AirJoule Technologies Corp.

Previous wording

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)” should be read in conjunction with our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2024 and 2023, and our audited financial statements as of the year ended December 31, 2023, included in Form 8-K filed with the SEC on March 20, 2024

Current wording

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements for the three months ended March 31, 2025 and 2024, and our audited financial statements as of the year ended December 31, 2024, included in Form 8-K filed with the SEC on March 25, 2025

Previous wording

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 Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. 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 Securities and Exchange Commission (“SEC”) filings.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

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 September 30, 2024 no revenue has been earned.

Current wording

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 March 31, 2025 no revenue has been earned from our operations.

Previous wording

The three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023

Current wording

The three months ended March 31, 2025 compared to the three months ended March 31, 2024

Previous wording

The following table sets forth the Company’s condensed consolidated statements of operations data for the three and nine months ended September 30, 2024 and 2023:

Current wording

The following table sets forth the Company’s condensed consolidated statements of operations data for the three months ended March 31, 2025 and 2024:

Previous wording

General and administrative expenses for the three months ended September 30, 2024 was $2.4 million as compared to $3.6 million for the three months ended September 30, 2023. The $1.1 million decrease was primarily related to increases in professional services such as legal, audit and accounting services offset by the reimbursement of costs incurred per the statement of work with AirJoule, LLC. Refer to Note 13 –Subsequent Events for further detail. 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.

Current wording

General and administrative expenses for the three months ended March 31, 2025 was $2.8 million as compared to $0.8 million for the three months ended March 31, 2024. The $2.0 million increase was primarily related to increases in professional services such as legal, audit and accounting services 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.

Previous wording

Research and Development expenses for the nine months ended September 30, 2024 was $1.8 million as compared to $2.5 million for the nine months ended September 30, 2023. The $0.7 million decrease in research and development 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.

Current wording

Research and development expenses for the three months ended March 31, 2025 was $0.4 million as compared to $0.8 million for the three months ended March 31, 2024. The $0.5 million decrease in research and development 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.

Previous wording

Sales and marketing for the three months ended September 30, 2024 was $23,639 as compared to $0.2 million for the three months ended September 30, 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.

Current wording

Sales and marketing expenses for the three months ended March 31, 2025 was $14,209 as compared to $37,725 for the three months ended March 31, 2024. We expect that our sales and marketing expenses will increase in future periods commensurate with the expected growth of our business.

Previous wording

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

Current wording

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.

Previous wording

Interest income was $0.4 million and $0.6 million, respectively for the three and nine months ended September 30, 2024 compared to $6,264 and $9,815 for the three and nine months ended September 30, 2023. This is a result of the increase in our cash balance.

Current wording

Interest income was $243,024 and $26,146 for the three months ended March 31, 2025 and 2024, respectively. This is a result of the increase in our cash balance.

Previous wording

An equity method investment received in exchange for noncash consideration is measured at fair value. As a result, for the nine months ended September 30, 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.

Current wording

An equity method investment received in exchange for noncash consideration is measured at fair value. As a result, for the three months ended March 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.

Previous wording

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 three months ended September 30, 2024 and for the period from March 4, 2024 to September 30, 2024, we recognized a loss of $2.3 million and $3.0 million, respectively from our 50% equity investment in the AirJoule JV.

Current wording

As previously noted, on January 25, 2024, the Predecessor entered into a joint venture with GE Ventures LLC, the AirJoule JV which closed on March 4, 2024. For the three months ended March 31, 2025 and for the period from March 4, 2024 to March 31, 2024, we recognized a loss of $2.2 million and $26,382, respectively from our 50% equity investment in the AirJoule JV.

Previous wording

Upon consummation of the Business Combination, we expensed approximately $53.7 million in Earnout Shares liability. The change in fair value of $31.8 million and $37.2 million for the three and nine months ended September 30, 2024, is due to a decrease in the estimated fair value of the liability and is recognized as a gain in the condensed consolidated statements of operations. The fair value of the liability decreased primarily due changes in the valuation inputs, mainly a change in the timing of future cash flows, a decrease in the stock price and an increase in the volatility.

Current wording

Upon consummation of the Business Combination, we expensed approximately $53.7 million in Earnout Shares liability. The change in fair value of $12.8 million and $(7.7) million for the three months ended March 31, 2025 and 2024, respectively, is due to a decrease in the estimated fair value of the liability and is recognized as a gain in the condensed consolidated statements of operations. The fair value of the liability decreased primarily due changes in the valuation inputs, mainly a decrease in the stock price, changes in the timing of future cash flows and an increase in the volatility.

Previous wording

Upon consummation of the Business Combination, we assumed approximately $0.6 million in earnout true up shares liability. The change in fair value of the liability of $(1.9) million and $(1.7) million during the three and nine months ended September 30, 2024, respectively, 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 condensed consolidated statements of operations.

Current wording

Upon consummation of the Business Combination, we assumed approximately $0.6 million in earnout true up shares liability. The change in fair value of the liability of $0.1 million and $0.3 million during the three months ended March 31, 2025 and 2024, respectively, is due to the triggering event and issuance of Class A common stock.

Previous wording

Upon consummation of the Business Combination, we assumed approximately $11.8 million for the subject vesting shares liability. The change in fair value of income of $8.2 million and $7.5 million during the three and nine months ended September 30, 2024, respectively, is due to a decrease in the estimated fair value of the liability recognized as a gain in the condensed consolidated statements of operations. The fair value of the liability decreased primarily due changes in the valuation inputs, mainly a change in the timing of future cash flows, a decrease in the stock price and an increase in the volatility.

Current wording

Upon consummation of the Business Combination, we assumed approximately $11.8 million for the subject vesting shares liability. The change in fair value of income of $5.5 million and $(2.4) million during the three months ended March 31, 2025 and 2024, respectively, is due to a decrease in the estimated fair value of the liability recognized as a gain in the condensed consolidated statements of operations. The fair value of the liability decreased primarily due changes in the valuation inputs, mainly a decrease in the stock price, changes in the timing of future cash flows and an increase in the volatility.

Previous wording

For the three and nine months ended September 30, 2024, income tax benefit (expense) was $1.3 million and $(83.2) million, respectively. During the three and nine months ended September 30, 2024, our contribution of a perpetual license to AirJoule, LLC’s intellectual property was measured at fair value 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 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.

Current wording

For the three months ended March 31, 2025 and 2024, income tax benefit (expense) was $1.6 million and $(85.7) million, respectively. During the three months ended March 31, 2024, our contribution of a perpetual license to AirJoule, LLC’s intellectual property was measured at fair value 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 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.

Previous wording

Our primary sources of liquidity have been cash from contributions from founders or equity capital raised from other investors. We had retained earnings of approximately $212.8 million as of September 30, 2024. As of September 30, 2024, we had $29.1 million of working capital including $30.7 million in cash, cash equivalents and restricted cash.

Current wording

Our primary sources of liquidity have been cash from contributions from founders or equity capital raised from other investors. We had retained earnings of approximately $213.4 million as of March 31, 2025. As of March 31, 2025, we had $22.8 million of working capital including $23.0 million in cash, cash equivalents and restricted cash.

Previous wording

We assesses its liquidity in terms of its ability to generate adequate amounts of cash to meet current and future needs. Its 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.

Current wording

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.

Previous wording

Our future capital requirements will depend on many factors, including, the timing and extent of spending to support the launch of its product and research and development efforts, the degree to which it is 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 million in cash to the AirJoule JV at the JV Closing and in June 2024, GE Vernova contributed $100 to the AirJoule JV. We has also agreed to contribute up to an additional $90 million in capital contributions to the AirJoule JV following the JV Closing 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.

Current wording

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 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.

Previous wording

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 its business needs. While we believe that the proceeds realized to date will be sufficient to meet its 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 it or at all. If we are unable to raise additional capital on acceptable terms when needed, its product development business, results of operations and financial condition would be materially and adversely affected.

Current wording

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.

Previous wording

Cash flows for the nine months ended September 30, 2024 and 2023

Current wording

Cash flows for the three months ended March 31, 2025 and 2024

Previous wording

The following table summarizes our cash flows from operating, investing and financing activities for the nine months ended September 30, 2024 and 2023:

Current wording

The following table summarizes our cash flows from operating, investing and financing activities for the three months ended March 31, 2025 and 2024:

Previous wording

During the nine months ended September 30, 2023, net cash used in operating activities was $4.0 million and primarily reflected our net loss from operations offset by an increase in accounts payable and accrued expenses and other liabilities.

Current wording

During the three months ended March 31, 2025, net cash provided by operating activities was $72,246 and primarily reflected our net income from operations and changes in operating assets and liabilities including decreases in our due from related party and accrued expenses and other liabilities accounts.

Previous wording

During the nine months ended September 30, 2024, net cash used in operating activities was $21.6 million and primarily reflected our net income from operations and decreases in accounts payable, accrued expenses and other liabilities.

Current wording

During the three months ended March 31, 2024, net cash used in operating activities was $6.4 million and primarily reflected our net income from operations and decreases in accounts payable and accrued expenses and other liabilities.

Previous wording

During the nine months ended September 30, 2024, net cash used in investing activities was $10.0 million as a result of the Company’s contribution made to AirJoule, LLC.

Current wording

During the three months ended March 31, 2024, net cash used in investing activities was $10.0 million as a result of the contribution made to AirJoule, LLC.

Previous wording

During the nine months ended September 30, 2024, net cash provided by financing activities was $61.9 million and primarily related to proceeds from the issuance of Legacy Montana common stock related to private placements prior to the Merger and the exercise of stock options and warrants and the issuance of common stock to PIPE investors.

Current wording

During the three months ended March 31, 2024, net cash provided by financing activities was $43.5 million and was primarily related to proceeds from the issuance of the Predecessor common stock related to private placements prior to the Merger, and the exercise of stock options and warrants.

Previous wording

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 $62,500 and $37,500 was expensed for the three months ended September 30, 2024 and 2023, respectively and $187,500 and $112,500 was expensed for the nine months ended September 30, 2024 and 2023, respectively. At September 30, 2024 and December 31, 2023, $187,500 and $150,000, respectively, was accrued in the accompanying condensed consolidated balance sheet.

Current wording

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 $75,000 and $62,500 was expensed for the three months ended March 31, 2025 and 2024, respectively. At March 31, 2025 and December 31, 2024, $75,000 and $0.3 million, respectively, was accrued in the accompanying condensed consolidated balance sheets.

Previous wording

On October 27, 2021, we entered into a joint venture agreement with CATL US, an affiliate of CATL, pursuant to which we and CATL US formed CAMT, a limited liability company organized under the laws of Hong Kong. Legacy Montana and CATL US each own 50% of CAMT’s issued and outstanding shares.

Current wording

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.

Previous wording

Pursuant to the Amended and Restated Joint Venture Agreement for CAMT, entered into on September 29, 2023 Legacy Montana and CATL US have each agreed to contribute $6 million to CAMT. Contributions will be requested by CAMT based on a business plan and operating budgets to be agreed between us and CATL US. Any additional financing beyond the initial $12 million (i.e., $6 million from each of Legacy Montana and CATL US) will be subject to the prior mutual agreement of Legacy Montana 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 Legacy Montana. In the event of an equal vote, the chairman may cast the deciding vote. Certain reserved matters, including debt issuances exceeding $5 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 Legacy Montana in an amount exceeding $10 million in a single transaction or in aggregate within a fiscal year, require the unanimous vote of both CATL US and Legacy Montana or all directors. As of September 30, 2024, we have not funded this joint venture or contributed any assets to the joint venture.

Current wording

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 March 31, 2025, we have not funded this joint venture or contributed any assets to the joint venture.

Previous wording

The purpose of Legacy Montana’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.

Current wording

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.

Previous wording

We account for share-based compensation arrangements granted to employees in accordance with ASC 718,Share-based 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 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 performance condition will be achieved. We account for forfeitures when they occur.

Current wording

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. Once it is probable that the performance condition will be achieved, we recognize stock-based compensation cost over the remaining requisite service period on a graded vesting basis, with a cumulative adjustment for the portion of the service period that occurred for the period prior to the performance condition becoming probable of achievement, if any. Stock-based compensation expense for equity awards that contain market vesting conditions is recognized over the requisite service period commencing on the grant date even if the market condition is not satisfied.

Previous wording

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 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.

Current wording

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. The grant date fair value of restricted stock units that contain service vesting conditions are estimated based on the fair value of the underlying stock on the grant date. For restricted stock units with market vesting conditions, the fair value is estimated using a Monte Carlo simulation model, which incorporates the likelihood of achieving the market condition.

Previous wording

We estimate 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*.*The Monte-Carlo simulation model was selected as the valuation methodology for the Earnout Shares due to the path-dependent nature of 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 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, volatility of the underlying stock, 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 Common Stock. An increase of 100-basis points in interest rates would not have a material impact on our stock-based compensation. During the period from the date of the Business Combination through September 30, 2024 we did not record stock-based compensation expense associated with these Earnout Shares as the performance conditions associated with these Earnout Shares were not deemed probable of achievement. Unrecognized stock-based compensation expense for these Earnout Shares with a performance-based vesting condition that was not deemed probable of occurring as of September 30, 2024 was $4.5 million which is expected to vest subject to the performance-based vesting condition being satisfied or deemed probable.

Current wording

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 March 31, 2025 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 March 31, 2025 was $3.2 million which is expected to vest subject to the performance-based vesting condition being satisfied or deemed probable.

Previous wording

In connection with the reverse recapitalization and pursuant to the Business Combination Agreement, eligible former Legacy Montana Equityholders are entitled to receive the Earnout Shares upon us achieving certain Earnout Milestones (as described in the Merger Agreement). The settlement of the Earnout Shares to the holders of Legacy Montana 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.

Current wording

In connection with the reverse recapitalization and pursuant to the Merger Agreement, eligible former Predecessor equityholders 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.

Previous wording

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 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 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.

Current wording

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.

Previous wording

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.

Current wording

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 judgment 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.

Previous wording

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.

Current wording

Under the equity method of accounting, our investment is initially recorded at fair value on the condensed 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.

Previous wording

We determine 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, 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.

Current wording

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.

Previous wording

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 condensed 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.

Current wording

If a warrant does not meet the conditions for stockholders’ equity (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 condensed 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.