SCWO 10-Q
374Water Inc. (SCWO)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form
For the Quarterly Period ended
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
|
|
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission file No.
(Exact name of Registrant as specified in its charter) |
| ||
(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
|
| The |
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 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. ☒
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). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☐ | Large accelerated filer | ☐ | Accelerated filer |
☒ | Smaller reporting company | ||
|
| Emerging Growth Company |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At August 10, 2026, the issuer had
Index to Form 10-Q
| 2 |
| Table of Contents |
Cautionary Note Regarding Forward-Looking Statements
Readers are cautioned that the statements in this Quarterly Report on Form 10-Q (this “Form 10-Q”) that are not descriptions of historical facts may be “forward-looking statements” that are subject to risks and uncertainties. This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are based on the beliefs of our management, as well as on assumptions made by and information currently available to us as of the date of this Form 10-Q. When used in this Form 10-Q, the words “plan,” “will,” “may,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project” and similar expressions are intended to identify such forward-looking statements. Although we believe these statements are reasonable, actual actions, operations and results could differ materially from those indicated by such forward-looking statements as a result of certain risks and uncertainties, including, but not limited to: changes in political and economic conditions; interest rate fluctuation; competitive pricing pressures within the Company’s market; equity and fixed income market fluctuation; technological changes; changes in law; changes in fiscal, monetary, regulatory, and tax policies; monetary fluctuations as well as the risk factors included in our 2025 Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 31, 2026, as amended by Amendment No. 1 on Form 10-K/A filed with SEC on April 30, 2026 (the “2025 Form 10-K”), and other risks and uncertainties detailed elsewhere in this Form 10-Q. We must caution, however, that this list of factors may not be exhaustive and that these or other factors, many of which are outside of our control, could have a material adverse effect on us and our ability to achieve our objectives. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above.
| 3 |
| Table of Contents |
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
374Water Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
June 30, 2026 (Unaudited) and December 31, 2025
|
| June 30, 2026 |
|
| December 31, 2025 |
| ||
Assets |
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ |
|
| $ |
| ||
Accounts receivable, net of credit allowance |
|
|
|
|
|
| ||
Unbilled accounts receivable |
|
|
|
|
|
| ||
Other accounts receivable |
|
|
|
|
|
| ||
Inventory, net |
|
|
|
|
|
| ||
Contract assets |
|
|
|
|
|
| ||
Prepaid expenses |
|
|
|
|
|
| ||
Total Current Assets |
|
|
|
|
|
| ||
Long-Term Assets: |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
| ||
Intangible assets, net |
|
|
|
|
|
| ||
Right-of-use assets, net |
|
|
|
|
|
| ||
Other assets |
|
|
|
|
|
| ||
Total Long-Term Assets |
|
|
|
|
|
| ||
Total Assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
| $ |
|
| $ |
| ||
Accrued bonuses |
|
|
|
|
|
| ||
Accrued contract loss provision |
|
|
|
|
|
| ||
Unearned revenue |
|
|
|
|
|
| ||
Note payable |
|
|
|
|
|
| ||
Secured promissory note |
|
|
|
|
|
| ||
Financing liability |
|
|
|
|
|
| ||
Operating lease liabilities |
|
|
|
|
|
| ||
Other liabilities |
|
|
|
|
|
| ||
Total Current Liabilities |
|
|
|
|
|
| ||
Long-Term Liabilities: |
|
|
|
|
|
|
|
|
Unearned revenue, less current portion |
|
|
|
|
|
| ||
Convertible notes, net of discount |
|
|
|
|
|
| ||
Note payable, less current portion |
|
|
|
|
|
| ||
Operating lease liabilities, less current portion |
|
|
|
|
|
| ||
Total Long-Term Liabilities |
|
|
|
|
|
| ||
Total Liabilities |
|
|
|
|
|
| ||
Commitments and contingencies (Note 9) |
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
Preferred Stock: |
|
|
|
|
|
| ||
Common stock: |
|
|
|
|
|
| ||
Additional paid-in capital |
|
|
|
|
|
| ||
Accumulated deficit |
|
| ( | ) |
|
| ( | ) |
Accumulated other comprehensive income |
|
|
|
|
|
| ||
Total Stockholders’ Equity |
|
|
|
|
|
| ||
Total Liabilities and Stockholders’ Equity |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
| Table of Contents |
374Water Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2026 and 2025
(Unaudited)
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2026 |
|
| 2025 |
|
| 2026 |
|
| 2025 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross margin |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Compensation and related expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Professional fees |
|
|
|
|
|
|
|
|
|
|
|
| ||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Interest income |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loss on debt extinguishment |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total Other Income (Expense), net |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
| ||
Net Loss before Income Taxes |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Provision for Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss per Share - Basic and Diluted |
| $ | ( | ) |
| $ | ( | )(i) |
| $ | ( | ) |
| $ | ( | )(i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding - Basic and Diluted |
|
|
|
|
| (i) |
|
|
|
|
| (i) | ||||
(i) Adjusted for the effect of a 10:1 reverse stock split that went effective December 26, 2025 (see Note 1).
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
| Table of Contents |
374Water Inc. and Subsidiaries
Condensed Consolidated Changes in Stockholders’ Equity
For the Three and Six Months Ended June 30, 2026 and 2025
(Unaudited)
Three and Six Months Ended June 30, 2025 |
| Preferred Stock |
|
| Common Stock |
|
| Additional |
|
|
|
|
| Other |
|
| Total |
| ||||||||||||||
|
| Number of Shares |
|
| Amount |
|
| Number of shares |
|
| Amount |
|
| Paid in capital |
|
| Accumulated Deficit |
|
| Comprehensive Income |
|
| Stockholders' Equity |
| ||||||||
Balances, December 31, 2024 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| ||||||
Issuance of shares of common stock for services |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Accretion of stock-based compensation - options |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accretion of stock-based compensation - restricted stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Issuance of shares of common stock for option exercise |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
Balances, March 31, 2025 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| ||||||
Issuance of shares of common stock for services |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Accretion of stock-based compensation - options |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accretion of stock-based compensation - restricted stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Issuance of vested restricted common stock |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Issuance of shares of common stock for cash, net of issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
Balances, June 30, 2025 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three and Six Months Ended June 30, 2026 |
| Preferred Stock |
|
|
| Common Stock |
|
|
| Additional |
|
|
|
|
|
|
| Other |
|
|
| Total |
| |||||||||
|
| Number of Shares |
|
| Amount |
|
| Number of shares |
|
| Amount |
|
| Paid in capital |
|
| Accumulated Deficit |
|
| Comprehensive Income (Loss) |
|
| Stockholders' Equity |
| ||||||||
Balance at December 31, 2025 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| ||||||
Issuance of shares of common stock for services |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Accretion of stock-based compensation - options |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accretion of stock-based compensation - restricted stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Issuance of restricted common stock to executives and employees |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Issuance of shares of common stock for cashless stock option exercises |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Warrants issued with convertible promissory notes |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
Balances, March 31, 2026 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| ||||||
Issuance of shares of common stock for services |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accretion of stock-based compensation - options |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accretion of stock-based compensation - restricted stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Issuance of restricted common stock to executives and employees |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Issuance of shares of common stock for stock option exercises |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Warrants issued with convertible promissory notes |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Warrant modification in connection with convertible debt amendment |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||
Balances, June 30, 2026 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ |
| ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
| Table of Contents |
374Water Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2026 and 2025 (Unaudited)
|
| Six Months Ended |
| |||||
|
| June 30 |
| |||||
|
| 2026 |
|
| 2025 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
| ||
Amortization of debt discount |
|
|
|
|
|
| ||
Non-cash lease expense |
|
|
|
|
|
| ||
Issuance of common stock for services |
|
|
|
|
|
| ||
Stock-based compensation |
|
|
|
|
|
| ||
Loss on debt extinguishment |
|
|
|
|
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
| ( | ) | |
Unbilled accounts receivable |
|
| ( | ) |
|
| ( | ) |
Other receivables |
|
| ( | ) |
|
|
| |
Inventory |
|
| ( | ) |
|
| ( | ) |
Contract assets |
|
|
|
|
| ( | ) | |
Prepaid expenses |
|
|
|
|
|
| ||
Other assets |
|
|
|
|
|
| ||
Accounts payable and accrued expenses |
|
|
|
|
|
| ||
Accrued bonuses |
|
|
|
|
| ( | ) | |
Accrued contract loss provision |
|
|
|
|
|
| ||
Accrued legal settlement |
|
|
|
|
| ( | ) | |
Unearned revenue |
|
|
|
|
| ( | ) | |
Other liabilities |
|
|
|
|
| ( | ) | |
Operating lease liabilities |
|
| ( | ) |
|
| ( | ) |
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| ( | ) |
|
| ( | ) |
Purchases of equipment-in-process |
|
|
|
|
| ( | ) | |
Net cash used in investing activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Repayments on note payable |
|
| ( | ) |
|
| ( | ) |
Repayments on financing liability |
|
| ( | ) |
|
|
| |
Net issuance costs from the sale of common stock |
|
|
|
|
| ( | ) | |
Repayments on secured promissory notes |
|
| ( | ) |
|
|
| |
Proceeds from the issuance of convertible notes |
|
|
|
|
|
| ||
Proceeds from the exercise of options |
|
|
|
|
|
| ||
Net cash provided by financing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
| $ |
|
| $ |
| ||
Cash and cash equivalents, end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ |
|
| $ |
| ||
Cash paid for taxes |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities |
|
|
|
|
|
|
|
|
Recognition of ROU asset and operating lease liabilities |
| $ |
|
| $ |
| ||
Warrants issued with convertible notes |
| $ |
|
| $ |
| ||
Equipment financed with note payable |
| $ |
|
| $ |
| ||
Issuance of restricted common stock to executives and employees |
| $ |
|
| $ |
| ||
Shares issued for stock subscription receivable |
| $ |
|
| $ |
| ||
Shares issued for cashless stock option exercise |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
| Table of Contents |
374Water Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 – Nature of Business and Presentation of Financial Statements
Description of the Company
374Water Inc. (the “Company”, “374Water”, “we”, or “our”) is a cleantech and environmental services company developing super critical water oxidation (“SCWO”) for the destruction of organic waste streams within the municipal, federal, and industrial markets. 374Water offers our proprietary AirSCWO technology, which is designed to efficiently destroy and mineralize a broad spectrum of non-hazardous and hazardous organic wastes producing safe dischargeable water streams, safe mineral effluent, safe vent gas, and recoverable heat energy. Importantly, our AirSCWO system is designed to eliminate recalcitrant organic wastes without creating waste byproducts, as well as to simplify existing, complex waste processing and disposal practices. Our AirSCWO technology is designed to effectively convert solid and liquid wastes such as sewage sludge, biosolids, food waste, hazardous and non-hazardous waste, including ‘forever chemicals’ (e.g., “per-and polyfluoroalkyl substances” or “PFAS”) into inert and recoverable resources including water, minerals, and heat energy.
At a special meeting of stockholders held on December 15, 2025, the stockholders of 374Water, approved an amendment to the Company’s Amended and Restated Certificate of Incorporation, to, at the discretion of the Company’s Board of Directors, effect a reverse stock split with respect to the Company’s issued and outstanding common stock, at a ratio of 1-for-8 to 1-for-20, with the ratio within such range to be determined at the discretion of the Company’s Board of Directors (or any of its delegated authorized persons) without further approval or authorization of our stockholders.
On December 15, 2025, after the approval from the stockholders, the Company filed a Certificate of Amendment of the Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Delaware to effect a 1-for-10 reverse stock split (the “Reverse Stock Split”) of the issued and outstanding shares of the Company’s common stock. The Certificate of Amendment took effect on December 26, 2025. All share and per share amounts have been retrospectively adjusted for the effect of the Reverse Stock Split.
Presentation of Financial Statements and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for interim financial information. It is management’s opinion that the accompanying unaudited condensed consolidated financial statements are prepared in accordance with instructions for Form 10-Q and include all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the Annual Report on Form 10-K of 374Water at and for the year ended December 31, 2025, filed with the SEC on March 31, 2026, as amended by Amendment No. 1 on Form 10-K/A filed with SEC on April 30, 2026 (the “2025 Form 10-K”).
The results of operations for the three and six months ended June 30, 2026, are not necessarily indicative of the results to be expected for the full year or for future periods. The unaudited condensed consolidated financial statements include the accounts of 374Water Inc, 374Water Systems Inc, and 374Water Sustainability Israel LTD, currently inactive, each a wholly-owned subsidiary of 374Water. Intercompany balances and transactions have been eliminated in consolidation.
| 8 |
| Table of Contents |
Note 2 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include the fair value of equity-based compensation and warrants issued with convertible notes, revenue recognition and the evaluation of the collectability of variable consideration, accrued loss provisions on onerous contracts, useful lives of long-lived assets, and the valuation allowance against deferred tax assets.
Accounts Receivable, Net
Accounts receivable due from customers are uncollateralized customer obligations due under normal and customary trade terms. Account receivables are stated at the amount billed to the customer, less an allowance for estimated credit losses.
Inventory, Net
Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. The majority of our inventory is raw materials. Net realizable value is the value of an asset that can be realized upon the sale of the asset, less a reasonable estimate of the costs associated with either the eventual sale or the disposal of the asset in question. Costs associated with fabrication, and other costs associated with the manufacturing of products, are recorded as inventory. We periodically evaluate the carrying value of our inventories in relation to estimated forecasts of product demand, which takes into consideration the life cycle of product releases. When quantities on hand exceed estimated sales or usage forecasts, we perform an analysis to determine if a write-down for such excess inventories is required. Once inventory has been written down, it creates a new cost basis for inventory. Inventories are classified as current assets in accordance with recognized industry practice. Based on our evaluation, we estimated an inventory allowance of $
Property and Equipment
Property and Equipment is recorded at cost. Depreciation is computed using the straight-line method and the estimated useful life of the asset. Expenses for maintenance and repairs are charged to expense as incurred.
The following table presents property and equipment at June 30, 2026 and December 31, 2025:
|
| June 30, 2026 |
|
| December 31, 2025 |
| ||
Computers |
| $ |
|
| $ |
| ||
Equipment |
|
|
|
|
|
| ||
Equipment – Demo System |
|
|
|
|
|
| ||
Vehicles |
|
|
|
|
|
| ||
Equipment-in-process |
|
|
|
|
|
| ||
Total property and equipment |
|
|
|
|
|
| ||
Less: accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Total property and equipment, net |
| $ |
|
| $ |
| ||
| 9 |
| Table of Contents |
At June 30, 2026, we were in the process of manufacturing an AirSCWO 1 (“AS1”) model that can process approximately 1 wet ton of waste per day. The AS1 is highly mobile and can be deployed quickly to provide on-site waste destruction services. At June 30, 2026 and December 31, 2025, these manufacturing costs were classified as equipment in-process until the AS1 was completed and placed in service. In July 2026, the AS1 was deployed to an on-site waste destruction facility and reclassified from equipment-in-process to equipment.
Depreciation expense is presented as follows in the unaudited condensed consolidated statement of operations:
|
| Three Months Ended, |
|
| Six Months Ended, |
| ||||||||||
|
| June 30, 2026 |
|
| June 30, 2025 |
|
| June 30, 2026 |
|
| June 30, 2025 |
| ||||
Cost of revenues |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total depreciation expense |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, and marketable securities. Deposits with financial institutions are insured, up to certain limits, by the Federal Deposit Insurance Corporation (“FDIC”). The Company’s cash deposits often exceed the FDIC insurance limit; however, all deposits are maintained with high credit quality institutions and the Company has not experienced any losses in such accounts. The financial condition of financial institutions is periodically reassessed, and the Company believes the risk of any loss is minimal. Furthermore, we perform ongoing credit evaluations of our customers and generally do not require collateral.
Significant customers and suppliers are those that account for greater than
For the three and six months ended June 30, 2026, we generated approximately
At June 30, 2026, one customer comprised approximately
Refer to Note 9 for information on a license agreement we have with Duke University for the SCWO technology used in our systems.
Revenue Recognition
The Company follows the revenue standards of Accounting Standards Codification (“ASC”) Topic 606: “Revenue from Contracts with Customers (Topic 606).” The core principle of this Topic is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognized in accordance with that core principle by applying the following five steps: 1) identify the contracts with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance obligation using the input method.
The Company generates revenue from providing waste destruction services, including the completion of full-scale demonstrations and treatability studies, and the sale of equipment (AirSCWO units) to customers. In the case of equipment revenues, the Company’s performance obligations are satisfied over time as the equipment is being manufactured and are typically long-term fixed price contracts. Revenue is recognized over time by measuring the progress toward complete satisfaction of the performance obligation based on an input method. Equipment sale-related revenues are recognized in the proportion that contract costs incurred bear to total estimated costs to be incurred to complete the equipment contract. The estimated completed percentage is applied to the total transaction price of the fixed price contract. This method is used because management considers the input method to be the best available measure of progress on these contracts.
| 10 |
| Table of Contents |
Changes in our overall expected cost estimates are recognized as a cumulative adjustment for the inception-to-date effect of such a change. If these changes in estimates result in a possible loss being incurred on the contract, we accrue for such a loss in the period such an outcome becomes probable.
Services revenues related to bench-scale treatability studies are recognized when all five revenue recognition criteria have been completed which is generally when we deliver a completed treatability study report to the customer.
Service revenues related to our full demonstrations, using our owned AirSCWO unit, may include multiple performance obligations, typically the demonstration itself and a technical report that summarizes the analysis of materials processed. Management estimates are required in allocating the transaction price between the performance obligations. However, other full-scale demonstrations may include one performance obligation, the demonstration itself. Revenues from such contracts are recognized over time as the demonstration is being completed.
Orlando Contract
In late 2024, we deployed our Demo System to the City of Orlando’s Iron Bridge Regional Water Reclamation Facility pursuant to a contract executed in March 2024 as part of a full-scale demonstration (the “Demo Contract”). Pursuant to the Demo Contract, the Company was responsible for system design, installation, commissioning and the start-up of the AirSCWO unit at the facility. Further, the Company was to operate and maintain the AirSCWO unit for the demonstration period. Lastly, the Company was to decommission, disassemble and demobilize the AirSCWO unit after the contract period. The Company will receive $
In accordance with ASC 606-10-25-21, we concluded that the Demo Contract includes one performance obligation related to the full-scale demonstration. The system design, site preparation, installation, commissioning and decommissioning represent fulfillment activities versus separate performance obligations. During the three and six months ended June 30, 2026, we completed the full-scale demonstration period and have no further obligations under this Demo Contract. At December 31, 2025, we had a contract asset of $
On January 26, 2026, the Company executed a license agreement with the City of Orlando for use of their space at Iron Bridge Water Reclamation (the “Orlando License Agreement”) and on April 27, 2026, we executed a first amendment to the Orlando License Agreement to increase our leased space from 15,000 square feet to an additional 21,639 of square feet . Therefore, we will no longer demobilize our owned AirSCWO unit. See Note 9 for further information regarding the Orlando License Agreement.
Olathe Contract
On March 4, 2026, we entered into a purchase order with Garney Companies, Inc. (“Garney”) in connection with the Cedar Creek Wastewater Treatment Plant Expansion Phase II project in Olathe, Kansas. Under the purchase order, the Company will design, fabricate, deliver, install, and commission an AirSCWO 6 supercritical water oxidation unit and related pretreatment, dewatering, and water treatment equipment, and will provide startup, training, and warranty services.
The principal terms of the purchase order are as follows:
| · | |
| · | Payment milestones: 50% upon contract execution; 20% upon delivery of SCWO equipment; 20% upon delivery of dewatering equipment; 5% upon successful startup and commissioning; and 5% upon final hand-over and customer acceptance, in each case net of 5% retainage withheld until final acceptance. |
| · | Warranty: Standard one-year warranty plus an additional one-year extended warranty for total coverage of 24 months from acceptance. |
| 11 |
| Table of Contents |
The purchase order also contains customary provisions regarding indemnification, insurance, change orders, and dispute resolution, and includes a buy-back provision under which the Company would offer a trade-in credit currently estimated at $
During the six months ended June 30, 2026, we issued Garney an invoice totaling $
OC San Contract and Change in Accounting Estimate
Our equipment revenue contract with the Orange County Sanitation District (“OC San”) is a fixed price contract that includes billings based on the achievement of deliverables or milestones. During the year ended December 31, 2025, we had experienced delays in completing the equipment due to design changes and upgrades preventing us from meeting the next contractual milestone. Due to these delays, we had been contractually unable to bill for certain costs incurred related to the OC San contract. At December 31, 2025, we incurred costs in excess of billings of approximately $
Pursuant to the contract terms with OC San, we were unable to invoice and resume billing until the manufactured equipment passed a factory acceptance test (“FAT”) which is based on a continuous run time of the equipment and volume of materials processed. At contract inception, the variable consideration included in the contract price was not deemed to be constrained. We had anticipated delivering the equipment to OC San during the year ended December 31, 2025. Due to the unexpected delays, we had encountered in delivering the equipment, we reassessed the variable consideration at December 31, 2025. The changes in facts and circumstances resulted in us fully constraining the variable consideration at December 31, 2025 and ceasing revenue recognition on this contract after the nine months ended September 30, 2025. This resulted in the reduction of unbilled accounts receivable and a reduction in equipment revenue in the amount of approximately $
At June 30, 2026, OC San approved a change order which resulted in the modification of metrics required to pass the FAT. Specifically, the volume of materials to be processed was reduced from 6 tons per day to 3.25 tons per day. Upon the passing of the FAT, the Company invoiced OC San in the amount of $
See further revenue-related disclosures in Note 6.
Contract costs include all direct material, labor and subcontractor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation.
Research and Development Costs
The Company’s research and development costs are expensed in the period in which they are incurred. Such expenditures amounted to $
| 12 |
| Table of Contents |
Loss Per Share
Loss per share is computed in accordance with ASC Topic 260, “Earnings per Share.” Basic weighted-average number of shares of common stock outstanding for the three and six months ended June 30, 2026 and 2025 include the shares of the Company issued and outstanding during such periods, each on a weighted average basis. The basic weighted average number of shares of common stock outstanding excludes common stock equivalent incremental shares, while diluted weighted average number of shares outstanding includes such incremental shares. However, as the Company was in a loss position for all periods presented, basic and diluted weighted average shares outstanding are the same, as the inclusion of the incremental shares would be anti-dilutive. At June 30, 2026 and June 30, 2025, there were the following potentially dilutive securities that were excluded from diluted net loss per share because their effect would be antidilutive: options for
Recent Accounting Pronouncements - Not Yet Adopted
Accounting Standards Update 2024-03, Disaggregation of Income Statement Expenses (“DISE”). In November 2024, the FASB issued a new accounting standard to improve the disclosures about an entity’s expenses and address requests from investors for more detailed information about the types of expenses included in commonly presented expense captions. The new standard is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with retrospective application permitted. The Company is evaluating the disclosure requirements related to the new standard and its impact on our consolidated financial statements.
The Company considers the applicability and impact of all recently issued accounting pronouncements. Recent accounting pronouncements not specifically identified in our disclosures are either not applicable to the Company or are not expected to have a material effect on our financial condition or results of operations.
Note 3 – Liquidity, Capital Resources and Going Concern
In accordance with ASU No. 2014-15 Presentation of Financial Statements – Going Concern (subtopic 205-40), the Company’s management evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued. At June 30, 2026, the Company had a positive working capital of $
Presently, the Company will need additional debt or equity financing or a combination of both to continue its operations and meet its financial obligations for at least the next twelve months from the date these unaudited condensed interim consolidated financial statements were issued and beyond. We may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding. We expect to incur continuing losses and negative cash flows from operations for the foreseeable future until we are able to manufacture our AirSCWO units on a commercial scale.
Since inception, we have financed our operations principally through the sale of debt and equity securities and operating cash flows. On December 23, 2025, the Company entered into an ATM issuance sales agreement (the “Sales Agreement”) with Lake Street Capital Markets, LLC (“Lake Street”) as sales agent, pursuant to which the Company could offer and sell, from time to time, shares of the Company’s common stock having an aggregate offering price of up to $50 million in an at-the-market equity offering program (“ATM”). The Sales Agreement replaced the Company’s prior ATM agreement with Lake Street from June 2025. During the year ended December 31, 2025, we raised approximately $
As of the date of our 2025 Form 10-K,
| 13 |
| Table of Contents |
Any additional debt or equity financing that the Company obtains may substantially dilute the ownership held by our existing stockholders. The economic dilution to our shareholders will be significant if our stock price does not materially increase, or if the effective price of any sale is below the price paid by a particular investor. The Company may be unable to access further equity or debt financing when needed or obtain additional financing under acceptable terms, if at all.
We may decide to raise additional capital through a variety of sources in the short-term and in the long-term, including but not limited to:
| ☐ | the public equity markets; |
| ☐ | private equity financings; |
| ☐ | collaborative arrangements; |
| ☐ | asset sales; and/or |
| ☐ | public or private debt. |
If the Company is unable to raise additional capital, there is a risk that the Company could be required to discontinue or significantly reduce the scope of its operations. These unaudited condensed interim consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 4 – Inventory, Net
Inventory, net consists of:
Name |
| Balance at June 30, 2026 |
|
| Balance at December 31, 2025 |
| ||
Raw materials |
| $ |
|
| $ |
| ||
Less: inventory reserves |
|
| ( | ) |
|
| ( | ) |
Total |
| $ |
|
| $ |
| ||
Note 5 – Debt Obligations
Convertible Notes
In March 2026, we issued three separate convertible notes and received cash proceeds of $
The aggregate incremental value from the Modification to the embedded conversion option exceeded 10% of the total outstanding principal on the modified convertible notes. Therefore, the Modification resulted in an extinguishment of debt pursuant to ASC 470-50-40-10(a). Pursuant to ASC 470-50 Modifications and Extinguishments, the Company remeasured the acquisition price of the debt based on the fair value of the replacement convertible notes which approximated its $
We computed the incremental value received by the convertible note holders due to the Modification of the conversion rate and warrant exercise price using a Black-Scholes option pricing model (the “Black-Scholes”) and the following inputs: expected term of approximately
| 14 |
| Table of Contents |
At initial issuance of the $
Post Modification, an additional $
Post modification, during the three and six months ended June 30, 2026, we recognized $
At June 30, 2026, the total principal balance on the convertible notes is $
Note Payable
During the year ended December 31, 2025, we purchased approximately $
| 15 |
| Table of Contents |
At June 30, 2026, future principal payments on the note payable for the years ending December 31, will be as follows:
2026 (remaining) |
| $ |
| |
2027 |
|
|
| |
2028 |
|
|
| |
2029 |
|
|
| |
Thereafter |
|
|
| |
|
| $ |
|
Secured Promissory Note
On September 30, 2025, the Company executed a $
Financing Liability
During the year ended December 31, 2025, we entered into a financing agreement to finance $
Note 6 – Revenue
The following is a summary of our revenues by type for the three and six months ended June 30, 2026 and June 30, 2025:
|
| Balance Three Months Ending |
| |||||||||||||
Name |
| June 30, 2026 |
|
| % |
|
| June 30, 2025 |
|
| % |
| ||||
Equipment revenue |
| $ |
|
|
| % |
| $ |
|
|
| % | ||||
Service revenue |
|
|
|
|
| % |
|
|
|
|
| % | ||||
Total |
| $ |
|
|
| % |
| $ |
|
|
| % | ||||
|
| Balance Six Months Ending |
| |||||||||||||
Name |
| June 30, 2026 |
|
| % |
|
| June 30, 2025 |
|
| % |
| ||||
Equipment revenue |
| $ |
|
|
| % |
| $ |
|
|
| % | ||||
Service revenue |
|
|
|
|
| % |
|
|
|
|
| % | ||||
Total |
| $ |
|
|
| % |
| $ |
|
|
| % | ||||
Unearned Revenue
The following is a summary of our unearned revenue activity for the three and six months ended June 30, 2026 and year ended December 31, 2025:
|
| Balance at June 30, 2026 |
|
| Balance at December 31, 2025 |
| ||
Unearned revenue at beginning of the period |
| $ |
|
| $ |
| ||
Billings deferred |
|
|
|
|
|
| ||
Recognition of prior unearned revenue |
|
| ( | ) |
|
| ( | ) |
Unearned revenue at end of period |
| $ |
|
| $ |
| ||
During the three and six months ended June 30, 2026, we recognized $
| 16 |
| Table of Contents |
Note 7 – Stockholders’ Equity
The Company is authorized to issue
Preferred Stock
On October 30, 2020, the Company designated 1,000,000 shares of preferred stock as Series D Convertible Preferred Stock with a par value of $0.0001. At June 30, 2026 and December 31, 2025, there were no shares of preferred stock issued and outstanding.
Common Stock
Issuance of Stock for Services
During the six months ended June 30, 2026, we issued
During the six months ended June 30, 2025, we issued
Common Stock for Stock Option Exercises
During the six months ended June 30, 2026, we issued an aggregate of
During the six months ended June 30, 2025, we issued
Fully Vested Restricted Common Stock
During the six months ended June 30, 2026, certain executives and key employees vested in time-based restricted stock resulting in the Company issuing
During the six months ended June 30, 2025, certain executives and key employees vested in time-based restricted stock resulting in the Company issuing
| 17 |
| Table of Contents |
Stock-based compensation
2021 Plan
The Company has reserved 3,615,000 shares of common stock or common stock equivalents to be issued under our 2021 Equity Incentive Plan (the “2021 Plan”) to the Company’s employees and non-employee services providers. Stock options granted under the 2021 Plan typically have a contractual term of ten years.
Stock-based compensation expense related to the stock options and restricted stock units expected to vest is presented as follows on the condensed consolidated statements of operations:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, 2026 |
|
| June 30, 2025 |
|
| June 30, 2026 |
|
| June 30, 2025 |
| ||||
Research and development |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Compensation and related expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total expense |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
A summary of stock option activity during the three and six months ended June 30, 2026 is as follows:
|
|
|
|
|
|
|
|
|
|
| Weighted |
| ||||
|
|
|
| Weighted |
|
|
|
| Average |
| ||||||
|
|
|
| Average |
|
| Aggregate |
|
| Remaining |
| |||||
|
|
|
| Exercise |
|
| Intrinsic |
|
| Contractual |
| |||||
|
| Shares |
|
| Price |
|
| Value |
|
| Life (Years) |
| ||||
Options outstanding at December 31, 2025 |
|
| * |
| $ |
|
| $ |
|
|
|
| ||||
Granted |
|
| - |
|
|
|
|
|
| - |
|
|
| - |
| |
Exercised |
|
| ( | ) |
|
|
|
|
|
|
|
| - |
| ||
Expired/forfeit |
|
| ( | ) |
|
|
|
|
| - |
|
|
| - |
| |
Options outstanding at March 31, 2026 |
|
|
|
| $ |
|
| $ |
|
|
|
| ||||
Granted |
|
|
|
|
|
|
|
| - |
|
|
| - |
| ||
Exercised |
|
| ( | ) |
|
|
|
|
| - |
|
|
| - |
| |
Expired/forfeit |
|
| ( | ) |
|
|
|
|
| - |
|
|
| - |
| |
Options outstanding at June 30, 2026 |
|
|
|
| $ |
|
| $ | - |
|
|
|
| |||
Options exercisable at June 30, 2026 |
|
| * |
| $ |
|
| $ | - |
|
|
|
| |||
*At June 30, 2026 and December 31, 2025, the options outstanding and exercisable include
Intrinsic value is based on the difference between the option exercise price and the quoted closing market price at June 30, 2026 or the date of option exercise. At June 30, 2026, intrinsic value was nil.
During the three and six months ended, we granted our employees and our CEO stock options with an exercise price of $
Of the total options outstanding at June 30, 2026,
| 18 |
| Table of Contents |
At June 30, 2026, total unrecognized compensation expense for service based and performance-based options was $
The weighted-average grant date fair value of the options granted during the six months ended June 30, 2026 and June 30, 2025 was $
The grant date fair value was estimated using the Black-Scholes option pricing model during the six months ended June 30, 2026 and 2025 and the following assumptions:
|
| June 30, |
|
| June 30, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Expected volatility |
| % |
| % | ||||
Expected term (years) |
|
|
|
|
| |||
Risk-free rate |
| % |
| % | ||||
Dividend rate |
|
| % |
|
| % | ||
Restricted Stock Units (“RSUs”)
At June 30, 2026,
A summary of our outstanding unvested time-based RSUs during the three and six months ended June 30, 2026 is as follows:
|
|
|
| Weighted-Average |
| |||
|
|
|
| Grant Date |
| |||
|
| Amount |
|
| Fair Value |
| ||
Unvested, December 31, 2025 |
|
|
|
| $ |
| ||
Vested |
|
| ( | ) |
|
|
| |
Forfeited |
|
| ( | ) |
|
|
| |
Unvested, March 31, 2026 |
|
|
|
| $ |
| ||
Granted |
|
|
|
|
|
| ||
Vested |
|
| ( | ) |
|
|
| |
Forfeited |
|
| ( | ) |
|
|
| |
Unvested, June 30, 2026 |
|
|
|
| $ |
| ||
During the three and six months ended, we granted our CEO
| 19 |
| Table of Contents |
A summary of our outstanding unvested performance-based RSUs during the three and six months ended June 30, 2026 is as follows:
|
|
|
| Weighted-Average |
| |||
|
|
|
| Grant Date |
| |||
|
| Amount |
|
| Fair Value |
| ||
Unvested, December 31, 2025 |
|
|
|
| $ |
| ||
Forfeited |
|
| ( | ) |
|
|
| |
Unvested, March 31, 2026 |
|
|
|
| $ |
| ||
Unvested, June 30, 2026 |
|
| 141,895 |
|
| $ | 4.48 |
|
At June 30, 2026, we have $
Stock Warrants
A summary of warrant activity for the six months ended June 30, 2026, is as follows:
|
|
|
|
|
|
|
|
|
|
| Weighted- |
| ||||
|
|
|
| Weighted- |
|
|
|
| Average |
| ||||||
|
|
|
| Average |
|
| Aggregate |
|
| Remaining |
| |||||
|
|
|
| Exercise |
|
| Intrinsic |
|
| Contractual |
| |||||
|
| Shares |
|
| Price |
|
| Value |
|
| Life (Years) |
| ||||
Warrants outstanding at December 31, 2025 |
|
|
|
| $ |
|
| $ |
|
|
|
| ||||
Granted |
|
|
|
|
|
|
|
| - |
|
|
|
| |||
Expired/forfeit |
|
| - |
|
|
|
|
|
|
|
|
|
| |||
Warrants outstanding at March 31, 2026 |
|
|
|
| $ |
|
| $ |
|
|
|
| ||||
Granted |
|
|
|
|
|
|
|
| - |
|
|
| - |
| ||
Additional warrants due to Modification (Note 5) |
|
|
|
|
|
|
|
| - |
|
|
| - |
| ||
Expired/forfeit |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Warrants outstanding at June 30, 2026 |
|
|
|
| $ | * |
| $ | - |
|
|
|
| |||
Warrants exercisable at June 30, 2026 |
|
|
|
| $ | * |
| $ | - |
|
|
|
| |||
*Weighted-average exercise price is after the reduction in exercise price for the Modification that occurred during the three months ended June 30, 2026 (see Note 5).
| 20 |
| Table of Contents |
Note 8 - Related Party Transactions
See Note 5 for a description of convertible notes issued to three non-employee directors during the six months ended June 30, 2026 totaling $
Note 9 – Commitments and Contingencies
Operating Leases
On January 26, 2026, the Company executed the Orlando License Agreement. The Orlando License Agreement grants the Company a temporary, revocable, nonexclusive license to use approximately 15,000 square feet of the facility for the following (i) installation and operation of AirSCWO units to process city wastewater sludge, (ii) processing of certain approved third-party materials under a Waste Destruction Service (“WDS”) program, subject to approval by the City of Orlando, (iii) maintenance of equipment, manufacturing of AirSCWO units and (ii) inventory storage. The initial term of the Orlando License Agreement commenced February 1, 2026 for a period of five years with two optional five-year renewal terms. In April 2026, an amendment was executed to the Orlando License Agreement for 21,639 additional square feet. The amendment is effective May 1, 2026. Monthly rent payments of $
The City of Orlando will also receive a WDS fee for any approved third-party materials that are processed at the facility based on the type of third-party materials processed which will be charged at a per pound or gallon rate depending on the type of material.
At the commencement of the Orlando License Agreement and upon execution of the Amendment, we recognized an aggregate right-of-use asset and operating lease liabilities of $
We also lease laboratory space in North Carolina under a lease agreement with a term of September 1, 2024 to October 1, 2029 with one five-year extension period. The extension period was not included in our initial present value of the right-of-use asset or operating lease liability as it was not reasonably certain the option would be exercised. Monthly rental payments required under the lease are subject to annual increases and range from $
Right-of-use assets are summarized below:
|
| June 30, 2026 |
|
| December 31, 2025 |
| ||
Right-of-use assets |
| $ |
|
| $ |
| ||
Accumulated amortization |
|
| ( | ) |
|
| ( | ) |
Right-of-use assets, net |
| $ |
|
| $ |
| ||
Operating lease liabilities are summarized below:
|
| June 30, 2026 |
|
| December 31, 2025 |
| ||
Operating lease liabilities, current |
| $ |
|
| $ |
| ||
Operating lease liabilities, less current portion |
|
|
|
|
|
| ||
Total operating lease liabilities |
| $ |
|
| $ |
| ||
| 21 |
| Table of Contents |
Future payments required on the operating lease liabilities, over a weighted average term of approximately 4.11 years, are as follows:
Year Ending December 31, |
|
|
| |
2026 (remaining) |
| $ |
| |
2027 |
|
|
| |
2028 |
|
|
| |
2029 |
|
|
| |
2030 |
|
|
| |
Thereafter |
|
|
| |
Total |
|
|
| |
Less: present value discount at a weighted-average rate of 12.0% |
|
| ( | ) |
Total operating lease liabilities |
| $ |
| |
The following table summarizes the supplemental cash flow information for the six months ended June 30, 2026 and 2025:
|
| June 30, 2026 |
|
| June 30, 2025 |
| ||
Operating cash outflows from lease liabilities |
| $ |
|
| $ |
| ||
During the three and six months ended June 30, 2026, we incurred rent expense of approximately $
Duke License Agreement
The patented technology underlying 374Water’s supercritical water oxidation (SCWO) units, was developed principally through the efforts of Kobe Nagar and Marc Deshusses at the facilities of Duke University, Durham, North Carolina (“Duke”), where Dr. Deshusses is a professor. The SCWO technology is licensed to 374Water pursuant to a worldwide license agreement with Duke executed on April 16, 2021 (the “Duke License Agreement”). In connection with the Duke License Agreement, 374Water also executed an equity transfer agreement with Duke pursuant to which Duke received common stock in the Company. Under the terms of the Duke License Agreement, the Company is required to make royalty payments based on a percentage of licensed product sales, as defined in the Duke License Agreement which is triggered by the sale of licensed products. Further, the Company is also required to pay royalties on a percentage of sublicensing fees. The Company will reimburse Duke for any ongoing patent expenses incurred. At June 30, 2026, the Company has not incurred any expenses in connection with this Duke License Agreement. The Company may terminate the license agreement anytime by providing Duke 60 days’ written notice.
Legal Matters
We note that in the ordinary course of business we may be the subject of, or party to, various pending or threatened legal actions which could result in a material adverse outcome for which the related damages may not be estimable. We do not believe any legal action would have a significant impact on the financials other than the matter disclosed below. However, there is inherent uncertainty regarding such matters.
On March 18, 2026, a stockholder class action complaint was filed with the Delaware Court of Chancery. The plaintiff seeks declaratory relief invalidating an exculpation provision contained in the Company’s Amended and Restated Certificate of Incorporation filed with the State of Delaware that purports to eliminate or limit the personal liability of the Company’s directors and officers beyond what is permitted under Delaware law. We believe this complaint has no merit and are consulting with our attorneys on the matter. At this time, the outcome of the litigation is uncertain.
| 22 |
| Table of Contents |
On May 6, 2026, Peter Mandel, the Company's former General Counsel and consultant, filed a complaint against the Company in the United States District Court for the Northern District of California. The complaint asserts three causes of action: (i) breach of contract relating to the Separation and Release of Claims Agreement dated October 20, 2025 (the "Separation Agreement"), between Mr. Mandel and the Company; (ii) breach of contract relating to the Consulting Agreement dated October 9, 2025 (the "Consulting Agreement") between Mr. Mandel and the Company; and (iii) breach of the implied covenant of good faith and fair dealing.
The plaintiff alleges that the Company breached its contractual obligations by (a) failing to pay amounts owed under the Separation Agreement, including a pro-rated 2025 annual bonus; (b) failing to pay amounts owed under the Consulting Agreement; and (c) failing to issue, or cancelling, vested equity-based awards to which the plaintiff alleges he is entitled. The complaint seeks compensatory damages in an amount to be proven at trial, injunctive relief compelling the issuance of shares, costs of suit, and such other relief as the court may deem proper. The plaintiff has demanded a jury trial.
As of the date of these financial statements, all contractual amounts owed under the Separation and Consulting agreement totaling approximately $
The Company intends to evaluate the claims and respond appropriately. Given the preliminary stage of the proceedings, the Company is unable at this time to predict the outcome of this matter. An adverse outcome could, however, result in monetary damages, the issuance of additional shares of common stock, or other relief that could have a material effect on the Company's financial position, results of operations, or cash flows.
Employment Agreement with Chief Executive Officer
On April 27, 2026, the Company entered into an employment agreement (the “Employment Agreement”) with Daniel Bogar, the Company’s President and Chief Executive Officer. The Company’s appointment of Mr. Bogar as President and Chief Executive Officer, effective February 23, 2026, was previously reported in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 2026.
The Employment Agreement provides that Mr. Bogar will receive an annual base salary of $
In addition,
Pursuant to the Company’s 2021 Equity Incentive Plan, as amended, the Company has granted Mr. Bogar: (
Mr. Bogar will be eligible to participate in the Company’s employee retirement, insurance, benefit and paid time off programs on terms no less favorable than those provided to the Company’s other executive officers.
| 23 |
| Table of Contents |
If Mr. Bogar’s employment is terminated by the Company without “Cause” or by Mr. Bogar for “Good Reason” (each as defined in the Employment Agreement), and subject to his timely execution and non-revocation of a separation and release agreement in a form acceptable to the Company, Mr. Bogar will be entitled to receive: (i) an amount equal to six (6) months of his then-current base salary, payable in substantially equal installments over a six-month period in accordance with the Company’s regular payroll practices; (ii) continued coverage under the Company’s medical, health and vision insurance plans for Mr. Bogar and his eligible dependents for a period of six (6) months, subject to his continued payment of any required employee contribution; (iii) any earned but unpaid annual bonus with respect to any completed performance period or milestone; (iv) a pro-rated annual bonus for the fiscal year in which his employment terminates, based on actual performance, payable when annual bonuses are otherwise paid to other executives of the Company; and (v) accelerated vesting of the unvested portion of awards under the Company’s 2021 Equity Incentive Plan for a period of six (6) months following the termination date. Mr. Bogar will not be entitled to the foregoing severance benefits if he is removed as the Company’s President and Chief Executive Officer but is retained by the Company as an executive or senior officer with a base salary and bonus opportunity not reduced by more than ten percent (10%).
Note 10 - Segment Reporting
Operating segments are defined as components of an entity for which separate financial information is available and that is regularly provided to the Chief Operating Decision Maker (CODM) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s Chief Executive Officer, Chief Operating Officer and Chief Financial Officer comprise the Company’s CODMs. The CODMs review financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. The CODMs use consolidated net income (loss) to assess performance, evaluate cost optimization, and allocate resources, including personnel-related and financial or capital resources, in the annual budget and forecasting process, as well as budget-to-actual variances on a monthly basis. As such, the Company has determined that it operates as one operating and reportable segment.
The significant expenses regularly reviewed by the CODMs are consistent with those reported on the Company's unaudited condensed consolidated statement of operations and expenses are not regularly reviewed on a more disaggregated basis for assessing segment performance and deciding how to allocate resources. The CODMs do not regularly review total assets for our single reportable segment as total assets are not used to assess performance or allocate resources.
| 24 |
| Table of Contents |
Note 11 - Subsequent Events
Convertible Notes
We issued an additional convertible note in July 2026 under the same modified terms as discussed in Note 5 and received gross proceeds of $
Complaint from Former Chief Financial Officer
On July 10, 2026, the Company received a demand letter and draft complaint from counsel for Russell Kline, the Company’s former Chief Financial Officer, whose employment terminated effective March 2, 2026.
Appointment of Chief Financial Officer and Entry into Employment Agreement
Effective, July 1, 2026, the Company appointed Charles Weiser as it Chief Financial Officer (“CFO”). In connection with his appointment, Mr. Weiser and the Company entered into an employment agreement, dated as of July 1, 2026 (the “Weiser Employment Agreement”).
The Weiser Employment Agreement provides for an initial term commencing on July 1, 2026, subject to termination in accordance with its terms. Mr. Weiser will receive an annual base salary of $
Pursuant to the Company’s 2021 Equity Incentive Plan, as amended, Mr. Weiser will be granted:
| 25 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with “Cautionary Note Regarding Forward-Looking Statements” and the financial statements and notes thereto appearing elsewhere in this Form 10-Q as well as the risk factors included in the 2025 Form 10-K.
Critical Accounting Policies
In preparing the condensed consolidated financial statements, we have made estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues, costs, and expenses, and the disclosure of contingent assets and liabilities as in our condensed consolidated financial statements. Actual results may differ from these estimates. A summary of our critical accounting estimates and policies is included in our 2025 Form 10-K under "Management’s Discussion and Analysis of Financial Condition and Results of Operations."
During the three and six months ended June 30, 2026, there have been no significant changes to these estimates and policies previously disclosed in our 2025 Form 10-K. For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 of the unaudited condensed consolidated financial statements included in this Form 10-Q.
Overview
374Water Inc. is a cleantech and environmental services company developing supercritical water oxidation (“SCWO”) for the destruction of organic waste streams within the municipal, federal, and industrial markets. 374Water offers our proprietary AirSCWO technology, which is designed to efficiently destroy and mineralize a broad spectrum of non-hazardous and hazardous organic wastes producing safe dischargeable water streams, safe mineral effluent, safe vent gas, and recoverable heat energy. Importantly, our AirSCWO system is designed to eliminate recalcitrant organic wastes without creating waste byproducts, as well as to simplify existing, complex waste processing and disposal practices. Our AirSCWO technology is designed to effectively convert solid and liquid wastes such as sewage sludge, biosolids, food waste, hazardous and non-hazardous waste, including ‘forever chemicals’ (e.g., “per-and polyfluoroalkyl substances” or “PFAS”) into inert and recoverable resources including water, minerals, and heat energy.
At a special meeting of stockholders held on December 15, 2025, the stockholders of 374Water, approved an amendment to the Company’s Amended and Restated Certificate of Incorporation, to, at the discretion of the Company’s Board of Directors, effect a reverse stock split with respect to the Company’s issued and outstanding common stock, at a ratio of 1-for-8 to 1-for-20, with the ratio within such range to be determined at the discretion of the Company’s Board of Directors (or any of its delegated authorized persons) without further approval or authorization of our stockholders.
On December 15, 2025, after the approval from the stockholders, the Company filed a Certificate of Amendment of the Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Delaware to effect a 1-for-10 reverse stock split (the “Reverse Stock Split”) of the issued and outstanding shares of the Company’s common stock. The Certificate of Amendment took effect on December 26, 2025.
| 26 |
| Table of Contents |
Results of Operations
The following table sets forth, for the periods presented, the consolidated statements of operations data, which is derived from the accompanying unaudited condensed consolidated financial statements:
Three Months Ended June 30, 2026, as Compared to the Three Months Ended June 30, 2025
|
| Three Months Ended June 30, |
| |||||||||||||
|
| 2026 |
|
| 2025 |
|
| $ Change |
|
| % Change |
| ||||
Revenues |
| $ | 2,262,040 |
|
| $ | 594,967 |
|
| $ | 1,667,073 |
|
|
| 280 | % |
Cost of revenues |
|
| 279,067 |
|
|
| 871,333 |
|
|
| (592,266 | ) |
|
| (68 | )% |
Gross margin |
|
| 1,982,973 |
|
|
| (276,366 | ) |
|
| 2,259,339 |
|
|
| (818 | )% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 284,589 |
|
|
| 531,170 |
|
|
| (246,581 | ) |
|
| (46 | )% |
Compensation and related expenses |
|
| 1,831,323 |
|
|
| 1,996,387 |
|
|
| (165,064 | ) |
|
| (8 | )% |
Professional fees |
|
| 151,453 |
|
|
| 649,338 |
|
|
| (497,885 | ) |
|
| (77 | )% |
General and administrative |
|
| 1,337,470 |
|
|
| 1,184,689 |
|
|
| 152,781 |
|
|
| 13 | % |
Total operating expenses |
|
| 3,604,835 |
|
|
| 4,361,584 |
|
|
| (756,749 | ) |
|
| (17 | )% |
Loss from operations |
|
| (1,621,862 | ) |
|
| (4,637,950 | ) |
|
| 3,016,088 |
|
|
| (65 | )% |
Other income (expenses), net |
|
| (1,074,373 | ) |
|
| 57,502 |
|
|
| (1,131,875 | ) |
|
| (1,968 | )% |
Loss before income taxes |
|
| (2,696,235 | ) |
|
| (4,580,448 | ) |
|
| 1,884,213 |
|
|
| (41 | )% |
Provision for income taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0 | % |
Net loss |
| $ | (2,696,235 | ) |
| $ | (4,580,448 | ) |
| $ | 1,884,213 |
|
|
| (41 | )% |
Revenues
Our business has been focused on the development and commercialization of our SCWO systems. During the three months ended June 30, 2026 and 2025, we generated revenue of $2,262,040 and $594,967, respectively, from equipment manufacturing and services. This increase is primarily due to $2.0 million of revenue recognized on our OC San contract that had been previously reversed or not recognized due to variable consideration constraints that were eliminated upon us meeting a factory acceptance test during the three months ended June 30, 2026, offset by a decrease in service revenues of approximately $247,000.
Operating expenses
Our general and administrative expenses increased to $1,337,470 during the three months ended June 30, 2026, as compared to $1,184,689 in the same period of 2025, an increase of approximately $153,000, primarily due to expensing $184,000 of deferred offering costs previously capitalized on the balance sheet due to a shift in capital raise strategy through the issuance of convertible debt notes by the Company, $58,000 in franchise tax expense due to the increase in our authorized shares, and $276,000 of stock issued for services provided by the Board of Directors, offset by approximately $365,000 of reductions in all other general and administrative expenses as the Company focuses on reducing expenses.
Our compensation and related expenses decreased to $1,831,323 during the three months ended June 30, 2026, as compared to $1,996,387 in the same period of 2025, a decrease of approximately $165,000, primarily due to a decrease in payroll wages and related expenses due to decreased headcount and a reduction of executive salaries.
Our professional fees decreased to $151,453 during the three months ended June 30, 2026, as compared to $649,338 in the same period of 2025, a decrease of approximately $498,000, primarily due to decreased legal fees as the Company focuses on reducing expenses.
Our research and development expenses decreased to $284,589 during the three months ended June 30, 2026, as compared to $531,170 in the same period of 2025, a decrease of approximately $247,000, primarily due to a decrease in research and development activities as the Company focuses on reducing expenses.
| 27 |
| Table of Contents |
Other income (expenses), net
Other expenses, net increased to $1,074,373 during the three months ended June 30, 2026, as compared to other income, net of $57,502 in the same period of 2025, an increase in other expenses, net, of approximately $1,132,000. This increase is primarily due to a loss on debt extinguishment recognized of approximately $1,022,000 during the three months ended June 30, 2026 related to a modification of terms on outstanding convertible notes payable, as well as interest expense of approximately $90,000 recognized on the outstanding convertible notes payable.
Net Loss
Our net loss decreased to $2,696,235, during the three months ended June 30, 2026, as compared to our net loss of $4,580,448 in the same period of 2025, a decrease of approximately $1,884,000. This decrease is primarily attributable to the increase in revenues and decrease in operating expenses, offset by an increase in other expenses, as more fully described above.
Six Months Ended June 30, 2026, as Compared to the Six Months Ended June 30, 2025
|
| Six Months Ended June 30, |
| |||||||||||||
|
| 2026 |
|
| 2025 |
|
| $ Change |
|
| % Change |
| ||||
Revenues |
| $ | 2,813,195 |
|
| $ | 1,138,067 |
|
| $ | 1,675,128 |
|
|
| 147 | % |
Cost of revenues |
|
| 481,810 |
|
|
| 1,276,150 |
|
|
| (794,340 | ) |
|
| (62 | )% |
Gross margin |
|
| 2,331,385 |
|
|
| (138,083 | ) |
|
| 2,469,468 |
|
|
| (1,788 | )% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 734,423 |
|
|
| 1,064,757 |
|
|
| (330,334 | ) |
|
| (31 | )% |
Compensation and related expenses |
|
| 4,370,773 |
|
|
| 3,672,252 |
|
|
| 698,521 |
|
|
| 19 | % |
Professional fees |
|
| 666,972 |
|
|
| 1,421,239 |
|
|
| (754,267 | ) |
|
| (53 | )% |
General and administrative |
|
| 2,779,369 |
|
|
| 2,127,129 |
|
|
| 652,240 |
|
|
| 31 | % |
Total operating expenses |
|
| 8,551,537 |
|
|
| 8,285,377 |
|
|
| 266,160 |
|
|
| 3 | % |
Loss from operations |
|
| (6,220,152 | ) |
|
| (8,423,460 | ) |
|
| 2,203,308 |
|
|
| (26 | )% |
Other income (expenses), net |
|
| (1,047,706 | ) |
|
| 144,598 |
|
|
| (1,192,304 | ) |
|
| (825 | )% |
Loss before income taxes |
|
| (7,267,858 | ) |
|
| (8,278,862 | ) |
|
| 1,011,004 |
|
|
| (12 | )% |
Provision for income taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0 | % |
Net loss |
| $ | (7,267,858 | ) |
| $ | (8,278,862 | ) |
| $ | 1,011,004 |
|
|
| (12 | )% |
Revenues
Our business has been focused on the development and commercialization of our SCWO systems. During the six months ended June 30, 2026 and 2025, we generated $2,813,195 and $1,138,067 in revenue from equipment manufacturing and services, respectively. This increase is primarily due to $2.0 million of revenue recognized on our OC San contract that had been previously reversed or unrecognized due to variable consideration constraints that were eliminated upon us meeting a factory acceptance test during the three months ended June 30, 2026, offset by a decrease in service revenues of approximately $100,000.
Operating expenses
Our general and administrative expenses increased to $2,779,369 during the six months ended June 30, 2026, as compared to $2,127,129 in the same period of 2025, an increase of approximately $652,000, primarily due to the expensing of $184,000 of deferred offering costs previously capitalized on the balance sheet due to a shift in capital raise strategy through the issuance of convertible debt notes by the Company, $217,000 in franchise tax expense due to the increase in our authorized shares, and $424,000 of stock-based compensation for services provided by the Board of Directors, offset by approximately $173,000 reductions in other general and administrative expenses as the Company focuses on reducing expenses.
Our compensation and related expenses increased to $4,370,773 during the six months ended June 30, 2026, as compared to $3,672,252 in the same period of 2025, an increase of approximately $699,000, primarily due to an increase in stock-based compensation expense of approximately $578,000 and an increase in payroll wages and related of $120,000.
| 28 |
| Table of Contents |
Our professional fees decreased to $666,972 during the six months ended June 30, 2026, as compared to $1,421,239 in the same period of 2025, a decrease of approximately $754,000, primarily due to decreased legal fees as the Company focuses on reducing expenses.
Our research and development expenses decreased to $734,423 during the six months ended June 30, 2026, as compared to $1,064,757 in the same period of 2025, a decrease of approximately $330,000, primarily due to a decrease in stock-based compensation of approximately $100,000 from stock issued for services and a decrease in research and development activities as the Company focuses on reducing expenses.
Other income (expenses), net
Other expenses, net increased to $1,047,706 during the six months ended June 30, 2026, as compared to other income, net of $144,598 in the same period of 2025, an increase in other expenses of approximately $1,192,000. This increase is primarily attributable to a loss on debt extinguishment recognized of approximately $1,022,000 during the six months ended June 30, 2026 related to a modification of terms on outstanding convertible notes payable, as well as interest expense of approximately $103,000 recognized on the outstanding convertible notes payable.
Net Loss
Our net loss decreased to $7,267,858, during the six months ended June 30, 2026, as compared to our net loss of $8,278,862 in the same period of 2025, a decrease of approximately $1,011,000. This decrease is primarily attributable to the increase in revenues, offset by an increase in operating expenses and other expenses, as more fully described above.
Liquidity, Capital Resources and Going Concern
In accordance with ASU No. 2014-15 Presentation of Financial Statements – Going Concern (subtopic 205-40), the Company’s management evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued. At June 30, 2026, the Company had a working capital of approximately $2,420,000, an accumulated deficit of $57,204,456 and a cash balance of $1,776,259. For the six months ended June 30, 2026, the Company incurred a net loss of $7,267,858 and used $2,297,376 of net cash in operations for the period. These conditions raise substantial doubt regarding our ability to continue as a going concern.
Presently, the Company will need additional debt or equity financing or a combination of both to continue its operations and meet its financial obligations for at least the next twelve months from the date these unaudited condensed interim consolidated financial statements included in this Form 10-Q were issued and beyond. We may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding. We expect to incur continuing losses and negative cash flows from operations for the foreseeable future until we are able to manufacture our AirSCWO units on a commercial scale.
Since inception, we have financed our operations principally through the sale of debt and equity securities and operating cash flows. On December 23, 2025, the Company entered into an ATM issuance sales agreement (the “Sales Agreement”) with Lake Street Capital Markets, LLC (“Lake Street”) as sales agent, pursuant to which the Company could offer and sell, from time to time, shares of the Company’s common stock having an aggregate offering price of up to $50 million in an at-the-market equity offering program (“ATM”). The Sales Agreement replaced the Company’s prior ATM agreement with Lake Street that was entered on June 6, 2025. During the year ended December 31, 2025, we raised approximately $8,909,000 of net proceeds using our ATM. The Company is evaluating strategies to obtain the required additional funding for future operations and has not yet raised any capital with the ATM in 2026.
As of the date of our 2025 Form 10-K, the aggregate market value of our outstanding common stock held by non-affiliates, or the public float, was approximately $39,144,000, which was calculated based on 11,184,116 outstanding shares of the Company’s common stock held by non-affiliates at a price of $3.50 per share, the closing price of our common stock on March 25, 2026, as reported on Nasdaq. Pursuant to General Instruction I.B.6 of Form S-3, or the “baby shelf” rules, in no event will we sell securities registered on our Form S-3 registration statement, including under our ATM, with a value of more than one-third of the aggregate market value of shares of our common stock held by non-affiliates in any 12-month period, so long as the aggregate market value of shares of our common stock held by non-affiliates is less than $75 million. After giving effect to the approximate $13,000,000 offering limit imposed by General Instruction I.B.6 of Form S-3 and deducting the shares sold within the preceding 12 months, approximately $3,700,000 of common stock remain available at this time for sale under our Form S-3, including through our ATM.
| 29 |
| Table of Contents |
Any additional debt or equity financing that the Company obtains may substantially dilute the ownership held by our existing stockholders. The economic dilution to our shareholders will be significant if our stock price does not materially increase, or if the effective price of any sale is below the price paid by a particular investor. The Company may be unable to access further equity or debt financing when needed or obtain additional financing under acceptable terms, if at all.
We may decide to raise additional capital through a variety of sources in the short-term and in the long-term, including but not limited to:
| ☐ | the public equity markets; |
| ☐ | private equity financings; |
| ☐ | collaborative arrangements; |
| ☐ | asset sales; and/or |
| ☐ | public or private debt. |
If the Company is unable to raise additional capital, there is a risk that the Company could be required to discontinue or significantly reduce the scope of its operations. These unaudited condensed interim consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Cash Flows
We used $2,297,376 cash in operating activities for the six months ended June 30, 2026 compared to $7,621,070 of cash used in operating activities for the corresponding period in 2025, a decrease of approximately $5,324,000. The decrease in cash used in operating activities was primarily due to the decrease in net loss of approximately $1,011,000, increase in noncash expenses of $2,061,000, and increase in cash inflows from changes in operating assets and liabilities of approximately $2,252,000.
We used $1,253,440 in investing activities for the six months ended June 30, 2026 compared to using $901,823 of cash in investing activities for the corresponding period in 2025, an increase of approximately $352,000. The increase in cash used by investing activities for the six months ended June 30, 2026 was primarily due to an increase in purchases of property and equipment and equipment-in-process of $352,000.
We received $2,128,393 of cash from financing activities for the six months ended June 30, 2026 compared to $20,264 for the corresponding period in 2025, an increase of approximately $2,108,000. This increase was primarily due to $2,960,000 of proceeds received from the issuance of convertible notes, offset by approximately $836,000 of repayments on debt obligations, offset by a decrease in proceeds from stock option exercises of approximately $17,000.
| 30 |
| Table of Contents |
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective due to the identified material weakness in the Company’s internal controls over financial reporting caused by the lack of full-time resources in our finance and accounting department. As a result of the identified material weakness, we are working to establish a remediation plan, which includes additional full-time personnel with the necessary skills and expertise to enhance the Company’s financial and accounting resources and control environment.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance of such reliability and may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended June 30, 2026 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 31 |
| Table of Contents |
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The information set forth under the “Legal Matters” section in Note 9 – Commitments and Contingencies and under the “Complaint from Former Chief Financial Officer” section in Note 11 – Subsequent Events in the notes to the unaudited condensed consolidated financial statements in Item 1 of Part I of this Form 10-Q is incorporated herein by reference.
Item 1A. Risk Factors.
See Item 1A.— Risk Factors in the 2025 Form 10-K for a detailed discussion of risk factors affecting the Company. There have been no material changes in the risk factors disclosed in the 2025 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
All of 374Water’s sales of unregistered securities since inception have been made pursuant to private offerings to accredited investors. The sales set forth below were made pursuant to an exemption from registration requirements under Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. Except as otherwise noted below, no placement agent fees or commissions were paid on these offerings, and net proceeds were used for working capital.
During the three and six months ended June 30, 2026, we issued $2,960,000 of convertible notes payable and received cash proceeds of the same amount. Three of our non-employee directors purchased an aggregate of $700,000 of the convertible notes payable.
The convertible notes bear interest at 10%, mature three years from the issue date and are convertible into shares of common stock at conversion rate of $3.00 per share. Semi-annual interest payments are required on March 31, and September 30, each year commencing September 30, 2026. The convertible notes include warrant coverage equal to the shares of common stock issuable upon the conversion of the note. Therefore, a total of 986,667 common stock warrants were issued to the convertible note holders of which 233,333 were issued to our non-employee directors. The common stock warrants are exercisable immediately for a period of three years at an exercise price of $4.50 per warrant share.
The terms of the convertible notes payable discussed above reflect a modification of terms that occurred on May 26, 2026.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
During six months ended June 30, 2026, none of our directors or officers informed us of the adoption, modification or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Item 408(a) of Regulation S-K.
| 32 |
| Table of Contents |
Item 6. Exhibits.
(a) Exhibits
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| ||
|
|
|
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
|
|
|
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
|
|
|
| Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |
|
|
|
| Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |
|
|
|
101.INS |
| XBRL INSTANCE DOCUMENT |
|
|
|
101.SCH |
| XBRL TAXONOMYEXTENSION SCHEMA |
|
|
|
101.CAL |
| XBRL TAXONOMYEXTENSION CALCULATION LINKBASE |
|
|
|
101.DEF |
| XBRL TAXONOMYEXTENSION DEFINITION LINKBASE |
|
|
|
101.LAB |
| XBRL TAXONOMYEXTENSION LABEL LINKBASE |
|
|
|
101.PRE |
| XBRL TAXONOMYEXTENSION PRESENTATION LINKBASE |
|
|
|
104 |
| Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). |
* Filed herewith.
+ Indicates a management contract, compensatory plan, or arrangement.
| 33 |
| Table of Contents |
SIGNATURES
In accordance with Section 13(a) or 15(d) of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| 374WATER INC | |||
| Dated: August 14, 2026 | By: | /s/ Daniel Bogar | |
| Daniel Bogar | |||
| President and Chief Executive Officer | |||
| Dated: August 14, 2026 | By: | /s/ Charles Weiser | |
Charles Weiser | |||
Chief Financial Officer | |||
| 34 |