Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of ~~November 1, 2022,~~May 8, 2023, the issuer had ~~126,680,895~~129,027,819 shares of common stock outstanding.

This Form 10-Q contains certain statements related to future results of the Company that are considered “forward-looking statements'' within the meaning of the Private Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including, but not limited to, changes in political and economic conditions; interest rate fluctuation; competitive pricing pressures within the Company’s market; equity and fixed income market fluctuation; technological changes; changes in law; changes in fiscal, monetary, regulatory, and tax policies; monetary fluctuations as well as other risks and uncertainties detailed elsewhere in this Form 10-Q or from time-to-time in the filings of the Company with the Securities and Exchange Commission. Such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

~~September 30, 2022~~March 31, 2023 (Unaudited) and December 31, ~~2021~~2022

	2022			2021			2023			2022
Assets
Current Assets:
Cash	$	2,407,983		$	11,131,175		$	9,153,161		$	4,046,937
Accounts receivable		164,600			-
Accounts receivable, net of allowance of $191 and $0								26,188			—
Unbilled accounts receivable								1,672,454			918,164
Other accounts receivable								308,374			—
Inventory								1,788,019			1,660,710
Investments		5,994,272			-			1,960,761			1,944,464
Prepaid expenses		1,297,933			218,466			130,170			153,455
Total Current Assets		9,864,788			11,349,641			15,039,127			8,723,730
Long-Term Assets:
Equipment, net		124,593			959			140,857			143,079
Intangible asset, net		980,753			1,028,114			1,035,817			1,050,022
Other assets		35,170			34,742
Total Long-Term Assets		1,140,516			1,063,815			1,176,674			1,193,101
Total Assets	$	11,005,304		$	12,413,456		$	16,215,801		$	9,916,831

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses	$	1,043,660		$	62,981		$	868,000		$	1,449,582
Deferred revenue		200,109			—			205,109			200,109
Other liabilities		18,388			23,390		-				13,528
Total Current Liabilities		1,262,157			86,371			1,073,109			1,663,219
Total Liabilities		1,262,157			86,371			1,073,109			1,663,219
Stockholders’ Equity
Preferred Stock: 1,000,000 Convertible Series D preferred shares authorized; par value $0.0001 per share, nil issued and outstanding at September 30, 2022 and 27,272 issued and outstanding at December 31, 2021		—			3
Preferred stock: 50,000,000 convertible Series D preferred shares authorized; par value $0.0001 per share, nil issued and outstanding at March 31, 2023 and December 31, 2022								—			—

Common stock: 200,000,000 common shares authorized, par value $0.0001 per share, 126,680,895 and 125,317,746 shares outstanding at September 30, 2022 and December 31, 2021, respectively		12,667			12,531
Common stock : 200,000,000 common shares authorized, par value $0.0001 per share, 128,840,421 and 126,702,545 shares outstanding at March 31, 2023 and December 31, 2022, respectively								12,883			12,669
Additional paid-in capital		15,894,426			15,474,566			24,619,639			16,110,221
Accumulated (deficit)		(6,159,975	)		(3,160,015	)		(9,490,325	)		(7,849,982	)
Accumulated other comprehensive loss		(3,971	)		—			495			(19,296	)
Total Stockholders’ Equity		9,743,147			12,327,085			15,142,692			8,253,612
Total Liabilities and Stockholders’ Equity	$	11,005,304		$	12,413,456		$	16,215,801		$	9,916,831

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

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2022			2021			2022			2021			2023			2022

Revenue	$	922,718		$	19,000		$	2,226,477		$	33,600		$	801,458		$	273,231
Cost of Goods Sold		812,386			—			1,962,879			—
Gross Profit		110,332			19,000			263,598			33,600
Cost of goods sold														720,146			247,986
Gross profit														81,312			25,245
Operating Expenses
Research and development		118,253			115,936			726,602			269,796			355,905			185,653
Compensation and related expenses		435,297			227,790			1,135,979			405,456			718,760			301,235
Product and development expenses		—			—			—			1,399,833
Professional Fees		82,752			84,514			375,313			245,152
Professional fees														99,572			150,658
General and administrative		387,018			143,147			1,027,287			206,931			585,659			261,403
Total Operating Expenses		1,023,320			571,387			3,265,181			2,527,168			1,759,896			898,950

Loss from Operations		(912,988	)		(552,387	)		(3,001,583	)		(2,493,568	)		(1,678,584	)		(873,705	)

Other Income (Expense)
Award income		—			—			—			—
Interest income		162			428			1,617			751			37,859			840
Other income		—			—			7			—			382			7
Total Other Income (Expense)		162			428			1,624			751			38,241			847
Net Loss before Income Taxes		(912,826	)		(551,959	)		(2,999,959	)		(2,492,817	)		(1,640,343	)		(872,858	)
Provision for Income Taxes		—			—			—			—			—			—

Net Loss	$	(912,826	)	$	(551,959	)	$	(2,999,959	)	$	(2,492,817	)	$	(1,640,343	)	$	(872,858	)

Other comprehensive loss
Change in foreign currency translation		—			—			(850	)		—			824			—
Change in unrealized loss on marketable securities		(3,122	)		—			(3,122	)		—			18,967			—
Total other comprehensive loss		(3,122	)		—			(3,972	)		—			19,791			—

Total comprehensive loss		(915,948	)		(551,959	)		(3,003,931	)		(2,492,817	)		(1,620,552	)		(872,858	)
Net Loss per Share - Basic and Diluted	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.03	)	$	(0.01	)	$	(0.01	)

Weighted Average Common Shares Outstanding - Basic and Diluted		126,680,895			98,391,746			126,621,412			84,283,229			127,146,695			126,499,142

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

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

For the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023

For the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022

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

For the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)

	2022			2021			2023			2022
Cash Flows from Operating Activities
Net loss	$	(2,999,959	)	$	(2,492,817	)	$	(1,640,343	)	$	(872,858	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense		50,052			16,314			29,105			16,458
Stock based compensation		419,995			86,152			214,924			97,558
Warrant issued for product development agreement		—			1,399,833
Change in foreign currency translation								824			—

Changes in operating assets and liabilities:
Accounts receivable		(164,600	)		19,663			(26,188	)		—
Unbilled accounts receivable								(754,290	)		—
Other accounts receivable								(308,374	)		—
Inventory								(127,309	)		—
Prepaid expenses		(1,079,467	)		(26,185	)		23,285			(50,599	)
Accounts payable and accrued expenses		980,679			(78,558	)		(581,582	)		81,059
Deferred revenue		200,109			—			5,000			763,333
Other liabilities		(5,002	)		22,007			(13,528	)		(20,238	)

Cash Provided by (Used In) Operating Activities		(2,598,193	)		(1,053,591	)		(3,178,476	)		115,911

Cash Flows from Investing Activities
Purchase of marketable securities		(5,998,243	)		—
Purchase of equipment		(125,011	)		(2,319	)		(7,303	)		(3,291	)
Proceeds from reverse acquisition		—			29,536
Increase in other asset		(1,745	)		(19,826	)
Increase in intangible assets								(2,705	)		—

Cash Provided by (Used In) Investing Activities		(6,123,999	)		7,391			(10,008	)		(3,291	)

Cash Flow from Financing Activities
Repayments to (advances) from stockholders		—			(15,108	)
Proceeds from sale of series D preferred shares		—			6,551,745
Proceeds from exercise of options and warrants		—			1,285,344
Proceeds from the issuance of common stock								8,294,708			—

Cash Provided by Financing Activities		—			7,821,981			8,294,708			—

Net Increase in Cash		(8,723,192	)		6,775,781			5,106,224			112,620
Cash, Beginning of the Period		11,131,175			71,799			4,046,937			11,131,175
Cash, End of the Period	$	2,407,983		$	6,847,580		$	9,153,161		$	11,243,795

NON-CASH FINANCING ACTIVITIES
Conversion of preferred stock to common stock	$	133		$	—		$	—		$	133
License		—			1,073,529
Accounts payable settled with Series D Preferred Stock		—			50,000
NET LIABILITIES ASSUMED IN REVERSE ACQUISITION
Cash		—			29,536
Prepaid expense		—			14,483
Accounts receivable		—			1,000
Account payable		—			(46,150	)
Accrued expenses		—			(83,094	)
Net liability assumed		—			(84,225	)

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

374Water Inc.~~, f/k/a PowerVerde, Inc.~~ (the “Company”, “374Water”, “We”, or “Our”) is a Delaware corporation which was formed in ~~March 2007. The~~September 2005 as PowerVerde, Inc. At that time, the Company was ~~formed to develop, commercialize,~~focused on developing, commercializing and ~~market~~marketing a series of unique electric generating power systems designed to produce electrical power with zero emissions or waste byproducts, based on a ~~patented~~ pressure-driven expander motor and related organic rankine cycle technology.

On April 16, 2021, ~~374Water Inc. (f/k/a PowerVerde, Inc.)~~the Company entered into an Agreement and Plan of Merger (the ~~“Merger Agreement”~~“Merger”) with 374Water Inc., a privately held company based in Durham, North Carolina, (“374Water Private ~~374Water”~~Company”) and 374Water Acquisition Corp., a newly-formed wholly-owned subsidiary of ~~PowerVerde (“Sub”). The parties entered into the Agreement pursuant to their Binding Letter of Intent dated September 20, 2020.~~PowerVerde.

~~Pursuant to the merger contemplated by~~Following the Merger, ~~Agreement (the “Merger”)~~374Water offers a disruptive technology that transforms all 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 April 16, 2021, Sub merged into Private 374Water, with Private 374Water as the surviving corporation. In connection with the Merger, all Private 374Water shares were canceled and the Company issued to the former Private 374Water shareholders a total of 62,410,452 shares of the Company common stock. Immediately following the Merger, Private 374Water changed its name to 374Water Systems Inc and PowerVerde changed its name to 374Water Inc. After the Merger, the former Private 374Water stockholders owned 64.2% of the Company’s issued and outstanding common stock and 53.8% of the Company’s issued and outstanding voting stock which includes the Preferred Stock. The Merger was accounted forwaste as a ~~reverse acquisition (See Note 4). On April 16, 2021, as~~valuable resource for water, energy, and minerals. We are pioneers in a ~~result~~new era of ~~the closing of the Merger Agreement (see Note 4), the equity of the consolidated entity~~waste management that supports a circular economy and enables organizations to achieve their environment, social, and governance (ESG) goals. Our vision is ~~the historical equity of 374Water Inc (“374Water”) retroactively restated to reflect the number of shares issued by the Company in the reverse recapitalization.~~

~~The Company’s current~~a world without waste and our mission is to ~~support~~help create and preserve a clean and healthy environment ~~to sustain~~that sustains life. The Company plans to use what it believes to be cutting-edge science to recover resources from the waste our society generates and keep drinking water clean. The Company’s customers will include businesses and local governments that the Company believes will make the sustainable development goals a reality. On February 1, 2022, the Company sold its first AirSCWO system to Orange County Sanitation District of Fountain Valley, California. Revenues to date have been from sale of the Company’s first AirSCWO system and from testing, consulting, and advisory services procedures for our customers.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for interim financial information. It is management’s opinion that the accompanying unaudited condensed consolidated financial statements are prepared in accordance with instructions for Form 10-Q and include all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the Annual Report on Form 10-K of 374Water Inc. (“374 Water," “we,” “us,” “our,” or the “Company”) as of and for the year ended December 31, ~~2021~~2022 filed with the Securities and Exchange Commission (“SEC”) on March ~~1, 2022.~~ 16, 2023.

The results of operations for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, are not necessarily indicative of the results to be expected for the full year or for future periods. The condensed consolidated financial statements include the accounts of 374Water Inc. ~~and PowerVerde Systems, Inc.~~, 374Water Systems Inc, and 374Water Sustainability Israel LTD, each a wholly-owned subsidiary of 374 Water. Intercompany balances and transactions have been eliminated in consolidation. These interim financial statements reflect the acquisition of the Company’s wholly-owned subsidiary, 374Water Systems Inc., which was consummated on April 16, 2021, as more fully disclosed in Note 4 and the creation of 374Water Sustainability LTD, an Israeli wholly-owned subsidiary on March 3, 2022 and having no activity until the second quarter of 2022.

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company held no$2,696,107 and $1,182,412 in cash equivalents as of ~~September 30, 2022,~~March 31, 2023 and December 31, ~~2021.~~ 2022, respectively.

The Company held marketable securities as of ~~September 30,~~March 31, 2023 as noted in the following table:

The Company held marketable securities as of December 31, 2022 as noted in the following table:

Accounting Standards Codification (ASC) Topic 820 “Fair Value Measurements” establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.

Level 2 Inputs - Fair value estimates are based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

The following is a description of valuation methodologies used for assets and liabilities recorded at ~~fair value:~~an amortized cost basis:

Accounts receivables consist of balances due from service ~~revenues.~~revenues, unbilled accounts receivables which is for revenues earned but not yet billed, and other receivables relating to common stock subscription purchases where the stock has been transferred but the cash has not been received. The Company monitors accounts receivable and provides allowances ~~for doubtful accounts~~ when considered necessary. ~~As of September 30, 2022~~At March 31, 2023 and December 31, ~~2021, there were $35,480 and $0, outstanding~~2022, accounts receivable ~~respectively. As~~were considered to be fully collectible but in accordance with the allowance for credit losses, the Company recorded an allowance for bad debt based on a reserve of ~~September 30, 2022~~current and ~~December 31, 2021, there was no~~aged receivables. Accordingly, an allowance for doubtful accounts ~~recorded.~~of $191 and $0 was recorded as of March 31, 2023 and December 31, 2022, respectively.

~~Unbilled~~Accounts receivables consist of balances due from sales and service revenues and accrued interest from the investment account.

Unbilled accounts receivables consist of balances due from sales and service revenue earned but not yet billed.

Other accounts receivables consist of cash due from the investment bank after the sale of common stock that ~~are unconditionally due~~has not cleared the bank yet by the end of the period. The cash is transferred from the investment bank to the Company ~~for services already rendered except for physical invoicing and~~typically within 3 to 5 days of the ~~passage~~sale of time. Invoicing requirements vary by customer contract, but all unbilled revenues are billed within one year. At September 30, 2022 and December 31, 2021, there were $129,120 and $0, outstanding unbilled receivables, respectively.common stock.

The activity related to the accounts receivable allowance for credit losses was as follows:

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. 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. Costs associated with fabrication, and other costs associated with the manufacturing of products, are recorded as inventory. We periodically evaluate the carrying value of our inventories in relation to estimated forecasts of product demand, which takes into consideration the life cycle of product releases. When quantities on hand exceed estimated sales forecasts, we perform an analysis to determine if a write-down for such excess inventories is required. Once inventory has been written down, it creates a new cost basis for inventory. Inventories are classified as current assets in accordance with recognized industry practice.

Property and Equipment is recorded at cost. Depreciation is computed using the straight-line method and an estimated useful life of three years. Expenses for maintenance and repairs are charged to expense as incurred. ~~The Company’s depreciation~~Depreciation expense ~~for the three months~~related to property and ~~nine months ended September 30, 2022~~equipment was ~~$650 and $1,374, respectively.~~ as follows:

Intangible assets are subject to amortization, and any impairment is determined in accordance with ASC 360, “Property, Plant, and Equipment.” Intangible assets are stated at historical cost and amortized over their estimated useful lives. The Company uses a straight-line method of amortization unless a method that better reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up can be reliably determined. As of March 31, 2023 and December 31, 2022, there was no impairment.

The Company reviews long-lived assets, including 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. The Company uses an estimate of the undiscounted cash flows over the remaining life of its long-lived assets, or related group of assets where applicable, in measuring whether the assets to be held and used will be realizable. 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 ~~September 30,~~March 31, 2023 and December 31, 2022, ~~and 2021,~~ there were no ~~events or changes~~impairments.

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, and marketable securities. Deposits with financial institutions are insured, up to certain limits, by the Federal Deposit Insurance Corporation (“FDIC”). The Company’s cash deposits often exceed the FDIC insurance limit; however, all deposits are maintained with high credit quality institutions and the Company has not experienced any losses in ~~circumstances requiring an impairment analysis.~~such accounts. The financial condition of financial institutions is periodically reassessed, and the Company believes the risk of any loss is minimal. The Company believes the risk of any loss on cash due to credit risk is minimal. Furthermore, we perform ongoing credit evaluations of our customers and generally do not require collateral.

Significant customers and suppliers are those that account for greater than 10% of the Company’s revenues and purchases. Our customer revenue for one customer made up over 90% of revenue for the period ended March 31, 2023 and year ended December 31, 2022. In 2023 and 2022, the Company purchased a substantial portion of manufacturing services from one third party vendor, Merrell Bros Fabrication, LLC.

The Company follows the revenue standards of ~~ASC~~Codification (ASC) Topic ~~606 -~~606: “Revenue from Contracts with ~~Customers”~~Customers (Topic 606).” The core principle of this Topic ~~606~~ is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognized in accordance with that core principle by applying the following five steps: 1) identify the contracts with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance ~~obligation. Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from~~obligation using the ~~completion of the equipment build for each customer as the inputs are measured against the cost to build the product.~~

The Company’s performance obligations will be satisfied overtime as the specialized equipment is built for the customer. Based on the Company’s contracts, the Company will have a single performance obligation (build and install of the product). The Company will primarily receive fixed consideration for sales of products.

The majority of revenues for the three months ended September 30, 2022 were generated from the sale of the first AirSCWO system. For the three months and nine months ended September 30, 2021, the Company did not have any ordinary revenue. All revenue generated as of September 30, 2021 was unrelated to the sale of an AirSCWO unit.input method.

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. 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. 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.

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. We present revenues net of any taxes collected from customers and remitted to government authorities.

Revenues for the period ended March 31, 2023 in the amount of $793,458 was generated from the sale of the AirSCWO system and $8,000 was generated from the sale of treatability services.

Revenues for the year ended December 31, 2022 in the amount of $2,952,020 was generated from the sale of the AirSCWO system and $63,501 was generated from the sale of treatability services.

The Company has accounted for stock-based compensation under the provisions of ~~(ASC)~~ASC Topic 718 – “Stock Compensation” which requires the use of the fair-value based method to determine compensation for all arrangements under which employees and others receive shares of stock or equity instruments (stock options and common stock purchase warrants). The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatilities are based on historical volatility of peer companies and other factors estimated over the expected term of the stock options. The expected term of options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus the contract term. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term.

The Company follows the provisions of ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This topic also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. There were no uncertain tax positions as of September 30, 2022, and December 31, 2021.

The Company accounts for income taxes using the liability method prescribed by ASC 740 - Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

The Company’s research and development costs are expensed in the period in which they are incurred. Such expenditures amounted to ~~$726,602~~$355,905 and $269,796 for the nine months ended September 30, 2022, and 2021, respectively. The Company’s research and development costs are expensed in the period in which they are incurred. Such expenditures amounted to $118,253 and $115,936$185,653 for the three months ended ~~September 30,~~March 31, 2023, and 2022, ~~and 2021,~~ respectively.

~~Loss~~Earnings (loss) per share is computed in accordance with ASC Topic 260, “Earnings per Share”~~. Diluted earnings per share is computed by dividing net loss by the~~ Basic weighted-average number of shares of common stock outstanding for the years ended March 31, 2023 and December 31, 2022 include the shares of the Company issued and outstanding during such periods, each on a weighted average basis. The basic weighted average number of shares common stock ~~equivalents~~outstanding excludes common stock equivalent incremental shares, while diluted weighted average number of shares outstanding includes such incremental shares. However, as the Company was in a loss position for all periods presented, basic and ~~other~~diluted weighted average shares outstanding are the same, as the inclusion of the incremental shares would be anti-dilutive. As of March 31, 2023 and December 31, 2022, there were the following potentially dilutive securities ~~outstanding during the period. Certain common stock equivalents~~that were ~~not included in the~~excluded from diluted net loss per share ~~calculation as~~because their effect would be ~~anti-dilutive. There were no dilutive~~antidilutive: options for 13,025,000 shares as of ~~September 30, 2022.~~common stock and 1,250,000 warrants.

The Company carries cash, accounts receivable, accounts payable and accrued expenses, at historical costs. The respective estimated fair values of these assets and liabilities approximate carrying values / useful lives of equipment and intangible assets due to their current nature.

All assets and liabilities of the Companies’ locations whose accounts are denominated in foreign currency are translated into United States dollars at appropriate year-end current exchange rates. All income and expense accounts of those locations are translated at the average exchange rate for each period. The foreign currency translation amounts for the period ended March 31, 2023 and the year ended December 31, 2022 are included in accumulated comprehensive income on the consolidated statement of changes in equity.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying financial statements include the fair value of equity-based compensation, revenue, fair value of intangible assets, useful lives of intangible assets, capital raise transactions, and valuation allowance against deferred tax assets.

~~All~~In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other ~~newly~~financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has completed its assessment on the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption and noted that there is no impact at this time for our HTM investments and noted a small adjustment for the allowance for bad debt which has been recorded as of March 31, 2023.

The Company considers the applicability and impact of all recently issued ~~but not yet effective~~accounting pronouncements. Recent accounting pronouncements ~~have been deemed to be~~not specifically identified in our disclosures are either not applicable ~~or immaterial~~ to the ~~Company.~~Company or are not expected to have a material effect on our financial condition or results of operations.

As of ~~September 30, 2022,~~March 31, 2023, the Company had working capital of ~~$8,602,631~~$13,966,018 compared to working capital of ~~$11,263,270~~$7,060,511 at December 31, ~~2021.~~2022. As of ~~September 30, 2022,~~March 31, 2023, the Company had an accumulated deficit of ~~$6,159,975.~~$9,490,325. For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, the Company had a net loss of ~~$2,999,959~~$1,640,343 and used $2,598,193 of net cash in operations for the period. As of September 30, 2021, the Company had working capital of $6,800,773 compared to working capital of $10,572 at December 31, 2020. As of September 30, 2021, the Company had an accumulated deficit of $2,488,224. For the nine months ended September 30, 2021, the Company had a net loss of $2,492,817 and used $1,053,591$3,178,476 of net cash in operations for the period.

The Company believes it has sufficient cash-on-hand (including its marketable securities described in Note 2 above) for the Company to meet its financial obligations as they come due at least the next 12 months from the date of the report.

As of March 31, 2023 and December 31, 2022, the Company closed on a private placement of 440,125 shares of Series D Convertible Preferred Stock (the “Preferred Stock”) with a par value of $0.0001, yielding gross proceeds of $6,551,745 (the “Private Placement”)noted no inventory impairment and the settlement of a $50,000 liability for Preferred Stock shares. The Private Placement proceeds will be used for working capital, primarily for development, manufacture and commercialization of the Company’s AirSCWO 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. Upon liquidation of the Company, the Preferred Stockholders have liquidation preference before any assets can be distributed to common stockholders. All of the Preferred Stock was sold pursuant to an exemption from registration requirements under Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. As of September 30, 2022, there were no ~~shares of Preferred Stock issued and outstanding.~~

As a result of the Merger, the issuance of the Preferred Stock, the former Private 374Water shareholders owned 65.8% of the Company’s issued and outstanding common stock and 53.8% of the Company’s issued and outstanding voting stock (which includes the Preferred Stock on an as converted basis).inventory write downs recorded.

As a result of the Merger Agreement, for financial statement reporting purposes, the business combination between 374Water Inc. and 374Water was treated as a reverse acquisition and recapitalization for accounting purposes with 374Water deemed the accounting acquirer and 374Water Inc. deemed the accounting acquiree under the acquisition method of accounting in accordance with FASB (“ASC”) Section 805.

Intangible assets are recorded at cost and consist of the License Agreement with Duke University. The Company issued Duke University a small number of shares of common stock estimated to have a fair value of $1,073,529 as consideration for granting the Company the license based on the Company’s common stock market price on the date the License Agreement was executed (see Note 8)9). Intangible assets are comprised of the following as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:

Name	Estimated Life	Balance at December 31, 2021		Additions		Amortization		Balance at September 30, 2022		Estimated Life	Balance at December 31, 2022		Additions		Amortization		Balance at March 31, 2023
License agreement	17 Years	$	1,028,114	$	—	$	47,361	$	980,753	17 Years	$	964,965	$	—	$	15,787	$	949,178
Patents	20 Years		34,742		1,745		1,317		35,170	20 Years		85,057		2,705		1,123		86,639
Total		$	1,062,856	$	1,745	$	48,678	$	1,015,923		$	1,050,022	$	2,705	$	16,910	$	1,035,817

Amortization expense for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, was $16,910 and ~~2021, was $48,678 and $15,787,~~$16,458, respectively.

Estimated future amortization expense as of ~~September 30, 2022:~~March 31, 2023:

	September 30,		March 31,
	2022		2023
2022 (Remaining 3 months)	$	16,243
2023		64,973	$	50,827
2024		64,973		67,769
2025		64,973		67,769
2026		64,973		67,769
2027				67,769
Thereafter		739,788		713,914
Intangible assets, Net	$	1,015,923	$	1,035,817

The following is a summary of our revenues by type for the period ended March 31, 2023 and March 31, 2022:

The following is a summary of our unearned revenue activity for the period ended March 31, 2023 and year ended December 31, 2022:

The following is a summary of our unbilled accounts receivable activity for the period ended March 31, 2023 and the year ended December 31, 2022:

The Company is authorized to issue ~~1,000,000~~50,000,000 preferred stock shares and 200,000,000 common stock shares both with a par value of $0.0001.

On October 30, 2020, the Company designated 1,000,000 shares as Series D Convertible Preferred Stock with a par value of $0.0001.

On April 16, 2021, the Company closed on a private placement of 440,125 shares of Series D Convertible Preferred Stock (the “Preferred Stock'') with a par value of $0.0001, yielding gross proceeds of $6,551,691 (the “Private Placement”) and settlement of a $50,000 liability for Preferred Stock shares. The Private Placement proceeds will be used for working capital, primarily for the development, manufacturing and commercialization of 374Water’s Air SCWO systems. The Preferred Stock has a stated value of $15 per share, is convertible into common stock at $0.30 per share and has voting rights based on the underlying shares of common stock. Upon liquidation of the Company, the Preferred Stockholders have a liquidation preference before any assets can be distributed to common stockholders. All of the Preferred Stock were sold pursuant to an exemption from registration requirements under Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended. On September 29, 2021, 412,853 shares of Preferred Stock were converted into 20,642,667 shares of common stock. On January 12, 2022, the Company converted the remaining 27,272 shares of Preferred Stock to 1,363,149 shares of common stock. As of ~~September 30, 2022,~~March 31, 2023, there were no shares of Preferred Stock issued and outstanding.

The holders of common stock are entitled to one vote per share on all matters submitted to a vote of shareholders, including the directors’ election. There is no right to cumulative voting in the election of directors. The holders of common stock are entitled to any dividends that may be declared by the board of directors out of funds legally available for payment of dividends subject to the prior rights of holders of preferred stock and any contractual restrictions the Company has against the payment of dividends on common stock. In the event of our liquidation or dissolution, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive rights and have no right to convert their common stock into any other securities. As of ~~September 30, 2022,~~March 31, 2023, there were ~~126,680,895~~128,840,421 shares of common stock issued and outstanding.

On April 16, 2021, as a result of the closing of the Merger Agreement (see Note 4), the equity of the consolidated entity is the historical equity of 374Water Inc (“Private 374Water”) retroactively restated to reflect the number of shares issued by

~~Pursuant~~entered into an equity distribution agreement with an underwriter pursuant to ~~the Merger, all Private 374Water shares were canceled and~~which the Company ~~issued to the former Private 374Water stockholders a total of 62,410,452~~may offer and sell shares of its common stock from time to time through the ~~Company’s~~underwriter as its sales agent. Sales of common ~~stock.~~

~~On April 16, 2021,~~stock, if any, will be made at market prices by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. The Company ~~issued a small number of~~has no obligation to sell any shares of common stock ~~estimated to have a fair value of $1,073,369 as consideration for~~under the ~~grant of a license to~~equity distribution agreement, and may at any time suspend offers under the ~~Company (see Notes 5 and 8).~~equity distribution agreement, in whole or in part, or terminate the equity distribution agreement.

During the ~~nine~~three months ended ~~September 30, 2022, the Company issued 1,363,149~~March 31, 2023, a total of 2,137,876 shares of common stock ~~from~~have been sold pursuant to the ~~conversion~~equity distribution agreement resulting in a total of ~~27,272 Preferred Stock shares.~~$8.35 million in proceeds, net of $0.11 million of commission fees and $0.05 million of accounting and legal fees. As of March 31, 2023, $91.5 million remained available under the Company’s at-the-market public facility, subject to various limitations.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2023, and 2022, ~~and 2021,~~ the Company recorded stock-based compensation of ~~$419,995~~$214,924 and ~~$86,152,~~$97,558, respectively, related to common stock issued or vested options to employees and various consultants of the Company. For the ~~nine~~three months ended ~~September 30, 2022, $380,383~~March 31, 2023, $189,283 was charged as general and administrative expenses and ~~$39,612~~$25,641 as research and development expenses in the accompanying condensed consolidated statements of operations. For the ~~nine~~three months ended ~~September 30, 2021, $75,761~~March 31, 2022, $93,868 was charged as general and administrative expenses and ~~$10,391~~$3,690 as research and development expenses in the accompanying condensed consolidated statements of operations.

Stock option activity for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 is summarized as follows:

Stock option activity for the three months ended March 31, 2022 is summarized as follows:

	Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Life (Years)		Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Life (Years)
Options outstanding at December 31, 2021		12,300,000		$	0.37	$	30,504,000		5.62		12,300,000	$	0.37	$	30,504,000		5.62
Granted		360,000			3.33		—		—		360,000		3.33		—		—
Exercised		—			—		—		—		—		—		—		—
Expired/forfeit		—			—		—		—		—		—		—		—
Options outstanding at March 31, 2022		12,660,000			0.45	$	45,576,000		5.39		12,660,000		0.45	$	45,576,000		5.39
Granted		560,000			—		—		—
Exercised		—			—		—		—
Expired/forfeit		(40,000	)		4.10		—		—
Options outstanding at June 30, 2022		13,180,000		$	0.54	$	31,683,690		5.31
Granted		270,000			2.39		—		—
Exercised		—			—		—		—
Expired/forfeit		(58,000	)		3.35		—		—
Options outstanding at September 30, 2022		13,392,000		$	0.56	$	30,383,910		5.13

Total unrecognized compensation associated with these unvested options is approximately ~~$1,956,165~~$2,213,723 which will be recognized over a period of four years.

The fair value of these options granted were estimated on the date of grant, using the Black-Scholes option-pricing model with the following assumptions:

	September 30, 2022		September 30, 2021			March 31, 2023			March 31, 2022
Dividend yield		0.00%		0.00%			0.00	%		0.00	%
Expected life	5.28 – 6.10 Years		1 Year			5.45 – 5.79 Years			5.65 – 5.75 Years
Expected volatility	34.73 – 34.79%			42.39	%	35.24 – 35.88		%	37.73 – 39.18		%
Risk-free interest rate	3.06 – 3.94%			0.06	%	3.58 – 3.97		%	1.44 – 2.12		%

~~In April 2021, pursuant to the binding Memorandum of Understanding dated as~~As of March 30, 2021, between 374Water and MB Holding Inc. (the “MOU”), a warrant for the purchase of 3,783,333 shares of common stock at an exercise price of $0.30 per share was issued to MB Holding Inc. as consideration for executing the MOU and was considered fully vested upon the execution of the MOU. These warrants were to expire in March 2022. Those warrants were estimated to have a grant-date fair value of $0.37 per warrant or aggregate fair value of $1,399,833 which has been presented as product development expense on the condensed consolidated statements of operations.

~~During the year ended December~~ 31, 2021, the warrants were exercised resulting in the issuance of 3,783,333 shares of common stock and proceeds of $1,134,499. Terry Merrell, a member of the Company’s Board of Directors, has sole voting and dispositive power over the securities held by MB Holdings Inc.

~~As of September 30, 2022,~~2023, there were 1,250,000 warrants outstanding which relate to the Series 1 offering executed in December 2021, where investors were offered a warrant for every two common shares purchased during the offering at an exercise price of $2.50 per share. The intrinsic value of all outstanding warrants as of ~~September 30, 2022~~March 31, 2023 was ~~$412,500~~$2,775,000 based on the market price of our common stock of ~~$2.83~~$4.72 per share, which was the Company’s closing per share common stock price as reported on Nasdaq as of ~~September 30, 2022.~~March 31, 2023.

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, no warrants were issued or exercised. As of ~~September 30, 2022,~~March 31, 2023, there are 1,250,000 outstanding warrants.

A summary of warrant activity during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, is as follows:

	Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Life (Years)		Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Life (Years)
Balance at December 31, 2021		1,250,000		2.50	$	437,500		2.96
Balance at December 31, 2022										1,250,000		2.50	$	450,000		1.96
Issued		—		—	—			—		—		—		—		—
Exercised		—		—		—		—		—		—		—		—
Balance at September 30, 2022		1,250,000		2.50	$	412,500		2.21
Balance at March 31, 2023										1,250,000		2.50	$	2,775,000		1.72

In 2021, the Company entered into an agreement to fabricate and manufacture the AirSCWO systems with Merrell Bros. Holding Company. As part of the agreement, the Company appointed Terry Merrell to its board of directors. As of ~~September 30, 2022,~~March 31, 2023, Merrell Bros. or their affiliates own stock in excess of 5% of the outstanding common stock. As of ~~September 30, 2022,~~March 31, 2023, the Company incurred ~~$841,577~~$535,201 in related party expenses, of which $514,399 was related to the manufacturing of the AirSCWO systems. As of ~~September 30, 2022,~~March 31, 2023, there is an accrual of ~~$62,858~~$446,081 in related party expenses, of which $432,582 related to the manufacturing of the AirSCWO systems.

The patented technology underlying 374Water’s supercritical water oxidation (SCWO) units, which was developed principally through the efforts of Messrs. Nagar and Deshusses at the facilities of Duke University, Durham, North Carolina (“Duke”), where Dr. Deshusses is a professor. The SCWO technology is licensed to 374Water pursuant to a worldwide license agreement with Duke executed on April 16, 2021 (the “License Agreement”). In connection with the License Agreement, 374Water also executed an equity transfer Agreement with Duke pursuant to which Duke received a small number of common stock in the Company (See Notes 45 and 6)7). Under the terms of the License Agreement, the Company is required to make royalty payments based on a percentage of licensed product sales, as defined in the License Agreement which is triggered by the sale of licensed products. Further, the Company is also required to pay royalties on a percentage of sublicensing fees. The Company will reimburse Duke for any ongoing patent expenses incurred. During the ~~three month~~three-month period ending ~~September 30, 2022,~~March 31, 2023, the Company has not incurred any expenses in connection with this License Agreement. The Company may terminate the license agreement anytime by providing Duke 60 days’ written notice.

AsFrom April 1, 2023 through May 5, 2023, we raised approximately $717,835 in net proceeds through an at-the-market equity offering of ~~September 30, 2022 and September 30, 2021,~~152,285 shares of common stock. Pursuant to the ~~Company had total deferred revenue~~at-the-market equity offering, we may issue up to $100 million of ~~$200,109 and $0, respectively. As of September 30, 2022,~~common stock, less the ~~Company expects 100% of total deferred revenue from sales to be realized in less than a year and deferred revenue from grants to be realized later than a year.~~amounts already raised.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Readers 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. This Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are based on the beliefs of our management, as well as on assumptions made by and information currently available to us as of the date of this Report. When used in this Report, the words “plan,” “will,” “may,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project” and similar expressions are intended to identify such forward-looking statements. Although we believe these statements are reasonable, actual actions, operations and results could differ materially from those indicated by such forward-looking statements as a result of the risk factors included in our ~~2021~~2022 Annual Report on Form 10-K filed with the SEC on March ~~1, 2022,~~16, 2023, or other factors. We must caution, however, that this list of factors may not be exhaustive and that these or other factors, many of which are outside of our control, could have a material adverse effect on us and our ability to achieve our objectives. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth above.

The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein.

The condensed consolidated financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these condensed 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 believe the following critical accounting policies affect its more significant judgments and estimates used in the preparation of financial statements.

Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our condensed consolidated financial statements. Our evaluation was performed for the tax years ended December 31, ~~2019,~~ 2020, 2021, and ~~2021,~~2022 the tax years which remain subject to examination by major tax jurisdictions as of ~~September 30, 2022.~~March 31, 2023.

We may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. In the event we have received an assessment for interest and/or penalties, it has been classified in the condensed consolidated financial statements as general and administrative expense.

Revenues for the three ~~and nine~~ months ended ~~September 30, 2022, and 2021~~March 31, 2023 were generated from the sale of aan AirSCWO system, and consulting and advisory services, which ~~was~~were recognized when the Company performed the service pursuant to its agreements with its clients which was the point in time when the Company completed its performance obligations under the agreements.

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”). 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). 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). As of ~~September 30, 2022,~~March 31, 2023, there were 1,250,000 outstanding ~~warrants.~~ warrants classified as equity.

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. This model requires management to estimate the expected volatility, expected dividends, and expected term as inputs to the valuation model.

~~On April 16, 2021, we closed~~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. 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.

We have developed proprietary waste stream treatment systems based on Supercritical Water Oxidation (SCWO). The term used for the ~~Merger with~~process is AirSCWO^TM. SCWO leverages the ~~former 374Water Inc. (“~~unique properties of water in its supercritical phase (above 374 ~~Water”) (the “374Water Merger”). Pursuant~~^oC and 221 Bar) to convert organic matter to energy and safe products that can be recovered and used. 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. Most pertinently, the ~~parties’ merger agreement,~~technology is shifting the landscape in addressing environmental challenges that, until now, have been considered unsurmountable (due to science/engineering or cost barriers), one good example being the global PFAS crisis.

We currently outsource manufacturing of the AirSCWO^TM systems to our ~~acquisition subsidiary merged into 374Water, with 374Water as~~strategic partner in the ~~surviving corporation. In connection with the 374Water Merger, all 374Water shares were canceled and 374Water Inc. f/k/a PowerVerde,~~US, Merrell Bros., Inc., ~~issued~~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. We envision in the ~~former 374Water shareholders~~future applying an outsourced manufacturing model in a ~~total~~few territories, and may consider establishing our own manufacturing capability in geographies where this is needed to adequately grow our market share.

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). Our market penetration strategy is combined of ~~62,410,452 shares~~direct client and channel partner sales routes, depending on the specific market and territory. In some cases, the systems may be white labeled and sold as part of ~~our common stock.~~a broader solution package.

~~Immediately following the Merger, 374Water changed its name to 374Water Systems Inc. and PowerVerde changed its name to 374Water Inc.~~

~~Since inception, we have focused on~~The following table sets forth, for the ~~development, testing and commercialization~~periods presented, the consolidated statements of ~~our clean energy electric power generation systems. Since~~operations data, which is derived from the ~~closing of~~accompanying consolidated financial statements:

Three Months Ended March 31, 2023, as Compared to the ~~374Water Merger, our~~Three Months Ended March 31, 2022

Our business has been focused on development and commercialization of 374Water’s supercritical water oxidation (SCWO) systems. Our business is subject to significant risks, including the risks inherent in our research and development efforts, uncertainties associated with obtaining and enforcing patents and intense competition.

~~Three Months Ended September 30, 2022, as Compared to Three Months Ended September 30, 2021~~

We generated ~~$922,718~~$801,458 and ~~$19,000~~$273,231 in revenue ~~during the periods ended September 30, 2022,~~from manufacturing assembly services and ~~2021, respectively. The increase in revenue during 2022 was primarily as a result of the sale of our first AirSCWO system whereas in the past our revenues were derived~~ from ~~treatability studies,~~ consulting and advisory ~~services.~~ services during the three months ending March 31, 2023 and March 31, 2022, respectively.

Our general and administrative expenses ~~were $387,018~~increased to $585,659 during the ~~period ended September 30, 2022,~~three months ending March 31, 2023, as compared to ~~$143,147~~$261,403 in the same period of ~~2021,~~2022, primarily because of increased insurance costs ~~marketing~~ and ~~business development~~NASDAQ public company expenses.

Our compensation and related expenses ~~dues and subscriptions, and stock-based compensation expenses. Our professional fees decreased~~increased to ~~$82,752~~$718,760 during the ~~period ended September 30, 2022,~~three months ending March 31, 2023, as compared to ~~$84,515~~$301,235 in the same period of ~~2021,~~2022, primarily because of increased payroll and fringe benefit expenses produced by an increase in the Company’s employee headcount.

Our professional fees slightly decreased to $99,572 during the three months ending March 31, 2023, as compared to $150,658 in the same period of 2022, primarily because of increased legal ~~fees.~~ fees as a result of hiring in house legal counsel.

Our research and development expenses ~~were $118,253~~increased to $355,905 during the ~~period ended September 30, 2022,~~three months ending March 31, 2023, as compared to ~~$115,936~~$185,653 in the same period of ~~2021,~~2022, primarily because of the increase in engineering expenses ~~following the 374Water Merger.~~and our continued efforts to commercialize our systems.

~~In April 2021,~~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 ~~connection with~~ the ~~Merger, we raised approximately $6.6 million from~~future.

We have financed our operations since inception principally through the sale of ~~Series D Preferred Stock~~equity securities and ~~converted all of its convertible debt notes and accrued interest to shares of common stock. On December 17, 2021, the Company raised approximately $5 million from the~~ sales of ~~Common Stock.~~

product and services. As of ~~September 30, 2022,~~March 31, 2023 we had working capital of ~~$8,602,631~~$13,966,018 compared to working capital of ~~$11,263,270 as of~~$7,060,511 at December 31, ~~2021.~~2022. 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 ~~twelve~~12 months. There can be no assurance that these funds will be sufficient to finance our plan of operations and commercialize our systems or that we will be able to raise any necessary additional funds on a commercially reasonable basis or at all.

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of ~~December~~March 31, ~~2021.~~2023. Our management’s evaluation of our internal control over financial reporting was based on the framework in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management ~~concluded that~~identified a material weakness relating to the lack of proper detailed review as of ~~September 30, 2022,~~March 31, 2023. As a result of this material weakness, our management concluded that our internal control over financial reporting was ~~effective. The Company’s management determined that the previously identified material weakness (as described below) had been remediated~~not effective as of ~~September 30, 2022.~~

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

~~The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal control over financial reporting:~~

Effective June 13, 2022, the Company appointed Buddie Joe (BJ) Penn, Yizhaq (Itzik) Polad, James M. Vanderhider and Deanna Rene to the Board of Directors. Additionally and in connection with their appointment to the Board, Mr. Penn was appointed to the Company’s recently established Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee (Chairperson), Mr. Polad was appointed to the Audit Committee, Compensation Committee (Chairperson) and Nominating and Corporate Governance Committee and Mr. Vanderhider was appointed to the Audit Committee (Chairperson). As of September 30, 2022, the Company now has the knowledge and expertise deemed to satisfy the entity level controls for a board of directors and associated audit committee.March 31, 2023.

This quarterly report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this quarterly report.

Except for controls implemented to address the deficiencies described above, there have been no other changes in our internal control over financial reporting during the first ~~nine~~three months of ~~2022~~2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In accordance with Section 13(a) or 15(d) of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

~~In accordance with Section 13(a) or 15(d) of the Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.~~

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001		SCWO		The Nasdaq Capital Market LLC

		Page
PART I	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets at ~~September 30, 2022~~March 31, 2023 (Unaudited) and December 31, ~~2021~~2022	3
	Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1519
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	1522
Item 4.	Controls and Procedures	1522

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	1623
Item 1A.	Risk Factors	1623
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1623
Item 3.	Defaults upon Senior Securities	1623
Item 4.	Mine Safety Disclosures	1623
Item 5.	Other Information	1623
Item 6.	Exhibits	1724

SIGNATURES		1825

	Adjusted Cost		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Current Marketable Securities		Non-Current Marketable Securities
Cash	$	9,153,161		—	$	9,153,161	$	9,153,161		—		—
Level 2:
U.S. Treasury securities	$	1,960,761	$	8,049	$	1,952,712	$	—	$	1,952,712		—
Total	$	11,113,922	$	8,049	$	11,105,873	$	9,153,161	$	1,952,712		—

	Adjusted Cost		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Current Marketable Securities		Non-Current Marketable Securities
Cash	$	2,407,983		—	$	2,407,983	$	2,407,983		—		—
Level 2:
U.S. Treasury securities	$	5,950,971	$	15,052	$	5,994,272	$	58,353	$	5,935,919		—
Total	$	8,358,954	$	15,052	$	8,402,255	$	2,466,336	$	5,935,919		—

	Adjusted Cost		Unrealized Losses		Fair Value		Cash and Cash Equivalents		Current Marketable Securities		Non-Current Marketable Securities
Cash	$	4,046,937		—	$	4,046,937	$	4,046,937		—		—
Level 2:
U.S. Treasury securities	$	1,963,432	$	18,968	$	1,944,464	$	—	$	1,944,464		—
Total	$	6,010,369	$	18,968	$	5,991,401	$	4,046,937	$	1,944,464		—

☐	Large accelerated filer	☐	Accelerated filer
☐	Non-accelerated Filer	☒	Smaller reporting company
		☒	Emerging Growth Company

	Preferred Stock						Common Stock				Additional						Other			Total
	Number of						Number of				Paid in			Accumulated			Comprehensive			Stockholders’
	Shares			Amount			Shares		Amount		Capital			Deficit			Income			Equity
Balances, December 31, 2021		27,272		$	3			125,317,746	$	12,531	$	15,474,566		$	(3,160,015	)	$	—		$	12,327,085
Conversion of Preferred Shares to Common Shares		(27,272	)		(3	)		1,363,149		136		(135	)		—			—			(2	)
Accretion of stock-based compensation		—			—			—		—		97,558			—			—			97,558
Net loss		—			—			—		—		—			(872,858	)		—			(872,858	)
Balances, March 31, 2022		—			—			126,680,895	$	12,667	$	15,571,989		$	(4,032,873	)		—		$	11,551,783
Accretion of stock-based compensation		—			—			—		—		138,912			—			—			138,912
Foreign currency gain (loss)		—			—			—		—		—			—			(771	)		(771	)
Unrealized gain (loss) on investments		—			—			—		—		—			—			(11,243	)		(11,243	)
Net loss		—			—			—		—		—			(1,214,275	)		—			(1,214,275	)
Balances, June 30, 2022		—			—			126,680,895	$	12,667	$	15,710,901		$	(5,247,148	)	$	(12,014	)	$	10,464,406
Accretion of stock-based compensation		—			—			—		—		183,524			—			—			183,524
Foreign currency gain (loss)		—			—			—		—		—			—			(78	)		(78	)
Unrealized gain (loss) on investments		—			—			—		—		—			—			8,121			8,121
Net loss		—			—			—		—		—			(912,826	)		—			(912,826	)
Balances, September 30, 2022		—			—			126,680,895	$	12,667	$	15,894,426		$	(6,159,975	)	$	(3,971	)	$	9,743,147

Name	Three Months Ending at March 31, 2023		Three Months Ending at March 31, 2022
Beginning balance	$	—	$	—
Current period provision		191		—
Write-offs		—		—
Ending Balance	$	191	$	—

	Period Ended March 31,
	2023		2022
Depreciation	$	9,525	$	235

Name	Balance at March 31, 2023		Balance at December 31, 2022
Raw materials	$	533,925	$	755,218
Work-in-process		1,254,094		905,492
Total	$	1,788,019	$	1,660,710

Name	Balance at March 31, 2023		%			Balance at March 31, 2022		%
Equipment revenue	$	793,458		99	%	$	273,231		100	%
Service revenue		8,000		1	%		—		—	%
Total	$	801,458		100	%	$	273,231		100	%

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

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

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

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL INSTANCE DOCUMENT

101.SCH		XBRL TAXONOMY EXTENSION SCHEMA

101.CAL		XBRL TAXONOMY EXTENSION CALCULATION LINKBASE

101.DEF		XBRL TAXONOMY EXTENSION DEFINITION LINKBASE

101.LAB		XBRL TAXONOMY EXTENSION LABEL LINKBASE

101.PRE		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

	374WATER INC

Dated: May 8, 2023	By:	/s/ Yaacov Nagar
		Yaacov Nagar
		Chief Executive Officer

Dated: May 8, 2023	By:	/s/ Israel Abitbol
		Israel Abitbol
		Chief Financial Officer

	~~374WATER INC~~

~~Dated: November 1, 2022~~	~~By:~~	~~/s/ Yaacov Nagar~~
		~~Yaacov Nagar~~
		~~Chief Executive Officer~~

~~Dated: November 1, 2022~~	~~By:~~	~~/s/ Israel Abitbol~~
		~~Israel Abitbol~~
		~~Chief Financial Officer~~	26

~~Exhibit No.~~		~~Description~~

~~31.1~~		~~Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~31.2~~		~~Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~32.1~~		~~Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

~~32.2~~		~~Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

~~101.INS~~		~~XBRL INSTANCE DOCUMENT~~

~~101.SCH~~		~~XBRL TAXONOMY EXTENSION SCHEMA~~

~~101.CAL~~		~~XBRL TAXONOMY EXTENSION CALCULATION LINKBASE~~

~~101.DEF~~		~~XBRL TAXONOMY EXTENSION DEFINITION LINKBASE~~

~~101.LAB~~		~~XBRL TAXONOMY EXTENSION LABEL LINKBASE~~

~~101.PRE~~		~~XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE~~