The following discussion and analysis should be read in conjunction with “Cautionary Note Regarding Forward-Looking Statements” and the financial statements and notes thereto appearing elsewhere in this Form 10-Q as well as the risk factors included in the 2025 Form 10-K. Critical Accounting Policies In preparing the condensed consolidated financial statements, we have made estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues, costs, and expenses, and the disclosure of contingent assets and liabilities as in our condensed consolidated financial statements. Actual results may differ from these estimates. A summary of our critical accounting estimates and policies is included in our 2025 Form 10-K under "Management’s Discussion and Analysis of Financial Condition and Results of Operations." During the three and six months ended June 30, 2026, there have been no significant changes to these estimates and policies previously disclosed in our 2025 Form 10-K. For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 of the unaudited condensed consolidated financial statements included in this Form 10-Q. Overview 374Water Inc. is a cleantech and environmental services company developing supercritical water oxidation (“SCWO”) for the destruction of organic waste streams within the municipal, federal, and industrial markets. 374Water offers our proprietary AirSCWO technology, which is designed to efficiently destroy and mineralize a broad spectrum of non-hazardous and hazardous organic wastes producing safe dischargeable water streams, safe mineral effluent, safe vent gas, and recoverable heat energy. Importantly, our AirSCWO system is designed to eliminate recalcitrant organic wastes without creating waste byproducts, as well as to simplify existing, complex waste processing and disposal practices. Our AirSCWO technology is designed to effectively convert solid and liquid wastes such as sewage sludge, biosolids, food waste, hazardous and non-hazardous waste, including ‘forever chemicals’ (e.g., “per-and polyfluoroalkyl substances” or “PFAS”) into inert and recoverable resources including water, minerals, and heat energy. At a special meeting of stockholders held on December 15, 2025, the stockholders of 374Water, approved an amendment to the Company’s Amended and Restated Certificate of Incorporation, to, at the discretion of the Company’s Board of Directors, effect a reverse stock split with respect to the Company’s issued and outstanding common stock, at a ratio of 1-for-8 to 1-for-20, with the ratio within such range to be determined at the discretion of the Company’s Board of Directors (or any of its delegated authorized persons) without further approval or authorization of our stockholders. On December 15, 2025, after the approval from the stockholders, the Company filed a Certificate of Amendment of the Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Delaware to effect a 1-for-10 reverse stock split (the “Reverse Stock Split”) of the issued and outstanding shares of the Company’s common stock. The Certificate of Amendment took effect on December 26, 2025. 26 Table of Contents Results of Operations The following table sets forth, for the periods presented, the consolidated statements of operations data, which is derived from the accompanying unaudited condensed consolidated financial statements: Three Months Ended June 30, 2026, as Compared to the Three Months Ended June 30, 2025 Three Months Ended June 30, 2026 2025 $ Change % Change Revenues $ 2,262,040 $ 594,967 $ 1,667,073 280 % Cost of revenues 279,067 871,333 (592,266 ) (68 )% Gross margin 1,982,973 (276,366 ) 2,259,339 (818 )% Operating expenses: Research and development 284,589 531,170 (246,581 ) (46 )% Compensation and related expenses 1,831,323 1,996,387 (165,064 ) (8 )% Professional fees 151,453 649,338 (497,885 ) (77 )% General and administrative 1,337,470 1,184,689 152,781 13 % Total operating expenses 3,604,835 4,361,584 (756,749 ) (17 )% Loss from operations (1,621,862 ) (4,637,950 ) 3,016,088 (65 )% Other income (expenses), net (1,074,373 ) 57,502 (1,131,875 ) (1,968 )% Loss before income taxes (2,696,235 ) (4,580,448 ) 1,884,213 (41 )% Provision for income taxes — — — 0 % Net loss $ (2,696,235 ) $ (4,580,448 ) $ 1,884,213 (41 )% Revenues Our business has been focused on the development and commercialization of our SCWO systems. During the three months ended June 30, 2026 and 2025, we generated revenue of $2,262,040 and $594,967, respectively, from equipment manufacturing and services. This increase is primarily due to $2.0 million of revenue recognized on our OC San contract that had been previously reversed or not recognized due to variable consideration constraints that were eliminated upon us meeting a factory acceptance test during the three months ended June 30, 2026, offset by a decrease in service revenues of approximately $247,000. Operating expenses Our general and administrative expenses increased to $1,337,470 during the three months ended June 30, 2026, as compared to $1,184,689 in the same period of 2025, an increase of approximately $153,000, primarily due to expensing $184,000 of deferred offering costs previously capitalized on the balance sheet due to a shift in capital raise strategy through the issuance of convertible debt notes by the Company, $58,000 in franchise tax expense due to the increase in our authorized shares, and $276,000 of stock issued for services provided by the Board of Directors, offset by approximately $365,000 of reductions in all other general and administrative expenses as the Company focuses on reducing expenses. Our compensation and related expenses decreased to $1,831,323 during the three months ended June 30, 2026, as compared to $1,996,387 in the same period of 2025, a decrease of approximately $165,000, primarily due to a decrease in payroll wages and related expenses due to decreased headcount and a reduction of executive salaries. Our professional fees decreased to $151,453 during the three months ended June 30, 2026, as compared to $649,338 in the same period of 2025, a decrease of approximately $498,000, primarily due to decreased legal fees as the Company focuses on reducing expenses. Our research and development expenses decreased to $284,589 during the three months ended June 30, 2026, as compared to $531,170 in the same period of 2025, a decrease of approximately $247,000, primarily due to a decrease in research and development activities as the Company focuses on reducing expenses. 27 Table of Contents Other income (expenses), net Other expenses, net increased to $1,074,373 during the three months ended June 30, 2026, as compared to other income, net of $57,502 in the same period of 2025, an increase in other expenses, net, of approximately $1,132,000. This increase is primarily due to a loss on debt extinguishment recognized of approximately $1,022,000 during the three months ended June 30, 2026 related to a modification of terms on outstanding convertible notes payable, as well as interest expense of approximately $90,000 recognized on the outstanding convertible notes payable. Net Loss Our net loss decreased to $2,696,235, during the three months ended June 30, 2026, as compared to our net loss of $4,580,448 in the same period of 2025, a decrease of approximately $1,884,000. This decrease is primarily attributable to the increase in revenues and decrease in operating expenses, offset by an increase in other expenses, as more fully described above. Six Months Ended June 30, 2026, as Compared to the Six Months Ended June 30, 2025 Six Months Ended June 30, 2026 2025 $ Change % Change Revenues $ 2,813,195 $ 1,138,067 $ 1,675,128 147 % Cost of revenues 481,810 1,276,150 (794,340 ) (62 )% Gross margin 2,331,385 (138,083 ) 2,469,468 (1,788 )% Operating expenses: Research and development 734,423 1,064,757 (330,334 ) (31 )% Compensation and related expenses 4,370,773 3,672,252 698,521 19 % Professional fees 666,972 1,421,239 (754,267 ) (53 )% General and administrative 2,779,369 2,127,129 652,240 31 % Total operating expenses 8,551,537 8,285,377 266,160 3 % Loss from operations (6,220,152 ) (8,423,460 ) 2,203,308 (26 )% Other income (expenses), net (1,047,706 ) 144,598 (1,192,304 ) (825 )% Loss before income taxes (7,267,858 ) (8,278,862 ) 1,011,004 (12 )% Provision for income taxes — — — 0 % Net loss $ (7,267,858 ) $ (8,278,862 ) $ 1,011,004 (12 )% Revenues Our business has been focused on the development and commercialization of our SCWO systems. During the six months ended June 30, 2026 and 2025, we generated $2,813,195 and $1,138,067 in revenue from equipment manufacturing and services, respectively. This increase is primarily due to $2.0 million of revenue recognized on our OC San contract that had been previously reversed or unrecognized due to variable consideration constraints that were eliminated upon us meeting a factory acceptance test during the three months ended June 30, 2026, offset by a decrease in service revenues of approximately $100,000. Operating expenses Our general and administrative expenses increased to $2,779,369 during the six months ended June 30, 2026, as compared to $2,127,129 in the same period of 2025, an increase of approximately $652,000, primarily due to the expensing of $184,000 of deferred offering costs previously capitalized on the balance sheet due to a shift in capital raise strategy through the issuance of convertible debt notes by the Company, $217,000 in franchise tax expense due to the increase in our authorized shares, and $424,000 of stock-based compensation for services provided by the Board of Directors, offset by approximately $173,000 reductions in other general and administrative expenses as the Company focuses on reducing expenses. Our compensation and related expenses increased to $4,370,773 during the six months ended June 30, 2026, as compared to $3,672,252 in the same period of 2025, an increase of approximately $699,000, primarily due to an increase in stock-based compensation expense of approximately $578,000 and an increase in payroll wages and related of $120,000. 28 Table of Contents Our professional fees decreased to $666,972 during the six months ended June 30, 2026, as compared to $1,421,239 in the same period of 2025, a decrease of approximately $754,000, primarily due to decreased legal fees as the Company focuses on reducing expenses. Our research and development expenses decreased to $734,423 during the six months ended June 30, 2026, as compared to $1,064,757 in the same period of 2025, a decrease of approximately $330,000, primarily due to a decrease in stock-based compensation of approximately $100,000 from stock issued for services and a decrease in research and development activities as the Company focuses on reducing expenses. Other income (expenses), net Other expenses, net increased to $1,047,706 during the six months ended June 30, 2026, as compared to other income, net of $144,598 in the same period of 2025, an increase in other expenses of approximately $1,192,000. This increase is primarily attributable to a loss on debt extinguishment recognized of approximately $1,022,000 during the six months ended June 30, 2026 related to a modification of terms on outstanding convertible notes payable, as well as interest expense of approximately $103,000 recognized on the outstanding convertible notes payable. Net Loss Our net loss decreased to $7,267,858, during the six months ended June 30, 2026, as compared to our net loss of $8,278,862 in the same period of 2025, a decrease of approximately $1,011,000. This decrease is primarily attributable to the increase in revenues, offset by an increase in operating expenses and other expenses, as more fully described above. Liquidity, Capital Resources and Going Concern In accordance with ASU No. 2014-15 Presentation of Financial Statements – Going Concern (subtopic 205-40), the Company’s management evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued. At June 30, 2026, the Company had a working capital of approximately $2,420,000, an accumulated deficit of $57,204,456 and a cash balance of $1,776,259. For the six months ended June 30, 2026, the Company incurred a net loss of $7,267,858 and used $2,297,376 of net cash in operations for the period. These conditions raise substantial doubt regarding our ability to continue as a going concern. Presently, the Company will need additional debt or equity financing or a combination of both to continue its operations and meet its financial obligations for at least the next twelve months from the date these unaudited condensed interim consolidated financial statements included in this Form 10-Q were issued and beyond. We may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding. We expect to incur continuing losses and negative cash flows from operations for the foreseeable future until we are able to manufacture our AirSCWO units on a commercial scale. Since inception, we have financed our operations principally through the sale of debt and equity securities and operating cash flows. On December 23, 2025, the Company entered into an ATM issuance sales agreement (the “Sales Agreement”) with Lake Street Capital Markets, LLC (“Lake Street”) as sales agent, pursuant to which the Company could offer and sell, from time to time, shares of the Company’s common stock having an aggregate offering price of up to $50 million in an at-the-market equity offering program (“ATM”). The Sales Agreement replaced the Company’s prior ATM agreement with Lake Street that was entered on June 6, 2025. During the year ended December 31, 2025, we raised approximately $8,909,000 of net proceeds using our ATM. The Company is evaluating strategies to obtain the required additional funding for future operations and has not yet raised any capital with the ATM in 2026. As of the date of our 2025 Form 10-K, the aggregate market value of our outstanding common stock held by non-affiliates, or the public float, was approximately $39,144,000, which was calculated based on 11,184,116 outstanding shares of the Company’s common stock held by non-affiliates at a price of $3.50 per share, the closing price of our common stock on March 25, 2026, as reported on Nasdaq. Pursuant to General Instruction I.B.6 of Form S-3, or the “baby shelf” rules, in no event will we sell securities registered on our Form S-3 registration statement, including under our ATM, with a value of more than one-third of the aggregate market value of shares of our common stock held by non-affiliates in any 12-month period, so long as the aggregate market value of shares of our common stock held by non-affiliates is less than $75 million. After giving effect to the approximate $13,000,000 offering limit imposed by General Instruction I.B.6 of Form S-3 and deducting the shares sold within the preceding 12 months, approximately $3,700,000 of common stock remain available at this time for sale under our Form S-3, including through our ATM. 29 Table of Contents Any additional debt or equity financing that the Company obtains may substantially dilute the ownership held by our existing stockholders. The economic dilution to our shareholders will be significant if our stock price does not materially increase, or if the effective price of any sale is below the price paid by a particular investor. The Company may be unable to access further equity or debt financing when needed or obtain additional financing under acceptable terms, if at all. We may decide to raise additional capital through a variety of sources in the short-term and in the long-term, including but not limited to: ☐ the public equity markets; ☐ private equity financings; ☐ collaborative arrangements; ☐ asset sales; and/or ☐ public or private debt. If the Company is unable to raise additional capital, there is a risk that the Company could be required to discontinue or significantly reduce the scope of its operations. These unaudited condensed interim consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Cash Flows We used $2,297,376 cash in operating activities for the six months ended June 30, 2026 compared to $7,621,070 of cash used in operating activities for the corresponding period in 2025, a decrease of approximately $5,324,000. The decrease in cash used in operating activities was primarily due to the decrease in net loss of approximately $1,011,000, increase in noncash expenses of $2,061,000, and increase in cash inflows from changes in operating assets and liabilities of approximately $2,252,000. We used $1,253,440 in investing activities for the six months ended June 30, 2026 compared to using $901,823 of cash in investing activities for the corresponding period in 2025, an increase of approximately $352,000. The increase in cash used by investing activities for the six months ended June 30, 2026 was primarily due to an increase in purchases of property and equipment and equipment-in-process of $352,000. We received $2,128,393 of cash from financing activities for the six months ended June 30, 2026 compared to $20,264 for the corresponding period in 2025, an increase of approximately $2,108,000. This increase was primarily due to $2,960,000 of proceeds received from the issuance of convertible notes, offset by approximately $836,000 of repayments on debt obligations, offset by a decrease in proceeds from stock option exercises of approximately $17,000. 30 Table of Contents