Vertex Energy Inc. - FORM 10-Q

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Vertex Energy Inc. Reports

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EXCEL - IDEA: XBRL DOCUMENT - Vertex Energy Inc.	Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - Vertex Energy Inc.	a6302014-ex311.htm
EX-10.25 - EXHIBIT 10.25 - Vertex Energy Inc.	ex1025tsa-omegaxmtb.htm
EX-32.1 - EXHIBIT 32.1 - Vertex Energy Inc.	a6302014-ex321.htm
EX-10.22 - EXHIBIT 10.22 - Vertex Energy Inc.	ex1022landlease-marreroter.htm
EX-10.23 - EXHIBIT 10.23 - Vertex Energy Inc.	ex1023myrtlegroveleasewexh.htm
EX-99.2 - EXHIBIT 99.2 - Vertex Energy Inc.	a6302014-ex992.htm
EX-32.2 - EXHIBIT 32.2 - Vertex Energy Inc.	a6302014-ex322.htm
EX-31.2 - EXHIBIT 31.2 - Vertex Energy Inc.	a6302014-ex312.htm
EX-10.24 - EXHIBIT 10.24 - Vertex Energy Inc.	ex1024omega-operationmanag.htm
EX-10.26 - EXHIBIT 10.26 - Vertex Energy Inc.	ex1026omegabangopurchasean.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal quarter ended June 30, 2014

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

FOR THE TRANSITION PERIOD FROM _____________ TO _____________

Commission File Number 001-11476

———————

VERTEX ENERGY, INC.

(Exact name of registrant as specified in its charter)

———————



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

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

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



Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.

Yes ¨ No ý

State the number of shares of the issuer’s common stock outstanding, as of the latest practicable date: 25,042,210 shares of common stock issued and outstanding as of August 12, 2014.

TABLE OF CONTENTS



		Page
	PART I
Item 1.	Financial Statements

	Consolidated Balance Sheets (unaudited)	F-1

	Consolidated Statements of Operations (unaudited)	F-2

	Consolidated Statements of Cash Flows (unaudited)	F-3

	Notes to Consolidated Financial Statements (unaudited)	F-4

Item 2	Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	13

Item 3.	Quantitative And Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	37

	PART II
Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales Of Equity Securities And Use Of Proceeds	46

Item 3.	Defaults Upon Senior Securities	47

Item 4.	Mine Safety Disclosures	47

Item 5.	Other Information	47

Item 6.	Exhibits	47

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements



VERTEX ENERGY, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
	June 30, 2014			December 31, 2013
ASSETS
Current assets
Cash and cash equivalents	$	19,651,831		$	2,678,628
Accounts receivable, net	13,952,805			11,714,813
Accounts receivable-related party	9,335,321			—
Inventory	16,412,448			8,540,459
Prepaid expenses	3,530,682			1,161,721
Total current assets	62,883,087			24,095,621
Noncurrent assets
Other assets	2,925,096			—
Fixed assets, net	46,725,108			15,091,176
Intangible assets, net	16,733,683			15,172,816
Goodwill	4,922,353			4,502,743
Deferred federal income tax	5,684,000			5,684,000
Total noncurrent assets	76,990,240			40,450,735
TOTAL ASSETS	$	139,873,327		$	64,546,356

LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued expenses	$	26,004,141		$	14,096,185
Capital leases	809,497			—
Current portion of long-term debt	2,417,335			1,956,847
Total current liabilities	29,230,973			16,053,032
Long-term liabilities
Long-term debt	40,173,643			6,558,851
Contingent consideration	5,385,250			3,220,250
Line of credit	304,000			—
Deferred federal income tax	378,000			378,000
Total liabilities	75,471,866			26,210,133
Commitments and contingencies

EQUITY
Preferred stock, $0.001 par value per share:
50,000,000 shares authorized
Series A Convertible Preferred stock, $0.001 par value,
5,000,000 authorized and 675,558 and 1,319,002 issued
and outstanding at June 30, 2014 and December 31,
2013, respectively	675			1,319
Common stock, $0.001 par value per share;
750,000,000 shares authorized; 25,019,450 and 21,205,609
issued and outstanding at June 30, 2014 and
December 31, 2013, respectively	25,019			21,206
Additional paid-in capital	39,189,263			19,579,732
Retained earnings	25,405,251			17,542,004
Total Vertex Energy, Inc. stockholders' equity	64,620,208			37,144,261
Non-controlling interest	(218,747		)	1,191,962
Total equity	64,401,461			38,336,223

TOTAL LIABILITIES AND EQUITY	$	139,873,327		$	64,546,356

See accompanying notes to the consolidated financial statements

F-1



VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(UNAUDITED)
	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Revenues	$	72,079,622		$	35,111,402		$	119,429,280		$	68,366,204
Cost of revenues	63,200,942			32,556,738			105,406,112			62,341,782
Gross profit	8,878,680			2,554,664			14,023,168			6,024,422

Reduction of contingent liability	—			(1,850,000		)	—			(1,850,000		)

Operating expenses:
Selling, general and administrative expenses (exclusive of acquisition related expenses)	6,075,517			2,395,745			9,663,006			4,653,829
Acquisition related expenses	1,959,418			—			2,559,830			—
Total operating expenses	8,034,935			2,395,745			12,222,836			4,653,829

Income from operations	843,745			2,008,919			1,800,332			3,220,593

Other income (expense)
Other income	7			7,598			377			32,888
Bargain purchase gain related to Omega acquisition	6,481,051			—			6,481,051			—
Other expense	(10,866		)	—			(10,866		)	(40,726		)
Interest expense	(657,235		)	(112,999		)	(733,046		)	(219,139		)
Total other income (expense)	5,812,957			(105,401		)	5,737,516			(226,977		)

Income before income tax	6,656,702			1,903,518			7,537,848			2,993,616

Income tax benefit (expense)	—			(12,248		)	—			(18,751		)

Net income	$	6,656,702		$	1,891,270		$	7,537,848		$	2,974,865

Net income attributable to non-controlling interest	344,380			—			325,399			—

Net income attributable to Vertex Energy, Inc.	$	7,001,082		$	1,891,270		$	7,863,247		$	2,974,865

Earnings per common share
Basic	$	0.31		$	0.11		$	0.36		$	0.17
Diluted	$	0.28		$	0.10		$	0.33		$	0.15

Shares used in computing earnings per share
Basic	22,826,102			17,409,034			22,025,316			17,243,762
Diluted	24,847,456			19,887,288			23,879,500			19,798,989

See accompanying notes to the consolidated financial statements

F-2



VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2014 AND 2013
(UNAUDITED)
	Six Months Ended
	June 30, 2014			June 30, 2013
Cash flows from operating activities
Net income	$	7,537,848		$	2,974,865
Adjustments to reconcile net income to cash provided by operating activities
Stock based compensation expense	101,378			94,466
Depreciation and amortization	1,800,950			1,069,035
Gain on acquisition	(6,481,051		)	—
Deferred federal income tax	—			11,000
Reduction of contingent liability	—			(1,850,000		)
Changes in operating assets and liabilities
Accounts receivable	(2,237,992		)	(930,490		)
Accounts receivable-other	950,000			—
Accounts receivable-related party	(1,027,321		)	—
Inventory	(3,679,989		)	(3,465,205		)
Prepaid expenses	(2,717,571		)	(45,451		)
Accounts payable	9,464,956			3,669,339
Other assets	(79,806		)	—
Net cash provided by operating activities	3,631,402			1,527,559

Cash flows from investing activities
Acquisition of Omega	(28,764,099		)	(67,972		)
Refund of asset acquisition	—			675,558
Purchase of fixed assets	(2,635,882		)	(1,010,485		)
Net cash (used in) investing activities	(31,399,981		)	(402,899		)

Cash flows from financing activities
Line of credit (payments) proceeds, net	304,000			(750,000		)
Proceeds related to primary stock offering	15,803,000			—
Proceeds from note payable	40,509,906			—
Payments on note payable	(9,634,029		)	(922,873		)
Proceeds from exercise of common stock options and warrants	211,062			37,501
Debt issue costs	(2,452,157		)	—
Net cash provided by (used in) financing activities	44,741,782			(1,635,372		)

Net change in cash and cash equivalents	16,973,203			(510,712		)

Cash and cash equivalents at beginning of the period	2,678,628			807,940

Cash and cash equivalents at end of period	$	19,651,831		$	297,228

SUPPLEMENTAL INFORMATION
Cash paid for interest	$	733,046		$	199,737
Cash paid for income taxes	$	—		$	21,249

NON-CASH INVESTING AND FINANCING TRANSACTIONS
Conversion of Series A Preferred Stock into common stock	$	644		$	168
Note payable for acquisition of E-Source interest	$	854,050		$	—
Additional paid in capital for acquisition of E-Source interest	$	231,260		$	—

See accompanying notes to the consolidated financial statements

F-3

VERTEX ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2014

(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS

The accompanying unaudited consolidated interim financial statements of Vertex Energy, Inc. (the “Company,” or “Vertex Energy”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s annual consolidated financial statements as filed with the SEC on Form 10-K on March 25, 2014 (the “Form 10-K”). In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Certain prior period amounts have been reclassified to conform to current period presentation. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for the most recent fiscal year 2013 as reported in Form 10-K, have been omitted.

NOTE 2. CONCENTRATIONS, SIGNIFICANT CUSTOMERS, COMMITMENTS AND CONTINGENCIES

At June 30, 2014 and 2013 and for each of the six months then ended, the Company’s revenues and receivables were comprised of the following customer concentrations:



	2014		2013
	% of Revenues	% of Receivables	% of Revenues	% of Receivables
Customer 1	36%	19%	—%	—%
Customer 2	16%	3%	54%	40%
Customer 3	14%	25%	—%	—%
Customer 4	11%	9%	8%	—%
Customer 5	7%	9%	10%	30%
Customer 6	—%	—%	3%	12%

The Company purchases goods and services from one company that represented 10% of total purchases for the six months ended June 30, 2014 and one company that represented 12% for the six months ended June 30, 2013.

The Company has had various debt facilities available for use, of which there was $43,704,475 and $8,515,698 outstanding as of June 30, 2014 and December 31, 2013, respectively. See Note 3 for further details.

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

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

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

We intend to take advantage of any potential tax benefits related to net operating losses (“NOLs”) acquired as part of the Company's April 2009 merger with World Waste Technologies, Inc. ("World Waste"). As a result of the merger, we acquired approximately $42 million of net operating losses that may be used to offset taxable income generated by the Company in future periods.

F-4

VERTEX ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

shares issued within a three-year look-back period, whether the merger is deemed to be a change in control, whether there is deemed to be a continuity of World Waste’s historical business, and the extent of the Company’s subsequent income. As of December 31, 2013, the Company had utilized approximately $11.25 million of these NOLs leaving approximately $30.75 million of potential NOLs of which we expect to utilize approximately $2.2 million for the six months ended June 30, 2014. The Company recorded a change in valuation allowance for the six months ended June 30, 2014 of approximately $748,000.

NOTE 3. NOTES PAYABLE

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

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

The financing arrangement discussed above is secured by a first priority security interest in all of the assets and securities of our direct and indirect subsidiaries other than E-Source Holdings, LLC. The loan includes various covenants binding upon the Company, including, requiring that the Company comply with certain reporting requirements, provide notices of material corporate events and forecasts to Bank of America, and maintain certain financial ratios relating to debt leverage, consolidated EBITDA, maximum debt exposure, and minimum liquidity, including maintaining a ratio of quarterly consolidated EBITDA to certain fixed charges. The Company was in compliance with all aspects of the agreement at June 30, 2014.

On May 2, 2014, the Company entered into a Credit and Guaranty Agreement with Goldman Sachs Bank USA. Pursuant to the agreement, Goldman Sachs Bank USA loaned the Company $40,000,000 in the form of a term loan. As set forth in the Credit Agreement, the Company has the option to select whether loans made under the Credit Agreement bear interest at (a) the greater of (i) the prime rate in effect, (ii) the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System plus ½ of 1%, (iii) the sum of (A) the Adjusted LIBOR Rate and (B) 1%, and (iv) 4.5% per annum; or (b) the greater of (i) 1.50% and (ii) the applicable ICE Benchmark Administration Limited interest rate, divided by (x) one minus, (y) the Adjusted LIBOR Rate. Interest on the Credit Agreement is payable monthly in arrears. Amortizing principal payments are due on the Credit Agreement Loan in the amount of $300,000 per fiscal quarter for June 30, 2014, September 30, 2014, December 31, 2014 and March 31, 2015, and $800,000 per fiscal quarter thereafter until maturity on May 2, 2019. The balance on the term loan was $39,700,000 at June 30, 2014.

The Goldman Sachs Bank USA financing arrangement is secured by all of the assets of the Company, but subordinate to the aforementioned Bank of America credit agreement. The Credit Agreement contains customary representations, warranties, and covenants for facilities of similar nature and size as the Credit Agreement. The Credit Agreement also includes various covenants binding the Company including limits on indebtedness the Company may incur and maintenance of certain financial ratios relating to consolidated EBITDA and debt leverage. The Company was in compliance with all aspects of the agreement at June 30, 2014.

In August, 2013, the Company entered into a credit agreement with Texas Citizens Bank N.A. Pursuant to the agreement, Texas Citizens Bank agreed to loan E-Source Holdings $500,000 in the form of a revolving line of credit secured by E-Source held assets. The credit agreement carries an interest rate of 6.25% per annum. Accrued and unpaid interest on the revolving note is due and payable monthly in arrears and all amounts outstanding under the revolving note are due and payable on August 27, 2014. The balance on the line of credit was $304,000 at June 30, 2014.

On May 2, 2014, in connection with the closing of the Omega Refining acquisition, the Company assumed two capital leases totaling $3,154,860. Payments of $2,345,363 were made and the balance was $809,497 at June 30, 2014.

F-5

The Company has notes payable to various financial institutions, bearing interest at rates ranging from 5% to 6.35%, maturing from November 2015 to April 2023. The balance of the notes payable is $2,454,944 at June 30, 2014.

Effective January 1, 2014, the Company purchased an additional 19% ownership interest in E-Source Holdings, LLC ("E-Source") of which it had previously acquired 51%. In consideration for the additional interest the Company will pay $854,050 of which $200,000 was paid on April 11, 2014 and the remainder is to be paid monthly in $72,672 installments through December 31, 2014. The Company will also issue up to 207,743 shares of stock on January 31, 2015 based on certain EBITDA criteria being met for 2014 (reduced pro rata based on actual EBITDA). As of the date of the transaction, the estimated value of the stock to be issued of approximately $231,000 was recorded as additional paid in capital and a reduction of the non-controlling interest in accordance with ASC 810-10-45. The balance of the note payable is $436,033 at June 30, 2014.

NOTE 4. STOCK-BASED COMPENSATION

Stock-based compensation expense was $101,378 and $94,466 for the six months ended June 30, 2014 and 2013, respectively, for options previously awarded by the Company.

Stock option activity for the six months ended June 30, 2014 is summarized as follows:



	Shares		Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (in Years)	Grant Date Fair Value
Outstanding at December 31, 2013	3,060,834		$	5.89		6.07	$	1,327,163
Options granted	150,000		7.55			10.00	304,915
Options forfeited/expired	(91,667	)	10.78			—	(29,335		)
Options exercised	(483,750	)	(0.68		)	—	(192,127		)
Outstanding at June 30, 2014	2,635,417		$	6.77		5.99	$	1,410,616
Vested at June 30, 2014	1,719,792		$	8.43		4.72	$	522,691
Exercisable at June 30, 2014	1,719,792		$	8.43		4.72	$	522,691

A summary of the Company’s stock warrant activity and related information for the six months ended June 30, 2014 is as follows:



	Shares		Weighted Average Exercise Price			Weighted Average Remaining Contractual Life (in Years)	Grant Date Fair Value
Outstanding at December 31, 2013	7,083		$	2.72		1.57	$	2,900
Warrants exercised	(6,250	)	(1.75		)	—	(2,800		)
Warrants cancelled/forfeited/expired	(833	)	(10.00		)	—	(100		)
Warrants at June 30, 2014	—		$	—		—	$	—
Vested at June 30, 2014	—		$	—		—	$	—
Exercisable at June 30, 2014	—		$	—		—	$	—

NOTE 5. 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. The calculation of basic earnings per share for the six months ended June 30, 2014 includes the weighted average of common shares outstanding. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity, such as convertible preferred stock, stock options, warrants or convertible securities. The calculation of diluted earnings per share for the six months ended June 30, 2014 does not include options to purchase 906,000 shares due to their anti-dilutive effect.

F-6

VERTEX ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

The following is a reconciliation of the numerator and denominator for basic and diluted earnings per share for the six months ended June 30, 2014 and 2013:



	2014		2013
Basic Earnings per Share
Numerator:
Net income available to common shareholders	$	7,863,247	$	2,974,865
Denominator:
Weighted-average shares outstanding	22,025,316		17,243,762
Basic earnings per share	$	0.36	$	0.17

Diluted Earnings per Share
Numerator:
Net income available to common shareholders	$	7,863,247	$	2,974,865
Denominator:
Weighted-average shares outstanding	22,025,316		17,243,762
Effect of dilutive securities
Stock options and warrants	1,178,626		1,210,007
Preferred stock	675,558		1,345,220
Diluted weighted-average shares outstanding	23,879,500		19,798,989
Diluted earnings per share	$	0.33	$	0.15

NOTE 6. COMMON STOCK

The total number of authorized shares of the Company’s common stock is 750,000,000 shares, $0.001 par value per share. As of June 30, 2014, there were 25,019,450 common shares issued and outstanding.

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

During the six months ended June 30, 2014, a total of 643,444 shares of the Company's Series A Preferred Stock were converted into 643,444 shares of our common stock on a one-for-one basis. Warrants to purchase 6,250 shares of the Company's common stock were exercised for 6,250 shares of common stock with $10,937 of exercise price paid in cash. Options to purchase 483,750 shares of common stock were exercised for a net of 464,148 shares of common stock (when adjusting for a cashless exercise of 186,250 of such options and the payment, in shares of common stock, of an aggregate exercise price of $130,625, along with an exercise price of $200,125 paid in cash in connection with such exercises) and 464,148 shares of common stock were issued to the option holders in connection with such exercises. Additionally, in June 2014, 2,200,000 shares were sold in connection with an underwritten offering of the Company's common stock for net proceeds of $15,803,000 after deducting offering costs of $1,247,000 from the $17,050,000 raised. The shares have a par value per share of $0.001. In May 2014, 500,000 shares of our restricted common stock (valued at $3,266,000) were issued in connection with the initial closing of the Omega Refining acquisition.

In April 2014, the Company granted two employees Incentive Stock Options to purchase an aggregate of 150,000 shares of the Company's common stock, which have a term of ten years, an exercise price of $7.55 per share and vest at the rate of 1/4th of such options per year on each of the first four anniversaries of the grant date.

F-7

VERTEX ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

NOTE 7. PREFERRED STOCK

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 Preferred Stock is 5,000,000 (“Series A Preferred”). The total number of designated shares of the Company’s Series B Preferred Stock is 2,000,000. As of June 30, 2014, there were 675,558 shares of Series A Preferred Stock issued and outstanding and no Series B Preferred shares issued and outstanding.

NOTE 8. SEGMENT REPORTING

The Company’s reportable segments include the Black Oil, Refining & Marketing and Recovery divisions. Segment information for the six months ended June 30, 2014 and 2013 is as follows:



SIX MONTHS ENDED JUNE 30, 2014
	Black Oil		Refining & Marketing		Recovery			Total
Revenues	$	72,449,922	$	38,345,278	$	8,634,080		$	119,429,280

Income (loss) from operations	$	1,137,078	$	1,538,784	$	(875,530	)	$	1,800,332



SIX MONTHS ENDED JUNE 30, 2013
	Black Oil		Refining & Marketing		Recovery		Total
Revenues	$	42,692,716	$	23,065,950	$	2,607,538	$	68,366,204

Income from operations	$	784,537	$	1,102,197	$	1,333,859	$	3,220,593



THREE MONTHS ENDED JUNE 30, 2014
	Black Oil		Refining & Marketing		Recovery			Total
Revenues	$	48,878,522	$	18,517,819	$	4,683,281		$	72,079,622

Income (loss) from operations	$	1,116,688	$	768,209	$	(1,041,152	)	$	843,745



THREE MONTHS ENDED JUNE 30, 2013
	Black Oil		Refining & Marketing		Recovery			Total
Revenues	$	19,493,407	$	14,234,204	$	1,383,791		$	35,111,402

Income (loss) from operations	$	1,091,268	$	963,842	$	(46,191	)	$	2,008,919

NOTE 9. CONTINGENT CONSIDERATION

As part of the consideration paid related to the August 2012 acquisition of Vertex Holdings, L.P., if certain earnings targets are met, the Company has to pay the seller approximately $2,233,000 annually in each of 2013, 2014 and 2015. In 2013, it had been determined that the 2013 earnings target would not be met and the contingent consideration was reduced by $1,850,000, which represents the discounted cash flow for year one. It had also been determined that there was a 25% probability that the 2014 earnings target would not be met and the contingent consideration was reduced by $388,750, which represents 25% of the discounted cash flows for year two.

F-8

VERTEX ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

As part of the consideration paid in connection with the acquisition of E-Source Holding, LLC, if certain targets are met, the Company has to pay the seller approximately $260,000 annually in 2014, 2015, 2016 and 2017. The Company has recorded contingent consideration of $748,000, which is the discounted cash flows of the earn-out payments. In addition, on January 31, 2015, 207,743 shares of the Company's stock will be issued as consideration for the additional equity interest if certain performance metrics are achieved for 2014. As of the date of the transaction, the estimated value of the stock to be issued of approximately $231,000 was recorded as additional paid in capital and a reduction of the non-controlling interest in accordance with ASC 810-10-45.

As part of the consideration paid in connection with the acquisition of Omega Holdings, the Company has agreed to pay the seller additional earn-out consideration in the event that certain EBITDA targets are met (a) during any twelve month period during the eighteen month period commencing on the first day of the first full calendar month following the May 2, 2014 initial closing date (which targets begin at $8,000,000 of EBITDA during such twelve month period) of up to 470,498 shares of common stock of the Company; and (b) during the calendar year ended December 31, 2015 (which targets begin at $9,000,000 of EBITDA) of up to 770,498 shares of common stock of the Company, in each case subject to adjustment for certain capital expenditures.

NOTE 10. ACQUISITION

Omega Refining Transaction

On May 2, 2014, the Company completed its acquisition of substantially all of the assets of Omega Refining, LLC (including the Marrero, Louisiana re-refinery and Omega’s Myrtle Grove complex in Belle Chaise, Louisiana) and ownership of Golden State Lubricant Works, LLC for the purpose of re-refining used lubricating oils into processed oils and other products for the distribution, supply and sale to end-customers with related products and support services. The purchase price paid at the closing was approximately $28,764,000 in cash, 500,000 shares of our restricted common stock (valued at $3,266,000) and the assumption of certain capital lease obligations and other liabilities relating to contracts and leases of Omega Refining in connection with the initial closing. We also agreed to provide Omega a loan in the amount of up to approximately $13.8 million.

The acquisition was accounted for under the purchase method of accounting, with the Company identified as the acquirer. Under the purchase method of accounting, the aggregate amount of consideration paid by the Company was allocated to Omega Refining's net tangible assets and intangible assets based on their estimated fair values as of May 2, 2014. The transaction resulted in a bargain purchase of $6,481,051 recognized in net income as an acquisition-date gain. The Omega purchase qualifies as a bargain purchase since the acquisition date amounts of the identifiable net asset acquired, excluding goodwill ($38.92 million), exceed the value of the consideration transferred ($32.44 million). The difference of $6.48 million is a gain as of the acquisition date. The bargain purchase resulted from the financial distress that Omega was in due to the large amount of debt held by Omega and the unexpected decrease in crack spreads that made the debt level overbearing. Evidence that a bargain purchase exists was seen in the common stock price of the Company, which increased from $3.82 (on March 19, 2014) when the transaction was announced) to $8.10 (on May 2, 2014 when the initial closing occurred). The Company retained an independent third party to assist management in determining the fair value of tangible and intangible assets transferred and liabilities assumed. The allocation of the purchase price is based on the best estimates of management.

The following information summarizes the allocation of the fair values assigned to the assets at the purchase date. The allocation of fair values are preliminary and are subject to change in the future during the measurement period.

F-9

VERTEX ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)



	(in thousands)
Cash and cash equivalents	$	406
Accounts receivable	950
Inventory	4,192
Prepaid expenses	71
Property, plant and equipment	30,000
Deposits	400
Bango secured note issued to Vertex	8,308
Technology	2,287
Non-compete agreements	66
Total identifiable net assets	$	46,680
Less liabilities assumed, including contingent consideration	(7,763		)
Gain on purchase	(6,481		)
Total purchase price	$	32,436

The Company incurred $2,559,830 in costs associated with the Omega Refining acquisition. These included legal, accounting, environmental and investment banking.

The following table summarizes the cost of amortizable intangible assets related to the Omega Refining acquisition:

The results of Omega Refining are included in the consolidated financial statements subsequent to May 2, 2014. The following schedule contains pro forma results from operations as if the acquisition had occurred on January 1, 2013. The pro forma results do not report actual results that would have occurred had the merger taken place on January 1, 2013 nor do they necessarily suggest future operating results.



	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Revenues	$	79,747,665	$	68,597,653	$	127,097,323	$	140,850,582
Income from operations	498,141		335,135		1,454,728		3,899,588

Net income	6,284,339		116,145		7,165,485		3,346,949

Net loss attributable to non-controlling interest	344,380		—		325,399		—

Net income attributable to Vertex Energy, Inc.	$	6,628,719	$	116,145	$	7,490,884	$	3,346,949

Earnings per common share
Basic	$	0.29	$	0.01	$	0.34	$	0.19
Diluted	$	0.27	$	0.01	$	0.31	$	0.17

F-10

VERTEX ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

NOTE 11. SUBSEQUENT EVENTS

Subsequent to June 30, 2014, 22,760 shares of the Company's Series A Preferred Stock were converted into 22,760 shares of our common stock on a one-for-one basis.

Subsequent to June 30, 2014, the available credit on the Line of Credit is $20,000,000. As of August 12, 2014, the outstanding balance drawn on the line of credit is $0 leaving an available balance for draw downs of $20,000,000.

On May 2, 2014, we completed the Initial Closing (defined below) contemplated under that certain Asset Purchase Agreement entered into on March 17, 2014, and amended by the First Amendment dated April 14, 2014, Second Amendment dated April 30, 2014 and Third Amendment dated May 2, 2014 (as amended to date, the “Purchase Agreement”) by and among the Company, Vertex Refining LA, LLC and Vertex Refining NV, LLC (“Vertex Refining Nevada”), both wholly-owned subsidiaries of Vertex Operating, Omega Refining, LLC (“Omega Refining”), Bango Refining NV, LLC (“Bango Refining”) and Omega Holdings Company LLC (“Omega Holdings” and collectively with Omega Refining and Bango Refining, “Omega” or the “sellers”).

The acquisition is to close in two separate closings, the first of which relating to the acquisition of Omega Refining (including the Marrero, Louisiana re-refinery and Omega’s Myrtle Grove complex in Belle Chaise, Louisiana) and ownership of Golden State, as described above, closed on May 2, 2014 (the “Initial Closing”), and the second of which relating to the acquisition of Bango Refining and the Bango, Nevada plant, is expected to close on or around September 2014, subject to certain closing conditions being met prior to closing (the “Final Closing”). Vertex’s obligation to consummate the Final Closing is subject to among other things, compliance with certain provisions of the credit agreements described herein and that the Bango plant operated by Bango Refining be fully restored and operational, as well as the plant meeting certain used motor oil processing run rates and that there are no adverse claims or legal proceedings related to an accident that occurred at the Bango plant in December 2013.

The amount due at the Final Closing, in consideration for the acquisition of Bango Refining, will be the assumption of certain loans made pursuant to the Omega Secured Note (described below), the issuance of 1,500,000 shares of Vertex’s common stock of which 650,000 shares (with an agreed value of $3.2301 per share or approximately $2.1 million) will be held in escrow (the “Pledged Shares”) and used to satisfy indemnification claims and secure the repayment of the Omega Secured Note (defined below), and which amount is subject to adjustment in the event minimum inventory levels are not delivered at the Final Closing, and the assumption of certain capital lease obligations and other liabilities relating to contracts and leases of Bango Refining. A portion of the Pledged Shares will be released from escrow, subject to outstanding claims, on September 15, 2015, and the remainder will be released on the 18 month anniversary of the Final Closing. Subject to certain negotiated exceptions for excluded liabilities, taxes and other fundamental items, the sellers’ indemnification obligations are capped at $5 million.

The consideration payable in connection with the Final Closing is subject to customary adjustments prior to the Final Closing depending on certain criteria, including the amount of inventory delivered by the sellers at the Final Closing.

The sellers also have the right to earn additional earn-out consideration in the event certain EBITDA targets are met by (a) Vertex Refining NV, LLC during the years ended December 31, 2015 and 2016 (which targets begin at $3.5 million of EBITDA per year), of up to an aggregate of $6 million (payable in shares of the Company’s common stock equal to the volume-weighted average of the regular session closing prices per share of the Company’s common stock on the NASDAQ Capital Market for the ten (10) consecutive trading days prior to the applicable due date of such payments, provided, however, in no event shall the VWAP be less than $3.15 per share or more than $10.00 per share, as adjusted for any stock splits or recapitalizations); (b) Vertex Refining LA, LLC during any twelve month period during the eighteen month period commencing on the first day of the first full calendar month following the Initial Closing date (which targets begin at $8 million of EBITDA during such twelve month period) of up to 470,498 shares of common stock of the Company; and (c) Vertex Refining LA, LLC during the calendar year ended December 31, 2015 (which targets begin at $9 million of EBITDA) of up to 770,498 shares of common stock of the Company, in each case subject to adjustment for certain capital expenditures (collectively, the “Earn-Outs). Notwithstanding the above, the maximum number of shares of common stock to be issued pursuant to the Purchase Agreement cannot (i) exceed 19.9% of the outstanding shares of common stock outstanding on March 17, 2014, (ii) exceed 19.9% of the combined voting power of the Company on March 17, 2014, or (iii) otherwise exceed such number of shares of common stock that would violate applicable listing rules of the NASDAQ Stock Market in the event the Company’s stockholders do not approve the issuance of such shares (the “Share Cap”). In the event the number of shares to be issued under the Purchase Agreement exceeds the Share Cap, then the Company is required to instead pay any such additional consideration in cash or obtain the approval of the Company’s stockholders under applicable rules and requirements of the NASDAQ Capital Market for the additional issuance of shares.

F-11

VERTEX ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2014

(UNAUDITED)

Finally, pursuant to the acquisition, (a) with certain exceptions related to sellers’ operation of Bango Refining between the Initial Closing and the Final Closing, the sellers agreed to enter into a non-competition agreement whereby they agreed not to compete against Vertex in connection with the acquired businesses, or to solicit active customers of the acquired businesses for a period of five years and (b) certain of the employees of the sellers agreed to enter into three year employment agreements with Vertex’s newly formed subsidiaries.

Additionally, we were required to file and obtain effectiveness of a registration statement within 90 days following the Initial Closing (if the Securities and Exchange Commission did not review the filing) and 150 days following the Initial Closing (if the Securities and Exchange Commission did review the filing), registering the shares of common stock issuable in connection with the acquisition, which registration statement was declared effective on July 29, 2014.

The Final Closing remains subject to the satisfaction of certain customary closing conditions. The Purchase Agreement contains customary representations, warranties, covenants and indemnities by the parties thereto. Craig-Hallum Capital Group LLC is acting as exclusive financial advisor to the Company in connection with the acquisition and has provided a fairness opinion to the Board of Directors in connection with the transaction.

On July 30, 2014 the Company announced that it has begun due diligence of Heartland Group Holdings LLC ("Heartland") under the terms of a letter of intent which contemplates Vertex acquiring substantially all of the assets of Heartland for approximately $16.5 million, which includes an approximate $8 million dollar earnout achievable during the first 2 years.

Along with the Letter of Intent, Vertex also entered into a consulting agreement with Heartland to provide consulting services, which include advice and guidance related to Heartland petroleum’s collection operations, Heartland’s Re-refinery, the installation of new equipment there, and the implementation of operational changes at the re-refinery. The objective is to eventually facilitate the integration of all of Heartland's operations into Vertex’s platform, allowing for a smooth transition upon the closing of the transaction. Vertex has agreed to cover expenses throughout implementation of these changes and to reimburse Heartland for any operating losses recognized after July 16, 2014, subject to a cap of $500,000 if Vertex decides not to move forward with the closing, and which losses are reimbursable to Vertex if Heartland breaches the terms of the letter of intent.

The acquisition remains subject to due diligence, the negotiation of definitive purchase agreements, satisfaction of closing conditions, and receipt of required consents and approvals. The parties plan to enter into definitive purchase agreements by the end of September 2014, and tentatively plan to close the acquisition, subject to the negotiated conditions of closing being met by the end of October 2014.

F-12

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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


•	risks associated with our outstanding credit facilities, including amounts owed, restrictive covenants and security interests thereon;


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


•	our ability to respond to changes in our industry;


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


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


•	our ability to scale our business;


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


•	our ability to obtain and retain customers;


•	our ability to produce our products at competitive rates;


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


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


•	our ability to maintain our relationship with KMTEX, Ltd.;


•	the impact of competitive services and products;


•	our ability to maintain insurance;


•	potential future litigation, judgments and settlements;


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


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


•	economic downturns both in the United States and globally;


•	risk of increased regulation of our operations and products;


•	negative publicity and public opposition to our operations;


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


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


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


•	liabilities associated with acquired companies, assets or businesses;


•	interruptions at our facilities;


•	our ability to complete pending acquisitions;


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


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


•	our ability to acquire and construct new facilities;


•	our ability to effectively manage our growth;


•	repayment of and covenants in our debt facilities;


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


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

You should read the matters described in “Risk Factors” below and disclosed in the Company’s Annual Report on Form 10-K, filed with the Commission on March 25, 2014, and the other cautionary statements made in this Report as being applicable to all related forward-looking statements wherever they appear in this Report. We cannot assure you that the forward-looking statements in this Report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.

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

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

Corporate History of the Registrant:

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

Finally, as a result of the Merger, as the successor entity of World Waste, we assumed World Waste’s filing obligations with the Securities and Exchange Commission and our common stock began trading on the Over-The-Counter Bulletin Board under the symbol “VTNR.OB” effective May 4, 2009. Subsequently, effective February 13, 2013, our common stock began trading on the NASDAQ Capital Market under the symbol “VTNR".

Material Acquisitions

Holdings:

Effective as of August 31, 2012, we acquired 100% of the outstanding equity interests of Vertex Acquisition Sub, LLC (“Acquisition Sub”), a special purpose entity consisting of substantially all of the assets of Holdings and real-estate properties of B & S Cowart Family L.P. (“B&S LP” and the “Acquisition”), both of which entities were owned and operated by related parties. Prior to closing the Acquisition, Holdings contributed to Acquisition Sub substantially all of its assets and liabilities relating to the business of transporting, storing, processing and re-refining petroleum products, crudes and used lubricants, including all of the outstanding equity interests in Holdings’ wholly-owned operating subsidiaries, Cedar Marine Terminals, L.P. (“CMT”), Crossroad Carriers, L.P. (“Crossroad”), Vertex Recovery, L.P. (“Vertex Recovery”) and H&H Oil, L.P. (“H&H Oil”, and collectively, the “Transferred Partnerships”), and B&S LP contributed real estate associated with the operations of H&H Oil.

We paid the following consideration for 100% of the equity interests in Acquisition Sub (the “Purchase Price”): (i) to Holdings, (a) $14.8 million in cash and assumed debt; and (b) 4,545,455 million restricted shares of our common stock; and (ii) to B&S LP, $1.7 million cash consideration, representing the appraised value of certain real estate contributed by B&S LP to Acquisition Sub. Additionally, for each of the three one-year periods following September 11, 2012, the closing date of the transaction, Holdings will be eligible to receive earn-out payments of $2.23 million, up to $6.7 million in the aggregate (the “Earn-Out Payments”), contingent on the combined company achieving adjusted EBITDA targets of $10.75 million, $12.0 million and $13.5 million, respectively, in those periods. In 2013 it was determined that the 2013 earnings target would not be met and the contingent consideration was reduced by $1,850,000, which represents the discounted cash flow for year one. It was also determined

that there is a 25% probability that the 2014 earnings target will not be met and the contingent consideration was reduced by $388,750, which represents 25% of the discounted cash flow for year two.

We had numerous relationships and related-party transactions with Holdings and its subsidiaries prior to the closing of the Acquisition, including the lease of a storage facility, the subletting of office space, and agreements to operate the Thermal Chemical Extraction Process ("TCEP") (described below) facility and to transport and store feedstock and end products. The closing of the Acquisition eliminated these related-party transactions. The description of our operations below reflects the closing of the Acquisition, unless otherwise stated or the discussion requires otherwise.

E-Source:

Effective October 1, 2013 Vertex acquired a 51% interest in E-Source Holdings, LLC (“E-Source”), a company that leases and operates a facility located in Houston, Texas, and provides dismantling, demolition, decommission and marine salvage services at industrial facilities throughout the Gulf Coast. E-Source also owns and operates a fleet of trucks and other vehicles used for shipping and handling equipment and scrap materials. The consideration paid for the acquisition of E-Source was approximately $900,000 and the right of one of the sellers (the “Earn-Out Seller”) to earn additional earn-out payments of up to 15% of E-Source’s net income before taxes, in the event certain calendar year net income thresholds are met, in calendar years 2014 through 2017, as well as a commission of 20% of the net income before taxes associated with certain future planned projects of E-Source required to be completed prior to December 31, 2014, as long as such applicable seller remains an employee of E-Source during such applicable periods. Effective on March 14, 2014, we entered into an amendment to our acquisition agreement with the Earn-Out Seller, and mutually agreed that the lesser of (a) 20% and (b) $100,000, per calendar year of earn-out payments due the Earn-Out Seller, if any, will be payable in shares of our restricted common stock, based on the average of the five closing sales prices of the Company’s common stock on the first five trading days of each applicable calendar year (each a “Valuation”) for which the earn-out consideration relates, provided that the parties mutually agreed to use a valuation of $3.2922 per share (the “2014 Valuation Price”) for any earn-out payments relating to the 2014 calendar year and further agreed that in no event will any future calendar year Valuation be less than the 2014 Valuation Price. On March 26, 2014, but effective January 1, 2014, the Company acquired an additional 19% interest in E-Source for $854,050 in cash consideration and the right to receive stock consideration (on January 31, 2015) in the amount of 207,743 shares of stock subject to certain performance metrics being met during 2014.

E-Source leases and operates a plant located in Houston, Texas, and provides dismantling, demolition, decommission and marine salvage services at industrial facilities throughout the Gulf Coast. E-Source also owns and operates a fleet of trucks and other vehicles used for shipping and handling equipment and scrap materials.

Omega:

On May 2, 2014, we completed the Initial Closing (defined below) contemplated under the Asset Purchase Agreement entered into on March 17, 2014, and amended by the First Amendment dated April 14, 2014, Second Amendment dated April 30, 2014 and Third Amendment dated May 2, 2014 (as amended to date, the “Purchase Agreement”) by and among the Company, Vertex Refining LA, LLC and Vertex Refining NV, LLC (“Vertex Refining Nevada”), both wholly-owned subsidiaries of Vertex Operating, LLC (“Vertex Operating”), Omega Refining, LLC (“Omega Refining”), Bango Refining NV, LLC (“Bango Refining”) and Omega Holdings Company LLC (“Omega Holdings” and collectively with Omega Refining and Bango Refining, “Omega” or the “sellers”).

Pursuant to the Purchase Agreement, we agreed to acquire certain of Omega’s assets related to (1) the operation of oil re-refineries and, in connection therewith, purchasing used lubricating oils and re-refining such oils into processed oils and other products for the distribution, supply and sale to end-customers and (2) the provision of related products and support services. Specifically, the assets included Omega’s Marrero, Louisiana and Bango, Nevada, re-refineries (which re-refine approximately 80 million gallons of used motor oil per year). Additionally, the Marrero, Louisiana plant produces vacuum gas oil (VGO) and the Bango, Nevada plant produces base lubricating oils. Omega also operates Golden State Lubricants Works, LLC (“Golden State”), a strategic blending and storage facility located in Bakersfield, California, which is included in the acquisition. In connection with the acquisition, we also acquired certain of Omega’s prepaid assets and inventory.

conditions being met prior to closing (the “Final Closing”). Vertex’s obligation to consummate the Final Closing is subject to among other things, compliance with certain provisions of the credit agreements described herein and that the Bango plant operated by Bango Refining be fully restored and operational, as well as the plant meeting certain used motor oil processing run rates and that there are no adverse claims or legal proceedings related to an accident that occurred at the Bango plant in December 2013.

The purchase price paid at the Initial Closing was approximately $28,764,000 in cash (which funds we raised pursuant to our entry into the Credit Agreements, described below under “Liquidity and Capital Resources”), 500,000 shares of our restricted common stock (valued at $3,266,000) and the assumption of certain capital lease obligations and other liabilities relating to contracts and leases of Omega Refining in connection with the Initial Closing. We also agreed to provide Omega a loan in the amount of up to approximately $13.8 million (described below).

In connection with the First Closing, Omega Refining and Bango Refining provided Vertex Refining Nevada a Secured Promissory Note (the “Omega Secured Note”) in the aggregate amount of $13,858,067, representing (a) a loan to Omega in the amount of approximately $7.56 million (representing the agreed upon value of the amount by which the consideration paid at the Initial Closing (which included consideration relating to the assets acquired at the Initial Closing and which will be acquired at the Final Closing) exceeded the value of assets acquired at the Initial Closing) (the “Purchase Price Loan”); (b) a $750,000 loan related to the delivery of a certain amount of used motor oil inventory at the Initial Closing (the “First Inventory Loan”); (c) a $1,400,000 loan related to the delivery of a certain amount of used motor oil inventory at the Final Closing (the “Second Inventory Loan” and along with the First Inventory Loan, the “Inventory Loans”); (d) a loan in a single advance of $3.15 million to satisfy accounts payable and other working capital related obligations of Omega after the Initial Closing, provided such loans are not required to be made until after June 16, 2014 (the “Draw Down Loan”) and (e) an additional loan of up to $1 million for capital expenditures, if mutually approved by us and Omega (the “Capital Expenditure Loan”). The Purchase Price Loan and the Draw Down Loan bear interest at the short-term federal rate as published by the Internal Revenue Service from time to time (currently 0.33% per annum) prior to October 30, 2014, and thereafter at 9.5% per annum, payable monthly in arrears and have a maturity date of March 31, 2015. The First Inventory Loan and the Draw Down Loan accrue interest at the rate of 9.5% per annum beginning on May 31, 2014, and are due and payable on March 31, 2015. Upon an event of default under any of the loans, the loans accrue interest at 18% per annum until paid in full. The Purchase Price Loan and the Draw Down Loan are due and payable in full on the earlier of March 31, 2015 and the date of the Final Closing, provided that both the Purchase Price Loan and Draw Down Loan (including accrued and unpaid interest thereon) will be deemed paid in full upon the Final Closing. The Omega Secured Note may be prepaid in whole or part from time to time without penalty.

The repayment of the Omega Secured Note is guaranteed by Omega Holdings pursuant to a Guaranty Agreement and secured by a security interest granted pursuant to the terms of the Omega Secured Note and a Leasehold Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture Filing. Additionally, we have the right to set-off any amount due upon an event of default against certain of the Pledged Shares and the earn-out consideration described below, of which a portion of such shares were pledged to secure the Omega Secured Note pursuant to a Pledge Agreement, subject to the terms of the Purchase Agreement.

LA, LLC during any twelve month period during the eighteen month period commencing on the first day of the first full calendar month following the Initial Closing date (which targets begin at $8 million of EBITDA during such twelve month period) of up to 470,498 shares of common stock of the Company; and (c) Vertex Refining LA, LLC during the calendar year ended December 31, 2015 (which targets begin at $9 million of EBITDA) of up to 770,498 shares of common stock of the Company, in each case subject to adjustment for certain capital expenditures (collectively, the “Earn-Outs). Notwithstanding the above, the maximum number of shares of common stock to be issued pursuant to the Purchase Agreement cannot (i) exceed 19.9% of the outstanding shares of common stock outstanding on March 17, 2014, (ii) exceed 19.9% of the combined voting power of the Company on March 17, 2014, or (iii) otherwise exceed such number of shares of common stock that would violate applicable listing rules of the NASDAQ Stock Market in the event the Company’s stockholders do not approve the issuance of such shares (the “Share Cap”). In the event the number of shares to be issued under the Purchase Agreement exceeds the Share Cap, then the Company is required to instead pay any such additional consideration in cash or obtain the approval of the Company’s stockholders under applicable rules and requirements of the NASDAQ Capital Market for the additional issuance of shares.

We obtained rights to certain material agreements and contracts of Omega Refining in connection with the Initial Closing, including obligations under Omega Refining’s capital leases and rights under a Terminaling Services Agreement dated May 1, 2008, originally between Omega Refining and Marrero Terminal LLC (the “Terminaling Agreement”) and a Second Used Motor Oil Buy/Sell Contract originally between Omega Refining and Thermo Fluids Inc. dated August 1, 2012 (the “Used Oil Contract”). Pursuant to the Terminaling Agreement, Marrero Terminal LLC agreed to provide certain terminaling services at the Marrero, Louisiana facility, subject to the terms of the agreement, including the use of tanks for storage in consideration for certain per barrel storage and throughput fees. The Terminaling Agreement has a term through April 30, 2018, subject to the right to extend such agreement pursuant to the terms thereof. Pursuant to the Used Oil Contract, we are required to purchase from Thermo Fluids Inc. an aggregate of a minimum of 26 million gallons of used motor oil through the end of the term of the agreement, December 31, 2014, with certain required minimum monthly and yearly volumes. We are required to pay Thermo Fluids Inc. consideration based on a discount to the average low posting of Platts U.S. Gulf Coast No. 6 Fuel Oil, plus in some cases additional consideration per barrel, for all used motor oil purchased pursuant to the agreement, subject to certain adjustments provided for in the agreement.

Description of Business Activities:

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

We recently acquired a 70% interest in E-Source (as described above) a company that leases and operates a facility located in Houston, Texas, and provides dismantling, demolition, decommission and marine salvage services at industrial facilities throughout the Gulf Coast. E-Source also owns and operates a fleet of trucks and other vehicles used for shipping and handling

equipment and scrap materials. We also recently acquired Omega's Marrero, Louisiana re-refinery and Myrtle Grove complex in Belle Chasse, Louisiana and ownership of Golden State, as described above. The Marrero, Louisiana facility re-refines used motor oil and also produces vacuum gas oil. Golden State operates a strategic blending and storage facility located in Bakersfield, California.

Black Oil Division

Our Black Oil division is engaged in operations across the entire used motor oil recycling value chain including collection, aggregation, transportation, storage, refinement, and sales of aggregated feedstock and re-refined products to end users. We collect and purchase used oil directly from generators such as oil change service stations, automotive repair shops, manufacturing facilities, petroleum refineries, and petrochemical manufacturing operations. We collect and purchase used oil directly from generators such as oil change service stations, automotive repair shops, manufacturing facilities, petroleum refineries, and petrochemical manufacturing operations. We own a fleet of 13 collection vehicles which routinely visit generators to collect and purchase used motor oil. We also aggregate used oil from a diverse network of approximately 50 suppliers who operate similar collection businesses to ours.

We manage the logistics of transport, storage and delivery of used oil to our customers. We own a fleet of seven transportation trucks and more than 90 aboveground storage tanks with over 4.5 million gallons of storage capacity. These assets are used by both the Black Oil division and the Refining and Marketing division. In addition, we also utilize third parties for the transportation and storage of used oil feedstocks. Typically, we sell used oil to our customers in bulk to ensure efficient delivery by truck, rail, or barge. In many cases, we have contractual purchase and sale agreements with our suppliers and customers, respectively. We believe these contracts are beneficial to all parties involved because it ensures that a minimum volume is purchased from collectors and generators, a minimum volume is sold to our customers, and we are able to minimize our inventory risk by a spread between the costs to acquire used oil and the revenues received from the sale and delivery of used oil. We also use our proprietary TCEP technology to re-refine used oil into marine fuel cutterstock and a higher-value feedstock for further processing. In addition at our Marrero facility we produce a Vacuum Gas Oil (VGO) product that is sold to refineries as well as to the marine fuels market.

Refining and Marketing Division

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

Recovery Division

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

We currently provide our services in 13 states, primarily in the Gulf Coast and Central Midwest regions of the United States. For the rolling twelve month period ending June 30, 2014, we aggregated approximately 91 million gallons of used motor oil and other petroleum by-product feedstocks and managed the re-refining of approximately 32 million gallons of used motor oil with our proprietary TCEP.

Biomass Renewable Energy

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

Thermal Chemical Extraction Process

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

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

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

Strategy and Plan of Operations

The principal elements of our strategy include:

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, including assets or technologies which complement TCEP. Currently, we are using TCEP to re-refine used oil feedstock into cutterstock for use in the marine fuel market. We believe that the expansion of our TCEP facilities and continued improvements in 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. In addition to TCEP, at our Marrero, Louisiana facility we are producing a vacuum gas oil (VGO) through our re-refinery.

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

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 as the acquisition of Omega's assets (as described in greater detail above) and our recently announced proposed acquisition of certain assets from Heartland Group Holdings, LLC. 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 for the implementation of TCEP. In

addition, we intend to pursue further vertical integration opportunities by acquiring complementary recycling and processing technologies where we can realize synergies by leveraging our customer and vendor relationships, infrastructure, and personnel, and by eliminating duplicative overhead costs.

Alternative Energy Project Development. We will continue to evaluate and potentially pursue various alternative energy project development opportunities. These opportunities may be a continuation of the projects sourced originally by World Waste and/or may include new projects initiated by us.

RESULTS OF OPERATIONS

Description of Material Financial Line Items:

Revenues

We generate revenues from three existing operating divisions as follows:

BLACK OIL - Revenues for our Black Oil division are comprised primarily of 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 through TCEP. The finished product is then sold by barge as a fuel oil cutterstock and a feedstock component for major refineries. 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 end users to utilize in a refining process or a fuel oil blend.

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

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

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

Cost of Revenues

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

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

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

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

General and Administrative Expenses

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

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2014 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2013

Set forth below are our results of operations for the three months ended June 30, 2014, as compared to the same period in 2013. In the comparative tables below, increases in revenue/income or decreases in expense (favorable variances) are shown without parentheses while decreases in revenue/income or increases in expense (unfavorable variances) are shown with parentheses in the “$ Change” and “% Change” columns.



	Three Months Ended June 30,
	2014			2013			$ Change			% Change
Revenues	$	72,079,622		$	35,111,402		$	36,968,220		105	%
Cost of Revenues	63,200,942			32,556,738			(30,644,204		)	(94	)%
Gross Profit	8,878,680			2,554,664			6,324,016			248	%
Reduction of contingent liability	—			(1,850,000		)	(1,850,000		)	100	%
Selling, general and administrative expenses	6,075,517			2,395,745			(3,679,772		)	(154	)%
Acquisition related expenses	1,959,418			—			(1,959,418		)	(100	)%
Income from operations	843,745			2,008,919			(1,165,174		)	(58	)%
Other Income	7			7,598			(7,591		)	(100	)%
Bargain purchase gain related to Omega acquisition	6,481,051			—			6,481,051			100	%
Other expense	(10,866		)	—			(10,866		)	(100	)%
Interest Expense	(657,235		)	(112,999		)	(544,236		)	(482	)%
Total other income (expense)	5,812,957			(105,401		)	5,918,358			5,615	%
Income before income taxes	6,656,702			1,903,518			4,753,184			250	%
Income tax (expense) benefit	—			(12,248		)	12,248			100	%
Net income	6,656,702			1,891,270			4,765,432			252	%
Net loss attributable to non-controlling interest	344,380			—			344,380			(100	)%
Net income attributable to Vertex Energy, Inc.	$	7,001,082		$	1,891,270		$	5,109,812		270	%

Each of our segments’ gross profit during the three months ended June 30, 2014 and 2013 was as follows (increases in revenue and/or decreases in cost of revenues are shown without parentheses while decreases in revenue and/or increases in cost of revenues are shown with parentheses in the “$ Change” and “% Change” columns):



	Three Months Ended June 30,
Black Oil Segment	2014		2013		$ Change			% Change
Total revenue	$	48,878,522	$	19,493,407	$	29,385,115		151	%
Total cost of revenue	42,330,639		18,363,098		(23,967,541		)	(131	)%
Gross profit	$	6,547,883	$	1,130,309	$	5,417,574		479	%
Refining Segment
Total revenue	$	18,517,819	$	14,234,204	$	4,283,615		30	%
Total cost of revenue	16,626,178		12,824,955		(3,801,223		)	(30	)%
Gross profit	$	1,891,641	$	1,409,249	$	482,392		34	%
Recovery Segment
Total revenue	$	4,683,281	$	1,383,791	$	3,299,490		238	%
Total cost of revenue	4,244,125		1,368,685		(2,875,440		)	(210	)%
Gross profit	$	439,156	$	15,106	$	424,050		2,807	%

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

Total revenues increased 105% for the three months ended June 30, 2014, compared to the same period in 2013, due primarily to an increase in overall volume of product sold during the three months ended June 30, 2014 compared to the same period in 2013. Total volume increased 84% largely as a result of the increased volume the Company has seen over the past twelve months of cutterstock produced through our TCEP operation and the recent addition during the three months ended June 30, 2014 of the Marrero facility which produces a VGO finished product. Gross profit increased 248% for the three months ended June 30, 2014 compared to the three months ended June 30, 2013. Additionally, our per barrel margin increased 60% relative to the three months ended June 30, 2013. This increase was a result of the acquisition of the Omega Refining business which is now part of our Black Oil division, the acquisition of E-Source, which is part of our Recovery division, as well as some improved margins in our Refining and Marketing division. The 94% increase in cost of revenues for the three months ended June 30, 2014 compared to the three months ended June 30, 2013 is mainly a result of our increased revenues.

Our Black Oil division's volume increased approximately 117% during the three months ended June 30, 2014 compared to the same period in 2013. This increase was due to the increased amount of volume managed through our TCEP operation, as well as the increased volume we realized from the Marrero facility (beginning May 2, 2014) (described in greater detail below) which produces a VGO finished product.

We experienced a 117% increase in the volume of our TCEP refined product during the three months ended June 30, 2014, compared to the same period in 2013. This increase is a result of the improvements that were made in 2013 to improve efficiencies and improve the volume throughput at the facility. In addition, commodity prices increased approximately 1% for the three months ended June 30, 2014, compared to the same period in 2013. The average posting (U.S. Gulfcoast Residual Fuel No. 6 3%) for the three months ended June 30, 2014 increased $1.01 per barrel from a three month average of $90.85 for the three months ended June 30, 2013 per barrel to $91.86 per barrel for the three months ended June 30, 2014.

Our TCEP technology generated revenues of $22,873,771 during the three months ended June 30, 2014, with cost of revenues of $19,107,694, producing a gross profit of $3,766,077. The per barrel margin for our TCEP product increased 218% as compared to same period during 2013. This increase was a result of increased volumes being produced as well as a slight improvement in the market value of the finished product of 1% while feedstock costs remained relatively unchanged.

Overall volume for the Refining and Marketing division increased 29% during the three month period ended June 30, 2014 as compared to the same period in 2013. This division experienced an increase in production of 22% for its gasoline blendstock for the three months ended June 30, 2014, compared to the same period in 2013. Our fuel oil cutter volumes increased 44% for the three months ended June 30, 2014, compared to the same period in 2013. Our pygas volumes increased 19% for the three months ended June 30, 2014 as compared to the same period in 2013. These increases are a result of new feedstock streams that we started managing during the third quarter of 2013.

Our Recovery division includes the business operations of Vertex Recovery as well as the recently acquired business of E-Source (of which we own a 70% interest). This segment was formed as of the fourth quarter of 2013 (provided that our historical segment information provided below and elsewhere throughout this filing has been retroactively adjusted to include the Recovery division had it been in place during the periods presented). Revenues for this division increased substantially as a result of E-Source during the three months ended June 30, 2014. This division periodically participates in project works that are not ongoing thus we expect to see fluctuations in revenue and gross profit from this division from period to period.

Overall gross profit increased 248% and our margin per barrel increased approximately 60% for the three months ended June 30, 2014, compared to the same period in 2013. This improvement was a result of increased volumes along with the increase in overall business production at each of our facilities.

The following table sets forth the high and low spot prices during the first six months of 2014 for our key benchmarks.



2014
Benchmark	High		Date	Low		Date
U.S. Gulfcoast No. 2 Waterborne (dollars per gallon)	$	3.00	March 3	$	2.73	February 4
U.S. Gulfcoast Unleaded 87 Waterborne (dollars per gallon)	$	3.08	June 20	$	2.54	January 3
U.S. Gulfcoast Residual Fuel No. 6 3% (dollars per barrel)	$	94.94	June 24	$	87.09	January 13
NYMEX Crude oil (Dollars per barrel)	$	107.26	June 20	$	91.66	January 9
Reported in Platt's US Marketscan (Gulf Coast)

The following table sets forth the high and low spot prices during the first six months of 2013 for our key benchmarks.



2013
Benchmark	High		Date	Low		Date
U.S. Gulfcoast No. 2 Waterborne (dollars per gallon)	$	3.25	February 12	$	2.57	April 17
U.S. Gulfcoast Unleaded 87 Waterborne (dollars per gallon)	$	3.21	February 15	$	2.58	June 28
U.S. Gulfcoast Residual Fuel No. 6 3% (dollars per barrel)	$	101.02	February 14	$	87.49	April 17
NYMEX Crude oil (Dollars per barrel)	$	98.44	June 18	$	86.68	April 17
Reported in Platt's US Marketscan (Gulf Coast)

We saw a decrease during the first six months of 2014 in each of the benchmark commodities we track compared to the same period in 2013.

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

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

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

We had total operating expenses of $8,034,935 for the three months ended June 30, 2014, which included $1,959,418 of acquisition related expenses, compared to $2,395,745 of total operating expenses for the prior year’s period, an increase of $5,639,190 or 235% from the prior period. This increase is primarily due to the additional selling, general and administrative expenses generated by new business lines, specifically those business lines acquired from Omega Refining and as a part of the E-source acquisition business, as well as increased sales expenses associated with our expansion into new West Coast markets. The Company incurred an additional $1,959,418 of legal, accounting, auditing, investment banking expenses and other one-time

expenses related to acquisitions during the three months ended June 30, 2014, which expenses were not represented in the prior period.

We had income from operations of $843,745 for the three months ended June 30, 2014, compared to income from operations of $2,008,919 for the three months ended June 30, 2013, a decrease of $1,165,174 or 58% from the prior year’s period. The decrease was mainly due to additional selling general and administrative expenses associated with new product lines, and acquired operations, and certain one-time expenses associated with acquisitions partially offset by an increase in volumes and revenues during the three month period ended June 30, 2014, and a $1,850,000 reduction in contingent liability during the three months ended June 30, 2013, which positively affected income from operations for the three months ended June 30, 2013.

Contributing to other income for the three months ended June 30, 2014 was $6,481,051, relating to a one-time non-cash bargain purchase benefit from the purchase price of the Omega assets in the most recent acquisition. We also had interest expense of $657,235 for the three months ended June 30, 2014, compared to interest expense of $112,999 for the three months ended June 30, 2013, an increase in interest expense of $544,236 or 482% from the prior period mainly due to the new debt facility with Goldman Sachs. We had total other income of $5,812,597 for the three months ended June 30, 2014, mainly due to the increase in other income described above, compared to total other expense of $105,401 for the three months ended June 30, 2013, mainly due to interest expense.

We had net income of $6,656,702 which includes a $6,481,051 bargain purchase benefit, which is the excess over fair value received from the assets purchased, related to the Omega acquisition for the three months ended June 30, 2014, compared to net income of $1,891,270 for the three months ended June 30, 2013, an increase in net income of $4,765,432 or 252% from the prior period. Net loss related to the 30% minority interest in E-Source was $344,380. We had net income attributable to the Company of $7,001,082 for the three months ended June 30, 2014, compared to $1,891,270 for the three months ended June 30, 2013, an increase in net income of $5,109,812 or 270% from the prior period.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2014 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2013

Set forth below are our results of operations for the six months ended June 30, 2014, as compared to the same period in 2013. In the comparative tables below, increases in revenue/income or decreases in expense (favorable variances) are shown without parentheses while decreases in revenue/income or increases in expense (unfavorable variances) are shown with parentheses in the “$ Change” and “% Change” columns.



	Six Months Ended June 30,
	2014			2013			$ Change			% Change
Revenues	$	119,429,280		$	68,366,204		$	51,063,076		75	%
Cost of Revenues	105,406,112			62,341,782			$	(43,064,330	)	(69	)%
Gross Profit	14,023,168			6,024,422			7,998,746			133	%
Reduction of contingent liability	—			(1,850,000		)	(1,850,000		)	100	%
Selling, general and administrative expenses	9,663,006			4,653,829			(5,009,177		)	(108	)%
Acquisition related expenses	2,559,830			—			(2,559,830		)	(100	)%
Income from operations	1,800,332			3,220,593			(1,420,261		)	(44	)%
Other Income	377			32,888			(32,511		)	(99	)%
Bargain purchase gain related to Omega acquisition	6,481,051			—			6,481,051			100	%
Other expense	(10,866		)	(40,726		)	29,860			73	%
Interest Expense	(733,046		)	(219,139		)	(513,907		)	235	%
Total other income (expense)	5,737,516			(226,977		)	5,964,493			(2,628	)%
Income before income taxes	7,537,848			2,993,616			4,544,232			152	%
Income tax (expense) benefit	—			(18,751		)	18,751			(100	)%
Net income	7,537,848			2,974,865			4,562,983			153	%
Net loss attributable to non-controlling interest	325,399			—			325,399			(100	)%
Net income attributable to Vertex Energy, Inc.	$	7,863,247		$	2,974,865		4,888,382			164	%

Each of our segments’ gross profit during the six months ended June 30, 2014 and 2013 was as follows (increases in revenue and/or decreases in cost of revenues are shown without parentheses while decreases in revenue and/or increases in cost of revenues are shown with parentheses in the “$ Change” and “% Change” columns):



	Six Months Ended June 30,
Black Oil Segment	2014		2013		$ Change			% Change
Total revenue	$	72,449,922	$	42,692,716	$	29,757,206		70	%
Total cost of revenue	63,421,922		40,148,098		(23,273,824		)	(58	)%
Gross profit	$	9,028,000	$	2,544,618	$	6,483,382		255	%
Refining Segment
Total revenue	$	38,345,278	$	23,065,950	$	15,279,328		66	%
Total cost of revenue	34,876,244		21,049,089		(13,827,155		)	(66	)%
Gross profit	$	3,469,034	$	2,016,861	$	1,452,173		72	%
Recovery Segment
Total revenue	$	8,634,080	$	2,607,538	$	6,026,542		231	%
Total cost of revenue	7,107,946		1,144,595		(5,963,351		)	(521	)%
Gross profit	$	1,526,134	$	1,462,943	$	63,191		4	%

Total revenues increased 75% for the six months ended June 30, 2014, compared to the same period in 2013, due primarily to an increase in overall volume of product sold during the six months ended June 30, 2014 compared to 2013. Total volume increased 60% largely as a result of the increased volume the Company has seen over the past twelve months of Cutterstock produced through our TCEP operation as well as through our Refining and Marketing division and the recent addition during the six months ended June 30, 2014 of the Marrero facility which produces a VGO finished product. Gross profit increased 133% for the six months ended June 30, 2014 compared to the same period in 2013. Additionally, our per barrel margin increased 45% relative to the six months ended June 30, 2013. This increase was a result of the acquisition of the Omega Refining business which is now part of our Black Oil division, the acquisition of E-Source, which is part of our Recovery division, as well as some improved margins and volumes in our other division. The 69% increase in cost of revenues for the six months ended June 30, 2014 compared to the same period in 2013 is mainly a result of our increased revenues.

Our Black Oil division's volume increased approximately 54% during the six months ended June 30, 2014 compared to the same period in 2013. This increase was due to an increased amount of volume managed through our TCEP operation (described in greater detail below), as well as the increased volume we realized from the Marrero facility (beginning May 2, 2014) which produces a VGO finished product.

Overall volume for the Refining and Marketing division increased 77% during the six month period ended June 30, 2014 as compared to the same period in 2013. This division experienced an increase in production of 71% for its gasoline blendstock for the six months ended June 30, 2014, compared to the same period in 2013. Our fuel oil cutterstock volumes increased 102% for the six months ended June 30, 2014, compared to the same period in 2013. Our pygas volumes increased 48% for the six months ended June 30, 2014 as compared to the same period in 2013. These increases are a result of new feedstock streams that we started managing during the third quarter of 2013.

We experienced a 73% increase in the volume of our TCEP refined product during the six months ended June 30, 2014, compared to the same period in 2013. This increase is a result of the improvements that were made in 2013 to improve efficiencies and improve the volume throughput at the facility. Commodity prices decreased approximately 4% for the six months ended June 30, 2014, compared to the same period in 2013. The average posting (U.S. Gulfcoast Residual Fuel No. 6 3%) for the six months ended June 30, 2014 decreased $3.42 per barrel from a six month average of $93.99 per barrel for the six months ended June 30, 2013, to $90.57 per barrel for the six months ended June 30, 2014.

division had it been in place during the periods presented). Revenues for this division increased substantially as a result of E-Source during the six months ended June 30, 2014. This division periodically participates in project works that are not ongoing thus we expect to see fluctuations in revenue and gross profit from this division from period to period.

Our TCEP technology generated revenues of $42,610,179 during the six months ended June 30, 2014, with cost of revenues of $36,206,256, producing a gross profit of $6,403,923. The per barrel margin for our TCEP product increased 14% as compared to same period during 2013. This increase was a result of increased production as well as reductions in overall feedstock prices during this period.

We had total operating expenses of $12,222,836 for the six months ended June 30, 2014, which included $2,559,830 of acquisition related expenses compared to $4,653,829 of total operating expenses for the prior year’s period, an increase of $7,569,007 or 163% from the prior period. This increase is primarily due to the additional selling, general and administrative expenses generated by the new business lines, specifically from the acquisition of Omega Refining's operations and the E-source acquisition, as well as increased sales expenses associated with our expansion into new markets. The Company incurred an additional $2,559,830 of legal, accounting, auditing, investment banking expenses and other one-time expenses related to acquisitions during the six months ended June 30, 2014, which expenses were not represented in the prior period.

We had income from operations of $1,800,332 for the six months ended June 30, 2014, compared to income from operations of $3,220,593 for the six months ended June 30, 2013, a decrease of $1,420,261 or 44% from the prior period. The decrease was mainly due to increased expenses associated with new product lines and acquired operations, and certain one-time expenses associated with acquisitions partially offset by an increase in volumes and revenues during the six month period ended June 30, 2014 and a $1,850,000 reduction in contingent liability during the six months ended June 30, 2013, which positively affected income from operations for the six months ended June 30, 2013.

We had total other income of $5,737,516 for the six months ended June 30, 2014, mainly due to increase in other income described below, compared to other expense of $226,997 for the six months ended June 30, 2013. Included in other income for the six months ended June 30, 2014, was a one-time non-cash bargain purchase benefit from the purchase price of the Omega assets of $6,481,051. We also had interest expense of $733,046 for the six months ended June 30, 2014, compared to interest expense of $219,139 for the six months ended June 30, 2013, an increase in interest expense of $513,907 or 235% from the prior period mainly due to the recent financing from Goldman Sachs.

We had net income of $7,537,848 for the six months ended June 30, 2014, compared to net income of $2,974,865 for the six months ended June 30, 2013, an increase in net income of $4,562,983 or 153% from the prior period. Net loss related to the 30% minority interest in E-Source was $325,399 for the six months ended June 30, 2014. We had net income attributable to the Company of $7,863,247 for the six months ended June 30, 2014, compared to $2,974,865 for the six months ended June 30, 2013, an increase in net income of $4,888,382 or 164% from the prior year period.

Set forth below, we have disclosed a quarter-by-quarter summary of our statements of operations and statements of operations by segment information for the quarters ended December 31, September 30, June 30, and March 31, 2012, and 2013 and March 31, and June 30, 2014 respectively.



							Statements of Operations by Quarter
	Fiscal 2014						Fiscal 2013												Fiscal 2012
	Second			First			Fourth			Third			Second			First			Fourth			Third			Second			First
	Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter

Revenues	$	72,079,622		$	47,349,658		$	46,770,402		$	46,830,647		$	35,111,402		$	33,254,801		$	32,256,541		$	36,195,570		$	31,293,193		$	34,827,939

Cost of Revenues	63,200,942			42,205,170			41,340,555			41,945,879			32,556,738			29,785,043			29,290,855			33,011,934			30,542,452			31,942,875

Gross Profit	8,878,680			5,144,488			5,429,847			4,884,768			2,554,664			3,469,758			2,965,686			3,183,636			750,741			2,885,064

Reduction of contingent liability	—			—			(388,750		)	—			(1,850,000		)	—			—			—			—			—

Selling, general and administrative expenses	6,075,517			3,587,489			4,359,857			2,495,748			2,395,745			2,221,492			2,413,181			1,610,146			919,227			1,194,747

Acquisition related expenses	1,959,418			600,412			17,150			—			—			36,592			101,964			1,154,612			—			—

Total selling, general and administrative expenses	8,034,935			4,187,901			3,988,257			2,495,748			545,745			2,258,084			2,515,145			2,764,758			919,227			1,194,747

Income (loss) from operations	843,745			956,587			1,441,590			2,389,020			2,008,919			1,211,674			450,541			418,878			(168,486		)	1,690,317

Other income (expense)
Other income	7			370			4,809			—			7,598			25,289			—			—			—			—
Bargain purchase gain	6,481,051			—			—			—			—			—			—			—			—			—
Other expense	(10,866		)	—			(9,838		)	(3,949		)	—			(40,726		)	158			949			633			—
Interest expense	(657,235		)	(75,811		)	(108,327		)	(95,488		)	(112,999		)	(106,140		)	(106,348		)	(28,972		)	—			(44		)
Total other income (expense)	5,812,957			(75,441		)	(113,356		)	(99,437		)	(105,401		)	(121,577		)	(106,190		)	(28,023		)	633			(44		)

Income (loss) before income taxes	6,656,702			881,146			1,328,234			2,289,583			1,903,518			1,090,097			344,351			390,855			(167,853		)	1,690,273

Income tax benefit (expense)	—			—			1,678,539			40,211			(12,248		)	(6,502		)	(207,000		)	1,714,813			8,828			(116,000		)

Net income (loss)	6,656,702			881,146			3,006,773			2,329,794			1,891,270			1,083,595			137,351			2,105,668			(159,025		)	1,574,273

Net income (loss) attributable to non-controlling interest	344,380			(18,981		)	(431,962		)	—			—			—			—			—			—			—

Net income attributable to Vertex Energy, Inc.	$	7,001,082		$	862,165		$	2,574,811		$	2,329,794		$	1,891,270		$	1,083,595		$	137,351		$	2,105,668		$	(159,025	)	$	1,574,273

Number of weighted average common shares outstanding

Basic	22,826,102			21,232,949			17,830,194			17,715,786			17,409,034			17,079,242			12,138,229			12,255,372			10,136,941			9,434,094

Diluted	24,847,456			21,738,018			20,182,829			19,997,257			19,887,288			20,139,182			14,866,134			16,484,023			10,136,941			15,473,017

The below graph charts our total quarterly revenue over time from March 31, 2012 to June 30, 2014:



					Statements of Operations by Segments
	Fiscal 2014				Fiscal 2013								Fiscal 2012
	Second		First		Fourth		Third		Second		First		Fourth		Third		Second		First
	Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter
Black Oil
Revenues	$	48,878,522	$	23,571,400	$	23,660,574	$	22,766,929	$	19,493,407	$	23,199,308	$	19,959,930	$	22,703,429	$	22,308,780	$	24,160,235

Cost of revenues	42,330,639		21,091,283		21,717,508		21,632,211		18,363,098		20,416,314		18,063,709		21,632,753		22,103,561		22,367,745

Gross profit	$	6,547,883	$	2,480,117	$	1,943,066	$	1,134,718	$	1,130,309	$	2,782,994	$	1,896,221	$	1,070,676	$	205,219	$	1,792,490


Refining & Marketing
Revenues	$	18,517,819	$	19,827,459	$	16,749,930	$	15,913,554	$	14,234,204	$	8,831,746	$	11,595,766	$	13,087,667	$	8,984,413	$	10,667,704

Cost of revenues	16,626,178		18,250,066		15,207,097		14,244,023		12,824,955		8,224,134		10,569,315		10,998,611		8,438,891		9,575,130

Gross profit	$	1,891,641	$	1,577,393	$	1,542,833	$	1,669,531	$	1,409,249	$	607,612	$	1,026,451	$	2,089,056	$	545,522	$	1,092,574


Recovery
Revenues	$	4,683,281	$	3,950,799	$	6,359,898	$	8,150,164	$	1,383,791	$	1,223,747	$	700,845	$	404,474	$	—	$	—

Cost of revenues	4,244,125		2,863,821		4,415,950		6,069,645		1,368,685		1,144,595		657,831		380,570		—		—

Gross profit	$	439,156	$	1,086,978	$	1,943,948	$	2,080,519	$	15,106	$	79,152	$	43,014	$	23,904	$	—	$	—

Liquidity and Capital Resources

The success of our current business operations is not dependent on extensive capital expenditures (although we plan to construct additional TCEP facilities in the future, which will require substantial capital expenditures), but rather on relationships with feedstock suppliers and end-product customers, and on 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 $139,873,327 as of June 30, 2014 compared to $64,546,356 at December 31, 2013. The increase was mainly due to the $46,680,000 of assets acquired from Omega in May 2014, the $7,537,848 of net income which was generated during the six months ended June 30, 2014, and a $16,973,203 increase in cash and cash equivalents as of June 30, 2014. Total current assets as of June 30, 2014 of $62,883,087 consisted of cash and cash equivalents of $19,651,831, accounts receivable, net, of $13,952,805, accounts receivable-related party of $9,335,321 inventory of $16,412,448, and prepaid expenses of $3,530,682. Long term assets consisted of fixed assets, net, of $46,725,108, net intangible assets of $16,733,683, which primarily represents the value of the Company's TCEP patent and certain other patents acquired from Omega Refining, and $4,922,353 of goodwill (booked in connection with the Acquisition of Holdings and E-Source) and other assets of $2,925,096. Fixed assets increased $31,633,932 mainly as a result of our acquisition of certain assets and operations from Omega Refining in May 2014. Additionally, the $16,973,203 increase in cash and cash equivalents was mainly due to funds raised in our June 2014 private offering of shares of common stock described in greater detail below. In addition, mainly as a result of the approximately $30.75 million of net operating losses that may be used to offset taxable income generated by the Company in future periods, the Company has recorded a deferred federal tax asset of $5,684,000 as of June 30, 2014 and December 31, 2013. Our cash, accounts receivable, inventory and accounts payable fluctuate and are somewhat tied to one another based on the timing our inventory cycle and sales.

We had total current liabilities of $29,230,973 as of June 30, 2014 compared to $16,053,032 at December 31, 2013. This increase was largely due to the increase in our accounts payable during the six months ended June 30, 2014, which accounts payable totaled $26,004,141 as of June 30, 2014, and an increase in capital lease liabilities obtained in connection with the acquisition with Omega Refining (described in greater detail below) of which the current portion outstanding at June 30, 2014 was $809,497. In addition, we had $2,417,335 of current liabilities associated with long-term debt of which $717,335 were related to the E-Source acquisition and $1,700,000 were related to the Omega acquisition.

We had total liabilities of $75,471,866 as of June 30, 2014, including current liabilities of $29,230,973 and long-term liabilities of $46,240,893, which included $38,000,000 of long-term debt representing non-current amounts due on the Term Note and Goldman Sachs Bank USA Credit Agreement (described below), and $2,477,643 related to E-Source debt and line of credit, $5,385,250 of contingent consideration, after the reduction described above, relating to the earn-out payments associated with the acquisition of Vertex Holdings, L.P., and E-Source and certain assets from Omega Refining and $378,000 of deferred federal income tax.

We had working capital of $33,652,114 as of June 30, 2014, compared to working capital of $8,042,589 as of December 31, 2013. The increase in working capital from December 31, 2013 to June 30, 2014 is due to an increase in cash and cash equivalents related to the offering of common stock described below and an increase in accounts receivable and inventory due to the Omega Refining acquisition.

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

On September 11, 2012, we entered into a Credit Agreement with Bank of America, N.A. ("BOA”) effective as of August 31, 2012, pursuant to which we borrowed $8,500,000 in the form of a term loan, which is evidenced by a Term Note (the “Term Note”) , and BOA agreed to provide us with an additional $10,000,000 revolving credit facility (the “Credit Facility”), which is evidenced by a Revolving Note (the “Revolving Note”, and together with the Term Note, the “Notes”).

Pursuant to the Credit Agreement, we had the right to request loans from time to time under the Credit Facility, subject to the terms and conditions of the Credit Agreement, provided that the total amount loaned pursuant to the Credit Facility could not exceed the lesser of (a) $10,000,000 and (b) an amount equal to the total of (i) 80% of our accounts in which BOA has a first-priority perfected security interest; (ii) 80% of our finished-goods inventory in which BOA holds a first-priority perfected security interest, in each case subject to the terms and conditions of the Credit Agreement.

Amounts borrowed under the Revolving Note bear interest at our option at the lesser of BOA’s prime commercial lending rate then in effect or the LIBOR rate in effect plus 2.75%. Accrued and unpaid interest on the Revolving Note is due and payable monthly in arrears and all amounts outstanding under the Revolving Note are due and payable on August 31, 2014.

Amounts borrowed under the Term Note bear interest at our option at the lesser of BOA's prime commercial lending rate then in effect or the LIBOR rate in effect plus 2.75%. Accrued and unpaid interest on the Term Note is due and payable monthly in arrears and all amounts outstanding under the Term Note are due and payable on August 31, 2015. Additionally, payments of

principal in the amount of $141,667 are due and payable on the Term Note, monthly in arrears on the last day of each month beginning September 30, 2012, and continuing thereafter until the maturity date.

The Credit Agreement was replaced by the Amended BOA Credit Agreement (defined and described below in May 2014).

On September 11, 2012, we borrowed a total of $8.5 million under the Term Note and $8.75 million under the Revolving Note, the majority of which funds were used to pay Holdings the cash portion of the Purchase Price due in connection with the closing of the Acquisition, as described in greater detail above under “Material Acquisitions”- "Holdings" and to pay fees and costs associated with the closing of the Acquisition.

As of June 30, 2014, the Line of Credit had a balance of $0 and the Term Note had a balance of $0.

As a result of the E-Source acquisition, the Company has notes payable to various financial institutions, bearing interest at rates ranging from 5% to 6.35%. The balance of these notes is $2,454,944 as of June 30, 2014.

In February 2013, the Lender agreed to lease the Company up to $1,025,000 of equipment to enhance the TCEP operation. Monthly payments are fixed for the sixty month duration of the lease at $13,328 per month. The lease also provides an early buy-out right for the Company and a right for the Company to extend the lease at the end of its term.

Credit and Guaranty Agreement

Effective May 2, 2014, we and our newly formed subsidiary, Vertex Energy Operating, LLC (which was formed as a holding company to hold the Company’s operating subsidiaries, which were subsequently transferred to and are currently wholly-owned by Vertex Operating), as well as certain of our other direct and indirect subsidiaries (other than E-Source) as guarantors, entered into a Credit and Guaranty Agreement (the “Credit Agreement”) with Goldman Sachs Bank USA as lender and as administrative agent and collateral agent (the “Lender” or the “Agent”). Pursuant to the Credit Agreement, the Lender loaned us $40 million (the “Credit Agreement Loan”), which was evidenced by a Term Loan Note. Pursuant to the Credit Agreement, the Company has the option to select whether loans made under the Credit Agreement bear interest at (a) the greater of (i) the prime rate in effect, (ii) the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System plus ½ of 1%, (iii) the sum of (A) the Adjusted LIBOR Rate (defined below) and (B) 1%, and (iv) 4.5% per annum; or (b) the greater of (i) 1.50% and (ii) the applicable ICE Benchmark Administration Limited interest rate, divided by (x) one minus, (y) the maximum rate at which reserves (including, without limitation, any basic marginal, special, supplemental, emergency or other reserves) are required to be maintained with respect thereto against “Eurocurrency liabilities” (as such term is defined in Regulation D) under regulations issued from time to time by the Board of Governors of the Federal Reserve System or other applicable banking regulator (the “Adjusted LIBOR Rate”), in each case subject to the terms and conditions of the Credit Agreement, and in each case plus between 5.5% and 7.5% per annum (as provided in the Credit Agreement, based on several factors, including the Company’s total leverage). Interest on the Credit Agreement is payable monthly in arrears, provided that upon any event of default the interest rate increases to 2% per annum in excess of the applicable interest rate then in effect. The amount owed under the Credit Agreement is due and payable on May 2, 2019.

Amortizing principal payments are due on the Credit Agreement Loan in the amount of $300,000 per fiscal quarter for June 30, 2014, September 30, 2014, December 31, 2014 and March 31, 2015, and $800,000 per fiscal quarter thereafter through maturity. Additionally, in the event (a) we receive any sale proceeds from the sale of assets or insurance proceeds (each as described in greater detail in the Credit Agreement), in excess of $250,000, we are required to pay such sale proceeds, less certain deductions, as a prepayment of the Credit Agreement Loan, unless we decide to reinvest such proceeds in long-term production assets as described in the Credit Agreement; (b) we sell equity securities (subject to certain exceptions) we are required to use 100% of the proceeds from such sales to repay the Credit Agreement Loan, subject to certain exemptions, including up to $5 million to be used for working capital, permitted acquisitions, working capital of Vertex Refining Nevada and funds (which are required to total at least $10 million) which we are able to raise prior to June 30, 2014 (subject to the terms of the Credit Agreement) through the sale of securities; (c) we issue debt, we are required to prepay the Credit Agreement Loan in an amount equal to 100% of such funds received; (d) we have cash flow which exceeds certain pre-negotiated limits, we are required to use between 50% and 75% of such additional cash flow to repay the Credit Agreement Loan; (e) we receive tax refunds in excess of $100,000 in any year, we are required to use such funds to prepay the Credit Agreement Loan; (f) our total debt exceeds certain maximum debt ratios set forth in the Credit Agreement, we are required to immediately repay the Credit Agreement Loan in an amount equal to such excess debt; or (g) we receive any funds under the Purchase Agreement, we are required to prepay the Credit Agreement Loan in an amount equal to such received funds, subject in each case to the terms and conditions of the Credit Agreement. We also have the right to make voluntary repayments of the Credit Agreement Loan in the minimum amount of $500,000 (and in multiples of $100,000) from time to time.

Except with respect to certain accounts, certain finished goods inventory and certain other reserves described in the Amended BOA Credit Agreement (as defined below), the amount owed pursuant to the Credit Agreement is secured by a first priority security interest in all of our assets and all of the assets and securities of our direct and indirect subsidiaries and is also guaranteed by our subsidiaries (other than E-Source) pursuant to the terms of the Credit Agreement, a Pledge and Security Agreement and Mortgage (providing a security interest over certain of our real property assets).

The Credit Agreement contains customary representations, warranties, covenants for facilities of similar nature and size as the Credit Agreement, and requirements for the Company to indemnify the Lender and the Agent for certain losses. The Credit Agreement also includes various covenants (positive and negative) binding the Company, including, requiring that the Company provide the Agent with certain reports, provide the Agent notices of material corporate events and forecasts, limiting the amount of indebtedness the Company may incur (for example, the Company’s total indebtedness cannot exceed between $30,000,000-$32,000,000 at any time, subject to certain exemptions set forth in greater detail in the Credit Agreement), and requiring us to maintain certain financial ratios, relating to consolidated EBITDA and debt leverage including maintaining a ratio of quarterly consolidated EBITDA (as calculated and adjusted in the Credit Agreement) to certain fixed charges (cumulative for subsequent periods up to the first 12 months and thereafter on a 12 month basis), for each quarter beginning June 30, 2014, of between 0.90:1.00 and 1.25:1.00 (depending on the applicable quarter); maintaining a ratio of consolidated debt to consolidated EBITDA (as calculated and adjusted in the Credit Agreement), for the prior 12 month period, for each quarter beginning June 30, 2014, of between 4:1 and 2:1 (depending on the applicable quarter); maintaining consolidated EBITDA (as calculated and adjusted in the Credit Agreement), for each fiscal quarter beginning June 30, 2014, and ending June 30, 2018, of between $4.25 million and $17 million (depending on the applicable quarter); and maintaining at all times (a) liquid cash on hand and (b) available drawdowns under the Amended BOA Credit Agreement (defined below), of at least $3 million.

The Credit Agreement includes customary events of default for facilities of a similar nature and size as the Credit Agreement, including if a default occurs under certain material agreements of the Company; a judgment is obtained against the Company in an amount in excess of $250,000 or which could have a material adverse effect on the Company; and also provides that an event of default occurs if (a) Benjamin P. Cowart, the Company’s Chief Executive Officer, Chairman of the Board and largest shareholder, ceases to own and control at least 20% of the economic and voting interests of the Company (on a fully-diluted basis); (b) any person other than Mr. Cowart (i) obtains 30% of more of the voting or economic interest in the Company on a fully-diluted basis or (ii) obtains the power (whether or not exercised) to elect a majority of the members of the Board of Directors; (c) we cease to own and control 100% of Vertex Operating; (d) the majority of the seats (other than vacant seats) on the Board of Directors of the Company cease to be occupied by persons who either (i) were members of the Board of Directors of the Company on May 2, 2014, or (ii) were nominated for election by the Board of Directors of the Company, a majority of whom were directors on May 2, 2014 or whose election or nomination for election was previously approved by a majority of such directors; (e) Vertex II, GP, LLC (Vertex Operating’s wholly-owned subsidiary) ceases to be the sole general partner of any guarantor of the Credit Agreement that is a partnership; (f) a “change of control” or similar event under the Amended BOA Credit Agreement (described below) shall occur; or (g) any event, transaction or occurrence occurs, a result of which Benjamin P. Cowart shall for any reason cease to be actively engaged in the day-to-day management of the Company and its subsidiaries in the role he serves on May 2, 2014, unless (x) an interim successor reasonably acceptable to Agent and the Lender as required by the Credit Agreement is appointed within 10 days and (y) a permanent successor reasonably acceptable to the Agent and the Lender as required by the Credit Agreement is appointed within 60 days.

Additionally, in connection with our entry into the Credit Agreement, all parties to whom any deferred purchase price or “earn-out” obligations are owed by us executed and delivered to the Agent an Earnout Subordination Agreement (other than one of the individuals who is owed earn-out payments in connection with the E-Source purchase), pursuant to which they agreed to not receive or demand any “earn-out” payments until the Lender and BOA are paid in full under the credit agreements.

In connection with the closing of the Credit Agreement, we agreed to pay the Agent’s legal fees and transaction costs associated with the transactions contemplated by the Credit Agreement. We also paid an aggregate of approximately $1.7 million in commissions and fees to our advisors Craig-Hallum Capital Group LLC, Sapphire Financial Group, LLC and Wunderlich Securities, Inc. in consideration for financial advisory services rendered in connection with the Purchase Agreement and credit agreements, the transactions contemplated therein and in certain cases a fairness opinion obtained on certain of the transactions.

The proceeds from the Credit Agreement were used to pay the amounts due at the Initial Closing of the Omega purchase (described above), pay certain Omega capital leases and other obligations of Omega, and to pay expenses associated with the Initial Closing of the Omega acquisition.

The Credit Agreement had a balance of $39,700,000 as of June 30, 2014.

Amended and Restated Credit Agreement with Bank of America, N.A.

On May 2, 2014, we and Vertex Operating entered into an Amended and Restated Credit Agreement (the “Amended BOA Credit Agreement” and together with the “Credit Agreement”, the “Credit Agreements”) with BOA. The Amended BOA Credit Agreement amended and restated the prior credit agreement we entered into with BOA in August 2012. Pursuant to the Amended BOA Credit Agreement, BOA agreed to loan us up to $20 million (the “BOA Loan”), subject to the terms of the Amended BOA Credit Agreement and certain lending ratios set forth therein, provided that the amount outstanding cannot exceed an amount equal to the total of (i) 80% of the Company’s accounts in which BOA has a first-priority perfected security interest; (ii) 65% of the Company’s finished-goods inventory in which BOA holds a first-priority perfected security interest, in each case subject to the terms and conditions of the credit agreement, plus (iii) certain reserves established by BOA.

We have the right to request up to three increases in the amount of the facility, which in the aggregate cannot exceed $10 million and which individually are required to be a minimum of $3 million each, provided that BOA has the right to approve any increase in its sole discretion. Loans made pursuant to the Amended BOA Credit Agreement are evidenced by a Revolving Note, which replaced the Company’s August 2012 Revolving Note, which was repaid on May 2, 2014 in connection with the parties’ entry into the Amended BOA Credit Agreement.

Amounts borrowed under the Revolving Note bear interest at the option of the Company at BOA’s prime commercial lending rate then in effect plus between 1.25% and 2% per annum (depending on the Company’s leverage ratio from time to time) or the LIBOR rate in effect plus between 2.35% and 3% per annum (depending on the Company’s leverage ratio from time to time), and are payable monthly in arrears (provided that upon an event of default the interest rate then in effect increases by 4% per annum). The Revolving Note is due and payable on May 2, 2017.

We have the right to prepay the Revolving Note at any time without penalty. We are also required to make certain mandatory prepayments on the Revolving Note as described therein.

The Amended BOA Credit Agreement also requires BOA to provide us certain letters of credit as described therein.

We agreed to pay BOA a commitment fee equal to between 0.25% and 0.35% (depending on our leverage ratio) multiplied by the actual daily amount by which the maximum amount BOA has agreed to loan us (currently $20 million) exceeds the amount loaned (and subject to letters of credit), which is due and payable quarterly in arrears on the last day of each March, June, September, and December, beginning June 30, 2014, until maturity. We also paid BOA $50,000 at closing in fees. In connection with letters of credit issued by BOA, we agreed to pay BOA a fee equal to the greater of 2% per annum (multiplied by the daily maximum amount available to be drawn) and $500 per line of credit.

The Amended BOA Credit Agreement contains customary representations, warranties, covenants and requirements for the Company to indemnify BOA and its affiliates. The Amended BOA Credit Agreement also includes various covenants (positive and negative) binding upon the Company, including, requiring that the Company comply with certain reporting requirements, provide notices of material corporate events and forecasts to BOA, and maintain certain financial ratios, relating to debt leverage, consolidated EBITDA, maximum debt exposure we can incur (provided that if we exceed such maximum debt exposure limit as set forth in the Amended BOA Credit Agreement, we are required to immediately repay any amount exceeding the limits set forth in the BOA Credit Agreement) and minimum liquidity, including maintaining a ratio of quarterly consolidated EBITDA (as calculated and adjusted in the Amended BOA Credit Agreement) to certain fixed charges (cumulative for subsequent periods up to the first 12 months and thereafter on a 12 month basis), for each quarter beginning June 30, 2014, of not less than 1.25 to 1.00; maintaining a ratio of consolidated debt to consolidated EBITDA (as calculated and adjusted in the Amended BOA Credit Agreement), for the prior 12 month period, for each quarter beginning June 30, 2014, of between 3.5 to 1 and 2 to 1 (depending on the applicable quarter); maintaining consolidated EBITDA (as calculated and adjusted in the Amended BOA Credit Agreement), for each fiscal quarter beginning June 30, 2014, and ending March 30, 2017, of between $4.25 million and $15.5 million (depending on the applicable quarter); and maintaining at all times (a) liquid cash on hand and (b) available drawdowns under the Amended BOA Credit Agreement, of at least $3 million.

The Amended BOA Credit Agreement includes customary events of default for facilities of a similar nature and size as the Amended BOA Credit Agreement, including if an event of default occurs under any agreement the Company is subject to and in an amount in excess of $250,000 or if the Company breaches any term of any material agreement the Company is party to, subject to its right to cure such breach(s) under the Amended BOA Credit Agreement, and also provides that an event of default occurs if (a) Benjamin P. Cowart, the Company’s Chief Executive Officer, Chairman of the Board and largest shareholder, ceases to be actively involved in the day-to-day management or operation of the Company or if Mr. Cowart ceases to own and control at least 20% of the equity interests of the Company; (b) the Company ceases at any time to own and control 100% of Vertex Operating or certain other of its subsidiaries; (c) Vertex Acquisition Sub, LLC (Vertex Operating’s wholly-owned subsidiary) ceases to control 100% of its current subsidiaries; (d) certain other changes in control of our subsidiaries occur; (e) a “change of

control” or similar event or event of default occurs under the Credit Agreement; or (f) a default occurs under certain lease agreements related to premises leased by the Company.

The amounts due pursuant to the Amended BOA Credit Agreement are secured by a Pledge and Security Agreement and various Deeds of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filings in favor of BOA. Additionally, Vertex Operating and the Company and each of the Company’s subsidiaries (other than E-Source) pledged all collateral which they own (including securities held) as security for the repayment of the amounts due pursuant to the Amended BOA Credit Agreement and guaranteed the amounts owed pursuant to an Amended and Restated Guaranty.

We used and will use the proceeds borrowed pursuant to the Amended BOA Credit Agreement to consummate the transactions contemplated by the Initial Closing of the Purchase Agreement, pay costs associated with the Amended BOA Credit Agreement and for working capital and other general corporate purposes.

The Amended BOA Credit Agreement had a balance of $0 as of June 30, 2014.

Private Offering of Common Stock

On June 5, 2014, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”), pursuant to which the Company agreed to sell to the Investors an aggregate of 2.2 million shares (the “Shares”) of the Company’s common stock, par value $0.001 per share (“Common Stock”), for $7.75 per Share (a 12.3% discount to the 30 day volume-weighted average price for the Common Stock as of the date the Purchase Agreement was entered into). Total gross proceeds from the offering of the Shares, which closed on June 11, 2014 (the “Offering”) was $17.1 million.

Craig-Hallum Capital Group LLC (the “Placement Agent”) acted as exclusive placement agent in connection with the Offering. The Placement Agent received a commission equal to 7% of gross proceeds, for an aggregate commission of $1.2 million.

Under the Purchase Agreement, the Company agreed to register the Shares under the Securities Act of 1933, as amended, for resale by the Investors by certain time periods set forth in the Purchase Agreement, which required time periods were satisfied by the effectiveness of the Company’s Form S-3 Registration Statement, registering the resale of the Shares, which was declared effective on July 29, 2014.

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

Need for additional funding

Our re-refining business will require significant capital to design and construct any new facilities other than the existing facility in Baytown, Texas. We currently estimate that the cost to construct a new, fully functional full-scale commercial process at another location would be approximately $10 to $15.0 million, based on throughput capacity. The facility infrastructure would be an additional capitalized expenditure to these proposed process costs and would depend on the location and site specifics of the facility.

Management believes that our Credit Agreements, in addition to projected earnings, will provide sufficient liquidity to fund our operations for the foreseeable future, although we may seek additional financing to fund acquisitions or other development in the future.

Additionally, as part of our ongoing efforts to maintain a capital structure that is closely aligned with what we believe to be the potential of our business and goals for future growth, which is subject to cyclical changes in commodity prices, we will be

exploring additional sources of external liquidity. The receptiveness of the capital markets to an offering of debt or equities cannot be assured and may be negatively impacted by, among other things, debt maturities, current market conditions, and potential stockholder dilution. The sale of additional securities, if undertaken by us and if accomplished, may result in dilution to our shareholders. We cannot assure you, however, that future financing will be available in amounts or on terms acceptable to us, or at all.

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


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


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


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

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

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

Cash flows for the six months ended June 30, 2014 compared to the six months ended June 30, 2013



	Six Months Ended June 30,
	2014			2013
Beginning cash and cash equivalents	$	2,678,628		$	807,940
Net cash provided by (used in):
Operating activities	3,631,402			1,527,559
Investing activities	(31,399,981		)	(402,899		)
Financing activities	44,741,782			(1,635,372		)
Net increase (decrease) in cash and cash equivalents	16,973,203			(510,712		)
Ending cash and cash equivalents	$	19,651,831		$	297,228

Operating activities provided cash of $3,631,402 for the six months ended June 30, 2014 as compared to $1,527,559 of cash being provided during the corresponding period in 2013. Our primary sources of liquidity are cash flows from our operations and the availability to borrow funds under our Credit Facilities, notes and lease line of credit with Bank of America, as described above. The primary reasons for the increase in cash provided by operating activities are related to net income of $7,537,848 (compared to $2,974,865 in the prior period), $1,800,950 of depreciation and amortization (compared to $1,069,035 in the prior period), and an $9,464,956 increase in accounts payable (compared to an increase of $3,669,339 in the prior period), offset by $6,481,051 of gain on the Omega acquisition.

Investing activities used cash of $31,399,981 for the six months ended June 30, 2014 as compared to having used $402,899 of cash during the corresponding period in 2013. Investing activities for the six months ended June 30, 2014 are comprised of $2,635,882 invested in fixed assets, and $28,764,099 used for the Omega acquisition.

Financing activities provided cash of $44,741,782 for the six months ended June 30, 2014 as compared to having used $1,635,372 of cash during the corresponding period in 2013. Financing activities for the six months ended June 30, 2014 are comprised of $40,509,906 of proceeds from notes payable of which $40,000,000 is related to the Omega acquisition, $304,000 drawn on a line of credit held by E-Source, $15,803,000 of cash related to the primary stock offering undertaken by the Company in the second quarter of 2014, and $211,062 of cash provided during the six months ended June 30, 2014 in connection with proceeds from the exercise of common stock warrants, offset by $9,634,029 in cash payments towards the repayment of the Term Note and Revolving Note and $2,452,157 of debt issue costs.

Net Operating Losses

We intend to take advantage of any potential tax benefits related to net operating losses (“NOLs”) acquired as part of the World Waste merger. As a result of the merger we acquired approximately $42 million of net operating losses that may be used to offset taxable income generated by the Company in future periods.

It is possible that the Company may be unable to use these NOLs in their entirety. The extent to which the Company will be able to utilize these carry-forwards in future periods is subject to limitations based on a number of factors, including the number of shares issued within a three-year look-back period, whether the merger is deemed to be a change in control, whether there is deemed to be a continuity of World Waste’s historical business, and the extent of the Company’s subsequent income. As of December 31, 2013, the Company had utilized approximately $11.25 million of these NOLs leaving approximately $30.75 million of potential NOLs of which we expect to utilize approximately $2,200,000 for the six months ended June 30, 2014. The Company recorded a change in the valuation allowance as of June 30, 2014 for approximately $748,000

Critical Accounting Policies and Use of Estimates

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

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

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

Stock Based Compensation

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

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

Basic and Diluted Income/ Loss per Share

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

Income Taxes

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

recoverability of deferred tax assets, scheduled reversals of deferred tax liabilities, projected future taxable income, and other matters in making this assessment.

Market Risk

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on our evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

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

Part II – OTHER INFORMATION

Item 1. Legal Proceedings

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

We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations other than as described above. We may become involved in material legal proceedings in the future.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Commission on March 25, 2014, except as provided below and investors should review the risks provided below and in the Form 10-K, prior to making an investment in the Company.

We face risks associated with the integration of the businesses, assets and operations recently acquired from Vertex Holdings, L.P., E-Source Holdings, LLC and Omega.

We previously acquired substantially all of the assets and operations of Vertex Holdings, L.P., (formerly Vertex Energy, L.P.), a Texas limited partnership (“Holdings”). Those assets and operations included Cedar Marine Terminals, L.P. (“CMT”), which operates a 19-acre bulk liquid storage facility on the Houston Ship Channel; Crossroad Carriers, L.P. (“Crossroad”), which is a transportation carrier that provides transportation and logistical services for liquid petroleum products, as well as other hazardous materials and waste streams; Vertex Recovery, L.P. (“Vertex Recovery”) which collects and recycles used oil and residual materials from large regional and national customers throughout the U.S. and Canada; and H&H Oil, L.P. (“H&H Oil”), which collects and recycles used oil and residual materials from customers based in Austin, Baytown, and Corpus Christi, Texas.

Additionally, we previously acquired a 70% interest in E-Source, which provides dismantling, demolition, decommission and marine salvage services at industrial facilities throughout the Gulf Coast.

Finally, pursuant to the Initial Closing under the Purchase Agreement in May 2014, we acquired certain assets and operations from Omega including Omega Refining (including the Marrero, Louisiana re-refinery and Omega’s Myrtle Grove complex in Belle Chaise, Louisiana) and ownership of Golden State, a strategic blending and storage facility located in Bakersfield, California.

The majority of these represented new business lines and operations for us and while our management has significant prior experience in connection with the operations and management of Holdings, it does not have any experience with or in connection with the operations of E-Source or those assets and operations acquired by Omega and we may not be able to successfully integrate the acquisitions into our operations and such acquisitions may not positively affect our operations and cash flow. Acquisitions such as these involve numerous risks, including difficulties in the assimilation of the acquired businesses. The consolidation of our operations with the operations of the acquired companies, including the consolidation of systems, procedures, personnel and facilities and the achievement of anticipated cost savings, economies of scale and other business efficiencies presents significant challenges to our management. The acquisition of the acquired businesses and/or our failure to successfully integrate the acquired businesses could have an adverse effect on our liquidity, financial condition and results of operations.

We may be required to pay substantial additional amounts of consideration in the event certain earn-out targets are met by us. There may also be actual or perceived conflicts of interest with management regarding certain of such targets and amounts due in connection therewith.

We acquired substantially all of the assets and liabilities of Holdings on September 11, 2012 (the “Acquisition”). Concurrent with the closing of the transactions contemplated in the Acquisition, we paid the following purchase price (the “Purchase Price”) to Holdings, (a) $14.8 million in cash and assumed debt; and (b) 4,545,455 restricted shares of our common stock; and to B & S Cowart Family L.P., approximately $1.7 million in cash, representing the appraised value of certain owned real property. Additionally, for each of the three one-year periods following the closing date, Holdings will be eligible to receive earn-out payments of $2.23 million, up to $6.7 million in the aggregate (the “Earn-Out Payments”), contingent on the combined company achieving adjusted EBITDA targets of $10.75 million, $12.0 million and $13.5 million, respectively, in those periods, provided that the Company failed to meet the targeted EBITDA for the first year’s Earn-Out Payment, and as such, there are $4.4 million

of potential Earn-Out Payments currently remaining. As of the date of this Report it has been determined that the 2013 earnings target was not met and the contingent consideration has been reduced by $1,850,000, which represents the discounted cash flow for year one. It has also been determined that there is a 25% probability that the 2014 earnings target will not be met and the contingent consideration has been reduced by $388,750, which represents 25% of the discounted cash flows for year two. Notwithstanding the above, Holdings agreed to subordinate the payment of the Earn-Out Payments to the repayment of the Credit Agreement.

As part of the consideration paid in connection with the acquisition of E-Source, if certain targets are met, the Company has to pay the seller approximately $260,000 annually in 2014, 2015, 2016 and 2017. The Company has recorded contingent consideration of $748,000, which is the discounted cash flows of the earn-out payments. The lesser of (a) 20% and (b) $100,000, per calendar year of earn-out payments due to the E-Source seller, if any, will be payable in shares of our restricted common stock, based on the average of the five closing sales prices of the Company’s common stock on the first five trading days of each applicable calendar year (each a “Valuation”) for which the earn-out consideration relates, provided that the parties mutually agreed to use a valuation of $3.2922 per share (the “2014 Valuation Price”) for any earn-out payments relating to the 2014 calendar year and further agreed that in no event will any future calendar year Valuation be less than the 2014 Valuation Price.

The sellers in the Omega acquisition have the right to earn additional earn-out consideration in the event certain EBITDA targets are met by (a) Vertex Refining NV, LLC during the years ended December 31, 2015 and 2016 (which targets begin at $3.5 million of EBITDA per year), of up to an aggregate of $6 million (payable in shares of the Company’s common stock equal to the volume-weighted average of the regular session closing prices per share of the Company’s common stock on the NASDAQ Capital Market for the ten (10) consecutive trading days prior to the applicable due date of such payments, provided, however, in no event shall the VWAP be less than $3.15 per share or more than $10.00 per share, as adjusted for any stock splits or recapitalizations), which earn-out consideration is contingent upon the Final Closing occurring under the Purchase Agreement; (b) Vertex Refining LA, LLC during any twelve month period during the eighteen month period commencing on the first day of the first full calendar month following the Initial Closing date (which targets begin at $8 million of EBITDA during such twelve month period) of up to 470,498 shares of common stock of the Company); and (c) Vertex Refining LA, LLC during the calendar year ended December 31, 2015 (which targets begin at $9 million of EBITDA) of up to 770,498 shares of common stock of the Company, which earn-out consideration is contingent upon the Final Closing occurring under the Purchase Agreement, in each case subject to adjustment for certain capital expenditures (collectively, the “Earn-Outs”). Notwithstanding the above, the maximum number of shares of common stock to be issued pursuant to the Purchase Agreement cannot (i) exceed 19.9% of the outstanding shares of common stock outstanding on March 17, 2014, (ii) exceed 19.9% of the combined voting power of the Company on March 17, 2014, or (iii) otherwise exceed such number of shares of common stock that would violate applicable listing rules of the NASDAQ Stock Market in the event the Company’s stockholders do not approve the issuance of such shares (the “Share Cap”). In the event the number of shares to be issued under the Purchase Agreement exceeds the Share Cap, then the Company is required to instead pay any such additional consideration in cash or obtain the approval of the Company’s stockholders under applicable rules and requirements of the NASDAQ Capital Market for the additional issuance of shares.

Additionally, our currently contemplated acquisition transaction with Heartland Group Holdings LLC contemplates $8 million of potential earn-outs payable over the first two years following the closing of the transaction, which transaction is subject to completion of due diligence and mutual agreement of definitive agreements. Finally, we may enter into acquisition or other agreements in the future which require earn-outs.

In the event we meet the required targets and thresholds described above and are required to pay Holdings the Earn-Out Payments, the earn-out payments to the E-Source seller, the Earn-Outs to the sellers in the Omega transaction, or any other earn-outs in the future, it could have a material adverse effect on our liquidity, the funds we have available for future expansion, and our results of operations.

Holdings was a related party controlled by Benjamin P. Cowart, our President, Chairman and largest shareholder, who owned directly or indirectly a 77% interest in Holdings. Additionally, Chris Carlson, our Chief Financial Officer, owned a 10% interest in Holdings and certain other of our employees (including Greg Wallace, our General Manager of Refining and Marketing) had a beneficial ownership interest in Holdings. Due to the structure of the earn-out payments, Mr. Cowart, Mr. Carlson and the other employees who will receive these payments have an incentive to increase our EBITDA in the periods covered in order to facilitate earn-out payments. They may therefore have an incentive to take steps to increase our EBITDA in the relevant periods at the expense of our future growth and long-term expansion. Consequently, the earn-out payments and/or the structure thereof may cause actual or perceived conflicts of interest between Mr. Cowart, Mr. Carlson and certain of our other employees, our company and our other shareholders.

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

We have a significant amount of outstanding indebtedness. As of June 30, 2014, we owed approximately $25.3 million in accounts payable. Additionally, effective May 2, 2014, we, as well as certain of our other direct and indirect subsidiaries (other than E-Source) as guarantors, entered into the Credit Agreement. Pursuant to the Credit Agreement, the Lender loaned us $40 million, which was evidenced by a Term Loan Note, which has a balance of $39,700,000 as of June 30, 2014. The amount owed under the Credit Agreement is due and payable on May 2, 2019. On May 2, 2014, we and Vertex Operating entered into the Amended BOA Credit Agreement with BOA. The Amended BOA Credit Agreement amended and restated the prior credit agreement we entered into with BOA in August 2012. Pursuant to the Amended BOA Credit Agreement, BOA agreed to loan us up to $20 million, subject to the terms of the Amended BOA Credit Agreement and certain lending ratios set forth therein.

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



	increase our vulnerability to adverse changes in general economic, industry and competitive conditions;
	require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;
	limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
	restrict us from taking advantage of business opportunities;
	make it more difficult to satisfy our financial obligations;
	place us at a competitive disadvantage compared to our competitors that have less debt obligations; and
	limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes on satisfactory terms or at all.

We may need to raise additional funding in the future to repay or refinance the Credit Agreement and Amended BOA Credit Agreement and our accounts payable, and as such may need to seek additional debt or equity financing. Such additional financing may not be available on favorable terms, if at all. If debt financing is available and obtained, our interest expense may increase and we may be subject to the risk of default, depending on the terms of such financing. If equity financing is available and obtained it may result in our shareholders experiencing significant dilution. If such financing is unavailable, we may be forced to curtail our operations, which may cause the value of our securities to decline in value and/or become worthless.

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

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



		incur or guarantee additional indebtedness;
		create liens;



		make payments to junior creditors;
		make investments;



		sell material assets;
		affect fundamental changes in our structure;



		make certain acquisitions;
		sell interests of our subsidiaries;



		consolidate or merge with or into other companies or transfer all or substantially all of our assets; and
		engage in transactions with affiliates.

Additionally, the Credit Agreement also includes various covenants (positive and negative) binding the Company, including, requiring that the Company provide the Agent with certain reports, provide the Agent notice of material corporate events and forecasts, limiting the amount of indebtedness the Company may incur (for example, the Company’s total indebtedness cannot exceed between $30,000,000-$32,000,000 at any time, subject to certain exemptions set forth in greater detail in the Credit Agreement), and requiring us to maintain certain financial ratios, relating to consolidated EBITDA and debt leverage including maintaining a ratio of quarterly consolidated EBITDA (as calculated and adjusted in the Credit Agreement) to certain fixed charges (cumulative for subsequent periods up to the first 12 months and thereafter on a 12 month basis), for each quarter beginning June 30, 2014, of between 0.90:1.00 and 1.25:1.00 (depending on the applicable quarter); maintaining a ratio of consolidated debt to consolidated EBITDA (as calculated and adjusted in the Credit Agreement), for the prior 12 month period, for each quarter beginning June 30, 2014, of between 4:1 and 2:1 (depending on the applicable quarter); maintaining consolidated EBITDA (as calculated and adjusted in the Credit Agreement), for each fiscal quarter beginning June 30, 2014, and ending June 30, 2018, of between $4.25 million and $17 million (depending on the applicable quarter); and maintaining at all times (a) liquid cash on hand and (b) available drawdowns under the Amended BOA Credit Agreement, of at least $3 million. Except with respect to certain accounts, certain finished goods inventory and certain other reserves described in the Amended BOA Credit Agreement, the amount owed pursuant to the Credit Agreement is secured by a first priority security interest in all of our assets and all of the assets and securities of our direct and indirect subsidiaries and is also guaranteed by our subsidiaries (other than E-Source) pursuant to the terms of the Credit Agreement, a Pledge and Security Agreement and Mortgage (providing a security interest over certain of our real property assets).

The Amended BOA Credit Agreement also includes various covenants (positive and negative) binding upon the Company, including, requiring that the Company comply with certain reporting requirements, provide notices of material corporate events and forecasts to BOA, and maintain certain financial ratios, relating to debt leverage, consolidated EBITDA, maximum debt exposure we can incur (provided that if we exceed such maximum debt exposure limit as set forth in the Amended BOA Credit Agreement, we are required to immediately repay any amount exceeding the limits set forth in the BOA Credit Agreement) and minimum liquidity, including maintaining a ratio of quarterly consolidated EBITDA (as calculated and adjusted in the Amended BOA Credit Agreement) to certain fixed charges (cumulative for subsequent periods up to the first 12 months and thereafter on a 12 month basis), for each quarter beginning June 30, 2014, of not less than 1.25 to 1.00; maintaining a ratio of consolidated debt to consolidated EBITDA (as calculated and adjusted in the Amended BOA Credit Agreement), for the prior 12 month period, for each quarter beginning June 30, 2014, of between 3.5 to 1 and 2 to 1 (depending on the applicable quarter); maintaining consolidated EBITDA (as calculated and adjusted in the Amended BOA Credit Agreement), for each fiscal quarter beginning June 30, 2014, and ending March 30, 2017, of between $4.25 million and $15.5 million (depending on the applicable quarter); and maintaining at all times (a) liquid cash on hand and (b) available drawdowns under the Amended BOA Credit Agreement, of at least $3 million. The amounts due pursuant to the Amended BOA Credit Agreement are secured by a Pledge and Security Agreement and various Deeds of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filings in favor of BOA. Additionally, Vertex Operating and the Company and each of the Company’s subsidiaries (other than E-Source) pledged all collateral which they own (including securities held) as security for the repayment of the amounts due pursuant to the Amended BOA Credit Agreement and guaranteed the amounts owed pursuant to an Amended and Restated Guaranty.

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

Our credit agreements also contain cross-default and cross-acceleration provisions. Under these provisions, a default or acceleration under one instrument governing our debt may constitute a default under our other debt instruments that contain cross-default and cross-acceleration provisions, which could result in the related debt and the debt issued under such other instruments

becoming immediately due and payable. In such event, we would need to raise funds from alternative sources, which funds might not be available to us on favorable terms, on a timely basis or at all. Alternatively, such a default could require us to sell assets and otherwise curtail operations to pay our creditors. The proceeds of such a sale of assets, or curtailment of operations, might not enable us to pay all of our liabilities.

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

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

There is no guarantee that the proposed final acquisition of Omega’s assets or our acquisition of Heartland Group Holdings LLC will be completed; the failure to acquire the final Omega assets or Heartland Group Holdings LLC could adversely affect our business and results of operations.

We entered into the Purchase Agreement pursuant to which we have agreed to purchase substantially all of the assets of Omega (as described in greater detail above). The acquisition is planned to close in two separate closings, the Initial Closing of which occurred on May 2, 2014 and the Final Closing which is planned to occur in or around September 2014, subject to certain closing conditions being met. Our obligation to consummate the Final Closing is subject to among other things, that the Bango, Nevada plant operated by Bango Refining be fully restored and operational, as well as the plant meeting certain used motor oil proceeding run rates and that there are no adverse claims or legal proceedings related to an accident that occurred at the Bango plant in December 2013. The amount due at the Final Closing, in consideration for the acquisition of Bango Refining, will be the assumption of certain loans made pursuant to a secured note provided to Omega, the issuance of 1,500,000 shares of our common stock of which 650,000 shares (with an agreed value of $3.2301 per share or approximately $2.1 million) will be held in escrow and used to satisfy indemnification claims and secure the repayment of the Omega secured note (the “Pledged Shares”), and which amount is subject to adjustment in the event minimum inventory levels are not delivered at the Final Closing, and the assumption of certain capital lease obligations and other liabilities relating to contracts and leases of Bango Refining. A portion of the Pledged Shares will be released from escrow, subject to outstanding claims, on September 15, 2015, and the remainder will be released on the 18 month anniversary of the Final Closing. Subject to certain negotiated exceptions for excluded liabilities, taxes and other fundamental items, the sellers’ indemnification obligations are capped at $5 million.

Additionally, in July 2014, we entered into a letter of intent relating to the acquisition of certain assets from Heartland Group Holdings LLC.

The completion of the Final Closing is subject to customary closing conditions and other requirements as summarized above which are required to be completed prior to the Final Closing. The completion of the acquisition with Heartland Group Holdings LLC is subject to satisfactory due diligence and the mutual agreement between the parties of definitive purchase agreement(s) and terms. Such conditions to closing may not be met. These acquisitions represent a significant business opportunity for us. If the acquisitions are completed, we could be forced to pay significant earn-out payments to the sellers if the required EBITDA targets are met (described in greater detail above under “We may be required to pay substantial additional amounts of consideration in the event certain earn-out targets are met by us. There may also be actual or perceived conflicts of interest with management regarding certain of such targets and amounts due in connection therewith”), which could decrease the amount of funds we have available for working capital. If we fail to complete the acquisitions or the acquisitions are not successful, our anticipated business and results of operations could be adversely affected.

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

In connection with the Credit Agreement and Amended BOA Credit Agreement, we agreed to comply with certain affirmative and negative covenants and agreed to meet certain financial covenants (described in greater detail above under “The covenants in our credit agreements restrict our ability to operate our business and might lead to a default under our credit agreements”).

The Credit Agreement includes customary events of default for facilities of a similar nature and size as the Credit Agreement, including if a default occurs under certain material agreements of the Company; a judgment is obtained against the Company in an amount in excess of $250,000 or which could have a material adverse effect on the Company; and also provides that an event of default occurs if (a) Benjamin P. Cowart, the Company’s Chief Executive Officer, Chairman of the Board and largest shareholder, ceases to own and control at least 20% of the economic and voting interests of the Company (on a fully-diluted basis); (b) any person other than Mr. Cowart (i) obtains 30% or more of the voting or economic interest in the Company on a fully-diluted basis or (ii) obtains the power (whether or not exercised) to elect a majority of the members of the Board of Directors; (c) we cease to own and control 100% of Vertex Operating; (d) the majority of the seats (other than vacant seats) on the Board of Directors of the Company cease to be occupied by persons who either (i) were members of the Board of Directors of the Company on May 2, 2014, or (ii) were nominated for election by the Board of Directors of the Company, a majority of whom were directors on May 2, 2014 or whose election or nomination for election was previously approved by a majority of such directors; (e) Vertex II, GP, LLC (Vertex Operating’s wholly-owned subsidiary) ceases to be the sole general partner of any guarantor of the Credit Agreement that is a partnership; (f) a “change of control” or similar event under the Amended BOA Credit Agreement (described below) shall occur; or (g) any event, transaction or occurrence occurs, a result of which Benjamin P. Cowart shall for any reason cease to be actively engaged in the day-to-day management of the Company and its subsidiaries in the role he serves on May 2, 2014, unless (x) an interim successor reasonably acceptable to the lender as required by the Credit Agreement is appointed within 10 days and (y) a permanent successor reasonably acceptable to the lender as required by the Credit Agreement is appointed within 60 days.

A breach of any of the covenants of the Credit Agreement, Amended BOA Credit Agreement or any future agreements, if uncured, could lead to an event of default under any such document, which in some circumstances could give our creditors the right to demand that we accelerate repayment of amounts due and/or enforce their security interests over substantially all of our assets. This would likely in turn trigger cross-acceleration or cross-default rights in other documents governing our indebtedness. Therefore, in the event of any such breach, we may need to seek covenant waivers or amendments from our creditors or seek alternative or additional sources of financing, and we may not be able to obtain any such waivers or amendments or alternative or additional financing on acceptable terms, if at all. In addition, any covenant breach or event of default could harm our credit rating and our ability to obtain additional financing on acceptable terms. The occurrence of any of these events could have a material adverse effect on our financial condition and liquidity and/or cause our lenders to enforce their security interests which could ultimately result in the foreclosure of our assets, which would have a material adverse effect on our operations and the value of our securities.

Our obligations under the Credit Agreement and Amended BOA Credit Agreement are secured by a first priority security interest in substantially all of our assets.

Our obligations under the Credit Agreement and Amended BOA Credit Agreement are secured by a first priority security interest in substantially all of our assets. Additionally, substantially all of our subsidiaries agreed to guarantee our obligations under the Credit Agreement and Amended BOA Credit Agreement. As such, if an event of default occurs under the Credit Agreement or Amended BOA Credit Agreement, our creditors may enforce their security interests over our assets and/or our subsidiaries which secure the repayment of such obligations, and we could be forced to curtail or abandon our current business plans and operations. If that were to happen, any investment in the Company could become worthless.

If we are unable to maintain a credit facility, it could have an adverse effect on our business.

We have historically been able to maintain lines of credit and other credit facilities similar to the Credit Agreement and Amended BOA Credit Agreement. We rely heavily on the availability and utilization of these lines of credit and credit facilities for our operations and for the purchase of inventory. If we are unable to renew or replace our facility or are unable to borrow funds

under such facility or any future facility), for any reason, either due to having no available funds remaining under the facility and/or upon any default of the facility, we may be forced to curtail or abandon our current and/or future planned business operations.

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, our business could be materially and adversely affected.

We are subject to extensive federal, state, provincial 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; 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.

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 ACBM, 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).

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.

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.

Environmental risks and regulations may adversely affect our business.

All phases of designing, constructing and operating our refining and planned re-refining plants present environmental risks and hazards. We are subject to environmental regulation implemented or imposed by a variety of federal, state and municipal laws and regulations as well as international conventions. Among other things, environmental legislation provides for restrictions and prohibitions on spills and discharges, as well as emissions of various substances produced in association with our operations. Legislation also requires that facility sites be operated, maintained, abandoned and reclaimed in such a way that would satisfy applicable regulatory authorities. Compliance with such legislation can require significant expenditures and a breach could result in the imposition of fines and penalties, some of which could be material. Environmental legislation is evolving in a manner we expect may result in stricter standards and enforcement, larger fines and liability, as well as potentially increased capital expenditures and operating costs. The presence or discharge of pollutants in or into the air, soil or water may give rise to liabilities to governments and third parties and may require us to incur costs to remedy such presence or discharge.

Environmental, health and safety laws, regulations and permit requirements, and the potential for further expanded laws, regulations and permit requirements may increase our costs or reduce demand for our products and thereby negatively affect our business. Environmental permits required for our operations are subject to periodic renewal and may be revoked or modified for cause or when new or revised environmental requirements are implemented. Changing and increasingly strict environmental requirements and the potential for further expanded regulation may increase our costs and can affect the manufacturing, handling, processing, distribution and use of our products. If so affected, our business and operations may be materially and adversely affected. In addition, changes in these requirements may cause us to incur substantial costs in upgrading or redesigning our facilities and processes, including our waste treatment, storage, disposal and other waste handling practices and equipment. For these reasons, we may need to make capital expenditures beyond those currently anticipated to comply with existing or future environmental or safety laws. The application of environmental, health and safety laws, regulations and permit requirements to our business may cause us to limit our production, significantly increase the costs of our operations and activities, reduce the market for our products or to otherwise adversely affect our financial condition, results of operations or prospects.

Climate change legislation or regulations restricting emissions of greenhouse gases could result in increased operating and capital costs and reduced demand for our products.

There is a growing belief that emissions of greenhouse gases, or GHGs, such as carbon dioxide and methane, may be linked to climate change. Climate change and the costs that may be associated with its impacts and the regulation of GHGs have the potential to affect our business in many ways, including negatively impacting the costs of our operations, transportation costs, feedstock costs and demand for our products (due to changes in both costs and weather patterns).

In recent years, the U.S. Congress has from time to time considered adopting legislation to reduce emissions of GHGs and almost one-half of the states have already taken legal measures to reduce emissions of GHGs primarily through the planned development of GHG emission inventories and/or regional GHG cap and trade programs. Most of these cap and trade programs work by requiring major sources of emissions, such as electric power plants, or major producers of fuels, such as refineries and gas processing plants, to acquire and surrender emission allowances. The number of allowances available for purchase is generally reduced each year in an effort to achieve the overall GHG emission reduction goal.

Depending on the scope of a particular program, we could be required to purchase and surrender allowances for GHG emissions resulting from our operations. Although most of the state-level initiatives have to date been focused on large sources of GHG emissions, such as electric power plants, it is possible that smaller sources such as our operations could become subject to GHG-related regulation. Depending on the particular program, we could be required to control emissions or to purchase and surrender allowances for GHG emissions resulting from our operations. Independent of Congress, the Environmental Protection Agency (EPA) has adopted regulations controlling GHG emissions under its existing Clean Air Act authority. For example, on December 15, 2009, the EPA officially published its findings that emissions of carbon dioxide, methane and other GHGs present an endangerment to human health and the environment because emissions of such gases are, according to the EPA, contributing to warming of the earth’s atmosphere and other climatic changes. These findings by the EPA allow the agency to proceed with the adoption and implementation of regulations that would restrict emissions of greenhouse gases under existing provisions of the federal Clean Air Act. In 2009, the EPA adopted rules regarding regulation of GHG emissions from motor vehicles. In 2010, EPA also issued a final rule, known as the “Tailoring Rule,” that makes certain large stationary sources and modification projects subject to permitting requirements for greenhouse gas emissions under the Clean Air Act. In addition, on September 22, 2009, the EPA

issued a final rule requiring the reporting of greenhouse gas emissions from specified large greenhouse gas emission sources in the U.S. beginning in 2011 for emissions occurring in 2010. None of our facilities currently generate enough greenhouse gasses to be subject to this reporting requirement under this rule, but we could become subject to such reporting requirements in the future.

Although it is not possible at this time to accurately estimate how potential future laws or regulations addressing greenhouse gas emissions would impact our business, any future federal laws or implementation of regulations that may be adopted to address greenhouse gas emissions could require us to incur increased operating costs and could adversely affect demand for our feedstocks and resulting products, and/or increase our transportation costs. The potential increase in the costs of our operations resulting from any legislation or regulation to restrict emissions of greenhouse gases could include new or increased costs to operate and maintain our facilities, install new emission controls on our facilities, acquire allowances to authorize our greenhouse gas emissions, pay any taxes related to our greenhouse gas emissions and administer and manage a greenhouse gas emissions program. While we may be able to include some or all of such increased costs in the rates charged for our products, such recovery of costs is uncertain. Moreover, incentives to conserve energy or use alternative energy sources could reduce demand for our products and/or lower the supply of our feedstocks. We cannot predict with any certainty at this time how these possibilities may affect our operations. Many scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere may produce climate change that could have significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climatic events; if such effects were to occur, they could have an adverse effect on our operations.

The adoption of regulations implementing recent financial reform legislation could impede our ability to manage business and financial risks by restricting our use of derivative instruments as hedges against fluctuating commodity prices.

The U.S. Congress adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 (the “Dodd-Frank Act”). This comprehensive financial reform legislation establishes federal oversight and regulation of the over-the-counter derivatives market and entities that participate in that market. The Dodd-Frank Act requires the Commodity Futures Trading Commission (“CFTC”), the SEC and other regulators to promulgate rules and regulations implementing the new legislation. The CFTC has adopted regulations to set position limits for certain futures and option contracts in the major energy markets and for swaps that are their economic equivalents. Certain bona fide hedging transactions or derivative instruments would be exempt from these position limits. The Dodd-Frank Act may also require compliance with margin requirements and with certain clearing and trade-execution requirements in connection with certain derivative activities. The final rules will be phased in over time according to a specified schedule which is dependent on finalization of certain other rules to be promulgated by the CFTC and the SEC.

The Dodd-Frank Act and any new regulations could significantly increase the cost of some commodity derivative contracts (including through requirements to post collateral), materially alter the terms of some commodity derivative contracts and reduce the availability of some derivatives to protect against risks we encounter. While we are not currently party to any commodity derivative contracts, we may enter into such contracts in the future and the Dodd-Frank Act and any new regulations may have the effect of making our results of operations more volatile and our cash flows may be less predictable, if we are unable to enter into commodity derivative contracts or similar hedging transactions in the future. Finally, the Dodd- Frank Act was intended, in part, to reduce the volatility of oil and natural gas prices, which some legislators attributed to speculative trading in derivatives and commodity instruments related to oil and natural gas. If the Dodd-Frank Act and any new regulations result in lower commodity prices, our revenues could be adversely affected. Any of these consequences could adversely affect our business, financial condition and results of operations.

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

During the six months ended June 30, 2014, a total of 643,444 shares of the Company's Series A Preferred Stock were converted into 643,444 shares of our common stock on a one-for-one basis. Warrants to purchase 6,250 shares of common stock were exercised with $10,937 of exercise price paid in cash. Options to purchase 483,750 shares of common stock were exercised for a net of 464,148 shares of common stock (when adjusting for a cashless exercise of 186,250 of such options and the payment, in shares of common stock, of an aggregate exercise price of $130,625, along with an exercise price of $200,125 paid in cash in connections with such exercises) and 464,148 shares of common stock were issued to the option holders in connection with such exercises.

Subsequent to June 30, 2014, 22,760 shares of the Company's Series A Preferred Stock were converted into 22,760 shares of our common stock on a one-for-one basis.

In May 2014, 500,000 shares of our restricted common stock (valued at $3,266,000) were issued in connection with the Initial Closing of the Omega Refining acquisition.

On June 5, 2014, we entered into a Common Stock Purchase Agreement (the "Purchase Agreement") with certain institutional investors (the "Investors"), pursuant to which the Company agreed to sell to the Investors an aggregate of 2.2 million shares (the "Shares") of the Company's restricted common stock for $7.75 per share (a 12.3% discount to the 30 day volume-weighted average price of the Company's common stock as of the date the Purchase Agreement was entered into). Total gross proceeds from the offering of the Shares was $17.1 million. The Company intends o use the net proceeds from the offering for general corporate and working capital purposes, a majority of which is expected to be used for the Company's West Coast expansion.

All of the shares of common stock issuable upon conversion of the Series A Preferred Stock shares were exempt from registration pursuant to an exemption from registration afforded by Section 3(a)(9) and 3(a)(10) of the Securities Exchange Act of 1934, as amended. All of the shares of common stock issuable upon exercise of options were registered on Form S-8 and therefore did not constitute restricted securities (except to the extent such securities were acquired by "affiliates" of the Company).

The issuance of restricted shares in connection with the exercise of the warrants, the Omega transaction and the sale of Shares to the Investors and the grant of the options were exempt from registration pursuant to Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended, since the issuances and grants did not involve a public offering, the recipients took the securities for investment and not resale, we took appropriate measures to restrict transfer, and the recipients were "accredited investors" and/or had information regarding the Company similar to what would be included in a Registration Statement under the Securities Act of 1933, as amended. With respect to the transactions described above, no general solicitation was made either by us or by any person acting on our behalf.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information.

Effective July 24, 2014, the Board of Directors approved certain amendments to the Charter of the Compensation Committee of the Board of Directors to comply with applicable NASDAQ rules and requirements. A copy of the Charter of the Compensation Committee as amended is furnished hereto as Exhibit 99.2.

Item 6. Exhibits

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

SIGNATURES

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



	VERTEX ENERGY, INC.

Date: August 14, 2014	By: /s/ Benjamin P. Cowart
	Benjamin P. Cowart
	Chief Executive Officer
	(Principal Executive Officer)


Date: August 14, 2014	By: /s/ Chris Carlson
	Chris Carlson
	Chief Financial Officer
	(Principal Financial Officer)

EXHIBIT INDEX



			Incorporated by Reference
Exhibit Number	Description of Exhibit	Filed or Furnished Herewith	Form	Exhibit	Filing Date/Period End Date	File No.
1.1	Underwriting Agreement, dated November 20, 2013, by and among Vertex Energy, Inc. and Craig-Hallum Capital Group LLC		8-K	1.1	11/21/2013	001-11476
2.1	Unit Purchase Agreement by and among Vertex Energy, Inc., Vertex Acquisition Sub, LLC, Vertex Holdings, L.P. and B&S Cowart Family L.P. dated as of August 14, 2012		8-K	2.1	8/15/2012	000-53619
2.2	First Amendment to Unit Purchase Agreement by and among Vertex Energy, Inc., Vertex Acquisition Sub, LLC, Vertex Holdings, L.P. and B&S Cowart Family L.P. dated as of September 11, 2012		8-K	2.2	9/12/2012	000-53619
2.3	Asset Purchase Agreement by and among Vertex Energy, Inc., Vertex Refining LA, LLC.,Vertex Refining NV., LLC, Omega Refining, LLC, Bango Refining NV, LLC and Omega Holdings Company LLC (March 17, 2014)		8-K	2.1	3/19/2014	001-11476
2.4	First Amendment to Asset Purchase Agreement by and among Vertex Energy, Inc., Vertex Refining LA, LLC, Vertex Refining NV, LLC, Omega Refining, LLC, Bango Refining NV, LLC and Omega Holdings Company LLC (April 14, 2014)		8-K	2.2	4/15/2014	001-11476
2.5	Second Amendment to Asset Purchase Agreement by and among Vertex Energy, Inc., Vertex Refining LA, LLC, Vertex Refining NV, LLC, Bango Refining NV, LLC and Omega Holdings Company LLC (April 30, 2014)		8-K	2.3	5/6/2014	001-11476
2.6(#)	Third Amendment to Asset Purchase Agreement by and among Vertex Energy, Inc., Vertex Refining LA, LLC, Vertex Refining NV, LLC, Bango Refining NV, LLC and Omega Holdings Company LLC (May 2, 2014)		8-K	2.4	5/6/2014	001-11476
4.1	Vertex Energy, Inc. - 2013 Stock Incentive Plan		4.1	S-8	7/28/2014	333-197659
4.2	Vertex Energy, Inc. - Form of 2013 Stock Incentive Plan Restricted Stock Grant Agreement		4.3	S-8	7/28/2014	333-197659
10.1(+)	Tolling Agreement between KMTEX, Ltd. and Vertex Energy Inc., dated April 17, 2013		8-K	10.1	11/12/2013	001-11476
10.2	Credit Agreement between Vertex Energy Inc. and Bank of America, N.A. dated August 31, 2012		8-K	10.1	9/12/2012	000-53619
10.3	$10,000,000 Revolving Note by Vertex Energy, Inc. in favor of Bank of America, N.A. dated August 31, 2012		8-K	10.2	9/12/2012	000-53619



10.4	$8,500,000 Term Note by Vertex Energy, Inc. in favor of Bank of America, N.A. dated August 31, 2012	8-K	10.3	9/12/2012	000-53619
10.5	Security Agreement with Bank of America, N.A. dated August 31, 2012	8-K	10.40	9/12/2012	000-53619
10.6	Corporate Guaranty in favor of Bank of America, N.A. dated August 31, 2012	8-K	10.5	9/12/2012	000-53619
10.7	First Amendment to Credit Agreement between Vertex Energy, Inc. and Bank of America, N.A. dated August 31, 2012	10-Q	10.18	9/30/2012	000-53619
10.8(#)	Secured Promissory Note ($13,858,066.67)-May 2, 2014-Omega Refining, LLC and Bango Refining NV, LLC as borrowers and Vertex Refining NV, LLC as lender	8-K	10.1	5/6/2014	001-11476
10.9	Guaranty Agreement-Omega Holdings-May 2, 2014	8-K	10.2	5/6/2014	001-11476
10.10(#)	Credit and Guaranty Agreement dated as of May 2, 2014, by and among Vertex Energy Operating, LLC, Vertex Energy, Inc., and certain other subsidiaries of Vertex Energy, Inc., as Guarantors, and Goldman Sachs USA, as Lender and as Administrative Agent, Collateral Agent, and Lead Arranger	8-K	10.3	5/6/2014	001-11476
10.11	Term Loan Note ($40,000,000)-Credit and Guaranty Agreement dated as of May 2, 2014	8-K	10.4	5/6/2014	001-11476
10.12(#)	Pledge and Security Agreement-Credit and Guaranty Agreement dated as of May 2, 2014	8-K	10.5	5/6/2014	001-11476
10.13(#)	Amended and Restated Credit Agreement, among Vertex Energy, Inc., and Vertex Energy Operating, LLC, as Borrowers and Bank of America, N.A., as Lender as of May 2, 2014	8-K	10.6	5/6/2014	001-11476
10.14	Revolving Note ($20,000,000)-Amended and Restated Credit Agreement, as of May 2, 2014	8-K	10.7	5/6/2014	001-11476
10.15(#)	Pledge and Security Agreement-Amended and Restated Credit Agreement, as of May 2, 2014	8-K	10.8	5/6/2014	001-11476
10.16	Amended and Restated Guaranty-Amended and Restated Credit Agreement, as of May 2, 2014	8-K	10.9	5/6/2014	001-11476
10.17	Intercreditor Agreement, May 2, 2014, by and among Bank of America, N.A. and Goldman Sachs Bank USA	8-K	10.10	5/6/2014	001-11476
10.18	At-Will Employment, Confidential Information, Invention Assignment and Arbitration Agreement with David Peel (April 2014)***	8-K	10.1	6/24/14	001-11476
10.19	Retention and Noncompetition Agreement with David Peel (April 2014)***	8-K	10.2	6/24/14	001-11476
10.20	Employment Agreement between Vertex Refining LA, LLC and James P. Gregory (Effective May 2, 2014)***	8-K	10.1	07/29/2014	001-11476

10.21

Form of Common Stock Purchase Agreement dated June 5, 2014 by and between Vertex Energy, Inc. and the purchasers named therein

8-K

10.1

6/6/2014

001-11476

10.22

Land Lease between Marrero Terminal LLC, as Landlord and Omega Refining, LLC, as Tenant, relating to the Used Motor Oil Re-Refinery Located at 5000 River Road, Marrero, Louisiana 70094, dated as of April 30, 2008 and amendments

10.23

Commercial Lease between Plaquemines Holdings, LLC as Landlord and Omega Refining, LLC, as Tenant, relating to the Myrtle Grove Facility Located at 278 East Ravenna Road, Myrtle Grove, LA, dated as of May 25, 2012 and amendments

10.24

Operation and Maintenance Agreement dated as of November 3, 2010, by and between Magellan Terminals Holdings, L.P. (f/k/a Marrero Terminal, LLC) and Omega Refining, LLC

10.25(##)

Terminaling Services Agreement between Marrero Terminal LLC (Owner) and Omega Refining, LLC (Customer) dated as of May 1, 2008

10.26(##)

Second Use Motor Oil Buy/Sell Contract dated August 1, 2012, by and between Thermo Fluids, Inc. and Omega Refining, LLC

31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act*

31.2

Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act*

32.1

Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act**

32.2

Certification of Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act**

99.1

Glossary of Selected Terms

10-K

99.1

12/31/2012

001-11476

99.2

Amended Charter of the Compensation Committee effective July 24, 2014

8-K/A

99.1

07/18/2014

99.3

Audited Balance Sheets of Omega Refining, LLC as of December 31, 2013 and 2012, Audited Statements of Operations and Member’s Equity for the years ended December 31, 2013 and 2012, Audited Statements of Cash Flows for the years ended December 31, 2013 and 2012, and the notes thereto

8-K/A

99.2

07/18/2014

001-11476

99.4

Unaudited Balance Sheet of Omega Refining, LLC as of March 31, 2014, and the Unaudited Statements of Operations and Member’s Equity for the three months ended March 31, 2014 and 2013, and the notes thereto

8-K/A

99.2

07/18/2014

001-11476

99.5

Unaudited Pro Forma Combined Balance Sheet of Vertex Energy, Inc. as of March 31, 2014, Unaudited Pro Forma Combined Statement of Operations for the three months ended March 31, 2014, and Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 2013

001-11476

101.INS++

XBRL Instance Document

101.SCH++

XBRL Taxonomy Extension Schema Document

101.CAL++

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF++

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB++

XBRL Taxonomy Extension Label Linkbase Document

101.PRE++

XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

** Furnished herewith.

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

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

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

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

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

Estimated Cost
(in thousands)

Useful life
(years)

Non-Competes

Technology