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

For the fiscal quarter ended March 31, 2022
  
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
 
Commission File Number 001-11476

———————
VERTEX ENERGY, INC.
(Exact name of registrant as specified in its charter)
———————
Nevada94-3439569
(State or other jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization) 
 
1331 Gemini Street, Suite 250 77058
Houston, Texas
(Address of principal executive offices) (Zip Code)

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

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


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ý No  ¨   
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ý    No  ¨

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



Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.
Yes    No   ý

State the number of shares of the issuer’s common stock outstanding, as of the latest practicable date: 64,580,984 shares of common stock are issued and outstanding as of May 9, 2022.



TABLE OF CONTENTS

 
 
  Page
 PART I 
Item 1. 
   
 
F-1
   
 
F-3
   
F-5
 
F-6
   
 
F-8
   
Item 2
   
Item 3.
   
Item 4.
   
 PART II 
Item 1.
   
Item 1A.
   
Item 2.
   
Item 3.
   
Item 4.
   
Item 5.
   
Item 6.



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

    This Quarterly Report on Form 10-Q (this "Report") contains forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995, regarding future events and the future results of the Company that are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the management of the Company. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Report. Factors that might cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Report, including under “Risk Factors”, and in other reports the Company files with the Securities and Exchange Commission (“SECor the "Commission"), including the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 14, 2022 (under the heading “Risk Factors” and in other parts of that report), which factors include:

our need for additional funding, the availability of, and terms of, such funding, our ability to pay amounts due on our current indebtedness, covenants of such indebtedness and security interests in connection therewith;
risks associated with our outstanding indebtedness, including our outstanding senior convertible notes, including amounts owed, restrictive covenants, and our ability to repay such debts and amounts due thereon (including interest) when due, and mandatory and special redemption provisions thereof, and conversion rights associated therewith, including dilution caused thereby (in connection with the senior convertible notes);
restrictions, requirements and covenants in our loan and funding agreements;
security interests, guarantees and pledges associated with our outstanding Loan and Security Agreement and Supply and Offtake Agreement, and risks associated with such agreements in general;
risks associated with the planned capital project at our recently acquired Mobile, Alabama refinery, including costs, timing, delays and unanticipated problems associated therewith;
risks associated with the planned acquisition of 100% of Heartland SPV (as defined below), including funds required in connection therewith and our ability to raise such funds on reasonable terms, if at all;
health, safety, security and environment risks;
risks associated with our outstanding preferred stock, including liquidation preferences in connection therewith;
risks related to combining our operations with the recently acquired Mobile, Alabama refinery;
risks associated with a planned capital project associated with the Mobile, Alabama refinery, including the timing thereof, costs associated therewith and our ability to generate revenues while such project is pending;
risks associated with an offtake agreement which will only become effective upon the occurrence of certain events, including the completion of the capital project at the Mobile, Alabama refinery, which may not be completed timely;
the level of competition in our industry and our ability to compete;
our ability to respond to changes in our industry;
the loss of key personnel or failure to attract, integrate and retain additional personnel;
our ability to protect our intellectual property and not infringe on others’ intellectual property;
our ability to scale our business;



our ability to maintain supplier relationships and obtain adequate supplies of feedstocks;
our ability to obtain and retain customers;
our ability to produce our products at competitive rates;
our ability to execute our business strategy in a very competitive environment;
trends in, and the market for, the price of oil and gas and alternative energy sources;
our ability to maintain our relationship with Bunker One (USA) Inc;
the impact of competitive services and products;
our ability to integrate acquisitions;
our ability to complete future acquisitions;
our ability to maintain insurance;
potential future litigation, judgments and settlements;
rules and regulations making our operations more costly or restrictive;
changes in environmental and other laws and regulations and risks associated with such laws and regulations;
economic downturns both in the United States and globally;
risk of increased regulation of our operations and products;
negative publicity and public opposition to our operations;
disruptions in the infrastructure that we and our partners rely on;
an inability to identify attractive acquisition opportunities and successfully negotiate acquisition terms;
our ability to effectively integrate acquired assets, companies, employees or businesses;
liabilities associated with acquired companies, assets or businesses;
interruptions at our facilities;
unexpected changes in our anticipated capital expenditures resulting from unforeseen required maintenance, repairs, or upgrades;
our ability to acquire and construct new facilities;
prohibitions on borrowing and other covenants of our debt facilities;
our ability to effectively manage our growth;
decreases in global demand for, and the price of, oil, due to COVID-19, state, federal and foreign responses thereto;
our ability to acquire sufficient amounts of used oil feedstock through our collection routes, to produce finished products, and in the absence of such internally collected feedstocks, our ability to acquire third-party feedstocks on commercially reasonable terms;
repayment of and covenants in our current and future debt facilities;



the lack of capital available on acceptable terms to finance our continued growth; and
other risk factors included under “Risk Factors” in our latest Annual Report on Form 10-K and set forth below under “Risk Factors”.
    You should read the matters described in, and incorporated by reference in, “Risk Factors” and the other cautionary statements made in this Report, and incorporated by reference herein, as being applicable to all related forward-looking statements wherever they appear in this Report. We cannot assure you that the forward-looking statements in this Report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. All forward-looking statements included herein speak only as of the date of the filing of this Report. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements above. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.
Our fiscal year ends on December 31st. Interim results are presented on a quarterly basis for the quarters ended March 31st, June 30th, and September 30th, the first quarter, second quarter and third quarter, respectively, with the quarter ending December 31st being referenced herein as our fourth quarter. Fiscal 2021 means the year ended December 31, 2021, whereas fiscal 2020 means the year ended December 31, 2020.



PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
VERTEX ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 March 31,
2022
December 31,
2021
ASSETS  
Current assets  
Cash and cash equivalents$24,050,252 $36,129,941 
Restricted cash 100,496,998 100,496,998 
Accounts receivable, net5,957,642 5,296,867 
Inventory13,052,840 3,735,878 
Derivative commodity asset363,590 95,980 
Prepaid expenses and other current assets6,719,497 4,279,732 
Assets held for sale, current90,474,740 84,116,152 
Total current assets241,115,559 234,151,548 
Fixed assets, at cost 13,773,860 13,811,835 
Less accumulated depreciation(2,113,315)(2,045,241)
    Fixed assets, net11,660,545 11,766,594 
Operating lease right-of use assets4,891,254 5,011,454 
Intangible assets, net331,965 358,881 
Other assets22,498,249 14,771,642 
TOTAL ASSETS$280,497,572 $266,060,119 
LIABILITIES, TEMPORARY EQUITY, AND EQUITY  
Current liabilities  
Accounts payable $12,023,382 $4,216,275 
Accrued expenses2,864,643 3,617,902 
Finance lease liability-current263,065 302,166 
Operating lease liability-current959,573 959,573 
Current portion of long-term debt1,047,081 2,413,295 
Liabilities held for sale, current41,696,760 37,644,312 
        Total current liabilities
58,854,504 49,153,523 
  
   Long-term debt104,777 114,480 
Convertible senior unsecured note 2027, net65,786,685 64,015,929 
Operating lease liability-long-term3,931,681 4,051,881 
Derivative warrant liability 75,210,525 
Total liabilities128,677,647 192,546,338 
COMMITMENTS AND CONTINGENCIES (Note 3)  
F-1


 March 31,
2022
December 31,
2021
TEMPORARY EQUITY
Redeemable non-controlling interest
47,636,617 43,446,684 
Total temporary equity 47,636,617 43,446,684 
EQUITY  
50,000,000 of total Preferred shares authorized:
  
Series A Convertible Preferred Stock, $0.001 par value;
5,000,000 shares designated, 380,560 and 385,601 shares issued and outstanding at March 31, 2022 and December 31, 2021, with a liquidation preference of $567,034 and $574,545 at March 31, 2022 and December 31, 2021.
381 386 
Series C Convertible Preferred Stock, $0.001 par value;
44,000 shares designated, zero shares issued or outstanding.
  
Common stock, $0.001 par value per share;
750,000,000 shares authorized; 64,465,734 and 63,287,965 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively.
64,466 63,288 
Additional paid-in capital217,734,093 138,620,254 
Accumulated deficit (115,582,890)(110,614,035)
Total Vertex Energy, Inc. shareholders' equity 102,216,050 28,069,893 
Non-controlling interest 1,967,258 1,997,204 
Total equity 104,183,308 30,067,097 
TOTAL LIABILITIES, TEMPORARY EQUITY, AND EQUITY$280,497,572 $266,060,119 
































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


VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months Ended March 31,
 20222021
Revenues$40,216,796 $25,045,243 
Cost of revenues (exclusive of depreciation and amortization shown separately below)38,565,484 22,808,703 
Depreciation and amortization attributable to costs of revenues114,053 112,497 
Gross profit1,537,259 2,124,043 
Operating expenses:
Selling, general and administrative expenses
8,782,395 2,858,062 
Depreciation and amortization attributable to operating expenses26,916 26,916 
Total operating expenses8,809,311 2,884,978 
Loss from operations(7,272,052)(760,935)
Other income (expense):  
Other income414,972  
Gain on sale of assets57,402 1,424 
Loss on change in value of derivative warrant liability(3,578,947)(1,780,203)
Interest expense(4,229,884)(112,142)
Total other expense(7,336,457)(1,890,921)
Loss from continuing operations before income tax(14,608,509)(2,651,856)
Income tax benefit (expense)  
Loss from continuing operations(14,608,509)(2,651,856)
Income from discontinued operations, net of tax13,799,642 5,617,194 
Net income (loss)(808,867)2,965,338 
Net income (loss) attributable to non-controlling interest and redeemable non-controlling interest from continuing operations(68,164)382,666 
Net income attributable to non-controlling interest and redeemable non-controlling interest from discontinued operations3,806,753 1,608,303 
Net income (loss) attributable to Vertex Energy, Inc. (4,547,456)974,369 
Accretion of redeemable noncontrolling interest to redemption value from continued operations(421,399)(373,748)
Accretion of discount on Series B and B1 Preferred Stock (223,727)
Dividends on Series B and B1 Preferred Stock 258,138 
Net loss available to shareholders from continuing operations(14,961,744)(3,373,859)
Net income available to shareholders from discontinued operations, net of tax9,992,889 4,008,891 
Net income (loss) available to common shareholders$(4,968,855)$635,032 
F-3


Basic income (loss) per common share  
Continuing operations$(0.24)$(0.07)
Discontinued operations, net of tax$0.16 $0.08 
Basic income (loss) per common share$(0.08)$0.01 
Diluted income (loss) per common share
Continuing operations$(0.24)$(0.07)
Discontinued operations, net of tax$0.16 $0.08 
Diluted income (loss) per common share$(0.08)$0.01 
Shares used in computing earnings per share  
Basic 63,372,005 47,709,450 
Diluted63,372,005 49,006,195 










































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



VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(UNAUDITED)

Three Months Ended March 31, 2022
Common StockSeries A PreferredSeries C Preferred
 Shares
$0.001 Par
Shares
$0.001 Par
Shares
$0.001 Par
Additional Paid-In CapitalRetained EarningsNon-controlling InterestTotal Equity
Balance on January 1, 202263,287,965 $63,288 385,601 $386  $ $138,620,254 $(110,614,035)$1,997,204 $30,067,097 
Exercise of options60,000 60 — — — — 75,540 — — 75,600 
Exercise of warrants1,112,728 1,113 — — — — (1,113)— —  
Share based compensation expense— — — — — — 249,940 — — 249,940 
Conversion of Series A Preferred stock to common5,041 5 (5,041)(5)— — — — —  
Reclassification of derivative liabilities— — — — — — 78,789,472 — — 78,789,472 
Accretion of redeemable non-controlling interest to redemption value— — — — — — — (421,399)— (421,399)
Net income (loss)— — — — — — — (4,547,456)3,738,589 (808,867)
Less: amount attributable to redeemable non-controlling interest— — — — — — — — (3,768,535)(3,768,535)
Balance on March 31, 202264,465,734 $64,466 380,560 $381  $ $217,734,093 $(115,582,890)$1,967,258 $104,183,308 

Three Months Ended March 31, 2021
Common StockSeries A PreferredSeries C Preferred
 Shares
$0.001 Par
Shares
$0.001 Par
Shares
$0.001 Par
Additional Paid-In CapitalRetained EarningsNon-controlling InterestTotal Equity
Balance on January 1, 202145,554,841 $45,555 419,859 $420  $ $94,569,674 $(90,008,778)$1,317,878 $5,924,749 
Exercise of options22,992 23 — — — — (23)— —  
Exercise of B1 warrants1,079,753 1,080 — — — — 2,756,877 — — 2,757,957 
Exchanges of Series B Preferred stock to common2,359,494 2,359 — — — — 4,114,570 630,321 — 4,747,250 
Share based compensation expense— — — — — — 150,514 — — 150,514 
Conversion of Series B Preferred stock to common638,224 638 — —   1,977,856 — — 1,978,494 
Conversion of Series B1 Preferred stock to common2,087,195 2,087 — — — — 3,253,937 — — 3,256,024 
Dividends on Series B and B1— — — — — — — (372,183)— (372,183)
Accretion of discount on Series B and B1— — — — — — — (223,727)— (223,727)
Accretion of redeemable non-controlling interest to redemption value— — — — — — — (373,748)— (373,748)
Net income— — — — — — — 974,369 1,990,969 2,965,338 
Less: amount attributable to redeemable non-controlling interest— — — — — — — — (1,542,402)(1,542,402)
Balance on March 31, 202151,742,499 $51,742 419,859 $420  $ $106,823,405 $(89,373,746)$1,766,445 $19,268,266 

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


VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2022 AND 2021 (UNAUDITED)
 Three Months Ended
 March 31,
2022
March 31,
2021
Cash flows from operating activities  
Net income (loss)$(808,867)$2,965,338 
Income from discontinued operations, net of tax13,799,642 5,617,194 
Loss from continuing operations(14,608,509)(2,651,856)
  Adjustments to reconcile net loss from continuing operations to cash provided by
  (used in) operating activities, net of acquisitions
  
Stock based compensation expense249,940 150,514 
Depreciation and amortization140,969 139,413 
Gain on sale of assets(57,402)(1,424)
Reduction of allowance for bad debt(13,272) 
Increase in fair value of derivative warrant liability3,578,947 1,780,203 
     Loss (gain) on commodity derivative contracts(257,516)721,531 
     Net cash settlements on commodity derivatives640 (1,306,344)
     Amortization of debt discount and deferred costs 1,770,756  
Changes in operating assets and liabilities
Accounts receivable and other receivables(647,503)564,925 
Inventory(9,316,962)107,718 
Prepaid expenses and other current assets(697,848)670,125 
Accounts payable7,807,105 814,872 
Accrued expenses(753,259)(121,174)
    Other assets(1,300,000) 
Net cash provided by (used in) operating activities from continuing operations(14,103,914)868,503 
Cash flows from investing activities  
Purchase of fixed assets(53,936)(464,039)
Investment in Mobile Refinery assets(6,426,607) 
Proceeds from sale of fixed assets131,689 1,600 
Net cash used in investing activities from continuing operations(6,348,854)(462,439)
Cash flows from financing activities  
Payments on finance leases(39,101)(67,382)
Proceeds from exercise of options and warrants to common stock75,600 1,652,022 
Line of credit (payments) proceeds, net (133,446)
Payments on note payable(1,375,917)(1,036,581)
Net cash provided by (used in) financing activities from continuing operations(1,339,418)414,613 
Discontinued operations:
Net cash provided by operating activities10,114,115 1,320,593 
Net cash used in investing activities(342,573)(554,940)
Net cash used in financing activities(59,045)(54,670)
Net cash provided by discontinued operations9,712,497 710,983 
Net change in cash, cash equivalents and restricted cash(12,079,689)1,531,660 
Cash, cash equivalents, and restricted cash at beginning of the period136,626,939 10,995,169 
Cash, cash equivalents, and restricted cash at end of period$124,547,250 $12,526,829 
F-6


SUPPLEMENTAL INFORMATION  
Cash paid for interest$21,294 $236,677 
Cash paid for taxes$ $ 
NON-CASH INVESTING AND FINANCING TRANSACTIONS  
Equity component of the convertible note issuance$78,789,472 $ 
Conversion of Series A Preferred Stock into common stock$5 $ 
Conversion of Series B Preferred Stock into common stock$ $1,978,494 
Conversion of Series B1 Preferred Stock into common stock$ $3,256,024 
Exchanges of Series B Preferred Stock into common stock$ $4,397,236 
Accretion of discount on Series B and B1 Preferred Stock$ $223,727 
Dividends-in-kind accrued on Series B and B1 Preferred Stock$ $(258,138)
Cashless warrant exercise$1,113 $ 
Accretion of redeemable noncontrolling interest to redemption value$421,399 $373,748 









































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


VERTEX ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(UNAUDITED)

NOTE 1.  BASIS OF PRESENTATION AND NATURE OF OPERATIONS

The accompanying unaudited interim consolidated 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 for the year ended December 31, 2021, contained in the Company's annual report, as filed with the SEC on Form 10-K on March 11, 2022 (the "Form 10-K"). The December 31, 2021 balance sheet was derived from the audited financial statements of our 2021 Form 10-K. In the opinion of management all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of financial position and the results of operations for the interim periods presented, have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the audited consolidated financial statements for the most recent fiscal year 2021 as reported in Form 10-K have been omitted.
UMO Business
On June 29, 2021, Vertex Energy entered into an Asset Purchase Agreement (the “Sale Agreement”) with Vertex Energy Operating, LLC, Vertex’s wholly-owned subsidiary (“Vertex Operating”) and Vertex Refining LA, LLC (“Vertex LA”) (wholly-owned by Vertex Operating), Vertex Refining OH, LLC (“Vertex OH”) (wholly-owned by HPRM, LLC, of which Vertex Energy owns a 35% interest), Cedar Marine Terminals, L.P. (“CMT”) (indirectly wholly-owned), and H & H Oil, L.P. (“H&H”) (indirectly wholly-owned)(collectively, the “Vertex Entities”, and together, Vertex, Vertex Operating and the Vertex Entities, the “Seller Parties”), as sellers, and Safety-Kleen Systems, Inc., as purchaser (“Safety-Kleen”).

During the third quarter of 2021, the Company classified the used motor oil (UMO) business (the "UMO Business") as held for sale based on management’s intention and shareholders’ approval to sell this business. The Company’s historical financial statements have been revised to present the operating results of the UMO business as discontinued operations. The results of operations of this business are presented as “Income (loss) from discontinued operations” in the statement of operations and the related cash flows of this business have been reclassified to discontinued operations for all periods presented. The assets and liabilities of the UMO business have been reclassified to “Assets held for sale” and “Liabilities held for sale”, respectively, in the consolidated balance sheet for all periods presented.
On January 24, 2022, each of the Company and its subsidiaries party to the Sale Agreement and Safety-Kleen entered into an Asset Purchase Termination Agreement (the “Termination Agreement”) pursuant to which the Sale Agreement was terminated. Pursuant to the terms of the Termination Agreement, the Company agreed to pay a termination fee to Safety-Kleen of $3,000,000. Immediately upon receipt of such termination fee, which the Company paid simultaneously with the execution of the Termination Agreement, the Sale Agreement was terminated and is of no further force or effect, and with no further liability to any party thereunder, other than certain confidentiality obligations of the parties and ongoing liability for any willful or intentional breach of, or non-compliance with, the Sale Agreement.
The Company is still exploring opportunities to sell the UMO Business and believes it will sell such assets within a year.
NOTE 2.  SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Cash, Cash Equivalents and Restricted Cash

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

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the same such amounts shown in the consolidated statements of cash flows.
F-8


March 31, 2022December 31, 2021
Cash and cash equivalents$24,050,252 $36,129,941 
Restricted cash100,496,998 100,496,998 
Cash and cash equivalents and restricted cash as shown in the consolidated statements of cash flows$124,547,250 $136,626,939 

The Company has placed $100,125 of restricted cash in a money market account, to serve as collateral for payment of a credit card, and $100,396,873 of restricted cash in an escrow account in connection with the issuance of the convertible notes, which has been released in conjunction with the purchase of the Mobile Refinery (defined below) on April 1, 2022.

Accounts Receivable
Accounts receivable represents amounts due from customers.  Accounts receivable are recorded at invoiced amounts, net of reserves and allowances, do not bear interest and are not collateralized.  The Company uses its best estimate to determine the required allowance for doubtful accounts based on a variety of factors, including the length of time receivables are past due, economic trends and conditions affecting its customer base, significant one-time events and historical write-off experience.  Specific provisions are recorded for individual receivables when we become aware of a customer’s inability to meet its financial obligations.  The Company reviews the adequacy of its reserves and allowances quarterly.
Receivable balances greater than 90 days past due are individually reviewed for collectability and if deemed uncollectible, are charged off against the allowance accounts after all means of collection have been exhausted and the potential for recovery is considered remote.  The allowance was $986,412 and $999,683 at March 31, 2022 and December 31, 2021, respectively.
Inventory

Inventories of products consist of feedstocks, refined petroleum products and recovered ferrous and non-ferrous metals and are reported at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (“FIFO”) method. The Company reviews its inventory commodities for impairment whenever events or circumstances indicate that the value may not be recoverable. The Company determined that no impairment existed during the three months ended March 31, 2022 and 2021.

Impairment of long-lived assets
The Company evaluates the carrying value and recoverability of its long-lived assets when circumstances warrant such evaluation. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. The Company determined that no long-lived asset impairment existed during the three months ended March 31, 2022 and 2021.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses. Actual results could differ from these estimates. Any effects on the business, financial position or results of operations from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.
Reclassification of Prior Year Presentation
Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications had no effect on the reported results of operations. 
Redeemable Noncontrolling Interests
As more fully described in “Note 14. Share Purchase and Subscription Agreements”, the Company is party to put/call option agreements with the holder of Vertex Refining Myrtle Grove LLC (“MG SPV”) and HPRM LLC, a Delaware limited liability company (“Heartland SPV”), which entities were formed as special purpose vehicles in connection with the transactions described in greater detail below, non-controlling interests. The put options permit MG SPV's and Heartland SPV's non-
F-9


controlling interest holders, at any time on or after the earlier of (a) the fifth anniversary of the applicable closing date of such issuances and (ii) the occurrence of certain triggering events (an “MG Redemption” and "Heartland Redemption", as applicable) to require MG SPV and Heartland SPV to redeem the non-controlling interest from the holder of such interest. Applicable accounting guidance requires an equity instrument that is redeemable for cash or other assets to be classified outside of permanent equity if it is redeemable (a) at a fixed or determinable price on a fixed or determinable date, (b) at the option of the holder, or (c) upon the occurrence of an event that is not solely within the control of the issuer. Based on this guidance, the Company has classified the MG SPV and Heartland SPV non-controlling interests between the liabilities and equity sections of the accompanying consolidated balance sheets. If an equity instrument subject to the guidance is currently redeemable, the instrument is adjusted to its maximum redemption amount at the balance sheet date. If the equity instrument subject to the guidance is not currently redeemable but it is probable that the equity instrument will become redeemable (for example, when the redemption depends solely on the passage of time), the guidance permits either of the following measurement methods: (a) accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument using an appropriate methodology, or (b) recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The amount presented in temporary equity should be no less than the initial amount reported in temporary equity for the instrument. Because the MG SPV and Heartland SPV equity instruments will become redeemable solely based on the passage of time, the Company determined that it is probable that the MG SPV and Heartland SPV equity instruments will become redeemable. The Company has elected to apply the second of the two measurement options described above. An adjustment to the carrying amount of a non-controlling interest from the application of the above guidance does not impact net loss in the consolidated financial statements. Rather, such adjustments are treated as equity transactions and adjustment to net loss in determining net loss available to common stockholders for the purpose of calculating earnings per share.
Variable Interest Entities
The Company determines whether each business entity in which it has equity interests, debt, or other investments constitutes a variable interest entity (“VIE”) based on consideration of the following criteria: (i) the entity lacks sufficient equity at-risk to finance its activities without additional subordinated financial support, or (ii) equity holders, as a group, lack the characteristics of a controlling financial instrument.
If an entity is determined to be a VIE, the Company then determines whether to consolidate the entity as the primary beneficiary. The primary beneficiary has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the entity.
Assets and Liabilities Held for Sale

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

F-10


The results of operations of a component of the Company that can be clearly distinguished, operationally and for financial reporting purposes, that either has been disposed of or is classified as held for sale is reported in discontinued operations, if the disposal represents a strategic shift that has, or will have, a major effect on the Company’s operations and financial results.
Recently adopted accounting pronouncements
In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity to simplify the accounting for convertible debt and other equity-linked instruments. The new guidance simplifies the accounting for convertible instruments by eliminating the cash conversion and beneficial conversion feature models used to separately account for embedded conversion features as a component of equity. Instead, the entity will account for the convertible debt or convertible preferred stock securities as a single unit of account, unless the conversion feature requires bifurcation and recognition as derivatives. Additionally, the guidance requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of potential share settlement for instruments that may be settled in cash or shares. The Company adopted this new guidance as of January 1, 2022, under the modified retrospective method.
NOTE 3. CONCENTRATIONS, SIGNIFICANT CUSTOMERS, COMMITMENTS AND CONTINGENCIES
 
At March 31, 2022 and 2021 and for each of the three months then ended, the Company’s revenues and receivables were comprised of the following customer concentrations:
 Three Months Ended March 31, 2022Three Months Ended
March 31, 2021
% of
Revenues
% of
Receivables
% of
Revenues
% of
Receivables
Customer 122%24%23%20%
Customer 219%18%15%10%
Customer 312%%12%18%

For each of the three months ended March 31, 2022 and 2021, the Company’s segment revenues were comprised of the following customer concentrations:
% of Revenue by Segment% Revenue by Segment
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Black Oil RefiningRecoveryBlack Oil RefiningRecovery
Customer 1%26%%%30%%
Customer 2%22%%%20%%
Customer 3%13%%%15%%

The Company had one vendor that represented 70% and 62% of total purchases, and 65% and 72% of total payables for the three months ended March 31, 2022 and 2021, respectively.

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

Litigation
The Company, in its normal course of business, is involved in various other claims and legal action. In the opinion of management, the outcome of these claims and actions will not have a material adverse impact upon the financial position of the Company. We are currently party to the following material litigation proceedings:
Vertex Refining LA, LLC (“Vertex Refining LA”), the wholly-owned subsidiary of Vertex Operating was named as a defendant, along with numerous other parties, in five lawsuits filed on or about February 12, 2016, in the Second Parish Court
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for the Parish of Jefferson, State of Louisiana, Case No. 121749, by Russell Doucet et. al., Case No. 121750, by Kendra Cannon et. al., Case No. 121751, by Lashawn Jones et. al., Case No. 121752, by Joan Strauss et. al. and Case No. 121753, by Donna Allen et. al. The suits relate to alleged noxious and harmful emissions from our facility located in Marrero, Louisiana. The suits seek damages for physical and emotional injuries, pain and suffering, medical expenses and deprivation of the use and enjoyment of plaintiffs’ homes. We intend to vigorously defend ourselves and oppose the relief sought in the complaints, provided that at this stage of the litigation, the Company has no basis for determining whether there is any likelihood of material loss associated with the claims and/or the potential and/or the outcome of the litigation.
On November 17, 2020, Vertex filed a lawsuit against Penthol LLC (“Penthol”) in the 61st Judicial District Court of Harris County, Texas, Cause No. 2020-65269, for breach of contract and simultaneously sought a Temporary Restraining Order and Temporary Injunction enjoining Penthol from, among other things, circumventing Vertex in violation of the terms of that certain June 5, 2016 Sales Representative and Marketing Agreement entered into between Vertex Operating and Penthol (the “Penthol Agreement”). Vertex seeks permanent injunctive relief, damages, attorney’s fees, costs of court, and all other relief to which it may be entitled. On February 8, 2021, Penthol filed a complaint against Vertex Operating in the United States District Court for the Southern District of Texas; Civil Action No. 4:21-CV-416 (the “Complaint”). Penthol’s Complaint sought damages from Vertex Operating for alleged violations of the Sherman Act, breach of contract, business disparagement, and misappropriation of trade secrets under the Defend Trade Secrets Act and Texas Uniform Trade Secrets Act. On August 12, 2021, United States District Judge Andrew S. Hanen dismissed Penthol’s Sherman Act claim. Penthol’s remaining claims are pending. Penthol is seeking a declaration that Vertex has materially breached the agreement; an injunction that prohibits Vertex from using Penthol’s alleged trade secrets and requires Vertex to return any of Penthol’s alleged trade secrets; awards of actual, consequential and exemplary damages, attorneys’ fees and costs of court; and other relief to which it may be entitled. Vertex denies Penthol’s allegations in the Complaint. Vertex contends Penthol’s claims are completely without merit, and that Penthol’s termination of the Penthol Agreement was wrongful and resulted in damages to Vertex that it is seeking to recover in the Harris County lawsuit. Further, Vertex contends that Penthol’s termination of the Penthol Agreement constitutes a breach by Penthol under the express terms of the Penthol Agreement, and that Vertex remains entitled to payment of the amounts due Vertex under the Penthol Agreement for unpaid commissions and unpaid performance incentives. Vertex disputes Penthol’s allegations of wrongdoing and intends to vigorously defend itself in this matter. On February 26, 2021, Penthol filed its second amended answer and counterclaims, alleging that Vertex improperly terminated the Penthol Agreement and that Vertex tortiously interfered with Penthol’s prospective and existing business relationships. Vertex denies these allegations and is vigorously defending them. This case is pending but is currently set for trial in February 2023.
We cannot predict the impact (if any) that any of the matters described above may have on our business, results of operations, financial position, or cash flows. Because of the inherent uncertainties of such matters, including the early stage and lack of specific damage claims in the Penthol matter, we cannot estimate the range of possible losses from them (except as otherwise indicated).
Related Parties
From time to time, the Company consults Ruddy Gregory, PLLC., a related party law firm of which James Gregory, a member of the Board of Directors, serves as a partner. During the three months ended March 31, 2022 and 2021, we paid $128,984 and $33,228, respectively, to such law firm for services rendered ,which services includes the drafting and negotiation of, and due diligence associated with, the Sale Agreement and Refinery Purchase Agreement (defined and discussed below), and related transactions, including the Loan and Security Agreement and Supply and Offtake Agreement, discussed below.
May 2021 Purchase Agreement
On May 26, 2021, Vertex Operating, entered into a Sale and Purchase Agreement (the “Refinery Purchase Agreement”) with Equilon Enterprises LLC d/b/a Shell Oil Products US, Shell Oil Company and Shell Chemical LP, subsidiaries of Shell plc
(“Shell”), to purchase Shell’s Mobile, Alabama refinery, certain real property associated therewith, and related assets, including all inventory at the refinery as of closing and certain equipment, rolling stock, and other personal property associated with the Mobile refinery (collectively, the “Mobile Refinery” and the “Mobile Acquisition”). The Mobile Refinery is located on an 800+ acre site in the city and county of Mobile, Alabama. The 91,000 barrel-per-day nameplate capacity Mobile Refinery is capable of sourcing a flexible mix of cost-advantaged light-sweet domestic and international feedstocks. Approximately 70% of the refinery’s annual production is distillate, gasoline and jet fuel, with the remainder being vacuum gas oil, liquefied petroleum gas (LPG) and other products. The facility distributes its finished product across the southeastern United States through a high-capacity truck rack, together with deep and shallow water distribution points capable of supplying waterborne vessels.

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

The initial base purchase price for the assets is $75 million. In addition, we agreed to pay for the hydrocarbon inventory located at the Mobile Refinery, as valued at closing, and the purchase price is subject to other customary purchase price adjustments and reimbursement for certain capital expenditures, resulting in an expected total purchase price of approximately $99.9 million.

In connection with Vertex Operating’s execution of the Refinery Purchase Agreement, and as a required term and condition thereof, Vertex Operating provided Shell a promissory note in the amount of $10 million (the “Deposit Note”). Pursuant to the terms of the Refinery Purchase Agreement, the terms of such agreement (other than exclusivity through December 31, 2021, or such earlier date that the Refinery Purchase Agreement is terminated), were not legally binding on Shell until such time as Vertex Operating funded the Deposit Note in cash (which note has been paid in full to date). The Deposit Note did not accrue interest unless or until an event of default occurred under such note, at which time interest was to accrue at 12% per annum until paid. The entire balance of the Deposit Note was due upon the earlier of (i) 45 calendar days following the date of the Deposit Note (i.e., July 10, 2021); and (ii) five calendar days following the closing of any transaction between Vertex Operating and any third party, which Deposit Note was paid in full prior to such applicable due date. This deposit is recorded in other assets in the consolidated balance sheet at March 31, 2022 and December 31, 2021.

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

The Mobile Acquisition closed on April 1, 2022, and the funds paid for such acquisition included funds raised through the sale of the Convertible Senior Notes issued on November 1, 2021 (see “Note 6. Financing Arrangements").

Moving forward, Vertex plans to complete an $85 million capital project designed to modify the Mobile Refinery’s hydrocracking unit to produce renewable diesel fuel on a standalone basis, with funds raised through a Term Loan issued on April 1, 2022 (see Note 16. Subsequent Events”).

In connection with the entry into the Refinery Purchase Agreement, Vertex Operating and Shell entered into a Swapkit Purchase Agreement (the “Swapkit Agreement”) which was funded at closing, and totaled $8.7 million.

Commitment Letter and Escrow Agreement
On February 17, 2022, the Company and Vertex Refining entered into a commitment letter with a syndicate of lenders (the “Lenders”) in respect of a three-year, $125 million first-lien senior secured term loan facility (the “Term Loan”). The closing date and the funding of the Term Loan were subject to the closing of Vertex’s planned acquisition of the Mobile refinery, in addition to various conditions precedent, as set forth in more detail in the Commitment Letter.
On March 2, 2022, (1) the Company, (2) Vertex Refining, (3) the Lenders and (4) Cantor Fitzgerald Securities (the “Escrow Agent”), entered into an Escrow Agreement (the “Escrow Agreement”). Pursuant to the Escrow Agreement, on March 2, 2022 each of the Lenders deposited their pro rata portion of the $125 million loan amount, less certain upfront fees, into an escrow account, which was released on April 1, 2022, the date that the Mobile Acquisition (defined below) was consummated. More detailed information regarding the acquisition and Term Loan is described in "Loan and Security Agreement" in "Note 16, Subsequent Events". The Company paid $2.5 million of fees related to the Term Loan in March 2022.
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NOTE 4. REVENUES

Disaggregation of Revenue

The following tables present our revenues disaggregated by geographical market and revenue source:
Three Months Ended March 31, 2022
Black OilRefining & MarketingRecoveryTotal
Primary Geographical Markets
Southern United States$1,550,287 $34,718,918 $3,947,591 $40,216,796 
Sources of Revenue
Pygas$ $4,690,268 $ $4,690,268 
Industrial fuel 572,281  572,281 
Distillates