Verde Clean Fuels, Inc. 10-Q

Item 1. Financial Statements VERDE CLEAN FUELS, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) As of March 31, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 25,941,604 $ 28,779,177 Restricted cash 100,000 100,000 Prepaid expenses 1,406,010 373,324 Total current assets 27,447,614 29,252,501 Non-current assets: Security deposits 160,669 160,669 Property, plant and equipment, net 67,791 62,505 Operating lease right-of-use assets, net 453,862 524,813 Intellectual patented technology 1,925,151 1,925,151 Total non-current assets 2,607,473 2,673,138 Total assets $ 30,055,087 $ 31,925,639 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 367,036 $ 184,343 Accrued liabilities 2,227,546 1,976,812 Operating lease liabilities – current portion 326,446 297,380 Other current liabilities 32,027 - Total current liabilities 2,953,055 2,458,535 Non-current liabilities: Promissory note – related party - 409,612 Operating lease liabilities 147,472 232,162 Total non-current liabilities 147,472 641,774 Total liabilities 3,100,527 3,100,309 Commitments and Contingencies (see Note 5) Stockholders’ equity Class A common stock, par value $ 0.0001 per share, 9,428,797 and 9,387,836 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively 943 939 Class C common stock, par value $ 0.0001 per share, 22,500,000 shares issued and outstanding as of March 31, 2024 and December 31, 2023 2,250 2,250 Additional paid in capital 35,673,145 35,014,836 Accumulated deficit ( 24,695,101 ) ( 23,922,730 ) Noncontrolling interest 15,973,323 17,730,035 Total stockholders’ equity 26,954,560 28,825,330 Total liabilities and stockholders’ equity $ 30,055,087 $ 31,925,639 The accompanying notes to the unaudited consolidated financial statements are an integral part of these statements. 1 VERDE CLEAN FUELS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, 2024 2023 General and administrative expenses $ 2,789,376 $ 4,265,640 Contingent consideration - ( 1,299,000 ) Research and development expenses 85,835 82,662 Total operating loss 2,875,211 3,049,302 Other (income) ( 346,128 ) - Interest expense - 67,825 Loss before income taxes ( 2,529,083 ) ( 3,117,127 ) Provision for income taxes - - Net loss $ ( 2,529,083 ) $ ( 3,117,127 ) Net loss attributable to noncontrolling interest $ ( 1,756,712 ) $ ( 2,542,666 ) Net loss attributable to Verde Clean Fuels, Inc. $ ( 772,371 ) $ ( 574,461 ) Earnings per share Weighted average Class A common stock outstanding, basic and diluted 6,173,716 6,124,245 Net loss per share of Class A common stock $ ( 0.13 ) $ ( 0.09 ) The accompanying notes to the unaudited consolidated financial statements are an integral part of these statements. 2 VERDE CLEAN FUELS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Statement of Stockholders’ Equity for the Three Months Ended March 31, 2024 Member’s Class A Common Class C Common Additional Paid In Accumulated Non controlling Total Stockholders’ Equity Shares Values Shares Values Capital Deficit Interest Equity Balance – December 31, 2023 $ 9,387,836 $ 939 22,500,000 $ 2,250 $ 35,014,836 $ ( 23,922,730 ) $ 17,730,035 $ 28,825,330 Related party promissory note settlement - 40,961 4 - - 409,608 - - 409,612 Stock-based compensation - - - - - 248,701 - - 248,701 Net loss - - - - - - ( 772,371 ) ( 1,756,712 ) ( 2,529,083 ) Balance – March 31, 2024 $ - 9,428,797 $ 943 22,500,000 $ 2,250 $ 35,673,145 $ ( 24,695,101 ) $ 15,973,323 $ 26,954,560 Statement of Stockholders’ Equity for the Three Months Ended March 31, 2023 Member’s Class A Common Class C Common Additional Paid In Accumulated Non controlling Total Stockholders’ Equity Shares Values Shares Values Capital Deficit Interest Equity Balance - December 31, 2022 $ 12,775,901 - $ - - $ $ - $ ( 11,672,536 ) $ - $ 1,103,365 Retroactive application of recapitalization - - 936 - 2,573 ( 3,509 ) - - - Adjusted beginning balance 12,775,901 - 936 - 2,573 ( 3,509 ) ( 11,672,536 ) - 1,103,365 Reversal of Intermediate original equity ( 12,775,901 ) - ( 936 ) - ( 2,573 ) 3,509 11,672,536 - ( 1,103,365 ) Recapitalization transaction - 9,358,620 936 22,500,000 2,250 15,391,286 ( 4,793,142 ) 25,487,723 36,089,053 Class A Sponsor earn out shares - - - - - 5,792,000 ( 5,792,000 ) - - Class C Sponsor earn out shares - - - - - 10,594,000 ( 10,594,000 ) - - Stock-based compensation - - - - - 2,146,792 - - 2,146,792 Net loss - - - - - - ( 574,461 ) ( 2,542,666 ) ( 3,117,127 ) Balance – March 31, 2023 $ - 9,358,620 $ 936 22,500,000 $ 2,250 $ 33,924,078 $ ( 21,753,603 ) $ 22,945,057 $ 35,118,718 3 VERDE CLEAN FUELS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 2024 2023 Cash flows from operating activities: Net loss $ ( 2,529,083 ) $ ( 3,117,127 ) Adjustments to reconcile net loss to net cash used in operating activities Contingent consideration - ( 1,299,000 ) Depreciation 3,037 580 Unit-based compensation expense 248,701 2,146,792 Finance lease amortization - 36,463 Amortization of right-of-use assets 70,951 55,085 Changes in operating assets and liabilities Prepaid expenses ( 1,032,686 ) ( 1,457,643 ) Accounts payable 182,693 51,810 Accrued liabilities 250,734 792,085 Operating lease liabilities ( 55,624 ) ( 55,085 ) Other changes in operating assets and liabilities 32,027 - Net cash used in operating activities ( 2,829,250 ) ( 2,846,040 ) Cash flows from investing activities: Purchases of property, plant and equipment ( 8,323 ) - Net cash used in investing activities ( 8,323 ) - Cash flows from financing activities: PIPE proceeds - 32,000,000 Cash received from Trust - 19,031,516 Transaction expenses - ( 10,043,793 ) BCF Holdings capital repayment - ( 3,750,000 ) Repayments of notes payable - insurance premium financing - ( 3,719 ) Repayments of the principal portion of finance lease liabilities - ( 12,508 ) Deferred financing costs - ( 22,570 ) Net cash provided by financing activities - 37,198,926 Net change in cash and restricted cash ( 2,837,573 ) 34,352,886 Cash, cash equivalents and restricted cash, beginning of year 28,879,177 463,475 CENAQ operating cash balance acquired - 91,454 Cash, cash equivalents and restricted cash, end of period $ 26,041,604 $ 34,907,815 Supplemental cash flows Non-cash income tax payable and deferred tax liability obtained from CENAQ $ - $ 312,446 Non-cash impact of debt issuance through the business combination - 409,279 The accompanying notes to the unaudited consolidated financial statements are an integral part of these statements. 4 VERDE CLEAN FUELS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – ORGANIZATION Verde Clean Fuels, Inc. (the “Company”, “Verde” and “Verde Clean Fuels”) is a clean energy technology company specializing in the conversion of synthesis gas, or syngas, derived from diverse feedstocks, such as biomass or natural gas and other feedstocks, into liquid hydrocarbons, primarily gasoline, through an innovative and proprietary liquid fuels technology, the STG+® process. Through Verde Clean Fuels’ STG+® process, Verde Clean Fuels converts syngas into Reformulated Blend-stock for Oxygenate Blending (“RBOB”) gasoline. Verde Clean Fuels is focused on the development of technology and commercial facilities aimed at turning waste and other feedstocks into a usable stream of syngas, which is then transformed into a single finished fuel, such as gasoline, without any additional refining steps. The availability of biogenic feedstocks and the economic and environmental drivers that divert these materials from landfills will enable us to utilize these waste streams to produce renewable gasoline from modular production facilities. On February 15, 2023 (the “Closing Date”), the Company finalized a business combination (the “Business Combination”) pursuant to that certain business combination agreement, dated as of August 12, 2022 (the “Business Combination Agreement”) by and among CENAQ Energy Corp. (“CENAQ”), Verde Clean Fuels OpCo, LLC, a Delaware limited liability company and a wholly owned subsidiary of CENAQ (“OpCo”), Bluescape Clean Fuels Holdings, LLC, a Delaware limited liability company (“Holdings”), Bluescape Clean Fuels Intermediate Holdings, LLC, a Delaware limited liability company (“Intermediate”), and CENAQ Sponsor LLC (“Sponsor”). Immediately upon the completion of the Business Combination, CENAQ was renamed to Verde Clean Fuels, Inc. The Business Combination is discussed further in Note 3. Following the completion of the Business Combination, the combined company is organized under an umbrella partnership C corporation (“Up-C”) structure and the only direct assets of the Company consists of equity interests in OpCo, whose only direct assets consists of equity interests in Intermediate. Immediately following the Business Combination, Verde Clean Fuels is the sole manager of and controls OpCo. Prior to the Business Combination, and up to the transaction close on February 15, 2023, Verde Clean Fuels, previously CENAQ Energy Corp., was a special purpose acquisition company (“SPAC”) incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. 5 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited consolidated financial statements should be read in conjunction with the audited financial statements included in the Annual Report on Form 10-K filed on March 28, 2024 and are presented in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) have been made that are necessary to present fairly the financial position, and the results of its operations and its cash flows. The results of operations for an interim period may not give a true indication of results for a full year. Risks and uncertainties The Company is currently in the development stage and has not yet commenced principal operations or generated revenue. The development of the Company’s projects are subject to a number of risks and uncertainties including, but not limited to, the receipt of the necessary permits and regulatory approvals, commodity price risk impacting the decision to go forward with the projects, the availability and ability to obtain the necessary financing for the construction and development of projects. The Company’s ability to develop and operate commercial production facilities, as well as expand production at future commercial production facilities, is subject to many risks beyond its control, including regulatory developments, construction risks, and global and regional macroeconomic developments. Inflation Reduction Act of 2022 On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1 % excise tax on certain repurchases of stock, in which the cumulative fair market value is greater than $ 1 million in a calendar year, by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1 % of the fair market value of the shares repurchased at the time of the repurchase. The amount of repurchases applicable to the excise tax can be reduced by the fair market value of any issuances at the time of issuance that occurred during the year, as well as certain exceptions provided by the U.S. Department of the Treasury (the “Treasury”). In April 2024, the Treasury and the Internal Revenue Service (the “IRS”) released proposed regulations that detail the kinds of transactions that are and are not subject to the new excise tax as well as give procedural guidance on how and when companies should pay the tax. The proposed regulations are open for comment until May 13 th , 2024, and the actual excise tax calculation is open for comment until June 11, 2024. In connection with the Business Combination, the Company incurred an excise tax of $ 1.6 million based on the redemption of $ 158.9 million at the request of the Common A shareholders. The excise tax is expected to be paid no earlier than the fourth quarter of 2024 or the first quarter of 2025, depending on the date of the final regulations. The excise tax is recorded within accrued liabilities on the unaudited consolidated balance sheets. Other than the 1 % excise tax, the IR Act has not had a material impact on the Company’s consolidated financial statements. 6 Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. The most significant estimates pertain to the calculations of the fair values of equity instruments, impairment of intangible and long-lived assets and income taxes. Such estimates may be subject to change as more current information becomes available. Accordingly, the actual results could differ significantly from those estimates. Principles of Consolidation The Company’s policy is to consolidate all entities that the Company controls by ownership interest or other contractual rights giving the Company control over the most significant activities of an investee. The consolidated financial statements include the accounts of Verde Clean Fuels and its subsidiaries: OpCo, Intermediate, Bluescape Clean Fuels Employee Holdings, LLC, Bluescape Clean Fuels EmployeeCo., LLC, Bluescape Clean Fuels, LLC, and Maricopa Renewable Fuels I, LLC. Certain comparative amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on the reported results of operations. All intercompany balances and transactions have been eliminated in consolidation. Cash Equivalents The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. As of March 31, 2024 and December 31, 2023, the Company had cash equivalents of $ 23,882,130 and $ 26,155,789 , respectively, which were comprised of funds held in a short-term money market fund having investments in high-quality short-term securities that are issued or guaranteed by the U.S. government or by U.S. government agencies and instrumentalities. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Corporation (“FDIC”) limit of $ 250,000 . Additionally, the majority of the Company’s cash balances are held in a short-term money market fund that is not guaranteed by the FDIC. As of March 31, 2024 and December 31, 2023, the Company had not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts. Fair Value of Financial Instruments The fair value of the Company’s assets and liabilities which qualify as financial instruments under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”) approximates the carrying amounts represented in the balance sheet, primarily due to its short-term nature. The fair values of cash, restricted cash, cash equivalents, prepaid expenses, and accrued expenses are estimated to approximate their respective carrying values as of March 31, 2024 and December 31, 2023 due to the short-term maturities of such instruments. In determining fair value, the valuation techniques consistent with the market approach, income approach and cost approach shall be used to measure fair value. ASC 820 establishes a fair value hierarchy for inputs, which represent the assumptions used by the buyer and seller in pricing the asset or liability. These inputs are further defined as observable and unobservable inputs. Observable inputs are those that buyer and seller would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs that the buyer and seller would use in pricing the asset or liability developed based on the best information available in the circumstances. 7 The fair value hierarchy is categorized into three levels based on the inputs as follows: Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment. Level 2 — Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means. Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Net Loss Per Share of Common Stock Subsequent to the Business Combination, the Company’s capital structure is comprised of shares of Class A common stock, par value $ 0.0001 per share (the “Class A common stock”) and shares of Class C common stock, par value $ 0.0001 per share (the “Class C common stock”). Public shareholders, the Sponsor, and the investors in the private offering of securities of Verde Clean Fuels in connection with the Business Combination (the “PIPE Financing”) hold shares of Class A common stock and warrants, and Holdings owns shares of Class C common stock and Class C units of OpCo (the “Class C OpCo Units”). Class C common stock represents the right to cast one vote per share at the Verde Clean Fuels level, and carry no economic rights, including rights to dividends and distributions upon liquidation. Thus, Class C common stock are not participating securities per ASC 260, “Earnings Per Share” (“ASC 260”). As the Class A common stock represent the only participating securities, the application of the two-class method is not required. Antidilutive instruments, including outstanding warrants, stock options, restricted stock units (“RSUs”) and earn out shares, were excluded from diluted earnings per share for the three months ended March 31, 2024 and March 31, 2023 because the inclusion of such instruments would be anti-dilutive. As a result, diluted net loss per common stock is the same as basic net loss per common stock for the periods presented. Warrants The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and the applicable authoritative guidance in ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, “Derivatives and Hedging” (“ASC 815”). Management’s assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period-end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, they are recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, they are recorded at their initial fair value on the date of issuance and subject to remeasurement each balance sheet date with changes in the estimated fair value of the warrants to be recognized as a non-cash gain or loss in the statement of operations. 8 Segments Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer (“CEO”). The Company has determined that it operates in one operating segment, as the CODM reviews financial information presented on a combined basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. Income Taxes The Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. The Company has elected to use the outside basis approach to measure the deferred tax assets or liabilities based on its investment in its subsidiaries without regard to the underlying assets or liabilities. In assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some portion 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 during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of March 31, 2024 and December 31, 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception. Reverse recapitalization The Business Combination was accounted for according to a common control reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with U.S. GAAP. This determination reflects Holdings having a majority of the voting power of Intermediate’s pre and post Business Combination operations and Intermediate’s management team retaining similar roles at Verde Clean Fuels. Further, Holdings continues to have control of the Company’s Board of Directors through its majority voting rights. Under the guidance in ASC 805, “Business Combinations” (“ASC 805”), for transactions between entities under common control, the assets, liabilities and noncontrolling interests of CENAQ and Intermediate are recognized at their carrying amounts on the date of the Business Combination. Under this method of accounting, CENAQ is treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Intermediate issuing stock for the net assets of CENAQ, accompanied by a recapitalization. The net assets of Intermediate are stated at their historical value within the consolidated financial statements with no goodwill or other intangible assets recorded. 9 Property, Plant and Equipment Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the related asset. The estimated useful lives of assets are as follows: Computers, office equipment and hardware 3 – 5 years Furniture and fixtures 7 years Machinery and equipment 7 years Leasehold improvements Shorter of the lease term (including estimated renewals) or the estimated useful lives of the improvement Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the accompanying statements of operations in the period realized. Accrued Liabilities Accrued liabilities consist of the following: As of March 31, 2024 As of December 31, 2023 Accrued legal fees $ 257,080 $ 237,839 Accrued professional fees 370,003 143,900 Excise tax payable 1,587,975 1,587,975 Other accrued expenses 12,488 7,098 Total accrued liabilities $ 2,227,546 $ 1,976,812 Leases The Company accounts for leases under ASU 842, “Leases” (“ASC 842)”. The core principle of this standard is that a lessee should recognize the assets and liabilities that arise from leases by recognizing in the consolidated balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset (“ROU asset”) representing the lessee’s right to use the underlying asset for the lease term. In accordance with the guidance of ASC 842, leases are classified as finance or operating leases, and both types of leases are recognized on the consolidated balance sheet. Certain lease arrangements may contain renewal options. Renewal options are included in the expected lease term only if they are reasonably certain of being exercised by the Company. The Company elected the practical expedient to not separate non-lease components from lease components for real estate lease arrangements. The Company combines the lease and non-lease component into a single accounting unit and accounts for the unit under ASC 842 where lease and non-lease components are included in the classification of the lease and the calculation of the ROU asset and lease liability. In addition, the Company has elected the practical expedient to not apply lease recognition requirements to leases with a term of one year or less. Under this expedient, lease costs are not capitalized; rather, are expensed on a straight-line basis over the lease term. The Company’s leases do not contain residual value guarantees or material restrictions or covenants. 10 The Company uses either the rate implicit in the lease, if readily determinable, or the Company’s incremental borrowing rate for a period comparable to the lease term in order to calculate the net present value of the lease liability. The incremental borrowing rate represents the rate that would approximate the rate to borrow funds on a collateralized basis over a similar term and in a similar economic environment. Impairment of Indefinite-Lived Intangible Assets The Company’s intangible asset consists of its intellectual property and patented technology and is considered an indefinite lived intangible and is not subject to amortization. As of March 31, 2024, and December 31, 2023, the gross and carrying amount of this intangible asset was $ 1,925,151 . A qualitative assessment of indefinite-lived intangible assets is performed in order to determine whether further impairment testing is necessary. In performing this analysis, macroeconomic, industry and market conditions are considered in addition to current and forecasted financial performance, entity-specific events and changes in the composition or carrying amount of net assets. During the three months ended March 31, 2024 and 2023, the Company did not record any impairment charges. Impairment of Long-Lived Assets The Company evaluates the carrying value of long-lived assets when indicators of impairment exist. The carrying value of a long-lived asset is considered impaired when the estimated separately identifiable, undiscounted cash flows from such asset are less than the carrying value of the asset. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the estimated cash flows discounted at a rate commensurate with the risk involved. During the three months ended March 31, 2024 and 2023, the Company did not record any impairment charges. Emerging Growth Company Accounting Election The Company is an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Additionally, section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. The Company expects to be an emerging growth company through 2026. Prior to the Business Combination, CENAQ elected to irrevocably opt out of the extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company will adopt the new or revised standard when those standards are effective for public registrants. Equity-Based Compensation The Company applies ASC 718, “Compensation — Stock Compensation” (“ASC 718”), in accounting for unit-based compensation to employees. 11 Unit-Based Compensation Service-based units compensation cost is measured at the grant date based on the fair value of the equity instruments awarded and is recognized over the period during which an employee is required to provide service in exchange for the award, or the requisite service period, which is usually the vesting period. Performance-based unit compensation cost is measured at the grant date based on the fair value of the equity instruments awarded and is expensed over the requisite service period, based on the probability of achieving the performance goal, with changes in expectations recognized as an adjustment to earnings in the period of the change. If the performance goal is not met, no unit-based compensation expense is recognized and any previously recognized unit-based compensation expense is reversed. Forfeitures of service-based and performance-based units are recognized upon the time of occurrence. Prior to closing of the Business Combination, certain subsidiaries of the Company, including Intermediate, were wholly-owned subsidiaries of Holdings. Holdings, which was outside of the Business Combination perimeter, had entered into several compensation related arrangements with management of Intermediate. Compensation 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 Holdings. On August 5, 2022, Holdings entered into an agreement with its management team whereby all outstanding unvested Series A Incentive Units and Founder Incentive Units became fully vested on the closing of the Business Combination. As part of the agreement, the priority of distributions under the Series A Incentive Units and Founders Incentive Units was also revised such that participants receive 10 % of distributions after a specified return to Holdings’ Series A Preferred Unit holders (instead of 20 %). Series A Incentive Units refers to 800 incentive units issued by Holdings on August 7, 2020 to certain members of management of Intermediate in compensation for their services. Founder Incentive Units refers to 1,000 incentive units issued by Holdings on August 7, 2020 to certain members of management of Intermediate in compensation for their services. In connection with the close of the Business Combination, the Company accelerated the unvested service and performance-based units and recorded share-based payment expense within general and administrative expense of $ 2,146,792 during the three months ended March 31, 2023. Performance conditions for the performance-based Founder Incentive Units had not and were unlikely to be met as of March 31, 2024. As such, no share-based compensation cost was recorded for these units. 2023 Equity-Based Awards In March 2023, the Company authorized and approved the Verde Clean Fuels, Inc. 2023 Omnibus Incentive Plan (the “2023 Plan”). On April 25, 2023, the Company granted stock options to certain employees and officers and granted RSUs to non-employee directors, consistent with the terms of the 2023 Plan. The Company estimates the fair value of stock options on the date of grant using the Black-Scholes model and the fair value of RSUs on the date of grant based on the value of the stock price on that date, subject to a discount for lack of marketability. The cost of awarded equity instruments is recognized based on each instrument’s grant-date fair value over the period during which the grantee is required to provide service in exchange for the award. The determination of fair value requires significant judgment and the use of estimates, particularly with regard to Black-Scholes assumptions such as stock price volatility and expected option term. Equity-based compensation is recorded as a general and administrative expense in the Consolidated Statements of Operations. 12 The Company estimates the expected term of options granted based on peer benchmarking and expectations. Treasury yield curve rates are used for the risk-free interest rate in the option valuation model with maturities similar to the expected term of the options. Volatility is determined by reference to the actual volatility of several publicly traded peer companies that are similar to the Company in its industry sector. The Company does not anticipate paying cash dividends and therefore uses an expected dividend yield of zero in the option valuation model. Forfeitures are recognized as they occur. The Company assesses whether a discount for lack of marketability is applied based on certain liquidity factors. All equity-based payment awards subject to graded vesting based only on a service condition are amortized on a straight-line basis over the requisite service periods. There is substantial judgment in selecting the assumptions used to determine the fair value of such equity awards, and other companies could use similar market inputs and experience and arrive at different conclusions. Contingent Consideration Holdings had an arrangement payable to the Company’s CEO and a consultant whereby a contingent payment could become payable in the event that certain return on investment hurdles were met. On August 5, 2022, Holdings entered into an agreement with the Company’s management and CEO whereby if the Business Combination was completed, the contingent consideration would be forfeited. The Business Combination closed on February 15, 2023, and therefore the contingent consideration arrangement was terminated and no payments were made. Thus, $ 1,299,000 of accrued contingent consideration was reversed through earnings during the three months ended March 31, 2023. No contingent consideration was recorded during the three months ended March 31, 2024. Recent Accounting Standards In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”. ASU 2023-07 enhances segment reporting under Topic 280 by expanding the breadth and frequency of segment disclosures. ASU 2023-07 requires disclosure of significant expenses that are regularly provided to an entity’s CODM and included in the reported measure(s) of a segment’s profit or loss. When applying this disclosure requirement, an entity identifies the segment expenses that are regularly provided to the CODM or easily computable from information that is regularly provided to the CODM. Entities are also required to disclose other segment items, i.e., the difference between reported segment revenue less the significant segment expenses and the reported measure(s) of a segment’s profit or loss. ASU 2023-07 also clarifies that single reportable segment entities are subject to Topic 280 in its entirety. ASU 2023-07 is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024. The amendments in ASU 2023-07 should be adopted retrospectively unless impracticable. Early adoption is permitted. The Company is currently evaluating the impact that ASU 2023-07 will have on its consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. ASU 2023-09 requires public entities, on an annual basis, to provide: a tabular rate reconciliation (using both percentages and reporting currency amounts) of (1) the reported income tax expense (or benefit) from continuing operations, to (2) the product of the income (or loss) from continuing operations before income taxes and the applicable statutory federal (national) income tax rate of the jurisdiction (country) of domicile using specific categories, and separate disclosure for any reconciling items within certain categories that are equal to or greater than a specified quantitative threshold. For each annual period presented, ASU 2023-09 also requires all reporting entities to disclose the year-to-date amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign. It also requires additional disaggregated information on income taxes paid (net of refunds received) to an individual jurisdiction equal to or greater than 5 % of total income taxes paid (net of refunds received). ASU 2023-09 is effective for public entities for fiscal years beginning after December 15, 2024. ASU 2023-09 is to be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating the impact that ASU 2023-09 will have on its consolidated financial statements. 13 The Company considers the applicability and impact of all ASUs issued by the FASB. There are no other accounting pronouncements which have been issued but are not yet effective that would have a material impact on the consolidated financial statements when adopted. NOTE 3 – BUSINESS COMBINATION Prior to the Business Combination, and up to the transaction close on February 15, 2023, Verde Clean Fuels, previously CENAQ Energy Corp., was a SPAC incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. Pursuant to the Business Combination Agreement, (i) (A) CENAQ contributed to OpCo (1) all of its assets (excluding its interests in OpCo and the aggregate amount of cash required to satisfy any exercise by CENAQ stockholders of their redemption rights (the “Redemption Rights”) and (2) the shares of Class C common stock (the “Holdings Class C Shares”) and (B) in exchange therefor, OpCo issued to CENAQ a number of Class A OpCo Units equal to the number of total shares of Class A common stock issued and outstanding immediately after the Closing (taking into account the PIPE financing (“PIPE Financing”) and following the exercise of Redemption Rights) (such transactions, the “SPAC Contribution”) and (ii) immediately following the SPAC Contribution, (A) Holdings contributed to OpCo 100% of the issued and outstanding limited liability company interests of Intermediate and (B) in exchange therefor, OpCo transferred to Holdings the Holdings OpCo Units and the Holdings Class C Shares. Holdings holds 22,500,000 OpCo Units and an equal number of shares of Class C common stock. Pursuant to ASC 805, the Business Combination was accounted for as a common control reverse recapitalization where Intermediate is deemed the accounting acquirer and the Company is treated as the accounting acquiree, with no goodwill or other intangible assets recorded, in accordance with U.S. GAAP. The Business Combination is not treated as a change in control of Intermediate. This determination reflects Holdings holding a majority of the voting power of Verde Clean Fuels, Intermediate’s Pre-Business Combination operations being the majority post-Business Combination operations of Verde Clean Fuels, and Intermediate’s management team retaining similar roles at Verde Clean Fuels. Further, Holdings continues to have control of the Board of Directors through its majority voting rights. Under ASC 805, the assets, liabilities, and noncontrolling interests of Intermediate are recognized at their carrying amounts on the date of the Business Combination. The Business Combination includes: ● Holdings contributing 100 % of the issued and outstanding limited liability company interests of Intermediate to OpCo in exchange for 22,500,000 Class C OpCo Units and an equal number of shares of Class C common stock; ● The issuance and sale of 3,200,000 shares of Class A common stock for a purchase price of $ 10.00 per share, for an aggregate purchase price of $ 32,000,000 in the PIPE Financing pursuant to the subscription agreements; ● Delivery of $ 19,031,516 of proceeds from CENAQ’s Trust Account related to non-redeeming holders of 1,846,120 of Class A common stock; and ● Repayment of $ 3,750,000 of capital contributions made by Holdings since December 2021 and payment of $ 10,043,793 of transaction expenses including deferred underwriting fees of $ 1,700,000 ; 14 The following summarizes the Verde Clean Fuels Class A common stock and Class C common stock (collectively, the “Common Stock”) outstanding as of February 15, 2023. The percentage of beneficial ownership was based on 31,858,620 shares of Company Common Stock issued and outstanding as of February 15, 2023, comprised of 9,358,620 shares of Class A common stock and 22,500,000 shares of Class C common stock. Shares % of Common Stock CENAQ Public Stockholders 1,846,120 5.79 % Holdings 23,300,000 73.14 % New PIPE Investors (excluding Holdings) 2,400,000 7.53 % Sponsor and Anchor Investors 1,078,125 3.39 % Sponsor Earn Out shares 3,234,375 10.15 % Total Shares of Common Stock at Closing 31,858,620 100.00 % Earn Out Equity shares 3,500,000 Total diluted shares at Closing (including shares above) 35,358,620 Total proceeds raised from the business combination were $ 37,329,178 , consisting of $ 32,000,000 in PIPE Financing proceeds, $ 19,031,516 from the CENAQ trust, and $ 91,454 from the CENAQ operating account offset by $ 10,043,793 in transaction expenses that were recorded as a reduction to additional paid in capital and offset by a $ 3,750,000 capital repayment to Holdings. NOTE 4 – RELATED PARTY TRANSACTIONS ASC 850, “Related Party Disclosures” (“ASC 850”) provides guidance for the identification of related parties and disclosure of related party transactions. On February 15, 2023, the Company entered into a new promissory note with the Sponsor totaling $ 409,612 (the “New Promissory Note”). The New Promissory Note canceled and superseded all prior promissory notes. The New Promissory note was non-interest bearing and the entire principal balance of the New Promissory Note was payable on or before February 15, 2024 in cash or shares at the Company’s election. On February 15, 2024, the Company settled the New Promissory Note through the issuance of its Class A common stock at a conversion price of $ 10.00 per share. As a result, during the three months ended March 31, 2024, the Company issued 40,961 shares of Class A common stock and recorded an increase to additional paid-in capital of $ 409,608 . The Company has a related party relationship with Holdings whereby Holdings holds a majority ownership in the Company via voting shares and has control of its Board of Directors. Further, Holdings possesses 3,500,000 earn out shares. 15 NOTE 5 – COMMITMENTS AND CONTINGENCIES Leases The Company determines if an arrangement is, or contains, a lease at inception based on whether that contract conveys the right to control the use of an identified asset in exchange for consideration for a period of time. Leases are classified as either finance or operating. This classification dictates whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. For all lease arrangements with a term of greater than 12 months, the Company presents at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and 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. The Company leases office space and other office equipment under operating lease arrangements with initial terms greater than twelve months. The office lease in Hillsborough, New Jersey was extended until 2025. In August 2023, the Company entered into a 40-month office lease in Houston, Texas commencing in November 2023. Office space is leased to provide adequate workspace for all employees. In October 2022, the Company entered into a 25-year land lease in Maricopa, Arizona with the intent of building a renewable gasoline processing facility. The commencement date of the lease was in February 2023 as control of the identified asset did not transfer to the Company on the effective date of the lease. On the commencement date, the present value of the minimum lease payments exceeded the fair value of the land, and, accordingly, the lease was classified as a finance lease. On August 31, 2023, the Company terminated the land lease in Maricopa, Arizona. In connection with the termination, the Company incurred a termination fee of three months’ base rent. The termination was effective four months after the termination notice; thus, the Company had a continued right-of-use and obligation to make rental payments for use of the land through December 31, 2023. The Company accounted for the termination with a continued right-of-use as a lease modification resulting in a reclassification of the lease from finance to operating as of the lease modification date. Accordingly, the Company incurred finance lease costs up to the modification date and operating lease costs subsequent to the modification until lease termination. The Company exited the lease as of December 31, 2023. Lease costs for the Company’s operating and finance leases are presented below. Lease Cost Statements of Operations Classification Three Months Ended March 31, 2024 Operating lease cost General and administrative expense $ 79,805 Variable lease cost General and administrative expense 38,861 Total lease cost $ 118,666 Lease Cost Statements of Operations Classification Three Months Ended March 31, 2023 Amortization of finance lease right-of-use asset General and administrative expense $ 36,462 Interest on finance lease liability Interest expense 67,825 Total finance lease cost General and administrative expense 104,287 Operating lease cost General and administrative expense 60,179 Variable lease cost General and administrative expense 35,146 Total lease cost $ 199,612 16 Supplemental information related to the Company’s operating and finance lease arrangements was as follows: Three Months Ended March 31, Operating lease – supplemental information 2024 2023 Right-of-use assets obtained in exchange for operating lease $ 453,862 $ 268,085 Remaining lease term – operating lease 1.73 years 1.08 years Discount rate – operating lease 7.50 % 7.50 % Three Months Ended March 31, Finance lease – supplemental information 2024 2023 Right-of-use assets $ - $ 5,432,847 Remaining lease term – finance lease - 24.75 years Discount rate – finance lease - 7.50 % Contingencies The Company is not party to any litigation. NOTE 6 – STOCKHOLDER’S EQUITY The Business Combination was structured as a reverse merger and recapitalization, which results in a common control arrangement where Holdings, the party that controls the reporting entity prior to the Business Combination, continues to control the Company immediately after the Business Combination. As such, there is not a new basis of accounting and the financial statements of the combined company represent a continuation of the financial statements of Intermediate where assets and liabilities of Intermediate continue to be reported at historical value. However, the reverse recapitalization requires a recast of Intermediate’s equity and earnings per share and is adjusted to reflect the par value of the outstanding capital stock of CENAQ. For periods before the reverse recapitalization, shareholders’ equity of Intermediate is presented based on the historical equity of Intermediate restated using the exchange ratio to reflect the equity structure of CENAQ. Management evaluated the impact of the number of shares issued by CENAQ to affect the Business Combination in exchange for the shares of Intermediate (“the exchange ratio”) and concluded the recast of historical equity based on the exchange ratio did not result in a significant impact to historical equity. 17 NOTE 7 – WARRANTS There are 15,383,263 warrants outstanding as of March 31, 2024. Each warrant entitles the registered holder to purchase one share of Class A common stock at a price of $ 11.50 per share, subject to adjustment as discussed below, at any time commencing 30 days after the completion of the Business Combination. However, no warrants will be exercisable for cash unless there is an effective and current registration statement covering the shares of Class A common stock issuable upon exercise of the warrants and a current prospectus relating to such shares of Class A common stock. Notwithstanding the foregoing, if a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective within a specified period following the consummation of the Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when we shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis. In the event of such cashless exercise, each holder would pay the exercise price by surrendering the warrants for that number of shares of Class A common stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” for this purpose will mean the average reported last sale price of the shares of Class A common stock for the 5 trading days ending on the trading day prior to the date of exercise. The warrants will expire on the fifth anniversary of our completion of an initial business combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation. The Company may call the warrants for redemption, in whole and not in part, at a price of $ 0.01 per warrant: ● at any time after the warrants become exercisable; ● upon not less than 30 days’ prior written notice of redemption to each warrant holder; ● if, and only if, the reported last sale price of the shares of Class A common stock equals or exceeds $ 18.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations), for any 20 trading days within a 30 -trading day period commencing at any time after the warrants become exercisable and ending on the third business day prior to the notice of redemption to warrant holders; and ● if, and only if, there is a current registration statement in effect with respect to the shares of Class A common stock underlying such warrants. If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws. No warrants were exercised during the three months ended March 31, 2024 and 2023. NOTE 8 – INCOME TAX As of March 31, 2024, Verde Clean Fuels, Inc. holds 29.53 % of the economic interest in OpCo, which is treated as a partnership for U.S. federal income tax purposes. As a partnership, OpCo generally is not subject to U.S. federal income tax under current U.S. tax laws. Verde Clean Fuels, Inc. is subject to U.S. federal income taxes, in addition to state and local income taxes, with respect to its distributive share of the net taxable income (loss) and any related tax credits of OpCo. 18 Intermediate was historically and remains a disregarded subsidiary of a partnership for U.S. Federal income tax purposes. As a direct result of the Business Combination, OpCo became the sole member of Intermediate. As such, OpCo’s distributive share of any net taxable income or loss and any related tax credits of Intermediate are then distributed to the Company. The Company’s effective tax rate was 0 % and 0 % for the three months ended March 31, 2024 and 2023, respectively. The effective income tax rates differed significantly from the statutory rate primarily due to the losses allocated to non-controlling interests and the recognition of a valuation allowance as a result of the Company’s new tax structure. The Company has assessed the realizability of its net deferred tax assets and in that analysis has considered the relevant positive and negative evidence available to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The Company has maintained a full valuation allowance against its deferred tax assets as of March 31, 2024, which will be maintained until there is sufficient evidence to support the reversal of all or some portion of these allowances. The Company’s income tax filings will be subject to audit by various taxing jurisdictions. The Company will monitor the status of U.S. Federal, state and local income tax returns that may be subject to audit in future periods. No U.S. Federal, state and local income tax returns are currently under examination by the respective taxing authorities. Tax receivable agreement On the Closing Date, in connection with the consummation of the Business Combination and as contemplated by the Business Combination Agreement, Verde Clean Fuels entered into a tax receivable agreement (the “Tax Receivable Agreement”) with Holdings (together with its permitted transferees, the “TRA Holders,” and each a “TRA Holder”) and the Agent (as defined in the Tax Receivable Agreement). Pursuant to the Tax Receivable Agreement, Verde Clean Fuels is required to pay each TRA Holder 85 % of the amount of net cash savings, if any, in U.S. federal, state and local income and franchise tax that Verde Clean Fuels actually realizes (computed using certain simplifying assumptions) or is deemed to realize in certain circumstances in periods after the Closing Date as a result of, as applicable to each such TRA Holder, (i) certain increases in tax basis that occur as a result of Verde Clean Fuels’ acquisition (or deemed acquisition for U.S. federal income tax purposes) of all or a portion of such TRA Holder’s Class C OpCo Units pursuant to the exercise of the OpCo Exchange Right, a Mandatory Exchange or the Call Right (each as defined in the Amended and Restated LLC Agreement of OpCo) and (ii) imputed interest deemed to be paid by Verde Clean Fuels as a result of, and additional tax basis arising from, any payments Verde Clean Fuels makes under the Tax Receivable Agreement. Verde Clean Fuels will retain the benefit of the remaining 15 % of these net cash savings. The Tax Receivable Agreement contains a payment cap of $ 50,000,000 , which applies only to certain payments required to be made in connection with the occurrence of a change of control. The payment cap would not be reduced or offset by any amounts previously paid under the Tax Receivable Agreement or any amounts that are required to be paid (but have not yet been paid) for the year in which the change of control occurs or any prior years. As of March 31, 2024, the Company did not have a tax receivable balance. 19 NOTE 9 – LOSS PER SHARE Loss per share Prior to the reverse recapitalization in connection with the Business Combination, all net loss was attributable to the noncontrolling interest. Basic net loss per share has been computed by dividing net loss attributable to Class A common shareholders for the period subsequent to the Business Combination by the weighted average number of shares of Class A common stock outstanding for the same period. Diluted earnings per share of Class A common stock were computed by dividing net loss attributable to Class A common shareholders by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities. The Company’s potentially dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share is the same. The following table sets forth the computation of net loss used to compute basic net loss per share of Class A common stock. Three Months Ended March 31, 2024 2023 Net loss attributable to Verde Clean Fuels, Inc. $ ( 772,371 ) $ ( 574,461 ) Basic weighted-average shares outstanding 6,173,716 6,124,245 Dilutive effect of share-based awards - - Diluted weighted-average shares outstanding 6,173,716 6,124,245 Basic loss per share $ ( 0.13 ) $ ( 0.09 ) Diluted loss per share $ ( 0.13 ) $ ( 0.09 ) The Company’s stock options, warrants, and earnout shares could have the most significant impact on diluted shares should the instruments represent dilutive instruments. However, securities that could potentially be dilutive are excluded from the computation of diluted earnings per share when a loss from continuing operations exists or when the exercise price exceeds the average closing price of the Company’s common stock during the period, because their inclusion would result in an anti-dilutive effect on per share amounts. The following amounts were not included in the calculation of net income per diluted share because their effects were anti-dilutive: As of March 31, 2024 2023 Warrants 15,383,263 15,412,479 Earnout Shares (1) 3,234,375 3,234,375 Convertible debt - 40,963 Stock options 1,236,016 - Time based RSUs 141,656 - Total anti-dilutive instruments 19,995,310 18,687,817 (1) Excludes 3,500,000 Class C earnout shares convertible into Class A common shares. Class C common stock are not participating securities; thus, the application of the two-class method is not required. 20 Noncontrolling Interests Following the Business Combination, holders of Class A common stock own direct controlling interest in the results of the combined entity, while Holdings own an economic interest in the Company, shown as noncontrolling interests (“NCI”) in stockholders’ equity in the Company’s consolidated financial statements. The indirect economic interests are held by Holdings in the form of Class C OpCo units. Following the completion of the Business Combination, the ownership interests of the Class A common stockholders and the NCI were 29.38 % and 70.62 %, respectively. As of March 31, 2024, the ownership interests of the Class A common stockholders and the NCI were 29.53 % and 70.47 %, respectively. The change in ownership interests was due to warrant exercises during the second quarter of 2023 that resulted in the issuance of an additional 29,216 Class A common stock (see Note 7 for further information) and the settlement of the related-party Promissory Note during the three months ended March 31, 2024 that resulted in the issuance of an additional 40,961 Class A common stock (see Note 4 for further information). The NCI may further decrease according to the number of shares of Class C common stock and Verde Clean Fuel OpCo LLC Class C units that are exchanged for shares of Class A common stock. NOTE 10 – JOINT DEVELOPMENT AGREEMENT On February 6, 2024, the Company and Cottonmouth Ventures LLC (“Cottonmouth”), a subsidiary of Diamondback Energy (“Diamondback”), entered into a joint development agreement (“JDA”) for the proposed development, construction, and operation of a facility to produce commodity-grade gasoline using natural gas feedstock supplied from Diamondback’s operations in the Permian Basin. Diamondback is an independent oil and natural gas company headquartered in Midland, Texas, focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. The JDA provides a pathway forward for the parties to reach final definitive documents and Final Investment Decision (“FID”). The JDA frames the contracts contemplated to be entered into between the parties, including an operating agreement, ground lease agreement, construction agreement, license agreement and financing agreements as well as conditions precedent to close such as FID. In connection with entering into the JDA, the Company will begin to incur development costs with respect to the project, prior to reaching a FID and entering into final definitive agreements, irrespective of whether these events occur. The Company is currently evaluating the impact that the JDA will have on its consolidated financial statements. NOTE 11 – SUBSEQUENT EVENTS The Company evaluated subsequent events and transactions that occurred after the balance sheet date, up to the date which the consolidated financial statements were issued. There were no subsequent events or transactions. 21