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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2023
OR
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ to ______
Commission file number 001-40503
NET Power Inc.
(Exact name of registrant as specified in its charter)
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Delaware | 98-1580612 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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320 Roney St. Suite 200 Durham, NC | 27701 |
(Address of Principal Executive Offices) | (Zip Code) |
(919) 287-4750
Registrant's telephone number, including area code
404 Hunt St., Suite 410
Durham, NC
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock | NPWR | The New York Stock Exchange |
Warrants, each exercisable for one share of Class A Common Stock at a price of $11.50 | NPWR WS | The New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer | o | Accelerated filer | o |
Non-accelerated filer | x | Smaller reporting company | x |
| | Emerging growth company | x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. o Yes x No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The registrant had outstanding 71,026,680 shares of Class A Common Stock and 142,038,655 shares of Class B Common Stock as of November 10, 2023.
TABLE OF CONTENTS
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| Certain Defined Terms | |
| Cautionary Note Regarding Forward-Looking Statements | |
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Certain Defined Terms
Unless otherwise expressly stated or, unless the context otherwise requires, references in this Quarterly Report on Form 10-Q (this “Report”) to:
•“8 Rivers” means 8 Rivers Capital, LLC, a Delaware limited liability company (a company controlled by SK);
•“Amended and Restated JDA” means the Amended and Restated Joint Development Agreement, dated December 13, 2022, by and among Old NET Power, RONI, RONI OpCo, NPI and NPT, as amended, supplemented or otherwise modified from time to time in accordance with its terms;
•“Baker Hughes” means Baker Hughes Company, a Delaware corporation;
•“BHES” means Baker Hughes Energy Services LLC, a Delaware limited liability company and affiliate of Baker Hughes;
•“Board” or “Board of Directors” means the board of directors of the Company.
•“Business Combination Agreement” means the Business Combination Agreement, dated as of December 13, 2022, by and among RONI, RONI OpCo, Buyer, Merger Sub and Old NET Power, as amended by the First Amendment to the Business Combination Agreement, dated as of April 23, 2023, by and between Buyer and Old NET Power;
•“Business Combination” means the Domestications, the Merger and other transactions contemplated by the Business Combination Agreement, collectively, including the PIPE Financing;
•“Buyer” means Topo Buyer Co, LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of OpCo (following the Domestications) or of RONI OpCo (prior to the Domestications);
•"Cash-based expense of BHES Amended and Restated JDA" means the portion of costs incurred under the Amended and Restated JDA payabel by the Company in cash;
•“Class A Common Stock” means the Class A common stock, par value $0.0001 per share, of NET Power;
•“Class B Common Stock” means the Class B common stock, par value $0.0001 per share, of NET Power;
•“Closing” means the consummation of the Business Combination contemplated by the Business Combination Agreement;
•“Closing Date” means June 8, 2023, the date on which the Closing occurred;
•“Common Stock” means the Class A Common Stock and Class B Common Stock;
•“Company,” “our,” “we” or “us” means, prior to the Business Combination, RONI or Old NET Power, as the context suggests, and, following the Business Combination, NET Power Inc., in each case, with its consolidated subsidiaries.
•“Constellation” means Constellation Energy Generation, LLC, a Pennsylvania limited liability company formerly known as Exelon Generation Company, LLC;
•“Domestication” means the change of RONI’s jurisdiction of registration by deregistering as a Cayman Islands exempted company and continuing and domesticating as a corporation registered under the laws of the State of Delaware, upon which RONI changed its name to NET Power Inc.;
•“Domestications” means the Domestication and the OpCo Domestication;
•“Exchange Act” means the Securities Exchange Act of 1934, as amended.
•“IPO” means RONI’s initial public offering, which was consummated on June 18, 2021;
•“Legacy NET Power Holders” means the holders of equity securities of Old NET Power prior to the consummation of the Merger;
•“Merger” means the merger of Merger Sub with and into Old NET Power pursuant to the Business Combination Agreement, in which Old NET Power survived and became a direct, wholly owned subsidiary of Buyer;
•“Merger Sub” means Topo Merger Sub, LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of Buyer;
•“NET Power” means NET Power Inc., a Delaware corporation (f/k/a Rice Acquisition Corp. II), with its consolidated subsidiaries (unless the context otherwise indicates), upon and after the Domestication;
•“NPI” means Nuovo Pignone International, S.r.l., an Italian limited liability company and affiliate of Baker Hughes;
•“NPT” means Nuovo Pignone Tecnologie S.r.l., an Italian limited liability company and affiliate of Baker Hughes;
•“NYSE” means the New York Stock Exchange;
•“Old NET Power” means, prior to the consummation of the Merger, NET Power, LLC, a Delaware limited liability company;
•“OpCo” means NET Power Operations LLC, a Delaware limited liability company (f/k/a Rice Acquisition Holdings II LLC), upon and after the OpCo Domestication;
•“OpCo Domestication” means the change of RONI OpCo’s jurisdiction of registration by deregistering as a Cayman Islands exempted company and continuing and domesticating as a limited liability company registered under the laws of the State of Delaware, upon which RONI OpCo changed its name to NET Power Operations LLC;
•“OpCo Unitholder” means a holder of OpCo Units;
•“OpCo Units” means the units of OpCo;
•“Original JDA” means the Joint Development Agreement, dated February 3, 2022, by and among Old NET Power, NPI and NPT, as amended by the First Amendment to Joint Development Agreement, dated effective June 30, 2022, by and among the same parties;
•“OXY” means OLCV NET Power, LLC, a Delaware limited liability company;
•“PIPE Financing” means the issuance and sale of 54,044,995 shares of Class A Common Stock for aggregate consideration of $540,449,950 in private placements pursuant to subscription agreements that RONI entered into with certain qualified institutional buyers and accredited investors, which was consummated immediately prior to the Merger;
•“PIPE Investors” means the investors who participated in the PIPE Financing;
•"Predecessor Period" means the period presented in the consolidated financial statements contained in this Report or the accompanying footnotes that relates to Predecessor, as defined and described in Note C to the consolidated financial statements contained in this Report;
•“Preferred Stock” means shares of NET Power preferred stock, par value $0.0001;
•“Private Placement Warrants” means the 10,900,000 warrants to purchase shares of Class A Common Stock that were issued and sold to Sponsor in a private placement in connection with the IPO;
•“Public Warrants” means the warrants to purchase shares of Class A Common Stock that were issued and sold as part the units of RONI in the IPO;
•“RONI” means Rice Acquisition Corp. II, a Cayman Islands exempted company, prior to the Domestication;
•“RONI OpCo” means Rice Acquisition Holdings II LLC, a Cayman Islands limited liability company and direct subsidiary of RONI, prior to the Domestications;
•“SEC” means the Securities and Exchange Commission;
•“Securities Act” means the Securities Act of 1933, as amended;
•“Sponsor” means Rice Acquisition Sponsor II LLC, a Delaware limited liability company;
•"Successor Period" means the period presented in the consolidated financial statements contained in this Report or the accompany footnotes that relates to Successor, as defined and described in Note C to the consolidated financial statements contained in this Report;
•“Tax Receivable Agreement” means the Tax Receivable Agreement, dated June 8, 2023, entered into by NET Power and OpCo with OpCo Unitholders who received OpCo Units pursuant to the Business Combination Agreement as consideration for equity interests in Old NET Power and the Agent (as defined therein);
•"Up-C" means umbrella partnership, C corporation, which describes a corporate structure in which an ultimate c corporation parent consolidates a partnership or partnership structure treated as a pass-through entity for US state and federal purposes tax; and
•“Warrants” means, collectively, the Public Warrants and Private Placement Warrants.
In addition, the following is a glossary of key industry terms used herein:
•“CO2” means carbon dioxide;
•“MW” means megawatt;
•“MWe” means megawatt electrical;
•“MWth” means megawatt thermal;
•“NOX” means nitrogen oxides; and
•“SOX” means sulfur oxides.
Cautionary Note Regarding Forward-Looking Statements
This Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Statements that do not relate strictly to historical or current facts are forward-looking and usually identified by the use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “future,” “intend,” “may,” “opportunity,” “plan,” “project,” “seek,” “should,” “strategy,” “will,” “will likely result,” “would” and other similar words and expressions, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements may relate to the development of the Company’s technology, the anticipated demand for the Company’s technology and the markets in which the Company operates, the timing of the deployment of plant deliveries, and the Company’s business strategies, capital requirements, potential growth opportunities and expectations for future performance (financial or otherwise). Forward-looking statements are based on current expectations, estimates, projections, targets, opinions and/or beliefs of the Company, and such statements involve known and unknown risks, uncertainties and other factors.
The risks and uncertainties that could cause those actual results to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to: (i) risks relating to the uncertainty of the projected financial information with respect to the Company and risks related to the Company’s ability to meet its projections; (ii) the ability to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition, the ability of the Company to grow and manage growth profitably and the ability of the Company retain its management and key employees; (iii) the Company’s ability to utilize its net operating loss and tax credit carryforwards effectively; (iv) the capital-intensive nature of the Company’s business model, which may require the Company to raise additional capital in the future; (v) barriers the Company may face in its attempts to deploy and commercialize its technology; (vi) the complexity of the machinery the Company relies on for its operations and development; (vii) the Company’s ability to establish and maintain supply relationships; (viii) risks related to the Company’s arrangements with third parties for the development, commercialization and deployment of technology associated with the Company’s technology; (ix) risks related to the Company’s other strategic investors and partners; (x) the Company’s ability to successfully commercialize its operations; (xi) the availability and cost of raw materials; (xii) the ability of the Company’s supply base to scale to meet the Company’s anticipated growth; (xiii) the Company’s ability to expand internationally; (xiv) the Company’s ability to update the design, construction and operations of its technology; (xv) the impact of potential delays in discovering manufacturing and construction issues; (xvi) the possibility of damage to the Company’s Texas facilities as a result of natural disasters; (xvii) the ability of commercial plants using the Company’s technology to efficiently provide net power output; (xviii) the Company’s ability to obtain and retain licenses; (xix) the Company’s ability to establish an initial commercial scale plant; (xx) the Company’s ability to license to large customers; (xxi) the Company’s ability to accurately estimate future commercial demand; (xxii) the Company’s ability to adapt to the rapidly evolving and competitive natural and renewable power industry; (xxiii) the Company’s ability to comply with all applicable laws and regulations; (xxiv) the impact of public perception of fossil fuel-derived energy on the Company’s business; (xxv) any political or other disruptions in gas producing nations; (xxvi) the Company’s ability to protect its intellectual property and the intellectual property it licenses; (xxvii) risks relating to data privacy and cybersecurity, including the potential for cyberattacks or security incidents that could disrupt our or our service providers’ operations; (xviii) the Company’s ability to meet stock exchange listing standards following the Business Combination; (xxix) potential litigation that may be instituted against the Company; and (xxx) other risks and uncertainties indicated in the Registration Statement on Form S-1 (File No. 333-273183), originally filed by the Company with the SEC on July 7, 2023, as subsequently amended on September 15, 2023 (the “Registration Statement”), including those under “Risk Factors” therein, and other documents subsequently filed with the SEC by the Company.
Should one or more of these risks or uncertainties materialize, or should any of the assumptions made by our management prove incorrect, actual results may vary in material respects from those projected in the forward-looking statements contained in this Report. Accordingly, you should not place undue reliance on these forward-looking statements in deciding whether to invest in our securities.
Forward-looking statements speak only as of the date they are made. Except to the extent required by applicable law or regulation, we undertake no obligation to update the forward-looking statements contained herein to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events. The Company gives no assurance that it will achieve its expectations.
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) (In thousands, except share and unit amounts)
| | | | | | | | |
| September 30, 2023 (Successor) | December 31, 2022 (Predecessor) |
ASSETS | | |
Current Assets | | |
Cash | $ | 545,248 | | $ | 5,164 | |
Short term investments | 100,000 | | — | |
Trade receivables, net | — | | 352 | |
Interest receivable | 2,903 | | — | |
Prepaid expenses | 2,662 | | 184 | |
Other current assets | 40 | | 1,795 | |
Total Current Assets | 650,853 | | 7,495 | |
Long Term Assets | | |
Intangible assets, net | 1,324,078 | | 263 | |
Goodwill | 423,953 | | — | |
Property, plant and equipment, net | 91,758 | | 69,595 | |
Lease right-of-use asset | 181 | | 784 | |
Total Long Term Assets | 1,839,970 | | 70,642 | |
Total Assets | $ | 2,490,823 | | $ | 78,137 | |
| | |
LIABILITIES AND EQUITY | | |
Current Liabilities | | |
Accounts payable | $ | 1,687 | | $ | 577 | |
Accrued liabilities | 7,431 | | 2,392 | |
Due to related parties | 288 | | 178 | |
Lease liability | 3 | | 130 | |
Option liability | — | | 5,174 | |
Total Current Liabilities | 9,409 | | 8,451 | |
Long Term Liabilities | | |
Due to related parties | — | | 2,212 | |
Earnout shares liability | 4,546 | | — | |
Warrant liability | 140,534 | | — | |
Asset retirement obligation | 2,018 | | 2,416 | |
Lease liability | — | | 656 | |
TRA liability | 9,376 | | — | |
Deferred taxes | 63,609 | | — | |
Total Long Term Liabilities | 220,083 | | 5,284 | |
Total Liabilities | 229,492 | | 13,735 | |
| | |
Commitments and Contingencies (Note N) | | |
| | |
Mezzanine Shareholders' and Members' Equity | | |
Redeemable non-controlling interests in subsidiary | 2,157,310 | | — | |
| | |
Shareholders’ and Members’ Equity | | |
| | | | | | | | |
Capital stock 4,987,845 units authorized; 3,722,355 units issued and outstanding as of December 31, 2022 (Predecessor) | — | | 262,622 | |
Preference shares, $.0001 par value; 1,000,000 shares authorized; no shares issued or outstanding as of September 30, 2023 (Successor) & December 31, 2022 (Predecessor) | — | | — | |
Class A Common Stock, $.0001 par value; 520,000,000 shares authorized; 71,014,190 shares issued and outstanding as of September 30, 2023 (Successor) & no shares issued and outstanding as of December 31, 2022 (Predecessor) | 7 | | — | |
Class B Common Stock, $.0001 par value; 310,000,000 shares authorized; 141,529,513 shares issued and outstanding as of September 30, 2023 (Successor) & no shares issued and outstanding as of December 31, 2022 (Predecessor) | 14 | | — | |
Additional paid-in-capital | 193,361 | | 26,288 | |
Accumulated other comprehensive income | — | | 17 | |
Accumulated Deficit | | | | |
Members’ equity | — | | (224,525) | |
Shareholders’ equity | (89,361) | | — | |
Total Shareholders' and Members' Equity | 104,021 | | 64,402 | |
Total Liabilities, Mezzanine Shareholders' and Members' Equity and Shareholders’ and Members’ Equity | $ | 2,490,823 | | $ | 78,137 | |
Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (In thousands, except unit, share, per unit and per share amounts)
| | | | | | | | | | | | | | | | | | | | |
| Period from | | Period from |
| July 1 – September 30, 2023 (Successor) | July 1 – September 30, 2022 (Predecessor) | | June 8 – September 30, 2023 (Successor) | January 1 – June 7, 2023 (Predecessor) | January 1 – September 30, 2022 (Predecessor) |
Revenue | | | | | | |
Revenue | $ | — | | $ | 141 | | | $ | — | | $ | 175 | | $ | 574 | |
Cost of revenue | 3 | | 11 | | | 3 | | 3 | | 189 | |
Cost of revenue - related party | — | | 38 | | | — | | — | | 79 | |
Gross Profit (Loss) | (3) | | 92 | | | (3) | | 172 | | 306 | |
| | | | | | |
Operating Expenses | | | | | | |
General and administrative | 7,949 | | 3,960 | | | 32,250 | | 11,903 | | 12,531 | |
General and administrative – related party | 147 | | 162 | | | 158 | | 228 | | 383 | |
Sales and marketing | 931 | | 136 | | | 1,087 | | 869 | | 504 | |
Research and development | 8,658 | | 590 | | | 14,401 | | 1,643 | | 2,264 | |
Research and development – related party | 346 | | 4,173 | | | 433 | | 12,676 | | 10,550 | |
Project development | 582 | | — | | | 698 | | 1,191 | | — | |
Option settlement - related party | — | | — | | | 79,054 | | — | | — | |
Depreciation, amortization and accretion | 20,052 | | 3,325 | | | 24,978 | | 5,812 | | 9,974 | |
Total Operating Expenses | 38,665 | | 12,346 | | | 153,059 | | 34,322 | | 36,206 | |
| | | | | | |
Operating Loss | (38,668) | | (12,254) | | | (153,062) | | (34,150) | | (35,900) | |
| | | | | | |
Other Income (Expense) | | | | | | |
Interest income (expense) | 8,675 | | — | | | 10,800 | | 4 | | (1,470) | |
Other income (expense) | (61,983) | | 34 | | | (60,970) | | (30) | | 35 | |
Net Other Income (Expense) | (53,308) | | 34 | | | (50,170) | | (26) | | (1,435) | |
| | | | | | |
Net Loss before Income Tax | (91,976) | | (12,220) | | | (203,232) | | (34,176) | | (37,335) | |
Income tax expense (benefit) | (10) | | — | | | (681) | | — | | — | |
Net Loss after Income Tax | (91,966) | | (12,220) | | | (202,551) | | (34,176) | | (37,335) | |
Net Loss attributable to non-controlling interests | (61,402) | | — | | | (136,987) | | — | | — | |
Net Loss attributable to NET Power Inc. | (30,564) | | (12,220) | | | (65,564) | | (34,176) | | (37,335) | |
| | | | | | |
Other Comprehensive Gain (Loss) | | | | | | |
Foreign currency translation gain (loss) | 1 | | (5) | | | — | | — | | (5) | |
Total Other Comprehensive Gain (Loss) | 1 | | (5) | | | — | | — | | (5) | |
| | | | | | |
Comprehensive Loss | (91,965) | | (12,225) | | | (202,551) | | (34,176) | | (37,340) | |
Comprehensive Loss attributable to non-controlling interests | (61,402) | | — | | | (136,987) | | — | | — | |
Comprehensive Loss attributable to NET Power Inc. | $ | (30,563) | | $ | (12,225) | | | $ | (65,564) | | $ | (34,176) | | $ | (37,340) | |
| | | | | | |
Net Loss per share of Class A Common Stock or per membership interest | $ | (0.44) | | $ | (10.69) | | | $ | (0.96) | | $ | (9.07) | | $ | (13.15) | |
| | | | | | |
Weighted average shares of Class A Common Stock or membership interests, basic and diluted | 68,966,972 | 1,143,430 | | 68,644,032 | 3,766,871 | 2,838,388 |
Consolidated Statement of Shareholders’ Equity and Non-Controlling Interest (Unaudited) (Successor) (In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | Class B Common Stock | Class A Ordinary Shares | Class B Ordinary Shares | Additional Paid-in-Capital | Accumulated Deficit | Total Stockholders' Equity | Non-controlling Interests | Class A Ordinary Shares | Total Mezzanine Equity |
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount |
Balance at June 8, 2023 (Successor) | — | | $ | — | | — | | $ | — | | 2,500 | | $ | — | | 8,625,000 | | $ | 1 | | $ | — | | $ | (98,966) | | $ | (98,965) | | $ | — | | 34,500,000 | | $ | 356,318 | | $ | 356,318 | |
Sponsor forfeiture of RONI Class B ordinary shares and reservation of earnout shares | — | | — | | — | | — | | — | | — | | (1,986,775) | | — | | — | | — | | — | | — | | — | | — | | — | |
Redemption of Class A ordinary shares by RONI public shareholders | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (21,195,224) | | (218,983) | | (218,983) | |
Redemption of Class A Common Stock | 3,606,657 | | — | | (3,606,657) | | — | | — | | — | | — | | — | | 50,526 | | — | | 50,526 | | (50,526) | | — | | — | | (50,526) | |
Conversion of RONI Class A and Class B ordinary shares into NET Power Inc. Class A and Class B Common Stock, respectively | 13,307,276 | | 1 | | 6,638,225 | | 1 | | (2,500) | | — | | (6,638,225) | | (1) | | 60,045 | | — | | 60,046 | | 87,094 | | (13,304,776) | | (137,335) | | (50,241) | |
Issuance of RONI Class A Common Stock to PIPE investors | 54,044,995 | | 6 | | — | | — | | — | | — | | — | | — | | 540,445 | | — | | 540,451 | | — | | — | | — | | — | |
Issuance of Class A Common Stock | 52,523 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
Equity awards vested due to Business Combination | — | | — | | 8,356,635 | | 1 | | — | | — | | — | | — | | 542 | | (542) | | 1 | | 109,639 | | — | | — | | 109,639 | |
Issuance of RONI Class B Common Stock to former NET Power, LLC unitholders | — | | — | | 129,822,703 | | 12 | | — | | — | | — | | — | | (940) | | 75,711 | | 74,783 | | 1,677,546 | | — | | — | | 1,677,546 | |
Exercise of warrants | 2,739 | | — | | — | | — | | — | | — | | — | | — | | 47 | | — | | 47 | | — | | — | | — | | — | |
Member tax distributions | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (181) | | — | | — | | (181) | |
Establishment of liabilities under tax receivable agreement | — | | — | | — | | — | | — | | — | | — | | — | | (2,207) | | — | | (2,207) | | — | | — | | — | | — | |
Vesting of earnout shares | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 9,055 | | — | | — | | 9,055 | |
Amortization of share based payments | — | | — | | 318,607 | | — | | — | | — | | — | | — | | 261 | | — | | 261 | | 6,312 | | — | | — | | 6,312 | |
Adjustment of redeemable non-controlling interest to redemption value | — | | — | | — | | — | | — | | — | | — | | — | | (455,358) | | — | | (455,358) | | 455,358 | | — | | — | | 455,358 | |
Comprehensive Loss | — | | — | | — | | — | | — | | — | | — | | — | | — | | (65,564) | | (65,564) | | (136,987) | | — | | — | | (136,987) | |
Balance at September 30, 2023 (Successor) | 71,014,190 | | $ | 7 | | 141,529,513 | | $ | 14 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 193,361 | | $ | (89,361) | | $ | 104,021 | | $ | 2,157,310 | | — | | $ | — | | $ | 2,157,310 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | Class B Common Stock | Class A Ordinary Shares | Class B Ordinary Shares | Additional Paid-in-Capital | Accumulated Deficit | Total Stockholders' Equity | Non-controlling Interests | Class A Ordinary Shares | Total Mezzanine Equity |
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount |
Balance at July 1, 2023 (Successor) | 67,352,271 | | $ | 7 | | 142,711,590 | | $ | 14 | | — | | $ | — | | — | | $ | — | | $ | 514,219 | | $ | (58,798) | | $ | 455,442 | | $ | 1,885,319 | | — | | $ | — | | $ | 1,885,319 | |
Exercise of warrants | 2,739 | | — | | — | | — | | — | | — | | — | | — | | 47 | | — | | 47 | | — | | — | | — | | — | |
Issuance of Class A Common Stock | 52,523 | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
Issuance of RONI Class B Common Stock to former NET Power, LLC unitholders | — | | — | | 2,105,973 | | — | | — | | — | | — | | — | | (928) | | — | | (928) | | 928 | | — | | — | | 928 | |
Redemption of Class A Common Stock | 3,606,657 | | — | | (3,606,657) | | — | | — | | — | | — | | — | | 50,526 | | — | | 50,526 | | (50,526) | | — | | — | | (50,526) | |
Member tax distributions | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | (181) | | — | | — | | (181) | |
Establishment of liabilities under tax receivable agreement | — | | — | | — | | — | | — | | — | | — | | — | | (2,207) | | — | | (2,207) | | — | | — | | — | | — | |
Vesting of earnout shares | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | 9,055 | | — | | — | | 9,055 | |
Amortization of share based payments | — | | — | | 318,607 | | — | | — | | — | | — | | — | | 261 | | — | | 261 | | 5,560 | | — | | — | | 5,560 | |
Adjustment of redeemable non-controlling interest to redemption value | — | | — | | — | | — | | — | | — | | — | | — | | (368,557) | | — | | (368,557) | | 368,557 | | — | | — | | 368,557 | |
Comprehensive Loss | — | | — | | — | | — | | — | | — | | — | | — | | — | | (30,563) | | (30,563) | | (61,402) | | — | | — | | (61,402) | |
Balance at September 30, 2023 (Successor) | 71,014,190 | | $ | 7 | | 141,529,513 | | $ | 14 | | — | | $ | — | | — | | $ | — | | $ | 193,361 | | $ | (89,361) | | $ | 104,021 | | $ | 2,157,310 | | — | | $ | — | | $ | 2,157,310 | |
Consolidated Statement of Members’ Equity (Unaudited) (Predecessor) (In thousands, except unit amounts)
| | | | | | | | | | | | | | | | | | | | |
| Membership Interests | Additional Paid-in-Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Members’ Equity |
| Units | Amount |
Balance at December 31, 2022 (Predecessor) | 3,722,355 | | $ | 262,622 | | $ | 26,288 | | $ | 17 | | $ | (224,525) | | $ | 64,402 | |
Issuance of shares to: | | | | | | |
Occidental Petroleum | 37,152 | | 11,859 | | — | | — | | — | | 11,859 | |
Constellation | 28,764 | | 9,181 | | — | | — | | — | | 9,181 | |
BHES (Bonus Shares) | — | | — | | 4,690 | | — | | — | | 4,690 | |
BHES (In-Kind Shares) | 15,491 | | 3,269 | | 634 | | — | | — | | 3,903 | |
Vesting of Profits Interest | — | | — | | 2,864 | | — | | — | | 2,864 | |
Comprehensive Loss | — | | — | | — | | — | | (34,176) | | (34,176) | |
Balance at June 7, 2023 (Predecessor) | 3,803,762 | | $ | 286,931 | | $ | 34,476 | | $ | 17 | | $ | (258,701) | | $ | 62,723 | |
| | | | | | | | | | | | | | | | | | | | |
| Membership Interests | Additional Paid-in-Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Members’ Equity |
| Units | Amount |
Balance at July 1, 2022 (Predecessor) | 3,716,149 | | $ | 261,312 | | $ | 16,282 | | $ | 20 | | $ | (194,862) | | $ | 82,752 | |
Issuance of shares to: | | | | | | |
BHES (Bonus Shares) | — | | — | | 2,689 | | — | | — | | 2,689 | |
BHES (In-Kind Shares) | 2,782 | | 587 | | 135 | | — | | — | | 722 | |
Vesting of Profits Interest | — | | — | | 2,082 | | — | | — | | 2,082 | |
Comprehensive Loss | — | | — | | — | | (5) | | (12,220) | | (12,225) | |
Balance as of September 30, 2022 (Predecessor) | 3,718,931 | | $ | 261,899 | | $ | 21,188 | | $ | 15 | | $ | (207,082) | | $ | 76,020 | |
| | | | | | | | | | | | | | | | | | | | |
| Membership Interests | Additional Paid-in-Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Members’ Equity |
| Units | Amount |
Balance at December 31, 2021 (Predecessor) | 3,555,553 | | $ | 227,960 | | $ | 9,275 | | $ | 20 | | $ | (169,747) | | $ | 67,508 | |
Issuance of shares to: | | | | | | |
BHES | 142,180 | | 30,000 | | — | | — | | — | | 30,000 | |
(Less Equity Issuance Cost) | — | | (534) | | — | | — | | — | | (534) | |
BHES (Bonus Shares) | 17,799 | | 3,756 | | 3,414 | | — | | — | | 7,170 | |
BHES (In-Kind Shares) | 3,399 | | 717 | | 722 | | — | | — | | 1,439 | |
Vesting of Profits Interest | — | | — | | 7,777 | | — | | — | | 7,777 | |
Comprehensive Loss | — | | — | | — | | (5) | | (37,335) | | (37,340) | |
Balance as of September 30, 2022 (Predecessor) | 3,718,931 | | $ | 261,899 | | $ | 21,188 | | $ | 15 | | $ | (207,082) | | $ | 76,020 | |
Consolidated Statements of Cash Flows (Unaudited) (In thousands)
| | | | | | | | | | | |
| Period from |
| June 8 – September 30, 2023 (Successor) | January 1 - June 7, 2023 (Predecessor) | January 1 – September 30, 2022 (Predecessor) |
Cash Flows from Operating Activities | | | |
Net Loss after Tax | $ | (202,551) | | $ | (34,176) | | $ | (37,335) | |
Adjustments to reconcile net loss to net cash (used in) operating activities: | | | |
Depreciation | 3,972 | | 5,700 | | 9,797 | |
Amortization | 20,922 | | 9 | | 16 | |
Accretion | 51 | | 102 | | 161 | |
Non-cash interest expense | — | | 30 | | 1,388 | |
Non-cash lease expense | 87 | | 59 | | — | |
Conversion of equity awards | 86,585 | | — | | — | |
Allowance for doubtful accounts | — | | 352 | | — | |
Deferred taxes | (681) | | — | | — | |
Change in fair value of earnout shares liability | 1,497 | | — | | — | |
Change in fair value of warrant liability | 58,344 | | — | | — | |
Vesting of Profits Interests | — | | 2,864 | | 7,777 | |
Vesting of earnout shares | 1,118 | | — | | — | |
Amortization of share based payments | 6,572 | | 8,593 | | 8,609 | |
Changes in operating assets and liabilities: | | | |
Trade receivables | — | | — | | (344) | |
Interest receivable | (2,903) | | — | | — | |
Prepaid expenses | (2,026) | | (453) | | 515 | |
Other current assets | 91 | | 1,765 | | (660) | |
Accounts payable | (887) | | 1,768 | | (1,478) | |
Accrued liabilities | (5,796) | | (384) | | (43) | |
Lease liabilities | (56) | | (55) | | — | |
Due to related parties – short term | 288 | | 5,414 | | (2,291) | |
Due to related parties – long term | — | | (2,211) | | 1,257 | |
Net Cash (Used in) Operating Activities | (35,373) | | (10,623) | | (12,631) | |
| | | |
Cash Flows from Investing Activities | | | |
Cash acquired as part of Business Combination (Note C) | 7,947 | | — | | — | |
Acquisition of short term investments | (100,000) | | — | | — | |
Acquisition of property, plant and equipment | (3,875) | | (2,431) | | — | |
Net Cash (Used in) Investing Activities | (95,928) | | (2,431) | | — | |
| | | |
Cash Flows from Financing Activities | | | |
Repurchase of redeemed Class A Ordinary Shares | (218,983) | | — | | — | |
Issuance of Class A Common Stock from warrant exercise | 47 | | — | | — | |
Member tax distributions | (181) | | — | | — | |
Proceeds from PIPE financing, net of issuance costs | 540,451 | | — | | — | |
Issuance of equity under JDA as a result of Business Combination (Note C) | 9,917 | | — | | — | |
Payment of transaction expenses | (11,722) | | — | | — | |
Member loan proceeds | — | | — | | 2,000 | |
Member loan repayments | — | | — | | (10,000) | |
Share issuances | — | | 15,836 | | 30,000 | |
(Less equity issuance costs) | — | | — | | (534) | |
Net Cash Provided by Financing Activities | 319,529 | | 15,836 | | 21,466 | |
| | | |
Net Increase in Cash | 188,228 | | 2,782 | | 8,835 | |
| | | |
Effect of foreign currency exchange rate changes on cash | 1 | | — | | (5) | |
Cash, beginning of period | 357,019 | | 5,164 | | 445 | |
Cash, end of period | $ | 545,248 | | $ | 7,946 | | $ | 9,275 | |
| | | |
Supplemental Disclosures of Cash Flow Information | | | |
Cash paid for interest | $ | — | | $ | — | | $ | 81 | |
Remeasurement of lease liabilities and right of use assets due to lease modification (Note M) | $ | (672) | | $ | — | | $ | — | |
Notes to Consolidated Financial Statements (In thousands, except share, per share and unit amounts, unless otherwise noted)
NOTE A — Organization and Nature of the Business
NET Power Inc. 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. The Company’s technology is designed to generate electricity from natural gas that is cost-competitive with conventional technologies, while eliminating nearly all air emissions.
The Company commissioned a 50 MWth natural gas-fired demonstration power plant (“Demonstration Plant”) to allow sufficient demonstration and testing of the NET Power Cycle and its components. The Company achieved first-fire at the Demonstration Plant in May 2018, after two years of development. Additional testing occurred periodically thereafter, including a three-month test campaign in 2021 which resulted in a grid synchronization. The successful first-fire and 2021 testing campaign of the Demonstration Plant represent critical milestones as they supported validation of the technical foundation of the NET Power Cycle. Over the next several years, the Company plans to conduct additional research and testing campaigns at its Demonstration Plant and construct its first utility-scale plant.
The Company’s current activities are subject to significant risks, including cost over-runs in the testing and operation of the Demonstration Plant, technical problems with the NET Power Cycle, and development of competing clean-energy technology sooner or at a lesser cost than the NET Power Cycle.
The Company consummated the Business Combination (Note C) on June 8, 2023.
NOTE B — Basis of Presentation and Significant Accounting Policies
Basis of Presentation - The accompanying unaudited consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP") and include some amounts that are based upon management estimates and judgments. In the Company's opinion, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company's financial position, results of operations and cash flows for the periods presented. Such adjustments consist solely of normal, recurring adjustments.
Recently Issued Accounting Standards - During October, 2023, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2023-06 - Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative ("ASU 2023-06"). ASU 2023-06 incorporates 14 of the 27 disclosure requirements published in SEC Release No. 33-10532 - Disclosure Update and Simplification into various topics within the Accounting Standards Codification ("ASC"). ASU 2023-06's amendments represent clarifications to, or technical corrections of, current requirements. For SEC registrants, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. Early adoption is prohibited. The Company does not expect ASU 2023-06 to have a material effect on its financial statements.
Principles of Consolidation – The Consolidated Balance Sheets and Consolidated Statements of Operations and Comprehensive Loss include the accounts of subsidiaries that NET Power Inc. consolidates according to the rules set forth in ASC Topic 810 – Consolidation (“ASC 810”). The Company consolidates all subsidiaries in which it owns a 50.0% or greater ownership interest and all variable interest entities ("VIE's") to which it is deemed to represent the primary beneficiary, as described below. The Consolidated Balance Sheets and the Consolidated Statement of Operations and Comprehensive Loss include the accounts of the following wholly-owned subsidiaries and consolidated VIE's: NET Power Europe LTD (“NP Europe”); NET Power Friendship 7, LLC; NET Power Technology, LLC; NET Power Atlas, LLC; NET Power Canaveral, LLC; NET Power Services, LLC, NET Power Management Holdings Inc.; NET Power Management LLC; NET Power Operations LLC ("OpCo"); NET Power Intermediate LLC and NET Power, LLC. Intercompany balances have been eliminated through the consolidation process.
ASC 810 requires that a reporting entity that possesses a controlling financial interest in a VIE consolidate that VIE. A controlling financial interest will have both of the following characteristics: (a) the power to direct the activities that most significantly impact the VIE's economic performance; and (b) the obligation to absorb the VIE's losses and the right to receive benefits that are significant to the VIE. The Company determined that NET Power Operations LLC meets the definition of a VIE and that the Company became the primary beneficiary of it beginning on the Closing Date of the
Business Combination (Note C); therefore, the Company has consolidated NET Power Operations LLC from the date of the Business Combination.
Business Combination – The Company applies the guidance within ASC Topic 805 – Business Combinations ("ASC 805") to all merger and acquisition transactions, including the Business Combination (Note C), through which the Company obtains control over one or more other businesses.
The Company may elect the acquisition method for all transactions and other events through which the Company obtains control over one or more other businesses, including the Business Combination (Note C). Under the acquisition method, assets acquired and liabilities assumed are measured at fair value as of the acquisition date. Liabilities related to contingent consideration are recognized on the acquisition date and re-measured at fair value in each subsequent reporting period, if the contingent consideration is liability classified. Goodwill is recognized as the excess of the consideration transferred over the fair value of the net identifiable assets acquired.
Segment Reporting - In accordance with ASC Topic 280 – Segment Reporting, the Company has one operating segment and one reportable segment. The Company has one line of business.
Revenue Recognition, Trade Receivables and Allowance for Doubtful Accounts – The Company follows the guidance within ASC Topic 606 – Revenue from Contracts with Customers to determine how and when it recognizes revenues. The Company accounts for a customer contract when both parties have approved the contract and are committed to perform their respective contractual obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance and it is probable that the Company will collect the consideration to which it is entitled.
When billed in advance, the payment is deferred and recognized upon delivery of the service. Collectability is assessed based on a number of factors including collection history and customer creditworthiness. If collectability of substantially all consideration to which the Company is entitled under the contract is determined to be not probable, revenue is not recorded until collectability becomes probable. Revenue is recorded based on the transaction price excluding amounts collected on behalf of third parties, such as sales taxes collected and remitted to governmental authorities.
Trade receivables are recorded at the invoiced amount and do not bear interest. The Company calculates an allowance for doubtful accounts based on a risk assessment performed when trade receivables are recognized. The allowance is calculated in accordance with ASC Topic 326 - Current Expected Credit Losses. Write-offs are recorded at the time when trade receivables are deemed uncollectible.
The Company has historically recognized revenue from two primary sources, feasibility studies and government grants. Feasibility studies represent reports prepared to assist a customer in determining the viability of the NET Power Cycle for their specific use case. Government grants represent U.S. federal programs that incentivize the development of novel energy solutions. The Company has served as a sub-recipient to such government grants. Feasibility studies generally contain one performance obligation, the customer’s acceptance of the feasibility study report at the end of the review period. Government grants generally contain multiple performance obligations related to the incursion of costs associated with the development of in-scope activities that entitle the Company, as sub-recipient, to reimbursement from the primary grant recipient.
Fair Value - Certain assets and liabilities are carried at fair value in accordance with ASC Topic 820 – Fair Value Measurement. Fair value is defined as the price that would be received for an asset or paid to transfer a liability (i.e., the exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
•Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
•Level 2 - Significant other observable inputs other than Level 1 prices, such as quoted prices for similar, but not identical, assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and
•Level 3 - Significant unobservable inputs in which there is little or no market data available and requires the Company to develop its own assumptions that market participants would use in pricing an asset or liability.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of any input that is significant to the fair value measurement. The Company’s estimates of fair values are based upon assumptions believed to
be reasonable, but which are uncertain and involve significant managerial judgments made by considering factors specific to the asset or liability. The determination of fair value requires more judgment to the extent the valuation is based on models or inputs that are less observable or unobservable in the market. Accordingly, the degree of judgment exercised by the Company in determining the fair value is greatest for instruments categorized as Level 3.
The Company’s recurring fair value measurements comprise the Private Placement Warrants, the Public Warrants, the Earnout Shares (as defined below) and short-term investments (Note I).
Cash - Cash consists of liquid deposits at banking institutions that are members of the Federal Deposit Insurance Corporation (“FDIC”) and the Financial Services Compensation Scheme (“FSCS”), the UK’s statutory compensation system for customers of authorized financial services firms. FDIC guidelines guarantee $250 per depositor, per insured bank and FSCS guidelines guarantee £85 per depositor per insured bank. As of September 30, 2023 (Successor) and December 31, 2022 (Predecessor), the Company possessed funds in excess of FDIC limits equal to $544,727 and $4,644 respectively. The carrying value of cash equals its fair value.
Warrants - The Company issued Public Warrants and Private Placement Warrants prior to the consummation of the Business Combination (Note C). The Company accounts for both the Public Warrants and Private Placement Warrants as liability-classified instruments based on an assessment of the Warrants’ specific terms and applicable authoritative guidance outlined in ASC Topic 480 - Distinguishing Liabilities from Equity ("ASC 480"), ASC Topic 815 - Derivatives and Hedging ("ASC 815") and relevant SEC reporting rules. The guidance considers whether the Warrants are freestanding financial instruments pursuant to ASC 480, whether the Warrants meet the definition of a liability pursuant to ASC 480, whether the Warrants meet all of the requirements for equity classification under ASC 815 and whether class of equity into which the Warrants settle possess substantive voting rights. This assessment is conducted at the time of the instruments’ issuance and at each subsequent quarterly period end date while the Warrants remain outstanding. In compliance with ASC 815, the Company accounts for the outstanding Warrants as a liability at fair value on the Consolidated Balance Sheets. The Warrants are subject to remeasurement at each Balance Sheets date with any change in the Warrants’ fair value recognized in the Company’s Consolidated Statements of Operations and Comprehensive Loss.
Short-Term Investments - The Company classifies investments with maturities greater than three months but less than one year as short-term investments. As of September 30, 2023, the Company's short-term investment balance consisted of a single six-month certificate of deposit custodied by a domestic banking institution.
Short-term investments are classified as held-to-maturity according to the guidance contained within ASC 326 - Financial Instruments - Credit Losses because the Company has the intent and ability to hold the certificate of deposit until maturity. Interest income generated from short-term investments is recorded as interest income in the Company's Consolidated Statements of Operations and Comprehensive Loss.
Tax Receivable Agreement Liability - As part of the Business Combinations (Note C), the Company entered into the TRA with certain OpCo unitholders that will represent approximately 75% of the calculated tax savings based on the portion of basis adjustments on exchanges of OpCo units and other carryforward attributes that are anticipated to be able to be utilized in future years. Such tax attributes include the existing tax basis of certain assets of OpCo and its consolidated subsidiaries; tax basis adjustments resulting from taxable exchanges of Class A OpCo Units; certain tax benefits realized by NET Power Inc. as a result of the Business Combination and tax deduction in respect of portions of certain TRA payments. All such payments made under the terms of the TRA are the obligations of NET Power Inc. and not of OpCo.
Reference Note O to review additional information about the TRA Liability.
Intangible Assets - The Company accounts for intangible assets, which consist of developed technology related to the NET Power Cycle, in accordance with ASC Topic 350 - Goodwill and Other Intangible Assets (“ASC 350”). The following table summarizes the estimated useful lives used to amortize definite lived intangible assets:
| | | | | | | | |
Intangible Asset Classification | | Useful Life |
Developed Technology | | 20 |
The weighted average amortization period for all intangible assets is 20 years.
Goodwill - The Company recognizes goodwill in accordance with ASC 350. Goodwill represents the excess costs of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill is
not amortized but is tested annually for impairment. During the June 8, 2023 through September 30, 2023 (Successor) period, the Company determined that no impairment charges for goodwill were required to be recognized.
Prepaid Expenses - Prepaid expenses consist of costs paid in advance for software and other subscriptions, patent renewal fees, general liability insurance and employee health insurance.
Property, Plant and Equipment - Property, plant and equipment are recorded at the historical cost to acquire the assets. The costs bases of property, plant and equipment to which the Company held title prior to the Business Combination completion (Note C) were stepped-up to their respective fair values on June 8, 2023 in accordance with the closure of the Business Combination. The Demonstration Plant's depreciable value consists of costs associated with the engineering, procurement, and construction of the facility.
Depreciation is calculated on the straight-line method over the estimated useful lives of the assets. Amounts capitalized to construction in progress are not depreciated until the underlying asset is placed into service. The following table summarizes the estimated useful lives used to depreciate property, plant and equipment and assets:
| | | | | | | | |
Asset Classification | | Useful Life |
Furniture and Equipment | | 4 – 7 |
Demonstration Plant | | 7 |
Construction in Progress | | — |
Impairment of Definite-Lived Assets - In accordance with ASC Topic 360 - Property, Plant and Equipment, tangible and intangible assets with finite useful lives are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets placed in service is measured by comparing the carrying amount of an asset or asset group to the future undiscounted cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, impairment equals the amount by which the carrying amount of the assets exceeds the fair value of the assets. There were no impairment charges recorded during the June 8 through September 30, 2023 (Successor) period or during the year ended December 31, 2022 (Predecessor).
Lease Agreements – Lease agreements may fall within two categories according to ASC Topic 842 – Leases ("ASC 842"), operating leases or financing leases. Both operating and finance leases result in the recognition of lease liabilities and associated right-of-use assets that are valued at the net present value of the lease payments and recognized. The Company has elected the short-term lease exception and therefore only recognizes right-of-use assets and lease liabilities for leases with a term greater than one year. The lease term includes the committed lease term identified in the contract, taking into account renewal and termination options that management is reasonably certain to exercise. The discount rate used in the measurement of a right-to-use asset and lease liability is the rate implicit in the lease whenever that rate is readily determinable. If the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate as a proxy for the discount rate based on the term of the lease unless the implicit rate is available.
Asset Retirement Obligation – The Company recognizes liabilities and the corresponding assets for future obligations associated with the retirement of assets. The fair values of legal obligations to retire and remove long-lived assets are recorded in the period in which the obligation is incurred. Prior to the consummation of the Business Combination (Note C), asset retirement obligations were reflected in property, plant and equipment. In conjunction with the Business Combination, the Company re-measured its property, plant and equipment assets at their respective June 8, 2023 fair values, which resulted in the asset retirement obligation being removed from Property, plant and equipment on the Consolidated Balance Sheets. When an asset retirement obligation arises, the liabilities and corresponding assets are recorded at their present values using a discounted cash flow approach and the liabilities are accreted using the interest method. The asset retirement costs and corresponding liabilities that have been recorded to-date relate to the obligations of the land lease for the property underneath the Demonstration Plant at the end of the Demonstration Plant's estimated useful life.
The Company’s valuation of the asset retirement obligation related to the Demonstration Plant encompasses an estimate for the cost to restore the site as required by lease terms. The accretion expense generated by the Company’s asset retirement obligation liability is recognized ratably over the Demonstration Plant’s expected seven year useful life.
Net Loss per Unit - During the Predecessor Period, the Company computed basic net loss per unit by dividing the total net loss applicable to membership interest holders by the weighted average number of membership interests outstanding during the period. The Company computed diluted net loss per unit by dividing the net loss applicable to membership interest holders by the sum of the weighted-average number of membership interests outstanding during the period and the
potentially dilutive effects of distribution units, profits interests and options to purchase membership interests. Such items were excluded if their effect was anti-dilutive. Since the impact of the distribution units, profits interests, and options to purchase membership interests were anti-dilutive during periods of net loss, there was no difference between the Company’s basic and diluted net loss per unit for the period from January 1, 2023 through June 7, 2023 (Predecessor) or the year ended December 31, 2022 (Predecessor).
Net Loss per Share - During the Successor Period, basic net loss per share is computed based on the weighted average number of shares of Class A Common Stock outstanding. Diluted net loss per share is computed based on the weighted average number of common shares outstanding, increased by the number of any additional shares that would have been outstanding had any potentially dilutive common shares been issued. For the purposes of the diluted earnings per share calculation, Warrants, Earnout Shares, restricted stock units and conversion of OpCo Units are excluded from the calculation for the period from June 8 through September 30, 2023 (Successor), as the inclusion would be anti-dilutive due to the losses reported in the year.
Equity Based Compensation – The Company applies ASC Topic 718 – Share-Based Payments (“ASC 718”) to account for its equity awards. Equity awards granted to employees include unvested Class A OpCo Units and a corresponding number of unvested shares of Class B Common Stock and RSU's that settle into shares of Class A Common Stock upon vesting. Generally, each award is subject to a service condition that requires a specific period of continued employment or service to the Company to elapse before the award fully vests. Certain awards also include performance conditions to vest fully. The Board’s Compensation Committee establishes these service and performance conditions.
The estimated fair value of NET Power, LLC membership units was determined by an independent, external valuation service provider at each equity grant date until the the Closing Date, upon which the Company became publicly traded. On the Closing Date, the Company fair valued the OpCo Units used to satisfy outstanding share-based awards at the fair value of the Company's Class A Common Stock.
In accordance with ASC 718, the Company recognizes expense related to equity awards for which vesting is considered probable. Forfeitures are recognized as they occur. For service-based awards, compensation cost is measured at fair value on the grant date and expensed ratably over the vesting term. For performance-based grants, the fair value is measured on the grant date and recognized as non-cash compensation expense, considering the probability of the targets being achieved. The Company recognizes compensation expense generated by all service-based awards on a straight-line basis over the underlying awards's vesting period.
Earnout Shares and Restricted Shares - As part of the Business Combination (Note C), 128,908,518 Class A OpCo Units and a corresponding number of shares of Class B Common Stock, 7,624,999 Class B OpCo Units and a corresponding number of shares of Class B Common Stock and 54,047,495 shares of Class A Common Stock owned by the Sponsor, the Sponsor's affiliates and private investors were subjected to certain vesting and transfer restrictions. Upon conversion of Class B OpCo Units to Class A OpCo Units (Note K), the 6,072,463 Class B OpCo Units subject to vesting and transfer restrictions became Class A OpCo Units.
Of the total shares subject to vesting and transfer restrictions, 986,775 Class A OpCo Units, all of which were formerly Class B OpCo Units, and a corresponding number of shares of Class B Common Stock vest in three equal tranches contingent upon the share price of the Class A Common Stock (the "Earnout Shares"). The first tranche vests if the closing price of the Class A Common Stock on the NYSE is greater than or equal to $12.00 for any 20 trading days within a consecutive 30-trading-day period beginning on or after June 23, 2023. The second tranche vests if the closing price of the Class A Common Stock on the NYSE is greater than or equal to $14.00 for any 20 trading days within a consecutive 30-trading-day period beginning on or after June 23, 2023. The third tranche vests if the closing price of the Class A Common Stock on the NYSE is greater than or equal to $16.00 for any 20 trading days within a consecutive 30-trading-day period beginning on or after June 23, 2023 and ending on the three-year anniversary of the Closing Date.
Of the OpCo Units subject to transfer restrictions, 44,544,551 Class A OpCo Units, of which 1,575,045 were formerly Class B OpCo Units, (the “Price-Based Lock-up Shares”) may not be transferred until after the three-year anniversary of the Closing Date; provided, however, that if the last sale price of the Class A Common Stock on the NYSE, for any 20 trading days within any 30 consecutive trading-day period commencing on or after June 23, 2023 exceeds (or, in the case of the 1,575,045 Class A OpCo Units that were formerly Class B OpCo Units, equals) (i) $12.00 per share, then one-third of the Price-Based Lock-up Shares will no longer be subject to such lock-up restrictions, (ii) $14.00 per share, then an additional one-third of the Price-Based Lock-up Shares will no longer be subject to such lock-up restrictions, and (iii) $16.00 per share, then all of the Price-Based Lock-up Shares will no longer be subject to such lock-up restrictions.
The remaining 89,449,655 Class A OpCo Units, of which 3,510,643 were formerly Class B OpCo Units (the “Time-Based Lock-up Shares”) subject to transfer restrictions may not be transferred until after the one-year anniversary of the Closing Date; provided, however, that if the last sale price of the Class A Common Stock on the NYSE, for any 20 trading days within any 30 consecutive trading-day period commencing on or after December 8, 2023, exceeds (or in the case of the 3,510,643 Class A OpCo Units that were formerly Class B OpCo Units, equals) $12.00 per share, then the Time-Based Lock-up Shares will no longer be subject to such lock-up restrictions.
Unvested Earnout Shares are reported as liabilities within the Company’s Consolidated Balance Sheets. The liability classification reflects the Company’s evaluation of the Earnout Shares according to ASC 480’s and ASC 815’s standards. The Price Based Lockup Shares and the Time-Based Lockup Shares are included as equity within the Company's Consolidated Balance Sheets.
Non-Controlling Interest - Non-controlling interests (“NCI”) represent Legacy NET Power Holders partners’, sponsors' and certain strategic partners' respective ownership of OpCo. After the conversion of Class B OpCo Units to Class A OpCo Units, NCI is comprised exclusively of Class A OpCo Units (Note K). After evaluating Class A OpCo Unit redemption rights under ASC 480, the Company determined that Class A OpCo Units are subject to potential cash redemption that rests outside the Company's control. The Company has classified NCI as a component of mezzanine equity in consideration of this cash redemption feature and in accordance with ASC 810's guidance.
After considering the effects of consolidation, the Company owns 32.6% of OpCo and NCI holders own the residual 67.4%. The Company's net loss before income tax and its comprehensive loss in the Successor Period are reduced by the portions of net loss before income tax and comprehensive loss, respectively, that are attributable to non-controlling interests.
Research and Development Costs - The Company expenses costs related to operations and testing at the Demonstration Plant, as well as engineering and design costs related to development of the NET Power Cycle as incurred. These costs are included in Research and Development on the Consolidated Statements of Operations and Comprehensive Loss.
Related Parties –The Company applies ASC Topic 850 – Related Parties ("ASC 850") and prevailing SEC guidance to classify and report transactions with related parties.
The Company has entered into contractual relationships with several of its current shareholders and former members that qualify as related parties according to the aforementioned criteria. These relationships include loans from members and master service agreements (“MSA's”).
Income and Uncertain Taxes – The Company applies the guidance set forth in ASC Topic 740 – Income Taxes (“ASC 740”) to evaluate its tax positions. The Company evaluates the realizability of deferred tax assets on a quarterly basis and establishes a valuation allowance when it is more-likely-than-not that all or a portion of a deferred tax asset may not be realized. The Company calculates the provision for income taxes during interim periods by applying an estimate of the forecasted annual effective tax rate for the full fiscal year to ordinary income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period.
NET Power Inc. consolidates the financial results of OpCo in its consolidated financial statements. OpCo represents a pass-through entity for U.S. federal and most applicable state and local income tax purposes. As a pass-through entity for tax purposes, OpCo is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by OpCo is passed through to its members, including NET Power Inc., which is taxed as a corporation that pays corporate federal, state and local taxes with respect to income allocated from OpCo based on its economic interest in OpCo.
NP Europe is subject to taxation pursuant to UK tax regulations. For the quarter ended September 30, 2023 (Successor) and the year ended December 31, 2022 (Predecessor), NP Europe incurred taxable losses, which may be used to offset future profits. The Company has established a valuation allowance against possible future tax benefits because the ability to recognize these benefits does not meet ASC 740's more-likely-than-not recognition threshold; therefore, no provision or asset for UK income taxes has been included in the consolidated financial statements.
Management evaluated the Company’s tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to comply with the applicable accounting guidance.
NOTE C — Business Combination
RONI, a Cayman Islands exempted company, was organized as a blank check company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. On June 18, 2021, RONI completed its IPO, generating gross proceeds of approximately $345,000. The net proceeds from the IPO were subsequently placed in a trust account for the intended purpose of consummating a business combination.
On December 13, 2022, NET Power, LLC entered into a Business Combination Agreement with RONI, RONI Holdings, Buyer and Merger Sub. On the Closing Date, Merger Sub merged with and into NET Power, LLC, with NET Power, LLC continuing as the surviving entity, resulting in it becoming a majority-owned, direct subsidiary of Buyer. RONI OpCo renamed itself NET Power Operations LLC and RONI renamed itself NET Power Inc. upon completion of the Business Combination.
The Business Combination resulted in an umbrella partnership, C corporation or “Up-C” structure. Immediately prior to the execution of the Business Combination Agreement, RONI OpCo represented a VIE in accordance with ASC 810’s guidance; therefore, RONI represented the accounting acquirer within the Business Combination structure. The Company elected push-down accounting for the Business Combination and recorded the push-down entries at RONI OpCo.
As a result of the Business Combination, the Company's financial statement presentation distinguishes NET Power, LLC as the "Predecessor" through June 7, 2023. NET Power Inc. is the "Successor" for periods after the Closing Date. Revenue and earnings from the date of the Business Combination to period-end are shown as 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.
The result of the Business Combination generated the following financial results:
•The Business Combination generated $121,883 of expenses, including $16,021 of acquirer expenses recorded “on-the-line” because they would not have been incurred had the Business Combination not closed.
•In contemplation of the Business Combination, the Company modified certain outstanding profits interests awards, a portion of which vested during the pre-combination period. The Company included $325 of previously vested, modified Profits Interests issued to the award recipient as consideration transferred to sellers.
•Certain outstanding Profits Interests, which were not modified in contemplation of the Business Combination, that vested during the pre-combination period and that were issued to recipients as part of the Business Combination were included in consideration transferred to sellers. The total fair value of previously vested, unmodified Profits Interests included in consideration transferred to sellers equaled $651.
•All outstanding NET Power, LLC member interests converted into 136,073,365 vested Class A OpCo Units and a corresponding number of vested shares of Class B Common Stock, 1,119,198 unvested Class A OpCo Units and 1,119,198 unvested shares of Class B Common Stock upon completion of the Business Combination.
•The Company registered and issued 67,352,271 shares of Class A Common Stock on the NYSE.
•The Company recorded 8,624,974 Public Warrants exercisable into 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 5 years after the Closing Date.
•The Company recorded 10,900,000 Private Placement Warrants, which 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 5 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 recorded $71,459 of deferred tax liabilities, which represent the difference between NET Power Inc.’s tax basis and its US GAAP basis in OpCo, with an offsetting entry to goodwill. The basis difference is primarily attributable to the Company's developed technology and its Demonstration Plant asset.
•The Company received $661,623 of cash from trust net of certain expenses paid on the Closing Date. During the period from July 1, 2023 through September 30, 2023 (Successor) this cash earned $10,800 in interest revenue, which is reported as interest revenue on the Consolidated Statements of Operations and Comprehensive Loss.
The Business Combination was accounted for using the acquisition method of accounting. The fair value of the total purchase consideration transferred was $1,786,259. The following table summarizes the total consideration transferred in the Business Combination:
| | | | | | | | |
Consideration Transferred | | Total |
Pre-combination vesting of modified profits interests | | $ | 325 | |
Pre-combination vesting of unmodified profits interests | | 651 | |
Consideration Transferred to Sellers | | 976 | |
Class A OpCo Units - non-controlling interests | | 1,785,283 | |
Fair value of total consideration transferred | | $ | 1,786,259 | |
The following table sets forth the fair value of the assets and liabilities assumed in connection with the Business Combination:
| | | | | | | | |
| | Total |
Assets Acquired | | |
Current Assets | | |
Cash | | $ | 7,946 | |
Prepaid expenses | | 637 | |
Other current assets | | 30 | |
Total Current Assets | | 8,613 | |
| | |
Long Term Assets | | |
Intangible assets, net | | 1,345,000 | |
Property, plant and equipment | | 91,855 | |
Right-of-use assets | | 940 | |
Total Long Term Assets | | 1,437,795 | |
Total Assets Acquired | | $ | 1,446,408 | |
| | |
Liabilities Assumed | | |
Current Liabilities | | |
Accounts payable | | 2,574 | |
Accrued liabilities | | 7,370 | |
Current lease liability | | 137 | |
Other current liabilities | | 1 | |
Total Current Liabilities | | 10,082 | |
| | |
Long Term Liabilities | | |
Deferred tax liability | | 71,459 | |
Asset retirement obligation | | 1,967 | |
Long term lease liability | | 594 | |
Total Long Term Liabilities | | 74,020 | |
Total Liabilities Assumed | | 84,102 | |
| | |
Total identifiable net assets | | 1,362,306 | |
Goodwill | | 423,953 | |
Net assets acquired | | $ | 1,786,259 | |
The purchase price allocation is subject to change during the measurement period, which will expire one year from the acquisition date.
Pro-Forma Information - The following table presents pro forma information as if the Business Combination occurred as of January 1, 2022. The pro forma information reflects adjustments for additional amortization resulting from the fair value re-measurement of assets acquired and liabilities assumed, for alignment of accounting policies, and transaction expenses as if the Business Combination occurred on January 1, 2022. The pro forma results do not include any anticipated cost synergies or other effects of the combined Company. Accordingly, pro forma amounts are not necessarily indicative of the results that actually would have occurred had the Business Combination been completed on the date indicated, nor are they indicative of the Company's future operating results.
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2023 | September 30, 2022 | | September 30, 2023 | September 30, 2022 |
Pro forma revenue | | $ | 125 | | $ | 208 | | | $ | 175 | | $ | 574 | |
Pro forma net loss | | (91,966) | | (28,964) | | | (266,123) | | (87,558) | |
Pro forma net loss attributable to non-redeemable controlling interest | | (29,981) | | (9,442) | | | (86,756) | | (28,544) | |
Pro forma net loss attributable to non-redeemable non-controlling interests | | (61,985) | | (19,522) | | | (179,367) | | (59,014) | |
NOTE D — 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 Company's goodwill balance as of September 30, 2023 (Successor):
| | | | | | | | |
| | Goodwill |
Goodwill at June 30, 2023 (Successor) | | $ | 433,736 | |
Measurement Adjustments | | (9,783) | |
Goodwill at September 30, 2023 (Successor) | | $ | 423,953 | |
Current period measurement adjustments of $9,783 reflect the effects of changes to deferred tax liability estimates calculated as part of the purchase price allocation that accompanied the Business Combination (Note C).
Definite Lived Intangible Assets - The following tables present the Company's definite lived intangible assets as of September 30, 2023 (Successor) and December 31, 2022 (Predecessor) are as follows:
| | | | | | | | | | | | | | | | | |
| | September 30, 2023 (Successor) | | December 31, 2022 (Predecessor) | |
Developed Technology, gross | | $ | 1,345,000 | | | $ | 604 | | |
Accumulated Amortization | | (20,922) | | | (341) | | |
Developed Technology, net | | $ | 1,324,078 | | | $ | 263 | | |
Amortization expense for the period from January 1, 2023 through June 7, 2023 (Predecessor) and the period from June 8, 2023 through September 30, 2023 (Successor) was $10 and $20,922, respectively. Amortization expense for the three month and nine month periods ended September 30, 2022 (Predecessor) was $5 and $16, respectively. Periodic amortization expense excludes goodwill, which is not amortized. The Company does not own or control any intangible
assets with indefinite useful lives except goodwill. The Company's goodwill is not tax deductible. The following table presents estimated amortization expense for future periods and future years ending December 31:
| | | | | | | | |
| | Future Amortization Expense |
2023 | | $ | 16,813 | |
2024 | | 67,250 | |
2025 | | 67,250 | |
2026 | | 67,250 | |
2027 | | 67,250 | |
2028 and thereafter | | 1,038,265 | |
Total | | $ | 1,324,078 | |
NOTE E – Property, Plant and Equipment
The following table summarizes the key classifications of property, plant and equipment as of September 30, 2023 (Successor) and December 31, 2022 (Predecessor):
| | | | | | | | | | | | | | |
| | September 30, 2023 (Successor) | | December 31, 2022 (Predecessor) |
Furniture and Equipment, gross | | $ | 253 | | | $ | 368 | |
Accumulated Depreciation | | (17) | | | (216) | |
Furniture and Equipment, net | | 236 | | | 152 | |
| | | | |
Demonstration Plant, gross | | 89,240 | | | 128,013 | |
Accumulated Depreciation | | (3,955) | | | (58,570) | |
Demonstration Plant, net | | 85,285 | | | 69,443 | |
| | | | |
Construction in Progress | | 6,237 | | | — | |
| | | | |
Total Property, Plant and Equipment, net | | $ | 91,758 | | | $ | 69,595 | |
Depreciation expense for the period from January 1, 2023 through June 7, 2023 (Predecessor), the period from June 8, 2023 through September 30, 2023 (Successor) and the period from July 1, 2023 through September 30, 2023 was $5,700, $3,972 and $3,173, respectively. Depreciation expense for the three month and nine month periods ended September 30, 2022 (Predecessor) was $3,266 and $9,797, respectively.
Asset Retirement Obligation - The following table disaggregates the contents of the Company's asset retirement obligation included in Property, Plant and equipment, net on the Consolidated Balance Sheets as of December 31, 2022 (Predecessor):
| | | | | | | | |
| | December 31, 2022 (Predecessor) |
Asset Retirement Obligation, gross | | $ | 2,201 | |
Accumulated Depreciation | | (348) | |
Asset Retirement Obligation, net | | $ | 1,853 | |
NOTE F — Accrued Liabilities
Accrued liabilities as of September 30, 2023 (Successor) and December 31, 2022 (Predecessor) are as follows:
| | | | | | | | | | | | | | |
| | September 30, 2023 (Successor) | | December 31, 2022 (Predecessor) |
Accrued Incentive Compensation | | $ | 1,023 | | | $ | 1,451 | |
Accrued cash-based expense of Original JDA and Amended and Restated JDA | | 2,748 | | | — | |
Accrued Legal Service Provider Fees | | 1,731 | | | 645 | |
Other Accrued Liabilities | | 1,929 | | | 296 | |
Total Accrued Liabilities | | $ | 7,431 | | | $ | 2,392 | |
NOTE G — Trade Receivables and Allowance for Doubtful Accounts
Trade receivables, net as of September 30, 2023 (Successor) and December 31, 2022 (Predecessor) comprise the following balances:
| | | | | | | | | | | | | | |
| | September 30, 2023 (Successor) | | December 31, 2022 (Predecessor) |
Trade Receivables, gross | | $ | — | | | $ | 352 | |
Allowance for Doubtful Accounts | | — | | | — | |
Trade Receivables, net | | $ | — | | | $ | 352 | |
During the period from January 1, 2023 through June 7, 2023 (Predecessor) and the period from June 8, 2023 through September 30, 2023 (Successor), the Company recorded bad debt expense associated with its allowance for doubtful accounts equal to $352 and $0 within General and administrative on the Consolidated Statement of Operations and Comprehensive Loss, respectively. During the three month and nine month periods ended September 30, 2022 (Predecessor), the Company recorded bad debt expense associated with its allowance for doubtful accounts equal to $0 and $0 within General and administrative on the Consolidated Statement of Operations and Comprehensive Loss, respectively.
NOTE H — Related Party Transactions
Related Party Transactions - The Company had $288 and $178 in current liabilities payable to related parties as of September 30, 2023 (Successor) and December 31, 2022 (Predecessor), respectively. These related party payables are unsecured and are due on demand.
The Company had $0 and $2,212 in long term liabilities payable to related parties as of September 30, 2023 (Successor) and December 31, 2022 (Predecessor), respectively.
Share Purchase Option - One of the Company’s shareholders owned an option to purchase up to 711,111 membership interests from NET Power, LLC if NET Power, LLC met certain performance conditions, which it did not achieve prior to the close of the Business Combination. Immediately prior to the close of the Business Combination (Note C), the option holder received 247,655 NET Power, LLC membership interests worth approximately $79,054 in exchange for retiring the purchase option. The membership interests converted into 7,905,279 Class A OpCo Units and a corresponding quantity of shares of Class B Common Stock in conjunction with the Business Combination. The loss generated from the settlement of the share purchase option is recorded as Option settlement - related party expense on the Consolidated Statements of Operations and Comprehensive Loss.
MSA – A significant shareholder has provided the Company with marketing services, patent administration services and technology maintenance services related to the development of the NET Power Cycle. The total cost incurred for these services was $79 and $51 during the period from January 1, 2023 through June 7, 2023 (Predecessor) and the period from June 8, 2023 through September 30, 2023 (Successor), respectively. The total cost incurred for these services was $47 and $183 during the three month and nine month periods ended September 30, 2022 (Predecessor), respectively. These totals are included in General and administrative - related party on the 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. The total cost incurred for these services was $530 and $433 during the period from January 1, 2023 through June 7, 2023 (Predecessor) and the period from June 8, 2023 through September 30, 2023 (Successor), respectively. The total cost incurred for these services was $184 and $790 during the three month and nine month periods ended September 30, 2022 (Predecessor), respectively. These totals are reflected in Research and development - related party on the Consolidated Statements of Operations and Comprehensive Loss.
NOTE I – Fair Value Measurement
The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis as of September 30, 2023 (Successor) and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine each asset's and each liability's fair value:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets | | Level 1 | | Level 2 | | Level 3 | | Total |
Short-term Investments | | $ | — | | | $ | 100,000 | | | $ | — | | | $ | 100,000 | |
Total | | $ | — | | | $ | 100,000 | | | $ | — | | | $ | 100,000 | |
| | | | | | | | |
Liabilities | | Level 1 | | Level 2 | | Level 3 | | Total |
Public Warrants | | |