Note 9 – Commitments and Contingencies

Operating Leases

In January 26, 2026, the Company executed the Orlando License Agreement. The Orlando License Agreement grants the Company a temporary, revocable, nonexclusive license to use approximately 15,000 square feet of the facility for the following (i) installation and operation of AirSCWO units to process city wastewater sludge, (ii) processing of certain approved third-party materials under a Waste Destruction Service (“WDS”) program, subject to approval by the City of Orlando, and maintenance of equipment, manufacturing of AirSCWO units and inventory storage. The initial term of the Orlando License Agreement commences February 1, 2026 for a period of five years with two optional five-year renewal terms. The initial monthly licensee fee is $8,000 for the first two years, with annual increases of 2.5% thereafter. The Orlando License Agreement includes provisions for the termination for convenience with 180 days’ written notice by either party. The extension period was not included in our initial present value of the right-of-use asset or operating lease liability as it was not reasonably certain the option would be exercised.

The City of Orlando will also receive a WDS fee for any approved third-party materials that are processed at the facility based on the type of third-party materials processed which will be charged at a per pound or gallon rate depending on the type of material.

At the commencement of the Orlando License Agreement, we recognized a right-of-use asset and operating liabilities of $372,582 based on the present value of the lease payments required over the lease term and a discount rate of 12.0%.

We also lease laboratory space in North Carolina under a lease agreement with a term of September 1, 2024 to October 1, 2029 with one five-year extension period. The extension period was not included in our initial present value of the right-of-use asset or operating lease liability as it was not reasonably certain the option would be exercised. Monthly rental payments required under the lease are subject to annual increases and range from $14,235 to $16,503 over the initial term of the lease.

Operating lease liabilities are summarized below:

Future payments required on the operating lease liabilities, over a weighted average term of approximately 4 years, are as follows:

The following table summarizes the supplemental cash flow information for the three month periods ended March 31, 2026 and 2025

During the three months ended March 31, 2026 and 2025, we incurred rent expense of approximately $53,000 and $48,000, respectively, in connection with these operating leases which is included within general and administrative expenses on the condensed consolidated statement of operations.

Duke License Agreement

The patented technology underlying 374Water’s supercritical water oxidation (SCWO) units, was developed principally through the efforts of Kobe Nagar and Marc Deshusses at the facilities of Duke University, Durham, North Carolina (“Duke”), where Dr. Deshusses is a professor. The SCWO technology is licensed to 374Water pursuant to a worldwide license agreement with Duke executed on April 16, 2021 (the “Duke License Agreement”). In connection with the Duke License Agreement, 374Water also executed an equity transfer agreement with Duke pursuant to which Duke received common stock in the Company. Under the terms of the Duke License Agreement, the Company is required to make royalty payments based on a percentage of licensed product sales, as defined in the Duke License Agreement which is triggered by the sale of licensed products. Further, the Company is also required to pay royalties on a percentage of sublicensing fees. The Company will reimburse Duke for any ongoing patent expenses incurred. At March 31, 2026, the Company has not incurred any expenses in connection with this Duke License Agreement. The Company may terminate the license agreement anytime by providing Duke 60 days’ written notice. 

Legal Matters

We note that in the ordinary course of business we may be the subject of, or party to, various pending or threatened legal actions which could result in a material adverse outcome for which the related damages may not be estimable. We do not believe any legal action would have a significant impact on the financials other than the matter disclosed below. However, there is inherent uncertainty regarding such matters.

On March 18, 2026, a stockholder class action complaint was filed with the Delaware Court of Chancery. The plaintiff seeks declaratory relief invalidating an exculpation provision contained in the Company’s Amended and Restated Certification of Incorporation filed with the State of Delaware that purports to eliminate or limit the personal liability of the Company’s directors and officers beyond what is permitted under Delaware law. We believe this complaint has no merit and are consulting with our attorneys on the matter. At this time, the outcome of the litigation is uncertain.

Refer to Note 11 – Subsequent Events for information regarding a complaint filed by our former General Counsel and consultant.