Verde Clean Fuels, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS References in this Quarterly Report on Form 10-Q (this “Quarterly Report”) to “we,” “our,” “us,” “Verde,” “Verde Clean Fuels” or the “Company” refer to Verde Clean Fuels, Inc. 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 condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report. The amounts contained herein are presented in thousands, except historical investment, share and per share amounts. 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 This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of present or historical fact, included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s expectations and any future financial performance, as well as the Company’s strategy, future operations, financial position, prospects, plans and objectives of management are forward-looking statements. The words “could,” “should,” “would,” “will,” “aim,” “may,” “focus,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “advance,” “project,” “plan,” “potential,” “goal,” “strategy,” “proposed,” “positions,” the negative of such terms and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Such forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the control of the Company, that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. Important factors, among others, that may affect actual results or outcomes include: • the financial and business performance of the Company; • the ability to maintain the listing of the Class A common stock and the Verde Clean Fuels Warrants on Nasdaq (each as defined below), and the potential liquidity and trading of such securities; • the failure to realize the anticipated benefits of the business combination transaction that the Company consummated in February 2023 (the “Business Combination”), which may be affected by, among other things, competition and market conditions; • the future development status of the Company's Permian Basin Project (as defined below), which was suspended in February 2026; • the Company’s ability to implement and execute its current strategy to pursue capital-lite opportunities, such as the deployment of our STG+® technology through licensing arrangements; • the Company’s ability to develop and operate any potential project if and to the extent the Company determines in the future to pursue that strategy; • the Company’s ability to obtain any required financing to advance any potential project; • the reduction or elimination of government economic incentives to the renewable energy market; • changing market conditions driven by increasing demand for natural gas in the Permian Basin and potentially in other regions, which could result in higher value markets for such natural gas; • delays or lack of success in licensing its technology, as well as any acquisition, financing, construction and development of any project that may be developed; 23 • the length of development cycles for potential projects, including the design and construction processes for a project; • the Company’s or third-party licensee’s dependence on suppliers; • changes in local, state, and federal laws, regulations or policies that may affect our business or our industry (such as the effects of tax law changes, and changes in, or rollback of, environmental, health, and safety regulations and regulations addressing climate change, and trade policy); • decline in public and governmental acceptance and support of renewable energy development and projects; • demand for renewable energy not being sustained; • impacts of climate change, changing weather patterns and conditions, and natural disasters; • the ability to secure necessary governmental and regulatory approvals; • the availability of, and our ability to qualify for, federal or state level low-carbon fuel credits or other carbon credits; • any decline in the value of federal or state level low-carbon fuel credits or other carbon credits and the development of the carbon credit markets; • risks relating to the Company’s status as a development stage company with a history of net losses and no revenue; • risks relating to the uncertainty of success, any commercial viability, or delays of the Company’s research and development efforts, including any study in which the Company participates that is funded by the Department of Energy or any other governmental agency; • significant developments in macroeconomic and political conditions beyond the Company’s control, including disruptions in the supply chain, product supply and price volatility due to the Iran war and current hostilities in general in the Middle East, the recent government change in Venezuela, increased costs due to inflation and the imposition of tariffs or trade disputes; • the Company’s success in retaining or recruiting, or changes required in, its officers, key employees or directors; • the ability of the Company to execute its business model, including market acceptance of gasoline derived from renewable feedstocks; • litigation and the ability to adequately protect intellectual property rights; • competition from companies with greater resources and financial strength in the industries in which the Company operates; and • other economic, competitive, governmental, legislative, regulatory, geopolitical and technological factors that may negatively impact our businesses or operations. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors contained in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. 24 Overview We own an innovative and proprietary gas-to-liquids processing technology capable of converting low-value or stranded feedstocks into higher-value clean transportation fuels. Our synthesis gas (“syngas”)-to-gasoline plus (STG+®) process is designed to convert syngas, derived from a variety of feedstocks, including natural gas and biomass, into fully finished liquid fuels that require no additional refining. The STG+® technology is engineered for industrial-scale deployment and intended to be delivered in standardized modular units. The technology has been validated through a fully integrated demonstration plant that has completed over 10,000 hours of operation. As of March 31, 2026, we are still in the process of deploying our STG+ ® technology and have not derived revenue from our principal business activities. Development We acquired our STG+ ® technology from Primus Green Energy in 2020, which was originally founded in 2007 and invested over $150 million in developing and demonstrating such technology, including the construction and operation of the demonstration plant. The demonstration plant began operations in 2013, completed over 10,000 hours of operation and is currently maintained in an idle state. Recent Developments On February 6, 2026, we announced the suspension of development of the Permian Basin Project (as defined below) primarily as a result of changing market conditions driven by increasing demand for natural gas in the Permian Basin. On February 18, 2026, we announced a revised strategy to deploy our innovative and proprietary liquid fuels processing technology through capital-lite opportunities. The shift in strategy is intended to identify the most effective pathways to commercialize the STG+® technology with a disciplined approach to capital allocation. Related to our revised strategy, we have implemented and intend to continue implementing aggressive cost savings initiatives targeting a 50% reduction in costs in 2026 as compared to 2025. On March 20, 2026, we announced the appointment of George Burdette as CEO and engagement of Roth Capital Partners as financial advisor to assist the Company in evaluating strategic alternatives. These announcements are part of the Company’s continued advancement of its previously announced restructuring and cost reduction initiatives. Mr. Burdette succeeds Ernie Miller who has stepped down from his role as CEO to pursue another opportunity. Mr. Miller remains with the Company as a senior advisor. Mr. Burdette, who has served as the Company’s CFO since October 2024, continues to serve in that role. 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 $50,000 (the “PIPE Investment”) in a private placement. The Company consummated the transactions contemplated by the Purchase Agreement on January 29, 2025. In connection with the closing of the PIPE Investment, on January 29, 2025, (i) Cottonmouth and the Company amended an equity participation right agreement, dated February 13, 2023 (the “Existing Equity Participation Right Agreement”), to remove certain preemptive rights with respect to the Company’s equity securities granted to Cottonmouth under the Existing Equity Participation Right Agreement and (ii) the Company entered into a Second Amended and Restated Registration Rights Agreement with Cottonmouth and the other parties thereto, which amended and restated that certain Amended and Restated Registration Rights Agreement, dated February 15, 2023, by and among the Company and certain stockholders named therein (the “Existing Registration Rights Agreement”), to add Cottonmouth as a party to the Existing Registration Rights Agreement. Restated Charter 25 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” or "Board of Directors") 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. Immediately prior to closing of the PIPE Investment, on January 29, 2025, the Company filed the Restated Charter with the Delaware Secretary of State. Key Factors and Trends Influencing our Prospects and Future Results We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including competition from other carbon-based and other non-carbon-based fuel producers, changes to existing federal and state level low-carbon fuel credit systems and other factors discussed under the section titled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025. We believe the factors described below are key to our success. Commencing and Expanding Commercial Operations A critical step in our business strategy will be the successful deployment of our STG+® technology. Concurrent with the Business Combination, Diamondback, through its wholly-owned subsidiary, Cottonmouth, made a $20,000 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. In February 2024, Verde and Cottonmouth entered into a joint development agreement (“JDA”) related to the proposed development, construction and operation of a natural gas-to-gasoline plant in the Permian Basin utilizing Verde’s STG+® technology and associated natural gas from Diamondback’s operations (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”), a Shaw Group company (“Shaw Group”), for a front-end engineering and design (“FEED”) study related to the Permian Basin Project. In connection with entering into the JDA and the commencement of the FEED study, we began to incur development costs with respect to the project. Under the terms of the JDA, 65% of the approved development costs that we incur (which include the FEED costs) are reimbursed by Cottonmouth. The FEED study was completed in December 2025; however, the Permian Basin Project was suspended in February 2026. We believe the FEED study will continue to be useful as we explore other opportunities to deploy the STG+® technology. Also in February 2026, we announced a revised strategy to deploy our innovative and proprietary liquid fuels processing technology through capital-lite opportunities. The shift in strategy is intended to identify the most effective pathways to commercialize the STG+® technology with a disciplined approach to capital allocation. Such opportunities include licensing technology and providing engineering, technical, and operational services. Key Components of Results of Operations We are an early-stage company with no revenues, and our historical results may not be indicative of our future results. Accordingly, the drivers of any future financial results, as well as any components thereof, may not be comparable to our historical or future results of operations. 26 Revenue We have not generated any revenue to date. We expect that future revenue generation opportunities would result from capital-lite opportunities to deploy our STG+® technology. Such opportunities include licensing technology and providing engineering, technical, and operational services. Expenses General and Administrative Expenses General and administrative expenses primarily consist of compensation costs, including salaries, benefits and share-based compensation expense, for personnel in executive, finance, accounting and other administrative functions. General and administrative expenses also include business development costs, outside service costs, such as legal fees, professional fees paid for accounting, auditing and consulting services, and insurance costs. Research and Development Expenses Research and development expenses consist primarily of activities related to the Company’s technology that are not capitalized, including labor (engineers and consultants), engineering software costs, and demonstration plant operations and maintenance costs. Other Income Other income primarily consists of interest and dividend income earned on our cash and cash equivalents. Income Tax Effects We hold 49.49% 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. We are subject to U.S. federal income taxes, in addition to state and local income taxes, with respect to our distributive share of the net taxable income (loss) and any related tax credits of OpCo. 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 us. Results of Operations Comparison of the three months ended March 31, 2026 and 2025 Three Months Ended March 31, (in thousands) 2026 2025 General and administrative expenses $ 2,673 $ 2,998 Research and development expenses 181 183 Total operating loss 2,854 3,181 Other (income) (507) (530) Loss before income taxes (2,347) (2,651) Income tax expense 46 53 Net loss $ (2,393) $ (2,704) 27 General and Administrative For the three months ended March 31, 2026, our general and administrative expenses decreased by $325, or 11%, as compared to the same period in 2025. The decrease was primarily due to lower outside services and insurance expenses, which was offset by additional share-based compensation expense. Of our general and administrative expenses for the three months ended March 31, 2026 and 2025, $17 and $66, respectively, were business development costs. The decrease was primarily due to reduced development activities driven by our revised strategy to deploy our technology through capital-lite opportunities. Research and Development For the three months ended March 31, 2026, our research and development expenses decreased by $2, or 1%, as compared to the same period in 2025. The decrease was primarily due to lower engineering software costs, which were largely offset by higher employee compensation as a portion of the engineers’ and consultants’ time associated with the Permian Basin Project in 2025 was capitalized as construction in progress. Other Income For the three months ended March 31, 2026, our other income decreased by $23, or 4%, as compared to the same period in 2025. The decrease was primarily due to lower interest and dividend income earned on our cash and cash equivalents resulting from lower cash and cash equivalents. Liquidity and Capital Resources We have not generated any revenue to date. We expect that future revenue generation opportunities would result from capital-lite opportunities to deploy our STG+® technology. Such opportunities include licensing technology and providing engineering, technical, and operational services. As of March 31, 2026, we are still in the process of deploying our STG+® technology and have not derived revenue from our principal business activities. We do not expect to generate revenue unless and until we are able to deploy our STG+® technology. Since inception, we have incurred operating losses and generated negative operating cash flows that were primarily attributable to our general and administrative expenses and development activities. We measure liquidity in terms of our ability to fund the cash requirements of our near-term business operations, including our contractual obligations and other commitments. Our current liquidity needs primarily involve general and administrative expenses. As of March 31, 2026, we had cash and cash equivalents of $54,281. We expect that our cash and cash equivalents will be sufficient to fund our cash requirements, including ongoing general and administrative expenses, for the next 12 months from the reporting date. Comparison of Cash Flows for the Three Months Ended March 31, 2026 and 2025 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, (in thousands) 2026 2025 Net cash used in operating activities $ (2,617) $ (3,702) Net cash used in investing activities (317) (12) Net cash provided by financing activities - 49,950 Net change in cash, cash equivalents and restricted cash $ (2,934) $ 46,236 28 Cash Flows Used in Operating Activities For the three months ended March 31, 2026, our net cash used in operating activities decreased by $1,085 as compared to the same period in 2025. The decrease was primarily due to lower working capital requirements, lower general administrative and research and development costs, and higher non-cash shared-based compensation expense. Cash Flows Used in Investing Activities For the three months ended March 31, 2026, our net cash used in investing activities increased by $305 as compared to the same period in 2025. The increase was primarily attributable to the timing of payments made related to the Permian Basin Project, net of amounts reimbursable by Cottonmouth in accordance with the JDA. See Notes 3, 4 and 5 in the accompanying unaudited condensed consolidated financial statements for further information. Cash Flows Provided by Financing Activities For the three months ended March 31, 2026, our net cash provided by financing activities decreased by $49,950 as compared to the same period in 2025. The decrease was due to the net proceeds received from the closing of the PIPE Investment in January 2025. Commitments and Contractual Obligations As of March 31, 2026 and December 31, 2025, we had a restricted cash balance of $100 maintained in support of a letter of credit. Off-Balance Sheet Arrangements As of March 31, 2026, 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 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. However, we are not currently aware of any reasonably likely events or circumstances that would result in materially different results. We describe our significant accounting policies in Note 2 – Summary of Significant Accounting Policies , of the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025. We discuss our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2025. Recent Accounting Pronouncements See Note 2 in the accompanying unaudited condensed consolidated financial statements for information regarding recent accounting pronouncements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.