| 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 Financial Accounting Standards Board (“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 owns a noncontrolling interest (50%)
in an unconsolidated joint venture with GE Ventures LLC, the AirJoule JV. The investment in the Company’s unconsolidated affiliate
is accounted for using the equity method with the Company’s proportionate share of income or loss recognized within equity in net
income of unconsolidated affiliate (“equity income”) in its consolidated statements of earnings. See further discussion of
the Company’s unconsolidated affiliate in Note 5 Equity Method Investment 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 liabilities associated with the Earnout Shares, True Up Shares and Subject Vesting Shares
(as such terms are defined in Note 4 Recapitalization 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 June 30, 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. Equity Method Investment In accordance with ASC 323, Investments - Equity
Method and Joint Ventures, investments in entities over which the Company does not have a controlling financial interest but has significant
influence are accounted for using the equity method, with the Company’s share of earnings or losses reported in earnings or losses
from equity method investments on the statements of operations. Under the equity method, the Company’s investments are initially
measured and recognized using the cost accumulation model following the guidance in ASC 805-50-30. After initial recognition, the consolidated
financial statements include the Company’s share of undistributed earnings or losses, and impairment, if any, until the date on
which significant influence ceases. The Company’s equity method investments are
assessed for impairment whenever changes in the facts and circumstances indicate a loss in value may have occurred. When a loss is deemed
to have occurred and is other than temporary, the carrying value of the equity method investment is written down to fair value. In evaluating
whether a loss is other than temporary, the Company considers the length of time for which the conditions have existed and its intent
and ability to hold the investment. 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. 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 is included
in the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be
realized. During the six months ended June 30, 2024, as a result of our contribution to AirJoule, LLC of a perpetual license to our intellectual
property, measured at fair value resulting in a book gain, a temporary difference between book and tax arose. The temporary difference
resulted in the recognition of a deferred tax expenses and deferred tax liabilities of approximately $87.8 million. This expense was partially
offset by the recognition of deferred tax assets in connection with the Company now being a corporation through the Business Combination. 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 June 30, 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 5 – Equity Method
Investment for measurements of the Investment in AirJoule, LLC measured utilizing level 3 inputs as of March 4, 2024. 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 June 30, 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 (as defined below) are entitled to receive additional shares
of Common Stock upon the Company achieving certain milestones. See Note 4 – Recapitalization. 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 achieve operational viability of a production line, including all permitting, regulatory approvals and necessary or useful inspections.
The 5 year term and overall settlement mechanics for the Earnout Shares represent contractual inputs. Management’s valuation of
the 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 employees are accounted for as compensation expense under FASB ASC Topic 718, Share-based Compensation (“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 reassessed
at the end of each reporting period. The True Up Shares issued under one of the Subscription Agreements
do not qualify as equity under ASC 815-40; therefore, the True Up Shares” are 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
are 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 — Fair Value Measurements The Subject Vesting Shares liability was an assumed liability of XPDB
in the Merger as described in Note 4 – Recapitalization Recapitalization Fair Value Measurements Share-Based
Compensation The Company accounts for share-based compensation
arrangements granted to employees in accordance with ASC 718 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 to employees, which are considered compensatory awards and accounted for under ASC 718 using the Monte-Carlo simulation
model . Net
Income (Loss) Per Share Basic net income (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, stock options, the Earnout Shares, True Up Shares and Subject Vesting Shares, to the extent
dilutive. For the three and six months ended June 30, 2024, the Earnout Shares, True Up Shares and Subject Vesting Shares were not included
in the calculation of dilutive net income per share as their conditions were not deemed satisfied for issuance as of June 30, 2024. For
the three and six months ended June 30, 2023, due to a net loss the warrants and options were not included in the calculation of dilutive
net loss per share as their effect would have been anti-dilutive. For the three months ended June 30, 2024, dilutive
shares included in the calculation or net income per share of common stock, utilizing the treasury stock method, were: 386,601 shares
of common stock issuable upon the exercise of warrants and 1,411,586 shares of common stock issuable upon the exercise of stock options.
For the six months ended June 30, 2024, dilutive shares included in the calculation or net income per share of common stock, utilizing
the treasury stock method were: 277,001 shares of common stock issuable upon the exercise of warrants and 1,360,305 shares of common stock
issuable upon the exercise of stock options. The net loss per share of common stock presented
in the condensed consolidated statements of operations is based on the following for the three and six months ended June 30, 2024 and
2023:
For the three months ended June 30,
2024 2023
Class A Class B Class A Class B
Basic net income (loss) per share of common stock
Numerator:
Allocation of net income (loss) $ 12,253,141 $ 1,176,754 $ (2,651,515 ) $ (386,329 )
Denominator:
Basic weighted average shares outstanding 49,560,529 4,759,642 32,667,171 4,759,642
Basic net income (loss) per share of common stock $ 0.25 $ 0.25 $ (0.08 ) $ (0.08 )
Diluted net income (loss) per
share of common stock
Numerator:
Allocation of net income (loss) $ 12,290,847 $ 1,139,048 $ (2,651,515 ) $ (386,329 )
Denominator:
Diluted weighted average shares outstanding 51,358,716 4,759,642 32,667,171 4,759,642
Diluted net income (loss) per share of common stock $ 0.24 $ 0.24 $ (0.08 ) $ (0.08 )
For the six months ended June 30,
2024 2023
Class A Class B Class A Class B
Basic and diluted net income (loss) per share of common stock
Numerator:
Allocation of net income (loss) $ 175,697,852 $ 19,287,335 $ (3,379,463 ) $ (493,008 )
Denominator:
Basic and diluted weighted average shares outstanding 43,357,928 4,759,642 32,633,380 4,759,642
Basic and diluted net income (loss) per share of common stock $ 4.05 $ 4.05 $ (0.10 ) $ (0.10 )
Diluted net income (loss) per share of common stock
Numerator:
Allocation of net income (loss) $ 176,332,549 $ 18,652,638 $ (3,379,463 ) $ (493,008 )
Denominator:
Diluted weighted average shares outstanding 44,995,234 4,759,642 32,633,380 4,759,642
Diluted net income (loss) per share of common stock $ 3.92 $ 3.92 $ (0.10 ) $ (0.10 ) New
Accounting Pronouncements 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. |
