AirJoule Technologies Corp. (AIRJ)

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.

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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:

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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:

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.

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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.

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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:

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.

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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.

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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.

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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.

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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.

34

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 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.

References to the “Company,”
“our,” “us” or “we” refer to Power & Digital Infrastructure Acquisition II Corp. The following
discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited financial
statements and the notes related thereto which are included in “Item 8. Financial Statements and Supplementary Data” of this
Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements.
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including
those set forth under “Cautionary Note Regarding Forward-Looking Statements,” “Item 1.A. Risk Factors” and elsewhere
in this Annual Report on Form 10-K.

Cautionary Note Regarding Forward-Looking
Statements

This Annual Report on
Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities
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. Factors
that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings.

Overview

We are a blank check company
incorporated in Delaware on March 23, 2021, formed for the purpose of effecting a merger, capital stock exchange, asset acquisition,
stock purchase, reorganization or other similar business combination with one or more businesses or entities (a “Business Combination”).
We are an emerging growth company and, as such, we are subject to all of the risks associated with emerging growth companies.

Our sponsor is XPDI Sponsor
II LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for our initial public offering
(the “IPO”) was declared effective on December 9, 2021. On December 14, 2021, we consummated our IPO of 28,750,000 units,
which included the exercise of the underwriters’ option to purchase an additional 3,750,000 units at the IPO price to cover over-allotments
(the “Over-Allotment Units”), at $10.00 per unit, generating gross proceeds of $287.5 million, and incurring offering costs
of approximately $20.7 million, of which approximately $10.1 million was a deferred discount, which was subsequently reduced to approximately
$6 million following the resignation of BofA Securities, Inc. (“BofA”) as an underwriter as described below.

Simultaneously with the
closing of our IPO, we completed the private placement (the “Private Placement”) of 11,125,000 private placement warrants
(the “Private Placement Warrants”), at a price of $1.00 per Private Placement Warrant to our Sponsor and certain funds and
accounts managed by subsidiaries of BlackRock, Inc., an unrelated party (the “Anchor Investors”), generating proceeds of
approximately $11.1 million.

Upon the closing of the
IPO and the Private Placement on December 14, 2021, approximately $290.4 million ($10.10 per unit) of the net proceeds of the sale of
the units in the IPO, including proceeds from the sale of the Over-Allotment Units and certain of the proceeds from the sale of the Private
Placement Warrants, were deposited into a segregated Trust Account (the “Trust Account”) located in the United States with
Continental Stock Transfer & Trust Company acting as trustee and approximately $1.7 million of such net proceeds were deposited in
our operating account to pay expenses in connection with the closing of the IPO and for working capital following the IPO. The proceeds
held in the Trust Account have been (i) held in an interest-bearing bank demand deposit account or (ii) invested in U.S. “government
securities,” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company
Act”), having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under
the Investment Company Act, which invest only in direct U.S. government treasury obligations, as determined by the Company, until the
earlier of: (i) the completion of an initial Business Combination and (ii) the distribution of the Trust Account as described below.

58

Our management has broad
discretion with respect to the specific application of the net proceeds of the IPO and the sale of Private Placement Warrants, although
substantially all of the net proceeds are intended to be applied generally toward consummating an initial Business Combination. There
is no assurance that we will be able to complete an initial Business Combination successfully. We must complete one or more initial Business
Combinations having an aggregate fair market value of at least 80% of the net assets held in the Trust Account (net of amounts disbursed
to management for working capital purposes and excluding the deferred underwriting commissions and taxes payable on the interest earned
on the Trust Account) at the time of the agreement to enter into the initial Business Combination. However, we will only complete an
initial Business Combination if the post-transaction company owns or acquires 50% or more of the voting securities of the target or otherwise
acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment
Company Act.

On May 15, 2023, we filed
a definitive proxy statement for the solicitation of proxies in connection with the special meeting in lieu of annual meeting of the
Company’s stockholders (the “Extension Special Meeting”) to consider and vote on, among other proposals, the extension
of the date by which the Company must consummate an initial business combination from June 14, 2023 (the “Initial Outside Date”)
to December 14, 2023 (such date, the “Extended Date”), and to allow the Company, without another stockholder vote, by resolution
of the Company’s Board to elect to further extend the Extended Date in one-month increments up to three additional times, or a
total of up to nine months after the Initial Outside Date, until March 14, 2024, unless the closing of a Business Combination shall have
occurred prior thereto or such earlier date as determined by our Board to be in the best interests of the Company (such proposal, the
“Extension Amendment Proposal”), and the amendment of the Company’s amended and restated certificate of incorporation
to remove the limitation that the Company may not redeem public shares to the extent that such redemption would result in the Company
having net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) (or any successor rule)) of less than $5,000,001 (such proposal, the “Redemption Limitation Amendment
Proposal”).

On June 5, 2023, the Company
entered into the Merger Agreement, and on February 5, 2024, the Company entered into that certain First Amendment to the Merger Agreement
(the “Amendment”), see “Contractual Obligations—Merger Agreement” below.

At the Extension Special
Meeting on June 9, 2023, the Company’s stockholders approved the Extension Amendment Proposal and the Redemption Limitation Amendment
Proposal. In connection with the stockholders’ vote at the Extension Special Meeting, the stockholders elected to redeem 18,141,822
shares of Class A common stock at a redemption price of approximately $10.37 per share, for an aggregate redemption amount of approximately
$188,132,132 (the “June Redemptions”). After the satisfaction of the June Redemptions, the balance in the Trust Account as
of December 31, 2023 was approximately $114,641,527. Upon completion of the June Redemptions, 10,608,178 shares of Class A common stock
and 7,187,500 shares of Class B common stock remain issued and outstanding.

In connection with the approval
of the Extension Amendment Proposal, the company deposited $300,000 in the Trust Account on June 15, 2023, July 10, 2023 and August 10,
2023 and the sponsor deposited $300,000 in the Trust Account on September 8, 2023, October 10, 2023, and November 9, 2023.

On December 12, 2023, the
Board approved an extension of the date by which the Company must consummate an initial business combination from December 14, 2023 to
January 14, 2024.

On January 10, 2024, the
Board approved an extension of the date by which the Company must consummate an initial business combination from January 14, 2024 to
February 14, 2024.

On February 8, 2024, the
Board approved an extension of the date by which the Company must consummate an initial business combination from February 14, 2024 to
March 14, 2024.

On February 20, 2024, we
filed a definitive proxy statement for the solicitation of proxies in connection with a special meeting of stockholders of the Company
to consider and vote on, among other proposals, the extension of the date by which the Company must consummate an initial business combination
from March 14, 2024 to April 14, 2024, and to allow the Company, without another stockholder vote, by resolution of the Board, to elect
to further extend such date in one-month increments up to three additional times until July 14, 2024 (the “2024 Extension”),
unless the closing of a an initial business combination shall have occurred prior thereto, or such earlier date as determined by the
Board to be in the best interests of the Company.

59

Liquidity, Capital Resources and Going Concern

Our liquidity needs to date
have been satisfied through a capital contribution of $25,000 from our Sponsor to purchase our Class B common stock (the “Founder
Shares”), the related party loan under a promissory note of approximately $115,000 from, our Sponsor, which was repaid in full
on December 17, 2021, and the net proceeds from the consummation of the Private Placement not held in the Trust Account. In addition,
in order to finance transaction costs in connection with an initial Business Combination, our officers, directors and initial stockholders
may, but are not obligated to, provide working capital loans. As of December 31, 2023, there were no amounts outstanding under any working
capital loans.

In connection with the Company’s assessment of going concern
considerations in accordance with the Financial Accounting Standards Board’s (“FASB’s”) Accounting Standards Codification
(“ASC”) Topic 205-40, “Presentation of Financial Statements – Going Concern,” management has determined
that the liquidity needs, mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s ability
to continue as a going concern, which is considered to be one year from the issuance of these financial statements. No adjustments have
been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after March 14, 2024. The financial
statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern. The Company
intends to complete a Business Combination before the mandatory liquidation date, as it may be extended. Over this time period, the Company
will be using the funds outside of the Trust Account for paying existing accounts payable and meeting conditions to closing the Business
Combination. See Note 10 – Subsequent Events, of the Notes to Consolidated Financial Statements included in “Item 8. Financial
Statements and Supplementary Data” of this report.

The Company cannot provide
any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern through one year from the issuance date of these financial statements.
These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the
liabilities that might be necessary should the Company be unable to continue as a going concern.

In February 2022, the Russian
Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including
the United States, have instituted economic sanctions against the Russian Federation and Belarus. The recent military conflict between
Israel and militant groups led by Hamas has also caused uncertainty in the global markets. Further, the impact of these actions and related
sanctions on the world economy are not determinable as of the date of these financial statements.

On August 16, 2022, the
Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things,
a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic
subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing
corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair
market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing
corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases
during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”)
has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.
Any share redemption or other share repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension
vote or otherwise, may be subject to the excise tax. Whether and to what extent we would be subject to the excise tax in connection with
a Business Combination, extension vote or otherwise will depend on a number of factors, including (i) the fair market value of the redemptions
and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii)
the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued
not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content
of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by us and not by the redeeming
holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the
cash available on hand to complete a Business Combination and in our ability to complete a Business Combination. Further, the application
of the excise tax in the event of a liquidation is uncertain.

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Results of Operations

Our entire activity since
inception up to December 31, 2023 has been related to our formation, the preparation for the IPO, and since the closing of the IPO, the
search for a prospective initial Business Combination. We will not generate any operating revenues until after the completion of our
initial Business Combination. We generate non-operating income in the form of investment income from the Trust Account. We will continue
to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance),
as well as for due diligence expenses.

For the year ended December 31, 2023, we had a
net income of approximately $1.2 million, which consisted of approximately $9.1 million of income from investments held in the Trust Account,
and reversal of transaction costs incurred in connection with IPO of approximately $0.2 million, offset by approximately $6.3 million
in operating expenses and approximately $1.8 million in income tax expenses. Operating expenses were comprised of approximately $5.9 million
of general and administrative expenses, $240,000 of general and administrative expenses - related party, and $200,000 of franchise tax
expenses.

For the year ended December
31, 2022, we had a net income of approximately $2.0 million, which consisted of approximately $4.2 million of income from investments
held in the Trust Account, partially offset by approximately $1.3 million in operating expenses and approximately $802,000 in income
tax expenses. Operating expenses were comprised of approximately $888,000 of general and administrative expenses, $240,000 of general
and administrative expenses - related party, and $215,000 of franchise tax expense.

Contractual Obligations

Registration Rights

The holders of Founder Shares,
Private Placement Warrants and warrants that may be issued upon conversion of working capital loans, if any (and any shares of common
stock issuable upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the working capital loans and
upon conversion of the Founder Shares), were entitled to registration rights pursuant to a registration rights agreement to be signed
prior to the consummation of the IPO (the “Registration Rights Agreement”). These holders are entitled to certain demand
and “piggyback” registration rights. However, the Registration Rights Agreement provides that we will not be required to
effect or permit any registration or cause any registration statement to become effective until termination of the applicable lock-up
period. We will bear the expenses incurred in connection with the filing of any such registration statements.

Underwriting Agreement

BofA and Barclays Capital
Inc. (“Barclays”), the underwriters in our IPO, were entitled to an underwriting discount of $0.20 per unit on all units
sold in the IPO, except for the units purchased by the Anchor Investors, or approximately $5.3 million in the aggregate, paid upon the
closing of the IPO.

BofA and Barclays were also
entitled to an additional fee of $0.35 per unit, or $10,062,500 in the aggregate. The deferred fee will become payable to the underwriters
from the amounts held in the Trust Account solely in the event that we complete an initial Business Combination, subject to the terms
of the underwriting agreement.

On June 20, 2023, BofA formally notified the Company in writing that
it had resigned and withdrew from its role in the Business Combination and thereby, for no additional consideration, waived its entitlement
to its portion of the Deferred Discount despite having already completed the services and obligations that would entitle BofA to payment
under the terms of the underwriting agreement. As a result, the reduction in deferred fees was allocated on a pro rata basis between additional
paid-in capital and other income based upon the original amount of the deferred underwriting fees allocation to the liability-classified
instruments in the IPO. Therefore, the deferred underwriting fee was reduced by $4,025,000, of which $205,275 is reflected in the consolidated
statement of operations as other income and $3,819,725 is charged to additional paid-in capital in the statement of stockholders’
deficit. As a result of the waiver, and pursuant to that agreement dated June 4, 2023 among Barclays Capital Inc., the Company and XPDI
Sponsor II LLC, the outstanding deferred underwriting fee payable upon closing of the Business Combination was reduced to approximately
$6.0 million.

61

Administrative Support Services

Commencing on December 9,
2021, we have agreed to pay affiliates of our Sponsor a total of $20,000 per month for office space and administrative support services.
Upon completion of our initial Business Combination or our liquidation, we will cease paying these monthly fees. In connection with our
initial Business Combination, we will make a cash payment in an aggregate amount of up to $3,000,000 to affiliates of our Sponsor or Anchor
Investors for any financial advisory, placement agency or other similar investment banking or consulting services that affiliates of our
Sponsor or Anchor Investors have provided and may continue to provide to us in connection with our initial Business Combination, and may
reimburse to affiliates of our Sponsor or Anchor Investors for any out-of-pocket expenses incurred by it in connection with the performance
of such services.

Merger Agreement

On June 5, 2023, the Company
and XPDB Merger Sub, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“Merger Sub”),
entered into an Agreement and Plan of Merger (as it may be amended, supplemented or otherwise modified from time to time in accordance
with its terms, the “Merger Agreement”) with Montana Technologies LLC, a Delaware limited liability company (“Montana”),
pursuant to which Merger Sub will merge with and into Montana, with Montana surviving the Merger as a wholly owned subsidiary of the Company
(the “Merger” and, along with the transactions contemplated in the Merger Agreement, the “Proposed Transactions”).
Following the closing of the Proposed Transactions (the “Closing”), the Company will be renamed “Montana Technologies
Corporation” (the “Combined Company”).

As part of the Business Combination,
equity holders of Montana will receive aggregate consideration of approximately $421.9 million (subject to adjustment as described in
the Merger Agreement), payable (i) in the case of Class B and holders of Class C common units of Montana, in the form of newly issued
shares of Class A common stock, par value $0.0001 per share, of the Combined Company (“Combined Company Class A common stock”),
with a $10.00 value ascribed to each such share and which will entitle the holder thereof to one vote per share on all matters submitted
to a vote of the holders of common stock, whether voting separately as a class or otherwise, (ii) in the case of holders of Class A common
units of Montana, in the form of newly issued shares of Class B common stock, par value $0.0001 per share, of the Combined Company (“Combined
Company Class B common stock”) with a $10.00 value ascribed to each such share and which will entitle the holder thereof to a number
of votes per share such that the equity holders of Montana as of immediately prior to the Closing will, immediately following the Closing,
collectively own shares representing at least 80% of the voting power of all classes of capital stock of the Combined Company entitled
to vote on matters submitted to a vote of the stockholders of the Combined Company and (iii) in the case of Montana’s option holders
and warrant holders, in the form of options and warrants of the Combined Company, respectively, having substantially similar terms to
the applicable options and warrants of Montana.

Montana’s equity holders
(other than warrant holders) will also have the opportunity to receive additional equity consideration (in each case, in accordance with
their respective pro rata share) in the form of shares of Combined Company Class A common stock with a $10.00 value ascribed to each share
(the “Earnout Shares”), only upon full completion of construction and operational viability (including all permitting, regulatory
approvals and necessary or useful inspections) of new production capacity of Montana’s key components or assemblies based solely
on demand from bona fide customer commitments evidenced by binding contracts (or in the discretion of a majority of the independent members
of the board of directors of the Combined Company, a non-binding letter of intent or indication of interest or similar writing that is
substantially likely to become a binding contract) with a known price or pricing formula that exceeds a level of production capacity that
is expected to generate Annualized EBITDA of more than $150,000,000 (the “Threshold Annualized EBITDA”), which shall be determined
by a majority of the independent members of the board of directors of the Combined Company in its sole discretion, equal to (i) the ratio
of (x) (1) the Annualized EBITDA that is expected from such new production capacity (the “Expected Annualized EBITDA”) less
(2) (A) the Threshold Annualized EBITDA plus (B) all previously Expected Annualized EBITDA amounts associated with previous new production
capacities for which previous earnouts were achieved, divided by (y) $150,000,000 multiplied by (ii) $200,000,000, provided that
the aggregate Expected Annualized EBITDA may not exceed $300,000,000.

62

The maximum value of the
Earnout Shares will be capped at $200 million and the ability to receive Earnout Shares will expire on the fifth anniversary of the Closing.
A majority of the independent members of the board of directors of the Combined Company then serving will have sole discretion in determining,
among other things, the achievement of the applicable milestones, the calculations of payments of Earnout Shares to the applicable Montana
equity holders, the dates on which construction and operational viability of new production capacity is deemed completed and whether to
consent to a transfer of the applicable Montana equity holder’s right to receive Earnout Shares. Earnout Shares issuable in respect
of Montana options outstanding as of immediately prior to the effective time of the Merger may be issued to the holder of such Montana
option only if such holder continues to provide services (whether as an employee, director or individual independent contractor) to the
Combined Company or one of its subsidiaries through the date on which such Earnout Shares are issued, as determined by a majority of the
independent members of the Combined Company Board.

As of the date of the Merger
Agreement, 100.0% of the total outstanding Class A common units of Montana and 72.7% of the total outstanding Class B common units of
Montana (or an aggregate of approximately 76.6% of the total outstanding Class A common units and Class B common units of Montana in the
aggregate) were held by unitholders that are expected to continue as directors, officers or employees of the Combined Company. The retention
of certain holders of options of Montana who will continue as directors, officers or employees of the Combined Company (whose responsibilities
are expected to include continued technology development and commercial execution) is integral to the achievement of the milestones that
will determine whether Earnout Shares are payable. Montana does not believe that such targets are achievable absent the continued involvement
of such persons. The Combined Company is expected to provide competitive compensation, benefits and equity awards (pursuant to the terms
of the Montana Technologies Corporation 2023 Incentive Award Plan) to these individuals following the Merger in order to incentivize these
individuals to continue to provide services to the Combined Company.

On February 5, 2024, the
Company, Merger Sub, and Montana entered into the Amendment to the Merger Agreement, amending the Merger Agreement to, among other things,
(i) amend the definition of Aggregate Transaction Proceeds and (ii) reduce the Aggregate Transaction Proceeds condition from $85 million
to $50 million.

Sponsor Support Agreement

In connection with the execution
of the Merger Agreement and pursuant to the terms of the Sponsor Support Agreement (the “Sponsor Support Agreement”) entered
into among the Sponsor, the Company, Montana and other holders of the Company’s Class B common stock, $0.0001 par value per share
(the “Class B common stock”), the Sponsor and the other holders of Class B common stock agreed to, among other things, (i)
vote any Class A common stock, $0.0001 par value per share (the “Class A common stock”), of the Company or Class B common
stock (collectively, the “Sponsor Securities”), held of record or thereafter acquired in favor of the proposals presented
by the Company at a special meeting to approve the Proposed Transactions, (ii) be bound by certain other covenants and agreements related
to the Proposed Transactions, (iii) be bound by certain transfer restrictions with respect to the Sponsor Securities and (iv) waive certain
antidilution protections with respect to the Sponsor Securities, in each case, on the terms and subject to the conditions set forth in
the Sponsor Support Agreement. In addition, pursuant to the terms of the Sponsor Support Agreement, the Sponsor has agreed to waive its
redemption rights with respect to any Sponsor Securities in connection with the completion of a Business Combination (which waiver was
provided in connection with the IPO and without any separate consideration paid in connection with providing such waiver), has agreed
not to transfer any Public Shares and Founder Shares held by it during the time prior to (i) Closing or (ii) the termination of the Merger
Agreement, has agreed to waive anti-dilution protections and has agreed to subject certain of the shares of Combined Company Class A common
stock held by Sponsor following the conversion of the Founder Shares as of the Closing to certain vesting provisions. Specifically, the
Sponsor Support Agreement provides that as of immediately prior to (but subject to) the Closing, 1,380,736 shares of Combined Company
Class A common stock held by the Sponsor following the conversion of the Founder Shares as of the Closing (the “Subject Vesting
Shares”) will be subject to an earnout, with the Subject Vesting Shares vesting during the period beginning on the date of Closing
and ending five (5) years following the date of Closing (i) simultaneously with the Earnout Payments made to the Montana equity holders
in a proportionate amount to the payment achieved in relation to the maximum issuance of Earnout Shares of equity interests of $200 million
(the “Performance Vesting Trigger”) and (ii) up to 50% of the Subject Vesting Shares (including any vested Subject Vesting
Shares from the Performance Vesting Trigger) vesting on any day following the Closing when the closing price of a share of Combined Company
Class A common stock on the Nasdaq (the “Closing Share Price”) equals or exceeds $12.00 (as adjusted for stock splits, stock
dividends, reorganizations, recapitalizations and the like) and all remaining Subject Vesting Shares vesting when the Closing Share Price
equals or exceeds $14.00 (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like).

The Sponsor Support Agreement
will terminate on the earlier of (i) the date the Business Combination becomes effective and (ii) the termination of the Merger Agreement
in accordance with its terms.

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Investment Agreement

On September 29, 2023, we
entered into an Investment Agreement (the “Investment Agreement”) with Montana, Contemporary Amperex Technology Co., Limited
(“CATL”), CATL US Inc., an affiliate of CATL (“CATL US”) and Contemporary Amperex Technology USA Inc. an affiliate
of CATL (“CATL USA,” and, together with CATL US and CATL, the “CATL Parties”), pursuant to which the CATL Parties
agreed, among other things, that they will not, directly or indirectly, (i) acquire any additional units of the Combined Company, (ii)
seek election to, or to place a representative on, Montana’s board of managers or the board of directors of the Combined Company,
or (iii) acquire any securities of the Combined Company if, following such acquisition, the CATL Parties and their affiliates would hold,
in the aggregate, an interest in the Combined Company of greater than 9.8% on either an economic or voting basis (the “CATL Ownership
Limit”). In the event the CATL Parties and their affiliates exceed the CATL Ownership Limit, the CATL Parties have agreed, following
written notice from the Combined Company, to divest within five business days such number of Combined Company securities as shall be necessary
to cause the CATL Ownership Limit not to be exceeded. In addition, at any time the CATL Ownership Limit is exceeded, the CATL Parties
have agreed to vote any voting power they hold in excess of 9.8% in accordance with the recommendation of the board of directors of the
Combined Company.

The CATL Parties agreed that
they will not, and will cause their affiliates not to, access, obtain, or seek to access or obtain Montana or the Combined Company’s
trade secrets, know-how, or other confidential, proprietary, or competitively sensitive information (excluding any such information that
Montana is obligated to provide to CATL US, CAMT, or CAMT’s subsidiaries pursuant to that certain Amended and Restated Joint Venture
Agreement for CAMT, dated as of September 29, 2023, by and among Montana, CAMT Climate Solutions, Ltd. (“CAMT”) and CATL US),
including by reverse engineering, or seeking to reverse engineer, any of Montana’s products.

Montana has agreed to use
its reasonable best efforts to assist CATL USA in selling, prior to the consummation of the Business Combination, units of Montana representing
at least 2% of Montana’s issued and outstanding units at a price per unit that is not materially lower than the price per unit implied
by the valuation of Montana in connection with the Business Combination. In so assisting CATL USA, Montana is not obligated to incur any
expenses or grant any concessions, nor is it obligated to prioritize any sale by CATL USA over its own capital raising or financing activities.

The Investment Agreement
contains customary representations and warranties and may be terminated only with the written consent of the parties thereto.

Carrier Letter Agreement

On January 7, 2024, we entered
into a letter agreement with Montana and Carrier Corporation, an affiliate of Carrier Global Corporation (NYSE: CARR), a global leader
in intelligent climate and energy solutions (collectively with its affiliates, “Carrier”), pursuant to which Carrier, Montana
and the Company agreed, among other things, to provide Carrier the right to nominate one (1) designee, subject to the approval of the
Company, for election to the board of directors of the Combined Company for so long as Carrier satisfies certain investment conditions,
following the business combination between the Company and Montana.

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Other Agreements

On November 12, 2023, we entered
into an arrangement pursuant to which, under certain circumstances, up to 2% of the proceeds of the capital raised in transactions arranged
by certain third parties from investors located in certain limited jurisdictions may be paid to such third parties. On December 14, 2023,
Montana agreed to reimburse, and did reimburse, the Company 50% of certain expenses incurred by third parties and paid by the Company
in connection with this arrangement.

Critical Accounting Estimates

We prepare our consolidated financial
statements in accordance with U.S. generally accepted accounting principles, which require our management to make estimates that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet
dates, as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material
differences between these estimates and actual results, our financial condition or results of operations would be affected. We base
our estimates on our own historical experience and other assumptions that we believe are reasonable after taking into account our
circumstances and expectations for the future based on available information. We evaluate these estimates on an ongoing basis.

We consider an accounting estimate to be critical
if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate
was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that
we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.
There are items within our financial statements that require estimation but are not deemed critical, as defined above.

For a detailed discussion of our significant accounting
policies and related judgements, see Note 2 – Summary of Significant Accounting Policies, of the Notes to Consolidated Financial
Statements included in “Item 8. Financial Statements and Supplementary Data” of this report.

Derivative Warrant Liabilities

We do not use derivative
instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all of our financial instruments,
including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives, pursuant to Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”)
Topic 480 “Distinguishing Liabilities from Equity” (“ASC 480”) and FASB ASC Topic 815-40, “Derivatives and
Hedging - Contracts in Entity’s Own Stock” (“ASC 815”). The classification of derivative instruments, including
whether such instruments should be classified as liabilities or as equity, is re-assessed at the end of each reporting period.

The Public Warrants and the
Private Placement Warrants are not precluded from equity classification, based on the guidance in ASC 480 and ASC 815. Equity-classified
contracts are initially measured at fair value (or allocated value). Subsequent changes in fair value are not recognized as long as the
contracts continue to be classified in equity.

Class A Common Shares Subject to Possible Redemption

We account for our Class
A common stock subject to possible redemption in accordance with the guidance in ASC 480. Class A common stock subject to mandatory redemption
(if any) is classified as liability instruments and are measured at fair value. Conditionally redeemable Class A common stock (including
Class A common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the
occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, Class A common stock
is classified as stockholders’ equity. Our Class A common stock feature certain redemption rights that are considered to be outside
of our control and subject to the occurrence of uncertain future events. Accordingly, all of our outstanding shares of Class A common
stock is presented at redemption value as temporary equity, outside of the stockholders’ equity section of our balance sheets.

Under ASC 480, we have elected
to recognize changes in the redemption value immediately as they occur and adjust the carrying value of the security to equal the redemption
value at the end of the reporting period. This method would view the end of the reporting period as if it were also the redemption date
of the security. Effective with the closing of the IPO, we recognized the accretion from initial book value to redemption amount, which
resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.

Net Income per Common Share

We comply with accounting
and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” We have two classes of shares, which are referred
to as Class A common stock and Class B common stock. Income and losses are shared pro rata between the two classes of shares. Net income
per common share is calculated by dividing the net income by the weighted average shares of common stock outstanding for the respective
period.

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The calculation of diluted
net income does not consider the effect of the Public Warrants and the Private Placement Warrants to purchase an aggregate of 25,500,000
shares of Class A common stock in the calculation of diluted income per share, because their exercise is contingent upon future events
and their inclusion would be anti-dilutive under the treasury stock method. As a result, diluted net income per share is the same as basic
net income per share for the year ended December 31, 2023 and 2022. Accretion associated with the redeemable Class A common stock is excluded
from earnings per share as the redemption value approximates fair value.

Recent Accounting Pronouncements

In December 2023, the FASB
issued Accounting Standards Updated (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU
2023-09), which requires disclosure of incremental income tax information within the rate reconciliation and expanded disclosures of income
taxes paid, among other disclosure requirements. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption
is permitted. The Company’s management does not believe the adoption of ASU 2023-09 will have a material impact on its financial
statements and disclosures.

Our management does not believe
that there are any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect
on our consolidated balance sheets.

Off-Balance Sheet Arrangements and Contractual
Obligations

As of December 31, 2023,
we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments
or contractual obligations.

JOBS Act

The Jumpstart Our Business
Startups Act of 2012, or the JOBS Act, contains provisions that, among other things, relax certain reporting requirements for qualifying
public companies. We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised
accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption
of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates
on which adoption of such standards is required for non- emerging growth companies. As a result, the financial statements may not be comparable
to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Additionally, we are in the
process of evaluating the benefits of relying on the other 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 choose to rely on such exemptions we may not
be 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, (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 PCAOB 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 CEO’s compensation to median employee
compensation. These exemptions will apply for a period of five years following the completion of our IPO or until we are no longer an
“emerging growth company,” whichever is earlier.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

References to the “Company,” “our,”
“us” or “we” refer to Power & Digital Infrastructure Acquisition II Corp. The following discussion and analysis
of our financial condition and results of operations should be read in conjunction with the audited financial statements and the notes
related thereto which are included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form
10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results
may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth
under “Cautionary Note Regarding Forward-Looking Statements,” “Item 1.A. Risk Factors” and elsewhere in this Annual
Report on Form 10-K.

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K includes forward-looking
statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities 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. Factors that might cause or
contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings.

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Overview

We are a blank check company incorporated in Delaware
on March 23, 2021. We were formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization
or similar business combination with one or more businesses or entities. We are an emerging growth company and, as such, we are subject
to all of the risks associated with emerging growth companies.

Our sponsor is XPDI Sponsor II LLC, a Delaware
limited liability company. The registration statement for our IPO was declared effective on December 9, 2021. On December 14, 2021, we
consummated our IPO of 28,750,000 units, which included the exercise of the underwriters’ option to purchase an additional 3,750,000
units at the initial public offering price to cover over-allotments (the “over-allotment units”), at $10.00 per unit, generating
gross proceeds of $287.5 million, and incurring offering costs of approximately $20.7 million, of which approximately $10.1 million was
for deferred underwriting fees.

Simultaneously with the closing of our IPO, we
completed the private placement (the “private placement”) of 11,125,000 private placement warrants, at a price of $1.00 per
private placement warrant to our sponsor and anchor investors, generating proceeds of approximately $11.1 million.

Upon the closing of the IPO and the private placement on December 14,
2021, approximately $290.4 million ($10.10 per unit) of the net proceeds of the sale of the units in the IPO, including proceeds from
the sale of the Over-Allotment Units and certain of the proceeds from the sale of the private placement warrants, were deposited into
a segregated trust account (the “Trust Account”) located in the United States with Continental Stock Transfer & Trust
Company acting as trustee and approximately $1.7 million of such net proceeds were deposited in our operating account to pay expenses
in connection with the closing of the IPO and for working capital following the IPO. The proceeds held in the Trust Account have been
invested in U.S. “government securities,” within the meaning of Section 2(a)(16) of the Investment Company Act 1940, as amended
(the “Investment Company Act”), having a maturity of 185 days or less or in money market funds meeting certain conditions
under Rule 2a-7 promulgated under the Investment Company Act, which invest only in direct U.S. government treasury obligations, as determined
by the Company, until the earlier of: (i) the completion of an initial Business Combination and (ii) the distribution of the trust account
as described below.

Our management has broad discretion with respect
to the specific application of the net proceeds of the IPO and the sale of private placement warrants, although substantially all of the
net proceeds are intended to be applied generally toward consummating an initial Business Combination. There is no assurance that we will
be able to complete an initial Business Combination successfully. We must complete one or more initial Business Combinations having an
aggregate fair market value of at least 80% of the net assets held in the trust account (net of amounts disbursed to management for working
capital purposes and excluding the deferred underwriting commissions and taxes payable on the interest earned on the trust account) at
the time of the agreement to enter into the initial Business Combination. However, we will only complete an initial Business Combination
if the post-transaction company owns or acquires 50% or more of the voting securities of the target or otherwise acquires a controlling
interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act.

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We will have until 18 months from the closing of
the IPO, or June 14, 2023, to complete the initial Business Combination. However, if we anticipate that it may not be able to complete
the initial Business Combination within 18 months, we may, but are not obligated to, extend the period of time we will have to complete
an initial Business Combination by up to two additional three-month periods (for a total of up to 24 months from the closing of the IPO
to complete an initial Business Combination), subject to the Sponsor or its affiliates or designees contributing, for each such three-month
extension, $0.10 per share of Class A common stock to the Trust Account (or approximately $2.9 million in the aggregate). In connection
with each such additional deposit, the Sponsor or its affiliates or designees will receive an additional 2,875,000 private placement warrants,
with the same terms as the original private placement warrants. The Public Stockholders will not be entitled to vote on, or redeem their
shares in connection with, any such extension.

Liquidity and Capital Resources

Our liquidity needs to date have been satisfied
through a capital contribution of $25,000 from our sponsor to purchase our Class B common stock (the “founder shares”), the
related party loan under a promissory note of approximately $115,000 from, our sponsor, which was repaid in full on December 17, 2021,
and the net proceeds from the consummation of the private placement not held in the Trust Account. In addition, in order to finance transaction
costs in connection with an initial Business Combination, our officers, directors and initial stockholders may, but are not obligated
to, provide working capital loans. As of December 31, 2022, there were no amounts outstanding under any working capital loans.

In connection with the Company’s assessment
of going concern considerations in accordance with the Financial Accounting Standards Board’s (“FASB’s”) Accounting
Standards Codification (“ASC”) Topic 205-40, “Presentation of Financial Statements – Going Concern,” management
has determined that the liquidity needs, mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s
ability to continue as a going concern, which is considered to be one year from the issuance of these financial statements. No adjustments
have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after June 14, 2023. The financial
statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern. The Company
intends to complete a Business Combination before the mandatory liquidation date, as it may be extended. Over this time period, the Company
will be using the funds outside of the Trust Account for paying existing accounts payable, identifying and evaluating prospective initial
Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting
the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.

The Company cannot provide any assurance that new
financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern through one year from the issuance date of these financial statements. These financial statements
do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be
necessary should the Company be unable to continue as a going concern.

We continue to evaluate the impact of the COVID-19
pandemic on the Company and have concluded that while it is reasonably possible that the virus could have a negative effect on our financial
position, results of the Company’s operations and/or search for a target company, the specific impact is not readily determinable
as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome
of this uncertainty.

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In February 2022, the Russian Federation and Belarus
commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have
instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on
the world economy are not determinable as of the date of these financial statements.

On August 16, 2022, the Inflation Reduction Act
of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise
tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded
foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its
shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased
at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the
fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition,
certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority
to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax. Any share redemption or other
share repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject
to the excise tax. Whether and to what extent we would be subject to the excise tax in connection with a Business Combination, extension
vote or otherwise will depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection
with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any
“PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business
Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance
from the Treasury. In addition, because the excise tax would be payable by us and not by the redeeming holder, the mechanics of any required
payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a
Business Combination and in our ability to complete a Business Combination. Further, the application of the excise tax in the event of
a liquidation is uncertain.

Results of Operations

Our entire activity since inception up to December
31, 2022 related to our formation, the preparation for the IPO, and since the closing of the IPO, the search for a prospective initial
Business Combination. We will not generate any operating revenues until after the completion of our initial Business Combination. We generate
non-operating income in the form of investment income from the trust account. We will continue to incur increased expenses as a result
of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

For the year ended December 31, 2022, we had a net income of approximately
$2.0 million, which consisted of approximately $4.2 million of income from investments held in the trust account, partially offset by
approximately $1.3 million in operating expenses and approximately $802,000 in income tax expenses. Operating expenses were comprised
of approximately $888,000 of general and administrative expenses, $240,000 of general and administrative expenses - related party, and
$215,000 of franchise tax expense.

For the period from March 23, 2021 (inception)
through December 31, 2021, we had a net loss of approximately $544,000, which consisted of approximately $392,000 in general and administrative
expenses and approximately $152,000 in franchise tax expense, partially offset by approximately $900 in income from investments held in
the trust account.

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Contractual Obligations

Registration Rights

The holders of founder shares, private placement
warrants and warrants that may be issued upon conversion of working capital loans, if any (and any shares of common stock issuable upon
the exercise of the private placement warrants or warrants issued upon conversion of the working capital loans and upon conversion of
the founder shares), were entitled to registration rights pursuant to a registration rights agreement to be signed prior to the consummation
of the IPO. These holders are entitled to certain demand and “piggyback” registration rights. However, the registration rights
agreement provides that we will not be required to effect or permit any registration or cause any registration statement to become effective
until termination of the applicable lock-up period. We will bear the expenses incurred in connection with the filing of any such registration
statements.

Underwriting Agreement

The underwriter was entitled to an underwriting
discount of $0.20 per unit on all units sold in the IPO, except for the units purchased by the anchor investors, or approximately $5.3
million in the aggregate, paid upon the closing of the IPO.

The underwriter received an additional fee of $0.35
per unit, or approximately $10.1 million in the aggregate, will be payable to the underwriters for deferred underwriting commissions.
The deferred fee will become payable to the underwriters from the amounts held in the trust account solely in the event that we complete
an initial business combination, subject to the terms of the underwriting agreement.

Administrative Support Services

Commencing on December 9, 2021, we have agreed
to pay affiliates of our sponsor a total of $20,000 per month for office space and administrative support services. Upon completion of
our initial business combination or our liquidation, we will cease paying these monthly fees. In connection with our initial business
combination, we may potentially make a cash payment to affiliates of our sponsor or anchor investor for any financial advisory, placement
agency or other similar investment banking or consulting services that affiliates of our sponsor or anchor investor may provide to us
in connection with our initial business combination, and may reimburse to affiliates of our sponsor or anchor investor for any out-of-pocket
expenses incurred by it in connection with the performance of such services.

Critical Accounting Policies and Estimates

The preparation of financial statements and related
disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the periods reported.
Actual results could materially differ from those estimates. We have identified the following as our critical accounting policies:

Derivative Warrant Liabilities

We do not use derivative instruments to hedge exposures
to cash flow, market, or foreign currency risks. Management evaluates all of our financial instruments, including issued stock purchase
warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to Financial
Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing
Liabilities from Equity” (“ASC 480”) and FASB ASC Topic 815-40, “Derivatives and Hedging - Contracts in Entity’s
Own Stock” (“ASC 815”). The classification of derivative instruments, including whether such instruments should be classified
as liabilities or as equity, is re-assessed at the end of each reporting period.

The warrants issued in the IPO (“public warrants”) and the
private placement warrants are not precluded from equity classification, based on the guidance in ASC 480 and ASC 815. Equity-classified
contracts are initially measured at fair value (or allocated value). Subsequent changes in fair value are not recognized as long as the
contracts continue to be classified in equity.

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Class A common shares subject to possible redemption

We account for our Class A common stock subject
to possible redemption in accordance with the guidance in ASC 480. Class A common stock subject to mandatory redemption (if any) is classified
as liability instruments and are measured at fair value. Conditionally redeemable Class A common stock (including Class A common stock
that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain
events not solely within our control) are classified as temporary equity. At all other times, Class A common stock is classified as stockholders’
equity. Our Class A common stock feature certain redemption rights that are considered to be outside of our control and subject to the
occurrence of uncertain future events. Accordingly, all of our outstanding shares of Class A common stock is presented at redemption value
as temporary equity, outside of the stockholders’ equity section of our balance sheets.

Under ASC 480, we have elected to recognize changes
in the redemption value immediately as they occur and adjust the carrying value of the security to equal the redemption value at the end
of the reporting period. This method would view the end of the reporting period as if it were also the redemption date of the security.
Effective with the closing of the IPO, we recognized the accretion from initial book value to redemption amount, which resulted in charges
against additional paid-in capital (to the extent available) and accumulated deficit.

Net income (loss) per common shares

We comply with accounting and disclosure requirements
of FASB ASC Topic 260, “Earnings Per Share.” We have two classes of shares, which are referred to as Class A common stock
and Class B common stock. Income and losses are shared pro rata between the two classes of shares. Net loss per common share is calculated
by dividing the net loss by the weighted average shares of common stock outstanding for the respective period.

The calculation of diluted net income (loss) does
not consider the effect of the public warrants and the private placement warrants to purchase an aggregate of 25,500,000 shares of Class
A common stock in the calculation of diluted income (loss) per share, because their exercise is contingent upon future events and their
inclusion would be anti-dilutive under the treasury stock method. As a result, diluted net income (loss) per share is the same as basic
net income (loss) per share for the year ended December 31, 2022 and for the period from March 23, 2021 (inception) through December 31,
2021. Accretion associated with the redeemable Class A common stock is excluded from earnings per share as the redemption value approximates
fair value.

Recent Accounting Pronouncements

In August 2020, the FASB issued Accounting Standards
Update (“ASU”) No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging -
Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own
Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required
under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the
derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. We adopted ASU 2020-06 on March
23, 2021 (inception). Adoption of the ASU did not impact our financial position, results of operations or cash flows.

Our management does not believe that there are
any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our balance
sheets.

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Off-Balance Sheet Arrangements and Contractual Obligations

As of December 31, 2022, we did not have any off-balance
sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations.

JOBS Act

The Jumpstart Our Business Startups Act of 2012,
or the JOBS Act, contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We
qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements
based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such
standards is required for non- emerging growth companies. As a result, the financial statements may not be comparable to companies that
comply with new or revised accounting pronouncements as of public company effective dates.

Additionally, we are in the process of evaluating
the benefits of relying on the other 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 choose to rely on such exemptions we may not be 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, (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 PCAOB 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 CEO’s compensation to median employee compensation. These exemptions will apply
for a period of five years following the completion of our IPO or until we are no longer an “emerging growth company,” whichever
is earlier.

Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

References to the “Company,” “our,”
“us” or “we” refer to Power & Digital Infrastructure Acquisition II Corp.. The following discussion and analysis
of our financial condition and results of operations should be read in conjunction with the audited financial statements and the notes
related thereto which are included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form
10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. Our actual results
may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth
under “Cautionary Note Regarding Forward-Looking Statements,” “Item 1.A. Risk Factors” and elsewhere in this Annual
Report on Form 10-K.

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K includes forward-looking
statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities 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. Factors that might cause or
contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings.

We are a blank check company incorporated in Delaware
on March 23, 2021. We were formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase,
reorganization or similar business combination with one or more businesses or entities. We are an emerging growth company and, as such,
we are subject to all of the risks associated with emerging growth companies.

Our sponsor is XPDI Sponsor II LLC, a Delaware
limited liability company. The registration statement for our IPO was declared effective on December 9, 2021. On December 14, 2021, we
consummated our IPO of 28,750,000 units, which included the exercise of the underwriters’ option to purchase an additional 3,750,000
units at the initial public offering price to cover over-allotments (the “over-allotment units”), at $10.00 per unit, generating
gross proceeds of $287.5 million, and incurring offering costs of approximately $20.7 million, of which approximately $10.1 million
was for deferred underwriting fees.

Simultaneously with the closing of our IPO, we
completed the private placement (the “private placement”) of 11,125,000 private placement warrants, at a price of $1.00 per
private placement warrant to our sponsor and anchor investors, generating proceeds of approximately $11.1 million.

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Upon the closing of the IPO and the private
placement, approximately $290.4 million ($10.10 per unit) of the net proceeds of the sale of the units in the IPO and of the
private placement warrants in the private placement were placed in a trust account (the “trust account”) located
in the United States with Continental Stock Transfer & Trust Company acting as trustee, and invested only in U.S. “government
securities,” within the meaning of Section 2(a)(16) of the Investment Company Act 1940, as amended (the “Investment Company
Act”), having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated
under the Investment Company Act, which invest only in direct U.S. government treasury obligations, as determined by the company, until
the earlier of: (i) the completion of an initial business combination and (ii) the distribution of the trust account as described
below.

Our management has broad discretion with respect
to the specific application of the net proceeds of the IPO and the sale of private placement warrants, although substantially all of the
net proceeds are intended to be applied generally toward consummating an initial business combination. There is no assurance that we will
be able to complete an initial business combination successfully. We must complete one or more initial business combinations having an
aggregate fair market value of at least 80% of the net assets held in the trust account (net of amounts disbursed to management for working
capital purposes and excluding the deferred underwriting commissions and taxes payable on the interest earned on the trust account) at
the time of the agreement to enter into the initial business combination. However, we will only complete an initial business combination
if the post-transaction company owns or acquires 50% or more of the voting securities of the target or otherwise acquires a controlling
interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act.

We will have until 18 months from the
closing of the IPO, or June 14, 2023 (the “Combination Period”), to complete the initial business combination. However,
if we anticipate that it may not be able to complete the initial business combination within 18 months, we may, but are not
obligated to, extend the period of time we will have to complete an initial business combination by up to two additional
three-month periods (for a total of up to 24 months from the closing of the IPO to complete an initial business
combination), subject to the sponsor or its affiliates or designees contributing, for each such three-month extension, $0.10
per share of Class A common stock to the trust account (or approximately $2.9 million in the aggregate). In connection with
each such additional deposit, the sponsor or its affiliates or designees will receive an additional 2,875,000 private placement
warrants, with the same terms as the original private placement warrants. The Public Stockholders will not be entitled to vote on,
or redeem their shares in connection with, any such extension.

Liquidity and Capital Resources

Our liquidity needs to date have been
satisfied through a capital contribution of $25,000 from our sponsor to purchase our Class B common stock (the “founder
shares”), the related party loan under a promissory note of approximately $115,000 from, our sponsor, which was repaid in full
on December 17, 2021, and the net proceeds from the consummation of the private placement not held in the trust account. In
addition, in order to finance transaction costs in connection with an initial business combination, our officers, directors and
initial stockholders may, but are not obligated to, provide working capital loans. As of December 31, 2021, there were no amounts
outstanding under any working capital loans.

Based on the foregoing, we believe that we will
have sufficient working capital and borrowing capacity to meet our needs through one year from this filing. Over this time period, we
will be using the funds held outside of the trust account for paying existing accounts payable, identifying and evaluating prospective
initial business combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting
the target business to merge with or acquire, and structuring, negotiating and consummating the initial business combination.

We continue to evaluate the impact of the COVID-19
pandemic on the industry and have concluded that while it is reasonably possible that the virus could have a negative effect on our financial
position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date
of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

48

Results of Operations

Our entire activity since inception up to December
31, 2021 related to our formation, the preparation for the IPO, and since the closing of the IPO, the search for a prospective initial
business combination. We will not generate any operating revenues until after the completion of our initial business combination. We generate
non-operating income in the form of investment income from the trust account. We will continue to incur increased expenses as a result
of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
Additionally, we recognize non-cash gains and losses within other income (expense) related to changes in recurring fair value measurement
of our derivative liabilities at each reporting period.

For the period from March 23, 2021 (inception)
through December 31, 2021, we had a net loss of approximately $544,000, which consisted of approximately $392,000 in general and administrative
expenses and approximately $152,000 in franchise tax expense, partially offset by approximately $900 in income from investments held in
the trust account.

Contractual Obligations

Registration Rights

The holders of founder shares, private placement
warrants and warrants that may be issued upon conversion of working capital loans, if any (and any shares of common stock issuable upon
the exercise of the private placement warrants or warrants issued upon conversion of the working capital loans and upon conversion of
the founder shares), were entitled to registration rights pursuant to a registration rights agreement to be signed prior to the consummation
of the IPO. These holders are entitled to certain demand and “piggyback” registration rights. However, the registration rights
agreement provides that we will not be required to effect or permit any registration or cause any registration statement to become effective
until termination of the applicable lock-up period. We will bear the expenses incurred in connection with the filing of any such
registration statements.

Underwriting Agreement

The underwriter was entitled to an underwriting
discount of $0.20 per unit on all units sold in the IPO, except for the units purchased by the anchor investors, or approximately $5.3 million
in the aggregate, paid upon the closing of the IPO.

The underwriter received an additional fee of $0.35
per unit, or approximately $10.1 million in the aggregate will be payable to the underwriters for deferred underwriting commissions.
The deferred fee will become payable to the underwriters from the amounts held in the trust account solely in the event that we complete
an initial business combination, subject to the terms of the underwriting agreement.

Administrative Support Services

Commencing on December 9, 2021, we have agreed
to pay affiliates of our sponsor a total of $20,000 per month for office space and administrative support services. Upon completion of
our initial business combination or our liquidation, we will cease paying these monthly fees. In connection with our initial business
combination, we may potentially make a cash payment to affiliates of our sponsor or anchor investor for any financial advisory, placement
agency or other similar investment banking or consulting services that affiliates of our sponsor or anchor investor may provide to us
in connection with our initial business combination, and may reimburse to affiliates of our sponsor or anchor investor for any out-of-pocket expenses
incurred by it in connection with the performance of such services

49

Critical Accounting Policies and Estimates

The preparation of financial statements and related
disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the periods reported.
Actual results could materially differ from those estimates. We have identified the following as our critical accounting policies:

Derivative Warrant Liabilities

We do not use derivative instruments to hedge exposures
to cash flow, market, or foreign currency risks. Management evaluates all of our financial instruments, including issued stock purchase
warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to Financial
Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing
Liabilities from Equity” (“ASC 480”) and FASB ASC Topic 815-40, “Derivatives and Hedging - Contracts in Entity’s
Own Stock” (“ASC 815”). The classification of derivative instruments, including whether such instruments should be classified
as liabilities or as equity, is re-assessed at the end of each reporting period.

The warrants issued in the IPO (“public warrants”)
and the private placement warrants are not precluded from equity classification, based on the guidance in ASC 480 and ASC 815. Equity-classified
contracts are initially measured at fair value (or allocated value). Subsequent changes in fair value are not recognized as long as the
contracts continue to be classified in equity.

Class A common shares subject to possible redemption

We account for our Class A common stock subject
to possible redemption in accordance with the guidance in ASC 480. Class A common stock subject to mandatory redemption (if any) is classified
as liability instruments and are measured at fair value. Conditionally redeemable Class A common stock (including Class A common stock
that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain
events not solely within our control) are classified as temporary equity. At all other times, Class A common stock is classified as stockholders’
equity. Our Class A common stock feature certain redemption rights that are considered to be outside of our control and subject to the
occurrence of uncertain future events. Accordingly, all of our outstanding shares of Class A common stock is presented at redemption value
as temporary equity, outside of the stockholders’ equity section of our balance sheet.

Under ASC 480, we have elected to recognize changes
in the redemption value immediately as they occur and adjust the carrying value of the security to equal the redemption value at the end
of the reporting period. This method would view the end of the reporting period as if it were also the redemption date of the security.
Effective with the closing of the IPO, we recognized the accretion from initial book value to redemption amount, which resulted in charges
against additional paid-in capital (to the extent available) and accumulated deficit.

Net income (loss) per common shares

We comply with accounting and disclosure requirements
of FASB ASC Topic 260, “Earnings Per Share.” We have two classes of shares, which are referred to as Class A common stock
and Class B common stock. Income and losses are shared pro rata between the two classes of shares. Net income (loss) per common share
is calculated by dividing the net income (loss) by the weighted average shares of common stock outstanding for the respective period.

The calculation of diluted net income (loss) does
not consider the effect of the public warrants and the private placement warrants to purchase an aggregate of 25,500,000 shares of Class
A common stock in the calculation of diluted income (loss) per share, because their exercise is contingent upon future events and their
inclusion would be anti-dilutive under the treasury stock method. As a result, diluted net income (loss) per share is the same as
basic net income (loss) per share for the period from March 23, 2021 (inception) through December 31, 2021. Accretion associated with
the redeemable Class A common stock is excluded from earnings per share as the redemption value approximates fair value.

50

Recent Accounting Pronouncements

In August 2020, the FASB issued Accounting
Standards Update (“ASU”) No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by
removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for
equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation
in certain areas. We adopted ASU 2020-06 on March 23, 2021 (inception).
Adoption of the ASU did not impact our financial position, results of operations or cash flows.

Our management does not believe that there are
any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our
balance sheet.

Off-Balance Sheet Arrangements and Contractual Obligations

As of December 31, 2021, we did not have any off-balance
sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations.

JOBS Act

The Jumpstart Our Business Startups Act of 2012,
or the JOBS Act, contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We
qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements
based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such
standards is required for non- emerging growth companies. As a result, the financial statements may not be comparable to companies that
comply with new or revised accounting pronouncements as of public company effective dates.

Additionally, we are in the process of evaluating
the benefits of relying on the other 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 choose to rely on such exemptions we may not be 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, (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 PCAOB 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 CEO’s compensation to median employee compensation. These exemptions
will apply for a period of five years following the completion of our IPO or until we are no longer an “emerging growth company,”
whichever is earlier.