10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal quarter ended September 30, 2017

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

FOR THE TRANSITION PERIOD FROM _____________ TO _____________

Commission File Number 001-11476

———————

VERTEX ENERGY, INC.

(Exact name of registrant as specified in its charter)

———————

NEVADA	94-3439569
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
1331 GEMINI STREET, SUITE 250 HOUSTON, TEXAS	77058
(Address of principal executive offices)	(Zip Code)

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

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

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

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

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

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

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

Yes   ¨ No ý

State the number of shares of the issuer’s common stock outstanding, as of the latest practicable date: 32,658,176shares of common stock are issued and outstanding as of November 6, 2017.

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Financial Statements
	Consolidated  Balance Sheets (unaudited)	F-1
	Consolidated  Statements of  Operations (unaudited)	F-3
	Consolidated  Statements of Cash Flows (unaudited)	F-4
	Notes to Consolidated Financial Statements (unaudited)	F-6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	32
	PART II
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

VERTEX ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	September 30, 2017			December 31, 2016
ASSETS
Current assets
Cash and cash equivalents	$	1,124,839		$	1,701,435
Escrow - current restricted cash	—			1,504,723
Accounts receivable, net	8,897,445			10,952,219
Inventory	4,589,935			4,357,958
Prepaid expenses	2,734,720			2,669,117
Total current assets	17,346,939			21,185,452
Noncurrent assets
Fixed assets, at cost	65,011,222			62,316,808
Less accumulated depreciation	(15,412,793		)	(12,286,874		)
Fixed assets, net	49,598,429			50,029,934
Goodwill and other intangible assets, net	14,951,588			15,252,332
Other assets	388,750			518,250
TOTAL ASSETS	$	82,285,706		$	86,985,968
LIABILITIES, TEMPORARY EQUITY, AND EQUITY
Current liabilities
Accounts payable and accrued expenses	$	9,770,655		$	9,440,696
Dividends payable	420,713			504,474
Capital leases	—			133,153
Current portion of long-term debt, net of unamortized finance costs	2,296,596			9,649,282
Revolving note	3,738,483			2,726,039
Total current liabilities	16,226,447			22,453,644
Long-term liabilities
Long-term debt, net of unamortized finance costs	12,750,188			1,848,111
Contingent consideration	236,680			—
Derivative liability	1,689,090			4,365,992
Total liabilities	30,902,405			28,667,747
COMMITMENTS AND CONTINGENCIES (Note 3)	—			—
TEMPORARY EQUITY
Series B Convertible Preferred Stock, $0.001 par value per share; 10,000,000 shares designated, 3,376,938 and 3,229,409 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively with a liquidation preference of $10,468,508 and $10,011,168 at September 30, 2017 and December 31, 2016, respectively.	6,812,524			5,676,467
Series B-1 Convertible Preferred Stock, $0.001 par value per share; 17,000,000 shares designated, 12,862,572 and 12,282,638 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively with a liquidation preference of $20,065,612 and $19,160,915 at September 30, 2017 and December 31, 2016, respectively.	15,280,750			13,927,788
Total Temporary Equity	22,093,274			19,604,255

F-1

	September 30, 2017			December 31, 2016
EQUITY
50,000,000 of total Preferred shares authorized:
Series A Convertible Preferred Stock, $0.001 par value; 5,000,000 shares designated, 456,608 and 492,716 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively with a liquidation preference of $680,346 and $734,147 at September 30, 2017 and December 31, 2016, respectively.	457			493
Series C Convertible Preferred Stock, $0.001 par value; 44,000 shares designated, 31,568 and 31,568 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively with a liquidation preference of $3,156,800 and $3,156,800 at September 30, 2017 and December 31, 2016, respectively.	32			32
Common stock, $0.001 par value per share; 750,000,000 shares authorized; 32,655,135 and 33,151,391 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively, with zero and 1,108,928 shares held in escrow at September 30, 2017 and December 31, 2016, respectively.	32,655			33,151
Additional paid-in capital	67,622,538			66,534,971
Accumulated deficit	(38,564,242		)	(27,958,578		)
Total Vertex Energy, Inc. stockholders' equity	29,091,440			38,610,069
Non-controlling interest	198,587			103,897
Total Equity	$	29,290,027		$	38,713,966
TOTAL LIABILITIES, TEMPORARY EQUITY, AND EQUITY	$	82,285,706		$	86,985,968

See accompanying notes to the consolidated financial statements

F-2

VERTEX ENERGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues	$	32,470,451		$	28,461,930		$	104,153,844		$	67,022,978
Cost of revenues (exclusive of depreciation shown separately below)	28,390,891			22,462,171			90,579,044			56,001,697
Gross profit (loss)	4,079,560			5,999,759			13,574,800			11,021,281
Operating expenses:
Selling, general and administrative expenses	5,690,761			5,025,221			16,280,495			15,285,142
Depreciation and amortization	1,697,821			1,560,562			4,942,911			4,707,801
Total operating expenses	7,388,582			6,585,783			21,223,406			19,992,943
Loss from operations	(3,309,022		)	(586,024		)	(7,648,606		)	(8,971,662		)
Other income (expense):
Interest income	1,519			1,490			5,748			4,452
Gain (loss) on sale of assets	25,693			(68,799		)	(13,806		)	9,633,034
Gain (loss) on change in value of derivative liability	1,371,461			1,065,217			2,676,902			724,185
Gain (loss) on futures contracts	(305,570		)	(90,061		)	(285,000		)	(351,820		)
Interest expense	(733,459		)	(399,545		)	(2,688,394		)	(2,721,056		)
Total other income (expense)	359,644			508,302			(304,550		)	7,288,795
Loss before income tax	(2,949,378		)	(77,722		)	(7,953,156		)	(1,682,867		)
Income tax benefit (expense)	—			—			—			117,646
Net loss	(2,949,378		)	(77,722		)	(7,953,156		)	(1,565,221		)
Net income (loss) attributable to non-controlling interest	34,554			30,234			94,690			(11,193		)
Net loss attributable to Vertex Energy, Inc.	$	(2,983,932	)	$	(107,956	)	$	(8,047,846	)	$	(1,554,028	)
Accretion of discount on Series B and B-1 Preferred Stock	(424,480		)	(435,134		)	(1,267,778		)	(1,293,669		)
Accrual of dividends on Series B and B-1 Preferred Stock	(420,713		)	(504,474		)	(1,256,921		)	(6,695,506		)
Net loss available to common shareholders	$	(3,829,125	)	$	(1,047,564	)	$	(10,572,545	)	$	(9,543,203	)
Loss per common share
Basic	$	(0.12	)	$	(0.03	)	$	(0.32	)	$	(0.32	)
Diluted	$	(0.12	)	$	(0.03	)	$	(0.32	)	$	(0.32	)
Shares used in computing earnings per share
Basic	32,655,135			30,576,485			32,651,961			29,884,836
Diluted	32,655,135			30,576,485			32,651,961			29,884,836

See accompanying notes to the consolidated financial statements

F-3

VERTEX ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (UNAUDITED)

	Nine Months Ended
	September 30, 2017			September 30, 2016
Cash flows from operating activities
Net loss	$	(7,953,156	)	$	(1,565,221	)
Adjustments to reconcile net loss to cash used in operating activities
Stock based compensation expense	460,475			392,413
Depreciation and amortization	4,942,911			4,707,801
Rent paid by common stock	—			244,000
(Gain) loss on sale of assets	13,806			(9,633,034		)
(Increase) decrease in fair value of derivative liability	(2,676,902		)	(724,185		)
Amortization of debt discount and deferred costs	571,635			1,363,386
Changes in operating assets and liabilities
Accounts receivable	2,054,774			(62,325		)
Business interruption insurance proceeds receivable	—			(1,275,000		)
Inventory	(195,977		)	(122,924		)
Prepaid expenses	(65,603		)	(1,530,380		)
Accounts payable and accrued expenses	329,959			(4,940,852		)
Deferred revenue	—			(248,624		)
Other assets	129,500			(2		)
Net cash used in operating activities	(2,388,578		)	(13,394,947		)
Cash flows from investing activities
Acquisition of Acadiana	(710,350		)	—
Acquisition of Nickco	(1,126,730		)	—
Acquisition of Ygriega	(162,500		)	—
Casualty insurance proceeds	—			2,332,854
Purchase of fixed assets	(1,842,237		)	(3,428,396		)
Proceeds from sales of Bango assets	—			29,788,114
Costs related to sale of Bango assets	—			(10,792,446		)
Proceeds from sale of fixed assets	297,718			20,900
Net cash provided by (used in) investing activities	(3,544,099		)	17,921,026
Cash flows from financing activities
Purchase/Buy back Series B Preferred Stock	—			(11,189,849		)
Proceeds from issuance of Series B-1 Preferred Stock	—			19,349,756
Issue costs for Series B-1 Preferred Stock	—			(607,890		)
Payment of debt issuance costs	(1,718,090		)	—
Line of credit (payments) proceeds, net	1,012,444			128,662
Proceeds from sale of Series C Preferred Stock	—			4,000,000
Proceeds from note payable	16,570,929			7,544,680
Payments on note payable	(12,013,925		)	(19,260,455		)
Net cash provided by (used in) financing activities	3,851,358			(35,096		)
Net change in cash and cash equivalents	(2,081,319		)	4,490,983
Cash, cash equivalents, and restricted cash at beginning of the period	3,206,158			(737,864		)
Cash, cash equivalents, and restricted cash at end of period	$	1,124,839		$	3,753,119

F-4

SUPPLEMENTAL INFORMATION
Cash paid for interest	$	1,328,401	$	1,431,352
Cash received for income tax benefit	$	—	$	117,646
NON-CASH INVESTING AND FINANCING TRANSACTIONS
Conversion of Series A Preferred Stock into common stock	36		120
Conversion of Series B-1 Preferred Stock into common stock	$	119,440	$	—
Accretion of discount on Series B and B-1 Preferred Stock	$	1,267,778	$	1,293,669
Dividends-in-kind accrued on Series B and B-1 Preferred Stock	$	1,256,920	$	6,695,506
Conversion feature and fair value of warrants for Series B and B-1 Preferred Stock	$	—	$	6,558,947
Contingent consideration on Nickco acquisition	$	236,680	$	—
Common restricted shares for Nickco acquisition	$	474,000	$	—
Return of common shares for sale escrow	$	1,109	$	—

See accompanying notes to the consolidated financial statements

F-5

VERTEX ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30,2017

(UNAUDITED)

NOTE 1.  BASIS OF PRESENTATION AND NATURE OF OPERATIONS

The accompanying unaudited consolidated interim financial statements of Vertex Energy, Inc. (the "Company" or "Vertex Energy") have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's annual consolidated financial statements as filed with the SEC on Form 10-K on March 14, 2017 (the "Form 10-K"). The December 31, 2016 balance sheet was derived from the audited financial statements of our 2016 Form 10-K. In the opinion of management all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of financial position and the results of operations for the interim periods presented, have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the audited consolidated financial statements for the most recent fiscal year 2016 as reported in Form 10-K have been omitted.

NOTE 2.  SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. There were no cash equivalents as of September 30, 2017 and December 31, 2016.

The Company early adopted the guidance in Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), in the third quarter of 2017 which requires restricted cash to be included in cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statements of cash flows. The guidance in this update is to be applied retrospectively; therefore, the 2016 statement of cash flows has been restated to conform to the requirements of ASU 2016-18 and the 2017 presentation.

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

	September 30, 2017		December 31, 2016
Cash	$	1,124,839	$	1,701,435
Restricted cash	—		1,504,723
Cash, cash equivalents and restricted cash as shown in the consolidated statements of cash flows	$	1,124,839	$	3,206,158

Pursuant the Sale Agreement described further in Note 4, we placed $1.5 million in restricted cash (which was released to us and received in July 2017) and $1 million worth of our common stock (1,108,928 shares) into escrow with the shares to be released to us 12 months following the closing (which shares were released to us and cancelled in March 2017), in order to satisfy any indemnification claims made by Safety-Kleen pursuant to the terms of the Sale Agreement.

F-6

Inventory

Inventories of products consist of feedstocks, refined petroleum products and recovered ferrous and non-ferrous metals and are reported at the lower of cost or market.   Cost is determined using the first-in, first-out (“FIFO”) method. The Company reviews its inventory commodities whenever events or circumstances indicate that the value may not be recoverable.

Impairment of long-lived assets

The Company evaluates the carrying value and recoverability of its long-lived assets when circumstances warrant such evaluation by applying the provisions of the Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") regarding long-lived assets. It requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets.  Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. The Company determined that no long-lived asset impairment existed at September 30, 2017.

F-7

Fair value of financial instruments

Under the FASB ASC, we are permitted to elect to measure financial instruments and certain other items at fair value, with the change in fair value recorded in earnings. We elected not to measure any eligible items using the fair value option. Consistent with the Fair Value Measurement Topic of the FASB ASC, we implemented guidelines relating to the disclosure of our methodology for periodic measurement of our assets and liabilities recorded at fair market value.

Fair value is defined as 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. A three-tier fair value hierarchy prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

• Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

• Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

• Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Our Level 1 assets primarily include our cash and cash equivalents. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. The carrying amounts of accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the immediate or short-term maturities of these financial instruments.

Nonfinancial assets and liabilities measured at fair value on a nonrecurring basis include certain nonfinancial assets and liabilities as may be acquired in a business combination and thereby measured at fair value.

Income Taxes

The Company accounts for income taxes in accordance with the FASB ASC Topic 740. The Company records a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and when temporary differences become deductible. The Company considers, among other available information, uncertainties surrounding the recoverability of deferred tax assets, scheduled reversals of deferred tax liabilities, projected future taxable income, and other matters in making this assessment.

As part of the process of preparing its consolidated financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. This process requires the Company to estimate its actual current tax liability and to assess temporary differences resulting from differing book versus tax treatment of items, such as deferred revenue, compensation and benefits expense and depreciation. These temporary differences result in deferred tax assets and liabilities, which are included within the Company’s consolidated statements of financial condition. Significant management judgment is required in determining the Company’s provision for income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against its net deferred tax assets. If actual results differ from these estimates or the Company adjusts these estimates in future periods, the Company may need to adjust its valuation allowance, which could materially impact the Company’s consolidated financial position and results of operations.

Tax contingencies can involve complex issues and may require an extended period of time to resolve. Changes in the level of annual pre-tax income can affect the Company’s overall effective tax rate. Furthermore, the Company’s interpretation of complex tax laws may impact its recognition and measurement of current and deferred income taxes.

F-8

Derivative Liabilities

In accordance with ASC 815-40-25 and ASC 815-10-15, Derivatives and Hedging and ASC 480-10-25, Liabilities-Distinguishing from Equity, convertible preferred shares are accounted for net, outside of shareholders' equity and warrants are accounted for as liabilities at their fair value during periods where they can be net cash settled in case of a change in control transaction. The warrants are accounted for as a liability at their fair value at each reporting period. The value of the derivative warrant liability will be re-measured at each reporting period with changes in fair value recorded in earnings. To derive an estimate of the fair value of these warrants, a Dynamic Black Scholes model is utilized which computes the impact of a possible change in control transaction upon the exercise of the warrant shares. This process relies upon inputs such as shares outstanding, our quoted stock prices, strike price and volatility assumptions to dynamically adjust the payoff of the warrants in the presence of the dilution effect.

Debt Issuance Costs

The Company follows the accounting guidance of FASB Accounting Standards Update ("ASU") No 2015-03, "Simplifying the Presentation of Debt Issuance Costs", which requires that debt issuance costs related to a recognized debt liability be reported on the Consolidated Balance Sheet as a direct reduction from the carrying amount of that debt liability.

Reclassification of Prior Year Presentation

Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications had no effect on the reported results of operations. 

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU No. 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU No. 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU No. 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). In July 2015, the FASB issued ASU No. 2015-14 which delayed the effective date of ASU No. 2014-09 by one year (effective for annual periods beginning after December 15, 2017). We are continuing to evaluate the impact of ASU 2014-09 and we currently do not anticipate that the standard will have a material impact on our financial statements, other than enhanced disclosures related to the disaggregation of revenues from contracts with customers, our performance obligations and any significant judgments. To date, certain personnel have attended technical training concerning this new recognition standard, and we have assigned internal resources to assist in this project implementation and believe the project is progressing timely. The Company currently anticipates adopting this ASU in the first quarter of fiscal 2018 using the modified retrospective method. As the Company completes its evaluation of this new standard, the Company's preliminary assessments could change.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under ASU No. 2016-02, lessor accounting is largely unchanged. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018 with early application permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases expiring before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. Management is currently reviewing our various leases to identify those affected by ASU No. 2016-02.

F-9

NOTE 3. CONCENTRATIONS, SIGNIFICANT CUSTOMERS, COMMITMENTS AND CONTINGENCIES

At September 30, 2017 and 2016 and for each of the nine months then ended, the Company’s revenues and receivables were comprised of the following customer concentrations:

	Nine Months Ended September 30, 2017		Nine Months Ended September 30, 2016
	% of Revenues	% of Receivables	% of Revenues	% of Receivables
Customer 1	19%	—%	24%	10%
Customer 2	13%	3%	9%	4%
Customer 3	10%	7%	9%	7%
Customer 4	9%	23%	5%	—%
Customer 5	—%	10%	—%	13%
Customer 6	4%	3%	12%	5%

At September 30, 2017 and 2016 and for each of the nine months then ended, the Company's segment revenues were comprised of the following customer concentrations:

	% of Revenue by Segment			% Revenue by Segment
	Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016
	Black Oil	Refining	Recovery	Black Oil	Refining	Recovery
Customer 1	100%	—%	—%	100%	—%	—%
Customer 2	100%	—%	—%	100%	—%	—%
Customer 3	—%	100%	—%	—%	100%	—%
Customer 4	100%	—%	—%	100%	—%	—%
Customer 5	—%	—%	100%	—%	—%	100%
Customer 6	100%	—%	—%	100%	—%	—%

The Company had zero vendors that represented 10% of total purchases for the nine months and three months ended September 30, 2017. The Company had one vendor that represented 10% of total purchases for the nine months ending September 30, 2016.

In February 2013, Bank of America agreed to lease the Company equipment to enhance the Thermal Chemical Extraction Process (“TCEP”) operation, which went into effect in April 2013.  Under the current terms of the lease agreement, 13 monthly payments remain of approximately $13,328 each.

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

Litigation:

The Company, in its normal course of business, is involved in various other claims and legal action. We are currently party to the following material litigation proceedings:

Vertex Refining LA, LLC ("Vertex Refining LA"), the wholly-owned subsidiary of Vertex Operating, LLC, our wholly-owned subsidiary ("Vertex Operating") was named as a defendant, along with numerous other parties, in five lawsuits filed on or about February 12, 2016, in the Second Parish Court for the Parish of Jefferson, State of Louisiana, Case No. 121749, by Russell Doucet et. al., Case No. 121750, by Kendra Cannon et. al., Case No. 121751, by Lashawn Jones et. al., Case No. 121752, by Joan Strauss et. al. and Case No. 121753, by Donna Allen et. al. The suits relate to alleged noxious and harmful emissions from our facility

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located in Marrero, Louisiana. The suits seek damages for physical and emotional injuries, pain and suffering, medical expenses and deprivation of the use and enjoyment of plaintiffs’ homes. We intend to vigorously defend ourselves and oppose the relief sought in the complaints, provided that at this stage of the litigation, the Company has no basis for determining whether there is any likelihood of material loss associated with the claims and/or the potential and/or the outcome of the litigation.

E-Source Holdings, LLC ("E-Source"), the wholly-owned subsidiary of Vertex Operating, was named as a defendant (along with Motiva Enterprises, LLC, ("Motiva")) in a lawsuit filed in the Sixtieth (60th) Judicial District, Jefferson County, Texas, on April 22, 2015. Pursuant to the lawsuit, Whole Environmental, Inc. ("Whole"), made certain allegations against E-Source and Motiva. The claims include Breach of Contract and Quantum Meruit actions relating to asbestos abatement and remediation operations performed for defendants at Motiva's facility in Port Arthur, Jefferson County, Texas. The plaintiff alleges it is due monies earned. Defendants have denied any amounts due to plaintiff. The suit seeks damages of approximately $864,000, along with pre-judgment and post-judgment interest, the fair value of certain property alleged to be converted by defendants and reimbursement of legal fees. E-Source has asserted a counterclaim against Whole for the filing of a mechanic's lien in excess of any amount(s) actually due, as well as a cross-claim against Motiva. Under the terms of E-Source's contract with Motiva, Motiva was to pay all sums due to any sub-contractors of E-Source. In management's opinion, any monies due to Whole, should be paid by Motiva. E-Source seeks to recover the balance due under its contract with Motiva of approximately $1,000,000. The case is set for trial in the spring of 2018. We intend to vigorously defend ourselves against the allegations made in the complaint. The Company has no basis of determining whether there is any likelihood of material loss associated with the claims and/or the potential and/or the outcome of the litigation.

NOTE 4. DISPOSITION

On January 28, 2016, the Company entered into an Asset Purchase Agreement (the “Sale Agreement”) with Bango Oil, LLC (“Bango Oil”) and Safety-Kleen Systems Inc. (“Safety-Kleen”) pursuant to which the Company agreed to sell to Safety-Kleen the used oil re-refining plant on approximately 40 acres in Churchill County, Nevada (the “Bango Plant”), which we previously rented, and all equipment, tools and other tangible personal property located at the Bango Plant, which relate to or are used in connection with the operations of the Bango Plant (collectively, the “Bango Assets”) for an aggregate purchase price of $35 million. As shown in the table below, a gain on sale of approximately $9.7 million was recorded associated with the sale. The gain on sale is included in gain (loss) on sale of assets in the accompanying consolidated statement of operations.

Sales price (fair value)	$	35,000,000
Release of lien on certain equipment at the Bango Plant	(3,100,000		)
Transaction Fees	(2,111,886		)
Net Proceeds	29,788,114
Book Value at January 29, 2016 (date transaction closed)	20,039,553
Gain on Sale	$	9,748,561

Net proceeds were used to pay an aggregate of $16.1 million toward the Credit Agreement with Goldman Sachs Bank (described in "Note 6. Line of Credit and Long-Term Debt"), $9.3 million to exercise the Purchase Option (described below) and $1.5 million for equipment and rail park lease acquisitions subsequently included in the Sale Agreement.

Additionally, at the closing, we placed $1.5 million in restricted cash (which was released to us and received in July 2017) and $1 million worth of our common stock (1,108,928 shares) into escrow with the shares to be released to us 12 months following the closing (which shares were released to us and cancelled in March 2017), in order to satisfy any indemnification claims made by Safety-Kleen pursuant to the terms of the Sale Agreement.

Finally, the Sale Agreement required the Company to use sale proceeds to exercise the purchase option set forth in that certain Lease With Option For Membership Interest Purchase (the “Bango Lease”) entered into on April 30, 2015, by and between us, Vertex Refining NV, LLC ("Vertex Refining NV") and Bango Oil, whereby, we had the option at any time during the term of the lease to purchase all of the equity interests of Bango Oil (the “Purchase Option”), effectively acquiring ownership of the Bango Plant for $9.3 million. The "Membership Interest Purchase Agreement" contains standard and customary representations of the parties and indemnification rights, subject in each case to a $3 million cap on aggregate indemnification. Upon the closing of the "Membership Interest Purchase Agreement", we effectively obtained ownership of the Bango Plant, which we then sold to Safety-Kleen, and Bango Oil became a wholly-owned subsidiary of Vertex Refining NV.

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NOTE 5. ACCOUNTS RECEIVABLE

Accounts receivable, net, consists of the following at September 30, 2017 and December 31, 2016:

	September 30, 2017			December 31, 2016
Accounts receivable trade	$	10,537,719		$	12,598,493
Allowance for doubtful accounts	(1,640,274		)	(1,646,274		)
Accounts receivable trade, net	$	8,897,445		$	10,952,219

Accounts receivable trade represents amounts due from customers. Accounts receivable trade are recorded at invoiced amounts, net of reserves and allowances and do not bear interest. The Company uses its best estimate to determine the required allowance for doubtful accounts based on a variety of factors, including the length of time receivables are past due, economic trends and conditions affecting its customer base, significant one-time events and historical write-off experience. Specific provisions are recorded for individual receivables when we become aware of a customer’s inability to meet its financial obligations. The Company reviews the adequacy of its reserves and allowances quarterly.

Receivable balances greater than 30 days past due are individually reviewed for collectability and if deemed uncollectible, are charged off against the allowance accounts after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any significant off balance sheet credit exposure related to its customers.

NOTE 6. LINE OF CREDIT AND LONG-TERM DEBT

Credit and Guaranty Agreement and Revolving Credit Facility with Encina Business Credit, LLC

Effective February 1, 2017, we, Vertex Operating, and substantially all of our other operating subsidiaries, other than E-Source Holdings, LLC ("E-Source"), entered into a Credit Agreement (the “EBC Credit Agreement”) with Encina Business Credit, LLC as agent (the “Agent” or “EBC”) and Encina Business Credit SPV, LLC and CrowdOut Capital LLC as lenders thereunder (the “EBC Lenders”). Pursuant to the EBC Credit Agreement, and the terms thereof, the EBC Lenders agreed to loan us up to $20 million, provided that the amount outstanding under the EBC Credit Agreement at any time cannot exceed 50% of the value of the operating plant facilities and related machinery and equipment owned by us (not including E-Source).

Amounts borrowed under the EBC Credit Agreement bear interest at 12%, 13% or 14% per annum, based on the ratio of (a) (i) consolidated EBITDA for such applicable period minus (ii) capital expenditures made during such period, minus (iii) the aggregate amount of income taxes paid in cash during such period (but not less than zero) to (b) the sum of (i) debt service charges plus (ii) the aggregate amount of all dividend or other distributions paid on capital stock in cash for the most recently completed 12 month period (which ratio falls into one of the three following tiers: less than 1 to 1; from 1 to 1 to less than 1.45 to 1; or equal to or greater than 1.45 to 1, which together with the value below, determines which interest rate is applicable) and average availability under the Revolving Credit Agreement (defined below) (which falls into two tiers: less than $2.5 million and greater than or equal to $2.5 million, which together with the calculation above, determines which interest rate is applicable), as described in greater detail in the EBC Credit Agreement (increasing by 2% per annum upon the occurrence of an event of default). Interest on amounts borrowed under the EBC Credit Agreement is payable by us in arrears, on the first business day of each month, beginning on the first business day of the first full month following the closing, together with required $75,000 monthly principal repayments. We also have the right to make voluntary repayments of the amount owed under the EBC Credit Agreement in amounts equal to or greater than $100,000, from time to time.

The EBC Credit Agreement terminates on February 1, 2020, on which date we are required to repay the outstanding balance owed thereunder and any accrued and unpaid interest thereon.

The amounts borrowed under the EBC Credit Agreement are guaranteed by us and our subsidiaries, other than E-Source, pursuant to a Guaranty and Security Agreement (the “Guaranty and Security Agreement”), whereby we also pledged substantially all of our assets and all of the securities of our subsidiaries (other than E-Source) as collateral securing the amount due under the terms of the EBC Credit Agreement. We also provided EBC mortgages on our Marrero, Louisiana, and

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Columbus, Ohio facilities to secure the repayment of outstanding amounts and agreed to provide mortgages on certain other real property to be delivered post-closing. The post-closing mortgage properties provided were in Baytown, Pflugerville and Corpus Christi, Texas.

The EBC Credit Agreement contains customary representations, warranties and requirements for the Company to indemnify the EBC Lenders and their affiliates. The EBC Credit Agreement also includes various covenants (positive and negative) binding upon the Company, including, prohibiting us from undertaking acquisitions or dispositions unless they meet the criteria set forth in the EBC Credit Agreement, not incurring any capital expenditures in amount exceeding $3 million in any fiscal year that the EBC Credit Agreement is in place, and requiring us to maintain at least $2.5 million of average borrowing availability under the Revolving Credit Agreement (defined below) in any 30 day period. As of September 30, 2017, the average borrowing availability was $3,118,937, and the Company was in compliance with all covenants thereunder.

The EBC Credit Agreement includes customary events of default for facilities of a similar nature and size as the EBC Credit Agreement, including if an event of default occurs under any agreement evidencing $500,000 or more of indebtedness of the Company; we fail to make any payment when due under any material agreement; subject to certain exceptions, any judgment is entered against the Company in an amount exceeding $500,000; and also provides that an event of default occurs if a change in control of the Company occurs, which includes if (a) Benjamin P. Cowart, the Company’s Chief Executive Officer, Chairman of the Board and largest shareholder and Chris Carlson, the Chief Financial Officer of the Company, cease to own and control legally and beneficially, collectively, either directly or indirectly, equity securities in Vertex Energy, Inc., representing more than 15% of the combined voting power of all securities entitled to vote for members of the board of directors or equivalent on a fully-diluted basis, (b) the acquisition of ownership, directly or indirectly, beneficially or of record, by any person or group of securities representing more than 30% of the aggregate ordinary voting power represented by the issued and outstanding securities of Vertex Energy, Inc., or (c) during any period of 12 consecutive months, a majority of the members of the board of directors of the Company cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (collectively “Events of Default”). An event of default under the Revolving Credit Agreement (defined below), is also an event of default under the EBC Credit Agreement.

Effective February 1, 2017, we, Vertex Operating and substantially all of our operating subsidiaries, other than E-Source, entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”) with Encina Business Credit SPV, LLC as lender (“Encina”) and EBC as the administrative agent. Pursuant to the Revolving Credit Agreement, and the terms thereof, Encina agreed to loan us, on a revolving basis, up to $10 million, subject to the terms of the Revolving Credit Agreement and certain lending ratios set forth therein, which provide that the amount outstanding thereunder cannot exceed an amount equal to the total of (a) the lesser of (A) the value (as calculated in the Revolving Credit Agreement) of our inventory which are raw materials or finished goods that are merchantable and readily saleable to the public in the ordinary course of our business (“EBC Eligible Inventory”), net of certain inventory reserves, multiplied by 85% of the appraised value of EBC Eligible Inventory, or (B) the value (as calculated in the Revolving Credit Agreement) of EBC Eligible Inventory, net of certain inventory reserves, multiplied by 65%, subject to a ceiling of $4 million, plus (b) the face amount of certain accounts receivables (net of certain reserves applicable thereto) multiplied by 85% (subject to adjustment as provided in the Revolving Credit Agreement); minus (c) the then-current amount of certain reserves that the agent may determine necessary for the Company to maintain. At September 30, 2017, the maximum amount available to be borrowed was $3,011,038, based on the above borrowing base calculation.

Amounts borrowed under the Revolving Credit Agreement bear interest, subject to the terms of the Revolving Credit Agreement, at the one month LIBOR interest rate then in effect, subject to a floor of 0.25% (which interest rate is currently approximately 1.23% per annum), plus an additional 6.50% per annum (increasing by 2% per annum upon the occurrence of an event of default), provided that under certain circumstances amounts borrowed bear interest at the higher of (a) the “prime rate”; (b) the Federal Funds Rate, plus 0.50%; and (c) the LIBOR Rate for a one month interest period, plus 1.00%. Interest on amounts borrowed under the Revolving Credit Agreement is payable by us in arrears, on the first business day of each month, beginning on the first business day of the first full month following the closing.

The Revolving Credit Agreement terminates on February 1, 2020, on which date we are required to repay the outstanding balance owed thereunder and any accrued and unpaid interest thereon. Borrowings under a revolving credit agreement that contain a subjective acceleration clause and also require a borrower to maintain a lockbox with the lender (whereby lockbox

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receipts may be applied to reduce the amount outstanding under the revolving credit agreement) are considered short-term obligations. As a result, the debt is classified as a current liability at September 30, 2017.

The amounts borrowed under the Revolving Credit Agreement are guaranteed by us and our subsidiaries, other than E-Source, pursuant to a separate Guaranty and Security Agreement, similar to the EBC Credit Agreement, described in greater detail above. We also provided Encina mortgages on our Marrero, Louisiana, and Columbus, Ohio facilities to secure the repayment of outstanding amounts.

The Revolving Credit Agreement contains customary representations, warranties and requirements for the Company to indemnify Encina and its affiliates. The Revolving Credit Agreement also includes various covenants (positive and negative) binding upon the Company, including, prohibiting us from undertaking acquisitions or dispositions unless they meet the criteria set forth in the Revolving Credit Agreement, not incurring any capital expenditures in amount exceeding $3 million in any fiscal year that the Revolving Credit Agreement is in place, and requiring us to maintain at least $2.5 million of average borrowing availability under the Revolving Credit Agreement in any 30 day period.

The Revolving Credit Agreement includes customary events of default for facilities of a similar nature and size as the Revolving Credit Agreement, including the same Events of Default as are described above under the description of the EBC Credit Agreement.

A total of $11,282,537 of the amount initially borrowed under the EBC Credit Agreement and Revolving Credit Agreement was used to repay amounts owed under (a) the Restated Credit Agreement with Goldman Sachs Bank USA (defined below), (b) our loan agreement with MidCap (defined below); and (c) the Fox Note (defined below), all of which have been repaid in full as of the date of this filing. Additionally, in connection with the repayment of such obligations, the Restated Goldman Credit Agreement and Midcap Loan Agreement, and our right to borrow funds thereunder were terminated.

The balance of the EBC Credit Agreement and the Revolving Credit Agreement as of September 30, 2017 are $13,975,000 and $3,738,483, respectively.

Credit and Guaranty Agreement with Goldman Sachs Bank

In May 2014, the Company entered into a Credit and Guaranty Agreement with Goldman Sachs Bank USA (as amended, the “Credit Agreement”). Pursuant to the agreement, Goldman Sachs Bank USA loaned the Company $40 million in the form of a term loan. As set forth in the Credit Agreement, the Company has the option to select whether loans made under the Credit Agreement bear interest at (a) the greater of (i) the prime rate in effect, (ii) the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System plus ½ of 1%, (iii) the sum of (A) the Adjusted LIBOR Rate and (B) 1%, and (iv) 4.5% per annum; or (b) the greater of (i) 1.50% and (ii) the applicable ICE Benchmark Administration Limited interest rate, divided by (x) one minus, (y) the Adjusted LIBOR Rate. Interest on the Credit Agreement is payable monthly in arrears.

The Credit Agreement was secured by all of the assets of the Company.

On March 26, 2015, the Company entered into a Second Amendment with Goldman Sachs Bank USA to amend the Credit Agreement to among other things, provide for the waiver of the prior defaults and to restructure certain covenants and other financial requirements of the Credit Agreement and to allow for our entry into the MidCap Loan Agreement.

The Credit Agreement contained customary representations, warranties, and covenants for facilities of similar nature and size as the Credit Agreement. The Credit Agreement also included various covenants binding the Company including limits on indebtedness the Company could incur and maintenance of certain financial ratios relating to consolidated EBITDA and debt leverage.

On January 29, 2016, we, Vertex Operating, certain of our other subsidiaries, Goldman Sachs Specialty Lending Holdings, Inc., as lender (“Lender”) and Goldman Sachs Bank USA, a New York State-Chartered Bank, as Administrative Agent, Lead Arranger and Collateral Agent (“Agent”) entered into an Amended and Restated Credit and Guaranty Agreement (the “Restated Credit Agreement”). The Restated Credit Agreement changed the Credit Agreement to an $8.9 million multi-draw term loan credit facility (of which approximately $6.4 million was outstanding and $2.5 million was available to be drawn pursuant to the terms of the Restated Credit Agreement on substantially similar terms as the then outstanding amounts owed to the Lender); modified the Credit Agreement to adjust certain EBITDA calculations in connection with the purchase of Bango Oil and the sale of the Bango Plant as described above; provided for approval for us to exercise the Purchase Option, enter into and effect the transactions contemplated

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by a Membership Interest Purchase Agreement, Subscription Agreement, and the Sale Agreement, and allowed for the issuance of the Fox Note (defined below) and a Mortgage securing such obligation, confirmed that we were required to make payments of $800,000 per quarter from June 30, 2016 through maturity (May 2, 2019); provided us a moratorium on the prepayment of amounts owed under the Restated Credit Agreement as a result of various financial ratios we are required to meet through December 31, 2016; provided for us to retain any business interruption insurance proceeds received in connection with the Bango Plant; provided for us to pay $16 million received at closing from the sale of the Bango Assets, all amounts released from escrow and any other cash proceeds in excess of $500,000 received from the Sale Agreement after closing to the Lender as prepayment of amounts due under the Restated Credit Agreement; allowed us the right to make certain permitted acquisitions moving forward, without further consent of the Lender, provided that among other requirements, such acquisitions are in the same business or line of business as the Company, that such acquired businesses have generated consolidated adjusted EBITDA for the four fiscal quarters preceding such acquisition in excess of capital expenditures for such period (taking into account adjustments acceptable to the Agent for synergies expected to be achieved within the 90 days following the closing of such acquisition), and that the funding for such acquisition comes from certain limited sources set forth in greater detail in the Restated Credit Agreement; adjusted certain fixed charge coverage ratios and leverage ratios we were required to meet on a quarterly basis from September 30, 2016 to maturity; required us to maintain at least $2 million of liquidity at all times; provided that events of default under the Credit Agreement include events of default under the Fox Note (defined below); and made various other updates and changes to take into account transactions which had occurred through the date of such agreement, and to remove expired and non-material terms of the prior Credit Agreement. The Credit Agreement was terminated effective February 1, 2017.

MidCap Loan Agreement

Effective March 27, 2015, the Company, Vertex Operating and all of the Company’s other subsidiaries other than E-Source and Golden State Lubricant Works, LLC entered into a Loan and Security Agreement with MidCap Business Credit LLC (“MidCap” and the “MidCap Loan Agreement”). Pursuant to the MidCap Loan Agreement, MidCap agreed to loan us up to the lesser of (i) $7 million; and (ii) 85% of the amount of accounts receivable due to us which meet certain requirements set forth in the MidCap Loan Agreement (“Qualified Accounts”), plus the lesser of (y) $3 million and (z) 50% of the cost or market value, whichever is lower, of our raw material and finished goods which had not yet been sold, subject to the terms and conditions of the MidCap Loan Agreement (“Eligible Inventory”), minus any amount which MidCap may require from time to time in order to over secure amounts owed to MidCap under the MidCap Loan Agreement, as long as no event of default had occurred or was continuing under the terms of the MidCap Loan Agreement. The requirement of MidCap to make loans under the MidCap Loan Agreement was subject to certain standard conditions and requirements.

On November 9, 2015, we and certain of our subsidiaries entered into a First Amendment to Loan and Security Agreement (the “Midcap First Amendment”). The Midcap First Amendment amended the Midcap Loan Agreement to add Vertex Refining OH, LLC ("Vertex OH") as a party thereto; remove Vertex OH’s requirement to enter into a negative pledge agreement with MidCap; created separate maximum borrowing base credit limits for Vertex OH’s accounts and customers ($100,000 maximum per customer, subject to certain exceptions); excluded customers who are based outside of the U.S. or Canada from the credit limits if backed by a bank letter of credit or covered by a foreign receivables insurance policy; removed inventory of Vertex OH from the definition of Eligible Inventory under the Midcap Loan Agreement; and provided that additional affiliates of the Company may become party to the Midcap Loan Agreement by executing an assumption agreement and revolving note in favor of Midcap. The MidCap Loan Agreement was terminated effective February 1, 2017.

Fox Note

On January 29, 2016, Vertex OH, borrowed $5.15 million from Fox Encore 05 LLC, the prior owner of Bango Oil ("Fox Encore") and provided a Promissory Note to Fox Encore to reflect such borrowed funds (the “Fox Note”). The Fox Note bears interest at 10% percent per annum (15% upon the occurrence of an event of default), payable monthly in arrears beginning on February 29, 2016. The principal and all accrued and unpaid interest on the Fox Note was due on the earlier of (a) July 31, 2016 (as may be extended by Vertex OH as discussed below, the “Maturity Date”), or (b) upon acceleration of the Fox Note during the existence of an event of default as discussed therein. Provided that no event of default was then existing on the Fox Note or under any other loan document associated therewith, and certain other requirements as described in the Fox Note are met, Vertex OH had the right to three (3) extension options (each, an “Extension Option”) pursuant to which Vertex OH could extend the Maturity Date for six (6) months each. The first extension extended the Maturity Date of the Fox Note until January 31, 2017 and Vertex OH exercised this Extension Option on June 16, 2016. The second extension would have extended the Maturity Date of the Fox Note until July 31, 2017, and the third extension would have extended the Maturity Date of the Fox Note until January 29, 2018. Upon exercising an Extension Option, Vertex OH was required to pay Fox Encore an extension fee equal to 3% of the then outstanding principal amount of the Fox Note, which amount was separate from, and is not applied toward, the outstanding indebtedness owed under

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the Fox Note; provided, however, upon exercise of the initial Extension Option, the 3% fee for such extension was not required to be paid in cash but instead only resulted in the termination of a prepayment discount described below. The Fox Note could be prepaid in whole or in part at any time without penalty, provided that if repaid in full by July 31, 2016, the amount to be repaid was to be decreased by $150,000. The Fox Note was secured by a Mortgage. The Fox Note included certain standard and customary financial reporting requirements, notice requirements, indemnification requirements, covenants and events of default. The Fox Note also included a provision allowing the Lender (or any other lender party to the Restated Credit Agreement) to purchase the Fox Note upon the occurrence of an event of default under the Restated Credit Agreement. In July 2016, we exercised the first Extension Option, extending the Maturity Date of the Fox Note to January 31, 2017. The Fox Note was repaid in full effective February 1, 2017.

Texas Citizens Bank Loan Agreement

The Company has notes payable to Texas Citizens Bank bearing interest at 5.50% per annum, maturing on January 7, 2020.  The balances of the notes payable are $966,847 and $1,531,506 at September 30, 2017 and December 31, 2016, respectively.

Insurance Premiums

The Company financed insurance premiums through various financial institutions bearing interest rates from 4.00% to 4.52%. All such premium finance agreements have maturities of less than one year and have a balance of $1,489,881 at September 30, 2017 and $1,060,065 at December 31, 2016.

Capital Leases

On May 2, 2014, in connection with the closing of the Omega Refining acquisition, the Company assumed two capital leases. Payments made since 2014 have reduced the capital lease obligation to $0 and $133,153 at September 30, 2017 and December 31, 2016, respectively.

The Company's outstanding debt facilities as of September 30, 2017 and December 31, 2016 are summarized as follows:

Creditor	Loan Type	Origination Date	Maturity Date	Loan Amount		Balance on September 30, 2017			Balance on December 31, 2016
Encina Business Credit, LLC	Term Loan	February 1, 2017	February 1, 2020	$	20,000,000	$	13,975,000		$	—
Encina Business Credit SPV, LLC	Revolving Note	February 1, 2017	February 1, 2020	$	10,000,000	3,738,483			—
MidCap Revolving Line of Credit	Revolving Note	March, 2015	March, 2017 (1)	$	7,000,000	—			2,726,039
Goldman Sachs USA	Term Loan - Restated Credit Agreement	January 29, 2016	May 2, 2019 (1)	$	8,900,000	—			4,000,000
Fox Encore Promissory Note	Promissory Note	January 29, 2017	January 31, 2017 (1)	$	5,150,000	—			5,150,000
Pacific Western Bank	Capital Lease	September, 2012	August, 2017	$	3,154,860	—			133,153
Texas Citizens Bank	Term Note	January, 2015	January, 2020	$	2,045,500	966,847			1,531,506
Various institutions	Insurance premiums financed	Various	< 1 year	$	2,902,428	1,489,881			1,060,065
Total						$	20,170,211		$	14,600,763
Deferred finance cost, net						(1,384,944		)	(244,178		)
Total, net of deferred finance costs						$	18,785,267		$	14,356,585

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(1) Paid in full and terminated on February 1, 2017.

Future contractual maturities of notes payable are summarized as follows:

Creditor	Year 1			Year 2			Year 3			Year 4		Year 5		Thereafter
Encina Business Credit, LLC	$	3,738,483		$	—		$	—		$	—	$	—	$	—
Encina Business Credit SPV, LLC	900,000			900,000			900,000			11,275,000		—		—
Texas Citizens Bank	488,194			478,653						—		—		—
Various institutions	1,489,881			—			—			—		—		—
Totals	6,616,558			1,378,653			900,000			11,275,000		—		—
Deferred finance costs, net	(581,479		)	(581,479		)	(221,986		)	—		—		—
Totals, net of deferred finance costs	$	6,035,079		$	797,174		$	678,014		$	11,275,000	$	—	$	—

NOTE 7. EARNINGS PER SHARE

Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the periods presented. The calculation of basic earnings per share for the three and nine months ended September 30, 2017 and September 30, 2016, respectively, includes the weighted average of common shares outstanding. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity, such as convertible preferred stock, stock options, warrants or convertible securities. Due to their anti-dilutive effect, the calculation of diluted earnings per share for the three and nine months ended September 30, 2017 and September 30, 2016 excludes: 1) options to purchase 3,030,249 and 2,777,552 shares, respectively, of common stock, 2) warrants to purchase 7,353,061 and 4,252,135 shares, respectively, of common stock, 3) Series B Preferred Stock which is convertible into 3,376,938 and 4,895,244 shares, respectively, of common stock, 4) Series B1 Preferred Stock which is convertible into 12,862,572 and 12,501,558 shares, respectively, of common stock, 5) Series A Preferred Stock which is convertible into 456,608 and 492,716 shares, respectively, of common stock, and 6) 31,568 and 44,000 shares, respectively, of Series C Preferred Stock, which is convertible into 3,156,800 and 4,400,000 shares of common stock, respectively.

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The following is a reconciliation of the numerator and denominator for basic and diluted earnings per share for the three and nine months ended September 30, 2017 and 2016: 

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Basic Earnings per Share
Numerator:
Net (loss) income available to common shareholders	$	(3,829,125	)	$	(1,047,564	)	$	(10,572,545	)	$	(9,543,203	)
Denominator:
Weighted-average shares outstanding	32,655,135			30,576,485			32,651,961			29,884,836
Basic earnings per share	$	(0.12	)	$	(0.03	)	$	(0.32	)	$	(0.32	)
Diluted Earnings per Share
Numerator:
Net (loss) income available to common shareholders	$	(3,829,125	)	$	(1,047,564	)	$	(10,572,545	)	$	(9,543,203	)
Denominator:
Weighted-average shares outstanding	32,655,135			30,576,485			32,651,961			29,884,836
Effect of dilutive securities
Stock options and warrants	—			—			—			—
Preferred Stock	—			—			—			—
Diluted weighted-average shares outstanding	32,655,135			30,576,485			32,651,961			29,884,836
Diluted earnings per share	$	(0.12	)	$	(0.03	)	$	(0.32	)	$	(0.32	)

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NOTE 8. COMMON STOCK

The total number of authorized shares of the Company’s common stock is 750,000,000 shares, $0.001 par value per share. As of September 30, 2017, there were 32,655,135 common shares issued and outstanding.

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

Common stock activity during the nine months ended September 30, 2017 was as follows:

• On January 27, 2017, the Company issued 66,564 shares of common stock in connection with the conversion of 66,564 shares of Series B1 Convertible Preferred Stock.

• On January 30, 2017, the Company issued 10,000 shares of common stock in connection with the conversion of 10,000 shares of Series B1 Convertible Preferred Stock.

• On February 2, 2017, the Company issued 30,072 shares of common stock in connection with the conversion of 30,072 shares of our Series A Convertible Preferred Stock.

• On March 10, 2017, the Company received and cancelled 1,108,928 shares of common stock previously held in escrow as part of the escrow fulfillment of the sale of the Vertex Refining NV assets to Safety-Kleen System, Inc. (the "Bango Sale"). The sales agreement is more fully described in Note 4. Disposition.

• On May 12, 2017, the Company issued 6,036 shares of common stock in connection with the conversion of 6,036 shares of our Series A Convertible Preferred Stock.

• On May 26, 2017, the Company issued 500,000 shares of common stock in connection with the Nickco acquisition, which is more fully described in Note 12. Acquisition.

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NOTE 9.  PREFERRED STOCK AND DETACHABLE WARRANTS

The total number of authorized shares of the Company’s preferred stock is 50,000,000 shares, $0.001 par value per share. The total number of designated shares of the Company’s Series A Convertible Preferred Stock is 5,000,000 (“Series A Preferred”). The total number of designated shares of the Company’s Series B Preferred Stock is 10,000,000. The total number of designated shares of the Company’s Series B1 Preferred Stock is 17,000,000. The number of designated shares of the Company's Series C Preferred Stock is 44,000. As of September 30, 2017 and December 31, 2016, there were 456,608 shares and 492,716 shares of Series A Preferred Stock issued and outstanding, respectively. As of September 30, 2017 and December 31, 2016, there were 3,376,938 and 3,229,409 shares of Series B Preferred Stock issued and outstanding, respectively. In connection with the May 2016 Purchase Agreement described below under "Series B1 Preferred Stock and Temporary Equity", 3,575,070 shares of Series B Preferred Stock were repurchased and retired. As of September 30, 2017 and December 31, 2016, there were 12,862,572 and 12,282,638 shares of Series B1 Preferred Stock issued and outstanding, respectively. As of both September 30, 2017 and December 31, 2016, there were 31,568 shares of Series C Preferred Stock issued and outstanding. The 31,568 shares of Series C Preferred Stock are convertible into 3,156,800 shares of Common Stock.

Series A Preferred

Holders of outstanding shares of Series A Preferred are entitled to receive dividends, when, as, and if declared by our Board of Directors. No dividends or similar distributions may be made on shares of capital stock or securities junior to our Series A Preferred until dividends in the same amount per share on our Series A Preferred have been declared and paid. In connection with a liquidation, winding-up, dissolution or sale of the Company, each share of our Series A Preferred is entitled to receive $1.49 prior to similar liquidation payments due on shares of our common stock or any other class of securities junior to the Series A Preferred. Shares of Series A Preferred are not entitled to participate with the holders of our common stock with respect to the distribution of any remaining assets of the Company.

Each share of Series A Preferred is entitled to that number of votes equal to the number of whole shares of common stock into which it is convertible. Generally, holders of our common stock and Series A Preferred vote together as a single class.

Shares of Series A Preferred automatically convert into shares of our common stock on the earliest to occur of the following:

• The affirmative vote or written consent of the holders of a majority of the then-outstanding shares of Series A Preferred;

• If the closing market price of our common stock averages at least $15.00 per share over a period of 20 consecutive trading days and the daily trading volume averages at least 7,500 shares over such period;

• If we consummate an underwritten public offering of our securities at a price per share not less than $10.00 and for a total gross offering amount of at least $10 million; or

• If a sale of the Company occurs resulting in proceeds to the holders of Series A Preferred of a per share amount of at least $10.00.

Each share of Series A Preferred converts into one share of common stock, subject to adjustment.

Series B Preferred Stock and Temporary Equity

Dividends on our Series B Preferred Stock accrue at an annual rate of 6% of the original issue price of the preferred stock ($3.10 per share), subject to increase under certain circumstances, and are payable on a quarterly basis. The dividends are payable by the Company, at the Company’s election, in registered common stock of the Company (if available) or cash. In the event dividends are paid in registered common stock of the Company, the number of shares payable will be calculated by dividing (a) the accrued dividend by (b) 90% of the arithmetic average of the volume weighted average price (VWAP) of the Company’s common stock for the 10 trading days immediately prior to the applicable date of determination (the “June 2015 Dividend Stock Payment Price”). Notwithstanding the foregoing, in no event may the Company pay dividends in common stock unless the applicable June 2015 Dividend Stock Payment Price is above $2.91. If the Company is prohibited from paying or chooses not to pay, the dividend in cash (due to contractual senior credit agreements or other restrictions) or is unable to pay the dividend in registered common stock, the dividend can be paid in-kind in Series B Preferred Stock shares at $3.10 per share.

The Series B Preferred Stock include a liquidation preference (in the amount of $3.10 per share) which is junior to the Company’s previously outstanding shares of preferred stock, senior credit facilities and other debt holders as provided in further detail in the designation and senior to the Series C Preferred Stock and pari passu with the Series B1 Preferred Stock.

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The Series B Preferred Stock (including accrued and unpaid dividends) is convertible into shares of the Company’s common stock at the holder’s option at $3.10 per share (initially a one-for-one basis). If the Company’s common stock trades at or above $6.20 per share for a period of 20 consecutive trading days, the Company may at such time force conversion of the Series B Preferred Stock (including accrued and unpaid dividends) into common stock of the Company.

The Series B Preferred Stock votes together with the common stock on an as-converted basis, provided that each holder’s voting rights are subject to and limited by the Series B Beneficial Ownership Limitation described below.

The Company has the option to redeem the outstanding shares of Series B Preferred Stock at $3.10 per share, plus any accrued and unpaid dividends on such Series B Preferred Stock redeemed, at any time beginning on June 24, 2017, and the Company is required to redeem the Series B Preferred Stock at $3.10 per share, plus any accrued and unpaid dividends, on June 24, 2020. Notwithstanding either of the foregoing, the Series B Preferred Stock may not be redeemed unless and until amounts outstanding under the Company’s senior credit facility have been paid in full.

The Series B Preferred Stock contains a provision prohibiting the conversion of such Series B Preferred Stock into common stock of the Company, if upon such conversion, the holder thereof would beneficially own more than 9.999% of the Company’s then outstanding common stock (the “Series B Beneficial Ownership Limitation”). The Series B Beneficial Ownership Limitation does not apply to forced conversions undertaken by the Company pursuant to the terms of the designation (summarized above).

On June 24, 2015, we closed the transactions contemplated by the June 19, 2015 Unit Purchase Agreement (the “June 2015 Purchase Agreement”) we entered into with certain institutional investors (the “June 2015 Investors”), pursuant to which the Company sold the Investors an aggregate of 8,064,534 units (the “June 2015 Units”), each consisting of (i) one share of Series B Preferred Stock and (ii) one warrant to purchase one-half of a share of common stock of the Company (each a “June 2015 Warrant” and collectively, the “June 2015 Warrants”). The Units were sold at a price of $3.10 per Unit (the “June 2015 Unit Price”) (a 6.1% premium to the closing bid price of the Company’s common stock on the NASDAQ Capital Market on the date the June 2015 Purchase Agreement was entered into which was $2.91 per share (the “June 2015 Closing Bid Price”)). The June 2015 Warrants have an exercise price of $2.92 per share ($0.01 above the June 2015 Closing Bid Price). Total gross proceeds from the offering of the June 2015 Units (the “June 2015 Offering”) were $25.0 million.

The Placement Agent received a commission equal to 6.5% of the gross proceeds (less $4.0 million raised from certain investors in the June 2015 Offering for which they received no fee) from the June 2015 Offering, for an aggregate commission of $1.4 million which was netted against the proceeds.

We used the net proceeds from the June 2015 Offering to repay amounts owed under the Goldman Credit Agreement in the amount of $15.1 million.

In addition, under the June 2015 Purchase Agreement, the Company agreed to register the shares of common stock issuable upon conversion of the Series B Preferred Stock and upon exercise of the June 2015 Warrants under the Securities Act of 1933, as amended, for resale by the June 2015 Investors. The Company committed to file a registration statement on Form S-1 by the 30th day following the closing of the June 2015 Offering (which filing date was met) and to cause the registration statement to become effective by the 90th day following the closing (or, in the event of a “full review” by the Securities and Exchange Commission, the 120th day following the closing), which registration statement was declared effective by the Securities and Exchange Commission (SEC) on August 6, 2015, provided that a post-effective amendment to that registration statement was declared effective by the SEC on August 31, 2016. The June 2015 Purchase Agreement provides for liquidated damages upon the occurrence of certain events, including, but not limited to, the failure by the Company to cause the registration statement to become effective by the deadlines set forth above. The amount of the liquidated damages is 1.0% of the aggregate subscription amount paid by a June 2015 Investor for the June 2015 Units affected by the event that are still held by the June 2015 Investor upon the occurrence of the event, due on the date immediately following the event that caused such failure (or the 30th day following such event if the event relates to the suspension of the registration statement as described in the June 2015 Purchase Agreement), and each 30 days thereafter, with such payments to be prorated on a daily basis during each 30 day period, subject to a maximum of an aggregate of 6% per annum.

Under the June 2015 Purchase Agreement, the Company agreed to indemnify the Investors for liabilities arising out of or relating to (i) any untrue statement of a material fact contained in the registration statement, (ii) any inaccuracy in the representations and warranties of the Company contained in the June 2015 Purchase Agreement or the failure of the Company to perform its obligations under the June 2015 Purchase Agreement and (iii) any failure by the Company to fulfill any undertaking included in the registration statement, subject to certain exceptions. The June 2015 Investors, severally, and not jointly agreed to indemnify the Company against (i) any failure by such June 2015 Investor to comply with the covenants and agreements contained in the June 2015 Purchase

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Agreement and (ii) any untrue statement of a material fact contained in the registration statement to the extent such untrue statement was made in reliance upon and in conformity with written information furnished by or on behalf of that June 2015 Investor specifically for use in preparation of the registration statement, subject to certain exceptions.

The June 2015 Warrants were valued using the Dynamic Black Scholes Merton formula pricing model that computes the impact of share dilution upon the exercise of the warrant shares at $7,028,067. The Black-Scholes inputs used were: expected dividend rate of 0%, expected volatility of 70%-100%, risk free interest rate of 1.59%, and expected term of 5.5 years. This valuation resulted in a beneficial conversion feature on the convertible preferred stock of $5,737,796. This amount will be accreted over the term as a deemed dividend. Fees in the amount of $1.4 million relating to the stock placement were netted against proceeds. The June 2015 Warrants are exercisable beginning on December 26, 2015, and expire on December 24, 2020.

In connection with the May 2016 Purchase Agreement described below under "Series B1 Preferred Stock and Temporary Equity", certain funds received in that offering totaling $11,189,838 were used to immediately repurchase and retire 3,575,070 shares of Series B Preferred Stock and pay the accrued but unpaid dividends due thereon and on certain other shares of Series B Preferred Stock held by those holders (the “Repurchases”). In connection with this transaction, $5,408,131 of unaccreted discount on these 3,575,070 shares of Series B Preferred Stock which were retired, was immediately recognized, which represents the pro-rata portion of the unaccreted discount.

The following table represents the carrying amount of the Series B Preferred Stock, classified as Temporary Equity on the accompanying Consolidated Balance Sheet, at inception and as of September 30, 2017 and December 31, 2016:

Temporary Equity:
At Inception	June 24, 2015
Face amount of Series B Preferred	$	25,000,000
Less: warrant value	7,028,067
Less: beneficial conversion feature	5,737,796
Less: issuance costs and fees	1,442,462
Carrying amount at inception	$	10,791,675
	September 30, 2017		December 31, 2016
Face amount of Series B Preferred	$	25,000,000	$	25,000,000
Less: repurchase of 3,575,070 shares	11,189,838		11,189,838
Less: conversions of shares to common stock	5,386,341		5,386,341
Plus: dividends in kind	2,042,520		1,164,701
Less: unaccreted discount	3,653,817		3,912,055
Carrying amount	$	6,812,524	$	5,676,467

In accordance with ASC 815-40-25 and ASC 815-10-15 Derivatives and Hedging and ASC 480-10-25 Liabilities-Distinguishing Liabilities from Equity, the convertible preferred shares are accounted for net outside of stockholders’ equity at $6,812,524 with the June 2015 Warrants accounted for as liabilities at their fair value of $644,382 and $1,952,565 as of September 30, 2017 and December 31, 2016, respectively. The value of the derivative warrant liability will be re-measured at each reporting period with changes in fair value recorded in earnings. To derive an estimate of the fair value of these June 2015 Warrants, the Company utilized a Dynamic Black Scholes Merton formula that computes the impact of share dilution upon the exercise of the warrant shares. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price and volatility assumptions to dynamically adjust the payoff of the June 2015 Warrants in the presence of the dilution effect. In the event the convertible preferred shares are redeemed, any redemption price in excess of the carrying amount of the convertible preferred stock would be treated as a dividend.

The warrants related to the June 2015 Series B Preferred Stock and the May 2016 Series B1 Preferred Stock were revalued at September 30, 2017 and December 31, 2016 using the Dynamic Black Scholes model that computes the impact of a possible change in control transaction upon the exercise of the warrant shares at approximately $1,689,090 and $4,365,992, respectively. At September 30, 2017, the June 2015 Warrants and the May 2016 Warrants were valued at approximately $644,382 and $1,044,708, respectively. The Dynamic Black Scholes Merton inputs used were: expected dividend rate of 0%, expected volatility of 78%-100%, risk free interest rate of 1.14%, and expected term of 2.62 years (June 2015 Warrants) and 4.81 years (May 2016 Warrants).

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The Certificate of Designation of the Series B Preferred Stock contains customary anti-dilution protection for proportional adjustments (e.g. stock splits). The beneficial conversion feature (BCF) relates to potential differences between the effective conversion price (measured based on proceeds allocated to the Series B Preferred Stock) and the fair value of the stock into which Preferred B Shares are currently convertible (common stock). If a conversion option embedded in a debt host instrument does not require separate accounting as a derivative instrument under ASC 815, the convertible hybrid instrument must be evaluated under ASC 470-20 for the identification of a possible BCF. The BCF was initially recognized as an offsetting reduction to Series B Preferred Stock (debit) - Temporary Equity, with the credit being recognized in equity (additional paid-in capital). The resulting issuance costs, discount, value allocated to warrants, and BCF should be accreted to the Series B Preferred Stock to ensure that the Series B Preferred Stock balance is equal to its face value as of the redemption or conversion date, if conversion is expected earlier.

The initial BCF of the Series B Preferred Stock was determined by calculating the intrinsic value of the conversion feature as follows:

Face amount of Series B Preferred Stock	$	25,000,000
Less: allocated value of Warrants	7,028,067
Allocated value of Series B Preferred Stock	$	17,971,933
Shares of Common stock to be converted	8,064,534
Effective conversion price	$	2.23
Market price	$	2.94
Intrinsic value per share	$	0.7115
Intrinsic value of beneficial conversion feature	$	5,737,796

As of September 30, 2017 and December 31, 2016, respectively, a total of $139,186 and $214,227 of dividends were accrued on our outstanding Series B Preferred Stock. We were prohibited from paying such dividends in shares of common stock because the applicable June 2015 Dividend Stock Payment Price was below $2.91. In the event the applicable June 2015 Dividend Stock Payment Price is below $2.91 we are required to pay such dividend in cash or in-kind in additional shares of Series B Preferred Stock, and we chose to pay such dividends in-kind.

Series B1 Preferred Stock and Temporary Equity

Dividends on our Series B1 Preferred Stock accrue at an annual rate of 6% of the original issue price of the preferred stock ($1.56 per share), subject to increases under certain circumstances, and are payable on a quarterly basis. The dividends are payable by the Company, at the Company’s election, in registered common stock of the Company (if available) or cash. In the event dividends are paid in registered common stock of the Company, the number of shares payable will be calculated by dividing (a) the accrued dividend by (b) 90% of the arithmetic average of the volume weighted average price (VWAP) of the Company’s common stock for the 10 trading days immediately prior to the applicable date of determination (the “May 2016 Dividend Stock Payment Price”). Notwithstanding the foregoing, in no event may the Company pay dividends in common stock unless the applicable May 2016 Dividend Stock Payment Price is above $1.52. If the Company is prohibited from paying, or chooses not to pay, the dividend in cash (due to contractual senior credit agreements or other restrictions) or is unable to pay the dividend in registered common stock, the dividend can be paid in-kind in Series B1 Preferred Stock shares at $1.56 per share.

The Series B1 Preferred Stock include a liquidation preference (in the amount of $1.56 per share) which is junior to the Company’s previously outstanding shares of preferred stock, except the Series B Preferred Stock, which it is pari passu with, senior credit facilities and other debt holders as provided in further detail in the designation and senior to the Series C Preferred Stock.

The Series B1 Preferred Stock (including accrued and unpaid dividends) is convertible into shares of the Company’s common stock at the holder’s option at $1.56 per share (initially a one-for-one basis). If the Company’s common stock trades at or above $3.90 per share for a period of 20 consecutive trading days, after certain triggering events occur, the Company may at such time force conversion of the Series B1 Preferred Stock (including accrued and unpaid dividends) into common stock of the Company.

The Series B1 Preferred Stock votes together with the common stock on an as-converted basis, provided that each holder’s voting rights are subject to and limited by the Series B1 Beneficial Ownership Limitation described below.

The Company has the option to redeem the outstanding shares of Series B1 Preferred Stock at $1.72 per share, plus any accrued and unpaid dividends on such Series B1 Preferred Stock redeemed, at any time beginning on June 24, 2017, and the Company

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is required to redeem the Series B1 Preferred Stock at $1.56 per share, plus any accrued and unpaid dividends, on June 24, 2020. Notwithstanding either of the foregoing, the Series B1 Preferred Stock may not be redeemed unless and until amounts outstanding under the Company’s senior credit facility have been paid in full.

The Series B1 Preferred Stock and May 2016 Warrants (defined below) contain provisions prohibiting the conversion of such Series B1 Preferred Stock into common stock of the Company, if upon such conversion, the holder thereof would beneficially own more than 9.999% (4.999% for certain holders) of the Company’s then outstanding common stock (the “Series B1 Beneficial OwnershipLimitation”). The Series B1 Beneficial Ownership Limitation does not apply to forced conversions undertaken by the Company pursuant to the terms of the Designation (summarized above).

On May 10, 2016, we entered into a Unit Purchase Agreement (the “May 2016 Purchase Agreement”) with certain institutional investors (the “May 2016 Investors”), pursuant to which, on May 13, 2016, the Company sold the May 2016 Investors an aggregate of 12,403,683 units (the "May 2016 Units”), each consisting of (i) one share of Series B1 Preferred Stock and (ii) one warrant to purchase one-quarter of a share of common stock of the Company (each a “May 2016 Warrant” and collectively, the "May 2016 Warrants”). The Units were sold at a price of $1.56 per Unit (the “May 2016 Unit Price”) (a 2.6% premium to the closing bid price of the Company’s common stock on the NASDAQ Capital Market on the date the May 2016 Purchase Agreement was entered into which was $1.52 per share (the “May 2016Closing Bid Price”)). The May 2016 Warrants have an exercise price of $1.53 per share ($0.01 above the May 2016 Closing Bid Price). Total gross proceeds from the offering of the Units (the “May 2016 Offering”) were $19.4 million.

A total of $18,649,738 of the securities sold in the May 2016 Offering were purchased by investors who participated in the Company’s prior June 2015 offering of Series B Preferred Stock and warrants to purchase shares of common stock. A total of 60% of the funds received from such investors were used to immediately repurchase such investors’ Series B Preferred Stock. As a result, a total of $11,189,838 of the proceeds raised in the May 2016 Offering were used to immediately repurchase and retire 3,575,070 shares of Series B Preferred Stock (the “Repurchases”).

The Placement Agent in the offering received a commission equal to 6.5% of the net proceeds from the May 2016 Offering, after affecting the Repurchases described above, for an aggregate commission of $0.61 million which was netted against the proceeds raised.

We used the net proceeds from the May 2016 Offering to repay amounts owed under the Credit Agreement in the amount of $0.8 million and the remaining proceeds were used for working capital purposes and potential acquisitions.

In addition, under the May 2016 Purchase Agreement, the Company agreed to register the shares of common stock issuable upon conversion of the Series B1 Preferred Stock and upon exercise of the May 2016 Warrants under the Securities Act of 1933, as amended, for resale by the May 2016 Investors. The Company committed to file a registration statement on Form S-1 by the 30th day following the closing of the May 2016 Offering (which filing date was met) and to cause the registration statement to become effective by the 90th day following the closing (or, in the event of a “full review” by the Securities and Exchange Commission, the 120th day following the closing), which registration statement was declared effective by the SEC on August 10, 2016. The May 2016 Purchase Agreement provides for liquidated damages upon the occurrence of certain events, including, but not limited to, the failure by the Company to cause the registration statement to become effective by the deadlines set forth above. The amount of the liquidated damages is 1.0% of the aggregate subscription amount paid by a May 2016 Investor for the May 2016 Units affected by the event that are still held by the May 2016 Investor upon the occurrence of the event, due on the date immediately following the event that caused such failure (or the 30th day following such event if the event relates to the suspension of the registration statement as described in the May 2016 Purchase Agreement), and each 30 days thereafter, with such payments to be prorated on a daily basis during each 30 day period, subject to a maximum of an aggregate of 6% per annum.

Under the May 2016 Purchase Agreement, the Company agreed to indemnify the May 2016 Investors for liabilities arising out of or relating to (i) any untrue statement of a material fact contained in the registration statement, (ii) any inaccuracy in the representations and warranties of the Company contained in the May 2016 Purchase Agreement or the failure of the Company to perform its obligations under the May 2016 Purchase Agreement and (iii) any failure by the Company to fulfill any undertaking included in the registration statement, subject to certain exceptions. The Investors, severally, and not jointly agreed to indemnify the Company against (i) any failure by such Investor to comply with the covenants and agreements contained in the May 2016 Purchase Agreement and (ii) any untrue statement of a material fact contained in the registration statement to the extent such untrue statement was made in reliance upon and in conformity with written information furnished by or on behalf of that Investor specifically for use in preparation of the registration statement, subject to certain exceptions.

The Company agreed pursuant to the May 2016 Purchase Agreement, that until 60 days following effectiveness of the registration

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statement filed, to register the shares of common stock underlying the Series B1 Preferred Stock and May 2016 Warrants (the “May 2016 Lock-Up Period”), to not offer or sell any common stock or securities convertible or exercisable into common stock, except pursuant to certain exceptions described in the May 2016 Purchase Agreement, and each of the Company’s officers and directors agreed to not sell or offer for sale any shares of common stock until the end of the May 2016 Lock-Up Period, subject to certain exceptions.

The May 2016 Warrants were valued using the Dynamic Black Scholes Merton formula pricing model that computes the impact of share dilution upon the exercise of the May 2016 Warrant shares at $2,867,264. The Dynamic Black Scholes Merton inputs used were: expected dividend rate of 0%, expected volatility of 70%-100%, risk free interest rate of 1.22%, and expected term of 5.5 years. This valuation resulted in a beneficial conversion feature on the convertible preferred stock of $2,371,106. This amount will be accreted over the term as a deemed dividend. Fees in the amount of $0.6 million relating to the stock placement were netted against proceeds. The May 2016 Warrants are exercisable beginning on November 14, 2016, and expire on November 14, 2021.

The following table represents the carrying amount of the Series B1 Preferred Stock, classified as Temporary Equity on the accompanying Consolidated Balance Sheet, at inception (May 13, 2016), as of September 30, 2017, and December 31, 2016:

Temporary Equity:
At Inception	May 13, 2016
Face amount of Series B1 Preferred	$	19,349,745
Less: May 2016 Warrant value	2,867,264
Less: May 2016 Beneficial Conversion Feature	2,371,106
Less: May 2016 issuance costs and fees	607,880
Carrying amount at inception	$	13,503,495
	September 30, 2017		December 31, 2016
Face amount of Series B1 Preferred	$	19,349,745	$	19,349,745
Less: conversions of shares to common	748,306		628,866
Plus: dividends-in-kind	1,288,282		435,369
Less: unaccreted discount	4,608,971		5,228,460
Carrying amount	$	15,280,750	$	13,927,788

In accordance with ASC 815-40-25 and ASC 815-10-15 Derivatives and Hedging and ASC 480-10-25 Liabilities-Distinguishing Liabilities from Equity, the convertible Series B1 Preferred Stock shares are accounted for net outside of stockholders’ equity at $15,280,750 with the May 2016 Warrants accounted for as liabilities at their fair value of $1,044,708 and $2,413,427 as of September 30, 2017 and December 31, 2016, respectively. The value of the derivative warrant liability will be re-measured at each reporting period with changes in fair value recorded in earnings. To derive an estimate of the fair value of these warrants, the Company utilized a Dynamic Black Scholes Merton formula that computes the impact of share dilution upon the exercise of the May 2016 Warrants. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price and volatility assumptions to dynamically adjust the payoff of the warrants in the presence of the dilution effect. In the event the convertible Series B1 Preferred Stock shares are redeemed, any redemption price in excess of the carrying amount of the convertible Series B1 Preferred Stock would be treated as a dividend.

The Certificate of Designation of the Series B1 Preferred Stock contains customary anti-dilution protection for proportional adjustments (e.g. stock splits). The May 2016 BCF relates to the difference between the effective conversion price (measured based on proceeds allocated to the Series B1 Preferred Stock) and the fair value of the stock into which Series B1 Preferred Stock shares are currently convertible (common stock). If a conversion option embedded in a debt host instrument does not require separate accounting as a derivative instrument under ASC 815, the convertible hybrid instrument must be evaluated under ASC 470-20 for the identification of a possible BCF. The May 2016 BCF was initially recognized as an offsetting reduction (debit) to Series B1 Preferred Stock - Temporary Equity, with the credit being recognized in equity (additional paid-in capital). The resulting May 2016 issuance costs, discount, value allocated to warrants, and BCF should be accreted to the Series B1 Preferred Stock to ensure that the Series B1 Preferred Stock balance is equal to its face value as of the redemption or conversion date, if conversion is expected earlier.

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The May 2016 BCF was determined by calculating the intrinsic value of the conversion feature as follows:

	May 13, 2016
Face amount of Series B1 Preferred Stock	$	19,349,756
Less: allocated value of May 2016 Warrants	2,867,264
Allocated value of Series B1 Preferred Stock	$	16,482,492
Shares of Common stock to be converted	12,403,683
Effective conversion price	$	1.33
Market price	$	1.52
Intrinsic value per share	$	0.19
Intrinsic value of May 2016 beneficial conversion feature	$	2,371,106

As of September 30, 2017 and December 31, 2016, respectively, a total of $281,527 and $290,247 of dividends were accrued on our outstanding Series B1 Preferred Stock. We were prohibited from paying such dividends in shares of common stock because the applicable 2016 Dividend Stock Payment Price was below $1.52. In the event the applicable Dividend Stock Payment Price is below $1.52, we are required to pay such dividend in cash or in-kind in additional shares of Series B1 Preferred Stock, and we choose to pay such dividends in-kind.

The following is an analysis of changes in the derivative liability:

Level Three Roll-Forward
Item	Level 3
Balance at December 31, 2015	$	1,548,604
May 2016 Series B1 Preferred Warrants (described below)	2,867,264
Change in valuation of warrants	(49,876		)
Balance at December 31, 2016	4,365,992
Change in valuation of warrants	(2,676,902		)
Balance at September 30, 2017	$	1,689,090

Series C Convertible Preferred Stock

On January 29, 2016, we sold 44,000 shares of Series C Convertible Preferred Stock ("Series C Preferred Stock"), as described below, in consideration for $4 million.

The Series C Convertible Preferred Stock, authorized on January 29, 2016, does not accrue a dividend, but has participation rights on an as-converted basis, to any dividends paid on the Company’s common stock (other than dividends paid solely in common stock). Each Series C Preferred Stock share has a $100 face value, and a liquidation preference (in the amount of $100 per share) which is junior to the Company’s previously outstanding shares of preferred stock (including the Series B and B1 Preferred Stock), senior credit facilities and other debt holders as provided in further detail in the designation, but senior to the common stock.

The Series C Preferred Stock is convertible into shares of the Company’s common stock at the holder’s option at any time at $1.00 per share (initially each share of Series C Preferred Stock is convertible into 100 shares of common stock (subject to adjustments for stock splits and recapitalizations)). The Series C Preferred Stock votes together with the common stock on an as-converted basis (the "Voting Rights"), provided that each holder’s voting rights are subject to and limited by the Series C Beneficial Ownership Limitation described below and provided further that notwithstanding any of the foregoing, solely for purposes of determining the Voting Rights, the Voting Rights accorded to such Series C Convertible Preferred Stock will be determined as if converted at $1.05 per share (the market value of the common stock as of the close of trading on the day prior to theoriginal issuance date of the Series C Preferred Stock), and subject to equitable adjustment as discussed in the designation. There are no redemption rights associated with the Series C Preferred Stock.

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The Series C Preferred Stock contains a provision prohibiting the conversion of the Series C Preferred Stock into common stock of the Company, if upon such conversion or exercise, as applicable, the holder thereof would beneficially own more than 4.999% of the Company’s then outstanding common stock (the “Series C Beneficial Ownership Limitation”). The Series C Beneficial Ownership Limitation may be increased up and down on a per holder basis, with 61 days prior written notice from any holder, provided the Series C Beneficial Ownership Limitation may never be higher than 9.999%.

So long as any shares of Series C Preferred Stock are outstanding, we are prohibited from undertaking any of the following without first obtaining the approval of the holders of a majority of the outstanding shares of Series C Preferred Stock: (a) increasing or decreasing (other than by conversion) the total number of authorized shares of Series C Preferred Stock; (b) re-issuing any shares of Series C Preferred Stock converted; (c) creating, or authorizing the creation of, or issuing or obligating the Company to issue shares of, any class or series of capital stock unless the same ranks junior to (and not pari passu with) the Series C Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Company, or increasing the authorized number of shares of any additional class or series of capital stock unless the same ranks junior to (and not pari passu with) the Series C Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Company; (d) effecting an exchange, reclassification, or cancellation of all or a part of the Series C Preferred Stock (except pursuant to the terms of the designation); (e) effecting an exchange, or creating a right of exchange, of all or part of the shares of another class of shares into shares of Series C Preferred Stock (except pursuant to the terms of the designation); (f) issuing any additional shares of Series C Preferred Stock; (g) altering or changing the rights, preferences or privileges of the shares of Series C Preferred Stock so as to affect adversely the shares of such series; or (h) amending or waiving any provision of the Company’s Articles of Incorporation or Bylaws relative to the Series C Preferred Stock so as to affect adversely the shares of Series C Preferred Stock in any material respect as compared to holders of other series of shares.

On August 2, 2016, the Company issued 1,243,200 shares of common stock in connection with the conversion of 12,432 shares of Series C Preferred Stock. The outstanding shares of Series C Preferred Stock at both September 30, 2017 and December 31, 2016 totaled 31,568 shares.

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NOTE 10.  SEGMENT REPORTING

The Company’s reportable segments include the Black Oil, Refining & Marketing and Recovery divisions. Segment information for the three and nine months ended September 30, 2017 and 2016 is as follows:

THREE MONTHS ENDED SEPTEMBER 30, 2017
	Black Oil			Refining & Marketing			Recovery			Total
Revenues	$	25,358,317		$	4,856,520		$	2,255,614		$	32,470,451
Income (loss) from operations	$	(2,463,457	)	$	(708,175	)	$	(137,390	)	$	(3,309,022	)

THREE MONTHS ENDED SEPTEMBER 30, 2016
	Black Oil			Refining & Marketing		Recovery			Total
Revenues	$	22,907,235		$	4,436,111	$	1,118,584		$	28,461,930
Income (loss) from operations	$	(404,396	)	$	173,121	$	(354,749	)	$	(586,024	)

NINE MONTHS ENDED SEPTEMBER 30, 2017
	Black Oil			Refining & Marketing			Recovery			Total
Revenues	$	77,546,802		$	15,436,919		$	11,170,123		$	104,153,844
Income (loss) from operations	$	(6,511,277	)	$	(940,476	)	$	(196,853	)	$	(7,648,606	)

NINE MONTHS ENDED SEPTEMBER 30, 2016
	Black Oil			Refining & Marketing			Recovery			Total
Revenues	$	52,877,119		$	9,986,047		$	4,159,812		$	67,022,978
Income (loss) from operations	$	(8,199,842	)	$	(55,847	)	$	(715,973	)	$	(8,971,662	)

NOTE 11. INCOME TAXES

Our effective tax rate of 0% on pretax income differs from the U.S. federal income tax of 34% because of the change in our valuation allowance.

The year to date loss at September 30, 2017 put the Company in an accumulated loss position for the cumulative 12 quarters then ended. For tax reporting purposes, we have net operating losses ("NOLs") of approximately $51.8 million as of September 30, 2017 that are available to reduce future taxable income. In determining the carrying value of our net deferred tax asset, the Company considered all negative and positive evidence. The Company has incurred a pre-tax loss of approximately $8.0 million from January 1, 2017 through September 30, 2017. As a result, the Company created a full valuation allowance of 100% to offset the entire balances of deferred tax assets and deferred tax liabilities.

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NOTE 12. ACQUISITIONS

Acadiana Recovery, LLC

On February 2, 2017, the Company entered into and closed an Asset Purchase Agreement (the "APA") with Acadiana Recovery, LLC ("Acadiana") pursuant to which the Company agreed to buy substantially all of Acadiana's customer relations, vehicles, equipment, supplies and tools for an aggregate purchase price of $710,350. This resulted in the recognition of $389,650 in fixed assets and $320,700 in intangible assets as of the acquisition date. The purchase price allocation is preliminary and subject to change based upon the finalization of our valuation report.

Nickco Recycling, Inc.

On May 1, 2017, the Company entered into and closed an Asset Purchase Agreement (the "APA") with Nickco Recycling, Inc. ("Nickco") pursuant to which the Company agreed to buy substantially all the processing equipment and the rolling stock of Nickco for aggregate consideration of $1,804,000. This included $1,126,730 in cash, 500,000 shares of restricted common stock and contingent consideration of 500,000 shares of common stock, which is payable only if the assets acquired meet a pre-agreed EBITDA target for the 12 calendar months ending on the last day of the 12^th calendar month following closing. This resulted in the recognition of $1,182,000 in fixed assets, $585,000 in net intangible assets, and $203,000 as contingent consideration. The purchase price allocation is preliminary and subject to change based upon the finalization of our valuation report.

Acquisition of Ygriega Assets

On July 16, 2017, the Company entered into and closed an Asset Purchase and Sale Agreement with Ygriega Environmental Services, LLC ("Ygriega") pursuant to which the Company agreed to buy substantially all the collections routes of Ygriega (which related to used oil, used oil filters, used anti-freeze and other related services) and certain other assets, for aggregate consideration of $196,000, which included $162,500 in cash at time of closing plus $87,500 payable in two installments in the next two years contingent on collected oil gallons (i.e., adjustable downward in the event certain targets are not met in such years). The agreement also included a two year non-compete by the seller. This resulted in the recognition of $38,500 in fixed assets, $159,000 in intangibles, a bargain gain of $1,500, and contingent consideration of $33,500. The purchase price allocation is preliminary and subject to change based upon the finalization of our valuation report.

NOTE 13. SUBSEQUENT EVENTS

Issuance of Series B and B1 Preferred Stock Shares In-Kind

We paid the accrued dividends on our Series B Preferred Stock and Series B1 Preferred Stock, which were accrued as of September 30, 2017, in-kind by way of the issuance of 50,659 restricted shares of Series B Preferred Stock pro rata to each of the then holders of our Series B Preferred Stock in July 2017 and the issuance of 289,417 restricted shares of Series B1 Preferred Stock pro rata to each of the then holders of our Series B1 Preferred Stock in July 2017. If converted in full, the 50,659 shares of Series B Preferred Stock would convert into 50,659 shares of common stock and the 289,417 shares of Series B1 Preferred Stock would convert into 289,417 shares of common stock.

On October 20, 2017, the Company issued 3,041 shares of common stock in connection with the conversion by a holder of 3,041 shares of our Series A Convertible Preferred Stock.

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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

• risks associated with our outstanding credit facilities, including amounts owed, restrictive covenants, security interests thereon and our ability to repay such facilities and amounts due thereon when due;

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

• our ability to respond to changes in our industry;

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

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

• our ability to scale our business;

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

• our ability to obtain and retain customers;

• our ability to produce our products at competitive rates;

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

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

• our ability to maintain our relationship with KMTEX;

• the impact of competitive services and products;

• our ability to integrate acquisitions;

• our ability to complete future acquisitions;

• our ability to maintain insurance;

• potential future litigation, judgments and settlements;

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

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

• economic downturns both in the United States and globally;

• risk of increased regulation of our operations and products;

• negative publicity and public opposition to our operations;

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

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

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

• liabilities associated with acquired companies, assets or businesses;

• interruptions at our facilities;

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

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

• our ability to acquire and construct new facilities;

• certain events of default which have occurred under our debt facilities and previously been waived;

• prohibitions on borrowing and other covenants of our debt facilities;

• our ability to effectively manage our growth;

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

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

You should read the matters described in “Risk Factors” and the other cautionary statements made in this Report, and incorporated by reference herein, as being applicable to all related forward-looking statements wherever they appear in this Report. We cannot assure you that the forward-looking statements in this Report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.

This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto and "Part II", "Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for the year ended December 31, 2016 (the "Annual Report").

Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our consolidated financial statements included above under “Part I - Financial Information” - “Item 1. Financial Statements”.

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

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

Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “Vertex”, “Vertex Energy” and “Vertex Energy, Inc.” refer specifically to Vertex Energy, Inc. and its consolidated subsidiaries.

In addition, unless the context otherwise requires and for the purposes of this report only:     

• “Exchange Act” refers to the Securities Exchange Act of 1934, as amended;

• “SEC” or the “Commission” refers to the United States Securities and Exchange Commission; and

• “Securities Act” refers to the Securities Act of 1933, as amended.

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Where You Can Find Other Information

We file annual, quarterly, and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Our SEC filings are available to the public over the Internet at the SEC’s website at www.sec.gov and are available for download, free of charge, soon after such reports are filed with or furnished to the SEC, on the “Investor Relations,” “SEC Filings” page of our website at www.vertexenergy.com. Information on our website is not part of this Report, and we do not desire to incorporate by reference such information herein. You may also read and copy any documents we file with the SEC at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. You can also obtain copies of the document upon the payment of a duplicating fee to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC like us. Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report.

Corporate History:

We were formed as a Nevada corporation on May 14, 2008. Pursuant to an Amended and Restated Agreement and Plan of Merger dated May 19, 2008, by and between Vertex Holdings, L.P. (formerly Vertex Energy, L.P.), a Texas limited partnership (“Holdings”), us, World Waste Technologies, Inc., a California corporation (“WWT” or “World Waste”), Vertex Merger Sub, LLC, a California limited liability company and our wholly-owned subsidiary (“Merger Subsidiary”), and Benjamin P. Cowart, our Chief Executive Officer, as agent for our shareholders (as amended from time to time, the “Merger Agreement”). Effective on April 16, 2009, World Waste merged with and into Merger Subsidiary, with Merger Subsidiary continuing as the surviving corporation and becoming our wholly-owned subsidiary (the “Merger”). In connection with the Merger, (i) each outstanding share of World Waste common stock was canceled and exchanged for 0.10 shares of our common stock; (ii) each outstanding share of World Waste Series A preferred stock was canceled and exchanged for 0.4062 shares of our Series A preferred stock; and (iii) each outstanding share of World Waste Series B preferred stock was canceled and exchanged for 11.651 shares of our Series A Convertible Preferred Stock.

Description of Business Activities:

We are an environmental services company that recycles industrial waste streams and off-specification commercial chemical products. Our primary focus is recycling used motor oil and other petroleum by-products. We are engaged in operations across the entire petroleum recycling value chain including collection, aggregation, transportation, storage, re-refinement, and sales of aggregated feedstock and re-refined products to end users. We operate in three divisions Black Oil, Refining and Marketing, and Recovery.

We currently provide our services in 15 states, primarily in the Gulf Coast, Midwest and Mid-Atlantic regions of the United States. For the rolling twelve month period ending September 30, 2017, we aggregated approximately 103.8 million gallons of used motor oil and other petroleum by-product feedstocks and managed the re-refining of approximately 73.2 million gallons of used motor oil with our proprietary Thermal Chemical Extraction Process (“TCEP”), vacuum gas oil ("VGO"), and Base Oil processes.

Our Black Oil division collects and purchases used motor oil directly from third-party generators, aggregates used motor oil from an established network of local and regional collectors, and sells used motor oil to our customers for use as a feedstock or replacement fuel for industrial burners. We operate a refining facility that uses our proprietary TCEP (which is currently not in operation) and we also utilize third-party processing facilities. We also acquired our Marrero, Louisiana facility, which facility re-refines used motor oil and also produces VGO and our Myrtle Grove re-refining complex in Belle Chasse, Louisiana in May 2014 and at the same time we acquired Golden State Lubricant Works, LLC ("Golden State"), a blending and storage facility in Bakersfield, California which is no longer in operation as of the date of this report.

Our Refining and Marketing division aggregates and manages the re-refinement of used motor oil and other petroleum by-products and sells the re-refined products to end customers.

Our Recovery division includes a generator solutions company for the proper recovery and management of hydrocarbon streams as well as metals which include transportation, dismantling, demolition, decommission and marine salvage services at industrial facilities throughout the Gulf Coast.

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Black Oil Division

Our Black Oil division is engaged in operations across the entire used motor oil recycling value chain including collection, aggregation, transportation, storage, refinement, and sales of aggregated feedstock and re-refined products to end users. We collect and purchase used oil directly from generators such as oil change service stations, automotive repair shops, manufacturing facilities, petroleum refineries, and petrochemical manufacturing operations. We own a fleet of 35 collection vehicles, which routinely visit generators to collect and purchase used motor oil. We also aggregate used oil from a diverse network of approximately 50 suppliers who operate similar collection businesses to ours.

We manage the logistics of transport, storage and delivery of used oil to our customers. We own a fleet of 19 transportation trucks and more than 150 aboveground storage tanks with over 7.3 million gallons of storage capacity. These assets are used by both the Black Oil division and the Refining and Marketing division. In addition, we also utilize third parties for the transportation and storage of used oil feedstocks. Typically, we sell used oil to our customers in bulk to ensure efficient delivery by truck, rail, or barge. In many cases, we have contractual purchase and sale agreements with our suppliers and customers, respectively. We believe these contracts are beneficial to all parties involved because it ensures that a minimum volume is purchased from collectors and generators, a minimum volume is sold to our customers, and we are able to minimize our inventory risk by a spread between the costs to acquire used oil and the revenues received from the sale and delivery of used oil. We have historically used our proprietary TCEP technology to re-refine used oil into marine fuel cutterstock and a higher-value feedstock for further processing (we are currently utilizing TCEP to pre-treat our used motor oil feedstock prior to shipping them to our facility in Marrero, Louisiana; but have not operated our TCEP for the purpose of producing finished cutterstock since the third quarter of fiscal 2015, due to market conditions). In addition, at our Marrero facility we produce a Vacuum Gas Oil (VGO) product that is sold to refineries as well as to the marine fuels market. At our Columbus, Ohio facility (Heartland Petroleum) we produce a base oil product that is sold to lubricant packagers and distributors.

Refining and Marketing Division

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

Recovery Division

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

Biomass Renewable Energy

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

Thermal Chemical Extraction Process

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

TCEP differs from conventional re-refining technologies, such as vacuum distillation and hydrotreatment, by relying more heavily on chemical processes to remove impurities rather than temperature and pressure. Therefore, the capital requirements to build a TCEP plant are typically much less than a traditional re-refinery because large feed heaters, vacuum distillation columns,

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and a hydrotreating unit are not required. Conventional re-refineries produce lubricating base oils or product grades slightly lower than base oil that can be used as industrial fuels or transportation fuel blendstocks.

We currently estimate the cost to construct a new, fully-functional, commercial facility using our TCEP technology, with annual processing capacity of between 25 and 50 million gallons at another location would be approximately $10 - $15 million, which could fluctuate based on throughput capacity. The facility infrastructure would require additional capitalized expenditures which would depend on the location and site specifics of the facility. We are currently utilizing TCEP to pre-treat our used motor oil feedstocks prior to shipping them to our facility in Marrero, Louisiana; but have not operated our TCEP for the purpose of producing finished cutterstock since the third quarter of fiscal 2015, due to market conditions. As such, we currently have no plans to construct additional TCEP facilities.

Products and Services

We generate substantially all of our revenue from the sale of five product categories. All of these products are commodities that are subject to various degrees of product quality and performance specifications.

Used Motor Oil

Used motor oil is a petroleum-based or synthetic lubricant that contains impurities such as dirt, sand, water, and chemicals.

Fuel Oil

Fuel Oil is a distillate fuel which is typically blended with lower quality fuel oils. The distillation of used oil and other petroleum by-products creates a fuel with low viscosity, as well as low sulfur, ash, and heavy metal content, making it an ideal blending agent.

Pygas

Pygas, or pyrolysis gasoline, is a product that can be blended with gasoline as an octane booster or that can be distilled and separated into its components, including benzene and other hydrocarbons.

Gasoline Blendstock

Naphthas and various distillate products used for blending or compounding into finished motor gasoline. These components can include reformulated gasoline blendstock for oxygenate blending (RBOB) but exclude oxygenates (alcohols and ethers), butane, and pentanes plus.

Base Oil

An oil to which other oils or substances are added to produce a lubricant. Typically the main substance in lubricants and base oils is refined from crude oil.

Scrap Metal(s)

 Consists of recoverable ferrous and non-ferrous recyclable metals from manufacturing and consumption.  Scrap metal can be recovered from pipes, barges, boats, building supplies, surplus equipment, tanks, and other items consisting of metal composition.  These materials are segregated, processed, cut-up and sent back to a steel mill for re-purposing.

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Recent Events:

Acquisition, Acadiana Recovery, LLC

On February 2, 2017, the Company entered into and closed an Asset Purchase Agreement (the "APA") with Acadiana Recovery, LLC ("Acadiana") pursuant to which the Company agreed to buy substantially all of Acadiana's customer relations, vehicles, equipment, supplies and tools for an aggregate purchase price of $710,350. This resulted in the recognition of $389,650 in fixed assets and $320,700 in intangible assets as of the acquisition date. The purchase price allocation is preliminary and subject to change based upon the finalization of our valuation report.

Acquisition of Nickco Recycling, Inc.

On May 1, 2017, the Company entered into and closed an Asset Purchase Agreement (the "APA") with Nickco Recycling, Inc. ("Nickco") pursuant to which the Company agreed to buy substantially all the processing equipment and the rolling stock of Nickco for aggregate consideration of $1,804,000. This included $1,126,730 in cash, 500,000 shares of restricted common stock and contingent consideration equal to 500,000 shares of common stock, which is payable only if the assets acquired meet a pre-agreed EBITDA target for the 12 calendar months ending on the last day of the 12^th calendar month following closing. This resulted in the recognition of $1,182,000 in fixed assets, $585,000 in net intangible assets, and $203,000 as contingent consideration. The purchase price allocation is preliminary and subject to change based upon the finalization of our valuation report.

Acquisition of Ygriega Assets

On July 16, 2017, the Company entered into and closed an Asset Purchase and Sale Agreement with Ygriega Environmental Services, LLC. ("Ygriega") pursuant to which the Company agreed to buy substantially all the collection routes of Ygriega (which related to used oil, used oil filters, used anti-freeze and other related services) and certain other assets, for aggregate consideration of $196,000, which included $162,500 in cash at time of closing plus $87,500 payable in two installments in the next two years contingent on collected oil gallons (i.e., adjustable downward in the event certain targets are not met in such years). The agreement also included a two year non-compete by the seller. This resulted in the recognition of $38,500 in fixed assets, $159,000 in intangibles, a bargain gain of $1,500, and contingent consideration of $33,500. The purchase price allocation is preliminary and subject to change based upon the finalization of our valuation report.

Release of Cash Held in Escrow

On July 31, 2017, the $1.5 million of cash held in escrow pursuant to the terms of the Bango Plant transaction was released from escrow and available for our general use.

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RESULTS OF OPERATIONS

Description of Material Financial Line Items:

Revenues

We generate revenues from three existing operating divisions as follows:

BLACK OIL - Revenues from our Black Oil division are comprised primarily of product sales from our re-refineries and feedstock sales (used motor oil) which are purchased from generators of used motor oil such as oil change shops and garages, as well as a network of local and regional suppliers.  Volumes are consolidated for efficient delivery and then sold to third-party re-refiners and fuel oil blenders for the export market.  In addition, through used oil re-refining, we re-refine used oil into different commodity products.  The Houston, Texas TCEP facility finished product is then sold by barge as a fuel oil cutterstock. Through the operations at our Marrero, Louisiana facility, we produce a Vacuum Gas Oil (VGO) product from used oil re-refining which is then sold via barge to crude refineries to be utilized as an intermediate feedstock in the refining process. Through the operations at our Columbus, Ohio facility we produce a base oil finished product which is then sold via truck or rail car to end users for blending, packaging and marketing of lubricants.

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

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

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

Cost of Revenues

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

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

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

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

General and Administrative Expenses

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

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Depreciation and Amortization Expenses

Our depreciation and amortization expenses are primarily related to the property, plant and equipment and intangible assets acquired in connection with the Vertex Holdings, L.P. (formerly Vertex Energy, L.P.), a Texas limited partnership (“Holdings”), E-Source Holdings, LLC (“E-Source”), Omega Refining, LLC's (“Omega Refining”) and Warren Ohio Holdings Co., LLC, f/k/a Heartland Group Holdings, LLC (“Heartland”), Acadiana, Nickco and Ygriega acquisitions, described in greater detail in this report and in the Annual Report.

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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,2017 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30,2016

Set forth below are our results of operations for the three months ended September 30, 2017 as compared to the same period in 2016.

	Three Months Ended September 30,						$ Change - Favorable (Unfavorable)			% Change - Favorable (Unfavorable)
	2017			2016
Revenues	$	32,470,451		$	28,461,930		$	4,008,521		14	%
Cost of revenues (exclusive of depreciation shown separately below)	28,390,891			22,462,171			(5,928,720		)	(26	)%
Gross profit (loss)	4,079,560			5,999,759			(1,920,199		)	(32	)%
Selling, general and administrative expenses	5,690,761			5,025,221			(665,540		)	(13	)%
Depreciation and amortization	1,697,821			1,560,562			(137,259		)	(9	)%
Total operating expenses	7,388,582			6,585,783			(802,799		)	(12	)%
Loss from operations	(3,309,022		)	(586,024		)	(2,722,998		)	(465	)%
Other income (expense):
Interest income	1,519			1,490			29			2	%
Gain (loss) on asset sales	25,693			(68,799		)	94,492			137	%
Gain (loss) on change in value of derivative liability	1,371,461			1,065,217			306,244			29	%
Gain (loss) on futures contracts	(305,570		)	(90,061		)	(215,509		)	(239	)%
Interest expense	(733,459		)	(399,545		)	(333,914		)	(84	)%
Total other income (expense)	359,644			508,302			(148,658		)	(29	)%
Loss before income tax	(2,949,378		)	(77,722		)	(2,871,656		)	(3,695	)%
Income tax benefit (expense)	—			—			—			—	%
Net loss	(2,949,378		)	(77,722		)	(2,871,656		)	(3,695	)%
Non-controlling interest	34,554			30,234			4,320			14	%
Net loss attributable to Vertex Energy, Inc.	$	(2,983,932	)	$	(107,956	)	$	(2,875,976	)	(2,664	)%

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

Total revenues increased by 14% for the three months ended September 30, 2017, compared to the same period in 2016, due primarily to higher commodity prices, a slight increase in volumes, and recent acquisitions during the three months ended September 30, 2017, compared to the same period in 2016. Total volume increased 1% during the three months ended September 30, 2017 compared to the same period in 2016. Volumes were impacted as a result of turnarounds at each of our facilities during the period, as well as operational delays getting feedstock to our facilities as a result of weather challenges in the Gulf of Mexico during the period. Gross profit decreased by 32% for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The majority of this decrease was the result of the operational expenses incurred related to the turnarounds during the period. In our collection division we have successfully maintained a charge for services program. As a result of this program we currently have customers who are charged for each service performed and others who are charged a monthly fee for as many services performed in

9

that month. Although the charges for services are being maintained, with the increase in commodity prices we have had to reduce the amounts we were charging.

Additionally, our per barrel margin decreased 32% for the three months ended September 30, 2017, relative to the three months ended September 30, 2016. This decrease was a result of increased operational costs related to the Marrero and Heartland facilities in addition to compressed product spreads related to increases in our feedstock and product values during the three months ended September 30, 2017, compared to the same period during 2016. The 26% increase in cost of revenues for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 is mainly a result of a slight increase in commodity prices and overhead operating expenses during the period.

Each of our segments’ income (loss) from operations during the three months ended September 30, 2017 and 2016 was as follows: 

	Three Months Ended September 30,						$ Change - Favorable (Unfavorable)			% Change - Favorable (Unfavorable)
Black Oil Segment	2017			2016
Total revenue	$	25,358,317		$	22,907,235		$	2,451,082		11	%
Total cost of revenue (exclusive of depreciation shown separately below)	21,711,255			17,817,032			(3,894,223		)	(22	)%
Gross profit (loss)	3,647,062			5,090,203			(1,443,141		)	(28	)%
Selling general and administrative expense	4,833,256			4,295,374			(537,882		)	(13	)%
Depreciation and amortization	1,277,263			1,199,225			(78,038		)	(7	)%
Income (loss) from operations	$	(2,463,457	)	$	(404,396	)	$	(2,059,061	)	(509	)%
Refining Segment
Total revenue	$	4,856,520		$	4,436,111		$	420,409		9	%
Total cost of revenue (exclusive of depreciation shown separately below)	4,850,354			3,610,051			(1,240,303		)	(34	)%
Gross profit	6,166			826,060			(819,894		)	(99	)%
Selling general and administrative expense	461,391			415,750			(45,641		)	(11	)%
Depreciation and amortization	252,950			237,189			(15,761		)	(7	)%
Income (loss) from operations	$	(708,175	)	$	173,121		$	(881,296	)	(509	)%
Recovery Segment
Total revenue	$	2,255,614		$	1,118,584		$	1,137,030		102	%
Total cost of revenue (exclusive of depreciation shown separately below)	1,829,282			1,035,088			(794,194		)	(77	)%
Gross profit	426,332			83,496			342,836			411	%
Selling general and administrative expense	396,114			314,097			(82,017		)	(26	)%
Depreciation and amortization	167,608			124,148			(43,460		)	(35	)%
Income (loss) from operations	$	(137,390	)	$	(354,749	)	$	217,359		61	%

Our Black Oil division's volume decreased approximately 4% during the three months ended September 30, 2017 compared to the same period in 2016. This decrease was due to the fewer days of operations at our plants and throughout our collection network, due to the turnarounds described above, which resulted in lower volumes managed through our facilities. Volumes collected through our H&H Oil and Heartland collection facilities increased 30% during the three months ended September 30, 2017 compared to the same period in 2016. One of our key initiatives continues to be a focus on growing our own volumes of collected material and displacing the third party oil processed in our facilities.

Overall volumes of product sold increased 1% for the three months ended September 30, 2017 versus the same period in 2016. This is important for our business as it illustrates our reach into the market and expansion of overall market share.

10

In addition, commodity prices increased approximately 10% for the three months ended September 30, 2017, compared to the same period in 2016. For example, the average posting (U.S. Gulfcoast Residual Fuel No. 6 3%) for the three months ended September 30, 2017 increased $11.52 per barrel from a three month average of $34.86 for the three months ended September 30, 2016 to $46.38 per barrel for the three months ended September 30, 2017.

Overall volume for the Refining and Marketing division increased 21% during the three months ended September 30, 2017 as compared to the same period in 2016. This division experienced a decrease in production of 4% for its gasoline blendstock for the three months ended September 30, 2017, compared to the same period in 2016. Our fuel oil cutter volumes decreased 29% for the three months ended September 30, 2017, compared to the same period in 2016. Our pygas volumes increased 59% for the three months ended September 30, 2017 as compared to the same period in 2016. These were a result of increases in volumes of feed to process.

Our Recovery division includes the business operations of Vertex Recovery Management. Revenues for this division increased 102% as a result of higher commodity prices and, higher volumes, which was offset by the decline of project based work related to our metals business during the three months ended September 30, 2017, compared to the same period in 2016. Volumes of petroleum products acquired in our Recovery business were up 183% during the three months ended September 30, 2017, compared to the same period during 2016. This division through E-Source, periodically participates in project work that is not ongoing thus we expect to see fluctuations in revenue and gross profit from this division from period to period.

Overall gross profit decreased 32% and our margin per barrel decreased approximately 32% for the three months ended September 30, 2017, compared to the same period in 2016. This decrease was largely a result of lower volumes processed through our black oil division along with the compression in spread related to higher feedstock costs and increased operational expenses during the quarter.

We had selling, general, and administrative expenses of $5,690,761 for the three months ended September 30, 2017, compared to $5,025,221 of selling, general, and administrative expenses for the prior year’s period, an increase of $665,540 or 13% from the prior period. This increase is primarily due to the increases in our selling, general and administrative expenses associated with new acquisitions and assets at the end of 2016 and during 2017.

We had a loss from operations of $3,309,022 for the three months ended September 30, 2017, compared to a loss from operations of $586,024 for the three months ended September 30, 2016, an increase of $2,722,998 or 465% from the prior year’s three-month period.  The increase was due to an increase in costs of revenues due to market conditions, commodity prices,an increase during the period in certain operational expenses and increases in selling, general and administrative expenses generated by the new acquisitions.

We also had interest expense of $733,459 for the three months ended September 30, 2017, compared to interest expense of $399,545 for the three months ended September 30, 2016, an increase in interest expense of $333,914 or 84% from the prior period due to more debt outstanding and our new financing entered into with a new lender at a higher interest rate.

We had a gain on the sale of assets of $25,693 for the three months ended September 30, 2017 compared to a loss on the sale of assets of $68,799 during the three months ended September 30, 2016. The gain was a result of the sale of some of E-source's assets.

We had a $1,371,461 gain on change in value of derivative liability for the three months ended September 30, 2017, in connection with certain warrants granted in June 2015 and May 2016, as described in greater detail in "Note 9. Preferred Stock and Detachable Warrants" to the unaudited financial statements included herein under "Part I"-"Item 1 Financial Statements" compared to a gain on change in the value of our derivative liability of $1,065,217 in the prior year's period. This change was mainly due to fluctuation in the market price of our common stock.

We had a loss of $305,570 on futures contracts for the three months ended September 30, 2017 compared to a loss on futures contracts of $90,061 for the three months ended September 30, 2016. We periodically use futures contracts to offset the effects of the market value changes in our hedged items, as well as to avoid significant volatility that might arise due to market exposure. We had no open contracts at the end of quarter.

We had net loss of $2,949,378 for the three months ended September 30, 2017, compared to a net loss of $77,722 for the three months ended September 30, 2016, an increase in net loss of $2,871,656 or 3,695% from the prior period for the reasons described above.    

During the three months ended September 30, 2017, the processing costs for our Refining and Marketing division located at KMTEX were $578,695. In addition, we have provided the results of operations for this segment of our business below during the same three month period.

11

Three Months Ended September 30, 2017
	Refining and Marketing
Revenues	$	4,856,520
Loss from operations	$	(708,175	)

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2016

Set forth below are our results of operations for the nine months ended September 30, 2017 as compared to the same period in 2016.

	Nine Months Ended September 30,
	2017			2016			$ Change			% Change
Revenues	$	104,153,844		$	67,022,978		$	37,130,866		55	%
Cost of Revenues (exclusive of depreciation shown separately below)	90,579,044			56,001,697			(34,577,347		)	(62	)%
Gross Profit	13,574,800			11,021,281			2,553,519			23	%
Selling, general and administrative expenses	16,280,495			15,285,142			(995,353		)	(7	)%
Depreciation and amortization	4,942,911			4,707,801			(235,110		)	(5	)%
Loss from operations	(7,648,606		)	(8,971,662		)	1,323,056			15	%
Interest Income	5,748			4,452			1,296			29	%
Gain (loss) on sale of assets	(13,806		)	9,633,034			(9,646,840		)	(100	)%
Gain (loss) on change in value of derivative liability	2,676,902			724,185			1,952,717			270	%
Gain (loss) on futures contracts	(285,000		)	(351,820		)	66,820			19	%
Interest Expense	(2,688,394		)	(2,721,056		)	32,662			1	%
Total other income (expense)	(304,550		)	7,288,795			(7,593,345		)	(104	)%
Income (loss) before income taxes	(7,953,156		)	(1,682,867		)	(6,270,289		)	(373	)%
Income tax (expense) benefit	—			117,646			(117,646		)	(100	)%
Net income (loss)	(7,953,156		)	(1,565,221		)	(6,387,935		)	(408	)%
Net income (loss) attributable to non-controlling interest	94,690			(11,193		)	105,883			946	%
Net income (loss) attributable to Vertex Energy, Inc.	$	(8,047,846	)	$	(1,554,028	)	$	(6,493,818	)	(418	)%

12

Each of our segments’ gross profit (loss) during the nine months ended September 30, 2017 and 2016 was as follows: 

	Nine Months Ended September 30,
Black Oil Segment	2017			2016			$ Change			% Change
Total revenue	$	77,546,802		$	52,877,119		$	24,669,683		47	%
Total cost of revenue	66,549,131			44,577,149			(21,971,982		)	(49	)%
Gross profit (loss)	10,997,671			8,299,970			2,697,701			33	%
Selling, general and administrative expense	13,755,566			12,872,589			(882,977		)	(7	)%
Depreciation and amortization	3,753,382			3,627,223			(126,159		)	(3	)%
Loss from operations	$	(6,511,277	)	$	(8,199,842	)	$	1,688,565		21	%
Refining Segment
Total revenue	$	15,436,919		$	9,986,047		$	5,450,872		55	%
Total cost of revenue	14,222,073			7,878,954			(6,343,119		)	(81	)%
Gross profit	1,214,846			2,107,093			(892,247		)	(42	)%
Selling, general and administrative expense	1,407,590			1,455,232			47,642			3	%
Depreciation and amortization	747,732			707,708			(40,024		)	(6	)%
Loss from operations	$	(940,476	)	$	(55,847	)	$	(884,629	)	(1,584	)%
Recovery Segment
Total revenue	$	11,170,123		$	4,159,812		$	7,010,311		169	%
Total cost of revenue	9,807,840			3,545,594			(6,262,246		)	(177	)%
Gross profit	1,362,283			614,218			748,065			122	%
Selling, general and administrative expense	1,117,339			957,321			(160,018		)	(17	)%
Depreciation and amortization	441,797			372,870			(68,927		)	(18	)%
Loss from operations	$	(196,853	)	$	(715,973	)	$	519,120		73	%

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

Total revenues increased by 55% for the nine months ended September 30, 2017 compared to the same period in 2016, due primarily to higher commodity prices and volumes, and recent acquisitions during the nine months ended September 30, 2017 compared to the prior period. Total volume increased 19% during the nine months ended September 30, 2017 compared to the same period in 2016. Our business was impacted as a result of turnarounds at each of our facilities during the period, as well as operational delays getting feedstock to our facilities due to weather challenges in the Gulf of Mexico during the period. Gross profit increased by 23% for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The majority of this increase was the result of the adjustments in prices of feedstock during the fourth quarter of 2016, which continued into the nine months ended September 30, 2017, which resulted in a strong improvement in gross profit during this period. In our collection division we successfully maintained our charge for services program. As a result of this program we currently have customers who are charged for each service performed and others who are charged a monthly fee for as many services performed in that month. Due to the combination of our fee structure change along with our increased third party supply we were able to make progress in lowering our cost of feedstock during the period.

Additionally, our per barrel margin increased 3% relative to the nine months ended September 30, 2016. This increase was a result of decreased operational costs related to the Marrero and Heartland facilities in addition to improved margins in our feedstock and product values during the nine months ended September 30, 2017, compared to the same period during 2016, as a result of the charges implemented through our collections division. The 62% increase in cost of revenues for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, is mainly a result of a slight increase in commodity prices and increases in volumes along with the charges implemented through our collections.

13

Our Black Oil division's volume increased approximately 16% during the nine months ended September 30, 2017, compared to the same period in 2016. This increase was due to the increased amount of volume managed through our facilities. Volumes collected through our H&H Oil and Heartland collection facilities increased 30% during the nine months ended September 30, 2017, compared to the same period in 2016. One of our key initiatives continues to be a focus on growing our own volumes of collected material and displacing the third party oil processed in our facilities.

Overall volumes of product sold increased 19% for the nine months ended September 30, 2017, versus the same period in 2016. This is important for our business as it illustrates our reach into the market and expansion of overall market share.

In addition, commodity prices increased approximately 34% for the nine months ended September 30, 2017, compared to the same period in 2016. For example, the average posting (U.S. Gulfcoast Residual Fuel No. 6 3%) for the nine months ended September 30, 2017, increased $15.84 per barrel from a nine month average of $29.26 for the nine months ended September 30, 2016, to $45.10 per barrel for the nine months ended September 30, 2017.

We experienced no change in the volume of our TCEP refined product during the nine months ended September 30, 2017, compared to the same period in 2016. Our TCEP technology was not operated to produce finished product during the nine months ended September 30, 2017 or 2016, due to market conditions. The TCEP process is currently being utilized as a pre-treatment for the Used Motor Oil being purchased in the Texas Market and then being sent to our Marrero, Louisiana facility. We currently do not have an estimate as to when or if we may utilize this technology for the production of finished cutterstock in the future.

Overall volume for the Refining and Marketing division increased 28% during the nine months ended September 30, 2017 as compared to the same period in 2016. This division experienced a decrease in production of 29% for its gasoline blendstock for the nine months ended September 30, 2017, compared to the same period in 2016. Our fuel oil cutter volumes decreased 10% for the nine months ended September 30, 2017, compared to the same period in 2016. Our pygas volumes increased 70% for the nine months ended September 30, 2017 as compared to the same period in 2016. These changes were a result of increases in volumes of feedstock to process.

Our Recovery division includes the business operations of Vertex Recovery Management. Revenues for this division increased 169% as a result of higher commodity prices and, higher volumes, which was offset by the decline of project based work related to our metals business during the nine months ended September 30, 2017, compared to the same period in 2016. Volumes of petroleum products acquired, in our Recovery business were up 36% during the nine months ended September 30, 2017, compared to the same period during 2016. This division through E-Source, periodically participates in project work that is not ongoing thus we expect to see fluctuations in revenue and gross profit from this division from period to period.

Overall gross profit increased 23% and our margin per barrel increased approximately 3% for the nine months ended September 30, 2017, compared to the same period in 2016. This increase was largely a result of increased volumes along with the increase in charges for oil in our Black Oil collection division.

The following table sets forth the high and low spot prices during the nine months ended September 30, 2017, for our key benchmarks.

2017
Benchmark	High		Date	Low		Date
U.S. Gulfcoast No. 2 Waterborne (dollars per gallon)	$	1.66	September 25	$	1.22	June 23
U.S. Gulfcoast Unleaded 87 Waterborne (dollars per gallon)	$	2.06	August 31	$	1.41	June 22
U.S. Gulfcoast Residual Fuel No. 6 3% (dollars per barrel)	$	50.44	September 15	$	39.42	June 21
NYMEX Crude oil (Dollars per barrel)	$	54.45	February 23	$	42.53	June 21
Reported in Platt's US Marketscan (Gulf Coast)

14

The following table sets forth the high and low spot prices during the nine months ended September 30, 2016, for our key benchmarks.

2016
Benchmark	High		Date	Low		Date
U.S. Gulfcoast No. 2 Waterborne (dollars per gallon)	$	1.44	June 8	$	0.78	January 20
U.S. Gulfcoast Unleaded 87 Waterborne (dollars per gallon)	$	1.59	August 25	$	0.89	February 9
U.S. Gulfcoast Residual Fuel No. 6 3% (dollars per barrel)	$	38.31	September 30	$	16.24	January 19
NYMEX Crude oil (Dollars per barrel)	$	51.23	June 8	$	26.21	February 9
Reported in Platt's US Marketscan (Gulf Coast)

We saw a stable position during the first nine months of 2017, in each of the benchmark commodities we track compared to the same period in 2016.

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

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

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

We had selling, general, and administrative expenses of $16,280,495 for the nine months ended September 30, 2017, compared to $15,285,142 of selling, general, and administrative expenses for the prior year period, an increase of $995,353 or 7%. This increase is primarily due to the additional selling, general and administrative expenses incurred by new business lines and acquisitions.

We had a loss from operations of $7,648,606 for the nine months ended September 30, 2017, compared to a loss from operations of $8,971,662 for the nine months ended September 30, 2016, a decrease of $1,323,056 or 15% from the prior year’s nine-month period.  The decrease was mainly due to an increase in overall gross profit for the nine months ended September 30, 2017.

We had interest expense of $2,688,394 for the nine months ended September 30, 2017, compared to interest expense of $2,721,056 for the nine months ended September 30, 2016, a decrease in interest expense of $32,662 or 1% from the prior period due to the payment of $16.1 million toward the Credit Agreement with Goldman Sachs Banks related to the Bango Sale during the quarter ended June 30, 2016, and the termination of the debt facilities with Goldman Sachs, Fox and Midcap that were paid off at the beginning of the nine months ended September 30, 2017. We also entered into a new financing with a new lender at a higher interest rate which partially offset the decrease in interest expense.

We had a (loss) and a gain, respectively, on the sale of assets of ($13,806) and $9,633,034 for the nine months ended September 30, 2017 and 2016, respectively, mainly related to the purchase and sale of the Bango facility in January 2016.

15

We had a $2,676,902 gain on change in value of derivative liability for the nine months ended September 30, 2017, in connection with certain warrants granted in June 2015 and May 2016, as described in greater detail in "Note 9. Preferred Stock and Detachable Warrants" to the unaudited financial statements included herein under "Part I"-"Item 1 Financial Statements" compared to a gain on change in the value of our derivative liability of $724,185 in the prior year's period. This change was mainly due to a fluctuation in the market price of our common stock.

We had a loss of $285,000 on futures contracts for the nine months ended September 30, 2017 compared to a loss on futures contracts of $351,820 for the nine months ended September 30, 2016. We periodically use futures contracts to offset the effects of the market value changes in our hedged items, as well as to avoid significant volatility that might arise due to market exposure. We had no open contracts at the end of the quarter.

We had no income tax benefit or expense for the nine months ended September 30, 2017, compared to an income tax benefit of $117,646 for the nine months ended September 30, 2016. For tax reporting purposes, we have net operating losses (“NOLs”) of approximately $51.8 million as of September 30, 2017, that are available to reduce future taxable income. In determining the carrying value of our net deferred tax asset, the Company considered all negative and positive evidence. The Company has incurred a cumulative pre-tax loss of approximately $7.9 million from January 1, 2017 through September 30, 2017. As a result, the Company created a full valuation allowance of 100% to offset the entire balances of deferred tax assets and deferred tax liabilities.

We had net loss of $7,953,156 for the nine months ended September 30, 2017, compared to a net loss of $1,565,221 for the nine months ended September 30, 2016, an increase in net loss of $6,387,935 or 408% from the prior period for the reasons described above.    

During the nine months ended September 30, 2017, the processing costs for our Refining and Marketing division located at KMTEX were $1,829,576. In addition, we have provided the results of operations for this segment of our business below during the same nine month period.

Nine Months Ended September 30, 2017
	Refining and Marketing
Revenues	$	15,436,919
Loss from operations	$	(940,476	)

16

Set forth below, we have disclosed a quarter-by-quarter summary of our statements of operations for the first, second, and third quarters of 2017, fiscal year 2016 and the last two quarters of 2015.

	Fiscal 2017									Fiscal 2016												Fiscal 2015
	Third			Second			First			Fourth			Third			Second			First			Fourth			Third
	Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter
Revenues	$	32,470,451		$	36,912,779		$	34,770,614		$	31,055,936		$	28,461,930		$	24,428,444		$	14,132,604		$	20,875,827		$	39,262,584
Cost of Revenues (exclusive of depreciation shown separately below)	28,390,891			31,486,599			30,701,554			25,758,117			22,462,171			19,168,398			14,371,128			20,497,691			34,104,949
Gross Profit (loss)	4,079,560			5,426,180			4,069,060			5,297,819			5,999,759			5,260,046			(238,524		)	378,136			5,157,635
Reduction of contingent liability	—			—			—			—			—			—			—			(6,069,000		)	—
Selling, general and administrative expenses	5,690,761			5,359,897			5,229,837			4,869,257			5,025,221			4,714,558			5,545,363			6,994,006			6,058,674
Depreciation and amortization	1,697,821			1,645,030			1,600,060			1,569,414			1,560,562			1,553,655			1,593,584			1,920,416			1,597,881
Total operating expenses	7,388,582			7,004,927			6,829,897			6,438,671			6,585,783			6,268,213			7,138,947			2,845,422			7,656,555
Income (loss) from operations	(3,309,022		)	(1,578,747		)	(2,760,837		)	(1,140,852		)	(586,024		)	(1,008,167		)	(7,377,471		)	(2,467,286		)	(2,498,920		)
Other income (expense):
Provision for doubtful accounts	—			—			—			—			—			—			—			1,995,180			—
Interest income	1,519			2,277			1,952			1,522			1,490			2,486			476			(4,475		)	11
Gain (loss) on change in value of derivative liability	1,371,461			384,769			920,672			(674,309		)	1,065,217			1,645,288			(1,986,320		)	2,844,430			818,051
Goodwill impairment loss	—			—			—			—			—			—			—			(4,922,353		)	—
Gain (loss) on futures contracts	(305,570		)	20,570			—			(196,560		)	(90,061		)	(317,675		)	55,916			155,660			395,430
Gain (loss) on sale of assets	25,693			(26,399		)	(13,100		)	(1,323		)	(68,799		)	—			9,701,834			92,261			(20,657		)
Interest expense	(733,459		)	(618,448		)	(1,336,487		)	(373,900		)	(399,545		)	(406,019		)	(1,915,492		)	(728,780		)	(763,791		)
Total other income (expense)	359,644			(237,231		)	(426,963		)	(1,244,570		)	508,302			924,080			5,856,414			(568,077		)	429,044
Income (loss) before income taxes	(2,949,378		)	(1,815,978		)	(3,187,800		)	(2,385,422		)	(77,722		)	(84,087		)	(1,521,057		)	(3,035,363		)	(2,069,876		)
Income tax benefit (expense)	—			—			—			—			—			—			117,646			—			—
Net loss	$	(2,949,378	)	$	(1,815,978	)	$	(3,187,800	)	$	(2,385,422	)	$	(77,722	)	$	(84,087	)	$	(1,403,411	)	$	(3,035,363	)	$	(2,069,876	)
Non-controlling interest	34,554			51,528			8,607			13,372			30,234			(41,427		)	—			—			—
Net income (loss)	$	(2,983,932	)	$	(1,867,506	)	$	(3,196,407	)	$	(2,398,794	)	$	(107,956	)	$	(42,660	)	$	(1,403,411	)	$	(3,035,363	)	$	(2,069,876	)

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The graph below charts our total quarterly revenue over time from September 30, 2015 to September 30, 2017:

In the table below, we have disclosed a quarter-by-quarter summary of our gross profit by segment for the first, second, and third quarters of 2017, fiscal year 2016 and the last two quarters of 2015.

	GROSS PROFIT BY SEGMENT BY QUARTER
	Fiscal 2017						Fiscal 2016									Fiscal 2015
	Third		Second		First		Fourth		Third		Second		First			Fourth			Third
	Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter			Quarter			Quarter
Black Oil
Revenues	$	25,358,317	$	27,384,402	$	24,804,083	$	23,757,821	$	22,907,235	$	19,836,390	$	10,133,494		$	17,004,934		$	27,632,744
Cost of revenues	21,711,255		22,968,299		21,869,577		19,123,192		17,817,032		15,557,879		11,202,238			17,244,210			25,128,353
Gross profit (loss)	$	3,647,062	$	4,416,103	$	2,934,506	$	4,634,629	$	5,090,203	$	4,278,511	$	(1,068,744	)	$	(239,276	)	$	2,504,391
Refining & Marketing
Revenues	$	4,856,520	$	5,186,358	$	5,394,041	$	3,168,730	$	4,436,111	$	2,923,481	$	2,626,455		$	2,687,922		$	8,752,135
Cost of revenues	4,850,354		4,724,103		4,647,616		2,893,913		3,610,051		2,169,238		2,099,665			2,270,299			8,281,753
Gross profit	$	6,166	$	462,255	$	746,425	$	274,817	$	826,060	$	754,243	$	526,790		$	417,623		$	470,382
Recovery
Revenues	$	2,255,614	$	4,342,019	$	4,572,490	$	4,129,385	$	1,118,584	$	1,668,573	$	1,372,655		$	1,182,971		$	2,877,705
Cost of revenues	1,829,282		3,794,197		4,184,361		3,741,012		1,035,088		1,441,281		1,069,225			983,182			694,843
Gross profit	$	426,332	$	547,822	$	388,129	$	388,373	$	83,496	$	227,292	$	303,430		$	199,789		$	2,182,862

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Liquidity and Capital Resources

The success of our current business operations has become dependent on repairs and maintenance to our facilities and our ability to make routine capital expenditures, as well as our ability to manage our margins which are a function of the difference between what we are able to pay or charge for raw materials and the market prices for the range of products produced. We also must maintain relationships with feedstock suppliers and end-product customers, and operate with efficient management of overhead costs. Through these relationships, we have historically been able to achieve volume discounts in the procurement of our feedstock, thereby increasing the margins of our segments’ operations. The resulting operating cash flow is crucial to the viability and growth of our existing business lines.

We had total assets of $82,285,706 as of September 30, 2017, compared to $86,985,968 at December 31, 2016. The decrease was mainly due to depreciation and amortization expense, and cash used in operations.

We had total current liabilities of $16,226,447 as of September 30, 2017, compared to $22,453,644 at December 31, 2016. This decrease was largely due to the approximate $10.5 million pay down of the Goldman Sachs and Midcap debt as a result of the February 1, 2017 refinancing on a long-term basis.

We had total liabilities of $30,902,405 as of September 30, 2017, including long-term debt of $12,750,188, which included $966,847 related to E-Source debt.

We had working capital of $1,120,492 as of September 30, 2017, compared to a working capital deficit of $1,268,192 as of December 31, 2016. The improvement in working capital from December 31, 2016 to September 30, 2017, is due to the reasons described above.

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

The Company financed insurance premiums through various financial institutions bearing interest rates from 4.00% to 4.52%. All of such premium finance agreements have maturities of less than one year and have a balance of $1,489,881 at September 30, 2017.

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The Company's outstanding debt facilities as of September 30, 2017 and December 31, 2016 are summarized as follows:

Creditor	Loan Type	Origination Date	Maturity Date	Loan Amount		Balance on September 30, 2017			Balance on December 31, 2016
Encina Business Credit, LLC	Term Loan	February 1, 2017	February 1, 2020	$	20,000,000	$	13,975,000		$	—
Encina Business Credit SPV, LLC	Revolving Note	February 1, 2017	February 1, 2020	$	10,000,000	3,738,483			—
MidCap Revolving Line of Credit	Revolving Note	March, 2015	March, 2017 (1)	$	7,000,000	—			2,726,039
Goldman Sachs USA	Term Loan - Restated Credit Agreement	January 29, 2016	May 2, 2019 (1)	$	8,900,000	—			4,000,000
Fox Encore Promissory Note	Promissory Note	January 29, 2017	January 31, 2017 (1)	$	5,150,000	—			5,150,000
Pacific Western Bank	Capital Lease	September, 2012	August, 2017	$	3,154,860	—			133,153
Texas Citizens Bank	Term Note	January, 2015	January, 2020	$	2,045,500	966,847			1,531,506
Various institutions	Insurance premiums financed	Various	< 1 year	$	2,902,428	1,489,881			1,060,065
Total						20,170,211			14,600,763
Deferred finance costs, net						(1,384,944		)	(244,178		)
Total, net of deferred finance costs						$	18,785,267		$	14,356,585

(1) Paid in full and terminated on February 1, 2017.

Future contractual maturities of notes payable are summarized as follows:

Creditor	Year 1			Year 2			Year 3			Year 4		Year 5		Thereafter
Encina Business Credit, LLC	$	3,738,483		$	—		$	—		$	—	$	—	$	—
Encina Business Credit SPV, LLC	900,000			900,000			900,000			11,275,000		—		—
Texas Citizens Bank	488,194			478,653						—		—		—
Various institutions	1,489,881			—			—			—		—		—
Totals	6,616,558			1,378,653			900,000			11,275,000		—		—
Deferred finance costs, net	(581,479		)	(581,479		)	(221,986		)	—		—		—
Totals, net of deferred finance costs	$	6,035,079		$	797,174		$	678,014		$	11,275,000	$	—	$	—

Credit and Guaranty Agreement and Revolving Credit Facility with Encina Business Credit, LLC

Effective February 1, 2017, we, Vertex Operating, and substantially all of our other operating subsidiaries, other than E-Source, entered into a Credit Agreement (the “EBC Credit Agreement”) with Encina Business Credit, LLC as agent (the “Agent” or “EBC”) and Encina Business Credit SPV, LLC and CrowdOut Capital LLC as lenders thereunder (the “EBC Lenders”). Pursuant to the EBC Credit Agreement, and the terms thereof, the EBC Lenders agreed to loan us up to $20 million, provided that the amount outstanding under the EBC Credit Agreement at any time cannot exceed 50% of the value of the operating plant facilities and related machinery and equipment owned by us (not including E-Source).

A total of $12 million was loaned to us by the EBC Lenders on February 1, 2017 pursuant to the terms of the EBC Credit Agreement, and a total of an additional $8 million in funding may be requested by us from the EBC Lenders, from time to time,

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subject to the terms of the EBC Credit Agreement, and the conditions for lending set forth therein, subject to a minimum of $500,000, or a multiple of $100,000 above such amount, being requested at any time.

Amounts borrowed under the EBC Credit Agreement bear interest at 12%, 13% or 14% per annum, based on the ratio of (a) (i) consolidated EBITDA for such applicable period minus (ii) capital expenditures made during such period, minus (iii) the aggregate amount of income taxes paid in cash during such period (but not less than zero) to (b) the sum of (i) debt service charges plus (ii) the aggregate amount of all dividend or other distributions paid on capital stock in cash for the most recently completed 12 month period (which ratio falls into one of the three following tiers: less than 1 to 1; from 1 to 1 to less than 1.45 to 1; or equal to or greater than 1.45 to 1, which together with the value below, determines which interest rate is applicable) and average availability under the Revolving Credit Agreement (defined below) (which falls into two tiers: less than $2.5 million and greater than or equal to $2.5 million, which together with the calculation above, determines which interest rate is applicable), as described in greater detail in the EBC Credit Agreement (increasing by 2% per annum upon the occurrence of an event of default). Interest on amounts borrowed under the EBC Credit Agreement is payable by us in arrears, on the first business day of each month, beginning on the first business day of the first full month following the closing, together with required $75,000 monthly principal repayments. We also have the right to make voluntary repayments of the amount owed under the EBC Credit Agreement in amounts equal to or greater than $100,000, from time to time.

The EBC Credit Agreement terminates on February 1, 2020, on which date we are required to repay the outstanding balance owed thereunder and any accrued and unpaid interest thereon.

We agreed to pay the agent certain fees in connection with the EBC Credit Agreement, including a fee equal to 0.5% of a portion of the undrawn portion of the EBC Credit Agreement per annum (equal to $30,000 at closing) and a termination fee, in the event the EBC Credit Agreement terminates prior to the maturity date thereof (or we reduce the amount available for loans thereunder), equal to 2% of the amount repaid (or the reduction in the amount available under the EBC Credit Agreement). Notwithstanding the above, during the period beginning six months prior to the maturity date and ending on the maturity date, no early termination fee is due if we provide prior written notice to the agent at least ninety (90) days prior to the applicable termination date.

The amounts borrowed under the EBC Credit Agreement are guaranteed by us and our subsidiaries, other than E-Source, pursuant to a Guaranty and Security Agreement (the “Guaranty and Security Agreement”), whereby we also pledged substantially all of our assets and all of the securities of our subsidiaries (other than E-Source) as collateral securing the amount due under the terms of the EBC Credit Agreement. We also provided EBC mortgages on our Marrero, Louisiana, and Columbus, Ohio facilities to secure the repayment of outstanding amounts and agreed to provide mortgages on certain other real property to be delivered post-closing. The post-closing mortgage properties provided were in Baytown, Pflugerville and Corpus Christi, Texas.

We agreed to use the proceeds raised under the EBC Credit Agreement for working capital, capital expenditures, general corporate purposes and to refinance the Existing Credit Obligations (as defined below), and subject to the terms of the EBC Credit Agreement, to finance permitted acquisitions.

The EBC Credit Agreement contains customary representations, warranties and requirements for the Company to indemnify the EBC Lenders and their affiliates. The EBC Credit Agreement also includes various covenants (positive and negative) binding upon the Company, including, prohibiting us from undertaking acquisitions or dispositions unless they meet the criteria set forth in the EBC Credit Agreement, not incurring any capital expenditures in an aggregate amount exceeding $3 million in any fiscal year that the EBC Credit Agreement is in place, and requiring us to maintain at least $2.5 million of average borrowing availability under the Revolving Credit Agreement (defined below) in any 30 day period.

We are required to repay the amounts borrowed under the EBC Credit Agreement in the event we complete any disposition of assets or securities, receive any funds in connection with any insurance proceeds, and/or upon the occurrence of certain other events, subject to certain exceptions described in the EBC Credit Agreement. Additionally, commencing with the first full fiscal month after which the initial principal amount of the loans advanced under the EBC Credit Agreement is equal to or greater than $17 million and for each fiscal quarter thereafter, we are required to prepay the amount due under the EBC Credit Agreement in an amount equal to 50% of our cash flow, less principal payments (including voluntary repayments) made under the EBC Credit Agreement, approved capital expenditures and certain other approved expenses.

The EBC Credit Agreement includes customary events of default for facilities of a similar nature and size as the EBC Credit Agreement, including if an event of default occurs under any agreement evidencing $500,000 or more of indebtedness of the Company; we fail to make any payment when due under any material agreement; subject to certain exceptions, any judgment is entered against the Company in an amount exceeding $500,000; and also provides that an event of default occurs if a change in control of the Company occurs, which includes if (a) Benjamin P. Cowart, the Company’s Chief Executive Officer, Chairman of the

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Board and largest shareholder and Chris Carlson, the Chief Financial Officer of the Company, cease to own and control legally and beneficially, collectively, either directly or indirectly, equity securities in Vertex Energy, Inc., representing more than 15% of the combined voting power of all securities entitled to vote for members of the board of directors or equivalent on a fully-diluted basis, (b) the acquisition of ownership, directly or indirectly, beneficially or of record, by any person or group of securities representing more than 30% of the aggregate ordinary voting power represented by the issued and outstanding securities of Vertex Energy, Inc., or (c) during any period of 12 consecutive months, a majority of the members of the board of directors of the Company cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (collectively “Events of Default”). An event of default under the Revolving Credit Agreement (defined below), is also an event of default under the EBC Credit Agreement.

Effective February 1, 2017, we, Vertex Operating and substantially all of our operating subsidiaries, other than E-Source, entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”) with Encina Business Credit SPV, LLC as lender (“Encina”) and EBC as the administrative agent. Pursuant to the Revolving Credit Agreement, and the terms thereof, Encina agreed to loan us, on a revolving basis, up to $10 million, subject to the terms of the Revolving Credit Agreement and certain lending ratios set forth therein, which provide that the amount outstanding thereunder cannot exceed an amount equal to the total of (a) the lesser of (A) the value (as calculated in the Revolving Credit Agreement) of our inventory which are raw materials or finished goods that are merchantable and readily saleable to the public in the ordinary course of our business (“EBC Eligible Inventory”), net of certain inventory reserves, multiplied by 85% of the appraised value of EBC Eligible Inventory, or (B) the value (as calculated in the Revolving Credit Agreement) of EBC Eligible Inventory, net of certain inventory reserves, multiplied by 65%, subject to a ceiling of $4 million, plus (b) the face amount of certain accounts receivables (net of certain reserves applicable thereto) multiplied by 85% (subject to adjustment as provided in the Revolving Credit Agreement); minus (c) the then-current amount of certain reserves that the agent may determine necessary for the Company to maintain.

Amounts borrowed under the Revolving Credit Agreement bear interest, subject to the terms of the Revolving Credit Agreement, at the one month LIBOR interest rate then in effect, subject to a floor of 0.25% (which interest rate is currently approximately 1.23% per annum), plus an additional 6.50% per annum (increasing by 2% per annum upon the occurrence of an event of default), provided that under certain circumstances amounts borrowed bear interest at the higher of (a) the “prime rate”; (b) the Federal Funds Rate, plus 0.50%; and (c) the LIBOR Rate for a one month interest period, plus 1.00%. Interest on amounts borrowed under the Revolving Credit Agreement is payable by us in arrears, on the first business day of each month, beginning on the first business day of the first full month following the closing.

The Revolving Credit Agreement terminates on February 1, 2020, on which date we are required to repay the outstanding balance owed thereunder and any accrued and unpaid interest thereon.

We agreed to pay the agent certain fees in connection with the Revolving Credit Agreement, including a commitment fee equal to 0.5% per annum, multiplied by the actual daily amount by which the amount outstanding under the Revolving Credit Agreement is less than the $10 million aggregate commitment thereunder during the immediately preceding quarter, payable monthly in arrears and a termination fee, in the event the Revolving Credit Agreement terminates prior to the maturity date thereof (or we reduce the amount available for loans thereunder), equal to 2% of the aggregate commitment amount (or the reduction in such amount) if terminated prior to the one year anniversary of our entry into the Revolving Credit Agreement, 1% of the aggregate commitment amount (or reduction in such amount) if terminated between the one year anniversary and two year anniversary of our entry into the Revolving Credit Agreement and 0.5% of the aggregate commitment amount (or reduction in such amount) if terminated after the two year anniversary of our entry into the Revolving Credit Agreement. Notwithstanding the above, during the period beginning six months prior to the maturity date and ending on the maturity date, no early termination fee is due if we provide prior written notice to the agent at least ninety (90) days prior to the applicable termination date.

We can request funds from time to time under the terms of the Revolving Credit Agreement, subject to us requesting a minimum of $500,000 ($100,000 upon certain events), or a multiple of $100,000 above such amount.

The amounts borrowed under the Revolving Credit Agreement are guaranteed by us and our subsidiaries other than E-Source pursuant to a separate Guaranty and Security Agreement, similar to the EBC Credit Agreement, described in greater detail above. We also provided Encina mortgages on our Marrero, Louisiana, and Columbus, Ohio facilities to secure the repayment of outstanding amounts.

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We agreed to use the proceeds raised under the Revolving Credit Agreement for working capital, capital expenditures, general corporate purposes and to refinance the Existing Credit Obligations (as defined below).

The Revolving Credit Agreement contains customary representations, warranties and requirements for the Company to indemnify Encina and its affiliates. The Revolving Credit Agreement also includes various covenants (positive and negative) binding upon the Company, including, prohibiting us from undertaking acquisitions or dispositions unless they meet the criteria set forth in the Revolving Credit Agreement, not incurring any capital expenditures in an aggregate amount exceeding $3 million in any fiscal year that the Revolving Credit Agreement is in place, and requiring us to maintain at least $2.5 million of average borrowing availability under the Revolving Credit Agreement in any 30 day period.

We are required to repay the amounts borrowed under the Revolving Credit Agreement in the event we complete any disposition of assets or securities, receive any funds in connection with any insurance proceeds, and/or in certain other events, subject to certain exceptions described in the Revolving Credit Agreement.

The Revolving Credit Agreement includes customary events of default for facilities of a similar nature and size as the Revolving Credit Agreement, including the same Events of Default as are described above under the description of the EBC Credit Agreement.

A total of $11,282,537 of the amount initially borrowed under the EBC Credit Agreement and Revolving Credit Agreement was used to repay amounts owed under (a) the Restated Credit Agreement with Goldman Sachs Bank USA (described below), (b) our loan agreement with MidCap (described below); and (c) the Fox Note (defined below under “Fox Note”)(collectively, “Existing Credit Obligations”), all of which have been repaid in full as of the date of this filing. Additionally, in connection with the repayment of such obligations, the Restated Goldman Credit Agreement and Midcap Loan Agreement, and our right to borrow funds thereunder were terminated.

Credit and Guaranty Agreement with Goldman Sachs Bank USA

On May 2, 2014, the Company entered into a Credit and Guaranty Agreement (as amended from time to time, the “Goldman Credit Agreement”) with Goldman Sachs Bank USA. Pursuant to the agreement, Goldman Sachs Bank USA loaned the Company $40,000,000 in the form of a term loan. As set forth in the Goldman Credit Agreement, the Company has the option to select whether loans made under the Goldman Credit Agreement bear interest at (a) the greater of (i) the prime rate in effect, (ii) the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System plus ½ of 1%, (iii) the sum of (A) the Adjusted LIBOR Rate and (B) 1%, and (iv) 4.5% per annum; or (b) the greater of (i) 1.50% and (ii) the applicable ICE Benchmark Administration Limited interest rate, divided by (x) one minus, (y) the Adjusted LIBOR Rate. Interest on the Goldman Credit Agreement is payable monthly in arrears.

The Goldman Sachs Bank USA financing arrangement is secured by all of the assets of the Company.

On January 29, 2016, we, Vertex Operating, certain of our other subsidiaries, Lender and Agent entered into an Amended and Restated Credit and Guaranty Agreement (the “Restated Goldman Credit Agreement”), which amended and restated the Goldman Credit Agreement. The Restated Goldman Credit Agreement changed the Goldman Credit Agreement to an $8.9 million multi-draw term loan credit facility (of which approximately $6.4 million was outstanding and $2.5 million was available to be drawn pursuant to the terms of the Restated Goldman Credit Agreement on substantially similar terms as the then outstanding amounts owed to the Lender); modified the Credit Agreement to adjust certain EBITDA calculations in connection with the purchase of Bango Oil and the sale of the Bango Plant as described above; provided for approval for us to exercise the Purchase Option, enter into and effect the transactions contemplated by the Membership Interest Purchase Agreement, Subscription Agreement, and the Sale Agreement, and allow for the issuance of the Fox Note (described below) and the Mortgage securing the amount owed thereunder; confirmed that we were required to make payments of $800,000 per quarter from June 30, 2016 through maturity (May 2, 2019); provided us a moratorium on the prepayment of amounts owed under the Restated Goldman Credit Agreement as a result of various financial ratios we were required to meet through December 31, 2016; provided for us to retain any business interruption insurance proceeds received in connection with the Bango Plant; provided for us to pay $16 million received at closing from the sale of the Bango Assets, all amounts released from escrow and any other cash proceeds in excess of $500,000 received from the Sale Agreement after closing to the Lender as prepayment of amounts due under the Restated Goldman Credit Agreement; allowed us the right to make certain permitted acquisitions moving forward, without further consent of the Lender, provided that among other requirements, such acquisitions are in the same business or line of business as the Company, that such acquired businesses have generated consolidated adjusted EBITDA for the four fiscal quarters preceding such acquisition in excess of capital expenditures for such period (taking into account adjustments acceptable to the Agent for synergies expected to be achieved within the 90 days following the closing of such acquisition), and that the funding for such acquisition comes from certain limited sources set forth in greater detail in the Restated Goldman Credit Agreement; adjusted certain fixed charge coverage ratios and leverage ratios we were required to meet on a quarterly basis from September 30, 2016 to

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maturity; required us to maintain at least $2 million of liquidity at all times; provided that events of default under the Goldman Credit Agreement include events of default under the Fox Note; and made various other updates and changes to take into account transactions which had occurred through the date of such agreement, and to remove expired and non-material terms of the prior Credit Agreement.

Amendment No. 1 to Amended and Restated Credit and Guaranty Agreement

On May 9, 2016, we entered into Amendment No. 1 to the Amended and Restated Credit Agreement (“Amendment No. 1”), which amended the Restated Credit Agreement. Pursuant to Amendment No. 1, we, Vertex Operating, substantially all of our other wholly-owned subsidiaries, the Lender and the Agent, agreed to amend the Restated Credit Agreement to (a) change the threshold constituting a change of control under the Restated Credit Agreement, from any time that Benjamin P. Cowart, our Chief Executive Officer, Chairman and largest stockholder, ceases to beneficially own and control at least 20% on a fully diluted basis of the economic and voting interests of our capital stock (“Fully-Diluted Capital Stock”), to any time that Mr. Cowart beneficially owns less than 10% of our Fully-Diluted Capital Stock; (b) extend the date that we are required to meet certain fixed charge coverage ratios from the quarter ending September 30, 2016, to the quarter ending March 31, 2017; (c) adjust the calculation of leverage ratio described in the Restated Credit Agreement; (d) allow for the May 2016 Offering (described below) and the required payment of $800,000 to the Lender in connection with such Offering (representing the payment originally due June 30, 2016); (e) provide that the financial covenants relating to fixed charge ratios and leverage ratios would not be tested for the quarters ending September 30, 2016 and December 31, 2016; (f) amend the required timing for certain other post-closing events to occur under the terms of the Restated Credit Agreement; and (g) include a release whereby we (and substantially all of our wholly-owned subsidiaries) released the Investor and Agent for any claims which we had, or could have had, as of the date the parties entered into Amendment No. 1.

On February 1, 2017, the amount borrowed under the EBC Credit Agreement and Revolving Credit Agreement was used to repay amounts owed under the Restated Goldman Credit Agreement, by and among us, the other financial institutions party thereto as lenders, and Goldman Sachs Bank USA, as administrative agent for the lenders, which have been repaid in full as of the date of this filing. Additionally, in connection with the repayment of such obligations, the Goldman Credit Agreement and, our right to borrow funds thereunder were terminated.

MidCap Loan Agreement

Effective March 27, 2015, the Company, Vertex Operating and all of the Company’s other subsidiaries other than E-Source and Golden State, entered into a Loan and Security Agreement with MidCap Business Credit LLC (“MidCap” and the “MidCap Loan Agreement”). Pursuant to the MidCap Loan Agreement, MidCap agreed to loan us up to the lesser of (i) $7 million; and (ii) 85% of the amount of accounts receivable due to us which meet certain requirements set forth in the MidCap Loan Agreement (“Qualified Accounts”), plus the lesser of (y) $3 million and (z) 50% of the cost or market value, whichever is lower, of our raw material and finished goods which have not yet been sold, subject to the terms and conditions of the MidCap Loan Agreement (“Eligible Inventory”), minus any amount which MidCap may require from time to time in order to over secure amounts owed to MidCap under the MidCap Loan Agreement, as long as no event of default has occurred or is continuing under the terms of the MidCap Loan Agreement. The requirement of MidCap to make loans under the MidCap Loan Agreement is subject to certain standard conditions and requirements.

We were required to make immediate pre-payments of outstanding principal owed under the MidCap Note in the amount certain thresholds are exceeded as set forth in the MidCap Loan Agreement. We were also required to provide MidCap certain monthly reports and accountings.

We agreed to pay MidCap certain fees in connection with the MidCap Loan Agreement including (a) a non-refundable fee equal to 0.75% of the $7 million credit limit ($52,500), which was due upon our entry into the MidCap Loan Agreement, and is due on each anniversary thereafter; (b) reimbursement for MidCap’s audit fees incurred from time to time; a collateral monitoring charge of 0.20% of the greater of the average outstanding balance of the MidCap Note at the end of each month or $3 million; (c) a fee equal to 0.75% of the difference between the credit limit of $7 million and the greater of (i) the amount actually borrowed, and (ii) $3 million, as calculated in the MidCap Loan Agreement, payable monthly in arrears and added to the balance of the MidCap Note; and (d) a one-time placement fee equal to 0.50% of the $7 million credit limit which we paid upon our entry into the MidCap Loan Agreement.

The MidCap Loan Agreement contains customary representations, warranties, covenants for facilities of similar nature and size as the MidCap Loan Agreement, and requirements for the Company to indemnify MidCap for certain losses. The MidCap Loan Agreement also includes various covenants (positive and negative), binding the Company and its subsidiaries, including not permitting the availability for loans under the MidCap Loan Agreement to ever be less than 10% of the credit limit ($700,000); prohibiting us from creating liens on any collateral pledged under the MidCap Loan Agreement, subject to certain exceptions; and prohibiting us from paying any dividends on capital stock, advancing any money to any person, guarantying any debt, creating any indebtedness, and entering into any transactions with affiliates on terms more favorable than those of an arms-length third party transaction.

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The MidCap Loan Agreement includes customary events of default for facilities of a similar nature and size as the MidCap Loan Agreement.

The MidCap Loan Agreement continues in effect until the second anniversary of the parties’ entry into the Agreement, subject to the right of the parties, via mutual agreement, to extend such rights and agreement, provided that we have the right to terminate the MidCap Loan Agreement at any time with 60 days prior written notice. In the event we desire to terminate the MidCap Loan Agreement, we were required to pay MidCap a termination fee of $70,000, subject to certain exceptions in the MidCap Loan Agreement. We also have the right to terminate the agreement without providing 60 days’ prior notice as long as we pay MidCap the equivalent amount of interest which would have been due (as calculated in the MidCap Loan Agreement) for such 60 day period, along with the $70,000 termination fee. In the event the MidCap Loan Agreement is terminated by MidCap upon the occurrence of an event of default, we were required to pay MidCap a fee of $70,000 upon such termination.

We also entered into a Revolving Note (the “MidCap Note”) to evidence amounts borrowed from MidCap from time to time under the MidCap Loan Agreement. Interest on the MidCap Note accrues at a fluctuating rate equal to the aggregate of: (x) the prime rate then effect, and (y) 1.75% per annum, or at such other rate mutually agreed on from time to time by the parties, based upon the greater of (i) any balance owing under the MidCap Note at the close of each day; or (ii) a minimum assumed average daily loan balance of $3 million. Interest is payable in arrears, on the first day of each month that amounts are outstanding under the MidCap Note.

We and each of our subsidiaries subject to the MidCap Loan Agreement are jointly and severally liable for the repayment of amounts owed under the MidCap Note. Pursuant to the MidCap Loan Agreement, we granted MidCap a security interest in substantially all of our assets and provided MidCap junior mortgages on all real estate which we own, subject to the first priority mortgages of the Lender. Finally, MidCap and the Lender entered into an Intercreditor Agreement, which governs which of the lenders have first and second priority security interests over our assets which are pledged as collateral in order to secure repayment of the amounts owed pursuant to the Goldman Credit Agreement and MidCap Loan Agreement.

On November 9, 2015, we and certain of our subsidiaries entered into a First Amendment to Loan and Security Agreement (the “Midcap First Amendment”), which amended the Midcap Loan Agreement with Midcap. The Midcap First Amendment amended the Midcap Loan Agreement to add Vertex OH as a party thereto; remove Vertex OH’s requirement to enter into a negative pledge agreement with Midcap; created separate maximum borrowing base credit limits for Vertex OH’s accounts and customers ($100,000 maximum per customer, subject to certain exceptions); excluded customers who are based outside of the U.S. or Canada from the credit limits if backed by a bank letter of credit or covered by a foreign receivables insurance policy; removed inventory of Vertex OH from the definition of Eligible Inventory under the Midcap Loan Agreement; and provided that additional affiliates of the Company may become party to the Midcap Loan Agreement by executing an assumption agreement and revolving note in favor of Midcap.

On February 1, 2017, the amount borrowed under the EBC Credit Agreement and Revolving Credit Agreement was used to repay amounts owed under the MidCap Loan Agreement, which have been repaid in full as of the date of this filing. Additionally, in connection with the repayment of such obligations, the Midcap Loan Agreement, and our right to borrow funds thereunder were terminated.

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Fox Note

On January 29, 2016, Vertex OH, borrowed $5.15 million from Fox Encore and provided a Promissory Note to Fox Encore to reflect such borrowed funds (the “Fox Note”). The Fox Note bears interest at 10% percent per annum (15% upon the occurrence of an event of default), payable monthly in arrears beginning on February 29, 2016. The principal and all accrued and unpaid interest on the Fox Note is due on the earlier of (a) July 31, 2016 (as may be extended by Vertex OH as discussed below, the “Maturity Date”), or (b) upon acceleration of the Fox Note during the existence of an event of default as discussed therein. Provided that no event of default is then existing on the Fox Note or under any other loan document associated therewith, and certain other requirements as described in the Fox Note are met, Vertex OH has the right to three (3) extension options (each, an “Extension Option”) pursuant to which Vertex OH may extend the Maturity Date for six (6) months each. The first extension, which was exercised as of December 31, 2016, extended the Maturity Date of the Fox Note until January 31, 2017, the second extension will extend the Maturity Date of the Fox Note until July 31, 2017, and the third extension will extend the Maturity Date of the Fox Note until January 29, 2018. Upon exercising an Extension Option, Vertex OH is required to pay Fox Encore an extension fee equal to 3% of the then outstanding principal amount of the Fox Note, which amount is separate from, and is not applied toward, the outstanding indebtedness owed under the Fox Note; provided, however, that if Vertex OH elects to exercise the Extension Option to extend the Maturity Date to January 31, 2017, (which had been exercised as of December 31, 2016), the 3% fee for such extension is not to be paid in cash but is instead added to the outstanding principal balance of the Fox Note. The Fox Note may be prepaid in whole or in part at any time without penalty, provided that if repaid in full by July 31, 2016, the amount to be repaid was to be decreased by $150,000. The Fox Note is secured by the Mortgage. The Fox Note includes certain standard and customary financial reporting requirements, notice requirements, indemnification requirements, covenants and events of default.

On February 1, 2017, the amount borrowed under the EBC Credit Agreement and Revolving Credit Agreement was used to repay amounts owed under the Fox Note, which has been repaid in full as of the date of this filing.

Texas Citizens Bank Loan Agreement

On January 7, 2015, E-Source entered into a loan agreement with Texas Citizens Bank to consolidate various smaller debt obligations. The loan Agreement provides a term note in the amount of $2,045,500 that matures on January 7, 2020 and had a balance of $966,847 as of September 30, 2017. Borrowings bear a fixed interest rate of 5.5% per annum and interest is calculated from the date of each advance until repayment in full or maturity. The loan has 59 scheduled monthly payments of $45,147 which includes principal and interest. The loan is collateralized by all of the assets of E-Source. The loan contains customary representations, warranties, and covenants for facilities of similar nature and size.

Unit Offering

On May 13, 2016, we closed the transactions contemplated by the May 10, 2016 Unit Purchase Agreement (the “May 2016 Purchase Agreement”) with certain accredited investors (the “Investors”), pursuant to which we sold the Investors an aggregate of approximately 12 million units (the “May 2016 Units”), each consisting of (i) one share of Series B1 Preferred Stock of the Company, $0.001 par value per share (the “Series B1 Preferred Stock”) and (ii) one warrant to purchase one-quarter of a share of common stock of the Company, $0.001 par value per share (each a “May 2016 Warrant” and collectively, the “May 2016 Warrants”). The May 2016 Units were sold at a price of $1.56 per unit (the “May 2016 Unit Price”) (a 2.6% premium to the closing bid price of the Company’s common stock on the NASDAQ Capital Market on the date the Purchase Agreement was entered into which was $1.52 per share (the “May 2016 Closing Bid Price”)). The May 2016 Warrants have an exercise price of $1.53 per share ($0.01 above the Closing Bid Price). Total gross proceeds from the offering of the May 2016 Units (the “May 2016 Offering”) were $19.4 million.

A total of approximately $18.6 million of the securities sold in the May 2016 Offering were purchased by investors who participated in the Company’s prior June 2015 offering of Series B Preferred Stock and warrants to purchase shares of common stock. 60% of the funds received from such investors were used to immediately repurchase such investors’ Series B Preferred Stock. As a result, a total of approximately $11.2 million of the proceeds raised in the May 2016 Offering were used to immediately repurchase and retire approximately 3.6 million shares of Series B Preferred Stock and pay accrued interest on such repurchased shares through the closing date (the “Repurchases”), leaving net proceeds of approximately $8.2 million, before deducting placement agents’ fees and offering expenses. Of these net proceeds, $800,000 was used to pay amounts owed to the Lender, as discussed above and the remaining proceeds for working capital purposes and potential acquisitions.

Craig-Hallum Capital Group LLC (the “Placement Agent”) acted as exclusive placement agent in connection with the May 2016 Offering. The Placement Agent received a commission equal to 6.5% of the net proceeds after affecting the Repurchases described above, from the May 2016 Offering, for an aggregate commission of approximately $530,000.

The Company’s Chief Executive Officer and Chairman, Benjamin P. Cowart, and the Company’s Chief Financial Officer and Secretary, Chris Carlson, each purchased 32,052 Units ($50,000 of May 2016 Units) in the May 2016 Offering and in connection with

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such purchases was issued 32,052 shares of Series B1 Preferred Stock and May 2016 Warrants to purchase 8,013 shares of common stock.

The May 2016 Offering terms and the terms of the Series B1 Preferred Stock are described in greater detail in the Current Reports on Form 8-K filed with the Securities and Exchange Commission on May 10, 2016 and May 13, 2016.

Need for additional funding

Our re-refining business will require significant capital to design and construct any new facilities. The facility infrastructure would be an additional capitalized expenditure to these process costs and would depend on the location and site specifics of the facility.

Management believes that the amount available under our EBC Credit Agreement and Revolving Credit Agreement, in addition to projected earnings over the next couple of years, will provide sufficient liquidity to fund our operations for the foreseeable future. If it is necessary, we will seek additional financing for future operations, acquisitions or other future developments and to repay amounts owed to our creditors or to redeem our outstanding preferred securities. The required funds may be raised through the sale of common stock, preferred stock, debt, or convertible debt, which may include the grant of warrants. Our inability to obtain sufficient funds from external sources when such funds are needed will have a material adverse effect on our plan of operations, results of operations and financial condition.

Additionally, as part of our ongoing efforts to maintain a capital structure that is closely aligned with what we believe to be the potential of our business and goals for future growth, which is subject to cyclical changes in commodity prices, we will be exploring additional sources of external liquidity.  The receptiveness of the capital markets to an offering of debt or equities cannot be assured and may be negatively impacted by, among other things, debt maturities, current market conditions, and potential stockholder dilution. The sale of additional securities, if undertaken by us and if accomplished, may result in dilution to our shareholders. However, such future financing may not be available in amounts or on terms acceptable to us, or at all.

In addition to the above, we may also seek to acquire additional businesses or assets. In addition, the Company could consider selling assets if a more strategic acquisition presents itself. Finally, in the event we deem such transaction in our best interest, we may enter into a business combination or similar transaction in the future.

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

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

(2) the market for, and volatility in, the market for oil and gas; 

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

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

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

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

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Cash flows for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016:

	Nine Months Ended September 30,
	2017			2016
Beginning cash and cash equivalents	$	1,701,435		$	(737,864	)
Net cash provided by (used in):
Operating activities	(2,388,578		)	(13,394,947		)
Investing activities	(3,544,099		)	17,921,026
Financing activities	3,851,358			(35,096		)
Net increase (decrease)  in cash and cash equivalents	(2,081,319		)	4,490,983
Ending cash and cash equivalents	$	1,124,839		$	3,753,119

Net cash used in operating activities was $2,388,578 for the nine months ended September 30, 2017, as compared to net cash used in operating activities of $13,394,947 during the corresponding period in 2016. Our primary sources of liquidity are cash flows from our operations and the availability to borrow funds under our credit and loan facilities, as well as private sales of securities. The primary reason for the decrease in cash used in operating activities for the nine month period ended September 30, 2017, compared to the same period in 2016, was the one-time gain on sale of assets related to our Bango Plant sale during the nine months ended September 30, 2016, and the reduction in accounts payable and accrued expenses, offset by the reduction in accounts receivable and prepaid expenses.

Investing activities used cash of $3,544,099 for the nine months ended September 30, 2017, as compared to having provided $17,921,026 of cash during the corresponding period in 2016 due mainly to the net proceeds from our sale of our Nevada facility ("Bango Plant") of $19 million during the nine months ended September 30, 2016.

Financing activities provided cash of $3,851,358 for the nine months ended September 30, 2017, as compared to using cash of $35,096 during the corresponding period in 2016. The financing activities for the nine months ended September 30, 2017 were comprised of net payments of debt issuance costs of approximately $1.7 million, and note proceeds of approximately $16.5 million (in connection with our entry into the EBC Credit Agreement and Revolving Credit Agreement), offset by an approximate $12.0 million pay down of our long-term debt (relating to amounts paid under the Goldman Credit Agreement and Midcap Loan Agreement).

Critical Accounting Policies and Use of Estimates

Our financial statements are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management regularly evaluates its estimates and judgments, including those related to revenue recognition, goodwill, intangible assets, long-lived assets valuation, and legal matters. Actual results may differ from these estimates. (See Note 1 to the financial statements included herein).

Revenue Recognition

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

Business Combinations

The Company accounts for business combinations using the acquisition method of accounting. The results of operations for the acquired entities are included in the Company’s consolidated financial results from their associated acquisition dates. The Company allocates the purchase price of acquisitions to the tangible assets, liabilities, and identifiable intangible assets acquired based on their estimated fair values. A portion of purchase price for our acquisitions is contingent upon the realization of certain operating results. The fair values assigned to identifiable intangible assets acquired and contingent consideration were determined by management. If the purchase price is under the fair value of the identified assets and liabilities, a bargain purchase is recognized and included in income from continuing operations.

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Fair value of financial instruments

Under the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), we are permitted to elect to measure financial instruments and certain other items at fair value, with the change in fair value recorded in earnings. We elected not to measure any eligible items using the fair value option. Consistent with the Fair Value Measurement Topic of the FASB ASC, we implemented guidelines relating to the disclosure of our methodology for periodic measurement of our assets and liabilities recorded at fair market value.

Fair value is defined as 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. A three-tier fair value hierarchy prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

• Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

• Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

• Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Our Level 1 assets primarily include our cash and cash equivalents. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Impairment of long-lived assets

The Company evaluates the carrying value and recoverability of its long-lived assets when circumstances warrant such evaluation by applying the provisions of the FASB ASC regarding long-lived assets. It requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets.  Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. The Company determined that no long-lived asset impairment existed at September 30, 2017.

Derivative liabilities

The Company, in accordance with ASC 815-40-25 and ASC 815-10-15 Derivatives and Hedging and ASC 480-10-25 Liabilities-Distinguishing from Equity, convertible preferred shares are accounted for net, outside of shareholders' equity and warrants are accounted for as liabilities at their fair value during periods where they can be net cash settled in case of a change in control transaction. The warrants are accounted for as a liability at their fair value at each reporting period. The value of the derivative warrant liability will be re-measured at each reporting period with changes in fair value recorded as earnings. To derive an estimate of the fair value of these warrants, a Dynamic Black Scholes model is utilized that computes the impact of a possible change in control transaction upon the exercise of the warrant shares. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price and volatility assumptions to dynamically adjust the payoff of the warrants in the presence of the dilution effect.

Preferred Stock Classification

A mandatorily redeemable financial instrument shall be classified as a liability unless the redemption is required to occur only upon the liquidation or termination of the reporting entity. A financial instrument issued in the form of shares is mandatorily redeemable if it embodies an unconditional obligation requiring the issuer to redeem the instrument by transferring its assets at a specified or determinable date (or dates) or upon an event certain to occur. A financial instrument that embodies a conditional obligation to redeem the instrument by transferring assets upon an event not certain to occur becomes mandatorily redeemable-and, therefore, becomes a liability-if that event occurs, the condition is resolved, or the event becomes certain to occur. The Series B Preferred Stock requires the Company to redeem such preferred stock on the fifth anniversary of the issuance of the Series B Preferred stock and the Series B1 Preferred Stock requires the Company to redeem such preferred stock on the same date as the Series B Preferred Stock. SEC reporting requirements provide that any possible redemption outside of the control of the Company requires the preferred stock to be classified outside of permanent equity.

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Market Risk

Our revenues and cost of revenues are affected by fluctuations in the value of energy related products.  We attempt to mitigate much of the risk associated with the volatility of relevant commodity prices by using our knowledge of the market to obtain feedstock at attractive costs, by efficiently managing the logistics associated with our products, by turning our inventory over quickly and by selling our products into markets where we believe we can achieve the greatest value.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to interest rate risks primarily through borrowings under various bank facilities.  Interest on these facilities is based upon variable interest rates using LIBOR or Prime as the base rate.

At September 30, 2017, the Company had about $17.7 million of variable-rate term debt outstanding. At this borrowing level, a hypothetical relative increase of 10% in interest rates would have an unfavorable but insignificant impact on the Company’s pre-tax earnings and cash flows. The primary interest rate exposure on variable-rate debt is based on the LIBOR rate (1.23% at September 30, 2017) plus 6.50% per year.

We are exposed to market risks related to the volatility of crude oil and refined oil products. Our financial results can be significantly affected by changes in these prices which are driven by global economic and market conditions. We attempt to mitigate much of the risk associated with the volatility of relevant commodity prices by using our knowledge of the market to obtain feedstock at attractive costs, by efficiently managing the logistics associated with our products, by turning our inventory over quickly, and by selling our products into markets where we believe we can achieve the greatest value.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established and maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed with the SEC pursuant to the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Commission and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosures.

Management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. As of September 30, 2017, based on the evaluation of these disclosure controls and procedures, and in light of the material weakness we found in our internal controls over financial reporting as of December 31, 2016 (as described in greater detail in our annual report on Form 10-K for the year ended December 31, 2016), our CEO and CFO have concluded that our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed in our reports filed with the Securities and Exchange Commission pursuant to the Exchange Act, is recorded properly, processed, summarized and reported within the time periods specified in the rules and forms of the Commission and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

In light of the material weaknesses described above, we had performed additional analysis and other post-quarter procedures to ensure our consolidated financial statements are prepared in accordance with generally accepted accounting principles and we had contracted with experts, where necessary, for assistance in analyzing and determining the proper accounting and financial reporting treatment for various of the Company's complicated business transactions. Additionally, accounting and financial reporting personnel had been hired to strengthen the Company's resources and financial reporting expertise Accordingly, management has concluded that the financial statements fairly present in all material respects our financial condition, results of operations and cash flows as at, and for, the periods presented in this report.

Changes in Internal Control Over Financial Reporting

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

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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

Vertex Refining LA, LLC, the wholly-owned subsidiary of Vertex Operating, was named as a defendant, along with numerous other parties, in five lawsuits filed on or about February 12, 2016, in the Second Parish Court for the Parish of Jefferson, State of Louisiana, Case No. 121749, by Russell Doucet et. al., Case No. 121750, by Kendra Cannon et. al., Case No. 121751, by Lashawn Jones et. al., Case No. 121752, by Joan Strauss et. al. and Case No. 121753, by Donna Allen et. al. The suits relate to alleged noxious and harmful emissions from our facility located in Marrero, Louisiana. The suits seek damages for physical and emotional injuries, pain and suffering, medical expenses and deprivation of the use and enjoyment of plaintiffs’ homes. We intend to vigorously defend ourselves and oppose the relief sought in the complaints, provided that at this stage of the litigation, the Company has no basis for determining whether there is any likelihood of material loss associated with the claims and/or the potential and/or the outcome of the litigation.

E-Source, a wholly-owned subsidiary of Vertex Operating, was named as a defendant (along with Motiva Enterprises, LLC, ("Motiva")) in a lawsuit filed in the Sixtieth (60th) Judicial District, Jefferson County, Texas, on April 22, 2015. Pursuant to the lawsuit, Whole Environmental, Inc. ("Whole"), made certain allegations against E-Source, and Motiva. The claims include Breach of Contract and Quantum Meruit actions relating to asbestos abatement and remediation operations performed for defendants at Motiva's facility in Port Arthur, Jefferson County, Texas. The plaintiff alleges it is due monies earned. Defendants have denied any amounts due plaintiff. The suit seeks damages of approximately $864,000, along with pre-judgment and post-judgment interest, the fair value of certain property alleged to be converted by defendants and reimbursement of legal fees. E-Source has asserted a counterclaim against Whole for the filing of a mechanic's lien in excess of any amount(s) actually due as well as a cross-claim against Motiva. Under the terms of E-Source's contract with Motiva, Motiva was to pay all sums due to any sub-contractors of E-Source. If any additional monies are owed to Whole, those monies should be paid by Motiva. E-Source seeks to recover the balance due under its contract with Motiva of approximately $1,000,000. The case is set for trial in the spring of 2018. We intend to vigorously defend ourselves against the allegations made in the complaint. The Company has no basis of determining whether there is any likelihood of material loss associated with the claims and/or the potential and/or the outcome of the litigation.

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Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Commission on March 14, 2017, under the heading “Risk Factors”, except as discussed below, and investors should review the risks provided in the Form 10-K and below, prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Form 10-K for the year ended December 31, 2016, under “Risk Factors” and below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.

We are not in compliance with the minimum bid price requirement of the Nasdaq Capital Market.

On September 22, 2017, we received written notice (the “Notification Letter”) from the Listing Qualifications Department of The NASDAQ Stock Market LLC (“Nasdaq”) notifying us that we were not in compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share, and Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of thirty (30) consecutive business days. Based on the closing bid price of the Company’s common stock for the thirty (30) consecutive business days prior to the date of the Notification Letter, the Company no longer meets the minimum bid price requirement.

The Notification Letter does not impact the Company’s listing on The Nasdaq Capital Market at this time. The Notification Letter states that the Company has 180 calendar days, or until March 19, 2018, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, the bid price of the Company’s common stock must have a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days. If the Company does not regain compliance by March 19, 2018, an additional 180 days may be granted to regain compliance, so long as the Company meets The Nasdaq Capital Market initial listing criteria (except for the bid price requirement) and notifies Nasdaq in writing of its intention to cure the deficiency during the second compliance period. If the Company does not qualify for the second compliance period or fails to regain compliance during the second 180-day period, then Nasdaq will notify the Company of its determination to delist the Company’s Common Stock, at which point the Company would have an opportunity to appeal the delisting determination to a Hearings Panel.

The Company intends to monitor the closing bid price of its common stock and may, if appropriate, consider implementing available options to regain compliance with the minimum bid price requirement under the Nasdaq Listing Rules. Management remains vigilant with the Company’s business strategy and is continuing to take steps to increase liquidity.

In the event we are delisted from the Nasdaq Capital Market, stockholders may have a difficult time getting a quote for the sale or purchase of our stock, the sale or purchase of our stock would likely be made more difficult and the trading volume and liquidity of our stock could decline. Delisting from the Nasdaq Capital Market could also result in negative publicity and could also make it more difficult for us to raise additional capital. The absence of such a listing may adversely affect the acceptance of our common stock as currency or the value accorded by other parties. Further, if we are delisted, we would also incur additional costs under state blue sky laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our common stock and the ability of our stockholders to sell our common stock in the secondary market. If our common stock is delisted by Nasdaq, our common stock may be eligible to trade on an over-the-counter quotation system, such as the OTCQB market, where an investor may find it more difficult to sell our stock or obtain accurate quotations as to the market value of our common stock. In the event our common stock is delisted from the Nasdaq Capital Market, we may not be able to list our common stock on another national securities exchange or obtain quotation on an over-the counter quotation system.

34

Item 2. Recent Sales of Unregistered Securities

For the period from April 1, 2017 to June 30, 2017, a total of approximately $139,186 of dividends accrued on our outstanding Series B Preferred Stock and for the period from April 1, 2017 to June 30, 2017, a total of approximately $279,385 of dividends accrued on our outstanding Series B1 Preferred Stock. We chose to pay such dividends in-kind by way of the issuance of 49,910 restricted shares of Series B Preferred Stock pro rata to each of the then holders of our Series B Preferred Stock in July 2017 and the issuance of 283,050 restricted shares of Series B1 Preferred Stock pro rata to each of the then holders of our Series B1 Preferred Stock in July 2017. If converted in full, the 49,910 shares of Series B Preferred Stock would convert into 49,910 shares of common stock and the 283,050 shares of Series B1 Preferred Stock would convert into 283,050 shares of common stock.

For the period from July 1, 2017 to September 30, 2017, a total of approximately $139,186 of dividends accrued on our outstanding Series B Preferred Stock and for the period from July 1, 2017 to September 30, 2017, a total of approximately $281,527 of dividends accrued on our outstanding Series B1 Preferred Stock. We chose to pay such dividends in-kind by way of the issuance of 50,659 restricted shares of Series B Preferred Stock pro rata to each of the then holders of our Series B Preferred Stock in October 2017 and the issuance of 289,417 restricted shares of Series B1 Preferred Stock pro rata to each of the then holders of our Series B1 Preferred Stock in October 2017. If converted in full, the 50,659 shares of Series B Preferred Stock would convert into 50,659 shares of common stock and the 289,417 shares of Series B1 Preferred Stock would convert into 289,417 shares of common stock.

As the issuance of the Series B Preferred Stock and Series B1 Preferred Stock in-kind in satisfaction of the dividends did not involve a “sale” of securities under Section 2(a)(3) of the Securities Act, we believe that no registration of such securities, or exemption from registration for such securities, was required under the Securities Act. Notwithstanding the above, to the extent such shares are deemed “sold or offered”, we claim an exemption from registration pursuant to Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act, since the transaction did not involve a public offering, the recipients were “accredited investors”, and acquired 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 are subject to transfer restrictions, and the certificates evidencing the securities contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom and are further subject to the terms of the escrow agreement. The securities were not 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.

On October 20, 2017, the Company issued 3,041 shares of common stock in connection with the conversion by a holder thereof, of 3,041 shares of our Series A Convertible Preferred Stock.

We claim an exemption from registration provided by Section 3(a)(9) of the Securities Act for such issuance, as the securities were exchanged by us with our existing security holder in a transaction where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange.

As a result of the conversions and other transactions described above, there are 453,567 outstanding shares of Series A Convertible Preferred Stock, which if converted in full, would convert into 453,567 shares of common stock; 3,427,597 outstanding shares of Series B Convertible Preferred Stock, which if converted in full, would convert into 3,427,597 shares of common stock; and 13,151,989 outstanding shares of Series B1 Convertible Preferred Stock, which if converted in full, would convert into 13,151,989 shares of common stock as of the date of this filing.

Use of Proceeds From Sale of Registered Securities

None.

Issuer Purchases of Equity Securities

None.

Item 3.  Defaults Upon Senior Securities

None.

35

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information.

None.

36

Item 6.  Exhibits

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

37

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: November 6, 2017	By: /s/ Benjamin P. Cowart
	Benjamin P. Cowart
	Chief Executive Officer
	(Principal Executive Officer)
Date: November 6, 2017	By: /s/ Chris Carlson
	Chris Carlson
	Chief Financial Officer
	(Principal Financial/Accounting Officer)

38

EXHIBIT INDEX
Incorporated by Reference
Exhibit Number	Description of Exhibit	Filed or Furnished Herewith	Form	Exhibit	Filing Date/Period End Date	File No.
10.1	Credit Agreement dated as of February 1, 2017, by and among Vertex Energy Operating, LLC, as the Lead Borrower for the Borrowers named therein, the Guarantors named therein, Encina Business Credit, LLC as Agent and the Lenders party thereto		8-K	10.1	2/7/2017	001-11476
10.2	ABL Credit Agreement dated as of February 1, 2017, by and among Vertex Energy Operating, LLC, as the Lead Borrower for the Borrowers named therein, the Guarantors named therein, Encina Business Credit, LLC as Agent and the Lenders party thereto		8-K	10.2	2/7/2017	001-11476
10.3	Form of Guaranty and Security Agreement, dated as of February 1, 2017, by and among Vertex Energy Operating, LLC, Bango Oil LLC, Vertex Refining NV, LLC, Vertex Refining OH, LLC, Vertex Merger Sub, LLC, Vertex Refining LA, LLC, Vertex II GP, LLC, Vertex Acquisition Sub, LLC, Cedar Marine Terminals, LP, Vertex Recovery, L.P., Golden State Lubricants Works, LLC, Crossroad Carriers, L.P., Vertex Recovery Management, LLC, Vertex Recovery Management LA, LLC H & H Oil, L.P., and Vertex Energy, Inc. and each other grantor from time to time party thereto and Encina Business Credit, LLC, as Agent		8-K	10.3	2/7/2017	001-11476
10.4 (###)	Third Amendment to Processing Agreement between KMTEX LLC and Vertex Energy, Inc., entered into on December 14, 2016, and effective January 1, 2017		10-K	10.66	12/31/2016	001-11476
16.1	Letter dated April 5, 2017 From Hein & Associates LLP		8-K	16.1	4/6/2017	001-11476
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act*	X
31.2	Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act*	X
32.1	Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act**	X
32.2	Certification of Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act**	X
99.1	Glossary of Selected Terms		10-K	99.1	12/31/2012	001-11476
101.INS	XBRL Instance Document	X
101.SCH	XBRL Taxonomy Extension Schema Document	X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	X

39

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	X

*    Filed herewith.

**    Furnished herewith.

###    Certain portions of this document as filed herewith (which portions have been replaced by “***’s”) have been omitted in connection with a request for Confidential Treatment which has been granted by the Commission. This entire exhibit including the omitted confidential information has been filed separately with the Commission.

40

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Benjamin P. Cowart, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Vertex Energy, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of a Quarterly Report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 6, 2017	By:	/s/ Benjamin P. Cowart
		Benjamin P. Cowart Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Chris Carlson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Vertex Energy, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of a Quarterly Report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 6, 2017	By:	/s/ Chris Carlson
		Chris Carlson Chief Financial Officer (Principal Financial/Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO18 U.S.C. SS. 1350AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Vertex Energy, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2017, as filed with the Securities and Exchange Commission (the "Report"), I, Benjamin P. Cowart, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 6, 2017	By:	/s/ Benjamin P. Cowart
		Benjamin P. Cowart Chief Executive Officer (Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO18 U.S.C. SS. 1350AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Vertex Energy, Inc. (the "Company") on Form 10-Q for the period ended September 30, 2017, as filed with the Securities and Exchange Commission (the "Report"), I, Chris Carlson, Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 6, 2017	By:	/s/ Chris Carlson
		Chris Carlson Chief Financial Officer (Principal Financial/Accounting Officer)

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Nov. 06, 2017
Document And Entity Information
Entity Registrant Name	Vertex Energy Inc.
Entity Central Index Key	0000890447
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		32,658,176
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2017

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Current assets
Cash and cash equivalents	$ 1,124,839	$ 1,701,435
Escrow - current restricted cash	0	1,504,723
Accounts receivable, net	8,897,445	10,952,219
Inventory	4,589,935	4,357,958
Prepaid expenses	2,734,720	2,669,117
Total current assets	17,346,939	21,185,452
Noncurrent assets
Fixed assets, at cost	65,011,222	62,316,808
Less accumulated depreciation	(15,412,793)	(12,286,874)
Fixed assets, net	49,598,429	50,029,934
Goodwill and other intangible assets, net	14,951,588	15,252,332
Other assets	388,750	518,250
TOTAL ASSETS	82,285,706	86,985,968
Current liabilities
Accounts payable and accrued expenses	9,770,655	9,440,696
Dividends payable	420,713	504,474
Capital leases	0	133,153
Current portion of long-term debt, net of unamortized finance costs	2,296,596	9,649,282
Revolving note	3,738,483	2,726,039
Total current liabilities	16,226,447	22,453,644
Long-term liabilities
Long-term debt, net of unamortized finance costs	12,750,188	1,848,111
Contingent consideration	236,680	0
Derivative liability	1,689,090	4,365,992
Total liabilities	30,902,405	28,667,747
COMMITMENTS AND CONTINGENCIES (Note 3)	0	0
TEMPORARY EQUITY
Total Temporary Equity	22,093,274	19,604,255
EQUITY
Common stock, $0.001 par value per share; 750,000,000 shares authorized; 32,655,135 and 33,151,391 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively, with zero and 1,108,928 shares held in escrow at September 30, 2017 and December 31, 2016, respectively.	32,655	33,151
Additional paid-in capital	67,622,538	66,534,971
Accumulated deficit	(38,564,242)	(27,958,578)
Total Vertex Energy, Inc. stockholders' equity	29,091,440	38,610,069
Non-controlling interest	198,587	103,897
Total Equity	29,290,027	38,713,966
TOTAL LIABILITIES, TEMPORARY EQUITY, AND EQUITY	82,285,706	86,985,968
Series B Preferred Stock
TEMPORARY EQUITY
Series B and B-1 preferred shares	6,812,524	5,676,467
Series B1 Preferred Stock
TEMPORARY EQUITY
Series B and B-1 preferred shares	15,280,750	13,927,788
Series A Preferred Stock
EQUITY
Preferred stock	457	493
Series C Preferred Stock
EQUITY
Preferred stock	$ 32	$ 32

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Preferred stock, par value (in USD per share)	$ 0.001
Preferred stock, shares designated	50,000,000	50,000,000
Common stock, par value (in USD per share)	$ 0.001	$ 0.001
Common stock, shares authorized	750,000,000	750,000,000
Common stock, shares issued	32,655,135	33,151,391
Common stock, shares outstanding	32,655,135	33,151,391
Common stock, shares held in escrow	0	1,108,928
Series A Preferred Stock
Preferred stock, par value (in USD per share)	$ 0.001	$ 0.001
Preferred stock, shares designated	5,000,000	5,000,000
Preferred stock, shares issued	456,608	492,716
Preferred stock, shares outstanding	456,608	492,716
Preferred stock, liquidation preference	$ 680,346	$ 734,147
Series B Preferred Stock
Temporary equity, par value (in USD per share)	$ 0.001	$ 0.001
Temporary equity, shares designated	10,000,000	10,000,000
Temporary equity, shares issued	3,376,938	3,229,409
Temporary equity, shares outstanding	3,376,938	3,229,409
Temporary equity, liquidation preference	$ 10,468,508	$ 10,011,168
Series B1 Preferred Stock
Temporary equity, par value (in USD per share)	$ 0.001	$ 0.001
Temporary equity, shares designated	17,000,000	17,000,000
Temporary equity, shares issued	12,862,572	12,282,638
Temporary equity, shares outstanding	12,862,572	12,282,638
Temporary equity, liquidation preference	$ 20,065,612	$ 19,160,915
Series C Preferred Stock
Preferred stock, par value (in USD per share)	$ 0.001	$ 0.001
Preferred stock, shares designated	44,000	44,000
Preferred stock, shares issued	31,568	31,568
Preferred stock, shares outstanding	31,568	31,568
Preferred stock, liquidation preference	$ 3,156,800	$ 3,156,800

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Income Statement [Abstract]
Revenues	$ 32,470,451	$ 28,461,930	$ 104,153,844	$ 67,022,978
Cost of revenues (exclusive of depreciation shown separately below)	28,390,891	22,462,171	90,579,044	56,001,697
Gross profit (loss)	4,079,560	5,999,759	13,574,800	11,021,281
Operating expenses:
Selling, general and administrative expenses	5,690,761	5,025,221	16,280,495	15,285,142
Depreciation and amortization	1,697,821	1,560,562	4,942,911	4,707,801
Total operating expenses	7,388,582	6,585,783	21,223,406	19,992,943
Loss from operations	(3,309,022)	(586,024)	(7,648,606)	(8,971,662)
Other income (expense):
Interest income	1,519	1,490	5,748	4,452
Gain (loss) on sale of assets	25,693	(68,799)	(13,806)	9,633,034
Gain (loss) on change in value of derivative liability	1,371,461	1,065,217	2,676,902	724,185
Gain (loss) on futures contracts	(305,570)	(90,061)	(285,000)	(351,820)
Interest expense	(733,459)	(399,545)	(2,688,394)	(2,721,056)
Total other income (expense)	359,644	508,302	(304,550)	7,288,795
Loss before income tax	(2,949,378)	(77,722)	(7,953,156)	(1,682,867)
Income tax benefit (expense)	0	0	0	117,646
Net loss	(2,949,378)	(77,722)	(7,953,156)	(1,565,221)
Net income (loss) attributable to non-controlling interest	34,554	30,234	94,690	(11,193)
Net loss attributable to Vertex Energy, Inc.	(2,983,932)	(107,956)	(8,047,846)	(1,554,028)
Accretion of discount on Series B and B-1 Preferred Stock	(424,480)	(435,134)	(1,267,778)	(1,293,669)
Accrual of dividends on Series B and B-1 Preferred Stock	(420,713)	(504,474)	(1,256,921)	(6,695,506)
Net loss available to common shareholders	$ (3,829,125)	$ (1,047,564)	$ (10,572,545)	$ (9,543,203)
Loss per common share
Basic (in USD per share)	$ (0.12)	$ (0.03)	$ (0.32)	$ (0.32)
Diluted (in USD per share)	$ (0.12)	$ (0.03)	$ (0.32)	$ (0.32)
Shares used in computing earnings per share
Basic (shares)	32,655,135	30,576,485	32,651,961	29,884,836
Diluted (shares)	32,655,135	30,576,485	32,651,961	29,884,836

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Cash flows from operating activities
Net loss	$ (7,953,156)	$ (1,565,221)
Adjustments to reconcile net loss to cash used in operating activities
Stock based compensation expense	460,475	392,413
Depreciation and amortization	4,942,911	4,707,801
Rent paid by common stock	0	244,000
(Gain) loss on sale of assets	13,806	(9,633,034)
(Increase) decrease in fair value of derivative liability	(2,676,902)	(724,185)
Amortization of debt discount and deferred costs	571,635	1,363,386
Changes in operating assets and liabilities
Accounts receivable	2,054,774	(62,325)
Business interruption insurance proceeds receivable	0	(1,275,000)
Inventory	(195,977)	(122,924)
Prepaid expenses	(65,603)	(1,530,380)
Accounts payable and accrued expenses	329,959	(4,940,852)
Deferred revenue	0	(248,624)
Other assets	129,500	(2)
Net cash used in operating activities	(2,388,578)	(13,394,947)
Cash flows from investing activities
Casualty insurance proceeds	0	2,332,854
Purchase of fixed assets	(1,842,237)	(3,428,396)
Proceeds from sales of Bango assets	0	29,788,114
Costs related to sale of Bango assets	0	(10,792,446)
Proceeds from sale of fixed assets	297,718	20,900
Net cash provided by (used in) investing activities	(3,544,099)	17,921,026
Cash flows from financing activities
Purchase/Buy back Series B Preferred Stock	0	(11,189,849)
Proceeds from issuance of Series B-1 Preferred Stock	0	19,349,756
Issue costs for Series B-1 Preferred Stock	0	(607,890)
Payment of debt issuance costs	(1,718,090)	0
Line of credit (payments) proceeds, net	1,012,444	128,662
Proceeds from sale of Series C Preferred Stock	0	4,000,000
Proceeds from note payable	16,570,929	7,544,680
Payments on note payable	(12,013,925)	(19,260,455)
Net cash provided by (used in) financing activities	3,851,358	(35,096)
Net change in cash and cash equivalents	(2,081,319)	4,490,983
Cash cash equivalents, and restricted cash at beginning of the period	3,206,158	(737,864)
Cash, cash equivalents, and restricted cash at end of period	1,124,839	3,753,119
SUPPLEMENTAL INFORMATION
Cash paid for interest	1,328,401	1,431,352
Cash received for income tax benefit	0	117,646
NON-CASH INVESTING AND FINANCING TRANSACTIONS
Accretion of discount on Series B and B-1 Preferred Stock	1,267,778	1,293,669
Dividends-in-kind accrued on Series B and B-1 Preferred Stock	1,256,920	6,695,506
Conversion feature and fair value of warrants for Series B and B-1 Preferred Stock	0	6,558,947
Contingent consideration on Nickco acquisition	236,680	0
Common restricted shares for Nickco acquisition	474,000	0
Return of common shares for sale escrow	1,109	0
Series A Preferred Stock
NON-CASH INVESTING AND FINANCING TRANSACTIONS
Conversion of preferred stock into common stock	36	120
Series B1 Preferred Stock
NON-CASH INVESTING AND FINANCING TRANSACTIONS
Conversion of preferred stock into common stock	119,440	0
Dividends-in-kind accrued on Series B and B-1 Preferred Stock	281,527
Acadiana Recovery, LLC
Cash flows from investing activities
Payments to acquire businesses	(710,350)	0
Nickco Recycling, LLC
Cash flows from investing activities
Payments to acquire businesses	(1,126,730)	0
Ygriega Environmental Services, LLC
Cash flows from investing activities
Payments to acquire businesses	$ (162,500)	$ 0

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BASIS OF PRESENTATION AND NATURE OF OPERATIONS

9 Months Ended

Sep. 30, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BASIS OF PRESENTATION AND NATURE OF OPERATIONS

BASIS OF PRESENTATION AND NATURE OF OPERATIONS

The accompanying unaudited consolidated interim financial statements of Vertex Energy, Inc. (the "Company" or "Vertex Energy") have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's annual consolidated financial statements as filed with the SEC on Form 10-K on March 14, 2017 (the "Form 10-K"). The December 31, 2016 balance sheet was derived from the audited financial statements of our 2016 Form 10-K. In the opinion of management all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of financial position and the results of operations for the interim periods presented, have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the audited consolidated financial statements for the most recent fiscal year 2016 as reported in Form 10-K have been omitted.

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SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. There were no cash equivalents as of September 30, 2017 and December 31, 2016.

The Company early adopted the guidance in Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), in the third quarter of 2017 which requires restricted cash to be included in cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statements of cash flows. The guidance in this update is to be applied retrospectively; therefore, the 2016 statement of cash flows has been restated to conform to the requirements of ASU 2016-18 and the 2017 presentation.

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

	September 30, 2017		December 31, 2016
Cash	$	1,124,839	$	1,701,435
Restricted cash	—		1,504,723
Cash, cash equivalents and restricted cash as shown in the consolidated statements of cash flows	$	1,124,839	$	3,206,158

Pursuant the Sale Agreement described further in Note 4, we placed $1.5 million in restricted cash (which was released to us and received in July 2017) and $1 million worth of our common stock (1,108,928 shares) into escrow with the shares to be released to us 12 months following the closing (which shares were released to us and cancelled in March 2017), in order to satisfy any indemnification claims made by Safety-Kleen pursuant to the terms of the Sale Agreement.

Inventory

Inventories of products consist of feedstocks, refined petroleum products and recovered ferrous and non-ferrous metals and are reported at the lower of cost or market.   Cost is determined using the first-in, first-out (“FIFO”) method. The Company reviews its inventory commodities whenever events or circumstances indicate that the value may not be recoverable.

Impairment of long-lived assets

The Company evaluates the carrying value and recoverability of its long-lived assets when circumstances warrant such evaluation by applying the provisions of the Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") regarding long-lived assets. It requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets.  Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. The Company determined that no long-lived asset impairment existed at September 30, 2017.

Fair value of financial instruments

Under the FASB ASC, we are permitted to elect to measure financial instruments and certain other items at fair value, with the change in fair value recorded in earnings. We elected not to measure any eligible items using the fair value option. Consistent with the Fair Value Measurement Topic of the FASB ASC, we implemented guidelines relating to the disclosure of our methodology for periodic measurement of our assets and liabilities recorded at fair market value.

Fair value is defined as 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. A three-tier fair value hierarchy prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

• Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

• Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

• Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Our Level 1 assets primarily include our cash and cash equivalents. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. The carrying amounts of accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the immediate or short-term maturities of these financial instruments.

Nonfinancial assets and liabilities measured at fair value on a nonrecurring basis include certain nonfinancial assets and liabilities as may be acquired in a business combination and thereby measured at fair value.

Income Taxes

The Company accounts for income taxes in accordance with the FASB ASC Topic 740. The Company records a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and when temporary differences become deductible. The Company considers, among other available information, uncertainties surrounding the recoverability of deferred tax assets, scheduled reversals of deferred tax liabilities, projected future taxable income, and other matters in making this assessment.

As part of the process of preparing its consolidated financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. This process requires the Company to estimate its actual current tax liability and to assess temporary differences resulting from differing book versus tax treatment of items, such as deferred revenue, compensation and benefits expense and depreciation. These temporary differences result in deferred tax assets and liabilities, which are included within the Company’s consolidated statements of financial condition. Significant management judgment is required in determining the Company’s provision for income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against its net deferred tax assets. If actual results differ from these estimates or the Company adjusts these estimates in future periods, the Company may need to adjust its valuation allowance, which could materially impact the Company’s consolidated financial position and results of operations.

Tax contingencies can involve complex issues and may require an extended period of time to resolve. Changes in the level of annual pre-tax income can affect the Company’s overall effective tax rate. Furthermore, the Company’s interpretation of complex tax laws may impact its recognition and measurement of current and deferred income taxes.

Derivative Liabilities

In accordance with ASC 815-40-25 and ASC 815-10-15, Derivatives and Hedging and ASC 480-10-25, Liabilities-Distinguishing from Equity, convertible preferred shares are accounted for net, outside of shareholders' equity and warrants are accounted for as liabilities at their fair value during periods where they can be net cash settled in case of a change in control transaction. The warrants are accounted for as a liability at their fair value at each reporting period. The value of the derivative warrant liability will be re-measured at each reporting period with changes in fair value recorded in earnings. To derive an estimate of the fair value of these warrants, a Dynamic Black Scholes model is utilized which computes the impact of a possible change in control transaction upon the exercise of the warrant shares. This process relies upon inputs such as shares outstanding, our quoted stock prices, strike price and volatility assumptions to dynamically adjust the payoff of the warrants in the presence of the dilution effect.

Debt Issuance Costs

The Company follows the accounting guidance of FASB Accounting Standards Update ("ASU") No 2015-03, "Simplifying the Presentation of Debt Issuance Costs", which requires that debt issuance costs related to a recognized debt liability be reported on the Consolidated Balance Sheet as a direct reduction from the carrying amount of that debt liability.

Reclassification of Prior Year Presentation

Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications had no effect on the reported results of operations. 

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU No. 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU No. 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU No. 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). In July 2015, the FASB issued ASU No. 2015-14 which delayed the effective date of ASU No. 2014-09 by one year (effective for annual periods beginning after December 15, 2017). We are continuing to evaluate the impact of ASU 2014-09 and we currently do not anticipate that the standard will have a material impact on our financial statements, other than enhanced disclosures related to the disaggregation of revenues from contracts with customers, our performance obligations and any significant judgments. To date, certain personnel have attended technical training concerning this new recognition standard, and we have assigned internal resources to assist in this project implementation and believe the project is progressing timely. The Company currently anticipates adopting this ASU in the first quarter of fiscal 2018 using the modified retrospective method. As the Company completes its evaluation of this new standard, the Company's preliminary assessments could change.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under ASU No. 2016-02, lessor accounting is largely unchanged. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018 with early application permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases expiring before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. Management is currently reviewing our various leases to identify those affected by ASU No. 2016-02.

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CONCENTRATIONS, SIGNIFICANT CUSTOMERS, COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2017

Concentrations, Significant Customers, Commitments And Contingencies Disclosure [Abstract]

CONCENTRATIONS, SIGNIFICANT CUSTOMERS, COMMITMENTS AND CONTINGENCIES

CONCENTRATIONS, SIGNIFICANT CUSTOMERS, COMMITMENTS AND CONTINGENCIES

At September 30, 2017 and 2016 and for each of the nine months then ended, the Company’s revenues and receivables were comprised of the following customer concentrations:

	Nine Months Ended September 30, 2017		Nine Months Ended September 30, 2016
	% of Revenues	% of Receivables	% of Revenues	% of Receivables
Customer 1	19%	—%	24%	10%
Customer 2	13%	3%	9%	4%
Customer 3	10%	7%	9%	7%
Customer 4	9%	23%	5%	—%
Customer 5	—%	10%	—%	13%
Customer 6	4%	3%	12%	5%

At September 30, 2017 and 2016 and for each of the nine months then ended, the Company's segment revenues were comprised of the following customer concentrations:

	% of Revenue by Segment			% Revenue by Segment
	Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016
	Black Oil	Refining	Recovery	Black Oil	Refining	Recovery
Customer 1	100%	—%	—%	100%	—%	—%
Customer 2	100%	—%	—%	100%	—%	—%
Customer 3	—%	100%	—%	—%	100%	—%
Customer 4	100%	—%	—%	100%	—%	—%
Customer 5	—%	—%	100%	—%	—%	100%
Customer 6	100%	—%	—%	100%	—%	—%

The Company had zero vendors that represented 10% of total purchases for the nine months and three months ended September 30, 2017. The Company had one vendor that represented 10% of total purchases for the nine months ending September 30, 2016.

In February 2013, Bank of America agreed to lease the Company equipment to enhance the Thermal Chemical Extraction Process (“TCEP”) operation, which went into effect in April 2013.  Under the current terms of the lease agreement, 13 monthly payments remain of approximately $13,328 each.

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

Litigation:

The Company, in its normal course of business, is involved in various other claims and legal action. We are currently party to the following material litigation proceedings:

Vertex Refining LA, LLC ("Vertex Refining LA"), the wholly-owned subsidiary of Vertex Operating, LLC, our wholly-owned subsidiary ("Vertex Operating") was named as a defendant, along with numerous other parties, in five lawsuits filed on or about February 12, 2016, in the Second Parish Court for the Parish of Jefferson, State of Louisiana, Case No. 121749, by Russell Doucet et. al., Case No. 121750, by Kendra Cannon et. al., Case No. 121751, by Lashawn Jones et. al., Case No. 121752, by Joan Strauss et. al. and Case No. 121753, by Donna Allen et. al. The suits relate to alleged noxious and harmful emissions from our facility located in Marrero, Louisiana. The suits seek damages for physical and emotional injuries, pain and suffering, medical expenses and deprivation of the use and enjoyment of plaintiffs’ homes. We intend to vigorously defend ourselves and oppose the relief sought in the complaints, provided that at this stage of the litigation, the Company has no basis for determining whether there is any likelihood of material loss associated with the claims and/or the potential and/or the outcome of the litigation.

E-Source Holdings, LLC ("E-Source"), the wholly-owned subsidiary of Vertex Operating, was named as a defendant (along with Motiva Enterprises, LLC, ("Motiva")) in a lawsuit filed in the Sixtieth (60th) Judicial District, Jefferson County, Texas, on April 22, 2015. Pursuant to the lawsuit, Whole Environmental, Inc. ("Whole"), made certain allegations against E-Source and Motiva. The claims include Breach of Contract and Quantum Meruit actions relating to asbestos abatement and remediation operations performed for defendants at Motiva's facility in Port Arthur, Jefferson County, Texas. The plaintiff alleges it is due monies earned. Defendants have denied any amounts due to plaintiff. The suit seeks damages of approximately $864,000, along with pre-judgment and post-judgment interest, the fair value of certain property alleged to be converted by defendants and reimbursement of legal fees. E-Source has asserted a counterclaim against Whole for the filing of a mechanic's lien in excess of any amount(s) actually due, as well as a cross-claim against Motiva. Under the terms of E-Source's contract with Motiva, Motiva was to pay all sums due to any sub-contractors of E-Source. In management's opinion, any monies due to Whole, should be paid by Motiva. E-Source seeks to recover the balance due under its contract with Motiva of approximately $1,000,000. The case is set for trial in the spring of 2018. We intend to vigorously defend ourselves against the allegations made in the complaint. The Company has no basis of determining whether there is any likelihood of material loss associated with the claims and/or the potential and/or the outcome of the litigation.

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DISPOSITION

9 Months Ended

Sep. 30, 2017

Disposal Group, Not Discontinued Operation, Disposal Disclosures [Abstract]

DISPOSITION

DISPOSITION

On January 28, 2016, the Company entered into an Asset Purchase Agreement (the “Sale Agreement”) with Bango Oil, LLC (“Bango Oil”) and Safety-Kleen Systems Inc. (“Safety-Kleen”) pursuant to which the Company agreed to sell to Safety-Kleen the used oil re-refining plant on approximately 40 acres in Churchill County, Nevada (the “Bango Plant”), which we previously rented, and all equipment, tools and other tangible personal property located at the Bango Plant, which relate to or are used in connection with the operations of the Bango Plant (collectively, the “Bango Assets”) for an aggregate purchase price of $35 million. As shown in the table below, a gain on sale of approximately $9.7 million was recorded associated with the sale. The gain on sale is included in gain (loss) on sale of assets in the accompanying consolidated statement of operations.

Sales price (fair value)	$	35,000,000
Release of lien on certain equipment at the Bango Plant	(3,100,000		)
Transaction Fees	(2,111,886		)
Net Proceeds	29,788,114
Book Value at January 29, 2016 (date transaction closed)	20,039,553
Gain on Sale	$	9,748,561

Net proceeds were used to pay an aggregate of $16.1 million toward the Credit Agreement with Goldman Sachs Bank (described in "Note 6. Line of Credit and Long-Term Debt"), $9.3 million to exercise the Purchase Option (described below) and $1.5 million for equipment and rail park lease acquisitions subsequently included in the Sale Agreement.

Additionally, at the closing, we placed $1.5 million in restricted cash (which was released to us and received in July 2017) and $1 million worth of our common stock (1,108,928 shares) into escrow with the shares to be released to us 12 months following the closing (which shares were released to us and cancelled in March 2017), in order to satisfy any indemnification claims made by Safety-Kleen pursuant to the terms of the Sale Agreement.

Finally, the Sale Agreement required the Company to use sale proceeds to exercise the purchase option set forth in that certain Lease With Option For Membership Interest Purchase (the “Bango Lease”) entered into on April 30, 2015, by and between us, Vertex Refining NV, LLC ("Vertex Refining NV") and Bango Oil, whereby, we had the option at any time during the term of the lease to purchase all of the equity interests of Bango Oil (the “Purchase Option”), effectively acquiring ownership of the Bango Plant for $9.3 million. The "Membership Interest Purchase Agreement" contains standard and customary representations of the parties and indemnification rights, subject in each case to a $3 million cap on aggregate indemnification. Upon the closing of the "Membership Interest Purchase Agreement", we effectively obtained ownership of the Bango Plant, which we then sold to Safety-Kleen, and Bango Oil became a wholly-owned subsidiary of Vertex Refining NV.

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ACCOUNTS RECEIVABLE

9 Months Ended

Sep. 30, 2017

Receivables [Abstract]

ACCOUNTS RECEIVABLE

ACCOUNTS RECEIVABLE

Accounts receivable, net, consists of the following at September 30, 2017 and December 31, 2016:

	September 30, 2017			December 31, 2016
Accounts receivable trade	$	10,537,719		$	12,598,493
Allowance for doubtful accounts	(1,640,274		)	(1,646,274		)
Accounts receivable trade, net	$	8,897,445		$	10,952,219

Accounts receivable trade represents amounts due from customers. Accounts receivable trade are recorded at invoiced amounts, net of reserves and allowances and do not bear interest. The Company uses its best estimate to determine the required allowance for doubtful accounts based on a variety of factors, including the length of time receivables are past due, economic trends and conditions affecting its customer base, significant one-time events and historical write-off experience. Specific provisions are recorded for individual receivables when we become aware of a customer’s inability to meet its financial obligations. The Company reviews the adequacy of its reserves and allowances quarterly.

Receivable balances greater than 30 days past due are individually reviewed for collectability and if deemed uncollectible, are charged off against the allowance accounts after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any significant off balance sheet credit exposure related to its customers.

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LINE OF CREDIT AND LONG-TERM DEBT

9 Months Ended

Sep. 30, 2017

Debt Disclosure [Abstract]

LINE OF CREDIT AND LONG-TERM DEBT

LINE OF CREDIT AND LONG-TERM DEBT

Credit and Guaranty Agreement and Revolving Credit Facility with Encina Business Credit, LLC

Effective February 1, 2017, we, Vertex Operating, and substantially all of our other operating subsidiaries, other than E-Source Holdings, LLC ("E-Source"), entered into a Credit Agreement (the “EBC Credit Agreement”) with Encina Business Credit, LLC as agent (the “Agent” or “EBC”) and Encina Business Credit SPV, LLC and CrowdOut Capital LLC as lenders thereunder (the “EBC Lenders”). Pursuant to the EBC Credit Agreement, and the terms thereof, the EBC Lenders agreed to loan us up to $20 million, provided that the amount outstanding under the EBC Credit Agreement at any time cannot exceed 50% of the value of the operating plant facilities and related machinery and equipment owned by us (not including E-Source).

Amounts borrowed under the EBC Credit Agreement bear interest at 12%, 13% or 14% per annum, based on the ratio of (a) (i) consolidated EBITDA for such applicable period minus (ii) capital expenditures made during such period, minus (iii) the aggregate amount of income taxes paid in cash during such period (but not less than zero) to (b) the sum of (i) debt service charges plus (ii) the aggregate amount of all dividend or other distributions paid on capital stock in cash for the most recently completed 12 month period (which ratio falls into one of the three following tiers: less than 1 to 1; from 1 to 1 to less than 1.45 to 1; or equal to or greater than 1.45 to 1, which together with the value below, determines which interest rate is applicable) and average availability under the Revolving Credit Agreement (defined below) (which falls into two tiers: less than $2.5 million and greater than or equal to $2.5 million, which together with the calculation above, determines which interest rate is applicable), as described in greater detail in the EBC Credit Agreement (increasing by 2% per annum upon the occurrence of an event of default). Interest on amounts borrowed under the EBC Credit Agreement is payable by us in arrears, on the first business day of each month, beginning on the first business day of the first full month following the closing, together with required $75,000 monthly principal repayments. We also have the right to make voluntary repayments of the amount owed under the EBC Credit Agreement in amounts equal to or greater than $100,000, from time to time.

The EBC Credit Agreement terminates on February 1, 2020, on which date we are required to repay the outstanding balance owed thereunder and any accrued and unpaid interest thereon.

The amounts borrowed under the EBC Credit Agreement are guaranteed by us and our subsidiaries, other than E-Source, pursuant to a Guaranty and Security Agreement (the “Guaranty and Security Agreement”), whereby we also pledged substantially all of our assets and all of the securities of our subsidiaries (other than E-Source) as collateral securing the amount due under the terms of the EBC Credit Agreement. We also provided EBC mortgages on our Marrero, Louisiana, and Columbus, Ohio facilities to secure the repayment of outstanding amounts and agreed to provide mortgages on certain other real property to be delivered post-closing. The post-closing mortgage properties provided were in Baytown, Pflugerville and Corpus Christi, Texas.

The EBC Credit Agreement contains customary representations, warranties and requirements for the Company to indemnify the EBC Lenders and their affiliates. The EBC Credit Agreement also includes various covenants (positive and negative) binding upon the Company, including, prohibiting us from undertaking acquisitions or dispositions unless they meet the criteria set forth in the EBC Credit Agreement, not incurring any capital expenditures in amount exceeding $3 million in any fiscal year that the EBC Credit Agreement is in place, and requiring us to maintain at least $2.5 million of average borrowing availability under the Revolving Credit Agreement (defined below) in any 30 day period. As of September 30, 2017, the average borrowing availability was $3,118,937, and the Company was in compliance with all covenants thereunder.

The EBC Credit Agreement includes customary events of default for facilities of a similar nature and size as the EBC Credit Agreement, including if an event of default occurs under any agreement evidencing $500,000 or more of indebtedness of the Company; we fail to make any payment when due under any material agreement; subject to certain exceptions, any judgment is entered against the Company in an amount exceeding $500,000; and also provides that an event of default occurs if a change in control of the Company occurs, which includes if (a) Benjamin P. Cowart, the Company’s Chief Executive Officer, Chairman of the Board and largest shareholder and Chris Carlson, the Chief Financial Officer of the Company, cease to own and control legally and beneficially, collectively, either directly or indirectly, equity securities in Vertex Energy, Inc., representing more than 15% of the combined voting power of all securities entitled to vote for members of the board of directors or equivalent on a fully-diluted basis, (b) the acquisition of ownership, directly or indirectly, beneficially or of record, by any person or group of securities representing more than 30% of the aggregate ordinary voting power represented by the issued and outstanding securities of Vertex Energy, Inc., or (c) during any period of 12 consecutive months, a majority of the members of the board of directors of the Company cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (collectively “Events of Default”). An event of default under the Revolving Credit Agreement (defined below), is also an event of default under the EBC Credit Agreement.

Effective February 1, 2017, we, Vertex Operating and substantially all of our operating subsidiaries, other than E-Source, entered into a Revolving Credit Agreement (the “Revolving Credit Agreement”) with Encina Business Credit SPV, LLC as lender (“Encina”) and EBC as the administrative agent. Pursuant to the Revolving Credit Agreement, and the terms thereof, Encina agreed to loan us, on a revolving basis, up to $10 million, subject to the terms of the Revolving Credit Agreement and certain lending ratios set forth therein, which provide that the amount outstanding thereunder cannot exceed an amount equal to the total of (a) the lesser of (A) the value (as calculated in the Revolving Credit Agreement) of our inventory which are raw materials or finished goods that are merchantable and readily saleable to the public in the ordinary course of our business (“EBC Eligible Inventory”), net of certain inventory reserves, multiplied by 85% of the appraised value of EBC Eligible Inventory, or (B) the value (as calculated in the Revolving Credit Agreement) of EBC Eligible Inventory, net of certain inventory reserves, multiplied by 65%, subject to a ceiling of $4 million, plus (b) the face amount of certain accounts receivables (net of certain reserves applicable thereto) multiplied by 85% (subject to adjustment as provided in the Revolving Credit Agreement); minus (c) the then-current amount of certain reserves that the agent may determine necessary for the Company to maintain. At September 30, 2017, the maximum amount available to be borrowed was $3,011,038, based on the above borrowing base calculation.

Amounts borrowed under the Revolving Credit Agreement bear interest, subject to the terms of the Revolving Credit Agreement, at the one month LIBOR interest rate then in effect, subject to a floor of 0.25% (which interest rate is currently approximately 1.23% per annum), plus an additional 6.50% per annum (increasing by 2% per annum upon the occurrence of an event of default), provided that under certain circumstances amounts borrowed bear interest at the higher of (a) the “prime rate”; (b) the Federal Funds Rate, plus 0.50%; and (c) the LIBOR Rate for a one month interest period, plus 1.00%. Interest on amounts borrowed under the Revolving Credit Agreement is payable by us in arrears, on the first business day of each month, beginning on the first business day of the first full month following the closing.

The Revolving Credit Agreement terminates on February 1, 2020, on which date we are required to repay the outstanding balance owed thereunder and any accrued and unpaid interest thereon. Borrowings under a revolving credit agreement that contain a subjective acceleration clause and also require a borrower to maintain a lockbox with the lender (whereby lockbox receipts may be applied to reduce the amount outstanding under the revolving credit agreement) are considered short-term obligations. As a result, the debt is classified as a current liability at September 30, 2017.

The amounts borrowed under the Revolving Credit Agreement are guaranteed by us and our subsidiaries, other than E-Source, pursuant to a separate Guaranty and Security Agreement, similar to the EBC Credit Agreement, described in greater detail above. We also provided Encina mortgages on our Marrero, Louisiana, and Columbus, Ohio facilities to secure the repayment of outstanding amounts.

The Revolving Credit Agreement contains customary representations, warranties and requirements for the Company to indemnify Encina and its affiliates. The Revolving Credit Agreement also includes various covenants (positive and negative) binding upon the Company, including, prohibiting us from undertaking acquisitions or dispositions unless they meet the criteria set forth in the Revolving Credit Agreement, not incurring any capital expenditures in amount exceeding $3 million in any fiscal year that the Revolving Credit Agreement is in place, and requiring us to maintain at least $2.5 million of average borrowing availability under the Revolving Credit Agreement in any 30 day period.

The Revolving Credit Agreement includes customary events of default for facilities of a similar nature and size as the Revolving Credit Agreement, including the same Events of Default as are described above under the description of the EBC Credit Agreement.

A total of $11,282,537 of the amount initially borrowed under the EBC Credit Agreement and Revolving Credit Agreement was used to repay amounts owed under (a) the Restated Credit Agreement with Goldman Sachs Bank USA (defined below), (b) our loan agreement with MidCap (defined below); and (c) the Fox Note (defined below), all of which have been repaid in full as of the date of this filing. Additionally, in connection with the repayment of such obligations, the Restated Goldman Credit Agreement and Midcap Loan Agreement, and our right to borrow funds thereunder were terminated.

The balance of the EBC Credit Agreement and the Revolving Credit Agreement as of September 30, 2017 are $13,975,000 and $3,738,483, respectively.

Credit and Guaranty Agreement with Goldman Sachs Bank

In May 2014, the Company entered into a Credit and Guaranty Agreement with Goldman Sachs Bank USA (as amended, the “Credit Agreement”). Pursuant to the agreement, Goldman Sachs Bank USA loaned the Company $40 million in the form of a term loan. As set forth in the Credit Agreement, the Company has the option to select whether loans made under the Credit Agreement bear interest at (a) the greater of (i) the prime rate in effect, (ii) the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System plus ½ of 1%, (iii) the sum of (A) the Adjusted LIBOR Rate and (B) 1%, and (iv) 4.5% per annum; or (b) the greater of (i) 1.50% and (ii) the applicable ICE Benchmark Administration Limited interest rate, divided by (x) one minus, (y) the Adjusted LIBOR Rate. Interest on the Credit Agreement is payable monthly in arrears.

The Credit Agreement was secured by all of the assets of the Company.

On March 26, 2015, the Company entered into a Second Amendment with Goldman Sachs Bank USA to amend the Credit Agreement to among other things, provide for the waiver of the prior defaults and to restructure certain covenants and other financial requirements of the Credit Agreement and to allow for our entry into the MidCap Loan Agreement.

The Credit Agreement contained customary representations, warranties, and covenants for facilities of similar nature and size as the Credit Agreement. The Credit Agreement also included various covenants binding the Company including limits on indebtedness the Company could incur and maintenance of certain financial ratios relating to consolidated EBITDA and debt leverage.

On January 29, 2016, we, Vertex Operating, certain of our other subsidiaries, Goldman Sachs Specialty Lending Holdings, Inc., as lender (“Lender”) and Goldman Sachs Bank USA, a New York State-Chartered Bank, as Administrative Agent, Lead Arranger and Collateral Agent (“Agent”) entered into an Amended and Restated Credit and Guaranty Agreement (the “Restated Credit Agreement”). The Restated Credit Agreement changed the Credit Agreement to an $8.9 million multi-draw term loan credit facility (of which approximately $6.4 million was outstanding and $2.5 million was available to be drawn pursuant to the terms of the Restated Credit Agreement on substantially similar terms as the then outstanding amounts owed to the Lender); modified the Credit Agreement to adjust certain EBITDA calculations in connection with the purchase of Bango Oil and the sale of the Bango Plant as described above; provided for approval for us to exercise the Purchase Option, enter into and effect the transactions contemplated by a Membership Interest Purchase Agreement, Subscription Agreement, and the Sale Agreement, and allowed for the issuance of the Fox Note (defined below) and a Mortgage securing such obligation, confirmed that we were required to make payments of $800,000 per quarter from June 30, 2016 through maturity (May 2, 2019); provided us a moratorium on the prepayment of amounts owed under the Restated Credit Agreement as a result of various financial ratios we are required to meet through December 31, 2016; provided for us to retain any business interruption insurance proceeds received in connection with the Bango Plant; provided for us to pay $16 million received at closing from the sale of the Bango Assets, all amounts released from escrow and any other cash proceeds in excess of $500,000 received from the Sale Agreement after closing to the Lender as prepayment of amounts due under the Restated Credit Agreement; allowed us the right to make certain permitted acquisitions moving forward, without further consent of the Lender, provided that among other requirements, such acquisitions are in the same business or line of business as the Company, that such acquired businesses have generated consolidated adjusted EBITDA for the four fiscal quarters preceding such acquisition in excess of capital expenditures for such period (taking into account adjustments acceptable to the Agent for synergies expected to be achieved within the 90 days following the closing of such acquisition), and that the funding for such acquisition comes from certain limited sources set forth in greater detail in the Restated Credit Agreement; adjusted certain fixed charge coverage ratios and leverage ratios we were required to meet on a quarterly basis from September 30, 2016 to maturity; required us to maintain at least $2 million of liquidity at all times; provided that events of default under the Credit Agreement include events of default under the Fox Note (defined below); and made various other updates and changes to take into account transactions which had occurred through the date of such agreement, and to remove expired and non-material terms of the prior Credit Agreement. The Credit Agreement was terminated effective February 1, 2017.

MidCap Loan Agreement

Effective March 27, 2015, the Company, Vertex Operating and all of the Company’s other subsidiaries other than E-Source and Golden State Lubricant Works, LLC entered into a Loan and Security Agreement with MidCap Business Credit LLC (“MidCap” and the “MidCap Loan Agreement”). Pursuant to the MidCap Loan Agreement, MidCap agreed to loan us up to the lesser of (i) $7 million; and (ii) 85% of the amount of accounts receivable due to us which meet certain requirements set forth in the MidCap Loan Agreement (“Qualified Accounts”), plus the lesser of (y) $3 million and (z) 50% of the cost or market value, whichever is lower, of our raw material and finished goods which had not yet been sold, subject to the terms and conditions of the MidCap Loan Agreement (“Eligible Inventory”), minus any amount which MidCap may require from time to time in order to over secure amounts owed to MidCap under the MidCap Loan Agreement, as long as no event of default had occurred or was continuing under the terms of the MidCap Loan Agreement. The requirement of MidCap to make loans under the MidCap Loan Agreement was subject to certain standard conditions and requirements.

On November 9, 2015, we and certain of our subsidiaries entered into a First Amendment to Loan and Security Agreement (the “Midcap First Amendment”). The Midcap First Amendment amended the Midcap Loan Agreement to add Vertex Refining OH, LLC ("Vertex OH") as a party thereto; remove Vertex OH’s requirement to enter into a negative pledge agreement with MidCap; created separate maximum borrowing base credit limits for Vertex OH’s accounts and customers ($100,000 maximum per customer, subject to certain exceptions); excluded customers who are based outside of the U.S. or Canada from the credit limits if backed by a bank letter of credit or covered by a foreign receivables insurance policy; removed inventory of Vertex OH from the definition of Eligible Inventory under the Midcap Loan Agreement; and provided that additional affiliates of the Company may become party to the Midcap Loan Agreement by executing an assumption agreement and revolving note in favor of Midcap. The MidCap Loan Agreement was terminated effective February 1, 2017.

Fox Note

On January 29, 2016, Vertex OH, borrowed $5.15 million from Fox Encore 05 LLC, the prior owner of Bango Oil ("Fox Encore") and provided a Promissory Note to Fox Encore to reflect such borrowed funds (the “Fox Note”). The Fox Note bears interest at 10% percent per annum (15% upon the occurrence of an event of default), payable monthly in arrears beginning on February 29, 2016. The principal and all accrued and unpaid interest on the Fox Note was due on the earlier of (a) July 31, 2016 (as may be extended by Vertex OH as discussed below, the “Maturity Date”), or (b) upon acceleration of the Fox Note during the existence of an event of default as discussed therein. Provided that no event of default was then existing on the Fox Note or under any other loan document associated therewith, and certain other requirements as described in the Fox Note are met, Vertex OH had the right to three (3) extension options (each, an “Extension Option”) pursuant to which Vertex OH could extend the Maturity Date for six (6) months each. The first extension extended the Maturity Date of the Fox Note until January 31, 2017 and Vertex OH exercised this Extension Option on June 16, 2016. The second extension would have extended the Maturity Date of the Fox Note until July 31, 2017, and the third extension would have extended the Maturity Date of the Fox Note until January 29, 2018. Upon exercising an Extension Option, Vertex OH was required to pay Fox Encore an extension fee equal to 3% of the then outstanding principal amount of the Fox Note, which amount was separate from, and is not applied toward, the outstanding indebtedness owed under the Fox Note; provided, however, upon exercise of the initial Extension Option, the 3% fee for such extension was not required to be paid in cash but instead only resulted in the termination of a prepayment discount described below. The Fox Note could be prepaid in whole or in part at any time without penalty, provided that if repaid in full by July 31, 2016, the amount to be repaid was to be decreased by $150,000. The Fox Note was secured by a Mortgage. The Fox Note included certain standard and customary financial reporting requirements, notice requirements, indemnification requirements, covenants and events of default. The Fox Note also included a provision allowing the Lender (or any other lender party to the Restated Credit Agreement) to purchase the Fox Note upon the occurrence of an event of default under the Restated Credit Agreement. In July 2016, we exercised the first Extension Option, extending the Maturity Date of the Fox Note to January 31, 2017. The Fox Note was repaid in full effective February 1, 2017.

Texas Citizens Bank Loan Agreement

The Company has notes payable to Texas Citizens Bank bearing interest at 5.50% per annum, maturing on January 7, 2020.  The balances of the notes payable are $966,847 and $1,531,506 at September 30, 2017 and December 31, 2016, respectively.

Insurance Premiums

The Company financed insurance premiums through various financial institutions bearing interest rates from 4.00% to 4.52%. All such premium finance agreements have maturities of less than one year and have a balance of $1,489,881 at September 30, 2017 and $1,060,065 at December 31, 2016.

Capital Leases

On May 2, 2014, in connection with the closing of the Omega Refining acquisition, the Company assumed two capital leases. Payments made since 2014 have reduced the capital lease obligation to $0 and $133,153 at September 30, 2017 and December 31, 2016, respectively.

The Company's outstanding debt facilities as of September 30, 2017 and December 31, 2016 are summarized as follows:

Creditor	Loan Type	Origination Date	Maturity Date	Loan Amount		Balance on September 30, 2017			Balance on December 31, 2016
Encina Business Credit, LLC	Term Loan	February 1, 2017	February 1, 2020	$	20,000,000	$	13,975,000		$	—
Encina Business Credit SPV, LLC	Revolving Note	February 1, 2017	February 1, 2020	$	10,000,000	3,738,483			—
MidCap Revolving Line of Credit	Revolving Note	March, 2015	March, 2017 (1)	$	7,000,000	—			2,726,039
Goldman Sachs USA	Term Loan - Restated Credit Agreement	January 29, 2016	May 2, 2019 (1)	$	8,900,000	—			4,000,000
Fox Encore Promissory Note	Promissory Note	January 29, 2017	January 31, 2017 (1)	$	5,150,000	—			5,150,000
Pacific Western Bank	Capital Lease	September, 2012	August, 2017	$	3,154,860	—			133,153
Texas Citizens Bank	Term Note	January, 2015	January, 2020	$	2,045,500	966,847			1,531,506
Various institutions	Insurance premiums financed	Various	< 1 year	$	2,902,428	1,489,881			1,060,065
Total						$	20,170,211		$	14,600,763
Deferred finance cost, net						(1,384,944		)	(244,178		)
Total, net of deferred finance costs						$	18,785,267		$	14,356,585

(1) Paid in full and terminated on February 1, 2017.

Future contractual maturities of notes payable are summarized as follows:

Creditor	Year 1			Year 2			Year 3			Year 4		Year 5		Thereafter
Encina Business Credit, LLC	$	3,738,483		$	—		$	—		$	—	$	—	$	—
Encina Business Credit SPV, LLC	900,000			900,000			900,000			11,275,000		—		—
Texas Citizens Bank	488,194			478,653						—		—		—
Various institutions	1,489,881			—			—			—		—		—
Totals	6,616,558			1,378,653			900,000			11,275,000		—		—
Deferred finance costs, net	(581,479		)	(581,479		)	(221,986		)	—		—		—
Totals, net of deferred finance costs	$	6,035,079		$	797,174		$	678,014		$	11,275,000	$	—	$	—

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2017

Earnings Per Share [Abstract]

EARNINGS PER SHARE

EARNINGS PER SHARE

Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the periods presented. The calculation of basic earnings per share for the three and nine months ended September 30, 2017 and September 30, 2016, respectively, includes the weighted average of common shares outstanding. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity, such as convertible preferred stock, stock options, warrants or convertible securities. Due to their anti-dilutive effect, the calculation of diluted earnings per share for the three and nine months ended September 30, 2017 and September 30, 2016 excludes: 1) options to purchase 3,030,249 and 2,777,552 shares, respectively, of common stock, 2) warrants to purchase 7,353,061 and 4,252,135 shares, respectively, of common stock, 3) Series B Preferred Stock which is convertible into 3,376,938 and 4,895,244 shares, respectively, of common stock, 4) Series B1 Preferred Stock which is convertible into 12,862,572 and 12,501,558 shares, respectively, of common stock, 5) Series A Preferred Stock which is convertible into 456,608 and 492,716 shares, respectively, of common stock, and 6) 31,568 and 44,000 shares, respectively, of Series C Preferred Stock, which is convertible into 3,156,800 and 4,400,000 shares of common stock, respectively.

The following is a reconciliation of the numerator and denominator for basic and diluted earnings per share for the three and nine months ended September 30, 2017 and 2016: 

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Basic Earnings per Share
Numerator:
Net (loss) income available to common shareholders	$	(3,829,125	)	$	(1,047,564	)	$	(10,572,545	)	$	(9,543,203	)
Denominator:
Weighted-average shares outstanding	32,655,135			30,576,485			32,651,961			29,884,836
Basic earnings per share	$	(0.12	)	$	(0.03	)	$	(0.32	)	$	(0.32	)
Diluted Earnings per Share
Numerator:
Net (loss) income available to common shareholders	$	(3,829,125	)	$	(1,047,564	)	$	(10,572,545	)	$	(9,543,203	)
Denominator:
Weighted-average shares outstanding	32,655,135			30,576,485			32,651,961			29,884,836
Effect of dilutive securities
Stock options and warrants	—			—			—			—
Preferred Stock	—			—			—			—
Diluted weighted-average shares outstanding	32,655,135			30,576,485			32,651,961			29,884,836
Diluted earnings per share	$	(0.12	)	$	(0.03	)	$	(0.32	)	$	(0.32	)

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COMMON STOCK

9 Months Ended

Sep. 30, 2017

Common Stock, Number of Shares, Par Value and Other Disclosures [Abstract]

COMMON STOCK

COMMON STOCK

The total number of authorized shares of the Company’s common stock is 750,000,000 shares, $0.001 par value per share. As of September 30, 2017, there were 32,655,135 common shares issued and outstanding.

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

Common stock activity during the nine months ended September 30, 2017 was as follows:

• On January 27, 2017, the Company issued 66,564 shares of common stock in connection with the conversion of 66,564 shares of Series B1 Convertible Preferred Stock.

• On January 30, 2017, the Company issued 10,000 shares of common stock in connection with the conversion of 10,000 shares of Series B1 Convertible Preferred Stock.

• On February 2, 2017, the Company issued 30,072 shares of common stock in connection with the conversion of 30,072 shares of our Series A Convertible Preferred Stock.

• On March 10, 2017, the Company received and cancelled 1,108,928 shares of common stock previously held in escrow as part of the escrow fulfillment of the sale of the Vertex Refining NV assets to Safety-Kleen System, Inc. (the "Bango Sale"). The sales agreement is more fully described in Note 4. Disposition.

• On May 12, 2017, the Company issued 6,036 shares of common stock in connection with the conversion of 6,036 shares of our Series A Convertible Preferred Stock.

• On May 26, 2017, the Company issued 500,000 shares of common stock in connection with the Nickco acquisition, which is more fully described in Note 12. Acquisition.

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PREFERRED STOCK AND DETACHABLE WARRANTS

9 Months Ended

Sep. 30, 2017

Equity [Abstract]

PREFERRED STOCK AND DETACHABLE WARRANTS

PREFERRED STOCK AND DETACHABLE WARRANTS

The total number of authorized shares of the Company’s preferred stock is 50,000,000 shares, $0.001 par value per share. The total number of designated shares of the Company’s Series A Convertible Preferred Stock is 5,000,000 (“Series A Preferred”). The total number of designated shares of the Company’s Series B Preferred Stock is 10,000,000. The total number of designated shares of the Company’s Series B1 Preferred Stock is 17,000,000. The number of designated shares of the Company's Series C Preferred Stock is 44,000. As of September 30, 2017 and December 31, 2016, there were 456,608 shares and 492,716 shares of Series A Preferred Stock issued and outstanding, respectively. As of September 30, 2017 and December 31, 2016, there were 3,376,938 and 3,229,409 shares of Series B Preferred Stock issued and outstanding, respectively. In connection with the May 2016 Purchase Agreement described below under "Series B1 Preferred Stock and Temporary Equity", 3,575,070 shares of Series B Preferred Stock were repurchased and retired. As of September 30, 2017 and December 31, 2016, there were 12,862,572 and 12,282,638 shares of Series B1 Preferred Stock issued and outstanding, respectively. As of both September 30, 2017 and December 31, 2016, there were 31,568 shares of Series C Preferred Stock issued and outstanding. The 31,568 shares of Series C Preferred Stock are convertible into 3,156,800 shares of Common Stock.

Series A Preferred

Holders of outstanding shares of Series A Preferred are entitled to receive dividends, when, as, and if declared by our Board of Directors. No dividends or similar distributions may be made on shares of capital stock or securities junior to our Series A Preferred until dividends in the same amount per share on our Series A Preferred have been declared and paid. In connection with a liquidation, winding-up, dissolution or sale of the Company, each share of our Series A Preferred is entitled to receive $1.49 prior to similar liquidation payments due on shares of our common stock or any other class of securities junior to the Series A Preferred. Shares of Series A Preferred are not entitled to participate with the holders of our common stock with respect to the distribution of any remaining assets of the Company.

Each share of Series A Preferred is entitled to that number of votes equal to the number of whole shares of common stock into which it is convertible. Generally, holders of our common stock and Series A Preferred vote together as a single class.

Shares of Series A Preferred automatically convert into shares of our common stock on the earliest to occur of the following:

• The affirmative vote or written consent of the holders of a majority of the then-outstanding shares of Series A Preferred;

• If the closing market price of our common stock averages at least $15.00 per share over a period of 20 consecutive trading days and the daily trading volume averages at least 7,500 shares over such period;

• If we consummate an underwritten public offering of our securities at a price per share not less than $10.00 and for a total gross offering amount of at least $10 million; or

• If a sale of the Company occurs resulting in proceeds to the holders of Series A Preferred of a per share amount of at least $10.00.

Each share of Series A Preferred converts into one share of common stock, subject to adjustment.

Series B Preferred Stock and Temporary Equity

Dividends on our Series B Preferred Stock accrue at an annual rate of 6% of the original issue price of the preferred stock ($3.10 per share), subject to increase under certain circumstances, and are payable on a quarterly basis. The dividends are payable by the Company, at the Company’s election, in registered common stock of the Company (if available) or cash. In the event dividends are paid in registered common stock of the Company, the number of shares payable will be calculated by dividing (a) the accrued dividend by (b) 90% of the arithmetic average of the volume weighted average price (VWAP) of the Company’s common stock for the 10 trading days immediately prior to the applicable date of determination (the “June 2015 Dividend Stock Payment Price”). Notwithstanding the foregoing, in no event may the Company pay dividends in common stock unless the applicable June 2015 Dividend Stock Payment Price is above $2.91. If the Company is prohibited from paying or chooses not to pay, the dividend in cash (due to contractual senior credit agreements or other restrictions) or is unable to pay the dividend in registered common stock, the dividend can be paid in-kind in Series B Preferred Stock shares at $3.10 per share.

The Series B Preferred Stock include a liquidation preference (in the amount of $3.10 per share) which is junior to the Company’s previously outstanding shares of preferred stock, senior credit facilities and other debt holders as provided in further detail in the designation and senior to the Series C Preferred Stock and pari passu with the Series B1 Preferred Stock.

The Series B Preferred Stock (including accrued and unpaid dividends) is convertible into shares of the Company’s common stock at the holder’s option at $3.10 per share (initially a one-for-one basis). If the Company’s common stock trades at or above $6.20 per share for a period of 20 consecutive trading days, the Company may at such time force conversion of the Series B Preferred Stock (including accrued and unpaid dividends) into common stock of the Company.

The Series B Preferred Stock votes together with the common stock on an as-converted basis, provided that each holder’s voting rights are subject to and limited by the Series B Beneficial Ownership Limitation described below.

The Company has the option to redeem the outstanding shares of Series B Preferred Stock at $3.10 per share, plus any accrued and unpaid dividends on such Series B Preferred Stock redeemed, at any time beginning on June 24, 2017, and the Company is required to redeem the Series B Preferred Stock at $3.10 per share, plus any accrued and unpaid dividends, on June 24, 2020. Notwithstanding either of the foregoing, the Series B Preferred Stock may not be redeemed unless and until amounts outstanding under the Company’s senior credit facility have been paid in full.

The Series B Preferred Stock contains a provision prohibiting the conversion of such Series B Preferred Stock into common stock of the Company, if upon such conversion, the holder thereof would beneficially own more than 9.999% of the Company’s then outstanding common stock (the “Series B Beneficial Ownership Limitation”). The Series B Beneficial Ownership Limitation does not apply to forced conversions undertaken by the Company pursuant to the terms of the designation (summarized above).

On June 24, 2015, we closed the transactions contemplated by the June 19, 2015 Unit Purchase Agreement (the “June 2015 Purchase Agreement”) we entered into with certain institutional investors (the “June 2015 Investors”), pursuant to which the Company sold the Investors an aggregate of 8,064,534 units (the “June 2015 Units”), each consisting of (i) one share of Series B Preferred Stock and (ii) one warrant to purchase one-half of a share of common stock of the Company (each a “June 2015 Warrant” and collectively, the “June 2015 Warrants”). The Units were sold at a price of $3.10 per Unit (the “June 2015 Unit Price”) (a 6.1% premium to the closing bid price of the Company’s common stock on the NASDAQ Capital Market on the date the June 2015 Purchase Agreement was entered into which was $2.91 per share (the “June 2015 Closing Bid Price”)). The June 2015 Warrants have an exercise price of $2.92 per share ($0.01 above the June 2015 Closing Bid Price). Total gross proceeds from the offering of the June 2015 Units (the “June 2015 Offering”) were $25.0 million.

The Placement Agent received a commission equal to 6.5% of the gross proceeds (less $4.0 million raised from certain investors in the June 2015 Offering for which they received no fee) from the June 2015 Offering, for an aggregate commission of $1.4 million which was netted against the proceeds.

We used the net proceeds from the June 2015 Offering to repay amounts owed under the Goldman Credit Agreement in the amount of $15.1 million.

In addition, under the June 2015 Purchase Agreement, the Company agreed to register the shares of common stock issuable upon conversion of the Series B Preferred Stock and upon exercise of the June 2015 Warrants under the Securities Act of 1933, as amended, for resale by the June 2015 Investors. The Company committed to file a registration statement on Form S-1 by the 30th day following the closing of the June 2015 Offering (which filing date was met) and to cause the registration statement to become effective by the 90th day following the closing (or, in the event of a “full review” by the Securities and Exchange Commission, the 120th day following the closing), which registration statement was declared effective by the Securities and Exchange Commission (SEC) on August 6, 2015, provided that a post-effective amendment to that registration statement was declared effective by the SEC on August 31, 2016. The June 2015 Purchase Agreement provides for liquidated damages upon the occurrence of certain events, including, but not limited to, the failure by the Company to cause the registration statement to become effective by the deadlines set forth above. The amount of the liquidated damages is 1.0% of the aggregate subscription amount paid by a June 2015 Investor for the June 2015 Units affected by the event that are still held by the June 2015 Investor upon the occurrence of the event, due on the date immediately following the event that caused such failure (or the 30th day following such event if the event relates to the suspension of the registration statement as described in the June 2015 Purchase Agreement), and each 30 days thereafter, with such payments to be prorated on a daily basis during each 30 day period, subject to a maximum of an aggregate of 6% per annum.

Under the June 2015 Purchase Agreement, the Company agreed to indemnify the Investors for liabilities arising out of or relating to (i) any untrue statement of a material fact contained in the registration statement, (ii) any inaccuracy in the representations and warranties of the Company contained in the June 2015 Purchase Agreement or the failure of the Company to perform its obligations under the June 2015 Purchase Agreement and (iii) any failure by the Company to fulfill any undertaking included in the registration statement, subject to certain exceptions. The June 2015 Investors, severally, and not jointly agreed to indemnify the Company against (i) any failure by such June 2015 Investor to comply with the covenants and agreements contained in the June 2015 Purchase Agreement and (ii) any untrue statement of a material fact contained in the registration statement to the extent such untrue statement was made in reliance upon and in conformity with written information furnished by or on behalf of that June 2015 Investor specifically for use in preparation of the registration statement, subject to certain exceptions.

The June 2015 Warrants were valued using the Dynamic Black Scholes Merton formula pricing model that computes the impact of share dilution upon the exercise of the warrant shares at $7,028,067. The Black-Scholes inputs used were: expected dividend rate of 0%, expected volatility of 70%-100%, risk free interest rate of 1.59%, and expected term of 5.5 years. This valuation resulted in a beneficial conversion feature on the convertible preferred stock of $5,737,796. This amount will be accreted over the term as a deemed dividend. Fees in the amount of $1.4 million relating to the stock placement were netted against proceeds. The June 2015 Warrants are exercisable beginning on December 26, 2015, and expire on December 24, 2020.

In connection with the May 2016 Purchase Agreement described below under "Series B1 Preferred Stock and Temporary Equity", certain funds received in that offering totaling $11,189,838 were used to immediately repurchase and retire 3,575,070 shares of Series B Preferred Stock and pay the accrued but unpaid dividends due thereon and on certain other shares of Series B Preferred Stock held by those holders (the “Repurchases”). In connection with this transaction, $5,408,131 of unaccreted discount on these 3,575,070 shares of Series B Preferred Stock which were retired, was immediately recognized, which represents the pro-rata portion of the unaccreted discount.

The following table represents the carrying amount of the Series B Preferred Stock, classified as Temporary Equity on the accompanying Consolidated Balance Sheet, at inception and as of September 30, 2017 and December 31, 2016:

Temporary Equity:
At Inception	June 24, 2015
Face amount of Series B Preferred	$	25,000,000
Less: warrant value	7,028,067
Less: beneficial conversion feature	5,737,796
Less: issuance costs and fees	1,442,462
Carrying amount at inception	$	10,791,675
	September 30, 2017		December 31, 2016
Face amount of Series B Preferred	$	25,000,000	$	25,000,000
Less: repurchase of 3,575,070 shares	11,189,838		11,189,838
Less: conversions of shares to common stock	5,386,341		5,386,341
Plus: dividends in kind	2,042,520		1,164,701
Less: unaccreted discount	3,653,817		3,912,055
Carrying amount	$	6,812,524	$	5,676,467

In accordance with ASC 815-40-25 and ASC 815-10-15 Derivatives and Hedging and ASC 480-10-25 Liabilities-Distinguishing Liabilities from Equity, the convertible preferred shares are accounted for net outside of stockholders’ equity at $6,812,524 with the June 2015 Warrants accounted for as liabilities at their fair value of $644,382 and $1,952,565 as of September 30, 2017 and December 31, 2016, respectively. The value of the derivative warrant liability will be re-measured at each reporting period with changes in fair value recorded in earnings. To derive an estimate of the fair value of these June 2015 Warrants, the Company utilized a Dynamic Black Scholes Merton formula that computes the impact of share dilution upon the exercise of the warrant shares. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price and volatility assumptions to dynamically adjust the payoff of the June 2015 Warrants in the presence of the dilution effect. In the event the convertible preferred shares are redeemed, any redemption price in excess of the carrying amount of the convertible preferred stock would be treated as a dividend.

The warrants related to the June 2015 Series B Preferred Stock and the May 2016 Series B1 Preferred Stock were revalued at September 30, 2017 and December 31, 2016 using the Dynamic Black Scholes model that computes the impact of a possible change in control transaction upon the exercise of the warrant shares at approximately $1,689,090 and $4,365,992, respectively. At September 30, 2017, the June 2015 Warrants and the May 2016 Warrants were valued at approximately $644,382 and $1,044,708, respectively. The Dynamic Black Scholes Merton inputs used were: expected dividend rate of 0%, expected volatility of 78%-100%, risk free interest rate of 1.14%, and expected term of 2.62 years (June 2015 Warrants) and 4.81 years (May 2016 Warrants).

The Certificate of Designation of the Series B Preferred Stock contains customary anti-dilution protection for proportional adjustments (e.g. stock splits). The beneficial conversion feature (BCF) relates to potential differences between the effective conversion price (measured based on proceeds allocated to the Series B Preferred Stock) and the fair value of the stock into which Preferred B Shares are currently convertible (common stock). If a conversion option embedded in a debt host instrument does not require separate accounting as a derivative instrument under ASC 815, the convertible hybrid instrument must be evaluated under ASC 470-20 for the identification of a possible BCF. The BCF was initially recognized as an offsetting reduction to Series B Preferred Stock (debit) - Temporary Equity, with the credit being recognized in equity (additional paid-in capital). The resulting issuance costs, discount, value allocated to warrants, and BCF should be accreted to the Series B Preferred Stock to ensure that the Series B Preferred Stock balance is equal to its face value as of the redemption or conversion date, if conversion is expected earlier.

The initial BCF of the Series B Preferred Stock was determined by calculating the intrinsic value of the conversion feature as follows:

Face amount of Series B Preferred Stock	$	25,000,000
Less: allocated value of Warrants	7,028,067
Allocated value of Series B Preferred Stock	$	17,971,933
Shares of Common stock to be converted	8,064,534
Effective conversion price	$	2.23
Market price	$	2.94
Intrinsic value per share	$	0.7115
Intrinsic value of beneficial conversion feature	$	5,737,796

As of September 30, 2017 and December 31, 2016, respectively, a total of $139,186 and $214,227 of dividends were accrued on our outstanding Series B Preferred Stock. We were prohibited from paying such dividends in shares of common stock because the applicable June 2015 Dividend Stock Payment Price was below $2.91. In the event the applicable June 2015 Dividend Stock Payment Price is below $2.91 we are required to pay such dividend in cash or in-kind in additional shares of Series B Preferred Stock, and we chose to pay such dividends in-kind.

Series B1 Preferred Stock and Temporary Equity

Dividends on our Series B1 Preferred Stock accrue at an annual rate of 6% of the original issue price of the preferred stock ($1.56 per share), subject to increases under certain circumstances, and are payable on a quarterly basis. The dividends are payable by the Company, at the Company’s election, in registered common stock of the Company (if available) or cash. In the event dividends are paid in registered common stock of the Company, the number of shares payable will be calculated by dividing (a) the accrued dividend by (b) 90% of the arithmetic average of the volume weighted average price (VWAP) of the Company’s common stock for the 10 trading days immediately prior to the applicable date of determination (the “May 2016 Dividend Stock Payment Price”). Notwithstanding the foregoing, in no event may the Company pay dividends in common stock unless the applicable May 2016 Dividend Stock Payment Price is above $1.52. If the Company is prohibited from paying, or chooses not to pay, the dividend in cash (due to contractual senior credit agreements or other restrictions) or is unable to pay the dividend in registered common stock, the dividend can be paid in-kind in Series B1 Preferred Stock shares at $1.56 per share.

The Series B1 Preferred Stock include a liquidation preference (in the amount of $1.56 per share) which is junior to the Company’s previously outstanding shares of preferred stock, except the Series B Preferred Stock, which it is pari passu with, senior credit facilities and other debt holders as provided in further detail in the designation and senior to the Series C Preferred Stock.

The Series B1 Preferred Stock (including accrued and unpaid dividends) is convertible into shares of the Company’s common stock at the holder’s option at $1.56 per share (initially a one-for-one basis). If the Company’s common stock trades at or above $3.90 per share for a period of 20 consecutive trading days, after certain triggering events occur, the Company may at such time force conversion of the Series B1 Preferred Stock (including accrued and unpaid dividends) into common stock of the Company.

The Series B1 Preferred Stock votes together with the common stock on an as-converted basis, provided that each holder’s voting rights are subject to and limited by the Series B1 Beneficial Ownership Limitation described below.

The Company has the option to redeem the outstanding shares of Series B1 Preferred Stock at $1.72 per share, plus any accrued and unpaid dividends on such Series B1 Preferred Stock redeemed, at any time beginning on June 24, 2017, and the Company is required to redeem the Series B1 Preferred Stock at $1.56 per share, plus any accrued and unpaid dividends, on June 24, 2020. Notwithstanding either of the foregoing, the Series B1 Preferred Stock may not be redeemed unless and until amounts outstanding under the Company’s senior credit facility have been paid in full.

The Series B1 Preferred Stock and May 2016 Warrants (defined below) contain provisions prohibiting the conversion of such Series B1 Preferred Stock into common stock of the Company, if upon such conversion, the holder thereof would beneficially own more than 9.999% (4.999% for certain holders) of the Company’s then outstanding common stock (the “Series B1 Beneficial OwnershipLimitation”). The Series B1 Beneficial Ownership Limitation does not apply to forced conversions undertaken by the Company pursuant to the terms of the Designation (summarized above).

On May 10, 2016, we entered into a Unit Purchase Agreement (the “May 2016 Purchase Agreement”) with certain institutional investors (the “May 2016 Investors”), pursuant to which, on May 13, 2016, the Company sold the May 2016 Investors an aggregate of 12,403,683 units (the "May 2016 Units”), each consisting of (i) one share of Series B1 Preferred Stock and (ii) one warrant to purchase one-quarter of a share of common stock of the Company (each a “May 2016 Warrant” and collectively, the "May 2016 Warrants”). The Units were sold at a price of $1.56 per Unit (the “May 2016 Unit Price”) (a 2.6% premium to the closing bid price of the Company’s common stock on the NASDAQ Capital Market on the date the May 2016 Purchase Agreement was entered into which was $1.52 per share (the “May 2016Closing Bid Price”)). The May 2016 Warrants have an exercise price of $1.53 per share ($0.01 above the May 2016 Closing Bid Price). Total gross proceeds from the offering of the Units (the “May 2016 Offering”) were $19.4 million.

A total of $18,649,738 of the securities sold in the May 2016 Offering were purchased by investors who participated in the Company’s prior June 2015 offering of Series B Preferred Stock and warrants to purchase shares of common stock. A total of 60% of the funds received from such investors were used to immediately repurchase such investors’ Series B Preferred Stock. As a result, a total of $11,189,838 of the proceeds raised in the May 2016 Offering were used to immediately repurchase and retire 3,575,070 shares of Series B Preferred Stock (the “Repurchases”).

The Placement Agent in the offering received a commission equal to 6.5% of the net proceeds from the May 2016 Offering, after affecting the Repurchases described above, for an aggregate commission of $0.61 million which was netted against the proceeds raised.

We used the net proceeds from the May 2016 Offering to repay amounts owed under the Credit Agreement in the amount of $0.8 million and the remaining proceeds were used for working capital purposes and potential acquisitions.

In addition, under the May 2016 Purchase Agreement, the Company agreed to register the shares of common stock issuable upon conversion of the Series B1 Preferred Stock and upon exercise of the May 2016 Warrants under the Securities Act of 1933, as amended, for resale by the May 2016 Investors. The Company committed to file a registration statement on Form S-1 by the 30th day following the closing of the May 2016 Offering (which filing date was met) and to cause the registration statement to become effective by the 90th day following the closing (or, in the event of a “full review” by the Securities and Exchange Commission, the 120th day following the closing), which registration statement was declared effective by the SEC on August 10, 2016. The May 2016 Purchase Agreement provides for liquidated damages upon the occurrence of certain events, including, but not limited to, the failure by the Company to cause the registration statement to become effective by the deadlines set forth above. The amount of the liquidated damages is 1.0% of the aggregate subscription amount paid by a May 2016 Investor for the May 2016 Units affected by the event that are still held by the May 2016 Investor upon the occurrence of the event, due on the date immediately following the event that caused such failure (or the 30th day following such event if the event relates to the suspension of the registration statement as described in the May 2016 Purchase Agreement), and each 30 days thereafter, with such payments to be prorated on a daily basis during each 30 day period, subject to a maximum of an aggregate of 6% per annum.

Under the May 2016 Purchase Agreement, the Company agreed to indemnify the May 2016 Investors for liabilities arising out of or relating to (i) any untrue statement of a material fact contained in the registration statement, (ii) any inaccuracy in the representations and warranties of the Company contained in the May 2016 Purchase Agreement or the failure of the Company to perform its obligations under the May 2016 Purchase Agreement and (iii) any failure by the Company to fulfill any undertaking included in the registration statement, subject to certain exceptions. The Investors, severally, and not jointly agreed to indemnify the Company against (i) any failure by such Investor to comply with the covenants and agreements contained in the May 2016 Purchase Agreement and (ii) any untrue statement of a material fact contained in the registration statement to the extent such untrue statement was made in reliance upon and in conformity with written information furnished by or on behalf of that Investor specifically for use in preparation of the registration statement, subject to certain exceptions.

The Company agreed pursuant to the May 2016 Purchase Agreement, that until 60 days following effectiveness of the registration statement filed, to register the shares of common stock underlying the Series B1 Preferred Stock and May 2016 Warrants (the “May 2016 Lock-Up Period”), to not offer or sell any common stock or securities convertible or exercisable into common stock, except pursuant to certain exceptions described in the May 2016 Purchase Agreement, and each of the Company’s officers and directors agreed to not sell or offer for sale any shares of common stock until the end of the May 2016 Lock-Up Period, subject to certain exceptions.

The May 2016 Warrants were valued using the Dynamic Black Scholes Merton formula pricing model that computes the impact of share dilution upon the exercise of the May 2016 Warrant shares at $2,867,264. The Dynamic Black Scholes Merton inputs used were: expected dividend rate of 0%, expected volatility of 70%-100%, risk free interest rate of 1.22%, and expected term of 5.5 years. This valuation resulted in a beneficial conversion feature on the convertible preferred stock of $2,371,106. This amount will be accreted over the term as a deemed dividend. Fees in the amount of $0.6 million relating to the stock placement were netted against proceeds. The May 2016 Warrants are exercisable beginning on November 14, 2016, and expire on November 14, 2021.

The following table represents the carrying amount of the Series B1 Preferred Stock, classified as Temporary Equity on the accompanying Consolidated Balance Sheet, at inception (May 13, 2016), as of September 30, 2017, and December 31, 2016:

Temporary Equity:
At Inception	May 13, 2016
Face amount of Series B1 Preferred	$	19,349,745
Less: May 2016 Warrant value	2,867,264
Less: May 2016 Beneficial Conversion Feature	2,371,106
Less: May 2016 issuance costs and fees	607,880
Carrying amount at inception	$	13,503,495
	September 30, 2017		December 31, 2016
Face amount of Series B1 Preferred	$	19,349,745	$	19,349,745
Less: conversions of shares to common	748,306		628,866
Plus: dividends-in-kind	1,288,282		435,369
Less: unaccreted discount	4,608,971		5,228,460
Carrying amount	$	15,280,750	$	13,927,788

In accordance with ASC 815-40-25 and ASC 815-10-15 Derivatives and Hedging and ASC 480-10-25 Liabilities-Distinguishing Liabilities from Equity, the convertible Series B1 Preferred Stock shares are accounted for net outside of stockholders’ equity at $15,280,750 with the May 2016 Warrants accounted for as liabilities at their fair value of $1,044,708 and $2,413,427 as of September 30, 2017 and December 31, 2016, respectively. The value of the derivative warrant liability will be re-measured at each reporting period with changes in fair value recorded in earnings. To derive an estimate of the fair value of these warrants, the Company utilized a Dynamic Black Scholes Merton formula that computes the impact of share dilution upon the exercise of the May 2016 Warrants. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price and volatility assumptions to dynamically adjust the payoff of the warrants in the presence of the dilution effect. In the event the convertible Series B1 Preferred Stock shares are redeemed, any redemption price in excess of the carrying amount of the convertible Series B1 Preferred Stock would be treated as a dividend.

The Certificate of Designation of the Series B1 Preferred Stock contains customary anti-dilution protection for proportional adjustments (e.g. stock splits). The May 2016 BCF relates to the difference between the effective conversion price (measured based on proceeds allocated to the Series B1 Preferred Stock) and the fair value of the stock into which Series B1 Preferred Stock shares are currently convertible (common stock). If a conversion option embedded in a debt host instrument does not require separate accounting as a derivative instrument under ASC 815, the convertible hybrid instrument must be evaluated under ASC 470-20 for the identification of a possible BCF. The May 2016 BCF was initially recognized as an offsetting reduction (debit) to Series B1 Preferred Stock - Temporary Equity, with the credit being recognized in equity (additional paid-in capital). The resulting May 2016 issuance costs, discount, value allocated to warrants, and BCF should be accreted to the Series B1 Preferred Stock to ensure that the Series B1 Preferred Stock balance is equal to its face value as of the redemption or conversion date, if conversion is expected earlier.

The May 2016 BCF was determined by calculating the intrinsic value of the conversion feature as follows:

	May 13, 2016
Face amount of Series B1 Preferred Stock	$	19,349,756
Less: allocated value of May 2016 Warrants	2,867,264
Allocated value of Series B1 Preferred Stock	$	16,482,492
Shares of Common stock to be converted	12,403,683
Effective conversion price	$	1.33
Market price	$	1.52
Intrinsic value per share	$	0.19
Intrinsic value of May 2016 beneficial conversion feature	$	2,371,106

As of September 30, 2017 and December 31, 2016, respectively, a total of $281,527 and $290,247 of dividends were accrued on our outstanding Series B1 Preferred Stock. We were prohibited from paying such dividends in shares of common stock because the applicable 2016 Dividend Stock Payment Price was below $1.52. In the event the applicable Dividend Stock Payment Price is below $1.52, we are required to pay such dividend in cash or in-kind in additional shares of Series B1 Preferred Stock, and we choose to pay such dividends in-kind.

The following is an analysis of changes in the derivative liability:

Level Three Roll-Forward
Item	Level 3
Balance at December 31, 2015	$	1,548,604
May 2016 Series B1 Preferred Warrants (described below)	2,867,264
Change in valuation of warrants	(49,876		)
Balance at December 31, 2016	4,365,992
Change in valuation of warrants	(2,676,902		)
Balance at September 30, 2017	$	1,689,090

Series C Convertible Preferred Stock

On January 29, 2016, we sold 44,000 shares of Series C Convertible Preferred Stock ("Series C Preferred Stock"), as described below, in consideration for $4 million.

The Series C Convertible Preferred Stock, authorized on January 29, 2016, does not accrue a dividend, but has participation rights on an as-converted basis, to any dividends paid on the Company’s common stock (other than dividends paid solely in common stock). Each Series C Preferred Stock share has a $100 face value, and a liquidation preference (in the amount of $100 per share) which is junior to the Company’s previously outstanding shares of preferred stock (including the Series B and B1 Preferred Stock), senior credit facilities and other debt holders as provided in further detail in the designation, but senior to the common stock.

The Series C Preferred Stock is convertible into shares of the Company’s common stock at the holder’s option at any time at $1.00 per share (initially each share of Series C Preferred Stock is convertible into 100 shares of common stock (subject to adjustments for stock splits and recapitalizations)). The Series C Preferred Stock votes together with the common stock on an as-converted basis (the "Voting Rights"), provided that each holder’s voting rights are subject to and limited by the Series C Beneficial Ownership Limitation described below and provided further that notwithstanding any of the foregoing, solely for purposes of determining the Voting Rights, the Voting Rights accorded to such Series C Convertible Preferred Stock will be determined as if converted at $1.05 per share (the market value of the common stock as of the close of trading on the day prior to theoriginal issuance date of the Series C Preferred Stock), and subject to equitable adjustment as discussed in the designation. There are no redemption rights associated with the Series C Preferred Stock.

The Series C Preferred Stock contains a provision prohibiting the conversion of the Series C Preferred Stock into common stock of the Company, if upon such conversion or exercise, as applicable, the holder thereof would beneficially own more than 4.999% of the Company’s then outstanding common stock (the “Series C Beneficial Ownership Limitation”). The Series C Beneficial Ownership Limitation may be increased up and down on a per holder basis, with 61 days prior written notice from any holder, provided the Series C Beneficial Ownership Limitation may never be higher than 9.999%.

So long as any shares of Series C Preferred Stock are outstanding, we are prohibited from undertaking any of the following without first obtaining the approval of the holders of a majority of the outstanding shares of Series C Preferred Stock: (a) increasing or decreasing (other than by conversion) the total number of authorized shares of Series C Preferred Stock; (b) re-issuing any shares of Series C Preferred Stock converted; (c) creating, or authorizing the creation of, or issuing or obligating the Company to issue shares of, any class or series of capital stock unless the same ranks junior to (and not pari passu with) the Series C Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Company, or increasing the authorized number of shares of any additional class or series of capital stock unless the same ranks junior to (and not pari passu with) the Series C Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Company; (d) effecting an exchange, reclassification, or cancellation of all or a part of the Series C Preferred Stock (except pursuant to the terms of the designation); (e) effecting an exchange, or creating a right of exchange, of all or part of the shares of another class of shares into shares of Series C Preferred Stock (except pursuant to the terms of the designation); (f) issuing any additional shares of Series C Preferred Stock; (g) altering or changing the rights, preferences or privileges of the shares of Series C Preferred Stock so as to affect adversely the shares of such series; or (h) amending or waiving any provision of the Company’s Articles of Incorporation or Bylaws relative to the Series C Preferred Stock so as to affect adversely the shares of Series C Preferred Stock in any material respect as compared to holders of other series of shares.

On August 2, 2016, the Company issued 1,243,200 shares of common stock in connection with the conversion of 12,432 shares of Series C Preferred Stock. The outstanding shares of Series C Preferred Stock at both September 30, 2017 and December 31, 2016 totaled 31,568 shares.

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SEGMENT REPORTING

9 Months Ended

Sep. 30, 2017

Segment Reporting [Abstract]

SEGMENT REPORTING

SEGMENT REPORTING

The Company’s reportable segments include the Black Oil, Refining & Marketing and Recovery divisions. Segment information for the three and nine months ended September 30, 2017 and 2016 is as follows:

THREE MONTHS ENDED SEPTEMBER 30, 2017
	Black Oil			Refining & Marketing			Recovery			Total
Revenues	$	25,358,317		$	4,856,520		$	2,255,614		$	32,470,451
Income (loss) from operations	$	(2,463,457	)	$	(708,175	)	$	(137,390	)	$	(3,309,022	)

THREE MONTHS ENDED SEPTEMBER 30, 2016
	Black Oil			Refining & Marketing		Recovery			Total
Revenues	$	22,907,235		$	4,436,111	$	1,118,584		$	28,461,930
Income (loss) from operations	$	(404,396	)	$	173,121	$	(354,749	)	$	(586,024	)

NINE MONTHS ENDED SEPTEMBER 30, 2017
	Black Oil			Refining & Marketing			Recovery			Total
Revenues	$	77,546,802		$	15,436,919		$	11,170,123		$	104,153,844
Income (loss) from operations	$	(6,511,277	)	$	(940,476	)	$	(196,853	)	$	(7,648,606	)

NINE MONTHS ENDED SEPTEMBER 30, 2016
	Black Oil			Refining & Marketing			Recovery			Total
Revenues	$	52,877,119		$	9,986,047		$	4,159,812		$	67,022,978
Income (loss) from operations	$	(8,199,842	)	$	(55,847	)	$	(715,973	)	$	(8,971,662	)

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INCOME TAXES

9 Months Ended

Sep. 30, 2017

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Our effective tax rate of 0% on pretax income differs from the U.S. federal income tax of 34% because of the change in our valuation allowance.

The year to date loss at September 30, 2017 put the Company in an accumulated loss position for the cumulative 12 quarters then ended. For tax reporting purposes, we have net operating losses ("NOLs") of approximately $51.8 million as of September 30, 2017 that are available to reduce future taxable income. In determining the carrying value of our net deferred tax asset, the Company considered all negative and positive evidence. The Company has incurred a pre-tax loss of approximately $8.0 million from January 1, 2017 through September 30, 2017. As a result, the Company created a full valuation allowance of 100% to offset the entire balances of deferred tax assets and deferred tax liabilities.

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ACQUISITIONS

9 Months Ended

Sep. 30, 2017

Equity Method Investments and Joint Ventures [Abstract]

ACQUISITIONS

ACQUISITIONS

Acadiana Recovery, LLC

On February 2, 2017, the Company entered into and closed an Asset Purchase Agreement (the "APA") with Acadiana Recovery, LLC ("Acadiana") pursuant to which the Company agreed to buy substantially all of Acadiana's customer relations, vehicles, equipment, supplies and tools for an aggregate purchase price of $710,350. This resulted in the recognition of $389,650 in fixed assets and $320,700 in intangible assets as of the acquisition date. The purchase price allocation is preliminary and subject to change based upon the finalization of our valuation report.

Nickco Recycling, Inc.

On May 1, 2017, the Company entered into and closed an Asset Purchase Agreement (the "APA") with Nickco Recycling, Inc. ("Nickco") pursuant to which the Company agreed to buy substantially all the processing equipment and the rolling stock of Nickco for aggregate consideration of $1,804,000. This included $1,126,730 in cash, 500,000 shares of restricted common stock and contingent consideration of 500,000 shares of common stock, which is payable only if the assets acquired meet a pre-agreed EBITDA target for the 12 calendar months ending on the last day of the 12^th calendar month following closing. This resulted in the recognition of $1,182,000 in fixed assets, $585,000 in net intangible assets, and $203,000 as contingent consideration. The purchase price allocation is preliminary and subject to change based upon the finalization of our valuation report.

Acquisition of Ygriega Assets

On July 16, 2017, the Company entered into and closed an Asset Purchase and Sale Agreement with Ygriega Environmental Services, LLC ("Ygriega") pursuant to which the Company agreed to buy substantially all the collections routes of Ygriega (which related to used oil, used oil filters, used anti-freeze and other related services) and certain other assets, for aggregate consideration of $196,000, which included $162,500 in cash at time of closing plus $87,500 payable in two installments in the next two years contingent on collected oil gallons (i.e., adjustable downward in the event certain targets are not met in such years). The agreement also included a two year non-compete by the seller. This resulted in the recognition of $38,500 in fixed assets, $159,000 in intangibles, a bargain gain of $1,500, and contingent consideration of $33,500. The purchase price allocation is preliminary and subject to change based upon the finalization of our valuation report.

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SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2017

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

Issuance of Series B and B1 Preferred Stock Shares In-Kind

We paid the accrued dividends on our Series B Preferred Stock and Series B1 Preferred Stock, which were accrued as of September 30, 2017, in-kind by way of the issuance of 50,659 restricted shares of Series B Preferred Stock pro rata to each of the then holders of our Series B Preferred Stock in July 2017 and the issuance of 289,417 restricted shares of Series B1 Preferred Stock pro rata to each of the then holders of our Series B1 Preferred Stock in July 2017. If converted in full, the 50,659 shares of Series B Preferred Stock would convert into 50,659 shares of common stock and the 289,417 shares of Series B1 Preferred Stock would convert into 289,417 shares of common stock.

On October 20, 2017, the Company issued 3,041 shares of common stock in connection with the conversion by a holder of 3,041 shares of our Series A Convertible Preferred Stock.

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SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES (Policies)

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Cash, Cash Equivalents and Restricted Cash

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. There were no cash equivalents as of September 30, 2017 and December 31, 2016.

The Company early adopted the guidance in Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), in the third quarter of 2017 which requires restricted cash to be included in cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statements of cash flows. The guidance in this update is to be applied retrospectively; therefore, the 2016 statement of cash flows has been restated to conform to the requirements of ASU 2016-18 and the 2017 presentation.

Inventory

Inventory

Inventories of products consist of feedstocks, refined petroleum products and recovered ferrous and non-ferrous metals and are reported at the lower of cost or market.   Cost is determined using the first-in, first-out (“FIFO”) method. The Company reviews its inventory commodities whenever events or circumstances indicate that the value may not be recoverable.

Impairment of Long-Lived Assets

Impairment of long-lived assets

The Company evaluates the carrying value and recoverability of its long-lived assets when circumstances warrant such evaluation by applying the provisions of the Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") regarding long-lived assets. It requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets.  Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

Fair Value of Financial Instruments

Fair value of financial instruments

Under the FASB ASC, we are permitted to elect to measure financial instruments and certain other items at fair value, with the change in fair value recorded in earnings. We elected not to measure any eligible items using the fair value option. Consistent with the Fair Value Measurement Topic of the FASB ASC, we implemented guidelines relating to the disclosure of our methodology for periodic measurement of our assets and liabilities recorded at fair market value.

Fair value is defined as 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. A three-tier fair value hierarchy prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

• Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

• Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

• Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Our Level 1 assets primarily include our cash and cash equivalents. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. The carrying amounts of accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the immediate or short-term maturities of these financial instruments.

Nonfinancial assets and liabilities measured at fair value on a nonrecurring basis include certain nonfinancial assets and liabilities as may be acquired in a business combination and thereby measured at fair value.

Income Taxes

Income Taxes

The Company accounts for income taxes in accordance with the FASB ASC Topic 740. The Company records a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and when temporary differences become deductible. The Company considers, among other available information, uncertainties surrounding the recoverability of deferred tax assets, scheduled reversals of deferred tax liabilities, projected future taxable income, and other matters in making this assessment.

As part of the process of preparing its consolidated financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. This process requires the Company to estimate its actual current tax liability and to assess temporary differences resulting from differing book versus tax treatment of items, such as deferred revenue, compensation and benefits expense and depreciation. These temporary differences result in deferred tax assets and liabilities, which are included within the Company’s consolidated statements of financial condition. Significant management judgment is required in determining the Company’s provision for income taxes, its deferred tax assets and liabilities and any valuation allowance recorded against its net deferred tax assets. If actual results differ from these estimates or the Company adjusts these estimates in future periods, the Company may need to adjust its valuation allowance, which could materially impact the Company’s consolidated financial position and results of operations.

Tax contingencies can involve complex issues and may require an extended period of time to resolve. Changes in the level of annual pre-tax income can affect the Company’s overall effective tax rate. Furthermore, the Company’s interpretation of complex tax laws may impact its recognition and measurement of current and deferred income taxes.

Derivative Liabilities

Derivative Liabilities

In accordance with ASC 815-40-25 and ASC 815-10-15, Derivatives and Hedging and ASC 480-10-25, Liabilities-Distinguishing from Equity, convertible preferred shares are accounted for net, outside of shareholders' equity and warrants are accounted for as liabilities at their fair value during periods where they can be net cash settled in case of a change in control transaction. The warrants are accounted for as a liability at their fair value at each reporting period. The value of the derivative warrant liability will be re-measured at each reporting period with changes in fair value recorded in earnings. To derive an estimate of the fair value of these warrants, a Dynamic Black Scholes model is utilized which computes the impact of a possible change in control transaction upon the exercise of the warrant shares. This process relies upon inputs such as shares outstanding, our quoted stock prices, strike price and volatility assumptions to dynamically adjust the payoff of the warrants in the presence of the dilution effect.

Debt Issuance Costs

Debt Issuance Costs

The Company follows the accounting guidance of FASB Accounting Standards Update ("ASU") No 2015-03, "Simplifying the Presentation of Debt Issuance Costs", which requires that debt issuance costs related to a recognized debt liability be reported on the Consolidated Balance Sheet as a direct reduction from the carrying amount of that debt liability.

Reclassification of Prior Year Presentation

Reclassification of Prior Year Presentation

Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications had no effect on the reported results of operations. 

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU No. 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU No. 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU No. 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). In July 2015, the FASB issued ASU No. 2015-14 which delayed the effective date of ASU No. 2014-09 by one year (effective for annual periods beginning after December 15, 2017). We are continuing to evaluate the impact of ASU 2014-09 and we currently do not anticipate that the standard will have a material impact on our financial statements, other than enhanced disclosures related to the disaggregation of revenues from contracts with customers, our performance obligations and any significant judgments. To date, certain personnel have attended technical training concerning this new recognition standard, and we have assigned internal resources to assist in this project implementation and believe the project is progressing timely. The Company currently anticipates adopting this ASU in the first quarter of fiscal 2018 using the modified retrospective method. As the Company completes its evaluation of this new standard, the Company's preliminary assessments could change.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under ASU No. 2016-02, lessor accounting is largely unchanged. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018 with early application permitted. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases expiring before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. Management is currently reviewing our various leases to identify those affected by ASU No. 2016-02.

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SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES SUMMARY OF CRITICAL ACCOUNTIG POLICIES AND ESTIMATES (Tables)

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Schedule of Cash, Cash Equivalents and Restricted Cash

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

	September 30, 2017		December 31, 2016
Cash	$	1,124,839	$	1,701,435
Restricted cash	—		1,504,723
Cash, cash equivalents and restricted cash as shown in the consolidated statements of cash flows	$	1,124,839	$	3,206,158

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CONCENTRATIONS, SIGNIFICANT CUSTOMERS, COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2017

Concentrations, Significant Customers, Commitments And Contingencies Disclosure [Abstract]

Schedule of Concentrations

At September 30, 2017 and 2016 and for each of the nine months then ended, the Company’s revenues and receivables were comprised of the following customer concentrations:

	Nine Months Ended September 30, 2017		Nine Months Ended September 30, 2016
	% of Revenues	% of Receivables	% of Revenues	% of Receivables
Customer 1	19%	—%	24%	10%
Customer 2	13%	3%	9%	4%
Customer 3	10%	7%	9%	7%
Customer 4	9%	23%	5%	—%
Customer 5	—%	10%	—%	13%
Customer 6	4%	3%	12%	5%

At September 30, 2017 and 2016 and for each of the nine months then ended, the Company's segment revenues were comprised of the following customer concentrations:

	% of Revenue by Segment			% Revenue by Segment
	Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016
	Black Oil	Refining	Recovery	Black Oil	Refining	Recovery
Customer 1	100%	—%	—%	100%	—%	—%
Customer 2	100%	—%	—%	100%	—%	—%
Customer 3	—%	100%	—%	—%	100%	—%
Customer 4	100%	—%	—%	100%	—%	—%
Customer 5	—%	—%	100%	—%	—%	100%
Customer 6	100%	—%	—%	100%	—%	—%

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DISPOSITION (Tables)

9 Months Ended

Sep. 30, 2017

Disposal Group, Not Discontinued Operation, Disposal Disclosures [Abstract]

Summary of Gain on Sale of Assets

As shown in the table below, a gain on sale of approximately $9.7 million was recorded associated with the sale. The gain on sale is included in gain (loss) on sale of assets in the accompanying consolidated statement of operations.

Sales price (fair value)	$	35,000,000
Release of lien on certain equipment at the Bango Plant	(3,100,000		)
Transaction Fees	(2,111,886		)
Net Proceeds	29,788,114
Book Value at January 29, 2016 (date transaction closed)	20,039,553
Gain on Sale	$	9,748,561

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ACCOUNTS RECEIVABLE (Tables)

9 Months Ended

Sep. 30, 2017

Receivables [Abstract]

Schedule of Accounts Receivable

Accounts receivable, net, consists of the following at September 30, 2017 and December 31, 2016:

	September 30, 2017			December 31, 2016
Accounts receivable trade	$	10,537,719		$	12,598,493
Allowance for doubtful accounts	(1,640,274		)	(1,646,274		)
Accounts receivable trade, net	$	8,897,445		$	10,952,219

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LINE OF CREDIT AND LONG-TERM DEBT (Tables)

9 Months Ended

Sep. 30, 2017

Debt Disclosure [Abstract]

Schedule of Outstanding Debt Facilities

The Company's outstanding debt facilities as of September 30, 2017 and December 31, 2016 are summarized as follows:

Creditor	Loan Type	Origination Date	Maturity Date	Loan Amount		Balance on September 30, 2017			Balance on December 31, 2016
Encina Business Credit, LLC	Term Loan	February 1, 2017	February 1, 2020	$	20,000,000	$	13,975,000		$	—
Encina Business Credit SPV, LLC	Revolving Note	February 1, 2017	February 1, 2020	$	10,000,000	3,738,483			—
MidCap Revolving Line of Credit	Revolving Note	March, 2015	March, 2017 (1)	$	7,000,000	—			2,726,039
Goldman Sachs USA	Term Loan - Restated Credit Agreement	January 29, 2016	May 2, 2019 (1)	$	8,900,000	—			4,000,000
Fox Encore Promissory Note	Promissory Note	January 29, 2017	January 31, 2017 (1)	$	5,150,000	—			5,150,000
Pacific Western Bank	Capital Lease	September, 2012	August, 2017	$	3,154,860	—			133,153
Texas Citizens Bank	Term Note	January, 2015	January, 2020	$	2,045,500	966,847			1,531,506
Various institutions	Insurance premiums financed	Various	< 1 year	$	2,902,428	1,489,881			1,060,065
Total						$	20,170,211		$	14,600,763
Deferred finance cost, net						(1,384,944		)	(244,178		)
Total, net of deferred finance costs						$	18,785,267		$	14,356,585

(1) Paid in full and terminated on February 1, 2017

Schedule of Future Maturities of Notes Payable

Future contractual maturities of notes payable are summarized as follows:

Creditor	Year 1			Year 2			Year 3			Year 4		Year 5		Thereafter
Encina Business Credit, LLC	$	3,738,483		$	—		$	—		$	—	$	—	$	—
Encina Business Credit SPV, LLC	900,000			900,000			900,000			11,275,000		—		—
Texas Citizens Bank	488,194			478,653						—		—		—
Various institutions	1,489,881			—			—			—		—		—
Totals	6,616,558			1,378,653			900,000			11,275,000		—		—
Deferred finance costs, net	(581,479		)	(581,479		)	(221,986		)	—		—		—
Totals, net of deferred finance costs	$	6,035,079		$	797,174		$	678,014		$	11,275,000	$	—	$	—

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2017

Earnings Per Share [Abstract]

Schedule of Reconciliation of Basic and Diluted Earnings Per Share

The following is a reconciliation of the numerator and denominator for basic and diluted earnings per share for the three and nine months ended September 30, 2017 and 2016: 

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Basic Earnings per Share
Numerator:
Net (loss) income available to common shareholders	$	(3,829,125	)	$	(1,047,564	)	$	(10,572,545	)	$	(9,543,203	)
Denominator:
Weighted-average shares outstanding	32,655,135			30,576,485			32,651,961			29,884,836
Basic earnings per share	$	(0.12	)	$	(0.03	)	$	(0.32	)	$	(0.32	)
Diluted Earnings per Share
Numerator:
Net (loss) income available to common shareholders	$	(3,829,125	)	$	(1,047,564	)	$	(10,572,545	)	$	(9,543,203	)
Denominator:
Weighted-average shares outstanding	32,655,135			30,576,485			32,651,961			29,884,836
Effect of dilutive securities
Stock options and warrants	—			—			—			—
Preferred Stock	—			—			—			—
Diluted weighted-average shares outstanding	32,655,135			30,576,485			32,651,961			29,884,836
Diluted earnings per share	$	(0.12	)	$	(0.03	)	$	(0.32	)	$	(0.32	)

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PREFERRED STOCK AND DETACHABLE WARRANTS (Tables)

9 Months Ended

Sep. 30, 2017

Class of Stock [Line Items]

Schedule of Liabilities with Unobservable Inputs

The following is an analysis of changes in the derivative liability:

Level Three Roll-Forward
Item	Level 3
Balance at December 31, 2015	$	1,548,604
May 2016 Series B1 Preferred Warrants (described below)	2,867,264
Change in valuation of warrants	(49,876		)
Balance at December 31, 2016	4,365,992
Change in valuation of warrants	(2,676,902		)
Balance at September 30, 2017	$	1,689,090

Series B Preferred Stock

Class of Stock [Line Items]

Summary of Temporary Equity

The initial BCF of the Series B Preferred Stock was determined by calculating the intrinsic value of the conversion feature as follows:

Face amount of Series B Preferred Stock	$	25,000,000
Less: allocated value of Warrants	7,028,067
Allocated value of Series B Preferred Stock	$	17,971,933
Shares of Common stock to be converted	8,064,534
Effective conversion price	$	2.23
Market price	$	2.94
Intrinsic value per share	$	0.7115
Intrinsic value of beneficial conversion feature	$	5,737,796

The following table represents the carrying amount of the Series B Preferred Stock, classified as Temporary Equity on the accompanying Consolidated Balance Sheet, at inception and as of September 30, 2017 and December 31, 2016:

Temporary Equity:
At Inception	June 24, 2015
Face amount of Series B Preferred	$	25,000,000
Less: warrant value	7,028,067
Less: beneficial conversion feature	5,737,796
Less: issuance costs and fees	1,442,462
Carrying amount at inception	$	10,791,675
	September 30, 2017		December 31, 2016
Face amount of Series B Preferred	$	25,000,000	$	25,000,000
Less: repurchase of 3,575,070 shares	11,189,838		11,189,838
Less: conversions of shares to common stock	5,386,341		5,386,341
Plus: dividends in kind	2,042,520		1,164,701
Less: unaccreted discount	3,653,817		3,912,055
Carrying amount	$	6,812,524	$	5,676,467

Series B1 Preferred Stock

Class of Stock [Line Items]

Summary of Temporary Equity

The May 2016 BCF was determined by calculating the intrinsic value of the conversion feature as follows:

	May 13, 2016
Face amount of Series B1 Preferred Stock	$	19,349,756
Less: allocated value of May 2016 Warrants	2,867,264
Allocated value of Series B1 Preferred Stock	$	16,482,492
Shares of Common stock to be converted	12,403,683
Effective conversion price	$	1.33
Market price	$	1.52
Intrinsic value per share	$	0.19
Intrinsic value of May 2016 beneficial conversion feature	$	2,371,106

The following table represents the carrying amount of the Series B1 Preferred Stock, classified as Temporary Equity on the accompanying Consolidated Balance Sheet, at inception (May 13, 2016), as of September 30, 2017, and December 31, 2016:

Temporary Equity:
At Inception	May 13, 2016
Face amount of Series B1 Preferred	$	19,349,745
Less: May 2016 Warrant value	2,867,264
Less: May 2016 Beneficial Conversion Feature	2,371,106
Less: May 2016 issuance costs and fees	607,880
Carrying amount at inception	$	13,503,495
	September 30, 2017		December 31, 2016
Face amount of Series B1 Preferred	$	19,349,745	$	19,349,745
Less: conversions of shares to common	748,306		628,866
Plus: dividends-in-kind	1,288,282		435,369
Less: unaccreted discount	4,608,971		5,228,460
Carrying amount	$	15,280,750	$	13,927,788

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SEGMENT REPORTING (Tables)

9 Months Ended

Sep. 30, 2017

Segment Reporting [Abstract]

Schedule of the Company's reportable segment information

The Company’s reportable segments include the Black Oil, Refining & Marketing and Recovery divisions. Segment information for the three and nine months ended September 30, 2017 and 2016 is as follows:

THREE MONTHS ENDED SEPTEMBER 30, 2017
	Black Oil			Refining & Marketing			Recovery			Total
Revenues	$	25,358,317		$	4,856,520		$	2,255,614		$	32,470,451
Income (loss) from operations	$	(2,463,457	)	$	(708,175	)	$	(137,390	)	$	(3,309,022	)

THREE MONTHS ENDED SEPTEMBER 30, 2016
	Black Oil			Refining & Marketing		Recovery			Total
Revenues	$	22,907,235		$	4,436,111	$	1,118,584		$	28,461,930
Income (loss) from operations	$	(404,396	)	$	173,121	$	(354,749	)	$	(586,024	)

NINE MONTHS ENDED SEPTEMBER 30, 2017
	Black Oil			Refining & Marketing			Recovery			Total
Revenues	$	77,546,802		$	15,436,919		$	11,170,123		$	104,153,844
Income (loss) from operations	$	(6,511,277	)	$	(940,476	)	$	(196,853	)	$	(7,648,606	)

NINE MONTHS ENDED SEPTEMBER 30, 2016
	Black Oil			Refining & Marketing			Recovery			Total
Revenues	$	52,877,119		$	9,986,047		$	4,159,812		$	67,022,978
Income (loss) from operations	$	(8,199,842	)	$	(55,847	)	$	(715,973	)	$	(8,971,662	)

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SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES (Details) - USD ($)	Jan. 28, 2016	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016	Dec. 31, 2015
Accounting Policies [Abstract]
Cash		$ 1,124,839	$ 1,701,435
Restricted cash		0	1,504,723
Cash, cash equivalents and restricted cash as shown in the consolidated statements of cash flows		$ 1,124,839	$ 3,206,158	$ 3,753,119	$ (737,864)
Discontinued Operations, Disposed of by Sale | Bango Plant
Business Acquisition [Line Items]
Cash placed in escrow	$ 1,500,000
Equity interest issued or issuable placed in escrow	$ 1,000,000
Equity interest issued or issuable placed in escrow, shares	1,108,928

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CONCENTRATIONS, SIGNIFICANT CUSTOMERS, COMMITMENTS AND CONTINGENCIES (Details) - Customer concentration risk	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Revenues | Customer 1
Revenue, Major Customer [Line Items]
Concentration percentage	19.00%	24.00%
Revenues | Customer 1 | Black Oil
Revenue, Major Customer [Line Items]
Concentration percentage	100.00%	100.00%
Revenues | Customer 1 | Refining
Revenue, Major Customer [Line Items]
Concentration percentage	0.00%	0.00%
Revenues | Customer 1 | Recovery
Revenue, Major Customer [Line Items]
Concentration percentage	0.00%	0.00%
Revenues | Customer 2
Revenue, Major Customer [Line Items]
Concentration percentage	13.00%	9.00%
Revenues | Customer 2 | Black Oil
Revenue, Major Customer [Line Items]
Concentration percentage	100.00%	100.00%
Revenues | Customer 2 | Refining
Revenue, Major Customer [Line Items]
Concentration percentage	0.00%	0.00%
Revenues | Customer 2 | Recovery
Revenue, Major Customer [Line Items]
Concentration percentage	0.00%	0.00%
Revenues | Customer 3
Revenue, Major Customer [Line Items]
Concentration percentage	10.00%	9.00%
Revenues | Customer 3 | Black Oil
Revenue, Major Customer [Line Items]
Concentration percentage	0.00%	0.00%
Revenues | Customer 3 | Refining
Revenue, Major Customer [Line Items]
Concentration percentage	100.00%	100.00%
Revenues | Customer 3 | Recovery
Revenue, Major Customer [Line Items]
Concentration percentage	0.00%	0.00%
Revenues | Customer 4
Revenue, Major Customer [Line Items]
Concentration percentage	9.00%	5.00%
Revenues | Customer 4 | Black Oil
Revenue, Major Customer [Line Items]
Concentration percentage	100.00%	100.00%
Revenues | Customer 4 | Refining
Revenue, Major Customer [Line Items]
Concentration percentage	0.00%	0.00%
Revenues | Customer 4 | Recovery
Revenue, Major Customer [Line Items]
Concentration percentage	0.00%	0.00%
Revenues | Customer 5
Revenue, Major Customer [Line Items]
Concentration percentage	0.00%	0.00%
Revenues | Customer 5 | Black Oil
Revenue, Major Customer [Line Items]
Concentration percentage	0.00%	0.00%
Revenues | Customer 5 | Refining
Revenue, Major Customer [Line Items]
Concentration percentage	0.00%	0.00%
Revenues | Customer 5 | Recovery
Revenue, Major Customer [Line Items]
Concentration percentage	100.00%	100.00%
Revenues | Customer 6
Revenue, Major Customer [Line Items]
Concentration percentage	4.00%	12.00%
Revenues | Customer 6 | Black Oil
Revenue, Major Customer [Line Items]
Concentration percentage	100.00%	100.00%
Revenues | Customer 6 | Refining
Revenue, Major Customer [Line Items]
Concentration percentage	0.00%	0.00%
Revenues | Customer 6 | Recovery
Revenue, Major Customer [Line Items]
Concentration percentage	0.00%	0.00%
Receivables | Customer 1
Revenue, Major Customer [Line Items]
Concentration percentage	0.00%	10.00%
Receivables | Customer 2
Revenue, Major Customer [Line Items]
Concentration percentage	3.00%	4.00%
Receivables | Customer 3
Revenue, Major Customer [Line Items]
Concentration percentage	7.00%	7.00%
Receivables | Customer 4
Revenue, Major Customer [Line Items]
Concentration percentage	23.00%	0.00%
Receivables | Customer 5
Revenue, Major Customer [Line Items]
Concentration percentage	10.00%	13.00%
Receivables | Customer 6
Revenue, Major Customer [Line Items]
Concentration percentage	3.00%	5.00%

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CONCENTRATIONS, SIGNIFICANT CUSTOMERS, COMMITMENTS AND CONTINGENCIES (Details Narrative)	9 Months Ended
	Sep. 30, 2017 USD ($) company payment	Sep. 30, 2016 company	Feb. 12, 2016 lawsuit
Revenue, Major Customer [Line Items]
Number of payments | payment	13
Monthly lease payments for equipment leased to the company	$ 13,328
E-Source Litigation
Revenue, Major Customer [Line Items]
Litigation, damages sought	864,000
Balance due under contract with Motiva	$ 1,000,000
Vertex Refining LA, LLC
Revenue, Major Customer [Line Items]
Number of lawsuits named as defendant | lawsuit			5
Purchases | Supplier concentration risk
Revenue, Major Customer [Line Items]
Number of suppliers | company	0	1
Concentration percentage	10.00%	10.00%

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DISPOSITION (Details 1)		3 Months Ended		9 Months Ended
	Jan. 28, 2016 USD ($) a shares	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Jan. 29, 2016 USD ($)
Gain (Loss) on Sale of Asset Purchase Agreement [Abstract]
Net Proceeds				$ 0	$ 29,788,114
Gain (loss) on sale of assets		$ 25,693	$ (68,799)	$ (13,806)	$ 9,633,034
Equipment Leases
Gain (Loss) on Sale of Asset Purchase Agreement [Abstract]
Payments to acquire leased equipment	$ 1,500,000
Secured debt
Gain (Loss) on Sale of Asset Purchase Agreement [Abstract]
Repayments of debt	16,100,000
Bango Oil, LLC
Gain (Loss) on Sale of Asset Purchase Agreement [Abstract]
Payments to acquire businesses	9,300,000
Aggregate indemnification cap	$ 3,000,000
Bango Plant | Discontinued Operations, Disposed of by Sale
Business Acquisition [Line Items]
Area of land oil re-refining plan is location (acre) | a	40
Gain (Loss) on Sale of Asset Purchase Agreement [Abstract]
Sales price (fair value)	$ 35,000,000
Release of lien on certain equipment at the Bango Plant	(3,100,000)
Transaction Fees	(2,111,886)
Net Proceeds	29,788,114
Book Value at January 29, 2016 (date transaction closed)						$ 20,039,553
Gain (loss) on sale of assets	9,748,561
Cash placed in escrow	1,500,000
Equity interest issued or issuable placed in escrow	$ 1,000,000
Equity interest issued or issuable placed in escrow, shares | shares	1,108,928

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ACCOUNTS RECEIVABLE (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Accounts Receivable, Net, Current [Abstract]
Accounts receivable trade	$ 10,537,719	$ 12,598,493
Allowance for doubtful accounts	(1,640,274)	(1,646,274)
Accounts receivable trade, net	$ 8,897,445	$ 10,952,219

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LINE OF CREDIT AND LONG-TERM DEBT (Details Narrative)					1 Months Ended	9 Months Ended
	Feb. 01, 2017 USD ($)	Jan. 29, 2016 USD ($) extension	Jan. 28, 2016 USD ($)	Mar. 27, 2015 USD ($)	May 31, 2014 USD ($)	Sep. 30, 2017 USD ($)	Dec. 31, 2016 USD ($)	Nov. 09, 2015 USD ($)	May 02, 2014 lease
Line of Credit Facility [Line Items]
Long-term debt						$ 20,170,211	$ 14,600,763
Omega Refining
Line of Credit Facility [Line Items]
Number of capital leases assumed | lease									2
Term loan
Line of Credit Facility [Line Items]
Repayments of debt			$ 16,100,000
Encina Business Credit SPV, LLC | Revolving line of credit
Line of Credit Facility [Line Items]
Long-term debt						3,738,483	0
Term loan amount						10,000,000
Encina Business Credit, LLC | Term loan
Line of Credit Facility [Line Items]
Long-term debt						13,975,000	0
Term loan amount						20,000,000
Goldman Sachs USA | Term loan
Line of Credit Facility [Line Items]
Long-term debt						0	4,000,000
Term loan amount						8,900,000
Texas Citizens Bank | Term loan
Line of Credit Facility [Line Items]
Long-term debt						966,847	1,531,506
Term loan amount						2,045,500
Various institutions | Insurance premiums financed
Line of Credit Facility [Line Items]
Long-term debt						1,489,881	1,060,065
Term loan amount						2,902,428
Pacific Western Bank | Capital Lease
Line of Credit Facility [Line Items]
Long-term debt						0	$ 133,153
Term loan amount						$ 3,154,860
Maximum | Various institutions | Insurance premiums financed
Line of Credit Facility [Line Items]
Debt instrument, stated rate (percent)						4.52%
Minimum | Various institutions | Insurance premiums financed
Line of Credit Facility [Line Items]
Debt instrument, stated rate (percent)						4.00%
Revolving line of credit | Encina Business Credit SPV, LLC
Line of Credit Facility [Line Items]
Line of credit, maximum borrowing capacity	$ 10,000,000					$ 3,011,038
Line of credit, debt covenant, maximum annual capital expenditures allowed						3,000,000
Line of credit, debt covenant, minimum average borrowing availability in any 30 day period						$ 2,500,000.0
Revolving line of credit | Encina Business Credit SPV, LLC | One Month LIBOR
Line of Credit Facility [Line Items]
Debt instrument, stated rate (percent)						1.23%
Debt instrument, interest rate, incremental increase per event of default (percent)						2.00%
Variable rate, basis spread						6.50%
Revolving line of credit | Encina Business Credit SPV, LLC | Federal Funds Rate
Line of Credit Facility [Line Items]
Debt instrument, stated rate (percent)						0.50%
Revolving line of credit | Encina Business Credit SPV, LLC | London Interbank Offered Rate (LIBOR
Line of Credit Facility [Line Items]
Variable rate, basis spread						1.00%
Revolving line of credit | Minimum | Encina Business Credit SPV, LLC | One Month LIBOR
Line of Credit Facility [Line Items]
Debt instrument, stated rate (percent)						0.25%
Revolving line of credit | Tier One | Encina Business Credit SPV, LLC
Line of Credit Facility [Line Items]
Line of credit, eligible inventory included in calculation of maximum allowable outstanding balance (percent)						85.00%
Revolving line of credit | Tier Two | Encina Business Credit SPV, LLC
Line of Credit Facility [Line Items]
Line of credit, eligible inventory included in calculation of maximum allowable outstanding balance (percent)						65.00%
Line of credit, eligible inventory included in calculation of maximum allowable outstanding balance, ceiling						$ 4,000,000
Line of credit, eligible receivables included in calculation of maximum allowable outstanding balance, percent						85.00%
EBC Credit Agreement | Line of Credit
Line of Credit Facility [Line Items]
Line of credit, maximum borrowing capacity	$ 20,000,000
Line of credit outstanding as percent of operating plant facilities and related machinery and equipment (percent)	50.00%
Line of credit, period for dividends included in calculation of interest rate tier						12 months
Line of credit, average availability included in calculation of interest rate tier						$ 3,118,937
Debt instrument, interest rate, incremental increase per event of default (percent)						2.00%
Debit instrument, quarterly principal payment						$ 75,000
Line of credit, debt covenant, maximum annual capital expenditures allowed						3,000,000
Line of credit, debt covenant, minimum average borrowing availability in any 30 day period						2,500,000.0
Line of credit, debt covenant, event of default under any agreement, debt amount minimum						500,000
Line of credit, debt covenant, event of default, minimum legal judgment amount, Minimum						$ 500,000
Line of credit, debt covenant, event of default, change in stock ownership by executive officers, minimum (percent)						15.00%
Line of credit, debt covenant, event of default, change in ownership, minimum (percent)						30.00%
Line of credit, debt covenant, event of default, period during which a majority of duly elected board members cease to serve						12 months
EBC Credit Agreement | Line of Credit | Maximum
Line of Credit Facility [Line Items]
Line of credit, average availability included in calculation of interest rate tier						$ 2,500,000
EBC Credit Agreement | Line of Credit | Minimum
Line of Credit Facility [Line Items]
Line of credit, average availability included in calculation of interest rate tier						2,500,000
Line of credit, voluntary repayment amount						$ 100,000
EBC Credit Agreement | Line of Credit | Tier One
Line of Credit Facility [Line Items]
Debt instrument, stated rate (percent)						12.00%
EBC Credit Agreement | Line of Credit | Tier One | Minimum
Line of Credit Facility [Line Items]
Debt covenant ratio						1
EBC Credit Agreement | Line of Credit | Tier Two
Line of Credit Facility [Line Items]
Debt instrument, stated rate (percent)						13.00%
EBC Credit Agreement | Line of Credit | Tier Two | Maximum
Line of Credit Facility [Line Items]
Debt covenant ratio						1.45
EBC Credit Agreement | Line of Credit | Tier Two | Minimum
Line of Credit Facility [Line Items]
Debt covenant ratio						1
EBC Credit Agreement | Line of Credit | Tier Three
Line of Credit Facility [Line Items]
Debt instrument, stated rate (percent)						14.00%
EBC Credit Agreement | Line of Credit | Tier Three | Minimum
Line of Credit Facility [Line Items]
Debt covenant ratio						1.45
Existing Credit Obligations
Line of Credit Facility [Line Items]
Repayments of debt	$ 11,282,537
2014 Goldman Sachs Bank Credit Agreement | Term loan
Line of Credit Facility [Line Items]
Term loan amount					$ 40,000,000
2014 Goldman Sachs Bank Credit Agreement | Maximum | Term loan
Line of Credit Facility [Line Items]
Debt instrument, stated rate (percent)					4.50%
2014 Goldman Sachs Bank Credit Agreement | Maximum | Federal Funds Rate | Notes payable to banks
Line of Credit Facility [Line Items]
Variable rate, basis spread					0.50%
2014 Goldman Sachs Bank Credit Agreement | Maximum | London Interbank Offered Rate (LIBOR | Term loan
Line of Credit Facility [Line Items]
Variable rate, basis spread					1.00%
2014 Goldman Sachs Bank Credit Agreement | Maximum | ICE Benchmark Administration Limited | Term loan
Line of Credit Facility [Line Items]
Basis spread on variable rate, numerator component					1.50%
Restated Credit Agreement, 2016
Line of Credit Facility [Line Items]
EBITDA measurement period		1 year
Restated Credit Agreement, 2016 | Term loan
Line of Credit Facility [Line Items]
Debit instrument, quarterly principal payment		$ 800,000
Repayments of debt		16,000,000
Additional cash proceeds payable per agreement threshold		$ 500,000
Period for synergies to be achieved		90 days
Minimum liquidity		$ 2,000,000
Restated Credit Agreement, 2016 | Goldman Sachs USA | Term loan
Line of Credit Facility [Line Items]
Line of credit, maximum borrowing capacity		8,900,000
Line of credit outstanding		6,400,000
Remaining borrowing capacity		$ 2,500,000
MidCap Loan Agreement | Minimum | Term loan
Line of Credit Facility [Line Items]
Agreed upon amount of loan				$ 7,000,000
Agreed upon amount of loan, percentage of account receivable				85.00%
Additional agreed upon loan, amount				$ 3,000,000
MidCap Loan Agreement | Minimum | Term loan | Raw Materials and Finished Goods
Line of Credit Facility [Line Items]
Additional agreed upon loan amount, percentage of inventory				50.00%
Midcap First Amendment | Term loan
Line of Credit Facility [Line Items]
Maximum borrowing base, per account/customer								$ 100,000
Fox Note | Promissory note payable | Vertex Refining OH, LLC
Line of Credit Facility [Line Items]
Debt instrument, stated rate (percent)		10.00%
Term loan amount		$ 5,150,000.00
Interest rate in the event of a default		15.00%
Number of extension options (extension) | extension		3
Length of extension options		6 months
Extension fee percentage		3.00%
Prepayment terms, decrease in amount to be repaid		$ 150,000
Texas Citizens Bank Loan | Term loan
Line of Credit Facility [Line Items]
Effective interest rate						5.50%

XML

LINE OF CREDIT AND LONG-TERM DEBT (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Long-term Debt
Long-term debt	$ 20,170,211	$ 14,600,763
Deferred finance cost, net	(1,384,944)	(244,178)
Total, net of deferred finance costs	18,785,267	14,356,585
Secured debt | Encina Business Credit, LLC
Line of Credit Facility [Line Items]
Loan Amount	20,000,000
Long-term Debt
Long-term debt	13,975,000	0
Secured debt | Goldman Sachs USA
Line of Credit Facility [Line Items]
Loan Amount	8,900,000
Long-term Debt
Long-term debt	0	4,000,000
Secured debt | Fox Encore Promissory Note
Line of Credit Facility [Line Items]
Loan Amount	5,150,000
Long-term Debt
Long-term debt	0	5,150,000
Secured debt | Texas Citizens Bank
Line of Credit Facility [Line Items]
Loan Amount	2,045,500
Long-term Debt
Long-term debt	966,847	1,531,506
Revolving line of credit | Encina Business Credit SPV, LLC
Line of Credit Facility [Line Items]
Loan Amount	10,000,000
Long-term Debt
Long-term debt	3,738,483	0
Revolving line of credit | MidCap Revolving Line of Credit
Line of Credit Facility [Line Items]
Loan Amount	7,000,000
Long-term Debt
Long-term debt	0	2,726,039
Capital Lease | Pacific Western Bank
Line of Credit Facility [Line Items]
Loan Amount	3,154,860
Long-term Debt
Long-term debt	0	133,153
Insurance premiums financed | Various institutions
Line of Credit Facility [Line Items]
Loan Amount	2,902,428
Long-term Debt
Long-term debt	$ 1,489,881	$ 1,060,065

XML

LINE OF CREDIT AND LONG-TERM DEBT (Details 1)	Sep. 30, 2017 USD ($)
Maturities of Long-term Debt and Capital Lease Obligations [Abstract]
2017	$ 6,616,558
2018	1,378,653
2019	900,000
2020	11,275,000
2021	0
Thereafter	0
Amortization of Deferred Finance Costs, Net [Abstract]
2017	(581,479)
2018	(581,479)
2019	(221,986)
2020	0
2021	0
Thereafter	0
Maturities of Long-term Debt and Capital Lease Obligation, Net of Deferred Finance Costs [Abstract]
2017	6,035,079
2018	797,174
2019	678,014
2020	11,275,000
2021	0
Thereafter	0
Encina Business Credit, LLC
Maturities of Long-term Debt and Capital Lease Obligations [Abstract]
2017	3,738,483
2018	0
2019	0
2020	0
2021	0
Thereafter	0
Encina Business Credit SPV, LLC
Maturities of Long-term Debt and Capital Lease Obligations [Abstract]
2017	900,000
2018	900,000
2019	900,000
2020	11,275,000
2021	0
Thereafter	0
Texas Citizens Bank
Maturities of Long-term Debt and Capital Lease Obligations [Abstract]
2017	488,194
2018	478,653
2019
2020	0
2021	0
Thereafter	0
Various institutions
Maturities of Long-term Debt and Capital Lease Obligations [Abstract]
2017	1,489,881
2018	0
2019	0
2020	0
2021	0
Thereafter	$ 0

XML

EARNINGS PER SHARE (Details Narrative) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Options to purchase (in shares)	3,030,249	2,777,552	3,030,249	2,777,552
Warrants to purchase (in shares)	7,353,061	4,252,135	7,353,061	4,252,135
Series B Preferred Stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Convertible preferred stock, common stock issuable upon conversion (in shares)	3,376,938	4,895,244	3,376,938	4,895,244
Series B1 Preferred Stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Convertible preferred stock, common stock issuable upon conversion (in shares)	12,862,572	12,501,558	12,862,572	12,501,558
Series A Preferred Stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Convertible preferred stock, common stock issuable upon conversion (in shares)	456,608	492,716	456,608	492,716
Preferred stock, shares outstanding	456,608		456,608		492,716
Series C Preferred Stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Convertible preferred stock, common stock issuable upon conversion (in shares)	3,156,800	4,400,000	3,156,800	4,400,000
Preferred stock, shares outstanding	31,568	44,000	31,568	44,000	31,568

XML

EARNINGS PER SHARE (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Numerator:
Net (loss) income available to common shareholders	$ (3,829,125)	$ (1,047,564)	$ (10,572,545)	$ (9,543,203)
Denominator:
Weighted-average shares outstanding	32,655,135	30,576,485	32,651,961	29,884,836
Basic earnings per share (in USD per share)	$ (0.12)	$ (0.03)	$ (0.32)	$ (0.32)
Effect of dilutive securities
Stock options and warrants (in shares)	0	0	0	0
Preferred stock (in shares)	0	0	0	0
Diluted weighted-average shares outstanding	32,655,135	30,576,485	32,651,961	29,884,836
Diluted earnings per share (in USD per share)	$ (0.12)	$ (0.03)	$ (0.32)	$ (0.32)

XML

COMMON STOCK (Details Narrative)								9 Months Ended
	May 26, 2017 shares	May 12, 2017 shares	May 01, 2017 shares	Feb. 02, 2017 shares	Jan. 30, 2017 shares	Jan. 27, 2017 shares	Aug. 02, 2016 shares	Sep. 30, 2017 vote / shares $ / shares shares	Mar. 10, 2017 shares	Dec. 31, 2016 $ / shares shares
Conversion of Stock [Line Items]
Common stock, shares authorized								750,000,000		750,000,000
Common stock, par value (in USD per share) | $ / shares								$ 0.001		$ 0.001
Common stock, shares issued								32,655,135		33,151,391
Common stock, shares outstanding								32,655,135		33,151,391
Number of votes entitled to each common stock share | vote / shares								1
Shares released form escrow and cancelled (shares)									1,108,928
Series B1 Preferred Stock
Conversion of Stock [Line Items]
Conversion of stock, shares converted					10,000	66,564
Series A Preferred Stock
Conversion of Stock [Line Items]
Conversion of stock, shares converted		6,036		30,072
Common stock
Conversion of Stock [Line Items]
Shares issued as result of share conversion		6,036		30,072	10,000	66,564	1,243,200
Common stock | Nickco Recycling, LLC
Conversion of Stock [Line Items]
Common stock issued in acquisition, shares	500,000		500,000

XML

PREFERRED STOCK AND DETACHABLE WARRANTS (Details Narrative)										9 Months Ended		12 Months Ended
	May 12, 2017 shares	Feb. 02, 2017 shares	Jan. 30, 2017 shares	Jan. 27, 2017 shares	Aug. 02, 2016 shares	May 13, 2016 USD ($) unit warrant $ / shares $ / unit shares	Jan. 29, 2016 USD ($) $ / shares shares	Jan. 28, 2016 USD ($)	Jun. 24, 2015 USD ($) unit warrant $ / shares $ / unit shares	Sep. 30, 2017 USD ($) trading_days $ / shares shares	Sep. 30, 2016 USD ($) shares	Dec. 31, 2016 USD ($) $ / shares shares	Jun. 24, 2020 $ / shares	Jul. 31, 2017 shares	Jun. 24, 2017 $ / shares	May 31, 2016 USD ($)	Jun. 19, 2015 shares
Class of Stock [Line Items]
Preferred stock, shares authorized | shares										50,000,000		50,000,000
Preferred stock, par value (in USD per share)										$ 0.001
Number of units sold as part of Unit Purchase Agreement | unit						12,403,683			8,064,534
Unit Purchase Agreement, number of shares for each unit | shares									1
Unit Purchase Agreement, number of warrants for each unit | warrant						1			1
Unit Purchase Agreement, price per unit (in USD per unit) | $ / unit						1.56			3.10
Unit Purchase Agreement, exercise price premium over closing stock price, percentage						2.60%			6.10%
Closing stock price (in USD per share)						$ 1.52			$ 2.91
Gross proceeds from unit offering | $						$ 19,400,000			$ 25,000,000
Commission percentage of gross proceeds						6.50%			6.50%
Amount raised from certain investors with no fee | $									$ 4,000,000
Commissions payment | $						$ 610,000			1,400,000
Net proceeds from unit offering | $									$ 15,100,000
Unit Purchase Agreement, liquidated damages to aggregate subscription amount, percentage						1.00%			1.00%
Unit Purchase Agreement, maximum percentage of liquidated damages to aggregate subscription amount						6.00%			6.00%
Warrants issued, Black Scholes model, value | $									$ 7,028,067
Convertible preferred stock, beneficial conversion feature | $									5,737,796
Private placement fees | $									$ 1,400,000
Liabilities at fair value | $										$ 1,689,090		$ 4,365,992
Dividends payable | $										1,256,920	$ 6,695,506
Proceeds from issuance of preferred stock | $										$ 0	$ 19,349,756
Secured debt
Class of Stock [Line Items]
Repayments of debt | $								$ 16,100,000
Amendment Number 1 to Amended Credit Agreement | Secured debt
Class of Stock [Line Items]
Repayments of debt | $						$ 800,000
Common stock
Class of Stock [Line Items]
Shares issued as result of share conversion | shares	6,036	30,072	10,000	66,564	1,243,200
Liability
Class of Stock [Line Items]
Expected dividend rate percentage									0.00%
Risk free interest rate percentage									1.59%
Expected term (years)									5 years 6 months
Warrants
Class of Stock [Line Items]
Amount of shares called by each warrant (shares) | shares						0.25			0.5								0.5
Exercise price of warrants (in USD per share)						$ 1.53			$ 2.92
Amount over closing price of warrant exercise price (in USD per share)						$ 0.01			$ 0.01
Minimum | Liability
Class of Stock [Line Items]
Expected volatility rate percentage									70.00%
Maximum | Liability
Class of Stock [Line Items]
Expected volatility rate percentage									100.00%
Series A Preferred Stock
Class of Stock [Line Items]
Preferred stock, shares authorized | shares										5,000,000		5,000,000
Preferred stock, par value (in USD per share)										$ 0.001		$ 0.001
Preferred stock, shares issued | shares										456,608		492,716
Preferred stock, shares outstanding | shares										456,608		492,716
Number of common shares issued for each convertible share | shares										1
Amount each share of preferred stock is entitled to receive prior to similar liquidation payments (in USD per share)										$ 1.49
Conversion terms, threshold consecutive trading days										20 days
Conversion conditions, minimum gross public offering amount | $										$ 10,000,000
Conversion conditions, minimum proceeds to shareholders if the Company is sold (in USD per share)										$ 10.00
Conversion of stock, shares converted | shares	6,036	30,072
Series A Preferred Stock | Minimum
Class of Stock [Line Items]
Conversion conditions, average common share market price (minimum) (in USD per share)										$ 15.00
Conversion conditions, average daily trading volume (minimum) (in shares) | shares										7,500
Conversion conditions, price per share if Company consummates an underwritten public offering (minimum) (in USD per share)										$ 10.00
Series B Preferred Stock
Class of Stock [Line Items]
Temporary equity, shares authorized | shares										10,000,000		10,000,000
Temporary equity, shares issued | shares										3,376,938		3,229,409
Temporary equity, shares outstanding | shares										3,376,938		3,229,409
Number of common shares issued for each convertible share | shares										1				50,659
Preferred stock, dividend percentage										6.00%
Dividends per share (in USD per share)										$ 3.10
Average of the volume weighted average price of common stock, percentage										90.00%
Number of trading days used to calculate VWAP | trading_days										10
Minimum dividend payment price (in USD per share)										$ 2.91
Dividends payable, paid-in-kind (in USD per share)										3.10
Liquidation preference per share (in USD per share)										3.10
Conversion terms, threshold closing price (in USD per share)										3.10
Conversion terms, closing price to force conversion (in USD per share)										$ 6.20
Conversion terms, threshold consecutive trading days										20 days
Redemption price per share (in USD per share)															$ 3.10
Conversion terms, Beneficial Ownership Limitation (percentage)										9.999%
Closing stock price (in USD per share)									$ 2.94
Convertible preferred stock, beneficial conversion feature | $									$ 5,737,796
Less: repurchase of 3,575,070 shares | $										$ 11,189,838		$ 11,189,838
Less: unaccreted discount | $										(3,653,817)		(3,912,055)				$ (5,408,131)
Carrying amount of preferred shares | $									10,791,675	6,812,524		5,676,467
Temporary equity, warrants issued | $									$ 7,028,067	644,382
Dividends payable | $										139,186		214,227
Unit purchase agreement, percentage of proceeds used to repurchase stock						60.00%
Payments for repurchase of preferred stock and preference stock | $						$ 11,189,838
Series B Preferred Stock | Previous Participating Investors
Class of Stock [Line Items]
Gross proceeds from unit offering | $						$ 18,649,738
Series B Preferred Stock | Warrant
Class of Stock [Line Items]
Liabilities at fair value | $										$ 644,382		$ 1,952,565
Series B Preferred Stock | Liability
Class of Stock [Line Items]
Expected dividend rate percentage										0.00%
Risk free interest rate percentage										1.14%
Expected term (years)										2 years 7 months 12 days
Series B Preferred Stock | Forecast
Class of Stock [Line Items]
Redemption price per share (in USD per share)													$ 3.10
Series B Preferred Stock | Minimum | Liability
Class of Stock [Line Items]
Expected volatility rate percentage										78.00%
Series B Preferred Stock | Maximum | Liability
Class of Stock [Line Items]
Expected volatility rate percentage										100.00%
Series B1 Preferred Stock
Class of Stock [Line Items]
Temporary equity, shares authorized | shares										17,000,000		17,000,000
Temporary equity, shares issued | shares										12,862,572		12,282,638
Temporary equity, shares outstanding | shares										12,862,572		12,282,638
Number of common shares issued for each convertible share | shares														289,417
Preferred stock, dividend percentage										6.00%
Dividends per share (in USD per share)										$ 1.56
Average of the volume weighted average price of common stock, percentage										90.00%
Number of trading days used to calculate VWAP | trading_days										10
Minimum dividend payment price (in USD per share)										$ 1.52		$ 1.52
Dividends payable, paid-in-kind (in USD per share)										1.56
Liquidation preference per share (in USD per share)										1.56
Conversion terms, threshold closing price (in USD per share)										1.56
Conversion terms, closing price to force conversion (in USD per share)										$ 3.90
Conversion terms, threshold consecutive trading days										20 days
Redemption price per share (in USD per share)															$ 1.72
Conversion terms, Beneficial Ownership Limitation (percentage)										4.999%
Unit Purchase Agreement, number of shares for each unit | shares						1
Closing stock price (in USD per share)									$ 1.52
Convertible preferred stock, beneficial conversion feature | $						$ 2,371,106
Private placement fees | $						600,000
Less: unaccreted discount | $										$ (4,608,971)		$ (5,228,460)
Carrying amount of preferred shares | $						13,503,495				15,280,750		13,927,788
Temporary equity, warrants issued | $									$ 2,867,264	1,044,708		2,413,427
Dividends payable | $										$ 281,527		$ 290,247
Convertible preferred stock, conversion ratio										1
Conversion of stock, shares converted | shares			10,000	66,564
Series B1 Preferred Stock | Warrant
Class of Stock [Line Items]
Liabilities at fair value | $						$ 2,867,264
Series B1 Preferred Stock | Liability
Class of Stock [Line Items]
Expected dividend rate percentage						0.00%				0.00%
Risk free interest rate percentage						1.22%				1.14%
Expected term (years)						5 years 6 months				4 years 9 months 22 days
Series B1 Preferred Stock | Forecast
Class of Stock [Line Items]
Redemption price per share (in USD per share)													$ 1.56
Series B1 Preferred Stock | Minimum | Liability
Class of Stock [Line Items]
Expected volatility rate percentage						70.00%
Series B1 Preferred Stock | Maximum
Class of Stock [Line Items]
Conversion terms, Beneficial Ownership Limitation (percentage)										9.999%
Series B1 Preferred Stock | Maximum | Liability
Class of Stock [Line Items]
Expected volatility rate percentage						100.00%
Series C Preferred Stock
Class of Stock [Line Items]
Preferred stock, shares authorized | shares										44,000		44,000
Preferred stock, par value (in USD per share)							$ 100			$ 0.001		$ 0.001
Preferred stock, shares issued | shares							44,000			31,568		31,568
Preferred stock, shares outstanding | shares										31,568	44,000	31,568
Number of common shares issued for each convertible share | shares							100			3,156,800
Liquidation preference per share (in USD per share)							$ 100
Conversion terms, Beneficial Ownership Limitation (percentage)							4.999%
Proceeds from issuance of preferred stock | $							$ 4,000,000
Price per share of preferred stock (in usd per share)							$ 1.00
Assumed conversion price of preferred stock voting rights (in usd per share)							$ 1.05
Notice period of preferred stock, Beneficial Ownership Limitation							61 days
Conversion of stock, shares converted | shares					12,432
Series C Preferred Stock | Maximum
Class of Stock [Line Items]
Conversion terms, Beneficial Ownership Limitation (percentage)							9.999%

XML

PREFERRED STOCK AND DETACHABLE WARRANTS (Details) - USD ($)			1 Months Ended	9 Months Ended		12 Months Ended
	May 13, 2016	Jun. 24, 2015	May 31, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Temporary Equity [Line Items]
Fair value of warrants issued with Series B and B-1 Preferred Stock	$ 2,867,264	$ 7,028,067
Less: beneficial conversion feature		5,737,796
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning of period				$ 4,365,992	$ 1,548,604	$ 1,548,604
Change in valuation of warrants				2,676,902		(49,876)
Balance at end of period				1,689,090		4,365,992
Series B Preferred Stock
Temporary Equity [Line Items]
Face amount of Preferred Stock		25,000,000		25,000,000		25,000,000
Less: beneficial conversion feature		5,737,796
Less: issuance costs and fees		1,442,462
Carrying amount of preferred shares		10,791,675		6,812,524		5,676,467
Less: repurchase of 3,575,070 shares				11,189,838		11,189,838
Less: conversions of shares to common stock				5,386,341		5,386,341
Plus: dividends in kind				2,042,520		1,164,701
Less: unaccreted discount			$ 5,408,131	$ 3,653,817		3,912,055
Amount of shares repurchased	3,575,070		3,575,070	3,575,070	3,575,070
Series B1 Preferred Stock
Temporary Equity [Line Items]
Face amount of Preferred Stock	$ 19,349,745	$ 19,349,756		$ 19,349,745		19,349,745
Less: beneficial conversion feature	2,371,106
Less: issuance costs and fees	607,880
Carrying amount of preferred shares	$ 13,503,495			15,280,750		13,927,788
Less: conversions of shares to common stock				748,306		628,866
Plus: dividends in kind				1,288,282		435,369
Less: unaccreted discount				$ 4,608,971		5,228,460
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
May 2016 Series B1 Preferred Warrants (described below)						$ 2,867,264

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PREFERRED STOCK AND DETACHABLE WARRANTS (Details 2) - USD ($)	Sep. 30, 2017	Dec. 31, 2016	May 13, 2016	Jun. 24, 2015
Temporary Equity [Line Items]
Market price (in USD per share)			$ 1.52	$ 2.91
Series B1 Preferred Stock
Temporary Equity [Line Items]
Face amount of Preferred Stock	$ 19,349,745	$ 19,349,745	$ 19,349,745	$ 19,349,756
Less: allocated value of Warrants	1,044,708	2,413,427		2,867,264
Allocated value of Preferred Stock				$ 16,482,492
Shares of Common stock to be converted				12,403,683
Effective conversion price (in USD per share)				$ 1.33
Market price (in USD per share)				1.52
Intrinsic value per share (in USD per share)				$ 0.19
Intrinsic value of beneficial conversion feature				$ 2,371,106
Series B Preferred Stock
Temporary Equity [Line Items]
Face amount of Preferred Stock	25,000,000	$ 25,000,000		25,000,000
Less: allocated value of Warrants	$ 644,382			7,028,067
Allocated value of Preferred Stock				$ 17,971,933
Shares of Common stock to be converted				8,064,534
Effective conversion price (in USD per share)				$ 2.23
Market price (in USD per share)				2.94
Intrinsic value per share (in USD per share)				$ 0.7115
Intrinsic value of beneficial conversion feature				$ 5,737,796

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SEGMENT REPORTING (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Segment Reporting Information [Line Items]
Revenues	$ 32,470,451	$ 28,461,930	$ 104,153,844	$ 67,022,978
Income (loss) from operations	(3,309,022)	(586,024)	(7,648,606)	(8,971,662)
Operating segments | Black Oil
Segment Reporting Information [Line Items]
Revenues	25,358,317	22,907,235	77,546,802	52,877,119
Income (loss) from operations	(2,463,457)	(404,396)	(6,511,277)	(8,199,842)
Operating segments | Refining & Marketing
Segment Reporting Information [Line Items]
Revenues	4,856,520	4,436,111	15,436,919	9,986,047
Income (loss) from operations	(708,175)	173,121	(940,476)	(55,847)
Operating segments | Recovery
Segment Reporting Information [Line Items]
Revenues	2,255,614	1,118,584	11,170,123	4,159,812
Income (loss) from operations	$ (137,390)	$ (354,749)	$ (196,853)	$ (715,973)

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INCOME TAXES - Narrative (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2017 USD ($) quarter	Sep. 30, 2016 USD ($)
Income Tax Disclosure [Abstract]
Effective income tax rate			0.00%
U.S. federal income tax rate			34.00%
Number of quarters of cumulative loss | quarter			12
Operating loss carryforwards	$ 51,800,000		$ 51,800,000
Loss before income tax	$ 2,949,378	$ 77,722	$ 7,953,156	$ 1,682,867
Valuation allowance as percent of deferred tax assets and deferred tax liabilities (percent)			100.00%

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ACQUISITIONS (Details) - USD ($)				9 Months Ended
	Jul. 16, 2017	May 26, 2017	May 01, 2017	Sep. 30, 2017	Sep. 30, 2016	Feb. 02, 2017	Dec. 31, 2016
Business Acquisition [Line Items]
Contingent consideration				$ 236,680			$ 0
Acadiana Recovery, LLC
Business Acquisition [Line Items]
Assets acquired						$ 710,350
Fixed assets						389,650
Intangible assets						$ 320,700
Payments to acquire businesses				710,350	$ 0
Nickco Recycling, LLC
Business Acquisition [Line Items]
Fixed assets			$ 1,182,000
Intangible assets			585,000
Total purchase price			1,804,000
Payments to acquire businesses			$ 1,126,730	1,126,730	0
Pre-agreed EBITDA target period			12 months
Contingent consideration			$ 203,000
Nickco Recycling, LLC | Common stock
Business Acquisition [Line Items]
Common stock issued in acquisition, shares		500,000	500,000
Contingent consideration (shares)			500,000
Ygriega Environmental Services, LLC
Business Acquisition [Line Items]
Assets acquired	$ 196,000
Fixed assets	38,500
Intangible assets	159,000
Payments to acquire businesses	0			$ 162,500	$ 0
Contingent consideration	33,500
Contingent consideration payable in two annual installments	$ 87,500
Noncompete agreement term	2 years
Bargain purchase gain	$ 1,500

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SUBSEQUENT EVENTS (Details) - shares	1 Months Ended	9 Months Ended
	Jul. 31, 2017	Sep. 30, 2017	Oct. 20, 2017
Series B Preferred Stock
Subsequent Event [Line Items]
Paid-in-kind dividends, preferred stock	50,659	50,659
Number of common shares issued for each convertible share	50,659	1
Series B1 Preferred Stock
Subsequent Event [Line Items]
Paid-in-kind dividends, preferred stock	289,417
Number of common shares issued for each convertible share	289,417
Series A Preferred Stock | Subsequent event
Subsequent Event [Line Items]
Number of common shares issued for each convertible share			3,041