vertex8ka120414.htm

0001580695-15-000061.txt : 20150219 0001580695-15-000061.hdr.sgml : 20150219 20150219171031 ACCESSION NUMBER: 0001580695-15-000061 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20141204 ITEM INFORMATION: Unregistered Sales of Equity Securities ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20150219 DATE AS OF CHANGE: 20150219 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Vertex Energy Inc. CENTRAL INDEX KEY: 0000890447 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 943439569 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11476 FILM NUMBER: 15632570 BUSINESS ADDRESS: STREET 1: 1331 GEMINI STREET STREET 2: SUITE 250 CITY: HOUSTON STATE: TX ZIP: 77058 BUSINESS PHONE: 866-660-8156 MAIL ADDRESS: STREET 1: 1331 GEMINI STREET STREET 2: SUITE 250 CITY: HOUSTON STATE: TX ZIP: 77058 FORMER COMPANY: FORMER CONFORMED NAME: WORLD WASTE TECHNOLOGIES INC DATE OF NAME CHANGE: 20040830 FORMER COMPANY: FORMER CONFORMED NAME: VOICE POWERED TECHNOLOGY INTERNATIONAL INC DATE OF NAME CHANGE: 19940831 8-K/A 1 vertex8ka120414.htm vertex8ka120414.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

Amendment No. 1

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report: February 19, 2015

Date of Earliest Event Reported: December 4, 2014

VERTEX ENERGY, INC.

(Exact name of registrant as specified in its charter)

Nevada	001-11476	94-3439569
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

1331 Gemini Street Suite 250 Houston, Texas 77058
(Address of principal executive offices) (Zip Code)

(866) 660-8156
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

EXPLANATORY NOTE

On December 9, 2014, Vertex Energy, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Original Report”) to report, among other things, the December 5, 2014 closing (the “Closing”) of the transactions contemplated by the October 21, 2014 Asset Purchase Agreement by and among the Company; Vertex Refining OH, LLC (“Vertex OH”), a wholly-owned subsidiary of Vertex Energy Operating, LLC (“Vertex Operating”), a wholly-owned subsidiary of the Company; Vertex Operating; and Heartland Group Holdings, LLC (“Heartland”), as amended by the First Amendment to Purchase Agreement dated November 26, 2014 and the Second Amendment to Purchase Agreement dated December 5, 2014 (the Asset Purchase Agreement as amended by the First Amendment and Second Amendment, the “Purchase Agreement”).

In connection with the Closing, we acquired substantially all of the assets of Heartland related to and used in an oil re-refinery and, in connection with the collecting, aggregating and purchasing of used lubricating oils and the re-refining of such oils into processed oils and other products for the distribution, supply and sale to end-customers, including raw materials, finished products and work-in-process, equipment and other fixed assets, customer lists and marketing information, the name ‘Heartland’ and other related trade names, Heartland’s real property relating to its used oil refining facility located in Columbus, Ohio, used oil storage and transfer facilities located in Columbus, Zanesville and Norwalk, Ohio (provided that the acquisition of the Norwalk, Ohio location is subject to the terms and conditions of the Second Amendment), and leases related to storage and transfer facilities located in Zanesville, Ohio, Mount Sterling, Kentucky, and Ravenswood, West Virginia (collectively, the “Heartland Assets”) and assumed certain liabilities of Heartland associated with certain assumed and acquired agreements (collectively, the “Acquired Business”). The main assets excluded from the purchased assets pursuant to the Purchase Agreement were Heartland’s cash and cash equivalents, receivables, certain prepaid expenses, refunds and related claims, rights to certain tax refunds, certain assets used in the operations of Heartland which are used more than incidentally by Heartland’s majority equity owner (Warren Distribution, Inc. (“Warren”)) in connection with the operation of its other businesses and certain real property.

At that time, the Company stated in the Original Report that it intended to file the required financial statements and pro forma financial information within 71 days from the date that such report was required to be filed. By this Amendment No. 1 to the Original Report, the Company is amending and restating Item 9.01 thereof to include the required financial statements and pro forma financial information. This Current Report on Form 8-K does not amend or modify the Original Report, except as to Item 3.02 and Item 9.01.

ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES.

The disclosures set forth in Item 3.02 of the Original Report are incorporated herein by reference, provided that such disclosures are supplemented by the below information, which clarifies and confirms the number of shares of common stock of the Company is required to issue in connection with the Inventory True-Up (as defined in the Original Report).

Pursuant to the Purchase Agreement, the parties agreed to a true up of the inventory of the Acquired Business sixty days after the Closing (February 3, 2015). Pursuant to the true up, any additional amount owed by the Company to Heartland for inventory at Closing (less amounts already paid for at Closing) was to be paid in shares of the Company’s restricted common stock, based on the volume weighted average prices of the Company’s common stock on the NASDAQ Capital Market on the ten (10) trading days immediately prior to Closing, which totaled $3.56. An aggregate of an additional $200,000 was owed to Heartland in connection with the inventory true-up and as such, we are required to issue Heartland an additional 56,180 shares of restricted common stock ($200,000 divided by $3.56), which shares we anticipate issuing shortly after the date of this filing.

The issuance and sale described above will be exempt from registration pursuant to Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), since the foregoing issuance will not involve a public offering, the recipient is an “accredited investor”, the recipient will acquire the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The securities were offered without any general solicitation by the Company or its representatives. The securities will not be registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements of Businesses Acquired.

(1)

The Audited Balance Sheets of the Acquired Business as of February 22, 2014 and February 23, 2013, and the Audited Statements of Operations and Members’ Equity for the years ended February 22, 2014 and February 23, 2013, Audited Statements of Cash Flows for the years ended February 22, 2014 and February 23, 2013, and the notes thereto, are filed as Exhibit 99.1 to this Form 8-K/A.

(2)

The Audited Balance Sheet of the Acquired Business as of December 5, 2014 and the Unaudited Balance Sheet of the Acquired Business as of November 30, 2013, and the Statements of Operations, Members’ Equity and Cash Flows for the nine months ended December 5, 2014 (audited) and November 30, 2013 (unaudited), and the notes thereto, are filed as Exhibit 99.2 to this Form 8-K/A.

(b) Pro Forma Financial Information.

(1)

The Unaudited Pro Forma Combined Balance Sheet of Vertex Energy, Inc. as of September 30, 2014, Unaudited Pro Forma Combined Statement of Operations for the nine months ended September 30, 2014, and Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 2014, are filed as Exhibit 99.3 to this Form 8-K/A.

(d) Exhibits.

Exhibit No.	Description
23.1	Consent of BKD, LLP
99.1	Audited Balance Sheets of the Acquired Business as of February 22, 2014 and February 23, 2013, and the Audited Statements of Operations and Members’ Equity for the years ended February 22, 2014 and February 23, 2013, Audited Statements of Cash Flows for the years ended February 22, 2014 and February 23, 2013, and the notes thereto
99.2	Audited Balance Sheet of the Acquired Business as of December 5, 2014 and the Unaudited Balance Sheet of the Acquired Business as of November 30, 2013, and the Statements of Operations, Members’ Equity and Cash Flows for the nine months ended December 5, 2014 (audited) and November 30, 2013 (unaudited), and the notes thereto
99.3	Unaudited Pro Forma Combined Balance Sheet of Vertex Energy, Inc. as of September 30, 2014, Unaudited Pro Forma Combined Statement of Operations for the nine months ended September 30, 2014, and Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 2014

SIGNATURES

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

	VERTEX ENERGY, INC.


Date: February 19, 2015	By: /s/ Chris Carlson
	Chris Carlson
	Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
23.1	Consent of BKD, LLP
99.1	Audited Balance Sheets of the Acquired Business as of February 22, 2014 and February 23, 2013, and the Audited Statements of Operations and Members’ Equity for the years ended February 22, 2014 and February 23, 2013, Audited Statements of Cash Flows for the years ended February 22, 2014 and February 23, 2013, and the notes thereto
99.2	Audited Balance Sheet of the Acquired Business as of December 5, 2014 and the Unaudited Balance Sheet of the Acquired Business as of November 30, 2013, and the Statements of Operations, Members’ Equity and Cash Flows for the nine months ended December 5, 2014 (audited) and November 30, 2013 (unaudited), and the notes thereto
99.3	Unaudited Pro Forma Combined Balance Sheet of Vertex Energy, Inc. as of September 30, 2014, Unaudited Pro Forma Combined Statement of Operations for the nine months ended September 30, 2014, and Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 2014

EX-23.1 2 ex23-1.htm CONSENT OF BKD, LLP ex23-1.htm

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of

Vertex Energy, Inc.

We consent to the incorporation by reference in (a) Registration Statement No. 333-162290 (as amended) on Form S-8; (b) Registration Statement No. 333-197659 on Form S-8; and (c) Registration Statement No. 333-197494 on Form S-3, of Vertex Energy, Inc., of (i) our report dated February 9, 2015, relating to our audits of the financial statements of Heartland Group Holdings, LLC (“Heartland”), which comprise the balance sheets as of February 22, 2014 and February 23, 2013, and the related statements of operations, changes in members’ equity, and cash flows for the years then ended, and the related notes to the financial statements; and (ii) our report dated February 9, 2015, relating to the audit of the interim financial statements of Heartland, which comprise the balance sheet as of December 5, 2014, and the related statements of operations, changes in members’ equity (deficit), and cash flows for the nine-month period then ended, and the related notes to the financial statements, included in this Current Report on Form 8-K/A.

/s/ BKD, LLP

BKD, LLP

Omaha, Nebraska

February 18, 2015

EX-99.1 3 ex99-1.htm AUDITED BALANCE SHEETS OF THE ACQUIRED BUSINESS AS OF FEBRUARY 22, 2014 AND FEBRUARY 23, 2013, AND THE AUDITED STATEMENTS OF OPERATIONS AND MEMBERS? EQUITY FOR THE YEARS ENDED FEBRUARY 22, 2014 AND FEBRUARY 23, 2013, AUDITED STATEMENTS OF CASH FLOWS FOR T ex99-1.htm

Exhibit 99.1

Heartland Group Holdings, LLC

Auditor’s Report and Financial Statements

February 22, 2014 and February 23, 2013

Heartland Group Holdings, LLC

February 22, 2014 and February 23, 2013

Contents

	Independent Auditor’s Report	1

	Financial Statements
	Balance Sheets	3
	Statements of Operations	4
	Statements of Members’ Equity	5
	Statements of Cash Flows	6
	Notes to Financial Statements	7

Independent Auditor’s Report

Board of Managers

Heartland Group Holdings, LLC

Columbus, Ohio

We have audited the accompanying financial statements of Heartland Group Holdings, LLC, which comprise the balance sheets as of February 22, 2014 and February 23, 2013, and the related statements of operations, changes in members’ equity, and cash flows for the years then ended, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Heartland Group Holdings, LLC as of February 22, 2014 and February 23, 2013, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ BKD, LLP

Omaha, Nebraska

February 9, 2015

Heartland Group Holdings, LLC

Balance Sheets

February 22, 2014 and February 23, 2013

Assets
	2014		2013
Current Assets
Cash	$	6,328	$	10,198
Accounts receivable, net of allowance; 2014 - $6,800; 2013 - $13,200		1,017,358		250,251
Accounts receivable due from parent		722,766		1,199,916
Inventories, net		3,188,919		3,000,162
Prepaid expenses		450,460		479,025
Indemnification receivable		1,100,000		891,274
Other receivables		2,032,784		1,303,684

Total current assets		8,518,615		7,134,510

Property, Plant and Equipment, net		41,644,367		41,740,812
Other Assets		34,069		30,096
Intangible Assets, net		1,254,790		1,536,045
Goodwill		-		336,982

Total assets	$	51,451,841	$	50,778,445

Liabilities and Members’ Equity

Current Liabilities
Outstanding checks in excess of bank balance	$	421,445	$	377,033
Current maturities of long-term debt		385,427		419,821
Current maturities of notes payable to parent		-		1,000,000
Accounts payable		1,478,057		1,728,666
Accrued expenses		1,020,374		997,505

Total current liabilities		3,305,303		4,523,025

Revolving Loan Agreement		11,299,545		4,134,294
Long-term Debt		1,867,952		2,252,978
Notes Payable to Parent		30,235,234		29,235,234

Total liabilities		46,708,034		40,145,531

Members’ Equity		4,743,807		10,632,914

Total liabilities and members' equity	$	51,451,841	$	50,778,445

See Notes to Financial Statements

Heartland Group Holdings, LLC

Statements of Operations

Years Ended February 22, 2014 and February 23, 2013

	2014			2013

Net Sales		32,158,970			34,788,904

Cost of Goods Sold		30,409,725			27,248,574

Gross Profit (Loss)		1,749,245			7,540,330

Operating Expenses		7,619,939			10,040,612

Operating Loss		(5,870,694	)		(2,500,282	)

Other Income (Expense)
Interest expense		(1,943,641	)		(1,530,671	)
Other income, net		291,517			8,703
Goodwill impairment loss		(336,982	)		-

		(1,989,106	)		(1,521,968	)

Net Loss	$	(7,859,800	)	$	(4,022,250	)

See Notes to Financial Statements

Heartland Group Holdings, LLC

Statements of Members’ Equity

Years Ended February 22, 2014 and February 23, 2013

	Total
	Members'
	Equity

Balance at February 26, 2012	$	14,655,164

Net loss		(4,022,250	)

Balance at February 23, 2013		10,632,914

Net loss		(7,859,800	)

Return of capital from members		1,970,693

Balance at February 22, 2014	$	4,743,807

See Notes to Financial Statements

Heartland Group Holdings, LLC

Statements of Cash Flows

Years Ended February 22, 2014 and February 23, 2013

	2014			2013
Operating Activities
Net loss	$	(7,859,800	)	$	(4,022,250	)

Items not requiring (providing) cash
Loss (gain) on involuntary conversion of property, plant and equipment in accounts receivable		419,176			(77,056	)
Loss (gain) on sale of property, plant and equipment		3,732			(1,350	)
Gain on indemnification receivable settlement		(665,806	)		-
Depreciation		2,594,052			2,327,731
Customer relationships amortization		281,255			281,255
Goodwill impairment loss		336,982			-
Changes in
Accounts receivable		55,310			1,081,705
Accounts receivable due from parent		477,150			212,518
Inventories		(188,757	)		1,580,355
Prepaid expenses		28,565			(108,711	)
Indemnification receivable		457,080			32,200
Other assets		(3,973	)		(28,769	)
Accounts payable		(250,609	)		(371,646	)
Accrued expenses		22,869			(406,237	)

Net cash provided by (used in) operating activities		(4,292,774	)		499,745

Investing Activities
Proceeds from sale of property, plant and equipment		28,700			7,500
Purchase of property, plant and equipment		(2,530,039	)		(2,330,188	)

Net cash used in investing activities		(2,501,339	)		(2,322,688	)

Financing Activities
Net borrowings on outstanding checks in excess of bank balance		44,412			377,033
Proceeds from revolving loan agreement		41,775,532			25,482,181
Repayments on revolving loan agreement		(34,610,281	)		(21,347,887	)
Payments on long-term debt		(419,420	)		(474,696	)
Payments on notes payable to parent		-			(3,667,230	)
Proceeds from issuance of notes payable to parent		-			1,000,000

Net cash provided by financing activities		6,790,243			1,369,401

Decrease in Cash		(3,870	)		(453,542	)

Cash, Beginning of Period		10,198			463,740

Cash, End of Period	$	6,328		$	10,198

Supplemental Cash Flows Information

Interest paid	$	1,788,397		$	1,526,580

Return of capital in other receivables	$	1,970,693		$	-

Insurance proceeds in accounts receivable for involuntary conversion of property, plant and equipment	$			$	618,710

See Notes to Financial Statements

Heartland Group Holdings, LLC

Notes to Financial Statements

February 22, 2014 and February 23, 2013

Note 1:

Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

The Company’s customers consist primarily of automotive lubricant manufacturers. The Company grants credit to all of their customers, which are located in the United States.

The Company’s fiscal year ends on the last Saturday in February. The years ended February 22, 2014 and February 23, 2013 consisted of 52 weeks (which includes 13 periods of 4 weeks each).

Limitation on Liability

Each member’s liability is limited as provided for in the Delaware Limited Liability Company Act, and no member has any personal liability for any debt or losses of the Company beyond such member’s capital contributions.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash

At February 22, 2014 and February 23, 2013, the Company’s cash accounts were within federally insured limits.

Accounts Receivable

Accounts receivable are stated at the amount billed to customers plus any accrued and unpaid interest. The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer.

Heartland Group Holdings, LLC

Notes to Financial Statements

February 22, 2014 and February 23, 2013

Note 1:

Nature of Operations and Summary of Significant Accounting Policies - Continued

Inventories

Inventories consist of used refinery–grade black oil, industrial burner fuel, recycled petroleum products, by-products as a result of the refinery process and finished products. Inventories are valued on the basis of the lower of first-in, first out cost or market.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is determined using the straight-line method over the estimated useful life of each asset. Assets held under capital lease arrangements are recorded at the present value of future minimum lease payments and are amortized using the straight-line method over the related lease term. The estimated useful lives for each major depreciable classification of property, plant and equipment are as follows:

Buildings and improvements	5 – 40 years
Operating equipment and storage facilities	5 – 39 years
Transportation equipment	5 – 10 years

Gains and losses on the sale of property, plant and equipment are recorded in operating income.

Goodwill

Goodwill is evaluated annually for impairment or more frequently if impairment indicators are present. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements. See Note 5 for changes in the carrying amount of goodwill.

Intangible Assets

Intangible assets with finite lives are being amortized on the straight-line basis over a period of eight years. Such assets are periodically evaluated as to the recoverability of their carrying values.

Heartland Group Holdings, LLC

Notes to Financial Statements

February 22, 2014 and February 23, 2013

Note 1:

Nature of Operations and Summary of Significant Accounting Policies Continued

Long-lived Asset Impairment

The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. No asset impairment of long-lived assets was recognized during the years ended February 22, 2014 and February 23, 2013.

Income Taxes

The Company is organized under the limited liability company statutes of the state of Delaware. The Internal Revenue Service has issued rulings approving the tax treatment of such companies as partnerships. Accordingly, income or loss of the Company is reportable in the separate returns of the members. Certain states in which the Company conducts business allow or require the Company to pay income taxes in lieu of the members filing income tax returns in those respective states. The Company files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. With a few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities before 2010.

Revenue Recognition

Revenue from the sale of the Company’s products is recognized as products are shipped to customers.

Self Insurance

The Company has elected to self-insure certain costs related to employee health and accident benefit programs. Costs resulting from noninsured losses are charged to income when incurred. The Company has purchased insurance that limits its aggregate exposure for individual claims up to $250,000.

Reclassifications

Certain reclassifications have been made to the 2013 financial statements to conform to the 2014 financial statement presentation. These reclassifications had no effect on net loss.

Heartland Group Holdings, LLC

Notes to Financial Statements

February 22, 2014 and February 23, 2013

Note 2:

Inventories

	2014			2013
Manufacturing inventories
Raw materials	$	2,919,852		$	2,661,720
Work in process		144,476			114,197
Finished goods		148,591			247,245

		3,212,919			3,023,162
Less valuation allowance		(24,000	)		(23,000	)

	$	3,188,919		$	3,000,162

Note 3:

Other Receivables

During the summer of 2012, a fire occurred at the refining location damaging certain property, plant and equipment. The Company filed a claim with the insurance company to be reimbursed for damaged property and expenses incurred. A receivable was recorded for amounts to be received under the Company’s property insurance for approximately $1,270,000 as of February 23, 2013. Actual amounts received during 2014 were less than estimated. A loss of approximately $419,000 was recorded in other expense for the year ended February 22, 2014.

During 2014, the Company recorded amounts due from members for dividend overpayments occurring during previous years. The return of capital is recorded in other receivables at February 22, 2014 in the amount of $1,970,693.

Note 4:

Property, Plant and Equipment

The major classifications of property, plant and equipment as of February 22, 2014 and February 23, 2013, are as follows:

	2014		2013

Land	$	558,000	$	558,000
Building and improvements		1,810,606		1,664,741
Operating equipment and storage facilities		44,847,032		42,920,891
Transportation equipment and vehicles		2,115,064		1,343,821
Construction in progress		266,707		668,917

		49,597,409		47,156,370
Less accumulated depreciation		7,953,042		5,415,558

	$	41,644,367	$	41,740,812

Heartland Group Holdings, LLC

Notes to Financial Statements

February 22, 2014 and February 23, 2013

Note 4:

Property, Plant and Equipment - Continued

The cost of operating equipment under capital leases was $39,633 and $334,721 with accumulated depreciation of $5,681 and $38,101 at February 22, 2014 and February 23, 2013, respectively.

Note 5:

Intangible Assets and Goodwill

The carrying amount and accumulated amortization of recognized intangible assets at February 22, 2014 and February 23, 2013, are as follows:

	2014		2013

Gross carrying amount	$	2,250,000	$	2,250,000
Accumulated amortization		995,210		713,955

Net carrying amount	$	1,254,790	$	1,536,045

Amortization expense for the years ended February 22, 2014 and February 23, 2013, was $281,255. Estimated amortization expense for each of the following five years is:

2015	$	281,255
2016		281,255
2017		281,255
2018		281,255
2019		129,770

The changes in the carrying amount of goodwill for the years ended February 22, 2014 and February 23, 2013, were:

	2014		2013
Beginning balance
Goodwill	$	336,982	$	336,982
Accumulated impairment losses		-		-
		336,982		336,982

Impairment losses		336,982		-

Ending balance	$	-	$	336,982

Because of increased raw material prices and decreased selling prices of recycled petroleum products, operating profits and cash flows were lower than expected in fiscal year 2014. Based on that trend, the earnings forecast for the next five years was revised resulting in a goodwill impairment loss of $336,982. The fair value of the Company was estimated using the expected present value of future cash flows.

Heartland Group Holdings, LLC

Notes to Financial Statements

February 22, 2014 and February 23, 2013

Note 6:

Line of Credit

The Company, together with Parent, entered into a revolving loan agreement with a bank on May 24, 2012 to provide a $75 million credit facility. This agreement expires on May 22, 2017 and is collateralized by all of the assets of both the Company and Parent. At February 23, 2013, the interest rate was equal to the sum of 1.75% plus one-month LIBOR, or 1.95%. During 2014, the interest rate charged to the Company by Parent for their portion of borrowings increased to equal the sum of 7% plus one-month LIBOR, rounded up to nearest 0.0625%, or 7.25% at February 22, 2014. Borrowings outstanding under the agreement attributable to the Company were $11,299,545 and $4,134,294 at February 22, 2014 and February 23, 2013, respectively. Availability of credit based on certain consolidated borrowing base limitations by the bank at February 22, 2014 was $29,240,554. The Company and Parent are charged a credit facility fee of 0.25% of the unused facility, which is paid by Parent. The Company and Parent must comply with certain covenants and restrictions, as defined, including consolidated debt-service coverage and maximum capital expenditure limits.

On December 5, 2014, in connection with the sale of the assets of the Company described in Note 15, Parent assumed the Company’s line of credit and accrued interest totaling approximately $17,050,000 and the bank legally released the Company from their obligation under the credit facility. The assumption of the Company’s obligation under the line of credit by Parent was subsequently treated as a capital contribution.

Note 7:

Long-term Debt

Long-term debt as of February 22, 2014 and February 23, 2013, consists of the following:

	2014		2013

Obligation under capital lease, payable in monthly installments ranging from $278 to $2,370, including interest at various rates ranging from 5.55% to 18.92%, with maturities from March 2013 through December 2014, collateralized by certain equipment.	$	3,464	$	52,350

Note payable to the Ohio Department of Development, payable in monthly installments of $37,019, including interest at 3.00%. The note matures on August 1, 2019 and is collateralized by certain fixed assets of the Company. The note was paid off on December 5, 2014. See Note 15.		2,249,915		2,620,449

Heartland Group Holdings, LLC

Notes to Financial Statements

February 22, 2014 and February 23, 2013

Note 7:

Long-term Debt - Continued

	2014		2013
Notes payable to Parent, with interest only payments required monthly ranging from 4.00% to 7.00% plus one month LIBOR, with lump-sum payments due at various dates between August 2013 and August 2020. During 2014, the maturity dates of certain notes were extended from August 2013 to November 2017. Subsequent to year-end, the notes were converted to equity. See Note 15.		30,235,234		30,235,234

Total long-term debt		32,488,613		32,908,033

Less current maturities		385,427		1,419,821

	$	32,103,186	$	31,488,212

Interest expense paid to Parent for the years ended February 22, 2014 and February 23, 2013 was $1,816,520 and $1,396,275, respectively. Accrued interest due to Parent of $156,036 and $118,002 is included in accounts payable and accrued expenses as of February 22, 2014 and February 23, 2013, respectively.

Aggregate annual maturities of long-term debt and payments on capital lease obligations at February 22, 2014, are:

2015	$	385,427
2016		393,580
2017		405,551
2018		5,141,656
2019		430,597
Thereafter		25,731,802
	$	32,488,613

Note 8:

Operating Leases

The Company leases property and equipment under various operating leases. Leases held by the Company expire in various years from November 2014 through October 2016. Future minimum lease payments under noncancellable operating leases (with initial or remaining lease terms in excess of one year) as of February 22, 2014, are as follows:

Heartland Group Holdings, LLC

Notes to Financial Statements

February 22, 2014 and February 23, 2013

Note 8:

Operating Leases - Continued

2015	$	213,855
2016		70,677
2017		12,170

Total minimum lease payments	$	296,702

Lease expense under operating leases totaled $307,973 and $383,041 for the years ended February 22, 2014 and February 23, 2013, respectively. On December 5, 2014, in connection with the sale of the assets of the Company described in Note 15, all operating leases were transferred to the acquirer.

Note 9:

Members’ Equity

Beginning on January 1, 2013, each Member of the Company, other than Parent, has the right to notify the Company of their intention to sell all or any portion of their Member units. The Company is required to purchase the Member’s units at a predetermined formula price based on multiples of EBITDA less any outstanding debt. Parent guarantees the minimum value of the member units at $15.00 per unit if the Company cannot redeem the shares and in turn, the redeemed shares will be issued to Parent. As of the year ended February 22, 2014, no members of the Company sold any portion of their member units. Subsequent to year-end, all member units were redeemed by the Company. See further discussion of redemption of member units in Note 15.

Note 10:

Profit Sharing and Retirement Plan

The Company is a member of Parent’s profit sharing and salary reduction plan. This plan, under Section 401(k) of the Internal Revenue Code, is available to all employees who have completed one month of qualified service. Profit sharing contributions are at the discretion of the Company. The Company matches 50% of the employee’s 401(k) contribution up to 6% of compensation. The Company’s matching contributions were $84,775 and $78,928 for the years ended February 22, 2014 and February 23, 2013, respectively. There were no profit sharing contributions for the years ended February 22, 2014 and February 23, 2013.

Heartland Group Holdings, LLC

Notes to Financial Statements

February 22, 2014 and February 23, 2013

Note 11:

Related Party Transactions

The Company sells recycled petroleum products to Parent. In addition, Parent provides certain administrative and consulting services and receives a management fee of $26,210 per 4-week period beginning February 24, 2013. From May 1, 2012 through February 23, 2013, the management fee was $46,153 per 4-week period. Prior to May 1, 2012, Parent received a management fee each period based on actual hours spent on the Company’s operations. The activity between the Company and Parent is summarized below:

	2014		2013

Sales	$	20,928,616	$	22,219,724
Management fees incurred		340,730		619,565
Account receivable at year end		722,766		1,199,916
Accrued expenses at year end		84,007		238,325

Note 12:

Litigation

The Company had been named as a defendant in a lawsuit arising from their refining activities. During 2012, the Company entered into a settlement agreement that resulted in additional penalty, consulting and legal expenses associated with remediation efforts recognized during the year ended February 25, 2012. The Membership Interest Purchase Agreement between the Company and the previous owners specifically indemnifies the Company from any and all damages, fines, costs and expenses related to the lawsuit. During 2012 and 2013, the Company estimated the amount of indemnification that would be recouped from the previous owners and recorded an indemnification receivable of $891,274 at February 23, 2013. As a result of the final settlement agreement during 2014, the Company recorded a gain of $665,806, which is included in other income for the year ended February 22, 2014. The remaining indemnification receivable of $1,100,000 is recorded at February 22, 2014.

The Company may also be subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the financial position, results of operations and cash flows of the Company.

Note 13:

Disclosures About Fair Value of Assets

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

Heartland Group Holdings, LLC

Notes to Financial Statements

February 22, 2014 and February 23, 2013

Note 13:

Disclosures About Fair Value of Assets - Continued

Level 1

Quoted prices in active markets for identical assets or liabilities

Level 2

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3

Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities

Nonrecurring Measurements

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at February 22, 2014:

Fair Value Measurements Using

Fair Value

Quoted Prices in Active Markets for Identical Assets

(Level 1)

Significant Other Observable Inputs

(Level 2)

Significant Unobservable Inputs

(Level 3)

February 22, 2014

Goodwill

At February 23, 2013, there were no assets or liabilities measured at fair value on a nonrecurring basis.

Following is a description of the valuation methodology and inputs used for goodwill measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheet, as well as the general classification pursuant to the valuation hierarchy. The process used to develop the reported fair value is described below.

Goodwill

Goodwill is valued at fair value on February 22, 2014, due to a recognized impairment. The fair value is estimated using discounted cash flows. Key inputs include weighted average cost of capital and long-term growth rates which cannot be corroborated by observable market data and, therefore, is classified within Level 3 of the valuation hierarchy. The unobservable inputs used in the goodwill fair value measurement include weighted average cost of capital rate of 10% and long-term growth rate of 2%.

Heartland Group Holdings, LLC

Notes to Financial Statements

February 22, 2014 and February 23, 2013

Note 14:

Significant Estimates and Concentrations

Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Those matters include the following:

Significant Customers

Major customer relationships represent more than 10% of sales. The Company had sales from two and one customer relationships, including Parent, in 2014 and 2013 which accounted for approximately 78% and 64% of total sales, respectively. Accounts receivable for these customers represented 73% and 83% of trade accounts receivable at February 22, 2014 and February 23, 2013, respectively.

Major Suppliers

Major supplier arrangements represent more than 10% of cost of goods sold. The Company had purchases from one and two supplier relationships in 2014 and 2013, which accounted for approximately 23% and 32% of total inventory purchases, respectively. Accounts payable for these suppliers represented 41% and 23% of accounts payable at February 22, 2014 and February 23, 2013, respectively.

Note 15:

Subsequent Events

On February 27, 2014, certain members exercised their right to sell shares back to the Company. Parent paid the guaranteed $15.00 per unit for 121,467 shares redeemed, increasing Parent’s ownership of the Company to 97.3520%. Effective December 5, 2014, the remaining 26,480 shares were sold by the members at $15.00 per unit. Pursuant to the guarantee, Parent agreed to redeem the shares, thereby increasing Parent’s ownership of the Company to 100%.

On July 8, 2014, the Board of Managers decided to sell the assets used in the re-refinery business. On October 21, 2014, the Company entered into an Asset Purchase Agreement with Vertex Energy, Inc. (“Vertex”) to sell substantially all of the assets used in the operations of the Company’s business, including inventory, property, plant and equipment, and intangible assets. On December 5, 2014, the Company completed the closing. The total consideration received was 2,243,791 shares of Vertex’s publicly traded stock, valued at $6,731,376, or $3.00 per share. Additional contingent consideration of up to $8,276,792 may be paid, 50% in cash and 50% in Vertex stock, upon meeting certain earnings targets in the second year after the sale. Pursuant to the agreement, the Company indemnifies Vertex from losses incurred relating to any liabilities arising in connection with the Company’s operation of the business prior to the date of sale for a period of 24 months, capped at $2,000,000. Effective with the sale of the assets, the rights to the Company’s name, Heartland Group Holdings, LLC, were transferred to the buyer and the Company changed its name to Warren Ohio Holdings Co., LLC.

Heartland Group Holdings, LLC

Notes to Financial Statements

February 22, 2014 and February 23, 2013

Note 15:

Subsequent Events - Continued

Based on the sharp decline in the selling price of recycled petroleum products subsequent to year-end and the decision during July 2014 to sell most of the operating assets of the Company, impairment losses of $38,379,897 were recognized on assets held for sale, including inventory, property, plant and equipment, intangible assets and other assets. Fair value was determined based on the price paid for the assets described above.

In connection with the sale of the assets, the Company formally announced its plans to cease operations and dissolve the Company. The Company expects to wind-up its affairs by settling its current liabilities, including outstanding checks in excess of bank balance, accounts payable and accrued expenses, from collection of its receivables and refund of prepaid expenses. On December 5, 2014, the long-term debt was paid off with proceeds from additional borrowings on the line of credit. Parent subsequently assumed the line of credit totaling approximately $17,050,000 and converted the Company’s obligation on the line of credit to equity. The notes payable to Parent and related accrued interest were also subsequently converted to equity. Liquidation is expected to be completed in 2015.

Subsequent events have been evaluated through the date of the Independent Auditor’s Report, which is the date the financial statements were available to be issued.

EX-99.2 4 ex99-2.htm AUDITED BALANCE SHEET OF THE ACQUIRED BUSINESS AS OF DECEMBER 5, 2014 AND THE UNAUDITED BALANCE SHEET OF THE ACQUIRED BUSINESS AS OF NOVEMBER 30, 2013, AND THE STATEMENTS OF OPERATIONS, MEMBERS? EQUITY AND CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 5, ex99-2.htm

EXHIBIT 99.2

Heartland Group Holdings, LLC

Auditor’s Report and Financial Statements

December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

Heartland Group Holdings, LLC

December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

Contents

Independent Auditor’s Report	1

Financial Statements
Balance Sheets	3
Statements of Operations	4
Statements of Members’ Equity (Deficit)	5
Statements of Cash Flows	6
Notes to Financial Statements	8

Independent Auditor’s Report

Board of Managers

Heartland Group Holdings, LLC

Columbus, Ohio

We have audited the accompanying interim financial statements of Heartland Group Holdings, LLC, which comprise the balance sheet as of December 5, 2014, and the related statements of operations, changes in members’ equity (deficit), and cash flows for the nine-month period then ended, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Heartland Group Holdings, LLC as of December 5, 2014 and the results of its operations and its cash flows for the nine-month period then ended in accordance with accounting principles generally accepted in the United States of America.

Independent Auditor’s Review Report for 2013

We have reviewed the accompanying interim financial statements of Heartland Group Holdings, LLC, which comprise the balance sheet as of November 30, 2013, and the related statements of operations, changes in members’ equity (deficit), and cash flows for the nine-month period then ended, and the related notes to the financial statements.

Management is responsible for the preparation and fair presentation of the interim financial information in accordance with accounting principles generally accepted in the United States of America; this responsibility includes the design, implementation and maintenance of internal control sufficient to provide a reasonable basis for the preparation and fair presentation of interim financial information in accordance with the applicable financial reporting framework.

Our responsibility is to conduct our review in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial information. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in accordance with accounting principles generally accepted in the United States of America.

/s/ BKD, LLP

Omaha, Nebraska

February 9, 2015

Heartland Group Holdings, LLC

Balance Sheets

December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

Assets
	2014 (Audited)			2013 (Unaudited)
Current Assets
Cash	$	-		$	6,465
Accounts receivable, net of allowance; 2014 - $20,200; 2013 - $14,000		1,970,977			1,125,939
Accounts receivable due from parent		624,986			1,112,471
Inventories, net		-			2,389,959
Prepaid expenses		321,315			442,580
Indemnification receivable		-			779,160
Other receivables		86,801			19,441
Inventories held for sale		2,203,622			-
Property, plant and equipment held for sale		4,527,754			-

Total current assets		9,735,455			5,876,015

Property, Plant and Equipment, net		-			42,245,620
Other Assets		-			22,056
Intangible Assets, net		-			1,319,695

Total assets	$	9,735,455		$	49,463,386

Liabilities and Members’ Equity

Current Liabilities
Outstanding checks in excess of bank balance	$	318,382		$	462,013
Current maturities of long-term debt		1,964,365			386,606
Accounts payable		974,159			1,685,219
Accrued expenses		1,500,623			1,162,201
Membership interests subject to mandatory redemption		397,200			-

Total current liabilities		5,154,729			3,696,039

Revolving Loan Agreement		15,058,873			7,789,066
Long-term Debt		-			1,964,317
Notes Payable to Parent		30,235,234			30,235,234

Total liabilities		50,448,836			43,684,656

Members’ Equity (Deficit)		(40,713,381	)		5,778,730

Total liabilities and members' equity (deficit)	$	9,735,455		$	49,463,386

See Notes to Financial Statements and Independent Auditor's Review Report for 2013

Heartland Group Holdings, LLC

Statements of Operations

Nine-Month Periods Ended December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

	2014 (Audited)			2013 (Unaudited)

Net Sales		26,953,398			27,157,057

Cost of Goods Sold		27,057,876			24,946,877

Gross Profit (Loss)		(104,478	)		2,210,180

Operating Expenses		4,859,060			4,945,335

Operating Loss		(4,963,538	)		(2,735,155	)

Other Income (Expense)
Interest expense		(1,767,731	)		(1,472,086	)
Other expense, net		(9,520	)		(309,961	)
Asset impairment loss		(38,379,897	)		-
Goodwill impairment loss		-			(336,982	)

		(40,157,148	)		(2,119,029	)

Net Loss	$	(45,120,686	)	$	(4,854,184	)

See Notes to Financial Statements and Independent Auditor's Review Report for 2013

Heartland Group Holdings, LLC

Statements of Members' Equity (Deficit)

Nine-Month Periods Ended December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

	2014 (Audited)			2013 (Unaudited)

Members' Equity, Beginning of Period	$	4,743,807		$	10,632,914

Net loss		(45,120,686	)		(4,854,184	)

Reclassification of mandatorily redeemable member interests		(397,200	)		-

Return of capital from members		60,698			-

Members' Equity, End of Period	$	(40,713,381	)	$	5,778,730

See Notes to Financial Statements and Independent Auditor's Review Report for 2013

Heartland Group Holdings, LLC

Statements of Cash Flows

Nine-Month Periods Ended December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

	2014 (Audited)			2013 (Unaudited)
Operating Activities
Net loss	$	(45,120,686	)	$	(4,854,184	)

Items not requiring (providing) cash
Loss on involuntary conversion of property, plant and equipment in accounts receivable		-			419,176
Loss on sale of property, plant and equipment		21,777			3,732
Gain on indemnification receivable settlement		-			(64,331	)
Depreciation		1,076,274			1,878,826
Customer relationships amortization		108,175			216,350
Goodwill impairment loss		-			336,982
Asset impairment loss		38,379,897			-
Changes in
Accounts receivable		(925,757	)		(10,621	)
Accounts receivable due from parent		97,780			87,445
Inventories		985,297			610,203
Prepaid expenses		105,056			36,445
Indemnification receivable		1,100,000			176,445
Other assets		18,371			8,040
Accounts payable		(503,898	)		(43,447	)
Accrued expenses		215,525			164,696

Net cash used in operating activities		(4,442,189	)		(1,034,243	)

Investing Activities
Proceeds from sale of property, plant and equipment		24,000			28,700
Purchase of property, plant and equipment		(934,209	)		(2,416,066	)

Net cash used in investing activities		(910,209	)		(2,387,366	)

Financing Activities
Net borrowings (payments) on outstanding checks in excess of bank balance		(103,063	)		84,980
Borrowings on revolving loan agreement		34,801,839			32,331,919
Payments on revolving loan agreement		(31,042,511	)		(28,677,147	)
Payments on long-term debt		(289,014	)		(321,876	)
Return of capital from members		1,978,819			-

Net cash provided by financing activities		5,346,070			3,417,876

Decrease in Cash		(6,328	)		(3,733	)

Cash, Beginning of Period		6,328			10,198

Cash, End of Period	$	-		$	6,465

Supplemental Cash Flows Information

Interest paid	$	1,880,200		$	1,443,450

Return of capital in other receivables	$	52,572		$	-

Reclassification of mandatorily redeemable member interests to current liabilities	$	397,200		$

See Notes to Financial Statements and Independent Auditor's Review Report for 2013

Heartland Group Holdings, LLC

Notes to Financial Statements

December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

Note 1:

Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Heartland Group Holdings, LLC (the Company) produces, sells, and distributes recycled petroleum products that have undergone a refining process to clean used oil. The Company has one refining location in Ohio and collection and storage facilities in Ohio, Kentucky, and West Virginia. The Company is an 85.2053% owned subsidiary of Warren Distribution, Inc. (Parent). Effective February 27, 2014, Parent’s ownership increased to 97.3520%. Effective December 5, 2014, the Company became a wholly-owned subsidiary of Parent. See further discussion of redemption of member units in Note 9.

The Company’s fiscal year ends on the last Saturday in February and consists of 13 periods of 4 weeks each. The period ended December 5, 2014 consisted of 41 weeks and the period ended November 30, 2013 consisted of 40 weeks, which approximate nine-month periods. The effect of the one week difference between the nine-month periods is immaterial.

On October 21, 2014, the Company’s Board of Managers entered into an agreement to sell all significant assets used in the operations of the business. On December 5, 2014, the closing was completed. See further discussion in Note 2.

Basis of Presentation

The accompanying unaudited interim 2013 financial statements reflect all adjustments that are in the opinion of the Company’s management, necessary to fairly present the financial position, results of operations and cash flows of the Company. Those adjustments consist only of normal recurring adjustments.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles have been omitted. These interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s annual financial statements. The results of operations for the nine-month periods are not necessarily indicative of the results to be expected for the full year.

Limitation on Liability

See Independent Auditor's Review Report for 2013

Heartland Group Holdings, LLC

Notes to Financial Statements

December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

Note 1:

Nature of Operations and Summary of Significant Accounting Policies - Continued

Use of Estimates

Cash

At December 5, 2014 and November 30, 2013, the Company’s cash accounts were within federally insured limits.

Accounts Receivable

Inventories

Property, Plant and Equipment

Buildings and improvements	5 – 40 years
Operating equipment and storage facilities	5 – 39 years
Transportation equipment	5 – 10 years

Gains and losses on the sale of property, plant and equipment are recorded in operating income.

See Independent Auditor's Review Report for 2013

Heartland Group Holdings, LLC

Notes to Financial Statements

December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

Note 1:

Nature of Operations and Summary of Significant Accounting Policies - Continued

Goodwill

Intangible Assets

Long-lived Asset Impairment

Impairment losses of $36,928,771 were recognized for property, plant and equipment for the nine-month period ended December 5, 2014, based on the decline in the selling price of recycled petroleum products and the decision during July 2014 that property, plant & equipment be sold. The loss is included in other income (expense) in the accompanying statements of operations. Fair value was determined based on the selling price of the assets included in the Asset Purchase Agreement described in Note 2. No asset impairment of long-lived assets was recognized during the nine-month period ended November 30, 2013.

Income Taxes

See Independent Auditor's Review Report for 2013

Heartland Group Holdings, LLC

Notes to Financial Statements

December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

Note 1:

Nature of Operations and Summary of Significant Accounting Policies - Continued

Revenue Recognition

Revenue from the sale of the Company’s products is recognized as products are shipped to customers.

Self Insurance

Note 2:

Assets Held for Sale ad Subsequent Disposal of Assets

On or around July 8, 2014, the Board of Managers decided to sell the assets used in the re-refinery business, consisting primarily of inventories, property, plant, and equipment and intangible assets. On July 28, 2014, the Company entered into a consulting agreement with the acquirer, Vertex Energy, Inc. (“Vertex”), in anticipation of the future sale of assets that provides for reimbursement of operating losses incurred by the Company from July 16, 2014 through the date of the close of the sale. On October 21, 2014, the Company entered into an Asset Purchase Agreement to sell substantially all of the assets used in the operation of the Company’s business, including inventory, property, plant and equipment, and intangible assets. The Company and Vertex agreed to share equally in the costs of certain capital projects undertaken by the Company prior to closing, provided that the Company is not required to pay more than $788,500 of the costs. At December 5, 2014, a liability of $523,776 is recorded in accrued expenses for the Company’s remaining portion of capital projects required to be paid.

Immediately after the nine-month period ended December 5, 2014, the Company completed the closing anticipated under the Asset Purchase Agreement. The total consideration received was 2,243,791 shares of Vertex’s publicly traded stock, valued at $6,731,376, or $3.00 per share. The total consideration received included reimbursement of operating losses incurred by the Company and reimbursement of the capital projects described above totaling $2,291,619. Additional contingent consideration of up to $8,276,792 may be paid, 50% in cash and 50% in Vertex stock, upon meeting certain EBITDA targets in the second year after the sale. Pursuant to the agreement, the Company indemnifies Vertex from losses incurred relating to any liabilities arising in connection with the Company’s operation of the business before the date of sale for 24 months, capped at $2,000,000.

See Independent Auditor's Review Report for 2013

Heartland Group Holdings, LLC

Notes to Financial Statements

December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

Note 2:

Assets Held for Sale and Subsequent Disposal of Assets - Continued

The Company recorded inventory, property, plant and equipment, intangible assets, and other assets at the lower of cost or fair value. Fair value was determined based on the price paid for the assets disposed of by sale. The following table presents the fair value adjustment of related assets, net of the reimbursement of operating losses and capital projects, to arrive at the total asset impairment loss at December 5, 2014:

	Carrying Value		Asset Impairment Loss		Lower of Cost or Fair Value

Assets Held for Sale
Inventory	$	2,203,622	$	-	$	2,203,622
Property, plant and equipment		41,456,525		36,928,771		4,527,754
Intangible assets		1,146,615		1,146,615		-
Other, net		304,511		304,511		-

Total assets held for sale	$	45,111,273	$	38,379,897	$	6,731,376

The Asset Purchase Agreement requires the Company to conduct additional environmental studies on certain property. If environmental remediation activities are required, Vertex would be required to pay the lessor of one-half of such remediation costs or $200,000. Any remediation costs incurred by the Company in connection with remediation activities in excess of $200,000 would reduce the indemnification cap of $2,000,000. As of the date the financial statements were issued, the potential liability cannot be reasonably estimated and therefore, no liability is accrued. It is reasonably possible that a change in the estimate will occur in the near term.

As a condition to the final close of the sale, the Company subsequently paid off remaining long-term debt of $1,964,365 that was collateralized by property, plant and equipment disposed in the sale. Funds used to extinguish the debt were drawn from the line of credit. See Note 6 for Parent’s release of the Company of its obligation under the revolving loan agreement.

Note 3:

Inventories

	2014 (Audited)		2013 (Unaudited)
Manufacturing inventories
Raw materials	$	1,799,297	$	1,663,298
Work in process		121,447		119,986
Finished goods		282,878		624,675

		2,203,622		2,407,959
Less valuation allowance		-		18,000

	$	2,203,622	$	2,389,959

See Independent Auditor's Review Report for 2013

Heartland Group Holdings, LLC

Notes to Financial Statements

December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

Note 4: Property, Plant and Equipment

The major classifications of property, plant and equipment as of December 5, 2014 and November 30, 2013, are as follows:

	2014 (Audited)		2013 (Unaudited)

Land	$	558,000	$	558,000
Building and improvements		1,810,606		1,810,606
Operating equipment and storage facilities		9,119,176		44,819,709
Transportation equipment and vehicles		1,915,500		2,231,386
Construction in progress		-		63,733

		13,403,282		49,483,434
Less accumulated depreciation		8,875,528		7,237,814

	$	4,527,754	$	42,245,620

Note 5: Intangible Assets and Goodwill

The changes in the carrying amount of recognized intangible assets for the nine-month periods ended December 5, 2014 and November 30, 2013, were:

	2014 (Audited)		2013 (Unaudited)

Gross carrying amount	$	2,250,000	$	2,250,000
Accumulated amortization		1,103,385		930,305
Impairment loss		1,146,615		-

Net carrying amount	$	-	$	1,319,695

The changes in the carrying amount of goodwill for the nine-month periods ended December 5, 2014 and November 30, 2013, were:

	2014 (Audited)		2013 (Unaudited)
Beginning balance
Goodwill	$	336,982	$	336,982
Accumulated impairment losses		336,982		-
		-		336,982

Impairment losses		-		336,982

Ending balance	$	-	$	-

See Independent Auditor's Review Report for 2013

Heartland Group Holdings, LLC

Notes to Financial Statements

December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

Note 5: Intangible Assets and Goodwill - Continued

Because of increased raw material prices and decreased selling prices of recycled petroleum products, operating profits and cash flows were lower than expected during the nine-month period ended November 30, 2013. Based on that trend, the earnings forecast for the next five years was revised resulting in a goodwill impairment loss of $336,982. The fair value of the Company was estimated using the expected present value of future cash flows.

Note 6: Line of Credit

The Company, together with Parent, entered into a revolving loan agreement with a bank on May 24, 2012 to provide a $75 million credit facility. This agreement expires on May 22, 2017 and is collateralized by all of the assets of both the Company and Parent. The interest rate charged to the Company by Parent for their portion of borrowings is equal to the sum of 7% plus one-month LIBOR, rounded up to nearest 0.0625% (7.19% and 7.25% at December 5, 2014 and November 30, 2013, respectively). Borrowings outstanding under the agreement attributable to the Company were $15,058,873 and $7,789,066 at December 5, 2014 and November 30, 2013, respectively. The Company and Parent are charged a credit facility fee of 0.25% of the unused facility, which is paid by Parent. The Company and Parent must comply with certain covenants and restrictions, as defined, including consolidated debt-service coverage and maximum capital expenditure limits.

Subsequent to December 5, 2014, in connection with the sale of the assets of the Company described in Note 2, the Company borrowed an additional $1,970,000 to repay long-term debt and accrued interest that was collateralized by the property, plant and equipment subject to the sale. Parent then assumed the Company’s line of credit and accrued interest totaling approximately $17,050,000, and the bank legally released the Company from their obligation under the credit facility. The assumption of the Company’s obligation under the line of credit by Parent was subsequently treated as a capital contribution.

See Independent Auditor's Review Report for 2013

Heartland Group Holdings, LLC

Notes to Financial Statements

December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

Note 7: Long-term Debt

Long-term debt as of December 5, 2014 and November 30, 2013, consists of the following:

	2014		2013

Obligations under capital lease, payable in monthly installments ranging from $307 to $2,370, including interest at various rates ranging from 6.62% to 18.92%, with maturities from December 2013 to December 2014, collateralized by certain equipment.	$	-	$	7,292

Note payable to the Ohio Department of Development, payable in monthly installments of $37,019, including interest at 3.00%. The note matures August 1, 2019 and is collateralized by certain fixed assets of the Company. The amount was paid off in full subsequent to December 5, 2014 from proceeds of additional borrowings on the line of credit in connection with the sale of certain assets. See Note 2 and Note 6.		1,964,365		2,343,631

Notes payable to Parent, with interest only payments required monthly ranging from 4.00% to 7.00% plus one month LIBOR, with lump-sum payments due at various dates between November 2017 and August 2020. Subsequent to December 5, 2014, Parent converted the notes to equity.		30,235,234		30,235,234

Total long-term debt		32,199,599		32,586,157

Less current maturities		1,964,365		386,606

	$	30,235,234	$	32,199,551

Interest expense paid to Parent for the nine-month periods ended December 5, 2014 and November 30, 2013 was approximately $1,670,000 and $1,344,000 respectively. Accrued interest due to Parent of approximately $221,000 and $143,000 is included in accounts payable and accrued expenses as of December 5, 2014 and November 30, 2013, respectively, and was subsequently converted to equity.

See Independent Auditor's Review Report for 2013

Heartland Group Holdings, LLC

Notes to Financial Statements

December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

Note 8: Operating Leases

The Company leases property and equipment under various operating leases. Lease expense under operating leases totaled $230,980 and $236,902 for the nine-month periods ended December 5, 2014 and November 30, 2013, respectively. Subsequent to December 5, 2014, all operating leases were transferred due to the sale of the assets of the Company described in Note 2.

Note 9: Members' Equity (Deficit)

Each Member of the Company, other than Parent, has the right to notify the Company of their intention to sell all or any portion of their Member units. The Company is required to purchase the Member’s units at a predetermined formula price based on multiples of EBITDA less any outstanding debt. Parent guarantees the minimum value of the member units at $15.00 per unit if the Company cannot redeem the shares and in turn, the redeemed shares will be issued to Parent. On February 27, 2014, certain members exercised their right to sell shares back to the Company. Parent paid the guaranteed $15.00 per unit for 121,467 shares redeemed, increasing Parent’s ownership of the Company to 97.3520%.

Effective December 5, 2014, the remaining 26,480 shares were sold by the members at $15.00 per unit. A liability in the amount of $397,300 is recorded at December 5, 2014. Pursuant to the guarantee, Parent agreed to redeem the shares, thereby increasing Parent’s ownership of the Company to 100%.

Note 10: Profit Sharing and Retirement Plan

The Company is a member of Parent’s profit sharing and salary reduction plan. This plan, under Section 401(k) of the Internal Revenue Code, is available to all employees who have completed one month of qualified service. Profit sharing contributions are at the discretion of the Company. The Company matches 50% of the employee’s 401(k) contribution up to 6% of compensation. The Company’s matching contributions were $62,996 and $63,742 for the nine-month periods ended December 5, 2014 and November 30, 2013, respectively. There were no profit sharing contributions for the nine-month periods ended December 5, 2014 and November 30, 2013.

See Independent Auditor's Review Report for 2013

Heartland Group Holdings, LLC

Notes to Financial Statements

December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

Note 11: Related Party Transactions

The Company sells recycled petroleum products to Parent. In addition, Parent provides certain administrative and consulting services and receives a management fee of $26,210 per 4-week period. Effective May 2014, the management fee was reduced to $20,420 per 4-week period. The activity between the Company and Parent is summarized below:

	2014 (Audited)		2013 (Unaudited)

Sales	$	11,914,767	$	17,818,214
Management fees incurred		200,465		262,100
Account receivable at year end		624,986		1,112,471
Accrued expenses at year end		34,714		31,126

Note 12: Litigation

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the financial position, results of operations and cash flows of the Company.

Note 13: Disclosures About Fair Value of Assets

Level 1

Quoted prices in active markets for identical assets or liabilities

Level 2

Level 3

Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities

See Independent Auditor's Review Report for 2013

Heartland Group Holdings, LLC

Notes to Financial Statements

December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

Note 13: Disclosures About Fair Value of Assets - Continued

Nonrecurring Measurements

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 5, 2014
Long-lived assets	$	4,527,754	$	4,527,754	$	-	$	-
Intangible assets		-		-		-		-
Other assets		-		-		-		-

November 30, 2013
Goodwill	$	-	$	-	$	-	$	-

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheet, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Long-lived, Intangible and Other Assets

Long-lived, intangible and other assets are valued at fair value on December 5, 2014, due to an impairment recorded. The fair value is estimated based on the selling price of the assets included in the Asset Purchase Agreement described in Note 2 and, therefore, are classified within Level 1 of the valuation hierarchy.

Goodwill

Goodwill is valued at fair value on November 30, 2013, due to a recognized impairment. The fair value is estimated using discounted cash flows. Key inputs include weighted average cost of capital and long-term growth rates which cannot be corroborated by observable market data and, therefore, is classified within Level 3 of the valuation hierarchy. The unobservable inputs used in the goodwill fair value measurement include weighted average cost of capital rate of 10% and long-term growth rate of 2%.

See Independent Auditor's Review Report for 2013

Heartland Group Holdings, LLC

Notes to Financial Statements

December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

Note 14: Significant Estimates and Concentrations

Significant Customers

Major customer relationships represent more than 10% of sales. The Company had sales from one customer relationship (Parent) during the nine-month period ended December 5, 2014 which accounted for 44% of total sales and 24% of total trade accounts receivable at December 5, 2014. The Company had sales from two customer relationships, including Parent, during the nine-month ended November 30, 2013 which accounted for 80% of total sales and 76% of total trade accounts receivable at November 30, 2013.

Major Suppliers

Major supplier arrangements represent more than 10% of cost of goods sold. The Company had purchases from one supplier relationship during the nine-month periods ended December 5, 2014 November 30, 2013, which accounted for approximately 24% and 23% of total inventory purchases, respectively. Accounts payable for this supplier represented 24% and 34% of accounts payable at December 5, 2014 and November 30, 2013, respectively.

Note 15: Subsequent Events

Effective immediately after the nine-month period ended December 5, 2014, in connection with the sale of the assets described in Note 2, the Company formally announced its plans to cease operations and dissolve the Company. The Company expects to wind-up its affairs by settling its current liabilities, including outstanding checks in excess of bank balance, accounts payable and accrued expenses, from collection of its receivables and refund of prepaid expenses. Subsequent to December 5, 2014, the current maturities of long-term debt were paid with proceeds from additional borrowings on the line of credit. Parent subsequently assumed the line of credit totaling approximately $17,050,000 and converted the Company’s obligation on the line of credit to equity. The notes payable to Parent and related accrued interest were also subsequently converted to equity. Liquidation is expected to be completed in 2015.

Effective with the sale of the assets described in Note 2 immediately after the nine-month period ended December 5, 2014, the rights to the Company’s name, Heartland Group Holdings, LLC, were transferred to the buyer and the Company changed its name to Warren Ohio Holdings Co., LLC.

See Independent Auditor's Review Report for 2013

Heartland Group Holdings, LLC

Notes to Financial Statements

December 5, 2014 (Audited) and November 30, 2013 (Unaudited)

Note 15: Subsequent Events - Continued

The share price of the stock issued to the Company in consideration for the disposal of assets described in Note 2 significantly decreased in value upon completion of the sale. The fair value of the shares received on December 5, 2014, was $6,731,376. It is reasonably possible future changes in the fair value of the stock could occur and the effect of the change would be material to the Company.

Subsequent events have been evaluated through the date of the Independent Auditor’s Report, which is the date the financial statements were available to be issued.

See Independent Auditor's Review Report for 2013

EX-99.3 5 ex99-3.htm UNAUDITED PRO FORMA COMBINED BALANCE SHEET OF VERTEX ENERGY, INC. AS OF SEPTEMBER 30, 2014, UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014, AND UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE ex99-3.htm

EXHIBIT 99.3

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

On December 5, 2014 (the “Closing”), Vertex Energy, Inc. (the “Company”) closed the transactions contemplated by the October 21, 2014 Asset Purchase Agreement by and among the Company; Vertex Refining OH, LLC (“Vertex OH”), a wholly-owned subsidiary of Vertex Energy Operating, LLC (“Vertex Operating”), a wholly-owned subsidiary of the Company; Vertex Operating; and Heartland Group Holdings, LLC (“Heartland”), as amended by the First Amendment to Purchase Agreement dated November 26, 2014 and the Second Amendment to Purchase Agreement dated December 5, 2014 (the Asset Purchase Agreement as amended by the First Amendment and Second Amendment, the “Purchase Agreement”).

The purchase price paid in consideration for the Heartland Assets was the assumption of the assumed liabilities and an aggregate of 2,257,467 shares of restricted common stock (the “Heartland Shares”), representing a total of 1,189,637 shares valued at $8,276,792, as agreed pursuant to the terms of the original Purchase Agreement, 303,957 shares which were due in consideration for the purchase of various inventory of Heartland acquired by the Company at the closing in connection with the Inventory Purchase (described below), valued at $882,285, and a total of 763,873 shares due in consideration for the Reimbursement of Operating Losses (described below). A total of 150,000 shares of restricted common stock issued at Closing will be held in escrow and used to satisfy indemnification claims (the “Escrow Shares”). Additionally, as described below, an Inventory True-Up is to occur 60 days after Closing which may either increase or decrease the purchase price paid by the Company in connection with the difference between the expected inventory delivered and actual inventory delivered by Heartland at closing.

The parties agreed that any amount due to Heartland in consideration for inventory on hand which was purchased at Closing, based on a preliminary valuation of such inventory by the parties, would be paid in shares of the Company’s restricted common stock, based on the volume weighted average prices of the Company’s common stock on the NASDAQ Capital Market on the ten (10) trading days (the “VWAP”) immediately prior to closing (the “Inventory Purchase”), which totaled $3.56 (the “Closing VWAP”), provided that the post-closing adjustment which is required to take place 60 days after closing, based on the actual physical inventory delivered at closing, is also payable in shares of restricted common stock (if amounts are payable by the Company in connection with such reconciliation) based on the then VWAP (the “Inventory True-Up”).

Pursuant to a Consulting Agreement previously entered into with Heartland in July 2014, Vertex Operating agreed to provide consulting services to Heartland while the parties negotiated the definitive terms of the Purchase Agreement (the “Consulting Agreement”), and to reimburse Heartland for its operating losses (on a cash basis net of interest, depreciation, corporate overhead expenses and insurance proceeds received), which totaled $2,716,561 as of closing (the “Reimbursement for Operating Losses”).

Heartland also has the right pursuant to the terms of the Purchase Agreement to earn additional earn-out consideration of up to a maximum of $8,276,792, based on total EBITDA related to the Heartland Business during the twelve month period beginning on the first day of the first full calendar month commencing on or after the first anniversary of the closing (the “Earnout Period”), as follows (as applicable, the “Contingent Payment”):

EBITDA generated during Earnout Period	Contingent Payment Due
Less than $1,650,000	$0
At least $1,650,000	$4,138,396
More than $1,650,000 and less than $3,300,000	Pro-rated between $4,138,396 and $8,276,792
$3,300,000 or more	$8,276,792

Any Contingent Payment due is payable 50% in cash and 50% in shares of the Company’s common stock based on VWAP commencing on the trading day immediately following the last day of the Earnout Period and ending on such tenth trading day thereafter. Additionally, the amount of any Contingent Payment is reduced by two-thirds of the cumulative total of required capital expenditures incurred at Heartland’s refining facility in Columbus, Ohio, which are paid or funded by Vertex OH after the closing, not to exceed $866,667, which capital expenditures are estimated to total $1.3 million in aggregate.

Notwithstanding the above, the maximum number of shares of common stock to be issued pursuant to the Purchase Agreement (including shares sold in connection with certain Subscription Agreements entered into with trusts beneficially owned by our Chief Executive Officer on or around the same date) cannot (i) exceed 19.9% of the outstanding shares of common stock outstanding on October 21, 2014, (ii) exceed 19.9% of the combined voting power of the Company on October 21, 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 exceeds the Share Cap, then Vertex OH 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.

The following unaudited pro forma combined balance sheets have been derived from the unaudited balance sheet of the Company at September 30, 2014 and an audited balance sheet reflecting certain assets and liabilities of the Acquired Business at December 5, 2014, and adjusts such information to give effect to the Purchase Agreement as if it had closed on January 1, 2014. These balance sheets which have different year-end dates may be appropriately combined for pro forma purposes, because the year-end dates are within 93 days of each other, in accordance with Securities and Exchange Commission guidance contained within Regulation S-X Rule 11-02(c)(3).

The following unaudited pro forma combined statement of operations for the nine months ended September 30, 2014 has been derived from the unaudited statement of operations of the Acquired Business for the nine months ended December 5, 2014 and the unaudited statement of operations for the Company for the nine months ended September 30, 2014 in each case giving effect to the Purchase Agreement as though it had occurred on January 1, 2014. These operating results for different nine month periods may be appropriately combined for pro forma purposes, since the nine month periods are within 93 days of each other, in accordance with Securities and Exchange Commission guidance contained within Regulation S-X Rule 11-02(c)(3).

The unaudited pro forma combined statement of operations for the year ended December 31, 2013 has been derived from the audited statements of operations for the Company for the year ended December 31, 2013 and the Acquired Business for the year ended February 22, 2014, giving effect to the Purchase Agreement as though it has occurred on January 1, 2013. These operating results for different fiscal year periods may be appropriately combined for pro forma purposes, since the fiscal year-end periods are within 93 days of each other, in accordance with Securities and Exchange Commission guidance contained within Regulation S-X Rule 11-02(c)(3).

The pro forma adjustments and assumptions are based on estimates, evaluations and other data currently available and, in management’s opinion, provide a reasonable basis for the fair presentation of the estimated effects attributable directly to the acquisition completed as a result of the Purchase Agreement. The pro forma combined financial information is being presented for illustrative purposes only, and this information should not be relied upon for purposes of making any investment or other decisions.

The unaudited pro forma combined financial information may have been different had the transaction been completed as of January 1, 2014 or January 1, 2013. All information contained herein should be read in conjunction with the financial statements and notes thereto of the Acquired Business (filed as Exhibits 99.1 and 99.2 to this Current Report on Form 8-K/A) and the Company, as filed in its Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission (the “Commission”) on March 25, 2014 and Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2014, filed with the Commission on November 14, 2014.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

As of September 30, 2014

	Heartland Group Holdings, LLC December 5, 2014			Vertex Energy, Inc.		Pro Forma Adjustments (Note 1)				Pro Forma Adjusted
ASSETS

Current assets
Cash	$	-		$	1,229,746	$	1,067,387		a,b	$	2,297,133
Accounts receivable		1,970,977			21,675,824		(2,174,857	)	c		21,471,944
Accounts receivable - related party		624,986			11,458,000		(624,986	)	d		11,458,000
Inventory		2,203,622			19,001,712		367,378		e		21,572,712
Prepaid expenses		321,315			2,162,046		(321,315	)	f		2,162,046
Other receivables		86,801					(86,801	)	g		-
Property, plant and equipment held for sale		4,527,754					(4,527,754	)	h		-
Total Current Assets		9,735,455			55,527,328		(6,300,948	)			58,961,835

Noncurrent assets
Fixed assets, net		-			47,671,079		7,543,000		i		55,214,079
Intangible assets		-			16,327,341		2,591,000		j		18,918,341
Other Assets		-			2,797,842		-				2,797,842
Deferred federal income tax		-			5,684,000		-				5,684,000
Due from affiliates		-					-				-
Deposits		-					-				-
Goodwill		-			4,922,353		-				4,922,353
Total Non-current Assets		-			77,402,615		10,134,000				87,536,615
Total assets	$	9,735,455		$	132,929,943		3,833,052			$	146,498,450

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable and accrued expenses	$	2,474,782		$	23,059,176	$	(2,647,106	)	k		22,886,852
Outstanding checks in excess of bank balance		318,382					(318,382	)	l		-
Current maturities of long-term debt		1,964,365			40,781,399		(1,964,365	)	m		40,781,399
Current Portion of Capital Lease		-			605,442		-				605,442
Membership interests subject to mandatory redemption		397,200			-		(397,200	)	n		-
Other current liabilities		-					-				-
Total Current Liabilities		5,154,729			64,446,017		(5,327,053	)			64,273,693

Long term liabilities

Long-term debt					2,040,598		-				2,040,598
Contingent consideration		-			3,371,836		6,069,000		o		9,440,836
Line of credit		15,058,873					(15,058,873	)	p		-
Due to affiliates		30,235,234					(30,235,234	)	q		-
Deferred federal income tax		-			378,000		-				378,000
Total liabilities		50,448,836			70,236,451		(44,552,160	)			76,133,127

Commitments and contingencies

Restricted Stock							-				-
Common Stock		-			25,414		2,746		r,s		28,160
Preferred Stock Series A		-			630		-				630
Additional paid-in capital		-			39,191,567		7,361,878		r,s		46,553,445
Warrants		-			-		29,320		r,s		29,320
Retained earnings		-			23,475,881		277,887		t		23,753,768
Members Equity		(40,713,381	)				40,713,381				-
Total Vertex Energy, Inc. stockholders' equity		(40,713,381	)		62,693,492		48,385,212		u		70,365,323
Non-controlling interest		-			-		-
Total equity		(40,713,381	)		62,693,492		48,385,212				70,365,323
							-
TOTAL LIABILITIES AND EQUITY	$	9,735,455		$	132,929,943	$	3,833,052			$	146,498,450

The accompanying notes are an integral part of these unaudited proforma financial statements.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2014

	Heartland Group Holdings, LLC December 5, 2014			Vertex Energy, Inc.			Pro Forma Adjustments (Note 1)				Pro Forma Adjusted



Revenues	$	26,953,398		$	76,903,516		$	(227,264	)	v		103,629,650
Total revenues		26,953,398			76,903,516			(227,264	)			103,629,650

Cost of revenues		27,057,876			72,846,322			(227,264	)	v		99,676,934

Gross profit		(104,478	)		4,057,194			-				3,952,716

Reduction of contingent liability					(1,876,752	)

Selling, general, and administrative expenses		4,859,060			7,060,631			(9,279	)	w		11,910,412

Income (loss) from operations		(4,963,538	)		(1,126,685	)		9,279				(7,957,696	)

Other Income (expense)		(9,520	)		109,980							100,460
Bargain purchase gain related to Omega acquisition					92,635
Asset impairment loss		(38,379,897	)
Interest expense		(1,767,731	)		(947,325	)		1,767,731				(947,325	)

Income before taxes		(45,120,686	)		(1,871,395	)		1,777,010				(45,215,071	)

Income tax benefit (expense)					(57,975	)

Net income (loss) before noncontrolling interests		(45,120,686	)		(1,929,370	)		1,777,010				(45,215,071	)

Noncontrolling interests		-			-			-				-

Net income (loss)	$	(45,120,686	)	$	(1,929,370	)	$	1,777,010				(45,215,071	)

Earnings per common share
Basic				$	(0.08	)		0.06				(1.65	)
Diluted				$	(0.08	)		0.06				(1.64	)

Shares used in computing earnings per share
Basic					25,151,660			27,409,127				27,409,127
Diluted					25,151,660			27,628,995				27,628,995

The accompanying notes are an integral part of these unaudited proforma financial statements.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2013


	Heartland Group Holdings, LLC February 22, 2014			Vertex Energy, Inc.			Pro Forma Adjustments (Note 1)				Pro Forma Adjusted



Revenues	$	32,158,970		$	161,967,252		$	(310,868	)	v		193,815,354
Total revenues		32,158,970			161,967,252			(310,868	)			193,815,354

Cost of revenues		30,409,725			145,628,215			(310,868	)	v		175,727,072
												-
Gross profit		1,749,245			16,339,037			-				18,088,282

Reduction of contingent consideration		-			(2,238,750	)						(2,238,750	)

Selling, general, and administrative expenses		7,619,939			11,526,584			-				19,146,523
Total selling, general and administrative expenses		7,619,939			9,287,834			(887,040	)	w		16,020,733
												-
Income (loss) from operations		(5,870,694	)		7,051,203			887,040				2,067,549

Other income		291,517			37,696			-				329,213
Other expense		-			(54,513	)		-				(54,513	)
Interest expense		(1,943,641	)		(422,954	)		-				(2,366,595	)
Goodwill impairment loss		(336,982	)									(336,982	)
Total other income (expense)		(1,989,106	)		(439,771	)						(2,428,877	)

Income/Loss before taxes		(7,859,800	)		6,611,432			887,040				(361,328	)
												-
Income tax benefit		-			1,700,000			-				1,700,000

Net Income		(7,859,800	)		8,311,432			887,040				1,338,672

Noncontrolling interests					(431,962	)						(431,962	)
Net income attributable to Vertex Energy, Inc.		-			7,879,470			-				7,879,470

Net income	$	(7,859,800	)	$	7,447,508		$	887,040				474,748


Earnings per common share
Basic				$	0.42			0.04				0.02
Diluted				$	0.37			0.04				0.02

Shares used in computing earnings per share
Basic					17,830,194			20,087,661				20,087,661
Diluted					20,182,829			22,659,982				22,659,982

The accompanying notes are an integral part of these unaudited proforma financial statements.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Note 1—Pro Forma Basis of Presentation

The Closing is reflected in the unaudited pro forma combined financial statements as being accounted for under the acquisition method in accordance with ASC 805. Under the acquisition method, the total estimated purchase price is allocated to the assets acquired and the liabilities assumed based on their fair values. Vertex Energy, Inc. has made significant estimates and assumptions in determining the preliminary allocation of the purchase price in the unaudited pro forma condensed combined financial statements. These estimates are based on key assumptions of the acquisition. Due to the fact that the unaudited pro forma combined financial statements have been prepared based on preliminary estimates, the final amounts recorded may differ materially from the information presented. The allocation of purchase consideration is subject to change based on further review of the fair value of the assets acquired and liabilities assumed. A final determination of fair values will be based on the assets acquired and the liabilities assumed of the Acquired Business at the consummation of the acquisition.

The unaudited pro forma combined statements of operations for the nine months ended September 30, 2014 and the year ended December 31, 2013 assume the business combination between Vertex Energy, Inc. and the Acquired Business occurred on January 1, 2014 and January 1, 2013, respectively. The unaudited pro forma combined balance sheet as of September 30, 2014, assumes the business combination had been completed on January 1, 2014. The unaudited pro forma combined financial statements are based on the historical consolidated financial statements of Vertex Energy, Inc. and the Acquired Business.

Under ASC 805, acquisition-related transaction costs (such as advisory, legal, valuation or other professional fees) are not included as a component of consideration transferred and have been excluded from the unaudited pro forma combined statements of operations. The Company expects to incur total acquisition-related transaction costs of approximately $465,000. In addition the Company expects to post a gain of $742,000 on the transaction.

The unaudited pro forma combined financial statements do not include the realization of any cost savings from anticipated operating efficiencies, synergies or other restructuring activities which might result from the acquisition. The unaudited pro forma combined condensed financial statements should be read in conjunction with the separate historical consolidated financial statements and accompanying notes of the Company that are filed with the Securities and Exchange Commission and of the Acquired Business that are included herein.

The unaudited pro forma combined financial statements are not intended to represent or be indicative of the consolidated results of operations or financial condition of the combined company that would have been reported had the acquisition been completed as of the dates presented, and further should not be taken as representative of the future consolidated results of operations or financial condition of the Company.

The pro forma adjustments included in the unaudited pro forma combined financial statements are as follows:

a. To reflect the cash used to fund the majority of transaction expenses, net of any cash received through the sales of shares and warrants to our Chief Executive Officer.

b. To reflect cash required by holders of existing debt facilities intended to satisfy funds necessary for future working capital requirements.

c. To reflect the reduction of receivables due to Vertex Energy, Inc. from Heartland Group Holdings, LLC and the receivables being retained by Heartland Holdings Group, LLC.

d. To reflect a reduction in amounts due from related parties which are being retained by Heartland Holdings Group, LLC.

e. To reflect fair value of inventory over book value on the closing date.

f. To reflect prepaid expenses retained by Heartland Group Holdings, LLC after closing.

g. To reflect other current receivables retained by Heartland Group Holdings, LLC after closing.

h. To reflect a reclassification of property, plant, and equipment held for sale by Heartland Holdings Group, LLC to a noncurrent asset in Vertex Energy, Inc.

i. To reflect the fair market value of assets purchased.

j. To reflect the fair market value of intangible assets purchased.

k. To reflect accounts payable and accrued expenses retained by Heartland Holdings Group, LLC.

l. To reflect outstanding check liability retained by Heartland Holdings Group, LLC.

m. To reflect current debt maturities being retained by Heartland Holdings Group, LLC.

n. To reflect mandatory redemption liabilities retained by Heartland Holdings Group, LLC.

o. To reflect earn out consideration payable in stock and cash to Heartland Holdings Group, LLC if certain earnings targets are met.

p. To reflect all revolving line of credit debt being retained by Heartland Holdings Group, LLC.

q. To reflect related party notes payable being retained by Heartland Holdings Group, LLC.

r. To reflect the value of 2,201,601 shares of Vertex Energy, Inc.’s restricted common stock issued to Heartland Holdings Group, LLC at the closing with a fair market value of $5,735,798.

s. To reflect the value of 488,598 shares of restricted common stock and five year warrants to purchase 219,868 shares of common stock sold with a market value of $7,205,990 and $29,320, respectively.

t. To reflect the adjustments in retained earnings for transaction fees and gain on acquisition.

u. To reflect the removal of historical equity of Heartland Holdings Group, LLC.

v. To reflect the sales of product to Heartland from Vertex Energy, Inc.

w. To record the net effect of additional amortization expenses and depreciation savings for the assets acquired at fair value.

Note 2. Tax Matters

At September 30, 2014, the Company had significant net operating loss carryforwards. The extent to which the Company will be able to utilize these carryforwards in future periods will be subject to limitations based on a number of factors, including but not limited to whether the Company is profitable and thus able to utilize these carryforwards.

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