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  4. [10-Q] 374Water Inc. Quarterly Earnings Report

374Water (NASDAQ: SCWO) grows Q2 revenue 280% while warning on liquidity

Filing Impact
(Moderate)
Filing Sentiment
(Neutral)
Form Type
10-Q

Rhea-AI Filing Summary

374Water Inc. reported sharply higher June 30, 2026 results as commercialization of its AirSCWO waste-destruction units progressed. Revenue for the quarter rose to $2.26 million from $0.59 million, largely from recognizing about $2.0 million of previously constrained equipment revenue on the OC San contract after passing a factory acceptance test. Six‑month revenue was $2.81 million versus $1.14 million.

Despite higher revenue and lower operating costs, the company remained unprofitable, posting a six‑month net loss of $7.27 million. Operating cash outflow improved to $2.30 million, but cash declined to $1.78 million, and management disclosed substantial doubt about continuing as a going concern without additional financing. To bolster liquidity, 374Water issued $2.96 million of 10% convertible notes, secured by substantially all assets and paired with warrants, and billed $2.30 million under a new $4.88 million Olathe (Garney) equipment contract, recorded as long‑term unearned revenue.

At June 30, 2026, total assets were $13.0 million, liabilities $10.0 million, and stockholders’ equity $3.0 million. Results also reflect high customer concentration, significant stock‑based compensation, a recent reverse stock split, and new leadership and facilities investments to support scaling AirSCWO deployments.

Positive

  • Quarterly revenue increased to $2.26 million, up 280% year over year, with six‑month revenue up 147% to $2.81 million.
  • Gross margin turned positive to $1.98 million for the quarter and $2.33 million year‑to‑date, versus negative in 2025.
  • Operating cash outflow improved substantially to $2.30 million for six months, from $7.62 million in the prior‑year period.
  • The company secured a firm‑fixed‑price Olathe (Garney) equipment contract totaling $4.88 million, with $2.30 million already billed and recorded as unearned revenue.
  • OC San contract constraints were lifted, allowing recognition of about $2.0 million in previously reversed or deferred equipment revenue plus $0.10 million from late 2025.

Negative

  • Six‑month net loss remained significant at $7.27 million, albeit improved from $8.28 million a year earlier.
  • Management disclosed substantial doubt about the company’s ability to continue as a going concern without additional financing within 12 months.
  • Cash fell to $1.78 million despite improvements in cash burn, with accumulated deficit reaching $57.20 million.
  • New convertible notes of $2.96 million at 10% interest are secured by substantially all assets and generated a $1.02 million loss on debt extinguishment upon modification.
  • Customer concentration is high, with one customer representing about 82% of accounts receivable and 2026 revenues heavily dependent on a few contracts.
Q2 2026 Revenue $2,262,040 Three months ended June 30, 2026
Six-month Net Loss $7,267,858 Six months ended June 30, 2026
Cash Balance $1,776,259 As of June 30, 2026
Convertible Notes Principal $2,960,000 Outstanding as of June 30, 2026
Unearned Revenue $2,548,488 Classified as long-term liability at June 30, 2026
Olathe Contract Value $4,880,000 Firm fixed price equipment contract with Garney Companies, Inc.
OC San Revenue Recognized ≈$2,000,000 Previously constrained equipment revenue recognized in Q2 2026
Accumulated Deficit $57,204,456 As of June 30, 2026
supercritical water oxidation technical
"developing super critical water oxidation (“SCWO”) for the destruction of organic waste"
Supercritical water oxidation is a process that uses extremely hot and pressurized water to break down waste materials into harmless substances, such as carbon dioxide and water. It is considered an efficient and environmentally friendly method for treating hazardous waste streams. For investors, advancements or increased adoption of this technology can signal growth opportunities in waste management and environmental services sectors.
factory acceptance test technical
"unable to invoice and resume billing until the manufactured equipment passed a factory acceptance test"
A factory acceptance test is a final, documented set of checks and demonstrations performed at the manufacturer’s site to prove that equipment or a system meets the buyer’s technical specifications and will operate as promised before it is shipped. Think of it like a thorough test drive and inspection before taking delivery; for investors it reduces the risk of costly delays, extra fixes, or performance shortfalls that can affect project timelines and budgets.
variable consideration financial
"we fully constraining the variable consideration at December 31, 2025 and ceasing revenue recognition"
unearned revenue financial
"we have classified the unearned revenue on this invoice within long-term liabilities"
Unearned revenue is money a company has received in advance for goods or services it has not yet delivered, recorded as an obligation on the balance sheet rather than as current income. It matters to investors because it represents future work the company must complete and can affect when revenue and profit are reported; like a prepaid ticket or deposit, it gives the company cash now but ties it to future performance and customer commitments.
going concern financial
"These conditions raise substantial doubt regarding our ability to continue as a going concern"
Going concern is the accounting assumption that a company will keep operating and meeting its obligations for the foreseeable future. The phrase matters most when a company or its auditors disclose substantial doubt about it, a formal warning that the business may not have enough resources to continue without raising money, restructuring, or selling assets. That language in a filing or press release signals elevated financial risk.
loss on debt extinguishment financial
"we have recognized a loss on debt extinguishment from the Modification of $1,021,787"
Loss on debt extinguishment is a one-time accounting charge a company records when it pays off, refinances, or otherwise cancels debt for more than the outstanding amount on its books — think of it like paying a penalty to break a loan early. Investors care because it reduces reported earnings in the period it’s recorded and uses cash, but it can also signal a strategic move to cut future interest costs or a sign of financial stress.

FAQ

How did 374Water (SCWO) perform financially for the quarter ended June 30, 2026?
374Water reported revenue of $2.26 million, up sharply from $0.59 million a year earlier, and a quarterly net loss of $2.70 million. Higher OC San equipment revenue and lower operating expenses improved results, though the company remains unprofitable.

What is driving 374Water (SCWO) revenue growth in 2026?
Revenue growth is driven mainly by equipment contracts. In Q2 2026, 374Water recognized about $2.0 million of previously constrained OC San revenue and booked a $4.88 million Olathe contract, with $2.30 million already invoiced and recorded as unearned revenue.

What is 374Water’s (SCWO) cash position and liquidity outlook?
At June 30, 2026, cash was $1.78 million and working capital $2.42 million. Six‑month operating cash outflow was $2.30 million. Management states there is substantial doubt about continuing as a going concern without securing additional debt or equity financing.

How much debt and convertible notes does 374Water (SCWO) have outstanding?
374Water has $2.96 million of 10% convertible notes maturing in 2029, plus smaller note and lease obligations. A May 2026 modification lowered conversion and warrant prices, triggered a $1.02 million debt extinguishment loss, and secured the notes with substantially all company assets.

What major contracts does 374Water (SCWO) hold, such as OC San and Olathe?
Key contracts include the OC San equipment contract, where passing a factory acceptance test unlocked about $2.0 million in revenue, and a firm‑fixed‑price Olathe (Garney) contract totaling $4.88 million. The Garney contract’s initial $2.30 million billing sits as long‑term unearned revenue.

What going concern risks did 374Water (SCWO) disclose in its June 30, 2026 10-Q?
Management concluded there is substantial doubt about 374Water’s ability to continue as a going concern within one year, citing ongoing losses, cash burn, a $57.20 million accumulated deficit, and the need for additional financing beyond existing ATM and convertible note capacity.

How significant is customer concentration for 374Water (SCWO)?
Customer concentration is high. For the three and six months ended June 30, 2026, a small number of customers generated most revenues, including one customer comprising about 82% of accounts receivable and 100% of unbilled receivables at period end.

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10-Q Quarterly Reports: What Changes Quarter to Quarter →

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

Form 10-Q

 

For the Quarterly Period ended June 30, 2026

 

☒

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. 000-27866

 

scwo_10qimg18.jpg

 

374WATER INC.

(Exact name of Registrant as specified in its charter)

 

Delaware

 

88-0271109

(State or other jurisdiction of

 incorporation or organization)

 

(IRS Employer

Identification No.)

 

100 Southcenter Court, Suite 200

Morrisville, North Carolina 27560

 (Address of principal executive offices)

 

440-601-9677

(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

Common Stock, par value $0.0001

 

SCWO

 

The Nasdaq Capital Market LLC

                                                                                                                                      

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. ☒ Yes   ☐ No

 

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   ☐ No

 

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

☒

Non-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). ☐ Yes   ☒ No

 

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 17,718,161 shares of common stock outstanding.

  

 

 

 

 

Index to Form 10-Q

 

 

 

 

Page

 

PART I

FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

 

4

 

 

Condensed Consolidated Balance Sheets at June 30, 2026 (Unaudited) and December 31, 2025

 

4

 

 

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2026 and 2025 (Unaudited)

 

5

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2026 and 2025 (Unaudited)

 

6

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2026 and 2025 (Unaudited)

 

7

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

8

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

31

 

Item 4.

Controls and Procedures

 

31

 

 

 

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

32

 

Item 1A.

Risk Factors

 

32

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

 

Item 3.

Defaults upon Senior Securities

 

32

 

Item 4.

Mine Safety Disclosures

 

32

 

Item 5.

Other Information

 

32

 

Item 6.

Exhibits

 

33

 

 

 

 

 

 

SIGNATURES

 

34

 

 

 
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

 

$1,776,259

 

 

$3,198,682

 

Accounts receivable, net of credit allowance

 

 

623,663

 

 

 

668,903

 

Unbilled accounts receivable

 

 

1,585,202

 

 

 

-

 

Other accounts receivable

 

 

185,392

 

 

 

26,577

 

Inventory, net

 

 

1,635,942

 

 

 

1,471,893

 

Contract assets

 

 

-

 

 

 

91,100

 

Prepaid expenses

 

 

205,612

 

 

 

395,807

 

Total Current Assets

 

 

6,012,070

 

 

 

5,852,962

 

Long-Term Assets:

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

4,741,379

 

 

 

3,835,318

 

Intangible assets, net

 

 

906,540

 

 

 

943,224

 

Right-of-use assets, net

 

 

1,308,860

 

 

 

571,741

 

Other assets

 

 

27,850

 

 

 

202,103

 

Total Long-Term Assets

 

 

6,984,629

 

 

 

5,552,386

 

Total Assets

 

$12,996,699

 

 

$11,405,348

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$1,581,180

 

 

$1,250,285

 

Accrued bonuses

 

 

105,000

 

 

 

80,000

 

Accrued contract loss provision

 

 

1,600,000

 

 

 

1,600,000

 

Unearned revenue

 

 

-

 

 

 

312,905

 

Note payable

 

 

8,725

 

 

 

8,270

 

Secured promissory note

 

 

-

 

 

 

630,000

 

Financing liability

 

 

10,159

 

 

 

159,342

 

Operating lease liabilities

 

 

224,051

 

 

 

119,693

 

Other liabilities

 

 

63,412

 

 

 

23,384

 

Total Current Liabilities

 

 

3,592,527

 

 

 

4,183,879

 

Long-Term Liabilities:

 

 

 

 

 

 

 

 

Unearned revenue, less current portion

 

 

2,548,488

 

 

 

30,000

 

Convertible notes, net of discount

 

 

2,744,046

 

 

 

-

 

Note payable, less current portion

 

 

30,400

 

 

 

34,879

 

Operating lease liabilities, less current portion

 

 

1,095,037

 

 

 

431,683

 

Total Long-Term Liabilities

 

 

6,417,971

 

 

 

496,562

 

Total Liabilities

 

 

10,010,498

 

 

 

4,680,441

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Preferred Stock: 50,000,000; 1,000,000 Designated as Convertible Series D preferred shares authorized; par value $0.0001 per share, nil issued and outstanding at June 30, 2026 and December 31, 2025, respectively

 

 

-

 

 

 

-

 

Common stock: 1,000,000,000 common shares authorized, par value $0.0001 per share, 17,718,161 and 17,143,771 shares outstanding at June 30, 2026 and December 31, 2025, respectively

 

 

1,772

 

 

 

1,715

 

Additional paid-in capital

 

 

60,186,414

 

 

 

56,657,319

 

Accumulated deficit

 

 

(57,204,456 )

 

 

(49,936,598 )

Accumulated other comprehensive income

 

 

2,471

 

 

 

2,471

 

Total Stockholders’ Equity

 

 

2,986,201

 

 

 

6,724,907

 

Total Liabilities and Stockholders’ Equity

 

$12,996,699

 

 

$11,405,348

 

 

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

 

$2,262,040

 

 

$594,967

 

 

$2,813,195

 

 

$1,138,067

 

Cost of revenues

 

 

279,067

 

 

 

871,333

 

 

 

481,810

 

 

 

1,276,150

 

Gross margin

 

 

1,982,973

 

 

 

(276,366 )

 

 

2,331,385

 

 

 

(138,083 )

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

284,589

 

 

 

531,170

 

 

 

734,423

 

 

 

1,064,757

 

Compensation and related expenses

 

 

1,831,323

 

 

 

1,996,387

 

 

 

4,370,773

 

 

 

3,672,252

 

Professional fees

 

 

151,453

 

 

 

649,338

 

 

 

666,972

 

 

 

1,421,239

 

General and administrative

 

 

1,337,470

 

 

 

1,184,689

 

 

 

2,779,369

 

 

 

2,127,129

 

Total Operating Expenses

 

 

3,604,835

 

 

 

4,361,584

 

 

 

8,551,537

 

 

 

8,285,377

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from Operations

 

 

(1,621,862 )

 

 

(4,637,950 )

 

 

(6,220,152 )

 

 

(8,423,460 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(89,923 )

 

 

-

 

 

 

(102,982 )

 

 

-

 

Interest income

 

 

18,295

 

 

 

46,355

 

 

 

29,889

 

 

 

136,065

 

Loss on debt extinguishment

 

 

(1,021,787 )

 

 

-

 

 

 

(1,021,787 )

 

 

-

 

Other income (expense)

 

 

19,042

 

 

 

11,147

 

 

 

47,174

 

 

 

8,533

 

Total Other Income (Expense), net

 

 

(1,074,373 )

 

 

57,502

 

 

 

(1,047,706 )

 

 

144,598

 

Net Loss before Income Taxes

 

 

(2,696,235 )

 

 

(4,580,448 )

 

 

(7,267,858 )

 

 

(8,278,862 )

Provision for Income Taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$(2,696,235 )

 

$(4,580,448 )

 

$(7,267,858 )

 

$(8,278,862 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss per Share - Basic and Diluted

 

$(0.15 )

 

$(0.32 )(i)

 

$(0.41 )

 

$(0.57 )(i)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding - Basic and Diluted

 

 

17,607,768

 

 

 

14,506,743(i)

 

 

17,513,700

 

 

 

14,479,020(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

 

 

-

 

 

$-

 

 

 

14,430,198

 

 

$1,443

 

 

$43,858,485

 

 

$(28,387,618)

 

$2,471

 

 

$15,474,781

 

Issuance of shares of common stock for services

 

 

-

 

 

 

-

 

 

 

18,099

 

 

 

2

 

 

 

66,898

 

 

 

-

 

 

 

-

 

 

 

66,900

 

Accretion of stock-based compensation - options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

460,512

 

 

 

-

 

 

 

-

 

 

 

460,512

 

Accretion of stock-based compensation - restricted stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

248,951

 

 

 

-

 

 

 

-

 

 

 

248,951

 

Issuance of shares of common stock for option exercise

 

 

-

 

 

 

-

 

 

 

20,000

 

 

 

2

 

 

 

23,998

 

 

 

-

 

 

 

-

 

 

 

24,000

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,698,414)

 

 

-

 

 

 

(3,698,414)

Balances, March 31, 2025

 

 

-

 

 

$-

 

 

 

14,468,297

 

 

$1,447

 

 

$44,658,844

 

 

$(32,086,032)

 

$2,471

 

 

$12,576,730

 

Issuance of shares of common stock for services

 

 

-

 

 

 

-

 

 

 

11,211

 

 

 

1

 

 

 

38,999

 

 

 

-

 

 

 

-

 

 

 

39,000

 

Accretion of stock-based compensation - options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

277,330

 

 

 

-

 

 

 

-

 

 

 

277,330

 

Accretion of stock-based compensation - restricted stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

271,749

 

 

 

-

 

 

 

-

 

 

 

271,749

 

Issuance of vested restricted common stock

 

 

-

 

 

 

-

 

 

 

41,633

 

 

 

4

 

 

 

(4)

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of shares of common stock for cash, net of issuance costs

 

 

 

 

 

 

 

 

 

 

127,071

 

 

 

13

 

 

 

332,339

 

 

 

 

 

 

 

 

 

 

 

332,352

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,580,448)

 

 

-

 

 

 

(4,580,448)

Balances, June 30, 2025

 

 

-

 

 

$-

 

 

 

14,648,212

 

 

$1,465

 

 

$45,579,257

 

 

$(36,666,480)

 

$2,471

 

 

$8,916,713

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

-

 

 

$-

 

 

 

17,143,771

 

 

$1,715

 

 

$56,657,319

 

 

$(49,936,598)

 

$2,471

 

 

$6,724,907

 

Issuance of shares of common stock for services

 

 

-

 

 

 

-

 

 

 

1,461

 

 

 

-

 

 

 

4,000

 

 

 

-

 

 

 

-

 

 

 

4,000

 

Accretion of stock-based compensation - options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

902,179

 

 

 

-

 

 

 

-

 

 

 

902,179

 

Accretion of stock-based compensation - restricted stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

425,247

 

 

 

-

 

 

 

-

 

 

 

425,247

 

Issuance of restricted common stock to executives and employees

 

 

-

 

 

 

-

 

 

 

166,221

 

 

 

17

 

 

 

(17)

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of shares of common stock for cashless stock option exercises

 

 

-

 

 

 

-

 

 

 

184,051

 

 

 

18

 

 

 

(18)

 

 

-

 

 

 

-

 

 

 

-

 

Warrants issued with convertible promissory notes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

174,767

 

 

 

-

 

 

 

-

 

 

 

174,767

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,571,623)

 

 

-

 

 

 

(4,571,623)

Balances, March 31, 2026

 

 

-

 

 

$-

 

 

 

17,495,504

 

 

$1,750

 

 

$58,163,477

 

 

$(54,508,221)

 

$2,471

 

 

$3,659,477

 

Issuance of shares of common stock for services

 

 

-

 

 

 

-

 

 

 

106,934

 

 

 

10

 

 

 

307,821

 

 

 

-

 

 

 

-

 

 

 

307,831

 

Accretion of stock-based compensation - options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

312,540

 

 

 

-

 

 

 

-

 

 

 

312,540

 

Accretion of stock-based compensation - restricted stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

297,381

 

 

 

-

 

 

 

-

 

 

 

297,381

 

Issuance of restricted common stock to executives and employees

 

 

-

 

 

 

-

 

 

 

76,802

 

 

 

8

 

 

 

(8)

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of shares of common stock for stock option exercises

 

 

-

 

 

 

-

 

 

 

38,921

 

 

 

4

 

 

 

6,596

 

 

 

-

 

 

 

-

 

 

 

6,600

 

Warrants issued with convertible promissory notes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

575,515

 

 

 

-

 

 

 

-

 

 

 

575,515

 

Warrant modification in connection with convertible debt amendment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

523,092

 

 

 

-

 

 

 

-

 

 

 

523,092

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,696,235)

 

 

-

 

 

 

(2,696,235)

Balances, June 30, 2026

 

 

-

 

 

$-

 

 

 

17,718,161

 

 

$1,772

 

 

$60,186,414

 

 

$(57,204,456)

 

$2,471

 

 

$2,986,201

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
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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

 

$(7,267,858)

 

$(8,278,862)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

439,063

 

 

 

349,374

 

Amortization of debt discount

 

 

35,633

 

 

 

-

 

Non-cash lease expense

 

 

87,447

 

 

 

58,129

 

Issuance of common stock for services

 

 

311,831

 

 

 

105,900

 

Stock-based compensation

 

 

1,937,347

 

 

 

1,258,542

 

Loss on debt extinguishment

 

 

1,021,787

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

45,240

 

 

 

(594,086)

Unbilled accounts receivable

 

 

(1,585,202)

 

 

(226,724)

Other receivables

 

 

(158,815)

 

 

13,692

 

Inventory

 

 

(164,049)

 

 

(120,338)

Contract assets

 

 

91,100

 

 

 

(14,842)

Prepaid expenses

 

 

190,195

 

 

 

136,342

 

Other assets

 

 

174,253

 

 

 

5,000

 

Accounts payable and accrued expenses

 

 

330,895

 

 

 

146,135

 

Accrued bonuses

 

 

25,000

 

 

 

(300,000)

Accrued contract loss provision

 

 

-

 

 

 

230,000

 

Accrued legal settlement

 

 

-

 

 

 

(335,000)

Unearned revenue

 

 

2,205,583

 

 

 

(3,510)

Other liabilities

 

 

40,028

 

 

 

(2,524)

Operating lease liabilities

 

 

(56,854)

 

 

(48,298)

Net cash used in operating activities

 

 

(2,297,376)

 

 

(7,621,070)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,253,440)

 

 

(312,830)

Purchases of equipment-in-process

 

 

-

 

 

 

(588,993)

Net cash used in investing activities

 

 

(1,253,440)

 

 

(901,823)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Repayments on note payable

 

 

(59,024)

 

 

(1,955)

Repayments on financing liability

 

 

(149,183)

 

 

-

 

Net issuance costs from the sale of common stock

 

 

-

 

 

 

(1,781)

Repayments on secured promissory notes

 

 

(630,000)

 

 

-

 

Proceeds from the issuance of convertible notes

 

 

2,960,000

 

 

 

-

 

Proceeds from the exercise of options

 

 

6,600

 

 

 

24,000

 

Net cash provided by financing activities

 

 

2,128,393

 

 

 

20,264

 

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(1,422,423)

 

 

(8,502,629)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

$3,198,682

 

 

$10,651,644

 

Cash and cash equivalents, end of period

 

$1,776,259

 

 

$2,149,015

 

 

 

 

 

 

 

 

 

 

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

 

$824,566

 

 

$-

 

Warrants issued with convertible notes

 

$750,282

 

 

$-

 

Equipment financed with note payable

 

$55,000

 

 

$48,191

 

Issuance of restricted common stock to executives and employees

 

$25

 

 

$42

 

Shares issued for stock subscription receivable

 

$-

 

 

$334,133

 

Shares issued for cashless stock option exercise

 

$18

 

 

$-

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
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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.

 

 
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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 $50,000 at both June 30, 2026 and December 31, 2025.

 

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

 

$19,977

 

 

$19,977

 

Equipment

 

 

1,806,284

 

 

 

531,490

 

Equipment – Demo System

 

 

3,161,661

 

 

 

2,874,932

 

Vehicles

 

 

87,300

 

 

 

87,300

 

Equipment-in-process

 

 

923,968

 

 

 

1,177,052

 

Total property and equipment

 

 

5,999,190

 

 

 

4,690,751

 

Less: accumulated depreciation

 

 

(1,257,811 )

 

 

(855,433 )

Total property and equipment, net

 

$4,741,379

 

 

$3,835,318

 

 

 
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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

 

$20,233

 

 

$41,284

 

 

$20,233

 

 

$81,611

 

General and administrative

 

 

191,173

 

 

 

125,744

 

 

 

382,146

 

 

 

231,078

 

Total depreciation expense

 

$211,406

 

 

$167,028

 

 

$402,379

 

 

$312,689

 

 

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 10% of the Company’s revenues, purchases, accounts receivable and accounts payable.

 

For the three and six months ended June 30, 2026, we generated approximately 88% of our total consolidated revenues from one customer and two customers, respectively. For the three and six months ended June 30, 2025, we generated approximately 94% and 78% of our consolidated revenues with three customers, respectively.

 

At June 30, 2026, one customer comprised approximately 82% and 100% of our consolidated accounts receivable and unbilled accounts receivable, respectively. At December 31, 2025, our consolidated accounts receivable comprised approximately 74% and 10% outstanding with two customers, respectively.

 

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.

 

 
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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 $812,000 as consideration for the full-scale demonstration.

 

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 $91,100 and unearned revenue of $90,667 related to this Demo Contract. During the three and six months ended June 30, 2026, we recognized service revenue of $0 and $482,405, respectively, including the unearned revenue at December 31, 2025 on this Demo Contract. During the three and six months ended June 30, 2026, we expensed $0 and $91,100, respectively, of a contract asset upon completing the Demo Contract. We did not recognize any revenue on this Demo Contract during the three and six months ended June 30, 2025.

 

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:

 

 

·

Contract price: $4,880,000 firm fixed price, allocated $3,000,000 to the AirSCWO 6 unit, $1,140,000 to pretreatment equipment skids, $452,500 to one-time project fees, and $287,500 to an additional one-year extended warranty.

 

·

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.

 

 
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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 $1,000,000 if Garney elects to upgrade to an AirSCWO 30 unit.

 

During the six months ended June 30, 2026, we issued Garney an invoice totaling $2,296,250 upon the execution of the purchase order. We received payment, less retainage as described above, on this invoice in April 2026. During the three and six months ended June 30, 2026, no revenue has been recognized on the contract. Revenue will be recognized over the equipment manufacturing period which has not yet commenced. Therefore, we have classified the unearned revenue on this invoice within long-term liabilities due to the uncertainty of when the equipment will be completed and delivered.

 

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 $1.9 million in connection with completing this contract.

 

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 $1.9 million and $100,000 of revenue earned in the last quarter of 2025 not being recognized due to the constraints.

 

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 $518,282, which was the next milestone billing. Further, this removed the constraints on variable consideration and resulted in the Company recognizing the previously reversed $1.9 million and the $100,000 of unrecognized revenue earned in the last quarter of 2025 during the three months ended June 30, 2026 as equipment revenue. Further, the unbilled accounts receivable remaining at June 30, 2026 have been reflected on the condensed consolidated balance sheet which will be billed in accordance with the contractual terms of the contract over the period of delivery, decommissioning and systems operations of up to six months, which is anticipated to start in the last quarter of 2026 and will continue through the first half of 2027.

 

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 $284,589 and $531,170 for the three months ended June 30, 2026 and 2025, respectively, $734,423 and $1,064,757 for the six months ended June 30, 2026 and 2025, respectively.

 

 
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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 1,668,633 and 1,751,550 shares of common stock, respectively, 1,864,191 and 1,467,524, respectively, of outstanding common stock warrants and unvested restricted stock units of 513,370 and 621,282, respectively.

 

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 $2,419,543, 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 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 $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. During the six months ended, the Company issued convertible notes and received proceeds of $2,960,000 (see Note 5). The offering has not yet closed and we continue efforts to raise capital with this vehicle.

 

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.

 

 
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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

 

$1,685,942

 

 

$1,521,893

 

Less: inventory reserves

 

 

(50,000 )

 

 

(50,000 )

Total

 

$1,635,942

 

 

$1,471,893

 

 

Note 5 – Debt Obligations

 

Convertible Notes

 

In March 2026, we issued three separate convertible notes and received cash proceeds of $800,000. Two of our non-employee directors purchased $250,000 and $50,000, respectively, of the issued convertible notes. In April and June 2026, we issued an aggregate of $2,160,000 of additional convertible notes, of which one in the amount of $400,000 was issued to one of our non-employee directors.  The convertible notes bear interest at 10% and mature three years from the issue date. 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. The original terms of the convertible notes provided a conversion rate of $5.00 per share and the warrants were exercisable immediately for a period of three years at an exercise price of $7.50 per warrant share. On May 26, 2026, the terms of the convertible notes were amended as follows: the conversion rate was reduced from $5.00 to $3.00, the exercise price of the warrants was reduced from $7.50 to $4.50, and substantially all assets of the Company were added as collateral (the “Modification”). The Modification impacted $2,300,000 convertible notes that were previously issued and originally convertible into 460,000 shares of common stock with equal warrant coverage of 460,000 warrant shares initially exercisable at $7.50 per warrant share. The Modification increased the number of shares issuable upon conversion to 766,667 from 460,000 and warrant shares to 766,667 from 460,000 on the $2,300,000 convertible notes outstanding at the time of the Modification.

 

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 $2,300,000 of principal outstanding due to arms-length issuances of convertible notes, with terms similar to the modified convertible notes, to various third parties near the date of the Modification. During the three and six months ended June 30, 2026, we have recognized a loss on debt extinguishment from the Modification of $1,021,787 which is comprised of $498,695 of unamortized issuance costs, which are required to be included in the debt extinguishment gain or loss pursuant to ASC 470-50. Further, ASC 470-50-40-17A requires any change in fair value of a freestanding-equity classified written call option held by the creditor that is modified as part of a debt modification to be included in debt extinguishment gain or loss.  Therefore, the increase in fair value of the warrants held by the convertible note holders, at the time of the Modification, of $523,092 was also included in the loss on extinguishment of debt.

 

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 3 years (based on the remaining contractual term of the warrants and convertible notes), volatility of approximately 115% (company’s volatility over the expected term), risk free rate of 4.10% ( based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term), underlying common stock of $2.30 per share, and a dividend rate of 0.00%.

 

 
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At initial issuance of the $2,300,000 convertible notes a total of 460,000 warrants were also issued with an exercise price of $7.50. In accordance with ASC 470-20-25-2, we allocated the proceeds received between the convertible notes and the common stock warrants using the relative fair value method. Therefore, $528,898 of the total proceeds were allocated to the warrants and were presented as a discount against the convertible notes to be amortized into interest expense over the three-year term of the convertible notes and an increase to additional paid in capital. The relative fair value allocation was based on the estimated fair value of warrants on the date of issuance determined using the Black-Scholes and the following key assumptions: expected term of three years (based on the contractual term of the warrants), volatility of approximately 114-115% (company’s volatility over the expected term), risk free rate of 3.49-4.10% ( based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term), underlying common stock of $2.37 - $3.22 (market price on date of issuance) per share and a dividend rate of 0.00%. Prior to the Modification, a total of $26,566 and $30,203, of the warrant discount had been amortized into interest expense during the three and six months ended June 30, 2026, respectively. The unamortized discount of $498,695 associated with the originally issued warrants, with a $7.50 exercise price, at the time of the Modification, was also included in the loss on debt extinguishment.

 

Post Modification, an additional $660,000 of convertible notes were issued and a total of 220,000 warrant shares were issued, exercisable for three years at an exercise price of $4.50. In accordance with ASC 470-20-25-2, we allocated the proceeds received between the convertible notes and the common stock warrants using the relative fair value method. Therefore, $221,384 of the total proceeds was allocated to the warrants and has been presented as a discount against the convertible notes to be amortized into interest expense over the three-year term of the convertible notes and an increase to additional paid in capital. The relative fair value allocation was based on the estimated fair value of warrants on the date of issuance determined using the Black-Scholes and the following key assumptions: expected term of three years (based on the contractual term of the warrants), volatility of approximately 115% (company’s volatility over the expected term), risk free rate of 4.06-4.10% ( based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term), underlying common stock of $2.31 - $2.57 (market price on date of issuance) per share and a dividend rate of 0.00%.

 

Post modification, during the three and six months ended June 30, 2026, we recognized $5,430 of amortization related to the debt discount which has been included within interest expense on the condensed consolidated statements of operations. At June 30, 2026, the unamortized debt discount is $215,954.

 

At June 30, 2026, the total principal balance on the convertible notes is $2,960,000, which is due three years from issuance or March-June 2029, and accrued interest is $60,137, which is included within accounts payable and accrued expenses within the condensed consolidated balance sheets.

 

Note Payable

 

During the year ended December 31, 2025, we purchased approximately $48,200 of equipment with a note payable. The note bears interest at 10.75% and requires fixed payments of principal and interest of $1,042 for sixty months. At June 30, 2026 and December 31, 2025, the outstanding principal balance was $39,125 and $43,149, respectively.

 

 
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At June 30, 2026, future principal payments on the note payable for the years ending December 31, will be as follows:

 

2026 (remaining)

 

$4,246

 

2027

 

 

9,204

 

2028

 

 

10,244

 

2029

 

 

11,401

 

Thereafter

 

 

4,030

 

 

 

$39,125

 

 

Secured Promissory Note

 

On September 30, 2025, the Company executed a $600,000 short-term secured promissory note (the “Short-Term Note”). The Short-Term Note required repayment of $630,000 on the maturity date of January 2, 2026. The Short-Term Note was secured by certain outstanding receivables of the Company. The lender of the Short-Term Note also received a warrant to purchase 10,000 shares of common stock at $11.25 for a period of four years. The Short-Term note was repaid in its entirety upon maturity.

 

Financing Liability

 

During the year ended December 31, 2025, we entered into a financing agreement to finance $265,505 of insurance premiums due on various policies. The financed amount is due in fixed monthly payments of $19,808 for a period of eleven months and bears interest at 9.85%. At June 30, 2026 and December 31, 2025, the balance of $10,159 and $159,342, respectively, remaining on the financing liability has been presented within current liabilities on the accompanying consolidated balance sheets.

 

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

 

$1,998,988

 

 

 

88%

 

$84,814

 

 

 

14%

Service revenue

 

 

263,052

 

 

 

12%

 

 

510,153

 

 

 

86%

Total

 

$2,262,040

 

 

 

100%

 

$594,967

 

 

 

100%

 

 

 

Balance Six Months Ending

 

Name

 

June 30,

2026

 

 

%

 

 

June 30,

2025

 

 

%

 

Equipment revenue

 

$1,998,988

 

 

 

71%

 

$219,224

 

 

 

19%

Service revenue

 

 

814,207

 

 

 

29%

 

 

918,843

 

 

 

81%

Total

 

$2,813,195

 

 

 

100%

 

$1,138,067

 

 

 

100%

 

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

 

$342,905

 

 

$227,683

 

Billings deferred

 

 

2,296,250

 

 

 

222,239

 

Recognition of prior unearned revenue

 

 

(90,667 )

 

 

(107,017 )

Unearned revenue at end of period

 

$2,548,488

 

 

$342,905

 

 

During the three and six months ended June 30, 2026, we recognized $0 and $90,667, respectively, of service revenue that was previously unearned revenue at December 31, 2025. At June 30, 2026 and December 31, 2025, we have classified $0 and $312,905, respectively, within current liabilities and $2,548,488 and $30,000, respectively, within long-term liabilities based on when we estimate the unearned revenue will be recognized as revenue.

 

 
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Note 7 – Stockholders’ Equity

 

The Company is authorized to issue 50,000,000 preferred stock shares and 1,000,000,000 common stock shares both with a par value of $0.0001.

 

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 108,395 fully vested shares of restricted common stock to service providers and our board of directors with a fair value of $311,831, based on the closing market price of our common stock on date of grant.

 

During the six months ended June 30, 2025, we issued 29,310 fully vested shares of common stock to service providers with a fair value of $105,900 based on the market price of our common stock on date of grant.

 

Common Stock for Stock Option Exercises

 

During the six months ended June 30, 2026, we issued an aggregate of 222,972 shares of common stock for stock option exercises, all but one were cashless, and received cash proceeds of $6,600. One of the exercises was by our current Chief Executive Officer (“CEO”) who was issued 60,000 shares of common stock upon the cashless exercise.

 

During the six months ended June 30, 2025, we issued 20,000 shares of common stock for a stock option exercise that resulted in cash proceeds of $24,000.

 

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 243,023 shares of common stock.

 

During the six months ended June 30, 2025, certain executives and key employees vested in time-based restricted stock resulting in the Company issuing 41,633 shares of common stock.

 

 
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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

 

$43,862

 

 

$64,837

 

 

$82,497

 

 

$128,640

 

Compensation and related expenses

 

 

566,059

 

 

 

484,242

 

 

 

1,707,613

 

 

 

1,129,902

 

General and administrative expenses

 

 

-

 

 

 

-

 

 

 

147,237

 

 

 

-

 

Total expense

 

$609,921

 

 

$549,079

 

 

$1,937,347

 

 

$1,258,542

 

  

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

 

 

1,708,637*

 

$6.88

 

 

$272,680

 

 

 

7.28

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

(300,000)

 

 

1.13

 

 

 

-

 

 

 

-

 

Expired/forfeit

 

 

(340,395)

 

 

9.06

 

 

 

-

 

 

 

-

 

Options outstanding at March 31, 2026

 

 

1,068,242

 

 

$7.80

 

 

$14,280

 

 

 

8.36

 

Granted

 

 

683,921

 

 

 

2.43

 

 

 

-

 

 

 

-

 

Exercised

 

 

(38,921)

 

 

1.20

 

 

 

-

 

 

 

-

 

Expired/forfeit

 

 

(44,609)

 

 

12.09

 

 

 

-

 

 

 

-

 

Options outstanding at June 30, 2026

 

 

1,668,633

 

 

$5.61

 

 

$-

 

 

 

8.80

 

Options exercisable at June 30, 2026

 

 

795,562*

 

$8.00

 

 

$-

 

 

 

7.99

 

 

*At June 30, 2026 and December 31, 2025, the options outstanding and exercisable include 0 and 300,000 granted in connection with a merger that occurred in 2021, respectively, which were not granted under the 2021 Plan. The 300,000 options were exercised on a cashless basis during the six months ended June 30, 2026. Further, at June 30, 2026 and December 31, 2025, the options outstanding and exercisable include 27,500 of options granted in 2024 pursuant to a legal settlement and were not granted under the 2021 Plan.

 

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 $2.26 and 2.87, respectively. The options granted to employees vest ratably on each grant-date anniversary over a period of four years. Twenty-five percent (25%) of the CEO’s options vested immediately on date of grant with the remaining seventy-five percent (75%) vesting in eight equal quarterly installments at the end of each calendar quarter beginning June 30, 2026.

 

Of the total options outstanding at June 30, 2026, 91,894 of the options include performance conditions. The performance-based options vest as follows: 50% vest upon the achievement of operating profit, as defined in the employment agreements, and 50% upon the achievement of a revenue target of $100 million by the end of fiscal year 2028. The performance-based options with the revenue target begin vesting once the Company achieves $15 million in revenue for a fiscal year. Vesting will occur on January 31 of each year through January 31, 2029. The number of options that vest is based on the proportionate percentage of each fiscal year’s revenue to the $100 million target. For example, if our annual revenue for fiscal year 2026 is $20 million, 20% of the stock options with the revenue performance condition will vest on January 31, 2027.

 

 
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At June 30, 2026, total unrecognized compensation expense for service based and performance-based options was $1,791,325 and $276,721, respectively. The unrecognized service-based expense will be recognized over a weighted-average period of 2.63 years. The unrecognized expense associated with the performance-based options will be expensed when it becomes probable that the performance obligations will be met.

 

The weighted-average grant date fair value of the options granted during the six months ended June 30, 2026 and June 30, 2025 was $1.93 and $2.44, respectively.

 

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

 

96.48- 109.66

%

 

67.81- 71.56

%

Expected term (years)

 

5.00 - 6.00

 

 

 

6.25

 

Risk-free rate

 

3.94 - 4.35

%

 

4.00 - 4.51

%

Dividend rate

 

 

0%

 

 

0%

 

Restricted Stock Units (“RSUs”)

 

At June 30, 2026, our unvested RSUs consist of 371,475 RSUs with time-based vesting provisions granted to executives, non-executives and non-employee directors, and 141,895 RSUs with performance-based vesting provisions. The performance-based unvested RSUs were granted to two current executive officers in prior periods.

 

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

 

 

593,487

 

 

$5.02

 

Vested

 

 

(166,221)

 

 

5.45

 

Forfeited

 

 

(153,545)

 

 

5.35

 

Unvested, March 31, 2026

 

 

273,721

 

 

$4.58

 

Granted

 

 

175,000

 

 

 

2.87

 

Vested

 

 

(76,802)

 

 

3.36

 

Forfeited

 

 

(444)

 

 

6.20

 

Unvested, June 30, 2026

 

 

371,475

 

 

$4.03

 

 

During the three and six months ended, we granted our CEO 175,000 RSUs with a grant-date fair value of $2.87. Twenty-five percent (25%) of the RSUs vested immediately on date of grant with the remaining seventy-five percent (75%) vesting in eight equal quarterly installments at the end of each calendar quarter beginning on June 30, 2026.

 

 
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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

 

 

271,809

 

 

$5.22

 

Forfeited

 

 

(129,914)

 

 

6.04

 

Unvested, March 31, 2026

 

 

141,895

 

 

$4.48

 

Unvested, June 30, 2026

 

 

141,895

 

 

$4.48

 

 

 At June 30, 2026, we have $635,149 of unrecognized stock-based compensation associated with the RSUs with a performance condition which will be recognized when the performance conditions are probable of being met. As of June 30, 2026, the Company had $1,245,018 of unrecognized stock-based compensation associated with the time-based vesting RSUs which will be recognized over a weighted-average vesting period of approximately 2.03 years.

 

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

 

 

877,524

 

 

$2.06

 

 

$90,917

 

 

 

3.88

 

Granted

 

 

160,000

 

 

 

7.50

 

 

 

-

 

 

 

-

 

Expired/forfeit

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Warrants outstanding at March 31, 2026

 

 

1,037,524

 

 

$2.90

 

 

$784,936

 

 

 

3.53

 

Granted

 

 

520,000

 

 

 

4.50

 

 

 

-

 

 

 

-

 

Additional warrants due to Modification (Note 5)

 

 

306,667

 

 

 

4.50

 

 

 

-

 

 

 

-

 

Expired/forfeit

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Warrants outstanding at June 30, 2026

 

 

1,864,191

 

 

$3.35*

 

$-

 

 

 

3.16

 

Warrants exercisable at June 30, 2026

 

 

1,864,191

 

 

$3.35*

 

$-

 

 

 

3.16

 

 

*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).

 

 
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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 $700,000, under the same terms as those issued to unrelated investors. See Note 7 for a description of a cashless option exercise by our current Chief Executive Officer during the three and six months ended June 30, 2026 resulting in the issuance of 60,000 shares of common stock.

 

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 $8,000 are due February 1, 2026 through October 1, 2026 and increase to $19,520 thereafter. Monthly payments range from $19,520 to $21,546 through the end of the initial lease term of January 1, 2031. The Orlando License Agreement includes provisions for the termination for convenience with 180 days’ written notice by either party. 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.

 

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 $824,566 which was based on the present value of the lease payments required over the lease term and a discount rate of 12.0%.

 

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 $14,235 to $16,503 over the initial term of the lease.

 

Right-of-use assets are summarized below:

 

 

 

June 30,

2026

 

 

December 31,

2025

 

Right-of-use assets

 

$1,551,030

 

 

$726,464

 

Accumulated amortization

 

 

(242,170 )

 

 

(154,723 )

Right-of-use assets, net

 

$1,308,860

 

 

$571,741

 

 

Operating lease liabilities are summarized below:

 

 

 

June 30,

2026

 

 

December 31,

2025

 

Operating lease liabilities, current

 

$224,051

 

 

$119,693

 

Operating lease liabilities, less current portion

 

 

1,095,037

 

 

 

431,683

 

Total operating lease liabilities

 

$1,319,088

 

 

$551,376

 

 

 
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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)

 

$160,775

 

2027

 

 

419,721

 

2028

 

 

434,130

 

2029

 

 

396,418

 

2030

 

 

258,032

 

Thereafter

 

 

21,546

 

Total

 

 

1,690,622

 

Less: present value discount at a weighted-average rate of 12.0%

 

 

(371,534 )

Total operating lease liabilities

 

$1,319,088

 

 

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

 

$117,410

 

 

$42,706

 

 

During the three and six months ended June 30, 2026, we incurred rent expense of approximately $53,000 and $159,000, respectively, in connection with the Orlando License Agreement and lab space in North Carolina which is included within general and administrative expenses on the condensed consolidated statements of operations. During the three and six months ended June 30, 2025, we incurred rent expense of approximately $36,000 and $89,000, respectively, in connection with our lab space in North Carolina which is included within general and administrative expenses on the condensed consolidated statements of operations.

 

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.

 

 
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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 $38,000 have been accrued. Further, all stock-based compensation related to vested equity-based awards pursuant to the terms of the Separation Agreement have been reflected in the Company’s consolidated financial statements. However, certain accelerated shares pursuant to the terms of the Separation Agreement have not been issued.

 

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 $225,000, subject to periodic review by the Compensation Committee of the Company’s Board of Directors (the “Board”).

 

In addition, Mr. Bogar will be eligible to receive an annual performance bonus with a target of up to one hundred percent (100%) of his base salary, pro-rated for fiscal year 2026 to reflect the portion of 2026 during which he served as the Company’s President and Chief Executive Officer. For fiscal year 2026, fifty percent (50%) of the bonus will be based on achieving operational objectives and fifty percent (50%) will be based on achieving strategic objectives, in each case as determined by the Board in consultation with Mr. Bogar. For each fiscal year following 2026, annual bonus objectives will be mutually agreed upon by the Compensation Committee and Mr. Bogar.

 

Pursuant to the Company’s 2021 Equity Incentive Plan, as amended, the Company has granted Mr. Bogar: (i) an option to purchase 175,000 shares of the Company’s common stock at a per share exercise price equal to the fair market value of the common stock as of the date of grant (the “Option Grant”); and (ii) RSU award covering 175,000 shares of the Company’s common stock (the “RSU Grant”). Twenty-five percent (25%) of each of the Option Grant and the RSU Grant will vest on the date of grant, and the remaining seventy-five percent (75%) will vest in eight equal quarterly installments at the end of each calendar quarter beginning June 30, 2026, in each case subject to Mr. Bogar’s continuous service through the applicable vesting date (see Note 7).

 

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.

 

 
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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.

 

 
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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 $60,000 and issued a common stock warrant to purchase 20,000 shares of common stock at $4.50 with an exercise period of three years.

 

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. The draft complaint, which counsel stated they intend to file in the Superior Court of Wake County, North Carolina, absent a resolution, asserts claims for breach of contract and violation of the North Carolina Wage and Hour Act based on allegedly unpaid severance, bonus, and other benefits under Mr. Kline’s employment agreement and related equity awards. Mr. Kline seeks no less than $433,500, consisting of $150,000 of severance, $66,750 of 2025 annual bonus, and an equal amount of statutory liquidated damages, plus unquantified amounts for continued insurance coverage, accelerated equity vesting, vested but unissued shares, interest, and attorneys’ fees and costs. 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.

 

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 $225,000 per year, subject to periodic review by the Compensation Committee (the “Compensation Committee”) of the Company’s Board of Directors (the “Board”). Notwithstanding the foregoing, the base salary will not commence until September 1, 2026; no base salary will be payable to Mr. Weiser with respect to the period from July 1, 2026 through August 31, 2026.

 

Mr. Weiser will be eligible to receive an annual performance bonus with a target of up to seventy-five percent (75%) of his base salary, pro-rated for fiscal year 2026 to reflect the portion of 2026 during which he served as the Company’s Chief Financial Officer. Annual bonus objectives are based upon achievement of Company and individual performance objectives established by the Board or Compensation Committee, consisting of a combination of operational, financial, strategic, and capital markets objectives. The annual bonus is not guaranteed and shall be paid only if the Company is properly capitalized and, in a position, to pay such amount. For each fiscal year following 2026, annual bonus objectives will be mutually agreed upon by the Compensation Committee and Mr. Weiser. Mr. Weiser will also be entitled to a one-time signing bonus of $25,000, which shall accrue as of July 1, 2026 and be paid when the Company is properly capitalized and in a position to pay such amount, as determined by the Board in its reasonable discretion.

 

Pursuant to the Company’s 2021 Equity Incentive Plan, as amended, Mr. Weiser will be granted: (i) an option (the “Option Grant”) to purchase 150,000 shares of the Company’s common stock at a per share exercise price equal to the fair market value of the common stock as of the date of grant; and (ii) a restricted stock unit award covering 125,000 shares of the Company’s common stock (the “RSU Grant”). Twenty-five percent (25%) of each of the Option Grant and the RSU Grant will vest immediately on the grant date, and the remaining seventy-five percent (75%) will vest in twelve equal quarterly installments commencing October 1, 2026, in each case subject to Mr. Weiser’s continuous service through the applicable vesting date. In addition, upon the closing of a change of control of the Company, fifty percent (50%) of any then-unvested Option Grant and RSU Grant shares will immediately vest, with any remaining unvested shares to continue under the acquiring entity’s equity program; and if, within twelve (12) months following a change of control, Mr. Weiser’s employment is terminated without cause or he resigns for good reason, all remaining unvested shares will vest in full.

 

 
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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.

 

 
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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.

 

 
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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.

 

 
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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.

 

 
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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.

 

 
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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.

 

 
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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.

 

 
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Table of Contents

 

Item 6. Exhibits.

 

(a) Exhibits

 

3.1

 

Amended and Restated Certificate of Incorporation of Vyrex Corporation as filed with the Delaware Secretary of State on August 14, 2008 (previously filed on Form 10-Q for the quarter ended June 30, 2008, as filed with the SEC on August 19, 2008).

 

 

 

3.2

 

Certificate of Amendment of Certificate of Incorporation of PowerVerde, Inc. (previously filed on Form 10-K filed with the SEC on March 28, 2025).

 

 

 

3.3

 

Certificate of Amendment of Certificate of Incorporation of 374Water Inc. (previously filed on Form 8-K filed with the SEC on June 17, 2025).

 

 

 

3.4

 

Certificate of Amendment of Certificate of Incorporation of 374Water Inc. (previously filed on Form 8-K filed with the SEC on December 15, 2025).

 

 

 

3.5

 

Amended and Restated Bylaws of 374Water Inc., dated as of June 19, 2024 (previously filed on Form 8-K filed with the SEC on June 20, 2024).

 

 

 

10.1

 

Employment Agreement, dated April 27, 2026, by and between 374Water Inc. and Daniel Bogar (previously filed on Form 8-K with the SEC on May 1, 2026).+

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

 

 

 

32.1

 

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

 

 

 

32.2

 

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.

 

 
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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

 

Source: View Original Filing on SEC EDGAR