# Net Power Inc. (NPWR) FY 2024 MD&A Verbatim Item 7 Management's Discussion and Analysis from Net Power Inc.'s 10-K for fiscal year 2024. SEC filing source: https://www.sec.gov/Archives/edgar/data/1845437/000184543725000008/npwr-20241231.htm Accession: 0001845437-25-000008 Filing date: 2025-03-10 Report date: 2024-12-31 Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub. Confidence: high Company profile: /company/NPWR/ All MD&A years: /company/NPWR/mda/ Previous year: /company/NPWR/mda/fy2023/ (FY 2023) Next year: /company/NPWR/mda/fy2025/ (FY 2025) Overview We are a clean energy technology company that has developed a unique power generation system (the “Net Power Cycle”) that can produce clean, reliable, and affordable electricity from natural gas while capturing virtually all atmospheric emissions. The Net Power Cycle is designed to inherently capture CO2 and eliminate air pollutants such as SOX, NOX, and particulates. The Business Combination On December 13, 2022, Net Power, LLC entered into the Business Combination Agreement with RONI, RONI OpCo, Buyer, and Merger Sub. Pursuant to the Business Combination Agreement, Merger Sub merged with and into Net Power, LLC with Net Power, LLC surviving the merger as a wholly owned subsidiary of Buyer. Upon the consummation of the Business Combination on June 8, 2023, RONI was renamed Net Power Inc. Following the Closing, Net Power Inc. is considered an umbrella partnership, C corporation or “Up-C” structure, whereby all of the equity interests in Net Power, LLC are held by OpCo, and Net Power Inc.’s only assets are its equity interests in OpCo. OpCo is considered a variable interest entity with Net Power Inc. serving as its primary beneficiary. Net Power Inc. was determined to be the primary beneficiary of Net Power, LLC because it is the sole managing member of OpCo with the power to control the most significant activities of Net Power, LLC, while also having an economic interest that provides it with the ability to participate significantly in Net Power, LLC’s benefits and losses. As a result, Net Power, LLC was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination represents an acquisition of a business and Net Power, LLC’s identifiable assets acquired, liabilities assumed, and any non-controlling interests were measured at their estimated fair value on the acquisition date. As a result of the Business Combination, the Company’s financial statement presentation distinguishes Net Power, LLC as the “Predecessor” through June 7, 2023 (the “Predecessor Period”) and Net Power Inc. as the “Successor” for periods after the Closing Date (the “Successor Period”). Revenue and earnings after the date of the Business Combination are shown in the Successor Period on the consolidated statements of operations and comprehensive loss. As a result of the application of the acquisition method of accounting in the Successor Period, the consolidated financial statements for the Successor Period are presented on a full step-up basis; therefore, Successor Period consolidated financial statements are not comparable to the consolidated financial statements of the Predecessor Period, which are not presented on the same full step-up basis. Key Factors Affecting Our Prospects and Future Results We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including, but not limited to, cost over-runs in the testing and operation of the Demonstration Plant and future utility-scale plants, technical problems with the Net Power Cycle, that could impact performance, potential supply chain issues, and development of competing clean-energy technology sooner or at a lesser cost than the Net Power Cycle. Supply chain issues related to the manufacturing and transportation of key equipment may lead to a delay in our commercialization efforts, which could impact our results of operations. Commencing Commercial Operations Over the next several years, Net Power plans to conduct additional research and equipment validation testing campaigns at its Demonstration Plant. Additionally, Net Power began purchasing initial long-lead materials for SN1 in 2024 with the intention of locating SN1 in the Permian Basin of West Texas (“Project Permian”). However, after completing the FEED process in December 2024, the initial cost estimates were higher than originally anticipated, In response, during the first quarter of 2025, Net Power commenced a post-FEED optimization and value engineering process. In March 2025, the 47 Company suspended further long lead equipment releases but value engineering and certain development work remains in progress. Provided we are successful in our value engineering process, the project would come online no earlier than 2029. We are focused on delivering a project that will catalyze future adoption for utility-scale customers. Major remaining development activities relating to completing construction of our first utility-scale plant are similar to the activities we previously undertook to design, build, and commission the Demonstration Plant. These activities include: finalizing all permitting, supply and off-take contracts, and obtaining the financing required to achieve FID, initiating the EPC process, and constructing and commissioning the facility. Key Components of Results of Operations We are a development stage company and our historical results may not be indicative of our future results. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical or future results of operations Results of Operations Comparison of the Year Ended December 31, 2024 (Successor) to the Periods From January 1, 2023 Through June 7, 2023 (Predecessor) and June 8, 2023 Through December 31, 2023 (Successor) The following table sets forth our condensed results of operations data for the periods presented: [[GREPCENT_TABLE]] [["","","Successor","","","Predecessor"],["","","","","Period From","","","Period From"],["","","","","June 8, 2023","","","January 1, 2023"],["","","Year Ended","","through","","","through"],["$ in thousands","","December 31, 2024","","December 31, 2023","","","June 7, 2023"],["Revenue","","$","250","","","$","\u2014","","","","$","175"],["Cost of revenue","","31","","","\u2014","","","","3"],["Gross profit","","219","","","\u2014","","","","172"],["Operating expenses"],["General and administrative","","30,267","","","41,344","","","","12,861"],["Sales and marketing","","3,865","","","1,791","","","","869"],["Research and development","","63,853","","","25,722","","","","14,311"],["Project development","","1,932","","","625","","","","479"],["Option settlement - related party","","\u2014","","","79,054","","","","\u2014"],["Depreciation, amortization, and accretion","","81,623","","","44,974","","","","5,802"],["Total operating expenses","","181,540","","","193,510","","","","34,322"],["Operating loss","","(181,321)","","","(193,510)","","","","(34,150)"],["Other income (expense)"],["Interest income (expense)","","31,389","","","19,473","","","","(30)"],["Change in Earnout Shares liability and Warrant liability","","(25,656)","","","26,515","","","","\u2014"],["Other income (expense)","","364","","","(1)","","","","4"],["Net other income","","6,097","","","45,987","","","","(26)"],["Net loss before income tax","","(175,224)","","","(147,523)","","","","(34,176)"],["Income tax benefit","","10,580","","","5,707","","","","\u2014"],["Net loss after income tax","","(164,644)","","","(141,816)","","","","(34,176)"],["Net loss attributable to non-controlling interests","","(115,453)","","","(98,760)","","","","\u2014"],["Net loss attributable to Net Power Inc.","","$","(49,191)","","","$","(43,056)","","","","$","(34,176)"]] [[/GREPCENT_TABLE]] Revenue We have generated small amounts of revenue through various contracts with potential future license customers for access to testing results, other data and feasibility studies. We have also generated revenue for conducting syngas testing at our Demonstration Plant. Revenue increased by $75 thousand, or 43%, for the year ended December 31, 2024 (Successor), as compared to amounts for the combined periods from January 1, 2023 through June 7, 2023 (Predecessor) and June 8, 2023 through December 31, 2023 (Successor). 48 General and administrative General and administrative expenses decreased by $23.9 million, or 44%, for the year ended December 31, 2024 (Successor), as compared to amounts for the combined periods from January 1, 2023 through June 7, 2023 (Predecessor) and June 8, 2023 through December 31, 2023 (Successor). This decrease was primarily due to $16.6 million in costs related to the Business Combination along with additional one-time professional service fees as a result of becoming a public company as these costs did not recur in 2024. This decrease was partially offset by an increase in corporate headcount. Sales and marketing Sales and marketing expenses consist primarily of personnel-related costs, consultants and information technology costs directly associated with our sales and marketing activities, which include general publicity efforts for the Company. Sales and marketing expenses increased by $1.2 million, or 45%, for the year ended December 31, 2024 (Successor), as compared to amounts for the combined periods from January 1, 2023 through June 7, 2023 (Predecessor) and June 8, 2023 through December 31, 2023 (Successor). This increase was primarily attributable to increased headcount and engagement of external consultants to support increased marketing activities. Research and development Research and development (“R&D”) expenses consist primarily of labor expenses and fees paid to third parties working on and testing specific aspects of our technology, including testing at our Demonstration Plant and development activities under the BHES JDA. R&D expenses increased by $23.8 million, or 60%, for the year ended December 31, 2024 (Successor), as compared to amounts for the combined periods from January 1, 2023 through June 7, 2023 (Predecessor) and June 8, 2023 through December 31, 2023 (Successor). This increase was primarily due to the timing of development activities under the BHES JDA and increased activity at the Demonstration Plant due to the commencement of testing campaign in the fourth quarter of 2024. Project development Project development expenses consist of labor expenses and fees paid to third parties developing commercial scale projects. Project development expenses increased by $0.8 million, or 75%, for the year ended December 31, 2024 (Successor), as compared to amounts for the combined periods from January 1, 2023 through June 7, 2023 (Predecessor) and June 8, 2023 through December 31, 2023 (Successor). This increase was due to increased headcount related to the development of a utility-scale facility and costs related to future projects. Option settlement - related party Option settlement expense of $79.1 million for the period from June 8, 2023 through December 31, 2023 (Successor) was related to a one-time cost for settlement of an option agreement in connection with the close of the Business Combination. Depreciation, amortization, and accretion Our depreciation, amortization, and accretion expenses consist primarily of depreciation on our Demonstration Plant and amortization of intangible assets. Depreciation, amortization, and accretion expense increased by $30.8 million, or 61%, for the year ended December 31, 2024 (Successor), as compared to amounts for the combined periods from January 1, 2023 through June 7, 2023 (Predecessor) and June 8, 2023 through December 31, 2023 (Successor). As a result of the Business Combination, we adjusted the value of acquired assets to fair value, which resulted in a significant increase in intangible assets for internally developed technology and the Demonstration Plant. These increases resulted in an increase in related amortization and depreciation expense in the Successor Period. Interest income (expense) Interest income (expense) increased by $11.9 million, or 61%, for the year ended December 31, 2024 (Successor), as compared to amounts for the combined periods from January 1, 2023 through June 7, 2023 (Predecessor) and June 8, 2023 through December 31, 2023 (Successor). Interest income increased due to a higher average cash balance in the Successor Period as a result of the Business Combination which was deployed into fixed income securities and interest-bearing short-term investments. The higher cash and investment balances were outstanding for a longer period during the year ended December 31, 2024 (Successor) as compared to prior periods. Change in Earnout Shares liability and Warrant liability The change in Earnout Shares liability and Warrant liability was $52.2 million, for the year ended December 31, 2024 (Successor), as compared to the period from June 8, 2023 through December 31, 2023 (Successor). This decrease is 49 primarily due to the change in the fair value of the Private Placement Warrants and Public Warrants, which was driven by changes in our stock price. Our stock price decreased from $13.12 per share at June 8, 2023 to $10.10 per share at December 31, 2023, and then increased to $10.59 per share at December 31, 2024. The valuations were also impacted by increasing volatility assumptions. These changes were partially offset by fewer Earnout Shares outstanding during 2024 as the first two tranches were earned in 2023. Income tax benefit Our income tax benefit increased by $4.9 million for the year ended December 31, 2024 (Successor), as compared to amounts for the period from June 8, 2023 through December 31, 2023 (Successor). The increase in the income tax benefit is due to a higher net loss, a higher research and development tax credit in 2024 and finalizing deferred taxes as of the Closing Date of the Business Combination during the year ended December 31, 2024 (Successor). There was no tax provision for the period from January 1, 2023 through June 7, 2023 (Predecessor) as the entity was considered a pass-through entity for tax purposes. Liquidity and Capital Resources Our principal sources of liquidity are cash and investments on hand, which are short-term in duration and highly liquid. Historically, our sources of liquidity have also included raising additional capital through the sale of ownership interests. We will need to raise additional capital to fund our first utility-scale project, which may include project-level debt and equity securities as well as corporate-level equity securities. We measure liquidity in terms of our ability to fund the cash requirements of our R&D activities and our near-term business operations, including our contractual obligations and other commitments. Our current liquidity needs primarily involve R&D activities for the ongoing development of our technology, general and administrative costs, and expenditures to purchase long-lead items related to our first commercial scale facility. The following table summarizes our liquidity position as of the dates indicated: [[GREPCENT_TABLE]] [["","","December 31,"],["$ in thousands","","2024","","2023"],["Cash and cash equivalents","","$","329,230","","","$","536,927"],["Available-for-sale investments1","","100,972","","","\u2014"],["Short-term investments","","100,000","","","100,000"],["Total liquidity","","$","530,202","","","$","636,927"]] [[/GREPCENT_TABLE]] ___________ (1) $22.6 million of these investments are classified as long-term on our consolidated balance sheet. As of December 31, 2024, we had short-term investments totaling $100 million, which was comprised of a single three-month certificate of deposit custodied by a domestic banking institution. Additionally, our current liabilities were $17.9 million and $12.0 million at December 31, 2024 and December 31, 2023, respectively. The decrease in our liquidity position is primarily a result of cash used to prepare the Demonstration Facility for the testing campaign that commenced in the fourth quarter 2024, progress on our first commercial-scale facility as we continued FEED and released long-lead items, R&D expenses, and general corporate expenses. We believe we have the ability to manage our operating costs, including R&D expenses, such that our existing cash, cash equivalents and short-term investments will be sufficient to fund our obligations for the next 12 months following the filing of this Annual Report on Form 10-K. We believe that our current sources of liquidity on hand should be sufficient to fund our general corporate operating expenses as we work to commercialize our technology, but certain costs are not reasonably estimable at this time and will likely require additional funding. More specifically, we will likely require additional funding in order to successfully construct our first utility-scale plant and to originate additional Net Power plant opportunities. 50 Cash Flow Summary The following table shows our cash flows from operating activities, investing activities and financing activities for the presented periods: [[GREPCENT_TABLE]] [["","","Successor","","","Predecessor"],["","","","","Period From","","","Period From"],["","","","","June 8, 2023","","","January 1, 2023"],["","","Year Ended","","through","","","through"],["$ in thousands","","December 31, 2024","","December 31, 2023","","","June 7, 2023"],["Net cash used in operating activities","","$","(31,649)","","","$","(38,379)","","","","$","(10,623)"],["Net cash used in investing activities","","$","(168,673)","","","$","(101,269)","","","","$","(2,431)"],["Net cash (used in) provided by financing activities","","$","(4,929)","","","$","319,556","","","","$","15,836"]] [[/GREPCENT_TABLE]] Operating Activities Cash used in operating activities decreased by $17.4 million for the year ended December 31, 2024 compared to the combined periods from January 1, 2023 through June 7, 2023 (Predecessor) and June 8, 2023 through December 31, 2023 (Successor). Our net cash used in operating activities to date have been primarily comprised of payroll, material and supplies, facilities expense, and professional services related to R&D and general and administrative activities. In 2023, we experienced an increase in costs associated with achieving and maintaining our public company status. Excluding the one-time costs associated with becoming a public company, our operating expenses have been increasing over time due to growing headcount and advancing our technology towards commercialization. As we continue to add employees and further advance our technology towards commercialization, we expect our cash used in operating and investing activities to continue to increase before we start to generate any material cash inflows from our operations. Investing Activities During the year ended December 31, 2024, net cash used in investing activities decreased by $65.0 million compared to the combined periods from January 1, 2023 through June 7, 2023 (Predecessor) and June 8, 2023 through December 31, 2023 (Successor). Our cash used in investing activities for the year ended December 31, 2024 primarily reflects the investment of a portion of the proceeds received from the PIPE financing in investment grade fixed income securities and capital expenditures related to our Demonstration Plant and long-lead items for our first utility scale plant. Financing Activities Our cash from financing activities decreased by $340 million for the year ended December 31, 2024 compared to the combined periods from January 1, 2023 through June 7, 2023 (Predecessor) and June 8, 2023 through December 31, 2023 (Successor). The decrease was driven by proceeds from the PIPE Financing, less transaction expenses and shareholder redemptions during 2023. In addition, during the fourth quarter of 2024, the Company made a tax-related partnership distribution of $4.8 million. Commitments and Contractual Obligations Asset Retirement Obligation We hold a lease for the approximately 218,900 square feet of land under the Demonstration Plant from Air Liquide at a rate of one dollar per year. In addition, we have an oxygen supply agreement with the lessor to supply oxygen to the Demonstration Plant. The lease expires on the earlier of (i) January 1, 2031 and (ii) the termination of our oxygen supply agreement with the lessor. The term of the oxygen supply agreement expires on January 1, 2030 with automatic 12-month renewal terms. The oxygen supply agreement may be terminated by us or by the lessor upon 24 months’ written notice prior to the expiration date of its current term. The underlying lease requires the removal of all equipment and the obligation to restore the land to post-clearing grade level, which has resulted in the recognition of an asset retirement obligation liability of $3.3 million and $2.1 million as of December 31, 2024 and 2023, respectively. During the year ended December 31, 2024, the Company made a $996 thousand revision to the estimate related to this asset retirement obligation. Leases The Company leases corporate office space in Durham, North Carolina, and Houston, Texas. The lease for the Company’s corporate office space in Houston, Texas commenced July 11, 2024. The Company also executed a land lease agreement 51 with a subsidiary of Occidental Petroleum, a related party, on March 8, 2024 for land in West Texas. The land lease commenced on December 1, 2024. On June 26, 2024, the Company entered into a lease agreement for two office trailers at the Demonstration Plant in La Porte, Texas, with an effective date of September 1, 2024. The lease has a term of 24 months and contains a purchase option whereby the Company may purchase the trailers at the end of the lease term; therefore, the Company classified the lease as a finance lease. During August 2023, we agreed with our landlord to terminate our prior office space agreement in Durham, North Carolina ahead of its scheduled term and enter into a lease for a new office space, also located in Durham, North Carolina. The lessors of both office spaces have common ownership and are considered related parties to each other; therefore, the simultaneous termination of the old lease and execution of the new lease represent a single transaction accounted for as a modification of the original office lease, which resulted in the re-measurement of the original lease over its amended term. On October 6, 2023, the Company formally relocated to the office space governed by the new lease arrangement. As of December 31, 2024, future minimum lease payments attributable to our operating and finance lease arrangements are expected to equal $3.4 million and $331 thousand, respectively. Joint Development Agreement We have committed to funding a portion of the remaining development costs incurred under the BHES JDA through a combination of cash and equity. The BHES JDA’s total value is $140 million. As of December 31, 2024, we recognized approximately $31.9 million of inception-to-date cash expenses and approximately $31.9 million of inception-to-date share-based expenses related to the BHES JDA. The share-based expense excludes $8.0 million of realized loss on share issuance. Off-Balance Sheet Arrangements As of December 31, 2024 and 2023, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. Capital Commitments As of December 31, 2024, we have gross purchase commitments of $134 million related to certain components of industrial machinery for use at our Demonstration Plant and at our first utility-scale plant. We recognize portions of these commitments on our balance sheet as portions become payable per contract milestones. Critical Accounting Policies and Estimates Our financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“US GAAP”). Preparation of the financial statements requires our management to make a number of judgments, estimates and assumptions relating to the reported amounts of expenses, assets, and liabilities and the disclosure of contingent assets and liabilities. We consider an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates, and assumptions could have a material impact on our financial statements. Our significant accounting policies are described in Note 2 — Significant Accounting Policies in our consolidated financial statements included in Part II, Item 8 of this Annual Report. Business Combinations We account for business acquisitions in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. We measure the cost of an acquisition as the aggregate of the acquisition date fair values of the assets acquired and liabilities assumed and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. We record goodwill for the excess of (i) the total costs of acquisition, fair value of any non-controlling interests and acquisition date fair value of any previously held equity interest in the acquired business over (ii) the fair value of the identifiable net assets of the acquired business. We believe accounting for business combinations is a critical accounting estimate because the acquisition method of accounting requires management to exercise significant judgment and make estimates and assumptions based on available information regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of identifiable intangible assets. We refine these estimates over a one-year measurement period, to reflect any new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to retroactively adjust provisional 52 amounts that we have recorded for the fair value of assets and liabilities in connection with an acquisition, these adjustments could materially impact our results of operations and financial position in the period the amounts are finalized. Estimates and assumptions that we made in estimating the fair value of acquired developed technology include future cash flows that we expect to generate from the acquired assets. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could record impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense applicable to those assets. If our estimates of the economic lives change, depreciation or amortization expenses could be accelerated or decelerated, which could materially impact our results of operations. An estimate of the sensitivity to changes in our assumptions is not practicable given the numerous assumptions that can materially affect our estimates. Goodwill We recognize goodwill in accordance with ASC Topic 350, Goodwill and Other Intangible Assets. Goodwill represents the excess cost of an acquired entity over the fair value amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill is not amortized, but rather tested for impairment annually on October 1 or whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. Among the factors that could trigger an impairment review are current operating results that do not align with our annual plan or historical performance; changes in our strategic plans or the use of our assets; restructuring charges or other changes in our reporting units; competitive pressures and changes in the general economy or in the markets in which we operate; or a sustained significant decline in our stock price and market capitalization. An impairment charge for goodwill is recognized only when the estimated fair value of a reporting unit, including goodwill, is less than its carrying amount. As of December 31, 2024, no impairment charges for goodwill have been recognized. We believe evaluating the recoverability of goodwill is a critical accounting estimate because it requires management to make judgments and assumptions regarding future trends and events. As a result, both the precision and reliability of our estimates are subject to uncertainty. Among the factors that we consider in our qualitative assessment are general economic conditions and the competition present within our business environment; actual and projected reporting unit financial performance; forward-looking business measurements; and external market assessments. An estimate of the sensitivity to changes in our assumptions is not practicable given the numerous assumptions that can materially affect our estimates. Earnout Shares and Public Warrants The fair values of the liabilities for the Earnout Shares and the Public Warrants were determined using Monte Carlo simulations that have various significant unobservable inputs. We believe these valuations are critical accounting estimates because management is required to make assumptions that could have a material impact on the valuation of these liabilities, which include our best estimate of expected volatility and expected holding periods. When estimating expected volatility, management incorporates volatility of comparable public companies and the Company’s own volatility. Changes in the estimated fair values of these liabilities may have material impacts on our results of operations in any given period, as any increases in these liabilities have a corresponding negative impact on our results of operations in the period in which the changes occur and vice versa. An estimate of the sensitivity to changes in our assumptions is not practicable given the numerous assumptions that can materially affect our estimates. Income Taxes We believe income taxes are critical accounting estimates because significant judgment is required in assessing the recoverability of our deferred tax assets from future taxable income and the timing of reversing temporary differences. Additionally, accounting for uncertain tax positions requires management to make judgements regarding the likelihood the position will be sustained based on its technical merits. As managing member of OpCo, Net Power Inc. consolidates the financial results of OpCo in its consolidated financial statements. OpCo represents a pass-through entity for income tax purposes. As a pass-through entity, OpCo is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by OpCo is passed through to its members, including Net Power Inc., which is taxed as a corporation that pays corporate federal, state and local taxes with respect to income allocated from OpCo. A change to future taxable income or tax planning strategies could impact our ability to utilize deferred tax assets, which would increase or decrease our income tax expense and taxes paid. An estimate of the sensitivity to changes in our assumptions is not practicable given the numerous assumptions that can materially affect our estimates. 53 Equity-Based Compensation and Fair Value of Shares We believe that equity-based compensation is a critical accounting estimate because the assumptions underlying management’s estimates involve inherent uncertainties and require the application of significant judgment. We recognize the cost of equity-based awards granted to our employees and directors based on the estimated grant-date fair value of the awards. Cost is recognized on a straight-line basis over the service period, which is generally the vesting period of the award. Predecessor Period Prior to the Business Combination, we determined the fair value of equity awards using the Black-Scholes option pricing model, which was impacted by the following assumptions: •Expected Term—We used the expected term to liquidity, which was generally the vesting period of the award. •Expected Volatility—Volatility was based on a benchmark of comparable companies. •Expected Dividend Yield—The dividend rate used was zero as we have never paid any cash dividends and did not anticipate doing so in the foreseeable future. •Risk-Free Interest Rate—The interest rates used were based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. Prior to the Business Combination, there was no public market for our equity instruments and, as a result, the estimated fair value of our equity has historically been determined by the Net Power, LLC board of directors as of the grant date with input from management, considering our most recently available third-party valuations of equity and the Net Power, LLC board of directors' assessment of additional objective and subjective factors that the Net Power, LLC board believed were relevant and that may have changed from the date of the most recent valuation through the date of grant. We engaged an independent third-party valuation specialist to perform contemporaneous valuations of our equity. The valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants (“AICPA”), Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation. The independent third-party valuation specialist considered all objective and subjective factors that it believed to be relevant for each valuation conducted in accordance with AICPA’s Practice Aid, including our best estimate of our business condition, prospects, and operating performance at each valuation date. Other significant factors included: •Our results of operations and financial position; •Our stage of development and business strategy and the material risks related to our business and industry; •The lack of liquidity of our equity; •The valuation of publicly traded peer companies; and •The likelihood of achieving a liquidity event for the holders of our ownership shares and equity awards, given prevailing market conditions. An estimate of the sensitivity to changes in our assumptions is not practicable given the numerous assumptions that can materially affect our estimates. Successor Period We measure share-based awards at their grant-date fair value and record compensation expense on a straight-line basis over the vesting periods of the awards. Share-based compensation expense is adjusted for actual forfeitures of unvested awards as they occur. The estimated grant date fair value of our stock options and market-based awards are determined using the Monte Carlo Simulation. The assumptions used to calculate the fair value of these awards were: •Expected Term—We used the expected term to liquidity, which was generally the vesting period of the award. •Expected Volatility—Volatility was based on a benchmark of comparable companies. •Risk-Free Interest Rate—The interest rates used were based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. An estimate of the sensitivity to changes in our assumptions is not practicable given the numerous assumptions that can materially affect our estimates. 54 Emerging Growth Company Accounting Election Section 102(b)(1) of the JOBS Act exempts emerging growth companies (“EGCs”) from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect not to take advantage of the extended transition period and comply with the requirements that apply to non-EGCs, and any such election to not take advantage of the extended transition period is irrevocable. We expect to be an EGC at least through the end of 2025 and will have the benefit of the extended transition period. We intend to take advantage of the benefits of this extended transition period.