CENAQ ENERGY(CENQ) - 2025 Q1 - Quarterly Report

Part I Financial Information Financial Statements The company, currently in the development stage with no revenue, reported a net loss of $2.7 million for the three months ended March 31, 2025, with total assets significantly increasing to $71.3 million from $23.6 million due to a $50 million cash injection, reflecting ongoing development costs for the Permian Basin Project and preparations for commercial operations Note 1 – The Company Verde Clean Fuels is a development-stage company focused on deploying its proprietary syngas-to-gasoline (STG+®) technology, organized under an Up-C structure following a February 2023 business combination, with primary stockholders being Bluescape Clean Fuels Holdings, LLC and Cottonmouth Ventures, LLC - The company's core business is deploying its proprietary STG+® process to convert syngas from diverse feedstocks, particularly associated natural gas, into finished gasoline[23] - The company was formed through a business combination with CENAQ Energy Corp., a SPAC, on February 15, 2023, and is organized under an umbrella partnership C corporation (Up-C) structure[25][26][27] Note 2 – Summary of Significant Accounting Policies The development-stage company, without revenue, capitalizes probable project development costs, treats STG+® technology as an indefinite-lived intangible asset, accounts for its Up-C structure, and has opted out of the extended transition period for new accounting standards - The company is a development-stage entity and has not yet commenced principal operations or generated revenue, with its ability to proceed subject to risks like obtaining permits, financing, and managing commodity price risk[29][30] - Project development and construction costs are capitalized as 'construction in progress' once the project is determined to be probable, which began with the Permian Basin Project upon entry into the JDA with Cottonmouth[53] - The company's intellectual property and patented STG+® technology are considered indefinite-lived intangible assets and are not amortized but tested for impairment[55] - As an emerging growth company, Verde has elected to opt out of the extended transition period for new accounting standards, adopting them on the same timeline as other public companies[66] Note 3 – Relationship with Cottonmouth and Permian Basin Project The company is advancing the Permian Basin Project with Cottonmouth, which made a $50 million investment in January 2025, and under a Joint Development Agreement, Cottonmouth reimburses 65% of approved development costs, including the ongoing FEED study - In January 2025, Cottonmouth completed a $50 million PIPE Investment, purchasing 12,500,000 shares of Class A common stock at $4.00 per share[88] - A Joint Development Agreement (JDA) was established in February 2024 for the Permian Basin Project, which outlines the path to a final investment decision (FID)[86] - Under the JDA, Cottonmouth reimburses 65% of the approved development costs, which includes the FEED study being conducted by Chemex Global, LLC[87] Note 4 – Property, Plant, and Equipment Net property, plant, and equipment increased to $1.59 million as of March 31, 2025, from $1.10 million at year-end 2024, primarily due to capitalized FEED study costs for the Permian Basin Project recorded under 'Construction in progress' Property, Plant, and Equipment, Net | Category | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Construction in progress | $1,518,039 | $1,028,900 | | Property, plant and equipment, net | $1,592,001 | $1,096,270 | - As of March 31, 2025, construction in progress assets consist of $4,301,267 in capitalized FEED costs, net of $2,783,228 reimbursable by Cottonmouth[91] Note 8 – Stockholders’ Equity Stockholders' equity includes earn-out shares contingent on stock price targets, with share-based compensation expense of $416,550 for the quarter, and 3.2 million stock options outstanding as of March 31, 2025, while no expense was recorded for unfulfilled incentive unit performance conditions - Earn-out shares for Holdings (3.5 million Class C shares) and the Sponsor (3.2 million Class A shares) are subject to vesting upon achieving VWAP targets of $15.00 and $18.00[106][107] - Share-based compensation expense was $416,550 for the three months ended March 31, 2025, compared to $248,701 for the same period in 2024[111] - As of March 31, 2025, there were 3,224,193 stock options outstanding with a weighted average exercise price of $7.91[114] Note 10 – Loss Per Share The company reported a basic and diluted loss per share of $0.08 for the three months ended March 31, 2025, with 21.8 million potentially dilutive securities excluded due to their anti-dilutive effect, and Class A stockholders' ownership increasing to 49.49% due to the Cottonmouth stock issuance Loss Per Share Calculation | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net loss attributable to Verde Clean Fuels, Inc. | $(1,246,711) | $(772,371) | | Basic weighted-average shares outstanding | 14,808,300 | 6,173,716 | | Basic and Diluted loss per share | $(0.08) | $(0.13) | - A total of 21.8 million potentially dilutive instruments (warrants, options, etc.) were excluded from the diluted EPS calculation as their effect was anti-dilutive[127][129] - The ownership interest of Class A common stockholders increased from 29.80% at year-end 2024 to 49.49% as of March 31, 2025, following the stock issuance to Cottonmouth[128] Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $65,280,360 | $19,044,067 | | Total current assets | $67,172,582 | $20,174,410 | | Property, plant and equipment, net | $1,592,001 | $1,096,270 | | Total assets | $71,289,198 | $23,572,306 | | Liabilities & Equity | | | | Total current liabilities | $3,456,938 | $2,810,585 | | Total liabilities | $3,546,295 | $2,888,830 | | Total stockholders' equity | $67,742,903 | $20,683,476 | Consolidated Statement of Operations Highlights (Unaudited) | Account | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | General and administrative expenses | $2,997,522 | $2,789,376 | | Research and development expenses | $183,306 | $85,835 | | Total operating loss | $3,180,828 | $2,875,211 | | Net loss | $(2,703,585) | $(2,529,083) | | Net loss attributable to Verde Clean Fuels, Inc. | $(1,246,711) | $(772,371) | | Loss per share of Class A common stock | $(0.08) | $(0.13) | Consolidated Statement of Cash Flows Highlights (Unaudited) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,701,761) | $(2,829,250) | | Net cash used in investing activities | $(11,946) | $(8,323) | | Net cash provided by financing activities | $49,950,000 | $0 | | Net change in cash, cash equivalents and restricted cash | $46,236,293 | $(2,837,573) | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's development-stage status and STG+® technology, highlighting a $50 million PIPE investment, the ongoing Permian Basin Project FEED study, a Q1 2025 net loss of $2.7 million due to higher operating expenses, and sufficient cash of $65.3 million for 2025 operations, though additional capital is needed for the first commercial plant Recent Developments In January 2025, the company completed a $50 million private placement with Cottonmouth, issuing 12.5 million Class A common shares, and concurrently amended its charter to expand the Board of Directors and grant Cottonmouth director designation rights - On January 29, 2025, the company closed a $50 million PIPE Investment with Cottonmouth, a subsidiary of Diamondback Energy[147] - The company's charter was amended to increase the board size from seven to eight and grant Cottonmouth director designation and board observer rights[149] Results of Operations For the three months ended March 31, 2025, the total operating loss increased to $3.2 million from $2.9 million in the prior-year period, primarily due to higher General & Administrative and Research & Development expenses from additional headcount, while other income rose due to increased interest on cash balances Comparison of Operations (Three Months Ended March 31) | Account | 2025 | 2024 | | :--- | :--- | :--- | | General and administrative expenses | $2,997,522 | $2,789,376 | | Research and development expenses | $183,306 | $85,835 | | Total operating loss | $3,180,828 | $2,875,211 | | Other (income) | $(530,243) | $(346,128) | | Net loss | $2,703,585 | $2,529,083 | - General and administrative expenses increased by approximately $0.2 million (8%) due to additional headcount[165] - Research and development expenses increased by approximately $0.1 million (114%) due to additional headcount and higher software costs[167] Liquidity and Capital Resources As of March 31, 2025, the company had $65.3 million in cash and cash equivalents, expected to fund operations through fiscal year 2025, though additional capital will be required to complete the first commercial production plant, significantly boosted by $49.95 million in net proceeds from the January 2025 PIPE investment - The company had cash and cash equivalents of $65.3 million as of March 31, 2025[171] - Current cash is expected to fund requirements through the 2025 fiscal year, but additional capital will be required to complete the first commercial production plant[172] - Net cash provided by financing activities was $49.95 million for the quarter, resulting from the PIPE Investment[177] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company defined by Rule 12b-2 of the Exchange Act, the company is not required to provide quantitative and qualitative disclosures about market risk[183] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of March 31, 2025, the company's disclosure controls and procedures are effective[184] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[185] Part II Other Information Legal Proceedings As of March 31, 2025, the company is not a party to any material pending legal proceedings - The company is not currently a party to any material pending legal proceedings[188] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes have been made to the risk factors disclosed in the Annual Report on Form 10-K for the period ended December 31, 2024[189]