What changed in 374Water Inc.'s 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of 374Water Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+180 added−146 removedSource: 10-K (2024-03-29) vs 10-K (2023-03-16)
Top changes in 374Water Inc.'s 2023 10-K
180 paragraphs added · 146 removed · 107 edited across 4 sections
- Item 1A. Risk Factors+87 / −73 · 49 edited
- Item 7. Management's Discussion & Analysis+50 / −37 · 26 edited
- Item 1. Business+36 / −31 · 27 edited
- Item 5. Market for Registrant's Common Equity+7 / −5 · 5 edited
Item 1. Business
Business — how the company describes what it does
27 edited+9 added−4 removed45 unchanged
Item 1. Business
Business — how the company describes what it does
27 edited+9 added−4 removed45 unchanged
2022 filing
2023 filing
Biggest changeThe AirSCWO 6 system, expected to be installed in the 2nd quarter of 2023, is capable of processing six (6) wet tonne per day (WMT/d) of wastewater in a 40-foot standard shipping container. We expect to receive several additional purchase orders for our systems.
Biggest changeThe AirSCWO 6 system, which is named for the 6 wet tons the unit can process per day (WMT/d) of wastewater in a 40-foot standard shipping container, is expected to be installed in the 2nd quarter of 2024. Upon successful installation, we expect to receive several additional purchase orders for our systems.
We believe our technology provides a unique value proposition that will support its adoption across various markets, including, but not limited to: · Generating value from waste by recovering clean energy in the form of heat, water, and minerals; · Providing a highly energy efficient, compact and sustainable waste treatment option that we believe can deliver unprecedented elimination of many environmentally persistent pollutants, e.g., PFAS, 1,4 Dioxane, microplastics, pharmaceuticals and personal care products (PPCPs), and other contaminants of emerging concern (CECs); · Treating waste at the source thereby eliminating haulage and transportation needs and reducing greenhouse gas (GHG) emissions; and · Offsetting methane emissions by offering a solution to waste that does not form methane as a byproduct.
We believe our technology provides a unique value proposition that will support its adoption across various markets, including, but not limited to: · Generating value from waste by recovering clean energy in the form of heat, water, and minerals; · Providing a highly energy efficient, compact and sustainable waste treatment option that can deliver unprecedented elimination of many environmentally persistent pollutants, e.g., PFAS, 1,4 Dioxane, microplastics, pharmaceuticals and personal care products (PPCPs), and other contaminants of emerging concern (CECs); · Treating waste at the source thereby eliminating haulage and transportation needs and reducing greenhouse gas (GHG) emissions; and · Offsetting methane emissions by offering a solution to waste that does not form methane as a byproduct.
If the operators of our AirSCWO™ units are treating hazardous waste, such operators may be required to obtain special hazardous waste technician training. Additionally, we are currently evaluating whether our AirSCWO™ units may be regulated pursuant to the United States Occupational Safety and Health Act and thereby be subject to inspections thereunder.
If the operators of our AirSCWO™ units are treating hazardous waste, such operators may be required to obtain special hazardous waste technician training. Additionally, we are currently evaluating whether our AirSCWO systems may be regulated pursuant to the United States Occupational Safety and Health Act and thereby be subject to inspections thereunder.
We have also entered into an agreement with Merrell Bros., Inc. where they also serve as a channel partner to facilitate our market penetration and expansion plans in the US by opening up their existing client base.
We have also entered into an agreement with Merrell Bros. where they also serve as a channel partner to facilitate our market penetration and expansion plans in the US by opening up their existing client base.
We may also be required to obtain state and local treatment works approval to install our AirSCWO™ units if a unit is connected to a system which is permitted pursuant to the United States National Pollutant Discharge Elimination Systems Act (NPDES).
We may also be required to obtain state and local treatment works approval to install our AirSCWO systems if a unit is connected to a system which is permitted pursuant to the United States National Pollutant Discharge Elimination Systems Act (NPDES).
In some markets, we believe revenue will be generated from a mix of capital equipment sales and a Service Agreement (SA), which is a paid service for waste treatment pursuant to long-term contracts. The latter will be offered through a separate financing division that we are targeting to establish in 2023 and will initially be deployed via direct end-user engagement.
In some markets, we believe revenue will be generated from a mix of capital equipment sales and a Service Agreement (SA), which is a paid service for waste treatment pursuant to long-term contracts. The latter will be offered through a separate financing division that we are targeting to establish in 2024 and will initially be deployed via direct end-user engagement.
In the event our AirSCWO™ units are used to treat metals, the resulting mineral stream may constitute heavy metals under the United States Resource Conservation and Recovery Act (the “RCRA”) and require separation and regulated disposal if such heavy metals were deemed to be hazardous waste under the RCRA.
In the event our AirSCWO systems are used to treat metals, the resulting mineral stream may constitute heavy metals under the United States Resource Conservation and Recovery Act (the “RCRA”) and require separation and regulated disposal if such heavy metals were deemed to be hazardous waste under the RCRA.
The supercritical phase produces unique properties of water which combine with air convert organic matter to energy and minerals that are safe byproducts that can be recovered and put to economically productive use. We call our systems AirSCWO™, as it utilizes a combination of ambient air and the supercritical water oxidation process.
The supercritical phase produces unique properties of water which when combined with air convert organic matter to energy and minerals that are safe byproducts that can be recovered and put to economically productive use. We call our systems AirSCWO , as it utilizes a combination of ambient air and the supercritical water oxidation process.
Additionally, we are finalizing the design of larger capacity systems to process thirty (30) WMT/d (AirSCWO 30) and later on two hundred (200) WMT/d (AirSCWO 200), respectively.
Additionally, we are in the process of the design of larger capacity systems to process thirty (30) WMT/d (AirSCWO 30) and later on two hundred (200) WMT/d (AirSCWO 200), respectively.
We anticipate initial sales of our thirty (30) tonne system within the next twelve months. 7 Table of Contents We intend for the Company’s growth over the next two years to be predominantly driven by sales of AirSCWO™ systems in the identified key markets, which we hope will lead to customer base expansion, and ultimately, with the municipal market expected to generate a significant portion of the Company’s revenue.
We anticipate initial sales of our thirty (30) ton system within the next twenty-four months. 7 Table of Contents We intend for the Company’s growth over the next two years to be predominantly driven by sales of AirSCWO systems in the identified key markets, which we hope will lead to customer base expansion, and ultimately, with the municipal market expected to generate a significant portion of the Company’s revenue.
As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests. 10 Table of Contents FORWARD-LOOKING STATEMENTS Prospective investors are cautioned that the statements in this Report that are not descriptions of historical facts may be forward-looking statements that are subject to risks and uncertainties.
As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests. 10 Table of Contents FORWARD-LOOKING STATEMENTS Prospective investors are cautioned that the statements in this annual report on Form 10-K (the “Report”) that are not descriptions of historical facts may be forward-looking statements that are subject to risks and uncertainties.
The technology is addressing environmental challenges that the Company believes, until now, have been considered insurmountable due to science/engineering and/or cost barriers. For example, we can treat PFAS (“per- and polyfluoroalkyl substances”). 4 Table of Contents Products and Services We believe AirSCWO™ systems have the ability to address environmental issues across multiple market verticals.
The technology is addressing environmental challenges that the Company believes, until now, have been considered insurmountable due to science/engineering and/or cost barriers. For example, we believe our systems can treat certain types of PFAS. 4 Table of Contents Products and Services We believe AirSCWO systems have the ability to address environmental issues across multiple market verticals.
(the “Company”, “374Water”, “We”, or “Our”) is a Delaware corporation which was formed in September 2005 as PowerVerde, Inc At that time, the Company was focused on developing, commercializing and marketing a series of unique electric generating power systems designed to produce electrical power with zero emissions or waste byproducts, based on a pressure-driven expander motor and related organic rankine cycle technology. 9 Table of Contents On April 16, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger”) with 374Water Inc., a privately held company based in Durham, North Carolina, (“374Water Private Company”) and 374Water Acquisition Corp., a newly-formed wholly-owned subsidiary of PowerVerde.
At that time, the Company was focused on developing, commercializing and marketing a series of unique electric generating power systems designed to produce electrical power with zero emissions or waste byproducts, based on a pressure-driven expander motor and related organic rankine cycle technology. 9 Table of Contents On April 16, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger”) with 374Water Inc., a privately held company based in Durham, North Carolina, (“374Water Private Company”) and 374Water Acquisition Corp., a newly-formed wholly-owned subsidiary of PowerVerde.
Because our AirSCWO™ convert any organic material, we believe the AirSCWO™ systems are essentially waste stream agnostic with the capability of treating a variety of complex, hazardous and non-hazardous wet waste streams, thus creating opportunities for multiple applications in diverse market verticals on an international scale.
Because our AirSCWO systems convert any organic material, we believe the AirSCWO systems have the capability of treating a variety of complex, hazardous and non-hazardous wet waste streams, thus creating opportunities for multiple applications in diverse market verticals on an international scale.
The units are compact and prefabricated so that they may be cost effectively shipped, installed, and operated within the footprint of an existing plant. We are currently offering a six (6) wet tonne per day throughput capacity system and anticipate commercializing a thirty (30) wet tonne per day throughput capacity system in 2024.
The units are compact and prefabricated so that they may be cost effectively shipped, installed, and operated within the footprint of an existing plant. We are currently offering a six (6) wet ton per day throughput capacity system and anticipate beginning the manufacturing of a thirty (30) wet ton per day throughput capacity system in 2025.
A two hundred (200) wet tonne per day throughput capacity system is to be designed in 2025. We also intend to sell, as part of a broader solution package, ancillary equipment that is required to pre-treat the inlet waste stream and post-treat a product stream, depending on the application.
We also anticipate designing a two hundred (200) wet ton per day throughput capacity system in the future. We also intend to sell, as part of a broader solution package, ancillary equipment that is required to pre-treat the inlet waste stream and post-treat a product stream, depending on the application.
Government Regulations Our operations and AirSCWO™ units may be subject to various United States federal, state and local and, in the case of our Israel operations, Israeli laws and regulations and requirements governing the protection of the environment, public health and safety, and other matters.
Government Regulations Our operations and AirSCWO system may be subject to various United States federal, state and local laws and regulations and requirements governing the protection of the environment, public health and safety, and other matters.
Our recruitment strategy is based on identifying top talent, predominantly via existing networks and referrals, and offering competitive remuneration packages that combine salary, benefits and equity. As we move forward our recruitment strategy will expand to wider platforms allowing outreach to a wider audience.
Our recruitment strategy is based on identifying top talent, predominantly via existing networks and referrals, and offering competitive remuneration packages that combine salary, benefits and equity. As we move forward our recruitment strategy will expand to wider platforms allowing outreach to a wider audience. In 2023, we hired a full-time human resources individual.
As of December 31, 2022, we have three pending U.S. non-provisional applications and three pending Patent Cooperation Treaty (PCT) applications that cover crucial process operational aspects and improvements in system efficiencies and performance, including a next generation AirSCWO™ system for high strength waste stream treatment.
As of December 31, 2023, we have three pending U.S. non-provisional applications and three pending Patent Cooperation Treaty (PCT) applications that cover crucial process operational aspects and improvements in system efficiencies and performance, including a next generation AirSCWO system for high strength waste stream treatment. Collaborations with Strategic Partners Merrell Bros. Inc.
ITEM 1. BUSINESS. Overview 374Water offers a technology that transforms wet wastes such as sewage sludge, biosolids, food waste, hazardous and non-hazardous waste, and forever chemicals (e.g., PFAS) into recoverable resources by focusing on waste as a valuable resource for water, energy, and minerals.
ITEM 1. BUSINESS. Overview 374Water Inc. (the “Company”, “374Water”, “We”, or “Our”) offers a technology that transforms wet wastes such as sewage sludge, biosolids, food waste, hazardous and non-hazardous waste, and forever chemicals (e.g., “per-and polyfluoroalkyl substances” or “PFAS”) into recoverable resources by focusing on waste as a valuable resource for water, energy, and minerals.
Markets and Industries We’re seeking to create a more robust and sustainable approach to waste stream management for our customers. The drivers that are facilitating adoption of our technology include but are not limited to: population growth and urbanization, increasing quantity/complexity of waste streams, climate change, carbon economics, resource scarcity, corporate sustainability targets, commodity prices, energy security and tightening regulations.
The drivers that are facilitating adoption of our technology include but are not limited to: population growth and urbanization, increasing quantity/complexity of waste streams, climate change, carbon economics, resource scarcity, corporate sustainability targets, commodity prices, energy security and tightening regulations.
We intend that our operations and AirSCWO™ units will be in material compliance with, and in many cases surpass, minimum standards required by applicable laws and regulations. Corporate Information 374Water Inc.
We intend that our operations and AirSCWO systems will be in material compliance with, and in many cases surpass, minimum standards required by applicable laws and regulations. Corporate Information 374Water Inc. is a Delaware corporation which was formed in September 2005 as PowerVerde, Inc.
Collaborations with Strategic Partners We have an exclusive manufacturing agreement in place with Merrell Bros., Inc., which is based in Kokomo, Indiana, and is a nationwide biosolids management company helping municipalities, industries and agricultural operations successfully manage and recycle biosolids.
We have an exclusive manufacturing and service agreement (the “Original M&S Agreement”) in place with Merrell Bros. Fabrication, LLC, a division of Merrell Bros. Inc. (“Merrell Bros.”), which is based in Kokomo, Indiana, and is a nationwide biosolids management company helping municipalities, industries and agricultural operations successfully manage and recycle biosolids.
Human Capital and Culture We currently employ twenty-three full-time employees and seven consultants on a full or part-time basis. Our current projections are to increase the workforce to forty full-time employees in 2023 and fifty full-time employees in 2024. We recognize and value our people as our most important asset in achieving our strategic goals and growing a great company.
Our current projections are to increase the workforce to approximately forty full-time employees in 2024 and fifty full-time employees in 2025. We recognize and value our people as our most important asset in achieving our strategic goals and growing a great company.
We have a Sponsored Partnership Agreement with Duke University that provides access to Duke’s world-class research capabilities, building on our own R&D expertise and strengthening our core development activities when needed. 8 Table of Contents We also are working with Environmental Services Company, LTD.
Duke University We have a Sponsored Partnership Agreement with Duke University that provides access to Duke’s world-class research capabilities, building on our own R&D expertise and strengthening our core development activities when needed. 8 Table of Contents Marketing Our marketing approach is multi-pronged with three areas of focus: development of information, education of end users, and thought leadership.
Such solutions may be developed by the Company or by its strategic partners to provide a complete solution and integrated treatment train. In addition, the Company intends to offer sales agreements for supply of parts, maintenance and repairs, as well as long term SAs.
Such solutions may be developed by the Company or by its strategic partners to provide a complete solution and integrated treatment train. In addition, the Company intends to offer sales agreements for supply of parts, maintenance and repairs. Human Capital and Culture We currently employ twenty-six full-time employees and six consultants on a full or part-time basis.
In the immediate future, we will use an outsourced human resources firm, and as we grow, within 2023, embed a human resources function into the Company. We intend to apply a wide range of retention initiatives that include rewarding high-performance and opening opportunities for progression and career development.
We intend to apply a wide range of retention initiatives that include rewarding high-performance and opening opportunities for progression and career development.
Removed
We consider ourselves pioneers in a new era of waste management that supports a circular economy and enables organizations to achieve their environment, social, and governance (ESG) goals. Our vision is a world without waste and our mission is to help create and preserve a clean and healthy environment that sustains life.
Added
Markets and Industries We are seeking to create a more robust and sustainable approach to waste stream management for our customers.
Removed
We believe the Company has the facilities and capability to rapidly ramp-up manufacturing volumes and also support system modifications and deployment as required per market and clients. We expect Merrell Bros., Inc. to be a valuable resource as an additional sales channel for our AirSCWO™ systems which will continue to spur overall growth of the Company.
Added
The initial term of the manufacturing agreement ends July 7, 2024 with a one-year automatic renewal unless terminated by either party with at least a sixty-day notice prior to expiration.
Removed
(ESC), which is based in Israel, to act as our channel partner for treating industrial waste streams in Israel. ESC has an established reputation for its unique knowledge, regulatory and physical infrastructure, and a variety of halogenated organic wastes required for the R&D effort.
Added
On March 27, 2024, we executed a supplemental manufacturing and services agreement (the “Supplemental M&S Agreement”) with Merrell Bros. as Merrell Bros. has indicated to us their intent to not renew the Original M&S Agreement and we have indicated our desire to relocate to a larger manufacturer facility with more square footage dedicated to expanding our manufacturing operations.
Removed
ESC is expected to provide the Company with access to new markets in the Middle-East that are more closely focused toward hazardous material treatment. Marketing Our marketing approach is multi-pronged with three areas of focus: development of information, education of end users, and thought leadership.
Added
Simultaneous to executing the Supplement M&S Agreement, Merrell Bros. provided us with a written non-renewal notice. Accordingly, the Original M&S Agreement will terminate on its original expiration date of July 7, 2024 and will not be renewed. The Supplemental M&S Agreement will become effective on July 7, 2024 and will replace the Original M&S Agreement.
Added
Under the Supplemental M&S Agreement, our relationship and the manufacturing services provided by Merrell Bros. will continue on an as needed basis based on statements of work to be agreed upon by both parties to fulfill future and current manufacturing orders.
Added
The term of the Supplemental M&S Agreement is one year from July 7, 2024 with a one-year renewal upon a mutually executed written extension. Either party may terminate this Supplement M&S Agreement upon written notice of such a termination, specifying the extent to which performance of work is terminated and the effective date of termination.
Added
We currently operate in a 9,000 square foot facility located at Merrell Bros. Our business plan includes operating in our own facility. In order for us to continue implementing our business plan, we plan to relocate to our own larger manufacturing facility, that will allow us to expand our operations and execute our strategic plan.
Added
We have identified a 50,000 square foot location that would allow us to integrate our manufacturing operations with our waste treatment laboratory and provide sufficient space for growth. We are in the process of negotiating a lease agreement and anticipate being fully operational on or before July 7, 2024 at this or a similar facility.
Added
We believe relocating to our own facility and consolidating our operations will result in operational and logistical efficiencies as well as economic savings and cost reductions by manufacturing our AirSCWO units internally.
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
49 edited+38 added−24 removed160 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
49 edited+38 added−24 removed160 unchanged
2022 filing
2023 filing
Biggest changeITEM 1A. RISK FACTORS . Risks Related to Our Business and General Economic Conditions A sustainable market for our products may never develop or may take longer to develop than we anticipate which would adversely affect our results of operations.
Biggest changeA sustainable market for our products may never develop or may take longer to develop than we anticipate which would adversely affect our results of operations. Our products represent an emerging market, and we do not know whether our targeted customers will accept our technology or will purchase our products in sufficient quantities to allow our business to grow.
Furthermore, environmental laws and regulations may authorize substantial fines and criminal sanctions as well as facility shutdowns to address violations and may require the installation of costly pollution control equipment or operational changes to limit emissions or discharges. We also incur, and expect to continue to incur, costs to comply with current environmental laws and regulations.
Furthermore, environmental laws and regulations may authorize substantial fines and criminal sanctions as well as facility shutdowns to address violations and may require the installation of costly pollution control equipment or operational changes to limit emissions or discharges. We also incur, and expect to continue to incur, costs to comply with current environmental laws and regulations.
Increasing public and governmental awareness and concern regarding the effects of climate change has led to significant legislative and regulatory efforts to limit greenhouse gas emissions and will likely result in further environmental and climate change laws and regulations.
Increasing public and governmental awareness and concern regarding the effects of climate change has led to significant legislative and regulatory efforts to limit greenhouse gas emissions and will likely result in further environmental and climate change laws and regulations.
Compliance with existing laws and regulations currently requires, and compliance with future laws is expected to continue to require, increasing operating and capital expenditures, including with respect to the design or re-design of our products in order to conform to changing environmental standards and regulations, which could impact our business, financial condition and results of operations.
Compliance with existing laws and regulations currently requires, and compliance with future laws is expected to continue to require, increasing operating and capital expenditures, including with respect to the design or re-design of our products in order to conform to changing environmental standards and regulations, which could impact our business, financial condition and results of operations.
We have entered into license agreements with third parties for certain licensed technologies that are not currently utilized in the systems we market but may be in the future. In addition, we may in the future elect to license third-party intellectual property to further our business objectives and/or as needed for freedom to operate for our systems.
We have entered into license agreements with third parties for certain licensed technologies that are not currently utilized in the systems we market but may be in the future. In addition, we may in the future elect to license third-party intellectual property to further our business objectives and/or as needed for freedom to operate our systems.
If the relevant patents in such claim were upheld as valid and enforceable and we were found to infringe them, we could be prohibited from selling any product that is found to infringe unless we could obtain licenses to use the technology covered by the patent or are able to design around the patent.
If the relevant patents in such a claim were upheld as valid and enforceable and we were found to infringe them, we could be prohibited from selling any product that is found to infringe unless we could obtain licenses to use the technology covered by the patent or are able to design around the patent.
Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including: · the scope of rights granted under the license agreement and other interpretation-related issues; · the extent to which our product candidates, technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; · our diligence obligations under the license agreement and what activities satisfy those diligence obligations; · the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and · the priority of invention of patented technology. 25 Table of Contents In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations.
Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including: · the scope of rights granted under the license agreement and other interpretation-related issues; · the extent to which our product candidates, technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; · our diligence obligations under the license agreement and what activities satisfy those diligence obligations; · the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and · the priority of invention of patented technology. 27 Table of Contents In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations.
Developments such as the adoption of new environmental laws and regulations, stricter enforcement of existing laws and regulations, violations by us of such laws and regulations, discovery of previously unknown or more extensive contamination, litigation involving environmental impacts, our inability to recover costs associated with any such developments, or financial insolvency of other responsible parties could in the future have a material adverse effect on our financial condition and results of operations. 15 Table of Contents If we become subject to claims relating to handling, storage, release or disposal of hazardous materials, we could incur significant cost and time to comply.
Developments such as the adoption of new environmental laws and regulations, stricter enforcement of existing laws and regulations, violations by us of such laws and regulations, discovery of previously unknown or more extensive contamination, litigation involving environmental impacts, our inability to recover costs associated with any such developments, or financial insolvency of other responsible parties could in the future have a material adverse effect on our financial condition and results of operations. 17 Table of Contents If we become subject to claims relating to handling, storage, release or disposal of hazardous materials, we could incur significant cost and time to comply.
If we are unable to accurately match the timing and quantities of component purchases to our actual needs or successfully implement automation, inventory management and other systems to accommodate the increased complexity in our supply chain and parts management, we may incur unexpected production disruption, storage, transportation and write- off costs, which may harm our business and operating results. 27 Table of Contents Failure by third parties to supply or manufacture components of our products or to deploy our systems timely or properly could adversely affect our business, financial condition and results of operations.
If we are unable to accurately match the timing and quantities of component purchases to our actual needs or successfully implement automation, inventory management and other systems to accommodate the increased complexity in our supply chain and parts management, we may incur unexpected production disruption, storage, transportation and write- off costs, which may harm our business and operating results. 29 Table of Contents Failure by third parties to supply or manufacture components of our products or to deploy our systems timely or properly could adversely affect our business, financial condition and results of operations.
The failure to obtain patents and/or protect our intellectual property rights could have a material and adverse effect on our business, results of operations and financial condition. 22 Table of Contents In addition, we have taken steps to protect our intellectual property and proprietary technology, including entering into confidentiality agreements and intellectual property assignment agreements with all of our executive officers, employees, consultants and advisors, however, such agreements may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements.
The failure to obtain patents and/or protect our intellectual property rights could have a material and adverse effect on our business, results of operations and financial condition. 24 Table of Contents In addition, we have taken steps to protect our intellectual property and proprietary technology, including entering into confidentiality agreements and intellectual property assignment agreements with all of our executive officers, employees, consultants and advisors, however, such agreements may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements.
Such occurrences could have a material adverse effect on us and could also have indirect consequences such as increases in the costs of insurance if they result in significant loss of property or other insurable damage. 19 Table of Contents Risks Related to Our Financial Position and Capital Requirements Our financial results depend on successful project execution and may be adversely affected by cost overruns, failure to meet customer schedules or other execution issues.
Such occurrences could have a material adverse effect on us and could also have indirect consequences such as increases in the costs of insurance if they result in significant loss of property or other insurable damage. 21 Table of Contents Risks Related to Our Financial Position and Capital Requirements Our financial results depend on successful project execution and may be adversely affected by cost overruns, failure to meet customer schedules or other execution issues.
For example, we expect that these rules and regulations may make it difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept low policy limits and coverage. 31 Table of Contents Provisions in our Amended and Restated Certificate of Incorporation and Bylaws and of Delaware law may prevent or delay an acquisition of the Company, which could decrease the trading price of our common stock.
For example, we expect that these rules and regulations may make it difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept low policy limits and coverage. 33 Table of Contents Provisions in our Amended and Restated Certificate of Incorporation and Bylaws and of Delaware law may prevent or delay an acquisition of the Company, which could decrease the trading price of our common stock.
Additionally, as long as we remain an “emerging growth company,” we will not be required to have our independent registered public accounting firm formally assess our internal controls over financial reporting. 30 Table of Contents If securities or industry analysts do not publish research about our business, or publish negative reports about our business, our share price and trading volume could decline.
Additionally, as long as we remain an “emerging growth company,” we will not be required to have our independent registered public accounting firm formally assess our internal controls over financial reporting. 32 Table of Contents If securities or industry analysts do not publish research about our business, or publish negative reports about our business, our share price and trading volume could decline.
No assurance can be given that established brokerage firms will, in the future, want to cover our securities or conduct any secondary offerings or other financings on our behalf. 29 Table of Contents We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
No assurance can be given that established brokerage firms will, in the future, want to cover our securities or conduct any secondary offerings or other financings on our behalf. 31 Table of Contents We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
In addition, if we need to raise more equity capital from the sale of common stock, institutional or other investors may negotiate terms possibly less favorable to us, and thereby adversely impact your investment. 20 Table of Contents Undetected problems in our products could impair our financial results and give rise to potential product liability claims.
In addition, if we need to raise more equity capital from the sale of common stock, institutional or other investors may negotiate terms possibly less favorable to us, and thereby adversely impact your investment. 22 Table of Contents Undetected problems in our products could impair our financial results and give rise to potential product liability claims.
Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. 24 Table of Contents We employ individuals or hire consultants who are employed by or otherwise affiliated with universities and have commitments or obligations under employment agreements, policies, and other contracts with those universities.
Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. 26 Table of Contents We employ individuals or hire consultants who are employed by or otherwise affiliated with universities and have commitments or obligations under employment agreements, policies, and other contracts with those universities.
We are also exposed to product liability claims in the event the use of our proposed products result in injury. 18 Table of Contents Product and services liability suits, whether or not meritorious, could be brought against us. These suits could result in expensive and time-consuming litigation, payment of substantial damages and an increase in our insurance rates.
We are also exposed to product liability claims in the event the use of our proposed products result in injury. 20 Table of Contents Product and services liability suits, whether or not meritorious, could be brought against us. These suits could result in expensive and time-consuming litigation, payment of substantial damages and an increase in our insurance rates.
Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred. 13 Table of Contents We face competition in our industry, and we may be unable to attract customers and maintain a viable business.
Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost inflation is incurred. 15 Table of Contents We face competition in our industry, and we may be unable to attract customers and maintain a viable business.
Reduction or elimination of government spending under our contracts would imperil the sales of our products and may cause a negative effect on our revenues, results of operations, cash flow and financial condition. 12 Table of Contents Significant disruptions of our information technology systems or breaches of our data security could adversely affect our business.
Reduction or elimination of government spending under our contracts would imperil the sales of our products and may cause a negative effect on our revenues, results of operations, cash flow and financial condition. 14 Table of Contents Significant disruptions of our information technology systems or breaches of our data security could adversely affect our business.
A delay or non-existent launch of our technology or an insufficient investment (or overspend on such expenditure) could have a material adverse effect on our business, results of operations and financial position. 21 Table of Contents Risks Related to Our Intellectual Property We have limited protection over our trade secrets and know-how.
A delay or non-existent launch of our technology or an insufficient investment (or overspend on such expenditure) could have a material adverse effect on our business, results of operations and financial position. 23 Table of Contents Risks Related to Our Intellectual Property We have limited protection over our trade secrets and know-how.
Should any of these events occur it could have a material adverse effect on our business and reputation, results of operations and financial position. 14 Table of Contents We may be involved in litigation matters or other legal proceedings that are expensive and time consuming.
Should any of these events occur it could have a material adverse effect on our business and reputation, results of operations and financial position. 16 Table of Contents We may be involved in litigation matters or other legal proceedings that are expensive and time consuming.
Depending on the nature of the relief ordered by the court, we could become liable for additional damages to third parties. 23 Table of Contents We also employ individuals who were previously employed at other companies in our industry, including our competitors or potential competitors.
Depending on the nature of the relief ordered by the court, we could become liable for additional damages to third parties. 25 Table of Contents We also employ individuals who were previously employed at other companies in our industry, including our competitors or potential competitors.
Further, an outbreak of disease in any one of the municipal markets we serve could result in a widespread loss of customers across other such markets. 16 Table of Contents Wastewater operations entail significant risks that may impose significant costs. Wastewater treatment involves various unique risks.
Further, an outbreak of disease in any one of the municipal markets we serve could result in a widespread loss of customers across other such markets. 18 Table of Contents Wastewater operations entail significant risks that may impose significant costs. Wastewater treatment involves various unique risks.
Unexpected changes in business conditions, materials pricing, labor issues, wars such as the current conflict in Ukraine, trade policies, natural disasters, health epidemics such as the global COVID-19 pandemic, trade and shipping disruptions, port congestions and other factors beyond our or our suppliers’ control could also affect these suppliers’ ability to deliver components to us or to remain solvent and operational.
Unexpected changes in business conditions, materials pricing, labor issues, wars such as the current conflict in Ukraine, trade policies, natural disasters, health epidemics, trade and shipping disruptions, port congestions and other factors beyond our or our suppliers’ control could also affect these suppliers’ ability to deliver components to us or to remain solvent and operational.
In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Annual Report, these factors include: · Effects of the COVID-19 pandemic on our business operations or financial condition; · Inability to obtain additional capital; · Failure to meet or exceed financial or operational projections we may provide to the public; · Failure to meet or exceed the financial or operational projections of the investment community; · Significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors; · Additions or departures of key management personnel; · Significant lawsuits, including shareholder litigation; · If securities or industry analysts issue an adverse or misleading opinion regarding our common stock; · Changes in market valuations of similar companies; · General market or macroeconomic conditions; · Sales of shares of our common stock by us or our shareholders in the future; and · Trading volume of our common stock. 28 Table of Contents In addition, companies trading in the stock market in general, and on the Nasdaq Capital Market, have experienced extreme price and volume fluctuations, and we have in the past experienced volatility that has been unrelated or disproportionate to our operating performance.
In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Annual Report, these factors include: · Inability to obtain additional capital; · Failure to meet or exceed financial or operational projections we may provide to the public; · Failure to meet or exceed the financial or operational projections of the investment community; · Significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors; · Additions or departures of key management personnel; · Significant lawsuits, including shareholder litigation; · If securities or industry analysts issue an adverse or misleading opinion regarding our common stock; · Changes in market valuations of similar companies; · General market or macroeconomic conditions; · Sales of shares of our common stock by us or our shareholders in the future; and · Trading volume of our common stock. 30 Table of Contents In addition, companies trading in the stock market in general, and on the Nasdaq Capital Market, have experienced extreme price and volume fluctuations, and we have in the past experienced volatility that has been unrelated or disproportionate to our operating performance.
The interests of our principal stockholders, officers and directors, who collectively beneficially own approximately 5 6.43 % of our stock, may not coincide with yours and such stockholders will have the ability to control decisions with which you may disagree.
The interests of our principal stockholders, officers and directors, who collectively beneficially own approximately 55% of our stock, may not coincide with yours and such stockholders will have the ability to control decisions with which you may disagree.
As of December 31, 2022, our principal stockholders, officers and directors beneficially owned approximately 56.43% of our common stock and will continue to own a significant percentage of our common stock even if our current at-the-market offering is successful.
As of December 31, 2023, our principal stockholders, officers and directors beneficially owned approximately 55% of our common stock and will continue to own a significant percentage of our common stock even if our current at-the-market offering is successful.
See “Description of Our Capital Stock Anti-Takeover Effects of Various Provisions of Delaware Law and Our Amended and Restated Articles of Incorporation and Bylaws” for more information. ITEM 1B. UNRESOLVED STAFF COMMENTS. None. ITEM 2. PROPERTIES. None. ITEM 3. LEGAL PROCEEDINGS. None.
See “Description of Our Capital Stock Anti-Takeover Effects of Various Provisions of Delaware Law and Our Amended and Restated Articles of Incorporation and Bylaws” for more information. ITEM 1B. UNRESOLVED STAFF COMMENTS. None.
From January 1, 2022 through December 31, 2022 the closing price of our common stock has ranged between $4.90 and $1.80 per share. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.
From January 1, 2023 through December 31, 2023 the closing price of our common stock has ranged between $1.01 and $4.94 per share. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.
A portion of our revenue is derived from large projects that are technically complex and may occur over multiple years.
A significant portion of our revenue will be derived from large projects that are technically complex and may occur over multiple years.
We will need to promptly raise substantial additional funds. Without such additional funds, we may have to cease operations or scale back our activities. Our ultimate success may depend on our ability to raise additional capital.
We will need to raise substantial additional funds in order to execute our business plan. Without such additional funds, we may have to cease operations or scale back our activities. Our ultimate success may depend on our ability to raise additional capital.
Further, we are subject to all the risks inherent in a new business including, but not limited to: intense competition; lack of sufficient capital; loss of protection of proprietary technology and trade secrets; difficulties in commercializing our products, managing growth and hiring and retaining key employees; adverse changes in costs and general business and economic conditions; and the need to achieve product acceptance, to enter and develop new markets and to develop and maintain successful relationships with customers, third party suppliers and contractors.
Further, we are subject to all the risks inherent in a new business including, but not limited to: intense competition; lack of sufficient capital; loss of protection of proprietary technology and trade secrets; difficulties in commercializing our products, managing growth and hiring and retaining key employees; adverse changes in costs and general business and economic conditions; and the need to achieve product acceptance, to enter and develop new markets and to develop and maintain successful relationships with customers, third party suppliers and contractors. 13 Table of Contents Our business and results of operations may be adversely affected if we are unable to recruit and retain qualified management.
We expect to derive a significant portion of our future revenues directly or indirectly from government agencies. The funding of government programs could be reduced or eliminated due to numerous factors, including geopolitical events and macroeconomic conditions that are beyond our control.
Our ability to generate revenue will depend in part on government contracts. We expect to derive a significant portion of our future revenues directly or indirectly from government agencies. The funding of government programs could be reduced or eliminated due to numerous factors, including geopolitical events and macroeconomic conditions that are beyond our control.
We have an at-the-market equity offering under which we may issue up to $100 million of common stock, which is currently effective and under which we commenced selling shares at the end of January 2023, and which will remain available to us in the future.
We have an at-the-market equity offering under which we may issue up to $100 million of common stock and under which we commenced selling shares at the end of January 2023 and successfully raised approximately $13.4 million of net proceeds in 2023, and which will remain available to us in the future.
Similarly, if we are relying on a third party to indemnify us and the party is denied insurance coverage, or the indemnification obligation exceeds the applicable insurance coverage and does not have other assets available to indemnify us, our business, financial condition and results of operations could be adversely affected. 17 Table of Contents Our operations will be subject to multiple layers of complex environmental health and safety regulation We are and will be subject to federal, state, local and foreign laws and regulations governing the use, storage, handling and disposal of hazardous and non-hazardous waste materials.
Similarly, if we are relying on a third party to indemnify us and the party is denied insurance coverage, or the indemnification obligation exceeds the applicable insurance coverage and does not have other assets available to indemnify us, our business, financial condition and results of operations could be adversely affected. 19 Table of Contents Our operations will be subject to multiple layers of complex environmental health and safety regulation.
If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile and could cause our stock price to decline.
If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile and could cause our stock price to decline. We do not intend to pay dividends on our common stock for the foreseeable future.
There can be no assurance that we will ever generate significant revenues or become profitable.
Therefore, the commercial value of our systems is uncertain. There can be no assurance that we will ever generate significant revenues or become profitable.
In addition, permitting and execution processes may be delayed due to the ongoing COVID19 pandemic. Furthermore, if we do not comply with the requirements set forth in the permits we receive, we could lose the granted permits or not receive them at all.
Furthermore, if we do not comply with the requirements set forth in the permits we receive, we could lose the granted permits or not receive them at all.
Currently, the only working version of our system is a demonstration unit that operated on the campus of Duke University from 2015 and until 2022 when the unit was purchased by 374Water and relocated to Kokomo, IN. Therefore, the commercial value of our systems is uncertain.
We have yet to generate material revenues from our business and we have not yet produced commercially viable systems. We have only created one working version of our system as a demonstration unit that operated on the campus of Duke University from 2015 and until 2022 when the unit was purchased by 374Water and relocated to Kokomo, IN.
Our products contain materials and parts purchased globally from hundreds of suppliers, including single-source direct suppliers, which exposes us to potential component shortages or delays.
Our suppliers may fail to deliver materials and parts according to schedules, prices, quality and volumes that are acceptable to us, or we may be unable to manage these materials and parts effectively. Our products contain materials and parts purchased globally from hundreds of suppliers, including single-source direct suppliers, which exposes us to potential component shortages or delays.
The cost of compliance with these laws and regulations may become significant and could have a material adverse effect on our business, financial condition, results of operations or prospects.
We are and will be subject to federal, state, local and foreign laws and regulations governing the use, storage, handling and disposal of hazardous and non-hazardous waste materials. The cost of compliance with these laws and regulations may become significant and could have a material adverse effect on our business, financial condition, results of operations or prospects.
If our management team is unable to execute on its business strategies, then our development, including the establishment of revenues and our sales and marketing activities would be materially and adversely affected. In addition, we may encounter difficulties in effectively managing the budgeting, forecasting and other process control issues presented by any future growth.
Our management team may not be able to successfully implement our business strategies. If our management team is unable to execute on its business strategies, then our development, including the establishment of revenues and our sales and marketing activities would be materially and adversely affected.
If we do not have sufficient insurance coverage or the cost of obtaining the appropriate insurance coverage is costly, this could have a material adverse effect on our business, results of operations and financial position. Our products may be displaced by newer technology. The alternative power industry is undergoing rapid and significant technological change.
If we do not have sufficient insurance coverage or the cost of obtaining the appropriate insurance coverage is costly, this could have a material adverse effect on our business, results of operations and financial position. Natural disasters and other catastrophic events beyond our control could adversely affect our business operations and financial performance.
We have a limited operating history with no material revenues. Our limited operating history makes evaluating the business and future prospects difficult and may increase the risk of your investment. We have yet to generate material revenues from our business and we have not yet produced commercially viable systems.
To succeed, demand for our products must increase significantly in existing markets, and there must be strong demand for products that we introduce in the future. We have a limited operating history with no material revenues. Our limited operating history makes evaluating the business and future prospects difficult and may increase the risk of your investment.
Moreover, to meet anticipated market demand, our supplier may need to increase manufacturing capacity, which could involve significant challenges. This may require us and our supplier to invest substantial additional funds and hire and retain the technical personnel who have the necessary experience.
To meet anticipated market demand, we may be required to invest substantial additional funds and hire and retain the technical personnel who have the necessary fabrication and manufacturing experience to continue growing our operations.
We may seek to augment or replace members of our management team or we may lose key members of our management team, and we may not be able to attract new management talent with sufficient skill and experience. Our ability to generate revenue will depend in part on government contracts.
In addition, we may encounter difficulties in effectively managing the budgeting, forecasting and other process control issues presented by any future growth. We may seek to augment or replace members of our management team or we may lose key members of our management team, and we may not be able to attract new management talent with sufficient skill and experience.
Risks Related to our Reliance on Third Parties We depend on a single supplier who is also a significant stockholder of our Company and whose founder is a member of our board of directors. If our relationship with our supplier deteriorates, this could have an adverse impact on our business, results of operations and financial results.
Risks Related to our Reliance on Third Parties We have historically been working with and depending on a single manufacturer. If our relationship with our manufacturer deteriorates, or if we are unable to adequately assume the fabrication and manufacturing services internally, this could have an adverse impact on our business, results of operations and financial results.
Neither we nor our supplier may successfully complete any required increase to existing manufacturing capacity in a timely manner, or at all. Our suppliers may fail to deliver materials and parts according to schedules, prices, quality and volumes that are acceptable to us, or we may be unable to manage these materials and parts effectively.
Risks Related to our Reliance on Third Parties · We depend on a single supplier; if our relationship with our supplier deteriorates, this could have an adverse impact on our business. · Our suppliers may fail to deliver materials and parts according to schedules, prices, quality and volumes that are acceptable to us, or we may be unable to manage these materials and parts effectively.
In 2021, we entered into an agreement to fabricate and manufacture the AirSCWO systems with Merrell Bros. Holding Company. As part of the agreement, we appointed Terry Merrell to our board of directors. As of December 31, 2022, Merrell Bros. or their affiliates own stock in excess of 5% of the outstanding common stock.
In July 2021, we entered into the Original M&S Agreement to fabricate and manufacture the AirSCWO systems with Merrell Bros. with an initial three year term and one-year renewal unless terminated by either party with sixty-day written notice. Terry Merrell, one of the owners of Merrell. Bros., is on our board of directors.
Removed
Our products represent an emerging market, and we do not know whether our targeted customers will accept our technology or will purchase our products in sufficient quantities to allow our business to grow. To succeed, demand for our products must increase significantly in existing markets, and there must be strong demand for products that we introduce in the future.
Added
ITEM 1A. RISK FACTORS . You should carefully consider the following risks.
Removed
Our success is dependent on the services of our key management and personnel. Our success will depend in large part upon the skill and efforts of our key personnel hired or who may be hired, particularly our two founders, Yaacov (Kobe) Nagar and Professor Marc Deshusses.
Added
These risks could materially affect our business, results of operations or financial condition, cause the trading price of our common stock to decline materially or cause our actual results to differ materially from those expected or those expressed in any forward-looking statements made by us or on our behalf.
Removed
Loss of any such personnel, whether due to resignation, illness, death, disability or otherwise, could have a material adverse effect on our business. We are substantially dependent on the continued service of our existing personnel because of the complexity of our services and technologies. Following the April 2021 Merger with PowerVerde, Inc., Professor Deshusses has retained his position at Duke.
Added
These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Cautionary Note Regarding Forward-Looking Statements” and the risks of our businesses described elsewhere in this Report for the year ended December 31, 2023. Summary of Risk Factors An investment in our company involves various risks.
Removed
We will need to retain appropriate personnel in key management and technical roles for 374Water to be successful. There can be no assurance that we will be able to do so. Our management team may not be able to successfully implement our business strategies.
Added
The following is a summary of these risks, but does not address all of the risks that we face. Additional discussion of the risks that we face can be found following this summary and should be carefully considered together with all of the other information appearing in this Report.
Removed
Third parties may succeed in developing or marketing technologies and products that are more effective than those developed or marketed by us, or that would make our technology obsolete or non-competitive. Accordingly, our success will depend, in part, on our ability to respond quickly to technological changes. We may not have the resources to do this.
Added
Risks Related to Our Business and General Economic Conditions · A sustainable market for our products may never develop. · We have a limited operating history with no material revenues. · Our ability to recruit and retain qualified management. · Our management team may not be able to successfully implement our business strategies. · Our executive officers have other business interests. · Our products may have defects. · Our ability to generate revenue will depend in part on government contracts. · Significant disruptions of our information technology systems or breaches of our data security could adversely affect our business. · We may be unable to obtain required licenses from third parties for product development. · We face other risks in our expected international sales. · If we fail to manage growth or to prepare for product scalability effectively, it could have an adverse effect on our employee efficiency, product quality, working capital levels and results of operations. · We may be adversely affected by the effects of inflation. · We face competition in our industry, and we may be unable to attract customers and maintain a viable business. · Our ability to treat hazardous wastes on a commercially viable basis is unproven, which could have a detrimental effect on our ability to generate or sustain revenues. · We are required to obtain permits in different areas of the world in order to utilize our products in such regions.
Removed
Natural disasters and other catastrophic events beyond our control could adversely affect our business operations and financial performance.
Added
Our need to apply for and receive permits could substantially limit our ability to operate and grow our business. · We may be involved in litigation matters or other legal proceedings that are expensive and time consuming. · Developments in, and compliance with, current and future environmental and climate change laws and regulations could impact our business, financial condition or results of operations. · If we become subject to claims relating to handling, storage, release or disposal of hazardous materials, we could incur significant cost and time to comply. · Failure to effectively treat emerging contaminants could result in material liabilities. · Wastewater operations entail significant risks that may impose significant costs. · We may incur liabilities to customers as a result of warranty claims or failure to meet performance guarantees, which could reduce our profitability. · Our operations will be subject to multiple layers of complex environmental health and safety regulation. · Developments in, and compliance with, current and future climate change laws and regulations could impact our business, financial condition or results of operations. · Our insurance may not provide adequate coverage. · We may be unable to obtain or maintain insurance for our commercial products. · Product and services liability suits, whether or not meritorious, could be brought against us. · Our financial results depend on successful project execution and may be adversely affected by cost overruns, failure to meet customer schedules or other execution issues. · We have inadequate capital and need for additional financing to accomplish our business and strategic plans. · Undetected problems in our products could impair our financial results and give rise to potential product liability claims. 12 Table of Contents Risks Related to Our Financial Position and Capital Requirements · Our financial results depend on successful project execution and may be adversely affected by cost overruns, failure to meet customer schedules or other execution issues. · We have inadequate capital and need for additional financing to accomplish our business and strategic plans.
Removed
Potential product liability claims could adversely affect our future earnings and financial condition. We face an inherent business risk of exposure to product liability claims in the event that the use of our products results in adverse effects. We may not be able to maintain adequate levels of insurance for these liabilities at reasonable cost and/or reasonable terms.
Added
Terms of subsequent financing, if any, may adversely impact your investment. · Undetected problems in our products could impair our financial results and give rise to potential product liability claims. · Our research and development expenses may increase in the future.
Removed
Excessive insurance costs or uninsured claims would add to our future operating expenses and adversely affect our financial condition. 374Water’s financial condition and results of operations may be negatively affected by public health crises such as the ongoing coronavirus pandemic.
Added
Risks Related to Our Intellectual Property · We have limited protection over our trade secrets and know-how. · We may have difficulty in protecting our intellectual property and may incur substantial costs to defend ourselves in patent infringement litigation.
Removed
Severe financial market and economic disruptions may occur in response to public health epidemics, and the U.S. and global economies are suffering huge negative impacts as a result of the ongoing coronavirus pandemic.
Added
Risks Relating to our Common Stock and Capital Structure · The market price of our common stock historically has been highly volatile. · Our principal stockholders, officers and directors own a significant interest in the Company. · Because we became public by means of a merger, we may not be able to attract the attention of major brokerage firms. · We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors. · We do not intend to pay dividends on our common stock for the foreseeable Risks Related to Our Business and General Economic Conditions A sustainable market for our products may never develop.
Removed
The rapid spread of the coronavirus, and the fear associated with this pandemic, along with the negative impact on economic growth and financial markets generally, may have a material adverse effect on the demand for our SCWO systems in the U.S. and abroad.
Added
Our success depends, in large part, on our ability to hire and retain highly qualified people and if we are unable to do so, our business and operations may be impaired or disrupted. Specifically, the Company’s Board of Directors is actively conducting a search for a permanent chief executive officer.
Removed
If our customers and/or sources of financing are adversely affected by the pandemic and the accompanying economic crisis, our financial condition and results of operations could be materially adversely affected. Moreover, our operations and productivity could be negatively impacted if our key personnel and employees are continuously quarantined as the result of exposure to coronavirus or another contagious illness.
Added
Competition for highly qualified people is intense and there is no assurance that we will be successful in attracting or retaining replacements to fill vacant positions, successors to fill retirements or employees moving to new positions, or other highly qualified personnel.
Removed
The extent to which the coronavirus crisis affects us will depend on future developments, which are highly uncertain at this time and cannot be predicted, including new information, which may emerge concerning the severity of the coronavirus, its economic and social impact and the measures taken to contain or treat the coronavirus, among others.
Added
Furthermore, the search for our new chief executive officer may take longer than expected, which could negatively impact our business development. Our executive officers have other business interests which may limit the amount of time they can devote to our Company and create conflicts of interest.
Removed
As of December 31, 2022, the Company incurred $1,318,117 in related party expenses related to the manufacturing of the AirSCWO systems. As of December 31, 2022, there is an accounts payable of $559,481 in related party expenses related to the manufacturing of the AirSCWO systems. If our relationship with Merrell Bros.
Added
Our executive officers have other business interests, meaning they may not have enough time to devote to our business operations.
Removed
Holding Company deteriorates, this could have an adverse impact on our business, results of operations and financial results. We depend on a single supplier for manufacturing our proprietary treatment systems.
Added
While our officers presently possess adequate time to attend to our interests, it is possible that the demands on them from their other obligations could increase with the result that they would no longer be able to devote sufficient time to the management of our business.
Removed
The loss of this supplier or its failure to supply us with the systems on a timely basis, could cause delays in the future availability of our systems and adversely affect our business. We depend on a single supplier for manufacturing our proprietary treatment systems. We do not have the infrastructure or capability internally to manufacture such systems.
Added
Jeff Quick, our interim chief executive officer and Adrienne Anderson, our chief financial officer, presently spend approximately 80% of their business time on business management services for our Company. This may lead to sporadic exploration activities and periodic interruptions of business operations and negatively impact our business development. Unforeseen events may cause this amount of time to become even less.
Removed
Although we have significant lead times to deliver our systems and although alternative suppliers exist for manufacturing the systems, our existing manufacturing process has been designed based on the ability of our supplier to produce our systems, incorporating the functions, limitations, features and specifications that our supplier is capable of producing. We have an agreement in place with this supplier.
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Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
5 edited+2 added−0 removed4 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
5 edited+2 added−0 removed4 unchanged
2022 filing
2023 filing
Biggest changePeriod Beginning Period Ending High Low January 1, 2020 March 31, 2020 $ 0.25 $ 0.08 April 1, 2020 June 30, 2020 $ 0.37 $ 0.11 July 1, 2020 September 30, 2020 $ 0.68 $ 0.25 October 1, 2020 December 31, 2020 $ 0.95 $ 0.36 January 1, 2021 March 31, 2021 $ 0.89 $ 0.16 April 1, 2021 June 30, 2021 $ 2.56 $ 0.45 July 1, 2021 September 30, 2021 $ 2.44 $ 1.00 October 1, 2021 December 31, 2021 $ 2.84 $ 1.90 January 1, 2022 March 31, 2022 $ 6.68 $ 2.67 April 1, 2022 June 30, 2022 $ 4.39 $ 2.18 July 1, 2022 September 30, 2022 $ 4.27 $ 1.76 October 1, 2022 December 31, 2022 $ 3.85 $ 2.50 Dividends We have never declared or paid any cash dividends on our common stock, nor do we intend to declare or pay any cash dividends on our common stock in the foreseeable future.
Biggest changePeriod Beginning Period Ending High Low January 1, 2022 March 31, 2022 $ 4.90 $ 2.67 April 1, 2022 June 30, 2022 $ 4.09 $ 2.18 July 1, 2022 September 30, 2022 $ 4.00 $ 1.80 October 1, 2022 December 31, 2022 $ 3.72 $ 2.50 January 1, 2023 March 31, 2023 $ 4.74 $ 2.59 April 1, 2023 June 30, 2023 $ 4.94 $ 2.27 July 1, 2023 September 30, 2023 $ 2.25 $ 1.23 October 1, 2023 December 31, 2023 $ 1.81 $ 1.01 Dividends We have never declared or paid any cash dividends on our common stock, nor do we intend to declare or pay any cash dividends on our common stock in the foreseeable future.
Except as otherwise noted below, no placement agent fees or commissions were paid on these offerings, and net proceeds were used for working capital. 33 Table of Contents In connection with the Merger with PowerVerde, 374Water closed on a private placement of 436,783 shares of Series D Convertible Preferred Stock (the “Preferred Stock”) with a par value of $.0001, yielding gross proceeds of $6,551,745 (the “Private Placement”) and the settlement of a $50,000 liability for Preferred Stock shares.
Except as otherwise noted below, no placement agent fees or commissions were paid on these offerings, and net proceeds were used for working capital. 36 Table of Contents In connection with the Merger with PowerVerde in April 2021, 374Water closed on a private placement of 436,783 shares of Series D Convertible Preferred Stock (the “Preferred Stock”) with a par value of $.0001, yielding gross proceeds of $6,551,745 (the “Private Placement”) and the settlement of a $50,000 liability for Preferred Stock shares.
Issuer Purchases of Equity Securities As of December 31, 2022, the Company did not have any purchases of equity securities from stockholders. ITEM 6. SELECTED FINANCIAL DATA. Not required for smaller reporting companies.
Issuer Purchases of Equity Securities As of December 31, 2023, the Company did not have any purchases of equity securities from stockholders. ITEM 6. SELECTED FINANCIAL DATA. Not required for smaller reporting companies.
The Private Placement proceeds will be used for working capital, primarily for development, manufacture and commercialization of 374Water Inc.’s Air SCWO Nix systems. The Preferred Stock has a stated value of $15 per share, is convertible into common stock at $.30 per share and has voting rights based on the underlying shares of common stock.
The Private Placement proceeds were used for working capital, primarily for development, manufacture and commercialization of 374Water Inc.’s AirSCWO Nix systems. The Preferred Stock has a stated value of $15 per share, is convertible into common stock at $.30 per share and has voting rights based on the underlying shares of common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock is traded on The Nasdaq Capital Market under the symbol “SCWO”. The following table sets forth the range of high and low sales prices for the Company stock for the periods indicated.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock is traded on The Nasdaq Capital Market under the symbol “SCWO”. As of March 29, 2024, there were 132,667,107 holders of record of our common stock.
Added
The following table sets forth the range of high and low sales prices for the Company stock for the periods indicated.
Added
During the year end December 31, 2023, we raised approximately $13.4 million of net proceeds at-the-market (ATM) equity offering under which we may issue up to $100 million of common stock, which is currently effective and under which we commenced selling shares at the end of January 2023.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
26 edited+24 added−11 removed11 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
26 edited+24 added−11 removed11 unchanged
2022 filing
2023 filing
Biggest changeResults of Operations The following table sets forth, for the periods presented, the consolidated statements of operations data, which is derived from the accompanying consolidated financial statements: Year Ended December 31, 2022 2021 $ Change % Change Revenue $ 3,015,521 $ 48,100 $ 2,967,421 6,169 % Cost of revenues (2,679,020 ) — (2,679,020 ) 100 % Net revenue 336,501 48,100 288,401 600 % Operating expenses: Research and development 1,113,500 375,032 738,468 197 % Compensation and related expenses 1,644,861 — 1,644,861 100 % Product development — 1,399,833 (1,399,833 ) -100 % Professional fees 768,548 343,862 424,686 124 % General and administrative 1,565,723 1,095,381 470,342 43 % Total operating expenses 5,092,632 3,214,108 1,878,524 58 % Income (loss) from operations (4,756,131 ) (3,166,008 ) (1,590,123 ) 50 % Other income (expenses), net 66,164 1,400 64,764 4,626 % Income (loss) before income taxes (4,689,967 ) (3,164,608 ) (1,525,359 ) 48 % Provision for (benefit from) income taxes — — — 0 % Net income (loss) $ (4,689,967 ) $ (3,164,608 ) $ (1,525,359 ) 48 % Year Ended December 31, 2022, as Compared to the Year Ended December 31, 2021 Since the closing of the 374Water Merger, our business has been focused on development and commercialization of 374Water’s supercritical water oxidation (SCWO) systems.
Biggest changeResults of Operations The following table sets forth, for the periods presented, the consolidated statements of operations data, which is derived from the accompanying consolidated financial statements: Year Ended December 31, 2023 2022 $ Change % Change Revenue $ 743,952 $ 3,015,521 $ (2,271,569 ) -75 % Cost of revenues (1,852,208 ) (2,679,020 ) 826,812 -31 % Gross Margin (1,108,256 ) 336,501 (1,444,757 ) -429 % Operating expenses: Research and development 1,496,129 1,113,500 382,629 34 % Compensation and related expenses 2,854,494 1,644,861 1,209,633 74 % Professional fees 508,795 768,548 (259,753 ) -34 % General and administrative 2,675,202 1,565,723 1,109,479 71 % Total operating expenses 7,534,620 5,092,632 2,441,988 48 % Loss) from operations (8,642,876 ) (4,756,131 ) (3,886,745 ) 82 % Other income , net 539,354 66,164 473,190 715 % Loss) before income taxes (8,103,522 ) (4,689,967 ) (3,413,555 ) 73 % Provision for (benefit from) income taxes — — — 0 % Net loss $ (8,103,522 ) $ (4,689,967 ) $ (3,413,555 ) 73 % Year Ended December 31, 2023, as Compared to the Year Ended December 31, 2022 Our business has been focused on the development and commercialization of 374Water’s supercritical water oxidation (SCWO) systems.
Our vision is a world without waste and our mission is to preserve a clean and healthy environment that sustains life. We have developed proprietary waste stream treatment systems based on Supercritical Water Oxidation (SCWO). The term used for the process is AirSCWO TM .
Our vision is a world without waste and our mission is to preserve a clean and healthy environment that sustains life. We have developed proprietary waste stream treatment systems based on Supercritical Water Oxidation (SCWO). The term used for the process is AirSCWO.
The AirSCWO TM systems are essentially waste stream agnostic and able to treat a variety of complex, hazardous and non-hazardous waste streams, opening up opportunities for multiple applications in diverse market verticals on an international scale.
The AirSCWO systems are essentially waste stream agnostic and able to treat a variety of complex, hazardous and non-hazardous waste streams, opening up opportunities for multiple applications in diverse market verticals on an international scale.
Further, we have an at-the-market equity offering under which we may issue up to $100 million of common stock, which is currently effective and under which we commenced selling shares at the end of January 2023, and which will remain available to us in the future.
We have an at-the-market (ATM) equity offering under which we may issue up to $100 million of common stock, which is currently effective and under which we commenced selling shares at the end of January 2023, and which will remain available to us in the future.
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.
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.
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.
We utilize third-party suppliers to produce our products. 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not required for smaller reporting companies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not required for smaller reporting companies.
Revenue Recognition The Company follows the revenue standards of Financial Accounting Standards Board Update No. 2014-09: “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 Recognition The Company follows the revenue standards of 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.
The fair value of each stock option is estimated on the date of grant using the Black-Scholes valuation model. This model requires management to estimate the expected volatility, expected dividends, and expected term as inputs to the valuation model. Overview 374Water, Inc. (the “Company”, “374Water”, “We”, or “Our”) is a Delaware corporation which was incorporated on September 8, 2005.
This model requires management to estimate the expected volatility, expected dividends, and expected term as inputs to the valuation model. Overview 374Water Inc. (the “Company”, “374Water”, “We”, or “Our”) is a Delaware corporation which was incorporated on September 8, 2005.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein. Critical Accounting Policies The consolidated financial statements of 374Water Inc., formerly known as PowerVerde, Inc.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein.
(“374Water Inc.,” “we,” “us,” “our,” or the “Company”) are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires our management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and related notes.
Critical Accounting Policies and Estimates The consolidated financial statements of 374Water Inc., (“374Water Inc.,” “we,” “us,” “our,” or the “Company”) are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
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. We utilize third-party suppliers to produce our products.
Cost is determined on a first-in, first-out basis. The majority of our inventory is raw materials and work in progress. 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.
This decrease in working capital is due primarily to the increase of Research and Development expenses, and general and administrative expenses. We believe that these funds will satisfy our working capital needs for the next 12 months.
This increase in working capital is due primarily to the at-the-market common stock offering that raised additional capital. We believe that these funds will satisfy our working capital needs for the next 12 months from the report date.
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. 36 Table of Contents Liquidity and Capital Resources In April 2021, in connection with the Merger, we raised approximately $6.6 million from the sale of Series D Preferred Stock and converted all of its convertible debt notes and accrued interest to shares of common stock.
The increase in net loss is attributable to the increased expenses discussed above. 40 Table of Contents Liquidity and Capital Resources In April 2021, in connection with the Merger, we raised approximately $6.6 million from the sale of Series D Preferred Stock and converted all of its convertible debt notes and accrued interest to shares of common stock.
We have financed our operations since inception principally through the sale of debt and equity securities and sales of product. As of December 31, 2022, we had working capital of $7,060,511 compared to working capital of $11,263,270 at December 31, 2021.
During the year end December 31, 2023, we raised approximately $13.4 million of net proceeds through this ATM. We have financed our operations since inception principally through the sale of debt and equity securities and revenues. As of December 31, 2023, we had working capital of $13,528,176 compared to working capital of $7,060,511 as of December 31, 2022.
We present revenues net of any taxes collected from customers and remitted to government authorities. Stock-based compensation We account for stock-based compensation based on ASC Topic 718-Stock Compensation which requires expensing of stock options and other share-based payments based on the fair value of each stock option awarded.
Stock-Based Compensation We account for stock-based compensation based on ASC Topic 718-Stock Compensation which requires expensing of stock options and other share-based payments based on the fair value of each stock option awarded. The fair value of each stock option is estimated on the date of grant using the Black-Scholes valuation model.
These milestones within the contract are assigned revenue recognition percentages, based on overall expected cost-plus margin estimates of those milestones compared to the total cost of the contract. Contract revenues are recognized in the proportion that contract costs incurred bear to total estimated costs.
Revenue is recognized over time by measuring the progress toward complete satisfaction of the performance obligation using specific milestones. These milestones within the contract are assigned revenue recognition percentages, based on overall expected cost-plus margin estimates of those milestones compared to the total cost of the contract.
Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. We believe the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the consolidated financial statements.
The preparation of these consolidated financial statements requires our management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and related notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment.
We generated $3,015,521 and $48,100 in revenue from manufacturing assembly services and from consulting and advisory services during the years ended December 31, 2022, and 2021, respectively.
We generated $743,952 and $3,015,521 in revenue from manufacturing assembly services and from treatability study services during the years ended December 31, 2023, and 2022, respectively. During 2023, we reached fewer milestones and thus incurred less direct contract costs.
Our general and administrative expenses increased to $1,565,723 during the year end December 31, 2022, as compared to $1,095,381 in the same period of 2021, primarily because of increased insurance costs, payroll expenses due to hiring employees and stock-based compensation expenses.
Our general and administrative expenses increased to $2,675,202 during the year ended December 31, 2023, as compared to $1,565,723 in the same period of 2022, primarily because of increased personnel to facilitate the commercialization of our systems which has led to increased insurance costs, stock-based compensation expense for option grants to our hired employees, restricted stock grants to certain key executives, travel expenses and marketing and advertising expenses.
We also record as revenue all amounts billed to customers for shipping and handling costs and record the actual shipping costs as a component of cost of revenues. Reimbursements received from customers for out-of-pocket expenses are recorded as revenues, with related costs recorded as cost of revenues.
Services revenues are recognized when all five revenue recognition criteria have been completed which is generally when we deliver a completed report to the customer. We also record as revenue all amounts billed to customers for shipping and handling costs and record the actual shipping costs as a component of cost of revenues.
The Company’s term for the warrants utilizes the simplified method for the calculation of the term. 34 Table of Contents Intellectual Property The Company reviews intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
We believe the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the consolidated financial statements. 37 Table of Contents Long-Lived Assets The Company reviews long-lived assets, including property and equipment and intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
This method is used because management considers the input method to be the best available measure of progress on these contracts. Contract costs include all direct material and labor and subcontractor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation. General, selling, and administrative costs are charged to expense as incurred.
Equipment sale related contract revenues are recognized in the proportion that contract costs incurred bear to total estimated costs. This method is used because management considers the input method to be the best available measure of progress on these contracts.
Our research and development expenses increased to $1,113,500 during the year ended December 31, 2022, as compared to $375,032 in the same period of 2021, primarily because of the increase in engineering expenses and our efforts to commercialize our systems.
Our research and development expenses increased to $1,496,129 during the year ended December 31, 2023, as compared to $1,113,500 in the same period of 2022, primarily attributed to our development of the HEC-Prime engine. The solution consists of five pistons and turbines that collect the high-pressure mix gas (steam) to rotate and spin a shaft connected to a generator unit.
Cash Flows The following table presents our cash flows for the periods presented: Year Ended December 31, 2022 2021 $ Change Cash provided by (used in) operating activities $ (4,948,996 ) $ (1,840,950 ) $ (3,108,046 ) Cash provided by (used in) investing activities (2,160,291 ) 28,345 (2,188,636 ) Cash provided by (used in) financing activities 25,049 12,871,981 (12,846,932 ) Net cash (decrease) increase (7,084,238 ) 11,059,376 (18,143,614 ) ITEM 7A.
Cash Flows The following table presents our cash flows for the periods presented: Year Ended December 31, 2023 2022 $ Change Cash used in operating activities $ (9,034,987 ) $ (4,948,668 ) $ (4,086,319 ) Cash provided by (used in) investing activities 1,851,717 (2,160,291 ) 4,012,008 Cash used in financing activities 13,578,938 25,049 13,553,889 Effect of exchange rates on cash 2,799 (328 ) 3,127 Net cash increase (decrease) 6,398,467 (7,084,238 ) 13,482,705 As of December 31, 2023, cash on hand was $10,445,404, an increase of $6,398,467, or 158%, as compared to $4,046,937 as of December 31, 2022.
We envision in the future applying an outsourced manufacturing model in a few territories, and may consider establishing our own manufacturing capability in geographies where this is needed to adequately grow our market share. 35 Table of Contents The systems are supplied to multiple market verticals, and our revenue model includes both capital equipment sales and long-term service agreements based on throughput and capacity (Waste Purchase Agreements).
We have identified a 50,000 square foot location that would allow us to integrate our manufacturing operations with our water treatment laboratory and provide sufficient space for growth and we anticipate being fully operational on or before July 7, 2024 at this or a similar facility. 39 Table of Contents The systems will be supplied to multiple market verticals, and our revenue model includes both capital equipment sales and long-term service agreements based on throughput and capacity (Waste Purchase Agreements).
Removed
Common Stock Purchase Warrants The Company accounts for common stock purchase warrants in accordance with ASC Topic 815- 40, Derivatives and Hedging – Contracts in Entity’s Own Equity (“ASC 815-40”).
Added
Recoverability of assets held and used is measured by a comparison of the carrying amount to the future undiscounted expected net cash flows to be generated by the asset. As of December 31, 2023 and 2022, there were no impairments. Inventory Inventories are stated at the lower of cost or net realizable value.
Removed
Based on the provisions of ASC 815- 40, the Company classifies as equity any contracts that (i) require physical settlement or net-share settlement, or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement).
Added
The Company generates revenue from the sale of equipment (AirSCWO units) and services, specifically the completion of treatability studies. In the case of equipment revenues, the Company’s performance obligations are satisfied over time over the life of the contract which are typically fixed price contracts.
Removed
The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).
Added
Reimbursements received from customers for out-of-pocket expenses are recorded as revenues, with related costs recorded as cost of revenues. We present revenues net of any taxes collected from customers and remitted to government authorities. Onerous Contracts Onerous contracts are those where the costs to fulfill a contract exceed the consideration expected to be received under the contract.
Removed
All outstanding warrants as of December 31, 2022 and 2021 were classified as equity. The Company utilizes the Black Scholes Model to complete valuation of warrants and uses the inputs for the Black Scholes Model including Risk Free Rate, Dividend yield, stock price, exercise price, term, and volatility.
Added
The revenue standard does not provide guidance on the accounting for onerous contracts or onerous performance obligations. US GAAP contains other applicable guidance on the accounting for onerous contracts, and those requirements should be used to identify and measure onerous contracts. 38 Table of Contents Our equipment manufacturing contract is a fixed price contract.
Removed
The Company uses other public company comparison for volatility and obtains the risk-free rate from the federal treasury rates based on the term. The Company’s exercise price is obtained from the warrant agreement and the stock price is obtained from the market close on the day of issuance.
Added
Due to the nature of the contract, including customer specific equipment design, we applied ASC 605-35, Revenue Recognition—Provision for Losses on Construction-Type and Production-Type Contract (ASC 605-35). ASC 605-35 requires the recognition of a liability for anticipated losses on contracts prior to those losses being incurred when a loss is probable and can be estimated.
Removed
In the event of impairment, the Company would discount the future cash flows using its then risk adjusted discount rate to estimate the amount of the impairment. Inventory 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 and work in progress.
Added
We currently work with Merrell Bros., our strategic partner, to manufacture our AirSCWO systems at Merrell Bros. facilities under a manufacturing and service agreement that will be contractually ending on July 7, 2024.
Removed
The Company’s performance obligations are satisfied over time over the life of the contract. The Company's revenue arrangements consist of a single performance obligation to transfer services. Revenue is recognized over time by measuring the progress toward complete satisfaction of the performance obligation using specific milestones.
Added
Under a Supplemental M&S Agreement, our relationship and the manufacturing services provided by Merrell Bros. will continue on an as needed basis based on statements of work to be agreed upon by both parties to fulfill future and current manufacturing orders.
Removed
We currently outsource manufacturing of the AirSCWO TM systems to our strategic partner in the US, Merrell Bros., Inc., that have the facilities and capability to rapidly ramp-up manufacturing volumes and also support system modifications and deployment as required per market and clients.
Added
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 revenue recognized this year.
Removed
This year, we had substantial expenses due to our ongoing research and development activities and efforts to commercialize our systems, as well as substantial administrative expenses associated with our status as a public company.
Added
The Company has gained momentum on many promising leads which have been produced through early treatability studies but has not resulted in the sale of any AirSCWO units to this point. This has had a direct impact on our change in revenue year-over-year.
Removed
Our professional fees increased to $768,548 during the year ended December 31, 2022, as compared to $343,862 in the same period of 2021, primarily because of increased legal fees and accounting fees relating to the filed Registration Statement on Form S-3 and our status as a public company.
Added
This technology is designed to convert waste steam and gasses into renewable energy, aligning with our sustainability goals and market differentiation strategy. This R&D investment is a critical component of our long-term vision and is expected to yield returns in the form of both environmental impact and revenue generation.
Removed
Our product development expenses were reduced to $0 during the year ended December 31, 2022, as compared to $1,399,833 in the same period of 2021. This activity represents the issuance of stock warrants to a strategic partner in the second quarter of 2021 as part of compensation for the manufacturing, supply and service of AirSCWO products.
Added
Our compensation and related expenses increased to $2,854,494 during the year ended December 31, 2023, as compared to $1,644,861 in the same period of 2022. This is a deliberate step in our strategic growth plan to ensure we have sufficient personnel to support our upcoming growth and sales pipeline.
Added
As we aim to expand our business and take advantage of new opportunities, it’s essential to have a talented and capable workforce in place. By investing in human resources, we can build a skilled team that can handle increased demands, provide excellent customer service, and drive innovation within the company.
Added
This proactive approach to scaling our personnel aligns with our long-term vision and positions us for success as we move forward. Given the current market conditions, we are reevaluating our overall strategy to better preserve our resources.
Added
Our professional fees decreased to $508,795 during the year ended December 31, 2023, as compared to $768,548 in the same period of 2022, primarily attributed to increased headcount within our organization. As we expand our team and hire more skilled professionals, we are able to handle various tasks and projects internally, which reduces our reliance on third-party services.
Added
The increase in marketing and advertising expenses is a strategic move aimed at growing our sales pipeline. By investing more in marketing initiatives, we are able to reach a wider audience and attract potential customers to our products and services. These additional marketing efforts help create brand awareness, generate leads, and nurture prospects through the sales funnel.
Added
This is an investment in our company’s growth and long-term success. Given the current market conditions, we are reevaluating our overall strategy to better preserve our resources. Lastly, we have accrued $135,000 for a legal claim we are in the process of settling with the issuance of an equity instrument.
Added
Our other income increased to $539,354 during the year ended December 31, 2023, as compared to $66,164 in the same period of 2022, which is a result of the interest income we earned on our interest-bearing cash accounts that we opened in June 2023. We had previously held any excess funds in an investment account.
Added
Our net loss increased to $8,103,522 during the year ended December 31, 2023, as compared to $4,689,967 in the same period of 2022. 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.
Added
During the year ended December 31, 2023, cash used in operations was $9,034,987, an increase of $4,086,319 as compared to $4,948,996 during the year ended December 31, 2022.
Added
The increase in cash used in operating activities was mainly driven by greater operating expenses, due to an increase in personnel to achieve our business plan, resulting in an increase in our net loss of $3,413,555 during the year ended December 31, 2023 compared to the same period in 2022.
Added
Further, our cash used in operating assets and liabilities increased by $1,076,647 during the year ended December 31, 2023 compared to the same period in 2022. Offset by an increase in our non-cash charges for depreciation and amortization, stock-based compensation, and restricted stock issued for services of $403,883.
Added
During the year ended December 31, 2023, cash provided by investing activities was $1,851,717, an increase of $4,012,008, as compared to cash used in investing activities of $2,160,291 during the year ended December 31, 2022.
Added
The increase in cash provided by investing activities is due to proceeds received from our held to maturity investment of $1,963,432 and a decline in purchases of long-lived assets of $85,144 in 2023 compared to 2022. Cash used in investing activities during the year ended December 31, 2022 primarily related to the purchase of the investment of $1,963,432.
Added
During the year ended December 31, 2023, cash provided by financing activities was $13,578,938, an increase of $13,553,889 compared to the same period in 2022. The increase is due to cash proceeds from the sale of our common stock through an at-the-market offering of $13,441,438 and an increase in proceeds received from the exercise of options and warrants of $112,451.