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Item 2. Management’s Discussion and Analysis

2024-05-14 compared with 2023-11-13 · 405 added, 478 removed, 56 unchanged (94% of the section changed)

1 unchanged sentence

CONDITION AND RESULTS OF OPERATIONS

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

Clean Fuels, Inc.

References in this report (the

“Quarterly Report”) to “we,” “our,” “us,” “Verde,” “Verde Clean Fuels”

or the “Company” refer to Verde Clean Fuels, Inc.

(formerly known as CENAQ Energy Corp.).

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

refer to our officers and directors.

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

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

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

uncertainties.

References to our “management”

or our “management team” refer to our officers and directors.

The following discussion and analysis of the Company’s

financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and the

notes thereto contained elsewhere in this Quarterly Report.

Certain information contained in the discussion and analysis set forth below

includes forward-looking statements that involve risks and uncertainties.

Special note regarding forward-looking statements

7 unchanged sentences

Words such as “expect,”

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

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

Such forward-looking statements relate to future events

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

A number of factors could

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

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

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

The Company’s securities filings

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

Except as expressly required by applicable securities

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

future events or otherwise.

“continue,” “believe,” “anticipate,” “intend,” “plan,” “potential,”

“possible,” “may,” “might,” “predict,” “project,” “should,” “would,”

“will,” “estimate,” “seek” and variations and similar words and expressions are intended to identify

such forward-looking statements.

Such forward-looking statements relate to future events or future performance, but reflect management’s

current beliefs, based on information currently available.

A number of factors could cause actual events, performance or results to differ

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

Important factors, among others,

that may affect actual results or outcomes include:

financial and business performance of the Company;

ability to maintain the listing of the Class A common stock and the Verde Clean Fuels warrants

on Nasdaq, and the potential liquidity and trading of such securities;

failure to realize the anticipated benefits of the Business Combination (as defined below)

that the Company consummated in February 2023, which may be affected by, among other things,

Company’s ability to develop and operate anticipated and new projects;

Company’s ability to obtain financing for future projects;

reduction or elimination of government economic incentives to the renewable energy market;

in acquisition, financing, construction and development of new projects;

length of development cycles for new projects, including the design and construction processes

for the Company’s projects;

Company’s ability to identify suitable locations for new projects;

Company’s dependence on suppliers;

laws and regulations and changes to laws, regulations and policies that affect the Company’s

in public acceptance and support of renewable energy development and projects;

for renewable energy not being sustained;

of climate change, changing weather patterns and conditions, and natural disasters;

ability to secure necessary governmental and regulatory approvals;

ability to qualify for federal or state level low-carbon fuel credits or other carbon credits;

decline in the value of federal or state level low-carbon fuel credits or other carbon credits

and the development of the carbon credit markets;

relating to the Company’s status as a development stage company with a history of net

losses and no revenue;

relating to the uncertainty of success, any commercial viability, or delays of the Company’s

research and development efforts including any study in which the Company participates that

is funded by the Department of Energy or any other governmental agency;

● disruptions

in the supply chain, fluctuation in price of product inputs, and market conditions and global

and economic factors beyond the Company’s control;

Company’s success in retaining or recruiting, or changes required in, its officers,

key employees or directors;

ability of the Company to execute its business model, including market acceptance of gasoline

derived from renewable feedstocks;

and the ability to adequately protect intellectual property rights;

● competition

from companies with greater resources and financial strength in the industries in which the

Company operates;

effect of legal, tax and regulatory changes.

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

statements, please refer to the Risk Factors contained in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year

ended December 31, 2023.

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

Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise

any forward-looking statements whether as a result of new information, future events or otherwise.

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

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

entered into an asset purchase agreement with Primus Green Energy, Inc.

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

purchase agreement with Primus Green Energy, Inc.

(“Primus”) to purchase the assets of Primus.

under the asset purchase agreement included a demonstration facility, a laboratory, office space, and intellectual property including

the patented STG+ process technology.

GEP then assigned its rights under the asset purchase

agreement to a newly formed subsidiary of Intermediate.

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

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

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

BEP ultimately contributed the membership interests to Intermediate.

Intermediate holds the acquired assets through Bluescape

Clean Fuels, LLC.

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

on the renewable energy industry.

The assets under the asset

purchase agreement included a demonstration facility, a laboratory, office space, and intellectual property including the patented STG+®

process technology.

GEP then assigned its rights under the asset purchase agreement to

a newly formed subsidiary of Intermediate.

Immediately following the closing of the asset purchase agreement, the Founders sold 100% of

their membership interests to BEP Clean Fuels Holdings, LLC, a Delaware limited liability company (“BEP”) in exchange for

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

ultimately contributed the membership interests to Intermediate.

Intermediate holds the acquired assets through Bluescape Clean Fuels,

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

energy industry.

The Transactions

We entered into the Business Combination Agreement

with CENAQ on August 12, 2022.

Pursuant to the Business Combination Agreement, and based on approval by CENAQ’s shareholders, (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) and (2) the Holdings Class C Shares and (B) in exchange therefor, OpCo

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

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

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

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

After giving effect

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

The Business Combination was accounted for as

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

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

This determination reflects Holdings holding a majority of the voting

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

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

Further, Holdings continues

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

Under the guidance in the ASC 805, for transactions

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

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

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

company for financial reporting purposes.

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

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

The most significant change in Verde Clean Fuel’s

reported financial position and results is a net increase in cash (as compared to Intermediate’s financial position as of December 31,

2022) of $37.3 million, consisting of $32.0 million in PIPE Financing proceeds, $19.0 million from the trust, and $91 thousand from the

CENAQ operating account, offset by $10.0 million in transaction expenses which were recorded as a reduction to additional paid in capital,

and offset by a $3.75 million capital repayment to Holdings.

On February 15, 2023, CENAQ

completed the Business Combination.

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

Following the Business Combination, Verde Clean

Fuels is a renewable energy company specializing in the conversion of synthesis gas, or syngas, derived from diverse feedstocks, such

as biomass, municipal solid waste (“MSW”) and mixed plastics, as well as natural gas (including synthetic natural gas) and

other feedstocks, into liquid hydrocarbons that can be used as gasoline through an innovative and proprietary liquid fuels technology,

the STG+® process.

Through our STG+® process, we convert syngas into Reformulated Blend-stock for Oxygenate Blending (“RBOB”)

We are focused on the development of technology and commercial facilities aimed at turning waste and other bio-feedstocks into

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

The availability of biogenic MSW and the economic and environmental drivers that divert these materials from landfills will enable us

to utilize these waste streams to produce renewable gasoline from modular production facilities with expected capacity to produce between

approximately seven million to 30 million gallons of renewable gasoline per year.

We are redefining liquid fuels technology through

our proprietary and innovative STG+® process to deliver scalable and cost-effective renewable gasoline.

We acquired our STG+®

technology from Primus, a company established in 2007 that developed the patented STG+® technology to convert syngas into gasoline

Since acquiring the technology, we have adapted the application of our STG+® technology to focus on the renewable energy

This adaptation requires a third-party gasification system to produce acceptable synthesis gas from these renewable feedstocks.

On February 15, 2023 (the “Closing Date”

or “Closing”), the Company finalized a business combination (the “Business Combination”) pursuant to that certain

business combination agreement, dated as of August 12, 2022 (“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”).

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

The Business Combination is discussed further

in Note 3 to the unaudited consolidated financial statements.

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) 22,500,000 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 common units of Opco

(the “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 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

(1) 22,500,000 Class C common units of OpCo (the “Class C OpCo Units”) and the Holdings Class C Shares.

The Business Combination was accounted for as a common control reverse

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

The Business Combination was not

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 Company’s Board of Directors through its majority voting rights.

Under the guidance in ASC 805, for transactions between entities under

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

on the date of the Business Combination.

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

for financial reporting purposes.

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

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

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 PIPE Financing hold shares of Class

A common stock and warrants to purchase shares of Class A common stock, and Holdings owns the Holdings Class C Shares and an equal number

of Class C OpCo Units.

We are a development-stage

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

or natural gas (including renewable 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.

Verde 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.

The 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.

We are redefining liquid

fuels technology through our proprietary and innovative STG+® process to deliver scalable and cost-effective gasoline from renewable

feedstocks or flared natural gas.

We acquired our STG+® technology from Primus, a company established in 2007 that developed the patented

STG+® technology to convert syngas into gasoline or methanol.

Since acquiring the technology, we have adapted the application of our

STG+® technology to focus on the renewable energy industry.

This adaptation requires a third-party gasification system to produce

acceptable synthesis gas from renewable feedstocks.

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

We have made significant progress towards commercializing

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

We have several renewable gasoline projects and flare mitigating

natural gas to gasoline projects, in various early stages of development.

Over $110 million has been invested in our technology,

primarily by our predecessor owners, including our which has completed over 10,500 hours of operation producing gasoline or methanol.

Our demonstration facility represents the scalable nature of our operational modular commercial design which has fully integrated reactors

and recycle lines and is designed with key variables, like gas velocity and catalyst bed length, at a 1-to-1 scale with our commercial

We have also participated in carbon lifecycle studies to validate the carbon intensity score (“CI score”) and reduced

lifecycle emissions of our renewable gasoline as well as fuel, blending and engine testing to validate the specification and performance

Over $110 million has

been invested in our technology, including our demonstration facility in New Jersey, which has completed over 10,500 hours of operation

producing gasoline or methanol.

Our demonstration facility represents the scalable nature of our operational modular commercial design

which has fully integrated reactors and recycle lines and is designed with key variables, like gas velocity and catalyst bed length, at

a 1-to-1 scale with our commercial design.

We have also participated in carbon lifecycle studies to validate the scoring of carbon intensity,

which we define as the quantity of greenhouse gas emissions associated with producing, distributing, and consuming a fuel, per unit of

fuel energy (“CI”) and reduced lifecycle emissions (the greenhouse gas emissions associated with the production, distribution,

and consumption of a fuel) of our renewable gasoline as well as fuel, blending and engine testing to validate the specification and performance

of our gasoline product.

We believe our renewable gasoline exhibits a significant lifecycle carbon emissions reduction compared to traditional

petroleum-based gasoline.

As a result, we believe our gasoline produced from renewable feedstock, such as biomass, will qualify under

the Federal Renewable Fuel Standard (“RFS”) for the D3 RIN (a carbon credit), which can have significant value.

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

Unlike many other gas-to-liquids technologies, not only can our STG+® process produce renewable gasoline from

syngas, but we expect it will be able to be applied at other production facilities to produce other end products including methanol.

addition to our initial focus on the production of renewable gasoline, there is opportunity to continue to develop additional process

technology to produce middle distillates including sustainable diesel and sustainable aviation fuel.

As of September 30, 2023, the Company

has not derived revenue from its principal business activities.

The Company is managed as an integrated business and consequently, there

is only one reportable segment.

Our carbon intensity score is based on an analysis styled after the Department of Energy’s Greenhouse gases

Regulated Emissions, and Energy use in Technologies (“GREET”) life cycle analysis.

We believe our renewable gasoline, when

paired with carbon capture and sequestration, exhibits a significant lifecycle carbon emissions reduction compared to traditional petroleum-based

As a result, we believe our gasoline produced from renewable feedstock, such as biomass, will qualify under the federal renewable

fuel standard (“RFS”) program for the D3 renewable identification number (“RIN”), which could have significant

Similarly, gasoline produced from our process may also qualify for various state carbon programs, including California’s

low carbon fuel standard (“LCFS”).

Unlike many other gas-to-liquids technologies, not only can our STG+® process produce

renewable gasoline from syngas, but we expect it will be able to be applied at other production facilities to produce other end products

including methanol.

In addition to our initial focus on the production of renewable gasoline, we believe that there is opportunity to

continue to develop additional process technology to produce middle distillates including lower-carbon diesel and aviation fuel.

other government programs, the use requirements of the RFS program and other similar state-level programs are subject to change, which

could materially harm our business strategy as well as any ability to operate profitably.

As of March 31, 2024, the Company is still

in the process of developing its first commercial production facility and has not derived revenue from its principal business activities.

The Company is managed as an integrated business and consequently, there is only one reportable segment.

“lower-carbon” as used in relation to the Company’s products refers the lower CI, lower lifecycle emissions, and lower

quantity of greenhouse gas emissions resulting directly from fuel combustion, relative to conventional gasoline derived from petroleum.

“Renewable” as used in relation to the Company’s products refers to energy or fuel derived from biomass feedstock.

Key Factors Affecting Our Prospects and Future Results

We believe that our performance and future success

depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including competition

from other carbon-based and other non-carbon-based fuel producers, changes to existing federal and state level low-carbon fuel credit

systems, and other factors discussed under the section titled “Risk Factors” in Part II, Item 1A of this Form 10-Q.

the factors described below are key to our success.

We believe that our performance and future success depend on a number

of factors that present significant opportunities for us but also pose risks and challenges, including competition from other carbon-based

and other non-carbon-based fuel producers, changes to existing federal and state level low-carbon fuel credit systems, and other factors

discussed under the section titled “Risk Factors” in Part I, Item 1A of the Company’s

Annual Report on Form 10-K for the year ended December 31, 2023, and Part II, Item 1A of this Form 10-Q.

We believe the factors

described below are key to our success.

Commencing and Expanding Commercial Operations

April 2022, we commenced a pre-front-end engineering and design (“FEED”) study for the Maricopa, Arizona facility.

we have not abandoned a potential project in Maricopa, AZ, we have refocused on projects that we believe have quicker paths to

commercial operations.

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

commercial production of renewable gasoline as early as 2026.

We have three additional production facilities

planned and four additional identified potential production facility development opportunities.

We believe the number of planned and identified

potential production facilities bode well for our potential future success.

Verde and Cottonmouth Ventures have completed

a preliminary evaluation of several possible Permian Basin locations, including a review of natural gas supply and available utilities,

and the parties have selected the first development location for a potential joint project.

The proposed facility would utilize undervalued

Permian Basin gas and mitigate flaring and pipeline congestion in the region.

Verde expects to enter into a Joint Development Agreement

with Cottonmouth Ventures to proceed with Front End Engineering and Design (FEED), permitting, and other development activities required

for Final Investment Decision (FID).

Project Final Investment Decision (“FID”) is targeted for late 2024, with operations

expected to being in mid-2026.

On August 1, 2023, the Company announced

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

In April 2022, we commenced a

pre-front-end engineering and design (“FEED”) study for our first commercial production facility in Maricopa, Arizona.

we have not abandoned a potential project in Maricopa, AZ, we have refocused on projects that we believe have quicker paths to commercial

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

of renewable gasoline as early as 2026.

Concurrent with the Business Combination, Diamondback

Energy, Inc (“Diamondback”) through its wholly-owned subsidiary, Cottonmouth Ventures LLC (“Cottonmouth”), made

a $20 million equity investment in Verde and entered into an equity participation right agreement pursuant to which Verde must grant Cottonmouth

the right to participate and jointly develop facilities in the Permian Basin utilizing Verde’s STG+® technology for the production

of gasoline derived from economically disadvantaged natural gas feedstocks.

Diamondback is an independent oil and natural gas company

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

and natural gas reserves in the Permian Basin in West Texas.

The production of gasoline from natural gas sourced from the Permian Basin

is designed to allow Diamondback to mitigate the flaring of natural gas while also producing a high-margin product from natural gas streams

that are subject to being price disadvantaged compared to other natural gas basins.

On February 6, 2024, Verde and Cottonmouth 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.

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.

We expect that the proposed facility, which is to be located

in Martin County, Texas in the heart of the Permian Basin, could serve as a template for additional natural gas-to-gasoline projects throughout

the Permian Basin and other pipeline-constrained basins in the U.S., as well as addressing flared or stranded natural gas opportunities

internationally.

We plan to grow our business by building and operating a portfolio

of commercial production facilities.

We currently have production facilities planned with additional potential production facility development

opportunities in early-stage due diligence.

We have identified opportunities to produce gasoline from natural gas in other pipeline-constrained

production areas as well as opportunities to produce renewable gasoline from biomass in locations with access to suitable feedstock, carbon

sequestration, and markets.

We believe the number of identified and planned potential production facilities bode well for our potential

On August 1, 2023, we announced a non-binding

carbon dioxide management agreement (“CDMA”) with Carbon TerraVault JV HoldCo, LLC (“CTV JV”), a carbon management

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

Corporation (“CRC”), and Brookfield Renewable.

Under the terms of the non-binding agreement,

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

County, California.

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

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

The project is

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

Project FID is targeted

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

Under the terms of the non-binding agreement, the Company would construct a

new renewable gasoline production facility at CRC’s existing Net Zero Industrial Park in Kern County, California, to capture carbon

dioxide and produce renewable gasoline from biomass and other agricultural waste feedstock to help support the further decarbonization

of California’s economy and its transportation sector.

It is anticipated that the project could produce up to 7 million gallons

per year of renewable gasoline for use as transportation fuel.

Project FID is targeted for mid-2025, with operations expected to begin

in the second half of 2027.

Successful Implementation of the first commercial facility

A critical step in our success will be the successful

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

We expect that the first

commercial production facility could be operational as early as 2025.

A critical step in our business strategy will be the successful construction

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

We believe that the first commercial

production facility could be operational as early as 2026.

Protection and continuous development of our patented technology

Our ability to compete successfully will depend

on our ability to protect, commercialize, and further develop our proprietary process technology and commercial facilities in a timely

manner, and in a manner technologically superior to and/or are less expensive than competing processes.

Our ability to compete successfully will depend on our ability to protect,

commercialize, and further develop our proprietary process technology and commercial facilities in a timely manner, and in a manner technologically

superior to and/or are less expensive than competing processes.

Key Components of Results of Operations

We are an early-stage company and our historical

We are an early-stage company with no revenues, and our historical

results may not be indicative of our future results.

Accordingly, the drivers of our future financial results, as well as the components

of such results, may not be comparable to our historical or future results of operations.

Accordingly, the drivers of any future financial results, as well as any components

thereof, may not be comparable to our historical or future results of operations.

We have not generated any revenue to date.

expect to generate a significant portion of our future revenue from the sale of renewable RBOB grade gasoline primarily in markets with

federal and state level low-carbon fuel credit systems.

We expect to generate a

significant portion of our future revenue from the sale of renewable RBOB grade gasoline or gasoline derived from natural gas primarily

in markets with federal and state level low-carbon fuel credit systems.

General and Administrative Expense

General and administrative expenses consist of

compensation costs including salaries, benefits and stock-compensation expense, for personnel in executive, finance, accounting, and other

administrative functions.

General and administrative expenses also include legal fees, professional fees paid for accounting, auditing

and consulting services, and insurance costs.

Following the Business Combination, we expect we will incur higher general and administrative

General and administrative expenses consist of compensation costs including

salaries, benefits and stock-compensation expense, for personnel in executive, finance, accounting, and other administrative functions.

General and administrative expenses also include legal fees, professional fees paid for accounting, auditing and consulting services,

and insurance costs.

Following the Business Combination, we incurred and expect to continue to incur higher general and administrative

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

Research and Development Expense

Our research and development (“R&D”)

expenses consist primarily of internal and external expenses incurred in connection with our R&D activities.

These expenses include

labor directly performed on our projects and fees paid to third parties working on and testing specific aspects of our STG+® design

and gasoline product output.

Our research and development (“R&D”) expenses consist

primarily of internal and external expenses incurred in connection with our R&D activities.

These expenses include labor directly

performed on our projects and fees paid to third parties working on and testing specific aspects of our STG+® design and gasoline

product output.

R&D costs are expensed as incurred.

We expect R&D expenses to grow as we continue to develop the

STG+® technology and develop market and strategic relationships with other businesses.

We expect R&D expenses to grow as we continue to develop the STG+® technology

and develop market and strategic relationships with other businesses.

Contingent consideration

Prior to the Business Combination, we had an arrangement

payable to our CEO and a consultant whereby a contingent payment would become payable if certain return on investment hurdles were met

within five years of an asset purchase arrangement.

The contingent consideration was forfeited when we closed on the Business Combination.

Income Tax Effects

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.

We hold 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 to U.S.

federal income tax under current

We are subject to U.S.

federal income taxes, in addition to state and local income taxes, with respect to our distributive

share of the net taxable income (loss) and any related tax credits of OpCo.

Intermediate was historically and remains a disregarded subsidiary

of a partnership for U.S.

Federal income tax purposes.

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

Intermediate.

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

then distributed to us.

Results of Operations

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

September 30,

General and administrative expenses

Contingent Consideration

Research and development expenses

Total Operating (income) expenses

Other (income)

Interest expense

Loss (income) before income taxes

Provision for income taxes

Net loss (income)

$ (4,347,748 )

General and Administrative

General and administrative expense increased approximately

$1.6 million, or 189%, from $868 thousand for the three months ended September 30, 2022 to $2.5 million for the three months ended September

30, 2023, primarily due to an increase in professional fees of $0.7 million, including accounting, legal and directors’ fees, higher

insurance costs of $0.4 million, higher share-based payment expense of $0.2 million and other miscellaneous general and administrative

expenses of $0.3 million.

Contingent Consideration

The $5.3 million reduction to operating expenses

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

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

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

Research and Development

R&D expense increased approximately $6 thousand,

or 8%, from $72 thousand for the three months ended September 30, 2022 to $78 thousand for the three months ended September 30, 2023.

The increase in R&D expense was primarily due to higher operating costs associated with the Company’s demonstration plant in

Other income was primarily attributable to interest

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

Interest Expense

The increase in interest expense was attributable

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

Provision for Income Taxes

Income tax expense increased due to changes in

estimate related to the Company’s 2022 tax obligation.

Comparison of the nine months ended September 30, 2023 and September

September 30,

Comparison of the three months ended March 31, 2024 and March 31,

Three Months Ended

General and administrative expenses

1 unchanged sentence

Research and development expenses

Total Operating (income) expenses

Total operating expenses

Other (income)

Interest expense

Loss (income) before income taxes

Loss before income taxes

Provision for income taxes

Net loss (income)

$ (3,600,180 )

General and Administrative

General and administrative expense increased approximately

$5.9 million, or 177%, from $3.3 million for the nine months ended September 30, 2022 to $9.2 million for the nine months ended September

The increase was primarily due to higher professional fees of $2.6 million, including accounting, legal and directors’

fees, greater share-based compensation expense of $1.5 million, greater insurance expense of $1.0 million, and other miscellaneous general

and administrative expenses of $0.8 million related to rent, depreciation and amortization.

General and administrative expense decreased approximately $1.5 million,

or 35%, from $4.3 million for the three months ended March 31, 2023 to $2.8 million for the three months ended March 31, 2024, primarily

due to a decrease in share-based payment expense of $1.9 million.

The Company incurred greater share-based payment expense for the three

months ended March 31, 2023 due to the accelerated vesting of all the outstanding series A incentive units and Founder incentive units

as a result of the Business Combination.

The decrease in general and administrative expenses was partially offset by increases in professional

fees of $0.3 million, salaries and benefits of $0.2 million, and insurance costs of $0.2 million.

Contingent Consideration

The $5.9 million reduction to operating expenses

associated with contingent consideration for the nine months ended September 30, 2023 reflects the reversal of the remaining accrual made

by Holdings for certain contingent payments due to a contractual forfeiture of the payments following the close of the Business Combination

on February 15, 2023.

The $5.9 million reduction to operating expenses associated with contingent consideration for the nine months ended

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

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

The $1.3 million change in contingent consideration for the three months

ended March 31, 2024 reflects the reversal during the three months ended March 31, 2023 of the remaining accrual made by Holdings for

certain contingent payments due to the contractual forfeiture of the payments following the close of the Business Combination on February

The Company reversed the contingent consideration for the three months ended March 31, 2023.

See Note 2 to the unaudited consolidated

financial statements.

Research and Development

R&D expense remained consistent between the

nine months September 30, 2022 and the nine months ended September 30, 2023.

R&D expense consists primarily of outside consulting

expenses related to R&D projects.

Other income was primarily attributable to interest

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

R&D expense for the three months ended March 31, 2024 was consistent

with the three months ended March 31, 2023.

Other income of $0.3 million for the three months ended March 31, 2024

was primarily attributable to interest earned from our money market investment of approximately $23.9 million as of March 31, 2024.

Interest Expense

The increase in interest expense was attributable

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

The decrease in interest expense during the three months ended March

31, 2024 was attributable to our land lease in Maricopa, Arizona, which was classified as a finance lease until the third quarter of 2023.

The finance lease was exited on December 31, 2023.

See Note 5 to the unaudited consolidated financial statements.

Provision for Income Taxes

Income tax expense increased due to changes in

estimate related to the Company’s 2022 tax obligation.

The provision for income taxes was $0 for the three months ended March

31, 2024 and 2023, due to a full valuation allowance recorded as of March 31, 2023, and maintained as of March 31, 2024.

Liquidity and Capital Resources

We measure liquidity in terms of our ability to

fund the cash requirements of our R&D activities and our near-term business operations, including our contractual obligations and

other commitments.

Our current liquidity needs primarily involve general and administrative and R&D activities for the ongoing commercialization

of our first production facility and associated plant design.

To date, we have not generated any revenue.

do not expect to generate any meaningful revenue unless and until we are able to commercialize our first production facility.

Since inception,

we have incurred significant operating losses, have an accumulated deficit of $23.3 million as of September 30, 2023 and negative operating

cash flow during the nine months ended September 30, 2023 and 2022.

Management expects that operating losses and negative cash flows may

increase because of additional costs and expenses related to the development of technology and the development of market and strategic

relationships with other companies.

Our continued solvency is dependent upon our ability to obtain additional working capital to complete

our product development, to successfully achieve commerciality of our projects.

Following the Business Combination and the closing

of the PIPE Financing, we received approximately $37.3 million in cash, net of approximately $10.0 million of transaction expenses and

the repayment of approximately $3.75 million of capital contributions made by Bluescape Clean Fuels Holdings, LLC since December 2021.

We expect to use such proceeds to fund our ongoing operations and R&D activities.

The gross amount, before expenses, was composed

of approximately $19.0 million release from CENAQ’s Trust Account, after payment of approximately $158.8 million to public stockholders

who exercised redemption rights (representing a redemption rate of approximately 89.3%), and $32.0 million of proceeds from the PIPE Financing.

We also received $91 thousand from the CENAQ operating account.

We believe that based on our current level of operating expenses and currently

available cash on hand, we will have sufficient funds available to cover R&D activities and operating cash needs through 2024.

as we have not yet developed a commercial production facility and have no meaningful revenue to date, we may require additional funds

in future years.

Our ability to raise funds through equity offerings may be limited by the significant number of shares that may be publicly

Our ability to fund R&D activities and our operating cash needs for several years does not depend on the proceeds we may receive

as the result of exercises of Warrants.

As our transaction with CENAQ only resulted in

$37.3 million of net proceeds, we expect that we will only be able to construct one of our first four originally planned production

facilities with the proceeds from the CENAQ transaction.

The $37.3 million of net proceeds raised at closing of the transaction with

CENAQ will contribute to the equity capital portion of our capital expenditure requirements through 2025.

We also expect to earn interest

income on the net proceeds raised at closing during the ongoing development and construction of our facilities through 2025, and that

such interest income will be utilized towards capital expenditures or for general and administrative expenses.

We also expect 70% of our

total project capital requirements will be met with project financing, industrial revenue bonds, or pollution control bonds, or some combination

of debt financing.

While we have been in discussions with banks and other credit counterparties regarding project financing, industrial

revenue bonds, or pollution control bonds, and these discussions have led to indications of debt financing equivalent to 70% of our capital

expenditure requirements, there can be no assurance that we will be successful in obtaining such financing.

In connection with the Closing, Sponsor was due

$409,612 under existing promissory notes with CENAQ.

On February 15, 2023, in lieu of repayment of the existing promissory notes with

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

The New Promissory Note cancels and supersedes

the existing promissory notes.

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

Note is payable on or before February 15, 2024.

The New Promissory Note is payable at the Company’s election in cash or in Class

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

Summary Statement of Cash Flows for the Nine Months Ended September

30, 2023 and September 30, 2022

The following table sets forth the primary sources

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

For the Nine Months Ended

We measure liquidity in terms of our ability to fund the cash requirements

of our R&D activities and our near-term business operations, including our contractual obligations and other commitments.

liquidity needs primarily involve general and administrative and R&D activities for the ongoing commercialization of our first production

facility and associated plant design.

To date, we have not generated any revenue, and as of March 31, 2024,

we had cash and cash equivalents of $25.9 million.

We do not expect to generate any meaningful revenue unless and until we are able to

commercialize our first production facility.

Since inception, we have incurred significant operating losses, have an accumulated deficit

of $24.7 million as of March 31, 2024 and generated negative operating cash flows during the three months ended March 31, 2024 and March

Management expects that operating losses and negative cash flows may increase in future periods because of additional costs

and expenses related to the development of technology and the development of market and strategic relationships with other companies.

Our continued solvency is dependent upon our ability to obtain additional working capital to complete our product development and to successfully

achieve commerciality of our projects.

In connection with entering into the JDA with Cottonmouth, a subsidiary

of Diamondback, we will begin to incur development costs with respect to the project, prior to reaching a FID and entering into final

definitive agreements, irrespective of whether these events occur.

We are currently evaluating the impact that the JDA will have on our

consolidated financial statements and liquidity.

Verde plans to invest approximately $3 million for FEED costs in 2024 in support of the

Permian Basin natural gas-to-gasoline facility, which is expected to take approximately eight months to complete.

Following the Business Combination and the closing of the PIPE Financing,

we received approximately $37.3 million in cash, net of approximately $10.0 million of transaction expenses and the repayment of approximately

$3.75 million of capital contributions made by Bluescape Clean Fuels Holdings, LLC since December 2021.

We expect to use such proceeds

to fund our ongoing operations and R&D activities.

The gross amount, before expenses, was composed of approximately $19.0 million

release from CENAQ’s Trust Account, after payment of approximately $158.8 million to public stockholders who exercised redemption

rights (representing a redemption rate of approximately 89.3%), and $32.0 million of proceeds from the PIPE Financing.

We also received

$91 thousand from the CENAQ operating account.

We believe that based on our current level of operating expenses and currently available

cash on hand, we will have sufficient funds available to cover R&D activities and operating cash needs for at least the next 12 months.

However, as we have not yet developed a commercial production facility and have no revenue to date, we will likely require additional

funds in future years.

Our ability to raise funds through equity offerings may be limited by the significant number of shares that may

be publicly sold.

As the exercise price of our Public Warrants is $11.50 per share of Class A common stock, we do not expect that Public

Warrants will be exercised in the foreseeable future.

Our ability to fund R&D activities and our operating cash needs for several

years does not depend on the proceeds we may receive as the result of exercises of outstanding Warrants.

our transaction with CENAQ only resulted in $37.3 million of net proceeds, we expect that we will only be able to construct one

of our first four originally planned production facilities with the proceeds.

The $37.3 million of net proceeds raised at

closing of the transaction with CENAQ will contribute to the equity capital portion of our capital expenditure requirements through

We also expect to earn interest income on the net proceeds raised at closing during the ongoing development and construction

of our facilities through 2025, and that such interest income will be utilized towards capital expenditures or for general and

administrative expenses.

We also expect 70% of our total project capital requirements will be met with project financing, industrial

revenue bonds, or pollution control bonds, or some combination of debt financing.

While we have been in discussions with banks and

other credit counterparties regarding project financing, industrial revenue bonds, or pollution control bonds, and these discussions

have led to indications of debt financing equivalent to 70% of our capital expenditure requirements, there can be no assurance that

we will be successful in obtaining such financing.

The inability to obtain debt financing will adversely impact our ability to implement our business plan.

In connection with the

Closing, Sponsor was due $409,612 under existing promissory notes with CENAQ.

On February 15, 2023, in lieu of repayment of the existing

promissory notes with Sponsor, we entered into a new, non-interest bearing promissory note with the Sponsor totaling $409,612.

promissory note canceled and superseded the existing promissory notes.

On February 15, 2024, we settled the promissory note through the

issuance of 40,961 shares of Class A common stock at a conversion price of $10.00 per share and recorded an increase to additional paid-in

capital of $409,608.

Summary Statement of Cash Flows for the Three Months Ended March

31, 2024 and March 31, 2023

The following table sets forth the primary sources and uses of cash

and cash equivalents for the periods presented below:

For the Three Months Ended

Net cash used in operating activities

3 unchanged sentences

Net cash provided by financing activities

Net increase (decrease) in cash and restricted cash

Net (decrease) increase in cash, cash equivalents restricted cash

$ (2,837,573 )

Cash Flows Used in Operating Activities

Net cash used in our operating activities increased $4.5 million during

the nine months ended September 30, 2023 versus the same period in 2022, which primarily was due to incurring additional professional

fees of $2.6 million primarily attributable to the business combination.

Other uses of cash include increases in directors and officers

insurance of $1 million.

Net cash used in operating activities decreased $17 thousand during

the three months ended March 31, 2024 versus the same period in 2023.

The change in operating cash flows was a result of a decrease in

cash paid for D&O insurance during the three months ended March 31, 2024, offset by a decrease in accrued expenses during the three

months ended March 31, 2024 due to timing of cash payments to vendors.

Cash Flows Used in Investing Activities

Net cash used in investing activities was consistent

during both the nine months ended September 30, 2023 and 2022.

Cash Flows from Financing Activities

Net cash provided by financing activities increased

approximately $33.8 million during the nine months ended September 30, 2023 compared to the same period in 2022.

The increase was

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

Net cash used in investing activities during the three months ended

March 31, 2024 was consistent with the three months ended March 31, 2023.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities was zero for the three months

ended March 31, 2024 compared to $37.2 million for the three months ended March 31, 2023.

The decrease was due to the net proceeds

from the close of the Business Combination on February 15, 2023 compared to no financing activities occurring during the three months

ended March 31, 2024.

Commitments and Contractual Obligations

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

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

The commencement date of the lease occurred

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

The Company terminated the lease during the

third quarter of 2023 and expects to exit the lease as of December 31, 2023.

Accordingly, the Company reversed a substantial portion of

the existing right-of-use asset and lease liability and reclassified the lease from finance to operating as of September 30, 2023.

Note 5 to the unaudited consolidated financial statements.

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

Arizona with the intent of building a biofuel processing facility.

The commencement date of the lease occurred in February 2023 contemporaneous

with the Company obtaining control of the identified asset.

We exited the lease as of December 31, 2023.

See Note 5 to the unaudited consolidated

financial statements.

Off-Balance Sheet Arrangements

As of September 30, 2023, we have not engaged

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

Internal Control over Financial Reporting

We have identified material weaknesses in our

internal control over financial reporting.

A material weakness is deficiency, or a combination of deficiencies, in internal control over

financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements

will not be prevented, or detected and corrected, on a timely basis.

Management of Intermediate noted a material weakness in our internal

control over financial reporting related to the understatement of unit-based compensation expense.

The understatement of the grant

date fair value was due to a revision in the underlying fair value determination, and such revision was not appropriately reflected in

the financial statements.

Management concluded that the grant date fair value and corresponding incremental expense should be adjusted

by recognizing the additional expense in Intermediate’s March 31, 2022 financial statements.

As part of such process, management

identified a material weakness in its internal control over financial reporting related to the grant date fair value revision.

Additionally,

Intermediate did not maintain effective internal control regarding the date on which to apply new accounting standards based upon CENAQ’s

elections made as an emerging growth company under the JOBS Act, which required Intermediate to apply new accounting standards as if it

were a public business entity.

Effective internal controls are necessary to provide

reliable financial reports and prevent fraud, and material weaknesses could limit the ability to prevent or detect a misstatement of accounts

or disclosures that could result in a material misstatement of annual or interim financial statements.

Our management continues to evaluate

steps to remediate the material weaknesses.

These material weaknesses have not been fully remediated.

We are in the early stages of designing

and implementing a plan to remediate the material weaknesses identified.

Our plan includes the below:

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

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

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

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

We cannot assure you that these measures will

significantly improve or remediate the material weaknesses described above.

The implementation of these remediation measures is in the

early stages and will require validation and testing of the design and operating effectiveness of our internal controls over a sustained

period of financial reporting cycles and, as a result, the timing of when we will be able to fully remediate the material weaknesses is

uncertain and we may not fully remediate these material weaknesses during the year ended December 31, 2023.

If the steps we take

do not remediate the material weaknesses in a timely manner, there could be a reasonable possibility that these control deficiencies or

others may result in a material misstatement of our annual or interim financial statements that would not be prevented or detected on

a timely basis.

This, in turn, could jeopardize our ability to comply with our reporting obligations, limit our ability to access the

capital markets and adversely impact our stock price.

As of March 31, 2024, we have not engaged in any off-balance sheet

arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been

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

The preparation of financial statements in conformity with

US GAAP requires the Company to adopt accounting policies and make estimates and assumptions that affect amounts reported on the unaudited

consolidated financial statements.

For a discussion of our critical accounting policies, see “Critical Accounting Policies Before

the Business Combination” and “Critical Accounting Policies After the Business Combination” in Item 7 of our Annual

Report on Form 10-K for the year ended December 31, 2022.

Impairment of Intangible Assets

The Company’s intangible asset consists

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

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

A qualitative assessment of indefinite-lived intangible

assets is performed in order to determine whether further impairment testing is necessary.

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 for impairment using a discounted cash flow approach and tested for impairment using the relief-from-royalty method.

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

During the three and nine months ended September

30, 2023 and 2022, the Company did not record any impairment charges.

Impairment of Long-Term Assets

The Company evaluates the carrying value of long-lived

assets when indicators of impairment exist.

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

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

In that event, a loss is recognized

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

Fair value is determined primarily using

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

During the three and nine months ended September 30,

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

Equity-Based Compensation

The Company applies the fair value method under

ASC 718 in accounting for equity-based compensation to employees and non-employees.

The determination of fair value requires significant

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

option lives and the discount rate.

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

Statements of Operations.

We measure the fair value of each option grant

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

We estimate the expected term of options granted based on historical

experience and expectations.

We use the treasury yield curve rates for the risk-free interest rate in the option valuation model with

maturities similar to the expected term of the options.

Volatility is determined by reference to the actual volatility of several publicly

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

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

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

Forfeitures are recognized as they occur.

Using alternative

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

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

that would result would also increase.

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

All equity-based

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

Compensation cost is recognized over the period

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

vesting period.

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

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

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

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

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

Forfeitures of service-based and performance-based

units are recognized upon the time of occurrence.

Prior to closing of the Business Combination,

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

Holdings, which was outside

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

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

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

On August 5, 2022, in connection with entering

into the Business Combination Agreement, certain amendments to existing unit-based awards were made whereby all outstanding unvested Series

A Incentive Units (service-based) and Founders Incentive Units (performance-based) of Holdings became fully vested in upon completion

of the Business Combination.

Additionally, as part of the amendment to these agreements, the priority of distributions under the Series

A Incentive Units and Founders Incentive Units were 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

Incentive Units did not result in any incremental unit-based compensation expense in connection with the modification.

The Company accelerated share-based payment expense

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

$2.1 million.

No service-based or performance-based incentive units were granted during the three- and nine-month periods ended September

In March 2023, the Company authorized and approved

the 2023 Plan.

On April 25, 2023, consistent with the terms of the 2023 Plan, the Company granted stock options to certain employees and

officers and RSUs to non-employee directors.

In addition to stock options and RSUs, the 2023 Plan authorizes for the potential future

grant of stock appreciation rights, restricted stock, performance awards, stock awards, dividend equivalents, other stock-based awards,

cash awards and substitute awards to certain employees (including executive officers), consultants and non-employee directors, and is

intended to align the interests of the Company’s service providers with those of the stockholders.

Emerging Growth Company Accounting Election

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.

Following the consummation of the Business Combination, we expect

to be an emerging growth company at least through 2023;

however, prior to the transaction CENAQ did not elect to use the extended transition

As such, when a standard is issued or revised and it has different application dates for public or private companies, we will

adopt the new or revised standard at the time public companies adopt the new or revised standard.

Our unaudited consolidated financial statements

are based on the selection and application of significant accounting policies.

The preparation of unaudited consolidated financial statements

in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities

at the date of the unaudited consolidated financial statements and the reported amounts of expenses and allocated charges during the reporting

Actual results could differ from those estimates.

However, we are not currently aware of any reasonably likely events or circumstances

that would result in materially different results.

We describe our significant accounting policies

in Note 3 - Significant Accounting Policies, of the notes to the consolidated financial statements included in our 2023 Form 10-K.

We discuss our critical accounting policies and estimates in MD&A in our 2023 Form 10-K.

Recent Accounting Pronouncements

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

consolidated financial statements.

See Note 2 in the accompanying unaudited consolidated

financial statements for information regarding recent accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

under this item.

We are a smaller reporting company

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis