What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-14 compared with 2023-11-13 · 717 added, 828 removed, 197 unchanged (89% of the section changed)

Financial Statements

CLEAN FUELS, INC.

BALANCE SHEETS

September 30,

VERDE CLEAN FUELS, INC.

CONSOLIDATED BALANCE SHEETS

Current assets:

2 unchanged sentences

Prepaid expenses

Deferred transaction costs

Deferred financing costs

Total current assets

10 unchanged sentences

Operating lease liabilities – current portion

Notes payable – insurance premium financing

Promissory note – related party

Income taxes payable

Other current liabilities

Total current liabilities

Non-current liabilities:

Contingent consideration

Promissory note – related party

Operating lease liabilities

3 unchanged sentences

Stockholders’ equity

Intermediate Member’s Equity

Class A common stock, par value $ 0.0001 per share, 9,387,836 shares issued and outstanding as of September 30, 2023

Class C common stock, par value $ 0.0001 per share, 22,500,000 shares issued and outstanding as of September 30, 2023

Class A common stock, par value $ 0.0001 per share, 9,428,797 and 9,387,836 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

Class C common stock, par value $ 0.0001 per share, 22,500,000 shares issued and outstanding as of March 31, 2024 and December 31, 2023

Additional paid in capital

5 unchanged sentences

Total liabilities and stockholders’ equity

accompanying notes to the unaudited consolidated financial statements are an integral part of these statements.

CLEAN FUELS, INC.

STATEMENTS OF OPERATIONS

The accompanying notes to the unaudited consolidated

financial statements are an integral part of these statements.

VERDE CLEAN FUELS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

September 30,

Nine months ended

September 30,

General and administrative expenses

1 unchanged sentence

( 1,299,000 )

( 7,181,000 )

Research and development expenses

Total Operating (income) loss

( 4,347,748 )

( 3,600,180 )

Total operating loss

Other (income)

Interest expense

Loss (income) before income taxes

Loss before income taxes

( 2,529,083 )

1 unchanged sentence

Provision for income taxes

Net income (net loss)

$ ( 2,529,083 )

$ ( 3,117,127 )

Net income (loss) attributable to noncontrolling interest

Net loss attributable to noncontrolling interest

$ ( 1,756,712 )

$ ( 2,542,666 )

Net income (loss) attributable to Verde Clean Fuels, Inc.

Net loss attributable to Verde Clean Fuels, Inc.

$ ( 772,371 )

2 unchanged sentences

Weighted average Class A common stock outstanding, basic and diluted

Loss per Share of Class A common stock

accompanying notes to the unaudited consolidated financial statements are an integral part of these statements.

CLEAN FUELS, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

of Stockholders’ Equity for the Three months ended September 30, 2023

Net loss per share of Class A common stock

The accompanying notes to the unaudited consolidated

financial statements are an integral part of these statements.

VERDE CLEAN FUELS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

Statement of Stockholders’ Equity for the Three Months Ended

March 31, 2024

Stockholders’

Balance – June 30, 2023

Balance – December 31, 2023

$ ( 23,922,730 )

Related party promissory note settlement

Stock-based compensation

Net income (loss)

( 1,756,712 )

( 2,529,083 )

Balance – September 30, 2023

Balance – March 31, 2024

$ ( 24,695,101 )

of Stockholders’ Equity for the Nine months ended September 30, 2023

Statement of Stockholders’ Equity for the Three Months Ended

March 31, 2023

Stockholders’

1 unchanged sentence

$ ( 11,672,536 )

Retroactive application of recapitalization

application of recapitalization

Adjusted beginning balance

( 11,672,536 )

Reversal of Intermediate original equity

Reversal of Intermediate original

( 12,775,901 )

7 unchanged sentences

Stock-based compensation

Warrant Exercise

Net income (loss)

( 2,542,666 )

( 3,117,127 )

Balance – September 30, 2023

$ ( 23,275,942 )

of Member’s Equity for the Three Months Ended September 30, 2022

Balance – June 30, 2022

$ ( 15,139,398 )

$ ( 4,055,518 )

Capital contribution

Unit-based compensation expense

Balance September 30, 2022

$ ( 10,791,650 )

of Member’s Equity for the Nine Months Ended September 30, 2022

Balance – December 31, 2021

$ ( 14,391,830 )

$ ( 6,786,461 )

Capital contribution

Unit-based compensation expense

Balance September 30, 2022

Balance – March 31, 2023

$ ( 21,753,603 )

accompanying notes to the unaudited consolidated financial statements are an integral part of these statements.

CLEAN FUELS, INC.

STATEMENTS OF CASH FLOWS

For the Nine Months Ended

September 30,

VERDE CLEAN FUELS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Cash flows from operating activities:

Net (loss) income

$ ( 2,529,083 )

$ ( 3,117,127 )

Adjustments to reconcile net loss to net cash used in operating activities

1 unchanged sentence

( 1,299,000 )

( 7,181,000 )

Unit-based compensation expense

3 unchanged sentences

Prepaid expenses

( 1,032,686 )

( 1,457,643 )

Accounts payable

Accrued liabilities

Security deposits

Income taxes payable

Other changes in operating assets and liabilities

Operating lease liabilities

Other changes in operating assets and liabilities

Net cash used in operating activities

13 unchanged sentences

Repayments of the principal portion of finance lease liabilities

Deferred transaction costs

Deferred financing costs

Warrant exercises

Capital contributions

Net cash provided by financing activities

Net change in cash and restricted cash

Cash, beginning of year

( 2,837,573 )

Cash, cash equivalents and restricted cash, beginning of year

CENAQ operating cash balance acquired

Cash and restricted cash, end of year

Cash, cash equivalents and restricted cash, end of period

Supplemental cash flows

1 unchanged sentence

Non-cash impact of debt issuance through the business combination

Non-cash deferred transaction costs

Non-cash deferred financing costs

accompanying notes to the unaudited consolidated financial statements are an integral part of these statements.

CLEAN FUELS, INC.

TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1 – ORGANIZATION

Clean Fuels, Inc.

(the “Company” or “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 Verde Clean Fuels’ STG+® process,

Verde Clean Fuels converts syngas into Reformulated Blend-stock for Oxygenate Blending (“RBOB”) gasoline.

Fuels is focused on the development of technology and commercial facilities aimed at turning waste and other bio-feedstocks into a usable

The accompanying notes to the unaudited consolidated

financial statements are an integral part of these statements.

VERDE CLEAN FUELS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION

Verde Clean Fuels, Inc.

(the “Company”,

“Verde” and “Verde Clean Fuels”) is a clean energy technology company specializing in the conversion of synthesis

gas, or syngas, derived from diverse feedstocks, such as biomass or natural gas and other feedstocks, into liquid hydrocarbons, primarily

gasoline, through an innovative and proprietary liquid fuels technology, the STG+® process.

Through Verde Clean Fuels’ STG+®

process, Verde Clean Fuels converts syngas into Reformulated Blend-stock for Oxygenate Blending (“RBOB”) gasoline.

Clean Fuels is focused on the development of technology and commercial facilities aimed at turning waste and other feedstocks into a usable

stream of syngas, which is then transformed into a single finished fuel, such as gasoline, without any additional refining steps.

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.

February 15, 2023 (the “Closing Date”), Verde Clean Fuels finalized a business combination (the “Business Combination”)

pursuant to that certain business combination agreement, dated as of August 12, 2022 by and among CENAQ Energy Corp.

Verde Clean Fuels OpCo, LLC, a Delaware limited liability company and a wholly owned subsidiary of CENAQ (“OpCo”), Bluescape

Clean Fuels Holdings, LLC, a Delaware limited liability company (“Holdings”), Bluescape Clean Fuels Intermediate Holdings,

LLC, a Delaware limited liability company (“Intermediate”), and CENAQ Sponsor LLC (“Sponsor”).

Immediately upon

the completion of the Business Combination, CENAQ was renamed to Verde Clean Fuels, Inc.

The Business Combination is discussed further

the completion of the Business Combination, the combined company is organized in an “Up-C” structure and the only direct

assets of the Company, consists of equity interests in OpCo, whose only direct assets consists of equity interests in Intermediate.

following the Business Combination, Verde Clean Fuels is the sole manager of and controls OpCo.

of the year ended December 31, 2022, prior to the Business Combination, and up to the transaction close on February 15, 2023, Verde Clean

Fuels, previously CENAQ Energy Corp., was a special purpose acquisition company (“SPAC”) incorporated for the purpose of

effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more

2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

of Presentation

accompanying unaudited consolidated financial statements should be read in conjunction with the audited financial statements of Intermediate

included in the Current Report on Form 8-K/A filed on April 7, 2023 and are presented in conformity with accounting principles generally

accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the U.S.

and Exchange Commission (the “SEC”).

In the opinion of management, all adjustments (consisting of normal recurring adjustments)

have been made that are necessary to present fairly the financial position, and the results of its operations and its cash flows.

results of operations for an interim period may not give a true indication of results for a full year.

Company’s management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted

would have a material effect on the accompanying consolidated financial statements.

and uncertainties

Company is currently in the development stage and has not yet commenced principal operations or generated revenue.

The development of

the Company’s projects are subject to a number of risks and uncertainties including, but not limited to, the receipt of the necessary

permits and regulatory approvals, commodity price risk impacting the decision to go forward with the projects, the availability and ability

to obtain the necessary financing for the construction and development of projects.

preparation of financial statements in conformity with US GAAP requires the Company’s management to make estimates and assumptions

that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial

statements and the reported amounts of revenues and expenses during the reporting period.

estimates requires management to exercise significant judgment.

It is at least reasonably possible that the estimate of the effect of

a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating

its estimate, could change in the near term due to one or more future confirming events.

Such estimates may be subject to

change as more current information becomes available.

availability of biogenic feedstocks 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.

On February 15, 2023 (the “Closing Date”), the Company

finalized a business combination (the “Business Combination”) pursuant to that certain business combination agreement, dated

as of August 12, 2022 (the “Business Combination Agreement”) by and among CENAQ Energy Corp.

(“CENAQ”), Verde

Clean Fuels OpCo, LLC, a Delaware limited liability company and a wholly owned subsidiary of CENAQ (“OpCo”), Bluescape Clean

Fuels Holdings, LLC, a Delaware limited liability company (“Holdings”), Bluescape Clean Fuels Intermediate Holdings, LLC,

a Delaware limited liability company (“Intermediate”), and CENAQ Sponsor LLC (“Sponsor”).

Immediately upon the

completion of the Business Combination, CENAQ was renamed to Verde Clean Fuels, Inc.

The Business Combination is discussed further in

Following the completion of the Business Combination, the combined

company is organized under an umbrella partnership C corporation (“Up-C”) structure and the only direct assets of the Company

consists of equity interests in OpCo, whose only direct assets consists of equity interests in Intermediate.

Immediately following the

Business Combination, Verde Clean Fuels is the sole manager of and controls OpCo.

Prior to the Business Combination, and up to the transaction close

on February 15, 2023, Verde Clean Fuels, previously CENAQ Energy Corp., was a special purpose acquisition company (“SPAC”)

incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business

combination with one or more businesses.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements should

be read in conjunction with the audited financial statements included in the Annual Report on Form 10-K filed on March 28, 2024 and are

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

pursuant to the rules and regulations of the U.S.

Securities and Exchange Commission (the “SEC”).

In the opinion of management,

all adjustments (consisting of normal recurring adjustments) have been made that are necessary to present fairly the financial position,

and the results of its operations and its cash flows.

The results of operations for an interim period may not give a true indication of

results for a full year.

Risks and uncertainties

The Company is currently in the development stage and has not yet commenced

principal operations or generated revenue.

The development of the Company’s projects are subject to a number of risks and uncertainties

including, but not limited to, the receipt of the necessary permits and regulatory approvals, commodity price risk impacting the decision

to go forward with the projects, the availability and ability to obtain the necessary financing for the construction and development of

The Company’s ability to develop and operate

commercial production facilities, as well as expand production at future commercial production facilities, is subject to many risks beyond

its control, including regulatory developments, construction risks, and global and regional macroeconomic developments.

Inflation Reduction Act of 2022

On August 16, 2022, the Inflation Reduction Act

of 2022 (the “IR Act”) was signed into federal law.

The IR Act provides for, among other things, a new U.S.

excise tax on certain repurchases of stock, in which the cumulative fair market value is greater than $ 1 million in a calendar year,

by publicly traded U.S.

domestic corporations and certain U.S.

domestic subsidiaries of publicly traded foreign corporations occurring

on or after January 1, 2023.

The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares

are repurchased.

The amount of the excise tax is generally 1 % of the fair market value of the shares repurchased at the time of the

The amount of repurchases applicable to the excise tax can be reduced by the fair market value of any issuances at the time

of issuance that occurred during the year, as well as certain exceptions provided by the U.S.

Department of the Treasury (the “Treasury”).

In April 2024, the Treasury and the Internal Revenue Service (the “IRS”)

released proposed regulations that detail the kinds of transactions that are and are not subject to the new excise tax as well as give

procedural guidance on how and when companies should pay the tax.

The proposed regulations are open for comment until May 13 th ,

2024, and the actual excise tax calculation is open for comment until June 11, 2024.

In connection with the Business Combination, the Company incurred

an excise tax of $ 1.6 million based on the redemption of $ 158.9 million at the request of the Common A shareholders.

excise tax is expected to be paid no earlier than the fourth quarter of 2024 or the first quarter of 2025, depending on the date of

the final regulations.

The excise tax is recorded within accrued liabilities on the unaudited consolidated balance sheets.

Other than the 1 % excise tax, the IR Act has not had a material impact on the Company’s consolidated

financial statements.

Use of Estimates

The preparation of financial statements in conformity with U.S.

requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and

disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses

during the reporting period.

Making estimates requires management to exercise significant judgment.

It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the

date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or

more future confirming events.

The most significant estimates pertain to the calculations of the fair values of equity instruments,

impairment of intangible and long-lived assets and income taxes.

Such estimates may be subject to change as more current information becomes

Accordingly, the actual results could differ significantly from those estimates.

of Consolidation

Company’s policy is to consolidate all entities that the Company controls by ownership interest or other contractual rights giving

the Company control over the most significant activities of an investee.

The consolidated financial statements include the accounts of

Verde Clean Fuels and its subsidiaries:

OpCo, Intermediate, Bluescape Clean Fuels Employee Holdings, LLC, Bluescape Clean Fuels EmployeeCo.,

LLC, Bluescape Clean Fuels, LLC, and Maricopa Renewable Fuels I, LLC.

All intercompany balances and transactions have been eliminated

in consolidation.

Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.

The Company has a restricted cash balance of $ 100,000 as of September 30, 2023 for a letter of credit, which is included in the

determination of cash and restricted cash in the Consolidated Statements of Cash Flows.

There were no other cash equivalents as of September

30, 2023 or December 31, 2022.

Concentration

of Credit Risk

instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution,

which, at times, may exceed the Federal Depository Insurance Corporation limit of $ 250,000 .

As of September 30, 2023, the Company has

not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

Value of Financial Instruments

fair value of the Company’s assets and liabilities which qualify as financial instruments under Financial Accounting Standards

Board (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures”

(“ASC 820”) approximates the carrying amounts represented in the balance sheet, primarily due to its short-term nature.

determining fair value, the valuation techniques consistent with the market approach, income approach and cost approach shall be used

to measure fair value.

ASC 820 establishes a fair value hierarchy for inputs, which represent the assumptions used by the buyer

and seller in pricing the asset or liability.

These inputs are further defined as observable and unobservable inputs.

Observable inputs

are those that buyer and seller would use in pricing the asset or liability based on market data obtained from sources independent of

Unobservable inputs reflect the Company’s assumptions about the inputs that the buyer and seller would use in pricing

the asset or liability developed based on the best information available in the circumstances.

fair value hierarchy is categorized into three levels based on the inputs as follows:

— Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has

the ability to access.

Valuation adjustments and block discounts are not being applied.

Since valuations are based on quoted prices that

are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.

— Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices

in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities,

or (iv) inputs that are derived principally from or corroborated by market through correlation or other means.

Level 3 — Valuations

based on inputs that are unobservable and significant to the overall fair value measurement.

The fair value of certain of the Company’s

assets and liabilities, which qualify as financial instruments under ASC 820, approximates the carrying amounts represented in the

balance sheet.

The fair values of cash, prepaid expenses, and accrued expenses are estimated to approximate the carrying values as of

September 30, 2023, and December 31, 2022, due to the short maturities of such instruments.

Loss Per Common Stock

to the Business Combination, the Company’s capital structure is comprised of shares of Class A common stock, par value $ 0.0001

per share (the “Class A common stock”) and shares of Class C common stock, par value $ 0.0001 per share (the “Class

C common stock”).

Public shareholders, the Sponsor, and the investors in the private offering of securities of Verde Clean Fuels

in connection with the Business Combination (the “PIPE Financing”) hold shares of Class A common stock and warrants, and

Holdings owns shares of Class C common stock and Class C units of OpCo (the “Class C OpCo Units”).

Class C common stock represents

the right to cast one vote per share at the Verde Clean Fuels level, and carry no economic rights, including rights to dividends and

distributions upon liquidation.

Thus, Class C common stock are not participating securities per ASC 260, “Earnings Per Share”

As the Class A common stock represent the only participating securities, the application of the two-class method

is not required.

instruments including outstanding warrants, stock options, restricted stock units (“RSUs”) and earn out shares were excluded

from diluted earnings per share for the three and nine-months ended September 30, 2023, because the inclusion of such instruments would

be anti-dilutive.

As a result, diluted net loss per common stock is the same as basic net loss per common stock for the periods.

Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s

specific terms and the applicable authoritative guidance in ASC 480, “Distinguishing Liabilities from Equity” (“ASC

480”) and ASC 815, “Derivatives and Hedging” (“ASC 815”).

Management’s assessment considers

whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they meet the definition of a liability pursuant

to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants

are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement”

in a circumstance outside of the Company’s control, among other conditions for equity classification.

This assessment, which requires

the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period-end date while

the warrants are outstanding.

issued or modified warrants that meet all of the criteria for equity classification, they are recorded as a component of additional paid-in

capital at the time of issuance.

For issued or modified warrants that do not meet all the criteria for equity classification, they are

recorded at their initial fair value on the date of issuance and subject to remeasurement each balance sheet date with changes in the

estimated fair value of the warrants to be recognized as a non-cash gain or loss in the statement of operations.

segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed

by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing

The Company’s CODM is its Chief Executive Officer (“CEO”).

The Company has determined that it operates

in one operating segment, as the CODM reviews financial information presented on a combined basis for purposes of making operating decisions,

allocating resources, and evaluating financial performance.

Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes (“ASC 740”).

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the

financial statements carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities

are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected

to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the

period that included the enactment date.

The Company has elected to use the outside basis approach to measure the deferred tax assets

or liabilities based on its investment in its subsidiaries without regard to the underlying assets or liabilities.

assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some portion or all

of the deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of

future taxable income during the periods in which those temporary differences become deductible.

Management considers the scheduled reversal

of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions

taken or expected to be taken in a tax return.

For those benefits to be recognized, a tax position must be more likely than not to be

sustained upon examination by taxing authorities.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits

as income tax expense.

There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30,

2023 and December 31, 2022.

The Company is currently not aware of any issues under review that could result in significant payments,

accruals or material deviation from its position.

The Company is subject to income tax examinations by major taxing authorities since

recapitalization

Business Combination was accounted for according to a common control reverse recapitalization, with no goodwill or other intangible assets

recorded, in accordance with US GAAP.

This determination reflects Holdings having a majority of the voting power of Intermediate’s

pre and post Business Combination operations and Intermediate’s management team retaining similar roles at Verde Clean Fuels.

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

the guidance in ASC 805, “Business Combinations” (“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 is treated as the “acquired” company for financial

reporting purposes.

Accordingly, for accounting purposes, the business combination is treated as the equivalent of Intermediate issuing

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

The net assets of Intermediate are stated at their historical value

within the consolidated financial statements with no goodwill or other intangible assets recorded.

Plant and Equipment

plant and equipment are stated at cost, less accumulated depreciation.

Depreciation is computed using the straight-line method over the

estimated useful life of the related asset.

The estimated useful lives of assets are as follows:

Computers, office equipment and

Principles of Consolidation

The Company’s policy is to consolidate all entities that the

Company controls by ownership interest or other contractual rights giving the Company control over the most significant activities of

The consolidated financial statements include the accounts of Verde Clean Fuels and its subsidiaries:

OpCo, Intermediate,

Bluescape Clean Fuels Employee Holdings, LLC, Bluescape Clean Fuels EmployeeCo., LLC, Bluescape Clean Fuels, LLC, and Maricopa Renewable

Fuels I, LLC.

Certain comparative amounts have been reclassified to conform to the

current period presentation.

These reclassifications had no effect on the reported results of operations.

All intercompany balances and

transactions have been eliminated in consolidation.

Cash Equivalents

The Company considers all short-term investments

with an original maturity of three months or less when purchased to be cash equivalents.

As of March 31, 2024 and December 31, 2023, the

Company had cash equivalents of $ 23,882,130 and $ 26,155,789 , respectively, which were comprised of funds held in a short-term money market

fund having investments in high-quality short-term securities that are issued or guaranteed by the U.S.

government or by U.S.

agencies and instrumentalities.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to

concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal

Depository Insurance Corporation (“FDIC”) limit of $ 250,000 .

Additionally, the majority of the Company’s cash

balances are held in a short-term money market fund that is not guaranteed by the FDIC.

As of March 31, 2024 and December 31, 2023,

the Company had not experienced losses on these accounts and management believes the Company is not exposed to significant risks on

such accounts.

Fair Value of Financial Instruments

The fair value of the Company’s assets and liabilities which

qualify as financial instruments under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820,

“Fair Value Measurements and Disclosures” (“ASC 820”) approximates the carrying amounts represented in the balance

sheet, primarily due to its short-term nature.

The fair values of cash, restricted cash, cash equivalents, prepaid expenses, and accrued

expenses are estimated to approximate their respective carrying values as of March 31, 2024 and December 31, 2023 due to the short-term

maturities of such instruments.

In determining fair value, the valuation techniques consistent with

the market approach, income approach and cost approach shall be used to measure fair value.

ASC 820 establishes a fair value hierarchy

for inputs, which represent the assumptions used by the buyer and seller in pricing the asset or liability.

These inputs are further defined

as observable and unobservable inputs.

Observable inputs are those that buyer and seller would use in pricing the asset or liability based

on market data obtained from sources independent of the Company.

Unobservable inputs reflect the Company’s assumptions about the

inputs that the buyer and seller would use in pricing the asset or liability developed based on the best information available in the

circumstances.

The fair value hierarchy is categorized into three levels based on

the inputs as follows:

Level 1 — Valuations based on unadjusted quoted prices

in active markets for identical assets or liabilities that the Company has the ability to access.

Valuation adjustments and block discounts

are not being applied.

Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation

of these securities does not entail a significant degree of judgment.

Level 2 — Valuations based on (i) quoted prices

in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar

assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from

or corroborated by market through correlation or other means.

Level 3 — Valuations based on inputs that are

unobservable and significant to the overall fair value measurement.

Net Loss Per Share of Common Stock

Subsequent to the Business Combination, the Company’s capital

structure is comprised of shares of Class A common stock, par value $ 0.0001 per share (the “Class A common stock”) and shares

of Class C common stock, par value $ 0.0001 per share (the “Class C common stock”).

Public shareholders, the Sponsor, and the

investors in the private offering of securities of Verde Clean Fuels in connection with the Business Combination (the “PIPE Financing”)

hold shares of Class A common stock and warrants, and Holdings owns shares of Class C common stock and Class C units of OpCo (the “Class

C OpCo Units”).

Class C common stock represents the right to cast one vote per share at the Verde Clean Fuels level, and carry no

economic rights, including rights to dividends and distributions upon liquidation.

Thus, Class C common stock are not participating securities

per ASC 260, “Earnings Per Share” (“ASC 260”).

As the Class A common stock represent the only participating securities,

the application of the two-class method is not required.

Antidilutive instruments, including outstanding warrants, stock options,

restricted stock units (“RSUs”) and earn out shares, were excluded from diluted earnings per share for the three months ended

March 31, 2024 and March 31, 2023 because the inclusion of such instruments would be anti-dilutive.

As a result, diluted net loss per

common stock is the same as basic net loss per common stock for the periods presented.

The Company accounts for warrants as either equity-classified or liability-classified

instruments based on an assessment of the warrant’s specific terms and the applicable authoritative guidance in ASC 480, “Distinguishing

Liabilities from Equity” (“ASC 480”) and ASC 815, “Derivatives and Hedging” (“ASC 815”).

Management’s assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether they

meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification

under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could

potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions

for equity classification.

This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance

and as of each subsequent quarterly period-end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity

classification, they are recorded as a component of additional paid-in capital at the time of issuance.

For issued or modified warrants

that do not meet all the criteria for equity classification, they are recorded at their initial fair value on the date of issuance and

subject to remeasurement each balance sheet date with changes in the estimated fair value of the warrants to be recognized as a non-cash

gain or loss in the statement of operations.

Operating segments are defined as components of an entity for which

separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”)

in deciding how to allocate resources to an individual segment and in assessing performance.

The Company’s CODM is its Chief Executive

Officer (“CEO”).

The Company has determined that it operates in one operating segment, as the CODM reviews financial information

presented on a combined basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.

The Company follows the asset and liability method of accounting for

income taxes under ASC 740, “Income Taxes (“ASC 740”).

Deferred tax assets and liabilities are recognized for the

estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and

liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply

to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred

tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date.

has elected to use the outside basis approach to measure the deferred tax assets or liabilities based on its investment in its subsidiaries

without regard to the underlying assets or liabilities.

In assessing the realizability of deferred tax assets, management considered

whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The ultimate realization

of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences

become deductible.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning

strategies in making this assessment.

ASC 740 prescribes a recognition threshold and a measurement attribute

for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.

For those benefits

to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.

The Company recognizes

accrued interest and penalties related to unrecognized tax benefits as income tax expense.

There were no unrecognized tax benefits and

no amounts accrued for interest and penalties as of March 31, 2024 and December 31, 2023.

The Company is currently not aware of any issues

under review that could result in significant payments, accruals or material deviation from its position.

The Company is subject to income

tax examinations by major taxing authorities since inception.

Reverse recapitalization

The Business Combination was accounted for according to a common control

reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with U.S.

This determination

reflects Holdings having a majority of the voting power of Intermediate’s pre and post Business Combination operations and Intermediate’s

management team retaining similar roles at Verde Clean Fuels.

Further, Holdings continues to have control of the Company’s Board

of Directors through its majority voting rights.

Under the guidance in ASC 805, “Business Combinations”

(“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 is treated as the “acquired” company for financial reporting purposes.

Accordingly, for accounting purposes, the Business

Combination was treated as the equivalent of Intermediate issuing stock for the net assets of CENAQ, accompanied by a recapitalization.

The net assets of Intermediate are stated at their historical value within the consolidated financial statements with no goodwill or other

intangible assets recorded.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated

depreciation.

Depreciation is computed using the straight-line method over the estimated useful life of the related asset.

The estimated

useful lives of assets are as follows:

Computers, office equipment and hardware

Furniture and fixtures

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Shorter of the lease term (including estimated renewals) or the estimated useful lives of the improvement

and repairs are charged to expense as incurred, and improvements are capitalized.

When assets are retired or otherwise disposed of, the

cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the accompanying statements

of operations in the period realized.

liabilities consist of the following:

September 30,

Accrued bonuses

Maintenance and repairs are charged to expense as incurred, and improvements

are capitalized.

When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts,

and any resulting gain or loss is reflected in the accompanying statements of operations in the period realized.

Accrued Liabilities

Accrued liabilities consist of the following:

Accrued legal fees

Accrued professional fees

Excise tax payable

Other accrued expenses

accrued expenses as of the period ended September 30, 2023 consist primarily of an excise tax payment of $ 1.6 million due in April 2024,

due to redemptions of Common A shares in connection with the Business Combination that closed on February, 15, 2023.

Company accounts for leases under ASU 842, “Leases” (“ASC 842)”.

The core principle of this standard is that

a lessee should recognize the assets and liabilities that arise from leases by recognizing in the consolidated balance sheet a liability

to make lease payments (the lease liability) and a right-of-use asset (“ROU asset”) representing its right to use the underlying

asset for the lease term.

In accordance with the guidance of ASC 842, leases are classified as finance or operating leases, and both

types of leases are recognized on the consolidated balance sheet.

lease arrangements may contain renewal options.

Renewal options are included in the expected lease term only if they are reasonably certain

of being exercised by the Company.

Company elected the practical expedient to not separate non-lease components from lease components for real-estate lease arrangements.

The Company combines the lease and non-lease component into a single accounting unit and accounts for the unit under ASC 842 where lease

and non-lease components are included in the classification of the lease and the calculation of the ROU asset and lease liability.

addition, the Company has elected the practical expedient to not apply lease recognition requirements to leases with a term of one year

Total accrued liabilities

The Company accounts for leases under ASU 842, “Leases”

The core principle of this standard is that a lessee should recognize the assets and liabilities that arise from

leases by recognizing in the consolidated balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset

(“ROU asset”) representing the lessee’s right to use the underlying asset for the lease term.

In accordance with the

guidance of ASC 842, leases are classified as finance or operating leases, and both types of leases are recognized on the consolidated

balance sheet.

Certain lease arrangements may contain renewal

Renewal options are included in the expected lease term only if they are reasonably certain of being exercised by the Company.

The Company elected the practical expedient to not separate non-lease

components from lease components for real estate lease arrangements.

The Company combines the lease and non-lease component into a single

accounting unit and accounts for the unit under ASC 842 where lease and non-lease components are included in the classification of the

lease and the calculation of the ROU asset and lease liability.

In addition, the Company has elected the practical expedient to not apply

lease recognition requirements to leases with a term of one year or less.

Under this expedient, lease costs are not capitalized;

rather, are expensed on a straight-line basis over the lease term.

Company’s leases do not contain residual value guarantees or material restrictions or covenants.

Company uses either the rate implicit in the lease, if readily determinable, or the Company’s incremental borrowing rate for a

period comparable to the lease term in order to calculate the net present value of the lease liability.

The incremental borrowing rate

represents the rate that would approximate the rate to borrow funds on a collateralized basis over a similar term and in a similar economic

of Indefinite-Lived Intangible Assets

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 September 30, 2023, and December 31, 2022, the gross and carrying amount of this

intangible asset was $ 1,925,151 .

qualitative assessment of indefinite-lived intangible assets is performed in order to determine whether further impairment testing is

In performing this analysis, macroeconomic conditions, industry and market conditions are considered in addition to 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.

the three and nine months ended September 30, 2023 and 2022, the Company did not record any impairment charges.

of Long-Term Assets

Company evaluates the carrying value of long-lived assets when indicators of impairment exist.

The carrying value of a long-lived asset

is considered impaired when the estimated separately identifiable, undiscounted cash flows from such asset are less than the carrying

value of the asset.

In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the

long-lived asset.

Fair value is determined primarily using the estimated cash flows discounted at a rate commensurate with the risk involved.

During the three and nine months ended September 30, 2023 and 2022, the Company did not record any impairment charges.

Growth Company Accounting Election

102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards

until private companies are required to comply with the new or revised financial accounting standards.

The JOBS Act provides that a company

can elect not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth

companies, and any such election to not take advantage of the extended transition period is irrevocable.

The Company expects to be an

emerging growth company through 2023.

are expensed on a straight-line basis over the lease term.

The Company’s leases do not contain residual value guarantees or material

restrictions or covenants.

The Company uses either the rate implicit in the lease, if readily

determinable, or the Company’s incremental borrowing rate for a period comparable to the lease term in order to calculate the net

present value of the lease liability.

The incremental borrowing rate represents the rate that would approximate the rate to borrow funds

on a collateralized basis over a similar term and in a similar economic environment.

Impairment of Indefinite-Lived 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, 2024, and

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

A qualitative assessment of indefinite-lived intangible assets is performed

in order to determine whether further impairment testing is necessary.

In performing this analysis, macroeconomic, industry and market

conditions are considered in addition to current and forecasted financial performance, entity-specific events and changes in the composition

or carrying amount of net assets.

During the three months ended March 31, 2024 and 2023, the Company

did not record any impairment charges.

Impairment of Long-Lived Assets

The Company evaluates the carrying value of long-lived assets when

indicators of impairment exist.

The carrying value of a long-lived asset is considered impaired when the estimated separately identifiable,

undiscounted cash flows from such asset are less than the carrying value of the asset.

In that event, a loss is recognized based on the

amount by which the carrying value exceeds the fair value of the long-lived asset.

Fair value is determined primarily using the estimated

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

During the three months ended March 31, 2024 and 2023, the Company

did not record any impairment charges.

Emerging Growth Company Accounting Election

The Company is an “emerging

growth company,” as defined in Section 2(a)(19) of the Securities Act of 1933, as amended, (the “Securities Act”), as

modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions

from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but

not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced

disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements

of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously

Additionally,

section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting

standards until private companies are required to comply with the new or revised financial accounting standards.

The JOBS Act provides

that a company can elect not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging

growth companies, and any such election to not take advantage of the extended transition period is irrevocable.

The Company expects to

be an emerging growth company through 2026.

Prior to the Business Combination, CENAQ elected to irrevocably opt out of the extended transition

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the Company will adopt the new or revised standard when those standards are effective for public registrants.

Company applies 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.

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

to closing of the Business Combination, certain subsidiaries of the Company, including Intermediate, were wholly-owned subsidiaries

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 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.

August 5, 2022, Holdings entered into an agreement with its management team whereby all outstanding unvested Series A Incentive Units

and Founder Incentive Units became fully vested on the closing of the Business Combination.

As part of the agreement, the priority of

distributions under the Series A Incentive Units and Founders Incentive Units was also revised such that participants receive 10 % of

distributions after a specified return to Holdings’ Series A Preferred Unit holders (instead of 20 %).

Series A Incentive Units

refers to 800 incentive units issued by Holdings on August 7, 2020 to certain members of management of Intermediate in compensation

for their services.

Founder Incentive Units refers to 1,000 incentive units issued by Holdings on August 7, 2020 to certain members

Equity-Based Compensation

The Company applies ASC 718, “Compensation — Stock

Compensation” (“ASC 718”), in accounting for unit-based compensation to employees.

Unit-Based Compensation

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

Prior to closing of the Business Combination, certain subsidiaries

of the Company, 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 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.

On August 5, 2022, Holdings entered into an agreement with its management

team whereby all outstanding unvested Series A Incentive Units and Founder Incentive Units became fully vested on the closing of the Business

As part of the agreement, the priority of distributions under the Series A Incentive Units and Founders Incentive Units was

also revised such that participants receive 10 % of distributions after a specified return to Holdings’ Series A Preferred Unit holders

(instead of 20 %).

Series A Incentive Units refers to 800 incentive units issued by Holdings on August 7, 2020 to certain members

of management of Intermediate in compensation for their services.

connection with the close of the Business Combination, the Company accelerated the unvested service and performance-based units and recorded

share-based payment expense within general and administrative expense of $ 2,146,792 during the nine months ended September 30, 2023.

Performance conditions for the performance-based Founder Incentive Units had not and were unlikely to be met as of September 30, 2023.

Founder Incentive Units refers to 1,000 incentive units issued by Holdings

on August 7, 2020 to certain members of management of Intermediate in compensation for their services.

In connection with the close of the Business Combination, the Company

accelerated the unvested service and performance-based units and recorded share-based payment expense within general and administrative

expense of $ 2,146,792 during the three months ended March 31, 2023.

Performance conditions for the performance-based Founder Incentive

Units had not and were unlikely to be met as of March 31, 2024.

As such, no share-based compensation cost was recorded for these units.

2023 Equity-Based Awards

March 2023, the Company authorized and approved the Verde Clean Fuels, Inc.

In March 2023, the Company authorized and approved the Verde Clean

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

On April 25, 2023, the Company granted stock options to certain employees and officers and granted RSUs to non-employee directors, consistent

with the terms of the 2023 Plan.

The Company estimates the fair value of stock options on the date of grant using the Black-Scholes model

and the fair value of RSUs granted were determined by the value of the stock price on the date of the award, subject to a discount for

lack of marketability (see Note 7).

compensation is measured using a fair value-based method for all equity-based awards.

The cost of awarded equity instruments is recognized

based on each instrument’s grant-date fair value over the period during which the grantee is required to provide service in exchange

for the award.

The determination of fair value requires significant judgment and the use of estimates, particularly with regard to Black-Scholes

assumptions such as stock price volatility and expected option term.

Equity-based compensation is recorded as a general and administrative

expense in the Consolidated Statements of Operations.

Company estimates the expected term of options granted based on peer benchmarking and expectations.

Treasury yield curve rates are used

for the risk-free interest rate in the option valuation model with maturities similar to the expected term of the options.

is determined by reference to the actual volatility of several publicly traded peer companies that are similar to the Company in its

industry sector.

The Company does not anticipate paying cash dividends and therefore uses an expected dividend yield of zero in the option

valuation model.

On April 25, 2023, the Company granted stock options to certain

employees and officers and granted RSUs to non-employee directors, consistent with the terms of the 2023 Plan.

The Company estimates the

fair value of stock options on the date of grant using the Black-Scholes model and the fair value of RSUs on the date of grant based on

the value of the stock price on that date, subject to a discount for lack of marketability.

The cost of awarded equity instruments is recognized based on each

instrument’s grant-date fair value over the period during which the grantee is required to provide service in exchange for the award.

The determination of fair value requires significant judgment and the use of estimates, particularly with regard to Black-Scholes assumptions

such as stock price volatility and expected option term.

Equity-based compensation is recorded as a general and administrative expense

in the Consolidated Statements of Operations.

The Company estimates the expected term of options granted based on

peer benchmarking and expectations.

Treasury yield curve rates are used for the risk-free interest rate in the option valuation model

with maturities similar to the expected term of the options.

Volatility is determined by reference to the actual volatility of several

publicly traded peer companies that are similar to the Company in its industry sector.

The Company does not anticipate paying cash dividends

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

Forfeitures are recognized as they occur.

The Company assesses whether a discount for lack of marketability is applied

based on certain liquidity factors.

All equity-based payment awards subject to graded vesting based only on a service condition are amortized

on a straight-line basis over the requisite service periods.

is substantial judgment in selecting the assumptions which we use to determine the fair value of such equity awards and other companies

could use similar market inputs and experience and arrive at different conclusions.

Consideration

had an arrangement payable to the Company’s CEO and a consultant whereby a contingent payment could become payable in the event

that certain return on investment hurdles were met.

On August 5, 2022, Holdings entered into an agreement with the Company’s management

and CEO whereby if the Business Combination was completed, the Contingent Consideration would be forfeited.

the three and nine months ended September 30, 2022, the Company remeasured the liability of this arrangement and reassessed the probability

of the completion of the Business Combination.

The Company reversed $ 5,288,000 and $ 7,181,000 of the accrued expense through earnings

in the three and nine months ended September 30, 2022, respectively.

Business Combination closed on February 15, 2023, and therefore the contingent consideration arrangement was terminated and no payments

Thus, the remaining $ 1,299,000 of accrued contingent consideration was reversed through earnings for the nine months ended

September 30, 2023.

3 – BUSINESS COMBINATION

August 12, 2022, the Company entered into a business combination agreement (the “Business Combination Agreement”) by

and among CENAQ Energy Corp., Verde Clean Fuels OpCo, LLC, a Delaware limited liability company and a wholly owned subsidiary of CENAQ,

Bluescape Clean Fuels Holdings, LLC, a Delaware limited liability company, Bluescape Clean Fuels Intermediate Holdings, LLC, a Delaware

limited liability company, and CENAQ Sponsor LLC.

The Company consummated the Business Combination on February 15, 2023.

to the Business Combination Agreement, (i) (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 (the “Redemption

Rights”) and (2) the shares of Class C common stock (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) (such transactions, the “SPAC Contribution”) 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 the Holdings OpCo Units and the Holdings Class C Shares.

Holdings holds 22,500,000 OpCo Units and

an equal number of shares of Class C common stock.

Pursuant to ASC 805, the Business Combination

was accounted for as a common control reverse recapitalization where Intermediate is deemed the accounting acquirer and the Company is

treated as the accounting acquiree, with no goodwill or other intangible assets recorded, in accordance with US GAAP.

The Business Combination

is 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 ASC 805, the assets, liabilities, and noncontrolling

interests of Intermediate are recognized at their carrying amounts on the date of the Business Combination.

assesses whether a discount for lack of marketability is applied based on certain liquidity factors.

All equity-based payment awards subject

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

There is substantial judgment in selecting the assumptions used to

determine the fair value of such equity awards, and other companies could use similar market inputs and experience and arrive at different

Contingent Consideration

Holdings had an arrangement payable to the Company’s CEO and

a consultant whereby a contingent payment could become payable in the event that certain return on investment hurdles were met.

5, 2022, Holdings entered into an agreement with the Company’s management and CEO whereby if the Business Combination was completed,

the contingent consideration would be forfeited.

The Business Combination closed on February 15, 2023, and therefore

the contingent consideration arrangement was terminated and no payments were made.

Thus, $ 1,299,000 of accrued contingent consideration

was reversed through earnings during the three months ended March 31, 2023.

No contingent consideration was recorded during the three

months ended March 31, 2024.

Recent Accounting Standards

In November 2023, the FASB issued Accounting Standards Update (“ASU”)

2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures”.

ASU 2023-07 enhances segment

reporting under Topic 280 by expanding the breadth and frequency of segment disclosures.

ASU 2023-07 requires disclosure of

significant expenses that are regularly provided to an entity’s CODM and included in the reported measure(s) of a segment’s

profit or loss.

When applying this disclosure requirement, an entity identifies the segment expenses that are regularly provided to the

CODM or easily computable from information that is regularly provided to the CODM.

Entities are also required to disclose other segment

items, i.e., the difference between reported segment revenue less the significant segment expenses and the reported measure(s) of a segment’s

profit or loss.

ASU 2023-07 also clarifies that single reportable segment entities are subject to Topic 280 in its entirety.

is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after

December 15, 2024.

The amendments in ASU 2023-07 should be adopted retrospectively unless impracticable.

Early adoption is permitted.

The Company is currently evaluating the impact that ASU 2023-07 will have on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes

Improvements to Income Tax Disclosures”.

ASU 2023-09 requires public entities, on an annual basis, to provide:

a tabular rate reconciliation (using both percentages and reporting currency amounts) of (1) the reported income tax expense (or benefit)

from continuing operations, to (2) the product of the income (or loss) from continuing operations before income taxes and the applicable

statutory federal (national) income tax rate of the jurisdiction (country) of domicile using specific categories, and separate disclosure

for any reconciling items within certain categories that are equal to or greater than a specified quantitative threshold.

annual period presented, ASU 2023-09 also requires all reporting entities to disclose the year-to-date amount of income taxes paid (net

of refunds received) disaggregated by federal (national), state, and foreign.

It also requires additional disaggregated information on

income taxes paid (net of refunds received) to an individual jurisdiction equal to or greater than 5 % of total income taxes paid

(net of refunds received).

ASU 2023-09 is effective for public entities for fiscal years beginning after December 15, 2024.

is to be applied on a prospective basis with the option to apply the standard retrospectively.

Early adoption is permitted.

is currently evaluating the impact that ASU 2023-09 will have on its consolidated financial statements.

The Company considers the applicability and impact of all ASUs issued

There are no other accounting pronouncements which have been issued but are not yet effective that would have a material

impact on the consolidated financial statements when adopted.

NOTE 3 – BUSINESS COMBINATION

Prior to the Business Combination, and up to the

transaction close on February 15, 2023, Verde Clean Fuels, previously CENAQ Energy Corp., was a SPAC incorporated for the purpose of effecting

a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses.

Pursuant to the Business Combination Agreement, (i) (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 (the “Redemption Rights”) and (2) the shares of Class C

common stock (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 (“PIPE Financing”) and following the exercise of Redemption Rights) (such transactions,

the “SPAC Contribution”) 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 the Holdings OpCo Units and the Holdings Class C Shares.

Holdings holds 22,500,000 OpCo Units and an equal

number of shares of Class C common stock.

Pursuant to ASC 805, the Business Combination was accounted for as

a common control reverse recapitalization where Intermediate is deemed the accounting acquirer and the Company is treated as the accounting

acquiree, with no goodwill or other intangible assets recorded, in accordance with U.S.

The Business Combination is 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 ASC 805, the assets, liabilities, and noncontrolling interests of

Intermediate are recognized at their carrying amounts on the date of the Business Combination.

The Business Combination includes:

3 unchanged sentences

● Repayment of $ 3,750,000 of capital contributions made by Holdings since December 2021 and payment of $ 10,043,793 of transaction expenses including deferred underwriting fees of $ 1,700,000 ;

The following summarizes

the Verde Clean Fuels Common Stock outstanding as of February 15, 2023.

The percentage of beneficial ownership is based on 31,858,620

shares of Company’s Class A common stock and Class C common stock issued and outstanding as of February 15, 2023.

The following summarizes the Verde Clean Fuels Class A common stock

and Class C common stock (collectively, the “Common Stock”) outstanding as of February 15, 2023.

The percentage of beneficial

ownership was based on 31,858,620 shares of Company Common Stock issued and outstanding as of February 15, 2023, comprised of 9,358,620

shares of Class A common stock and 22,500,000 shares of Class C common stock.

CENAQ Public Stockholders

5 unchanged sentences

Total diluted shares at Closing (including shares above)

Total proceeds raised from the business combination

were $ 37,329,178 consisting of $ 32,000,000 in PIPE Financing proceeds, $ 19,031,516 from the CENAQ trust, and $ 91,454 from the CENAQ operating

account offset by $ 10,043,793 in transaction expenses which were recorded as a reduction to additional paid in capital, and offset by

a $ 3,750,000 capital repayment to Holdings.

Total proceeds raised from the business combination were $ 37,329,178 ,

consisting of $ 32,000,000 in PIPE Financing proceeds, $ 19,031,516 from the CENAQ trust, and $ 91,454 from the CENAQ operating account offset

by $ 10,043,793 in transaction expenses that were recorded as a reduction to additional paid in capital and offset by a $ 3,750,000 capital

repayment to Holdings.

NOTE 4 – RELATED PARTY TRANSACTIONS

ASC 850, “Related Party Disclosures”

(“ASC 850”) provides guidance for the identification of related parties and disclosure of related party transactions.

15, 2023, the Company entered into a new promissory note with the Sponsor totaling $ 409,612 (the “New Promissory Note”).

New Promissory Note cancels and supersedes all prior 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 Verde Clean

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

The Company has a related party relationship with

Holdings whereby Holdings holds a majority ownership in the Company via voting shares and has control of its Board of Directors.

Holdings possesses 3,500,000 earn out shares.

ASC 850, “Related Party Disclosures” (“ASC 850”)

provides guidance for the identification of related parties and disclosure of related party transactions.

On February 15, 2023, the Company

entered into a new promissory note with the Sponsor totaling $ 409,612 (the “New Promissory Note”).

The New Promissory Note

canceled and superseded all prior promissory notes.

The New Promissory note was non-interest bearing and the entire principal balance

of the New Promissory Note was payable on or before February 15, 2024 in cash or shares at the Company’s election.

On February 15,

2024, the Company settled the New Promissory Note through the issuance of its Class A common stock at a conversion price of $ 10.00 per

As a result, during the three months ended March 31, 2024, the Company issued 40,961 shares of Class A common stock and recorded

an increase to additional paid-in capital of $ 409,608 .

The Company has a related party relationship with Holdings whereby

Holdings holds a majority ownership in the Company via voting shares and has control of its Board of Directors.

Further, Holdings possesses

3,500,000 earn out shares.

NOTE 5 – COMMITMENTS AND CONTINGENCIES

The Company determines if an arrangement is, or

contains, a lease at inception based on whether that contract conveys the right to control the use of an identified asset in exchange

for consideration for a period of time.

Leases are classified as either finance or operating leases.

This classification dictates whether

lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease.

For all lease

arrangements with a term of greater than 12 months, the Company presents at the commencement date:

a lease liability, which is a lessee’s

obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset that

represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

The Company leases office space and other office

equipment under operating lease arrangements with initial terms greater than twelve months.

The office lease was extended until 2024.

Office space is leased to provide adequate workspace for all employees.

In October 2022, the Company entered into a 25-year

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

The commencement date of the lease

was in February 2023 as control of the identified asset did not transfer to the Company on the effective date of the lease.

Company did not record a ROU asset nor a lease liability as of December 31, 2022, specific to the land lease.

At inception, the present

The Company determines if an arrangement is, or contains, a lease at

inception based on whether that contract conveys the right to control the use of an identified asset in exchange for consideration for

a period of time.

Leases are classified as either finance or operating.

This classification dictates whether lease expense is recognized

based on an effective interest method or on a straight-line basis over the term of the lease.

For all lease arrangements with a term of

greater than 12 months, the Company presents at the commencement date:

a lease liability, which is a lessee’s obligation to make

lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s

right to use, or control the use of, a specified asset for the lease term.

The Company leases office space and other office equipment under operating

lease arrangements with initial terms greater than twelve months.

The office lease in Hillsborough, New Jersey was extended until 2025.

In August 2023, the Company entered into a 40-month office lease in Houston, Texas commencing in November 2023.

Office space is leased

to provide adequate workspace for all employees.

In October 2022, the Company entered into a 25-year land lease in Maricopa,

Arizona with the intent of building a renewable gasoline processing facility.

The commencement date of the lease was in February 2023

as control of the identified asset did not transfer to the Company on the effective date of the lease.

On the commencement date, the present

value of the minimum lease payments exceeded the fair value of the land, and, accordingly, the lease was classified as a finance lease.

The lease expires in 2047 and contains a single four-year renewal option.

The exercise of the lease renewal is at the Company’s

however, management is not reasonably expected to exercise the option;

thus, the option is not included within the lease term.

Renewal periods are included in the expected lease term only if they are reasonably certain of being exercised by the Company.

On August 31, 2023, the Company terminated the

land lease in Maricopa, Arizona.

In connection with the termination, the Company incurred a termination fee of three months’ base

The termination is effective four months after the termination notice;

thus, the Company has a continued right-of-use and obligation

to make rental payments for use of the land through December 31, 2023.

The Company accounted for the termination with a continued right-of-use

as a lease modification resulting in a reclassification of the lease from finance to operating as of the lease modification date.

the Company incurred finance lease costs during the three months ended September 30, 2023 up to the modification date.

The Company expects

to incur operating lease costs subsequent to the modification until lease termination.

As the lease was classified as an operating lease

as of August 31, 2023, the lease is presented as an operating lease within these unaudited consolidated financial statements as of September

Lease costs for the Company’s operating

and finance leases are presented below.

On August 31, 2023, the Company terminated the land lease in Maricopa,

In connection with the termination, the Company incurred a termination fee of three months’ base rent.

The termination

was effective four months after the termination notice;

thus, the Company had a continued right-of-use and obligation to make rental payments

for use of the land through December 31, 2023.

The Company accounted for the termination with a continued right-of-use as a lease modification

resulting in a reclassification of the lease from finance to operating as of the lease modification date.

Accordingly, the Company incurred

finance lease costs up to the modification date and operating lease costs subsequent to the modification until lease termination.

Company exited the lease as of December 31, 2023.

Lease costs for the Company’s operating and finance leases are

presented below.

Statements of Operations Classification

September 30,

Amortization of finance lease right-of-use asset

General and administrative expense

Interest on finance lease liability

General and administrative expense

Total finance lease cost

General and administrative expense

Operating lease cost

4 unchanged sentences

Statements of Operations Classification

September 30,

Amortization of finance lease right-of-use asset

1 unchanged sentence

Interest on finance lease liability

General and administrative expense

Interest expense

Total finance lease cost

5 unchanged sentences

Total lease cost

Statements of Operations Classification

September 30,

Operating lease cost

General and administrative expense

Variable lease cost

General and administrative expense

Total lease cost

Statements of Operations Classification

September 30,

Operating lease cost

General and administrative expense

Variable lease cost

General and administrative expense

Total lease cost

Maturities of the Company’s operating and

finance leases as of September 30, 2023 are presented below.

As of September 30, 2023

Maturity of lease liabilities

Total future minimum lease payments

Present value of lease liabilities

Supplemental information related to the Company’s

operating and finance lease arrangements was as follows:

Supplemental information related to the Company’s operating and

finance lease arrangements was as follows:

Operating lease – supplemental information

September 30,

Right-of-use assets obtained in exchange for operating lease

1 unchanged sentence

Discount rate – operating lease

Finance lease – supplemental information

Right-of-use assets

Remaining lease term – finance lease

Discount rate – finance lease

Contingencies

The Company is not party to any litigation.

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

Major classes of property, plant and equipment

are as follows:

September 30,

Computers, office equipment and hardware

Furniture and fixtures

Machinery and equipment

Property, plant and equipment

accumulated depreciation

Property, plant and equipment, net

Depreciation expense was $ 603 and $ 1,764 for the three and nine months

ended September 30, 2023, respectively, and was $ 4,679 and $ 10,033 for the three and nine months ended September 30, 2022, respectively.

NOTE 6 – STOCKHOLDER’S EQUITY

Earnout Consideration

Earnout shares potentially issuable as part of

the Business Combination are recorded within stockholder’s equity as the instruments are deemed to be indexed to the Company’s

common stock and meet the equity classification criteria under ASC 815-40-25.

Earnout shares contain market conditions for vesting and

were awarded to eligible shareholders, as described further below, and not to current employees.

As consideration for the contribution of the equity

interests in Intermediate, Holdings received earnout consideration (the “Holdings earnout”) of 3,500,000 shares of Class C

common stock and a corresponding number of Class C OpCo Units, subject to vesting with the achievement of separate market conditions.

One half of the Holdings earnout shares will meet the market condition when the volume-weighted average share price (“VWAP”)

of the Class A Common stock is greater than or equal to $ 15.00 per share for any 20 trading days within any period of 30 consecutive trading

days within five years of the Closing Date.

The second half will vest when the VWAP of the Class A Common stock is greater than or equal

to $ 18.00 per share over the same measurement period.

Additionally, the Sponsor received earnout consideration

(the “Sponsor earnout”) of 3,234,375 shares of Class A common stock subject to forfeiture, which will no longer

be subject to forfeiture with the achievement of separate market conditions (the “Sponsor Shares”).

One half of the Sponsor

earnout will no longer be subject to forfeiture if the VWAP of Class A common stock is greater than or equal to $ 15.00 per share for any

20 trading days within any period of 30 consecutive trading days within five years of the Closing Date.

The second half will no longer

be subject to forfeiture when the VWAP of the Class A common stock is greater than or equal to $ 18.00 per share over the same measurement

Notwithstanding the forgoing, the Holdings earnout

and Sponsor earnout shares will vest in the event of a sale of the Company at a price that is equal to or greater than the redemption

price payable to the buyer of the Company.

The earn out consideration was issued in connection with the Business Combination on February

Holdings earn out shares are neither issued nor outstanding as of September 30, 2023 as the performance requirements for vesting

were not achieved.

All Sponsor Shares granted in connection with the Business Combination are issued and outstanding as of September 30,

Sponsor Shares subject to forfeiture pursuant to the above terms that do not vest in accordance with such terms shall be forfeited.

The grant-date

fair value of the earnout shares attributable to Holdings and the Sponsor, using a Monte Carlo simulation model, was $ 10,594,000 , and

$ 5,791,677 , respectively.

The following table provides a summary of key inputs utilized in the valuation of the earnout shares as of February

Expected volatility

Expected dividends

Remaining expected term (in years)

Risk-free rate

Discount Rate (WACC)

Payment Probability

12.6 % to 18.3 %

based on triggering event

earnout arrangements are akin to a distribution to our shareholders, similar to the declaration of a pro rata dividend, and the fair value

of the shares are a reduction to retained earnings.

the Class A common stock trading price the market conditions were not met and no earnout shares vested as of September 30, 2023.

Share-based Compensation

Compensation expense related to share-based compensation

arrangements is included within general and administrative expenses.

The total compensation expense incurred related to the Company’s

equity-based compensation plans was $ 276,880 and $ 2,623,936 for the three and nine months ended September 30, 2023.

As a taxable event

has not occurred, the income tax benefits for these awards were zero for the three and nine months ended September 30, 2023.

Share-based compensation costs incurred in the

three and nine months ended September 30, 2022 were $ 103,103 and $ 1,081,614 , respectively.

Incentive Units

The Holdings equity compensation instruments consisted

of 1,000 authorized and issuable Series A Incentive Units and 1,000 authorized and issuable Founder Incentive Units.

Both Series A Incentive

Unit holders and Founders Incentive Unit holders participated in earnings and distributions after a specified return to the Series A Preferred

Unit holders.

The Series A Incentive Units were deemed to be service-based awards under ASC 718 due to vesting conditions.

the service-based units was to occur in equal installments of 25 % on each of the first through fourth anniversaries of the August 7, 2020

grant date, subject to the participant’s continuous service through such dates.

The Founder Incentive Units were deemed to be performance-based

based units as no vesting conditions existed.

The Company classified these units as equity awards

and measured their fair value at the grant date.

The fair value of each award was estimated on the grant date using a Black-Scholes option

valuation model that used the assumptions noted below and other valuation techniques.

Expected volatility was based on historical volatility

for guideline public companies that operate in the Company’s industry.

The expected term of awards granted represents management’s

estimate for the number of years until a liquidity event as of the grant date.

The risk-free rate for the period of the expected

term was based on the U.S.

Treasury yield curve in effect at the time of grant.

In addition, management considered the distribution

priority schedule or “waterfall calculation” in its estimation process.

There were 800 Series A Incentive Units granted

by Holdings in August of 2020 and 400 were unvested as of December 31, 2022.

As the award recipients resided on subsidiaries of Intermediate

and provided service to the Company, the Company recognized $ 103,103 and $ 1,081,614 of compensation expense related to the awards during

the three and nine months ended September 30, 2022, respectively.

There were 1,000 Founder Incentive Units issued

in August of 2020 by Holdings and 1,000 were unvested as of December 31, 2022.

No compensation expense was recorded related to these awards

during the three and nine months ended September 30, 2022 as performance conditions had not, and were unlikely to be met.

On August 5, 2022, certain amendments to the existing

Series A Incentive Units and Founder Incentive Units were made whereby all outstanding unvested Series A Incentive Units and Founders

Incentive Units would become fully vested upon completion of the Business Combination.

Additionally, as part of the amendment to these

agreements, the priority of distributions under the Series A Incentive Units and Founders Incentive Units was also revised such that participants

receive 10 % of distributions after a specified return to Holdings’ Series A Incentive Unit holders (instead of 20 %).

The modifications

to the Series A Incentive Units and Founders Units did not result in any incremental unit-based compensation expense in connection with

the August 2022 modification.

In connection with the closing of the Business

Combination, and as a result of the August 5, 2022 amendments, all of the outstanding and unvested the Series A Incentive Units and Founder

Incentive Units became fully vested.

As such, the Company accelerated the remaining service-based share-based payment expense related

to these awards of $ 2,146,792 .

The share-based payment expense was included in general and administrative expenses for the nine months

ended September 30, 2023.

Performance conditions for the performance-based Founder Incentive Units had not, and were unlikely to be met

as of September 30, 2023.

As such, no share-based compensation cost was recorded for these units.

2023 Equity Awards

In addition to stock options and RSUs, the 2023

Plan authorizes for the future potential 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.

Stock Options

Stock options represent the contingent right of

award holders to purchase shares of the Company’s common stock at a stated price for a limited time.

The stock options granted in

2023 have an exercise price of $ 11.00 per share and will expire 7 years from the date of grant.

Stock options granted vest at a rate of

25 % on each of the first, second, third and fourth anniversaries of the date of grant subject to continued service through the vesting

The Company estimates the fair value of stock

options on the date of grant using the Black-Scholes model and the following underlying assumptions.

Expected volatility was based on

historical volatility for public company peers that operate in the Company’s industry.

The expected term of awards granted represents

management’s estimate for the number of years until a liquidity event as of the grant date.

The risk-free rate for the period

of the expected term was based on the U.S.

Treasury yield curve in effect at the time of grant.

The fair value of stock options granted in 2023

were determined using the following assumptions as of the grant date:

Risk-free interest rate

Expected term

Dividend yield

Discount for lack of marketability

The table below presents activity related to stock

options awarded for the nine months ended September 30, 2023:

Number of options

Weighted average exercise price per share

Weighted average remaining contractual life (years)

Outstanding as of December 31, 2022

Forfeited / expired

Outstanding as of September 30, 2023

Vested as of September 30, 2023

Unvested as of September 30, 2023

Exercisable as of September 30, 2023

Stock-based compensation expense related to stock

options was $ 122,829 and $ 211,670 for the three and nine months ended September 30, 2023, respectively.

As of September 30, 2023, unrecognized

compensation expense related to unvested stock options was $ 1,753,596 .

The remaining compensation cost is expected to be recognized over

a weighted-average period of 3.57 years.

There were no vested stock options outstanding as of September 30, 2023.

Restricted Stock Units

RSUs represent an unsecured right to receive one

share of the Company’s common stock equal to the value of the common stock on the settlement date.

RSUs have a zero-exercise price

and vest over time in whole after the first anniversary of the date of grant subject to continuous service through the vesting date.

The fair value of RSUs granted in 2023 were determined

by the value of the stock price on the date of the award, subject to a discount for lack of marketability of 13 % for a per unit value

The discount due to lack of marketability was applied because of the limited trading activity of the Company’s public

RSU activity for the nine months ended September

30, 2023 is as follows:

Unvested, December 31, 2022

Granted in the nine months ended September 30, 2023

Unvested September 30, 2023

For RSUs, the compensation expense was $ 154,051

and $ 265,474 for the three and nine months ended September 30, 2023, respectively.

As of September 30, 2023, unrecognized compensation

expense related to unvested RSUs was $ 350,730 .

The remaining compensation cost is expected to be recognized over a weighted-average period

of 0.57 years.

To date, the Company has not granted RSUs which

vest based on the achievement of certain market or performance metrics.

Recast of Intermediate Equity

The Business Combination was structured as a reverse

merger and recapitalization, which results in a common control arrangement where Holdings, the party that controls the reporting entity

prior to the Business Combination, continues to control the Company immediately after the Business Combination.

As such, there is not

a new basis of accounting and the financial statements of the combined company represent a continuation of the financial statements of

Intermediate where assets and liabilities of Intermediate continue to be reported at historical value.

However, the reverse recapitalization

requires a recast of Intermediate’s equity and earnings per share and is adjusted to reflect the par value of the outstanding capital

stock of CENAQ.

For periods before the reverse recapitalization, shareholders’ equity of Intermediate is presented based on the

historical equity of Intermediate restated using the exchange ratio to reflect the equity structure of CENAQ.

Management evaluated the impact of the number

of shares issued by CENAQ to affect the Business Combination in exchange for the shares of Intermediate (“the exchange ratio”)

and concluded the recast of historical equity based on the exchange ratio did not result in a significant impact to historical equity.

The Business Combination was structured as a reverse merger and recapitalization,

which results in a common control arrangement where Holdings, the party that controls the reporting entity prior to the Business Combination,

continues to control the Company immediately after the Business Combination.

As such, there is not a new basis of accounting and the financial

statements of the combined company represent a continuation of the financial statements of Intermediate where assets and liabilities of

Intermediate continue to be reported at historical value.

However, the reverse recapitalization requires a recast of Intermediate’s

equity and earnings per share and is adjusted to reflect the par value of the outstanding capital stock of CENAQ.

For periods before the

reverse recapitalization, shareholders’ equity of Intermediate is presented based on the historical equity of Intermediate restated

using the exchange ratio to reflect the equity structure of CENAQ.

Management evaluated the impact of the number of shares issued by CENAQ

to affect the Business Combination in exchange for the shares of Intermediate (“the exchange ratio”) and concluded the recast

of historical equity based on the exchange ratio did not result in a significant impact to historical equity.

NOTE 7 – WARRANTS

There are 15,383,263 warrants currently outstanding.

Each warrant entitles the registered holder to purchase one share of Class A common stock at a price of $ 11.50 per share, subject

to adjustment as discussed below, at any time commencing 30 days after the completion of the Business Combination.

However, no warrants

will be exercisable for cash unless there is an effective and current registration statement covering the shares of Class A common stock

issuable upon exercise of the warrants and a current prospectus relating to such shares of Class A common stock.

Notwithstanding the foregoing,

if a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective within

a specified period following the consummation of the Business Combination, warrant holders may, until such time as there is an effective

registration statement and during any period when we shall have failed to maintain an effective registration statement, exercise warrants

on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available.

If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.

the event of such cashless exercise, each holder would pay the exercise price by surrendering the warrants for that number of shares of

Class A common stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying

the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined

below) by (y) the fair market value.

The “fair market value” for this purpose will mean the average reported last sale price

of the shares of Class A common stock for the 5 trading days ending on the trading day prior to the date of exercise.

The warrants will

expire on the fifth anniversary of our completion of an initial business combination, at 5:00 p.m., New York City time, or earlier upon

redemption or liquidation.

The Company may call the warrants for redemption,

in whole and not in part, at a price of $ 0.01 per warrant:

There are 15,383,263 warrants outstanding as of March 31, 2024.

warrant entitles the registered holder to purchase one share of Class A common stock at a price of $ 11.50 per share, subject to adjustment

as discussed below, at any time commencing 30 days after the completion of the Business Combination.

However, no warrants will be exercisable

for cash unless there is an effective and current registration statement covering the shares of Class A common stock issuable upon exercise

of the warrants and a current prospectus relating to such shares of Class A common stock.

Notwithstanding the foregoing, if a registration

statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective within a specified period

following the consummation of the Business Combination, warrant holders may, until such time as there is an effective registration statement

and during any period when we shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis

pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available.

If that exemption,

or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.

In the event of such

cashless exercise, each holder would pay the exercise price by surrendering the warrants for that number of shares of Class A common stock

equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying the warrants, multiplied

by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market

The “fair market value” for this purpose will mean the average reported last sale price of the shares of Class A common

stock for the 5 trading days ending on the trading day prior to the date of exercise.

The warrants will expire on the fifth anniversary

of our completion of an initial business combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.

The Company may call the warrants for redemption, in whole and not

in part, at a price of $ 0.01 per warrant:

at any time after the warrants become exercisable;

2 unchanged sentences

if, and only if, there is a current registration statement in effect with respect to the shares of Class A common stock underlying such warrants.

If and when the warrants become redeemable by

the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale

under all applicable state securities laws.

Warrants were exercised on various dates during

the nine months ended September 30, 2023 whereby the total number of warrants exercised was 29,216 resulting in 29,216 Class A common

shares issued.

The Company received cash of $ 335,984 related to the warrant exercise as of September 30, 2023.

If and when the warrants become redeemable by the Company, the Company

may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable

state securities laws.

No warrants were exercised during the three months ended March 31,

2024 and 2023.

NOTE 8 – INCOME TAX

Intermediate was historically and remains a disregarded

subsidiary of a partnership for U.S.

Federal income tax purposes with each partner being separately taxed on its share of taxable income

The Company is subject to U.S.

Federal income taxes, in addition to state and local income taxes, with respect to its distributive

share of any net taxable income or loss and any related tax credits of OpCo.

The Company’s effective tax rate was ( 2.08 %)

for the three and nine months ended September 30, 2023.

The effective income tax rate differed significantly from the statutory rates,

primarily due to the losses allocated to non-controlling interests, the recognition of a valuation allowance as a result of the Company’s

new tax structure, and a return to provision adjustment.

The Company has assessed the realizability of

its net deferred tax assets and in that analysis has considered the relevant positive and negative evidence available to determine whether

it is more likely than not that some portion or all of the deferred tax assets will be realized.

The Company has recorded a full valuation

allowance against its deferred tax assets as of September 30, 2023, which will be maintained until there is sufficient evidence to support

the reversal of all or some portion of these allowances.

The Company’s income tax filings will be

subject to audit by various taxing jurisdictions.

As of March 31, 2024, Verde Clean Fuels, Inc.

holds 29.53 % of the economic

interest in OpCo, which is treated as a partnership for U.S.

federal income tax purposes.

As a partnership, OpCo generally is not subject

federal income tax under current U.S.

Verde Clean Fuels, Inc.

is subject to U.S.

federal income taxes, in addition to

state and local income taxes, with respect to its distributive share of the net taxable income (loss) and any related tax credits of OpCo.

Intermediate was historically and remains a disregarded subsidiary

of a partnership for U.S.

Federal income tax purposes.

As a direct result of the Business Combination, OpCo became the sole member of

Intermediate.

As such, OpCo’s distributive share of any net taxable income or loss and any related tax credits of Intermediate are

then distributed to the Company.

The Company’s effective tax rate was 0 % and 0 % for the three

months ended March 31, 2024 and 2023, respectively.

The effective income tax rates differed significantly from the statutory rate primarily

due to the losses allocated to non-controlling interests and the recognition of a valuation allowance as a result of the Company’s

new tax structure.

The Company has assessed the realizability of its net deferred tax

assets and in that analysis has considered the relevant positive and negative evidence available to determine whether it is more likely

than not that some portion or all of the deferred tax assets will be realized.

The Company has maintained a full valuation allowance against

its deferred tax assets as of March 31, 2024, which will be maintained until there is sufficient evidence to support the reversal of all

or some portion of these allowances.

The Company’s income tax filings will be subject to audit by

various taxing jurisdictions.

The Company will monitor the status of U.S.

Federal, state and local income tax returns

that may be subject to audit in future periods.

Federal, state and local income tax returns are currently under examination by

the respective taxing authorities.

For the year ended December 31, 2022, CENAQ’s

former Trust assets were invested in income generating U.S.

Treasury bills.

As a result of the investment income, CENAQ generated a Federal

income tax liability of $ 431,632 for the December 31, 2022 taxable year.

CENAQ’s Federal income tax payable survived the Business

Combination and still remains on the Company’s balance sheet as of September 30, 2023.

Federal, state and local income tax returns that may be subject

to audit in future periods.

Federal, state and local income tax returns are currently under examination by the respective taxing

Tax receivable agreement

On the Closing Date, in connection with the consummation

of the Business Combination and as contemplated by the Business Combination Agreement, Verde Clean Fuels entered into a tax receivable

agreement (the “Tax Receivable Agreement”) with Holdings (together with its permitted transferees, the “TRA Holders,”

and each a “TRA Holder”) and the Agent (as defined in the Tax Receivable Agreement).

Pursuant to the Tax Receivable Agreement,

Verde Clean Fuels is required to pay each TRA Holder 85 % of the amount of net cash savings, if any, in U.S.

On the Closing Date, in connection with the consummation of the Business

Combination and as contemplated by the Business Combination Agreement, Verde Clean Fuels entered into a tax receivable agreement (the

“Tax Receivable Agreement”) with Holdings (together with its permitted transferees, the “TRA Holders,” and each

a “TRA Holder”) and the Agent (as defined in the Tax Receivable Agreement).

Pursuant to the Tax Receivable Agreement, Verde

Clean Fuels is required to pay each TRA Holder 85 % of the amount of net cash savings, if any, in U.S.

federal, state and local income

11 unchanged sentences

that are required to be paid (but have not yet been paid) for the year in which the change of control occurs or any prior years.

NOTE 10 – FAIR VALUE OF FINANCIAL INSTRUMENTS

As of September 30, 2023, the Company did not

have any assets or liabilities measured at fair value on a recurring basis as earn out shares and warrants are equity classified and therefore

are not measured at fair value.

The Company measured the liability for contingent

consideration as of December 31, 2022 using Level 3 inputs and valued the contingent consideration at $ 1,299,000 .

There was no contingent

consideration liability as of September 30, 2023 as this liability was reversed and recognized in earnings during the nine month period

ended September 30, 2023 as a result of the close of the Business Combination.

As of March 31, 2024, the Company did not have a tax receivable balance.

NOTE 9 – LOSS PER SHARE

Prior to the reverse recapitalization in connection

with the Business Combination, all net loss was attributable to the noncontrolling interest.

For the periods prior to February 15, 2023,

earnings per share was not calculated because net income prior to the Business Combination was attributable entirely to Intermediate.

Further, prior to the consummation of the Business Combination, the Intermediate ownership structure included equity interests held solely

The Company analyzed the calculation of earnings per share for comparative periods presented and determined that it resulted

in values that would not be meaningful to the users of these condensed consolidated financial statements.

Therefore, the earnings

per share information has not been presented for the three and nine months ended September 30, 2022.

Basic net loss per share has been computed by

dividing net loss attributable to Class A common shareholders for the period subsequent to the Business Combination by the weighted average

number of Class A shares of common stock outstanding for the same period.

Diluted earnings per share of Class A common stock were computed

by dividing net loss attributable to Class A common shareholders by the weighted-average number of Class A shares of common stock outstanding

adjusted to give effect to potentially dilutive securities.

The Company’s potentially dilutive securities

have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share.

the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share is the same.

following table sets forth the computation of net loss used to compute basic net loss per share of Class A common stock for the three

and nine months ended September 30, 2023.

September 30,

Net income (loss) attributable to Verde Clean Fuels, Inc.

Loss per share

Prior to the reverse recapitalization in connection with the Business

Combination, all net loss was attributable to the noncontrolling interest.

Basic net loss per share has been computed by dividing net loss attributable

to Class A common shareholders for the period subsequent to the Business Combination by the weighted average number of shares of Class

A common stock outstanding for the same period.

Diluted earnings per share of Class A common stock were computed by dividing net loss

attributable to Class A common shareholders by the weighted-average number of shares of Class A common stock outstanding adjusted to give

effect to potentially dilutive securities.

The Company’s potentially dilutive securities have been excluded

from the computation of diluted net loss per share as the effect would be to reduce the net loss per share.

Therefore, the weighted average

number of common shares outstanding used to calculate both basic and diluted net loss per share is the same.

The following table sets

forth the computation of net loss used to compute basic net loss per share of Class A common stock.

Three Months Ended

Net loss attributable to Verde Clean Fuels, Inc.

$ ( 772,371 )

Basic weighted-average shares outstanding

Dilutive effect of share-based awards

Diluted weighted-average shares outstanding

Basic income per share

Diluted income per share

September 30,

Net income (loss) attributable to Verde Clean Fuels, Inc.

$ ( 574,461 )

2 unchanged sentences

Diluted weighted-average shares outstanding

Basic income per share

Diluted income per share

The Company’s stock options, warrants, and

earnout shares could have the most significant impact on diluted shares should the instruments represent dilutive instruments.

securities that could potentially be dilutive are excluded from the computation of diluted earnings per share when a loss from continuing

operations exists or when the exercise price exceeds the average closing price of the Company’s common stock during the period,

because their inclusion would result in an anti-dilutive effect on per share amounts.

The following amounts were not included in the

calculation of net income per diluted share because their effects were anti-dilutive:

September 30,

Basic loss per share

Diluted loss per share

The Company’s stock options, warrants, and earnout shares could

have the most significant impact on diluted shares should the instruments represent dilutive instruments.

However, securities that could

potentially be dilutive are excluded from the computation of diluted earnings per share when a loss from continuing operations exists

or when the exercise price exceeds the average closing price of the Company’s common stock during the period, because their inclusion

would result in an anti-dilutive effect on per share amounts.

The following amounts were not included in the calculation of net income

per diluted share because their effects were anti-dilutive:

As of March 31,

Earnout Shares (1)

3 unchanged sentences

Total anti-dilutive instruments

(1) Excludes 3,500,000 Class C earnout shares convertible into Class A common shares.

Class C common stock

are not participating securities;

thus, the application of the two-class method is not required.

Noncontrolling Interests

Following the Business Combination, holders of

Class A common stock own direct controlling interest in the results of the combined entity, while Holdings own an economic interest in

the Company, shown as noncontrolling interests (“NCI”) in stockholders’ equity in the Company’s consolidated financial

The indirect economic interests are held by Holdings in the form of Class C OpCo units.

Following the completion of the Business Combination,

the ownership interests of the Class A common stockholders and the NCI were 29.38 % and 70.62 %, respectively.

As of March 31, 2024, the

ownership interests of the Class A common stockholders and the NCI were 29.53 % and 70.47 %, respectively.

The change in ownership interests

was due to warrant exercises during the second quarter of 2023 that resulted in the issuance of an additional 29,216 Class A common stock

(see Note 7 for further information) and the settlement of the related-party Promissory Note during the three months ended March 31, 2024

that resulted in the issuance of an additional 40,961 Class A common stock (see Note 4 for further information).

The NCI may further decrease

according to the number of shares of Class C common stock and Verde Clean Fuel OpCo LLC Class C units that are exchanged for shares of

Class A common stock.

NOTE 10 – JOINT DEVELOPMENT AGREEMENT

On February 6, 2024, the Company and Cottonmouth Ventures LLC (“Cottonmouth”),

a subsidiary of Diamondback Energy (“Diamondback”), entered into a joint development agreement (“JDA”) for the

proposed development, construction, and operation of a facility to produce commodity-grade gasoline using natural gas feedstock supplied

from Diamondback’s operations in the Permian Basin.

Diamondback is an independent oil and natural gas company headquartered

in Midland, Texas, focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas

reserves in the Permian Basin in West Texas.

The JDA provides a pathway forward for the parties to reach final definitive

documents and Final Investment Decision (“FID”).

The JDA frames the contracts contemplated to be entered into between the

parties, including an operating agreement, ground lease agreement, construction agreement, license agreement and financing agreements

as well as conditions precedent to close such as FID.

In connection with entering into the JDA, the Company will begin to

incur development costs with respect to the project, prior to reaching a FID and entering into final definitive agreements, irrespective

of whether these events occur.

The Company is currently evaluating the impact that the JDA will have on its consolidated financial statements.

NOTE 11 – SUBSEQUENT EVENTS

The Company evaluated subsequent events and transactions

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

There were no subsequent

events or transactions.

The Company evaluated subsequent events and transactions that occurred

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

There were no subsequent events

or transactions.

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 1. Financial Statements