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Stockholder Equity

9 Months Ended

Sep. 30, 2021

Stockholder Equity

6. Stockholder Equity

Note 6 – 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 $.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 $.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 Nix systems. The Preferred Stock has a stated value of $15 per share, is convertible into common stock at $.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. The current liquidation value is $6,601,745. 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 30, 2021, 412,853 shares of Series D Preferred stock were converted into 20,642,667 shares of common stock. As of September 30, 2021, there were 27,272 shares of Series D 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 cumulate votes 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 September 30, 2021, there were 122,817,746 shares of common stock issued and outstanding.

On April 16, 2021, as a result of the closing of the Merger Agreement (see Note 4), the equity of the consolidated entity is the historical equity of 374Water, Inc (“374Water”) retroactively restated to reflect the number of shares issued by the Company in the reverse recapitalization.

In connection with the Merger, 33,203,512 shares of common stock were issued to 374Water, Inc. (f/k/a PowerVerde, Inc.) stockholders.

Pursuant to the Merger, all 374Water shares were cancelled and 374Water, Inc. issued to the former 374Water stockholders a total of 62,410,452 shares of 374Water, Inc. common stock.

On April 16, 2021, the Company issued a small block of shares of common stock estimated to have a fair value of $1,073,369 as consideration for the grant of a license to the Company (see Notes 5 and 8).

During the three and nine months ended September 30, 2021, the Company issued 3,783,333 and 4,958,833 shares of common stock, respectively, in connection with the exercise of warrants and options and received cash proceeds of $1,285,344 (see below).

Stock-based compensation

During the nine months ended September 30, 2021, and 2020, the Company recorded stock-based compensation of $86,152 and $0, respectively, related to common stock issued or vested options to employees and various consultants of the Company, of which $75,761 was charged as general and administrative expenses and $10,391 as research and development expenses in the accompanying condensed consolidated statements of operations.

Stock Options

Stock option activity for the nine months ended September 30, 2021, is summarized as follows:

		Shares				Weighted Average Exercise Price				Aggregate Intrinsic Value				Weighted Average Remaining Contractual Life (Years)
Options outstanding at December 31, 2020			12,180,500				0.20			$	4,750,395				4.63
Granted			2,491,000				1.07				—				—
Exercised			(225,500	)			0.19				—				—
Expired/forfeit			(1,850,000	)			0.64				—				—
Options outstanding at September 30, 2021			12,596,000				0.31			$	3,861,190				5.72

Total unrecognized compensation associated with these unvested options is approximately $981,306 which will be recognized over a period of four years.

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:

		September 30, 2021
Dividend yield			0.00	%
Expected life		5.49 – 6.25 Years
Expected volatility		38.39 - 38.46		%
Risk-free interest rate		0.87 – 1.07		%

Stock Warrants

In April 2021, pursuant to the binding Memorandum of Understanding dated as of March 30, 2021, between 374Water and MB Holding Inc. (the “MOU”), a warrant for the purchase of 3,783,333 shares of common stock at an exercise price of $.30 per share was issued to MB Holding Inc. as consideration for executing the MOU and was considered fully vested upon the execution of the MOU. These warrants expire in March 2022. Those warrants were estimated to have a grant-date fair value of $0.37 per warrant or aggregate fair value of $1,399,833 which has been presented as product development expense on the condensed statements of operations.

During the nine months ended September 30, 2021, the warrants were exercised resulting in the issuance of 4,733,333 shares of common stock and proceeds of $1,242,499. As of September 30, 2021, there are no outstanding warrants.

The fair value of those warrants granted were estimated on the date of grant, using the Black-Scholes option-pricing model with the following assumptions:

		September 30, 2021
Dividend yield			0.00	%
Expected life		1 Year
Expected volatility			42.39	%
Risk-free interest rate			0.06	%

A summary of warrant activity during the nine months ended September 30, 2021, is as follows:

		Shares				Weighted Average Exercise Price				Aggregate Intrinsic Value				Weighted Average Remaining Contractual Life (Years)
Balance at December 31, 2020			950,000				0.11			$	690,500				0.44
Issued			3,783,333				0.30				—
Exercised			(4,733,333	)			0.26
Balance at September 30, 2021			-				-			$	-				-

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- References

No definition available.

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- Definition

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(e)(1))
-URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.3-04)
-URI http://asc.fasb.org/extlink&oid=120397183&loc=d3e187085-122770

Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-URI http://asc.fasb.org/topic&trid=2208762

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