NET Power Inc

Previous wording

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands, except share and unit amounts, unless otherwise noted)

Current wording

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

Previous wording

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 low-cost electricity from natural gas while capturing virtually all atmospheric emissions. The NET Power Cycle is designed to inherently capture CO 2 and eliminate air pollutants such as SOX, NOX, and particulates.

Current wording

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 CO 2 and eliminate air pollutants such as SOX, NOX, and particulates.

Previous wording

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.

Current wording

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.

Previous wording

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 statement 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.

Current wording

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.

Previous wording

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, technical problems with the NET Power Cycle, 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.

Current wording

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.

Previous wording

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 but are not limited to: finalizing a siting study, initiating all permitting required, conducting a FEED study, originating all required supply and off-take contracts, structuring the project to attract any required third party equity and debt financing and achieving final investment decision, initiating the EPC process, and constructing and commissioning the facility.

Current wording

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.

Previous wording

We have not generated material revenue to date. We have historically generated 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 decreased by $405, or 69.8%, for the year ended December 31, 2023, as compared to $580 for the year ended December 31, 2022. Revenue during these two periods was not significant.

Current wording

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).

Previous wording

Our 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 $1,859, or 232.1%, for the year ended December 31, 2023, as compared to $801 for the year ended December 31, 2022. This increase was primarily attributable to increased engagement of external consultants and systems to support increased marketing activities.

Current wording

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 toamounts 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.

Previous wording

Our 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 costs have been expensed as incurred. Research and development expenses increased by $21,028, or 111.0%, for the year ended December 31, 2023, as compared to $18,938 for the year ended December 31, 2022. This increase was primarily due to the commencement of development activities under the BHES JDA.

Current wording

Research and development (“R&D”) expenses consist primarily of labor expenses and fees paid to third parties working on and testing specific aspects ofour 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.

Previous wording

Project development expenses consist of labor expenses and fees paid to third parties developing commercial scale projects. Our project development increased by $1,089 for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This increase was due to the initiation of activities related to the development of a utility-scale facility.

Current wording

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.

Previous wording

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 $37,456, or 279.8%, for the year ended December 31, 2023, as compared to $13,387 for the year ended December 31, 2022. 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 fair value of our Demonstration Plant. These increases resulted in an increase in related amortization and depreciation expense in the Successor Period. See Note 3 — Business Combination to our consolidated financial statements for additional information.

Current wording

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.

Previous wording

Liquidity and Capital Resources (In thousands)

Current wording

Liquidity and Capital Resources

Previous wording

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 may issue additional equity securities in the future. 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.

Current wording

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.

Previous wording

As of December 31, 2023, we had short-term investments totaling $100,000, which was comprised of a single six-month certificate of deposit custodied by a domestic banking institution. Additionally, our current liabilities were $12,021 and $8,451 at December 31, 2023 (Successor) and December 31, 2022 (Predecessor), respectively. The increase in our liquidity position is primarily a result of cash received in connection with the Business Combination of approximately $661,623. See Note 3 — Business Combination to our consolidated financial statements for additional information.

Current wording

As of December 31, 2024, we had short-term investments tota ling $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.

Previous wording

We believe we have the ability to manage our operating costs, including R&D expenditures, 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 we may require additional funding. More specifically, we may require additional funding in order to successfully construct our first utility-scale plant and to originate additional NET Power plant opportunities.

Current wording

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.

Previous wording

Cash used in operating activities increased by $32,372 for the year ended December 31, 2023 compared to the year ended December 31, 2022. 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. These costs have been increasing over time as the Company has grown and development of our technology has progressed. Additionally, we experienced an increase in costs associated with achieving and maintaining our public company status. As we continue to increase hiring and the build out of the Company, we expect our cash used in operating activities to increase significantly before we start to generate any material cash inflows from our operations.

Current wording

Cash used in operating activities decreased by$17.4 million for theyear ended December 31, 2024 compared to thecombined 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.

Previous wording

During the year ended December 31, 2023, net cash used in investing activities increased by $103,585 compared to the year ended December 31, 2022. Our cash used in investing activities for the year ended December 31, 2023 primarily reflects the investment of a portion of the proceeds received from the PIPE financing in an interest-bearing, short-term certificate of deposit. Additionally, there continues to be cash used for equipment and equipment upgrades, which is partially offset by cash acquired as part of the Business Combination.

Current wording

During the year ended December 31, 2024, net cash used in investing activities decreased by$65.0 million compared to thecombined 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 ininvestment grade fixed income securities and capital expenditures related to our Demonstration Plant and long-lead items for our first utility scale plant.

Previous wording

Our cash provided by financing activities for the year ended December 31, 2023 increased by $313,925 compared to the year ended December 31, 2022. The increase was driven by proceeds from the PIPE Financing, less transaction expenses and shareholder redemptions.

Current wording

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.

Previous wording

Commitments and Contractual Obligations (In thousands)

Current wording

Commitments and Contractual Obligations

Previous wording

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. The lease expires on the earlier of (i) July 1, 2025 and (ii) the termination of our oxygen supply agreement with Air Liquide, pursuant to which Air Liquide supplies oxygen for our use at the Demonstration Plant. The term of the oxygen supply agreement is perpetual but may be terminated by us or by Air Liquide upon 30 days written notice. 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 $2,060 and $2,416 as of December 31, 2023 and December 31, 2022, respectively.

Current wording

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.

Previous wording

We lease our primary office space in Durham, North Carolina. During August 2023, we agreed with our landlord to terminate our prior office space agreement ahead of its scheduled term and enter into a lease for a new office space, also located in Durham, North Carolina. We accounted for the early termination of the existing commercial lease and the execution of the new commercial lease as a modification of the original office lease, which resulted in the re-measurement of the original lease over its amended term.

Current wording

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.

Previous wording

As of December 31, 2023 and December 31, 2022, 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 $140,000. As of December 31, 2023, we recognized approximately $11,868 of inception-to-date cash expenses and approximately $11,868 of inception-to-date share-based expenses related to the BHES JDA. The share-based expense excludes $2,971 of realized loss on share issuance.

Current wording

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 expe nses related to the BHES JDA. The share-based expense excludes$8.0 million of realized loss on share issuance.

Previous wording

As of December 31, 2023, we have committed to purchase certain components of industrial machinery for use at our Demonstration Plant and at our first utility-scale plant. The total commitments, which were initially unrecognized on our balance sheet, totaled $26,009. We recognize portions of these commitments on our balance sheet as portions become payable per contract milestones. We recognized $5,191 of these commitments on our balance sheet within the current period.

Current wording

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.

Previous wording

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 amount 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 our consolidated financial statements included elsewhere in this Annual Report.

Current wording

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.

Previous wording

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 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.

Current wording

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 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.

Previous wording

Estimates and assumptions that we must make 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.

Current wording

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.

Previous wording

Goodwill is tested for impairment annually and is tested for impairment between annual tests 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 business segments; competitive pressures and changes in the general economy or in the markets in which we operate; and a significant decline in our stock price and our market capitalization relative to our net book value. 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, 2023, no impairment charges for goodwill have been recognized.

Current wording

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.

Previous wording

The fair values of the Earnout Shares liability and Warrant liability 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. 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.

Current wording

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.

Previous wording

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. Prior to the Business Combination, we determined the fair value of equity awards using the Black-Scholes option pricing model, which is impacted by the following assumptions:

Current wording

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.

Previous wording

•Expected Term—We use the expected term to liquidity, which is generally to vesting period of the award.

Current wording

•Expected Term—We used the expected term to liquidity, which was generally the vesting period of the award.

Previous wording

•Expected Volatility—Volatility is based on a benchmark of comparable companies.

Current wording

•Expected Volatility—Volatility was based on a benchmark of comparable companies.

Previous wording

•Expected Dividend Yield—The dividend rate used is zero as we have never paid any cash dividends and we do not anticipate doing so in the foreseeable future.

Current wording

•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.

Previous wording

•Risk-Free Interest Rate—The interest rates used are 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.

Current wording

•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.

Previous wording

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 which 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:

Current wording

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: