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Item 7. Management’s Discussion and Analysis of Financial

Condition and Results of Operations

The following “Management’s Discussion and Analysis

of Financial Condition and Results of Operations should be read in conjunction Part I of this Annual Report on Form 10-K, the consolidated

financial statements and related notes included in Part II Item 8 in this Annual Report on Form 10-K and the section titled “Cautionary

Note Regarding Forward-Looking Statements” included in the forepart in this Annual Report on Form 10-K.

This discussion includes forward-looking statements within the meaning

of Section 27A of the Securities Act of 1933, as amended, and Section 21E of 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. Such statements include, but are not limited to, possible

business combinations and the financing thereof, and related matters, as well as all other statements other than statements of historical

fact included herein. Factors that might cause or contribute to such a discrepancy include, but are not limited to: our status as an early

stage company with limited operating history, which may make it difficult to evaluate the prospects for our future viability; our initial

dependence on revenue generated from a single product; significant barriers we face to deploy our technology; the dependence of our commercialization

strategy on our relationship with third parties; our history of losses; accuracy of assumptions underlying projections related to our

equity method goodwill impairment testing; and other risks and uncertainties described in our other SEC filings.

Unless the context otherwise requires, references in this “Management’s

Discussion and Analysis of Financial Condition and Results of Operations” to “we”, “us”, “our”,

and the “Company” are intended to refer to (i) following the Business Combination (as defined below), the business and operations

of AirJoule Technologies Corporation, formerly known as Montana Technologies Corporation and its consolidated subsidiaries, and (ii) prior

to the Business Combination, AirJoule Technologies LLC, formerly known as Montana Technologies LLC, or Predecessor, (the predecessor entity

in existence prior to the consummation of the Business Combination) and its consolidated subsidiaries.

Company Overview

We are a water harvesting technology company that aims to provide energy

and cost-efficient water harvested from air. Our product, AirJoule, is a climate solution technology that harvests the water vapor in

the atmosphere and produces pure distilled water to improve water security and sustainability for businesses and consumers around the

world. AirJoule is especially valuable for industrial users, which generate significant amounts of waste heat that can be utilized to

produce pure distilled water and dehumidified air – two key inputs for variety of industrial activities, including data centers

and advanced manufacturing. In HVAC applications, our AirJoule technology is designed to reduce energy consumption, minimize or even eliminate

the use of environmentally-harmful refrigerants, and generate material cost efficiencies for air conditioning systems. We are focused

on commercialization and scaling manufacturing of our AirJoule systems through our global partnerships with GE Vernova and Carrier , and

we believe that deploying AirJoule units worldwide can help to improve water security and reduce global emissions. We plan to manufacture

AirJoule units capable of producing 1,000 liters per day in 2025, which we intend to use for customer demonstrations, and we expect to

scale capacities for commercial sales in 2026.

Growth Strategy and Outlook

We anticipate significant growth opportunities by offering AirJoule

in global markets where demand for water, dehumidified air and cooling are highest. With our proprietary technology, we believe that we

are uniquely positioned to provide curated solutions that satisfy our customers’ needs and expectations in fast-growing and water

and energy-intensive industries, such as data centers and advanced manufacturing, along with military and HVAC applications. We estimate

the combined total addressable market to be approximately $450 billion.

In the data center arena, we aim to address escalating energy and water

efficiency challenges associated with increased computing density by using low-grade waste heat to produce pure distilled water and enabling

data center operators to reduce their cooling costs and improve water sustainability. Similarly, in advanced manufacturing environments,

where product quality and process precision hinge on consistent humidity and ultra-pure water, AirJoule can help customers with cost-effective

dehumidification. The military sector presents a distinct opportunity, as AirJoule is able to operate in a variety of climate conditions

to support troops in remote and water-scarce environments, ensuring mission readiness and resilience. In the HVAC space, where building

owners and facility managers are under pressure to cut energy consumption and improve indoor air quality, AirJoule’s superior moisture

removal capability will reduce power consumption and the use of refrigerants in air conditioning systems.

To accelerate market penetration and scale our manufacturing capabilities,

we plan to leverage our strategic partnerships, which are discussed below. These partnerships offer access to industry-specific R&D

expertise, mature supply chains, established sales channels, and extensive service networks, allowing us to quickly move from pilot deployments

to full-scale commercialization. We intend to co-develop sector-specific solutions, capitalizing on our partners’ market insights

and reputational strength to better serve diverse customer needs. By combining our innovative AirJoule technology with their global reach

and operational expertise, we will unlock value across multiple industries, establish our position as a leader in water-focused solutions,

and deliver long-term growth and value to our shareholders.

Recent Developments

Change of Company Name

AirJoule Technologies Corporation

Effective November 13, 2024, Montana Technologies Corporation changed

its corporate name to AirJoule Technologies Corporation, pursuant to an amended and restated certificate of incorporation filed with the

Delaware Secretary of State.

AirJoule Technologies LLC

Effective November 13, 2024, Montana Technologies LLC changed its corporate

name to AirJoule Technologies LLC, pursuant to an amended and restated certificate of incorporation filed with the Delaware Secretary

of State.

Statement of Work – Related Party

In November 2024, we executed a statement of work with AirJoule, LLC

under the Master Services Agreement, dated as of March 4, 2024, by and between us and AirJoule, LLC, pursuant to which we will provide

AirJoule, LLC with engineering and administrative services. Once each calendar year, unless otherwise agreed by the Board of Managers

of AirJoule, LLC, or the AJ Board, we will provide equity awards to AirJoule, LLC employees in amounts approved by the AJ Board.

Components of Our Results of Operations

Revenue

We anticipate that we will earn revenue from the sale of various key

components that will be used in the assembly of AirJoule systems. As of December 31, 2024, no revenue has been earned from our operations.

Operating Expenses

We classify our operating expenses into the following categories:

Results of Operations

The following tables set forth the results of our operations for the

periods presented, as well as the changes between periods. The period-to-period comparison of financial results is not necessarily indicative

of future results.

The year ended December 31, 2024 compared

to the year ended December 31, 2023

The following table sets forth the Company’s consolidated statements

of operations data for the year ended December 31, 2024 and 2023:

Year Ended December 31,

Cost and expenses:

Other income (expense):

Equity loss from investment in AirJoule, LLC (5,321,367 ) — (5,321,367 )

Change in fair value of True Up Shares liability (1,634,000 ) — (1,634,000 )

Change in fair value of Subject Vesting Shares liability 3,973,000 — 3,973,000

General and Administrative

General and administrative expenses for the year ended December 31,

2024 was $9.0 million as compared to $7.5 million for the year ended December 31, 2023. The $1.5 million increase was primarily related

to increases in professional services such as legal and audit and accounting offset by the reimbursement of costs incurred per the statement

of work with AirJoule, LLC. We expect that our general and administrative expenses will increase in future periods commensurate with the

expected growth of our business and increased expenditures associated with our status as an exchange listed public company.

Research and Development

Research and development expenses for the year ended December 31, 2024

was $2.0 million as compared to $3.3 million for the year ended December 31, 2023. The $1.3 million decrease was primarily related to

the reimbursement of costs incurred per the statement of work with AirJoule, LLC, partially offset by an increase in personnel and prototype

related costs as the Company continues to develop its products and technology. We expect that our research and development expenses will

increase in future periods commensurate with the expected growth of our business.

Sales and Marketing

Sales and marketing for the year ended December 31, 2024 was $0.2 million

as compared to $0.5 million for the year ended December 31, 2023. In 2023, we incurred non-recurring expenses related to business development

that ended in July 2023. We expect that our sales and marketing expenses will increase in future periods commensurate with the expected

growth of our business.

Transaction Costs Incurred in Connection with

Business Combination

Transaction costs incurred in connection with the business combination

include the non-cash recognition of earnout liabilities of approximately $53.7 million and transaction costs incurred by our Predecessor

of approximately $1.0 million, which were paid in 2024.

Depreciation and Amortization

Depreciation and amortization expense for the year ended December 31,

2024 and 2023 was $6,517 and $4,341, respectively.

Interest Income

Interest income was $0.9 million and $11,541 for the year ended December

31, 2024 and 2023, respectively. This is a result of the increase in our cash balance.

Gain on Contribution to AirJoule, LLC

An equity method investment received in exchange for noncash consideration

is measured at fair value. As a result, for the year ended December 31, 2024, we recognized a gain of $333.5 million on the contribution

to AirJoule, LLC for the difference between our zero carrying value and the fair value of the perpetual license to intellectual property

that we transferred to AirJoule, LLC.

We determined the fair value of the intellectual property by applying

the multi-period excess earnings method, which involved the use of significant estimates and assumptions related to forecasted revenue

growth rate and customer attrition rate, Level 3 measurements. Valuation specialists were used to develop and evaluate the appropriateness

of the multi-period excess earnings method, our discount rates, attrition rate and fair value estimates using its cash flow projections.

Equity Loss from Investment in AirJoule, LLC

As previously noted, on January 25, 2024, AirJoule Technologies, LLC

entered into a joint venture with GE Ventures LLC, the AirJoule JV which closed on March 4, 2024. For the year ended December 31, 2024,

we recognized a loss of $5.3 million from our 50% equity investment in the AirJoule JV.

Change in Fair Value of Earnout Shares Liability

Upon consummation of the Business Combination, we expensed $53.7 million

in Earnout Shares (as described in “-Earnout Shares Liability”) liability. The change in fair value of $29.2 million

for the year ended December 31, 2024 is due to a decrease in the estimated fair value of the liability and is recognized as a gain in

the consolidated statements of operations. The fair value of the liability decreased primarily due to changes in the valuation inputs,

mainly a decrease in the stock price, a change in the timing of future cash flows and an increase in the volatility.

Change in Fair Value of True Up Shares Liability

Upon consummation of the Business Combination, we assumed $0.6 million

in earnout true up shares liability. The change in fair value of $1.6 million for the year ended December 31, 2024 is due to a decrease

in our stock price. The increase in the estimated fair value of the liability was recognized as a loss in the consolidated statements

of operations.

Change in Fair Value of Subject Vesting Shares

Liability

Upon consummation of the Business Combination, we assumed $11.8 million

for the subject vesting shares liability. The change in fair value of income of $4.0 million during the year ended December 31, 2024 is

due to a decrease in the estimated fair value of the liability recognized as a gain in the consolidated statements of operations. The

fair value of the liability decreased primarily due to changes in the valuation inputs, mainly a decrease in the stock price, a change

in the timing of future cash flows and an increase in the volatility.

Gain on Settlement of Legal Fees

During the year ended December 31, 2024, we recognized a gain on the

settlement of legal fees related to the transaction costs of the Business Combination. There were no such gains in year ended December

31, 2023.

Income Tax Benefit (Expense)

Income tax expense was $81.3 million and $0 for the year ended

December 31, 2024 and 2023, respectively. During the year ended December 31, 2024, our contribution of a perpetual license to

AirJoule, LLC’s intellectual property was measured at fair value and resulted in a book gain and a temporary difference

between book and taxable income. The temporary difference resulted in the recognition of a deferred tax expense and deferred tax

liabilities. The deferred tax expense was partially offset by the recognition of deferred tax assets in connection with the Company

now being a corporation through the Business Combination.

Liquidity and Capital Resources

Our primary sources of liquidity have been cash from contributions

from founders or equity capital raised from other investors. We had retained earnings of $198.5 million as of December 31, 2024. As of

December 31, 2024, we had $27.4 million of working capital including $28.0 million in cash, cash equivalents and restricted cash.

We assess liquidity in terms of our ability to generate adequate amounts

of cash to meet current and future needs. Our expected primary uses of cash on a short and long-term basis are for working capital requirements,

capital expenditures and other general corporate services. Our primary working capital requirements are for project execution activities

including purchases of materials, services and payroll which fluctuate during the year, driven primarily by the timing and extent of activities

required for new and existing projects. Management expects that future operating losses and negative operating cash flows may increase

from historical levels because of additional costs and expenses related to the development of its technology and the development of market

and strategic relationships with other businesses and customers.

With the consummation of the Business Combination and Subscription

Agreements (as described above and in Note 4 – Recapitalization), we received gross proceeds of approximately $43.4 million

in the first quarter of 2024 and approximately $6.0 million in May 2024. Additionally, in June 2024, we received gross proceeds of approximately

$12.4 million from existing and new investors for 1,238,500 million shares of Class A common stock pursuant the June 2024 PIPE Subscription

Agreements entered into on June 5, 2024.

Our future capital requirements will depend on many factors, including

the timing and extent of spending to support the launch of our product and research and development efforts, the degree to which we are

successful in launching new business initiatives and the cost associated with these initiatives, and the growth of our business generally.

Pursuant to the A&R Joint Venture Agreement, we contributed $10.0 million in cash to the AirJoule JV at the JV closing and in June

2024, GE Vernova contributed $100 to the AirJoule JV. We have also agreed to contribute up to an additional $90.0 million in capital contributions

to the AirJoule JV based on a business plan and annual operating budgets to be agreed between the Company and GE Vernova. In general,

for the first six years, GE Vernova has the right, but not the obligation, to make capital contributions to the AirJoule JV.

In order to finance these opportunities and associated costs, it is possible

that we would need to raise additional financing if the proceeds realized to date are insufficient to support our business needs. While

we believe that the proceeds realized to date will be sufficient to meet our currently contemplated business needs, management cannot

assure that this will be the case. If additional financing is required by us from outside sources, we may not be able to raise it on terms

acceptable to us or at all. If we are unable to raise additional capital on acceptable terms when needed, our product development business,

results of operations and financial condition would be materially and adversely affected.

Cash flows for the year ended December 31,

2024 and 2023

The following table summarizes our cash flows from operating, investing

and financing activities for the year ended December 31, 2024 and 2023:

Year ended December 31,

Net cash used in investing activities (10,019,058 ) —

Net increase (decrease) in cash and cash equivalents $ 27,645,952 $ (4,835,690 )

Cash Flows from Operating Activities

During the year ended December 31, 2024, net cash used in operating

activities was $24.3 million and primarily reflected our net income from operations and decreases in accounts payable, accrued expenses

and other liabilities.

During the year ended December 31, 2023, net cash used in operating

activities was $5.1 million and primarily reflected our net loss from operations offset by an increase in accounts payable and accrued

expenses and other liabilities.

Cash Flows from Investing Activities

During the year ended December 31, 2024, net cash used in investing

activities was $10.0 million as a result of the Company’s contribution made to AirJoule, LLC.

Cash Flows from Financing Activities

During the year ended December 31, 2024, net cash provided by financing

activities was $61.9 million and primarily related to proceeds from the issuance of the Predecessor common stock related to private placements

prior to the Merger, the exercise of stock options and warrants and the issuance of common stock to PIPE investors.

During the year ended December 31, 2023, minimal cash was provided

by financing activities.

Contractual Obligations and Commitments

Royalties

In October 2021, we entered into a patent license agreement with

a third party whereby the third party granted us rights to use certain of their patents in exchange for an upfront payment and royalties

based on a percentage of net sales until such patents expire. In connection with this, we agreed to a minimum royalty amount of which

$0.3 million and $0.2 million was expensed for the year ended December 31, 2024 and 2023, respectively. At December 31, 2024 and December

31, 2023, $0.3 million and $0.2 million, respectively, was accrued in the accompanying consolidated balance sheets.

Future minimum royalties for 2025 and each year through the date the

patents expire are $0.3 million.

Joint Venture Agreements

On October 27, 2021, we entered into a joint venture agreement with

CATL, pursuant to which we and CATL formed CAMT. We and CATL both own 50% of CAMT’s issued and outstanding shares. Under the

joint venture agreement, as revised, CAMT has the exclusive right to commercialize our AirJoule technology in Europe and Asia.

Pursuant to the Amended and Restated Joint Venture Agreement for CAMT,

entered into on September 29, 2023, our Predecessor and CATL US have each agreed to contribute $6.0 million to CAMT. Contributions will

be requested by CAMT once a business plan and operating budget is set by CAMT’s board of directors. No action to establish a business

plan or operating budget has occurred to date. Any additional financing beyond the initial $12.0 million (i.e., $6.0 million from each

of the Predecessor and CATL US) will be subject to the prior mutual agreement of the Predecessor and CATL US. CAMT is managed by a four-member

board of directors, with two directors (including the chairman) designated by CATL US and two directors (including the vice chairman)

designated by the Predecessor. In the event of an equal vote, the chairman may cast the deciding vote. Certain reserved matters, including

debt issuances exceeding $5.0 million in a single transaction or in aggregate within a fiscal year, amendments to CAMT’s constitutional

documents the annual financial budget of CAMT, and any transaction between CAMT and CATL US or the Predecessor in an amount exceeding

$10.0 million in a single transaction or in aggregate within a fiscal year, require the unanimous vote of both CATL US and the Predecessor

or all directors. As of December 31, 2024, we have not funded this joint venture or contributed any assets to the joint venture.

The purpose of our Predecessor’s joint venture with CATL US is

to commercialize our AirJoule technology in Asia and Europe and, pursuant to the Amended and Restated Joint Venture Agreement for CAMT,

CAMT has the exclusive right to commercialize AirJoule technology in those territories. Subject to the oversight of CAMT’s board,

CATL US is responsible for managing the day-to-day operations of CAMT (including the nomination and replacement of the Chief Executive

Officer of CAMT), and is responsible for providing CAMT and any subsidiaries formed by CAMT with, among other things, administrative services,

supply chain support, assistance in obtaining required permits and approvals and assistance in purchasing or leasing land and equipment.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition

and results of operations is based on our consolidated financial statements, which are prepared in conformity with accounting principles

generally accepted in the United States of America. The preparation of these financial statements requires us to make certain estimates,

judgments, and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions can be

subjective and complex and may affect the reported amounts of assets and liabilities, revenues, and expenses reported in those financial

statements. As a result, actual results could differ from such estimates and assumptions. Such changes to estimates could potentially

result in impacts that would be material to the consolidated financial statements.

While our significant accounting policies are described in more detail

in Note 3 to our consolidated financial statements appearing in Item 8 to this Annual Report on Form 10-K, we believe that the following

accounting policies were most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Share-Based Compensation

We account for share-based compensation arrangements granted to employees

and non-employees in accordance with ASC 718, Share-based Compensation, by measuring the grant date fair value of each award and

recognizing the resulting expense over the period during which the recipient is required to perform services in exchange for the award.

Equity-based compensation expense is only recognized for awards subject to performance conditions if it is probable that the applicable

performance conditions will be achieved. We account for forfeitures when the forfeitures occur.

We estimate 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 stock option’s expected term, the price volatility of the underlying stock, the applicable

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 stock option.

We estimate the fair value of Earnout Shares (as described below),

which are considered compensatory awards and accounted for under ASC 718, using the Monte-Carlo simulation model. The Monte-Carlo

simulation model was selected as the valuation methodology for the Earnout Shares due to the path-dependent nature of applicable triggering

events. Under ASC 718, such Earnout Shares are measured at fair value as of the grant date and expense is recognized over the applicable

time-based vesting period (the applicable triggering event is a market condition and does not impact expense recognition). The Monte-Carlo

model requires the use of highly subjective and complex assumptions, estimates and judgements, including the current stock price, the

volatility of the underlying stock, the expected term, the risk-free interest rate, the selection of comparable companies, and the probability

of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact

our valuations as of each valuation date and may have a material impact on the valuation of share based compensation arrangements. An

increase of 100-basis points in interest rates would not have a material impact on our share-based compensation. During the period from

the date of the Business Combination through December 31, 2024 we did not record share-based compensation expense associated with these Earnout

Shares as the performance conditions associated with these Earnout Shares were not deemed probable of achievement. Unrecognized share-based

compensation expense for these Earnout Shares with a performance-based vesting condition that was not deemed probable of occurring

as of December 31, 2024 was $6.6 million which is expected to vest subject to the performance-based vesting condition being satisfied

or deemed probable.

Earnout Shares Liability

In connection with the reverse recapitalization and pursuant to the

Merger Agreement, eligible former Predecessor equity holders are entitled to receive the Earnout Shares upon us achieving certain Earnout

Milestones. The settlement of the Earnout Shares to the holders of the Predecessor’s common units contain 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, or EBITDA, and

stock price at expected commission dates, utilizing a correlation coefficient for EBITDA and stock price, and assuming $50.0 million of

Annualized EBITDA per production line, with each of the 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. Expected EBITDA assumes that each production

line will achieve equivalent production generating $50.0 million of Annualized EBITDA. 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.

Derivative Financial Instruments and Other

Financial Instruments Carried at Fair Value

We do not use derivative instruments to hedge exposures to cash flow,

market, or foreign currency risks. We evaluate 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 (defined below) and FASB ASC 815, Derivatives

and Hedging, or 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 the Subscription Agreement do not qualify

as equity under ASC 815; therefore, the Class A common stock, or 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 consolidated statements of operations. The fair value of the derivative liability is discussed

in Note 12 - Fair Value Measurements.

The Subject Vesting Shares liability was an assumed liability of XPDB.

The Subject Vesting Shares liability vest and are no longer subject to forfeiture as described in Note 4 - Recapitalization. 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 12 – Fair Value Measurements.

Business Combinations

We evaluate 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, we apply 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.

We account for business combinations using the acquisition method

of accounting whereby the identifiable assets and liabilities of the acquired business, including contingent consideration, as well as

any non-controlling interest in the acquired business, are recorded at their estimated fair values as of the date that we obtain control

of the acquired business. We measure 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 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 we incur 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.

Several valuation methods may be used to determine the fair value of

assets acquired and liabilities assumed. For intangible assets, we typically use a variation of the income approach, whereby a forecast

of future cash flows attributable to the asset is discounted to present value using a risk-adjusted discount rate. Some of the more significant

estimates and assumptions inherent in the income approach include the amount and timing of projected future cash flows, the discount rate

selected to measure the risks inherent in the future cash flows, and the assessment of the asset’s expected useful life. When

the initial accounting for a business combination has not been finalized by the end of the reporting period in which the transaction occurs,

we report 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.

Equity Method Investment

In accordance with ASC 323, Investments - Equity Method and

Joint Ventures, investments in entities over which we do not have a controlling financial interest but has significant influence are

accounted for using the equity method, with our share of earnings or losses reported in earnings or losses from equity method investments

on the statements of operations.

Under the equity method of accounting, our investment is initially

recorded at fair value on the consolidated balance sheets. Upon initial investment, we evaluate whether there are basis differences between

the carrying value and fair value of our proportionate share of the investee’s underlying net assets. Typically, we amortize basis

differences identified on a straight-line basis over the underlying assets’ estimated useful lives when calculating the attributable

earnings or losses, excluding the basis differences attributable to in-process research and development and goodwill. If we are unable

to attribute all of the basis differences to specific assets or liabilities of the investee, the residual excess of the cost of the investment

over the proportional fair value of the investee’s assets and liabilities is considered to be equity method goodwill and is recognized

within the equity investment balance, which is tracked separately within our memo accounts. We subsequently record in the statements of

operations our share of income or loss of the other entity within other income/expense, which results in an increase or decrease to the

carrying value of our investment. If the share of losses exceeds the carrying value of our investment, we will suspend recognizing additional

losses and will continue to do so unless we commit to providing additional funding.

We evaluate our equity method investments for impairment whenever events

or changes in circumstances indicate that a decline in value has occurred that is other than temporary. Evidence considered in this evaluation

includes, but would not necessarily be limited to, the financial condition and near-term prospects of the investee, recent operating trends

and forecasted performance of the investee, market conditions in the geographic area or industry in which the investee operates and our

strategic plans for holding the investment in relation to the period of time expected for an anticipated recovery of its carrying value.

If the investment is determined to have a decline in value deemed to be other than temporary it is written down to estimated fair value.

Additionally, if an equity method investee recognizes a goodwill impairment

charge in its separate financial statements, we will recognize its share of the impairment in its financial statements in the same manner

in which it recognizes other earnings of the investee.

Warrants

We determine the accounting classification of warrants issued 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, or ASC 480, then in accordance with ASC 815-40,

Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, or ASC 815.

In order for a warrant to be classified in stockholders’ deficit, the warrant must be (i) indexed to our 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 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 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, we were a limited

liability company, or LLC, and treated as a partnership for income tax purpose. As a Partnership, we were 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.

We follow the asset and liability method of accounting for income taxes

under ASC 740, Income Taxes, or 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.

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. We recognize accrued

interest and penalties related to unrecognized tax benefits as income tax expense. Management has evaluated our tax positions, including

our Predecessor’s previous status as a pass-through entity for federal and state tax purposes, and has determined that we have taken

no uncertain tax positions that require adjustment to the consolidated financial statements. Our reserves related to uncertain tax positions

was zero as of December 31, 2024 and 2023. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as

of December 31, 2024 and 2023. We are currently not aware of any issues under review that could result in significant payments, accruals

or material deviation from its position.

Recent Accounting Pronouncements

A discussion of recently issued accounting standards applicable to

the Company is described in Note 3 – Summary of Significant Accounting Policies, in the Notes to Financial Statements

contained elsewhere in this Current Report on Form 10-K.

Off Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 31,

2024.

Emerging Growth Company Status

We are an emerging growth company as defined in the JOBS Act. The JOBS

Act permits companies with emerging growth company status to take advantage of an extended transition period to comply with new or revised

accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected

to use this extended transition period to enable it to comply with new or revised accounting standards that have different effective dates

for public and private companies until the earlier of the date we (i) are 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, our financial statements may not be

comparable to companies that comply with the new or revised accounting standards as of public company effective dates.

In addition, we intend to rely on the other exemptions and 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 intend to rely on such exemptions, we are not 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(b) of the Sarbanes-Oxley Act; (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 Public Company Accounting Oversight Board

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 Chief Executive Officer’s compensation

to median employee compensation.

We will remain an emerging growth company under the JOBS Act until

the earliest of (i) the last day of our first fiscal year following the fifth anniversary of the closing of XPDB’s initial

public offering, (ii) the last date of our fiscal year in which we have total annual gross revenue of at least $1.235 billion,

(iii) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million

of outstanding securities held by non-affiliates or (iv) the date on which we have issued more than $1.0 billion in non-convertible

debt securities during the previous three years.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the

Exchange Act and are not required to provide the information otherwise required under this item.

Item 8. Financial Statements and Supplementary Data

This information appears following Item 15 of this Annual Report and

is included herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting

and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management,

including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its disclosure

controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered

by this report. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports the

Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the

SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer

and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Based on that evaluation, our Chief Executive Officer and Chief Financial

Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2024.

Management’s Report

on Internal Controls Over Financial Reporting

Our management is responsible for establishing and maintaining adequate

internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act). Internal control over financial reporting

is a process designed under the supervision and with the participation of our management, including our principal executive officer and

our principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation

of financial statements for external purposes in accordance with generally accepted accounting principles in the United States.

As of December 31, 2024, our management assessed the effectiveness

of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway

Commission in Internal Control-Integrated Framework (2013 Framework). Based on this assessment, our management concluded that our internal

control over financial reporting was effective as of December 31, 2024.

Remediated Material Weakness

As of December 31, 2024, we have remediated the

previously disclosed material weakness related to our internal control over financial reporting, which pertained to internal controls

over complex accounting issues, including the application of the reverse recapitalization accounting for the Business Combination and

the VIE accounting for the AirJoule JV. Management implemented remediation steps to improve our disclosure controls and procedures and

our internal control over financial reporting. Specifically, we expanded and improved our review process for complex transactions. We

enhanced access to accounting literature, identified third-party professionals with whom to consult regarding complex accounting applications,

and added staff with the requisite experience and training to supplement existing accounting professionals.

Attestation Report of Registered Public Accounting Firm

This Annual Report on Form 10-K does not include an attestation report

of our registered public accounting firm. For as long as we remain an “emerging growth company” as defined in Section 2(a)

of the Securities Act of 1933, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, we intend to take

advantage of the exemption permitting us not to comply with the requirement that our independent registered public accounting firm provide

an attestation on the effectiveness of our internal control over financial reporting.

Changes in Internal Control over Financial Reporting

There were no significant changes in our internal control over financial

reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) during our fourth quarter that materially

affected, or are reasonably likely to materially affect, our internal control over financial reporting during the year ended December 31,

2024.

Item 9B. Other Information

During the three months ended December 31, 2024, none of our directors

or “officers” (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated a “Rule 10b5-1 trading arrangement”

or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408(a) of Regulation S-K).

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent

Inspections

Not applicable.

PART III