Net Power Inc.

Previous wording

Item 2. 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 2. 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

Net Power is an energy technology company that has developed a novel power generation system (which we refer to as the “Net Power Cycle”) designed to produce reliable and affordable electricity from natural gas while capturing virtually all atmospheric emissions. The Net Power Cycle is designed to inherently capture CO 2 while producing virtually no air pollutants such as SOX, NOX, and other particulates.

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, our ability to finance the construction of our first utility-scale plant, 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, changes in tax policies and other incentives supporting carbon capture, our access to the capital needed to finance the development of utility and commercial-scale plants, 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, including as a result of tariffs imposed by the U.S. or other countries or other trade barriers, measures, or conflicts, may lead to a delay in our commercialization efforts, which could impact our results of operations, financial condition and prospects. Also, currency fluctuations, inflation, and tariffs and other trade barriers, measures or conflicts may significantly increase freight charges, raw material costs and other expenses associated with our business, and such increased costs could materially and adversely affect our results of operations, financial condition and prospects.

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, completion of permitting, conducting a front-end engineering design (“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 engineering, procurement and construction (“EPC”) process, and constructing and commissioning the facility.

Current wording

In addition to the value engineering process discussed above, major remaining development activities relating to completing construction of SN1 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, obtaining the financing required to achieve a final investment decision, and constructing and commissioning the facility.

Previous wording

Comparison of the Three Months Ended September 30, 2024 (Successor) to the Three Months Ended September 30, 2023 (Successor)

Current wording

Comparison of the Three Months Ended March 31, 2025 to the Three Months Ended March 31, 2024

Previous wording

General and administrative expenses consist primarily of personnel-related expenses associated with our general and administrative organization and professional fees for legal, accounting, and other consulting services. Our general and administrative expenses increased by $59, or 1%, for the three months ended September 30, 2024 (Successor), as compared to the three months ended September 30, 2023 (Successor). This increase was due to increases in corporate headcount and information technology costs, partially offset by lower SEC filing fees and insurance costs.

Current wording

General and administrative expenses consist primarily of personnel-related expenses associated with our general and administrative organiz ation and professional fees for legal, accounting, and other consulting services. General and administrative expenses increased by$2.3 million, or 36%, for the three months ended March 31, 2025, as compared to the same period in 2024. This increase was due to increases in corporate headcount, higher professional fees for engineering and accounting services and franchise taxes.

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 $101, or 11%, for the three months ended September 30, 2024 (Successor), as compared tothe three months ended September 30, 2023 (Successor). This increase was primarily attributable to costs associated with growth in employee headcount, partially offset by lower information technology costs and conference fees.

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$0.4 million, or 58%, for the three months ended March 31, 2025, as compared to the same period in 2024. This increase was primarily attributable to costs associated with growth in employee headcount.

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 expenses increased by $8,301, or 92%, for the three months ended September 30, 2024(Successor), as compared to the three months ended September 30, 2023 (Successor). This increase was primarily due to activities under the BHES JDA and increased activity at the Demonstration Plant in preparation for testing which is scheduled to commence in the fourth quarter of 2024.

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 of our technology, including testing at our Demonstration Plant and development activities under the BHES JDA. R&D expenses increased by$11.4 million, or 101%, for the three months ended March 31, 2025, as compared to the same period in 2024. This increase was primarily due to more activity under the BHES JDA and related increased activity at the Demonstration Plant due to the ongoing testing campaign that commenced in the fourth quarter of 2024 and is expected to continue over the next several years. Additionally, thethree months ended March 31, 2025 includes a $2.5 million accrual forthe BHES JDA Make-Whole Payment. There was no such payment due for the same period in 2024.

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 $183, or 1%, for the three months ended September 30, 2024 (Successor), as compared to the three months ended September 30, 2023 (Successor).

Current wording

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$1.6 million, or 8%, for the three months ended March 31, 2025, as compared to the same period in 2024, primarily due to new additions to the Demonstration Plant throughout 2024.

Previous wording

Our interest income (expense) decreased by $683, or 8%, for the three months ended September 30, 2024 (Successor), as compared to the three months ended September 30, 2023 (Successor). Interest income decreased due to decreased investments, partially offset by investment accretion.

Current wording

Interest income (expense) decreased by$1.8 million, or 24%, for the three months ended March 31, 2025, as compared to the same period in 2024. Interest income decreased due to lower cash balances and interest rates, partially offset by investment accretion.

Previous wording

The change in Earnout Shares liability and Warrant liability was $89,674, or 145%, for the three months ended September 30, 2024 (Successor), as compared to the three months ended September 30, 2023 (Successor). The change was due to the changes in the market price of our Class A Common Stock, which correlates to the change in value of our Warrants.

Current wording

The change in Earnout Shares liability and Warrant liability was$88.7 million, or 609%, for the three months ended March 31, 2025, as compared to the same period in 2024. The change was primarily due to the changes in the market price of our Class A Common Stock, which correlates to the change in value of our Warrants. The Company’s stock price decreased $7.96 per share during the three months ended March 31, 2025 compared to an increase of $1.29 per share for thethree months ended March 31, 2024.

Previous wording

Our principal sources of liquidity are cash, short-term investments and investments in highly liquid available-for-sale securities. Historically, our sources of liquidity have also included raising capital through the sale of equity. 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, short-term investments and investments in highly liquid available-for-sale securities. Historically, our sources of liquidity have also included raising capital through the sale of equity. 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 progress certain development activities related to SN1.

Previous wording

As of September 30, 2024, 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 and available-for-sale securities comprised of investment grade, fixed income securities totaling $91,279. Additionally, our current liabilities were $26,915 at September 30, 2024 (Successor).

Current wording

The short-term investments are comprised of a single six-month certificate of deposit custodied by a domestic banking institution, and the available-for-sale securities are comprised of investment grade, fixed income securities. Additionally, our current liabilities were$21.4 million at March 31, 2025.

Previous wording

We believe we have the ability to manage our operating costs, including R&D expenditures, such that our existing liquidity will be sufficient to fund our obligations for the next 12 months following the filing of this Report. 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 will 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 expenditures, such that our existing liquidity will be sufficient to fund our obligations for the next 12 months following the filing of this Report. 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. Specifically, we will 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 decreased 59.4% for the nine months ended September 30, 2024 as compared to thecombined periods from January 1, 2023 through June 7, 2023 (Predecessor) and June 8, 2023 through September 30, 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, including the BHES JDA, and general and administrative activities. This change was primarily due to costs associated with the completion of the Business Combination and our corresponding transition to operating as a public company during the combined periods from January 1, 2023 through June 7, 2023 (Predecessor) and June 8, 2023 through September 30, 2023 (Successor). As we continue to increase hiring and build out 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 increased $17.7 million for the three months ended March 31, 2025, as compared to the same period in 2024. 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, including the BHES JDA, and general and administrative activities. This change was primarily due to higher R&D costs, including costs incurred under the BHES JDA, as we commenced the testing campaign at our Demonstration Plant during the fourth quarter of 2024, project development costs and the build out of the Company during 2024. We expect our cash used in operating activities to increase significantly before we start to generate any material cash inflows from our operations as costs related to Project Permian are being expensed pending the results of the value engineering process initiated during the three months ended March 31, 2025.

Previous wording

We hold a lease for approximately 218,900 square feet of land under the Demonstration Plant. 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 $2,191 and $2,060 as of September 30, 2024 and December 31, 2023, respectively.

Current wording

We hold a lease for approximately 218,900 square feet of land under the Demonstration Plant. 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 $3.3 millionas of March 31, 2025 and December 31, 2024, respectively.

Previous wording

As of September 30, 2024, future minimum lease payments attributable to the Company's operating and finance lease arrangements are appr oximately $3,447 and $382, respectively.

Current wording

As of March 31, 2025, future minimum lease payments attributable to the Company’s operating and finance lease arrangements are appr oximately $3.0 million and $0.3 million, respectively.

Previous wording

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 entered into a land lease agreement with a subsidiary of Occidental Petroleum, a related party, on March 8, 2024, for land in West Texas with commencement of the lease to occur no later than December 31, 2024. The term of the Company's land lease has not yet commenced.

Current wording

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 entered into a land lease agreement with a subsidiary of Occidental Petroleum, a related party, on March 8, 2024, for land in West Texas with commencement on December 1, 2024.

Previous wording

As of September 30, 2024 and December 31, 2023, 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 September 30, 2024, we recognized approximately $25,733 of inception-to-date cash expenses and approximately $25,932 of inception-to-date share-based expenses related to the BHES JDA. The share-based expense excludes $6,442 of realized loss on share issuance.

Current wording

As of March 31, 2025 and December 31, 2024, 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, which assumes a fixed price per share. As of March 31, 2025, we recognized approximately $38.5 million of inception-to-date cash expenses and approximately $38.5 million of inception-to-date share-based expenses related to the BHES JDA. In addition, the Company may be required to make additional cash payments to BHES during periods when the volume-weighted average price of our Class A Common Stock is less than $4.00 per share in the 10 trading days preceding applicable quarterly share issuances under the terms of the BHES JDA (the “JDA Make-Whole Payment”). As of March 31, 2025, we recognized a liability of $2.5 million related to the JDA Make-Whole Payment.

Previous wording

As of September 30, 2024, 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 gross commitments, which were initially unrecognized on our balance sheet, totaled$133,780. As of September 30, 2024, there was $106,831 remai ning related to these commitments.

Current wording

As of March 31, 2025, we have committed to purchase certain components of industrial machinery for use at our Demonstration Plant and at SN1. The total gross commitments totaled$146.4 million. As of March 31, 2025, there was $95.0 million remaining related to these commitments.