Company: AIRJW
Filing Date: 2025-03-25
Form Type: 10-K
Source: 0001013762-25-002263
Chunk: 389

Company: AirJoule Technologies Corp.
Filing Date: 2025-03-25
Form: 10-K
Item: Item 1B
Chunk 389
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ASB 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.

32

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