Verde Clean Fuels, Inc. (VGAS)

ITEM 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations.

The following discussion and analysis provides information which we believe is relevant to an assessment and understanding of our results of operations and financial condition. This discussion and analysis should be read together with the audited consolidated financial statements and related notes that are included elsewhere in this Report, as well as with “Item 1. Business – Formation, Business Combination and Related Transactions.” In addition to historical financial information, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. See the sections entitled “Cautionary Note Regarding Forward-Looking Statements” and Item 1A. “Risk Factors” elsewhere in this Report. Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Item 1A. “Risk Factors.”

Overview

We are a clean fuels company focused on the deployment of our innovative and proprietary liquid fuels processing technology through development of commercial production plants. Verde’s syngas-to-gasoline plus (STG+®) process converts syngas, derived from diverse feedstocks, into fully finished liquid fuels that require no additional refining. Verde is currently focused on identifying and evaluating opportunities to convert associated natural gas into gasoline, which is expected to provide a market for such natural gas with the added potential benefits of flare mitigation and production of gasoline with a lower carbon intensity than conventional gasoline.

As of December 31, 2024, the Company is still in the process of developing its first commercial production facility and has not derived revenue from its principal business activities. The Company is managed as an integrated business and there is only one reportable segment.

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Development

We acquired our STG+® technology from Primus in 2020, which was originally founded in 2007 and invested over $110 million in developing and demonstrating such technology, including the construction and operation of the demonstration plant. The demonstration plant began operations in 2013, completed over 10,500 hours of operation and is currently maintained in an idle state.

Recent Developments

PIPE Investment

On December 18, 2024, the Company entered into the Purchase Agreement with Cottonmouth, a subsidiary of Diamondback, pursuant to which the Company agreed to issue and sell the PIPE Shares to Cottonmouth in a private placement. The Company consummated the transactions contemplated by the Purchase Agreement on January 29, 2025.

In connection with the closing of the PIPE Investment, on January 29, 2025, (i) Cottonmouth and the Company amended that certain equity participation right agreement, dated February 13, 2023 (the “Existing Equity Participation Right Agreement”), to remove certain preemptive rights with respect to the Company’s equity securities granted to Cottonmouth under the Existing Equity Participation Right Agreement and (ii) the Company entered into that certain Second Amended and Restated Registration Rights Agreement with Cottonmouth and the other parties thereto, which amended and restated that certain Amended and Restated Registration Rights Agreement, dated February 15, 2023, by and among the Company and certain stockholders named therein (the “Existing Registration Rights Agreement”), to add Cottonmouth as a party to the Existing Registration Rights Agreement.

Restated Charter

On December 18, 2024, the holder of a majority of the issued and outstanding shares of Class A Common Stock and Class C Common Stock, adopted resolutions by written consent, in lieu of a meeting of stockholders to, among other things, amend and restate, immediately prior to and contingent upon the consummation of the closing of the PIPE Investment, our Fourth A&R Charter to (A) increase the amount of authorized shares of Class C Common Stock from 25,000,000 to 26,000,000 and (B) increase the size of our Board from seven to eight and to provide Cottonmouth with certain director designation and board observer rights. The Restated Charter was approved and recommended by the Board prior to the stockholder action by written consent.

Immediately prior to closing of the PIPE Investment, on January 29, 2025, the Company filed the Restated Charter with the Delaware Secretary of State.

Key Factors and Trends Influencing our Prospects and Future Results

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

A critical step in our business strategy will be the successful construction and operation of the first commercial production plant using our patented STG+® technology.

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

In February 2024, Verde and Cottonmouth entered into the JDA, which provides a pathway forward for the parties to reach final definitive documents and FID. The JDA frames the contracts contemplated to be entered into between the parties,

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including an operating agreement, ground lease agreement, construction agreement, license agreement and financing agreements as well as conditions precedent to close such as FID. The expectation for the project is to produce approximately 3,000 barrels per day of fully-refined gasoline utilizing Verde’s patented STG+® process. We expect that the proposed facility, which is to be located in the Permian Basin, could serve as a template for additional natural gas-to-gasoline projects throughout the Permian Basin and other pipeline-constrained basins in the U.S., as well as addressing flared or stranded natural gas opportunities internationally.

In June 2024, the Company entered into a contract with Chemex for a FEED study related to the Permian Basin Project. In connection with entering into the JDA and the commencement of FEED, we began to incur development costs with respect to the project. Under the terms of the JDA, 65% of the approved development costs that we incur (which includes the FEED costs) are reimbursed by Cottonmouth. The construction in progress balance as of December 31, 2024 is comprised of capitalized FEED costs of $2,937,528 and is net of $1,908,628 of cost reimbursements from Cottonmouth. Upon FEED completion and reaching FID, it is anticipated that engineering, procurement and construction work will then commence. It is expected that commercial operations will be achieved with 18-24 months from commencement of engineering, procurement and construction work.

Key Components of Results of Operations

We are an early-stage company with no revenues, and our historical results may not be indicative of our future results. Accordingly, the drivers of any future financial results, as well as any components thereof, 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 activities related to the proposed Permian Basin Project, which will produce RBOB grade gasoline. These revenues are currently expected to be comprised of distributions from our share of ownership of the Permian Basin Project as well as fees from our role as operator of such project.

Expenses

General and Administrative Expense

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

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 are 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.

Contingent consideration

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

Other Income

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

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Income Tax Effects

We hold 29.8% of the economic interest in OpCo, which is treated as a partnership for U.S. federal income tax purposes. As a partnership, OpCo generally is not subject to U.S. federal income tax under current U.S. tax laws. We are subject to U.S. federal income taxes, in addition to state and local income taxes, with respect to our distributive share of the net taxable income (loss) and any related tax credits of OpCo.

Intermediate was historically and remains a disregarded subsidiary of a partnership for U.S. Federal income tax purposes. As a direct result of the Business Combination, OpCo became the sole member of Intermediate. As such, OpCo’s distributive share of any net taxable income or loss and any related tax credits of Intermediate are then distributed to us.

Results of Operations

Comparison of the years ended December 31, 2024 and 2023

General and Administrative

General and administrative expenses decreased approximately $0.3 million, or 3%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023. The decrease was primarily due to $2.1 million of unit-based compensation expense recorded in the year ended December 31, 2023 associated with the accelerated vesting of all the outstanding Series A Incentive Units and Founder Incentive Units (each as defined in Note 9 in the accompanying Consolidated Financial Statements) as a result of the Business Combination, as well as decreases in miscellaneous general and administrative expenses of $0.4 million. These decreases were partially offset by higher employee compensation-related expense of $0.9 million attributable to an increase in headcount, higher outside services expense of $0.7 million and higher share-based compensation expense of $0.6 million associated with restricted stock units and stock options granted in 2023 and stock options granted in 2024.

Contingent Consideration

The $1.3 million decrease in contingent consideration for the year ended December 31, 2024 as compared to the prior year reflects the reversal during the year ended December 31, 2023 of the remaining accrual made by Holdings for certain contingent payments due to a contractual forfeiture of the payments following the close of the Business Combination on February 15, 2023. See Note 3 in the accompanying Consolidated Financial Statements for further information.

Research and Development

R&D expenses for the year ended December 31, 2024 increased approximately $0.1 million, or 37%, as compared to the prior year. The increase was primarily due to higher employee compensation-related expense attributable to an increase in headcount, partially offset by lower outside services expense.

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Other Income

Other income increased approximately $0.7 million for the year ended December 31, 2024 as compared to the prior year. The increase was primarily attributable to higher interest and dividend income earned as a result of our money market investment.

Interest Expense

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

Provision for Income Taxes

The provision for income taxes decreased approximately $0.1 million for the year ended December 31, 2024 as compared to the prior year. The decrease was primarily due to changes in estimations related to CENAQ’S fiscal year 2022 tax obligations. See Note 12 to the accompanying Consolidated Financial Statements for further information.

Liquidity and Capital Resources

As of December 31, 2024, we are in process of developing our first commercial production plant and have not derived revenue from our principal business activities. We do not expect to generate any meaningful revenue unless and until we are able to commercialize our first production plant. Since inception, we have incurred operating losses and generated negative operating cash flows primarily attributable to our ongoing general and administrative expenses and development activities.

We measure liquidity in terms of our ability to fund the cash requirements of our development activities and our near-term business operations, including our contractual obligations and other commitments. Our current liquidity needs primarily involve general and administrative expenses and activities related to the ongoing development of our first commercial production plant.

As of December 31, 2024, we had cash and cash equivalents of $19.0 million.

We expect that our cash and cash equivalents, including the net proceeds from the PIPE Investment received after December 31, 2024, will be sufficient to fund our cash requirements, including ongoing general and administrative expenses and planned development activities through the 2025 fiscal year. However, notwithstanding the PIPE Investment, we further expect that additional capital will be required in order to complete our first commercial production plant. The exact timing of these additional cash requirements will depend on the pacing of our development activities, which is uncertain and subject to a variety of factors, many of which are outside of our control.

Accordingly, we will likely be required to raise additional funds through the issuance of equity, equity-related or debt securities, through obtaining credit from government or financial institutions or by engaging in joint ventures or other alternative forms of financing. We cannot be certain that additional funds will be available on favorable terms when required, or at all. If we cannot raise additional funds when needed, our financial condition, results of operations, business and prospects could be materially and adversely affected. Our ability to raise funds through equity offerings may be limited by the significant number of shares that may be publicly sold as well as by the amount of publicly traded Class A Common Stock as well as outstanding Warrants, stock options, restricted stock units ("RSUs") or Earn Out Equity. As the exercise price of our Warrants is $11.50 per share of Class A Common Stock, we do not expect that Warrants will be exercised in the foreseeable future. In addition, to the extent we raise funds through the sale of additional equity securities, our stockholders would experience additional dilution. If we raise funds through the issuance of debt securities or through loan arrangements, the terms of such debt securities or loan arrangements could require significant interest payments, contain covenants that restrict our business, or contain other unfavorable terms. The current high interest rate environment adds additional risk and expense to the issuance of debt securities or loan arrangements to fund capital investment.

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Comparison of Cash Flows for the Years Ended December 31, 2024 and 2023

The following table sets forth the primary sources and uses of cash, cash equivalents and restricted cash for the periods presented below:

Cash Flows Used in Operating Activities

Net cash used in operating activities decreased $0.2 million during the year ended December 31, 2024 as compared to the prior year. The decrease was primarily due to higher operating cash flows from interest and dividend income, partially offset by higher operating expenses, including employee compensation-related and outside services.

Cash Flows Used In Investing Activities

Net cash used in investing activities increased $0.8 million during the year ended December 31, 2024 as compared to the prior year. The increase was primarily attributable to development costs incurred in connection with the JDA upon commencement of FEED study in June 2024, partially offset by cash reimbursements for certain capital expenditures received from Cottonmouth. See Notes 4, 7 and 13 in the accompanying Consolidated Financial Statements for further information.

Cash Flows From Financing Activities

Net cash provided by financing activities was zero for the year ended December 31, 2024 as compared to $37.5 million for the prior year. Net cash provided by financing activities for the year ended December 31, 2023 consisted of the net proceeds received from the closing of the Business Combination and PIPE Financing. Following the Business Combination and the closing of the PIPE Financing, we received approximately $37.3 million in cash, net of approximately $10.0 million of transaction expenses and the repayment of approximately $3.8 million of capital contributions made by Holdings since December 2021. The gross amount, before expenses, was composed of approximately $19.0 million release from CENAQ’s trust account, after payment of approximately $158.8 million to public stockholders who exercised Redemption Rights (representing a redemption rate of approximately 89.3%), and $32.0 million of proceeds from the PIPE Financing. We also received $0.1 million from the CENAQ operating account.

Commitments and Contractual Obligations

In October 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 occurred in February 2023 contemporaneous with us obtaining control of the identified asset. The lease was modified during the third quarter of 2023, resulting in a reclassification of the lease from finance to operating. We exited the lease as of December 31, 2023. See Note 8 to the accompanying Consolidated Financial Statements for further information.

The Company had a restricted cash balance of $100,000 as of both December 31, 2024 and December 31, 2023. The restricted cash balance is maintained in support of a letter of credit.

Off-Balance Sheet Arrangements

As of December 31, 2024 and during the year ended December 31, 2024, we had not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Policies

Our consolidated financial statements have been prepared in conformity with U.S. GAAP as determined by the Financial Accounting Standards Board. The preparation of consolidated financial statements in conformity with U.S. GAAP requires

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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 condensed 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.

Income taxes

The Company follows the asset and liability method of accounting for income taxes under ASC 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. The Company has elected to use the outside basis approach to measure the deferred tax assets or liabilities based on its investment in its subsidiaries without regard to the underlying assets or liabilities.

In assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2024 and December 31, 2023. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.

Impairment of Long-Lived 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.

Impairment of Intangible Assets

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 its acquisition and we have continued to develop such technology and expand its application to other feedstocks.

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. Following our analysis of qualitative impairment indicators, intellectual property is tested for impairment using certain valuation methods, such as the discounted cash flow or relief-from-royalty methods. 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.

The Company also considered market transactions (such as the PIPE Investment and Business Combination) in qualitatively assessing impairment. We further determined our estimated enterprise value utilizing a mix of market approach, discounted cash flow and relief from royalty methods (obtained from various analyses including the determination of the grant date fair value of our securities in connection with the share-based compensation awarded in 2024 and 2023), and the estimated enterprise value exceeded the carrying amount of this intangible asset by a substantial amount.

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During the years ended December 31, 2024 and 2023, we placed the most weight on the PIPE Investment and Business Combination, respectively, in concluding that no impairment testing was required. Such transactions 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. Additionally, during the year ended December 31, 2024, there were no events or changes in circumstances noted that would indicate that the carrying amount of the indefinite-lived intangible asset may not be recoverable.

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. We accelerated the unvested service and performance-based units during the year ended December 31, 2023 in connection with the Business Combination. No service-based or performance-based incentive units were granted during the year ended December 31, 2024.

Share-Based Compensation

We apply ASC 718 in accounting for share-based compensation to employees. We estimate the fair value of stock options on the date of grant using the Black-Scholes model. The fair value of RSUs granted is determined based on the value of our stock price on the date of the award subject to a discount for lack of marketability. Share-based compensation expense is recorded over the period during which the grantee is required to provide service in exchange for the award. Forfeitures are recognized as they occur.

The determination of fair value requires significant judgment and the use of estimates, particularly with regard to Black-Scholes assumptions such as stock price volatility and expected option term. We estimate the expected term of options granted based on peer benchmarking and expectations. We use the treasury yield curve rates for the risk-free interest rate in the option valuation model with maturities similar to the expected term of the options. Volatility is determined by reference to the actual volatility of several publicly traded peer companies that are similar to us in our industry sector. We do not anticipate paying cash dividends and therefore use an expected dividend yield of zero in the option valuation model. We assess whether a discount for lack of marketability is applied based on certain liquidity factors. All equity-based payment awards subject to graded vesting based only on a service condition are amortized on a straight-line basis over the requisite service periods.

There is substantial judgment in selecting the assumptions which we use to determine the fair value of such equity awards, and other companies could use similar market inputs and arrive at different conclusions.

Recent Accounting Pronouncements

See Note 2 in the accompanying Consolidated Financial Statements for information regarding accounting pronouncements.

JOBS Act

We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. CENAQ 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. This may make comparison of our consolidated financial statements with another emerging growth company that has not opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used. Additionally, we are not required to, among other things, provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act.

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ITEM 7.
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations.

The
following discussion and analysis provides information which we believe is relevant to an assessment and understanding of our results
of operations and financial condition. This discussion and analysis should be read together with the audited consolidated financial statements
and related notes that are included elsewhere in this Report, as well as with “Item 1. Business – Formation, Business Combination
and Related Transactions.” In addition to historical financial information, this discussion and analysis contains forward-looking
statements based upon current expectations that involve risks, uncertainties and assumptions. See the sections entitled “Cautionary
Note Regarding Forward-Looking Statements” and Item 1A. “Risk Factors” elsewhere in this Report. Actual results and
timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors,
including those set forth under Item 1A. “Risk Factors.”

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Overview

We
are a clean energy technology company specializing in the conversion of synthesis gas, or syngas, derived from diverse feedstocks, such
as biomass or 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.

We
are redefining liquid fuels technology through our proprietary and innovative STG+® process to deliver scalable and cost-effective
renewable gasoline. We acquired our STG+® technology from Primus, who developed the patented STG+® technology to convert syngas
into gasoline or methanol. Since acquiring the technology, we have adapted the application of our STG+® technology to focus on the
renewable energy industry. This adaptation requires a third-party gasification system to produce acceptable synthesis gas from renewable
feedstocks. Our proprietary STG+® system converts the syngas into gasoline.

Key Factors
and Trends Influencing our Prospects and Future Results

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.

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 believe our commercialization activities are being completed at a pace that can support first commercial
production of gasoline as early as 2026.

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 or gasoline derived from natural gas.

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Expenses

General
and Administrative Expense

G&A
expenses consist of compensation costs including salaries, benefits and stock-based compensation expense for personnel in executive,
finance, accounting, and other administrative functions. General and administrative expenses also include legal fees, professional fees
paid for accounting, auditing and consulting services, and insurance costs. Following the Business Combination, we incurred higher general
and administrative expenses for public registrant costs for compliance with the regulations of the SEC and the Nasdaq Capital Market.

Research
and Development Expense

Our
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.

Contingent
consideration

Prior
to the Business Combination, the Company had an arrangement payable to the Company’s CEO and a consultant whereby a contingent
payment would become payable if certain return on investment hurdles are met within five years of an asset purchase arrangement. The
contingent consideration was forfeited when the Company closed on the Business Combination.

Results
of Operations

Comparison
of the years ended December 31, 2023 and December 31, 2022

Comparison
for the years ended December 31, 2023 and 2022

General
and Administrative

General
and administrative expenses increased approximately $7.0 million, or 155%, from $4.5 million for the year ended December 31, 2022 to
$11.5 million for the year ended December 31, 2023. The increase was primarily due to higher professional fees of $3.0 million primarily
due to the Business Combination, higher share-based compensation expense of $1.5 million due to the acceleration of vesting of equity
awards as a result of the consummation of the Business Combination, higher insurance expense of $1.4 million, and higher employee compensation
and benefit costs of $0.4 million. Rent and depreciation expense and other general and administrative expenses also increased by $0.4
million and $0.3 million, respectively.

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Contingent
Consideration

The
$1.3 million reduction to operating expenses associated with contingent consideration for the year ended December 31, 2023 reflects the
reversal of the remaining accrual made by Holdings for certain contingent payments due to the contractual forfeiture of the payments
following the close of the Business Combination on February 15, 2023. The reduction to operating expenses associated with contingent
consideration of $7.6 million for 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. See Note 2 to the Consolidated
Financial Statements.

Research
and Development

R&D
expense for the year ended December 31, 2023 was consistent with the prior year.

Other
Income

Other
income of $447 thousand for the year ended December 31, 2023 was primarily attributable to interest earned on our cash and cash equivalents.

Interest
Expense

Interest
expense was $237 thousand for the year ended December 31, 2023, which was primarily attributable to our land lease in Maricopa, Arizona,
which was classified as a finance lease until the third quarter of 2023. See Note 5 to the Consolidated Financial Statements.

Provision
for Income Taxes

The
provision for income taxes of $166 thousand for the year ended December 31, 2023 was attributable to changes in estimates related to
CENAQ’S 2022 tax obligation. There was no income tax provision recorded for the year ended December 31, 2022, as Intermediate was
a limited liability company treated as a partnership for tax purposes, with each of its members accounting for its share of tax attributes
and liabilities. See Note 9 to the Consolidated Financial Statements.

Liquidity
and Capital Resources

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.

To
date, we have not generated any revenue, and as of December 31, 2023, we had cash and cash equivalents of $28.8 million. We do not expect
to generate any meaningful revenue unless and until we are able to commercialize our first production facility. Since inception, we have
incurred significant operating losses, have an accumulated deficit of $23.9 million as of December 31, 2023 and negative operating cash
flow in both the years ended December 31, 2023 and December 31, 2022. 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 and to successfully achieve commerciality of our projects.

49

In
connection with entering into the JDA with Cottonmouth Ventures, a subsidiary of Diamondback, we will begin to incur development costs
with respect to the project, prior to reaching a FID and entering into final definitive agreements, irrespective of whether these events
occur. We are currently evaluating the impact that the JDA will have on our consolidated financial statements and liquidity. See Note
12 to the Consolidated Financial Statements.

Following
the Business Combination and the closing of the PIPE Financing, we received approximately $37.3 million in cash, net of approximately
$10.0 million of transaction expenses and the repayment of approximately $3.75 million of capital contributions made by Holdings since
December 2021. We expect to use such proceeds to fund our ongoing operations and R&D activities. The gross amount, before expenses,
was composed of approximately $19.0 million released from CENAQ’s trust account, after payment of approximately $158.8 million
to public stockholders who exercised Redemption Rights (representing a redemption rate of approximately 89.3%), and $32.0 million of
proceeds raised from the PIPE Financing. We also received $91 thousand from the CENAQ operating account. We believe that based on our
current level of operating expenses and currently available cash on hand, we will have sufficient funds available to cover R&D activities
and operating cash needs for at least the next 12 months. However, as we have not yet developed a commercial production facility and
have no meaningful revenue to date, we may require additional funds in future years. Our ability to raise funds through equity offerings
may be limited by the significant number of shares that may be publicly sold. As the exercise price of our Public Warrants is $11.50
per share of Class A Common Stock, we do not expect that Public Warrants will be exercised in the foreseeable future. Our ability to
fund R&D activities and our operating cash needs for several years does not depend on the proceeds we may receive as the result of
exercises of outstanding Warrants.

As
our transaction with CENAQ only resulted in $37.3 million of net proceeds, we expect that we will only be able to construct one
of our first four originally planned production facilities with these proceeds. The $37.3 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 2025. We
also expect to earn interest income on the net proceeds raised at closing during the ongoing development and construction of our facilities
through 2025, and that such interest income will be utilized towards capital expenditures or for general and administrative expenses.
We also expect 70% of our total project capital requirements will be met with project financing, industrial revenue bonds, or pollution
control bonds, or some combination of debt financing. 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.
The inability to obtain debt financing will adversely impact our ability to implement our business plan.

In
connection with the Closing, Sponsor was due $409,612 under existing promissory notes with CENAQ. On February 15, 2023, in lieu of repayment
of the existing promissory notes with Sponsor, the Company entered into the New Promissory Note with the Sponsor totaling $409,612. The
New Promissory Note canceled and superseded the existing promissory notes. The New Promissory note was non-interest bearing and the entire
principal balance of the New Promissory Note was payable on or before February 15, 2024 in cash or shares at our election. On February
15, 2024, we settled the New Promissory Note through the issuance of 40,961 shares of Class A Common Stock at a conversion price of $10.00
per share and recorded an increase to additional paid-in capital of $409,608.

Comparison
of Cash Flows for the Years Ended December 31, 2023 and 2022

The
following table sets forth the primary sources and uses of cash, cash equivalents and restricted cash for the periods presented below:

50

Cash
Flows Used in Operating Activities

Net
cash used in operating activities increased $5.8 million to $9.1 million during the year ended December 31, 2023, as compared with net
cash used in operating activities of $3.3 million during the year ended December 31, 2022. The increase primarily was due to a higher
net loss of $13.2 million and higher payments for prepaid expenses of $0.3 million and income taxes of $0.3 million. These increases
were partially offset by a lower non-cash impact for the change in the liability for contingent consideration of $6.3 million and stock-based
compensation expense of $1.5 million, and other operating cash flows of $0.2 million.

Cash
Flows Used In Investing Activities

Net
cash used in investing activities for the year ended December 31, 2023 was consistent with the prior year.

Cash
Flows From Financing Activities

Net
cash provided by financing activities increased approximately $33.8 million to $37.5 million for the year ended December 31, 2023,
as compared with net cash provided of $3.7 million in the year ended December 31, 2022. The increase was primarily due to the closing
of the Business Combination on February 15, 2023, which raised $37.3 million in cash proceeds, partially offset by cash used for the
payment of notes payable, the principal portion of finance lease liabilities, and deferred financing costs.

Commitments
and Contractual Obligations

In
October 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 occurred in February 2023 contemporaneous with us obtaining control of the identified asset. The lease
was modified during the third quarter of 2023, resulting in a reclassification of the lease from finance to operating. We exited the
lease as of December 31, 2023. See Note 5 to the Consolidated Financial Statements.

Off-Balance
Sheet Arrangements

As
of December 31, 2023 and during the year ended December 31, 2023, we had not engaged in any off-balance sheet arrangements, as defined
in the rules and regulations of the SEC.

Critical
Accounting Policies

Our
consolidated financial statements have been prepared in conformity with GAAP as determined by the FASB. The preparation of consolidated
financial statements in conformity with 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 condensed 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

Prior
to the Business Combination, our parent entity (Holdings), on Intermediate’s behalf, had 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 recognized the liability for such contingent payment
on our balance sheet and remeasured the estimated payments under this arrangement and recorded our best estimate of amounts payable under
such arrangement.

Our
contingent consideration liability was measured at fair value and based on significant inputs not observable in the market. As such,
our contingent consideration liability was classified as a Level 3 fair value measurement within the fair value hierarchy. The valuation
of contingent consideration used assumptions we believe would be made by a market participant. We assessed these estimates on an ongoing
basis as additional data impacting the assumptions was obtained. Changes in the fair value of contingent consideration related to updated
assumptions and estimates were recognized within the consolidated statements of operations.

In
evaluating the fair value information, considerable judgment was required to interpret the market data used to develop the estimates.

51

The
fair value of the contingent consideration as of the asset acquisition date 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, 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). 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 was 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. See Note 10 to the Consolidated Financial Statements for further information.

On
August 5, 2022, 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 and no payments were made. Thus, we reversed the entire $1,299,000 during the three
months ended March 31, 2023. There were no contingent consideration arrangements as of December 31, 2023.

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.

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. In addition, the Company considered market transactions
(such as the Business Combination). 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.

In
connection with our valuation of our stock-based incentive units granted to management, we determined our estimated enterprise value
utilizing a mix of market approach, discounted cash flow and relief from royalty methods in the determination and such estimated enterprise
value exceeded the carrying amount of this intangible asset by a substantial amount.

During
the years ended December 31, 2023 and December 31, 2022, we placed the most weight to the Business Combination 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 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. Additionally, during the year ended December 31, 2023, there were no events or changes in circumstances noted that
would indicate that the carrying amount of the indefinite-lived intangible asset may not be recoverable.

52

Impairment
of Long-Lived 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.

Income
taxes

The
Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes (“ASC 740”).
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the
financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that included the enactment date. The Company has elected to use the outside basis approach to measure the deferred tax assets
or liabilities based on its investment in its subsidiaries without regard to the underlying assets or liabilities.

In
assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

ASC 740
prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions
taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be
sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits
as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2023
and December 31, 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals
or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.

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. We accelerated the unvested
service and performance-based units during the year ended December 31, 2023 in connection with the Business Combination. No service-based or
performance-based incentive units were granted during the year ended December 31, 2023.

53

Share-Based
Compensation

We
apply ASC 718 in accounting for share-based compensation to employees. We estimate the fair value of stock options on the date of
grant using the Black-Scholes model. The fair value of RSUs granted is determined based on the value of our stock price on the date of
the award subject to a discount for lack of marketability. Share-based compensation expense is recorded over the period during which
the grantee is required to provide service in exchange for the award. Forfeitures are recognized as they occur.

The
determination of fair value requires significant judgment and the use of estimates, particularly with regard to Black-Scholes assumptions
such as stock price volatility and expected option term. We estimate the expected term of options granted based on peer benchmarking
and expectations. We use the treasury yield curve rates for the risk-free interest rate in the option valuation model with maturities
similar to the expected term of the options. Volatility is determined by reference to the actual volatility of several publicly traded
peer companies that are similar to us in our industry sector. We do not anticipate paying cash dividends and therefore use an expected
dividend yield of zero in the option valuation model. We assess whether a discount for lack of marketability is applied based on certain
liquidity factors. All equity-based payment awards subject to graded vesting based only on a service condition are amortized on a straight-line
basis over the requisite service periods.

There
is substantial judgment in selecting the assumptions which we use to determine the fair value of such equity awards, and other companies
could use similar market inputs and arrive at different conclusions.

Recent
Accounting Pronouncements

See
Note 3 – Significant Accounting Policies in the accompanying consolidated financial statements for information regarding accounting
pronouncements.

JOBS
Act

We
qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements
based on the effective date for private (not publicly traded) companies. CENAQ 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. This may make comparison
of our consolidated financial statements with another emerging growth company that has not opted out of using the extended transition
period difficult or impossible because of the potential differences in accountant standards used. Additionally, we are not required to,
among other things, provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant
to Section 404.

ITEM 7. Management’s Discussion
And Analysis Of Financial Condition And Results Of Operations.

Unless the context indicates otherwise, references
in this Item to “Intermediate,” “we,” “us,” “our” and similar terms refer to Bluescape
Clean Fuels Intermediate Holdings, LLC and its subsidiaries prior to the consummation of the Business Combination and Verde Clean Fuels,
Inc. (f/k/a CENAQ Energy Corp.) and its subsidiaries after the consummation of the Business Combination. References to “CENAQ”
refer to the predecessor registrant prior to the consummation of the Business Combination. The following discussion and analysis provides
information which we believe is relevant to an assessment and understanding of CENAQ’s results of operations and financial condition.
This discussion and analysis should be read together with the audited consolidated financial statements and related notes of CENAQ that
are included elsewhere in this Report. In addition to historical financial information, this discussion and analysis contains forward-looking
statements based upon current expectations that involve risks, uncertainties and assumptions. See the sections entitled “Cautionary
Note Regarding Forward-Looking Statements” and Item 1A. “Risk Factors” elsewhere in this Report. Actual results and
timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors,
including those set forth under Item 1A. “Risk Factors.”

Overview

During the year ended December 31, 2022 and prior
to the Business Combination, CENAQ was a blank check company incorporated for the purpose of effecting a merger, share exchange, asset
acquisition, share purchase, reorganization or similar business combination with one or more businesses. For more information on the Business
Combination, see the section entitled “Explanatory Note” elsewhere in this Report.

Our Business After the Business Combination

Following the Business Combination, Verde Clean
Fuels is a renewable energy company specializing in the conversion of synthesis gas, or syngas, derived from diverse feedstocks, such
as biomass, municipal solid waste (“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 Reformulated Blend-stock for Oxygenate Blending (“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.

We are redefining liquid fuels technology through
our proprietary and innovative STG+® process to deliver scalable and cost-effective renewable gasoline. We acquired our STG+®
technology from Primus Green Energy (“Primus”), a company established in 2007 that developed the patented STG+® technology
to convert syngas into gasoline or methanol. Since acquiring the technology, we have adapted the application of our STG+® technology
to focus on the renewable energy industry. This adaptation requires a third-party gasification system to produce acceptable synthesis
gas from these renewable feedstocks. Our proprietary STG+® system converts the syngas into gasoline.

We have made significant progress towards commercializing
the first STG+® based commercial production facility in the United States. Our first commercial production facility, which we expect
to be operational by the first half of 2025, will be in Maricopa, Arizona. In the first phase we expect this facility to produce approximately
7 million gallons of renewable gasoline in the first full year of operations. In the second phase, which we expect to be operational in
2026, we anticipate producing approximately 30 million gallons per year of renewable gasoline. Additionally, we have several additional
renewable gasoline projects, and flare mitigating natural gas to gasoline project, in various early stages of development.

39

Over $110 million has been invested in our technology,
including our demonstration facility in New Jersey, which has completed over 10,500 hours of operation producing gasoline or methanol.
Our demonstration facility represents the scalable nature of our operational modular commercial design which has fully integrated reactors
and recycle lines and is designed with key variables, like gas velocity and catalyst bed length, at a 1-to-1 scale with our commercial
design. We have also participated in carbon lifecycle studies to validate the CI score and reduced lifecycle emissions of our renewable
gasoline as well as fuel, blending and engine testing to validate the specification and performance of our gasoline product. We believe
our renewable gasoline exhibits a significant lifecycle carbon emissions reduction compared to traditional petroleum-based gasoline. As
a result, we believe our gasoline produced from renewable feedstock, such as biomass, will qualify under the RFS for the D3 RIN (a carbon
credit), which can have significant value. Similarly, gasoline produced from our process may also qualify for various state carbon programs,
including California’s LCFS. Unlike many other gas-to-liquids technologies, not only can our STG+® process produce renewable
gasoline from syngas, but we expect it will be able to be applied at other production facilities to produce other end products including
methanol. In addition to our initial focus on the production of renewable gasoline, there is opportunity to continue to develop additional
process technology to produce middle distillates including sustainable diesel and sustainable aviation fuel. As of December 31, 2022,
the Company has not derived revenue from its principal business activities. The Company is managed as an integrated business and consequently,
there is only one reportable segment. However, as with other government programs the use requirements of the RFS program and similar state-level
programs are subject to change, which could materially harm our ability to operate profitably.

Recent Developments

On February 15, 2023, we completed the proposed
business combination as per the terms of the Business Combination Agreement. In addition, pursuant to Subscription Agreements entered
into with certain accredited and institutional investors in connection with the Business Combination, concurrently with the Closing of
the Business Combination, we received $32,000,000 in proceeds from the PIPE Investors, in exchange for which we issued 3,200,000 shares
of our Class A Common Stock issued to the PIPE Investors.

After giving effect to the Business Combination,
the redemption of shares of CENAQ’s Class A common stock as described below, the consummation of the PIPE Investment, and the separation
of the former CENAQ units, there are currently (i) 9,358,620 shares of our Class A Common Stock issued and outstanding, (ii) 22,500,000
shares of Class C Common Stock issued and outstanding (shares of Class C Common Stock do not have any economic value but entitle the holder
thereof to one vote per share) and (iii) no shares of Preferred Stock issued and outstanding.

The Class A Common Stock and Warrants commenced
trading on Nasdaq under the symbols “VGAS” and “VGASW,” respectively, on February 16, 2023, subject to ongoing
review of our satisfaction of all listing criteria following the Business Combination.

An aggregate of approximately $158.8 million was
paid from the trust account to holders that properly exercised their right to have their shares of CENAQ’s Class A common stock
redeemed, and the remaining balance immediately prior to the Closing of approximately $19.0 million remained in the trust account.

Key Factors and Trends Influencing our Results of Operations After
the Business Combination

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 2024.

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.

40

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 2024.

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 of CENAQ

CENAQ’s entire activities since June 24,
2020 (inception) through December 31, 2022 related to its formation and Public Offering, and, since the completion of the IPO, searching
for a target to consummate a Business Combination and consummating the Business Combination. As of December 31, 2022, CENAQ had neither
engaged in any operations nor generated any revenues. CENAQ generated non-operating income in the form of interest income on cash and
cash equivalents and on marketable securities held in a trust account (the “Trust Account”). CENAQ incurred expenses as a
result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence and
merger and acquisition expenses in connection with completing the Business Combination.

For the year ended December 31, 2022,
CENAQ had a net loss of $3,698,144. CENAQ incurred $5,715,022 of general and administrative expenses, which includes $4,847,741 in costs
related to identifying a target business. CENAQ also incurred $7,363 of interest expense on promissory note from related party and $431,632
of provision for income taxes. We earned interest income of $2,455,873.

For the year ended December 31, 2021, CENAQ had
a net loss of $474,585. CENAQ incurred $456,765 of formation and operating costs (not charged against stockholders’ equity), consisting
mostly of general and administrative expenses. CENAQ earned interest income of $4,680 and recorded unrealized loss on fair value changes
of over-allotment option liability of $22,500.

41

Liquidity and Capital Resources of CENAQ

On August 17, 2021, CENAQ consummated its IPO
of 15,000,000 units, at $10.00 per unit, generating total gross proceeds of $150.0 million and incurring offering costs of approximately
$17.8 million, inclusive of approximately $6.0 million in deferred underwriting commissions. Subsequently, in connection with the Business
Combination, the underwriters agreed to reduce the deferred underwriting discounts and commissions to approximately $4.3 million. Simultaneously
with the closing of the IPO, pursuant to the securities subscription agreement that CENAQ entered into with the CENAQ Sponsor, CENAQ completed
a private placement of 4,500,000 private placement warrants issued to the CENAQ Sponsor and 1,500,000 private placement warrants issued
to CENAQ’s underwriters, generating gross proceeds of $6,000,000. In connection with the closing of the IPO, the CENAQ Sponsor sold
membership interest reflecting an allocation of 75,000 founder shares, or an aggregate of 825,000 founder shares, to each anchor investor
at their original purchase price of approximately $0.0058 per share.

On August 19, 2021, the underwriters’ over-allotment
option was exercised in full, and CENAQ consummated the sale of an additional 2,250,000 units, generating additional proceeds of $22,500,000.
Simultaneously with the closing of the sale of additional units, CENAQ consummated the sale of an additional 675,000 private placement
warrants, generating gross proceeds of $675,000. A total of $174,225,000 from the net proceeds from the IPO and the private placement
were placed in the Trust Account, maintained by Continental Stock Transfer & Trust Company, acting as trustee, and approximately $0.6
million of such net proceeds were deposited in CENAQ’s operating account to pay expenses in connection with the closing of the IPO
and for working capital following IPO.

As of December 31, 2022, CENAQ had $127,965 in
its operating bank account, and working capital deficit of $7,072,012. Subsequent to December 31, 2022, CENAQ used such funds not held
in the Trust Account structuring, negotiating and consummating the Business Combination.

Prior to the Business Combination, CENAQ’s
liquidity needs were satisfied through (i) receipt of a $25,000 capital contribution from the CENAQ Sponsor in exchange for the issuance
of Founder Shares to the CENAQ Sponsor, (ii) the loan under a promissory note with the CENAQ Sponsor of approximately $88,333, (iii) the
unsecured promissory note with the CENAQ Sponsor of $125,000 and (iv) the net proceeds of $600,000 from the private placement of private
placement warrants held outside of the Trust Account. CENAQ fully repaid the promissory notes on August 17, 2021 and February 15, 2023.

On May 31, 2022, the Sponsor agreed
to loan the Company $125,000 pursuant to a promissory note (the “Promissory Note”). The Promissory Note bears an interest
of 10% per annum, payable on the earlier of (i) February 17, 2023 or (ii) the closing date on which the Company consummates an initial
business combination. There was $125,000 and $0 outstanding under the Promissory Note as of December 31, 2022 and 2021, respectively.
Such amounts are included in Proceeds from note payable-related party on the Consolidated Balance Sheets.

As described in Note 5 to the December 31, 2022
audited Consolidated Financial Statements, in connection with the $1,725,000 extension deposit previously noted, on November 15, 2022,
CENAQ issued an unsecured promissory note (the “Extension Note”) in the principal amount of $1,725,000 to CENAQ Sponsor in
connection with the Extension. The Extension Note was non-interest bearing and was due and payable at the Closing with the amount to be
repaid dependent on the amount of redemptions from the Trust Account at Closing. The amount to be repaid was to be reduced by an amount
equal to the percentage of redemptions multiplied by $1,725,000. There was $1,725,000 and $0 outstanding under the Extension Note as of
December 31, 2022 and 2021, respectively. Such amounts are included in Proceeds from note payable-related party on the Consolidated Balance
Sheets.

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On November 15, 2022, CENAQ issued
an unsecured promissory note (the “Sponsor Note”) allowing the Company to borrow from the CENAQ Sponsor up to $467,500. Amounts
drawn under the Sponsor Note bear no interest and are due and payable upon the earlier to occur of (i) the date on which CENAQ’s
initial business combination is consummated and (ii) the liquidation of the Company on or before February 16, 2023 or such later liquidation
date as may be approved by the Company’s stockholders. On November 15, 2022, the Company requested and received $100,000 under the
Sponsor Note. There was $100,000 and $0 outstanding under the Sponsor Note as of December 31, 2022 and 2021, respectively. Such amounts
are included in Proceeds from note payable-related party on the Consolidated Balance Sheets.

In order to finance transaction costs in connection
with a Business Combination, the CENAQ Sponsor or an affiliate of the CENAQ Sponsor or certain of CENAQ’s officers and directors
committed to provide CENAQ with Working Capital Loans up to $1,500,000, as defined later (see Note 5). This commitment extends through
February 16, 2023. As of December 31, 2022 and 2021, there were no amounts outstanding under any Working Capital Loans.

In connection with the Closing, and based on the
$158,797,476 of redemptions, CENAQ Sponsor was due $184,612 under the Extension Note. At closing, CENAQ Sponsor was also due $100,000
under the Sponsor Note and $125,000 under the Promissory Note. However, on February 15, 2023, in lieu of repayment of the Extension Note
and repayment of the Sponsor Note and Promissory Note, CENAQ entered into a new promissory note with the Sponsor totaling $409,612 (“New
Promissory Note”). The New Promissory Note, cancels and supersedes the Extension Note and the Sponsor Note. The New Promissory note
is non-interest bearing and the entire principal balance of the New Promissory Note is payable on or before February 15, 2024. The New
Promissory Note is payable at Verde Clean Fuel’s election in cash or in Class A Common Stock at a conversion price of $10.00 per
share.

CENAQ also obtained additional transaction expense
reductions leading up to the Closing including a reduction to the deferred underwriting fees and a reduction to legal expenses. In connection
with the execution of the Business Combination Agreement, on August 12, 2022, the Company, Intermediate and Holdings entered into a letter
agreement with the underwriters, pursuant to which, among other things, (i) Imperial Capital, LLC agreed to forfeit all of its 1,423,125
Private Placement Warrants and all of its 156,543 Representative Shares, (ii) I-Bankers Securities, Inc. agreed to forfeit all of its
301,875 Private Placement Warrants and all of its 33,207 Representative Shares and (iii) the underwriters agreed to reduce their deferred
underwriting fees related to the IPO from $6,037,500 to $4,312,500. As part of the Closing, the underwriters agreed to further reduce
their deferred underwriting fees related to the IPO from $4,312,500 to $1,700,000. Additionally, as of December 31, 2022, CENAQ had $4,110,755
of accrued legal expenses related to the Closing (included in Accounts payable and accrued expenses) and $511,760 of legal expenses recorded
to Deferred financing costs related to the PIPE capital raise. In connection with the Closing, CENAQ received an invoice for actual
legal expenses of $3,250,000. The underwriter’s counsel involved in the PIPE capital raise also agreed, in connection
with Closing, to reduce total legal expenses included in deferred financing costs to $325,000.

The Company’s future liquidity requirements
are satisfied by the net $37,329,178 of cash proceeds received on February 15, 2023 in connection with the Closing.

In connection with the Company’s assessment
of going concern considerations in accordance with FASB’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures
of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the Company is
able to meet its financial obligations for at least the next year as a result of capital raised in connection with completing the Business
Combination with Verde Clean Fuels on February 15, 2023.

43

Off-Balance Sheet Arrangements; Commitments and Contractual Obligations
of CENAQ

Registration Rights

The holders of the Founder Shares and Private
Placement Warrants (and any shares of Class A Common Stock issuable upon the exercise of the Private Placement Warrants and upon conversion
of the Founder Shares) will be entitled to registration rights pursuant to that certain Registration Rights Agreement, dated August 17,
2021 (the “IPO Registration Rights Agreement”) requiring us to register such securities for resale (in the case of the Founder
Shares, only after conversion to our Class A Common Stock). The holders of the majority of these securities were entitled to make up to
three demands, excluding short form demands, that CENAQ register such securities. In addition, the holders had certain “piggy-back”
registration rights with respect to registration statements filed after the completion of the Business Combination and rights to require
CENAQ to register for resale such securities pursuant to Rule 415 under the Securities Act.

In connection with the Closing, the IPO Registration
Rights Agreement, was amended and restated by Verde Clean Fuels, certain persons and entities holding securities of CENAQ prior to the
Closing (the “Initial Holders”) and certain persons and entities receiving Class A Common Stock and Class C Common Stock pursuant
to the Business Combination (together with the Initial Holders, the “Reg Rights Holders”) (as amended and restated, the “A&R
Registration Rights Agreement”). Pursuant to the A&R Registration Rights Agreement, within 60 days after Closing, Verde Clean
Fuels shall use its commercially reasonable efforts to file with the SEC (at Verde Clean Fuels’ sole cost and expense) a registration
statement registering the resale of certain securities held by or issuable to the Reg Rights Holders (the “Resale Registration Statement”),
and Verde Clean Fuels will use its commercially reasonable efforts to have the Resale Registration Statement declared effective as soon
as reasonably practicable after the filing thereof. In certain circumstances, the Reg Rights Holders can demand Verde Clean Fuels’
assistance with underwritten offerings and block trades, and the Reg Rights Holders are entitled to certain piggyback registration rights.
The A&R Registration Rights Agreement does not provide for the payment of any cash penalties by Verde Clean Fuels if it fails to satisfy
any of its obligations under the A&R Registration Rights Agreement.

Underwriters’ Agreement

CENAQ granted the underwriters a 45-day option
from the date of the Initial Public Offering to purchase up to an additional 2,250,000 units to cover over-allotments, if any. On August
19, 2021, the over-allotments were exercised in full.

Simultaneously with the closing of the Initial
Public Offering and the over-allotment, the underwriters were paid an underwriting discount of 2% of the gross proceeds of the Initial
Public Offering and the over-allotment, or $3,450,000. Additionally, the underwriters were entitled to a deferred underwriting discount
of 3.5% of the gross proceeds of the Initial Public Offering and the over-allotment upon the completion of the Business Combination. Subsequently,
in connection with the Business Combination, the underwriters agreed to reduce the deferred underwriting discount from 3.5% to 2.5%.

On the Closing Date, the deferred fee was paid
from the amounts held in the Trust Account.

Underwriters Letter

In connection with the execution of the Business
Combination Agreement, on August 12, 2022, CENAQ, Intermediate, Holdings and the underwriters entered into the Underwriters Letter, pursuant
to which, among other things, (i) Imperial Capital, LLC agreed to forfeit all of Its 1,423,125 Underwriters Forfeited Warrants and all
of its 156,543 Underwriters Forfeited Shares, (ii) I-Bankers Securities, Inc agreed to forfeit all of its 301,875 Underwriters Forfeited
Warrants and all of its 33,207 Underwriters Forfeited Shares and (iii) the underwriters agreed to reduce their deferred underwriting fees
related to the IPO from $6,037,500 to $4,312,500.

44

Critical Accounting Policies Before the Business Combination

The preparation of consolidated financial statements
and related disclosures in conformity with 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 income
and expenses during the periods reported. Making estimates requires management to exercise significant judgment. It is possible that the
estimates management considered could possibly change due to one or more future events. The most significant estimates that affected the
consolidated financial statements as of December 31, 2022 are the calculations of the fair values of the over-allotment option, fair values
of the representative shares and the fair values of the anchor shares. These estimates are uncertain due to the assumptions used in the
stock valuations. These estimates and assumptions have not changed significantly during the year. Actual results could materially differ
from those estimates. We have identified the following as our critical accounting policies:

Offering Costs associated with the Initial Public Offering

Offering costs consist of underwriting, legal,
accounting and other expenses incurred through the balance sheet date that are directly related to the IPO. We comply with the requirements
of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A “Expenses of Offering”. Offering costs
are allocated to the separable financial instruments, if any, issued in the IPO based on a relative fair value basis compared to total
proceeds received.

Class A Common Stock Subject to Possible Redemption

We account for the Class A common stock subject
to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Common stock
subject to mandatory redemption (if any) are classified as a liability instrument and measured at fair value. Conditionally redeemable
common stock (including common stock that feature redemption rights that are either within the control of the holder or subject to redemption
upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other
times, common stock is classified as stockholders’ equity.

We recognize changes in redemption value immediately
as they occur. Immediately upon the closing of the IPO, we recognized the subsequent re-measurement under ASC 480-10-S99 from initial
carrying amount to redemption value. The change in the carrying value of redeemable common stock resulted in charges against additional
paid-in capital and accumulated deficit.

Net Loss Per Common stock

CENAQ had two classes of common stock, which are
referred to as Class A common stock and Class B common stock. Income and losses are allocated on pro rata basis between redeemable and
non-redeemable common stock. The 19,612,500 potential common shares for outstanding warrants to purchase our stock were excluded from
diluted earnings per share for the year ended December 31, 2022 and 2021 because the warrants are contingently exercisable, and the contingencies
have not yet been met. As a result, diluted net loss per common share is the same as basic net loss per common share for the periods.

Recent Accounting Pronouncements

In August 2020, the FASB issued Accounting Standards
Update (“ASU”) No. 2020-06, Debt —debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging
—Contracts in Entity’ Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’
Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required
under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the
derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The guidance was adopted starting
January 1, 2022. Adoption of the ASU did not impact the Company’s financial position, results of operations or cash flows.

45

In May 2021, the FASB issued ASU 2021-04, Earnings
Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718),
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications
or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). This guidance
clarifies certain aspects of the current guidance to promote consistency among reporting of an issuer’s accounting for modifications
or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification
or exchange. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including
interim periods within those fiscal years. Early adoption is permitted for all entities, including adoption in an interim period. The
guidance was adopted starting January 1, 2022. Adoption of the ASU did not impact the Company’s financial position, results of operations
or cash flows.

Our management does not believe that any other
recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial
statement.

Critical Accounting Policies After the Business Combination

Our consolidated financial statements have been
prepared in conformity with U.S. GAAP as determined by the FASB. The preparation of condensed consolidated financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the condensed 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.

Asset Acquisition

In August 2020, we acquired a demonstration facility,
a laboratory, office space, and intellectual property including the patented STG+® process technology under the terms of a purchase
agreement with Primus Green Energy, Inc. (“Primus”). Upon acquiring the assets of Primus from the Founders, we performed an
assessment as to whether the acquisition should be accounted for as a business combination (under ASC Topic 805) or whether the acquisition
should be accounted for as an asset acquisition under ASC Topic 805-50.

We determined that substantially all of the fair
value of the assets acquired was concentrated in a single identifiable intangible asset representing intellectual property and patented
technology and therefore, the acquisition was not considered the acquisition of a business but rather an asset acquisition. Certain other
ancillary assets were acquired including a property lease and the related leasehold improvements. After allocating the acquisition cost
to physical assets which were deemed immaterial, the remaining value was recorded to a single intangible asset which we referred to as
Intellectual Property and Patented Technology.

We further assessed whether the intangible asset
would be used in Research and Development activities and whether the intangible asset should be capitalized or expensed. Under ASC Topic
730-10, assets that have alternative future uses should be capitalized. An alternative use includes adaptation of an existing capability
to a particular requirement or customer’s need as part of a continuing commercial activity. Another alternative use includes activity,
including design and construction engineering, related to the construction, relocation, rearrangement, or start-up of facilities or equipment
other than facilities or equipment whose sole use is for a particular research and development project.

46

We have utilized the intellectual property and
patented technology, which is considered to be an adaption of an existing capability of the intellectual property and patented technology,
to attempt to meet the contractual requirements of several potential licensing customers including modification to attach our STG+®
process technology to existing customer owned methanol production facilities. Further, we have also utilized the intellectual property
and patented technology acquired to perform additional modifications to the design and engineering of the commercially viable process
island in order to validate the production of other commercially consumed fuels such as diesel and methanol with only minor modifications
to the overall process. As a result of these alternative uses, we concluded the intellectual property and patented technology intangible
asset has alternative future uses and therefore was capitalized.

As a result, substantially all of the asset purchase
price was attributed to the single intangible asset. Accordingly, we recorded $1,925,151 to the intellectual property and patented property
intangible asset inclusive of direct transaction costs of $537,500 that were incurred. The intellectual property and patented technology
is considered an indefinite lived intangible and is not subject to amortization. We expect to reassess the estimated useful life of the
intangible asset following definitive decisions to proceed with the construction of our initial production facility. As of December 31,
2022 and 2021, the gross and carrying amount of the unamortized intellectual property and patented technology intangible asset was $1,925,151.

Contingent Consideration

Holdings, on Intermediate’s behalf, had
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. At the Closing of
the Business Combination, the Contingent Consideration was forfeited, pursuant to an agreement, dated August 5, 2022, entered into by
Holdings with Intermediate’s management and CEO.

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.

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. In addition, the Company considered market transactions (such as the Business Combination). 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.

47

In connection with our valuation of our stock-based
incentive units granted to management, we determined our estimated enterprise value utilizing a mix of market approach, discounted cash
flow and relief from royalty methods in the determination and such estimated enterprise value exceeded the carrying amount of this intangible
asset by a substantial amount.

During the years ended December 31, 2022 and 2021,
we placed the most weight to the Business Combination 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 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.

JOBS Act

On April 5, 2012, the JOBS Act was signed into
law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies.
We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements
based on the effective date for private (not publicly traded) companies. CENAQ 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. This may make comparison
of our consolidated financial statements with another emerging growth company that has not opted out of using the extended transition
period difficult or impossible because of the potential differences in accountant standards used.

Additionally, we are in the process of evaluating
the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth
in the JOBS Act, if, as an “emerging growth company”, we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to
Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank
Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory
audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated
financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation related items such as the correlation
between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These
exemptions will apply for a period of five years following the completion of the IPO or until we are no longer an “emerging growth
company,” whichever is earlier.

ITEM 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations

The following discussion and analysis should
be read in conjunction with the financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion
contains forward-looking statements reflecting our current expectations, estimates and assumptions concerning events and financial trends
that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from
those contained in these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk
Factors” and “Forward-Looking Statements” appearing elsewhere in this Annual Report on Form 10-K.

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K includes forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that
may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels
of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as “may,” “should,” “could,” “would,” “expect,”
“plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of
such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to,
those described in our other Securities and Exchange Commission (“SEC”) filings.

Overview

We are a newly organized blank check company incorporated
as a Delaware corporation on June 24, 2020, for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase,
reorganization or similar business combination with one or more businesses.

Our sponsor is CENAQ Sponsor, LLC, a Delaware
limited liability company. The registration statement for the initial public offering was declared effective on August 12, 2021. On August
17, 2021, we consummated our initial public offering of 15,000,000 units, at $10.00 per unit, generating gross proceeds of $150,000,000.
The underwriter was granted a 45-day option from the date of the final prospectus relating to the initial public offering to purchase
up to 2,250,000 additional units to cover over-allotments, if any, at $10.00 per unit. On August 19, 2021, the underwriters exercised
the overallotment in full, generating additional gross proceeds of $22,500,000. Transaction costs of our initial public offering and the
over-allotment amounted to $17,771,253 consisting of $3,450,000 of underwriting discount, $6,037,500 of deferred underwriting discount,
an excess of fair value of the founder shares acquired by the Anchor Investors of $6,265,215, fair value of the 189,750 representative
shares of $1,442,100 and $576,438 of other cash offering costs were charged to additional paid in capital.

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Simultaneously with the closing of the
initial public offering, we consummated the private placement (“Private Placement”) of 6,000,000 warrants, at a price of
$1.00 per warrant, generating gross proceeds to us of $6 million. On August 19, 2021, the underwriters exercised the over-allotment
in full and consummated the private placement of additional 675,000 warrants, at a price of $1.00 per warrant, generating gross
proceeds to us of $675,000.

Upon the closing of the initial public offering
and the Private Placement, $174,225,000 ($10.10 per share) of the net proceeds of the sale of the Units in the initial public offering
and the Private Placement were placed in the Trust Account.

If we are unable to complete an initial Business
Combination within the Combination Period, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as
reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal
to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not
previously released to us to pay its franchise and income taxes as well as expenses relating to the administration of the Trust Account
(less up to $100,000 of interest released to us to pay dissolution expenses), divided by the number of then outstanding public shares,
which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further
liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption,
subject to the approval of our remaining stockholders and our board of directors, liquidate and dissolve, subject, in each case, to our
obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.

Results of Operations

As of December 31, 2021, we have not commenced
any operations. All activity for the period from June 24, 2020 (inception) through December 31, 2021 relates to our formation and initial
public offering (“Public Offering” or “IPO”), and, since the completion of the IPO, searching for a target to
consummate a Business Combination. We will not generate any operating revenues until after the completion of a Business Combination, at
the earliest. We will generate non-operating income in the form of interest income from the proceeds derived from the Public Offering
and placed in the Trust Account (defined below).

For the year ended December 31, 2021, we had a net loss of $474,585.
We incurred $456,765 of formation and operating costs (not charged against stockholders’ equity), consisting mostly of general and
administrative expenses. We earned interest income of $4,680 and recorded unrealized loss on fair value changes of over-allotment option
liability of $22,500.

Liquidity and Going Concern

As of December
31, 2021, the Company had $505,518 in its operating bank account, and working capital of $487,083.

The Company’s liquidity needs up to December
31, 2021 had been satisfied through a payment from the Sponsor of $25,000 for the Founder Shares (see Note 5) and no borrowings under
the promissory note. Upon close of the IPO, there was no amount outstanding on the promissory note.

In order
to finance transaction costs in connection with a Business Combination, the Company’s Sponsor or an affiliate of the Sponsor or
certain of the Company’s officers and directors committed to provide the Company with Working Capital Loans up to $1,500,000, as
defined later (see Note 5). This commitment extends through August 17, 2022. To date, there were no amounts outstanding under any Working
Capital Loans.

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If the Company’s
estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are
less than the actual amount necessary to do so, the Company may have insufficient funds available to operate its business prior to the
Business Combination. Moreover, the Company may need to obtain additional financing either to complete its Business Combination or because
it becomes obligated to redeem a significant number of its public shares upon consummation of the Business Combination, in which case
the Company may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable
securities laws, the Company would only complete such financing simultaneously with the completion of the Business Combination. If the
Company is unable to complete its Business Combination because it does not have sufficient funds available to it, the Company will be
forced to cease operations and liquidate the Trust Account. In addition, following the Business Combination, if cash on hand is insufficient,
the Company may need to obtain additional financing in order to meet its obligations.

We cannot assure you that our plans to raise capital
or to consummate an initial business combination will be successful. These factors, among others, raise substantial doubt about our ability
to continue as a going concern, which could impact our business plan. The financial statements contained elsewhere in this Annual Report
do not include any adjustments that might result from our inability to continue as a going concern.

The holders of the Founder Shares, Private Placement
Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any shares of Class A common stock issuable upon
the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans and upon conversion
of the Founder Shares) will be entitled to registration rights pursuant to a registration rights agreement signed upon the closing of
the IPO, requiring us to register such securities for resale (in the case of the Founder Shares, only after conversion to our Class A
common stock). The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands,
that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration
statements filed subsequent to the completion of the initial Business Combination and rights to require us to register for resale such
securities pursuant to Rule 415 under the Securities Act. However, the registration rights agreement provides that we will not permit
any registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period, which
occurs (i) in the case of the Founder Shares, on the earlier of (A) six months after the completion of the initial Business Combination
or (B) subsequent to the initial Business Combination, (x) if the last sale price of our Class A common stock equals or exceeds $12.00
per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within
any 30-trading day period commencing at least 75 days after the initial Business Combination, or (y) the date on which we complete a liquidation,
merger, capital stock exchange, reorganization or other similar transaction that results in all of our stockholders having the right to
exchange their shares of common stock for cash, securities or other property and (ii) in the case of the Private Placement Warrants and
the respective Class A common stock underlying such warrants, 30 days after the completion of the initial Business Combination. We will
bear the expenses incurred in connection with the filing of any such registration statements.

We granted the underwriters a 45-day option from
the date of this initial public offering to purchase up to an additional 2,250,000 units to cover over-allotments, if any. On August 19,
2021, the over-allotments were exercised in full.

Simultaneously with the closing of the initial
public offering and the over-allotment, the underwriters were paid an underwriting discount of 2% of the gross proceeds of the initial
public offering and the over-allotment, or $3,450,000. Additionally, the underwriters will be entitled to a deferred underwriting discount
of 3.5% of the gross proceeds of the initial public offering and the over-allotment upon the completion of our initial Business Combination.

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Contractual Obligations

As of December 31, 2021, we did not have any long-term
debt, capital or operating lease obligations.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in
conformity with 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 financial statements, and income and expenses during the periods reported.
Making estimates requires management to exercise significant judgment. It is possible that the estimates management considered could possibly
change due to one or more future events. The most significant estimates that affected the financial statements as of December 31, 2021
are the calculations of the fair values of the over-allotment option, fair values of the representative shares and the fair values of
the anchor shares. These estimates are uncertain due to the assumptions used in the stock valuations. These estimates and assumptions
have not changed significantly during the year. Actual results could materially differ from those estimates. We have identified the following
as our critical accounting policies:

Offering Costs associated with the Initial
Public Offering

Offering costs consist of underwriting, legal, accounting and other
expenses incurred through the balance sheet date that are directly related to the IPO. We comply with the requirements of the ASC 340-10-S99-1
and SEC Staff Accounting Bulletin (“SAB”) Topic 5A “Expenses of Offering”. Offering costs are allocated to the
separable financial instruments, if any, issued in the IPO based on a relative fair value basis compared to total proceeds received.

Class A Common Stock Subject to Possible Redemption

We account for the Class A common stock subject
to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Common stock
subject to mandatory redemption (if any) are classified as a liability instrument and measured at fair value. Conditionally redeemable
common stock (including common stock that feature redemption rights that are either within the control of the holder or subject to redemption
upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other
times, common stock is classified as stockholders’ equity.

We recognize changes in redemption value immediately
as they occur. Immediately upon the closing of the IPO, we recognized the subsequent re-measurement under ASC 480-10-S99 from initial
carrying amount to redemption value. The change in the carrying value of redeemable common stock resulted in charges against additional
paid-in capital and accumulated deficit.

Net Loss Per Common stock

We have two classes of common stock, which are
referred to as Class A common stock and Class B common stock. Income and losses are allocated on pro rata basis between redeemable and
non-redeemable common stock. The 19,612,500 potential common shares for outstanding warrants to purchase our stock were excluded from
diluted earnings per share for the year ended December 31, 2021 because the warrants are contingently exercisable, and the contingencies
have not yet been met. As a result, diluted net loss per common share is the same as basic net loss per common share for the periods.

Recent Accounting Standards

In August 2020, the FASB issued Accounting Standards
Update (“ASU”) No. 2020-06, Debt —debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging
—Contracts in Entity’ Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’
Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required
under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the
derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. We are currently evaluating
the impact of the ASU on the financial position, results of operations or cash flows.

In May 2021, the FASB issued ASU 2021-04, Earnings
Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718),
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications
or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). This guidance
clarifies certain aspects of the current guidance to promote consistency among reporting of an issuer’s accounting for modifications
or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification
or exchange. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including
interim periods within those fiscal years. Early adoption is permitted for all entities, including adoption in an interim period. We are
currently evaluating the impact of the ASU on the financial position, results of operations or cash flows.

Our management does not believe that any other
recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying unaudited
condensed financial statement.

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JOBS Act

On April 5, 2012, the JOBS Act was signed into
law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies.
We will qualify as an “emerging growth company” and under the JOBS Act will be allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded) companies. We have 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. This may
make comparison of our financial statements with another emerging growth company that has not opted out of using the extended transition
period difficult or impossible because of the potential differences in accountant standards used.

Additionally, we are in the process of evaluating
the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth
in the JOBS Act, if, as an “emerging growth company”, we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to
Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank
Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory
audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements
(auditor discussion and analysis), and (iv) disclose certain executive compensation related items such as the correlation between executive
compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply
for a period of five years following the completion of the IPO or until we are no longer an “emerging growth company,” whichever
is earlier.