Summary of Significant Accounting Policies (Policies) |
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| Summary of Significant Accounting Policies | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Presentation of Consolidated Financial Statements and Principles of Consolidation | The accompanying consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying consolidated financial statements include the accounts and operations of the Company and all adjustments which are necessary for a fair presentation of the results of its operations, financial position, and cash flows. The consolidated financial statements include the accounts of 374Water Inc., 374Water Systems Inc., and 374Water Sustainability Israel LTD (currently inactive), each a wholly-owned subsidiary of 374Water. Intercompany balances and transactions have been eliminated in consolidation. |
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| Use Of Estimates | The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates in the accompanying consolidated financial statements include the fair value of equity-based compensation, revenue recognition and the evaluation of the collectability of variable consideration and accrued loss provisions on onerous contracts, useful lives of long-lived assets, and the valuation allowance against deferred tax assets. |
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| Cash and Cash Equivalents | The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company held $3,198,682 and $10,651,644 in cash and cash equivalents as of December 31, 2025 and 2024, respectively. |
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| Fair Value Measurements | 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 categorization of a financial instrument within the fair value hierarchy is based upon the lowest level of input that is significant to its fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the assets or liabilities.
As of December 31, 2025 and 2024, the Company did not have any assets or liabilities carried at fair value.
The carrying value of the Company’s accounts and unbilled receivables, accounts payable, the secured promissory note and other current assets and liabilities approximates fair value due to their short-term nature. The carrying value of the Company’s note payable approximates fair value due to the prevailing interest rate. |
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| Inventory, Net | Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. The majority of our inventory is raw materials. Net realizable value is the value of an asset that can be realized upon the sale of the asset, less a reasonable estimate of the costs associated with either the eventual sale or the disposal of the asset in question. Costs associated with fabrication, and other costs associated with the manufacturing of products, are recorded as inventory. We periodically evaluate the carrying value of our inventories in relation to estimated forecasts of product demand, which takes into consideration the life cycle of product releases. When quantities on hand exceed estimated sales or usage forecasts, we perform an analysis to determine if a write-down for such excess inventories is required. Once inventory has been written down, it creates a new cost basis for inventory. Inventories are classified as current assets in accordance with recognized industry practice. Based on our evaluation, we estimated an inventory allowance of $50,000 at December 31, 2025 and 2024. |
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| Receivables, Net | Accounts Receivable, Net
Accounts receivable due from customers are uncollateralized customer obligations due under normal and customary trade terms. Account receivables are stated at the amount billed to the customer, less an allowance for estimated credit losses.
Unbilled Accounts Receivable
Unbilled accounts receivable consists of costs in excess of billings related to one customer contract for an equipment sale. As discussed below in subheading Change in Accounting Estimate, we anticipated delivering the completed equipment to our customer during the year ended December 31, 2025. Due to the delays we have encountered in delivering the equipment, we reassessed variable consideration embedded within the contract at December 31, 2025. The changes in facts and circumstances have resulted in us fully constraining the variable consideration at December 31, 2025. This resulted in the reduction of unbilled accounts receivable and reduction in equipment revenue in the amount of approximately $1.9 million.
Other Receivables
Other receivables consist of accrued interest income from the cash held in an interest-bearing money market account with a financial institution. We typically receive payment for accrued interest one month in arrears.
Accounts receivable allowance for credit loss
We establish allowances for credit losses on our outstanding accounts receivable, unbilled receivables and other receivables pursuant to ASC 326-20-55-37. The Company monitors, on a quarterly basis, all receivables and provides a credit loss allowance when considered necessary based on historical loss patterns, the number of days that billings are past due, an evaluation of the potential risk of loss associated with delinquent accounts, and current market conditions. We have elected to apply the practical expedient provisions eligible to public entities that are included in ASU 2025-05, Financial Instruments - Credit Losses (Topic 326) in our December 31, 2025 credit loss assessment. Under ASC 2025-05, entities can assume that current conditions as of the balance sheet date do not change for the remaining life of the asset. Therefore, an entity will no longer need to develop reasonable and supportable forecasts of future economic conditions. The practical expedient applies only to current accounts receivable (due in less than twelve months from the balance sheet).
The activity related to the accounts receivable allowance for credit losses during the years ended December 31, 2025 and 2024 was as follows:
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| Property and Equipment, Net | Property and Equipment is recorded at cost. Depreciation is computed using the straight-line method and an estimated useful life of three to five years. Expenses for maintenance and repairs are charged to expenses as incurred.
The following table presents property and equipment as of December 31, 2025 and 2024:
We completed the manufacturing and fabrication of one of our AirSCWO systems that we will be using for water treatment demonstration purposes (“Demo System”). We have capitalized the material and labor costs incurred to develop this Demo System, which had previously been classified within inventory until the last quarter of 2024. In the first quarter of 2024, we executed a contract with the City of Orlando, Florida to deploy the Demo System as part of a full-scale demonstration. We began the set up and commissioning process of this Demo System in the third quarter of 2024 which was completed in October 2024. We started depreciating the Demo System over an estimated life of five years during the last calendar quarter of 2024. We expect to continue to develop and enhance this unit as we perform our demonstrations and continue progressing towards commercialization. Upgrades and enhancements that will improve the operational efficiency of the unit itself will be capitalized.
We are in the process of manufacturing an AirSCWO 1 (“AS1”) model that is expected to process approximately 1 wet ton of waste per day. The AS1 is highly mobile and can be deployed quickly to provide on-site waste destruction services. As of December 31, 2025, these manufacturing costs have been classified as equipment in-progress until the AS1 is completed and placed in service which is expected to occur during the 2026 fiscal year.
Depreciation expense for the years ended December 31, 2025 and 2024 was $678,656 and $156,002, respectively. |
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| Intangible Assets, Net | Intangible assets are subject to amortization, and any impairment is determined in accordance with ASC 350, Intangibles - Goodwill and Other. 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. At December 31, 2025 and 2024, there was no impairment. |
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| 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. 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. At December 31, 2025 and 2024, there were no impairments. |
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| Concentrations of Credit Risk | Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, and marketable securities. Deposits with financial institutions are insured, up to certain limits, by the Federal Deposit Insurance Corporation (“FDIC”). The Company’s cash deposits often exceed the FDIC insurance limit; however, all deposits are maintained with high credit quality institutions and the Company has not experienced any losses in such accounts. The financial condition of financial institutions is periodically reassessed, and the Company believes the risk of any loss is minimal. Furthermore, we perform ongoing credit evaluations of our customers and generally do not require collateral.
Significant customers and suppliers are those that account for greater than 10% of the Company’s revenues, purchases, accounts receivable and accounts payable.
During the years ended December 31, 2025 and 2024, we generated revenues from the following significant service revenue customers:
*Customers B, C and D were not customers during the year ended December 31, 2024.
During the years ended December 31, 2025 and 2024, our equipment revenue was ($1,653,007) and $227,956, respectively, and was generated from one customer contract. Further, we also had a change in accounting estimate (see below) during the year ended December 31, 2025, that resulted in a reduction of our equipment revenue of approximately $1.9 million.
The percentage of accounts receivable due from the major customers compared to our total outstanding accounts receivable at December 31, 2025 and 2024 is as follows:
At December 31, 2025, one other customer, who is not a major customer, had accounts receivable outstanding that exceeded 10% of the total accounts receivable outstanding. |
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| 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. Revenue is recognized in accordance with that core principle by applying the following five steps: 1) identify the contracts with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when (or as) we satisfy a performance obligation using the input method.
The Company generates revenue from providing waste destruction services, including the completion of full-scale demonstrations and treatability studies, and the sale of equipment (AirSCWO units) to customers. In the case of equipment revenues, the Company’s performance obligations are satisfied over time as the equipment is being manufactured and are typically long-term fixed price contracts. Revenue is recognized over time by measuring the progress toward complete satisfaction of the performance obligation based on an input method. Equipment sale-related revenues are recognized in the proportion that contract costs incurred bear to total estimated costs to be incurred to complete the equipment contract. The estimated completed percentage is applied to the total transaction price of the fixed price contract. This method is used because management considers the input method to be the best available measure of progress on these contracts.
Changes in our overall expected cost estimates are recognized as a cumulative adjustment for the inception-to-date effective of such change. If these changes in estimates result in a possible loss being incurred on the contract, we accrue for such a loss in the period such an outcome becomes probable.
Services revenues related to bench-scale treatability studies are recognized when all five revenue recognition criteria have been completed which is generally when we deliver a completed treatability study report to the customer.
Service revenues related to our full demonstrations, using our owned AS6, may include multiple performance obligations, typically the demonstration itself and a technical report that summarizes the analysis of materials processed. Management estimates are required in allocating the transaction price between the performance obligations. However, other full-scale demonstrations may include one performance obligation, the demonstration itself. Revenues from such contracts are recognized over time as the demonstration is being completed.
Orlando Contract
In late 2024, we deployed our Demo System to the City of Orlando’s Iron Bridge Regional Water Reclamation Facility pursuant to a contract executed in March 2024 as part of a full-scale demonstration (the “Demo Contract”). Pursuant to the Demo Contract, the Company is responsible for system design, installation, commissioning and the start-up of the AirSCWO unit at the facility. Further, the Company will operate and maintain the AirSCWO unit for the demonstration period. Lastly, the Company will decommission, disassemble and demobilize the AirSCWO unit after the contract period. The Company will receive $812,000 as consideration for the full-scale demonstration.
In accordance with ASC 606-10-25-21, we have concluded that the Demo Contract includes one performance obligation related to the full-scale demonstration. The system design, site preparation, installation, commissioning and decommissioning represent fulfillment activities versus separate performance obligations. At December 31, 2025 and December 31, 2024, we have accounted for such costs as contract costs under ASC 340-40 (see below). We will recognize revenue on this Demo Contract based upon the agreed upon performance milestones, which is the point in time that the City of Orlando receives the benefit simultaneously to the Company’s performance. We completed our first milestone during the year ended December 31, 2025 and we recognized $270,667 of service revenue representing one-third of the total contract price. Further, we expensed one-third of the contract costs of $45,550 that had been deferred which have been included in cost of revenues. We anticipate completing the remaining two milestones of the demonstration during the 2026 fiscal year.
We invoice the City of Orlando in accordance with the contract terms. Invoices are due within thirty days of receipt. Any amounts invoiced or paid prior to the completion of our performance obligation are recognized as unearned revenue. The City of Orlando has the right to cancel the Demo Contract for convenience with a twenty-day written notice but is responsible for paying the Company all amounts owed and outstanding for work performed prior to the effective termination date and costs and expenses incurred by the Company to uninstall, remove, relocate and deliver the AirSCWO system up to a maximum amount of $68,000. At December 31, 2025 and 2024, our deferred revenue consists of $90,666 and $170,000, for amounts invoiced and collected on this contract that exceed the demonstration revenue earned.
Full-Scale Demonstrations
During the year ended December 31, 2025, we completed two full-scale demonstrations for two unrelated customers. One customer contract included three performance obligations: i) treatability studies, ii) the full-scale demonstration and iii) an analysis and technical report summarizing the results of the full-scale demonstration while the other customer contract included one performance obligation the full-scale demonstration itself.
For the contract with multiple performance obligations, we allocated the transaction price of approximately $498,000 among the performance obligations using stand-alone selling price (“SASP”) for the treatability study, cost-plus-margin for the technical report and the residual approach in the case of the full-scale demonstration. Under the residual approach, the stand-alone selling price was estimated after subtracting the sum of the observable SASP allocated to the other performance obligations within the contract as we do not have a history of selling full-scale demonstrations and a technical report separately to our customers.
At December 31, 2025, no performance obligations remain on either of the full-scale demonstration contracts. During the years ended December 31, 2025 and 2024, we recognized approximately $953,000 and $25,000, respectively, of services revenues related to these full-scale demonstrations.
During the years ended December 31, 2025 and 2024, we completed bench-scale treatability services revenues of approximately $645,000 and $217,000, respectively.
Cost of revenues include all direct material, labor and subcontractor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation. General, selling, and administrative costs are charged to expenses as incurred. At December 31, 2025, we have capitalized an aggregate of $91,100 of costs incurred to date for fulfillment related activities for the Demo Contract with the City of Orlando, which will be expensed once we complete our performance obligations. |
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| Change in Accounting Estimate | Our equipment revenue contract with the Orange County Sanitation District (“OC San”) is a fixed price contract that includes billings based on the achievement of deliverables or milestones. We have experienced delays in completing the equipment due to design changes and upgrades preventing us from meeting the next contractual milestone. Due to these delays, we have not been contractually able to bill for certain costs incurred related to the OC San contract. At December 31, 2025, we have incurred costs in excess of billings of approximately $1.9 million in connection with completing this contract. Pursuant to the contract terms with OC San, we will be able to invoice and resume billing once the manufactured equipment passes a factory acceptance test which is based on a continuous run time of the equipment and volume of materials processed. The equipment recently met the continuous run time requirement but was not yet able to process the volume required. At contract inception, the variable consideration included in the contract price was not deemed to be constrained. We had anticipated delivering the equipment to OC San during the year ended December 31, 2025. Due to the unexpected delays we have encountered in delivering the equipment, we reassessed the variable consideration at December 31, 2025. The changes in facts and circumstances have resulted in us fully constraining the variable consideration at December 31, 2025. This resulted in the reduction of unbilled accounts receivable and reduction in equipment revenue in the amount of approximately $1.9 million.
See further revenue-related disclosures in Note 6. |
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| Accrued Contract Loss Provision and Onerous Contracts | Onerous contracts are those where the costs to fulfill a contract exceed the consideration expected to be received under the contract. The revenue standard does not provide guidance on the accounting for onerous contracts or onerous performance obligations. US GAAP contains other applicable guidance on accounting for onerous contracts, and those requirements should be used to identify and measure onerous contracts.
Our equipment manufacturing contract is a fixed price contract. 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.
As of December 31, 2025 and 2024, we evaluated the total costs incurred on this contract to date and the estimated costs we anticipate incurring to complete the contract compared to the fixed-price contract. Based on this analysis as of December 31, 2025 and 2024, we have an accrued contract loss provision of $1,600,000 and $1,000,000, respectively, which has been presented on the accompanying consolidated balance sheets and is recorded within cost of revenues on the accompanying consolidated statements of operations. The increased loss on this contract during 2025 and 2024 is due to system design changes and upgrades that required unexpected material and labor costs to complete. |
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| Stock-based Compensation | The Company accounts for stock-based compensation under the provisions of 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 a weighting of historical volatilities of peer companies and the Company’s own volatility over the expected term of the stock options. The expected term of options are 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. |
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| Leases | The Company accounts for leases under ASC Topic 842, Leases. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the consolidated balance sheets. The Company leases an office and warehouse to conduct business. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less.
Operating lease ROU assets represent the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Operating lease expense is recognized on a straight-line basis over the lease term. During the year ended December 31, 2024, we executed a lease agreement within the scope of Topic 842.
The Company elected to account for non-lease components when incurred and are therefore not included in operating lease assets and liabilities. The non-lease components typically represent additional services transferred to the Company, such as common area maintenance for real estate related leases. |
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| Income Tax Policy | 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. |
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| Accounting for Uncertainty in Income Taxes | 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 December 31, 2025 and 2024. |
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| Research And Development Costs | The Company’s research and development costs are expensed in the period in which they are incurred. Such expenditures amounted to $2,524,519 and $2,143,471 for the years ended December 31, 2025 and 2024, respectively. |
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| Earnings (Loss) Per Share | Earnings (loss) per share is computed in accordance with ASC Topic 260, “Earnings per Share” Basic weighted-average number of shares of common stock outstanding for the years ended December 31, 2025 and 2024 include the shares of the Company issued and outstanding during such periods, each on a weighted average basis. The basic weighted average number of shares of common stock outstanding excludes common stock equivalent incremental shares, while diluted weighted average number of shares outstanding includes such incremental shares. However, as the Company was in a loss position for all periods presented, basic and diluted weighted average shares outstanding are the same, as the inclusion of the incremental shares would be anti-dilutive.
At December 31, 2025, there were the following potentially dilutive securities that were excluded from diluted net loss per share because their effect would be antidilutive: options for 1,708,637 shares of common stock, 877,524 warrants, and unvested restricted stock awards of 865,296. At December 31, 2024, there were the following potentially dilutive securities that were excluded from diluted net loss per share because their effect would be antidilutive: options for 1,584,312 shares of common stock, 1,467,524 warrants, and unvested restricted stock awards of 354,929. |
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| Reclassifications | We have made certain reclassifications to prior period amounts presented on our consolidated statements of operations to conform to the current period presentation with no impact to net loss or loss per share. These reclassifications consisted of reclassifying $1,046,546 of stock-based compensation expense from general and administrative expenses to compensation and related expenses for the year ended December 31, 2024. |
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| Recent Accounting Pronouncements | In December 2023 the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09). The ASU focuses on income tax disclosures around effective tax rates and cash income taxes paid. ASU 2023-09 requires public business entities to disclose, on an annual basis, a rate reconciliation presented in both dollars and percentages. The guidance requires the rate reconciliation to include specific categories and provides further guidance on disaggregation of those categories based on a quantitative threshold equal to 5% or more of the amount determined by multiplying pretax income (loss) from continuing operations by the applicable statutory rate. For entities reconciling to the US statutory rate of 21%, this would generally require disclosing any reconciling items that impact the rate by 1.05% or more. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024 (generally, calendar year 2025) and effective for all other business entities one year later. Effective January 1, 2025, we adopted ASU 2023-09 on a prospective basis. The adoption of ASU 2023-09 did not have a material impact on these consolidated financial statements (see Note 11).
ASU 2024-03, Disaggregation of Income Statement Expenses (“DISE”). In November 2024, the FASB issued a new accounting standard to improve the disclosures about an entity’s expenses and address requests from investors for more detailed information about the types of expenses included in commonly presented expense captions. The new standard is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with retrospective application permitted. The Company is evaluating the disclosure requirements related to the new standard and its impact on our consolidated financial statements.
In July 2025, the FASB issued ASU 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets (ASU 2025-5). The ASU 2025 -05 relates to estimating credit losses under the calculation of current expected credit losses (CECL) for current accounts receivable and current contract assets arising from revenue transactions accounted for under ASC 606, Revenue from Contracts with Customers. For all entities, ASU provides a practical expedient to assume that current conditions as of the balance sheet date will persist through the reasonable and supportable forecast period for eligible assets. Entities will still be required to adjust historical data used in the estimation to reflect current conditions. This policy election is available only if the entity elects the practical expedient. The date selected must be when or before financial statements are available to be issued. Under this accounting policy election, no credit loss would be recorded on balances that have been collected through subsequent receipts. Remaining uncollected amounts would be evaluated for credit losses using the practical expedient. The provisions of ASU 2025-05 are effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance. The Company has elected to apply the practical expedient in its assessment of an allowance for credit losses as of December 31, 2025, which did not have a material impact on these consolidated financial statements.
The Company considers the applicability and impact of all recently issued accounting pronouncements. Recent accounting pronouncements not specifically identified in our disclosures are either not applicable to the Company or are not expected to have a material effect on our financial condition or results of operations. |
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