Company: NPWR-WT
Filing Date: 2025-03-10
Form Type: 10-K
Source: 0001845437-25-000008
Chunk: 148

Company: NET Power Inc.
Filing Date: 2025-03-10
Form: 10-K
Item: Item 7
Chunk 148
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 recoverability of our deferred tax assets from future taxable income and the timing of reversing temporary differences. Additionally, accounting for uncertain tax positions requires management to make judgements regarding the likelihood the position will be sustained based on its technical merits. 

As managing member of OpCo, Net Power Inc. consolidates the financial results of OpCo in its consolidated financial statements. OpCo represents a pass-through entity for income tax purposes. As a pass-through entity, OpCo is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by OpCo is passed through to its members, including Net Power Inc., which is taxed as a corporation that pays corporate federal, state and local taxes with respect to income allocated from OpCo. A change to future taxable income or tax planning strategies could impact our ability to utilize deferred tax assets, which would increase or decrease our income tax expense and taxes paid. An estimate of the sensitivity to changes in our assumptions is not practicable given the numerous assumptions that can materially affect our estimates.

53

Equity-Based Compensation and Fair Value of Shares

We believe that equity-based compensation is a critical accounting estimate because the assumptions underlying management’s estimates involve inherent uncertainties and require the application of significant judgment.

We recognize the cost of equity-based awards granted to our employees and directors based on the estimated grant-date fair value of the awards. Cost is recognized on a straight-line basis over the service period, which is generally the vesting period of the award. 

Predecessor Period

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

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

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

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

•Risk-Free Interest Rate—The interest rates used were based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award.

Prior to the Business Combination, there was no public market for our equity instruments and, as a result, the estimated fair value of our equity has historically been determined by the Net Power, LLC board of directors as of the grant date with input from management, considering our most recently available third-party valuations of equity