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Item 2. Management’s Discussion and Analysis

2024-11-13 compared with 2024-08-13 · 262 added, 297 removed, 197 unchanged (74% of the section changed)

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CONDITION AND RESULTS OF OPERATIONS

References in this report (the “Quarterly Report”) to “we,”

“our,” “us,” “Verde,” “Verde Clean Fuels” or the “Company” refer to Verde

Clean Fuels, Inc.

References in this Quarterly Report on Form 10-Q (this “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 unaudited consolidated financial statements and the notes thereto contained elsewhere in this Quarterly

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

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All statements, other than statements of historical fact included in this

Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and

Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management

Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition

and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management

for future operations, are forward-looking statements.

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“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

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:

“focused,” “might,” “predict,” “proposed,” “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:

the financial and business performance of the Company;

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

the Company’s ability to obtain financing for future projects;

the Company’s ability to obtain financing for any current and future projects;

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

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

the length of development cycles for new projects, including the design and construction processes for the Company’s projects;

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

delays in acquisition, financing, construction and development of new or anticipated projects;

the length of development cycles for new or anticipated projects, including the design and construction processes for the Company’s projects;

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

the Company’s dependence on suppliers;

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

formed by the Chief Executive Officer of Bluescape Clean Fuels Intermediate Holdings, LLC, a Delaware limited

liability company (“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.

The assets under the asset

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

process technology.

formed by the Chief Executive Officer of Bluescape Clean Fuels Intermediate Holdings, LLC, a Delaware limited liability company (“Intermediate”),

and an additional individual (the “Founders”), entered into an asset purchase agreement with Primus Green Energy, Inc.

to purchase the assets of Primus.

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

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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”), 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

Note 3 in the accompanying unaudited consolidated financial statements.

the Company consummated 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.

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”), Intermediate and CENAQ Sponsor LLC (“Sponsor”).

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

The Business Combination is

discussed further in Note 3 in the accompanying unaudited consolidated financial statements.

Pursuant to the Business Combination Agreement, (i) (A) CENAQ contributed

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(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.

after the Closing taking into account the private offering of shares of Class A common stock and warrants consummated contemporaneously

with the Closing (the “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

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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 renewable energy 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 disadvantaged, stranded or flared natural gas

and the economic and environmental drivers that demand a beneficial use of this resource could create opportunities for Verde to deploy

our STG+® process in multiple producing basins.

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.

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

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

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.

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.

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

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 gasoline.

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, which could have significant value.

Similarly, gasoline produced from our process may also qualify for various state carbon programs,

including California’s low carbon fuel standard.

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

Public stockholders, the Sponsor, and the

investors in 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 clean fuels company focused on the deployment of our

innovative and proprietary liquid fuels processing technology through development of commercial production plants.

Our synthesis gas

(“syngas”)-to-gasoline plus (STG+®) process converts syngas derived from diverse feedstocks, such as natural gas or

biomass, into fully finished liquid fuels that require no additional refining, such as reformulated blend-stock for oxygenate

blending (“RBOB”) gasoline.

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

renewable gasoline from syngas, but we expect that 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.

with 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 June 30, 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.

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.

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

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 are currently pursuing opportunities to deploy our technology through

development of commercial production plants to deliver scalable and cost-effective gasoline, and we believe that the availability of disadvantaged,

stranded or flared natural gas in various markets coupled with the economic upside and environmental impact of this resource presents

an opportunity to deploy our STG+® process in order to process such natural gas feedstock into full finished liquid fuels.

entered into a joint development agreement (the “JDA”) with Cottonmouth Ventures LLC (“Cottonmouth”), a wholly-owned

subsidiary of Diamondback Energy, Inc.

(“Diamondback”), 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.

addition to the project contemplated by the JDA with Cottonmouth, we are also evaluating other potential opportunities to deploy our technology

in other producing basins with similar large quantities of disadvantaged, stranded or flared natural gas.

In addition, we have adapted the application of our STG+® technology

to process various biomass feedstocks into fully finished liquid fuels, including renewable gasoline.

This adaptation requires a third-party

gasification system to produce acceptable syngas from renewable feedstocks.

Our proprietary STG+® system converts the syngas into

We have 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.

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 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 gasoline.

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, which could have significant value.

Similarly, gasoline produced from our process

may also qualify for various state carbon programs, including California’s low carbon fuel standard.

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.

As with 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 September 30,2024, we are still in the process of developing

our first commercial production facility and have not derived revenue from our principal business activities.

“Clean” or “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.

to our products refers to 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 our products

refers to energy or fuel derived from biomass feedstock.

Key Factors Affecting Our Prospects and Future Results

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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.

discussed under the section titled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended

December 31, 2023, and Part II, Item 1A of this Quarterly Report.

We believe the factors described below are key to our success.

Commencing and Expanding Commercial Operations

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.

Concurrent with the Business Combination, Diamondback through its wholly-owned

subsidiary, Cottonmouth, made a $20 million equity investment in Verde and entered into an equity participation right agreement pursuant

to which Verde must grant Cottonmouth the right to participate and jointly develop facilities in the Permian Basin utilizing Verde’s

STG+® technology for the production of gasoline derived from economically disadvantaged natural gas feedstocks.

Diamondback is an

independent oil and natural gas company headquartered in Midland, Texas, focused on the acquisition, development, exploration and exploitation

of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas.

The production of gasoline from natural gas

sourced from the Permian Basin is designed to allow Diamondback to mitigate the flaring of natural gas while also producing a high-margin

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

On February 6, 2024, Verde and Cottonmouth entered into the JDA, which

provides a pathway forward for the parties to reach final definitive documents and final investment decision (“FID”).

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.

The expectation

for the project is to produce approximately 3,000 barrels per day of fully-refined gasoline utilizing Verde’s patented STG+®

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.

On June 4, 2024, we announced the selection of Chemex Global, LLC (“Chemex”)

as the contractor to spearhead the pre-front-end engineering and design (“FEED”) phase of the JDA.

With the selection of Chemex,

FEED work commenced and is expected to be completed in early 2025.

In connection with entering into the JDA and the commencement of FEED,

we began to incur development costs with respect to the project.

Under the terms of the JDA, 65% of the approved development costs

that we incur (which includes the FEED costs) are reimbursed by Cottonmouth.

Upon FEED completion and reaching FID, it is anticipated

that engineering, procurement and construction work will then commence, with the goal to complete construction in 2027 .

In August 2023, we announced a non-binding carbon dioxide

management agreement (“CDMA”) with Carbon TerraVault JV HoldCo, LLC, 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.

The CDMA was subsequently amended in December 2023 to extend the term to the earlier

of entry into a binding transaction or December 31, 2024.

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.

as the contractor to spearhead the pre-front-end engineering and design (“FEED”) phase of the project contemplated by the

With the selection of Chemex, FEED work commenced and is expected to be completed in mid-2025.

In connection with entering into the

JDA and the commencement of FEED, we began to incur development costs with respect to the project.

Under the terms of the JDA, 65%

of the approved development costs that we incur (which includes the FEED costs) are reimbursed by Cottonmouth.

Upon FEED completion and

reaching FID, it is anticipated that engineering, procurement and construction work will then commence, with the goal to complete construction

In August 2023, we announced a non-binding carbon dioxide management

agreement (the “CDMA”) with Carbon TerraVault JV HoldCo, LLC, 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 Partners.

The CDMA was subsequently amended in December 2023 to extend the term to the earlier of entry into a binding,

definitive agreement or December 31, 2024.

Under the terms of the non-binding CDMA, we 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.

In addition to the above, we have additional potential production facility

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We believe the number of identified and planned potential production facilities

bode well for our potential growth.

bodes well for our potential growth.

Successful Implementation of the first commercial facility

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General and Administrative Expense

General and administrative expenses consist of compensation costs

including salaries, benefits and share-based compensation expense, for personnel in executive, finance, accounting and other

administrative functions.

General and administrative expenses also include 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.

General and administrative expenses consist of compensation costs including

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

General and administrative expenses also include 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 U.S.

Securities and Exchange Commission (the “SEC”)

and the Nasdaq Capital Market.

Research and Development Expense

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Contingent consideration

Prior to the Business Combination, we had

an arrangement payable to our Chief Executive Officer (“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.

Prior to the Business Combination, we had an arrangement payable to

our Chief Executive Officer and a consultant whereby a contingent payment would become payable if certain return on investment hurdles

were met within five years of an asset purchase arrangement.

The contingent consideration was forfeited in connection with the Closing

of the Business Combination.

Other income primarily consists of interest and dividend income earned

on the Company’s cash and cash equivalents balances.

on our cash and cash equivalents balances.

Income Tax Effects

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Results of Operations

Comparison of the three months ended June 30, 2024 and June 30,

Comparison of the three months ended September 30, 2024 and September

Three Months Ended

September 30,

General and administrative expenses

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General and Administrative

General and administrative expense increased approximately $0.5

million, or 22%, for the three months ended June 30, 2024 compared to the same period in 2023.

The increase was primarily attributable to higher salaries and benefits

of $0.3 million as a result of an increase in headcount and higher professional fees of $0.2 million, including legal and marketing

General and administrative expenses increased approximately $0.2 million,

or 7%, for the three months ended September 30, 2024 compared to the same period in 2023.

The increase was primarily attributable to higher

salaries and benefits of $0.2 million as a result of an increase in headcount.

Research and Development

R&D expense for the three months ended June 30, 2024

increased approximately $0.1 million, or 102% compared to the same period in 2023.

The increase was primarily due to higher salaries and benefits expense as a result

of an increase in headcount.

The increase in other income of $0.2 million for the three months

ended June 30, 2024 compared to the same period in 2023 was primarily attributable to interest and dividend income earned from our

money market investment, which was approximately $21.3 million as of June 30, 2024.

R&D expenses for the three months ended September 30, 2024 were

consistent with the same period in 2023.

Other income increased approximately $0.1 million for the three months

ended September 30, 2024 compared to the same period in 2023.

The increase was primarily attributable to higher interest and dividend

income earned from our money market investment, which was approximately $19.9 million as of September 30, 2024.

Interest Expense

The $0.1 million decrease in interest expense during the three

months ended June 30, 2024 compared to the same period in 2023 was attributable to our former land lease in Maricopa, Arizona, which

was classified as a finance lease until the third quarter of 2023, at which time the lease was modified and reclassified to an

operating lease.

Interest expense decreased approximately $0.1 million for the three

months ended September 30, 2024 compared to the same period in 2023.

The decrease was primarily attributable to our former land lease

in Maricopa, Arizona, which was classified as a finance lease until the third quarter of 2023, at which time the lease was modified and

reclassified to an operating lease.

The lease was exited on December 31, 2023.

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statements for further information.

The income tax benefit for the three months ended June 30, 2024 consisted

of a refund received in connection with a previously paid income tax penalty.

There was no provision for income taxes for the three months

ended June 30, 2024 and 2023 due to a full valuation allowance that was recorded as of June 30, 2023, and maintained as of June 30, 2024.

Comparison of the six months ended June 30, 2024 and June 30, 2023

Six Months Ended

There was no provision for income taxes for the three months ended

September 30, 2024 due to a full valuation allowance that was recorded as of September 30, 2023, and maintained as of September 30, 2024.

The income tax provision for the three months ended September 30, 2023 was due to changes in estimate related to our 2022 tax obligation.

Comparison of the nine months ended September 30, 2024 and September

Nine Months Ended

September 30,

General and administrative expenses

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General and Administrative

General and administrative expense decreased approximately $0.9 million,

or 14%, for the six months ended June 30, 2024 compared to the same period in 2023.

The decrease was primarily due

to $2.1 million of shared-based compensation expense recorded in the six months ended June 30, 2023 associated with the accelerated vesting

of all the outstanding series A incentive units and Founder incentive units as a result of the Business Combination.

was partially offset by higher share-based compensation expense of $0.3 million associated with

restricted stock units granted in April 2023 and stock options granted in April 2023 and May 2024, higher salaries and benefits

expense of $0.5 million attributable to an increase in headcount and higher professional fees of $0.5 million.

General and administrative expenses decreased approximately $0.8 million,

or 8%, for the nine months ended September 30, 2024 compared to the same period in 2023.

The decrease was primarily due to $2.1 million

of unit-based compensation expense recorded in the nine months ended September 30, 2023 associated with the accelerated vesting of all

the outstanding series A incentive units and Founder incentive units as a result of the Business Combination.

The decrease was partially

offset by higher salaries and benefits expense of $0.6 million attributable to an increase in headcount, higher professional fees of $0.5

million and higher share-based compensation expense of $0.4 million associated with restricted stock units granted in April 2023 and stock

options granted in April 2023 and May 2024.

Contingent Consideration

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

ended June 30, 2024 compared to the same period in 2023 reflects the reversal during the six months ended June 30, 2023 of the remaining

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

Combination on February 15, 2023.

See Note 2 in the accompanying unaudited consolidated financial statements for further information.

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

ended September 30, 2024 compared to the same period in 2023 reflects the reversal during the nine months ended September 30, 2023 of

the remaining accrual made by Holdings for certain contingent payments due to a contractual forfeiture of the payments following the close

of the Business Combination on February 15, 2023.

See Note 2 in the accompanying unaudited consolidated financial statements for further

Research and Development

R&D expense for the six months ended June 30, 2024 increased approximately

$0.1 million, or 54% compared to the same period in 2023.

The increase was primarily due to higher salaries and benefits expense as a

result of an increase in headcount.

The increase in other income of $0.6 million for the six months

ended June 30, 2024 compared to the same period in 2023 was primarily attributable to interest and dividend income earned from our

money market investment.

R&D expenses for the nine months ended September 30, 2024 increased

approximately $0.1 million, or 42% compared to the same period in 2023.

The increase was primarily due to higher salaries and benefits

expense attributable to an increase in headcount.

Other income increased approximately $0.7 million for the nine months

ended September 30, 2024 compared to the same period in 2023.

The increase was primarily attributable to higher interest and dividend

income earned from our money market investment.

Interest Expense

The $0.2 million decrease in interest expense during the six

months ended June 30, 2024 compared to the same period in 2023 was attributable to our former land lease in Maricopa, Arizona, which

was classified as a finance lease until the third quarter of 2023, at which time the lease was modified and reclassified to an

operating lease.

Interest expense decreased approximately $0.2 million for the nine

months ended September 30, 2024 compared to the same period in 2023.

The decrease was primarily attributable to our former land lease

in Maricopa, Arizona, which was classified as a finance lease until the third quarter of 2023, at which time the lease was modified and

reclassified to an operating lease.

The lease was exited on December 31, 2023.

The income tax benefit for the six months ended June 30, 2024 consisted of a refund received in connection with a previously paid income tax penalty.

was no provision for income taxes for the six months ended June 30, 2024 and 2023 due to a full valuation allowance that was

recorded as of June 30, 2023, and maintained as of June 30, 2024.

The income tax benefit for the nine months ended September 30, 2024

consisted of a refund received in connection with a previously paid income tax penalty.

The income tax provision for the nine months ended

September 30, 2023 was due to changes in estimate related to our 2022 tax obligation.

Liquidity and Capital Resources

As of September 30, 2024, we are still in the process of developing

our first commercial production facility and have not derived revenue from our principal business activities.

We do not expect to generate

any meaningful revenue unless and until we are able to commercialize our first production facility.

Since inception, we have incurred

operating losses and generated negative operating cash flows primarily attributable to our ongoing general and administrative expenses

and R&D activities.

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

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

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 June 30, 2024,

we had cash and cash equivalents of $23.2 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 $25.6 million as of June 30, 2024 and generated negative operating cash flows during the six months ended June 30, 2024 and June 30,

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.

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 have begun to incur development costs with respect to the project, prior to reaching FID and entering into final definitive

agreements, irrespective of whether these events occur.

The Company plans to invest approximately $3 million, net of the reimbursement

from Cottonmouth, for FEED costs 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

$3.8 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

$0.1 million 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.

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

The $37.3 million of net proceeds raised at closing of the transaction with CENAQ will contribute to the equity capital

portion of our capital expenditure requirements through 2025.

We also expect to earn interest income on the net proceeds raised at closing

during the ongoing development and construction of our facilities through 2025, and that such interest income will be utilized towards

capital expenditures or for general and administrative expenses.

We also expect 70% of our total project capital requirements will be

met with project financing, industrial revenue bonds or pollution control bonds, or some combination of debt financing.

While we have

been in discussions with banks and other credit counterparties regarding project financing, industrial revenue bonds or pollution control

bonds, and these discussions have led to indications of debt financing equivalent to 70% of our capital expenditure requirements, there

can be no assurance that we will be successful in obtaining such financing.

The inability to obtain debt financing will adversely impact

our ability to implement our business plan.

In connection with the Closing, Sponsor was due $409,612 under existing

promissory notes with CENAQ.

On February 15, 2023, in lieu of repayment of the existing promissory notes with Sponsor, we entered into

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

The new 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.

See Note 4 in the accompanying

unaudited consolidated financial statements for further information.

Summary Statement of Cash Flows for the Six Months Ended June 30,

2024 and June 30, 2023

current liquidity needs primarily involve general and administrative expenses and R&D activities for the ongoing development of our

first commercial production facility.

In connection with entering into the JDA with Cottonmouth, a subsidiary of Diamondback, we have

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

of whether these events occur.

We plan to invest approximately $3 million, net of the reimbursement from Cottonmouth, for FEED costs in

support of the Permian Basin natural gas-to-gasoline facility.

As of September 30, 2024, we had cash and cash equivalents of $21.7

We expect that our current cash would be sufficient to continue funding ongoing general and administrative expenses and R&D

activities prior to reaching FID for our first commercial production facility and for at least the next 12 months.

We further expect that

additional capital will be required, either in the form of equity or project finance, in order to continue development and construction

of a commercial production facility.

Summary Statement of Cash Flows for the Nine Months Ended September

30, 2024 and September 30, 2023

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

and cash equivalents for the periods presented below:

Six Months Ended

Nine Months Ended

September 30,

Net cash used in operating activities

3 unchanged sentences

Net cash provided by financing activities

Net (decrease) increase in cash, cash equivalents and

restricted cash

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

$ (7,106,026 )

Cash Flows Used in Operating Activities

Net cash used in operating activities increased $0.2 million during

the six months ended June 30, 2024 compared to the same period in 2023.

The increase was primarily due

to higher operating expenses, including salaries and benefits and professional fees, during the six months ended June 30, 2024, partially

offset by an increase in dividend income and a decrease in cash paid for D&O insurance during the six months ended June 30, 2024.

Net cash used in operating activities decreased $0.1 million during

the nine months ended September 30, 2024 compared to the same period in 2023.

The decrease was primarily due to an increase in interest

and dividend income and a decrease in cash paid for D&O insurance, mostly offset by higher operating expenses, including salaries

and benefits and professional fees.

Cash Flows Used in Investing Activities

Net cash used in investing activities increased $0.4 million during

the six months ended June 30, 2024 compared to the same period in 2023.

The increase was primarily attributable to development costs incurred

for the JDA upon commencement of the FEED in June 2024.

There were no cash reimbursements received from Cottonmouth during the six months

ended June 30, 2024.

the nine months ended September 30, 2024 compared to the same period in 2023.

The increase was primarily attributable to development costs

incurred in connection with the JDA upon commencement of the FEED in June 2024, partially offset by cash reimbursements for such capital

expenditures received from Cottonmouth.

See Notes 6 and 11 in the accompanying consolidated financial statements for further information.

Cash Flows Provided by Financing Activities

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

ended June 30, 2024 compared to $37.5 million for the six months ended June 30, 2023.

Net cash provided by financing activities for

the six months ended June 30, 2023 consisted of the net proceeds received from the close of the Business Combination on February 15, 2023.

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

ended September 30, 2024 compared to $37.5 million for the same period in 2023.

Net cash provided by financing activities

for the nine months ended September 30, 2023 consisted of the net proceeds received from the Closing of the Business Combination and PIPE

Following the Business Combination and the Closing of the PIPE Financing, we received approximately $37.3 million in cash,

net of approximately $10.0 million of transaction expenses and the repayment of approximately $3.8 million of capital contributions made

by Bluescape Clean Fuels Holdings, LLC since December 2021.

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

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

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

We also received

$0.1 million from the CENAQ operating account.

Commitments and Contractual Obligations

Off-Balance Sheet Arrangements

As of June 30, 2024, we have not engaged in any off-balance sheet arrangements,

as defined in the rules and regulations of the SEC.

As of September 30, 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

7 unchanged sentences

that would result in materially different results.

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 Management’s Discussion and Analysis of Financial Conditions and Results of Operations in our 2023 Form 10-K.

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 Management’s Discussion and Analysis of Financial Conditions and Results of Operations in our

2023 Form 10-K.

Recent Accounting Pronouncements

5 unchanged sentences

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