374Water Inc. Revenue Disclosure

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.