What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-16 · 319 added, 237 removed, 190 unchanged (75% of the section changed)

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CONDITION AND RESULTS OF OPERATIONS

in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to

Verde Clean Fuels, Inc.

in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Verde

Clean Fuels, Inc.

(formerly known as CENAQ Energy Corp.).

References to our “management” or our “management

team” refer to our officers and directors.

The following discussion and analysis of the Company’s financial condition

and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in

this Quarterly Report.

Certain information contained in the discussion and analysis set forth below includes forward-looking

statements that involve risks and uncertainties.

References to our “management” or our “management team”

refer to our officers and directors.

The following discussion and analysis of the Company’s financial condition and results of operations

should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report.

information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Special note regarding forward-looking statements

This Quarterly Report includes

“forward-looking statements” for the purposes of federal securities laws that are not historical facts and involve risks and

uncertainties that could cause actual results to differ materially from those expected and projected.

All statements, other than statements

of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and

Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and

the plans and objectives of management for future operations, are forward-looking statements.

Words such as “expect,” “believe,”

“anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions

are intended to identify such forward-looking statements.

Such forward-looking statements relate to future events or future performance,

but reflect management’s current beliefs, based on information currently available.

A number of factors could cause actual events,

performance or results to differ materially from the events, performance and results discussed in the forward-looking statements.

information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking

statements, please refer to the Risk Factors contained in this Form 10-Q.

The Company’s securities filings can be accessed on the

EDGAR section of the SEC’s website at www.sec.gov.

Except as expressly required by applicable securities law, the Company disclaims

any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or

On July 29, 2020, Green Energy

Partners, Inc.

This Quarterly

Report includes “forward-looking statements” for the purposes of federal securities laws that are not historical facts and

involve risks and uncertainties that could cause actual results to differ materially from those expected and projected.

All statements,

other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s

Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business

strategy and the plans and objectives of management for future operations, are forward-looking statements.

Words such as “expect,”

“believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar

words and expressions are intended to identify such forward-looking statements.

Such forward-looking statements relate to future events

or future performance, but reflect management’s current beliefs, based on information currently available.

A number of factors could

cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking

For information identifying important factors that could cause actual results to differ materially from those anticipated

in the forward-looking statements, please refer to the Risk Factors contained in this Form 10-Q.

The Company’s securities filings

can be accessed on the EDGAR section of the SEC’s website at www.sec.gov.

Except as expressly required by applicable securities

law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information,

future events or otherwise.

On July 29, 2020, Green Energy Partners, Inc.

(“GEP”), formed by the Chief Executive Officer of Intermediate, and an additional individual (the “Founders”),

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the patented STG+ process technology.

GEP then assigned its rights

under the asset purchase agreement to a newly formed subsidiary of Intermediate.

Immediately following the closing of the asset purchase

agreement, the Founders sold 100% of their membership interests to BEP Clean Fuels Holdings, LLC, a Delaware limited liability company

(“BEP”) in exchange for agreeing to make the payments under the asset purchase agreement as well as other capital contributions

and a contingent payment.

GEP then assigned its rights under the asset purchase

agreement to a newly formed subsidiary of Intermediate.

Immediately following the closing of the asset purchase agreement, the Founders

sold 100% of their membership interests to BEP Clean Fuels Holdings, LLC, a Delaware limited liability company (“BEP”) in

exchange for agreeing to make the payments under the asset purchase agreement as well as other capital contributions and a contingent

BEP ultimately contributed the membership interests to Intermediate.

Intermediate holds the acquired assets

through Bluescape Clean Fuels, LLC.

Since acquiring the assets from Primus, we have developed the use and application of the technology

acquired to focus on the renewable energy industry.

Intermediate holds the acquired assets through Bluescape

Clean Fuels, LLC.

Since acquiring the assets from Primus, we have developed the use and application of the technology acquired to focus

on the renewable energy industry.

The Transactions

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(A) CENAQ contributed to OpCo (1) all of its assets (excluding its interests in OpCo and the aggregate amount of cash required to satisfy

any exercise by CENAQ stockholders of their redemption rights SPAC Stockholder Redemption Amount) and (2) the Holdings Class C Shares

and (B) in exchange therefor, OpCo issued to CENAQ a number of Class A OpCo Units equal to the number of total shares of Class A Common

Stock issued and outstanding immediately after the Closing (taking into account the PIPE Financing and following the exercise of Redemption

Rights) and (ii) immediately following the SPAC Contribution, (A) Holdings contributed to OpCo 100% of the issued and outstanding limited

liability company interests of Intermediate and (B) in exchange therefor, OpCo transferred to Holdings (1) the Holdings OpCo Units and

the Holdings Class C Shares.

After giving effect to the business combination, Holdings holds 22,500,000 OpCo Units and an equal number

of shares of Class C Common Stock.

The Business Combination was

accounted for as a common control reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP.

The Business Combination was not treated as a change in control of Intermediate.

This determination reflects Holdings holding a majority

of the voting power of Verde Clean Fuels, Intermediate’s pre-Business Combination operations being the majority post-Business Combination

operations of Verde Clean Fuels, and Intermediate’s management team retaining similar roles at Verde Clean Fuels.

Further, Holdings

continues to have control of the board of directors through its majority voting rights.

Under the guidance in the Financial Accounting

Standards Board Accounting Standards Codification 805, Business Combinations, for transactions between entities under common control,

the assets, liabilities, and noncontrolling interests of CENAQ and Intermediate are recognized at their carrying amounts on the date of

the Business Combination.

Under this method of accounting, CENAQ will be treated as the “acquired” company for financial reporting

Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Intermediate issuing stock for

the net assets of CENAQ, accompanied by a recapitalization.

any exercise by CENAQ stockholders of their redemption rights) and (2) the Holdings Class C Shares and (B) in exchange therefor, OpCo

issued to CENAQ a number of Class A OpCo Units equal to the number of total shares of Class A Common Stock issued and outstanding immediately

after the Closing (taking into account the PIPE Financing and following the exercise of Redemption Rights) and (ii) immediately following

the SPAC Contribution, (A) Holdings contributed to OpCo 100% of the issued and outstanding limited liability company interests of Intermediate

and (B) in exchange therefor, OpCo transferred to Holdings (1) the Holdings OpCo Units and the Holdings Class C Shares.

After giving effect

to the business combination, Holdings holds 22,500,000 OpCo Units and an equal number of shares of Class C Common Stock.

The Business Combination was accounted for as

a common control reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with US GAAP.

Combination was not treated as a change in control of Intermediate.

This determination reflects Holdings holding a majority of the voting

power of Verde Clean Fuels, Intermediate’s pre-Business Combination operations being the majority post-Business Combination operations

of Verde Clean Fuels, and Intermediate’s management team retaining similar roles at Verde Clean Fuels.

Further, Holdings continues

to have control of the Board of Directors through its majority voting rights.

Under the guidance in the ASC 805, for transactions

between entities under common control, the assets, liabilities, and noncontrolling interests of CENAQ and Intermediate are recognized

at their carrying amounts on the date of the Business Combination.

Under this method of accounting, CENAQ will be treated as the “acquired”

company for financial reporting purposes.

Accordingly, for accounting purposes, the Business Combination was treated as the equivalent

of Intermediate issuing stock for the net assets of CENAQ, accompanied by a recapitalization.

The most significant change in Verde Clean Fuel’s

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Immediately, upon the completion of the Business Combination, CENAQ was renamed Verde Clean Fuels

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,

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.

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Our proprietary STG+® system converts the syngas into gasoline.

have made significant progress towards commercializing the first STG+® based commercial production facility in the United States.

We expect our first commercial production facility to be operational will be in Maricopa, Arizona.

In the first phase, which could be

operational as early as 2025, we expect this facility to produce approximately 7 million gallons per year of renewable.

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 projects, in various

early stages of development.

We have made significant progress towards commercializing

the first STG+® based commercial production facility in the United States.

We expect our first commercial production facility to be

operational will be in Maricopa, Arizona.

In the first phase, which could be operational as early as 2025, we expect this facility to

produce approximately 7 million gallons per year of renewable.

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 projects, in various early stages of development.

Over $110 million has been invested in our technology,

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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 Low Carbon Fuel Standards (“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

As of March 31, 2023, 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.

We have also participated in carbon lifecycle studies to validate the carbon intensity score (“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 Federal Renewable Fuel Standard (“RFS”) for the D3 RIN (a carbon credit), which can have significant value.

gasoline produced from our process may also qualify for various state carbon programs, including California’s Low Carbon Fuel Standards

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.

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 June 30, 2023, 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.

Key Factors Affecting 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.

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” in Part II, Item 1A of this Form 10-Q.

the factors described below are key to our success.

Commencing and Expanding Commercial Operations

April 2022, we commenced a pre-FEED study for the Maricopa, AZ facility which we expect to be our first commercial production facility.

Following our entry into a 25 year lease (Note 5) to secure the site of the future facility, we are actively engaged in activities associated

with designing the feedstock supply chain to the site, evaluating utility interconnections, and validating front-end gasification design

for our first commercial facility.

We believe our commercialization activities are being completed at a pace that can support first commercial

production of renewable gasoline as early as 2025.

We have three additional

production facilities planned and four additional identified potential production facility development opportunities.

We believe the number

of planned and identified potential production facilities bode well for our potential future success.

In April 2022, we commenced a pre-front-end engineering

and design (“FEED”) study for the Maricopa, Arizona facility which we expect to be our first commercial production facility.

Following our entry into a 25-year lease (see Note 5 to the unaudited consolidated financial statements) to secure the site of the future

facility, we are actively engaged in activities associated with designing the feedstock supply chain to the site, evaluating utility interconnections,

and validating front-end gasification design for our first commercial facility.

We believe our commercialization activities are being

completed at a pace that can support first commercial production of renewable gasoline as early as 2025.

We have three additional production facilities

planned and four additional identified potential production facility development opportunities.

We believe the number of planned and identified

potential production facilities bode well for our potential future success.

The Company evaluated subsequent events and transactions

that occurred after the balance sheet date, up to the date which the financial statements were issued.

On August 1, 2023, the Company announced a Carbon

Dioxide Management Agreement (“CDMA”) with Carbon TerraVault JV HoldCo, LLC (“CTV JV”), a carbon management partnership

focused on carbon capture and sequestration development formed between Carbon TerraVault, a subsidiary of California Resources Corporation

(“CRC”), and Brookfield Renewable.

Under the terms of the non-binding agreement,

the Company expects to construct a new renewable gasoline production facility at CRC’s existing Net Zero Industrial Park in Kern

County, California.

The plant is expected to capture carbon dioxide and produce renewable gasoline from biomass and other agricultural

waste feedstock to help support the further decarbonization of California’s economy and its transportation sector.

The project is

expected to produce approximately 7 million gallons per year of renewable gasoline for use as transportation fuel.

Project Final Investment Decision (“FID”)

is targeted for mid-2025, with operations expected to begin in the second half of 2027.

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.

that the first commercial production facility could be operational as early as 2025.

A critical step in our success will be the successful

construction and operation of the first commercial production facility using our patented STG+® technology.

We expect that the first

commercial production facility could be operational as early as 2025.

Protection and continuous development of our patented technology

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We have not generated any revenue to date.

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.

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.

General and administrative expenses consist of

compensation costs including salaries, benefits and stock-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 expect we will incur higher general and administrative

expenses for public company costs such as compliance with the regulations of the SEC and the Nasdaq Capital Market.

Research and Development Expense

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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.

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

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There are no current or deferred income tax

amounts recorded in our financial statements.

amounts recorded in our consolidated financial statements.

Results of Operations

Comparison of the three months Ended March 31, 2023 and 2022

Comparison of the three months ended June 30, 2023 and June 30,

Three months ended

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Total Operating (income) expenses

Other (income)

Interest expense

Net loss (income)

General and Administrative

General and administrative expense increased approximately

$3 million or 226% from $1.3 million for the three months ended March 31, 2022 to $4.33 million for the three months ended March 31, 2023

primarily due to an increase in share-based compensation expense of $1.5 million, an increase in professional fees of $0.9 million, and

other miscellaneous fee increases of $0.6 million.

$1.3 million, or 115%, from $1.1 million for the three months ended June 30, 2022 to $2.4 million for the three months ended June 30,

2023, primarily due to an increase in professional fees of $0.9 million, including accounting, legal and directors’ fees, and higher

insurance costs of $0.4 million.

These increases were partially offset by lower share-based compensation expense.

Contingent Consideration

The reduction in the contingent consideration

liability of $1.3 million to $0 during the three-months ended March 31, 2023 was primarily due to a contractual forfeiture of the payment

following the close of the Business Combination on February 15, 2023.

The $1.9 million reduction to operating expenses

associated with contingent consideration for the three months ended June 30, 2022 reflects the reversal of a portion of an accrual made

by Holdings for certain contingent payments as a result of an assessment of the probability of completing the Business Combination (see

Note 2 to the unaudited consolidated financial statements).

Research and Development

Research and development expense decreased approximately

$15 thousand or 15% from $97 thousand for the three-months ending March 31, 2022 to $83 thousand for the three-months ending March 31,

The decrease in research and development expense was a result of a decrease in consulting and outside contractor billings, as a

new consulting firm hired worked less hours on a fuel testing H2 analysis project.

R&D expense increased approximately $13 thousand,

or 18%, from $73 thousand for the three months ended June 30, 2022 to $86 thousand for the three months ended June 30, 2023.

in R&D expense was primarily due to higher consulting fees and outside contractor billings.

Other income was primarily attributable to interest

earned on approximately $37 million in cash received as a result of the business combination which closed on February 15, 2023.

Interest Expense

The increase in interest expense was attributable

to the Company’s finance lease liability (see Note 5 to the unaudited consolidated financial statements).

Comparison of the six months ended June 30, 2023 and June 30, 2022

Six months ended

General and administrative expenses

Contingent Consideration

Research and development expenses

Total Operating (income) expenses

Other (income)

Interest expense

General and Administrative

General and administrative expense increased approximately

$4.2 million, or 172%, from $2.5 million for the six months ended June 30, 2022 to $6.7 million for the six months ended June 30, 2023.

The increase was primarily due to higher professional fees of $1.8 million, including accounting, legal and directors’ fees and

greater share-based compensation expense of $1.4 million.

There were also increased costs for insurance, rental, amortization and other

operating expenses.

Contingent Consideration

The $1.3 million reduction to operating expenses

associated with contingent consideration for the six months ended June 30, 2023 reflects the reversal 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.

The $1.9 million reduction to operating expenses associated with contingent consideration for the six months ended

June 30, 2022 reflects the reversal of a portion of the accrual made by Holdings as a result of an assessment of the probability of completing

the Business Combination (see Note 2 to the unaudited consolidated financial statements).

Research and Development

R&D expense remained consistent between the

six months ended June 30, 2022 and the six months ended June 30, 2023.

R&D expense consists primarily of outside consulting expenses

related to R&D projects.

Other income was primarily attributable to interest

earned on approximately $37 million in cash received as a result of the business combination which closed on February 15, 2023.

Interest Expense

The increase in interest expense was attributable

to the Company’s finance lease liability (see Note 5 to the unaudited consolidated financial statements).

Liquidity and Capital Resources

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Since inception,

we have incurred significant operating losses, have an accumulated deficit of $21.8 million as of March 31, 2023 and negative

operating cash flow during the three-months ending March 31, 2023 and 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, to successfully achieve commerciality of our projects.

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 Bluescape Clean Fuels Holdings LLC since

December 2021.

we have incurred significant operating losses, have an accumulated deficit of $22.5 million as of June 30, 2023 and negative operating

cash flow during the six months ended June 30, 2023 and 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, to successfully achieve commerciality of our projects.

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 Bluescape Clean Fuels Holdings, LLC 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 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.

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 $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 through 2024.

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.

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

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 the proceeds from the CENAQ transaction.

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.

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.

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 through 2024.

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

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 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 the proceeds from the CENAQ transaction.

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.

In connection with the Closing, Sponsor was due

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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 (“ New Promissory Note ”).

The New Promissory Note, cancels and supersedes the existing promissory notes.

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 the

Company’s election in cash or in Class A common stock at a conversion price of $10.00 per share.

Summary Statement of Cash Flows for the Interim

Periods Ended March 31, 2023 and March 31, 2022

Sponsor, the Company entered into the New Promissory Note with the Sponsor totaling $409,612.

The New Promissory Note cancels and supersedes

the existing promissory notes.

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 the Company’s election in cash or in Class

A common stock at a conversion price of $10.00 per share.

Summary Statement of Cash Flows for the Interim Periods Ended June

30, 2023 and June 30, 2022

The following table sets forth the primary sources

and uses of cash and cash equivalents for the periods presented below:

For the Three Months Ended

For the Six Months Ended

Net cash used in operating activities

$ (4,801,692 )

$ (1,631,160 )

Net cash used in investing activities

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Net cash used in our operating activities increased

$2.1 million during the three months ended March 31, 2023 versus the same period in 2022, due to a larger net loss from higher General

and administrative expenses of approximately $3.0 million comprised of increased share-based payment expense of $1.5 million, and increased

professional fees of $0.9 million.

An increase in prepaid expenses of $1.6 Million due to the payment of directors and officers’

insurance policy further increased net cash used in operating activities.

$3.2 million during the six months ended June 30, 2023 versus the same period in 2022, which primarily was due to a higher net loss in

2023 as compared with 2022 of $4.9 million.

This was partially offset by higher non-cash operating items in 2023, including the impact

of stock-based compensation costs of $1.4 million and a decrease in working capital of approximately $0.3 million.

Cash Flows used in Investing Activities

Net cash used in investing activities was $0 for

the three months ended March 31, 2023 and 2022.

There was no net cash used in investing activities

during both the six months ended June 30, 2023 and 2022.

Cash Flows from Financing Activities

Net cash provided by financing activities increased

approximately $36.0 million during the three months ended March 31, 2023 compared to the same period in prior in 2022.

was primarily due to the close of the business combination on February 15, 2023 which raised $37.3 million.

approximately $35.1 million during the six months ended June 30, 2023 compared to the same period in 2022.

The increase was primarily

due to the close of the Business Combination on February 15, 2023, which raised $37.3 million.

Commitments and Contractual Obligations

On October 17, 2022, we entered into a 25-year land lease in Maricopa,

Arizona with the intent of building a biofuel processing facility.

The commencement date of the lease occurred in February of 2023 contemporaneous

with the Company obtaining control of the identified asset.

On October 17, 2022, we entered into a 25-year

land lease in Maricopa, Arizona with the intent of building a biofuel processing facility.

The commencement date of the lease occurred

in February 2023 contemporaneous with the Company obtaining control of the identified asset.

Off-Balance Sheet Arrangements

As of March 31, 2023, we have not engaged in any

As of June 30, 2023, we have not engaged in any

off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

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Our plan includes the below:

● Designing and implementing a risk assessment process supporting the

identification of risks facing our Company.

● Implementing controls to enhance

our review of significant accounting transactions and other new technical accounting and financial reporting issues and preparing and

reviewing accounting memoranda addressing these issues.

● Hiring additional experienced

accounting, financial reporting and internal control personnel and changing roles and responsibilities of our personnel as we transition

to being a public company and are required to comply with Section 404 of the Sarbanes Oxley Act of 2002.

● Implementing controls to enable

an accurate and timely review of accounting records that support our accounting processes and maintain documents for internal accounting

Designing and implementing a risk assessment process supporting the identification of risks facing our Company.

Implementing controls to enhance our review of significant accounting transactions and other new technical accounting and financial reporting issues and preparing and reviewing accounting memoranda addressing these issues.

Hiring additional experienced accounting, financial reporting and internal control personnel and changing roles and responsibilities of our personnel as we transition to being a public company and are required to comply with Section 404 of the Sarbanes Oxley Act of 2002.

Implementing controls to enable an accurate and timely review of accounting records that support our accounting processes and maintain documents for internal accounting reviews.

We cannot assure you that these measures will

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Our consolidated financial statements have been

prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) as determined

by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

prepared in conformity with US GAAP as determined by the FASB’s ASC.

Impairment of Intangible Assets

The Company’s intangible asset consists of

its intellectual property and patented technology and is considered an indefinite lived intangible and is not subject to amortization.

As of March 31, 2023, and December 31, 2022, the gross and carrying amount of this intangible asset was $1,925,151.

The Company’s intangible asset consists

of its intellectual property and patented technology and is considered an indefinite lived intangible and is not subject to amortization.

As of June 30, 2023, and December 31, 2022, the gross and carrying amount of this intangible asset was $1,925,151.

A qualitative assessment of indefinite-lived intangible

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fair value of an indefinite-lived intangible asset is less than its carrying amount, an impairment loss is recognized equal to the difference.

During the three months ended March 31, 2023,

During the three and six months ended June 30,

2023 and 2022, the Company did not record any impairment charges.

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the estimated cash flows discounted at a rate commensurate with the risk involved.

During the three months ended March 31, 2023 and 2022,

the Company did not record any impairment charges.

Unit-Based Compensation

The Company applies the fair value method under

ASC 718, Compensation — Stock Compensation (“ASC 718”), in accounting for unit-based compensation

to employees.

Service-based units compensation cost is measured at the grant date based on the fair value of the equity instruments awarded

and is recognized over the period during which an employee is required to provide service in exchange for the award, or the requisite

service period, which is usually the vesting period.

Performance-based unit compensation cost is measured at the grant date based on the

fair value of the equity instruments awarded and is expensed over the requisite service period, based on the probability of achieving

the performance goal, with changes in expectations recognized as an adjustment to earnings in the period of the change.

If the performance

goal is not met, no unit-based compensation expense is recognized and any previously recognized unit-based compensation expense is reversed.

Forfeitures of Forfeitures of service-based and performance-based units are recognized upon the time of occurrence.

Prior to closing of the business

combination, certain subsidiaries of the Holdings, including Intermediate, were wholly-owned subsidiaries of Holdings.

Holdings, which was outside of the business combination perimeter, had entered into several compensation related arrangements with

management of Intermediate.

Compensation costs associated with those arrangements were allocated by BCF Holdings to Intermediate as

the employees were rendering services to Intermediate.

However, the ultimate contractual obligation related to these awards,

including any future settlement, rested and continues to rest with Holdings.

During the three and six months ended June 30, 2023

and 2022, the Company did not record any impairment charges.

Equity-Based Compensation

The Company applies the fair value method under ASC 718 in accounting

for equity-based compensation to employees and non-employees.

The determination of fair value requires significant judgment and the use

of estimates related to inputs into the Black-Scholes option pricing model such as stock price volatility, expected option lives and the

discount rate.

Equity-based compensation is recorded as a general and administrative expense in the consolidated Statements of Operations.

We measure the fair value of each option grant

at the date of grant using a Black-Scholes option pricing model.

We estimate the expected term of options granted based on historical

experience 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 companies that are similar to us in our industry sector.

We do not anticipate paying any cash dividends in the foreseeable future

and therefore use an expected dividend yield of zero in the option valuation model.

Forfeitures are recognized as they occur.

Using alternative

assumptions could cause there to be differences in the resulting fair value.

If the fair value were to increase, the amount of expense

that would result would also increase.

Conversely, if the fair value were to decrease, the amount of expense would decrease.

All equity-based

awards subject to graded vesting based solely on service condition are amortized on a straight-line basis over the requisite service periods.

Compensation cost 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.

Performance-based unit compensation cost is measured at the grant date based on the fair value of the equity instruments

awarded and is expensed over the requisite service period, based on the probability of achieving the performance goal, with changes in

expectations recognized as an adjustment to earnings in the period of the change.

If the performance goal is not met, no unit-based compensation

expense is recognized and any previously recognized unit-based compensation expense is reversed.

Forfeitures of service-based and performance-based

units are recognized upon the time of occurrence.

Prior to closing of the Business Combination,

certain subsidiaries of the Holdings, including Intermediate, were wholly-owned subsidiaries of Holdings.

Holdings, which was outside

of the business combination perimeter, had entered into several compensation related arrangements with management of Intermediate.

costs associated with those arrangements were allocated by BCF Holdings to Intermediate as the employees were rendering services to Intermediate.

However, the ultimate contractual obligation related to these awards, including any future settlement, rested and continues to rest with

On August 5, 2022, in connection with entering

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The Company accelerated share-based payment expense

related to service-based units during the three-month period ending March 31, 2023 in connection with the Business Combination totaling

related to service-based units during the three-month period ended March 31, 2023 in connection with the Business Combination totaling

$2.1 million.

No service-based or performance-based incentive units were granted during the three-month period ended March 31, 2023.

No service-based or performance-based incentive units were granted during the three-month or six-month period ended June

In March 2023, the Company authorized and approved

the Verde Clean Fuels, Inc.

2023 Omnibus Incentive Plan (the “2023 Plan”).

On April 25, 2023, consistent with the terms of

the 2023 Plan, the Company granted stock options to certain employees and officers and RSUs to non-employee directors In addition to

stock options and RSUs, the 2023 Plan authorizes for the potential future grant of stock appreciation rights, restricted stock, performance

awards, stock awards, dividend equivalents, other stock-based awards, cash awards and substitute awards to certain employees (including

executive officers), consultants and non-employee directors, and is intended to align the interests of the Company’s service providers

with those of the stockholders.

Emerging Growth Company Accounting Election

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Recent Accounting Pronouncements

See Note 2 in the accompanying unaudited consolidated

financial statements included in this Quarterly Report for information regarding recent accounting pronouncements.

believes there is no new accounting guidance issued but not yet effective that would have a material impact to the Company’s current

financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller

reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under

smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required

under this item.

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-Q

Item 2. Management’s Discussion and Analysis