Verde Clean Fuels, Inc. 10-K

ITEM 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Verde Clean Fuels, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Verde Clean Fuels, Inc. and subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Dallas, Texas March 28, 2025 We have served as the Company's auditor since 2022. F-1 Table of Contents VERDE CLEAN FUELS, INC. CONSOLIDATED BALANCE SHEETS As of December 31, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 19,044,067 $ 28,779,177 Restricted cash 100,000 100,000 Accounts receivable – other 226,157 - Other current assets 804,186 373,324 Total current assets 20,174,410 29,252,501 Non-current assets: Property, plant and equipment, net 1,096,270 62,505 Intellectual property and patented technology 1,925,151 1,925,151 Operating lease right-of-use assets, net 215,806 524,813 Deposits 160,669 160,669 Total non-current assets 3,397,896 2,673,138 Total assets $ 23,572,306 $ 31,925,639 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 734,374 $ 184,343 Accrued liabilities 1,907,165 1,976,812 Operating lease liabilities 153,917 297,380 Other current liabilities 15,129 - Total current liabilities 2,810,585 2,458,535 Non-current liabilities: Promissory note – related party - 409,612 Operating lease liabilities 78,245 232,162 Total non-current liabilities 78,245 641,774 Total liabilities 2,888,830 3,100,309 Commitments and Contingencies (see Note 8) Stockholders’ equity Class A common stock, par value $ 0.0001 per share, 9,549,621 and 9,387,836 shares issued and outstanding as of December 31, 2024 and 2023, respectively 955 939 Class C common stock, par value $ 0.0001 per share, 22,500,000 shares issued and outstanding as of December 31, 2024 and 2023, respectively 2,250 2,250 Additional paid in capital 37,502,903 35,014,836 Accumulated deficit ( 27,257,086 ) ( 23,922,730 ) Noncontrolling interest 10,434,454 17,730,035 Total stockholders’ equity 20,683,476 28,825,330 Total liabilities and stockholders’ equity $ 23,572,306 $ 31,925,639 The accompanying notes are an integral part of these consolidated financial statements. F-2 Table of Contents VERDE CLEAN FUELS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For The Year Ended December 31, 2024 2023 General and administrative expenses $ 11,205,770 $ 11,515,192 Contingent consideration - ( 1,299,000 ) Research and development expenses 451,072 329,194 Total operating loss 11,656,842 10,545,386 Other (income) ( 1,193,273 ) ( 447,074 ) Interest expense - 236,699 Loss before income taxes ( 10,463,569 ) ( 10,335,011 ) Income tax provision 51,465 166,265 Net loss $ ( 10,515,034 ) $ ( 10,501,276 ) Net loss attributable to noncontrolling interest $ ( 7,180,678 ) $ ( 7,757,688 ) Net loss attributable to Verde Clean Fuels, Inc. $ ( 3,334,356 ) $ ( 2,743,588 ) Earnings per share Weighted average Class A common stock outstanding, basic and diluted 6,286,033 6,140,529 Loss per share of Class A common stock $ ( 0.53 ) $ ( 0.45 ) The accompanying notes are an integral part of these consolidated financial statements. F-3 Table of Contents VERDE CLEAN FUELS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For The Year Ended December 31, 2023 Member’s Equity Class A Common Class C Common Additional Paid In Capital Accumulated Deficit Non controlling Interest Total Stockholders’ Equity Shares Values Shares Values Balance – December 31, 2022 $ 12,775,901 - $ - - $ - $ - $ ( 11,672,536 ) $ - $ 1,103,365 Retroactive application of recapitalization - - 936 - 2,573 ( 3,509 ) - - - Adjusted beginning balance 12,775,901 - 936 - 2,573 ( 3,509 ) ( 11,672,536 ) - 1,103,365 Reversal of Intermediate original equity ( 12,775,901 ) - ( 936 ) - ( 2,573 ) 3,509 11,672,536 - ( 1,103,365 ) Recapitalization transaction - 9,358,620 936 22,500,000 2,250 15,391,286 ( 4,793,142 ) 25,487,723 36,089,053 Class A Sponsor earn out shares - - - - - 5,792,000 ( 5,792,000 ) - - Class C Sponsor earn out shares - - - - - 10,594,000 ( 10,594,000 ) - - Share-based compensation - - - - - 2,901,569 - - 2,901,569 Warrant exercise - 29,216 3 - - 335,981 - - 335,984 Net loss - - - - - - ( 2,743,588 ) ( 7,757,688 ) ( 10,501,276 ) Balance – December 31, 2023 $ - 9,387,836 $ 939 22,500,000 $ 2,250 $ 35,014,836 $ ( 23,922,730 ) $ 17,730,035 $ 28,825,330 For The Year Ended December 31, 2024 Class A Common Class C Common Additional Paid In Capital Accumulated Deficit Non controlling Interest Total Stockholders’ Equity Shares Values Shares Values Balance – December 31, 2023 9,387,836 $ 939 22,500,000 $ 2,250 $ 35,014,836 $ ( 23,922,730 ) $ 17,730,035 $ 28,825,330 Settlement of Promissory Note 40,961 4 - - 409,608 - - 409,612 Conversion of restricted stock units 120,824 12 - - ( 12 ) - - - Share-based compensation - - - - 1,354,005 - - 1,354,005 Rebalancing of ownership percentage for issuance of Class A shares - - - - 114,903 - ( 114,903 ) - Adjustment of excise tax accrual - - - - 609,563 - - 609,563 Net loss - - - - - ( 3,334,356 ) ( 7,180,678 ) ( 10,515,034 ) Balance – December 31, 2024 9,549,621 $ 955 22,500,000 $ 2,250 $ 37,502,903 $ ( 27,257,086 ) $ 10,434,454 $ 20,683,476 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents VERDE CLEAN FUELS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2024 2023 Cash flows from operating activities Net loss $ ( 10,515,034 ) $ ( 10,501,276 ) Adjustments to reconcile net loss to net cash used in operating activities Contingent consideration - ( 1,299,000 ) Depreciation 13,083 3,497 Share-based compensation expense 1,354,005 2,901,569 Finance lease amortization - 127,617 Deferred financing fee write-off - 28,847 Amortization of right-of-use assets 309,007 413,354 Changes in operating assets and liabilities Other current assets ( 430,861 ) ( 259,648 ) Accounts payable 144,304 ( 6,645 ) Accrued liabilities 539,916 185,912 Operating lease liabilities ( 297,380 ) ( 383,778 ) Other changes in operating assets and liabilities 2,776 ( 323,115 ) Net cash used in operating activities ( 8,880,184 ) ( 9,112,666 ) Cash flows from investing activities Purchases of property, plant and equipment ( 2,549,747 ) ( 58,588 ) Reimbursement of capital expenditures 1,694,821 - Net cash used in investing activities ( 854,926 ) ( 58,588 ) 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 ) Repayments of the principal portion of finance lease liabilities - ( 44,469 ) Warrant exercises - 335,984 Deferred financing costs - ( 22,570 ) Net cash provided by financing activities - 37,495,502 Net change in cash, cash equivalents and restricted cash ( 9,735,110 ) 28,324,248 Cash, cash equivalents and restricted cash, beginning of year 28,879,177 463,475 CENAQ operating cash balance acquired - 91,454 Cash, cash equivalents and restricted cash, end of period $ 19,144,067 $ 28,879,177 Supplemental cash flow information Non-cash income tax payable and deferred tax liability obtained from CENAQ $ - $ 431,632 Non-cash impact of debt issuance through the business combination $ - $ 409,612 Capital expenditures in accounts payable and accrued expenses (at period end) $ 405,727 $ - Accounts receivable for reimbursement of capital expenditures (at period end) $ 213,807 $ - Cash paid for interest $ - $ 236,699 Cash paid for income taxes $ 45,896 $ 431,632 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents NOTE 1 —  THE COMPANY Overview Verde Clean Fuels, Inc. (the “Company”, “Verde” and “Verde Clean Fuels”) is a clean fuels company focused on the deployment of its innovative and proprietary liquid fuels processing technology through development of commercial production plants. Verde’s syngas-to-gasoline plus (STG+®) process converts syngas, derived from diverse feedstocks, into fully finished liquid fuels that require no additional refining. Verde is currently focused on identifying and evaluating opportunities to convert associated natural gas into gasoline, which is expected to provide a market for such natural gas with the added potential benefits of flare mitigation and production of gasoline with a lower carbon intensity than conventional gasoline. The Company is a Delaware corporation headquartered in Houston, Texas. The Company’s principal executive offices are located at 711 Louisiana St, Suite 2160, Houston, Texas 77002. The Company also has a demonstration plant and office in Hillsborough, New Jersey. The Company’s shares of Class A common stock, par value $ 0.0001 per share (the “Class A common stock”), and warrants are listed on Nasdaq under the symbols “VGAS” and “VGASW,” respectively. The Company’s primary stockholder is Bluescape Clean Fuels Holdings, LLC (“Holdings”). Holdings is an affiliate of Bluescape Energy Partners, an alternative investment firm. See Note 7 for further information. Business Combination On February 15, 2023 (the “Closing Date”), the Company consummated (the “Closing”) a business combination (the “Business Combination”) pursuant to that certain business combination agreement, dated as of August 12, 2022 (the “Business Combination Agreement”) by and among CENAQ Energy Corp. (“CENAQ”), Verde Clean Fuels OpCo, LLC, a Delaware limited liability company and a wholly owned subsidiary of CENAQ (“OpCo”), 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 as Verde Clean Fuels, Inc. See Notes 3 and 7 for further information. Following the completion of the Business Combination, the combined company is organized under an umbrella partnership C corporation (“Up-C”) structure, and the direct assets of the Company consist of equity interests in OpCo, whose direct assets consist of equity interests in Intermediate. Immediately following the Business Combination, Verde Clean Fuels is the sole manager of and controls OpCo. Prior to the Business Combination, and up to the Closing Date, 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. See Note 3 for further information. Relationship with Cottonmouth Ventures, LLC and Permian Basin Project In connection with the Closing, the Company issued and sold to Cottonmouth Ventures, LLC (“Cottonmouth”), a wholly-owned subsidiary of Diamondback Energy, Inc (“Diamondback”), 2,000,000 shares of its Class A common stock in a private placement for an aggregate purchase price of $ 20,000,000 and entered into that certain Equity Participation Right Agreement, dated as of February 13, 2023, by and among the Company and Cottonmouth, pursuant to which Verde granted Cottonmouth the right to participate and jointly develop facilities in the Permian Basin utilizing Verde’s STG+® technology for the production of gasoline derived from economically disadvantaged natural gas feedstocks (the “Permian Basin Project”). In February 2024, Verde and Cottonmouth entered into a Joint Development Agreement (the “JDA”) for the proposed development, construction, and operation of a commercial production plant to produce commodity-grade gasoline using natural gas feedstock supplied from Diamondback’s operations in the Permian Basin. In June 2024, the Company 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. As of December 31, 2024, the Company and Cottonmouth are advancing the development activities related to the Permian Basin Project, including the FEED study. See Notes 4, 7, 13 and 15 for further information. F-6 Table of Contents NOTE 2 —  SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). In the opinion of management, all adjustments (consisting of normal recurring adjustments) have been made that are necessary to present fairly the financial position, and the results of its operations and its cash flows. Risks and Uncertainties The Company is currently in the development stage and has not yet commenced principal operations or generated revenue. The development of the Company’s projects are subject to a number of risks and uncertainties including, but not limited to, the receipt of the necessary permits and regulatory approvals, commodity price risk impacting the decision to go forward with the projects, the availability and ability to obtain the necessary financing for the construction and development of projects. The Company’s ability to develop and operate commercial production plants, as well as expand production at future commercial production plants, is subject to many risks beyond its control, including regulatory developments, construction risks, and global and regional macroeconomic developments. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated 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 consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. The most significant estimates pertain to the calculations of the fair values of equity instruments, impairment of intangible and long-lived assets and income taxes. Such estimates may be subject to change as more current information becomes available. Accordingly, the actual results could differ significantly from those estimates. Consolidation The Company consolidates all entities that it controls by ownership interest or other contractual rights giving the Company control over the most significant activities of an investee. The Company’s consolidated financial statements include its subsidiaries as follows: • OpCo; • Intermediate; • Bluescape Clean Fuels Employee Holdings, LLC; • Bluescape Clean Fuels EmployeeCo., LLC; • Bluescape Clean Fuels, LLC; and • Maricopa Renewable Fuels I, LLC. The Company has reclassified certain comparative amounts to conform to the current period presentation. These reclassifications had no effect on the reported results of operations. All intercompany balances and transactions have been eliminated in consolidation. F-7 Table of Contents Statements of Operations The Company’s general and administrative expenses primarily consist of compensation costs including salaries, benefits and stock-based compensation expense for personnel in executive, finance, accounting, and other administrative functions. General and administrative expenses also include outside service costs, such as legal fees, professional fees paid for accounting, auditing and consulting services, and insurance costs. Research and development expenses consist primarily of internal and external expenses, including labor directly performed on our projects and fees paid to third parties working on and testing specific aspects of our STG+® technology. Other income is primarily related to interest and dividend income earned as a result of our money market investments, which are included within cash equivalents in the consolidated balance sheet. Cash, Cash Equivalents and Restricted Cash The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents are comprised of funds held in a short-term money market fund having investments in high-quality short-term securities that are issued or guaranteed by the U.S. government or by U.S. government agencies and instrumentalities. The Company also has a restricted cash balance that is included in the determination of cash and restricted cash in the Consolidated Statements of Cash Flows. See Note 8 for further information. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institutions, which, at times, may exceed the Federal Deposit Insurance Corporation (“FDIC”) coverage limit of $ 250,000 . Additionally, the majority of the Company’s cash and cash equivalents are held in a short-term money market fund that is not guaranteed by the FDIC. As of December 31, 2024, the Company has not experienced losses on these accounts, and management believes the Company is not exposed to significant risks on such accounts. Accounts Receivable – Other Accounts receivable – other primarily consists of amounts to be reimbursed to the Company from Cottonmouth in connection with the terms of the JDA between the Company and Cottonmouth. See Notes 1, 4 and 13 for further information. In accordance with Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, the Company’s accounts receivable are required to be presented at the net amount expected to be collected through an allowance for credit losses that are expected to occur over the life of the remaining life of the asset, rather than incurred losses. The Company considers the amounts due from Cottonmouth to be fully collectible and, accordingly, there was no allowance for credit losses recorded by the Company as of December 31, 2024. Other Current Assets As of December 31, 2024, other current assets included $ 469,612 of deferred equity issuance costs that were incurred in connection with the Company’s issuance of shares of its Class A common stock to Cottonmouth in January 2025. See Notes 1 and 15 for further information. Prepaid expenses are also included within other current assets. Fair Value of Financial Instruments The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), approximates the carrying amounts represented in the balance sheet, primarily due to their short-term nature. The fair values of cash, restricted cash, cash equivalents, receivables, prepaid expenses, accounts payable and accrued expenses are estimated to approximate their respective carrying values as of December 31, 2024 and 2023 due to the short-term maturities of such instruments. In determining fair value, the valuation techniques consistent with the market approach, income approach and cost approach shall be used to measure fair value. ASC 820 establishes a fair value hierarchy for inputs, which represent the assumptions used by the buyer and seller in pricing the asset or liability. These inputs are further defined as observable and unobservable inputs. Observable inputs are those that buyer and seller would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions F-8 Table of Contents 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. The fair value hierarchy is categorized into three levels based on the inputs as follows: Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment. Level 2 — Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means. Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Net Loss Per Share of Common Stock Subsequent to the Business Combination, the Company’s capital structure is comprised of shares of Class A common stock and shares of Class C common stock, par value $ 0.0001 per share (the “Class C common stock”). Public stockholders, the Sponsor, and the investors in a private offering of shares of Class A common stock (the “PIPE Financing”) hold shares of Class A common stock and Warrants (as defined below), and Holdings owns shares of Class C common stock and Class C units of OpCo (the “Class C OpCo Units”). Holders of Class C OpCo Units, other than Verde Clean Fuels, have the right, subject to certain limitations, to exchange all or a portion of its Class C OpCo Units and a corresponding number of shares of Class C common stock for, at Opco’s election, (i) shares of Class A common stock on a one -for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, or (ii) an equivalent amount of cash. Each share of Class C common stock represents the right to cast one vote per share at the Verde Clean Fuels level and carries no economic rights, including rights to dividends or distributions upon liquidation. Thus, shares of Class C common stock are not participating securities per ASC 260, “Earnings Per Share”. As the shares of 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, certain restricted stock units (“RSUs”) and earn out shares, were excluded from diluted earnings per share for the years ended December 31, 2024 and 2023 because the inclusion of such instruments would be anti-dilutive. As a result, diluted net loss per share of common stock is the same as basic net loss per share of common stock for all periods presented. Warrants The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, “Derivatives and Hedging” (“ASC 815”). The Company’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 consolidated statement of operations. See Note 10 for further information. 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 F-9 Table of Contents attributable to differences between the financial statement 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 December 31, 2024 and 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception. Reverse Recapitalization The Business Combination was accounted for in accordance with ASC 805, “Business Combinations” (“ASC 805”) as a common control reverse recapitalization, with no goodwill or other intangible assets recorded. This determination reflects Holdings holding a majority of the voting power of Intermediate’s pre and post Business Combination operations and Intermediate’s management team retaining similar roles at Verde Clean Fuels. Further, Holdings continues to have control of the Company's Board of Directors (the “Board” or “Board of Directors”) through its majority voting rights. Under the guidance in 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 financial statements with no goodwill or other intangible assets recorded. 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 Directly identifiable costs incurred in connection with constructing an asset are capitalized as construction in progress assets from the time that a project is deemed probable of occurring. Depreciation expense is not recorded for construction in progress assets until construction is completed and the construction in progress assets are placed into service. Cost reimbursement from project participants related to assets under construction is recorded as an offset to the construction in progress assets. Upon entry into the JDA with Cottonmouth, the Company determined that the Permian Basin Project was probable of occurring and began capitalizing associated costs as construction in progress, net of reimbursements received. See Notes 1, 4 and 13 for further information. 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 recorded in the period realized. F-10 Table of Contents Indefinite-Lived Intangible Assets The Company’s intangible asset consists of its intellectual property and patented technology associated with the Company’s patented STG+® process technology, and is considered an indefinite-lived intangible and is not subject to amortization. Impairments Long-Lived Assets The Company evaluates the carrying value of long-lived assets when indicators of impairment exist. The carrying value of a long-lived asset is considered impaired when the estimated separately identifiable, undiscounted cash flows from such asset are less than the carrying value of the asset. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the estimated cash flows discounted at a rate commensurate with the risk involved. During the years ended December 31, 2024 and 2023, the Company did not record any impairment charges. Intangible Assets 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. During the years ended December 31, 2024 and 2023, the Company did not record any impairment charges. Leases The Company accounts for leases under ASC 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 services 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. The Company determines if an arrangement is, or contains, a lease at contract inception based on whether that contract conveys the right to control the use of an identified asset in exchange for consideration for a period of time. Leases are classified as either finance or operating. This classification dictates whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. For all lease arrangements with a term of greater than 12 months, the Company presents at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company 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. See Note 8 for further information. F-11 Table of Contents Other Current Liabilities Other current liabilities primarily consist of deferred income and deposits associated with a sublease arrangement. Emerging Growth Company Accounting Election The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Additionally, section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. The Company expects to be an emerging growth company through 2026. Prior to the Business Combination, CENAQ elected to irrevocably opt out of the extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company will adopt the new or revised standard when those standards are effective for public registrants. Equity-Based Compensation The Company applies ASC 718, “Compensation — Stock Compensation” (“ASC 718”), in accounting for its unit and share-based compensation arrangements. 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. Equity-Based Awards In March 2023, the Company authorized and approved the Verde Clean Fuels, Inc. 2023 Omnibus Incentive Plan (the “2023 Plan”) which authorizes up to 4,727,112 shares that may be granted under the 2023 Plan in connection with equity-based compensation awards. During the years ended December 31, 2024 and 2023, the Company granted equity-based awards to certain employees and officers and to non-employee directors, consistent with the terms of the 2023 Plan. The Company estimates the fair value of stock options on the date of grant using the Black-Scholes model and the fair value of RSUs on the date of grant based on the value of the stock price on that date. The fair value of equity instruments are subject to a discount for lack of marketability. The cost of awarded equity instruments is recognized based on each instrument’s grant-date fair value over the period during which the grantee is required to provide service in exchange for the award. The determination of fair value requires significant judgment and the use of estimates, particularly with regard to Black-Scholes assumptions such as stock price volatility and expected option term. Equity-based compensation is recorded as a general and administrative expense in the Consolidated statements of operations. The Company estimates the expected term of options granted based on peer benchmarking and expectations. The Company uses U.S. Treasury yield curve rates 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 F-12 Table of Contents companies that are similar to the Company in its industry sector. The Company does not anticipate paying cash dividends and therefore uses an expected dividend yield of zero in the option valuation model. Forfeitures are recognized as they occur. The Company assesses whether a discount for lack of marketability is applied based on certain liquidity factors. All equity-based payment awards subject to graded vesting based only on a service condition are amortized on a straight-line basis over the requisite service periods. There is substantial judgment in selecting the assumptions used to determine the fair value of such equity awards and other companies could use similar market inputs and experience and arrive at different conclusions. See Note 9 for further information. RSUs represent an unsecured right to receive one share of the Company’s Class A common stock equal to the per share value of the Class A 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. See Note 9 for further information. Contingent Consideration Holdings had an arrangement payable to the Company’s Chief Executive Officer (“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. As of December 31, 2022, the Company remeasured the liability of this arrangement and reassessed the probability of the completion of the Business Combination and reversed $ 7,551,000 of the accrued expense through earnings resulting in a contingent consideration liability of $ 1,299,000 . The Business Combination closed on February 15, 2023, and therefore the contingent consideration arrangement was terminated, and no payments were made. Thus, $ 1,299,000 of accrued contingent consideration was reversed through earnings for the year ended December 31, 2023. No contingent consideration was recorded during the year ended December 31, 2024. See Note 5 for further information. Recent Accounting Standards In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 enhances segment reporting under Topic 280 by expanding the breadth and frequency of segment disclosures. ASU 2023-07 requires disclosure of significant expenses that are regularly provided to an entity’s Chief Operating Decision Maker (“CODM”) and included in the reported measure(s) of a segment’s profit or loss. When applying this disclosure requirement, an entity identifies the segment expenses that are regularly provided to the CODM or easily computable from information that is regularly provided to the CODM. Entities are also required to disclose other segment items, i.e., the difference between reported segment revenue less the significant segment expenses and the reported measure(s) of a segment’s profit or loss. ASU 2023-07 also clarifies that single reportable segment entities are subject to Topic 280 in its entirety. ASU 2023-07 is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024. The amendments in ASU 2023-07 should be adopted retrospectively unless impracticable. Early adoption is permitted. The disclosures required by ASU 2023-07 are included within Note 14. In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 requires public entities, on an annual basis, to provide: a tabular rate reconciliation (using both percentages and reporting currency amounts) of (1) the reported income tax expense (or benefit) from continuing operations, to (2) the product of the income (or loss) from continuing operations before income taxes and the applicable statutory federal (national) income tax rate of the jurisdiction (country) of domicile using specific categories, and separate disclosure for any reconciling items within certain categories that are equal to or greater than a specified quantitative threshold. For each annual period presented, ASU 2023-09 also requires all reporting entities to disclose the year-to-date amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign. It also requires additional disaggregated information on income taxes paid (net of refunds received) to an individual jurisdiction equal to or greater than 5 % of total income taxes paid (net of refunds received). ASU 2023-09 is effective for public entities for fiscal years beginning after December 15, 2024. ASU 2023-09 is to be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating the impact that ASU 2023-09 will have on its consolidated financial statements. F-13 Table of Contents In March 2024, the SEC issued Release No. 33-11275, “The Enhancement and Standardization of Climate-Related Disclosures for Investors”, which will mandate detailed disclosure of certain climate-related information, including, among other items, material climate-related risks and related governance, strategy and risk management processes, certain financial statement disclosures, and Scopes 1 and 2 greenhouse gas emissions, if material, for certain public companies. In April 2024, the SEC issued an administrative stay of the implementation of Release No. 33-11275, pending judicial review. Prior to the stay, the required disclosures were subject to a phased compliance timeline, with initial disclosures for non-accelerated filers and smaller reporting companies commencing with the fiscal year beginning January 1, 2027. The Company is currently monitoring the status of Release No. 33-11275 and is evaluating the impact that the release would have on its consolidated financial statements. In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) – Disaggregation of Income Statement Expenses” (“ASU 2024-03”), which requires additional disclosure about specified categories of expenses included in relevant expense captions presented on the income statement. The amendments are effective for annual periods beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either prospectively or retrospectively. The Company is currently evaluating the impact that ASU 2024-03 will have on its disclosures. The Company considers the applicability and impact of all ASUs issued by the FASB. There are no other accounting pronouncements which have been issued but are not yet effective that would have a material impact on the consolidated financial statements when adopted. NOTE 3 — BUSINESS COMBINATION 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 common units of OpCo (“Class A OpCo Units” and, together with the Class C OpCo Units, the “OpCo Units”) equal to the number of total shares of Class A common stock issued and outstanding immediately after the Closing Date (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 Class A OpCo Units and the Holdings Class C Shares. Holdings holds 22,500,000 OpCo Units and an equal number of shares of Class C common stock. Pursuant to ASC 805, “Business Combinations” (“ASC 805”), the Business Combination was accounted for as a common control reverse recapitalization where Intermediate is deemed the accounting acquirer and the Company is treated as the accounting acquiree, with no goodwill or other intangible assets recorded, in accordance with U.S. GAAP. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Intermediate issuing stock for the net assets of CENAQ, accompanied by a recapitalization. The 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 respective carrying amounts on the date of the Business Combination. The Business Combination included: • 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 shares 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 . F-14 Table of Contents The following summarizes the shares of Verde Clean Fuels' Class A common stock and Class C common stock (collectively, the “Common Stock”) outstanding as of February 15, 2023. The percentage of beneficial ownership is based on 31,858,620 shares of the Company's Common Stock issued and outstanding as of February 15, 2023, comprised of 9,358,620 shares of Class A common stock and 22,500,000 shares of Class C common stock. Shares % of Common Stock CENAQ Public Stockholders (a) 1,846,120 5.79 % Holdings (b) 23,300,000 73.14 % New PIPE Investors (excluding Holdings) (c) 2,400,000 7.53 % Sponsor and other investors (d) 1,078,125 3.39 % Sponsor Earn Out shares (e) 3,234,375 10.15 % Total Shares of Common Stock at Closing 31,858,620 100.00 % Earn Out Equity shares (f) 3,500,000 Total diluted shares at Closing (including shares above) (g) 35,358,620 (a) CENAQ public stockholders holding 15,403,880 shares of Class A common stock exercised their right to redeem such shares for a pro rata portion of the funds in the trust account. Excludes 189,750 underwriters forfeited shares owned by Imperial Capital, LLC and I-Bankers Securities, Inc. that were forfeited as of the Closing Date. (b) Includes (i) 22,500,000 shares of Class C common stock issued to Holdings at Closing, representing 100 % of the shares of Class C common stock outstanding as of February 15, 2023, and (ii) 800,000 shares of Class A common stock acquired by Holdings in the PIPE Financing. (c) Excludes 800,000 shares of Class A common stock acquired by Holdings in the PIPE Financing. (d) Includes 253,125 and 825,000 shares of Class A common stock issued to the Sponsor and other investors, respectively, upon conversion of a portion of their current Class B common stock at Closing. (e) Includes 3,234,375 shares of Class A common stock issued to the Sponsor that are subject to forfeiture. These shares will no longer be subject to forfeiture upon the occurrence of the Triggering Events. Excludes 2,475,000 shares of Class A common stock issuable upon the exercise of warrants held by Sponsor (“Private Placement Warrants”). (f) Includes 3,500,000 shares of Class C common stock issuable to Holdings upon the occurrence of Triggering Events. (g) Excludes 12,937,479 and 2,475,000 shares of Class A common stock issuable upon the exercise of the warrants issued in the initial public offering (“Public Warrants” and, together with the Private Placement Warrants, the “Warrants”) and Private Placement Warrants, respectively. 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. F-15 Table of Contents NOTE 4 — PROPERTY, PLANT AND EQUIPMENT Major classes of property, plant, and equipment are as follows: As of December 31, 2024 December 31, 2023 Construction in progress $ 1,028,900 $ - Computers, office equipment and hardware 34,330 16,956 Furniture and fixtures 47,256 47,256 Machinery and equipment 43,799 43,799 Property, plant and equipment 1,154,285 108,011 Less: Accumulated depreciation 58,015 45,506 Property, plant and equipment, net $ 1,096,270 $ 62,505 The construction in progress balance is comprised of capitalized FEED costs, net of reimbursements to be received from Cottonmouth, related to the joint development of the Permian Basin Project. The construction in progress balance as of December 31, 2024 is comprised of capitalized FEED costs of $ 2,937,528 and is net of $ 1,908,628 of cost reimbursements from Cottonmouth. See Notes 1, 7 and 13 for further information. Depreciation expense was $ 13,083 and $ 3,497 for the year ended December 31, 2024 and 2023, respectively. Depreciation expense of $ 10,277 and $ 2,806 is included in general and administrative and research and development expense, respectively, for the year ended December 31, 2024. Depreciation expense of $ 1,662 and $ 1,835 is included in general and administrative and research and development expense, respectively, for the year ended December 31, 2023. NOTE 5 — FAIR VALUE MEASUREMENTS As of December 31, 2024 and 2023, the Company had cash equivalents of $ 17,559,091 and $ 26,155,789 , respectively, which consisted of funds held in a short-term money market fund and are classified as Level 1 in the fair value hierarchy. See Note 2 for further information. 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 liability for contingent consideration as of December 31, 2023 as this liability was reversed and recognized in earnings during the year ended December 31, 2023 as a result of the close of the Business Combination. At December 31, 2024 and 2023, there were no other assets or liabilities measured at fair value on a recurring basis, as the Earn Out Equity (as defined below), Public Warrants, and Private Placement Warrants are equity-classified. F-16 Table of Contents NOTE 6 — ACCRUED LIABILITIES Accrued liabilities consist of the following: As of December 31, 2024 December 31, 2023 Accrued bonus $ 331,398 $ - Accrued legal fees 467,645 237,839 Accrued professional fees 68,000 143,900 Accrued excise tax liability 978,412 1,587,975 Other accrued expenses 61,710 7,098 Total accrued liabilities $ 1,907,165 $ 1,976,812 Inflation Reduction Act of 2022 On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1 % excise tax on certain repurchases of stock occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from which shares are repurchased. The amount of the excise tax is generally 1 % of the fair market value of the shares repurchased at the time of the repurchase. The amount of repurchases applicable to the excise tax can be reduced by the fair market value of any issuances at the time of issuance that occurred during the year, as well as certain exceptions provided by the U.S. Department of the Treasury. As of December 31, 2024, the Company has recorded an accrual for excise tax liability of $ 978,412 . During the year ended December 31, 2024, the Company reduced the estimated excise tax liability by $ 609,563 , which was recorded as an increase to additional paid in capital within stockholders’ equity upon finalization of the calculation of the amount owed and ultimate submission of the excise tax return filed. NOTE 7 — RELATED PARTY TRANSACTIONS Holdings 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. Certain of the Company's management hold Series A Incentive Units and Founder Incentive Units (each as defined below) that entitle them to participate in the earnings of and distributions by Holdings after a specified return to the Series A Preferred Unit holders. See Notes 1, 3 and 9 for further information. Chemex In June 2024, the Company entered into a contract with Chemex, a Shaw Group company, for a FEED study related to the Permian Basin Project. Also in June 2024, the parent organization of Holdings, through a separate subsidiary, made an unrelated preferred equity investment in the Shaw Group and, in connection with the investment, Jonathan Siegler, a Company director, was appointed as a director of the Shaw Group. Total FEED study costs incurred as of December 31, 2024, net of reimbursement from Cottonmouth, were $ 1.0 million, and are recorded to construction in progress within property, plant and equipment, net on the Company’s consolidated balance sheets. See Notes 1, 2, 4 and 13 for further information. Five Star A subsidiary of the Company is a party to a letter agreement with Five Star Clean Fuels LLC, formerly known as Arb Clean Fuels Management LLC (“Five Star”), whereby it granted Five Star certain non-exclusive rights to utilize the STG+® technology and agreed to enter into mutually acceptable to be negotiated agreements related to a potential site in Odessa, Texas. To date, there have been no material developments with respect to this arrangement, nor has the Company received any consideration from Five Star or incurred any expense in connection therewith. Martijn Dekker, a Company director, is an officer and director of Five Star and his affiliate has an ownership interest in Five Star. F-17 Table of Contents Promissory Note On February 15, 2023, the Company entered into a promissory note with the Sponsor totaling $ 409,612 (the “Promissory Note”). The Promissory Note canceled and superseded all prior promissory notes. The Promissory Note was non-interest bearing and the entire principal balance of the Promissory Note was payable on or before February 15, 2024 in cash or shares at the Company’s election. On February 15, 2024, the Company settled the Promissory Note through the issuance of shares of its Class A common stock at a conversion price of $ 10.00 per share. As a result, during the year ended December 31, 2024, the Company issued 40,961 shares of its Class A common stock and recorded an increase to additional paid-in capital of $ 409,608 . NOTE 8 — COMMITMENTS AND CONTINGENCIES Leases The Company leases office space and other office equipment under operating lease arrangements with initial terms greater than twelve months. The office lease in Hillsborough, New Jersey was extended until 2025. In August 2023, the Company entered into a 40-month office lease in Houston, Texas commencing in November 2023. Office space is leased to provide adequate workspace for all employees. In February 2023, the Company commenced a 25-year land lease in Maricopa, Arizona with the intent of building a renewable gasoline processing facility. On the commencement date, the present value of the minimum lease payments exceeded the fair value of the land, and, accordingly, the lease was classified as a finance lease. On August 31, 2023, the Company terminated the land lease in Maricopa, Arizona. In connection with the termination, the Company incurred a termination fee of three months ’ base rent. The termination was effective four months after the termination notice; thus, the Company had a continued right-of-use and obligation to make rental payments for use of the land through December 31, 2023. The Company accounted for the termination with a continued right-of-use as a lease modification resulting in a reclassification of the lease from finance to operating as of the lease modification date. Accordingly, the Company incurred finance lease costs up to the modification date and operating lease costs subsequent to the modification until lease termination. The Company exited the lease as of December 31, 2023. Lease costs for the Company’s operating and finance leases are presented below. Lease Cost Statements of Operations Classification For the Year Ended December 31, 2024 For the Year Ended December 31, 2023 Amortization of finance lease ROU asset General and administrative expense $ - $ 127,617 Interest on finance lease liability Interest expense - 236,699 Total finance lease cost $ - $ 364,316 Operating lease cost General and administrative expense $ 336,415 $ 431,245 Variable lease cost General and administrative expense 169,541 151,731 Total operating lease cost $ 505,956 $ 582,976 Total lease cost $ 505,956 $ 947,292 F-18 Table of Contents Maturities of the Company’s operating leases as of December 31, 2024 are presented below. Maturity of lease liabilities Operating Leases 2025 $ 162,409 2026 69,531 2027 11,823 2028 - Thereafter - Total future minimum lease payments 243,763 Less: interest ( 11,601 ) Present value of lease liabilities $ 232,162 Supplemental information related to the Company’s operating lease arrangements was as follows: Operating leases - supplemental information As of December 31, 2024 As of December 31, 2023 ROU assets obtained in exchange for operating lease liabilities $ 353,162 $ 524,813 Remaining lease term - operating leases 16 months 23 months Discount rate - operating leases 7.50 % 7.50 % Commitments The Company had a restricted cash balance of $ 100,000 as of both December 31, 2024 and 2023. The restricted cash balance is maintained in support of a letter of credit. NOTE 9 —  STOCKHOLDERS’ EQUITY Earn Out Consideration Earn out 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. Earn out shares contain market conditions for vesting and were awarded to eligible stockholders, as described further below, and not to current employees. As consideration for the contribution of the equity interests in Intermediate, Holdings received earn out consideration (“Holdings earn out”) 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 earn out 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 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 over the same measurement period. Additionally, the Sponsor received earn out consideration (“Sponsor earn out” and, together with Holdings earn out, the “Earn Out Equity”) 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 earn out will no longer be subject to forfeiture if the VWAP of Class A common stock is greater than or equal to $ 15.00 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 over the same measurement period. Notwithstanding the forgoing, the shares of Earn Out Equity will vest in the event of a sale of the Company at a price that is equal to or greater than the applicable trigger price payable to the buyer of the Company. The Earn Out Equity was issued in connection with the Business Combination on February 15, 2023. Holdings earn out shares are neither issued nor outstanding as of December 31, 2024 as the performance requirements for vesting were not achieved. All Sponsor Shares granted in connection with the Business Combination were issued and outstanding as of December 31, 2024 and 2023. F-19 Table of Contents 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 Earn Out Equity, using a Monte Carlo simulation model, was $ 10,594,000 and $ 5,791,677 attributable to Holdings and the Sponsor, respectively. The following table provides a summary of key inputs utilized in the valuation of the Earn Out Equity on February 15, 2023: Inputs As of February 15, 2023 Expected volatility 50.00 % Expected dividends 0 % Remaining expected term (in years) 5.0 years Risk-free rate 4.7 % Discount Rate (WACC) 14.7 % Payment Probability 12.6 % to 18.3 % based on Triggering Event The earn out arrangements are akin to a distribution to our stockholders, 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 per share Class A common stock trading price, the market conditions were not met and no shares of Earn Out Equity vested as of December 31, 2024. 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 $ 1,354,005 and $ 2,901,569 for the years ended December 31, 2024 and December 31, 2023, respectively. As a taxable event has not occurred, there were no income tax benefits recorded for these awards for the years ended December 31, 2024 and 2023. Incentive Units Prior to Closing, 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 certain of Intermediate's management and employees. 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. The Holdings equity compensation instruments consist of 1,000 authorized and issuable Series A Incentive Units (the "Series A Incentive Units") and 1,000 authorized and issuable Founder Incentive Units (the "Founder Incentive Units"). Both Series A Incentive Unit holders and Founder Incentive Unit holders are entitled to participate in the earnings of and distributions by Holdings after a specified return to the Series A Preferred Unit holders. On August 7, 2020, Holdings issued 800 Series A Incentive Units and 1,000 Founder Incentive Units to certain of Intermediate's management and employees in compensation for their services. 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 units as no vesting conditions existed. 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 Founder Incentive Units would become fully vested upon completion of the Business Combination. Additionally, as part of the amendment to these agreements, the priority of F-20 Table of Contents distributions under the Series A Incentive Units and Founder Incentive Units was also revised such that participants receive 10 % of distributions after a specified return to the Series A Incentive Unit holders. In connection with the Closing, and as a result of the August 5, 2022 amendments, all of the outstanding and unvested 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 accelerated share-based payment expense was included in general and administrative expenses for the year ended December 31, 2023. Performance conditions for the performance-based Founder Incentive Units had not and were unlikely to be met as of December 31, 2024. As such, no share-based compensation cost was recorded for these units. See Notes 2 and 7 for further information. Equity Awards Under the terms of the 2023 Plan, the Company granted stock options to certain employees, officers and non-employee directors, and RSUs to non-employee directors. 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. 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. The stock options granted in 2024 have an exercise price equal to $ 5.99 per share and will expire on May 29, 2031. Stock options granted to employees and officers will 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. Stock options granted to non-employee directors will vest one year from the date of grant, subject to continued service through the vesting date. 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 during the years ended December 31, 2024 and 2023 were determined using the following assumptions as of the grant date: For the Year Ended December 31, 2024 December 31, 2023 Risk-free interest rate 4.5 % 3.4 % Expected term 3.5 years 7 years Volatility 50.1 % 48.2 % Dividend yield Zero Zero Discount for lack of marketability- employee and officer awards 19 % 10 % Discount for lack of marketability – non-employee director awards 14 % N/A The weighted average grant date fair value of options granted for the years ended December 31, 2024 and 2023 was $ 1.40 per share and $ 1.50 per share, respectively. F-21 Table of Contents The table below presents activity related to stock options during the year ended December 31, 2024: Number of options Weighted average exercise price per share Weighted average remaining contractual life (years) Outstanding as of December 31, 2023 1,236,016 $ 11.00 6.3 Granted 2,151,622 $ 5.99 7.0 Exercised - - - Forfeited / expired - - - Outstanding as of December 31, 2024 3,387,638 $ 7.82 5.7 Vested as of December 31, 2024 309,002 $ 11.00 - Unvested as of December 31, 2024 3,078,636 $ 7.50 5.7 Exercisable as of December 31, 2024 - - - Stock options granted during the year ended December 31, 2024 consisted of 1,711,060 options granted to certain employees and officers and 440,562 options granted to non-employee directors. The grant-date fair value of stock options granted in 2024 was $ 1.38 per share for options granted to employees and officers and $ 1.48 per share for options granted to non-employee directors. As of December 31, 2024, there were 2,947,076 options granted to employees and officers outstanding, of which 2,638,074 were unvested, and 440,562 options granted to non-employee directors outstanding, all of which were unvested. Stock-based compensation expense related to stock options was $ 1,155,879 and $ 334,832 for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, unrecognized compensation expense related to unvested stock options was $ 3,372,562 . The remaining compensation cost is expected to be recognized over a weighted-average period of 1.8 years. The weighted average remaining contractual term for all options outstanding as of December 31, 2024 was 5.7 years. There was no cash received for the exercise of stock options for the years ended December 31, 2024 and 2023. Restricted Stock Units In 2023, the Company granted 141,656 non-employee time-based RSU awards. RSUs represent an unsecured right to receive one share of the Company’s common stock equal to the per share 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. 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 year ended December 31, 2024 was as follows: Time- based RSUs Unvested as of December 31, 2023 141,656 Granted - Vested ( 141,656 ) Forfeited - Unvested December 31, 2024 - The RSU awards had an aggregate fair value of $ 616,204 as of the grant date. RSU compensation expense was $ 198,125 and $ 419,945 for the years ended December 31, 2024 and 2023, respectively. F-22 Table of Contents In April 2024, all 141,656 of RSUs outstanding were vested. Of these vested RSUs, 120,824 were converted into an equal number of shares of the Company’s Class A common stock, and the remaining 20,832 were outstanding as of December 31, 2024, as the director elected to defer receipt. As of December 31, 2024, there was no unrecognized compensation expense related to RSUs. As of December 31, 2024, the Company had not granted RSUs that 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, stockholders’ equity of Intermediate is presented based on the historical equity of Intermediate restated using the Exchange Ratio (as defined below) 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. NOTE 10 — WARRANTS There were 15,383,263 Warrants outstanding as of December 31, 2024. Each Warrant entitles the registered holder to purchase one share of Class A common stock at a price of $ 11.50 per share, subject to adjustment as discussed below. 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 five trading days ending on the trading day prior to the date of exercise. The Warrants will expire on February 15, 2028, 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. F-23 Table of Contents An aggregate of 29,216 Warrants were exercised on various dates during the year ended December 31, 2023, resulting in the issuance of 29,216 shares of the Company’s Class A common stock. The Company received cash of $ 335,984 related to such Warrant exercises during the year ended December 31, 2023. No Warrants were exercised during the year ended December 31, 2024. NOTE 11 — LOSS PER SHARE Loss per share Prior to the reverse recapitalization in connection with the Business Combination, all net loss was attributable to the noncontrolling interest. Basic net loss per share has been computed by dividing net loss attributable to Class A common stockholders for the period subsequent to the Business Combination by the weighted average number of shares of Class A common stock outstanding for the same period. Diluted loss per share of Class A common stock were computed by dividing net loss attributable to Class A common stockholders by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities. The Company’s potentially dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of shares of Common Stock 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 years ended December 31, 2024 and 2023. For the Year Ended December 31, 2024 2023 Net loss attributable to Verde Clean Fuels, Inc. ( 3,334,356 ) ( 2,743,588 ) Basic weighted-average shares outstanding 6,286,033 6,140,529 Dilutive effect of share-based awards - - Diluted weighted-average shares outstanding 6,286,033 6,140,529 Basic loss per share $ ( 0.53 ) $ ( 0.45 ) Diluted loss per share $ ( 0.53 ) $ ( 0.45 ) The Company’s Warrants, earn out shares and stock options 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 shares of Class A 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 loss per diluted share for the periods presented because their effects were anti-dilutive: As of December 31, 2024 2023 Warrants 15,383,263 15,383,263 Earn out shares (1) 3,234,375 3,234,375 Convertible debt - 40,961 Stock options 3,387,638 1,236,016 RSUs (2) - 141,656 Total anti-dilutive instruments 22,005,276 20,036,271 (1) Excludes 3,500,000 Class C common stock earn out shares convertible into shares of Class A common stock. Shares of Class C common stock are not participating securities; thus, the application of the two-class method is not required. F-24 Table of Contents (2) Excludes 20,832 of vested and deferred RSUs outstanding as of December 31, 2024. Such shares are included within weighted-average shares outstanding for the computation of basic and diluted loss per share. See Note 9 for further information. Noncontrolling Interests Following the Business Combination, holders of Class A common stock own direct controlling interest in the results of the combined entity, while Holdings own an economic interest in the Company, shown as noncontrolling interests (“NCI”) in stockholders’ equity in the Company’s consolidated financial statements. The indirect economic interests are held by Holdings in the form of Class C OpCo Units. Following the completion of the Business Combination, the ownership interests of the Class A common stockholders and the NCI were 29.38 % and 70.62 %, respectively. As of December 31, 2024, the ownership interests of the Class A common stockholders and the NCI were 29.8 % and 70.2 %, respectively. The change in ownership interests was due to Warrant exercises during the year ended December 31, 2023, as well as the settlement of the Promissory Note and the issuance of shares of Class A common stock as a result of RSUs vesting during the year ended December 31, 2024. See Notes 7, 9 and 10 for further information. The NCI may further decrease according to the number of shares of Class C common stock and Verde Clean Fuels OpCo LLC Class C units that are exchanged for shares of Class A common stock or due to the issuance of additional shares of Class A common stock. As a result of these exchanges, the Company’s equity attributable to the NCI and the Class A common stockholders was rebalanced to reflect the change in ownership percentage, as calculated based on the respective ownership interests of the combined equity interests. NOTE 12 — INCOME TAX As of December 31, 2024, Verde Clean Fuels, Inc. holds 29.8 % of the economic interest in OpCo, which is treated as a partnership for U.S. federal income tax purposes. As a partnership, OpCo generally is not subject to U.S. federal income tax under current U.S. tax laws. Verde Clean Fuels, Inc. is subject to U.S. federal income taxes, in addition to state and local income taxes, with respect to its distributive share of the net taxable income (loss) and any related tax credits of OpCo. Intermediate was historically and remains a disregarded subsidiary of a partnership for U.S. Federal income tax purposes. As a direct result of the Business Combination, OpCo became the sole member of Intermediate. As such, OpCo’s distributive share of any net taxable income or loss and any related tax credits of Intermediate are then distributed to the Company. For the days and periods prior to the reverse recapitalization, Intermediate was a disregarded subsidiary of an entity treated as a partnership. As such, its net taxable loss and any related tax credits were allocated to its members. The period as of and for the year ended December 31, 2024 discussed below represents the period beginning January 1, 2024 and ending December 31, 2024. The components of income taxes are as follows: For The Year Ended December 31, 2024 2023 Current: Federal $ 50,665 $ 166,265 State 800 - Total current 51,465 166,265 Deferred: Federal - - State - - Total deferred - - Total income tax expense $ 51,465 $ 166,265 F-25 Table of Contents Income tax expense for the year ended December 31, 2024 consisted of $ 62,896 of current income taxes, and interest and penalties of $ 0 and $( 11,431 ), respectively. Income tax expense for the year ended December 31, 2023 consisted of $ 119,186 of current income taxes, and interest and penalties of $ 15,701 and $ 31,377 , respectively. As a policy election, the Company records interest and penalties within income tax expense. The Company’s effective tax rate was ( 0.5 )% and ( 1.6 )% for the years ended December 31, 2024 and 2023, respectively. The effective income tax rates for each period differed significantly from the statutory rate primarily due to the losses allocated to noncontrolling interests and the recognition of a valuation allowance as a result of the Company’s tax structure. The effective tax rate for the year ended December 31, 2023 also included a return to provision adjustment. A reconciliation of income tax expense with amounts computed at the federal statutory tax rate is as follows: For the Year Ended December 31, 2024 December 31, 2023 Computed tax (21%) $ ( 2,197,349 ) $ ( 2,170,352 ) Income attributable to legacy Intermediate holders - 516,715 Income tax benefits attributable to noncontrolling interests 1,509,352 1,112,400 Change in tax basis of Opco 1,555,355 - Change in valuation allowance ( 755,189 ) 561,578 Other permanent items - 36,793 Other items ( 60,704 ) 109,131 Income tax provision $ 51,465 $ 166,265 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Noncurrent deferred tax assets (liabilities) were as follows: As of December 31, 2024 December 31, 2023 Deferred tax liabilities: Total deferred tax liabilities $ - $ - Deferred tax assets: Start-up costs $ 193,765 $ 193,765 Stock-based compensation 98,701 46,568 Investment in OpCo. 7,891,033 8,168,987 Federal net operating loss (“NOL”) carryforwards - 553,497 Total deferred tax assets 8,183,499 8,962,817 Valuation allowance ( 8,183,499 ) ( 8,962,817 ) Total net deferred tax assets $ - $ - The Company has assessed the realizability of the net deferred tax assets and 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. In making such a determination, the Company considered all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and recent results of operations. After consideration of all available evidence, the Company has recorded a full valuation allowance against the deferred tax assets at Verde Clean Fuels, Inc. as of the Closing Date and as of December 31, 2024 and 2023. The full valuation allowance is expected to be maintained until there is sufficient evidence to support the reversal of all or some portion of these allowances. The initial recognition of the Company’s deferred tax assets and valuation allowance in connection with the Business Combination was recorded to additional paid-in-capital on the consolidated balance sheet. As noted above, the valuation allowance completely offset the deferred tax F-26 Table of Contents assets of Verde Clean Fuels, Inc., which resulted in a net zero impact to the Company’s consolidated balance sheet as of the Closing Date. As of December 31, 2024, the Company did not have any U.S. federal NOL carryforwards. The Company recognizes the financial statement effects of uncertain income tax positions when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. To the extent the Company’s assessment of such tax positions changes, the change in estimations will be recorded in the period in which the determination is made. As of December 31, 2024, the Company has not recorded any uncertain tax positions, as well as any accrued interest and penalties on the consolidated balance sheet. The Company’s income tax filings will be subject to audit by various taxing jurisdictions. The Company will monitor the status of U.S. Federal, state and local income tax returns that may be subject to audit in future periods. No U.S. Federal, state and local income tax returns are currently under examination by the respective taxing authorities. Tax Receivable Agreement On the Closing Date, in connection with the consummation of the Business Combination and as contemplated by the Business Combination Agreement, Verde Clean Fuels entered into a tax receivable agreement (the “Tax Receivable Agreement”) with Holdings (together with its permitted transferees, the “TRA Holders,” and each a “TRA Holder”) and the Agent (as defined in the Tax Receivable Agreement). Pursuant to the Tax Receivable Agreement, Verde Clean Fuels is required to pay each TRA Holder 85 % of the amount of net cash savings, if any, in U.S. federal, state and local income and franchise tax that Verde Clean Fuels actually realizes (computed using certain simplifying assumptions) or is deemed to realize in certain circumstances in periods after the Closing Date as a result of, as applicable to each such TRA Holder, (i) certain increases in tax basis that occur as a result of Verde Clean Fuels’ acquisition (or deemed acquisition for U.S. federal income tax purposes) of all or a portion of such TRA Holder’s Class C OpCo Units pursuant to the exercise of the OpCo Exchange Right, a Mandatory Exchange or the Call Right (each as defined in the Amended and Restated LLC Agreement of OpCo) and (ii) imputed interest deemed to be paid by Verde Clean Fuels as a result of, and additional tax basis arising from, any payments Verde Clean Fuels makes under the Tax Receivable Agreement. Verde Clean Fuels will retain the benefit of the remaining 15 % of these net cash savings. The Tax Receivable Agreement contains a payment cap of $ 50,000,000 , which applies only to certain payments required to be made in connection with the occurrence of a change of control. The payment cap would not be reduced or offset by any amounts previously paid under the Tax Receivable Agreement or any amounts that are required to be paid (but have not yet been paid) for the year in which the change of control occurs or any prior years. As of December 31, 2024, the Company did not have a tax receivable balance. NOTE 13 — JOINT DEVELOPMENT AGREEMENT WITH COTTONMOUTH On February 6, 2024, the Company and Cottonmouth, a subsidiary of Diamondback Energy, Inc., entered into the JDA for the proposed development, construction, and operation of a facility to produce commodity-grade gasoline using natural gas feedstock supplied from Diamondback’s operations in the Permian Basin. Diamondback is an independent oil and natural gas company headquartered in Midland, Texas, focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. The JDA provides a pathway forward for the parties to reach final definitive documents and final investment decision (“FID”). The JDA frames the contracts contemplated to be entered into between the parties, including an operating agreement, ground lease agreement, construction agreement, license agreement and financing agreements, as well as conditions precedent to close, such as FID. In June 2024, the Company entered into a contract with Chemex for a FEED study related to the Permian Basin Project. In connection with entering into the JDA and the commencement of FEED, the Company 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 includes the FEED costs) are reimbursed by Cottonmouth. See Notes 4 and 7 for further information. F-27 Table of Contents NOTE 14 — SEGMENT INFORMATION Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the CODM in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its 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. The Company’s CODM uses consolidated operating loss as the measure to evaluate the segment’s operating performance and to monitor budgeted to actual expenditures associated with capital projects. The net loss before income taxes of the segment is the same as the Company’s consolidated net loss before income taxes as reported on the consolidated statements of operations. The measure of segment assets is reported on the Company’s consolidated balance sheets as total assets. The following table presents information about the Company’s significant expenses. A significant segment expense is an expense that is significant to the segment considering qualitative and quantitative factors, regularly provided or easily computed from information regularly provided to the CODM and is included in the reported measure of segment profit or loss. The Company’s significant expenses are aggregated and presented as general and administrative and research and development financial statement line items on the consolidated statements of operations. The Company's significant expenses are primarily related to compensation, outside services, and insurance. Other segment items represent the difference between reported significant segment expenses and consolidated operating loss. Significant segment expenses and other segment items are reviewed by the CODM on a disaggregated basis as follows: For the Year Ended December 31, 2024 December 31, 2023 Outside services $ 4,947,965 $ 4,436,230 Employee compensation-related 2,632,371 1,524,777 Insurance 1,394,539 1,497,402 Share-based compensation 1,354,005 2,901,569 Rent, property and office 888,209 988,546 Contingent consideration - ( 1,299,000 ) Other segment items (1) 439,753 495,862 Total operating loss $ 11,656,842 $ 10,545,386 (1) Other segment items primarily include depreciation and amortization, meals, travel and conference expense and franchise taxes. NOTE 15 — 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. Based upon this review, the Company did not identify any other subsequent events, not previously disclosed, that would have required adjustment or disclosure in the consolidated financial statements, except as described below: PIPE Investment On December 18, 2024, the Company entered into a Class A Common Stock Purchase Agreement (the “Purchase Agreement”) with Cottonmouth pursuant to which the Company agreed to issue and sell to Cottonmouth in a private placement an aggregate of 12,500,000 shares of its Class A common stock, par value $ 0.0001 (“Class A Common Stock”), at a price of $ 4.00 per share for an aggregate purchase price of $ 50,000,000 (the “PIPE Investment”). Closing of the PIPE Investment occurred on January 29, 2025. The Company expects to use proceeds from the PIPE Investment to further the development and construction of potential natural gas-to-gasoline production plants in the Permian Basin and for other general corporate purposes. F-28 Table of Contents The investment represents the second investment by Cottonmouth in Verde over the past two years , for a total investment of $ 70 million, making Cottonmouth the second largest stockholder of the Company. Organizational Changes In connection with the consummation of the transactions contemplated by the Purchase Agreement, the Company amended and restated its fourth amended and restated certificate of incorporation (the “Fourth A&R Charter” and such amended and restated Fourth A&R Charter is referred to as the “Restated Charter”). In accordance with the Restated Charter, effective January 29, 2025, the Company (i) increased the number of authorized shares of Class C Common Stock from 25,000,000 to 26,000,000 (the "Share Increase”) and (ii) increased the size of its 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 stockholder action by written consent. F-29 Table of Contents ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.