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Item 2. Management’s Discussion and Analysis

2025-08-13 compared with 2025-05-14 · 65 added, 45 removed, 130 unchanged (46% of the section changed)

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References to our “management” or our “management team” refer to our officers and directors.

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report.

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed 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.

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Verde is currently focused on opportunities to convert associated natural gas into gasoline, which is expected to provide a market for such natural gas with the added potential benefits of flare mitigation and production of gasoline with a lower carbon intensity than conventional gasoline.

As of March 31, 2025, the Company is still in the process of developing its first commercial production facility and has not derived revenue from its principal business activities.

As of June 30, 2025, the Company is still in the process of developing its first commercial production facility and has not derived revenue from its principal business activities.

The Company is managed as an integrated business and there is only one reportable segment.

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PIPE Investment

On December 18, 2024, the Company entered into common stock purchase agreement (the "Purchase Agreement") with Cottonmouth Ventures, LLC ("Cottonmouth"), a subsidiary of Diamondback Energy, LLC ("Diamondback"), pursuant to which the Company agreed to issue and sell an aggregate of 12,500,000 shares of its Class A common stock, par value $0.0001 ("Class A common stock") to Cottonmouth at a price of $4.00 per share for an aggregate purchase price of $50 (the “PIPE Investment”) in a private placement.

On December 18, 2024, the Company entered into common stock purchase agreement (the "Purchase Agreement") with Cottonmouth Ventures, LLC ("Cottonmouth"), a subsidiary of Diamondback Energy, LLC ("Diamondback"), pursuant to which the Company agreed to issue and sell an aggregate of 12,500,000 shares of its Class A common stock, par value $0.0001 ("Class A common stock") to Cottonmouth at a price of $4.00 per share for an aggregate purchase price of $50 million (the “PIPE Investment”) in a private placement.

The Company consummated the transactions contemplated by the Purchase Agreement on January 29, 2025.

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Restated Charter

On December 18, 2024, the holder of a majority of the issued and outstanding shares of Class A common stock and Class C common stock, par value $0.0001 ("Class C common stock") adopted resolutions by written consent, in lieu of a meeting of stockholders to, among other things, amend and restate, immediately prior to and contingent upon the consummation of the closing of the PIPE Investment, our fourth amended and restated certificate of incorporation (the "Fourth A&R Charter"), and such amended Fourth A&R Charter is referred to as the “Restated Charter”) to (A) increase the amount of authorized shares of Class C common stock from 25,000,000 to 26,000,000 and (B) increase the size of our Board of Directors (the "Board") from seven to eight and to provide Cottonmouth with certain director designation and board observer rights.

On December 18, 2024, the holder of a majority of the issued and outstanding shares of Class A common stock and Class C common stock, par value $0.0001 ("Class C common stock") adopted resolutions by written consent, in lieu of a meeting of stockholders to, among other things, amend and restate, immediately prior to and contingent upon the consummation of the closing of the PIPE Investment, our fourth amended and restated certificate of incorporation (the “Restated Charter”) to (A) increase the amount of authorized shares of Class C common stock from 25,000,000 to 26,000,000 and (B) increase the size of our Board of Directors (the "Board") from seven to eight and to provide Cottonmouth with certain director designation and board observer rights.

The Restated Charter was approved and recommended by the Board prior to the stockholder action by written consent.

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A critical step in our business strategy will be the successful construction and operation of the first commercial production plant using our patented STG+® technology.

Concurrent with the Business Combination, Diamondback, through its wholly-owned subsidiary, Cottonmouth, made a $20 million equity investment in Verde and entered into the Existing Equity Participation Right Agreement pursuant to which Verde must grant Cottonmouth the right to participate and jointly develop facilities in the Permian Basin utilizing Verde’s STG+® technology for the production of gasoline derived from economically disadvantaged natural gas feedstocks (the "Permian Basin Project").

Concurrent with the Business Combination, Diamondback, through its wholly-owned subsidiary, Cottonmouth, made a $20 million equity investment in Verde and entered into the Existing Equity Participation Right Agreement pursuant to which Verde must grant Cottonmouth the right to participate and jointly develop natural gas-to-gasoline plants in the Permian Basin utilizing Verde’s STG+® technology and associated natural gas from Diamondback's operations.

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 production of gasoline from natural gas sourced from the Permian Basin is designed to allow Diamondback to mitigate the flaring of natural gas while also producing a high-margin product from natural gas streams that are subject to being price disadvantaged compared to other natural gas basins.

In February 2024, Verde and Cottonmouth entered into a joint development agreement ("JDA"), which 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.

The expectation for the project is to produce approximately 3,000 barrels per day of fully-refined gasoline utilizing Verde’s patented STG+® process.

We expect that the proposed facility, which is to be located in the Permian Basin, could serve as a template for additional natural gas-to-gasoline projects throughout the Permian Basin and other pipeline-constrained basins in the U.S., as well as addressing flared or stranded natural gas opportunities internationally.

In June 2024, the Company entered into a contract with Chemex Global, LLC ("Chemex") for a front-end engineering and design ("FEED") study related to the Permian Basin Project.

For the three months ended March 31, 2025, we continued to advance the FEED study related to the Permian Basin Project.

During the three months ended March 31, 2025, a new site was identified for the Permian Basin Project with improved access to key utilities.

Under the terms of the JDA, 65% of the approved development costs that we incur (which includes the FEED costs) are reimbursed by Cottonmouth.

Our construction in progress assets as of March 31, 2025 are comprised of capitalized FEED costs of $4,301,267, net of amounts reimbursable by Cottonmouth of $2,783,228.

Upon FEED completion and reaching FID, it is anticipated that engineering, procurement and construction work will then commence.

The production of gasoline from associated natural gas from Diamondback's operations in the Permian Basin is designed to allow Diamondback to mitigate the flaring of natural gas while also producing a high-margin product from natural gas streams that are subject to being economically disadvantaged.

In February 2024, Verde and Cottonmouth entered into a joint development agreement ("JDA"), which provides a pathway forward 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 (the “Permian Basin Project”).

The JDA frames the contracts contemplated to be entered into between the parties and outlines the conditions precedent for the parties to enter into definitive documents and achieve final investment decision (“FID”) to proceed with the Permian Basin Project.

The JDA conditions precedent include finalizing applicable project contracts, obtaining necessary permits, obtaining project financing on terms satisfactory to each party, and receiving FID by each party.

In June 2024, we entered into a contract with Chemex Global, LLC ("Chemex") for a front-end engineering and design ("FEED") study related to the Permian Basin Project.

Completing the FEED study is a key requirement to achieving FID.

In January 2025, we identified a new site for the Permian Basin Project with improved access to key utilities.

To date, we have continued to advance development activities related to the Permian Basin Project, including the FEED study.

Upon satisfaction of the JDA conditions precedent and achieving FID for the Permian Basin Project, it is anticipated that engineering, procurement, and construction work will then commence.

It is expected that commercial operations will be achieved within 18-24 months from commencement of engineering, procurement and construction work.

Under the terms of the JDA, 65% of the approved development costs that we incur (which includes costs associated with the FEED study) are reimbursed by Cottonmouth.

As of June 30, 2025, our construction in progress assets are comprised of capitalized FEED costs related to the Permian Basin Project of $6,414,100, net of amounts reimbursable by Cottonmouth of $4,168,400.

We expect that the Permian Basin Project could serve as a template for additional natural gas-to-gasoline projects throughout the Permian Basin and other pipeline-constrained basins in the U.S., as well as addressing flared or stranded natural gas opportunities internationally.

In addition to the Permian Basin Project, we also continue to identify and evaluate other potential opportunities to deploy our technology while remaining disciplined with our resources.

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Results of Operations

Comparison of the three months ended March 31, 2025 and March 31, 2024

Comparison of the three months ended June 30, 2025 and June 30, 2024

Three Months Ended

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Loss before income taxes (2,574,199) (2,845,586)

Income tax expense 53,000 —

Income tax (benefit) expense (28,200) (13,866)

Net loss $ (2,545,999) $ (2,831,720)

General and Administrative

General and administrative expenses increased approximately $0.2 million, or 8%, for the three months ended March 31, 2025 as compared to the same period in 2024.

The increase was primarily due to additional headcount.

Of our general and administrative expenses for the three months ended March 31, 2025 and 2024, $65,829 and $222,407, respectively, were business development costs.

General and administrative expenses increased $105,546, or 4%, for the three months ended June 30, 2025 as compared to the same period in 2024.

The increase was primarily due to additional headcount resulting in higher compensation expense, largely offset by a reduction in outside services and insurance expense.

Of our general and administrative expenses for the three months ended June 30, 2025 and 2024, $7,290 and $85,047, respectively, were business development costs.

The decrease was primarily due to development costs associated with the Permian Basin Project incurred in the comparative period prior to our entry into the JDA.

Research and Development

Research and development expenses increased approximately $0.1 million, or 114%, for the three months ended March 31, 2025 as compared to the same period in 2024.

The increase was primarily due to additional headcount and higher software costs.

Other income increased approximately $0.2 million, or 53%, for the three months ended March 31, 2025 as compared to the same period in 2024.

The increase was primarily attributable to higher interest and dividend income earned on our cash and cash equivalents, which increased due to proceeds received from the closing of the PIPE Investment in January 2025.

Income tax expense increased approximately $0.1 million for the three months ended March 31, 2025 as compared to the same period in 2024.

The increase was primarily due to higher interest and dividend income earning on our cash and cash equivalents, which increased due to proceeds received from the closing of the PIPE Investment in January 2025.

Research and development expenses decreased $27,778, or 16%, for the three months ended June 30, 2025 as compared to the same period in 2024.

The decrease was primarily due to classification of a portion of the engineers' and consultants' time associated with the Permian Basin Project to construction in progress in 2025, offset by higher software costs.

Other income increased $349,155, or 110%, for the three months ended June 30, 2025 as compared to the same period in 2024.

The increase was primarily due to higher interest and dividend income earned on our cash and cash equivalents, which increased due to the net proceeds received from the closing of the PIPE Investment in January 2025.

Comparison of the six months ended June 30, 2025 and June 30, 2024

Six Months Ended

General and administrative expenses $ 6,091,842 $ 5,778,150

Research and development expenses 328,548 258,855

Total operating loss 6,420,390 6,037,005

Other (income) (1,195,606) (662,336)

Loss before income taxes (5,224,784) (5,374,669)

Income tax expense (benefit) 24,800 (13,866)

Net loss $ (5,249,584) $ (5,360,803)

General and Administrative

General and administrative expenses increased $313,692, or 5%, for the six months ended June 30, 2025 as compared to the same period in 2024.

The increase was primarily due to additional headcount resulting in higher compensation expense, which was largely offset by a reduction in outside services and insurance expense.

Of our general and administrative expenses for the six months ended June 30, 2025 and 2024, $73,118 and $307,454, respectively, were business development costs.

The decrease was primarily due to development costs associated with the Permian Basin Project incurred in the comparative period prior to our entry into the JDA.

Research and Development

Research and development expenses increased $69,693, or 27%, for the six months ended June 30, 2025 as compared to the same period in 2024.

The increase was primarily due to higher software costs, offset by classification of a portion of the engineers' and consultants' time associated with the Permian Basin Project to construction in progress in 2025.

Other income increased $533,270, or 81%, for the six months ended June 30, 2025 as compared to the same period in 2024.

Liquidity and Capital Resources

As of March 31, 2025, we are still in the process of developing our first commercial production plant and have not derived revenue from our principal business activities.

As of June 30, 2025, we are still in the process of developing our first commercial production plant and have not derived revenue from our principal business activities.

We do not expect to generate any meaningful revenue unless and until we are able to commercialize our first production plant.

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Our current liquidity needs primarily involve general and administrative expenses and activities related to the ongoing development of our first commercial production plant.

As of March 31, 2025, we had cash and cash equivalents of $65.3 million.

We expect that our cash and cash equivalents will be sufficient to fund our cash requirements, including ongoing general and administrative expenses and planned development activities through the 2025 fiscal year.

However, notwithstanding the PIPE Investment, we further expect that additional capital will be required in order to complete our first commercial production plant.

As of June 30, 2025, we had cash and cash equivalents of $62.1 million.

However, notwithstanding the PIPE Investment, we further expect that additional capital will be required in order to complete our

first commercial production plant.

The exact timing of these additional cash requirements will depend on the pacing of our development activities, which is uncertain and subject to a variety of factors, many of which are outside of our control.

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The current high interest rate environment adds additional risk and expense to the issuance of debt securities or loan arrangements to fund capital investment.

Summary Statement of Cash Flows for the Three Months Ended March 31, 2025 and March 31, 2024

Summary Statement of Cash Flows for the Six Months Ended June 30, 2025 and June 30, 2024

The following table sets forth the primary sources and uses of cash and cash equivalents for the periods presented below:

Three Months Ended March 31,

Six Months Ended June 30,

Net cash used in operating activities $ (5,883,483) $ (5,016,976)

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Cash Flows Used in Operating Activities

Net cash used in operating activities increased approximately $0.9 million during the three months ended March 31, 2025 as compared to the same period in 2024.

The increase was primarily due to cash paid for D&O insurance and excise taxes, partially offset by an increase in interest and dividend income.

Net cash used in operating activities increased approximately $0.9 million during the six months ended June 30, 2025 as compared to the same period in 2024.

The increase was primarily due to cash paid for D&O insurance and excise tax, partially offset by higher interest and dividend income earned on our cash and cash equivalents, which increased due to the net proceeds received from the closing of the PIPE Investment in January 2025.

Cash Flows Used in Investing Activities

Net cash used in investing activities increased marginally during the three months ended March 31, 2025 as compared to the same period in 2024.

The increase was primarily attributable to development costs incurred in connection with the JDA, partially offset by cash reimbursements for such capital expenditures received from Cottonmouth.

See Note 4 in the accompanying unaudited consolidated financial statements for further information.

Net cash used in investing activities during the six months ended June 30, 2025 was largely consistent as compared to the same period in 2024.

The activities were primarily related to development costs incurred in connection with the JDA, partially offset by cash reimbursements for such capital expenditures received from Cottonmouth.

See Note 4 in the accompanying unaudited condensed consolidated financial statements for further information.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities was $49.9 million for the three months ended March 31, 2025 as compared to $0 for the same period in 2024.

Net cash provided by financing activities was $49.4 million for the six months ended June 30, 2025 as compared to $0 for the same period in 2024.

The increase was due to the net proceeds from the closing of the PIPE Investment in January 2025.

Commitments and Contractual Obligations

The Company had a restricted cash balance of $100,000 as of both March 31, 2025 and December 31, 2024.

The Company had a restricted cash balance of $100,000 as of both June 30, 2025 and December 31, 2024.

The restricted cash balance is maintained in support of a letter of credit.

Off-Balance Sheet Arrangements

As of March 31, 2025, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

As of June 30, 2025, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Policies and Estimates

Our unaudited consolidated financial statements are based on the selection and application of significant accounting policies.

The preparation of unaudited consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of expenses and allocated charges during the reporting period.

Our unaudited condensed consolidated financial statements are based on the selection and application of significant accounting policies.

The preparation of unaudited condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of expenses and allocated charges during the reporting period.

Actual results could differ from those estimates.

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Recent Accounting Pronouncements

See Note 2 in the accompanying unaudited consolidated financial statements for information regarding recent accounting pronouncements.

See Note 2 in the accompanying unaudited condensed consolidated financial statements for information regarding recent accounting pronouncements.

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