ACQUISITIONS

E-Source Holdings Transaction

Effective October 1, 2013 , the Company (through Vertex Operating, LLC, the Company’s wholly-owned subsidiary, “Vertex Operating”) acquired a 51% interest in E-Source Holdings, LLC (“E-Source”), a company that leases and operates a facility located in Houston, Texas, and provides dismantling, demolition, decommission and marine salvage services at industrial facilities throughout the Gulf Coast. E-Source also owns and operates a fleet of trucks and other vehicles used for shipping and handling equipment and scrap materials. The consideration paid for the acquisition of E-Source was approximately $900,000 and the right of one of the sellers (the “Earn-Out Seller”) to earn additional earn-out payments of up to 15% of E-Source’s net income before taxes (valued at $748,000 at the time of acquisition), in the event certain calendar year net income thresholds are met, in calendar years 2014 through 2017, as well as a commission of 20% of the net income before taxes associated with certain future planned projects of E-Source required to be completed prior to December 31, 2014, as long as such applicable seller remains an employee of E-Source during such applicable periods. Effective on March 14, 2014, we entered into an amendment to our acquisition agreement with the Earn-Out Seller, and mutually agreed that the lesser of (a) 20% and (b) $100,000, per calendar year of earn-out payments due the Earn-Out Seller, if any, will be payable in shares of our restricted common stock, based on the average of the five closing sales prices of the Company’s common stock on the first five trading days of each applicable calendar year (each a “Valuation”) for which the earn-out consideration relates, provided that the parties mutually agreed to use a valuation of $3.2922 per share (the “2014 Valuation Price”) for any earn-out payments relating to the 2014 calendar year and further agreed that in no event will any future calendar year Valuation be less than the 2014 Valuation Price. On March 26, 2014, but effective January 1, 2014, the Company acquired an additional 19% interest in E-Source for $854,050 in cash consideration and the right to receive stock consideration (on January 31, 2015) in the amount of 207,743 shares of stock subject to certain performance metrics being met during 2014.

In August 2014, Vertex Operating acquired the remaining 30% interest in E-Source, in consideration for the issuance of 207,743 shares of Company common stock and confirmation by the parties that the performance metrics relating to the 207,743 shares of common stock issuable in connection with the 19% acquisition would not be met. The transaction was recorded as additional paid in capital and a reduction of the non-controlling interest in accordance with ASC 810-10-45. Concurrent with the transaction, the Company paid $136,662 against the original contingent earn-out liability of $748,000 and wrote off $611,338 because certain terms of the contingent consideration agreement were not met by the acquiree. Following this transaction, E-Source became a 100% wholly-owned subsidiary of Vertex Operating.

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

Omega Refining Transaction

On May 2, 2014, the Company completed its acquisition of substantially all of the assets of Omega Refining, LLC (including the Marrero, Louisiana re-refinery and Omega’s Myrtle Grove complex in Belle Chasse, Louisiana ("Omega Refining") and ownership of Golden State Lubricant Works, LLC for the purpose of re-refining used lubricating oils into processed oils and other products for the distribution, supply and sale to end-customers with related products and support services. The purchase price paid at the closing was approximately $28,764,000 in cash, 500,000 shares of our restricted common stock (valued at $3,266,000) and the assumption of certain capital lease obligations and other liabilities relating to contracts and leases of Omega Refining in connection with the initial closing. We also agreed to provide Omega Holdings LLC ("Omega Holdings") a loan in the amount of up to approximately $13,800,000.

The acquisition was accounted for under the purchase method of accounting, with the Company identified as the acquirer. Under the purchase method of accounting, the aggregate amount of consideration paid by the Company was allocated to Omega Refining's net tangible assets and intangible assets based on their estimated fair values as of May 2, 2014. The transaction resulted in a bargain purchase of $6,574,000 recognized in net income as an acquisition-date gain. During the twelve month period ending December 31, 2014, an additional $92,635 bargain purchase gain was recognized after capital lease balances were trued up, resulting in a total bargain purchase gain of $6,574,000. The Omega Refining purchase qualifies as a bargain purchase since the acquisition date amounts of the identifiable net asset acquired, excluding goodwill ($39,010,000), exceed the value of the consideration transferred ($32,436,000). The difference of $6,574,000 is a gain as of the acquisition date. The bargain purchase resulted from the financial distress that Omega was in due to the large amount of debt held by Omega and the unexpected decrease in crack spreads that made the debt level overbearing. The Company retained an independent third party to assist management in determining the fair value of tangible and intangible assets transferred and liabilities assumed. The allocation of the purchase price is based on the best estimates of management.

The following information summarizes the allocation of the fair values assigned to the assets at the purchase date:



Cash and cash equivalents	$	406,000
Accounts receivable	950,000
Inventory	4,192,000
Prepaid expenses	71,000
Property, plant and equipment	30,000,000
Deposits	400,000
Bango secured note issued by Vertex	8,308,000
Technology	2,287,000
Non-compete agreements	66,000
Total identifiable net assets	$	46,680,000
Less liabilities assumed, including contingent consideration	(7,670,000		)
Gain on purchase	(6,574,000		)
Total purchase price	$	32,436,000

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

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

The results of Omega are included in the consolidated financial statements subsequent to May 2, 2014. The following schedule contains actual consolidated results of operations for the year ended December 31, 2015 and pro-forma results for the year ended December 31, 2014 as if the acquisition occurred on January 1, 2014. The pro-forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2014, or of results that may occur in the future:



	December 31,
		2014
		As Reported			Pro Forma
Revenue		$	258,904,867		$	297,530,020
Income (loss) from operations		(10,494,621		)	(9,690,082		)
Net income (loss)		(5,871,642		)	(5,264,085		)
Net income (loss) attributable to non-controlling interests		325,399			325,399
Net income (loss) attributable to Vertex Energy, Inc.		$	(5,546,243	)	$	(4,938,686	)
Earnings (loss) per common share-Basic		$	(0.23	)	$	(0.21	)
Earnings (loss) per common share-Diluted		$	(0.23	)	$	(0.21	)

Heartland Group Holdings, LLC

On December 5, 2014 (the “Closing”), we closed the transactions contemplated by the October 21, 2014 Asset Purchase Agreement (as amended, the "Heartland 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”).

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 an amendment of the Heartland Agreement, 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 Heartland 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.

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 which had an agreed upon value between the parties of $8,276,792 as agreed pursuant to the terms of the original Heartland 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, which number includes the 56,180 shares issued in April 2015), valued at $792,270, 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 the Closing are being held in escrow and will be used to satisfy indemnification claims (the “Escrow Shares”). Pursuant to the Heartland Purchase Agreement, the parties agreed to a true up of the inventory acquired at Closing 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 (“VWAP”) 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 issued Heartland an additional 56,180 shares of restricted common stock ($200,000 divided by $3.56) in connection with such obligation in April 2015.

The acquisition was accounted for under the purchase method of accounting, with the Company identified as the acquirer. Under the purchase method of accounting, the aggregate amount of consideration paid by the Company was allocated to Heartland’s net tangible assets and intangible assets based on their estimated fair values as of December 5, 2014. The transaction resulted in a bargain purchase of $375,000 recognized in net income as an acquisition-date gain. The Heartland purchase qualifies as a bargain purchase since the acquisition date amounts of the identifiable net asset acquired, excluding goodwill ($12,382,000), exceed the value of the consideration transferred ($12,007,000). The difference of $375,000 is a gain as of the acquisition date. The bargain purchase resulted from the financial distress that Heartland was in due to the large amount of debt held by Heartland and the unexpected decrease in crack spreads that made the debt level overbearing. The Company retained an independent third party to assist management in determining the fair value of tangible and intangible assets transferred and liabilities assumed. The allocation of the purchase price is based on the best estimates of management.

Additionally, as described below, an Inventory True-Up occurred 60 days after 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”), and as such Heartland was issued an additional 56,180 shares of restricted common stock in 2015 (the "Inventory True-Up").

Contingent Liability related to the Heartland Purchase Agreement:

Heartland also has the right pursuant to the terms of the Heartland 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		$—
At least $1,650,000		$4,138,396
More than $1,600,000 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 the volume-weighted average of the regular session closing prices per share of the Company’s common stock on the NASDAQ Capital Market for the ten (10) consecutive trading days 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 Heartland Purchase Agreement 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 under the Heartland Purchase Agreement 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.

Additionally, we were required to file a registration statement within 135 days of the Closing registering at least 1,189,637 shares of the Company’s common stock and use commercially reasonable efforts to obtain effectiveness of the registration statement within 30 days of the filing date if the SEC does not review the registration statement or within 105 days of the filing date if the SEC does review the registration statement filing, which registration statement was timely and became effective within the required time period. Pursuant to the Heartland Purchase Agreement, Heartland agreed to not sell more than 50,000 shares of the Company’s common stock each week, if otherwise permitted pursuant to applicable law and regulation.

The following information summarizes the allocation of the fair values assigned to the assets at the purchase date:



Inventory	$	2,248,000
Property, plant and equipment	7,543,000
Customer relationships	352,000
Vendor relationships	1,876,000
Tradename	363,000
Total identifiable net assets	$	12,382,000
Gain on purchase	(375,000		)
Total purchase price	$	12,007,000

The Company incurred $464,139 in costs associated with the Heartland acquisition. These included legal, accounting, environmental and investment banking.

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



	Estimated Cost		Useful life (years)
Customer relations	$	352,000	9
Vendor relationships	1,876,000		10
Tradename	363,000		15
Total	$	2,591,000

The results of Heartland are included in the consolidated financial statements subsequent to December 5, 2014. The following schedule contains pro-forma consolidated results of operations for the years ended December 31, 2015 and 2014 as if the acquisition occurred on January 1, 2014. The pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2014 or of results that may occur in the future:



	Twelve Months Ended December
	2015			2014
	As Reported			As Reported			Pro Forma
Revenue	$	146,942,461		$	258,904,867		$	285,631,001
Income (loss) from operations	(14,093,041		)	(10,494,621		)	(15,221,616		)
Net income (loss)	(22,516,889		)	(5,871,642		)	(10,844,700		)
Net income (loss) attributable to non-controlling interests	—			325,399			325,399
Net income (loss) attributable to Vertex Energy, Inc.	$	(22,516,889	)	$	(5,546,243	)	$	(10,519,301	)
Earnings (loss) per common share-Basic	$	(0.86	)	$	(0.23	)	$	(0.44	)
Earnings (loss) per common share-Diluted	$	(0.86	)	$	(0.23	)	$	(0.44	)

Aaron Oil Acquisition

Effective August 6, 2015, H&H Oil acquired a collection route consisting of collecting, shipping and selling used oil, oil filters, antifreeze and other related services in the state of Louisiana, but excluding industrial customers, maritime customers, off shore customers, dockside locations, industrial services, used absorbent services, wastewater generating customers and collectors/ transporters of crankcase used oil, petroleum fuel reclamation customers and crude oil producers/processing/recovery/reclamation customers of Aaron Oil Company, Inc. (“Aaron Oil”). Included in the purchase were certain trucks and other assets owned by Aaron Oil and certain contract rights. The President, Chief Executive Officer and owner of Aaron Oil is Dan Cowart, the brother of our Chief Executive Officer and largest stockholder, Benjamin P. Cowart. The acquisition price paid at closing was approximately $1 million, which included a reimbursement for certain prepaid contract rights. Aaron Oil also agreed to provide account servicing services to us for a period of sixty days following the closing at an agreed upon price per gallon of oil serviced. Aaron Oil also agreed to a non-compete provision prohibiting Aaron Oil from competing against the Company in the Louisiana market for a period of two years from the closing.

Estimated Cost

Useful life
(years)

Non-competes

Technology