX Crude oil (dollars per barrel)$123.70 March 8$76.08 January 3
Reported in Platt’s US Marketscan (Gulf Coast)   
(1) Period reported from April 1 through September 30. The Gulf Coast 2-1-1 crack spread is calculated using two barrels of LLS (Louisiana Light Sweet crude oil) producing one barrel of USGC CBOB gasoline and one barrel of USGC ultra-low sulfur diesel.

(1) Black Oil,    The following table sets forth the high and low spot prices during the nine months ended September 30, 2021, for our key benchmarks.

(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 June 30, 2022, we aggregated approximately 87.4 million gallons of used motor oil and other petroleum by-product feedstocks and managed the re-refining of approximately 80.4 million gallons of used motor oil with our proprietary vacuum gas oil (“VGO”) and Base Oil processes.
2021
BenchmarkHighDateLowDate
U.S. Gulfcoast No. 2 Waterborne (dollars per gallon)$2.15 September 30$1.32 January 4
U.S. Gulfcoast Unleaded 87 Waterborne (dollars per gallon)$2.30 July 30$1.36 January 4
U.S. Gulfcoast Residual Fuel No. 6 3% (dollars per barrel)$69.64 September 30$45.08 January 4
NYMEX Crude oil (dollars per barrel)$75.29 September 28$47.62 January 4
Reported in Platt’s US Marketscan (Gulf Coast)   

Our Black Oil segment collectsproduction and purchases used motor oil directly from third-party generators, aggregates used motor oil from an established networksales of locallower value products such as LPGs, VGO and regional collectorssulfur also impact our results of operations, especially when crude prices are high. Our results of operations are also significantly affected by our direct operating expenses, especially our labor costs. Safety, reliability and sells used motor oilthe environmental performance of our refineries’ operations are critical 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”), and we also utilize third-party processing facilities. TCEP’s original purpose was to re-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 pre-treat used oil feedstock; prior to shipping to our facility in Marrero, Louisiana.

We also operate a facility located in Marrero, Louisiana, which re-refines used motor oil and produces VGO, and a re-refining complex located in Belle Chasse, Louisiana, which we refer to as our Myrtle Grove facility.

Our Refining and Marketing segment manages the refining of crude oil and other petroleum by-products and sells those refined products to end customers.

Our Recovery segment includes a generator solutions company for properly recovering and managing hydrocarbon streams and metals, including transportation and marine salvage services throughout the Gulf Coast.

Black Oil Segment
Discontinued operations of Vertex includes the Black Oil Segment, also referred to as the UMO Business, Refer to Note 16, "Discontinued Operations" in the Notes to Financial Statements for additional information.financial performance.
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As our competitors bring new technologies to the marketplace, which will likely enable them to obtain higher values for the finished products created through their technologies from purchased black oil feedstock, we anticipate that they will be willing 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.
Our results of operations for the three and nine months ended September 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 the summary of the Mobile Refinery operating results under Results of Operations – Refining and Marketing, below.
We operate two business segments: the Refining and Marketing segment and the Black Oil segment is engaged in operations acrossand Recovery segment. The table below shows our product categories by segment. For further description of individual products, please refer to the entire used motor oil recycling value chain, including collection, aggregation, transportation, storage, refinement, and salesGlossary of aggregated feedstock and re-refined products to end-users. We collect and purchase used oil directly from generators such as oil change service stations, automotive repair shops, manufacturing facilities, petroleum refineries, and petrochemical manufacturing operations. We own a fleetterms at the beginning of 43 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.this document.
Black Oil(1) and Recovery (2)
Refining and Marketing(3)
GasolinesX
Jet FuelsX
DieselX
Base oilX
VGO/Marine fuel salesXX
Other refinery products (4)
XX
PygasX
Metals (5)
X
Other re-refined products (6)
XX
TerminallingX
Oil collection servicesX

We manage(1) The Black Oil segment continued operations consist primary of the logisticssale of transport, storage,(a) other re-refinery products, recovered products, and deliveryused motor oil; (b) specialty blending and packaging of lubricants, (c) transportation revenues; and (d) the sale of VGO (vacuum gas oil)/marine fuel; (e) petroleum products which include base oil and industrial fuels—which consist of used motor oils, cutterstock and fuel oil generated by our facilities; (f) oil collection services—which consist of used oil to our customers. Prior tosales, burner fuel sales, antifreeze sales and service charges; (g) the completionsale of other re-refinery products including asphalt, condensate, recovered products, and used motor oil. As of the Mobile Refinery Acquisition, and duringdate of this filing, the period covered by this Report, we ownedCompany is in ongoing discussions with a fleet third party regarding a potential sale of 43 transportation trucks and more than 80 above-ground storage tanks with over 8.6 million gallonsthe Company’s Heartland refinery in Ohio (which forms a part of storage capacity. These assets are used by both the Black Oil segment), and Refiningas such, has determined to present only the Company’s Heartland refinery options as discontinued operations (“Heartland Business”).
(2) As discussed in greater detail below under “Black Oil and Marketing segments. In addition, we also utilize third parties forRecovery Segment”, the transportation and storageRecovery segment consists primarily of used oil feedstocks. 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 receivedgenerated from the sale of ferrous and deliverynon-ferrous recyclable Metal(s) products that are recovered from manufacturing and consumption. It also includes revenues generated from trading/marketing of used oil. Also, as discussed above under “Description of Business 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 prior to shipping to our facility in Marrero, Louisiana. In addition, at our Marrero, Louisiana facility, we produce a Vacuum Gas Oil (VGO) product for the marine fuels market. At our Columbus, Ohio facility (Heartland Petroleum), we produce a base oil product which in turn is sold to lubricant packagers and distributors.Group III Base Oils.

(3)
Refining As discussed in greater detail below under “Refining and Marketing Segment
OurSegment”, the Refining and Marketing segment is engaged in the aggregation of feedstock, re-refining it into higher-value end products, and selling these products to our customers, as well as related transportation and storage activities. We aggregate a diverse mix of feedstocks, including used motor oil, petroleum distillates, transmix, and other off-specification chemical products. These feedstock streams are purchased from pipeline operators, refineries, chemical processing facilities, and third-party providers and transferred from our Black Oil segment. We have a toll-based processing agreement in place with Monument Chemical Port Arthur, LLC (“Monument Chemical”) to re-refine feedstock streams, under our direction, into various end products that we specify. Monument Chemical uses industry-standard processing technologies to re-refine our feedstocks into pygas, gasoline blendstock, and fuel oil cutterstock. We sell our re-refined products directly to end customers or 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-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 infrastructureconsists primarily of the Mobile Truck Rack. The Mobile Refinery currently processes heavysale of pygas; industrial fuels, which are produced at a third-party facility (Monument Chemical); and sour crude to produce vacuum gasdistillates.
(4) Other refinery products include the sales of base oil, (VGO), heavy olefin feed, regular gasoline, jet fuelcutterstock and diesel fuel,hydrotreated VGO, LPGs, sulfur and 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.(VTB).
Recovery Segment
    The Company’s Recovery Segment includes a generator solutions company for the proper recovery and management of hydrocarbon streams and other petroleum-based products, together with the recovery and processing of metals.

(5)
Products and Services

We generate the majority of our revenue from refining petroleum products, oil collection services, and sales of the below product 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 other compounds are added to manufacture a finished lubricant. The primary substance in lubricants, base oil, can be refined from crude oil or re-refined from used motor oils.

6

Pygas

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

Industrial Fuel

Industrial fuel is a distillate fuel oil, typically a blend of lower-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 kerosene and diesel fuels.

Oil Collection Services

Oil collection services include the collection, handling, treatment, and transacting of used motor oil and related products which contain used motor oil (such as oil filters and absorbents) acquired from 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 up,cut-up and sent back to a steel mill for re-purposing.
(6) Other refinery products
Other refineryre-refinery 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)
GasolinesX
Jet FuelsX
DieselX
Base oilXX
PygasX
Industrial fuelXX
Oil collection servicesX
MetalsX
Other refinery productsXXX
VGO/Marine fuel salesX

(1) As discussed in greater detail above under “Black Oil 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
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generated byResults of Operations
The following discussion includes comments and analysis relating to our facilities; (b) oil collection services—which consistresults of used oil sales, burner fuel sales, antifreeze salesoperations. This discussion should be read in conjunction with Item 1. Financial Statements and service charges; (c)is intended to provide investors with a reasonable basis for assessing our historical operations, however, it should not serve as the saleonly criteria for predicting our future performance.
Consolidated Results of other re-refinery products including asphalt, condensate, recovered products,Operations
Set forth below are our results of operations for the three and used motor oil; (d) transportation revenues; and (e)nine months ended September 30, 2022 as compared to the sale of VGO (vacuum gas oil)/marine fuel.same periods in 2021 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
20222021Variance*20222021Variance*
Revenues$810,208 $50,982 $759,226 $1,915,423 $147,807 $1,767,616 
Cost of revenues (exclusive of depreciation and amortization shown separately below)750,463 46,142 (704,321)1,819,757 127,986 (1,691,771)
Depreciation and amortization attributable to costs of revenues4,050 1,028 (3,022)9,144 3,002 (6,142)
Gross profit55,695 3,812 51,883 86,522 16,819 69,703 
Operating expenses:
Selling, general and administrative expenses36,978 8,177 (28,801)89,934 21,742 (68,192)
Depreciation and amortization attributable to operating expenses1,120 420 (700)2,656 1,260 (1,396)
Total operating expenses38,098 8,597 (29,501)92,590 23,002 (69,588)
Income (loss) from operations17,597 (4,785)22,382 (6,068)(6,183)115 
Other income (expense):
Other income417 (3)420 1,060 4,220 (3,160)
Income (loss) on change in value of derivative warrant liability12,312 11,907 405 7,788 (11,380)19,168 
Interest expense(13,131)(455)(12,676)(65,083)(919)(64,164)
Total other income (expense)(402)11,449 (11,851)(56,235)(8,079)(48,156)
Income (loss) from continuing operation before income tax17,195 6,664 10,531 (62,303)(14,262)(48,041)
Income tax benefit (expense)— — — — — — 
Income (loss) from continuing operations17,195 6,664 10,531 (62,303)(14,262)(48,041)
Income from discontinued operations, net of tax4,975 3,981 994 19,882 11,915 7,967 
Net income (loss)22,170 10,645 11,525 (42,421)(2,347)(40,074)
Net income (loss) attributable to non-controlling interest and redeemable non-controlling interest from continuing operations(64)(115)51 33 511 (478)
Net income attributable to non-controlling interest and redeemable non-controlling from discontinued operations— 2,400 (2,400)6,829 7,183 (354)
Net income (loss) attributable to Vertex Energy, Inc.$22,234 $8,360 $13,874 $(49,283)$(10,041)$(39,242)

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

(3) As discussed in greater detail above under “Recovery Segment”, 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.


Recent Events
Heartland and Myrtle Grove Purchase Agreements
On 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”); and (2) a Purchase and Sale Agreement with Tensile-Vertex and Tensile-MG (the “Myrtle Grove Purchase Agreement”, and together with the Heartland Purchase Agreement, the “Purchase Agreements”).
As the time of the entry into the agreement, Tensile-Heartland held 65% of Heartland SPV and Tensile-MG owned 15% of MG SPV, with Tensile-Vertex holding 100% of both Tensile-Heartland and Tensile-MG.
Pursuant to the Heartland Purchase Agreement, the Company, through Vertex Splitter, agreed to acquire 100% of the outstanding securities of Tensile-Heartland and pursuant to the Myrtle Grove Purchase Agreement, the Company, through Vertex Splitter, agreed to acquire 100% of the outstanding securities of Tensile-MG, from Tensile-Vertex, the result of which 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 was based on the value of the Class B Unit preference of MG SPV heldrepresented 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 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.
The 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 “Base Amount”), plus an amount accrued and accruing from and after May 31, 2021, on the Base Amount on a daily basis at the rate of 22.5% per annum compounded on the last day of each calendar quarter plus an amount equal to any and all cash and cash equivalents of Tensile-Heartland, as of the closing 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 director 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 the parties, which were effective upon closing.
The Company used funds from the Additional Term Loan to pay amounts due under the Heartland Purchase Agreement.
Heartland Note Amendmentnegative numbers.
856

AlsoOur revenues and cost of revenues are significantly impacted by the recently acquired Mobile Refinery on February 25,April 1, 2022, Vertex Operating, and fluctuations in commodity prices. Increases in commodity prices typically result in increases in revenue and cost of revenues (i.e., feedstock costs). Additionally, we have used hedging instruments to manage our exposure to underlying commodity prices.
Third Quarter 2022 Compared to Third Quarter 2021 Discussion
During the Company and Heartland SPV, entered intothree months ended September 30, 2022, compared to the same period in 2021, we saw a Second Amendment to Promissory Note (the “204% increase in thSecond Note Amendment”), which amended the Heartland Note, to extend the due datee volume of products we manage through our facilities (mainly as a result of the Heartland Note untilMobile Refinery acquisition and 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 earlierthird quarter of (i) June 30, 2022; and (ii) five (5) calendar days following2022 as compared to the closingsame period in 2021 due to the increased price of 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 prepaid in whole or in part at any time without premium or penalty and without the consent of Heartland 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. On May 26, 2022, the Heartland Note was forgiven after the completion of the Tensile-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 material and indirect subsidiaries, as guarantors (together withcosts. Management of operating costs is critical to our ability to remain competitive in 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 administrative agent and collateral agent for the Lenders (the “Agent”), entered into a Loan and Security Agreement (the “Loan and Security Agreement”).
Pursuantmarketplace, we continue to the Loan and Security Agreement, the Lenders agreed to provide a $125 million term loan to Vertex Refining (the “Initial Term Loan”), the proceedsexperience inflationary pressures across numerous cost categories. The key areas 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,impact are around transportation, labor, as well as fuel and energy related expenses.
During the three months ended September 30, 2022, total revenues increased approximately $759.2 million compared to the same period in 2021, of which $733.5 million was from the Mobile Refinery. The remaining variance of $25.7 million was from our legacy business. This increase from our legacy business was due primarily to higher commodity prices and increased volumes at our facilities. Volumes improved as a result of additional feedstock availability in the overall marketplace.
During the three months ended September 30, 2022, total cost of revenues (exclusive of depreciation and amortization) increased approximately $704.3 million, of which $681.7 million was from the Mobile Refinery and $22.7 million was from other business compared to same period ended September 30, 2021. The main reason for the $22.7 million increase from other business was the result of the increase in commodity prices during 2022 compared to 2021, which impacted our feedstock pricing and certain transaction expenses, were released from escrowoperational expenses. Our cost of revenues is a function of the ultimate price we are required to Vertex Refining in an aggregate amount of $94.3 million.pay to acquire feedstocks, principally crude oil, inventory financing costs, and other maintenance costs at our facilities.
The Company used a portiontotal operating expenses (excluding depreciation and amortization) increased approximately $28.8 million for the three months ended September 30, 2022, compared to the same prior year’s period, of the proceeds from the Term Loan borrowing to pay a portion of the purchase pricewhich $26.2 million was associated with the acquisitionMobile Refinery.
For the three months ended September 30, 2022, total depreciation and amortization expense attributable to cost of revenues was $4.1 million, compared to $1.0 million for the three months ended September 30, 2021, an increase of $3.0 million, mainly due to Mobile Refinery assets acquired and additional investments in rolling stock and facility assets during the fourth quarter of 2021, which increased depreciation and amortization in 2022.
Additionally, our per barrel margin increased 496% for the three months ended September 30, 2022, relative to the three months ended September 30, 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 ($55.7 million for the 2022 period versus $3.8 million for the 2021 period). This increase was a result of the increase in our product spreads related to increases in feedstock prices and increases in operating maintenance costs at our facilities, during the three months ended September 30, 2022, compared to the same period during 2021.
The Gulf Coast 2-1-1 crack spreads increased during the three months ended September 30, 2022 compared to the three months ended June 30, 2022. The crack spread averaged $34.82 per barrel during the three months ended September 30, 2022 compared to $45.06 during the three months ended June 30, 2022. We use crack spreads as a performance benchmark for our Mobile Alabama refinery (the “Mobile Refinery”refining gross margin and as a comparison with other industry participants. The Gulf Coast 2-1-1 crack spread is calculated using two barrels of LLS (Louisiana Light Sweet crude oil) producing one barrel of USGC CBOB gasoline and one barrel of USGC ultra-low sulfur diesel.
Overall, commodity prices were up for the three months ended September 30, 2022, compared to the same period in 2021. For example, the average posting (U.S. Gulfcoast Residual Fuel No. 6 3%) acquired by Vertex Refiningfor the three months ended September 30, 2022, increased 22% per barrel from a three-month average of $62.46 for the three months ended September 30, 2021 to $76.25 per barrel for the three months ended September 30, 2022. The average posting (U.S. Gulfcoast Unleaded 87 Waterborne) for the three months ended September 30, 2022 increased $20.05 per barrel from a three-month average of $92.69 for the three months ended September 30, 2021 to $120.74 per barrel for the three months ended September 30, 2022.
We had interest expense of $13.1 million for the three months ended September 30, 2022, compared to interest expense of $0.5 million for the three months ended September 30, 2021, an increase of $12.6 million. This increase was due to the accretion of deferred loan costs and interest expenses associated with the issuance of $155 million in Convertible Senior Notes on November 1, 2021, and draws under our Term Loan of $125 million 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.
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, Vertex Refining’s obligations under the Loan and Security Agreement are jointly and severally guaranteed by substantially all of the 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 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$40 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 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.
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 aMay 26, 2022.
957

security interestWe had an approximately $12.3 million gain on change 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
Invalue of derivative liability for the three months ended September 30, 2022, in connection with the entry intowarrants granted in connection with the Term 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 liensissued 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(warrants to purchase 2.75 million shares) and May 26, 2022 (warrants to purchase 0.25 million shares), compared to a gain on change in the value of our derivative liability of $11.9 million in the prior year’s period, which was in connection with certain warrants granted in May 2016, which have either been exercised or expired to date. This change was mainly due to the May 26,fluctuation in the market price of our common stock (and more specifically the decrease 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.
We had net income from continuing operations of approximately $17.2 million for the three months ended September 30, 2022, compared to net income from continuing operations of $6.7 million for the three months ended September 30, 2021, Salean increase in net income from continuing operations of $10.5 million. The main reason for the increase in net income from continuing operations for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, was attributable to the profit on inventory hedging activities, and Purchase Agreement (the “Refinery Purchase Agreement”)increased commodity prices which helped improve margins for the three months ended September 30, 2022, each as described in greater detail above.
Year to Vertex Refining and onDate 2022 Compared to Year to Date 2021 Discussion
Total revenues increased $1,767.6 million for the nine months ended September 30, 2022 compared to the same date, Vertex Refining completedperiod in 2021, due primarily to the Mobile Acquisition. OnRefinery acquisition, which Mobile Refinery generated $1,655.7 million in revenue and higher commodity prices and increased volumes across our facilities, during the Effective Date, anine months ended September 30, 2022, compared to the prior year’s period.
For the nine months ended September 30, 2022, total cost of $75.0revenues (exclusive of depreciation and amortization) was $1.8 billion, compared to $128.0 million (less $10 million previously paid) was paid by Vertex Refining in consideration for the acquisitionnine months ended September 30, 2021, an increase of $1.7 billion from the prior period. The main reason for the increase was the addition of the Mobile Refinery business which amount is subjectwas acquired on April 1, 2022, in addition to customary purchase price adjustmentshigher commodity prices, which impacted our feedstock pricing, and reimbursementincreases in volumes throughout the business.

    For the nine months ended September 30, 2022, total depreciation and amortization expense attributable to cost of revenues was approximately $9.1 million, compared to $3.0 million for certain capital expenditures in the amountnine months ended September 30, 2021, an increase of approximately $440 thousand, $15.9$6.1 million, was paidmainly due 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 connectionassets acquired with the purchaseMobile Refinery purchase.

We had gross profit as a percentage of certain crude oil inventory and finished products owned by Shell and located atrevenue of 4.5% for the nine months ended September 30, 2022, compared to gross profit as a percentage of revenues of 11.4% for the nine months ended September 30, 2021. The decrease was mainly due to our change in business strategy after we acquired the Mobile Refinery on April 1, 2022.

We had operating expenses (excluding depreciation and amortization) of approximately $89.9 million for the Closing Date (approximately $154nine months ended September 30, 2022, compared to $21.7 million for the prior year’s period, an increase of $68.2 million. This increase is primarily due to $48.2 million of which was funded by Macquarie as a result of the simultaneous sale of such inventoryoperating expenses relating 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 designedand $13.6 million of Mobile Refinery acquisition costs and business development expenses related to modify the Mobile Refinery's hydrocracking unit to produce renewable diesel fuel on a standalone basis, which has an estimated costtransactions contemplated by the UMO Sale Agreement (which was terminated as of $90 to $100January 25, 2022) and is expected to be online during the first quarter of 2023.Refinery Purchase Agreement and related transactions.

FundsWe had gross loss from operations of approximately $6.1 million for the purchasenine months ended September 30, 2022, compared to a loss from operations of $6.2 million for the nine months ended September 30, 2021, an increase of $0.1 million in gross loss from operations from the prior year’s nine-month period. The increase in gross loss from operations was mostly due to the loss from commodity derivatives and the cost of the Mobile Refinery Swapkit Agreement, provisionacquisition.
    We had interest expense of cash collateral required pursuantapproximately $65.1 millionfor the nine months ended September 30, 2022, compared to termsinterest expense of $0.9 million for the Supplysame period in 2021, an increase in interest expense of $64.2 million due to a higher amount of term debt outstanding during the nine months ended September 30, 2022, compared to the prior period, the unamortized deferred loan costs related to the conversion of Convertible Senior Notes to common stock during the period and Offtake Agreement (discussed below), capital expendituresthe interest associated with the Convertible Senior Notes, which were issued on November 1, 2021, 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). Alsowas issued on April 1, 2022 pursuant to($125 million) and May 26, 2022 ($40 million).

    We had an Inventory Sales Agreement entered into between Vertex Refining and Macquarie, Macquarie purchased allapproximately $7.8 million gain on change in value of derivative liability for 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), 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,nine months ended September 30, 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 certain warrants granted in April and May 2022, compared to a loss on change in the Supplyvalue of our derivative liability of $11.4 million in the prior year’s period, which related to warrants granted in June 2015 and Offtake Agreement, Macquarie purchased from Vertex Refining all crude oilMay 2016 which expired during 2021. This change was mainly due to the fluctuation in the market price of our common stock (and more specifically the significant decrease in the market price of our common stock during the current period), warrant exercises, 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 thirdnon-cash
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party storage terminal, which were previously purchased by Vertex Refining as part ofaccounting adjustments in connection therewith. This resulted in a significant change in non-cash expense for the acquisition of the Mobile Refinery as discussed in greater detail above.
Pursuantperiod, compared to the Supply and Offtake Agreement, beginning onprior year’s period.

    We had a net loss from continuing operations of approximately $62.3 millionfor the Commencement Date and subjectnine months ended September 30, 2022, compared to certain exceptions, substantially alla net loss from continuing operations of $14.3 million for the crude oil located atnine months ended September 30, 2021, an increase in net loss from continuing operations of $48.0 million from 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 pursuantperiod due to the Supply and Offtake Agreement, and subjectreasons described above. The majority of our net loss for the nine months ended September 30, 2022, was attributable to the terms andloss on inventory hedging activities created by market conditions, and certain exceptions set forth therein, Macquarie will purchase from Vertex Refining substantially all of the Mobile Refinery’s output of certain refined productsamortized deferred loan cost 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.
Pursuantdiscount, which was reported as interest expenses, related to the Supply and Offtake Agreement and subject to the terms and conditions therein, Macquarie may during the termconversion of the Supply and Offtake Agreement procure crude oil and refined products from certain third partiesConvertible Senior Notes, 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 byis 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.non-cash expense.
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.
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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.Marketing Segment
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,Effective 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”).
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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 the 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 the Initial Warrants upon the occurrence of such event, as described in greater detail in the Warrant Agreement, and increases 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 replaced 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 the 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
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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 to provide 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.
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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
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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 of the Company to 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. 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 Initial Registration Statement; provided, that such date is extended until 120 days after the filing date if the Initial Registration Statement is reviewed by the staff of the Commission. 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 expected to exceed $35 million). The Company filed and obtained effectiveness of the required Registration Statement on July 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 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 the terms of the Additional Warrant Agreement, are deemed to have granted, issued or sold, subject to certain exceptions, in each case, at a price less than the 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 issuable upon exercise of the Additional Warrants, such that the aggregate exercise price of all Additional Warrants remains the same before and after any such dilutive event.
Until or unless the Company receives shareholder approval under applicable Nasdaq listing rules for the issuance of more than 19.9% of the Company’s outstanding shares of common stock on 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 exercise of the Warrants 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 the 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 Warrants. 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 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 use commercially reasonable efforts to file
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pursuant to the terms of the Registration Rights Agreement, to register the resale of the shares of common stock underlying the Warrants, from no later than June 15, 2022, to on July 1, 2022, or, if the Company was then ineligible to file a registration statement on such date, to require the Company to use commercially reasonable efforts to cause such registration statement to be declared effective under the Securities Act, as promptly as reasonably practicable after the initial filing thereof (including, if then a “well-known seasoned issuer” (as defined in Rule 405 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 regarding its satisfaction of the requirements for being a WKSI.
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RESULTS OF OPERATIONS
Description of Material Financial Line Items:
Revenues
During 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 16, "Discontinued Operations" in the Notes to Financial Statements for additional information.
REFINING AND MARKETING -The Refining and Marketing segment generates most of its revenues relating tofrom the sales of finished products. petroleum refined products processed at the Mobile Refinery. The Mobile Refinery processes crude oils into refined finished products which include gasolines, distillates including jet fuel, LPGs, and Logistics Assets are included in ourother residual fuels such as VTBs, VGO, olefins, reformate and sulfur. We market these finished products across the southeastern United States through a high-capacity truck rack, together with deep and shallow water distribution points capable of supplying waterborne vessels. Most of the Mobile Refinery production is sold to Macquarie under the Inventory Financing Agreement. The 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 gathersincludes revenues from gathering 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 asAdditionally, this segment includes the wholesale distribution of gasoline, blended gasoline, products and diesel usedfor use as engine fuels,fuel to third party customers who typically resell these products to retailersoperate automobiles, trucks, locomotives, and end consumers.construction equipment.

RECOVERY -The Recovery segment is a generator solutions company forResults from operations from 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 forMobile Refinery have substantially changed our Black Oil segment are comprised primarily of feedstock purchases from a network of providers. Otheroverall revenue, cost of revenues includes processing costs, transportation costs, purchasingrevenue, net income, and receiving costs, analytical assessments, brokerage feesearnings before interest, taxes, depreciation, and commissions,amortization. During the three and surveyingnine months ended September 30, 2022, the Mobile Refinery generated 91% and storage costs.
Discontinued86%, respectively, of our total consolidated revenue. Set forth below are our results of operations of Vertex includeand certain key performance indicators disaggregated to show the Black Oil Segment, also referredMobile Refinery on a stand-alone basis to as the UMO Business, Refer to Note 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.facilitate comparability between periods (in thousands, except key performance indicators):
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Our cost
Three Months Ended September 30,
20222021
Refining and Marketing Segment (in thousands)Mobile RefineryLegacy Refining and MarketingTotal Refining and MarketingLegacy Refining and Marketing
Revenues$733,521 $33,248 $766,769 $24,572 
Cost of revenues (exclusive of depreciation and amortization shown separately below)681,682 33,482 715,164 23,937 
Depreciation and amortization attributable to costs of revenues2,957 154 3,111 127 
Gross profit (loss)48,882 (388)48,494 508 
Operating expenses
Selling general and administrative expense26,240 1,748 27,988 1,034 
Depreciation and amortization attributable to operating expenses736 114 850 108 
Total operating expenses26,976 1,862 28,838 1,142 
Income (loss) from operations21,906 (2,250)19,656 (634)
Other income (expenses)— — 
Interest expense(3,536)— (3,536)— 
Net income (loss)$18,370 $(2,250)$16,120 $(634)
Refining adjusted EBITDA *(517)(2,757)(3,274)(399)
Key performance indicators:
Refining gross margin$48,343 n/an/an/a
Refining gross margin per bbl of throughput (1)*
7.73 n/an/an/a
USGC 2-1-1 Crack Spread Per Barrel (2)
34.82 n/an/an/a
Operating expenses per bbl of throughput (3)
$4.20 n/an/an/a

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Nine Months Ended September 30,
20222021
Refining and Marketing Segment (in thousands)Mobile RefineryLegacy Refining and MarketingTotal Refining and MarketingLegacy Refining and Marketing
Revenues$1,655,717 $112,161 $1,767,878 $67,683 
Cost of revenues (exclusive of depreciation and amortization shown separately below)1,598,924 109,093 1,708,017 64,555 
Depreciation and amortization attributable to costs of revenues5,944 395 6,339 379 
Gross profit50,849 2,673 53,522 2,749 
Operating expenses
Selling general and administrative expense48,201 4,508 52,709 2,482 
Depreciation and amortization attributable to operating expenses1,472 313 1,785 325 
Total operating expenses49,673 4,821 54,494 2,807 
Income (loss) from operations1,176 (2,148)(972)(58)
Other income (expenses)— — 
Interest expense(6,786)— (6,786)— 
Interest income18 — 18 — 
Net income (loss)$(5,592)$(2,148)$(7,740)$(58)
Refining adjusted EBITDA*63,063 (1,509)61,554 646 
Key performance indicators:
Refining gross margin$140,952 n/an/an/a
Refining gross margin per bbl of throughput(1)*
11.00 n/an/an/a
USGC 2-1-1 Crack Spread Per Barrel(2)
39.95 n/an/an/a
Operating expenses per bbl of throughput (3)
$3.76 n/an/an/a
* See “Non-GAAP Financial Measures” below.
(1) Refining gross margin per throughput barrel is calculated as refining gross margin divided by total throughput barrels for the period presented.
(2) Crack Spread USGC 2-1-1. The crack spread is a measure of revenues is affected by changes in various commodity indices, includingthe difference between market prices for refined products and crude oil, natural gas, #6 oilcommonly used by the refining industry. We use crack spreads as a performance benchmark for our refining gross margin and metals. For example, ifas a comparison with other industry participants. Crack spreads can fluctuate significantly, particularly when prices of refined products do not move in the price for crude oil increases,same direction as the cost of solvent additives usedcrude oil. To calculate the crack spread we believe most closely relates to the crude intakes and products at the Mobile Refinery, we use two barrels of Louisiana Light Sweet crude oil, producing one barrel of USGC CBOB gasoline and one barrel of USGC ULSD.
(3) Operating expenses per throughput barrel are calculated as operating expenses minus depreciation and amortization divided by total throughput barrels for the period presented.
The following table shows average throughput and product yield at the Mobile Refinery since we acquired it on April 1, 2022. During the third quarter of 2022, the Mobile Refinery underwent a turnaround at the crude unit and change of catalyst at the diesel hydrotreater and reformer units, impacting our throughput volumes for the quarter.
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Three Months Ended September 30, 2022Six Months Ended September 30, 2022
Refinery Feedstocks (bpd)
Crude oil67,954 70,032 
Total feedstocks67,954 70,032 
Refinery Yields (bpd)
Gasolines15,310 16,646 
Distillates20,342 19,884 
Jet fuel11,026 10,860 
Other (1)
21,147 22,390 
Total average barrel yields per day67,825 69,780 

(1) Other includes intermediates and LPGs.
Third Quarter 2022 Compared to Third Quarter 2021 Discussion

    Our Refining segment includes the business operations of our Refining and Marketing operations, which includes our Mobile Refinery. Revenues of $766.8 million in the productionRefining segment were up 3,020% during the three months ended September 30, 2022, as compared to the same period in 2021 mostly as a result of blended oil products,the operations of the Mobile Refinery, which had $733.5 of revenue, and fuel costthe increased commodity prices and volume during the three months ended September 30, 2022. Overall volume for transportation costthe Refining and Marketing segment increased during the three months ended September 30, 2022, as compared to the same period in 2021.
Gross profit for the segment was $48.5 million, of which $48.9 million was related to the Mobile Refinery. Our Legacy Refining and Marketing business experienced an increase in revenues of $8.7 million from the third party providers will generally increase. Similarly, ifquarter 2021 compared to the pricethird quarter 2022. The decreased gross profit of crude oil falls, these costs may also decline.$0.9 million from the legacy Refining and Marketing business was primarily due to higher commodity prices.
GeneralThe Mobile Refinery had $26.2 million in operational expenses for the period, representing 93.8% of the total segment.The increase of $0.7 million quarter over quarter from the legacy Refining and Administrative ExpensesMarketing business was primarily due to the higher inflation in 2022, compared to the same period in 2021.
Interest expense of $3.5 million for the third quarter 2022 included $2.1 million related to our inventory financing agreement and $1.4 million related to a capitalized equipment lease.There was no comparable activity for the same period in 2021.
Year to Date 2022 Compared to Year to Date 2021 Discussion

Our generalRefining segment includes the business operations of our Refining and administrative expenses consist primarily of salaries and other employee-related benefits for executive, administrative, legal, financial, and information technology personnel,Marketing operations, as well as outsourcedthe Mobile Refinery acquired on April 1, 2022. During the nine months ended September 30, 2022, our Refining and professional services, rent, utilities, and related expenses at our headquarters, as well as certain taxes.
Depreciation and Amortization Expenses
Marketing revenues were Ourapproximately $1,767.9 million, of which $1,655.7 million were from the Mobile Refinery operations. Cost of revenues (exclusive of depreciation and amortization expenses are primarilyamortization) for the same period were $1,708.0 million, of which $1,598.9 million 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, Crystal Energy, LLC andprocessing costs of the Mobile Refinery, acquisitions.
Depreciationand depreciation and amortization expense attributable to cost of revenues reflectswas $6.3 million. During thenine months ended September 30, 2021, our Refining and Marketing revenues for the same period were $67.7 million, cost of revenues (exclusive of depreciation and amortization) were $65 million, and depreciation and amortization attributable to cost of revenues were $379 thousand.
Gross profit for the segment was $54.5 million, of which $49.7 million was related to the Mobile Refinery. Our legacy Refining and Marketing business experienced an increase in revenues of $49.5 million year to date 2021 compared to year to date 2022. The increase in gross profit from our legacy Refining and Marketing business of $2.0 million was primarily due to higher commodity prices.
The Mobile Refinery had $48.2 million in operation expenses for the period, representing 91.4% of the fixed assets at our refineries along with rolling stock at our collection branches.total segment.The increase of $2.0 million year to date 2021, over the same period in 2022 from the legacy Refining and Marketing business was primarily due to higher inflation during 2022, compared to the same period in 2021.
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Depreciation and amortizationInterest expense attributable to operating expenses reflects depreciation and amortizationof $6.8 million for the nine months ended September 30, 2022, included $3.8 million related to our corporateinventory financing agreement, $2.7 million related to a capitalized equipment lease, 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$0.2 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 areinsurance financing. There was no comparable amounts presentedactivity for the same periodsperiod 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, EBITDARefining Gross Margin Per Barrel of Throughput and Refining 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, EBITDARefining Gross Margin Per Barrel of Throughput and Refining Adjusted EBITDA are presented because we believe they provide additional useful information to investors due to the various noncash items during the period. Non-GAAP financial information similar to Refining Gross Margin, EBITDA,Refining Gross Margin Per Barrel of Throughput and Refining 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
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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 excludesas gross profit (loss) plus operating expenses and depreciation attributable to cost of revenues and other non-operating items included in costs of revenues.

revenues, including unrealized losses on hedging activities and loss on inventory intermediation agreement.
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 minusplus depreciation and amortization, , unrealized gains and losses on hedging activities, gain and loss on intermediation agreement, and certain other unusual or non-recurring charges included in selling, general, and administrative expenses.

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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 reconcilestables reconcile GAAP gross profit to refining gross margin and net loss to refining Adjusted EBITDA for the periods presented (in thousands):

Three Months Ended June 30, 2022Three Months Ended September 30,
Total Refining and MarketingMobile Refinery20222021
Gross profit$3,614 $1,967 
Mobile RefineryLegacy Refining and MarketingTotal Refining and MarketingLegacy Refining and Marketing
Gross profit (loss)Gross profit (loss)$48,882 $(388)$48,494 $508 
Operating expenses included in cost of revenuesOperating expenses included in cost of revenues17,575 17,575 Operating expenses included in cost of revenues25,508 — 25,508 — 
Depreciation and amortization attributable to cost
of revenues		3,009 2,986 
Unrealized loss on hedging activities46,901 46,901 
Depreciation and amortization attributable to costs of revenuesDepreciation and amortization attributable to costs of revenues2,957 154 3,111 127 
Unrealized gain on hedging activitiesUnrealized gain on hedging activities(46,977)(775)(47,752)— 
Loss on inventory intermediation agreementLoss on inventory intermediation agreement23,180 23,180 Loss on inventory intermediation agreement17,972 — 17,972 — 
Refining gross marginRefining gross margin$94,279 $92,609 Refining gross margin$48,342 $(1,009)$47,333 $635 
Net loss from operations$(20,719)$(20,729)
Net income (loss)Net income (loss)$18,370 $(2,250)$16,120 $(634)
Depreciation and amortizationDepreciation and amortization3,745 3,722 Depreciation and amortization3,693 268 3,961 235 
Unrealized loss on hedging activities46,901 46,901 
Interest expensesInterest expenses3,536 — 3,536 — 
Unrealized gain on hedging activitiesUnrealized gain on hedging activities(46,977)(775)(47,752)— 
Loss on intermediation agreementLoss on intermediation agreement23,180 23,180 Loss on intermediation agreement17,972 — 17,972 — 
Acquisition costsAcquisition costs9,078 9,078 Acquisition costs2,889 — 2,889 — 
Refining adjusted EBITDARefining adjusted EBITDA$(517)$(2,757)$(3,274)$(399)

Nine Months Ended September 30,
20222021
Mobile RefineryLegacy Refining and MarketingTotal Refining and MarketingLegacy Refining and Marketing
Gross profit$50,849 $2,673 $53,522 $2,749 
Operating expenses included in cost of revenues43,083 — 43,083 — 
Depreciation and amortization attributable to costs of revenues5,944 395 6,339 379 
Unrealized gain on hedging activities(76)(68)(144)— 
Loss on inventory intermediation agreement41,152 — 41,152 — 
Refining gross margin$140,952 $3,000 $143,952 $3,128 
Net income (loss)$(5,592)$(2,148)$(7,740)$(58)
Depreciation and amortization7,416 707 8,123 704 
Interest expenses6,768 — 6,768 — 
Unrealized gain on hedging activities(76)(68)(144)— 
Loss on intermediation agreement41,152 — 41,152 — 
Acquisition costs11,967 — 11,967 — 
Environmental reserve1,428 — 1,428 — 
Refining adjusted EBITDA$63,063 $(1,509)$61,554 $646 

Black Oil and Recovery Segment
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Environmental reserve1,428 1,428 
Refining Adjusted EBITDA$63,613 $63,580 










Mobile Refinery

Set forth are our resultsAfter the acquisition of operations and certain key performance indicators disaggregated to show only the Mobile Refinery on April 1, 2022, the revenue of our Black Oil and Recovery segments are less than 10% of consolidated revenue. As a result, we have decided, beginning with the current quarter, to facilitate comparability between periods (in thousands)combine our Black Oil and certain key performance indicators:Recovery segment into one segment which is engaged in operations across the entire used motor oil recycling value chain, including refinement, collection, aggregation, transportation, storage, recovery, and sales of aggregated feedstock and re-refined products to end-users. We collect and purchase used oil directly from generators such as oil change service stations, automotive repair shops, manufacturing facilities, petroleum refineries, petrochemical manufacturing operations, and a diverse network of suppliers who operate similar collection businesses to ours. We own a fleet of collection vehicles, which routinely visit generators to collect and purchase used motor oil.

We operate a refining facility in Baytown, Texas that uses our proprietary Thermal Chemical Extraction Process (“TCEP”), and we also utilize third-party processing facilities. We use TCEP to pre-treat used oil feedstock; prior to shipping to our facility in Marrero, Louisiana, where we re-refine used motor oil and produce VGO, which is then sold via barge to crude refineries to be utilized as an intermediate feedstock in the refining process, as well as to the marine fuels market. We also operate a re-refining complex located in Belle Chasse, Louisiana (“the Myrtle Grove facility”). This facility includes ground storage tanks with over 8.6 million gallons of storage capacity. These assets are used by both the Black Oil and Refining and Marketing segments. In addition, we also utilize third parties for the transportation and storage of used oil feedstocks. In many cases, we have contractual purchase and sale agreements with our suppliers and customers, respectively. We believe these contracts are beneficial to all parties involved because it ensures that a minimum volume is purchased from collectors and generators, a minimum volume is sold to our customers, and we are able to minimize our inventory risk by a spread between the costs to acquire used oil and the revenues received from the sale and delivery of used oil.
We also operate a generator solutions company for the proper recovery and management of hydrocarbon streams and other petroleum-based products, together with the recovery , processing and sale of ferrous and non-ferrous recyclable metal(s) products that are recovered from manufacturing and consumption.

The Black Oil and Recovery Segment includes our used motor oil business (the "UMO Business"), which includes the Company's Heartland refinery options ("Heartland Business"), which is presented as discontinued operations. Refer to Note 23, "Discontinued Operations" in Notes to Financial Statements for additional information.
Three Months Ended June 30, 2022
Statement of operations data:
Revenues$922,196 
Cost of revenues917,243 
Depreciation and amortization attributable to cost
of revenues		2,986 
Gross profit1,967
Operating expenses:
Operating expenses21,960
Depreciation and amortization736
TotalThe table below represents the operating expenses22,696
Operating income (loss)(20,729)
Other income (expense)
Interest expense(3,250)
Other income, net18
Net loss$(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)
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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 JUNE 30, 2022 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2021 FROM CONTINUING OPERATIONS
Set forth below are our results of operationsBlack Oil and Recovery Segment for the three and nine months ended JuneSeptember 30, 2022 as compared to the same period inand 2021 (in thousands):
Three Months Ended June 30,$ Change - Favorable (Unfavorable)% Change - Favorable (Unfavorable)
20222021
Revenues$991,839 $30,228 $961,611 3,181 %
Cost of revenues (exclusive of depreciation and amortization shown separately below)984,442 28,041 (956,401)(3,411)%
Depreciation and amortization attributable to costs of revenues3,122 116 (3,006)(2,591)%
Gross profit4,275 2,071 2,204 106 %
Operating expenses:
Selling, general and administrative expenses36,641 4,177 (32,464)(777)%
Depreciation and amortization attributable to operating expenses763 27 (736)(2,726)%
Total operating expenses37,404 4,204 (33,200)(790)%
Loss from operations(33,129)(2,133)(30,996)(1,453)%
Other income (expense):
Interest income18 — 18 100 %
Other income152 4,222 (4,070)(96)%
Gain on asset sales— — — — %
Loss on change in value of derivative warrant liability(945)(21,508)20,563 96 %
Interest expense(47,722)(139)(47,583)(34,232)%
Total other expense(48,497)(17,425)(31,072)(178)%
Loss from continuing operation before income tax(81,626)(19,558)(62,068)(317)%
Income tax benefit (expense)— — — — %
Loss from continuing operations(81,626)(19,558)(62,068)(317)%
Income from discontinued operations, net of tax17,844 3,601 14,243 396 %
Net loss(63,782)(15,957)(47,825)79 %
Net income attributable to non-controlling interest and redeemable non-controlling interest from continuing operations165 243 (78)(32)%
Net income attributable to non-controlling interest and redeemable non-controlling from discontinued operations3,023 3,175 (152)(5)%
Net loss attributable to Vertex Energy, Inc.$(66,970)$(19,375)$(47,595)116 %
Three Months Ended September 30,Nine Months Ended September 30,
20222021Variance*20222021Variance*
Revenues$43,439 $26,410 $17,029 $147,545 $80,124 $67,421 
Cost of revenues (exclusive of depreciation and amortization shown separately below)35,299 22,205 13,094 111,740 63,431 48,309 
Depreciation and amortization attributable to costs of revenues939 901 38 2,805 2,623 182 
Gross profit7,201 3,304 3,897 33,000 14,070 18,930 
Operating expenses
Selling general and administrative expense4,919 3,618 1,301 13,383 10,841 2,542 
Depreciation and amortization attributable to operating expenses39 59 (20)142 176 (34)
Total operating expenses4,958 3,677 1,281 13,525 11,017 2,508 
Income (loss) from operations$2,243 $(373)$2,616 $19,475 $3,053 $16,422 
* Favorable variances are represented by positive numbers and unfavorable variances are represented by negative numbers.

Our operating results are significantly affected by the Mobile Refinery acquisition, which closed on April 1, 2022. During the three months ended June 30,Third Quarter 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.
Third Quarter 2021 Highlights:
Our revenuesRevenue from operations for our Black Oil 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 June 30, 2022, compared to the same period in 2021, we saw a 16% decrease in the volume of products we manage through our facilities (mainly as a result of the Mobile Refinery acquisition and
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Recovery Segment 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 second quarter of 2022 as compared to the same period in 2021.

    Total revenues increased 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 June 30, 2022, compared to the same period in 2021. The $39.4 million increase was due primarily to higher commodity prices and increased volumes at our facilities. Volumes improved as a result of additional feedstock availability in the overall marketplace.
During the three months ended June 30, 2022, total cost of revenues (exclusive of depreciation and amortization) increased approximately $956 million, of which $917 million was from the Mobile Refinery and $39 million was from other business compared to same period ended June 30, 2021. The main reason for the $39 million increase was the result of the increase in commodity prices which impacted our feedstock pricing and certain operational expenses. Our cost of revenues is a function of the ultimate price we are required to pay to acquire feedstocks and other maintenance costs at our facilities.

We had selling, general and administrative expenses of approximately $36.6$17.0 million for the three months ended June 30, 2022, compared to $4.2 million from the prior year’s period, an increase of approximately $32.5 million or 777% from the prior year’s period. This increase is primarily due to $22 million of selling, general and administrative expenses relating to the Mobile Refinery and $8 million of Mobile Refinery acquisition costs.

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

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

Additionally, our per barrel margin decreased 21% for the three months ended June 30, 2022, relative to the three months ended June 30, 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 ($4.3 million for the 2022 period versus $2.1 million for the 2021 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 June 30, 2022, compared to the same period during 2021.
Overall, commodity prices were up for the three months ended June 30, 2022, compared to the same period in 2021. For example, the average posting (U.S. Gulfcoast Residual Fuel No. 6 3%) for the three months ended June 30, 2022, increased 61% per barrel from a three-month average of $58.59 for the three months ended June 30, 2021 to $94.11 per barrel for the three months ended June 30, 2022. The average posting (U.S. Gulfcoast Unleaded 87 Waterborne) for the three months ended June 30, 2022 increased $67.79 per barrel from a three-month average of $86.55 for the three months ended June 30, 2021 to $154.35 per barrel for the three months ended June 30, 2022.

We had loss from operations of approximately $33.1 million for the three months ended June 30, 2022, compared to loss from operations of $2.1 million for the three months ended June 30, 2021, an increase of $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 Mobile Refinery and $8 million of acquisition costs related to the transactions contemplated by the Refinery Purchase Agreement and related transactions.

    We had interest expense of $47.7 million for the three months ended June 30, 2022, compared to interest expense of $139 thousand for the three months ended June 30, 2021, an increase in interest expense of $47.6 million or 34,232% from the prior period, due to the unamortized deferred loan costs related to the conversion of Convertible Senior Notes to common stock during the period and the interest associated with the Convertible Senior Notes, which were issued on November 1, 2021, and the Term Loan, which was issued on April 1, 2022 ($125 million) and May 26, 2022 ($40 million).
    We had an approximately $0.9 million loss on change in value of derivative liability for the three months ended June 30, 2022, in connection with the warrants granted in connection with the Term Loan issued on April 1, 2022 (warrants to purchase 2.75 million shares) and May 26, 2022 (warrants to purchase 0.25 million shares), compared to a loss on change in the value of our derivative liability of $21.5 million in the prior year’s period, which was in connection with certain warrants granted in 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.
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    We had net loss from continuing operations of approximately $80.9 million for the three months ended June 30, 2022, compared to net loss from continuing operations of $19.6 million for the three months ended June 30, 2021, an increase in net loss from continuing operations of $61.3 million or 317%. The main reason for the increase in net loss for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, was attributable to the loss on inventory hedging activities, acquisition costs and the increase in interest expenses for the three months ended June 30, 2022, each as described in greater detail above.

Each of our segments’ income (loss) from operations during the three months ended June 30, 2022 and 2021 was as 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 approximately $20.3 million for the three months ended June 30, 2022, with cost of revenues (exclusive of depreciation and amortization) of $20.1 million, and depreciation and amortization attributable to cost of revenues of $31 thousand. During the three months ended June 30, 2021, these revenues were $0.2 million with cost of revenues (exclusive of depreciation and amortization) of $0.4 million and depreciation and amortization attributable to cost of revenues of $19 thousand. Revenue from operations increased for the three months ended JuneSeptember 30, 2022, compared to 2021, as a result of increases in commodity prices, improved margins and a new Marine Division which provided positive revenue and a profit for the period, which was created at the end of 2021 for blending bunker fuels into the Gulf Coast Market. The total loss was $12 million for the three months

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The total income from the Black Oil and Recovery Segment was $2.2 million for the three months ended JuneSeptember 30, 2022, which increased $8$2.6 million compared to the same period ended JuneSeptember 30, 2021, due to the costs related to the acquisition and proposed sale of the UMO Business.increased commodity prices.

    Our Refining segment includes the business operations of our Refining and Marketing operations, which includes Mobile RefineryYear to Date 2022 to Year to Date 2021 Highlights:. Revenues of $966 million in the Refining segment were up 3,954% during the three months ended June 30, 2022, as compared to the same period in 2021 mostly as a result of the operations of the Mobile Refinery, which had $922 million of revenue and the increased commodity prices and volume during the three months ended June 30, 2022. Overall volume for the Refining and Marketing segment was increased during the three months ended June 30, 2022, as compared to the same period in 2021.

    Our Recovery segment generated revenues of approximately $5 million for the three months ended June 30, 2022, with cost of revenues (exclusive of depreciation and amortization) of $5 million, and depreciation and amortization attributable to cost of revenues of $82 thousand. During the three months ended June 30, 2021, these revenues were $6 million with cost of revenues (exclusive of depreciation and amortization) of $5 million, and depreciation and amortization attributable to cost of revenues of $66 thousand. Loss from operations of $0.4 million for the three months ended June 30, 2022, compared to profit from operation of $0.5 million in 2021, was a result of higher commodity costs, less metal sales in volumes, which caused lower margins related 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.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2022 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2021 FROM CONTINUING OPERATIONS

Set forth below are our results of operations for the six months ended June 30, 2022 as compared to the same period in 2021 (in thousands):
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 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.

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Total revenues increased by 1,767% for the six months ended June 30, 2022 compared to the same period in 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 six months ended June 30, 2022, compared to the prior year’s period.

During the six months ended June 30, 2022, total cost of revenues (exclusive of depreciation and amortization) was $1 billion, compared to $50.9 million for the six months ended June 30, 2021, an increase of $972.2 million or 1,912% from the prior period. The main reason for the increase was the addition of the Mobile Refinery business which started on April 1, 2022, in addition to higher commodity prices, which impacted our feedstock pricing, and increases in volumes throughout the business.

    For the six months ended June 30, 2022, total depreciation and amortization expense attributable to cost of revenues was approximately $3.2 million, compared to $0.2 million for the six months ended June 30, 2021, an increase of $3.0 million, mainly due to assets acquired with the Mobile Refinery purchase.

We had gross profit as a percentage of revenue of 0.6% for the six months ended June 30, 2022, compared to gross profit as a percentage of revenues of 7.6% for the six months ended June 30, 2021. The decrease mainly due to the recognition of $94 million loss of inventory hedging activities, which was reported as cost of revenue, during the period.

We had selling, general, and administrative expenses of approximately $45.4 million for the six months ended June 30, 2022, compared to $7.0 million for the prior year’s period, an increase of $38.4 million or 546%. This increase is primarily due to $22 million of selling, general and administrative expenses relating to the Mobile Refinery and $13.6 million of Mobile Refinery acquisition costs and business development expenses related to 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 lossRevenue from operations of approximately $40.4for our Black Oil and Recovery segment increased $67.4 million for the sixnine months ended JuneSeptember 30, 2022, compared to a loss from operations of $2.9 million for the six months ended June 30, 2021, an increase of $37.5 million in loss from the prior year’s six-month period. The increase in loss from operations was mostly due to the cost of the Mobile Refinery acquisition and hedging loss.

    We had interest expense of approximately $52.0 millionfor the six months ended June 30, 2022, compared to interest expense of $0.3 million for the six months ended June 30, 2021, an increase in interest expense of $51.7 million due to a higher amount of term debt outstanding during the six months ended June 30, 2022, compared to the prior period, the unamortized deferred loan costs related to the conversion of Convertible Senior Notes to common stock during the period and the interest associated with the Convertible Senior Notes, which were issued on November 1, 2021, and the Term Loan, which was issued on April 1, 2022 ($125 million) and May 26, 2022 ($40 million).

    We had an approximately $4.5 million loss on change in valuepercentage of derivative liabilitygross profit increased to 22% for the sixnine months ended JuneSeptember 30, 2022 in connection with certain warrants granted in April and May 2022, compared to a loss on change in the value of our derivative liability of $23.3 million in the prior year’s 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 expensefrom 18% for the same period compared to the prior year’s period.

    We had a net loss from continuing operations of approximately $96.2 millionfor the six months ended June 30, 2022, compared to a net loss from continuing operations of $22.2 million for the six months ended June 30, 2021, an increase in net loss of $74.0 million or 333% from the prior period due to the reasons described above. The majority of our net loss for the six months ended June 30, 2022, was attributable to the loss on hedging activities and amortized deferred loan cost and discount, which was reported as interest expenses, related to the conversion of Convertible Senior Notes, which is a non-cash expense.
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Each of our segments’ income (loss) from operations during the six months ended June 30, 2022 and 2021 was as 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 approximately $21.8 million for the six months ended June 30, 2022, with cost of revenues (exclusive of depreciation and amortization) of $21.8 million, and depreciation and amortization attributable to cost of revenues of $47 thousand. During the six months ended June 30, 2021, these revenues were $0.3 millionwith cost of revenues (exclusive of depreciation and amortization) of $0.6 million, and depreciation and amortization attributable to cost of revenues of $39 thousand. Loss from operations decreased for the six months ended June 30, 2022, compared to 2021, as a result of higher commodity prices and increased operating expenses during the sixnine months ended JuneSeptember 30, 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 businessThe total income from operations offor our Refining and Marketing operations, as well as the Mobile Refinery acquired on April 1, 2022. During the six months ended June 30, 2022, our Refining and Marketing cost of revenues (exclusive of depreciation and amortization) were approximately $993 million, of which the processing costs for the Mobile Refinery were $917 million, and depreciation and amortization attributable to cost of revenues was $3.0 million. Revenues for the
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same period were $1 billion, of which $922 million related to the Mobile Refinery operation. During the six months ended June 30, 2021, our Refining and Marketing cost of revenues (exclusive of depreciation and amortization) were $40 million, and depreciation and amortization attributable to cost of revenues of $63 thousand. Revenues for the same period were $43 million.

    Our Recovery segment generated revenues of approximately $9was $19.5 million for the sixnine months ended JuneSeptember 30, 2022, with cost of revenues (exclusive of depreciation and amortization) of $8which increased $16.4 million, and depreciation and amortization attributable to cost of revenues of $0.2 million. During the six months ended June 30, 2021, these revenues were $12 million with cost of revenues (exclusive of depreciation and amortization) of $10 million, and depreciation and amortization attributable to cost of revenues of $0.1 million. Income from operations decreased for the six months ended June 30, 2022, compared to 2021, as a result of decreased volumes attributable to our Recovery segment and margins related thereto, through our various facilities. For the six months ended on June 30, 2021, this segment benefited from certain one-time projects that drive increases in volumes as well as revenues and margins from time to time and were 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 23% as a result of increased commodity prices when compared to the same period in 2021. Volumes of products acquired in our Recovery business were down 12% during the six months ended June 30, 2022, compared to the same period during 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 six months ended June 30, 2022, for our key benchmarks.
2022
BenchmarkHighDateLowDate
U.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)$4.35 June 3$2.26 January 3
U.S. Gulfcoast Residual Fuel No. 6 3% (dollars per barrel)$112.93 March 8$67.84 January 3
NYMEX Crude oil (dollars per barrel)$123.70 March 8$76.08 January 3
Reported in Platt’s US Marketscan (Gulf Coast)   

    The following table sets forth the high and low spot prices during the six months ended JuneSeptember 30, 2021, for our key benchmarks.
2021
BenchmarkHighDateLowDate
U.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)$2.21 June 23$1.36 January 4
U.S. Gulfcoast Residual Fuel No. 6 3% (dollars per barrel)$64.92 June 25$45.08 January 4
NYMEX Crude oil (dollars per barrel)$74.05 June 25$47.62 January 4
Reported in Platt’s US Marketscan (Gulf Coast)   

We saw an increase in the first six months of 2022, in each of the benchmark commodities we track compared to the same period in 2021. The increase in market prices was a result of a continued recovery of the economy from the pandemic together with 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
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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.increased commodity prices.

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.capital needs.
 
The success of our current business operations has been dependent on 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 approximately $690.7$647.6 million as of JuneSeptember 30, 2022, compared to $266.1 million at December 31, 2021. The increase was mainly due to the acquisition of the Mobile Refinery, increases in accounts receivable and inventory levels, due to the increases in commodity prices and volumes during the sixnine months ended JuneSeptember 30, 2022.2022, and an increase in cash generated from our operations.

We had total current liabilities of approximately $339.6$272.0 million as of JuneSeptember 30, 2022, compared to $49.2$25.5 million at December 31, 2021. We had total liabilities of $593.0$527.2 million as of JuneSeptember 30, 2022, compared to total liabilities of $192.5 million as of December 31, 2021. The increase in current liabilities was mainly due to theour inventory financing liabilities, increaseincreases in accounts payable and accrued liabilities as a result of rises in commodity prices and volumes along with the increase in commodity derivative liabilities and the term loan balance, thereof during the sixnine months ended JuneSeptember 30, 2022.
We had working capital of approximately $180.1$118.2 million as of JuneSeptember 30, 2022, compared to working capital of $185.0$148.7 million as of December 31, 2021. The decrease in working capital from December 31, 2021 to JuneSeptember 30, 2022 is mainly due to the increase in inventory, accounts payable and accrued liabilities, and obligations under our inventory financing agreement (discussed above), for which the inventory was purchased in JuneSeptember 2022 to be used for the productproducts and salesales in early October 2022, and $6 million of July 2022. Also we hadterm loan debt required to be repaid within the next 12 months. We also incurred a $3 million break fee paid for the termination of the Sales Agreement with Safety-Kleen, and $8.2$16.6 million of acquisition costs paid in connection with the Mobile Refinery purchase on April 1, 2022, during the nine months ended September 30, 2022.

MarketThe ongoing conflict between Russia and Ukraine, which began in the first quarter of 2022, and the economic sanctions imposed on Russia have decreased the global supply of crude oil affecting global prices. This conflict coupled with disruptions in supply chain that began with the COVID-19 pandemic in 2020, have resulted in increased inflation and higher market prices in crude oil and refined products. During the twelve months ended September 30, 2022, the Consumer Price Energy Index in the United States increased 19.7% impacting our gross margins. The Consumer Price All Items Index increased 8.2% for the same period impacting our operating expenses and slowing economic growth. While market conditions have improved through the end of 2021 and into 2022, as COVID-19 restrictions have eased and demand for refined products has rebounded. Although commodity prices have rebounded, we are still seeing extreme volatility in commodity pricing,pricing. Generally, however, the increase in refined product pricing has had a positive impact on our business and overall liquidity.

Our future operating cash flows will vary based on a number of factors, many of which are beyond our control, including the effects of inflation, increasing interest rates, 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
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administrative and operating costs. Additionally, we may incur more capital expenditures related to the Mobile Refinery in the future.

    The Company’s outstanding debt facilities as of June 30, 2022 and December 31, 2021 (excluding the Convertible Senior Notes) are summarized as follows (in thousands):
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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 (in thousands):
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):
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

We 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 ongoing renewable diesel conversion project designed to modify the Mobile Refinery's hydrocracking unit to produce renewable diesel fuel on a standalone basis) will be met through projected cash flow from operations, borrowings under our various facilities (if necessary) and asset sales.

Our current near term plans include transitioningcontinuing to transition 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 recent acquisition of the Mobile Refinery. The refinery, which has a long track record of safe, reliable operations and consistent financial performance, has, effective on April 1, 2022, upon the closing of the acquisition, become our flagship refining asset, which 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 upon completion of the ongoing capital project at the refinery is anticipated to accelerate Vertex’s strategic focus on "clean" refining.     By year-end 2022, assuming
As previously disclosed, we are currently working on completing a $90 - $100 million capital project designed to modify the Mobile Refinery’s existing hydrocracking unit to produce renewable diesel fuel on a standalone basis. Upon completion of the $90conversion project, the refinery is expected to $100 million planned capital project at the facility, the Mobile Refinery is projected to producecommence production of approximately 8,000 to- 10,000 barrels per day (bpd) of renewable diesel, fuel and renewable byproducts. By mid-year 2023, basedwith production volumes anticipated to subsequently ramp up to approximately 14,000 bpd by the first quarter of 2024. This project seeks to capitalize on current projections, Vertex expectsthe rapidly growing demand for advanced sustainable fuels, while further expanding upon our commitment to increasesupply lower carbon fuels solutions.
Currently, mechanical completion of the Mobile Refinery’s renewable diesel conversion project is expected to be complete during the first quarter of 2023 with production anticipated to 14,000 bpd.begin in the second quarter of 2023. 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.

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Additionally, we or our affiliates may, at any time and from time to time, retire or repurchase our outstanding Convertible Senior Notes in open-market purchases, privately negotiated transactions, refinancing or otherwise, through cash purchases and/or 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 amounts involved may be material.

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 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, there could be extreme fluctuations in the price 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.
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Cash flows for the sixnine months ended JuneSeptember 30, 2022 compared to the six months ended June 30,and 2021, were as follows (in thousands):
Six Months Ended June 30,Nine Months Ended September 30,
2022202120222021
Beginning cash, cash equivalents and restricted cashBeginning cash, cash equivalents and restricted cash$136,627 $10,995 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(88,194)5,045 Operating activities7,361 3,320 
Investing activitiesInvesting activities(230,211)(2,745)Investing activities(264,035)(14,152)
Financing activitiesFinancing activities279,792 1,772 Financing activities242,440 12,050 
Net increase (decrease) in cash, cash equivalents and restricted cashNet increase (decrease) in cash, cash equivalents and restricted cash(38,613)4,072 Net increase (decrease) in cash, cash equivalents and restricted cash(14,234)1,218 
Ending cash, cash equivalents and restricted cashEnding cash, cash equivalents and restricted cash$98,014 $15,067 Ending cash, cash equivalents and restricted cash$122,393 $12,213 

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.report includes only cash flow information for our continued operations.

Our current primary sources of liquidity are cash generated from operations, cash flows from the November 2021 sale of the Convertible Senior Notes and amounts borrowed under the Term Loan. Loan on April 1, 2022 (approximately $124 million) and May 26, 2022 ($40 million).

Net cash used inprovided by operating activities was approximately $88.2$7.4 million for the sixnine months ended JuneSeptember 30, 2022, as compared to net cash provided by operating activities of $5.0$3.3 million during the corresponding period in 2021. The primary reason for the increasedecrease in cash usedprovided by operating activities for the sixnine month period ended JuneSeptember 30, 2022, compared to the same period in 2021, was the Mobile Refinery inventory purchaseoperation of $68 million, $13.6 million of acquisition costs related to the Mobile Refinery, purchase, $65 million cash settlement on inventory hedging activities,of commodity derivative, and the net change of current asset and liabilities associated therewith, which had a net benefit on cash paidof around $11.5 million for the terminationnine months ended on September 30, 2022, compared to the net cash used of $8.5 million during the Sales Agreement with Safety-Kleensame period end in January 2022.2021.

Investing activities used cash of approximately $230.2$264.0 million for the sixnine months ended JuneSeptember 30, 2022, as compared to having used $2.7$14.2 million of cash used during the corresponding period in 2021, due mainly to the acquisition of the Mobile Refinery and fixed assets purchased during the current period.

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    Financing activities provided cash of approximately $279.8$242.4 million for the sixnine months ended JuneSeptember 30, 2022, as compared to providing cash of $1.8$12.1 million during the corresponding period in 2021. Financing activities for the sixnine months ended JuneSeptember 30, 2022 were comprised of proceeds from the Term Loan $165.0 million and insurance premium finance of $166$173.3 million, from inventory financing of $173$135.7 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$50.7 million, distribution to noncontrolling interest of $0.4 million and payment on notes payable and capital leases of $8$14.1 million. Financing activities for the sixnine months ended JuneSeptember 30, 2021 were mainly comprised of proceeds from the exercise of options and warrants of $3$6.5 million and from line of credit proceeds of $1long term note and insurance premium finance of $10.1 million offset by the payment on notes payable and capital leases of $2$3.8 million.

More information regarding our loan agreements, leases, and Convertible Senior Notes, can be found under “Note 6. Financing Arrangements15. "Long-Term Debt"” 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, intangible assets, long-lived assets valuation, variable interest entities, and legal matters. Actual results may differ from these estimates which 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 “2021 Form 10-K”), and “Critical Accounting Policies and Estimates” in Part II, Item 7 of the 2021 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 2021 Form 10-K.

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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 Prime as the base rate.

    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 notWe believe that inflation has had a materialan impact on our financial position orand results of operations to date, wedate. 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.

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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 JuneSeptember 30, 2022, based on the evaluation of these disclosure controls and procedures, 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 reasonable 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 WeaknessWeaknesses
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 thisthese material weakness.weaknesses. However, thisthese material weaknessweaknesses 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. With 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 three months ended JuneSeptember 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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, Commitments4. "Commitments and ContingenciesContingencies"”, 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.


    






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Item 1A. Risk Factors
Summary Risk Factors

We face risks and uncertainties related to our business, many of which are beyond our control. In particular, risks associated with our business include:

• our need for additional funding, the availability of, and terms of, such funding;
• our ability to pay amounts due on outstanding indebtedness, covenants of such indebtedness and security interests in connection therewith;
• the terms of our agreements with Macquarie, including termination rights associated therewith, and our ability to find a replacement partner, in the event such agreements were terminated;
• risks associated with unanticipated problems at, or downtime effecting, our facilities and those operated by third parties on which we rely;
• risks associated with our hedging activities, or our failure to hedge production;
• risks associated with our outstanding Convertible Notes, including amounts owed, conversion rights associated therewith, dilution caused thereby, redemption obligations associated therewith and our ability to repay such facilities and amounts due thereon when due;
• risks associated with an offtake agreement which will only become effective upon the occurrence of certain events, including the planned completion of a capital project at the Mobile Refinery;
• risks associated with the ongoing capital project associated with the Mobile refinery, including the timing thereof, costs associated therewith and our ability to generate revenues while such project is pending;
• the level of competition in our industry and our ability to compete;
• the supply and demand for oil and used oil, as well as used oil feed stocks and the price of oil and the feedstocks we use in our operations, process and sell;
• the availability of used oil feedstocks;
• our economics of using TCEP for its intended purpose;
• the outcome of natural disasters, hurricanes, floods, war, terrorist attacks, fires and other events negatively impacting our facilities and operations;
• 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;
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• our ability to maintain our relationship with Bunker One (USA) Inc., Shell and Macquarie;
• the impact of competitive services and products;
• our ability to integrate acquisitions;
• our ability to complete future acquisitions;
• our ability to maintain insurance;
• potential future litigation, judgments and settlements;
• risk of increased regulation of our operations and products and rules and regulations making our operations more costly or restrictive;
• changes in environmental and other laws and regulations and risks associated with such laws and regulations;
• economic downturns both in the United States and globally;
• 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;
• unexpected changes in our anticipated capital expenditures resulting from unforeseen required maintenance, repairs, or upgrades;
• prohibitions on borrowing and other covenants of our debt facilities;
• our ability to effectively manage our growth;
• the costs of required insurance, our lack of insurance, or claims not covered by our insurance;
• the redemptive rights of our agreements with partners;
• our lack of effective disclosure controls and procedures and internal control over financial reporting;
• loss of our ability to use net operating loss carry-forwards;
• improvements in alternative energy sources and technologies;
• decreases in global demand for, and the price of, oil, due to COVID-19, 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 of downturns in the U.S. and global economies due to COVID-19, increase in inflation or interest rates, and/or the ongoing conflict in Ukraine;
• the volatile nature of the market for our common stock;
• our ability to meet earnings guidance;
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• anti-take-over rights in our governing documents;
• our ability to maintain the listing of our common stock on The Nasdaq Capital Market; and
• dilution caused by new equity offerings, the exercise of warrants and/or the conversion of outstanding convertible notes.

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, 2021, filed with the Commission on March 14, 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, 2021, under “Risk Factors”, 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. Risk Factors designated by an asterisk (*) below represent Risk Factors which originally appeared in the December 31, 2021 Annual Report, which have been updated and supplemented below. Risk Factors not designated by an asterisk are new Risk Factors not included in the December 31, 2021 Annual Report.

Additionally, the following risk factors disclosed in the Annual Report are no longer relevant to the Company “The Heartland Company Agreement includes redemption rights.”; “The MG Company Agreement includes redemption rights.”; and all of the risk factors set forth under the subheading “Risks Related to the Planned Acquisition of the Mobile Refinery and Planned Acquisition of 100% of Heartland SPV and MG SPV”, except the risk factor titled “The Offtake Agreement with Idemitsu remains subject to various conditions, the obligations of Idemitsu thereunder may not become effective, may be terminated prior to the end of the initial term thereof, and we may face termination fees in connection therewith.”, which remains a risk applicable to the Company.
Risks Relating to Our Need for Future Funding and Current Indebtedness
We will need to raise additional capital in the future and our ability to obtain the necessary funding is uncertain.*
We will need to raise additional funding to meet the requirements of the terms and conditions of our outstanding Convertible Senior Notes, including to pay interest and principal thereon and to repay the Term Loan, and we may need to raise additional funding in the future to support our operations, complete acquisitions and grow 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 our common stock and preferred stock. If funding is insufficient at any time in the future and we are unable to generate sufficient revenue from new business arrangements, to repay our 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 JuneSeptember 30, 2022, we owed approximately $81$114 million in accounts payable and accrued expenses, $173$121 million in connection with our inventory financing agreements obligations and $260$184 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 6.10. "Inventory Financing Arrangements"- "IndentureAgreement" and Convertible Senior NotesNote 15. "Long-Term 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;
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•require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;
•restrict us from taking advantage of business opportunities;
•make it more difficult to satisfy our financial obligations;
•place us at a competitive disadvantage compared to our competitors that have less debt obligations; and
•limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes on satisfactory terms or at all.
We may need to raise additional funding in the future to repay or refinance the 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 terms of such financing. If equity financing is available and obtained it may result in our stockholders experiencing significant dilution. If such financing is
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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 default 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 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);Parties; 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
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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 of these requirements, covenants and limitations, we may not be able to respond to changes in business and economic conditions and to obtain additional financing, if needed, and we may be prevented from engaging in transactions that might otherwise be beneficial to us. 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 event of 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 default or acceleration under one instrument governing our debt will in the case of the Loan 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 at all. Alternatively, such a default could require us to sell assets and otherwise curtail
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operations to pay our creditors. The proceeds of such a sale of assets, or curtailment of operations, might not enable us to pay all of our liabilities.
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 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, Vertex Refining’s obligations under the Loan and Security Agreement are jointly and severally guaranteed by substantially all of the Company’s subsidiaries 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 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. 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 hereafter acquired promissory notes and instruments evidencing indebtedness to any Guarantor and all now owned or hereafter acquired equity interests owned by 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
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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 of 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 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 become worthless.
Our arrangement with Macquarie exposes us to Macquarie-related credit and 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.Refinery, including a Supply and Offtake Agreement. 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.
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Should Macquarie terminate the Supply 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 crude 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 increaseContinued increases 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%14%. As such anInterest rates have recently been increasing and any continued 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, ana future increase in interest rates could adversely affect our future ability to obtain financing or materially increase the cost of any additional financing.
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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, fluctuatingincreasing 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.*
Our ability to process feedstocks depends on our ability to operate our refining/processing operations and facilities, including our newly acquired Mobile Refinery, and those operated by third parties 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
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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 material adverse effect on our results of operations and consequently the price of our 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 instrumentation in the immediate area of the fire, the largest 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 Black 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 operations, 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 ongoing capital project at the newly acquired Mobile Refinery may harm our business and viability.
We are in the process of completing an $85a $90-100 million capital project designed to modify the Mobile Refinery’s hydrocracking unit to produce renewable diesel fuel on a standalone basis (the “Conversion”). The occurrence of significant unforeseen conditions or events in connection with the Conversion may make the Conversion more expensive, prevent us from completing the Conversion, 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
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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, and have already delayed the completion of the project once due to supply constraints, any of which could prevent us from timely completing the Conversion.

We may be unable to sell our UMO Business.Business and no do not anticipate seeking shareholder approval for such sale.*
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 knowledge that we are actively trying to sell our UMO Business may result in depressed prices. As a result, we may not be able to sell our UMO 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. Additionally, as a result of the acquisition of the Mobile Refinery, we no longer anticipate needing, or obtaining, shareholder approval for the future sale of our UMO Business or our Heartland Business.
Claims above our insurance limits, or significant increases in our insurance premiums, may reduce our profitability.
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*
We currently employ approximately 9295 full-time drivers. From time to time, some of these employee drivers are involved in automobile 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 450500 employees. Claims against us may exceed the amounts of available insurance coverage. If we were to experience a material increase in the ffrrequencyequency or severity of accidents, liability claims or workers’ compensation claims or unfavorable resolutions of claims, our operating results could be materially affected.

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.
We use derivative instruments to hedge 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 terms of the Loan and Security Agreement. We have in the past, and 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 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 JuneSeptember 30, 2022, our outstanding oil hedges had a fair value of negative $46,537,144.positive $1.2 million. 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,
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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
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• 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.
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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
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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 theongoing 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;
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•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
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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, from time to time, we have, and expect in the future 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.
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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
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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.
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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.
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We have been and may in the future be negatively impacted by inflation.
Increases in inflation have already, and may in the future, 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 have already, and could in the future, 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 have already, and could in the future, have an adverse impact on our business, financial position, results of operations and cash flows. Inflation may also resultand has already resulted in higher interest rates, which in turn would resultresults 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 secondthree 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 secondthree 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. During 2022 and 2021, refining margins have experienced significant volatility, resulting in an increase in the first nine months of 2022, in each of the benchmark commodities we track compared to the same period in 2021. The increase in market prices was a result of the ongoing conflict between Russia and Ukraine and increased inflation. The Ukraine conflict coupled with disruptions in supply chain that began with the COVID-19 pandemic in 2020, have resulted in increased inflation and higher market prices in crude oil and refined products. During the twelve months ended September 30, 2022, the Consumer Price Energy Index in the United States increased 19.7% impacting our gross margins. The Consumer Price All Items Index increased 8.2% for the same period impacting our operating expenses and slowing economic growth. 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 couldhas negatively impacted and may continue to negatively impact our business.
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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 halfthree quarters 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.
Worsening economic recessions and economic conditions and trends and downturns in the business cycles of the industries we serve and which provide services to impact our business and operating results.*
A significant portion of our customer base is comprised of companies in the chemical manufacturing and hydrocarbon recovery industries. The overall levels of demand for our products, refining operations, and future planned re-refined oil products are driven by fluctuations in levels of end-user demand, which depend in large part on general macroeconomic conditions in the U.S., as well as regional economic conditions and many economists are now forecasting the U.S. to enter into a recession in the next several months. For example, many of our principal consumers are themselves heavily dependent on general economic conditions, including the price of fuel and energy, availability of affordable credit and capital, employment levels, interest rates, consumer confidence and housing demand. These cyclical shifts in our customers’ businesses may result in fluctuations in demand, volumes, pricing and operating margins for our services and products.
In addition to our customers, the suppliers of our feedstock are also affected by downturns in the economy and adverse changes in the price of feedstock. For example, we previously experienced difficulty obtaining feedstock from our suppliers who, because of prior sharp downturns in the price of oil (used and otherwise) in 2015-16 saw their margins decrease substantially, which in some cases made it uneconomical for such suppliers to purchase feedstock from their suppliers and/or sell to us at the rates set forth in their contracts. Similarly, the economic slowdown 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 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, and produce finished products. Future recessions, economic downturns or reduced demand for oil are expected to have a material adverse effect on our results of operations, cash flows, and as a result the value of our securities.
Legal, Environmental, Governmental and Regulatory Risks
We are subject to numerous environmental and other laws and regulations and, to the extent we are found to be in violation of any such laws and regulations, or agree that we violated such laws and regulations, our business could be materially and adversely affected.*
We are subject to extensive federal, state, and local laws and regulations relating to the protection of the environment which, among other things:
•regulate the collection, transportation, handling, processing and disposal of hazardous and non-hazardous wastes;
•impose liability on persons involved in generating, handling, processing, transporting or disposing hazardous materials;
•impose joint and several liability for remediation and clean-up of environmental contamination;
•require us to prepare and maintain certain plans and guidelines; and
•require financial assurance that funds will be available for the closure and post-closure care of sites where hazardous wastes are stored, processed or disposed.
The breadth and complexity of all of these laws and regulations impacting us make consistent compliance extremely difficult and often result in increased operating and compliance costs, including requiring the implementation of new programs to promote compliance. Even with these programs, we and other companies in the industry are routinely faced with legal and administrative proceedings which can result in civil and criminal penalties, interruption of business operations, fines or other sanctions and require expenditures.
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Our operations involve the risks of fuel spillage or seepage, environmental damage and hazardous waste disposal, among others. If we are involved in a spill or other accident involving hazardous substances, or if we are found to be in violation of applicable environmental laws or regulations, it could significantly increase our cost of doing business.
Additionally, under current law, we may be held liable for damage caused by conditions that existed before we acquired our assets and/or before we took control of our leased properties or if we arranged for the transportation, disposal or treatment of hazardous substances that cause environmental contamination. In the future, we may be subject to monetary fines, civil or criminal penalties, remediation, clean-up or stop orders, injunctions, orders to cease or suspend certain practices or denial of permits required to operate our facilities and conduct our operations. The outcome of any proceeding and associated costs and expenses could have a material adverse impact on our operations and financial condition.
Our trucking operations are subject to a number of federal, state and local rules and regulations generally governing such activities as authorization to engage in motor carrier operations, safety compliance and reporting, contract compliance, insurance requirements, taxation and financial reporting. We could be subject to new or more restrictive regulations, such as regulations relating to engine emissions, drivers’ hours of service, occupational safety and health, ergonomics or cargo security. Compliance with such regulations could substantially reduce equipment productivity, and the costs of compliance could increase our operating expenses.
Environmental laws also govern the presence, maintenance and removal of asbestos-containing building materials, or ACBMs, and may impose fines and penalties for failure to comply with these requirements. Such laws require that owners or operators of buildings containing ACBM (and employers in such buildings) properly manage and maintain the asbestos, adequately notify or train those who may come into contact with asbestos, and undertake special precautions, including removal or other abatement, if asbestos would be disturbed during renovation or demolition of a building or plant. In addition, the presence of ACBM in our properties or plants may expose us to third-party liability (e.g., liability for personal injury associated with exposure to asbestos).
We may also be subject to claims from time to time that we have violated certain environmental laws and regulations. For example, during 2022, we entered into a Consent Agreement with the U.S. Environmental Protection Agency (EPA) to settle allegations that we failed to develop and implement an Spill Prevention Control & Countermeasure (SPCC) plan and/or a Facility Response Plan (FRP) for the Cedar Marine Terminal in violation of the Clean Water Act. Pursuant to the Consent Agreement, we agreed to pay $18,600 to the EPA as a penalty in connection therewith and to enter into a Final Order with the EPA. Environmental laws and regulations are subject to change and may become increasingly stringent or relaxed. Interpretation or enforcement of existing laws and regulations, or the adoption of new laws and regulations, may require us to modify or curtail our operations or replace or upgrade our facilities or equipment at substantial costs which we may not be able to pass on to our customers. On the other hand, if new laws and regulations are less stringent, then our customers or competitors may be able to compete with us more effectively, without reliance on our services, which could decrease the need for our services and/or increase competition which could adversely affect our revenues and profitability, if any. Our failure to comply with existing laws and regulations could result in penalties, fines, or injunctions, any of which could have a material adverse effect on our reputation, results of operations, or cash flows, and could further subject us to additional claims or litigation which may be material.
We are required to obtain and maintain permits, licenses and approvals to conduct our operations in compliance with such laws and regulations. If we are unable to maintain our currently held permits, licenses and approvals, we may not be able to continue certain of our operations. If we are unable to obtain any additional permits, licenses and approvals which may be required as we expand our operations, we may be forced to curtail or abandon our current and/or future planned business operations.
In addition, mandatory fuel standards have been adopted in many jurisdictions which can be costly to implement and maintain compliance. For example, the International Maritime Organization required, as of January 1, 2020, that ships must comply with new low sulfur fuel oil requirements (“IMO 2020”). Shipping companies were able to comply with this requirement by either using fuel with low sulfur content, which is more expensive than standard marine fuel, or by upgrading vessels to provide cleaner exhaust emissions, such as by installing “scrubbers” or retrofitting vessels to be powered by liquefied natural gas (“LNG”). The continued cost of compliance with these regulatory changes may be significant for shipping companies and it is uncertain how the availability and price of fuel globally will be affected by the implementation of the IMO 2020 regulations as refineries adjust their capacity to increase production of compliant fuels. These and future changes to applicable standards or other more stringent requirements in the industries we serve could reduce our ability to procure feedstocks, reduce our margins, increase our operational expenses, increase fuel prices, require us to incur additional handling costs and/or require the expenditure of capital. To the extent these expenditures, as with all costs, are not ultimately reflected in the prices of our products or we are unable to adequately source compliant fuels, our business and result of operations would be
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adversely affected. Furthermore, IMO 2020 and/or other regulations may decrease demand for our products or force us to change the mix of products we offer. With the COVID-19 pandemic during 2020, it has been hard to see the real impact of IMO 2020 on our operations; however, so far, we are seeing strong demand for our finished products.
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 Our Securities
Our outstanding options and convertible securities 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 33.6 million shares of common stock at a weighted average exercise price of $1.81$1.87 per share; (ii) outstanding warrants to purchase 2.6 million shares
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of common stock at an exercise price of $4.50 per share and 0.2 million shares of common stock at an exercise price of $14.15$9.25 per share; and (iii) outstanding Convertible Senior Notes which may be converted into a maximum of 22.2 million shares of common stock, based on the initial maximum conversion rate of 233.6449 shares of the Company’s common stock per $1,000 principal amount of Notes, which is subject to customary and other adjustments described in the Indenture. 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.
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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 happens the price of our stock will decrease, and any additional shares which stockholders attempt to sell in the market will only further decrease the share price. If the share volume of our common stock cannot absorb shares sold by holders of our outstanding convertible securities, then the value of our common stock will likely decrease.
A significant number of our shares of common stock are eligible for sale and their sale or potential sale may depress the market price of our common stock.
Sales of a significant number of shares of our common stock in the public market could harm the market price of our common stock. Most of our common stock is available for resale in the public market, and if sold would increase the supply of our common stock, thereby causing a decrease in its price. Some or all of our shares of common stock may be offered from time to time in the open market pursuant to effective registration statements and/or compliance with Rule 144, which sales could have a depressive effect on the market for our shares of common stock. Subject to certain restrictions, a person who has held restricted shares for a period of six months may generally sell common stock into the market. The sale of a significant portion of such shares when such shares are eligible for public sale may cause the value of our common stock to decline in value.
The Warrants have certain anti-dilutive rights, put and call rights upon the occurrence of a fundamental transaction, and include a limitation on the number of shares of common stock which 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 exercise price and a total of 235,000 of the Warrants have a term through November 26, 2027 and a $9.25 exercise price. All of the Warrants 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 the terms of the Warrant Agreements, 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 the Warrants upon the occurrence 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 Warrants, such that the aggregate exercise price of all Warrants remains the same before and after 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 common stock issuable upon exercise thereof, which could result in significant dilution to existing shareholders.
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) provide the Company with a call right in respect of the Warrants. 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. Such Black Scholes value may be significant and the requirement 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 Company receives shareholder approval under applicable Nasdaq listing rules for the issuance of more than 19.9% of the Company’s outstanding shares of common stock on the date the Warrant Agreements were
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entered into (i.e., more than 12,828,681 shares of common stock)(the “Share Cap”), the Company may not issue more shares of common stock upon exercise 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 could be required to pay cash to the holders of the Warrants in the amount equal to such 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.
In connection with the grant of the Warrants, the Company and the holders of such Warrants entered into a Registration 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 purposes 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 expected to exceed $35 million).
If, subject to certain limited exceptions described in the Registration Rights Agreement, during the period commencing 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 registration statement is not continuously effective
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to allow the sale of the shares 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 be required to pay significant penalties which could adversely affect our cash flow and cause the value of our securities to decline in value.
We have established preferred stock which can be designated by the Board of Directors without shareholder approval.*
We have 50 million shares of preferred stock authorized of which no shares are currently designated and no shares are issued and outstanding. Our directors, within the limitations and restrictions contained in our Articles of Incorporation and without further action by our shareholders, have the authority to issue shares of preferred stock from time to time in one or more series and to fix the number of shares and the relative rights, conversion rights, voting rights, and terms of redemption, liquidation preferences and any other preferences, special rights and qualifications of any such series. Any issuance of shares of preferred stock could adversely affect the rights of holders of our common stock. Should we issue additional shares of our common stock at a later time, each investor’s ownership interest in our stock would be proportionally reduced. Because our board of directors is entitled to designate the powers and preferences of the preferred stock without a vote of our shareholders, subject to Nasdaq rules and regulations, our shareholders will have no control over what designations and preferences our future preferred stock, if any, will have.
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5190

Item 2. Recent Sales of Unregistered Securities

There have been no sales of unregistered securities during the quarter ended JuneSeptember 30, 2022 and from the period from JulyOctober 1, 2022, to the filing date of this report, which have not previously been disclosed in a Current Report on Form 8-K, except as set forth below:
In MayJuly 2022, a holder of Series A Convertible Preferred Stock of the Company converted 6,223 shares of the Company’s Series A Convertible Preferred Stock into 6,223 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.
On July 11, 2022, two holders of warrants to purchase an aggregate of 165,000100 shares of our common stock with an exercise price of $4.50 per share andwere exercised by a holder thereof in consideration for $450 and we issued 100 shares of common stock.
In July 2022, warrants to purchase an aggregate of 165,000 shares of common stock with an exercise price of $4.50 per share were exercised by two holders thereof via cashless exercises, and were issued a net of an aggregate of 95,974 shares of common stock. Additionally, in July 2022, warrants to purchase an aggregate of 15,000 shares of our common stock with an exercise price of $9.25 per share were exercised such warrantsby a holder thereof in a cashless exercise, pursuant to which the termsholder was due a net of such warrants, and were issued 98,0752,101 shares of common stock. We claim an exemptionstock in connection therewith, which shares have not been issued to date, or included in the number of issued and outstanding shares disclosed throughout this report.
The above exercises were exempt from registration provided bypursuant to Section 3(a)(9)4(a)(2) of the Securities Act for such issuance, as the securities were exchanged by us with our existing security holder inbecause they did not involve a transaction where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange.
On July 19, 2022, a holder of warrants to purchase 100 shares of our common stock with an exercise price of $4.50 per share exercised such warrants for cash and was issued 100 shares of common stock. The shares were issued pursuant to equity securities originally offered and sold without registration under the Securities Act to accredited investors in reliance upon the exemption provided by Rule 4(a)(2).public offering.
Use of Proceeds from Sale of Registered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliate Purchasers
None.

Item 3.  Defaults Upon Senior Securities

    None.

Item 4.  Mine Safety Disclosures

    Not applicable.

Item 5.  Other Information.

None.
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Item 6.  Exhibits

5392

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
Incorporated by Reference
Exhibit NumberDescription of ExhibitFiled or Furnished HerewithFormExhibitFiling Date/Period End DateFile No.
3.18-K3.18/25/2022001-11476
3.28-K3.28/25/2022001-11476
3.38-K3.38/25/2022001-11476
3.48-K3.48/25/2022001-11476
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-K10.14/7/2022001-11476
10.2#8-K10.15/27/2022001-11476
10.3#8-K10.110/5/2022001-11476
5493

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
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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
10.48-K10.210/5/2022001-11476
31.1X
31.2X
32.1X
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.






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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: August 8,November 7, 2022By: /s/ Benjamin P. Cowart
Benjamin P. Cowart
 Chief Executive Officer
 (Principal Executive Officer)
  
 
Date: August 8,November 7, 2022By: /s/ Chris Carlson
Chris Carlson
 Chief Financial Officer
 (Principal Financial/Accounting Officer)

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