8-K/A
Verde Clean Fuels, Inc. (VGAS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):April 6, 2023 (February 15, 2023 )
VERDE
CLEAN FUELS, INC.
(Exact name of registrant as specified in itscharter)
| Delaware | 001-40743 | 85-1863331 |
|---|---|---|
| (State or Other Jurisdiction <br><br>of Incorporation) | (Commission File Number) | (I.R.S. Employer <br><br>Identification No.) |
600 Travis Street, Suite 5050
Houston, Texas 77002
(469) 398-2200
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR<br>240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR<br>240-13e-4(c)) |
| --- | --- |
Securities registered pursuantto Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Class A Common stock, par value $0.0001 per share | VGAS | The Nasdaq Capital Market |
| Warrants, each whole warrant exercisable for one share of Class A Common Stock at an exercise price of $11.50 per share | VGASW | The Nasdaq Capital Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter)
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
EXPLANATORY NOTE
This Amendment No. 1 on Form 8-K/A (“Amendment No. 1”) amends the Current Report on Form 8-K filed by Verde Clean Fuels, Inc. (the “Company”) on February 21, 2023 (the “Original Report”), in which the Company reported, among other events, the completion of the Business Combination (as defined in the Original Report).
This Amendment No. 1 (i) amends the consolidated financial statements provided under Item 9.01(a) and (b) in the Original Report to include the audited consolidated financial statements of Bluescape Clean Fuels Intermediate Holdings, LLC, a Delaware limited liability company (“Intermediate”) as of and for the years ended December 31, 2022 and 2021, (ii) includes the Management’s Discussion and Analysis of Financial Condition and Results of Operations of Intermediate for the years ended December 31, 2022 and 2021, and (iii) includes the unaudited pro forma condensed combined financial information of the Company as of and for the year ended December 31, 2022.
This Amendment No. 1 does not amend any other item of the Original Report or purport to provide an update or a discussion of any developments at the Company or its subsidiaries subsequent to the filing date of the Original Report, except as indicated below under Item 9.01. The information previously reported in or filed with the Original Report is hereby incorporated by reference to this Amendment No. 1.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired.
The audited consolidated financial statements of Intermediate as of and for the years ended December 31, 2022 and 2021 and the related notes thereto are filed herewith as Exhibit 99.1 and incorporated herein by reference.
Also included herewith as Exhibit 99.2 and incorporated herein by reference is the Management’s Discussion and Analysis of Financial Condition and Results of Operations of Intermediate for the years ended December 31, 2022 and 2021.
(b) Pro Forma Financial Information.
The unaudited pro forma condensed combined financial information of the Company as of and for the year ended December 31, 2022 is set forth in Exhibit 99.3 hereto and is incorporated herein by reference.
(d) Exhibits
| Exhibit Number | Exhibit Description |
|---|---|
| 99.1 | Audited financial statements of Bluescape Clean Fuels Intermediate Holdings, LLC as of and for the years ended December 31, 2022 and 2021. |
| 99.2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations of Bluescape Clean Fuels Intermediate Holdings, LLC for the years ended December 31, 2022 and 2021. |
| 99.3 | Unaudited pro forma condensed combined financial information of the Company as of and for the year ended December 31, 2022. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
1
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: April 6, 2023
| VERDE CLEAN FUELS, INC. | |
|---|---|
| By: | /s/<br> Ernest Miller |
| Ernest Miller | |
| Chief Executive Officer and Interim Chief Financial<br> Officer |
2
Exhibit 99.1
Bluescape Clean Fuels
Intermediate Holdings, LLC
Consolidated Financial Statements
as of December 31, 2022 and 2021
and for the years ended December 31, 2022 and 2021
| Contents | |
|---|---|
| Consolidated Financial Statements | |
| Report of Independent Registered Public Accounting Firm | F-2 |
| Consolidated Balance Sheets | F-3 |
| Consolidated Statements of Operations | F-4 |
| Consolidated Statements of Changes in Member’s Equity | F-5 |
| Consolidated Statements of Cash Flows | F-6 |
| Notes to Consolidated Financial Statements | F-7 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Member and the Board of Managers of Bluescape Clean Fuels Intermediate Holdings, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Bluescape Clean Fuels Intermediate Holdings, LLC and subsidiaries (the "Company") as of December 31, 2022, and 2021, the related consolidated statements of operations, changes in member’s equity, and cash flows, for the years ended December 31, 2022, and 2021, 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, 2022, and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, 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 and in accordance with auditing standards generally accepted in the United States of America. 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
April 6, 2023
We have served as the Company's auditor since 2022.
F-2
Bluescape Clean Fuels
Intermediate Holdings, LLC
Consolidated Balance Sheets
| December 31,<br><br> 2022 | December 31,<br><br> 2021 | |||||
|---|---|---|---|---|---|---|
| Assets | ||||||
| Current Assets | ||||||
| Cash and cash equivalents | $ | 463,475 | $ | 87,638 | ||
| Prepaid expenses | 113,676 | 53,761 | ||||
| Deferred transaction costs | 3,258,880 | - | ||||
| Deferred financing costs | 6,277 | - | ||||
| Total current assets | 3,842,308 | 141,399 | ||||
| Security deposits | 258,000 | 150,000 | ||||
| Property, equipment and improvements, net | 7,414 | 13,037 | ||||
| Operating lease right-of-use assets, net | 323,170 | 304,094 | ||||
| Intellectual patented technology | 1,925,151 | 1,925,151 | ||||
| Total assets | $ | 6,356,043 | $ | 2,533,681 | ||
| Liabilities and Member’s Equity | ||||||
| Current Liabilities | ||||||
| Accounts payable | $ | 2,857,223 | $ | 59,423 | ||
| Accrued liabilities | 762,119 | 98,440 | ||||
| Notes payable - insurance premium financing | 11,166 | 8,185 | ||||
| Operating lease liabilities - current portion | 237,970 | 224,566 | ||||
| Total current liabilities | 3,868,478 | 390,614 | ||||
| Non-current Liabilities | ||||||
| Contingent consideration | 1,299,000 | 8,850,000 | ||||
| Operating lease liabilities | 85,200 | 79,528 | ||||
| Total liabilities | 5,252,678 | 9,320,142 | ||||
| Member’s Equity | ||||||
| Member’s Equity | 12,775,901 | 7,605,369 | ||||
| Accumulated deficit | (11,672,536 | ) | (14,391,830 | ) | ||
| Total member’s (deficit) equity | 1,103,365 | (6,786,461 | ) | |||
| Total liabilities and member’s equity | $ | 6,356,043 | $ | 2,533,681 |
See Notes to Consolidated Financial Statements
F-3
Bluescape Clean Fuels
Intermediate Holdings, LLC
Consolidated Statements of Operations
| For the year ended<br> December 31, | ||||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||
| General and administrative expenses | $ | (4,514,994 | ) | $ | (3,605,580 | ) |
| Contingent consideration | 7,551,000 | (8,810,000 | ) | |||
| Research and development expenses | (316,712 | ) | (509,545 | ) | ||
| Income (loss) from operations | 2,719,294 | (12,925,125 | ) | |||
| Net income (loss) | $ | 2,719,294 | $ | (12,925,125 | ) |
See Notes to Consolidated Financial Statements
F-4
Bluescape Clean Fuels
Intermediate Holdings, LLC
Consolidated Statements of Changes in Member’s Equity
| For the year ended December 31, 2022 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Total | ||||||||
| Member’s | Accumulated | Member’s | ||||||
| Equity | Deficit | Equity (Deficit) | ||||||
| Balance - December 31, 2021 | $ | 7,605,369 | $ | (14,391,830 | ) | $ | (6,786,461 | ) |
| Capital contribution | 3,750,000 | - | 3,750,000 | |||||
| Unit-based compensation expense | 1,420,532 | - | 1,420,532 | |||||
| Net income | - | 2,719,294 | 2,719,294 | |||||
| Balance - December 31, 2022 | $ | 12,775,901 | $ | (11,672,536 | ) | $ | 1,103,365 | |
| For the year ended December 30, 2021 | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Total | ||||||||
| Member’s | Accumulated | Member’s | ||||||
| Equity | Deficit | Equity (Deficit) | ||||||
| Balance - December 31, 2020 | $ | 4,295,486 | $ | (1,466,705 | ) | $ | 2,828,781 | |
| Capital contribution | 2,000,000 | - | 2,000,000 | |||||
| Unit-based compensation expense | 1,309,883 | - | 1,309,883 | |||||
| Net loss | - | (12,925,125 | ) | (12,925,125 | ) | |||
| Balance - December 31, 2021 | $ | 7,605,369 | $ | (14,391,830 | ) | $ | (6,786,461 | ) |
F-5
Bluescape Clean Fuels
Intermediate Holdings, LLC
Consolidated Statements of Cash Flows
| For the year ended<br> December 31, | ||||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||
| Operating Activities | ||||||
| Net income (loss) | $ | 2,719,294 | $ | (12,925,125 | ) | |
| Adjustments to reconcile net income (loss) to net cash used in operating<br> activities | ||||||
| Contingent consideration | (7,551,000 | ) | 8,810,000 | |||
| Depreciation | 10,034 | 19,903 | ||||
| Unit-based compensation expense | 1,420,532 | 1,309,883 | ||||
| Amortization of right-of-use assets | 237,850 | 229,253 | ||||
| Changes in operating assets and liabilities | ||||||
| Prepaid expenses | 17,053 | 50,834 | ||||
| Security deposits | (108,000 | ) | - | |||
| Accounts payable | 108,121 | 25,701 | ||||
| Accrued liabilities | 104,819 | 82,270 | ||||
| Operating lease liabilities | (237,850 | ) | (229,253 | ) | ||
| Net cash used in operating activities | (3,279,147 | ) | (2,626,534 | ) | ||
| Investing Activities | ||||||
| Purchases of property, equipment and improvements | (4,411 | ) | (2,596 | ) | ||
| Asset acquisition | - | (287,500 | ) | |||
| Net cash used in investing activities | (4,411 | ) | (290,096 | ) | ||
| Financing Activities | ||||||
| Repayments of notes p ayable - insurance premium financing | (73,987 | ) | (47,008 | ) | ||
| Deferred transaction costs | (10,341 | ) | - | |||
| Deferred financing costs | (6,277 | ) | - | |||
| Capital contribution | 3,750,000 | 2,000,000 | ||||
| Net cash provided by financing activities | 3,659,395 | 1,952,992 | ||||
| Net Change in Cash | 375,837 | (963,638 | ) | |||
| Cash, beginning of the period | 87,638 | 1,051,276 | ||||
| Cash, end of the period | $ | 463,475 | $ | 87,638 | ||
| Noncash Investing and Financing Activities | ||||||
| Deferred transaction costs | $ | 3,248,539 | $ | - |
F-6
Bluescape Clean Fuels
Intermediate Holdings, LLC
Notes to Consolidated Financial Statements
Note 1: Organization
Bluescape Clean Fuels Intermediate Holdings, LLC (the “Company” or “BCF”), a Delaware Limited Liability Company, was formed on July 31, 2020. The Company had no operations prior to the purchase of intellectual property and patented technology on August 7, 2020.
As of December 31, 2022, the Company was wholly-owned by its sole member and immediate parent, Bluescape Clean Fuels Holdings, LLC (“BCF Holdings”). BCF Holdings was controlled by Bluescape Energy Recapitalization and Restructuring Fund IV LP (“BERR”) through a series of intermediate entities.
The Company is a developer of a proprietary liquid fuel’s technology, the STG+ process, which is designed to produce liquid hydrocarbons from synthesis gas, or syngas, derived from renewable feedstocks such as biomass and municipal solid waste (“MSW”) as well as natural gas (including synthetic natural gas) and other feedstocks. BCF’s STG+ process converts syngas into Reformulated Blend-stock for Oxygenate Blending (“RBOB”) gasoline, methanol, or a stream miscible with crude oil (“synthetic crude”). The availability biogenic MSW and the economic and environmental drivers to divert these materials from landfills enables BCF to utilize these waste streams to produce renewable gasoline. The Company is focused on the development of technology used in turning waste and other bio-feedstocks into a usable stream of syngas which is then transformed into a single finished fuel, such as gasoline, without any refining steps. Planned principal operations have not yet commenced. As of December 31, 2022 and December 31, 2021, the Company had not derived revenue from its principal business activities. The Company is managed as an integrated business; consequently, there is only one reportable segment.
The Company entered into a non-binding Business Combination Term Sheet dated December 15, 2021 (the “Term Sheet”) to combine with an existing Special Purpose Acquisition Company (SPAC). The Term Sheet indicates that the current equity holders of the Company would receive ownership interests in the merged entity implying an estimated fair value of $225,000,000 at closing and an earn out amount. Subsequently, the Company entered into a revised non-binding Business Combination Term sheet with the same Special Purpose Acquisition Company dated July 20, 2022.
On August 12, 2022, the Company signed a Business Combination Agreement with the SPAC. The implied value that the current equity holders of the Company would receive at closing remained unchanged ($225,000,000). The PIPE offering, related transactions and conditions needed to close such combination were completed on February 15, 2023 and such transaction has closed. See Note 8.
On August 5, 2022, BCF Holdings entered into an agreement with the Company’s management and CEO whereby, if the Business Combination discussed above reaches closing, the Contingent Consideration as discussed in Note 2 will be forfeited. As discussed in Note 7, the Business Combination closed and therefore the contingent consideration arrangement was terminated and no payments were made. Also on August 5, 2022, certain amendments to existing unit-based awards were made whereby all outstanding unvested Series A Incentive Units and Founders Units of BCF Holdings (as discussed in Note 5) will become fully vested in upon completion of the Business Combination. Additionally, as part of the amendment to these agreements, the priority of distributions under the Series A Incentive Units and Founders Units was also revised such that participants receive 10% of distributions after a specified return to BCF Holdings’ Series A Preferred Unit holders (instead of 20%). The modifications to the Series A Incentive Units and Founders Units did not result in any incremental unit-based compensation expense in connection with the modification.
F-7
Bluescape Clean Fuels
Intermediate Holdings, LLC
Notes to Consolidated Financial Statements
Note 2: Summary of Significant Accounting Policies
Basis of Presentation
The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).
The Company has reclassified certain prior period amounts to conform to the current period’s presentation.
Risks and Uncertainties
The Company is currently in the development stage and has not yet commenced principal operations or generated revenue. The development of the Company’s projects are subject to a number of risks and uncertainties including, but not limited to, the receipt of the necessary permits and regulatory approvals, commodity price risk impacting the decision to go forward with the projects, the availability and ability to obtain the necessary financing for the construction and development of projects.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities and disclosure of contingent assets and liabilities. The Company regularly assesses these estimates; however, actual amounts could differ from those estimates. The most significant items involving management’s estimates include estimates of unit-based compensation and contingent consideration. The impact of changes in estimates is recorded in the period in which they become known.
Principles of Consolidation
The Company’s policy is to consolidate all entities that the Company controls by ownership interest or other contractual rights giving the Company control over the most significant activities of an investee. The consolidated financial statements include the accounts of Bluescape Clean Fuels Intermediate Holdings, LLC and its wholly-owned subsidiaries Bluescape Clean Fuels, LLC, Bluescape Clean Fuels Employee Holdings, LLC, Bluescape Clean Fuels EmployeeCo, LLC, and Maricopa Renewable Fuels I, LLC. All intercompany balances and transactions have been eliminated in consolidation.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution which, at times may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
F-8
Bluescape Clean Fuels
Intermediate Holdings, LLC
Notes to Consolidated Financial Statements
Cash and Cash Equivalents
Cash and cash equivalents represent cash and short-term, highly liquid investments with maturities of three months or less at the time of purchase. The Company did not have any cash equivalents as of December 31, 2022 and December 31, 2021.
Financial Instruments
The carrying value of the Company’s financial instruments, consisting of cash, accounts payable and insurance premium financing, approximates their fair value due to the short maturity of such instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest or currency risks arising from these financial instruments.
Fair Value Measurement
The Company applies fair value accounting for all financial assets and liabilities measured on a recurring and nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The accounting guidance established a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, used to determine the fair value of its financial instruments. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
| Level 1 | Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. |
|---|---|
| Level 2 | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities. |
| Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. |
Property, Equipment, and Improvements
Property, equipment, and improvements 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 |
F-9
Bluescape Clean Fuels
Intermediate Holdings, LLC
Notes to Consolidated Financial Statements
Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the accompanying statements of operations in the period realized.
Accrued Liabilities
Accrued liabilities consist of the following:
| December 31,<br><br>2022 | December 31,<br><br>2021 | |||
|---|---|---|---|---|
| Accrued bonuses | 86,120 | 86,120 | ||
| Accrued legal fees | 558,860 | - | ||
| Other accrued expenses | 117,139 | 12,320 | ||
| $ | 762,119 | $ | 98,440 |
Leases
The Company accounts for leases under Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 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 representing its right to use the underlying asset for the lease term. In accordance with the guidance of Topic 842, leases are classified as finance or operating leases, and both types of leases are recognized on the consolidated balance sheet.
The Company recognizes right-of-use assets and lease liabilities for leases with terms greater than 12 months. Leases are classified as either finance or operating leases. This classification dictates whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. As of December 31, 2022 and 2021, the Company has only operating leases.
The Company’s right-of-use asset relates to an office facility, which includes an option to renew, with renewal terms that can extend the lease term up to 1 year. The exercise of the lease renewal is at the Company’s discretion. Renewal periods are included in the expected lease term if they are reasonably certain of being exercised by the Company. The Company’s lease agreement does not contain residual value guarantees or material restrictions or covenants.
The Company’s lease is capitalized at the present value of the minimum lease payments not yet paid. 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 Net Present Value of the lease liability.
Short-term leases (leases with an initial term of 12 months or less or leases that are cancelable by the lessee and lessor without significant penalties) are not capitalized but are expensed on a straight-line basis over the lease term. (See note 4.)
F-10
Bluescape Clean Fuels
Intermediate Holdings, LLC
Notes to Consolidated Financial Statements
Intangible Assets
The Company’s intangible asset consists of its intellectual property and patented technology and is considered an indefinite lived intangible and is not subject to amortization. As of December 31, 2022 and 2021, the gross and carrying amount of this intangible asset was $1,925,151.
A qualitative assessment of indefinite-lived intangible assets is performed in order to determine whether further impairment testing is necessary. In performing this analysis, the Company considers macroeconomic conditions, industry and market considerations, current and forecasted financial performance, entity-specific events, and changes in the composition or carrying amount of net assets under the quantitative analysis, intellectual property and patents are tested.
Based on the Company’s qualitative impairment assessment, including the implied transaction value of the business combination discussed in Note 1, the fair value of its indefinite-lived intangible asset is greater than its carrying amount, and no impairment charges were recognized in any of the periods presented.
Impairment of Long-Term Assets
The Company evaluates the carrying value of long-lived assets when indicators of impairment exist. The carrying value of a long-lived asset is considered impaired when the estimated separately identifiable, undiscounted cash flows from such asset are less than the carrying value of the asset. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the estimated cash flows discounted at a rate commensurate with the risk involved. There were no impairment charges in any of the periods presented.
Deferred Transaction Costs
Deferred transaction costs are expenses directly related to the business combination with the SPAC. These costs consist primarily of legal and accounting fees that the Company capitalized. The deferred transaction costs will be offset against the business combination proceeds and will be reclassified to additional paid-in capital in the period of the completion of the business combination with the SPAC.
Unit-Based Compensation
The Company applies the fair value method under ASC 718, Compensation—Stock Compensation (“ASC 718”), in accounting for unit-based compensation to employees. 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. The fair value of the equity award granted is estimated on the date of the grant. Performance-based units are 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.
The fair value of awards granted is estimated on the grant date using a Black-Scholes option valuation model. Expected volatility is based on historical volatility for guideline public companies that operate in the Company’s industry. The expected term of awards granted represents management’s estimate for the number of years until a liquidity event as of the grant date. The risk-free rate for the period of the expected term is based on the U.S. Treasury yield curve in effect at the time of grant. In addition, management considered the distribution priority schedule or “waterfall calculation” in its estimation process.
F-11
Bluescape Clean Fuels
Intermediate Holdings, LLC
Notes to Consolidated Financial Statements
Contingent Consideration
BCF Holdings has an arrangement payable to the Company’s CEO and a consultant whereby a contingent payment could become payable in the event that certain return on investment hurdles are met within 5 years of the closing date of the asset purchase described in Note 1. The Company remeasures this liability each reporting period and records any associated change in such obligation to the statement of operations.
In measuring the estimated amount payable under this arrangement as of December 31, 2022, the Company took into consideration the business valuation implied by the transaction entered into by the Company as described in Note 1 (Transaction approach to valuation) and a discounted cash flow analysis, which implied a value to existing equity holders of $225,000,000. Such implied value underpinned a Monte Carlo Simulation valuation model utilized in the determination of the contingent consideration liability balance.
The contingent consideration liability determination using Monte Carlo Simulation is based on a number of assumptions including expected term, expected volatility, expected dividends, the risk-free interest rate, a discount rate (WACC), and probability of success or payout, and a specified contractual return hurdle (based on internal rate of return).
During the year ended December 31, 2022, the Company reduced its probability of payment of the contingent consideration due to the likelihood of closing the Business Combination with the SPAC, at which time the contingent payment would be forfeited. The Company also updated its expected timing of transaction closing to occur in February of 2023 or approximately four months later than originally assumed as part of the December 31, 2021 valuation. The incremental time added to the expected transaction closing resulted in a higher threshold for achievement based on the internal rate of return hurdle. The Company also updated its volatility assumption and discount rate (including risk free rate) used in the valuation. Accordingly, the Company recorded a reduction in contingent consideration totaling $7,551,000 during the year ended December 31, 2022, resulting in a contingent consideration liability balance of $1,299,000 as of December 31, 2022. The measurement of this contingent consideration liability was a classified as a recurring Level 3 fair value measurement. As discussed in Notes 1 and 7, the Business Combination closed and therefore the contingent consideration arrangement was terminated and no payments were made.
There were no transfers into or out of Level 3 during the years ended December 31, 2022 and 2021.
Income Taxes
The Company is not directly subject to federal income taxes under the provisions of the Internal Revenue Code and applicable state laws; however, the Company is subject to state income taxes within certain states under the provisions of the Internal Revenue Code and applicable state laws. Therefore, taxable income or loss is reported to the individual partners for inclusion in their respective tax returns and no provision for federal and state income taxes has been included in the accompanying consolidated financial statements.
Impact of COVID-19 Pandemic
The Company is monitoring the ongoing COVID-19 pandemic, which has disrupted the global economy and financial markets. There is a significant amount of uncertainty about the length and severity of the consequences caused by the pandemic. While governmental and non-governmental organizations are engaging in efforts to combat the spread and severity of the COVID-19 pandemic and related public health issues, the full extent to which the outbreak of COVID-19 could impact the Company’s business, results of operations and financial condition is still unknown and will depend on future developments, which are highly uncertain and cannot be predicted. The Company has considered information available to it as of the date of issuance of these financial statements and has not currently experienced significant negative impact to its operations, liquidity or capital resources as a result of the COVID-19 pandemic.
F-12
Bluescape Clean Fuels
Intermediate Holdings, LLC
Notes to Consolidated Financial Statements
Note 3: Property, Equipment, and Improvements
Major classes of property, equipment, and improvements are as follows:
| December 31,<br><br>2022 | December 31,<br><br>2021 | |||
|---|---|---|---|---|
| Computers, office equipment and hardware | $ | 11,461 | $ | 7,050 |
| Furniture and fixtures | 1,914 | 1,914 | ||
| Machinery and equipment | 36,048 | 36,048 | ||
| Property, equipment, and improvements | 49,423 | 45,012 | ||
| Less: accumulated depreciation | 42,009 | 31,975 | ||
| Property, equipment and improvements, net | $ | 7,414 | $ | 13,037 |
Depreciation of property, equipment, and improvements amounted to $10,034 and $19,903 for the years ended December 31, 2022 and 2021, respectively.
Note 4: Commitments and Contingencies
Leases
On October 17, 2022, the Company entered into a 25-year land lease in Maricopa, Arizona with the intent of building a biofuel processing facility. The commencement date of the lease is in February of 2023, as control of the identified asset did not transfer to the Company on the effective date of the lease. As such, the Company did not record a ROU asset nor a lease liability as of December 31, 2022, specific to the land lease.
As of December 31, 2022, the Company maintains a lease for office and production facilities under a lease that expires in April 2023. The lease also contains a renewal option for a period of one year from the current date of expiration, which was included in the lease liability as of December 31, 2022 as the lease was reasonably certain of being renewed. The lease was renewed in January 2023 and now expires in April 2024. The lease also requires the Company to pay all executory costs (property taxes, maintenance, and insurance).
Supplemental information related to the Company’s office lease is as follows:
| **** | December 31, 2022 | **** | December 31, 2021 | **** | ||
|---|---|---|---|---|---|---|
| Right-of-use assets obtained in exchange for operating lease | $ | 323,170 | $ | 304,094 | ||
| Remaining lease term – operating lease | 1.33 years | 1.33 years | ||||
| Discount rate – operating lease | 7.5 | % | 7.5 | % |
Future minimum lease commitments as of December 31, 2022, are as follows:
| 2023 | $ | 252,179 | |
|---|---|---|---|
| 2024 | $ | 85.970 | |
| Total | $ | 338,149 | |
| Less: Interest | $ | (14.979 | ) |
| Present value of lease liabilities | $ | 323,170 |
Total operating lease expense for the years ended December 31, 2022 and 2021 was $237,850 and $229,253, respectively.
Contingencies
The Company is not party to any litigation.
F-13
Bluescape Clean Fuels
Intermediate Holdings, LLC
Notes to Consolidated Financial Statements
Note 5: Member’s Equity
During the years ended December 31, 2022 and 2021, the Company received capital contributions from BCF Holdings totaling $3,750,000 and $2,000,000, respectively.
The Company is a wholly-owned subsidiary of BCF Holdings. BCF Holdings has entered into several compensation related arrangements with management of the Company. Compensation cost associated with these arrangements has been allocated to the Company from BCF Holdings as the employees are rendering services to the Company. However, the ultimate contractual obligation related to these awards, including any future settlement, rests with BCF Holdings.
Series A Incentive Units of BCF Holdings
BCF Holdings is authorized to issue 1,000 Series A Incentive Units with such designations, voting and other rights and preferences as may be determined from time to time by the BCF Holdings’ Board of Managers. Series A Incentive Unit holders participate in earnings and distributions after a specified return to the Series A Preferred Unit holders. There were 800 Series A Incentive Units issued on August 7, 2020, and outstanding at December 31, 2022 and December 31, 2021.
Founder Incentive Units of BCF Holdings
BCF Holdings is authorized to issue 1,000 Founder Incentive Units with such designations, voting and other rights and preferences as may be determined from time to time by the BCF Holdings’ Board of Managers. Founder Incentive Unit Holders participate in distributions after a specified aggregate amount of distributions paid to the Series A Preferred Unit holders. There were 1,000 Founder Incentive Units issued on August 7, 2020, and outstanding at December 31, 2022 and December 31, 2021.
Note 6: Incentive Units
The Company follows the provisions of FASB ASC Topic 718, Compensation – Stock Compensation, as applicable to incentive units awarded by the Company and the Company’s recognition of compensation expense.
At the direction of the Company’s Board of Directors, Series A Preferred Incentive Units (Service-Based) and Series A Founder Incentive Units (Performance-Based) under the Limited Liability Company Agreement were issued to certain management members as indicated above. The Company considers these units to be equity awards and measures their fair value at the grant date.
Vesting of such units for the year ended December 31, 2022 and December 31, 2021 are as follows:
Service-Based Units
Such units shall vest 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.
F-14
Bluescape Clean Fuels
Intermediate Holdings, LLC
Notes to Consolidated Financial Statements
Performance-Based Units
Such units shall become fully vested in the event that distributions are made on account of such units subject to the participant’s continuous service through such dates.
As discussed in Note 7, the Business Combination closed on February 15, 2023 and therefore, all outstanding unvested Series A Incentive Units and Founders Units of BCF Holdings became fully vested on that date.
During the years ended December 31, 2022 and 2021, the Company recorded $1,420,532 and $1,309,883, respectively, in award-based compensation expense for the Service-Based units which is included within general and administrative expenses in the accompanying statements of operations. As of December 31, 2022, there was $2,146,792 and $593,500 of total unrecognized compensation cost related to nonvested Service-Based and Performance-Based awards granted, respectively.
A summary of the status of the Company’s nonvested units as of December 31, 2022 and changes during the year then ended, is presented below:
| **** | Service-based units | Weighted average grant- date fair value per unit | Service and performance- based units | Weighted average grant- date fair value per unit | ||||
|---|---|---|---|---|---|---|---|---|
| Nonvested, beginning of year | 600 | $ | 6,778 | 1,000 | $ | 594 | ||
| Granted | 0 | 0 | 0 | 0 | ||||
| Vested | 200 | 6,778 | 0 | 0 | ||||
| Forfeited | 0 | 0 | 0 | 0 | ||||
| Nonvested, end of year | 400 | $ | 6,778 | 1,000 | $ | 594 |
A summary of the status of the Company’s nonvested units as of December 31, 2021, and changes during the year then ended is presented below:
| **** | Service-based units | Weighted average grant- date fair value per unit | Service and performance- based units | Weighted average grant- date fair value per unit | ||||
|---|---|---|---|---|---|---|---|---|
| Nonvested, beginning of year | 800 | $ | 6,778 | 1,000 | $ | 594 | ||
| Granted | 0 | 0 | 0 | 0 | ||||
| Vested | 200 | 6,778 | 0 | 0 | ||||
| Forfeited | 0 | 0 | 0 | 0 | ||||
| Nonvested, end of year | 600 | $ | 6,778 | 1,000 | $ | 594 |
Note 7: Related Party Transactions
The Company follows FASB ASC subtopic 850-10, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.
There were no related party transactions entered into with Green Energy Partners, Inc, our controlling owner BERR or its general partner, Bluescape Energy Partners IV GP LLC, and registered investment advisor Bluescape Energy Partners LLC for the year ended December 31, 2022. During the year ended December 31, 2021, the Company paid $2,758 in fees related to franchise tax and other tax preparation services on behalf of Green Energy Partners, Inc.
F-15
Bluescape Clean Fuels
Intermediate Holdings, LLC
Notes to Consolidated Financial Statements
Note 8: Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to April 6, 2023, the date that the financial statements were issued.
On August 12, 2022, the Company and BCF Holdings entered into a business combination agreement with Verde Clean Fuels, Inc., a Delaware corporation (formerly CENAQ Energy Corp.), Verde Clean Fuels OpCo, LLC, a Delaware limited liability company and a wholly-owned subsidiary of CENAQ Energy Corp., and CENAQ Sponsor LLC, A Delaware limited liability company. In connection with the closing of the business combination, on February 15, 2023, the combined company changed its name to Verde Clean Fuels, Inc. (“Verde”), and shares of Class A common stock of Verde began trading on the NASDAQ Capital Markets on February 16, 2023 under the symbol “VGAS” along with the public warrants under the symbol “VGASW.” Cash consideration received by Verde at closing totaled $51 million prior to the payment of closing-related costs, of which $32 million was received from the PIPE investors and the remaining $19 million in proceeds was from CENAQ’s trust account.
Concurrent with the business combination, $3,750,000 of capital contributions from BCF Holdings related to the Series A Preferred Units were repaid upon closing of the transaction, and the units were cancelled.
Also concurrent with the business combination, Diamondback Energy, Inc. (“Diamondback”), through its wholly-owned subsidiary, Cottonmouth Ventures LLC (“Cottonmouth Ventures”), made a $20 million equity investment in Verde (which is included in the amount of proceeds from the PIPE investors noted above) and has entered into an Equity Participation Right Agreement pursuant to which Verde will grant Cottonmouth the right to participate and jointly develop Permian Basin facilities utilizing Verde’s STG+ technology for the production of gasoline derived from economically disadvantaged natural gas feedstocks.
On February 14, 2023, the 25-year land lease in Maricopa, Arizona commenced with the intent of building a biofuel processing facility.
F-16
Exhibit 99.2
MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS OF INTERMEDIATE
You should read the followingdiscussion and analysis of Intermediate’s financial condition and results of operations together with Intermediate’s financialstatements and the related notes included elsewhere in this proxy statement. Some of the information contained in this discussion andanalysis is set forth elsewhere in this Amendment No. 1 on Form 8-K/A or the proxy statement, including information with respect to Intermediate’splans and strategy for its business and related financing, and includes forward-looking statements that involve risks and uncertainties.As a result of many factors, including those factors set forth in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements,”Intermediate’s actual results could differ materially from the results described in or implied by the forward-looking statementscontained in the following discussion and analysis. Throughout this section, unless otherwise noted “we,” “us,”“our” and the “Company” refer to Intermediate.
Overview
We are a renewable energy company specializing in the conversion of synthesis gas, or syngas, derived from diverse feedstocks, such as biomass, MSW and mixed plastics, as well as natural gas (including synthetic natural gas) and other feedstocks, into liquid hydrocarbons that can be used as gasoline through an innovative and proprietary liquid fuels technology, the STG+ process. Through our STG+ process, we convert syngas into RBOB gasoline. We are focused on the development of technology and commercial facilities aimed at turning waste and other bio-feedstocks into a usable stream of syngas which is then transformed into a single finished fuel, such as gasoline, without any additional refining steps. The availability of biogenic MSW and the economic and environmental drivers that divert these materials from landfills will enable us to utilize these waste streams to produce renewable gasoline from modular production facilities with expected capacity to produce between approximately seven million to 30 million gallons of renewable gasoline per year.
Our commercial production facilities will be based on our proprietary and innovative STG+ technology, which provides a scalable process that will deliver cost-effective renewable gasoline. Our core technology, STG+, can be combined with third party gasification technology to generate approximately seven million to 30 million gallon per year renewable gasoline production facilities. STG+ is focused on simplification and efficiency versus traditional Fischer-Tropsch processes and we believe this results in cost-effective, and modular, production facilities that can be co-located close to feedstocks or end-use markets.
Formation
On July 29, 2020, Green Energy Partners, Inc. (“GEP”), formed by the Chief Executive Officer of Intermediate, and an additional individual (the “Founders”), entered into an asset purchase agreement with Primus Green Energy, Inc. (“Primus”) to purchase the assets of Primus. The assets under the asset purchase agreement included a demonstration facility, a laboratory, office space, and intellectual property including the patented STG+ process technology.
GEP then assigned its rights under the asset purchase agreement to a newly formed subsidiary of Intermediate. Immediately following the closing of the asset purchase agreement, the GEP Founders sold 100% of their membership interests to BEP Clean Fuels Holdings, LLC, a Delaware limited liability company (“BEP”) a wholly owned subsidiary of the Bluescape Energy Recapitalization and Restructuring Fund IV LP, in exchange for agreeing to make the payments under the asset purchase agreement as well as other capital contributions and a contingent payment. BEP ultimately contributed the membership interests down to its wholly owned subsidiary Bluescape Clean Fuels Holdings, LLC which then immediately contributed the membership interest down to its wholly owned subsidiary Intermediate. Intermediate held the acquired assets through Bluescape Clean Fuels, LLC. Since acquiring the assets from Primus, we have developed the use and application of the technology acquired to focus on the renewable energy industry.
The Transactions
We entered into the Business Combination Agreement with CENAQ on August 12, 2022. Pursuant to the Business Combination Agreement, on February 15, 2023, (i) (A) CENAQ contributed to OpCo (1) all of its assets (excluding its interests in OpCo and the SPAC Stockholder Redemption Amount) and (2) the Holdings Class C Shares and (B) in exchange therefor, OpCo issued to CENAQ a number of Class A OpCo Units equal to the number of total shares of Class A Common Stock issued and outstanding immediately after the Closing (taking into account the PIPE Financing and following the exercise of Redemption Rights) 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) the Holdings OpCo Units and the Holdings Class C Shares. Holdings holds 22,500,000 OpCo Units and an equal number of shares of Class C Common Stock.
The business combination will be accounted for akin to a common control reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. The Business Combination will not be 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 will continue to have control of the board of directors through its majority voting rights.
Under the guidance in the FASB ASC 805, Business Combinations, 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 will be treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of Intermediate issuing stock for the net assets of CENAQ, accompanied by a recapitalization.
The most significant change in Verde Clean Fuel’s future reported financial position and results is a net increase in cash (as compared to Intermediate’s financial position as of December 31, 2022) of $37.1 million.
Key Factors Affecting Our Prospects and FutureResults
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.” We believe the factors described below are key to our success.
Commencing and Expanding Commercial Operations
In April 2022, we commenced a pre-FEED study for our first commercial production facility, and we are actively engaged in activities associated with securing the location, feedstock, utility interconnections, and front-end gasification for our first commercial facility. We believe our commercialization activities are being completed at a pace that can support first commercial production of renewable gasoline as early as 2025.
We have three additional production facilities planned and four additional identified potential production facility development opportunities. We believe the number of planned and identified potential production facilities bode well for our potential future success.
Successful Implementation of the first commercial facility
A critical step in our success will be the successful construction and operation of the first commercial production facility using our patented STG+ technology. We expect that the first commercial production facility could be operational as early as 2025.
2
Protection and continuous development of our patented technology
Our ability to compete successfully will depend on our ability to protect, commercialize, and further develop our proprietary process technology and commercial facilities in a timely manner, and in a manner technologically superior to and/or are less expensive than competing processes.
Key Components of Results of Operations
We are an early-stage company and our historical results may not be indicative of our future results. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical or future results of operations.
Revenue
We have not generated any revenue to date. We expect to generate a significant portion of our future revenue from the sale of renewable RBOB grade gasoline primarily in markets with federal and state level low-carbon fuel credit systems.
Expenses
General and Administrative Expense
G&A expenses consist of compensation costs for personnel in executive, finance, accounting, and other administrative functions. G&A expenses also include legal fees, professional fees paid for accounting, auditing and consulting services, and insurance costs. Following the business combination, we expect we will incur higher G&A expenses for public company costs such as compliance with the regulations of the SEC and the Nasdaq Capital Market.
Research and Development Expense
Our research and development (“R&D”) expenses consist primarily of internal and external expenses incurred in connection with our R&D activities. These expenses include labor directly performed on our projects and fees paid to third parties working on and testing specific aspects of our STG+ design and gasoline product output. R&D costs have been expensed as incurred. We expect R&D expenses to grow as we continue to develop the STG+ technology and develop market and strategic relationships with other businesses.
Income Tax Effects
We are a limited liability company that is treated as a partnership for tax purposes, with each of our members accounting for its share of tax attributes and liabilities. Accordingly, there are no current or deferred income tax amounts recorded in our financial statements.
Results of Operations
Comparison of the YearsEnded December 31, 2022 and 2021
| Year Ended December 31, | ||||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||
| General and administrative expense | $ | (4,514,994 | ) | $ | (3,605,580 | ) |
| Contingent consideration | 7,551,000 | (8,810,000 | ) | |||
| Research and development expense | (316,712 | ) | (509,545 | ) | ||
| Income (loss) from operations | 2,719,294 | (12,925,125 | ) | |||
| Net income (loss) | $ | 2,719,294 | $ | (12,925,125 | ) |
3
General and Administrative
The increase in General and administrative expenses of $909 thousand during the year ended December 31, 2022 versus the same period in 2021 was primarily due to an increase of $445 thousand in accounting and audit fees, an increase of $165 thousand in professional and consulting fees primarily related to our ongoing project commercialization efforts and a $129 thousand increase related to feedstock supply and renewable fuel credit studies prepared by outside consultants. General and administrative expenses was also impacted by a $110 thousand net increase in compensation expense primarily related to an adjustment to account for the correction of grant date fair value of our Series A Incentive Units.
Contingent Consideration
The reduction in the contingent consideration liability of $7.6 million during the year ended December 31, 2022 was primarily due to a reduction in the probability of payment following an amendment to the terms and conditions of this arrangement during the third quarter of 2022, and due to the increased likelihood of closing the Business Combination with the SPAC, at which time the contingent payment would be forfeited. We also updated assumptions related to the incremental time transpired since the closing date of our Primus asset purchase and increased the discount rate (WACC) (including the risk free rate) used in the valuation. Between July 31, 2020 (inception) and September 30, 2021, we determined that the contingent consideration liability did not significantly change due to the low likelihood of achieving the return on investment hurdles associated with the contingent payment.
Research and Development
The $193 thousand decrease in Research and development expenses was driven by a decrease in consulting and outside contractor billings on a fuel testing analysis and billings on two ongoing development projects. Such activity did not reoccur during the year ended December 31, 2022.
Comparison of the YearEnded December 31, 2021 and Period from July 31, 2020 (Inception) to December 31, 2020
| Year Ended<br> December 31,<br> 2021 | For the Period<br> From <br> July 31,<br> 2020<br><br>(Inception) to <br><br>December 31,<br> 2020 | |||
|---|---|---|---|---|
| General and administrative expenses | $ | 12,415,580 | $ | 1,357,296 |
| Research and development expenses | 509,545 | 109,409 | ||
| Loss from operations | 12,925,125 | 1,466,705 | ||
| Net loss | $ | 12,925,125 | $ | 1,466,705 |
General and Administrative
The approximately $11.1 million increase in General and administrative expenses during the year ended December 31, 2021 versus the period from inception (July 31, 2020) to December 31, 2020 was primarily due to an approximately $8.8 million increase in contingent consideration payable to certain employees and consultants of Intermediate that could become payable in the event that certain return on investment hurdles are met within five years. We remeasured the estimated payments under this arrangement and recorded an estimate of amounts payable under such arrangement. In measuring the estimated amount payable under this arrangement as of December 31, 2021, we took into consideration the business combination with CENAQ (as a non-binding term sheet was entered into in December of 2021) and the specified contractual return hurdles. Such contingent consideration arrangement, while reflected as a liability of Intermediate, was contractually entered into by the parent entity of Intermediate, or Holdings. Following the business combination, such arrangement will be settled by the parent entity (Holdings).
4
The remaining approximately $2.3 million increase during the year ended December 31, 2021 versus the period from inception (July 31, 2020) to December 31, 2020 was primarily due to a $120 thousand increase in employee bonus accruals, a $90 thousand increase in accounting and finance contractor billings, a $36 thousand increase in directors and officers insurance premiums, a $60 thousand increase in legal and professional expenses related to project developments, and a $36 thousand increase due to higher travel expenses associated with project developments. The remaining approximately $1.9 million increase is due to seven additional months during the year ended December 31, 2021 versus the period from inception (July 31, 2020) to December 31, 2020.
Research and Development
The approximately $400 thousand increase in R&D expenses of approximately for the year ended December 31, 2021 versus the period from inception (July 31, 2020) to December 31, 2020 was due to a $240 thousand increase due to higher consultant expenses related to two ongoing development projects. The remaining approximately $160 thousand increase is due to seven additional months during the year ended December 31, 2021 versus the period from inception (July 31, 2020) to December 31, 2020.
Liquidity and Capital Resources
Liquidity
We measure liquidity in terms of our ability to fund the cash requirements of our R&D activities and our near term business operations, including our contractual obligations and other commitments. Our current liquidity needs primarily involve General and administrative and R&D activities for the ongoing commercialization of our first production facility and associated plant design.
We had $0.5 million in cash and cash equivalents as of December 31, 2022 (compared to $88 thousand as of December 31, 2021).
Since inception, we have incurred significant operating losses, have an accumulated deficit of $11.7 million as of December 31, 2022 and negative operating cash flow during years ended December 31, 2022 and 2021. Management expects that operating losses and negative cash flows may increase 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, to successfully market our product and to achieve commerciality of our products.
We expect an aggregate of $727 million of capital expenditures through 2024 as we construct our first four commercial production facilities and we expect 70% of such capital requirements, or approximately $509 million, will be met with project financing, industrial revenue bonds, or pollution control bonds, or some combination of debt financing. The $37.1 million of net proceeds raised at closing of the transaction with CENAQ will contribute to the equity capital portion of our capital expenditure requirements through 2024, or approximately $218 million. We also expect to earn interest income on the net proceeds raised at closing during the ongoing development and construction of our facilities through 2024, and that such interest income will be utilized towards capital expenditures or for general and administrative expenses. While we have been in discussions with banks and other credit counterparties regarding project financing, industrial revenue bonds, or pollution control bonds, and these discussions have led to indications of debt financing equivalent to 70% of our capital expenditure requirements, there can be no assurance that we will be successful in obtaining such financing. Further, given the proceeds raised in our transaction with CENAQ are less than $218 million, our development timeline may be delayed and will require raising of additional equity or debt capital. As our transaction with CENAQ only resulted in $37.1 million of net proceeds, we expect that we will only be able to construct one of our first four planned production facilities with the proceeds from the CENAQ transaction. This could result in materially less future revenue and EBITDA compared to unaudited prospective financial projections included in our previous proxy.
5
To date, we have not generated any revenue. We do not expect to generate any meaningful revenue unless and until we are able to commercialize our first production facility, and our financial projections anticipate certain gasoline sales income from our first facility, that is not assured, will be recycled into capital expenditures in 2024 and beyond. We believe that the proceeds of the business combination (including the related private placement) may be sufficient to reach commercialization of our first production facility (after including 70% of assumed debt financing of the capital expenditure requirements). However, if we are unable to obtain debt financing, or if expenditures exceed our estimates, we may require additional equity or debt capital to complete our first production facility. Additionally, while we expect to be able to construct our first facility through the combination of transaction proceeds and debt financing, we will require additional equity or debt capital to develop the remaining three of our first four planned production facilities and to fund operations for the foreseeable future. We also expect our costs to increase in connection with advancement of our production facilities towards commercialization. In addition, we expect to incur additional costs associated with operating as a public company. If costs associated with the advancement of our production facilities towards commercialization or costs associated with operating as a public company exceed our expectations, this may also require us to seek additional capital funding sources.
Summary Statement of Cash Flows for the Years Ended December 31,2022 and 2021
The following table sets forth the primary sources and uses of cash and cash equivalents for the periods presented below:
| 2022 | 2021 | |||||
|---|---|---|---|---|---|---|
| Net cash used in operating activities | $ | (3,279,147 | ) | $ | (2,626,534 | ) |
| Net cash used in investing activities | (4,411 | ) | (290,096 | ) | ||
| Net cash provided by financing activities | 3,659,395 | 1,952,992 | ||||
| Net increase (decrease) in cash and cash equivalents | $ | 375,837 | $ | (963,638 | ) |
Cash Flows used in Operating Activities
Net cash used in our operating activities increased during the year ended December 31, 2022 versus the same period in the prior year primarily due to higher General and administrative expenses (after excluding non-cash activities such as changes in our contingent consideration payable and unit-based compensation expense). The higher General and administrative expenses were partially offset by $193 thousand less in Research and development expenses.
Cash Flows used in Investing Activities
Net cash used in investing decreased $286 thousand during the year ended December 31, 2022 compared to the same period 2021. The decrease was due to capitalized legal and professional fees that did not reoccur during the year ended December 31, 2022. The capitalized legal and professional fees during the year ended December 31, 2021 related to our asset acquisition from Primus during 2020, but were not paid until 2021.
Cash Flows from Financing Activities
Net cash provided by financing activities increased $1.7 million during the year ended December 31, 2022 compared to the same period in prior year. The increase was primarily due to Member’s Equity capital contributions by our parent entity (Holdings) to fund our ongoing operations.
Summary Statement of Cash Flows for theYear Ended December 31, 2021 and Period from July 31, 2020 (Inception) to December 31, 2020
| For the Year<br> Ended<br> December 31,<br> 2021 | For The Period<br> From July 31,<br> 2020 (Inception)<br> to December 31,<br> 2020 | |||||
|---|---|---|---|---|---|---|
| Net cash used in operating activities | $ | (2,626,534 | ) | $ | (883,640 | ) |
| Net cash used in investing activities | (290,096 | ) | (1,800,000 | ) | ||
| Net cash provided by financing activities | 1,952,992 | 3,734,916 | ||||
| Net increase (decrease) in cash and cash equivalents | $ | (963,638 | ) | $ | 1,051,276 |
6
Cash Flows used in Operating Activities
Net cash used in operating activities increased by approximately $1.7 million for the year ended December 31, 2021 compared to the period from July 31, 2020 (inception) to December 31, 2020 due to a higher net loss related to higher General and administrative and Research and development expenses during the year ended December 31, 2021 as well as seven additional months during the year ended December 31, 2021 versus the period from inception (July 31, 2020) to December 31, 2020. The higher net loss was partially offset by a $121 thousand decrease in prepaid expenses related to lower general liability insurance premiums and a $66 thousand increase in accrued liabilities related to employee bonus accruals.
Cash Flows used in Investing Activities
Net cash used in investing activities decreased by approximately $1.5 million for the year ended December 31, 2021 compared to the period from July 31, 2020 to December 31, 2020 due to approximately $1.8 million related to the acquisition of certain intellectual property from Primus that did not reoccur in 2021. This was partially offset by capitalized legal and professional fees of approximately $288 thousand during 2021 related to our asset acquisition from Primus during 2020, but were not paid until 2021. The $288 thousand was included in accrued liabilities on our balance sheets as of December 31, 2020.
Cash Flows from Financing Activities
Net cash provided by financing activities decreased approximately $1.8 million for the year ended December 31, 2021 compared to the period from July 31, 2020 to December 31, 2020 due to less Member’s Equity capital contributions by our parent entity (Holdings). $1.8 million of Member’s Equity capital contributions related to our asset acquisition from Primus during 2020 did not reoccur in 2021.
Commitments and Contractual Obligations
On October 17, 2022, we entered into a 25-year land lease in Maricopa, Arizona with the intent of building a biofuel processing facility. The commencement date of the lease is in February of 2023, as control of the identified asset did not transfer to us on the effective date of the lease.
Off-Balance Sheet Arrangements
As of December 31, 2022, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Internal Control over Financial Reporting
We have identified material weaknesses in our internal control over financial reporting. A material weakness is deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented, or detected and corrected, on a timely basis. In connection with the preparation of Intermediate’s financial statements as of December 31, 2021 and the period from July 31, 2020 (inception) to December 31, 2020, management of Intermediate noted a material weakness in our internal control over financial reporting related to the understatement of unit-based compensation expense. The understatement of the grant date fair value was due to a revision in the underlying fair value determination, and such revision was not appropriately reflected in the financial statements. Management concluded that the grant date fair value and corresponding incremental expense should be adjusted by recognizing the additional expense in Intermediate’s March 31, 2022 financials. As part of such process, management identified a material weakness in its internal control over financial reporting related to the grant date fair value revision. Additionally, Intermediate did not maintain effective internal control regarding the date on which to apply new accounting standards based upon CENAQ’s elections made as an emerging growth company under the JOBS Act, which required Intermediate to apply new accounting standards as if it were a public business entity.
7
Effective internal controls are necessary to provide reliable financial reports and prevent fraud, and material weaknesses could limit the ability to prevent or detect a misstatement of accounts or disclosures that could result in a material misstatement of annual or interim financial statements. Intermediate’s management continues to evaluate steps to remediate the material weaknesses. These material weaknesses have not been fully remediated. We are in the early stages of designing and implementing a plan to remediate the material weaknesses identified. Our plan includes the below:
| ● | Designing and implementing a risk assessment process supporting the identification of risks facing Intermediate. |
|---|---|
| ● | Implementing controls to enhance our review of significant accounting transactions and other new technical accounting and financial reporting issues and preparing and reviewing accounting memoranda addressing these issues. |
| --- | --- |
| ● | Hiring additional experienced accounting, financial reporting and internal control personnel and changing roles and responsibilities of our personnel as we transition to being a public company and are required to comply with Section 404 of the Sarbanes Oxley Act of 2002. |
| --- | --- |
| ● | Implementing controls to enable an accurate and timely review of accounting records that support our accounting processes and maintain documents for internal accounting reviews. |
| --- | --- |
We cannot assure you that these measures will significantly improve or remediate the material weaknesses described above. The implementation of these remediation measures is in the early stages and will require validation and testing of the design and operating effectiveness of our internal controls over a sustained period of financial reporting cycles and, as a result, the timing of when we will be able to fully remediate the material weaknesses is uncertain and we may not fully remediate these material weaknesses during the year ended December 31, 2023. If the steps we take do not remediate the material weaknesses in a timely manner, there could be a reasonable possibility that these control deficiencies or others may result in a material misstatement of our annual or interim financial statements that would not be prevented or detected on a timely basis. This, in turn, could jeopardize our ability to comply with our reporting obligations, limit our ability to access the capital markets and adversely impact our stock price.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in conformity with U.S. GAAP as determined by the FASB. The preparation of 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, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses and allocated charges during the reporting period. The following is a summary of certain critical accounting policies and estimates that are impacted by judgments and uncertainties and under which different amounts might be reported using different assumptions or estimation methodologies.
Contingent Consideration
Our parent entity (Holdings), on Intermediate’s behalf, has an arrangement payable to our Chief Executive Officer and a consultant whereby a contingent payment could become payable in the event that certain return on investment hurdles are met within five years of the closing date of the Primus asset purchase. We recognize the liability for such contingent payment on our balance sheets and remeasure the estimated payments under this arrangement and record our best estimate of amounts payable under such arrangement.
Our contingent consideration liability is measured at fair value and based on significant inputs not observable in the market. As such, our contingent consideration liability is classified as a Level 3 fair value measurement within the fair value hierarchy. The valuation of contingent consideration uses assumptions we believe would be made by a market participant. We assess these estimates on an ongoing basis as additional data impacting the assumptions is obtained. Changes in the fair value of contingent consideration related to updated assumptions and estimates are recognized within the consolidated statements of operations.
8
Contingent consideration may change significantly as capital contributed increases, changes in discount rates, and expected volatility, expected timing of payment (expected term), and probability of payment fluctuate. In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates.
The fair value of the contingent consideration as of the asset acquisition date and December 31, 2020 was estimated using a concluded Enterprise Value of Intermediate’s business based on a weighting of derived value from the combination of two Income approaches to business valuation (Discounted Cash Flows and Relief from Royalty). Such business value underpinned a Monte Carlo Simulation valuation model to determine the ultimate contingent consideration liability balance.
In measuring the estimated amount payable under this arrangement as of December 31, 2022 and 2021, we took into consideration a discounted cash flow valuation of the business based on internal projections as well as the business valuation implied by the proposed business combination transaction with CENAQ, which implied a value to existing equity holders of $225,000,000, and also considered the expected timing of the transaction closing which was assumed to occur in the first quarter of 2023. Such implied value and timing underpinned a Monte Carlo Simulation valuation model utilized in the determination of the contingent consideration liability balance (as similarly used in the prior periods). Primarily as a result of the higher implied value to existing equity holders implied by the CENAQ transaction non-binding term sheet (originally signed in December 2021), the fair value of our contingent consideration liability increased to $8,850,000 as of December 31, 2021. Subsequently, we continued considering the $225,000,000 implied CENAQ transaction equity value together with a discounted cash flow valuation of the business based on internal projections. We also updated our expected timing of transaction closing to occur in the fourth quarter of 2022 or approximately one quarter later than originally conceived as part of the December 31, 2021 valuation. The incremental time added to the expected transaction closing resulted in a higher threshold for achievement based on the internal rate of return hurdle. In addition, the discount rate utilized in the determination also increased primarily as a result of an increase in the risk-free rate. We also updated the probability of payment due to the increased likelihood of forfeiture of the contingent consideration payment as a result of an amendment to the terms and conditions of this contingent payment during the quarter ended September 30, 2022, as discussed further below. Accordingly, we recorded a reduction in contingent consideration totaling $7,551,000 during the year ended December 31, 2022, resulting in a contingent consideration liability balance of $1,299,000 as of December 31, 2022.
The contingent consideration liability determination using Monte Carlo Simulation is based on a number of assumptions including expected term, expected volatility, expected dividends, the risk-free interest rate, a discount rate (WACC), and probability of success, a specified contractual return hurdle (based on internal rate of return), and a contractual proportion of excess gain allocable to the contingent payment above the contractual return hurdle.
The following table provides a summary of key inputs utilized in the valuation of the contingent consideration liability as of each balance sheet date:
| December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Inputs | 2022 | 2021 | 2020 | ||||||
| Expected volatility | 68.60 | % | 65.80 | % | 56.35 | % | |||
| Expected dividends | 0 | % | 0 | % | 0 | % | |||
| Remaining expected term (in years) | 0.09 | 0.60 | 4.6 | ||||||
| Risk-free rate | 4.12 | % | 0.29 | % | 0.14% – 0.23 | % | |||
| Discount rate (WACC) | 27.2 | % | 23.4 | % | 24.3 | % | |||
| Payment probability | 25 | % | 90 | % | 1% – 12.5% | ||||
| Internal rate of return hurdle | 15 | % | 15 | % | 15 | % | |||
| Excess return allocable to contingent payment | 10 | % | 10 | % | 10 | % | |||
| Estimated fair value of contingent consideration | $ | 1,299,000 | $ | 8,850,000 | $ | 40,000 |
On August 5, 2022, BCF Holdings entered into an agreement with our management and CEO whereby, upon closing of the business combination with CENAQ, the contingent consideration would be forfeited. Following the closing on February 15, 2023, the contingent consideration was forfeited, and this arrangement was terminated.
9
Unit-Based Compensation
We apply the fair value method under ASC 718, Compensation — Stock Compensation (“ASC 718”), in accounting for unit-based compensation to employees. 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. The fair value of the equity award granted is estimated on the date of the grant. Performance-based units are 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.
Impairment of 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, we consider macroeconomic conditions, industry and market considerations, current and forecasted financial performance, entity-specific events and changes in the composition or carrying amount of net assets under the quantitative analysis, intellectual property and patents are tested for impairment using a discounted cash flow approach and tested for impairment using the relief-from-royalty method. If the fair value of an indefinite-lived intangible asset is less than its carrying amount, an impairment loss is recognized equal to the difference.
Since our formation, we have considered a mix of information in monitoring the risks associated with impairment through the use of various valuation analyses which were used to measure the estimated fair value of our stock-based incentive awards and contingent consideration arrangement (discussed above). In addition, we considered market transactions (such as our business combination with CENAQ). As discussed above, substantially all of the value of the acquired assets from Primus was attributable to the intellectual property and patented technology. Such technology has remained our core asset since our acquisition and we have continued to develop such technology and expand its application to other feedstocks.
During the years ended December 31, 2022 and 2021, we placed the most weight to our business combination with CENAQ in concluding that no impairment testing was required. We also leveraged the valuation analyses prepared in the measurement of our contingent consideration as discussed in detail above. Such transaction implies an estimated $225,000,000 valuation of our current owners which served to support management’s conclusion that fair value of our indefinite-lived intangible asset is greater than its carrying amount by a substantial amount, and no impairment charges were recognized in any of the periods presented.
Impairment of Long-Term Assets
We evaluate 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. There were no impairment charges in any of the periods presented.
Emerging Growth Company Accounting Election
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect not to take advantage of the extended transition period and comply with the requirements that apply to non- emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. We expect to be an emerging growth company at least through 2023. CENAQ has previously elected to irrevocably opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time public companies adopt the new or revised standard.
Recent Accounting Pronouncements
There is no new accounting guidance issued but not yet effective that would have a material impact to our current financial statements.
10
Exhibit99.3
UNAUDITEDPRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Unlessotherwise specified, capitalized terms used herein but not defined herein have the meanings given to such terms in the definitive proxystatement dated November 10, 2022 and filed with the Securities and Exchange Commission.
Introduction
The unaudited pro forma condensed combined balance sheet as of December 31, 2022 and the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 present the historical financial statements of CENAQ and Intermediate, adjusted to reflect the Business Combination. The unaudited condensed combined pro forma balance sheet as of December 31, 2022 gives pro forma effect to the Business Combination and related transactions as if they had occurred on December 31, 2022. The unaudited pro forma condensed combined statement of operations data for the year ended December 31, 2022 gives pro forma effect to the Business Combination and related transactions as if they had been consummated on January 1, 2022. The unaudited pro forma condensed combined financial information has been prepared in accordance with Regulation S-X, as amended.
The Business Combination includes:
| ● | Holdings<br>contributing 100% of the issued and outstanding limited liability company interests of Intermediate to OpCo in exchange for 22,500,000<br>Class C OpCo Units and an equal number of shares of Class C Common Stock; |
|---|---|
| ● | the<br>common control reverse recapitalization between CENAQ and Intermediate; |
| --- | --- |
| ● | the<br>issuance and sale of 3,200,000 shares of Class A Common Stock for a purchase price of approximately $10.00 per share, for an<br>aggregate purchase price of $32,000,000 in the PIPE Financing pursuant to the Subscription Agreements; |
| --- | --- |
| ● | Delivery<br>of $19,031,516 of proceeds from CENAQ’s Trust Account related to non-redeeming Holders of 1,846,120 of Class A Common Stock; and |
| --- | --- |
| ● | Repayment<br>of $3,750,000 of capital contributions made by Holdings since December 2021 and payment of $10,043,793 of transaction expenses including<br>deferred underwriting fees of $1,700,000; |
| --- | --- |
The unaudited pro forma condensed combined financial information has been developed from and should be read in conjunction with:
| ● | the<br>notes accompanying the unaudited pro forma condensed combined financial statements; |
|---|---|
| ● | the historical audited financial statements of CENAQ included in Verde<br>Clean Fuels’ Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023; |
| --- | --- |
| ● | the<br>historical audited financial statements of Intermediate set forth in Exhibit 99.1 of this Form 8-K/A; |
| --- | --- |
| ● | the discussion of the financial condition and results of operations of CENAQ<br>set forth in Verde Clean Fuels’ Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023 and Intermediate<br>set forth in Exhibit 99.2 of this Form 8-K/A; and |
| --- | --- |
| ● | other<br>information contained in the proxy statement, including the Business Combination Agreement and the description of certain terms thereof. |
| --- | --- |
The Transactions are being accomplished through an “Up-C” structure and the classification of consideration received by Holdings reflects such “Up-C” structure. Upon the Closing, Holdings held a number of OpCo Units that are exchangeable for an aggregate of 22,500,000 shares of Class A Common Stock, or, at the option of Verde Clean Fuels, cash in an amount equal to the net proceeds raised by selling such Class A Common Stock in a contemporaneous sale or underwritten offering.
Pursuant to the Tax Receivable Agreement, Verde Clean Fuels will be required to pay 85% of the net cash savings in U.S. federal, state and local income tax and franchise tax (computed using simplifying assumptions to address the impact of state and local taxes), if any, that it actually realizes (or in certain cases is deemed to realize) in periods after the Business Combination as a result of certain increases in tax basis pursuant to the exercise of the OpCo Exchange Right, a Mandatory Exchange or the Call Right and certain benefits attributable to imputed interest. Any such payments to TRA Holders will reduce the cash provided by the tax savings generated from future exchanges that would otherwise have been available to Verde Clean Fuels for other uses, including reinvestment or dividends to holders of Class A Common Stock. Cash tax savings from the remaining 15% of the tax benefits will be retained by Verde Clean Fuels. Verde Clean Fuels’ obligations under the Tax Receivable Agreement in connection with a change of control are subject to the Payment Cap of $50,000,000. 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.
Due to the uncertainty of the amount and timing of future exchanges of Class C OpCo Units, the unaudited pro forma condensed combined financial information assumes that no exchanges of Class C OpCo Units have occurred and therefore, no increases in tax basis have been realized. Additionally, Verde Clean Fuels would recognize a full valuation allowance for any deferred tax asset realized based on Verde Clean Fuels’ current assessment of the future realizability.
The following summarizes the Verde Clean Fuels Common Stock outstanding as of February 15, 2023. The percentage of beneficial ownership is based on 31,858,620 shares of Company’s Class A Common Stock and Class C common stock issued and outstanding as of February 15, 2023.
| Shares | %<br> of Common Stock | ||||
|---|---|---|---|---|---|
| CENAQ Public Stockholders^(a)^ | 1,846,120 | 5.79 | % | ||
| Holdings^(b)^ | 23,300,000 | 73.14 | % | ||
| New PIPE Investors (excluding<br> Holdings)^(c)^ | 2,400,000 | 7.53 | % | ||
| Sponsor and Anchor Investors^(d)^ | 1,078,125 | 3.38 | % | ||
| Sponsor<br> Earn Out shares^(e)^ | 3,234,375 | 10.15 | % | ||
| Total<br> Shares of Common Stock at Closing | 31,858,620 | 100.00 | % | ||
| Earn<br> Out Equity shares^(f)^ | 3,500,000 | ||||
| Total<br> diluted shares at Closing (including shares above)^(g)^ | 35,358,620 | ||||
| (a) | CENAQ<br> Public Stockholders holding 15,403,880 shares of Class A Common Stock exercised their right<br> to redeem such shares for a pro rata portion of the funds in the Trust Account. Excludes<br> 189,750 Underwriters Forfeited Shares owned by Imperial Capital, LLC and I-Bankers Securities,<br> Inc. that were forfeited as of Closing pursuant to the Underwriters Letter. | ||||
| --- | --- | ||||
| (b) | Includes<br> (i) 22,500,000 shares of Class C Common Stock issued to Holdings at Closing, representing<br> 100% of the shares of Class C Common Stock outstanding as of February 15, 2023, and (ii)<br> 800,000 shares of Class A Common Stock acquired by Holdings in the PIPE Financing. | ||||
| --- | --- | ||||
| (c) | Excludes<br> 800,000 shares of Class A Common Stock acquired by Holdings in the PIPE Financing. | ||||
| --- | --- | ||||
| (d) | Includes<br> 253,125 and 825,000 shares of Class A Common Stock issued to the Sponsor and Anchor Investors,<br> respectively, upon conversion of a portion of their current Class B Common Stock at Closing. | ||||
| --- | --- | ||||
| (e) | Includes 3,234,375 shares<br> of Class A Common Stock issued to the Sponsor that are subject to forfeiture pursuant to the Sponsor Letter. These shares will no<br> longer be subject to forfeiture upon the occurrence of the Triggering Events. Excludes 2,475,000 shares of Class A Common Stock issuable<br> upon the exercise of the Private Placement Warrants held by Sponsor. | ||||
| --- | --- | ||||
| (f) | Includes<br> 3,500,000 shares of Class C Common Stock issuable to Holdings upon the occurrence of the<br> Triggering Events. | ||||
| --- | --- | ||||
| (g) | Excludes<br> 12,937,500 and 2,475,000 shares of Class A Common Stock issuable upon the exercise of the<br> Public Warrants and Private Placement Warrants, respectively. | ||||
| --- | --- |
2
UNAUDITEDPRO FORMA CONDENSED COMBINED BALANCE SHEET
Asof December 31, 2022
| Historical | Transaction<br> Accounting | Pro Forma | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CENAQ | Intermediate | Adjustments | Note 2 | Combined | |||||||||
| ASSETS | |||||||||||||
| Current Assets | |||||||||||||
| Cash and cash equivalents | $ | 127,965 | $ | 463,475 | $ | 37,137,723 | (a) | $ | 37,729,163 | ||||
| Restricted cash | - | - | 100,000 | (a) | 100,000 | ||||||||
| Prepaid expenses | 6,667 | 113,676 | 1,646,000 | (k) | 1,766,343 | ||||||||
| Deferred transaction costs | - | 3,258,880 | (3,258,880 | ) | (f) | - | |||||||
| Other | - | 6,277 | - | 6,277 | |||||||||
| Total current assets | 134,632 | 3,842,308 | 35,624,843 | 39,601,783 | |||||||||
| Security deposits | - | 258,000 | - | 258,000 | |||||||||
| Deferred financing costs | 511,760 | - | (511,760 | ) | (f) | - | |||||||
| Property, plant and equipment, net | - | 7,414 | - | 7,414 | |||||||||
| Intellectual patented technology | - | 1,925,151 | - | 1,925,151 | |||||||||
| Operating lease right-of-use asset | - | 323,170 | - | 323,170 | |||||||||
| Marketable securities held in trust account | 177,790,585 | - | (177,790,585 | ) | (a) | - | |||||||
| Deferred tax assets | - | - | - | (b) | - | ||||||||
| Total assets | $ | 178,436,977 | $ | 6,356,043 | $ | (142,677,502 | ) | $ | 42,115,518 | ||||
| LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ (DEFICIT) EQUITY | |||||||||||||
| Current Liabilities | |||||||||||||
| Accounts payable and accrued liabilities | 5,029,363 | 3,619,342 | (6,146,385 | ) | (a), (f), (k) | 2,502,320 | |||||||
| Notes payable - insurance premium financing | - | 11,166 | - | 11,166 | |||||||||
| Income taxes payable | 312,446 | - | - | 312,446 | |||||||||
| Deferred tax liability | 119,186 | - | - | 119,186 | |||||||||
| Interest payable | 7,363 | - | (7,363 | ) | (a) | - | |||||||
| Promissory note - related party | 1,950,000 | - | (1,540,369 | ) | (a) | 409,631 | |||||||
| Operating lease liabilities | 237,970 | - | 237,970 | ||||||||||
| Contingent consideration | - | 1,299,000 | (1,299,000 | ) | (c), (f) | - | |||||||
| Operating lease liabilities | - | 85,200 | - | 85,200 | |||||||||
| Deferred underwriters’ discount | 4,312,500 | - | (4,312,500 | ) | (a) | - | |||||||
| Tax receivable agreement liability | - | - | - | (d) | - | ||||||||
| Total liabilities | 11,730,858 | 5,252,678 | (13,305,617 | ) | 3,677,919 | ||||||||
| Common stock subject to possible redemption | 177,578,871 | - | (177,578,871 | ) | (e) | - | |||||||
| Intermediate’s Member’s Equity | - | 12,775,901 | (12,775,901 | ) | (f) | - | |||||||
| Class A common stock | 368 | - | 568 | (f) | 936 | ||||||||
| Class B common stock | 82 | - | (82 | ) | (f) | - | |||||||
| Class C Common Stock | - | - | 2,250 | (f) | 2,250 | ||||||||
| Additional paid-in capital | - | - | 12,382,592 | (f) | 12,382,592 | ||||||||
| Retained earnings / (Accumulated deficit) | (10,873,202 | ) | (11,672,536 | ) | 21,451,847 | (f) | (1,093,891 | ) | |||||
| Noncontrolling interest | - | - | 27,145,712 | (g) | 27,145,712 | ||||||||
| Total stockholders’ equity (deficit) | (10,872,752 | ) | 1,103,365 | 48,206,986 | 38,437,599 | ||||||||
| Total Liabilities, Redeemable Common Stock and Stockholders’ (Deficit) Equity | $ | 178,436,977 | $ | 6,356,043 | $ | (142,677,502 | ) | $ | 42,115,518 |
3
UNAUDITEDPRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YearEnded December 31, 2022
| Historical | Transaction Accounting | Pro Forma | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CENAQ | Intermediate | Adjustments | Note 2 | Combined | |||||||||
| General and administrative expenses | $ | 5,715,022 | $ | 4,514,994 | $ | - | $ | 10,230,016 | |||||
| Contingent consideration | - | (7,551,000 | ) | 7,551,000 | (c) | - | |||||||
| Research and development expenses | - | 316,712 | - | 316,712 | |||||||||
| Total operating (income) expenses | 5,715,022 | (2,719,294 | ) | 7,551,000 | 10,546,728 | ||||||||
| Income (Loss) from operations | (5,715,022 | ) | 2,719,294 | (7,551,000 | ) | (10,546,728 | ) | ||||||
| Other income (expense): | |||||||||||||
| Interest earned on marketable securities held in CENAQ Trust Account | 2,455,873 | - | (2,455,873 | ) | (h) | - | |||||||
| Interest expense on promissory note - related party | (7,363 | ) | - | 7,363 | (f) | - | |||||||
| Total other income (expense) | 2,448,510 | - | (2,448,510 | ) | - | ||||||||
| Income (Loss) before provision for income taxes | (3,266,512 | ) | 2,719,294 | (9,999,510 | ) | (10,546,728 | ) | ||||||
| Provision for income taxes | (431,632 | ) | - | - | (431,632 | ) | |||||||
| Net income (loss) | (3,698,144 | ) | 2,719,294 | (9,999,510 | ) | (10,978,360 | ) | ||||||
| Net income (loss) attributable to noncontrolling interest | - | - | (7,753,415 | ) | (i) | (7,753,415 | ) | ||||||
| Net income (loss) attributable to Verde Clean Fuels, Inc. | $ | (3,698,144 | ) | $ | 2,719,294 | $ | (2,246,095 | ) | $ | (3,224,945 | ) | ||
| Weighted average Class A Common Stock outstanding, basic and diluted | (j) | 6,124,245 | |||||||||||
| Net loss per share of Class A Common Stock, basic and diluted | (j) | $ | (0.53 | ) | |||||||||
| Basic and diluted weighted average shares outstanding, common stock subject to redemption | 17,250,000 | ||||||||||||
| Basic and diluted net loss per common stock subject to redemption | $ | (0.17 | ) | ||||||||||
| Basic and diluted weighted average shares outstanding, non-redeemable common stock | 4,502,250 | ||||||||||||
| Basic and diluted net loss per non-redeemable common stock | $ | (0.17 | ) |
4
Note1 – Basis of Presentation
The unaudited pro forma condensed combined financial information has been prepared to illustrate the estimated effect of the Business Combination.
The Business Combination has been accounted for according to a common control reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. The Business Combination was 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 will continue to have control of the board of directors through its majority voting rights.
Under the guidance in the Financial Accounting Standards Board (“FASB”) ASC 805, Business Combinations, 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 was treated as the “acquired” company for financial reporting purposes. 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 net assets of CENAQ are stated at their historical value within the pro forma financial information with no goodwill or other intangible assets recorded.
Note2 – Transaction Accounting Adjustments
The transaction accounting adjustments included in the unaudited pro forma condensed combined balance sheet as of December 31, 2022 are as follows:
(a) Cash. Represents the impact of the Business Combination, accounted for as a common control reverse recapitalization, on the cash balance of Verde Clean Fuels.
5
The table below represents the Business Combination sources and uses of funds as of December 31, 2022, accounted for as a common control reverse recapitalization:
| Note | ||||
|---|---|---|---|---|
| Cash balance of<br> Intermediate prior to Business Combination* | $ | 463,475 | ||
| Cash<br> balance of CENAQ prior to Business Combination* | 127,965 | |||
| Total<br> cash balance prior to Business Combination* | 591,440 | |||
| Transaction<br> cash adjustments: | ||||
| Marketable<br> securities held in Trust Account at December 31, 2022 | (1) | 177,790,585 | ||
| True<br> up of marketable securities held in Trust Account at Closing | (2) | 38,407 | ||
| PIPE<br> Financing Proceeds | (3) | 32,000,000 | ||
| Payment<br> to redeeming CENAQ Public Stockholders | (4) | (158,797,476 | ) | |
| Repayment<br> of Intermediate’s Member’s Equity Capital Contributions since December 15, 2021 | (5) | (3,750,000 | ) | |
| Payment<br> of Deferred Underwriting Fees | (6) | (1,700,000 | ) | |
| Payment<br> of Transaction Fees and Expenses | (7) | (8,343,793 | ) | |
| Letter<br> of credit - reclassification to restricted cash | (8) | (100,000 | ) | |
| Pro<br> forma cash balance | $ | 37,729,163 | ||
| (1) | Represents<br> release of the restricted investments held in the Trust Account as of December 31, 2022 to<br> fund the closing of the Business Combination, accounted for as a common control reverse acquisition. | |||
| --- | --- | |||
| (2) | Represents<br> true up of Trust Account from December 31, 2022 to the date of Closing. The true up primarily<br> related to interest earned on marketable securities held in the Trust Account. | |||
| --- | --- | |||
| (3) | Represents<br> the issuance, in the PIPE Financing, to third-party investors of 2,400,000 shares of Class<br> A Common Stock at a stock price of $10.00 per share. Also includes $8,000,000 from Holdings<br> to acquire 800,000 shares of Class A Common Stock in the PIPE Financing (at a stock price<br> of $10.00 per share). | |||
| --- | --- | |||
| (4) | Represents<br> the amount paid to CENAQ Public Stockholders who exercised their Redemption Rights, including<br> payment of accrued interest. | |||
| --- | --- | |||
| (5) | As<br> part of the Closing, CENAQ agreed to repay Intermediate’s Member’s Equity Capital<br> Contributions made by Holdings for the period between December 2021 and Closing. | |||
| --- | --- | |||
| (6) | Represents<br> the payment of Deferred Underwriting Fees incurred as part of the IPO committed to be paid<br> upon the consummation of a Business Combination, accounted for as a common control reverse<br> recapitalization. In connection with the execution of the Business Combination Agreement,<br> the underwriters agreed to reduce its deferred underwriting fees related to the IPO from<br> $4,312,500 to $1,700,000 (see Note 2(f)(8) Impact on Equity). | |||
| --- | --- | |||
| (7) | Represents<br> payment of Transaction Fees and Expenses related to the Business Combination. Of the total<br> Transaction Fees and Expenses, $4,533,505 were included within accumulated deficit through<br> the date of Closing and $3,810,288 were included as a reduction in additional paid-in capital<br> through the date of Closing (see Note 2(f)(7) Impact on Equity). | |||
| --- | --- | |||
| (8) | Represents<br> standby letter of credit related to a required filing under the Industrial Site Recovery<br> Act (ISRA) by the New Jersey Department of Environmental Protection for environmental remediation<br> at Intermediate’s demonstration facility in New Jersey. The ISRA filing is also a condition<br> of Closing. Amount designated for standby letter of credit was reclassified from cash to restricted<br>cash. | |||
| --- | --- |
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(b) Adjustmentsfor Deferred Taxes. Arises from differences between the financial statement and tax basis in the OpCo interests, including legacy step-up basis adjustments, and net operating losses recorded at Verde Clean Fuels. The adjustments for deferred taxes assume:
| I. | the<br> GAAP balance sheet as of December 31, 2022 is adjusted for the pro forma entries described<br> herein, |
|---|---|
| II. | the<br> estimated tax basis as of December 31, 2022 is adjusted for the pro forma entries described<br> herein, |
| --- | --- |
| III. | a<br> full valuation allowance is established to offset the net deferred tax assets based upon<br> the assessment of realizability, and |
| --- | --- |
| IV. | no<br> material changes in tax law. |
| --- | --- |
Verde Clean Fuels accrues liabilities or adjusts deferred taxes for unrecognized tax benefits. Verde Clean Fuels has not recorded any unrecognized tax benefits as of December 31, 2022, that, if recognized, would affect its annual effective tax rate. However, as Verde Clean Fuels continues to evaluate various accounting considerations, it may record uncertain tax positions under GAAP.
(c) ContingentConsideration. Represents the elimination of contingent consideration expense of $1,299,000, which was recorded by Intermediate as of December 31, 2022 related to a contingent payment to Intermediate’s management in the event that certain return on investment hurdles are met within a specified period from the date of a prior asset purchase. Although Intermediate recorded the contingent consideration (as the employees rendering service are employed by consolidated subsidiaries of Intermediate), Holdings, the parent entity and 100% owner of Intermediate, is legally obligated to settle the contingent payment should the return on investment hurdles be achieved. On August 5, 2022, BCF Holdings entered into an agreement with the Company’s management and CEO whereby the contingent payment is forfeited upon closing of the Business Combination. Therefore, contingent consideration has been excluded from the unaudited pro forma condensed combined financial statements.
(d) TaxReceivable Agreement Liability. No adjustments are reflected for the effects of the Tax Receivable Agreement, more fully described elsewhere in the proxy statement. As part of closing the Transactions, Verde Clean Fuels is a party to a Tax Receivable Agreement under which Verde Clean Fuels will make payments to the TRA Holders in respect of 85% of the net tax benefit to Verde Clean Fuels of certain tax attributes. In connection with a change of control, payments to the TRA Holders are subject to the Payment Cap of $50,000,000. 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. Verde Clean Fuels anticipates that it will account for the income tax effects resulting from future taxable exercises of the exchange rights set forth in the OpCo A&R LLC Agreement by recognizing an increase in deferred tax assets, based on enacted tax rates at the date of each exchange. If there were an exchange of all the outstanding Class C OpCo Units immediately after the Transaction, the estimated net present value of tax benefits to Verde Clean Fuels, subject to the Tax Receivable Agreement, would be approximately $37 million offset by related discounted payment to the TRA Holders equal to 85% of the benefit received of $32 million based on certain assumptions, including that Verde Clean Fuels has sufficient taxable income to realize the tax benefit; there are no material tax law changes; and the fair market value of the exchanged shares is equal to $10 per share. At this time, a full valuation allowance would be established on any deferred tax asset created based on OpCo’s current assessment of the future realizability. Therefore, no liability related to future payments under the Tax Receivable Agreement has been reflected.
(e) CENAQ’sClass A Common Stock Subject to Possible Redemption. Represents reclassification of CENAQ’s redeemable shares into CENAQ’s Class A Common Stock in connection with the Business Combination, accounted for as a common control reverse recapitalization.
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(f) Impacton Equity. The following table represents the impact of the Business Combination, accounted for as a common control reverse recapitalization, on the total equity section:
| Note | ||||
|---|---|---|---|---|
| Intermediate’s Member’s Equity | (1) | $ | (12,775,901 | ) |
| Class A Common Stock | (2) | $ | (19 | ) |
| (3) | 82 | |||
| (4) | 320 | |||
| (5) | 185 | |||
| Total Class A Common Stock adjustments | $ | 568 | ||
| Class B Common Stock | (3) | $ | (82 | ) |
| Class C Common Stock | (1) | $ | 2,250 | |
| Additional paid-in capital | ||||
| (1) | $ | 9,023,651 | ||
| (2) | 19 | |||
| (4) | 31,999,680 | |||
| (5) | 19,031,331 | |||
| (6) | (10,873,202 | ) | ||
| (7) | (3,810,288 | ) | ||
| (8) | 2,612,500 | |||
| (9) | (35,389,385 | ) | ||
| (10) | - | |||
| (11) | (211,714 | ) | ||
| Total Additional paid-in capital adjustments | $ | 12,382,592 | ||
| Accumulated deficit | ||||
| (6) | 10,873,202 | |||
| (9) | 8,243,673 | |||
| (12) | 1,299,000 | |||
| (10) | - | |||
| (13) | 1,547,732 | |||
| (14) | (511,760 | ) | ||
| Total Accumulated deficit adjustments | $ | 21,451,847 | ||
| Noncontrolling interest | (9) | $ | 27,145,712 | |
| (1) | Represents<br> conversion of Intermediate’s Member’s Equity to Class C OpCo Units (and corresponding<br> shares of Class C Common Stock) after repayment of Intermediate’s Member’s Equity<br> Capital Contribution of $3,750,000. As part of the Closing, CENAQ agreed to repay Intermediate’s<br> Member’s Equity Capital Contributions made by Holdings between signing of the original<br> term sheet in December 2021 and Closing. Remaining Intermediate Member’s Equity converted<br> into 22,500,000 shares of Class C Common Stock at par value of $0.0001 in connection with<br> the business combination, accounted for as a common control reverse recapitalization. | |||
| --- | --- | |||
| (2) | Represents<br> forfeiture of Underwriters Forfeited Shares (Class A Common Stock) issued among Imperial<br> Capital LLC and I-Bankers Securities, Inc. that were forfeited at Closing per the Underwriters<br> Letter. | |||
| --- | --- | |||
| (3) | Represents<br> conversion of 825,000 Anchor Investor shares of Class B Common Stock into shares of Class<br> A Common Stock at par value of $0.0001 in connection with the Business Combination, accounted<br> for as a common control reverse recapitalization. | |||
| --- | --- | |||
| (4) | Represents<br> the PIPE Proceeds in which 3,200,000 shares of Class A Common Stock were issued at a price<br> of $10.00 per share and a par value of $0.0001 (see Note 2(a)(3) Cash). Total shares<br> include 800,000 shares of Class A Common Stock at par value of $0.0001 issued to Holdings<br> in exchange for $8,000,000 participation in the PIPE Financing (at a price of $10.00 per<br> share). | |||
| --- | --- | |||
| (5) | Represents<br> reclassification of CENAQ’s redeemable shares into Class A Common Stock in connection<br> with the Business Combination, accounted for as a common control reverse recapitalization.<br> At Closing, 1,846,120 of CENAQ’s redeemable shares were converted into Class A Common<br> Stock at par value of $0.0001.The redemptions at an approximate redemption price of $10.31<br> per share resulted in a reduction to equity with a corresponding decrease in investments<br> held in the Trust Account. | |||
| --- | --- |
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| (6) | Represents<br> the reclassification of CENAQ’s historical accumulated deficit to additional paid-in<br> capital in connection with the Business Combination, accounted for as a common control reverse<br> recapitalization. |
|---|---|
| (7) | Transaction<br> Fees and Expenses related to the Business Combination, accounted for as a common control<br> reverse recapitalization, estimated to be incurred in connection with the Business Combination<br> (see Note 2(a)(7) Cash). The unaudited pro forma condensed combined balance sheet<br> reflects Intermediate’s costs as a reduction of cash with a corresponding decrease<br> in additional paid-in capital and CENAQ’s costs as a reduction of cash with a corresponding<br> increase in accumulated deficit. |
| --- | --- |
| (8) | Represents<br> reduction of Deferred Underwriting Fees. In connection with the execution of the Business<br> Combination Agreement, the underwriters agreed to reduce its Deferred Underwriting Fees related<br> to the IPO from $6,037,500 to $1,700,000. |
| --- | --- |
| (9) | Represents<br> reclassification of APIC and Accumulated Deficit to NCI (see Note 2(g) Noncontrolling Interest). |
| --- | --- |
| (10) | Although<br> shares have been authorized for issuance under the 2023 Plan, no shares have been issued<br> at the date of the Business Combination, and no stock-based compensation expense has been<br> or will be recognized until the time at which an award is granted or the achievement under<br> an award of any performance condition is deemed probable, as applicable. Further, Holdings<br> entered into stock-based compensation arrangements with its management in the normal course<br> of operations and in which the cost of such arrangements has been allocated to Intermediate<br> as the employees are rendering services. However, the ultimate contractual obligation related<br> to these awards rests with Holdings. Stock-based compensation is included within general<br> and administrative expenses in Intermediate’s Statement of Operations and has not been<br> adjusted for the Transaction. |
| --- | --- |
| (11) | Represents<br> true up of common stock subject to possible redemption to adjust for permitted withdrawals<br> from the Trust Account. |
| --- | --- |
| (12) | Represents<br> elimination of contingent consideration expense (see Note 2(c) Contingent Consideration). |
| --- | --- |
| (13) | Represents<br> extinguishment of existing related party promissory notes totaling $1,950,000 and accrued<br> interest for a new related party promissory note of $409,631, payable in cash, shares of<br> Class A Common Stock at a conversion price of $10.00 per share, or a combination thereof. |
| --- | --- |
| (14) | Represents<br> underwriting-related expenses initially capitalized as deferred financing costs by CENAQ<br> and reclassified to accumulated deficit upon Closing. |
| --- | --- |
(g) NoncontrollingInterest. An adjustment to reflect noncontrolling interest holders’ economic share of combined equity, pursuant to the post-combination structure of the combined companies. Following the Closing, holders of Class A Common Stock will own direct controlling interests in the results of the combined entity, while Holdings will own an economic interest in OpCo shown as noncontrolling interest in equity in the financial statements of Verde Clean Fuels. The indirect economic interests are held by Holdings in the form of the OpCo Exchange Right or, in certain circumstances, including at the election of Verde Clean Fuels, cash in an amount equal to the fair value of Class A Common Stock. If Verde Clean Fuels elects that the exchanged Class C OpCo Units, together with cancellation of the Class C Common Stock, will be settled in cash, the cash used to settle the exchange must be funded through private sale or an underwritten offering of Class A Common Stock.
9
The following table summarizes the economic interests of Verde Clean Fuels between the holders of Class A Common Stock and indirect economic interests held by OpCo unitholders (assuming all Class C OpCo Units are exchanged for Class A Common Stock):
| Economic<br><br> Interests | %<br> of Economic<br> Interests | ||||
|---|---|---|---|---|---|
| Class A Common<br> Stock | 9,358,620 | 29.38 | % | ||
| OpCo<br> Units (Noncontrolling interest) | 22,500,000 | 70.62 | % | ||
| Total | 31,858,620 | 100.00 | % |
The noncontrolling interest may decrease according to the number of shares of Class C Common Stock and OpCo Units that are exchanged for shares of Class A Common Stock or, in certain circumstances including at the election of Verde Clean Fuels, cash in an amount equal to the fair value of Class A Common Stock. The calculation of noncontrolling interest is based on the net assets of Verde Clean Fuels at the closing of the business combination. Accordingly, noncontrolling interest increased to $27 million with a corresponding decrease in additional paid-in capital and accumulated deficit (see Note 2(f)(9) Impact on Equity).
(h) InterestIncome. Represents elimination of interest earned on marketable securities held in the Trust Account.
(i) NetLoss to Noncontrolling Interest. The net loss of Verde Clean Fuels is being reduced as summarized below:
| Year Ended December 31, 2022 | |||
|---|---|---|---|
| Pro forma net loss | $ | (10,978,360 | ) |
| Noncontrolling interest percentage^(1)^ | 70.62 | % | |
| Noncontrolling interest pro forma adjustment | (7,753,415 | ) | |
| Net loss attributable to Verde Clean Fuels | $ | (3,224,945 | ) |
| (1) | See<br> Note 2(g) Noncontrolling Interest | ||
| --- | --- |
(j) Earnings(Loss) Per Share. Represents the net income (loss) per share calculated using the weighted average shares outstanding. As the Business Combination is reflected as if it had occurred at the beginning of the periods presented, the calculation of weighted average shares outstanding for basic and diluted net income (loss) per share assumes that the shares issuable relating to the Business Combination have been outstanding for the entire periods presented.
| Note | Year Ended December 31, 2022 | ||||
|---|---|---|---|---|---|
| Pro Forma net loss attributable to Verde Clean Fuels | $ | (3,224,945 | ) | ||
| Weighted average Class A Common Stock, basic and diluted | (1),(2) | 6,124,245 | |||
| Net loss per Class A Common Stock, basic and diluted | $ | (0.53 | ) | ||
| (1) | For<br> the purposes of calculating the weighted average number of shares of Class A Common Stock<br> outstanding, the effect of outstanding Public Warrants and Private Placement Warrants to<br> purchase 12,937,500 and 2,475,000 shares of Class A Common Stock, respectively, was not considered<br> in the calculation of diluted loss per share, as the inclusion of such warrants would be<br> anti-dilutive. | ||||
| --- | --- | ||||
| (2) | For<br> the purposes of calculating the weighted average number of shares of Class A Common Stock<br> outstanding, the shares subject to the Earn Out Equity and Sponsor Earn Out shares have been<br> excluded from basic and diluted loss per share as they are contingent upon the price of Class<br> A Common Stock reaching specified thresholds not currently met. | ||||
| --- | --- |
(k) Insurance. Represents a Directors & Officers liability insurance policy entered into in connection with the Business Combination to be paid subsequent to the Closing.
10