Company: AIRJW
Filing Date: 2025-03-25
Form Type: 10-K
Source: 0001013762-25-002263
Chunk: 2046

Company: AirJoule Technologies Corp.
Filing Date: 2025-03-25
Form: 10-K
Item: Item 15
Chunk 2046
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. See Note 4 – Recapitalization. The settlement of the Earnout Shares to the
                                                                         Predecessor equity holders depends on factors other than just the Company’s stock price. As such, management determined that
                                                                         the Earnout Shares should be classified as a liability and recognized at fair value at each reporting period with changes in fair
                                                                         value included in the consolidated statements of operations.

The Company estimated fair value of the Earnout Shares with a Monte
Carlo simulation using a distribution of potential outcomes for expected earnings before interest, taxes, depreciation and amortization
(“EBITDA”) and stock price at expected commission dates, utilizing a correlation coefficient for EBITDA and stock price, and
assuming $50.0 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. The commission
dates used reflected management’s best estimates regarding the time to complete full construction and achieve operational viability
of a production line, including all permitting, regulatory approvals and necessary or useful inspections. The five-year period and overall
settlement mechanics for the Earnout Shares represent contractual inputs. Management’s valuation of the Earnout Shares liability
involves certain assumptions requiring significant judgment and actual results may differ from assumed and estimated amounts.

The Company determined the Earnout Shares associated with employees
are accounted for as compensation expense under FASB ASC Topic 718, Share-based Compensation (“ASC 718”). See “Share-Based
Compensation” below.

Derivative Financial Instruments and Other
Financial Instruments Carried at Fair Value

The Company does not use derivative instruments to hedge exposures
to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including the True Up Shares
issued in connection with the Subscription Agreement and the Subject Vesting Shares issued in connection with the Business Combination,
to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB
ASC 815, Derivatives and Hedging (“ASC 815”). The classification of derivative instruments, including whether such
instruments should be recorded as liabilities or as