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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-03-30 · 466 added, 180 removed, 59 unchanged (92% of the section changed)

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.

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.

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.

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

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,

(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.”

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”)

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.

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

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.

our renewable gasoline exhibits a significant lifecycle carbon emissions reduction compared to traditional petroleum-based gasoline.

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

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,

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.

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.

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

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.

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.

We have not generated any revenue to date.

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.

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.

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.

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.

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.

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,

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

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.

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.

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.

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

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.

Off-Balance Sheet Arrangements;

Commitments and Contractual Obligations

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.

19, 2021, the over-allotments were exercised in full.

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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.

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.

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.

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 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.

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

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Net Loss Per Common stock

We have two classes of common stock, which are

CENAQ had two classes of common stock, which are

referred to as Class A common stock and Class B common stock.

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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

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 Standards

Recent Accounting Pronouncements

In August 2020, the FASB issued Accounting Standards

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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.

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.

In May 2021, the FASB issued ASU 2021-04, Earnings

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Early adoption is permitted for all entities, including adoption in an interim period.

currently evaluating the impact of the ASU on the financial position, results of operations or cash flows.

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 unaudited

condensed financial statement.

recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial

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

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.

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.

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).

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, 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.

On April 5, 2012, the JOBS Act was signed into

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.

make comparison of our financial statements with another emerging growth company that has not opted out of using the extended transition

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.

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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

Quantitative and Qualitative Disclosures

About Market Risk

Pursuant to Item 305(e) of

Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “ smaller

reporting company, ” as defined by Rule 229.10(f)(1).

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.

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.

Quantitative and Qualitative

Disclosures about Market Risk.

Pursuant to Item 305(e) of Regulation S-K (§

229.305(e)), the Company is not required to provide the information required by this Item as it is a “ smaller reporting company, ”

as defined by Rule 229.10(f)(1).

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis