Stockholder' Equity

12 Months Ended

Dec. 31, 2023

Stockholder' Equity

Stockholder' Equity

Note 7 – Stockholder’ Equity

The Company is authorized to issue 50,000,000 preferred stock shares and 200,000,000 common stock shares both with a par value of $.0001.

Preferred Stock

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 December 31, 2023, there are 50,000,000 shares of “blank check” preferred stock, but there were no shares of Preferred Stock issued and outstanding.

Common Stock

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 December 31, 2023, there were 132,667,107 shares of common stock issued and outstanding.

In December 2022, the Company entered into an equity distribution agreement with an underwriter pursuant to which the Company may offer and sell shares of its common stock from time to time through the underwriter as its sales agent. Sales of common 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 has no obligation to sell any shares of common stock under the open market sale agreement and may at any time suspend offers under the open market sale agreement, in whole or in part, or terminate the equity distribution agreement.

During the year ended December 31, 2023, a total of 3,766,422 shares of common stock have been sold pursuant to the open market sale agreement resulting in a total of $13,441,438 in proceeds, net of $230,000 commission fees and $110,000 of accounting and legal fees. As of December 31, 2023, approximately $86,560,000 remained available under the Company’s at-the-market public facility, subject to various limitations.

Stock-Based Compensation

Stock Options issued are part of the 2021 Equity Incentive Plan (the “2021 Plan”) which reserved a total of 10,000,000 shares. The Company has issued a total of 4,052,000 stock options with 5,948,000 reserved options remaining for issuance as of December 31, 2023. The Company recorded stock-based compensation of $925,181 and $610,741, respectively, related to vested options and options expected to vest granted to employees and various consultants of the Company, of which $796,881 and $549,435 was charged as general and administrative expenses and $128,300 and $61,306 as research and development expenses in the accompanying consolidated statements of operations during the years ended December 31, 2023 and 2022, respectively. During the year ended December 31, 2023 and 2022, the stock-based compensation expense recognized is net of estimated forfeitures of $50,000 and $41,851, respectively.

Stock Options

Stock option activity for the year ended December 31, 2023 and 2022 is summarized as follows:

	Options			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
Granted		1,415,000			2.88		—		—
Exercised		(25,352	)		1.67		—		—
Expired/forfeit		(937,648	)		0.67		—		—
Options outstanding at December 31, 2022		12,752,000			0.62	$	28,543,370		5.09
Granted		1,473,000			2.43		—		—
Exercised		(2,379,038	)		0.27		—		—
Expired/forfeit		(1,017,788	)		1.78		—		—
Options outstanding at December 31, 2023		10,828,174			0.83	$	6,374,433		4.66
Exercisable at December 31, 2023		8,533,871			1.79	$	8,710,000		3.59

*Includes 8,700,000 options granted in connection with the Merger (see Note 1) and were not granted under the 2021 Plan. As of December 31, 2023, 6,700,000 of these options remain outstanding.   

During the year ended December 31, 2023, the options exercised consisted of 2,283,800 of cashless option exercises which resulted in the issuance of 2,067,902 shares of common stock shares and the exercise of 95,238 common stock options with an exercise price of $1.05 which resulted in gross proceeds of $100,000 and the issuance of 95,238 common stock shares.

Total unrecognized compensation associated with these unvested options is approximately $1,912,257 which will be recognized over a period of approximately three years.

Intrinsic value is based on the difference between the option exercise price and the quoted market price as of December 31, 2023.

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:

	For the years ended
	2023			2022
Dividend yield		0.00	%		0.00	%
Expected life	5.45 – 6.53 Years			5.28 – 6.10 Years
Expected volatility	26.25-35.88		%	34.37-39.18		%
Risk-free interest rate	3.57-4.66		%	1.44-4.30		%

Stock Warrants

During the year ended December 31, 2022, there were no new warrants issued or exercised. During the year ended December 31, 2023, there were no new warrants issued and 15,000 warrants exercised with an exercise price of $2.50 resulting in gross proceeds of $37,500 and the issuance of 15,000 shares of common stock. The intrinsic value of all outstanding warrants as of December 31, 2023 was $0 based on the market price of our common stock of $1.42 per share.

 A summary of warrant activity as of December 31, 2023, is as follows:

	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
Issued		—			—		—		—
Exercised		—			—		—		—
Balance at December 31, 2022		1,250,000			2.50	$	450,000		1.96
Issued		—			—		—		—
Exercised		(15,000	)		2.50		—		—
Balance at December 31, 2023		1,235,000			2.50	$	—		0.96