What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-13 compared with 2023-08-14 · 131 added, 106 removed, 403 unchanged (37% of the section changed)

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The following discussion and analysis of the Company’s financial condition and results of operations

should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report.

information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

should be read in conjunction with the consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report.

Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and

uncertainties.

Special note regarding forward-looking statements

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completed the Business Combination.

Immediately, upon the completion of the Business Combination, CENAQ was renamed Verde Clean Fuels

Immediately upon the completion of the Business Combination, CENAQ was renamed Verde Clean Fuels Inc.

Following the Business Combination, Verde Clean

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We acquired our STG+®

technology from Primus Green Energy (“Primus”), a company established in 2007 that developed the patented STG+® technology

to convert syngas into gasoline or methanol.

Since acquiring the technology, we have adapted the application of our STG+® technology

to focus on the renewable energy industry.

This adaptation requires a third-party gasification system to produce acceptable synthesis

gas from these renewable feedstocks.

technology from Primus, a company established in 2007 that developed the patented STG+® technology to convert syngas into gasoline

Since acquiring the technology, we have adapted the application of our STG+® technology to focus on the renewable energy

This adaptation requires a third-party gasification system to produce acceptable synthesis gas from these renewable feedstocks.

Our proprietary STG+® system converts the syngas into gasoline.

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the first STG+® based commercial production facility in the United States.

We expect our first commercial production facility to be

operational will be in Maricopa, Arizona.

In the first phase, which could be operational as early as 2025, we expect this facility to

produce approximately 7 million gallons per year of renewable.

In the second phase, which we expect to be operational in 2026, we anticipate

producing approximately 30 million gallons per year of renewable gasoline.

Additionally, we have several additional renewable gasoline

projects, and flare mitigating natural gas to gasoline projects, in various early stages of development.

We have several renewable gasoline projects and flare mitigating

natural gas to gasoline projects, in various early stages of development.

Over $110 million has been invested in our technology,

including our demonstration facility in New Jersey, which has completed over 10,500 hours of operation producing gasoline or methanol.

primarily by our predecessor owners, including our which has completed over 10,500 hours of operation producing gasoline or methanol.

Our demonstration facility represents the scalable nature of our operational modular commercial design which has fully integrated reactors

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technology to produce middle distillates including sustainable diesel and sustainable aviation fuel.

As of June 30, 2023, the Company

As of September 30, 2023, the Company

has not derived revenue from its principal business activities.

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Commencing and Expanding Commercial Operations

In April 2022, we commenced a pre-front-end engineering

and design (“FEED”) study for the Maricopa, Arizona facility which we expect to be our first commercial production facility.

Following our entry into a 25-year lease (see Note 5 to the unaudited consolidated financial statements) to secure the site of the future

facility, we are actively engaged in activities associated with designing the feedstock supply chain to the site, evaluating utility interconnections,

and validating front-end gasification design for our first commercial facility.

We believe our commercialization activities are being

completed at a pace that can support first commercial production of renewable gasoline as early as 2025.

April 2022, we commenced a pre-front-end engineering and design (“FEED”) study for the Maricopa, Arizona facility.

we have not abandoned a potential project in Maricopa, AZ, we have refocused on projects that we believe have quicker paths to

commercial operations.

We believe our commercialization activities are being completed at a pace that can support first

commercial production of renewable gasoline as early as 2026.

We have three additional production facilities

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potential production facilities bode well for our potential future success.

The Company evaluated subsequent events and transactions

that occurred after the balance sheet date, up to the date which the financial statements were issued.

On August 1, 2023, the Company announced a Carbon

Dioxide Management Agreement (“CDMA”) with Carbon TerraVault JV HoldCo, LLC (“CTV JV”), a carbon management partnership

focused on carbon capture and sequestration development formed between Carbon TerraVault, a subsidiary of California Resources Corporation

(“CRC”), and Brookfield Renewable.

Verde and Cottonmouth Ventures have completed

a preliminary evaluation of several possible Permian Basin locations, including a review of natural gas supply and available utilities,

and the parties have selected the first development location for a potential joint project.

The proposed facility would utilize undervalued

Permian Basin gas and mitigate flaring and pipeline congestion in the region.

Verde expects to enter into a Joint Development Agreement

with Cottonmouth Ventures to proceed with Front End Engineering and Design (FEED), permitting, and other development activities required

for Final Investment Decision (FID).

Project Final Investment Decision (“FID”) is targeted for late 2024, with operations

expected to being in mid-2026.

On August 1, 2023, the Company announced

a Carbon Dioxide Management Agreement (“CDMA”) with Carbon TerraVault JV HoldCo, LLC (“CTV JV”), a carbon management

partnership focused on carbon capture and sequestration development formed between Carbon TerraVault, a subsidiary of California Resources

Corporation (“CRC”), and Brookfield Renewable.

Under the terms of the non-binding agreement,

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expected to produce approximately 7 million gallons per year of renewable gasoline for use as transportation fuel.

Project Final Investment Decision (“FID”)

is targeted for mid-2025, with operations expected to begin in the second half of 2027.

Project FID is targeted

for mid-2025, with operations expected to begin in the second half of 2027.

Successful Implementation of the first commercial facility

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Income Tax Effects

There are no current or deferred income tax

amounts recorded in our consolidated financial statements.

Intermediate was historically and remains a disregarded

subsidiary of a partnership for U.S.

Federal income tax purposes with each partner being separately taxed on its share of taxable income

The Company is subject to U.S.

Federal income taxes, in addition to state and local income taxes, with respect to its distributive

share of any net taxable income or loss and any related tax credits of OpCo.

Results of Operations

Comparison of the three months ended June 30, 2023 and June 30,

Three months ended

Comparison of the three months ended September 30, 2023 and September

September 30,

General and administrative expenses

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Interest expense

Loss (income) before income taxes

Provision for income taxes

Net loss (income)

$ (4,347,748 )

General and Administrative

General and administrative expense increased approximately

$1.3 million, or 115%, from $1.1 million for the three months ended June 30, 2022 to $2.4 million for the three months ended June 30,

2023, primarily due to an increase in professional fees of $0.9 million, including accounting, legal and directors’ fees, and higher

insurance costs of $0.4 million.

These increases were partially offset by lower share-based compensation expense.

$1.6 million, or 189%, from $868 thousand for the three months ended September 30, 2022 to $2.5 million for the three months ended September

30, 2023, primarily due to an increase in professional fees of $0.7 million, including accounting, legal and directors’ fees, higher

insurance costs of $0.4 million, higher share-based payment expense of $0.2 million and other miscellaneous general and administrative

expenses of $0.3 million.

Contingent Consideration

The $5.3 million reduction to operating expenses

associated with contingent consideration for the three months ended June 30, 2022 reflects the reversal of a portion of an accrual made

by Holdings for certain contingent payments as a result of an assessment of the probability of completing the Business Combination (see

Note 2 to the unaudited consolidated financial statements).

associated with contingent consideration for the three months ended September 30, 2022 reflects the reversal of a portion of an accrual

made by Holdings for certain contingent payments as a result of an assessment of the probability of completing the Business Combination

(see Note 2 to the unaudited consolidated financial statements).

Research and Development

R&D expense increased approximately $6 thousand,

or 18%, from $73 thousand for the three months ended June 30, 2022 to $86 thousand for the three months ended June 30, 2023.

in R&D expense was primarily due to higher consulting fees and outside contractor billings.

or 8%, from $72 thousand for the three months ended September 30, 2022 to $78 thousand for the three months ended September 30, 2023.

The increase in R&D expense was primarily due to higher operating costs associated with the Company’s demonstration plant in

Other income was primarily attributable to interest

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to the Company’s finance lease liability (see Note 5 to the unaudited consolidated financial statements).

Comparison of the six months ended June 30, 2023 and June 30, 2022

Six months ended

Provision for Income Taxes

Income tax expense increased due to changes in

estimate related to the Company’s 2022 tax obligation.

Comparison of the nine months ended September 30, 2023 and September

September 30,

General and administrative expenses

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Interest expense

Loss (income) before income taxes

Provision for income taxes

Net loss (income)

$ (3,600,180 )

General and Administrative

General and administrative expense increased approximately

$4.2 million, or 172%, from $2.5 million for the six months ended June 30, 2022 to $6.7 million for the six months ended June 30, 2023.

The increase was primarily due to higher professional fees of $1.8 million, including accounting, legal and directors’ fees and

greater share-based compensation expense of $1.4 million.

There were also increased costs for insurance, rental, amortization and other

operating expenses.

$5.9 million, or 177%, from $3.3 million for the nine months ended September 30, 2022 to $9.2 million for the nine months ended September

The increase was primarily due to higher professional fees of $2.6 million, including accounting, legal and directors’

fees, greater share-based compensation expense of $1.5 million, greater insurance expense of $1.0 million, and other miscellaneous general

and administrative expenses of $0.8 million related to rent, depreciation and amortization.

Contingent Consideration

The $5.9 million reduction to operating expenses

associated with contingent consideration for the six months ended June 30, 2023 reflects the reversal of the remaining accrual made by

Holdings for certain contingent payments due to a contractual forfeiture of the payments following the close of the Business Combination

associated with contingent consideration for the nine months ended September 30, 2023 reflects the reversal of the remaining accrual made

by Holdings for certain contingent payments due to a contractual forfeiture of the payments following the close of the Business Combination

on February 15, 2023.

The $1.9 million reduction to operating expenses associated with contingent consideration for the six months ended

June 30, 2022 reflects the reversal of a portion of the accrual made by Holdings as a result of an assessment of the probability of completing

the Business Combination (see Note 2 to the unaudited consolidated financial statements).

The $5.9 million reduction to operating expenses associated with contingent consideration for the nine months ended

September 30, 2022 reflects the reversal of a portion of the accrual made by Holdings as a result of an assessment of the probability

of completing the Business Combination (see Note 2 to the unaudited consolidated financial statements).

Research and Development

R&D expense remained consistent between the

six months ended June 30, 2022 and the six months ended June 30, 2023.

R&D expense consists primarily of outside consulting expenses

related to R&D projects.

nine months September 30, 2022 and the nine months ended September 30, 2023.

R&D expense consists primarily of outside consulting

expenses related to R&D projects.

Other income was primarily attributable to interest

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to the Company’s finance lease liability (see Note 5 to the unaudited consolidated financial statements).

Provision for Income Taxes

Income tax expense increased due to changes in

estimate related to the Company’s 2022 tax obligation.

Liquidity and Capital Resources

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Since inception,

we have incurred significant operating losses, have an accumulated deficit of $22.5 million as of June 30, 2023 and negative operating

cash flow during the six months ended June 30, 2023 and 2022.

Management expects that operating losses and negative cash flows may increase

because of additional costs and expenses related to the development of technology and the development of market and strategic relationships

with other companies.

Our continued solvency is dependent upon our ability to obtain additional working capital to complete our product

development, to successfully achieve commerciality of our projects.

we have incurred significant operating losses, have an accumulated deficit of $23.3 million as of September 30, 2023 and negative operating

cash flow during the nine months ended September 30, 2023 and 2022.

Management expects that operating losses and negative cash flows may

increase because of additional costs and expenses related to the development of technology and the development of market and strategic

relationships with other companies.

Our continued solvency is dependent upon our ability to obtain additional working capital to complete

our product development, to successfully achieve commerciality of our projects.

Following the Business Combination and the closing

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A common stock at a conversion price of $10.00 per share.

Summary Statement of Cash Flows for the Interim Periods Ended June

30, 2023 and June 30, 2022

Summary Statement of Cash Flows for the Nine Months Ended September

30, 2023 and September 30, 2022

The following table sets forth the primary sources

and uses of cash and cash equivalents for the periods presented below:

For the Six Months Ended

For the Nine Months Ended

Net cash used in operating activities

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Cash Flows used in Operating Activities

Net cash used in our operating activities increased

$3.2 million during the six months ended June 30, 2023 versus the same period in 2022, which primarily was due to a higher net loss in

2023 as compared with 2022 of $4.9 million.

This was partially offset by higher non-cash operating items in 2023, including the impact

of stock-based compensation costs of $1.4 million and a decrease in working capital of approximately $0.3 million.

Net cash used in our operating activities increased $4.5 million during

the nine months ended September 30, 2023 versus the same period in 2022, which primarily was due to incurring additional professional

fees of $2.6 million primarily attributable to the business combination.

Other uses of cash include increases in directors and officers

insurance of $1 million.

Cash Flows used in Investing Activities

There was no net cash used in investing activities

during both the six months ended June 30, 2023 and 2022.

Net cash used in investing activities was consistent

during both the nine months ended September 30, 2023 and 2022.

Cash Flows from Financing Activities

Net cash provided by financing activities increased

approximately $35.1 million during the six months ended June 30, 2023 compared to the same period in 2022.

The increase was primarily

due to the close of the Business Combination on February 15, 2023, which raised $37.3 million.

approximately $33.8 million during the nine months ended September 30, 2023 compared to the same period in 2022.

The increase was

primarily due to the close of the Business Combination on February 15, 2023, which raised $37.3 million.

Commitments and Contractual Obligations

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in February 2023 contemporaneous with the Company obtaining control of the identified asset.

The Company terminated the lease during the

third quarter of 2023 and expects to exit the lease as of December 31, 2023.

Accordingly, the Company reversed a substantial portion of

the existing right-of-use asset and lease liability and reclassified the lease from finance to operating as of September 30, 2023.

Note 5 to the unaudited consolidated financial statements.

Off-Balance Sheet Arrangements

As of June 30, 2023, we have not engaged in any

off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

As of September 30, 2023, we have not engaged

in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Internal Control over Financial Reporting

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prepared in conformity with US GAAP as determined by the FASB’s ASC.

The preparation of financial statements in conformity with

US GAAP requires the Company to adopt accounting policies and make estimates and assumptions that affect amounts reported on the unaudited

consolidated financial statements.

For a discussion of our critical accounting policies, see “Critical Accounting Policies Before

the Business Combination” and “Critical Accounting Policies After the Business Combination” in Item 7 of our Annual

Report on Form 10-K for the year ended December 31, 2022.

Impairment of Intangible Assets

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of its intellectual property and patented technology and is considered an indefinite lived intangible and is not subject to amortization.

As of June 30, 2023, and December 31, 2022, the gross and carrying amount of this intangible asset was $1,925,151.

As of September 30, 2023, and December 31, 2022, the gross and carrying amount of this intangible asset was $1,925,151.

A qualitative assessment of indefinite-lived intangible

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fair value of an indefinite-lived intangible asset is less than its carrying amount, an impairment loss is recognized equal to the difference.

During the three and six months ended June 30,

During the three and nine months ended September

30, 2023 and 2022, the Company did not record any impairment charges.

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the estimated cash flows discounted at a rate commensurate with the risk involved.

During the three and six months ended June 30, 2023

During the three and nine months ended September 30,

2023 and 2022, the Company did not record any impairment charges.

Equity-Based Compensation

The Company applies the fair value method under ASC 718 in accounting

for equity-based compensation to employees and non-employees.

The determination of fair value requires significant judgment and the use

of estimates related to inputs into the Black-Scholes option pricing model such as stock price volatility, expected option lives and the

discount rate.

Equity-based compensation is recorded as a general and administrative expense in the consolidated Statements of Operations.

The Company applies the fair value method under

ASC 718 in accounting for equity-based compensation to employees and non-employees.

The determination of fair value requires significant

judgment and the use of estimates related to inputs into the Black-Scholes option pricing model such as stock price volatility, expected

option lives and the discount rate.

Equity-based compensation is recorded as a general and administrative expense in the consolidated

Statements of Operations.

We measure the fair value of each option grant

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of the business combination perimeter, had entered into several compensation related arrangements with management of Intermediate.

costs associated with those arrangements were allocated by BCF Holdings to Intermediate as the employees were rendering services to Intermediate.

costs associated with those arrangements were allocated by Holdings to Intermediate as the employees were rendering services to Intermediate.

However, the ultimate contractual obligation related to these awards, including any future settlement, rested and continues to rest with

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$2.1 million.

No service-based or performance-based incentive units were granted during the three-month or six-month period ended June

No service-based or performance-based incentive units were granted during the three- and nine-month periods ended September

In March 2023, the Company authorized and approved

the Verde Clean Fuels, Inc.

2023 Omnibus Incentive Plan (the “2023 Plan”).

On April 25, 2023, consistent with the terms of

the 2023 Plan, the Company granted stock options to certain employees and officers and RSUs to non-employee directors In addition to

stock options and RSUs, the 2023 Plan authorizes for the potential future grant of stock appreciation rights, restricted stock, performance

awards, stock awards, dividend equivalents, other stock-based awards, cash awards and substitute awards to certain employees (including

executive officers), consultants and non-employee directors, and is intended to align the interests of the Company’s service providers

with those of the stockholders.

the 2023 Plan.

On April 25, 2023, consistent with the terms of the 2023 Plan, the Company granted stock options to certain employees and

officers and RSUs to non-employee directors.

In addition to stock options and RSUs, the 2023 Plan authorizes for the potential future

grant of stock appreciation rights, restricted stock, performance awards, stock awards, dividend equivalents, other stock-based awards,

cash awards and substitute awards to certain employees (including executive officers), consultants and non-employee directors, and is

intended to align the interests of the Company’s service providers with those of the stockholders.

Emerging Growth Company Accounting Election

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believes there is no new accounting guidance issued but not yet effective that would have a material impact to the Company’s current

financial statements.

consolidated financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis