VERTEX ENERGY, INC. 8-K

Exhibit 99.2

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

NOTES TO MONTHLY OPERATING REPORT—PERIOD FROM

OCTOBER 1, 2024, THROUGH AND INCLUDING OCTOBER 31, 2024

General

On September 24, 2024 (the “Petition Date”), the debtors and debtors in possession listed in the table below, (collectively, the “Debtors”) each filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101-1532 (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (Houston Division) (the “Bankruptcy Court”). These chapter 11 cases have been consolidated for procedural purposes only and are being jointly administered pursuant to Bankruptcy Rule 1015(b) [Docket No. 39]. These chapter 11 cases are being jointly administered under Case No. 24-90507 (CML). The Debtors are operating their businesses and managing their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. On October 8, 2024, the United States Trustee for the Southern District of Texas (the “U.S. Trustee”) appointed an official committee of unsecured creditors pursuant to section 1102 of the Bankruptcy Code [Docket No. 151] (the “Committee”). No request for the appointment of a trustee or examiner has been made in these chapter 11 cases.

The monthly operating report (the “MOR”) includes activity from the following Debtors and related Case Numbers:

The following notes and statements and limitations should be referred to, and referenced in connection with, any review of the MOR.

The Debtors are filing this MOR solely for purposes of complying with the monthly operating requirements of the Debtors’ chapter 11 cases. For financial reporting purposes, prior to the Petition Date, the Debtors and their non-Debtor affiliate ordinarily prepared consolidated financial statements. The MOR does not purport to represent financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) or any other generally accepted accounting principles of foreign jurisdictions, as applicable, nor is it intended to fully reconcile the financial statements prepared by the Debtors. Unlike the consolidated financial statements, the MOR reflects the assets and liabilities of each separate Debtor, except where otherwise indicated. Accordingly, the totals listed in the MOR will likely differ, at times materially, from the consolidated financial reports prepared by the Debtors for financial reporting purposes or otherwise.

The MOR should not be relied on by any persons for information relating to current or future financial condition, events, or performance of any of the Debtors, as the results of operations contained herein are not necessarily indicative of results that may be expected from any other period or for the full year, and may not necessarily reflect the combined results of operations, financial position, and schedule of receipts and disbursements in the future.

Totals and Subtotals may not foot because of rounding. This applies to all MOR schedules.

The following fourteen (14) entities are the only Debtors that have current operations:

The remaining ten (10) Debtors entities are holding companies, which do not have any activity in the Debtors’ current business operations.

The Debtors maintain their books and records in accordance with U.S. GAAP and the information furnished in this MOR uses the Debtors’ normal accrual method of accounting. In preparing the MOR, the Debtors relied on financial data derived from their books and records that were available at the time of such preparation. Although the Debtors have made commercially reasonable efforts to ensure the accuracy and completeness of the MOR and to supplement the information set forth in their books and records with additional information concerning transactions that may not have been identified therein, subsequent information or discovery may result in material changes to the MOR and errors or omissions may exist. Notwithstanding any such discovery, new information, or errors or omissions, the Debtors and their directors, managers, officers, agents, attorneys, and advisors expressly do not undertake any obligation to update, modify, revise, or recategorize the information provided herein, or to notify any third party should the information be updated, modified, revised, or recategorized, except as required by applicable law or order of the Bankruptcy Court.

The MOR generally attributes liabilities as reflected on the Debtors’ books and records. In instances where it is unknown against which Debtor a liability is asserted, the Debtors have included the corresponding liability at Vertex Energy, Inc.

Unless otherwise noted herein, the MOR generally reflects the Debtors’ books and records and financial activity occurring during the applicable reporting period. Except as otherwise noted, no adjustments have been made for activity occurring after the close of the reporting period.

In Part 1b, the Debtors have included the Intercompany Transfers in Receipts to allow for a reconciliation of the cash activity in the MOR and avoid inclusion in the quarterly fee calculation. Refer to Exhibit 1 for the breakdown of the Cash Receipts and the Intercompany Transfers by account.

Intercompany payables/receipts are included in the Total Asset balances of the Debtor entities. Intercompany payables may result in certain entities’ Total Assets balance to be negative.

The inventory valuation methodology utilized is consistent with historical practices. For Vertex Refining Alabama LLC, feedstock and product inventories are valued at the lower of cost or net realizable value using the weighted average inventory accounting method. Estimating the net realizable value of inventory requires management assumptions about the timing of sales and the expected proceeds that will be realized for these sales. For the remaining entities, the inventory is valued at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) accounting method.

The Debtors continue to pay postpetition invoices in the ordinary course of business.

Prepetition liabilities reflect liabilities included in Liabilities Subject to Compromise on the Debtors’ balance sheets as Prepetition Unsecured Debt, as well as other liabilities which may be uncompromised pursuant to the relief granted via the Debtors’ various final first day orders.

Prepetition and postpetition liability balances are an estimate given the Petition Date did not occur at month end. The Debtors have sought to allocate liabilities between the prepetition and postpetition periods based on the information and research that was conducted in connection with the preparation of the MOR. As additional information becomes available and further research is conducted, the allocation of liabilities between prepetition and postpetition periods may change. The Debtors reserve the right to amend the balances as they deem appropriate in this regard.

The amounts listed as “Prepetition Unsecured Debt,” “Prepetition Priority Debt” and “Prepetition Secured Debt” are a preliminary estimate, and amounts are still being reviewed and reconciled by the Debtors. All amounts and classifications are subject to material adjustments. Listing a claim as secured, priority, or unsecured does not constitute an admission by the Debtors of the legal rights of the claimant.

For purposes of these reports, the Prepetition Secured Debt related to the DIP financing and term loan is listed at Vertex Energy, Inc. and is not listed at the other Debtors entities who are each guarantors on the secured debt. Further, the Prepetition Secured Debt related to the Intermediation Agreement is listed at Vertex Refining Alabama LLC and is not listed at the other Debtors entities who are guarantors on the secured debt.

Amounts included in the Income Statement (Statement of Operations) are estimates given the Petition Date and did not occur at month end.

Cost of goods sold in Part 4b is inclusive of depreciation and amortization. This is consistent with the presentation in Exhibit 3.

Interest in Part 4h includes both interest expense and interest income.

Local and state taxes are included in within the selling, general, and administrative expenses in Exhibit 3. This is consistent with how the Company presents the data in their consolidated financial statements. Selling, general and administrative expenses are grouped together within the Company’s consolidated financial statements therefore the entire balance is included in Part 4e General and administrative expenses.

Amounts included in Postpetition taxes are estimates given the Petition Date and did not occur at month end.

Postpetition accrued property taxes are included in Part 6f (Postpetition other taxes accrued (local, state, and federal)). Any payments on postpetition property taxes have been included in Part 6e. Postpetition employer payroll taxes accrued and postpetition payroll taxes paid, in Part 6c and 6d, relate to the legal entity where the taxes are allocated based on employee resource allocation, which can differ from the legal entity to which the employee is dedicated.

Regarding Part 7a, the Bankruptcy Court entered orders (the “First Day Orders”) authorizing, but not directing, the Debtors to, among other things, pay certain prepetition (a) 503(b)(9) claims, critical vendor claims, and lienholder claims, (b) insurance obligations, (c) employee wages, salaries, other compensation, and reimbursable expenses, and (d) certain taxes, fees, and regulatory obligations. Where applicable, details of these payments have been delivered to the required notice parties pursuant to the reporting requirements contained within the applicable final First Day Orders.

Regarding Part 7a and 7g, the Debtors obtained, and the Bankruptcy Court approved, postpetition financing on a final basis on October 29, 2024 [Docket No. 332] (the “Final DIP Order” and such financing, the “DIP Financing”) to fund, among other things, the Debtors’ business operations and these chapter 11 cases. The DIP Financing is described in detail in the Debtors’ motion to approve the Final DIP Order [Docket No. 20] and the DIP Order.

Regarding Part 7i, five (5) entities have employees. Therefore, these are the only Debtor entities that have workers’ compensation insurance.

Not applicable.

The Debtors reserve all rights to amend the MOR as may be necessary or appropriate; provided, that the Debtors and their directors, managers, officers, agents, attorneys, and advisors expressly do not undertake any obligation to update, modify, revise, or recategorize the information provided herein, or to notify any third party should the information be updated, modified, revised, or recategorized, except as required by applicable law or order of the Bankruptcy Court.

Exhibit - 1

1. In MOR form, intercompany transfers between debtors are included in Receipts to avoid inclusion in quarterly fee calculation.

UST Form 11-MOR (12/01/2021)

UST Form 11-MOR (12/01/2021) 

UNITED STATES BANKRUPTCY COURT

             Southern DISTRICT OF Texas               

Houston Division

Supporting Documentation (check all that are attached):

(For jointly administered debtors, any required schedules must be provided on a non-consolidated basis for each debtor)

11/27/2024

STATEMENT: This Periodic Report is associated with an open bankruptcy case; therefore, Paperwork Reduction Act exemption 5 C.F.R. § 1320.4(a)(2) applies.

UST Form 11-MOR (12/01/2021)

8

Privacy Act Statement

28 U.S.C. § 589b authorizes the collection of this information, and provision of this information is mandatory under 11 U.S.C. §§ 704, 1106, and 1107. The United States Trustee will use this information to calculate statutory fee assessments under 28 U.S.C. § 1930(a)(6). The United States Trustee will also use this information to evaluate a chapter 11 debtor’s progress through the bankruptcy system, including the likelihood of a plan of reorganization being confirmed and whether the case is being prosecuted in good faith. This information may be disclosed to a bankruptcy trustee or examiner when the information is needed to perform the trustee’s or examiner’s duties or to the appropriate federal, state, local, regulatory, tribal, or foreign law enforcement agency when the information indicates a violation or potential violation of law. Other disclosures may be made for routine purposes. For a discussion of the types of routine disclosures that may be made, you may consult the Executive Office for United States Trustee’s systems of records notice, UST-001, “Bankruptcy Case Files and Associated Records.” See 71 Fed. Reg. 59,818 et seq. (Oct. 11, 2006). A copy of the notice may be obtained at the following link: http://www.justice.gov/ust/eo/rules_regulations/index.htm. Failure to provide this information could result in the dismissal or conversion of your bankruptcy case or other action by the United States Trustee. 11 U.S.C. § 1112(b)(4)(F).

I declare under penalty of perjury that the foregoing Monthly Operating Report and its supporting documentation are true and correct and that I have been authorized to sign this report on behalf of the estate.

UNITED STATES BANKRUPTCY COURT

             Southern DISTRICT OF Texas               

Houston Division

Supporting Documentation (check all that are attached):

(For jointly administered debtors, any required schedules must be provided on a non-consolidated basis for each debtor)

11/27/2024

STATEMENT: This Periodic Report is associated with an open bankruptcy case; therefore, Paperwork Reduction Act exemption 5 C.F.R. § 1320.4(a)(2) applies.