Verde Clean Fuels, Inc.

Previous 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. 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. References to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Previous wording

On December 18, 2024, the Company entered into common stock purchase agreement (the "Purchase Agreement") with Cottonmouth Ventures, LLC ("Cottonmouth"), a subsidiary of Diamondback Energy, LLC ("Diamondback"), pursuant to which the Company agreed to issue and sell an aggregate of 12,500,000 shares of its Class A common stock, par value $0.0001 ("Class A common stock") to Cottonmouth at a price of $4.00 per share for an aggregate purchase price of $50 (the “PIPE Investment”) in a private placement. The Company consummated the transactions contemplated by the Purchase Agreement on January 29, 2025.

Current wording

On December 18, 2024, the Company entered into common stock purchase agreement (the "Purchase Agreement") with Cottonmouth Ventures, LLC ("Cottonmouth"), a subsidiary of Diamondback Energy, LLC ("Diamondback"), pursuant to which the Company agreed to issue and sell an aggregate of 12,500,000 shares of its Class A common stock, par value $0.0001 ("Class A common stock") to Cottonmouth at a price of $4.00 per share for an aggregate purchase price of $50 million (the “PIPE Investment”) in a private placement. The Company consummated the transactions contemplated by the Purchase Agreement on January 29, 2025.

Previous wording

On December 18, 2024, the holder of a majority of the issued and outstanding shares of Class A common stock and Class C common stock, par value $0.0001 ("Class C common stock") adopted resolutions by written consent, in lieu of a meeting of stockholders to, among other things, amend and restate, immediately prior to and contingent upon the consummation of the closing of the PIPE Investment, our fourth amended and restated certificate of incorporation (the "Fourth A&R Charter"), and such amended Fourth A&R Charter is referred to as the “Restated Charter”) to (A) increase the amount of authorized shares of Class C common stock from 25,000,000 to 26,000,000 and (B) increase the size of our Board of Directors (the "Board") from seven to eight and to provide Cottonmouth with certain director designation and board observer rights. The Restated Charter was approved and recommended by the Board prior to the stockholder action by written consent. Immediately prior to closing of the PIPE Investment, on January 29, 2025, the Company filed the Restated Charter with the Delaware Secretary of State.

Current wording

On December 18, 2024, the holder of a majority of the issued and outstanding shares of Class A common stock and Class C common stock, par value $0.0001 ("Class C common stock") adopted resolutions by written consent, in lieu of a meeting of stockholders to, among other things, amend and restate, immediately prior to and contingent upon the consummation of the closing of the PIPE Investment, our fourth amended and restated certificate of incorporation (the “Restated Charter”) to (A) increase the amount of authorized shares of Class C common stock from 25,000,000 to 26,000,000 and (B) increase the size of our Board of Directors (the "Board") from seven to eight and to provide Cottonmouth with certain director designation and board observer rights. The Restated Charter was approved and recommended by the Board prior to the stockholder action by written consent. Immediately prior to closing of the PIPE Investment, on January 29, 2025, the Company filed the Restated Charter with the Delaware Secretary of State.

Previous wording

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

Previous wording

In June 2024, the Company entered into a contract with Chemex Global, LLC ("Chemex") for a front-end engineering and design ("FEED") study related to the Permian Basin Project. For the three months ended March 31, 2025, we continued to advance the FEED study related to the Permian Basin Project. During the three months ended March 31, 2025, a new site was identified for the Permian Basin Project with improved access to key utilities.

Current wording

In June 2024, we entered into a contract with Chemex Global, LLC ("Chemex") for a front-end engineering and design ("FEED") study related to the Permian Basin Project. Completing the FEED study is a key requirement to achieving FID. In January 2025, we identified a new site for the Permian Basin Project with improved access to key utilities. To date, we have continued to advance development activities related to the Permian Basin Project, including the FEED study.

Previous wording

Upon FEED completion and reaching FID, it is anticipated that engineering, procurement and construction work will then commence. It is expected that commercial operations will be achieved within 18-24 months from commencement of engineering, procurement and construction work.

Current wording

Upon satisfaction of the JDA conditions precedent and achieving FID for the Permian Basin Project, it is anticipated that engineering, procurement, and construction work will then commence. It is expected that commercial operations will be achieved within 18-24 months from commencement of engineering, procurement and construction work.

Previous wording

Under the terms of the JDA, 65% of the approved development costs that we incur (which includes the FEED costs) are reimbursed by Cottonmouth. Our construction in progress assets as of March 31, 2025 are comprised of capitalized FEED costs of $4,301,267, net of amounts reimbursable by Cottonmouth of $2,783,228.

Current wording

Under the terms of the JDA, 65% of the approved development costs that we incur (which includes costs associated with the FEED study) are reimbursed by Cottonmouth. As of June 30, 2025, our construction in progress assets are comprised of capitalized FEED costs related to the Permian Basin Project of $6,414,100, net of amounts reimbursable by Cottonmouth of $4,168,400.

Previous wording

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

Current wording

We expect that the Permian Basin Project could serve as a template for additional natural gas-to-gasoline projects throughout the Permian Basin and other pipeline-constrained basins in the U.S., as well as addressing flared or stranded natural gas opportunities internationally. In addition to the Permian Basin Project, we also continue to identify and evaluate other potential opportunities to deploy our technology while remaining disciplined with our resources.

Previous wording

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

Current wording

General and administrative expenses increased $105,546, or 4%, for the three months ended June 30, 2025 as compared to the same period in 2024. The increase was primarily due to additional headcount resulting in higher compensation expense, largely offset by a reduction in outside services and insurance expense.

Previous wording

Of our general and administrative expenses for the three months ended March 31, 2025 and 2024, $65,829 and $222,407, respectively, were business development costs. The decrease was primarily due to development costs associated with the Permian Basin Project incurred in the comparative period prior to our entry into the JDA.

Current wording

Of our general and administrative expenses for the three months ended June 30, 2025 and 2024, $7,290 and $85,047, respectively, were business development costs. The decrease was primarily due to development costs associated with the Permian Basin Project incurred in the comparative period prior to our entry into the JDA.

Previous wording

Other income increased approximately $0.2 million, or 53%, for the three months ended March 31, 2025 as compared to the same period in 2024. The increase was primarily attributable to higher interest and dividend income earned on our cash and cash equivalents, which increased due to proceeds received from the closing of the PIPE Investment in January 2025.

Current wording

Other income increased $349,155, or 110%, for the three months ended June 30, 2025 as compared to the same period in 2024. The increase was primarily due to higher interest and dividend income earned on our cash and cash equivalents, which increased due to the net proceeds received from the closing of the PIPE Investment in January 2025.

Previous wording

Research and development expenses increased approximately $0.1 million, or 114%, for the three months ended March 31, 2025 as compared to the same period in 2024. The increase was primarily due to additional headcount and higher software costs.

Current wording

General and administrative expenses increased $313,692, or 5%, for the six months ended June 30, 2025 as compared to the same period in 2024. The increase was primarily due to additional headcount resulting in higher compensation expense, which was largely offset by a reduction in outside services and insurance expense.

Previous wording

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

Current wording

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

Previous wording

We expect that our cash and cash equivalents will be sufficient to fund our cash requirements, including ongoing general and administrative expenses and planned development activities through the 2025 fiscal year. However, notwithstanding the PIPE Investment, we further expect that additional capital will be required in order to complete our first commercial production plant. The exact timing of these additional cash requirements will depend on the pacing of our development activities, which is uncertain and subject to a variety of factors, many of which are outside of our control.

Current wording

We expect that our cash and cash equivalents will be sufficient to fund our cash requirements, including ongoing general and administrative expenses and planned development activities, for the next 12 months from the reporting date. However, notwithstanding the PIPE Investment, we further expect that additional capital will be required in order to complete our first commercial production plant. The exact timing of these additional cash requirements will depend on the pacing of our development activities, which is uncertain and subject to a variety of factors, many of which are outside of our control.

Previous wording

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

Current wording

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

Previous wording

Net cash used in operating activities increased approximately $0.9 million during the three months ended March 31, 2025 as compared to the same period in 2024. The increase was primarily due to cash paid for D&O insurance and excise taxes, partially offset by an increase in interest and dividend income.

Current wording

Net cash used in operating activities increased approximately $0.9 million during the six months ended June 30, 2025 as compared to the same period in 2024. The increase was primarily due to cash paid for D&O insurance and excise tax, partially offset by higher interest and dividend income earned on our cash and cash equivalents, which increased due to the net proceeds received from the closing of the PIPE Investment in January 2025.

Previous wording

Net cash used in investing activities increased marginally during the three months ended March 31, 2025 as compared to the same period in 2024. The increase was primarily attributable to development costs incurred in connection with the JDA, partially offset by cash reimbursements for such capital expenditures received from Cottonmouth. See Note 4 in the accompanying unaudited consolidated financial statements for further information.

Current wording

Net cash used in investing activities during the six months ended June 30, 2025 was largely consistent as compared to the same period in 2024. The activities were primarily related to development costs incurred in connection with the JDA, partially offset by cash reimbursements for such capital expenditures received from Cottonmouth. See Note 4 in the accompanying unaudited condensed consolidated financial statements for further information.

Previous wording

Net cash provided by financing activities was $49.9 million for the three months ended March 31, 2025 as compared to $0 for the same period in 2024. The increase was due to the net proceeds from the closing of the PIPE Investment in January 2025.

Current wording

Net cash provided by financing activities was $49.4 million for the six months ended June 30, 2025 as compared to $0 for the same period in 2024. The increase was due to the net proceeds from the closing of the PIPE Investment in January 2025.

Previous wording

Our unaudited consolidated financial statements are based on the selection and application of significant accounting policies. The preparation of unaudited consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of expenses and allocated charges during the reporting period. Actual results could differ from those estimates. However, we are not currently aware of any reasonably likely events or circumstances that would result in materially different results.

Current wording

Our unaudited condensed consolidated financial statements are based on the selection and application of significant accounting policies. The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of expenses and allocated charges during the reporting period. Actual results could differ from those estimates. However, we are not currently aware of any reasonably likely events or circumstances that would result in materially different results.

Previous wording

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

Current wording

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