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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)
 
 
 
 
 
 
Consolidated  Statements of  Operations (unaudited)
 
 
 
 
 
 
Consolidated  Statements of Cash Flows (unaudited)
 
 
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
 
 
 
 
Item 2
 
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations
 
 
 
 
Item 3.
 
Quantitative And Qualitative Disclosures About Market Risk
 
 
 
 
Item 4.
 
Controls and Procedures
 
 
 
 
 
 
PART II
 
Item 1.
 
Legal Proceedings
 
 
 
 
Item 1A.
 
Risk Factors
 
 
 
 
Item 2.
 
Unregistered Sales Of Equity Securities And Use Of Proceeds
 
 
 
 
Item 3.
 
Defaults Upon Senior Securities
 
 
 
 
Item 4.
 
Mine Safety Disclosures
 
 
 
 
Item 5.
 
Other Information
 
 
 
 
Item 6.
 
Exhibits




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.
 
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

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: 
 
 
Estimated Cost
(in thousands)
 
Useful life
(years)
Non-Competes
 
$
66

 
1
Technology
 
$
2,287

 
15
Total
 
$
2,353

 
 

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.


13



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

14



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.
 
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

15



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).
 
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.

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.

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

16



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.
 
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.
 
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.

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.

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

17



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

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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

19



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.



20



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.
 

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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.

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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.














23



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

24



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
 %


25



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
 %

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 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.

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

26



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.

27



 
 
 
 
 
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