Net Power Inc.

Item 1. Financial Statements

Condensed Consolidated Balance Sheets (Unaudited)

In thousands, except par value

Condensed Consolidated Balance Sheets (Continued) (Unaudited)

In thousands, except par value

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

In thousands, except per share data

Condensed Consolidated Statements of Mezzanine Shareholders' Equity and Shareholders' Equity (Unaudited)

Condensed Consolidated Statements of Mezzanine Shareholders' Equity and Shareholders' Equity (Continued) (Unaudited)

Condensed Consolidated Statements of Cash Flows (Unaudited)

Condensed Consolidated Statements of Cash Flows (Continued) (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1 — Nature of Business and Basis of Presentation

Nature of Business

NET Power Inc. (“Net Power” or the “Company”) is a clean energy technology company that has developed a proprietary process for producing electricity using a predominantly carbon dioxide working fluid that involves the capture and reuse, sale and sequestration of carbon dioxide (the “Net Power Cycle”). The Net Power Cycle is the subject of U.S. and foreign patents, as well as additional applications and provisional applications on file with the United States Patent and Trademark Office and international patent authorities.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information; however, certain information or footnote disclosures normally included in complete financial statements prepared in accordance with US GAAP may have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In management’s opinion, these unaudited condensed consolidated financial statements have been prepared on the same basis as the annual financial statements for the year ended December 31, 2024 and include all adjustments, which consist of only normal and recurring adjustments, necessary for fair statement. Certain prior period financial information has been reclassified to conform to current period presentation.

The results reported in these unaudited condensed consolidated financial statements are not necessarily indicative of the results to be expected for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the annual financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 10, 2025 (the “2024 Annual Report”).

NOTE 2 — Significant Accounting Policies

The Company’s significant accounting policies used to prepare these condensed consolidated financial statements, unless otherwise noted below, are consistent with those used for the fiscal year ended December 31, 2024. Accordingly, refer to Note 2 to the consolidated financial statements in the 2024 Annual Report for the Company’s significant accounting policies.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make certain estimates, judgments and assumptions. The estimates, judgments and assumptions made by the Company when accounting for items and matters such as, but not limited to, depreciation, amortization, asset valuations and share-based compensation were based on information available at the time they were made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements, as well as amounts reported on the condensed consolidated statements of operations and comprehensive loss during the periods presented. Actual results could differ from those estimates.

Segment Reporting

In accordance with ASC Topic 280, Segment Reporting (“ASC 280”), the Company has determined that it hasone operating segment andone reportable segment, which includes all of the Company’s consolidated accounts. The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer. The CODM focuses on consolidated Operating income (loss), with a focus on research and development and general and administrative expenses, along with interest income to assess the Company’s performance and allocate resources. Refer to the condensed consolidated financial statements for significant segment expenses and assets regularly provided to the CODM.

Accounting Standards Not Yet Adopted

During December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires companies to provide annually a tabular reconciliation of the reported income tax expense (or benefit) from continuing operations to the product of the income (or loss) from continuing operations before income taxes and the applicable statutory federal income tax rate using specified categories and to disclose separately reconciling items within certain categories with absolute values equal to or greater than five percent of the product of the income (or loss) from continuing operations before tax and the applicable statutory tax rate. Additionally, ASU 2023-09 requires a public business entity to disclose the year-to-date amount of income taxes paid, net of refunds received, to federal, state, and foreign jurisdictions. If a payment to a single federal, state or foreign jurisdiction equals or exceeds five percent of total income taxes paid, ASU 2023-09 requires separate disclosure of that payment. Finally, ASU 2023-09 requires a public business entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign jurisdictions and to disclose income tax expense (or benefit) from continuing operations disaggregated between federal, state, and foreign jurisdictions. ASU 2023-09 removes the requirement to disclose the nature and estimate of the range of reasonably possible increases or decreases in the unrecognized tax benefits balance in the next 12 months, or to make a statement that an estimate of the range cannot be made. ASU 2023-09 is effective for the Company for calendar years beginning after December 15, 2025. Early adoption is permitted. The Company is evaluating the impact to its income tax disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses(“ASU 2024-03”), which requires new tabular disclosures in the notes to consolidated financial statements, disaggregating certain cost and expense categories within relevant captions on the consolidated statements of operations. The prescribed cost and expense categories requiring disaggregated disclosures include purchases of inventory, employee compensation, depreciation, and intangible asset amortization, along with certain other expense disclosures already required by U.S. GAAP that would need to be integrated within the new tabular disaggregated expense disclosures. Additionally, the amendments also require the disclosure of total selling expenses and an entity's definition of those expenses. The amendments in ASU 2024-03 are effective for annual periods beginning after December 15, 2026 and for subsequent interim periods. Early adoption is permitted and the amendments should be applied on a prospective basis, although retrospective application is permitted. The Company is evaluating the impact the new accounting standard will have on its expense disclosures.

NOTE 3 — Investments

The Company hastwo types of investments: (i) a certificate of deposit and (ii) investments in securities which are classified as available-for-sale.

The entire balance of$100 million of the certificate of deposit is included within short-term investments on the condensed consolidated balance sheets as of March 31, 2025 and December 31, 2024. The interest receivable on the certificate of deposit was $4.2 million and $2.9 million at March 31, 2025 and December 31, 2024, respectively, and is included in Interest receivable on the condensed consolidated balance sheets.

The following tables presents the Company’s available-for-sale investments included in the condensed consolidated balance sheets:

The cost of securities sold is based on the specific-identification method. During the three months ended March 31, 2025 and 2024, there were no securities sold. There were no credit losses recognized during the three months ended March 31, 2025 and 2024. The Company established no allowances for credit losses as of March 31, 2025 and December 31, 2024. The Company’s long-term avai lable-for-sale investments mature through December 2026.

NOTE 4 — Fair Value Measurements

The following table presents the assets and liabilities that the Company measures at fair value on a recurring basis included in the condensed consolidated balance sheets and indicates the level of the valuation inputs the Company utilized to determine the fair value:

The following table contains a reconciliation of the beginning and ending balances of recurring Level 3 fair value measurements included in the condensed consolidated statements of operations and comprehensive loss:

Short-term Investments

Short-term investments are valued at cost, which approximates fair value. The fair value of the short-term investments is considered a Level 2 fair value measurement because cost basis is not observable in a public market.

Marketable Securities

The fair value of the available-for-sale investments is classified as a Level 1 fair value measurement, because the investments are valued using the most recent quoted prices for identical assets in active markets.

Warrants

The Public Warrants are exercisable for 8,624,974 shares of Class A Common Stock at a price of $11.50 per share. The Company may redeem the Public Warrants for $0.01 if the last reported trading price of the Company’s Class A Common Stock price equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period. Additionally, the Public Warrants may be redeemed if the last reported trading price of the Company’s Class A Common Stock equals or exceeds $10.00 and is below $18.00 by paying a make-whole premium. The Public Warrants expire five years after the Closing Date. The Public Warrants are valued using their quoted and publicly available market prices. Since their fair value is predicated on quoted prices in an active market for identical instruments, the fair value of the Public Warrants is considered a Level 1 fair value measurement.

The Private Placement Warrants are exercisable for 10,900,000 shares of Class A Common Stock at a price of $11.50 per share. The Private Placement Warrants expire five years after the Closing Date. The Private Placement Warrants are exercisable on a cashless basis and are non-redeemable as long as they are held by the initial purchasers or their permitted transferees. The Private Placement Warrants and Class A Common Stock issuable upon exercise of the Private Placement Warrants are entitled to registration rights.

The Company uses a Black-Scholes Merton Model to value the Private Placement Warrants. Key inputs into the Black-Scholes Merton Model include the last Class A Common Stock closing price of $2.63 as of March 31, 2025 with a strike price of $11.50 per share. The volatility assumption is based on a blended average of equity volatility of publicly traded companies within the Company’s peer group, the Company's own historical volatility, and the implied volatility of the Public Warrants. The fair value of the Private Placement Warrants is considered a Level 3 fair value measurement.

The following table contains the key inputs used in the valuations of the Private Placement Warrants:

Earnout Shares

The fair value of the Earnout Shares (as defined in Note 6 to the consolidated financial statements included in the 2024 Annual Report) is estimated using a Monte Carlo simulation. The Monte Carlo simulation considers daily simulated stock prices as a proxy for the Company’s daily volume-weighted average share price. Historically, the volatility assumption is based on a blended average of equity volatility of publicly traded companies within the Company’s peer group, the historical volatility of the Company’s Class A common stock, and the implied volatility of the Public Warrants. For the valuation as of March 31, 2025, the volatility assumption is based on the Company’s own historical volatility, implied volatility on the Company’s own common stock options, and the implied volatility of the Public Warrants.

The following table contains the key inputs used in the valuations of the Earnout Shares:

NOTE 5 — Goodwill and Intangible Assets

Goodwill

Goodwill represents the future economic benefits derived from the Company’s unique market position, the growth attributable to the Net Power Cycle and the Company’s assembled workforce, none of which are individually and separately recognized as intangible assets. Goodwill is allocated to the Company’s sole reportable segment and reporting unit.

The following table presents the changes to goodwill included in the condensed consolidated balance sheets:

During the second quarter of 2024, the Company completed its estimate of deferred taxes as of the Closing Date and finalized its purchase price allocation, which resulted in a measurement adjustment that reduced goodwill by$64.1 million.

In March 2025, the Company assessed its goodwill for impairment. Due to a change in the Company’s business plan, as discussed below, and related sustained decrease in the Company’s market capitalization, the Company concluded that it was more likely than not that the fair value was less than its carrying amount as of March 31, 2025. As a result, the Company fully impaired its goodwill and recorded an impairment of $359.8 million during the three months ended March 31, 2025, which is included in Goodwill impairment and other charges on the condensed consolidated statements of operations and comprehensive loss.

Definite-Lived Intangible Assets

The following tables summarize the Company’s definite-lived intangible assets included in the condensed consolidated balance sheets:

(1) Software includes $0.7 million and $0.6 million related to software work-in-progress asof March 31, 2025 and December 31, 2024.

The Company evaluates its long-term assets for impairment when a triggering event occurs. During the quarter ended March 31, 2025, the Company identified a triggering event due to higher-than-expected indicative cost estimates for its first utility-scale project. The Company has since paused new purchase commitments for the project’s long-lead equipment and has commenced a value engineering exercise to determine project cost reductions and better understand the project’s expected economic feasibility.

As the Company is in the development stage, focusing on developing and commercializing its technology, it assessed its definite-lived intangible assets, the Demonstration Plant, and other corporate assets for impairment as an asset group. In this assessment, management used a probability-weighted cash flow analysis, incorporating estimated cash flows from the deployment of its technology and the value of the underlying intellectual property. Based on the recoverability test, no impairment was required.

The following table presents the Company’s amortization expense for the following periods:

The Company does not own or control any intangible assets with indefinite useful lives. The following table presents estimated amortization expense for the next five years and thereafter (in thousands):

NOTE 6 — Property, Plant, and Equipment

The following table summarizes the key classifications of property, plant, and equipment included in the condensed consolidated balance sheets:

(1) As of March 31, 2025 and December 31, 2024, $32 thousand and $18 thousand, respectively, of accumulated depreciation and amortization is related to amortization of the finance lease right-of-use assets.

As of December 31, 2024, Construction-in-progress in the table above includes capitalized costs related to Project Permian, the Company’s first utility-scale facility. During the first quarter of 2025, the Company initiated a value engineering process to assess the project’s feasibility and optimize its design and temporarily paused further long lead equipment releases. Consequently, $56.1 million of costs included in Construction-in-progress were expensed during thethree months ended March 31, 2025. This amount is included in Goodwill impairment and other charges in the condensed consolidated statements of operations and comprehensive loss.

See discussion of the impairment test performed for the Demonstration Plant in Note 5 — Goodwill and Intangible Assets.

The following table presents the Company’s depreciation expense for the following periods:

NOTE 7 — Accrued Liabilities

Accrued liabilities in the condensed consolidated balance sheets consist of the following:

NOTE 8 — Leases

On March 7, 2025, the Company entered into a building lease agreement for a warehouse in La Porte, Texas. The lease has an initial term of 62 months and commenced in April 2025, and the lease contains a renewal option offive years. The future minimum lease payments associated with this lease are approximately$2.2 million.

NOTE 9 — Redeemable Non-Controlling Interests in Subsidiary

The following table presents the Company and the non-controlling interest (“NCI”) ownership percentage of the membership interests in OpCo as of the following periods:

The Company measures redeemable NCI each quarter at the higher of its book value or its redemption value. As of March 31, 2025, the Company measured redeemable NCI at book value. As of December 31, 2024, the Company measured redeemable NCI atredemption value. The adjustment to record redeemable NCI at book or redemption value is recorded through Additional paid-in capital on the condensed consolidated statement of mezzanine shareholders' equity and shareholders' equity.

OpCo’s net loss before income tax was attributed to redeemable NCI holders at 64.4% and 66.2% for the three months ended March 31, 2025 and 2024, respectively.

NOTE 10 — Share-Based Payments

Aggregate share-based compensation expense, net of forfeitures, was $10.2 million and $6.3 million for the three months ended March 31, 2025 and 2024, respectively.

Restricted Stock Units

As of March 31, 2025, there have been 980,155 restricted stock units (“RSU”) awarded under the terms of the Net Power Inc. 2023 Omnibus Incentive Plan. As of March 31, 2025, there was $5.8 million of unrecognized share-based compensation expense related to unvested RSUs, which the Company expects to recognize over a weighted average period ofthree years. Generally, RSUs granted to employees and the majority of executives either cliff-vest on thethree-year anniversary of the date of grant or vest ratably on each anniversary of the date of grant over athree-year period. Annual awards granted to independent directors cliff-vest on the first anniversary of each award’s grant date.

Additionally, there were 1,257,467 RSUs awarded to certain legacy employees as permitted by the Business Combination agreement (the “Make-Whole Awards”). These RSUs vest upon occurrence of the following events, which are considered performance conditions: (i) commercial operations achieved by the Company’s first utility-scale power plant, and (ii) a fully-executed license agreement and final investment decision achieved for another utility-scale power plant. The Make-Whole Awards expireten years from the grant date. The Company will record compensation expense related to the Make-Whole Awards from the date the performance conditions are considered probable through the expected vesting dates. As of March 31, 2025, the performance conditions are not considered probable, therefore, no compensation cost has been recognized related to the Make-Whole Awards.

The following table presents a summary of RSU activity during the three months ended March 31, 2025:

Refer to Note 13 — Related Party Transactions for information related to the BHES JDA.

NOTE 11 — Loss per Share

Basic loss per share attributable to shareholders is calculated by dividing net loss attributable to shareholders by the weighted-average number of shares outstanding during the period. Diluted loss per share attributable to shareholders includes the effect of potentially dilutive common shares outstanding.

The following table sets forth the computation of the Company’s basic and diluted loss per share for the following periods:

Based on the amounts outstanding at March 31, 2025 and 2024, the Company excluded the following financial instruments from the computation of diluted loss per share because their inclusion would be anti-dilutive (in thousands):

Only shares of Class A Common Stock participate in the Company’s undistributed earnings. As such, the Company’s undistributed earnings are allocated entirely to the Class A Common Stock based on the weighted-average number of shares of Class A Common Stock outstanding for the three months ended March 31, 2025 and 2024.

NOTE 12 — Income Taxes

As of March 31, 2025, the Company estimated its annual effective tax rate to be 1.8%, and recorded a deferred income tax expense of $0.4 million, for the quarter. The annual effective tax rate varies from the statutory federal income tax rate due to amounts allocated to NCI, changes in the Company’s valuation allowance and other permanent items.

Tax Receivable Agreement

The actual amount and timing of any payments under the Tax Receivable Agreement (“TRA”) will vary depending upon a number of factors, including the timing of exchanges by the OpCo Class A unitholders, the amount and timing of the taxable income the Company generates in the future, and the federal tax rates then applicable, among other factors. The Company recognizes the TRA liability when the amount is probable and estimable.

Due to the Company’s decision topause new purchase commitments for the project’s long-lead equipment and commencement of a value engineering exercise to determine project cost reductions and better understand the project’s expected economic feasibility, the Company has determined it was not more likely than not that its deferred tax assets subject to the TRA would be realized. Therefore, in March 2025, the Company reduced the TRA liability of $21.3 million tozero as payments related to the TRA are not considered probable as of March 31, 2025. The reductionis recorded in Change in Tax Receivable Agreement liability in thecondensed consolidated statements of operations and comprehensive loss. If utilization of the Company’s deferred tax assets subject to the TRA become more likely than not in the future, the Company will reassess the probability of payments under the TRA and any such liability will be recognized as an expense in thecondensed consolidated statements of operations and comprehensive loss.

NOTE 13 — Related Party Transactions

The following table summarizes the related party transactions included in the condensed consolidated statements of operations and comprehensive loss:

The Company had $9.5 millionand $6.5 million in current liabilities payable to related parties as of March 31, 2025 and December 31, 2024, respectively, on the condensed consolidated balance sheets related to the following services. These related party payables are unsecured and are due on demand.

Master Services Agreements

A significant shareholder provides the Company with patent administration services related to the development of the Net Power Cycle. These totals are included in General and administrative on the condensed consolidated statements of operations and comprehensive loss.

Another shareholder supports the Company with regard to general business oversight and with the operation of the Demonstration Plant. These totals are reflected in Research and development on the condensed consolidated statements of operations and comprehensive loss.

BHES JDA

On February 3, 2022, the Company entered into the Original JDA, which was subsequently amended and restated on June 30, 2022 and December 13, 2022 with BHES to invest in, develop, and deploy the Net Power Cycle in collaboration with the Company. The BHES JDA is settled in cash and issuances of equity in exchange for services related to the development and commercialization of the technology. The Company records the expense for services provided by BHES within Research and development on the condensed consolidated statements of operations and comprehensive loss. Upon the issuance of shares during the three months ended March 31, 2025, BHES’s ownership interest exceeded 5%; therefore, they are considered a related party for all periods presented.

The portion of BHES JDA costs that the Company pays with Class A OpCo Units and shares of Class B Common Stock is recorded within Additional paid-in capital on the condensed consolidated balance sheets and the condensed consolidated statement of mezzanine shareholders' equity and shareholders' equity. The following table displays the expense recognized in our consolidated statement of comprehensive income for shares distributed as payment for services rendered under the terms of the BHES JDA during the periods described below:

Shares issued as payment under the terms of the Amended and Restated JDA are issued at a discount expected to cause a total loss of approximately$17.5 million to the Company over the term of the agreement. The Company has incurred inception-to-date losses of$9.6 million related to such issuances. Additionally, if the volume-weighted average price of the Company’s stock for ten consecutive trading days (“10-Day VWAP”) immediately preceding the payment date for services under the BHES JDA is less than $4.00 per share (the “Floor Price”), an incremental cash payment is required for the difference between the 10-Day VWAP and the Floor Price (the “BHES JDA Make-Whole Payment”). As of March 31, 2025, the Company had$2.5 million incurrent liabilities payable to related parties on the condensed consolidated balance sheets related to the BHES JDA Make-Whole Payment.

BHES may earn additional shares (“BHES Bonus Shares”) if it meets certain proposed project milestones related to the development of our technology. The Company determined that BHES’s achievement of each of these milestones is probable; therefore, the Company recognizes the compensation cost associated with milestone share-based payments ratably over the expected service period. The following table disaggregates the variable share-based compensation payable to BHES should it meet its milestone objectives:

BHES Limited Notice to Proceed

Through March 31, 2025, the Company has incurred$22.0 million under a Letter of Limited Notice to Proceed for the Purchase of KPEP Long Lead Time Items with BHES, as amended, for the purchase of long-lead materials necessary for the procurement and manufacture of the turboexpander and related key process equipment and machinery for the Company’s first utility-scale power plant, along with related fees and services.

NOTE 14 — Commitments and Contingencies

Litigation

From time to time, the Company is party to certain legal actions and claims. Other than any such ordinary routine litigation incidental to the business and except as described below, the Company is not currently a party to, nor is our property currently subject to, any material legal proceedings, and the Company is not aware of any such proceedings contemplated by governmental authorities.

On April 18, 2025, an alleged stockholder of the Company (the “Plaintiff”), individually and on behalf of all others similarly situated, filed a putative class action complaint for violation of federal securities laws against the Company, its Chief Executive Officer, President and Interim Chief Financial Officer, its former Chief Financial Officer and its former President and Chief Operating Officer (collectively, the “Defendants”) in the United States District Court for the Middle District of North Carolina (the “Complaint”). The Complaint purports to bring a federal securities class action on behalf of a class of persons and entities other than the Defendants who acquired the Company’s securities between June 9, 2023 and March 7, 2025 and asserts violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The Complaint alleges, among other things, that the Defendants made materially false and misleading statements related to the Company’s business, operations and prospects, including the timing and costs of developing Project Permian. The Plaintiff seeks, among other things, certification of a class, an award of unspecified compensatory damages, interest, costs and expenses, including attorneys’ fees and expert fees. The Company intends to vigorously defend against the claims brought by the Plaintiff in this matter. The Company cannot predict at this point the length of time that this action will be ongoing or the liability, if any, which may arise therefrom.

Asset Retirement Obligation

Under the terms of the lease for the Demonstration Plant, the Company is required to remove the Demonstration Plant and restore the land to post-clearing grade level. During 2024, the Company revised the estimate of its asset retirement obligation as a result of additional construction at the Demonstration Plant. The following table reconciles the beginning and ending balances of the asset retirement obligation as of the dates presented:

Unconditional Purchase Obligations

The Company has committed to purchase industrial components for installation at its Demonstration Plant and its first commercial power plant. The Company pays for these components in installments aligned to contractual milestones. In accordance with ASC Topic 440, Commitments, the Company does not recognize these commitments on the condensed consolidated balance sheets.

As of March 31, 2025, the Company had $62.9 million of remaining purchase obligations through February 2027 related to the BHES JDA, which is expected to be settled 50% in cash and 50% in common stock, plus any incremental cash payments that may be owed for periods where the 10-Day VWAP is less than $4.00 per share in the 10 trading days preceding the date on which shares are to be issued to BHES. In addition, the Company had $95.0 million of additional remaining asset purchase obligations through 2027. Refer to Note 13 — Related Party Transactions for additional information related to the BHES JDA.

NOTE 15 — Subsequent Events

In April 2025, the Company terminated certain members of its management team. As a result of these changes, the Company expects to record charges of$3.0 million to$3.3 million in severance costs and approximately$1.0 million to$1.3 million of costs related to the accelerated vesting of stock-based compensation during the second quarter 2025, subject to the execution of customary releases.