The accompanying notes are
an integral part of these unaudited condensed financial statements.
The accompanying notes are
an integral part of these unaudited condensed financial statements.
The accompanying notes are
an integral part of these unaudited condensed financial statements.
The accompanying notes are
an integral part of these unaudited condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Note 1 — Organization and
Business Operations
CENAQ Energy Corp. (the “Company”)
is a newly organized blank check company incorporated as a Delaware corporation on June 24, 2020. The Company was incorporated for the
purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination
with one or more businesses (the “Business Combination”). The Company has not reached an agreement with any specific Business
Combination target. The Company is focusing its search for a target business in the energy industry in North America.
As of March 31, 2022, the
Company has neither engaged in any operations nor generated any revenues. All activity for the period from June 24, 2020 (inception) through
March 31, 2022 relates to the Company’s formation and the initial public offering (“IPO”), described below. The Company
will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company
will generate non-operating income in the form of interest income from the proceeds derived from the IPO. The Company has selected December 31
as its fiscal year end.
The Company’s sponsor
is CENAQ Sponsor, LLC, a Delaware limited liability company (the “Sponsor”).
The registration statement
for the Company’s IPO was declared effective on August 12, 2021 (the “Effective Date”). On August 17, 2021, Company
consummated its IPO of 15,000,000 units (the “Units”). Each Unit consists of one Class A common stock of the Company,
par value $0.0001 per share (the “Class A common stock”), and three-quarters of one redeemable warrant of the Company
(“Warrant”), each whole Warrant entitling the holder thereof to purchase one Class A common stock for $11.50 per share.
The Units were sold at a price of $10.00 per unit, generating gross proceeds to the Company of $150,000,000, which is discussed in
Note 4.
Certain qualified institutional
buyers or institutional accredited investors which are not affiliated with any member of the Company’s management (the “Anchor
Investors”) have purchased up to 1,485,000 Units in the IPO at the offering price of $10.00 per Unit, generating
gross proceeds to the Company of $14,850,000 included in the gross proceeds from units offered to public of $150,000,000.
In connection with the closing
of the IPO, the Sponsor sold membership interest reflecting an allocation of 75,000 founder shares, or an aggregate of 825,000 founder
shares, to each anchor investor at their original purchase price of approximately $0.0058 per share.
The Company estimated the
aggregate fair value of these founder shares attributable to anchor investors to be $6,270,000, or $7.60 per share. The Company
allocated $6,265,215, the excess of the fair value over the gross proceeds from these anchor investors, among Class A common stock, Public
Warrants and Private Placement Warrants (defined below).
Simultaneously with the closing
of the IPO, the Company completed the private sale of an aggregate of 6,000,000 warrants (the “Private Placement Warrants”)
to the Sponsor and the Underwriters at a purchase price of $1.00 per Private Placement Warrant, generating gross proceeds to the
Company of $6,000,000. The Private Placement Warrants are identical to the Warrants sold in the IPO, except that the Sponsor and the Underwriters
agreed not to transfer, assign or sell any of the Private Placement Warrants (except to certain permitted transferees) until 30 days after
the completion of the Company’s initial Business Combination.
The underwriters had a 45-day
option from the date of the Company’s IPO (August 17,2021) to purchase up to an additional 2,250,000 Units to cover over-allotments,
if any. On August 19, 2021, the underwriters exercised the overallotment in full, at $10.00 per Unit, generating additional gross
proceeds of $22,500,000. Simultaneously with the closing of the over-allotment, the Company consummated the sale of additional 450,000 Private
Placement Warrants to the Sponsor, and additional 225,000 Private Placement Warrants to the Underwriters, at $1.00 per
warrant, generating gross proceeds to the Company of $675,000.
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Transaction costs of the
IPO and the over-allotment amounted to $17,771,253 consisting of $3,450,000 of underwriting discount, $6,037,500 of deferred
underwriting discount, an excess of fair value of the founder shares acquired by the Anchor Investors of $6,265,215, fair value of the
189,750 representative shares of $1,442,100 and $576,438 of other cash offering costs were charged to additional paid in capital.
Following the closing of
the IPO on August 17, 2021 and over-allotment on August 19, 2021, $174,225,000 ($10.10 per Unit) from the net proceeds of the
sale of the Units in the IPO, and a portion of the proceeds from the sale of the Private Placement Warrants, was deposited in a trust
account (“Trust Account”), located in the United States with Continental Stock Transfer & Trust Company acting as
trustee, and may only be invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company
Act, having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under
the Investment Company Act which invest only in direct U.S. government treasury obligations. Except with respect to interest earned on
the funds held in the Trust Account that may be released to the Company to pay franchise and income tax obligations as well as expenses
relating to the administration of the Trust Account, the proceeds from the IPO and the sale of the Private Placement Warrants will not
be released from the Trust Account until the earliest of (i) the completion of initial Business Combination, (ii) the redemption of the
any public shares properly submitted in connection with a stockholder vote to amend the Company’s amended and restated certificate
of incorporation (a) to modify the substance or timing of the Company’s obligation to redeem 100% of its public shares if the
Company does not complete initial Business Combination within 12 months (or within 18 months if the Company extends the period of time
to consummate its initial Business Combination) from August 17, 2021, or (b) relating to any other provisions relating to stockholders’
rights or permitted pre-initial business combination activity, or (iii) the redemption of the Company’s public shares if the Company
is unable to complete its Business Combination within 12 months (or within 18 months if the Company extends the period of time to consummate
its initial Business Combination) from August 17, 2021, subject to applicable law. The proceeds deposited in the Trust Account could become
subject to the claims of the Company’s creditors, if any, which could have priority over the claims of the Company’s public
stockholders, according to the investment management trust agreement.
The Company must complete
one or more initial Business Combinations having an aggregate fair market value of at least 80% of the value of the assets held in
the Trust Account (as defined below) (excluding the deferred underwriting commissions and taxes payable on the income earned on the Trust
Account) at the time of the agreement to enter into the initial Business Combination. However, the Company will only complete a Business
Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise
acquires a controlling interest in the target sufficient for the post-transaction company not to be required to register as an investment
company under the Investment Company Act 1940, as amended (the “Investment Company Act”). There is no assurance that the Company
will be able to complete a Business Combination successfully.
The Company will provide
its public stockholders with the opportunity to redeem all or a portion of their public shares upon the completion of the initial Business
Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender
offer. The decision as to whether the Company will seek stockholder approval of a proposed Business Combination or conduct a tender offer
will be made by the Company, solely in its discretion. The stockholders will be entitled to redeem all or a portion of their public shares
upon the completion of the initial Business Combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit
in the Trust Account as of two business days prior to the consummation of the initial Business Combination, including interest earned
on the funds held in the Trust Account and not previously released to the Company to pay its franchise and income taxes as well as expenses
relating to the administration of the Trust Account, divided by the number of then outstanding public shares, subject to the limitations
described herein. The amount in the Trust Account was $10.10 per public share. The per-share amount the Company will distribute
to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions the Company will pay to the
underwriters.
The shares of common stock
subject to redemption will be recorded at a redemption value and classified as temporary equity upon the completion of the IPO, in accordance
with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” In such case,
the Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 upon such consummation
of a Business Combination and, if the Company seeks stockholder approval, a majority of the issued and outstanding shares voted are voted
in favor of the Business Combination.
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
The Company will have until
August 17, 2022, 12 months from the closing of the IPO, to complete the initial Business Combination (the “Combination Period”).
If the Company anticipates that it may not be able to consummate its initial Business Combination within the Combination Period, it may,
but not obligated to, extend the Combination Period two times by an additional three months each time (for a total of up to 18 months
to complete a Business Combination); provided that the Sponsor (or its designees) must deposit into the trust account funds equal to one
percent (1%) of the gross proceeds of the offering (including such proceeds from the exercise of the underwriters’ over-allotment
option, if exercised) for each 3-month extension of the time period to complete the initial Business Combination, in exchange for a non-interest
bearing, unsecured promissory note.
If the Company is unable
to complete the initial Business Combination within the Combination Period (or up to 18 months following extensions), the Company will
(i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business
days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the
Trust Account, including interest earned on the funds held in the Trust Account and not previously released to the Company to pay its
franchise and income taxes as well as expenses relating to the administration of the Trust Account (less up to $100,000 of interest
released to the Company to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely
extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any),
subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s
remaining stockholders and the Company’s board of directors, liquidate and dissolve, subject, in each case, to the Company’s
obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
The Sponsor, officers and
directors, as well as the Anchor Investors, have agreed to (i) waive their redemption rights with respect to any Founder Shares held by
them in connection with the completion of the initial Business Combination, (ii) waive their rights to liquidating distributions from
the Trust Account with respect to any Founder Shares hold by them if the Company fails to complete the initial Business Combination within
the Combination Period (or within 18 months following extensions), and (iii) vote any Founder Shares held by them and any public shares
purchased during or after the IPO in favor of the initial Business Combination.
The Anchor Investors are
not required to vote any of their public shares (as opposed to their Founder Shares) in favor of our initial business combination or for
or against any other matter presented for a stockholder vote.
The Sponsor has agreed that
it will be liable to the Company if and to the extent any claims by a third party (other than the Company’s independent auditors)
for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering
into a transaction agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.10 per public share
and (ii) such lesser amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account, due to
reductions in value of the trust assets, in each case net of the amount of interest which may be withdrawn to pay taxes as well as expenses
relating to the administration of the Trust Account, except as to any claims by a third party who executed a waiver of any and all rights
to seek access to the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of the IPO against
certain liabilities, including liabilities under the Securities Act. In the event that an executed waiver is deemed to be unenforceable
against a third party, then the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company
will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring
to have all vendors, service providers, prospective target businesses or other entities with which the Company does business, execute
agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Risks and Uncertainties
Management is continuing
to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus
could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company,
the specific impact is not readily determinable as of the date of this financial statement. The financial statement does not include any
adjustments that might result from the outcome of this uncertainty.
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Liquidity and Going Concern
As of March 31, 2022, the
Company had $155,930 in its operating bank account, and a working capital deficit of $464,887.
Until the consummation of
a Business Combination, the Company will be using the funds not held in the Trust Account for identifying and evaluating prospective acquisition
candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to
acquire, and structuring, negotiating and consummating the Business Combination.
In order to finance
transaction costs in connection with a Business Combination, the Company’s Sponsor or an affiliate of the Sponsor or certain
of the Company’s officers and directors committed to provide the Company with Working Capital Loans up to $1,500,000, as
defined later (see Note 6 ). This commitment extends through August 17, 2022. To date, there were no amounts outstanding under any
Working Capital Loans.
If the Company’s estimate
of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than
the actual amount necessary to do so, the Company may have insufficient funds available to operate its business prior to the Business
Combination. Moreover, the Company may need to obtain additional financing either to complete its Business Combination or because it becomes
obligated to redeem a significant number of its public shares upon consummation of the Business Combination, in which case the Company
may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities
laws, the Company would only complete such financing simultaneously with the completion of the Business Combination. If the Company is
unable to complete its Business Combination because it does not have sufficient funds available to it, the Company will be forced to cease
operations and liquidate the Trust Account. In addition, following the Business Combination, if cash on hand is insufficient, the Company
may need to obtain additional financing in order to meet its obligations.
We cannot assure you that
our plans to raise capital or to consummate an initial business combination will be successful. These factors, among others, raise substantial
doubt about our ability to continue as a going concern, which is considered to be one year from the issuance of the financial statements.
The financial statements contained elsewhere in this Quarterly Report do not include any adjustments that might result from our inability
to continue as a going concern.
In connection with the Company’s
assessment of going concern considerations in accordance with FASB’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures
of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that if the Company
is unable to complete a Business Combination by August 17, 2022, then the Company will cease all operations except for the purpose of
liquidating. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s
ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company
be required to liquidate after August 17, 2022.
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Note
2 — Restatement of previously issued Financial Statements
In connection with the preparation
of the Company’s condensed financial statements for the quarterly period ended June 30, 2022, the Company’s management re-evaluated
the Company’s accounting of accounts payable and accrued expenses and determined that the Company failed to recognize and accrue certain
expenses in connection with its proposed initial business combination resulting in an understatement of the account payable and accrued
expenses, which requires restatement of the Company’s condensed financial statements as of and for the quarterly period ended March 31,
2022. In accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and SEC Staff Accounting Bulletin No. 108,
“Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements;”
the Company evaluated the errors and has determined that the related impacts did not affect any prior annual or 10-Q report, but that
correcting the impact of such errors would be significant to the interim condensed financial statements as of and for the quarter ended
March 31, 2022. Accordingly, the Company has corrected such material errors by adjusting its March 31, 2022 interim condensed financial
statements as of and for the quarter ended March 31, 2022. The following summarizes the effect of the restatement on each financial statement
line item.
Condensed Balance Sheet as of March 31, 2022 (unaudited) | |
As Previously Reported | | |
Adjustment | | |
As Restated | |
Accounts payable and accrued expenses | |
$ | 118,728 | | |
$ | 672,085 | | |
$ | 790,813 | |
Total Liabilities | |
$ | 6,156,228 | | |
$ | 672,085 | | |
$ | 6,828,313 | |
Accumulated deficit | |
$ | (5,809,508 | ) | |
$ | (672,085 | ) | |
$ | (6,481,593 | ) |
Total Stockholders’ Deficit | |
$ | (5,809,058 | ) | |
$ | (672,085 | ) | |
$ | (6,481,143 | ) |
| |
| | | |
| | | |
| | |
Condensed Statement of Operations for the Three Months Ended March 31, 2022 (unaudited) | |
| | | |
| | | |
| | |
General and administrative costs | |
$ | 279,885 | | |
$ | 672,085 | | |
$ | 951,970 | |
Loss from operations | |
$ | (279,885 | ) | |
$ | (672,085 | ) | |
$ | (951,970 | ) |
Net loss | |
$ | (263,321 | ) | |
$ | (672,085 | ) | |
$ | (935,406 | ) |
Basic and diluted net loss per common stock subject to redemption | |
$ | (0.01 | ) | |
$ | (0.03 | ) | |
$ | (0.04 | ) |
Basic and diluted weighted average shares outstanding, non-redeemable common stock | |
$ | (0.01 | ) | |
$ | (0.03 | ) | |
$ | (0.04 | ) |
| |
| | | |
| | | |
| | |
Condensed Statement of Changes in Stockholders’ Deficit for the for the Three Months ended March 31, 2022 (unaudited) | |
| | | |
| | | |
| | |
Net loss | |
$ | (263,321 | ) | |
$ | (672,085 | ) | |
$ | (935,406 | ) |
Accumulated deficit | |
$ | (5,809,508 | ) | |
$ | (672,085 | ) | |
$ | (6,481,593 | ) |
Total Stockholders’ Deficit | |
$ | (5,809,058 | ) | |
$ | (672,085 | ) | |
$ | (6,481,143 | ) |
| |
| | | |
| | | |
| | |
Condensed Statement of Cashflows for the Three Months ended March 31, 2022 (unaudited) | |
| | | |
| | | |
| | |
Net loss | |
$ | (263,321 | ) | |
$ | (672,085 | ) | |
$ | (935,406 | ) |
Accounts payable and accrued expenses | |
$ | (122,851 | ) | |
$ | 672,085 | | |
$ | 529,234 | |
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS
RESTATED)
Note 3 — Significant Accounting
Policies
Basis of Presentation
The accompanying unaudited
condensed financial statements are presented in conformity with accounting principles generally accepted in the United States of America
(“US GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).
Accordingly, they do not include all of the information and footnotes required by US GAAP. In the opinion of management, the unaudited
condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement
of the balances and results for the period presented. Operating results for the three months ended March 31, 2022 are not necessarily
indicative of the results that may be expected through December 31, 2022.
The accompanying unaudited
condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Annual
Report on Form 10-K filed by the Company with the SEC on March 30, 2022.
Emerging Growth Company Status
The Company is an “emerging
growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”),
as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions
from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but
not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act,
reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the
requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments
not previously approved.
Further, 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 (that is, those that have not had a Securities Act registration statement declared effective or do not have a class
of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS
Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging
growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period
which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company,
as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company
nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential
differences in accounting standards used.
Use of Estimates
The preparation of unaudited
condensed financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited
condensed financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires
management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation
or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate,
could change in the near term due to one or more future confirming events. The most significant estimates that affected the financial
statements as of March 31, 2022 and December 31, 2021 are the calculations of the fair values of the over-allotment option, fair values
of the representative shares and the fair values of the anchor shares. Such estimates may be subject to change as more current information
becomes available. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all
short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not
have any cash equivalents as of March 31, 2022 and December 31, 2021.
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Marketable Securities held in Trust Account
As of March 31, 2022, the
Company had $174,246,244 in Marketable Securities held in the Trust Account which was invested in BLF Treasury Trust Fund. Upon closing
of the IPO, $10.10 per Unit sold in the IPO, including the proceeds of the sale of the Private Placement Warrants, were held in a trust
account (“Trust Account”) and may be invested only in U.S. government securities with a maturity of 185 days or less or in
money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government
treasury obligations.
Concentration of Credit Risk
Financial instruments that
potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times,
may exceed the Federal Depository Insurance Corporation limit of $250,000. At March 31, 2022, the Company has not experienced losses on
this account.
Offering Costs associated with the Initial
Public Offering
Offering costs consist of
underwriting, legal, accounting and other expenses incurred through the balance sheet date that are directly related to the IPO. The Company
complies with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A—“Expenses
of Offering”. Offering costs are allocated to the separable financial instruments issued in the IPO based on a relative fair value
basis compared to total proceeds received.
Fair Value of Financial Instruments
The fair value of the Company’s
assets and liabilities, other than the over-allotment option, which qualify as financial instruments under FASB ASC 820, “Fair Value
Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheet, primarily due to its short-term
nature. The net asset value for the investments held in the trust account as of March 31, 2022 and December 31, 2021 was $174,246,244
and $174,229,680, respectively.
In determining fair value,
the valuation techniques consistent with the market approach, income approach and cost approach shall be used to measure fair value. ASC
820 establishes a fair value hierarchy for inputs, which represent the assumptions used by the buyer and seller in pricing the asset or
liability. These inputs are further defined as observable and unobservable inputs. Observable inputs are those that buyer and seller would
use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect
the Company’s assumptions about the inputs that the buyer and seller would use in pricing the asset or liability developed based
on the best information available in the circumstances.
The fair value hierarchy
is categorized into three levels based on the inputs as follows:
Level 1 — Valuations based on unadjusted
quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments
and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an
active market, valuation of these securities does not entail a significant degree of judgment.
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Level 2 — Valuations based on (i) quoted
prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar
assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from
or corroborated by market through correlation or other means.
Level 3 — Valuations based on inputs
that are unobservable and significant to the overall fair value measurement. The fair value of certain of the Company’s assets and
liabilities, which qualify as financial instruments under ASC 820, approximates the carrying amounts represented in the balance sheet.
The fair values of cash, prepaid expenses, and accrued expenses are estimated to approximate the carrying values as of March 31, 2022
and December 31, 2021 due to the short maturities of such instruments.
The Company valued the over-allotment
option using the Black Scholes model and the over-allotment option liability is recorded as a Level 3 financial instrument due to the
unobservable inputs. At August 17, 2021 the Company recorded $157,500 of over-allotment liability. On August 19, 2021, in connection with
the fully exercise of over-allotment option by the underwriters, the Company recorded changes of fair value of over-allotment option of
$22,500, and reclassified $180,000 of over-allotment liability into equity.
Over-allotment Option Liability
The Company accounted for the
over-allotment option (Note 7) in accordance with the guidance contained in ASC 480. The over-allotment is not considered indexed
to the Company’s own ordinary shares, and as such, it does not meet the criteria for equity treatment and is recorded as a liability.
The fair value changes of over-allotment option liability between IPO closing date and the option exercise date was recorded in operations.
Class A common stock Subject to Possible Redemption
The Company accounts for
its Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities
from Equity.” Common stock subject to mandatory redemption (if any) are classified as a liability instrument and measured at fair
value. Conditionally redeemable common stock (including common stock that feature redemption rights that are either within the control
of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified
as temporary equity. At all other times, common stock is classified as stockholders’ equity. At March 31, 2022 and December 31,
2021, 17,250,000 Class A common stock subject to possible redemption are presented at redemption value as temporary equity, outside of
the stockholders’ equity section of the Company’s balance sheets.
All of the 17,250,000 shares
of Class A common stock sold as part of the Units in the IPO contain a redemption feature which allows for the redemption of such public
shares if there is a shareholder vote or tender offer in connection with the Business Combination and in connection with certain amendments
to the Company’s certificate of incorporation.
The Class A common
stock sold as part of the Units in the IPO is subject to ASC 480-10-S99. If it is probable that the equity instrument will become
redeemable, the Company has the option to either accrete changes in the redemption value over the period from the date of issuance
(or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of
the instrument or to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the
instrument to equal the redemption value at the end of each reporting period. The Company recognizes changes in redemption value
immediately as they occur. Immediately upon the closing of the IPO, the Company recognized the subsequent re-measurement under ASC
480-10-S99 from initial carrying amount to redemption value. The change in the carrying value of redeemable common stock resulted in
charges against additional paid-in capital and accumulated deficit.
As the holders of representative
shares and Class B common stock have agreed to waive their redemption rights per the letter agreement and the underwriting agreement,
the representative shares and Class B common stock are non-redeemable.
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Net Loss Per Common Stock
The Company has two classes
of common stock, which are referred to as Class A common stock and Class B common stock. Earnings and losses are shared pro rata between
the two classes of shares. The 19,612,500 potential common stock for outstanding warrants to purchase the Company’s common stock were
excluded from diluted earnings per share for the three months ended March 31, 2022 and 2021 because the warrants are contingently exercisable,
and the contingencies have not yet been met and its inclusion would be anti-dilutive. As a result, diluted net loss per common stock is
the same as basic net loss per common stock for the periods. The table below presents a reconciliation of the numerator and denominator
used to compute basic and diluted net loss per share for each class of common stock:
| |
For the three months ended March 31, | |
| |
2022
(Restated See Note 2) | | |
2021 | |
| |
Redeemable common stock | | |
Non- redeemable common stock | | |
Redeemable common stock | | |
Non- redeemable common stock | |
Basic and diluted net loss per share: | |
| | |
| | |
| | |
| |
Numerator: | |
| | |
| | |
| | |
| |
Allocation of net loss | |
$ | (741,797 | ) | |
$ | (193,609 | ) | |
$ | — | | |
$ | (2,067 | ) |
| |
| | | |
| | | |
| | | |
| | |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted Average Shares Outstanding including common stock subject to redemption | |
| 17,250,000 | | |
| 4,502,250 | | |
| — | | |
| 3,750,000 | |
Basic and diluted net loss per share | |
| (0.04 | ) | |
| (0.04 | ) | |
| — | | |
| (0.00 | ) |
Income Taxes
The Company follows the asset
and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740 prescribes a recognition
threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be
taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination
by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense.
There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of March 31, 2022 and December 31, 2021.
The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation
from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
Recent Accounting Pronouncements
In August 2020, the FASB
issued Accounting Standards Update (“ASU”) No. 2020-06, Debt —debt with Conversion and Other Options (Subtopic 470-20)
and Derivatives and Hedging —Contracts in Entity’ Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and
Contracts in an Entity’ Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing
major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked
contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas.
The Company is currently evaluating the impact of the ASU on its financial position, results of operations or cash flows.
In May 2021, the FASB issued
ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock
Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting
for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues
Task Force). This guidance clarifies certain aspects of the current guidance to promote consistency among reporting of an issuer’s
accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity
classified after modification or exchange. The amendments in this update are effective for all entities for fiscal years beginning after
December 15, 2021, including interim periods within those fiscal years. The guidance was adopted starting January 1, 2022. Adoption of
the ASU did not impact the Company’s financial position, results of operations or cash flows.
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
The Company’s management
does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material
effect on the accompanying unaudited condensed financial statement.
Note 4 — Initial Public
Offering
On August 17, 2021, Company
consummated its IPO of 15,000,000 units (the “Units”). Each Unit consists of one Class A common stock of the Company,
par value $0.0001 per share (the “Class A common stock”), and three-quarters of one redeemable warrant of the Company
(“Warrant”), each whole Warrant entitling the holder thereof to purchase one Class A common stock for $11.50 per share.
The Units were sold at a price of $10.00 per unit, generating gross proceeds to the Company of $150,000,000. The warrants will become
exercisable on the later of 30 days after the completion of the initial Business Combination or 12 months from the closing of the IPO,
and will expire five years after the completion of the initial Business Combination or earlier upon redemption or liquidation.
The underwriters had a 45-day
option from the date of the Company’s IPO (August 17, 2021) to purchase up to an additional 2,250,000 Units to cover over-allotments.
On August 19, 2021, the over-allotments were exercised in full, at $10.00 per Unit, generating additional proceeds of $22,500,000.
Note 5 — Private Placement
Simultaneously with the closing
of the IPO, the Company’s Sponsor purchased an aggregate of 4,500,000 warrants at a price of $1.00 per warrant, for
an aggregate purchase price of $4,500,000 and the Company’s underwriters purchased an aggregate of 1,500,000 warrants
at a price of $1.00 per whole warrant (for an aggregate purchase price of $1,500,000) in a private placement.
On August 19, 2021, simultaneously
with the closing of the over-allotments, the Sponsor purchased an additional 450,000 Private Placement Warrants, and the underwriters
purchased an additional 225,000 Private Placement Warrants, at $1.00 per warrant, generating gross proceeds to the Company
of $675,000.
The Private Placement Warrants
are identical to the warrants sold as part of the Units in the IPO. The Sponsor and the underwriters have agreed, subject to certain limited
exceptions, that the Private Placement Warrants will not be transferred, assigned or sold until 30 days after the completion of the Company’s
initial Business Combination and that they will be entitled to certain registration rights.
Note 6 — Related Party
Transactions
Founder Shares
On December 31, 2020, the Sponsor
paid $25,000, or approximately $0.006 per share, to cover certain offering costs in consideration for 4,312,500 Class B
common stocks, par value $0.0001 (the “Founder Shares”). Up to 562,500 Founder Shares were subject to forfeiture
by the Sponsor depending on the extent to which the underwriters’ over-allotment option is exercised. On August 19, 2021, the underwriters
exercised the over-allotment option in full. As a result, these 562,500 founder shares are no longer subject to forfeiture.
Additionally, upon consummation
of the IPO, the Sponsor sold 75,000 Founder Shares to each of the 11 Anchor Investors that purchased at least 9.9% of the units sold in
the IPO, at their original purchase price of approximately $0.0058 per share. The aggregate fair value of these founder shares attributable
to anchor investors is $6,270,000, or $7.60 per share. The Company allocated $6,265,215, the excess of the fair value over the gross
proceeds from these Anchor Investors, among Class A common stock, Public Warrants and Private Placement Warrants.
The initial stockholders
and the Anchor Investors have agreed not to transfer, assign or sell any of their Founder Shares and any Class A common stock issuable
upon conversion thereof until the earlier to occur of: (A) six months after the completion of the initial Business Combination or
(B) subsequent to the initial Business Combination, (x) if the last sale price of the Company’s Class A common stock equals or exceeds
$12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days
within any 30-trading day period commencing at least 75 days after the initial Business Combination, or (y) the date on which the Company
completes a liquidation, merger, capital stock exchange or other similar transaction that results in all of its stockholders having the
right to exchange their shares of common stock for cash, securities or other property (the “Lock-up”). Notwithstanding the
foregoing, if (1) the closing price of the Company’s Class A common stock equals or exceeds $12.00 per share (as adjusted for stock
splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period
commencing at least 75 days after the initial Business Combination, or (2) the Company completes a liquidation, merger, capital stock
exchange or other similar transaction that results in all of its stockholders having the right to exchange their shares of common stock
for cash, securities or other property, the Founder Shares will be released from the Lock-up.
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Working Capital Loans
In addition, in order to finance
transaction costs in connection with an intended Business Combination, on November 11, 2021 the Sponsor signed a commitment letter to
provide loans of up to an aggregate of $1,500,000 to the Company (“Working Capital Loans”). This commitment extends through
August 17, 2022. These loans will be non-interest bearing, unsecured and will be repaid upon the consummation of a Business Combination.
If the Company completes the initial Business Combination, the Company would repay the Working Capital Loans. In the event that the initial
Business Combination does not close, the Company may use a portion of the working capital held outside the Trust Account to repay the
Working Capital Loans but no proceeds from the Trust Account would be used to repay the Working Capital Loans. Up to $1,500,000 of
such Working Capital Loans may be convertible into Private Placement Warrants at a price of $1.00 per warrant at the option of the
lender. Such warrants would be identical to the Private Placement Warrants. As of March 31, 2022 and December 31, 2021, the Company had
no borrowings under the Working Capital Loans.
Note 7 — Commitments and Contingencies
Registration Rights
The holders of the Founder
Shares, the Class A representative shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital
Loans (and any shares of Class A common stock issuable upon the exercise of the Private Placement Warrants and warrants that may be issued
upon conversion of Working Capital Loans and upon conversion of the Founder Shares) are entitled to registration rights pursuant to a
registration rights agreement signed on the IPO closing date of the IPO, requiring the Company to use its best efforts to register such
securities for resale (in the case of the Founder Shares, only after conversion to the Company’s Class A common stock). The holders
of the majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company registers
such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements
filed subsequent to the completion of the initial Business Combination and rights to require the Company to register for resale such securities
pursuant to Rule 415 under the Securities Act. However, the registration rights agreement provides that the Company will not permit
any registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period, which
occurs (i) in the case of the Founder Shares, on the earlier of (A) six months after the completion of the initial Business Combination
or (B) subsequent to the initial Business Combination, (x) if the last sale price of our Class A common stock equals or exceeds $12.00
per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within
any 30-trading day period commencing at least 75 days after the initial Business Combination, or (y) the date on which the Company completes
a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the Company’s
stockholders having the right to exchange their shares of common stock for cash, securities or other property and (ii) in the case of
the Private Placement Warrants and the respective Class A common stock underlying such warrants, 30 days after the completion of the initial
Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriters Agreement
The Company granted the underwriters
a 45-day option from the date of this IPO to purchase up to an additional 2,250,000 units to cover over-allotments, if any.
On August 19, 2021, the over-allotments were exercised in full.
Simultaneously with the closing
of the IPO and the over-allotment, the underwriters were paid an underwriting discount of two percent (2%) of the gross proceeds
of the IPO and the over-allotment, or $3,450,000. Additionally, the underwriters will be entitled to a deferred underwriting discount
of 3.5% of the gross proceeds of the IPO and the over-allotment upon the completion of the Company’s initial Business Combination.
Representative Shares
Simultaneously with the closing
of the IPO, the Company issued to Imperial Capital LLC and/or its designees, 165,000 shares of Class A Common Stock (the “Representative
Shares”). On August 19, 2021, the over-allotments were exercised in full and the Company issued additional 24,750 Representative
Shares to Imperial Capital LLC and/or its designees. The aggregate fair value of the Representative shares was $1,442,100, or $7.60 per
share and recorded as offering costs, which was treated as transaction cost of offering.
Imperial Capital LLC has
agreed not to transfer, assign or sell any such shares of common stock until the completion of an initial business combination. In addition,
Imperial Capital LLC has agreed (i) to waive its redemption rights with respect to such shares of common stock in connection with the
completion of our initial business combination; and (ii) to waive its rights to liquidating distributions from the trust account with
respect to such shares of common stock if the Company fails to complete an initial business combination within the Combination Period
(or up to 18 months following extensions).
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
The representative shares
may be deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the commencement
of sales of the registration statement of which the IPO forms a part pursuant to Rule 5110(e)(1) of FINRA’s NASD Conduct Rules.
Pursuant to FINRA Rule 5110(e)(1), these securities may not be sold, transferred, assigned, pledged or hypothecated or the subject of
any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person
for a period of 180 days immediately following the effective date of the registration statement of which this prospectus forms a part,
nor may they be sold, transferred, assigned, pledged or hypothecated for a period of 180 days immediately following the commencement of
sales of the IPO except to any underwriter and selected dealer participating in the offering and their bona fide officers or partners,
registered persons or affiliates or as otherwise permitted under Rule 5110(e)(2).
Note 8 — Stockholders’
Equity
Preferred stock — The
Company is authorized to issue 1,000,000 preferred stock with a par value of $0.0001 and with such designations, voting
and other rights and preferences as may be determined from time to time by the Company’s board of directors. As of March 31, 2022
and December 31, 2021, there were no preferred stock issued or outstanding.
Class A common
stock — The Company is authorized to issue 200,000,000 shares of Class A common stock with a par value of
$0.0001 per share. At March 31, 2022 and December 31, 2021, there were 189,750 Class A common stocks issued or outstanding excluding
17,250,000 Class A stock subject to redemption.
Class B common
stock — The Company is authorized to issue 20,000,000 shares of Class B common stock with a par value of
$0.0001 per share. Holders are entitled to one vote for each share of Class B common stock. At March 31, 2022 and December 31, 2021,
there were 4,312,500 shares of Class B common stock issued and outstanding. Of the 4,312,500 shares of Class B
common stock, an aggregate of up to 562,500 shares were subject to forfeiture to the Company for no consideration to the extent
that the underwriters’ over-allotment option is not exercised in full or in part, so that the initial stockholders will collectively
own 20% of the Company’s issued and outstanding common stocks after the IPO. On August 19, 2021, the over-allotments were exercised
in full, hence the 562,500 Founder Shares were no longer subject to forfeiture.
Holders of Class A common
stock and holders of Class B common stock will vote together as a single class on all matters submitted to a vote of the Company’s
stockholders except as required by law. Unless specified in the Company’s amended and restated certificate of incorporation or bylaws,
or as required by applicable provisions of the Delaware General Corporation Law (“DGCL”) or applicable stock exchange rules,
the affirmative vote of a majority of the Company’s shares of common stock that are voted is required to approve any such matter
voted on by its stockholders.
The Class B common stock will
automatically convert into Class A common stock at the time of the initial Business Combination on a one-for-one basis, subject to adjustment
for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject to further adjustment as provided herein.
In the case that additional shares of Class A common stock or equity-linked securities are issued or deemed issued in excess of the amounts
offered in this IPO and related to the closing of the Business Combination, including pursuant to a specified future issuance, the ratio
at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority
of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance,
including a specified future issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of
Class B common stock will equal, in the aggregate, on an as-converted basis, 20% of the sum of the total number of all shares of
common stock outstanding upon completion of the IPO plus all shares of Class A common stock and equity-linked securities issued or deemed
issued in connection with the Business Combination (excluding any shares or equity-linked securities issued, or to be issued, to any seller
in the Business Combination). Holders of Founder Shares may also elect to convert their shares of Class B common stock into an equal number
of shares of Class A common stock, subject to adjustment as provided above, at any time.
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Warrants —
There are 19,612,500 warrants currently outstanding, including 12,937,500 public warrants and 6,675,000 Private
Placement Warrants. Each warrant entitles the registered holder to purchase one share of Class A common stock at a price of $11.50 per
share, subject to adjustment as discussed below, at any time commencing 30 days after the completion of our initial business combination.
However, no warrants will be exercisable for cash unless we have an effective and current registration statement covering the shares of
Class A common stock issuable upon exercise of the warrants and a current prospectus relating to such shares of Class A common stock.
Notwithstanding the foregoing, if a registration statement covering the shares of Class A common stock issuable upon exercise of the public
warrants is not effective within a specified period following the consummation of our initial business combination, warrant holders may,
until such time as there is an effective registration statement and during any period when we shall have failed to maintain an effective
registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities
Act, provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to
exercise their warrants on a cashless basis. In the event of such cashless exercise, each holder would pay the exercise price by surrendering
the warrants for that number of shares of Class A common stock equal to the quotient obtained by dividing (x) the product of the number
of shares of Class A common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and
the “fair market value” (defined below) by (y) the fair market value. The “fair market value” for this purpose
will mean the average reported last sale price of the shares of Class A common stock for the 5 trading days ending on the trading day
prior to the date of exercise. The warrants will expire on the fifth anniversary of our completion of an initial business combination,
at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
We may call the warrants
for redemption, in whole and not in part, at a price of $0.01 per warrant:
| ● | at
any time after the warrants become exercisable; |
| ● | upon
not less than 30 days’ prior written notice of redemption to each warrant holder; |
| ● | if,
and only if, the reported last sale price of the shares of Class A common stock equals or exceeds $18.00 per share (as adjusted for stock
splits, stock dividends, reorganizations and recapitalizations), for any 20 trading days within a 30 trading day period commencing at
any time after the warrants become exercisable and ending on the third business day prior to the notice of redemption to warrant holders;
and |
| ● | if,
and only if, there is a current registration statement in effect with respect to the shares of Class A common stock underlying such warrants. |
If and when the warrants
become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying
securities for sale under all applicable state securities laws.
The Private Placement Warrants,
as well as any warrants the Company issues to the Sponsor, officers, directors, initial stockholders or their affiliates in payment of
Working Capital Loans made to the Company, will be identical to the public warrants underlying the Units being offered in the Initial
Public Offering.
Note 9 — Subsequent Events
The Company evaluated subsequent
events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued.
The Company did not identify any subsequent events that would have required adjustment in these unaudited condensed financial statements.
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
References to “we”, “us”,
“our” or the “Company” are to CENAQ Energy Corp., except where the context requires otherwise. The following discussion
should be read in conjunction with our unaudited condensed financial statements and related notes thereto included elsewhere in this report.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations
and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions
about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can
identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,”
“expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,”
or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but
are not limited to, those described in our other Securities and Exchange Commission (“SEC”) filings.
Overview
We are a newly organized blank check company incorporated
as a Delaware corporation on June 24, 2020, for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase,
reorganization or similar business combination with one or more businesses.
Our sponsor is CENAQ Sponsor, LLC, a Delaware
limited liability company. The registration statement for the initial public offering was declared effective on August 12, 2021. On August
17, 2021, we consummated our initial public offering of 15,000,000 units, at $10.00 per unit, generating gross proceeds of $150,000,000.
The underwriter was granted a 45-day option from the date of the final prospectus relating to the initial public offering to purchase
up to 2,250,000 additional units to cover over-allotments, if any, at $10.00 per unit. On August 19, 2021, the underwriters exercised
the overallotment in full, generating additional gross proceeds of $22,500,000. Transaction costs of our initial public offering and the
over-allotment amounted to $17,771,253 consisting of $3,450,000 of underwriting discount, $6,037,500 of deferred underwriting discount,
an excess of fair value of the founder shares acquired by the Anchor Investors of $6,265,215, fair value of the 189,750 representative
shares of $1,442,100 and $576,438 of other cash offering costs were charged to additional paid in capital.
Simultaneously with the closing of the initial
public offering, we consummated the private placement (“Private Placement”) of 6,000,000 warrants, at a price of $1.00 per
warrant, generating gross proceeds to us of $6 million. On August 19, 2021, the underwriters exercised the overallotment in full and consummated
the private placement of additional 675,000 warrants, at a price of $1.00 per warrant, generating gross proceeds to us of $675,000.
Upon the closing of the initial public offering
and the Private Placement, $174,225,000 ($10.10 per share) of the net proceeds of the sale of the Units in the initial public offering
and the Private Placement were placed in the Trust Account.
If we are unable to complete an initial Business
Combination within the Combination Period, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as
reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal
to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not
previously released to us to pay its franchise and income taxes as well as expenses relating to the administration of the Trust Account
(less up to $100,000 of interest released to us to pay dissolution expenses), divided by the number of then outstanding public shares,
which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further
liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption,
subject to the approval of our remaining stockholders and our board of directors, liquidate and dissolve, subject, in each case, to our
obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
Results of Operations
As of March 31, 2022, we have not commenced any
operations. All activity for the period from June 24, 2020 (inception) through March 31, 2022 relates to our formation and initial public
offering (“Public Offering” or “IPO”), and, since the completion of the IPO, searching for a target to consummate
a Business Combination. We will not generate any operating revenues until after the completion of a Business Combination, at the earliest.
We will generate non-operating income in the form of interest income from the proceeds derived from the Public Offering and placed in
the Trust Account (defined below).
For the three months ended March 31, 2022, we
had a net loss of $935,406. We incurred $951,970 of general and administrative expenses which includes $672,085 in costs related to identifying
a target business. We earned interest income of $16,564.
For the three months ended March 31, 2021, we had a net
loss of $2,067, which consists of formation and operating costs.
Liquidity and Going Concern
As of March 31, 2022, we had $155,930 in our operating
bank account, and working capital deficit of $464,887.
Until the consummation of a Business Combination, the
Company will be using the funds not held in the Trust Account for identifying and evaluating prospective acquisition candidates, performing
due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to acquire, and structuring,
negotiating and consummating the Business Combination.
In order to finance transaction costs in connection with a Business Combination,
the Company’s Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors committed to provide
the Company with Working Capital Loans up to $1,500,000, as defined later (see Note 6). This commitment extends through August 17, 2022.
To date, there were no amounts outstanding under any Working Capital Loans.
If the Company’s estimate of the costs of
identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount
necessary to do so, the Company may have insufficient funds available to operate its business prior to the Business Combination. Moreover,
the Company may need to obtain additional financing either to complete its Business Combination or because it becomes obligated to redeem
a significant number of its public shares upon consummation of the Business Combination, in which case the Company may issue additional
securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, the Company
would only complete such financing simultaneously with the completion of the Business Combination. If the Company is unable to complete
its Business Combination because it does not have sufficient funds available to it, the Company will be forced to cease operations and
liquidate the Trust Account. In addition, following the Business Combination, if cash on hand is insufficient, the Company may need to
obtain additional financing in order to meet its obligations.
We cannot assure you that our plans to raise capital
or to consummate an initial business combination will be successful. These factors, among others, raise substantial doubt about our ability
to continue as a going concern, which is considered to be one year from the issuance of the financial statements. The financial statements
contained elsewhere in this Quarterly Report do not include any adjustments that might result from our inability to continue as a going
concern.
In connection with the Company’s assessment
of going concern considerations in accordance with FASB’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures
of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that if the Company
is unable to complete a Business Combination by August 17, 2022, then the Company will cease all operations except for the purpose of
liquidating. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s
ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company
be required to liquidate after August 17, 2022.
We granted the underwriters a 45-day option from
the date of this initial public offering to purchase up to an additional 2,250,000 units to cover over-allotments, if any. On August 19,
2021, the over-allotments were exercised in full.
Simultaneously with the closing of the initial
public offering and the over-allotment, the underwriters were paid an underwriting discount of 2% of the gross proceeds of the initial
public offering and the over-allotment, or $3,450,000. Additionally, the underwriters will be entitled to a deferred underwriting discount
of 3.5% of the gross proceeds of the initial public offering and the over-allotment upon the completion of our initial Business Combination.
Contractual Obligations
As of March 31, 2022, we did not have any long-term
debt, capital or operating lease obligations.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements and related
disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the
periods reported. Making estimates requires management to exercise significant judgment. It is possible that the estimates management
considered could possibly change due to one or more future events. The most significant estimates that affected the financial statements
as of March 31, 2022 are the calculations of the fair values of the over-allotment option, fair values of the representative shares and
the fair values of the anchor shares. These estimates are uncertain due to the assumptions used in the stock valuations. These estimates
and assumptions have not changed significantly during the year. Actual results could materially differ from those estimates. We have identified
the following as our critical accounting policies:
Offering Costs associated with the Initial
Public Offering
Offering costs consist of underwriting, legal,
accounting and other expenses incurred through the balance sheet date that are directly related to the IPO. We comply with the requirements
of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A “Expenses of Offering”. Offering costs
are allocated to the separable financial instruments, if any, issued in the IPO based on a relative fair value basis compared to total
proceeds received.
Class A Common Stock Subject to Possible Redemption
We account for the Class A common stock subject
to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Common stock
subject to mandatory redemption (if any) are classified as a liability instrument and measured at fair value. Conditionally redeemable
common stock (including common stock that feature redemption rights that are either within the control of the holder or subject to redemption
upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other
times, common stock is classified as stockholders’ equity.
We recognize changes in redemption value immediately
as they occur. Immediately upon the closing of the IPO, we recognized the subsequent re-measurement under ASC 480-10-S99 from initial
carrying amount to redemption value. The change in the carrying value of redeemable common stock resulted in charges against additional
paid-in capital and accumulated deficit.
Net Loss Per Common stock
We have two classes of common stock, which are
referred to as Class A common stock and Class B common stock. Income and losses are allocated on pro rata basis between redeemable and
non-redeemable common stock. The 19,612,500 potential common shares for outstanding warrants to purchase our stock were excluded from
diluted earnings per share for the three months ended March 31, 2022 and 2021 because the warrants are contingently exercisable, and the
contingencies have not yet been met. As a result, diluted net loss per common share is the same as basic net loss per common share for
the periods.
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards
Update (“ASU”) No. 2020-06, Debt —debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging
—Contracts in Entity’ Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’
Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required
under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the
derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. We are currently evaluating
the impact of the ASU on the financial position, results of operations or cash flows.
In May 2021, the FASB issued
ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock
Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting
for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues
Task Force). This guidance clarifies certain aspects of the current guidance to promote consistency among reporting of an issuer’s
accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity
classified after modification or exchange. The amendments in this update are effective for all entities for fiscal years beginning after
December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted for all entities, including adoption
in an interim period. The guidance was adopted starting January 1, 2022. Adoption of the ASU did not impact the Company’s financial
position, results of operations or cash flows.
Our management does not believe that any other
recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying unaudited
condensed financial statement.
Off-Balance Sheet Arrangements; Commitments
and Contractual Obligations
Registration Rights
The holders of the Founder Shares, Private Placement
Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any shares of Class A common stock issuable upon
the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans and upon conversion
of the Founder Shares) will be entitled to registration rights pursuant to a registration rights agreement to be signed prior to or on
the effective date of the initial public offering, requiring us to register such securities for resale (in the case of the Founder Shares,
only after conversion to our Class A common stock). The holders of the majority of these securities are entitled to make up to three demands,
excluding short form demands, that we register such securities. In addition, the holders have certain “piggy-back” registration
rights with respect to registration statements filed subsequent to the completion of the initial Business Combination and rights to require
us to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration rights agreement provides
that we will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable
lock-up period, which occurs (i) in the case of the Founder Shares, on the earlier of (A) six months after the completion of the initial
Business Combination or (B) subsequent to the initial Business Combination, (x) if the last sale price of our Class A common stock equals
or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20
trading days within any 30-trading day period commencing at least 75 days after the initial Business Combination, or (y) the date on which
we complete a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of our stockholders
having the right to exchange their shares of common stock for cash, securities or other property and (ii) in the case of the Private Placement
Warrants and the respective Class A common stock underlying such warrants, 30 days after the completion of the initial Business Combination.
We will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriters Agreement
We granted the underwriters a 45-day option from
the date of this initial public offering to purchase up to an additional 2,250,000 units to cover over-allotments, if any. On August 19,
2021, the over-allotments were exercised in full.
Simultaneously with the closing of the initial
public offering and the over-allotment, the underwriters were paid an underwriting discount of 2% of the gross proceeds of the initial
public offering and the over-allotment, or $3,450,000. Additionally, the underwriters will be entitled to a deferred underwriting discount
of 3.5% of the gross proceeds of the initial public offering and the over-allotment upon the completion of our initial Business Combination.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law.
The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify
as an “emerging growth company” and under the JOBS Act will be allowed to comply with new or revised accounting pronouncements
based on the effective date for private (not publicly traded) companies. We have elected to irrevocably opt out of such extended transition
period, which means that when a standard is issued or revised and it has different application dates for public or private companies,
we will adopt the new or revised standard at the time public companies adopt the new or revised standard. This may make comparison of
our financial statements with another emerging growth company that has not opted out of using the extended transition period difficult
or impossible because of the potential differences in accountant standards used.
Additionally, we are in the process of evaluating
the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth
in the JOBS Act, if, as an “emerging growth company”, we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to
Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank
Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory
audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements
(auditor discussion and analysis), and (iv) disclose certain executive compensation related items such as the correlation between executive
compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply
for a period of five years following the completion of this offering or until we are no longer an “emerging growth company,”
whichever is earlier.