| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Note 3 — SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES Basis of Presentation and principles of
Consolidation The accompanying condensed consolidated financial statements have been
prepared in accordance with GAAP, expressed in U.S. dollars. The accompanying condensed consolidated financial statements reflect
all adjustments including normal recurring adjustments, which, in the opinion of the Company’s management, are necessary to present
fairly the financial position, results of operations and cash flows for the periods presented in accordance with GAAP. References
to GAAP issued by the FASB in these accompanying notes to the financial statements are to the FASB Accounting Standards Codification (“ASC”).
The condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company consolidates all variable interest entities for which it is the primary
beneficiary. This analysis focuses on determining whether the Company
has the power to direct the activities of the variable interest entities (“VIE”) that most significantly affect the VIE’s economic performance and whether the
Company has the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The Company is solely obligated to fund the operations
of the AirJoule JV. GE Vernova and all GE-affiliated entities
are restricted from any participation in the air-to-water business. The Company determined that AirJoule, LLC is a variable interest entity
and that the Company is the primary beneficiary because a de facto agency relationship exists with GE Vernova, and the Company is the
most closely associated. Accordingly, the Company consolidates AirJoule, LLC in the condensed consolidated financial statements after
eliminating intercompany transactions. For consolidated joint ventures, the non-controlling
partner’s share of the assets, liabilities and operations of the joint venture is included in non-controlling interests as equity
of the Company. The non-controlling partner’s equity interests are presented as non-controlling interests on the consolidated
balance sheets as of March 31, 2024. Use of Estimates The preparation of consolidated 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 disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts
of expenses during the reporting period. Some of the more significant estimates
include estimates of amortization and depreciation, fair values of Subject Vesting Shares and Earnout Shares liability, fair value
of goodwill and in-process research and development of AirJoule, LLC, the fair value of the non-controlling interest in AirJoule
LLC, income taxes and estimates relating to leases. Due to the uncertainty involved in making estimates, actual results could differ
from those estimates which could have a material effect on the financial condition and results of operations in future periods. Cash and Concentration of Credit Risk The Company considers all highly liquid investments with a maturity
of 90 days or less at the time of purchase to be cash equivalents. The carrying values of cash and cash equivalents approximate their
fair values due to the short-term nature of these instruments. As of March 31, 2024 and December 31, 2023, there were no Business Combinations The Company evaluates whether acquired net assets
should be accounted for as a business combination or an asset acquisition by first applying a screen test to determine whether substantially
all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.
If so, the transaction is accounted for as an asset acquisition. If not, the Company applies its judgement to determine whether the acquired
net assets meet the definition of a business by considering if the set includes an acquired input, process, and the ability to create
outputs. The Company accounts for business combinations using the acquisition
method when it has obtained control. The Company measures goodwill as the fair value of the consideration transferred, including the fair
value of any non-controlling interest recognized, less the net recognized amount of the identifiable assets acquired and liabilities combined,
all measured at their fair value as of the acquisition date. Transaction costs, other than those associated with the issuance of debt
or equity securities, that the Company incurs in connection with a business combination are expensed as incurred. Any contingent consideration is measured at fair
value at the acquisition date. For contingent consideration that does not meet all the criteria for equity classification, such contingent
consideration is required to be recorded at its initial fair value at the acquisition date, and on each balance sheet date thereafter.
Changes in the estimated fair value of liability-classified contingent consideration are recognized on the consolidated statements of
operations in the period of change. When the initial accounting for a business combination
has not been finalized by the end of the reporting period in which the transaction occurs, the Company reports provisional amounts. Provisional
amounts are adjusted during the measurement period, which does not exceed one year from the acquisition date. These adjustments, or recognition
of additional assets or liabilities, reflect new information obtained about facts and circumstances that existed at the acquisition date
that, if known, would have affected the amounts recognized at that date. Non-controlling Interests The Company recognizes non-controlling
interests related to its consolidated VIEs in the condensed consolidated balance sheets as a component of equity, separate from the
Company’s stockholders’ equity. Changes in the Company’s ownership interest in a consolidated VIE that do not
result in a loss of control are accounted for as equity transactions. The non-controlling interests related to its consolidated VIEs
issued in a business combination are initially recorded at fair value. The Company records adjustments to non-controlling interests
for the allocable portion of income or loss to which the non-controlling interest holders are entitled based upon their portion of
the subsidiaries they own. Distributions to holders of non-controlling interests are adjusted to the respective non-controlling
interest holders’ balance. The amount of net loss attributable to non-controlling
interests is included in consolidated net loss on the face of the condensed consolidated statements of operations. Property and Equipment Property and equipment is carried at cost less
accumulated depreciation and includes expenditures that substantially increase the useful lives of existing property and equipment. Maintenance,
repairs and minor renovations are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the
related costs and accumulated depreciation are removed from their respective accounts, and any difference between the sale proceeds and
the carrying amount of the asset is recognized as a gain or loss on disposal in the statements of income. Depreciation is computed
using the straight-line method over the estimated useful lives of the various classes of depreciable assets. The lives used in computing
depreciation for significant asset classes are as follow:
Estimated
Machinery and Equipment 3 years
Vehicles 3 years The estimated useful lives and depreciation methods
are reviewed at each year-end, with the effect of any changes in estimates accounted for prospectively. All depreciation expenses are
included with depreciation and amortization in the condensed consolidated statements of operations. Goodwill Goodwill is recognized and initially measured as any excess of the
acquisition-date consideration transferred in a business combination or reverse capitalization over the acquisition-date amounts recognized
for the net identifiable assets acquired. Goodwill is not amortized but is tested for impairment annually, or more frequently if an event
occurs or circumstances change that would more likely than not result in an impairment of goodwill. The impairment assessment includes
an evaluation of various reporting units, which is an operating segment or one reporting level below the operating segment. First, the
Company assesses qualitative factors to determine whether or not it is more likely than not that the fair value of a reporting unit is
less than its carrying amount. If the Company concludes that it is more likely than not that the fair value of a reporting unit is less
than its carrying amount, the Company conducts a quantitative goodwill impairment test comparing the fair value of the applicable reporting
unit with its carrying value. If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, the Company recognizes
an impairment loss in the condensed consolidated statement of operations for the amount by which the carrying amount exceeds the fair
value of the reporting unit. The Company performs its annual goodwill impairment test at October 1. No impairment loss was recognized
as of March 31, 2024. In-Process Research & Development In accordance with ASC Topic 350, Intangibles
- Goodwill and Other (“ASC Topic 350”), goodwill and acquired IPR&D are determined to have indefinite lives and, therefore,
are not amortized. Instead, they are tested for impairment annually, in our fourth quarter, and between annual tests if we become aware
of an event or a change in circumstances that would indicate the carrying value may be impaired. In-Process Research and Development (“IPR&D”) acquired
in a business combination is capitalized as indefinite-lived assets on our consolidated balance sheets at the recognition date fair value.
IPR&D relates to amounts that arose in connection with the consolidation of AirJoule, LLC. Once the project is completed, the carrying
value of the IPR&D is reclassified to other intangible assets, net and is amortized over the estimated useful life of the asset. Post-acquisition
research and development expenses related to the IPR&D projects are expensed as incurred. The projected discounted cash flow models
used to estimate the fair values of our IPR&D assets, acquired in connection with AirJoule, LLC, reflect significant assumptions regarding
the estimates a market participant would make in order to evaluate the development asset, including: (i) probability of successfully completing
and obtaining regulatory approval; (ii) market size, market growth projections, and market share; (iii) estimates regarding the timing
of and the expected costs to commercialization; (iv) estimates of future cash flows from potential product sales; and (v) a discount rate.
These assumptions are based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair
value hierarchy. The use of different inputs and assumptions could increase or decrease our estimated discounted future cash flows, the
resulting estimated fair values and the amounts of related impairments, if any. The annual, or interim (if events or changes
in circumstances indicate that it is more likely than not that the asset is impaired), IPR&D impairment test is performed by
comparing the fair value of the asset to the asset’s carrying amount. When testing indefinite-lived intangibles for
impairment, we may assess qualitative factors for its indefinite-lived intangibles to determine whether it is more likely than not
that the asset is impaired. Alternatively, we may bypass this qualitative assessment for our indefinite-lived intangible asset and
perform the quantitative impairment test that compares the fair value of the indefinite-lived intangible asset with the
asset’s carrying amount. If IPR&D becomes impaired or is abandoned, the carrying value of the IPR&D is written down to
the revised fair value with the related impairment charge recognized in the period in which the impairment occurs. If the carrying
value of the asset becomes impaired as the result of unfavorable data from any ongoing or future processes, changes in assumptions
that negatively impact projected cash flows, or because of any other information regarding the prospects of successfully developing
or commercializing our programs, we could incur significant charges in the period in which the impairment occurs. No impairment loss
was recognized as of March 31, 2024. Long-Lived Asset Impairment The Company evaluates the recoverability of the carrying value of long-lived
assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability
and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the
carrying amount of the asset, the asset cost is adjusted to fair value, and an impairment loss is recognized as the amount by which the
carrying amount of a long-lived asset exceeds its fair value. No impairment loss was recognized for the three months ended March 31, 2024
and 2023. Leases The Company determines if an arrangement is a
lease at inception. Operating lease right-of-use asset (“ROU asset”) and short-term and long-term lease liability are included
on the face of the condensed consolidated balance sheets. ROU asset represents the right to use an underlying
asset for the lease term and lease liability represents the Company’s obligation to make lease payments arising from the lease.
An operating lease ROU asset and liability are recognized at the commencement date based on the present value of lease payments over the
lease term. As typically the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based
on the information available at commencement date over the respective lease term in determining the present value of lease payments. The
Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise
that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For lease agreements with terms
less than 12 months, the Company has elected the short-term lease measurement and recognition exemption, and it recognizes such lease
payments on a straight-line basis over the lease term. Warrants The Company determines the
accounting classification of warrants it issues as either liability or equity classified by first assessing whether the warrants meet
liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities
and Equity (“ASC 480”), then in accordance with ASC 815-40 (“ASC 815”), Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock. In order for a warrant to be classified in stockholders’ deficit,
the warrant must be (i) indexed to the Company’s equity and (ii) meet the conditions for equity classification. If a warrant does not
meet the conditions for stockholders’ deficit classification, it is carried on the condensed consolidated balance sheets as a
warrant liability measured at fair value, with subsequent changes in the fair value of the warrant recorded in
other non-operating losses (gains) in the consolidated statements of operations. If a warrant meets both conditions for equity
classification, the warrant is initially recorded, at its relative fair value on the date of issuance, in stockholders’
deficit in the condensed consolidated balance sheets, and the amount initially recorded is not subsequently remeasured at fair
value. Income Taxes Prior to the Business Combination on March 14,
2024, the Company was a limited liability company (“LLC”) and treated as a partnership for income tax purpose. As a Partnership,
the Company was not directly liable for federal income taxes. As of the date of the Business Combination, the operations of the Company
ceased to be taxed as a partnership resulting in a change in tax status for federal and state income tax purposes. The Company follows the asset
and liability method of accounting for income taxes under ASC Topic 740, Income Taxes (“ASC 740”). 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. Management has evaluated the Company’s tax positions, including its previous status as a
pass-through entity for federal and state tax purposes, and has determined that the Company has taken no uncertain tax positions
that require adjustment to the condensed consolidated financial statements. The Company’s reserve related to uncertain tax
positions was zero as of March 31, 2024 and December 31, 2023. There were no Research and Development Cost The Company accounts for research and development
cost (“R&D”) in accordance with FASB ASC Topic 730, “Research and Development.” R&D represents costs
incurred in performing research aimed at the discovery of new knowledge and the advancement of techniques to bring significant improvements
to products and processes. Costs incurred in developing a product include consulting, engineering, construction and costs incurred to
build prototypes. Fair Value of Financial Instruments Fair value is the price that would be received
to sell an asset, or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement
date. There is a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority
to quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs
(Level 3 measurement). The Company classifies fair value balances based on the observability of those inputs. The three levels of the
fair value hierarchy are as follows:
Level 1 —
Inputs based on unadjusted quoted
market prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 —
Observable inputs other than quoted
prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical
or similar instruments in markets that are not active or for which all significant inputs are observable or can be corroborated by observable
market data.
Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are both unobservable for the asset and liability in the market and significant to the overall fair value measurement. In some circumstances, the inputs used to measure fair value might
be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its
entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. The Company establishes
the fair value of its assets and liabilities using the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date and establishes a fair value hierarchy based on the inputs
used to measure fair value. The recorded amounts of certain financial instruments, including accounts payable, accrued expenses, and other
current liabilities approximate fair value due to their relatively short maturities. See Note 11 – Fair Value Measurements for measurements
of the Earnout Shares, True Up Shares and Subject Vesting Shares, measured utilizing level 3 inputs as of March 31, 2024 and March 14,
2024. Earnout Shares Liability In connection with the reverse recapitalization
and pursuant to the Business Combination Agreement, eligible former Legacy Montana Equityholders are entitled to receive additional shares
of Common Stock upon the Company achieving certain Earnout Milestones (as described in the Merger Agreement) (the “Earnout Shares”).
The settlement of the Earnout Shares to the holders of Legacy Montana common units contains variations in something other than the fair
value of the issuer’s equity shares. As such, management determined that they should be classified as a liability and recognized
at fair value at each reporting period with changes in fair value included in earnings. We estimated fair value of the Earnout Shares
with a Monte Carlo simulation using a distribution of potential outcomes for expected earnings before interest, taxes, depreciation and
amortization (“EBITDA”) and stock price at expected commission dates, utilizing a correlation coefficient for EBITDA and stock
price, and assuming $50 million of Annualized EBITDA per production line, with six production lines commissioned over a five-year period.
EBITDA was discounted to the valuation date with a weighted average cost of capital estimate and forecasted to each estimated commission
date. Earnout mechanics at each estimated commission date were assessed, and if the Earnout Thresholds were achieved, the future value
of the Earnout Shares was discounted to the valuation date utilizing a risk-free rate commensurate with the overall term. The commission
dates used reflected management’s best estimates regarding the time to complete full construction and operational viability of a
production line, including all permitting, regulatory approvals and necessary or useful inspections. The Earnout term of 5 years and the
Earnout mechanics represent contractual inputs. The contingent Earnout Shares liability involves certain assumptions requiring significant
judgment and actual results may differ from assumed and estimated amounts. The Company determined the Earnout Shares associated
with the Holders of Legacy Montana options are accounted for as compensation expense under ASC 718. See “Share-Based Compensation”
below. Derivative Financial Instruments and Other Financial Instruments Carried
at Fair Value The Company does not use derivative instruments
to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including
the True Up Shares issued in connection with the Subscription Agreement and the Subject Vesting Shares issued in connection with the Business
Combination, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC
480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. The True Up Shares issued under the Subscription
Agreement do not qualify as equity under ASC 815-40; therefore, the Class A common stock (the “True Up Shares”) is required
to be classified as a liability and measured at fair value with subsequent changes in fair value recorded in earnings. Changes in the
estimated fair value of the derivative liability is recognized as a non-cash gain or loss on the condensed consolidated statements of
operations. The fair value of the derivative liability is discussed in Note 11. The Subject Vesting Shares liability was an assumed liability of XPDB
in the Merger as described in Note 4 - Recapitalization. The Subject Vesting Shares vest and are no longer subject to forfeiture as described
in Note 4. They do not meet the “fixed-for-fixed” criterion and thus are not considered indexed to the issuer’s stock.
As such, management determined that the Subject Vesting Shares should be classified as a liability and recognized at fair value at each
reporting period with changes in fair value included in earnings. The estimated fair value of the Subject Vesting Share liability was
determined utilizing a Monte Carlo simulation, with underlying forecast mathematics based on geometric Brownian motion in a risk-neutral
framework. The Calculation of the value of the Subject Vesting Shares considered the $12.00 and $14.00 vesting conditions in addition
to the vesting related to the Earnout Milestone Amount. The Subject Vesting Shares liability involves certain assumptions requiring significant
judgment and actual results may differ from assumed and estimated amounts. See Note 11 – Fair Value Measurements. Share-Based Compensation The Company accounts for share-based compensation
arrangements granted to employees in accordance with ASC Topic 718, “Compensation: Stock Compensation,” by measuring
the grant date fair value of the award and recognizing the resulting expense over the period during which the employee is required to
perform service in exchange for the award. Equity-based compensation expense is only recognized for awards subject to performance conditions
if it is probable that the performance condition will be achieved. The Company accounts for forfeitures when they occur. The Company estimates the fair value of stock option awards subject
to only a service condition on the date of grant using the Black-Scholes valuation model. The Black-Scholes model requires the use of
highly subjective and complex assumptions, including the option’s expected term, price volatility of the underlying stock, risk-free
interest rate and the expected dividend yield of the underlying common stock, as well as an estimate of the fair value of the common stock
underlying the award. The Company estimates the fair value of Earnout Shares awards underlying
stock options, which is considered a compensatory award and accounted for under ASC 718, Share-Based Compensation . Net Loss Per Share Basic net loss per share
is computed by dividing the net loss, which is allocated based upon the proportionate amount of weighted average shares outstanding,
by each class of stockholder’s stock outstanding during the period. Diluted net loss per share is computed by giving effect to all
potential shares of common stock, including warrants and Earn Out Shares, to the extent dilutive. For the three months ended March 31,
2024, warrants, Subject Vesting Shares, True Up Shares and Earnout Shares were not included in the calculation of dilutive net loss per
share as their effect will be anti-dilutive. For the three months ended March 31, 2023 warrants and options were not included in the calculation
of dilutive net loss per share as their effect would have been anti-dilutive. The loss per share presented in the condensed
consolidated statements of operations is based on the following for the three months ended March 31, 2024 and 2023:
For the three months ended March 31,
2024 2023
Class A Class B Class A Class B
Basic and diluted net loss per common share
Numerator:
Allocation of net loss, as adjusted $ (10,210,073 ) $ (1,316,368 ) $ (728,293 ) $ (106,181 )
Denominator:
Basic and diluted weighted average shares outstanding 36,916,955 4,759,642 32,599,213 4,759,642
Basic and diluted net loss per ordinary share $ (0.28 ) $ (0.28 ) $ (0.02 ) $ (0.02 ) New Accounting Pronouncements Recently Adopted Accounting Standards In June 2016, the FASB issued ASU 2016-13,
“Financial Instruments — Credit Losses” (Topic 326), which requires that an entity measure and recognize
expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment methodology in current GAAP
with a methodology that requires consideration of a broader range of information to estimate credit losses. The guidance also modifies
the impairment model for available-for-sale debt securities. ASU 2016-13 is effective for the Company’s fiscal year beginning
January 1, 2023. The Company has adopted ASU 2016-13 as of January 2023 with no material impacts on the financial statements as a
result. Recently Issued Accounting Standards The Company is an emerging growth company, as
defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent
to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended
transition period for complying with new or revised accounting standards that have different effective dates for public and private companies
until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts
out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies
that comply with the new or revised accounting pronouncements as of public company effective dates. In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement
(Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,” which clarifies that contractual
sale restrictions are not considered in measuring fair value of equity securities and requires additional disclosures for equity securities
subject to contractual sale restrictions. The standard is effective for the Company for fiscal years beginning after December 15, 2024.
The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial statements
and related disclosures. In December 2023, the FASB issued ASU 2023-09,
“Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires disaggregated information about a reporting
entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors
by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The standard will be effective
for the Company for fiscal years beginning after December 15, 2025. Early adoption is permitted. The Company is currently evaluating the
impact of this accounting standard update on its condensed consolidated financial statements and disclosures. |
