374Water Inc

The following tables set 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 September 30, 2024, as Compared to the Three Months Ended September 30, 2023

We generated $81,490 and $12,290 in revenue primarily from our treatability services during the three months ended September 30, 2024, and September 30, 2023, respectively. Manufacturing costs associated with our sold unit have started to decline as we reach the end of our fabrication and testing, which have had a direct correlation on the reduced equipment revenue recognized this period related to our manufacturing assembly services.

Our cost of revenues decreased to $42,404 during the three months ending September 30, 2024, as compared to $178,680 in the same period of 2023, primarily because costs associated with our sold system declined as we reach the end of our manufacturing and fabrication and testing.

Our general and administrative expenses increased to $1,022,284 during the three months ending September 30, 2024, as compared to $541,697 in the same period of 2023, primarily because of an increase stock-based compensation, travel, and other general and administrative expenses as we continue to build out our executive team. We also incurred relocation related expenses as we moved to our short-term leased manufacturing facility in Florida during the three months ended September 30, 2024.

Our compensation and related expenses increased to $834,952 during the three months ending September 30, 2024, as compared to $739,181 in the same period of 2023. The increase is primarily due to increased hiring as we build our executive team with three new executive hires and salary increases to certain key employees during the three months ended September 30, 2024.

Our professional fees significantly increased to $499,010 during the three months ending September 30, 2024, as compared to $117,543 in the same period of 2023, primarily attributed to an increase in legal fees related to a legal settlement and general legal expenses incurred in the first half of 2024 related to our previously disclosed change in executive leadership.

Our research and development expenses increased to $424,579 during the three months ending September 30, 2024, as compared to $317,573 in the same period of 2023, primarily due to the increase in engineering expenses and expenses stemming from our continued efforts to commercialize our systems.

Our net loss increased to $2,701,817 during the three months ending September 30, 2024, as compared to $1,731,431 in the same period of 2023, primarily due to increased expenses for the reasons described above. Substantial net losses are expected until we are able to successfully commercialize and market our 374Water AirSCWO systems, as to which there can be no assurance.

Nine Months Ended September 30, 2024, as Compared to the Nine Months Ended September 30, 2023

We generated revenues of $433,589 and $863,611 from manufacturing assembly services (equipment revenue) and from treatability a services during the nine months ended September 30, 2024 and 2023, respectively. During the nine months ended September 30, 2024, we reached fewer milestones and thus incurred less direct contract costs. Costs associated with our sold unit have started to decline as we reach the end of our fabrication and testing, which have had a direct correlation to the reduced equipment revenue recognized this period of $527,425 compared to the previous period. This reduction was offset by an increase in service revenues from our treatability studies of $97,403.

Our cost of revenues decreased to $703,245 during the nine months ending September 30, 2024, as compared to $944,082 in the same period of 2023, primarily because costs associated with our sold system have started to decline as we reach the end of our fabrication and testing.

Our general and administrative expenses increased to $2,534,009 during the nine months ending September 30, 2024, as compared to $1,803,691 in the same period of 2023, primarily due to increased travel expenses, stock-based compensation, and other general and administrative expenses as we continue to build out our executive team. We also incurred relocation related expenses as we transitioned to our leased manufacturing facility in Florida during the three months ended September 30, 2024.

Our compensation and related expenses increased slightly to $2,264,381 during the nine months ending September 30, 2024, as compared to $2,191,061 in the same period of 2023, primarily because of an increase in our compensation and related expenses in a deliberate step in our strategic growth plan to ensure we have sufficient personnel and executive team to support our expected growth and path towards commercializing our AirSCWO systems.

Our professional fees increased to $1,367,702 during the nine months ended September 30, 2024, as compared to $309,398 in the same period of 2023, primarily attributed to an increase in legal fees related to a legal settlement and an increase in general legal expenses incurred in the first half of 2024 related to our previously disclosed change in executive leadership.

Our research and development expenses increased to $1,526,294 during the nine months ended September 30, 2024, as compared to $945,443 in the same period of 2023, primarily due to an increase in engineering expenses and in expenses stemming from our continued efforts to commercialize our systems.

Our net loss increased to $7,658,602 during the nine months ending September 30, 2024, as compared to $5,022,351 in the same period of 2023, primarily due to increased expenses for the reasons described above. Substantial net losses are expected until we are able to successfully commercialize and market our 374Water systems, as to which there can be no assurance.

Liquidity and Capital Resources

At September 30, 2024, the Company had working capital of $4,484,164. At September 30, 2024, the Company had an accumulated deficit of $23,612,106. For the nine months ended September 30, 2024, the Company had a net loss of $7,658,602 and used $7,497,734 of net cash in operations for the period. Further, we expect to continue to incur substantial losses until we are able to successfully commercialize and market our AirSCWO systems, as to which there can be no assurance that this will occur.

Going Concern

In accordance with ASU No. 2014-15 Presentation of Financial Statements – Going Concern (subtopic 205-40), our management evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. Based on our evaluation of the aforementioned conditions, substantial doubt exists 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 condensed 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.

Since inception, we have financed our operations principally through the sale of debt and equity securities and operating cash flows.

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:

Any additional debt or equity financing that we obtain may substantially dilute the ownership held by our existing stockholders. The economic dilution to our stockholders 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.

On November 11, 2024, the Company’s board of directors approved a registered offering for the sale of units consisting of common stock and the issuance of warrants. The transaction is expected to close before year-end 2024, subject to customary closing conditions for a transaction of this type.

See “Risk Factors – Risks Related to Our Financial Position and Capital Requirements – We will require and may have difficulty or be unsuccessful in raising needed capital in the future to continue to operate as a going concern.”

During the nine months ended September 30, 2024, there were no significant changes in our commercial commitments and contractual obligations as compared with the information presented in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 29, 2024.

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 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 $7,497,734 of cash in operating activities for the nine months ended September 30, 2024 compared to $6,699,629 of cash used in operating activities for the corresponding period in 2023 an increase of $798,105. The increase in cash used in operating activities was primarily due to the increase in our net loss of $2,636,251, offset by an increase in noncash expenses of $629,512 and increase in operating cash flows from operating assets and liabilities of $1,208,634. The cash used in operations was primarily to fund operations as well as our working capital requirements.

We used $999,207 of cash in investing activities for the nine months ended September 30, 2024 compared to receiving $1,905,894 cash provided by financing activities for the corresponding period in 2023. The increase in cash used by investing activities for the nine months ended September 30, 2024 compared with the corresponding period in 2023 was primarily due a $861,597 increase in purchases of property, equipment and equipment-in-process as we continue making progress towards commercializing our AirSCWO systems and deploying our owned unit for full-scale demonstrations as well as a $80,073 increase in intangible assets from increased patent activity. In 2023, we received $1,963,431 in proceeds from the sale of investments, which were not received in 2024.

We received $11,912 of cash from financing activities for the nine months ended September 30, 2024 compared to cash provided by financing activities of $13,548,889 for the nine months ended September 30, 2023. Cash used in financing activities for the nine months ended September 30, 2024 was primarily due to net proceeds received from our ATM. In 2023, we successfully raised $13,548,889 of net proceeds from the sale of our common stock via our ATM.

Shelf Registration Statement

In December 2022, we filed a shelf registration statement on Form S-3 with the SEC (the “2022 Registration Statement”) (File No. 333- 268942), which upon being declared effective in December 2022, allowed us to offer up to $200.0 million of securities from time to time in one or more public offerings, inclusive of up to $100.0 million of shares of our common stock which we may sell in at-the-market (ATM) equity offerings, subject to certain limitations and applicable law, pursuant to an Open Market Sale Agreement SM, dated December 21, 2022 with Jefferies LLC (the “Sales Agreement”). In addition, due to the SEC’s “baby shelf” rules, which prohibit companies with a public float of less than $75 million from issuing securities under a shelf registration statement in excess of one-third of such company’s public float in a 12-month period, we may in the future only be able to issue a limited number of shares under our 2022 Registration Statement, which aggregate to no more than one-third of our public float.

During the nine months ended September 30, 2024 and year end December 31, 2023, we raised approximately $12,000 and $13,441,000, respectively, of net proceeds through ATM offerings. Any material sales in the public market of our common stock under the 2021 Sales Agreement or otherwise under the 2022 Registration Statement could adversely affect prevailing market prices for our common stock.

The Company is evaluating strategies to obtain required additional funding for future operations.