Verde Clean Fuels Inc

Previous wording

References in this report (the “Quarterly Report”) to “we,” “our,” “us,” “Verde,” “Verde Clean Fuels” or the “Company” refer to Verde Clean Fuels, Inc. (formerly known as CENAQ Energy Corp.). References to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Current wording

References in this Quarterly Report on Form 10-Q (this “Quarterly Report”) to “we,” “our,” “us,” “Verde,” “Verde Clean Fuels” or the “Company” refer to Verde Clean Fuels, Inc. (formerly known as CENAQ Energy Corp.). References to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Previous wording

This Quarterly Report includes “forward-looking statements” for the purposes of federal securities laws that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “continue,” “believe,” “anticipate,” “intend,” “plan,” “potential,” “possible,” “may,” “might,” “predict,” “project,” “should,” “would,” “will,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. Important factors, among others, that may affect actual results or outcomes include:

Current wording

This Quarterly Report includes “forward-looking statements” for the purposes of federal securities laws that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “continue,” “believe,” “anticipate,” “intend,” “plan,” “potential,” “possible,” “may,” “focused,” “might,” “predict,” “proposed,” “project,” “should,” “would,” “will,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. Important factors, among others, that may affect actual results or outcomes include:

Previous wording

On February 15, 2023 (the “Closing Date” or “Closing”), the Company finalized a business combination (the “Business Combination”) pursuant to that certain business combination agreement, dated as of August 12, 2022 (“Business Combination Agreement”) by and among CENAQ Energy Corp. (“CENAQ”), Verde Clean Fuels OpCo, LLC, a Delaware limited liability company and a wholly owned subsidiary of CENAQ (“OpCo”), Bluescape Clean Fuels Holdings, LLC, a Delaware limited liability company (“Holdings”), Intermediate and CENAQ Sponsor LLC (“Sponsor”). Immediately upon the completion of the Business Combination, CENAQ was renamed to Verde Clean Fuels, Inc. The Business Combination is discussed further in Note 3 in the accompanying unaudited consolidated financial statements.

Current wording

On February 15, 2023 (the “Closing Date” or “Closing”), the Company consummated a business combination (the “Business Combination”) pursuant to that certain business combination agreement, dated as of August 12, 2022 (the “Business Combination Agreement”) by and among CENAQ Energy Corp. (“CENAQ”), Verde Clean Fuels OpCo, LLC, a Delaware limited liability company and a wholly owned subsidiary of CENAQ (“OpCo”), Bluescape Clean Fuels Holdings, LLC, a Delaware limited liability company (“Holdings”), Intermediate and CENAQ Sponsor LLC (“Sponsor”). Immediately upon the completion of the Business Combination, CENAQ was renamed as Verde Clean Fuels, Inc. The Business Combination is discussed further in Note 3 in the accompanying unaudited consolidated financial statements.

Previous wording

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) 22,500,000 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 (the “Class A OpCo Units”) equal to the number of total shares of Class A common stock issued and outstanding immediately after the Closing taking into account the PIPE financing (“PIPE Financing”) and 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 (1) 22,500,000 Class C common units of OpCo (the “Class C OpCo Units”) and the Holdings Class C Shares.

Current wording

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) 22,500,000 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 (the “Class A OpCo Units”) equal to the number of total shares of Class A common stock issued and outstanding immediately after the Closing taking into account the private offering of shares of Class A common stock and warrants consummated contemporaneously with the Closing (the “PIPE Financing”) and 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 (1) 22,500,000 Class C common units of OpCo (the “Class C OpCo Units”) and the Holdings Class C Shares.

Previous wording

Subsequent to the Business Combination, the Company’s capital structure is comprised of shares of Class A common stock, par value $0.0001 per share (the “Class A common stock”) and shares of Class C common stock, par value $0.0001 per share (the “Class C common stock”). Public shareholders, the Sponsor, and the investors in the private offering of securities of Verde Clean Fuels in connection with the PIPE Financing hold shares of Class A common stock and warrants to purchase shares of Class A common stock, and Holdings owns the Holdings Class C Shares and an equal number of Class C OpCo Units.

Current wording

Subsequent to the Business Combination, the Company’s capital structure is comprised of shares of Class A common stock, par value $0.0001 per share (the “Class A common stock”) and shares of Class C common stock, par value $0.0001 per share (the “Class C common stock”). Public stockholders, the Sponsor, and the investors in the PIPE Financing hold shares of Class A common stock and warrants to purchase shares of Class A common stock, and Holdings owns the Holdings Class C Shares and an equal number of Class C OpCo Units.

Previous wording

Over $110 million has been invested in our technology, including our demonstration facility in New Jersey, which has completed over 10,500 hours of operation producing gasoline or methanol. Our demonstration facility represents the scalable nature of our operational modular commercial design which has fully integrated reactors and recycle lines and is designed with key variables, like gas velocity and catalyst bed length, at a 1-to-1 scale with our commercial design. We have also participated in carbon lifecycle studies to validate the scoring of carbon intensity, which we define as the quantity of greenhouse gas emissions associated with producing, distributing, and consuming a fuel, per unit of fuel energy (“CI”) and reduced lifecycle emissions (the greenhouse gas emissions associated with the production, distribution, and consumption of a fuel) of our renewable gasoline as well as fuel, blending and engine testing to validate the specification and performance of our gasoline product. Our carbon intensity score is based on an analysis styled after the Department of Energy’s Greenhouse gases Regulated Emissions, and Energy use in Technologies life-cycle analysis. We believe our renewable gasoline, when paired with carbon capture and sequestration, exhibits a significant lifecycle carbon emissions reduction compared to traditional petroleum-based gasoline. As a result, we believe our gasoline produced from renewable feedstock, such as biomass, will qualify under the federal renewable fuel standard (“RFS”) program for the D3 renewable identification number, which could have significant value. Similarly, gasoline produced from our process may also qualify for various state carbon programs, including California’s low carbon fuel standard. Unlike many other gas-to-liquids technologies, not only can our STG+® process produce renewable gasoline from syngas, but we expect it will be able to be applied at other production facilities to produce other end products including methanol. In addition to our initial focus on the production of renewable gasoline, we believe that there is opportunity to continue to develop additional process technology to produce middle distillates including lower-carbon diesel and aviation fuel. As with other government programs, the use requirements of the RFS program and other similar state-level programs are subject to change, which could materially harm our business strategy as well as any ability to operate profitably.

Current wording

In addition, we have adapted the application of our STG+® technology to process various biomass feedstocks into fully finished liquid fuels, including renewable gasoline. This adaptation requires a third-party gasification system to produce acceptable syngas from renewable feedstocks. Our proprietary STG+® system converts the syngas into gasoline. We have participated in carbon lifecycle studies to validate the scoring of carbon intensity, which we define as the quantity of greenhouse gas emissions associated with producing, distributing, and consuming a fuel, per unit of fuel energy (“CI”) and reduced lifecycle emissions (the greenhouse gas emissions associated with the production, distribution, and consumption of a fuel) of our renewable gasoline as well as fuel, blending and engine testing to validate the specification and performance of our gasoline product. Our carbon intensity score is based on an analysis styled after the Department of Energy’s Greenhouse gases Regulated Emissions, and Energy use in Technologies life-cycle analysis. We believe our renewable gasoline, when paired with carbon capture and sequestration, exhibits a significant lifecycle carbon emissions reduction compared to traditional petroleum-based gasoline. As a result, we believe our gasoline produced from renewable feedstock, such as biomass, will qualify under the federal renewable fuel standard (“RFS”) program for the D3 renewable identification number, which could have significant value. Similarly, gasoline produced from our process may also qualify for various state carbon programs, including California’s low carbon fuel standard. In addition to our initial focus on the production of renewable gasoline, we believe that there is opportunity to continue to develop additional process technology to produce middle distillates including lower-carbon diesel and aviation fuel. As with other government programs, the use requirements of the RFS program and other similar state-level programs are subject to change, which could materially harm our business strategy as well as any ability to operate profitably.

Previous wording

As of June 30, 2024, the Company is still in the process of developing its first commercial production facility and has not derived revenue from its principal business activities. The Company is managed as an integrated business and consequently, there is only one reportable segment.

Current wording

As of September 30,2024, we are still in the process of developing our first commercial production facility and have not derived revenue from our principal business activities.

Previous wording

“Clean” or “lower-carbon” as used in relation to the Company’s products refers the lower CI, lower lifecycle emissions, and lower quantity of greenhouse gas emissions resulting directly from fuel combustion, relative to conventional gasoline derived from petroleum. “Renewable” as used in relation to the Company’s products refers to energy or fuel derived from biomass feedstock.

Current wording

“Clean” or “lower-carbon” as used in relation to our products refers to the lower CI, lower lifecycle emissions, and lower quantity of greenhouse gas emissions resulting directly from fuel combustion, relative to conventional gasoline derived from petroleum. “Renewable” as used in relation to our products refers to energy or fuel derived from biomass feedstock.

Previous wording

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including competition from other carbon-based and other non-carbon-based fuel producers, changes to existing federal and state level low-carbon fuel credit systems, and other factors discussed under the section titled “Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, and Part II, Item 1A of this Form 10-Q. We believe the factors described below are key to our success.

Current wording

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including competition from other carbon-based and other non-carbon-based fuel producers, changes to existing federal and state level low-carbon fuel credit systems, and other factors discussed under the section titled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, and Part II, Item 1A of this Quarterly Report. We believe the factors described below are key to our success.

Previous wording

Concurrent with the Business Combination, Diamondback Energy, Inc (“Diamondback”) through its wholly-owned subsidiary, Cottonmouth Ventures LLC (“Cottonmouth”), made a $20 million equity investment in Verde and entered into an equity participation right agreement pursuant to which Verde must grant Cottonmouth the right to participate and jointly develop facilities in the Permian Basin utilizing Verde’s STG+® technology for the production of gasoline derived from economically disadvantaged natural gas feedstocks. Diamondback is an independent oil and natural gas company headquartered in Midland, Texas, focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. The production of gasoline from natural gas sourced from the Permian Basin is designed to allow Diamondback to mitigate the flaring of natural gas while also producing a high-margin product from natural gas streams that are subject to being price disadvantaged compared to other natural gas basins.

Current wording

Concurrent with the Business Combination, Diamondback through its wholly-owned subsidiary, Cottonmouth, made a $20 million equity investment in Verde and entered into an equity participation right agreement pursuant to which Verde must grant Cottonmouth the right to participate and jointly develop facilities in the Permian Basin utilizing Verde’s STG+® technology for the production of gasoline derived from economically disadvantaged natural gas feedstocks. Diamondback is an independent oil and natural gas company headquartered in Midland, Texas, focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. The production of gasoline from natural gas sourced from the Permian Basin is designed to allow Diamondback to mitigate the flaring of natural gas while also producing a high-margin product from natural gas streams that are subject to being price disadvantaged compared to other natural gas basins.

Previous wording

On February 6, 2024, Verde and Cottonmouth entered into a joint development agreement (“JDA”) for the proposed development, construction, and operation of a facility to produce commodity-grade gasoline using natural gas feedstock supplied from Diamondback’s operations in the Permian Basin. 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. We expect that the proposed facility, which is to be located in Martin County, Texas in the heart of the Permian Basin, could serve as a template for additional natural gas-to-gasoline projects throughout the Permian Basin and other pipeline-constrained basins in the U.S., as well as addressing flared or stranded natural gas opportunities internationally.

Current wording

On February 6, 2024, Verde and Cottonmouth entered into the JDA, which provides a pathway forward for the parties to reach final definitive documents and final investment decision (“FID”). The JDA frames the contracts contemplated to be entered into between the parties, including an operating agreement, ground lease agreement, construction agreement, license agreement and financing agreements as well as conditions precedent to close such as FID. The expectation for the project is to produce approximately 3,000 barrels per day of fully-refined gasoline utilizing Verde’s patented STG+® process. We expect that the proposed facility, which is to be located in Martin County, Texas in the heart of the Permian Basin, could serve as a template for additional natural gas-to-gasoline projects throughout the Permian Basin and other pipeline-constrained basins in the U.S., as well as addressing flared or stranded natural gas opportunities internationally.

Previous wording

On June 4, 2024, we announced the selection of Chemex Global, LLC (Chemex”) as the contractor to spearhead the pre-front-end engineering and design (“FEED”) phase of the JDA. With the selection of Chemex, FEED work commenced and is expected to be completed in early 2025. In connection with entering into the JDA and the commencement of FEED, we began to incur development costs with respect to the project. Under the terms of the JDA, 65% of the approved development costs that we incur (which includes the FEED costs) are reimbursed by Cottonmouth. Upon FEED completion and reaching FID, it is anticipated that engineering, procurement and construction work will then commence, with the goal to complete construction in 2027.

Current wording

On June 4, 2024, we announced the selection of Chemex Global, LLC (“Chemex”) as the contractor to spearhead the pre-front-end engineering and design (“FEED”) phase of the project contemplated by the JDA. With the selection of Chemex, FEED work commenced and is expected to be completed in mid-2025. In connection with entering into the JDA and the commencement of FEED, we began to incur development costs with respect to the project. Under the terms of the JDA, 65% of the approved development costs that we incur (which includes the FEED costs) are reimbursed by Cottonmouth. Upon FEED completion and reaching FID, it is anticipated that engineering, procurement and construction work will then commence, with the goal to complete construction in 2027.

Previous wording

In August 2023, we announced a non-binding carbon dioxide management agreement (“CDMA”) with Carbon TerraVault JV HoldCo, LLC, a carbon management partnership focused on carbon capture and sequestration development formed between Carbon TerraVault, a subsidiary of California Resources Corporation (“CRC”), and Brookfield Renewable. The CDMA was subsequently amended in December 2023 to extend the term to the earlier of entry into a binding transaction or December 31, 2024. Under the terms of the non-binding agreement, the Company would construct a new renewable gasoline production facility at CRC’s existing Net Zero Industrial Park in Kern County, California, to capture carbon dioxide and produce renewable gasoline from biomass and other agricultural waste feedstock to help support the further decarbonization of California’s economy and its transportation sector. It is anticipated that the project could produce up to 7 million gallons per year of renewable gasoline for use as transportation fuel.

Current wording

In August 2023, we announced a non-binding carbon dioxide management agreement (the “CDMA”) with Carbon TerraVault JV HoldCo, LLC, a carbon management partnership focused on carbon capture and sequestration development formed between Carbon TerraVault, a subsidiary of California Resources Corporation (“CRC”), and Brookfield Renewable Partners. The CDMA was subsequently amended in December 2023 to extend the term to the earlier of entry into a binding, definitive agreement or December 31, 2024. Under the terms of the non-binding CDMA, we would construct a new renewable gasoline production facility at CRC’s existing Net Zero Industrial Park in Kern County, California, to capture carbon dioxide and produce renewable gasoline from biomass and other agricultural waste feedstock to help support the further decarbonization of California’s economy and its transportation sector. It is anticipated that the project could produce up to 7 million gallons per year of renewable gasoline for use as transportation fuel.

Previous wording

In addition to the above, we have additional potential production facility development opportunities in early-stage due diligence. We have identified opportunities to produce gasoline from natural gas in other pipeline-constrained production areas as well as opportunities to produce renewable gasoline from biomass in locations with access to suitable feedstock, carbon sequestration, and markets. We believe the number of identified and planned potential production facilities bode well for our potential growth.

Current wording

In addition to the above, we have additional potential production facility development opportunities in early-stage due diligence. We have identified opportunities to produce gasoline from natural gas in other pipeline-constrained production areas as well as opportunities to produce renewable gasoline from biomass in locations with access to suitable feedstock, carbon sequestration, and markets. We believe the number of identified and planned potential production facilities bodes well for our potential growth.

Previous wording

General and administrative expenses consist of compensation costs including salaries, benefits and share-based compensation expense, for personnel in executive, finance, accounting and other administrative functions. General and administrative expenses also include legal fees, professional fees paid for accounting, auditing and consulting services, and insurance costs. Following the Business Combination, we incurred and expect to continue to incur higher general and administrative expenses for public company costs such as compliance with the regulations of the SEC and the Nasdaq Capital Market.

Current wording

General and administrative expenses consist of compensation costs including salaries, benefits and share-based compensation expense, for personnel in executive, finance, accounting and other administrative functions. General and administrative expenses also include legal fees, professional fees paid for accounting, auditing and consulting services, and insurance costs. Following the Business Combination, we incurred and expect to continue to incur higher general and administrative expenses for public company costs such as compliance with the regulations of the U.S. Securities and Exchange Commission (the “SEC”) and the Nasdaq Capital Market.

Previous wording

Prior to the Business Combination, we had an arrangement payable to our Chief Executive Officer (“CEO”) and a consultant whereby a contingent payment would become payable if certain return on investment hurdles were met within five years of an asset purchase arrangement. The contingent consideration was forfeited when we closed on the Business Combination.

Current wording

Prior to the Business Combination, we had an arrangement payable to our Chief Executive Officer and a consultant whereby a contingent payment would become payable if certain return on investment hurdles were met within five years of an asset purchase arrangement. The contingent consideration was forfeited in connection with the Closing of the Business Combination.

Previous wording

Other income primarily consists of interest and dividend income earned on the Company’s cash and cash equivalents balances.

Current wording

Other income primarily consists of interest and dividend income earned on our cash and cash equivalents balances.

Previous wording

General and administrative expense increased approximately $0.5 million, or 22%, for the three months ended June 30, 2024 compared to the same period in 2023. The increase was primarily attributable to higher salaries and benefits of $0.3 million as a result of an increase in headcount and higher professional fees of $0.2 million, including legal and marketing fees.

Current wording

General and administrative expenses increased approximately $0.2 million, or 7%, for the three months ended September 30, 2024 compared to the same period in 2023. The increase was primarily attributable to higher salaries and benefits of $0.2 million as a result of an increase in headcount.

Previous wording

The increase in other income of $0.2 million for the three months ended June 30, 2024 compared to the same period in 2023 was primarily attributable to interest and dividend income earned from our money market investment, which was approximately $21.3 million as of June 30, 2024.

Current wording

Other income increased approximately $0.1 million for the three months ended September 30, 2024 compared to the same period in 2023. The increase was primarily attributable to higher interest and dividend income earned from our money market investment, which was approximately $19.9 million as of September 30, 2024.

Previous wording

The $0.1 million decrease in interest expense during the three months ended June 30, 2024 compared to the same period in 2023 was attributable to our former land lease in Maricopa, Arizona, which was classified as a finance lease until the third quarter of 2023, at which time the lease was modified and reclassified to an operating lease. The lease was exited on December 31, 2023. See Note 5 in the accompanying unaudited consolidated financial statements for further information.

Current wording

Interest expense decreased approximately $0.1 million for the three months ended September 30, 2024 compared to the same period in 2023. The decrease was primarily attributable to our former land lease in Maricopa, Arizona, which was classified as a finance lease until the third quarter of 2023, at which time the lease was modified and reclassified to an operating lease. The lease was exited on December 31, 2023. See Note 5 in the accompanying unaudited consolidated financial statements for further information.

Previous wording

The income tax benefit for the three months ended June 30, 2024 consisted of a refund received in connection with a previously paid income tax penalty. There was no provision for income taxes for the three months ended June 30, 2024 and 2023 due to a full valuation allowance that was recorded as of June 30, 2023, and maintained as of June 30, 2024.

Current wording

There was no provision for income taxes for the three months ended September 30, 2024 due to a full valuation allowance that was recorded as of September 30, 2023, and maintained as of September 30, 2024. The income tax provision for the three months ended September 30, 2023 was due to changes in estimate related to our 2022 tax obligation.

Previous wording

General and administrative expense decreased approximately $0.9 million, or 14%, for the six months ended June 30, 2024 compared to the same period in 2023. The decrease was primarilydue to $2.1 million of shared-based compensation expense recorded in the six months ended June 30, 2023 associated with the accelerated vesting of all the outstanding series A incentive units and Founder incentive units as a result of the Business Combination. The decrease was partially offset byhigher share-based compensation expense of $0.3 million associated with restricted stock units granted in April 2023 and stock options granted in April 2023 and May 2024, higher salaries and benefits expense of $0.5 million attributable to an increase in headcount and higher professional fees of $0.5 million.

Current wording

General and administrative expenses decreased approximately $0.8 million, or 8%, for the nine months ended September 30, 2024 compared to the same period in 2023. The decrease was primarily due to $2.1 million of unit-based compensation expense recorded in the nine months ended September 30, 2023 associated with the accelerated vesting of all the outstanding series A incentive units and Founder incentive units as a result of the Business Combination. The decrease was partially offset by higher salaries and benefits expense of $0.6 million attributable to an increase in headcount, higher professional fees of $0.5 million and higher share-based compensation expense of $0.4 million associated with restricted stock units granted in April 2023 and stock options granted in April 2023 and May 2024.

Previous wording

The $1.3 million change in contingent consideration for the six months ended June 30, 2024 compared to the same period in 2023 reflects the reversal during the six months ended June 30, 2023 of the remaining accrual made by Holdings for certain contingent payments due to a contractual forfeiture of the payments following the close of the Business Combination on February 15, 2023. See Note 2 in the accompanying unaudited consolidated financial statements for further information.

Current wording

The $1.3 million change in contingent consideration for the nine months ended September 30, 2024 compared to the same period in 2023 reflects the reversal during the nine months ended September 30, 2023 of the remaining accrual made by Holdings for certain contingent payments due to a contractual forfeiture of the payments following the close of the Business Combination on February 15, 2023. See Note 2 in the accompanying unaudited consolidated financial statements for further information.

Previous wording

R&D expense for the three months ended June 30, 2024 increased approximately $0.1 million, or 102% compared to the same period in 2023. The increase was primarily due to higher salaries and benefits expense as a result of an increase in headcount.

Current wording

R&D expenses for the nine months ended September 30, 2024 increased approximately $0.1 million, or 42% compared to the same period in 2023. The increase was primarily due to higher salaries and benefits expense attributable to an increase in headcount.

Previous wording

The increase in other income of $0.6 million for the six months ended June 30, 2024 compared to the same period in 2023 was primarily attributable to interest and dividend income earned from our money market investment.

Current wording

Other income increased approximately $0.7 million for the nine months ended September 30, 2024 compared to the same period in 2023. The increase was primarily attributable to higher interest and dividend income earned from our money market investment.

Previous wording

The $0.2 million decrease in interest expense during the six months ended June 30, 2024 compared to the same period in 2023 was attributable to our former land lease in Maricopa, Arizona, which was classified as a finance lease until the third quarter of 2023, at which time the lease was modified and reclassified to an operating lease. The lease was exited on December 31, 2023.

Current wording

Interest expense decreased approximately $0.2 million for the nine months ended September 30, 2024 compared to the same period in 2023. The decrease was primarily attributable to our former land lease in Maricopa, Arizona, which was classified as a finance lease until the third quarter of 2023, at which time the lease was modified and reclassified to an operating lease. The lease was exited on December 31, 2023.

Previous wording

The income tax benefit for the six months ended June 30, 2024 consisted of a refund received in connection with a previously paid income tax penalty. There was no provision for income taxes for the six months ended June 30, 2024 and 2023 due to a full valuation allowance that was recorded as of June 30, 2023, and maintained as of June 30, 2024.

Current wording

The income tax benefit for the nine months ended September 30, 2024 consisted of a refund received in connection with a previously paid income tax penalty. The income tax provision for the nine months ended September 30, 2023 was due to changes in estimate related to our 2022 tax obligation.

Previous wording

To date, we have not generated any revenue, and as of June 30, 2024, we had cash and cash equivalents of $23.2 million. We do not expect to generate any meaningful revenue unless and until we are able to commercialize our first production facility. Since inception, we have incurred significant operating losses, have an accumulated deficit of $25.6 million as of June 30, 2024 and generated negative operating cash flows during the six months ended June 30, 2024 and June 30, 2023. Management expects that operating losses and negative cash flows may increase in future periods because of additional costs and expenses related to the development of technology and the development of market and strategic relationships with other companies. Our continued solvency is dependent upon our ability to obtain additional working capital to complete our product development and to successfully achieve commerciality of our projects.

Current wording

As of September 30, 2024, we are still in the process of developing our first commercial production facility and have not derived revenue from our principal business activities. We do not expect to generate any meaningful revenue unless and until we are able to commercialize our first production facility. Since inception, we have incurred operating losses and generated negative operating cash flows primarily attributable to our ongoing general and administrative expenses and R&D activities.

Previous wording

In connection with entering into the JDA with Cottonmouth, a subsidiary of Diamondback, we have begun to incur development costs with respect to the project, prior to reaching FID and entering into final definitive agreements, irrespective of whether these events occur. The Company plans to invest approximately $3 million, net of the reimbursement from Cottonmouth, for FEED costs in support of the Permian Basin natural gas-to-gasoline facility, which is expected to take approximately eight months to complete.

Current wording

We measure liquidity in terms of our ability to fund the cash requirements of our development activities and our near-term business operations, including our contractual obligations and other commitments. Our current liquidity needs primarily involve general and administrative expenses and R&D activities for the ongoing development of our first commercial production facility. In connection with entering into the JDA with Cottonmouth, a subsidiary of Diamondback, we have begun to incur development costs with respect to the project, prior to reaching FID and entering into final definitive agreements, irrespective of whether these events occur. We plan to invest approximately $3 million, net of the reimbursement from Cottonmouth, for FEED costs in support of the Permian Basin natural gas-to-gasoline facility.

Previous wording

Summary Statement of Cash Flows for the Six Months Ended June 30, 2024 and June 30, 2023

Current wording

Summary Statement of Cash Flows for the Nine Months Ended September 30, 2024 and September 30, 2023

Previous wording

Net cash used in operating activities increased $0.2 million during the six months ended June 30, 2024 compared to the same period in 2023. The increase was primarily due to higher operating expenses, including salaries and benefits and professional fees, during the six months ended June 30, 2024, partially offset by an increase in dividend income and a decrease in cash paid for D&O insurance during the six months ended June 30, 2024.

Current wording

Net cash used in operating activities decreased $0.1 million during the nine months ended September 30, 2024 compared to the same period in 2023. The decrease was primarily due to an increase in interest and dividend income and a decrease in cash paid for D&O insurance, mostly offset by higher operating expenses, including salaries and benefits and professional fees.

Previous wording

Net cash used in investing activities increased $0.6 million during the six months ended June 30, 2024 compared to the same period in 2023. The increase was primarily attributable to development costs incurred for the JDA upon commencement of the FEED in June 2024. There were no cash reimbursements received from Cottonmouth during the six months ended June 30, 2024. See Notes 6 and 11 in the accompanying consolidated financial statements for further information.

Current wording

Net cash used in investing activities increased $0.4 million during the nine months ended September 30, 2024 compared to the same period in 2023. The increase was primarily attributable to development costs incurred in connection with the JDA upon commencement of the FEED in June 2024, partially offset by cash reimbursements for such capital expenditures received from Cottonmouth. See Notes 6 and 11 in the accompanying consolidated financial statements for further information.

Previous wording

Following the Business Combination and the closing of the PIPE Financing, we received approximately $37.3 million in cash, net of approximately $10.0 million of transaction expenses and the repayment of approximately $3.8 million of capital contributions made by Bluescape Clean Fuels Holdings, LLC since December 2021. We expect to use such proceeds to fund our ongoing operations and R&D activities. The gross amount, before expenses, was composed of approximately $19.0 million release from CENAQ’s Trust Account, after payment of approximately $158.8 million to public stockholders who exercised redemption rights (representing a redemption rate of approximately 89.3%), and $32.0 million of proceeds from the PIPE Financing. We also received $0.1 million from the CENAQ operating account. We believe that based on our current level of operating expenses and currently available cash on hand, we will have sufficient funds available to cover R&D activities and operating cash needs for at least the next 12 months. However, as we have not yet developed a commercial production facility and have no revenue to date, we will likely require additional funds in future years. Our ability to raise funds through equity offerings may be limited by the significant number of shares that may be publicly sold. As the exercise price of our Public Warrants is $11.50 per share of Class A common stock, we do not expect that Public Warrants will be exercised in the foreseeable future. Our ability to fund R&D activities and our operating cash needs for several years does not depend on the proceeds we may receive as the result of exercises of outstanding Warrants.

Current wording

Net cash provided by financing activities was zero for the nine months ended September 30, 2024 compared to $37.5 million for the same period in 2023. Net cash provided by financing activities for the nine months ended September 30, 2023 consisted of the net proceeds received from the Closing of the Business Combination and PIPE Financing. Following the Business Combination and the Closing of the PIPE Financing, we received approximately $37.3 million in cash, net of approximately $10.0 million of transaction expenses and the repayment of approximately $3.8 million of capital contributions made by Bluescape Clean Fuels Holdings, LLC since December 2021. The gross amount, before expenses, was composed of approximately $19.0 million release from CENAQ’s Trust Account, after payment of approximately $158.8 million to public stockholders who exercised redemption rights (representing a redemption rate of approximately 89.3%), and $32.0 million of proceeds from the PIPE Financing. We also received $0.1 million from the CENAQ operating account.