Verde Clean Fuels, Inc. 10-Q

Item 1. Financial Statements VERDE CLEAN FUELS, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, 2023 December 31, 2022 Current assets: Cash and cash equivalents $ 31,153,940 $ 463,475 Restricted cash 100,000 - Prepaid expenses 812,929 113,676 Deferred transaction costs - 3,258,880 Deferred financing costs 28,847 6,277 Total current assets 32,095,716 3,842,308 Non-current assets: Security deposits 268,669 258,000 Property, plant and equipment, net 8,374 7,414 Operating lease right-of-use assets, net 273,712 323,170 Intellectual patented technology 1,925,151 1,925,151 Total non-current assets 2,475,906 2,513,735 Total assets $ 34,571,622 $ 6,356,043 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 475,119 $ 2,857,223 Accrued liabilities 2,250,687 762,119 Operating lease liabilities – current portion 255,078 237,970 Notes payable – insurance premium financing - 11,166 Promissory note – related party 409,612 - Income taxes payable 431,632 - Total current liabilities 3,822,128 3,868,478 Non-current liabilities: Contingent consideration - 1,299,000 Operating lease liabilities - 85,200 Total non-current liabilities - 1,384,200 Total liabilities 3,822,128 5,252,678 Commitments and Contingencies (see Note 5) Stockholders’ equity Intermediate Member’s Equity $ - $ 12,775,902 Class A common stock, par value $ 0.0001 per share, 9,387,836 shares issued and outstanding as of September 30, 2023 939 - Class C common stock, par value $ 0.0001 per share, 22,500,000 shares issued and outstanding as of September 30, 2023 2,250 - Additional paid in capital 34,737,203 - Accumulated deficit ( 23,275,942 ) ( 11,672,537 ) Noncontrolling interest 19,285,044 - Total stockholders’ equity 30,749,494 1,103,365 Total liabilities and stockholders’ equity $ 34,571,622 $ 6,356,043 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 September 30, Nine months ended September 30, 2023 2022 2023 2022 General and administrative expenses $ 2,511,176 $ 867,704 $ 9,234,697 $ 3,338,467 Contingent Consideration - ( 5,288,000 ) ( 1,299,000 ) ( 7,181,000 ) Research and development expenses 78,314 72,548 246,788 242,353 Total Operating (income) loss 2,589,490 ( 4,347,748 ) 8,182,485 ( 3,600,180 ) Other (income) ( 144,004 ) - ( 238,891 ) - Interest Expense 67,430 - 236,699 - Loss (income) before income taxes 2,512,916 ( 4,347,748 ) 8,180,293 ( 3,600,180 ) Provision for income taxes 119,186 - 119,186 - Net income (net loss) $ ( 2,632,102 ) $ 4,347,748 $ ( 8,299,479 ) $ 3,600,180 Net income (loss) attributable to noncontrolling interest $ ( 1,858,910 ) - $ ( 6,202,678 ) - Net income (loss) attributable to Verde Clean Fuels, Inc. $ ( 773,192 ) $ 4,347,748 $ ( 2,096,801 ) $ 3,600,180 Earnings per share Weighted average Class A common stock outstanding, basic and diluted 6,153,461 N/A 6,136,171 N/A Loss per Share of Class A common stock $ ( 0.13 ) N/A $ ( 0.34 ) N/A 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 September 30, 2023 Member’s Preferred stock Class A Common Class C Common Additional Paid In Accumulated Non controlling Total Stockholders’ Equity Shares Values Shares Values Shares Values Capital Deficit Interest Equity Balance – June 30, 2023 $ - $ - 9,387,836 $ 939 22,500,000 $ 2,250 $ 34,460,323 $ ( 22,502,750 ) $ 21,143,954 $ 33,104,716 Stock-based compensation - - - - - - - 276,880 - - 276,880 Net income (loss) - - - - - - - - ( 773,192 ) ( 1,858,910 ) ( 2,632,102 ) Balance – September 30, 2023 $ - - $ - 9,387,836 $ 939 22,500,000 $ 2,250 $ 34,737,203 $ ( 23,275,942 ) $ 19,285,044 $ 30,749,494 Statement of Stockholders’ Equity for the Nine months ended September 30, 2023 Member’s Preferred stock Class A Common Class C Common Additional Paid In Accumulated Non controlling Total Stockholders’ Equity Shares Values Shares Values Shares Values Capital Deficit Interest Equity Balance - December 31, 2022 $ 9,500,000 - $ - - $ - - $ $ 3,275,901 $ ( 11,672,536 ) $ - $ 1,103,365 Retroactive application of recapitalization - - - - 936 - 2,573 ( 3,509 ) - - - Adjusted beginning balance 9,500,000 - - - 936 - 2,573 3,272,392 ( 11,672,536 ) - 1,103,365 Reversal of Intermediate original equity ( 9,500,000 ) - - - ( 936 ) - ( 2,573 ) ( 3,272,392 ) 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 - - - - - - - 2,623,936 - - 2,623,936 Warrant Exercise - - - 29,216 3 - - 335,981 - - 335,984 Net income (loss) - - - - - - - - ( 2,096,800 ) ( 6,202,679 ) ( 8,299,479 ) Balance – September 30, 2023 $ - - $ - 9,387,836 $ 939 22,500,000 $ 2,250 $ 34,737,203 $ ( 23,275,942 ) $ 19,285,044 $ 30,749,494 3 Statement of Member’s Equity for the Three Months Ended September 30, 2022 Member’s Equity Accumulated Deficit Total Member’s Equity Balance – June 30, 2022 $ 11,083,880 $ ( 15,139,398 ) $ ( 4,055,518 ) Capital contribution 1,250,000 - 1,250,000 Unit-based compensation expense 103,103 - 103,103 Net income - 4,347,748 4,347,748 Balance September 30, 2022 $ 12,436,983 $ ( 10,791,650 ) $ 1,645,333 Statement of Member’s Equity for the Nine Months Ended September 30, 2022 Member’s Equity Accumulated Deficit Total Member’s Equity Balance – December 31, 2021 $ 7,605,369 $ ( 14,391,830 ) $ ( 6,786,461 ) Capital contribution 3,750,000 - 3,750,000 Unit-based compensation expense 1,081,614 - 1,081,614 Net income - 3,600,180 3,600,180 Balance September 30, 2022 $ 12,436,983 $ ( 10,791,650 ) $ 1,645,333 The accompanying notes to the unaudited consolidated financial statements are an integral part of these statements. 4 VERDE CLEAN FUELS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net (loss) income $ ( 8,299,479 ) $ 3,600,180 Adjustments to reconcile net loss to net cash used in operating activities Contingent consideration ( 1,299,000 ) ( 7,181,000 ) Depreciation 1,763 8,076 Unit-based compensation expense 2,623,936 1,081,614 Finance lease amortization 127,617 - Amortization of right-of-use assets 216,743 177,671 Changes in operating assets and liabilities Prepaid expenses ( 699,253 ) 37,239 Accounts payable 284,132 100,162 Accrued liabilities 351,453 42,019 Security deposits ( 10,669 ) - Income taxes payable 119,186 - Other changes in operating assets and liabilities 333 - Operating lease liabilities ( 210,530 ) ( 177,671 ) Net cash used in operating activities ( 6,793,768 ) ( 2,311,710 ) Cash flows from investing activities Purchases of property, plant and equipment ( 2,723 ) ( 4,411 ) Net cash used in investing activities ( 2,723 ) ( 4,411 ) 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 ( 11,166 ) ( 71,505 ) Repayments of the principal portion of finance lease liabilities ( 44,469 ) - Deferred transaction costs - ( 6,273 ) Deferred financing costs ( 22,570 ) ( 2,872 ) Warrant exercises 335,984 - Capital contributions - 3,750,000 Net cash provided by financing activities 37,495,502 3,669,350 Net change in cash and restricted cash 30,699,011 1,353,229 Cash, beginning of year 463,475 87,638 CENAQ operating cash balance acquired 91,454 - Cash and restricted cash, end of year $ 31,253,940 $ 1,440,867 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 $ 409,612 - Non-cash deferred transaction costs - $ 2,590,747 Non-cash deferred financing costs - $ 3,178 The accompanying notes to the unaudited consolidated financial statements are an integral part of these statements. 5 VERDE CLEAN FUELS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – ORGANIZATION Verde Clean Fuels, Inc. (the “Company” or “Verde Clean Fuels”) is a renewable energy company specializing in the conversion of synthesis gas, or syngas, derived from diverse feedstocks, such as biomass, municipal solid waste (“MSW”) and mixed plastics, as well as natural gas (including synthetic natural gas) and other feedstocks, into liquid hydrocarbons that can be used as 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 bio-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 MSW 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”), Verde Clean Fuels finalized a business combination (the “Business Combination”) pursuant to that certain business combination agreement, dated as of August 12, 2022 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 in an “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. As of the year ended December 31, 2022, 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. 6 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 of Intermediate included in the Current Report on Form 8-K/A filed on April 7, 2023 and are presented in conformity with accounting principles generally accepted in the United States of America (“US 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. The Company’s management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying consolidated financial statements. 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. Use of Estimates The preparation of financial statements in conformity with US 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. 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. 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. The Company has a restricted cash balance of $ 100,000 as of September 30, 2023 for a letter of credit, which is included in the determination of cash and restricted cash in the Consolidated Statements of Cash Flows. There were no other cash equivalents as of September 30, 2023 or December 31, 2022. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal Depository Insurance Corporation limit of $ 250,000 . As of September 30, 2023, the Company has 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. 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. The fair value of certain of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, approximates the carrying amounts represented in the balance sheet. The fair values of cash, prepaid expenses, and accrued expenses are estimated to approximate the carrying values as of September 30, 2023, and December 31, 2022, due to the short maturities of such instruments. Net Loss Per 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 and nine-months ended September 30, 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. 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. 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. 8 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 September 30, 2023 and December 31, 2022. 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 US 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 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 is 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: September 30, 2023 December 31, 2022 Accrued bonuses $ - $ 86,120 Accrued legal fees 329,130 558,860 Accrued professional fees 214,686 107,022 Other accrued expenses 1,706,871 10,117 $ 2,250,687 $ 762,119 Other accrued expenses as of the period ended September 30, 2023 consist primarily of an excise tax payment of $ 1.6 million due in April 2024, due to redemptions of Common A shares in connection with the Business Combination that closed on February, 15, 2023. 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 its 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 September 30, 2023, and December 31, 2022, the gross and carrying amount of this intangible asset was $ 1,925,151 . A qualitative assessment of indefinite-lived intangible assets is performed in order to determine whether further impairment testing is necessary. In performing this analysis, macroeconomic conditions, 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 under the quantitative analysis, intellectual property and patents are tested. During the three and nine months ended September 30, 2023 and 2022, the Company did not record any impairment charges. Impairment of Long-Term 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 and nine months ended September 30, 2023 and 2022, the Company did not record any impairment charges. Emerging Growth Company Accounting Election 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 2023. 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. 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. 11 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 nine months ended September 30, 2023. Performance conditions for the performance-based Founder Incentive Units had not and were unlikely to be met as of September 30, 2023. 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 granted were determined by the value of the stock price on the date of the award, subject to a discount for lack of marketability (see Note 7). Equity-based compensation is measured using a fair value-based method for all equity-based awards. 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. 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 which we use 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. For the three and nine months ended September 30, 2022, the Company remeasured the liability of this arrangement and reassessed the probability of the completion of the Business Combination. The Company reversed $ 5,288,000 and $ 7,181,000 of the accrued expense through earnings in the three and nine months ended September 30, 2022, respectively. The Business Combination closed on February 15, 2023, and therefore the contingent consideration arrangement was terminated and no payments were made. Thus, the remaining $ 1,299,000 of accrued contingent consideration was reversed through earnings for the nine months ended September 30, 2023. NOTE 3 – BUSINESS COMBINATION On August 12, 2022, the Company entered into a business combination agreement (the “Business Combination Agreement”) by and among CENAQ Energy Corp., Verde Clean Fuels OpCo, LLC, a Delaware limited liability company and a wholly owned subsidiary of CENAQ, Bluescape Clean Fuels Holdings, LLC, a Delaware limited liability company, Bluescape Clean Fuels Intermediate Holdings, LLC, a Delaware limited liability company, and CENAQ Sponsor LLC. The Company consummated the Business Combination on February 15, 2023. 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 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. 12 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 US 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; The following summarizes the Verde Clean Fuels Common Stock outstanding as of February 15, 2023. The percentage of beneficial ownership is based on 31,858,620 shares of Company’s Class A common stock and Class C common stock issued and outstanding as of February 15, 2023. 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 which 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 cancels and supersedes all prior promissory notes. The New Promissory note is non-interest bearing and the entire principal balance of the New Promissory Note is payable on or before February 15, 2024. The New Promissory Note is payable at Verde Clean Fuel’s election in cash or in Class A common stock at a conversion price of $ 10.00 per share. 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. 13 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 leases. 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 was extended until 2024. 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. As such, the Company did not record a ROU asset nor a lease liability as of December 31, 2022, specific to the land lease. At inception, 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. The lease expires in 2047 and contains a single four-year renewal option. The exercise of the lease renewal is at the Company’s discretion; however, management is not reasonably expected to exercise the option; thus, the option is not included within the lease term. Renewal periods are included in the expected lease term only if they are reasonably certain of being exercised by the Company. 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 is effective four months after the termination notice; thus, the Company has 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 during the three months ended September 30, 2023 up to the modification date. The Company expects to incur operating lease costs subsequent to the modification until lease termination. As the lease was classified as an operating lease as of August 31, 2023, the lease is presented as an operating lease within these unaudited consolidated financial statements as of September 30, 2023. Lease costs for the Company’s operating and finance leases are presented below. Lease Cost Statements of Operations Classification Three Months Ended September 30, 2023 Amortization of finance lease right-of-use asset General and administrative expense $ 36,462 Interest on finance lease liability General and administrative expense 67,430 Total finance lease cost General and administrative expense 103,892 Operating lease cost General and administrative expense 106,689 Variable lease cost General and administrative expense 38,861 Total lease cost $ 249,442 14 Lease Cost Statements of Operations Classification Nine Months Ended September 30, 2023 Amortization of finance lease right-of-use asset General and administrative expense $ 127,617 Interest on finance lease liability General and administrative expense 236,698 Total finance lease cost General and administrative expense 364,315 Operating lease cost General and administrative expense 229,913 Variable lease cost General and administrative expense 112,869 Total lease cost $ 707,097 Lease Cost Statements of Operations Classification Three Months Ended September 30, 2022 Operating lease cost General and administrative expense $ 60,179 Variable lease cost General and administrative expense 39,205 Total lease cost $ 99,384 Lease Cost Statements of Operations Classification Nine Months Ended September 30, 2022 Operating lease cost General and administrative expense $ 177,671 Variable lease cost General and administrative expense 116,013 Total lease cost $ 293,684 Maturities of the Company’s operating and finance leases as of September 30, 2023 are presented below. As of September 30, 2023 Maturity of lease liabilities Operating Finance 2023 $ 172,478 $ - 2024 85,970 - 2025 - - 2026 - - Thereafter - - Total future minimum lease payments 258,448 - Less: interest ( 3,369 ) - Present value of lease liabilities $ 255,078 $ - 15 Supplemental information related to the Company’s operating and finance lease arrangements was as follows: As of As of Operating lease - supplemental information September 30, 2023 September 30, 2022 Right-of-use assets obtained in exchange for operating lease $ 273,712 $ 137,907 Remaining lease term - operating lease 5.2 months 7 months Discount rate - operating lease 7.50 % 7.50 % Contingencies The Company is not party to any litigation. NOTE 6 – PROPERTY, PLANT AND EQUIPMENT Major classes of property, plant and equipment are as follows: September 30, 2023 December 31, 2022 Computers, office equipment and hardware $ 14,184 $ 11,461 Furniture and fixtures 1,914 1,914 Machinery and equipment 36,049 36,048 Property, plant and equipment 52,147 49,423 Less; accumulated depreciation 43,773 42,009 Property, plant and equipment, net $ 8,374 $ 7,414 Depreciation expense was $ 603 and $ 1,764 for the three and nine months ended September 30, 2023, respectively, and was $ 4,679 and $ 10,033 for the three and nine months ended September 30, 2022, respectively. NOTE 7 – STOCKHOLDER’S EQUITY Earnout Consideration Earnout shares potentially issuable as part of the Business Combination are recorded within stockholder’s equity as the instruments are deemed to be indexed to the Company’s common stock and meet the equity classification criteria under ASC 815-40-25. Earnout shares contain market conditions for vesting and were awarded to eligible shareholders, as described further below, and not to current employees. 16 As consideration for the contribution of the equity interests in Intermediate, Holdings received earnout consideration (the “Holdings earnout”) of 3,500,000 shares of Class C common stock and a corresponding number of Class C OpCo Units, subject to vesting with the achievement of separate market conditions. One half of the Holdings earnout shares will meet the market condition when the volume-weighted average share price (“VWAP”) of the Class A Common stock is greater than or equal to $ 15.00 per share for any 20 trading days within any period of 30 consecutive trading days within five years of the Closing Date. The second half will vest when the VWAP of the Class A Common stock is greater than or equal to $ 18.00 per share over the same measurement period. Additionally, the Sponsor received earnout consideration (the “Sponsor earnout”) of 3,234,375 shares of Class A common stock subject to forfeiture, which will no longer be subject to forfeiture with the achievement of separate market conditions (the “Sponsor Shares”). One half of the Sponsor earnout will no longer be subject to forfeiture if the VWAP of Class A common stock is greater than or equal to $ 15.00 per share for any 20 trading days within any period of 30 consecutive trading days within five years of the Closing Date. The second half will no longer be subject to forfeiture when the VWAP of the Class A common stock is greater than or equal to $ 18.00 per share over the same measurement period. Notwithstanding the forgoing, the Holdings earnout and Sponsor earnout shares will vest in the event of a sale of the Company at a price that is equal to or greater than the redemption price payable to the buyer of the Company. The earn out consideration was issued in connection with the Business Combination on February 15, 2023. Holdings earn out shares are neither issued nor outstanding as of September 30, 2023 as the performance requirements for vesting were not achieved. All Sponsor Shares granted in connection with the Business Combination are issued and outstanding as of September 30, 2023. Sponsor Shares subject to forfeiture pursuant to the above terms that do not vest in accordance with such terms shall be forfeited. The grant-date fair value of the earnout shares attributable to Holdings and the Sponsor, using a Monte Carlo simulation model, was $ 10,594,000 , and $ 5,791,677 , respectively. The following table provides a summary of key inputs utilized in the valuation of the earnout shares as of February 15, 2023: Inputs February 15, 2023 Expected volatility 50.00 % Expected dividends 0 % Remaining expected term (in years) 4.88 years Risk-free rate 4.7 % Discount Rate (WACC) 14.7 % Payment Probability 12.6 % to 18.3 % based on triggering event The earnout arrangements are akin to a distribution to our shareholders, similar to the declaration of a pro rata dividend, and the fair value of the shares are a reduction to retained earnings. Based on the Class A common stock trading price the market conditions were not met and no earnout shares vested as of September 30, 2023. Share-based Compensation Compensation expense related to share-based compensation arrangements is included within general and administrative expenses. The total compensation expense incurred related to the Company’s equity-based compensation plans was $ 276,880 and $ 2,623,936 for the three and nine months ended September 30, 2023. As a taxable event has not occurred, the income tax benefits for these awards were zero for the three and nine months ended September 30, 2023. Share-based compensation costs incurred in the three and nine months ended September 30, 2022 were $ 103,103 and $ 1,081,614 , respectively. 17 Incentive Units The Holdings equity compensation instruments consisted of 1,000 authorized and issuable Series A Incentive Units and 1,000 authorized and issuable Founder Incentive Units. Both Series A Incentive Unit holders and Founders Incentive Unit holders participated in earnings and distributions after a specified return to the Series A Preferred Unit holders. The Series A Incentive Units were deemed to be service-based awards under ASC 718 due to vesting conditions. Vesting of the service-based units was to occur in equal installments of 25 % on each of the first through fourth anniversaries of the August 7, 2020 grant date, subject to the participant’s continuous service through such dates. The Founder Incentive Units were deemed to be performance-based based units as no vesting conditions existed. The Company classified these units as equity awards and measured their fair value at the grant date. The fair value of each award was estimated on the grant date using a Black-Scholes option valuation model that used the assumptions noted below and other valuation techniques. Expected volatility was based on historical volatility for guideline public companies that operate in the Company’s industry. The expected term of awards granted represents management’s estimate for the number of years until a liquidity event as of the grant date. The risk-free rate for the period of the expected term was based on the U.S. Treasury yield curve in effect at the time of grant. In addition, management considered the distribution priority schedule or “waterfall calculation” in its estimation process. There were 800 Series A Incentive Units granted by Holdings in August of 2020 and 400 were unvested as of December 31, 2022. As the award recipients resided on subsidiaries of Intermediate and provided service to the Company, the Company recognized $ 103,103 and $ 1,081,614 of compensation expense related to the awards during the three and nine months ended September 30, 2022, respectively. There were 1,000 Founder Incentive Units issued in August of 2020 by Holdings and 1,000 were unvested as of December 31, 2022. No compensation expense was recorded related to these awards during the three and nine months ended September 30, 2022 as performance conditions had not, and were unlikely to be met. On August 5, 2022, certain amendments to the existing Series A Incentive Units and Founder Incentive Units were made whereby all outstanding unvested Series A Incentive Units and Founders Incentive Units would become fully vested upon completion of the Business Combination. Additionally, as part of the amendment to these agreements, 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 Incentive Unit holders (instead of 20 %). The modifications to the Series A Incentive Units and Founders Units did not result in any incremental unit-based compensation expense in connection with the August 2022 modification. In connection with the closing of the Business Combination, and as a result of the August 5, 2022 amendments, all of the outstanding and unvested the Series A Incentive Units and Founder Incentive Units became fully vested. As such, the Company accelerated the remaining service-based share-based payment expense related to these awards of $ 2,146,792 . The share-based payment expense was included in general and administrative expenses for the nine months ended September 30, 2023. Performance conditions for the performance-based Founder Incentive Units had not, and were unlikely to be met as of September 30, 2023. As such, no share-based compensation cost was recorded for these units. 2023 Equity Awards In addition to stock options and RSUs, the 2023 Plan authorizes for the future potential grant of stock appreciation rights, restricted stock, performance awards, stock awards, dividend equivalents, other stock-based awards, cash awards and substitute awards to certain employees (including executive officers), consultants and non-employee directors, and is intended to align the interests of the Company’s service providers with those of the stockholders. 18 Stock Options Stock options represent the contingent right of award holders to purchase shares of the Company’s common stock at a stated price for a limited time. The stock options granted in 2023 have an exercise price of $ 11.00 per share and will expire 7 years from the date of grant. Stock options granted vest at a rate of 25 % on each of the first, second, third and fourth anniversaries of the date of grant subject to continued service through the vesting dates. The Company estimates the fair value of stock options on the date of grant using the Black-Scholes model and the following underlying assumptions. Expected volatility was based on historical volatility for public company peers that operate in the Company’s industry. The expected term of awards granted represents management’s estimate for the number of years until a liquidity event as of the grant date. The risk-free rate for the period of the expected term was based on the U.S. Treasury yield curve in effect at the time of grant. The fair value of stock options granted in 2023 were determined using the following assumptions as of the grant date: Risk-free interest rate 3.4 % Expected term 7 years Volatility 48.2 % Dividend yield Zero Discount for lack of marketability 5 % The table below presents activity related to stock options awarded for the nine months ended September 30, 2023: Number of options Weighted average exercise price per share Weighted average remaining contractual life (years) Outstanding as of December 31, 2022 - - - Granted 1,236,016 11.00 7.00 Exercised - - - Forfeited / expired - - - Outstanding as of September 30, 2023 1,236,016 11.00 6.58 Vested as of September 30, 2023 - - - Unvested as of September 30, 2023 1,236,016 - 6.58 Exercisable as of September 30, 2023 - - - Stock-based compensation expense related to stock options was $ 122,829 and $ 211,670 for the three and nine months ended September 30, 2023, respectively. As of September 30, 2023, unrecognized compensation expense related to unvested stock options was $ 1,753,596 . The remaining compensation cost is expected to be recognized over a weighted-average period of 3.57 years. There were no vested stock options outstanding as of September 30, 2023. Restricted Stock Units RSUs represent an unsecured right to receive one share of the Company’s common stock equal to the value of the common stock on the settlement date. RSUs have a zero-exercise price and vest over time in whole after the first anniversary of the date of grant subject to continuous service through the vesting date. 19 The fair value of RSUs granted in 2023 were determined by the value of the stock price on the date of the award, subject to a discount for lack of marketability of 13 % for a per unit value of $ 4.35 . The discount due to lack of marketability was applied because of the limited trading activity of the Company’s public equity. RSU activity for the nine months ended September 30, 2023 is as follows: Time-based restricted stock units Unvested, December 31, 2022 - Granted in the nine months ended September 30, 2023 141,656 Vested - Forfeited - Unvested September 30, 2023 141,656 For RSUs, the compensation expense was $ 154,051 and $ 265,474 for the three and nine months ended September 30, 2023, respectively. As of September 30, 2023, unrecognized compensation expense related to unvested RSUs was $ 350,730 . The remaining compensation cost is expected to be recognized over a weighted-average period of 0.57 years. To date, the Company has not granted RSUs which vest based on the achievement of certain market or performance metrics. Recast of Intermediate 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. 20 NOTE 8 – WARRANTS There are 15,383,263 warrants currently outstanding. 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. Warrants were exercised on various dates during the nine months ended September 30, 2023 whereby the total number of warrants exercised was 29,216 resulting in 29,216 Class A common shares issued. The Company received cash of $ 335,984 related to the warrant exercise as of September 30, 2023. 21 NOTE 9 – INCOME TAX Intermediate was historically and remains a disregarded subsidiary of a partnership for U.S. Federal income tax purposes with each partner being separately taxed on its share of taxable income or loss. The Company is subject to U.S. Federal income taxes, in addition to state and local income taxes, with respect to its distributive share of any net taxable income or loss and any related tax credits of OpCo. The Company’s effective tax rate was ( 2.08 %) for the three and nine months ended September 30, 2023. The effective income tax rate differed significantly from the statutory rates, primarily due to the losses allocated to non-controlling interests, the recognition of a valuation allowance as a result of the Company’s new tax structure, and a return to provision adjustment. 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 recorded a full valuation allowance against its deferred tax assets as of September 30, 2023, 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. For the year ended December 31, 2022, CENAQ’s former Trust assets were invested in income generating U.S. Treasury bills. As a result of the investment income, CENAQ generated a Federal income tax liability of $ 431,632 for the December 31, 2022 taxable year. CENAQ’s Federal income tax payable survived the Business Combination and still remains on the Company’s balance sheet as of September 30, 2023. 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. 22 NOTE 10 – FAIR VALUE OF FINANCIAL INSTRUMENTS As of September 30, 2023, the Company did not have any assets or liabilities measured at fair value on a recurring basis as earn out shares and warrants are equity classified and therefore are not measured at fair value. The Company measured the liability for contingent consideration as of December 31, 2022 using Level 3 inputs and valued the contingent consideration at $ 1,299,000 . There was no contingent consideration liability as of September 30, 2023 as this liability was reversed and recognized in earnings during the nine month period ended September 30, 2023 as a result of the close of the Business Combination. NOTE 11 – LOSS PER SHARE Prior to the reverse recapitalization in connection with the Business Combination, all net loss was attributable to the noncontrolling interest. For the periods prior to February 15, 2023, earnings per share was not calculated because net income prior to the Business Combination was attributable entirely to Intermediate. Further, prior to the consummation of the Business Combination, the Intermediate ownership structure included equity interests held solely by Holdings. The Company analyzed the calculation of earnings per share for comparative periods presented and determined that it resulted in values that would not be meaningful to the users of these condensed consolidated financial statements. Therefore, the earnings per share information has not been presented for the three and nine months ended September 30, 2022. 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 Class A shares of 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 Class A shares of 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 for the three and nine months ended September 30, 2023. Three months ended September 30, 2023 Net income (loss) attributable to Verde Clean Fuels, Inc. $ ( 773,192 ) Basic weighted-average shares outstanding 6,153,461 Dilutive effect of share-based awards - Diluted weighted-average shares outstanding $ 6,153,461 Basic income per share $ ( 0.13 ) Diluted income per share $ ( 0.13 ) 23 Nine months ended September 30, 2023 Net income (loss) attributable to Verde Clean Fuels, Inc. $ ( 2,096,801 ) Basic weighted-average shares outstanding 6,136,171 Dilutive effect of share-based awards - Diluted weighted-average shares outstanding $ 6,136,171 Basic income per share $ ( 0.34 ) Diluted income per share $ ( 0.34 ) 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 September 30, 2023 Warrants 15,383,263 Earnout Shares 3,234,375 Convertible debt 40,961 Stock options 1,236,016 Time based RSUs 141,656 Total anti-dilutive instruments 20,036,271 NOTE 12 – 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. 24